Kevin Schmidt v. J-Lu Company Limited, L.L.

Case: 14-31012 Document: 00512916126 Page: 1 Date Filed: 01/27/2015
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 14-31012
Summary Calendar
United States Court of Appeals
Fifth Circuit
FILED
January 27, 2015
Lyle W. Cayce
Clerk
KEVIN D. SCHMIDT; MONICA SAGELY WELLS SCHMIDT,
Plaintiffs–Appellants,
versus
J-LU COMPANY LIMITED, L.L.C.,
Defendant–Appellee.
Appeal from the United States District Court
for the Western District of Louisiana
USDC No. 5:14-CV-507
Before SMITH, WIENER, and ELROD, Circuit Judges.
JERRY E. SMITH, Circuit Judge:*
Kevin and Monica Schmidt sued J-Lu Company Limited, L.L.C. (“J-Lu”),
* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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No. 14-31012
claiming it breached an oral agreement regarding three oil wells. The district
court dismissed because Louisiana law requires this agreement to be in writ-
ing. We agree and affirm.
I.
According to the Schmidts’ complaint, they entered into an oral agree-
ment with J-Lu to frack an oil well. The agreement specified that they would
pay for one well to be hydrolically fractured, the profits from that well would
fund the fracking of two others, and J-Lu would split its working interest in
the three wells with the Schmidts. Despite this agreement, J-Lu negotiated a
deal with Will-Drill Operating Company (“Will-Drill”) to fracture the same
wells. Will-Drill did so and is successfully producing oil.
The Schmidts sued to enforce their agreement with J-Lu. The only
injury they claimed was the loss of the profits to which they would have been
entitled under the agreement. The district court granted J-Lu’s motion to dis-
miss because agreements transferring interests in mineral rights require a
writing under Louisiana law, and the agreement here was oral. See LA. CIV.
CODE ANN. art. 1839; LA. REV. STAT. ANN. § 31:18.
The Schmidts assert three errors. First, they contend that their com-
plaint adequately pleaded the existence of a partnership between J-Lu and the
Schmidts, the creation of which does not require a writing. Second, they state
that J-Lu is equitably estopped from denying the existence of the agreement.
And third, they assert that the writing requirement of Article 1839 is a condi-
tion of the contract that must be treated as fulfilled.
We review a dismissal de novo. In re Katrina Canal Breaches Litig., 495
F.3d 191, 205 (5th Cir. 2007). We accept “all well-pleaded facts as true, viewing
them in the light most favorable to the plaintiff.” Id.
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II.
The Schmidts contend that their complaint states a claim because it
alleges that they and J-Lu formed a partnership, which does not require a
writing. That argument fails, however, because the transfer of immovable
property to a partnership still requires a writing. The complaint does not
allege that a partnership existed between the Schmidts and J-Lu when J-Lu
acquired the immovable property, nor does it allege that J-Lu acquired the
property in the name of a partnership between the two. See LA. CIV. CODE
ANN. art. 2806. Even if J-Lu orally created a partnership with the Schmidts
for the purpose of transferring an interest in the property to them, that promise
does not comply with Article 1839 and therefore is not an enforceable
agreement.
III.
The Schmidts invoke equitable estoppel, contending that J-Lu waived
the requirement that the transfer be in writing. Louisiana’s courts of appeal
are divided on whether parties can be estopped from invoking the require-
ments of Article 1839. 1 The Louisiana Supreme Court unequivocally charac-
terized an earlier version of Article 1839 as substantive and not subject to
waiver in litigation. See Little v. Haik, 163 So. 2d 558, 562 (La. 1964). Several
courts of appeal have followed that logic and held that the parties cannot waive
or abrogate Article 1839. 2 One court of appeal, however, estopped a party from
1 Some of these cases refer to Article 2275 of the Louisiana Civil Code. Before amend-
ment in 1984, Article 2275 contained the immovable-property recording requirement now
located at Article 1839. The two provisions are not materially different.
2 See Crain v. Dore, 578 So. 2d 555, 557 (La. App. 3d Cir.), cert. denied, 581 So. 2d 694
(La. 1991); Drachenberg v. Parish of Jefferson, 563 So. 2d 523, 526 (La. App. 5th Cir. 1990);
Jones v. Hosp. Corp. of Am., 516 So. 2d 1175, 1177 (La. App. 2d Cir. 1987); Dunham v. Dun-
ham, 467 So. 2d 555, 562 (La. App. 1st Cir.), cert. denied, 469 So. 2d 989 (La.), and cert.
denied, 469 So. 2d 990 (La. 1985).
3
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denying the existence of an oral agreement regarding immovable property
where the denying party convinced the other party that a writing was not nec-
essary. See Pittman v. Pomeroy, 552 So. 2d 983, 989 (La. App. 2d Cir. 1989).
Several courts since Pittman have at least considered estoppel arguments
premised on the plaintiff’s being “lulled” into thinking a writing was unneces-
sary, 3 but the applicability of equitable estoppel generally to Article 1839
remains uncertain.
We do not need to guess at the resolution of this question. Even if the
Louisiana Supreme Court were to allow equitable estoppel to overcome an
Article 1839 defect, it would require the ordinary elements of estoppel to be
met: a representation, justifiable reliance, and a detrimental change to one’s
position because of that reliance. Wilkinson v. Wilkinson, 323 So. 2d 120, 126
(La. 1975). Indeed, when Louisiana added the equitable-estoppel remedy of
detrimental reliance in 1985, it kept these same requirements. 4 The Schmidts
have not pleaded that they relied on the oral agreement or that they suffered
a detrimental change to their position because of that reliance.
If the Schmidts’ equitable-estoppel claim is based more specifically on a
claim that they were lulled into believing a writing was unnecessary, it fails at
the outset because they have not pleaded a misrepresentation about the neces-
sity of a writing. See Pittman, 552 So. 2d at 989; Cottingim, 19 So. 3d at 32–
33. Assuming arguendo that the Louisiana Supreme Court would apply equit-
able estoppel to oral agreements transferring immovable property, the
Schmidts have failed to plead the necessary elements to make out a claim.
3See Cottingim v. Vliet, 19 So. 3d 26, 29–30 (La. App. 4th Cir. 2009); Prime Income
Asset Mgmt., Inc. v. Tauzin, 981 So. 2d 897, 904 (La. App. 3d Cir. 2008).
4 LA. CIV. CODE ANN. art. 1967; Suire v. Lafayette City-Parish Consol. Gov’t, 907 So.
2d 37, 58–59 (La. 2005) (“To establish detrimental reliance, a party must prove three ele-
ments by a preponderance of the evidence: (1) a representation by conduct or word; (2) justi-
fiable reliance; and (3) a change in position to one’s detriment because of the reliance.”).
4
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IV.
The Schmidts contend that putting the agreement in writing was an
implied condition of the agreement. Louisiana law treats a condition as satis-
fied if the party benefiting from a condition’s nonoccurrence is at fault for that
nonoccurrence. LA. CIV. CODE ANN. art. 1772. According to the Schmidts, J-Lu
was at fault for the agreement’s not being put in writing, so that condition
should be considered satisfied.
We disagree. Without producing a writing as required by Article 1839,
the Schmidts cannot carry their burden of demonstrating the existence of obli-
gations between them and J-Lu regarding the mineral rights. See LA. CIV.
CODE arts. 1831, 1832. To hold that the writing requirement of Article 1839 is
just a condition whose occurrence can be presumed from the fault of a party
would be to gut this substantive requirement and require courts to determine
whether an agreement exists before looking to the writing requirement, a
reversal of the prescribed statutory regime.
The Schmidts cite one case in which a court of appeal treated the writing
requirement as a condition under the precursor to Article 1772. In Briggs v.
Siggio, 285 So. 2d 324 (La. App. 3d Cir. 1973), cert. denied, 288 So. 2d 641 (La.
1974), Charles Briggs had a contractual right to purchase a tract of land in the
first nine months of the year for several years. The contract specified that the
option had to be exercised in writing, and Article 1839’s precursor likewise
required the exercise to be in writing. Nonetheless, the landowner allowed
Briggs to exercise the option orally in 1970, orally accepted an oral exercise of
the option in 1972, and waived the writing requirement. When the landowner
attempted to renege on the 1972 sale despite orally confirming the sale and
taking actions required for him to sell the land, Briggs sued. The court held
that the landowner was at fault for the lack of a writing and that the writing
requirement would be treated as satisfied. Id. at 327. According to the
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Schmidts, this case supports treating Article 1839 as a condition.
If a contract states that some obligation requires a writing to trigger,
that writing may be a condition under Louisiana law and be subject to Arti-
cle 1772. But the Louisiana courts would not treat the substantive require-
ment of Article 1839 as a condition. Most courts that have examined Briggs
have portrayed it as supporting the estoppel argument, namely, that Arti-
cle 1839 was waived in Briggs because of the landowner’s affirmative repre-
sentations that a written exercise was unnecessary. 5 One court looked at the
alternative means of satisfying Article 1839’s predecessor statute―actual
delivery plus a confession of the agreement under oath―and specifically dis-
claimed that those requirements were conditions. See Sigrest v. Singletary,
540 So. 2d 382, 384 (La. App. 1st Cir. 1989). The decision in Briggs that the
writing requirement is a condition subject to Article 1772 has not been widely
adopted by Louisiana courts, and there is no apparent reason why the Louisi-
ana Supreme Court would adopt such a narrowing interpretation of
Article 1839.
AFFIRMED.
5 See Prime Income, 981 So. 2d at 904; Cottingim, 19 So. 3d at 29–30; Drachenberg,
563 So. 2d at 525; see also Pittman, 552 So. 2d at 988–89 (characterizing Briggs as a decision
about Article 1772’s predecessor statute but expressly declining to specify whether it was
adopting that reasoning or invoking estoppel).
6