Importance is What, Not Who, in School Mineral Lease Case

Recently, the Vermillion Parish School Board sued various oil, gas, and mineral companies based on mineral leases that were established over a period of nearly 70 years. The companies included Union Oil Company of California, The Pure Oil Corporation, and ConocoPhillips Company. After the school’s argument was rejected at the lower level in separate lawsuits, the school filed to appeal the trial court’s decision. The State of Louisiana Court of Appeal for the Third Circuit reversed the lower court’s findings and its justification for doing so is quite interesting. That court addressed the mineral leases generally, the use of Section 16 lands, and the school’s role in the use of Section 16 lands.

This case involved several unique concepts under the law. First, the dispute centered around mineral leases, which are an curious concept themselves. Basically, mineral leases allow another person or company the ability to mine or take the minerals that are on or underneath a portion of land. In order to take those minerals, the person or company has to pay for their use as if they are renting the entire property. The land above ground might also be used for another purpose that is completely unrelated to mining of minerals, oil, or gas underneath the surface. In addition to a specified rent, many times the person or company who owns the land may also require that they receive a portion of the profits that the land produces. This profit portion is commonly referred to as royalties. These royalties are the topic of discussion in the Vermillion Parish School Board case.

In this case, a school owned lands that they had leased to various oil, gas, and mineral companies. The school was situated on Section 16 land. This concept is also unique and deserves some historical explanation. The State of Louisiana Court of Appeals for the Third Circuit provides some background on the status of this land. It explains that in 1806, the United States government set aside some land for the use of public education. Therefore, when Louisiana joined the Union in 1812, the land that was set aside was passed to the State to establish public education. These lands are separate from other public lands because they are completely under the control of the state school authorities; therefore, they are held in trust for the benefit of Louisiana school children. The court further explains that although the school authorities control the use of the land, the land is actually owned by the State of Louisiana.

These two concepts are merged because agencies of the state can lease their land for the development and production of minerals. The Louisiana statutes define a “school board” to be an agency of the state; therefore, the school board can lease their land for development and production of minerals. The contested issue in this case, however, is not whether the school board could lease their land, but whether the school board could bring suit against the oil, gas, and mineral companies for failing to pay royalties on the land.

The major obstacle to bringing suit is that there is a three-year prescriptive period to bring suit for this purpose. That is, if the complaining party waits too long (past three years) to bring the case to the court’s attention, then they may lose their right to be able to sue. In this case, the contracts that the school is bringing their complaint on were created at various points, with the earliest being 1935 and the latest being 2000. Therefore, all of these suits would be barred based on the prescriptive period of three years.

In order to combat this restriction, the school pointed out that the three-year prescriptive period does not apply to “state-owned properties”. However, the wrinkle in this argument is that the law states that agencies must be subject to prescriptive periods. The court goes on to explain that although the school board would be subject to prescriptive periods, because the mineral leases involve Section 16 lands and those lands are “state-owned properties,” then those lands are not subject to the prescriptive period. It follows then, that the contracts involving the Section 16 lands are not subject to the prescriptive period even though it was the school authorities who entered into that contract. The State still owns the land; therefore, those lands cannot be subject to prescriptive periods. As a result, the court concludes that the issue of whether or not the school is a state entity is irrelevant because the lands are “state-owned.”

In support of their reasoning, the court points out a statement included in the Louisiana Constitution, Article 9, section 4B that states, “[l]ands and mineral interests of the state, of a school board, or of a levee district shall not be lost by prescription.” The court also makes a distinction between lands the school board owns itself and Section 16 lands, where the school board does not own it, but has authority over it. It also points out that the school needs to include the State in the suit and in their mineral contracts because otherwise the prescription would apply. In this case, the school correctly brought the suit on behalf of the State of Louisiana.

Land ownership, specifically when it involves mineral leases, can be very complicated.

If you are having issues with mineral leases or need to deal with other property issues, contact the Berniard Law Firm at 1-866-574-8005 and we will be happy to discuss your legal avenues to resolve your property issues.