Elizabeth Franklin v. Regions Bank

Case: 19-30684 Document: 00515571309 Page: 1 Date Filed: 09/18/2020
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
FILED
September 18, 2020
No. 19-30684 Lyle W. Cayce
Clerk
Elizabeth Fry Franklin; Small Fry, L.L.C.; Cynthia Fry
Peironnet; Cynthia F. Peironnet Family, L.L.C.,
Plaintiffs—Appellants,
versus
Regions Bank,
Defendant—Appellee,
______________________________
Eleanor Bauginies De St. Marceaux,
Plaintiff—Appellant,
versus
Regions Bank,
Defendant—Appellee.
Appeal from the United States District Court
for the Western District of Louisiana
USDC No. 5:16-CV-1152
USDC No. 5:17-CV-1047
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No. 19-30684
Before Stewart, Clement, and Costa, Circuit Judges.
Edith Brown Clement, Circuit Judge:
Plaintiffs contracted with Regions Bank for it to manage, as their
agent, their mineral interests in a large tract of land. Regions later signed a
lease extension with a third party, intending to extend the lease for only a
small part of the property. But Regions was mistaken: the lease was
unlimited, applying to the entire tract of land. This unintended, unlimited
extension allegedly cost Plaintiffs tens of millions of dollars. They sued
Regions, alleging breach of contract. The district court held that their suit
was time-barred and dismissed it. We REVERSE and REMAND.
I.
Plaintiffs own part of an 1,800-plus-acre tract of land in Louisiana. All
but one Plaintiff signed a contract with Regions Bank for it to “manage and
supervise all said oil, gas, royalty and mineral interests, to do therewith what
is usual and customary to do with property of the same kind and in the same
locality,” and “[t]o execute, acknowledge and deliver oil, gas and mineral
leases containing such terms and provisions as [Regions] shall deem proper.”
The other Plaintiff—Ms. Marceaux—alleges that she “had an agreement
with Regions such that, in exchange for a fee, Regions would provide advice
on management of [her] mineral interest” in the property. In other words,
Regions was a landman or mineral-rights manager for Plaintiffs.
In 2004, Regions executed a three-year mineral lease for the property
with a third party, who then assigned the lease to Matador Resources
Company. That lease had a Pugh Clause, under which the lease automatically
extended if the lessee had a well that was producing in paying quantities, and
a depth-severance clause, under which the lease would lapse after three years
for all land 100 feet below the deepest depth drilled, even if the well was
producing in paying quantities. Near the end of the lease term, only about 169
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acres weren’t producing in paying quantities. Because the lease was soon to
lapse for these undeveloped acres, Regions signed a lease extension with
Matador. But Regions apparently failed to read it. The extension wasn’t just
for the undeveloped acres; it was unlimited, applying to the entire property.
This extension cast a cloud on Plaintiffs’ title and has allegedly cost them
almost $30 million in lost lease bonuses and royalties.
Plaintiffs sued Matador in state court to attempt to rescind or reform
the extension. The Louisiana Supreme Court upheld the extension, but
found that the “failure to question the extension, to seek clarification of the
acreage covered, or to even discuss the Deep Rights [i.e., the rights to
undeveloped depths below producing wells] demonstrate[d] an inexcusable
lack of ‘elementary prudence’ or simple diligence.” Peironnet v. Matador Res.
Co., 144 So. 3d 791, 816 (La. 2013).
In 2016—nine years after the extension was signed and three years
after the Louisiana Supreme Court’s decision—Plaintiffs sued Regions in
federal court. They allege that Regions’s “inexcusable error” in signing the
improperly drafted lease extension violated their contract. Regions moved to
dismiss under Federal Rule of Civil Procedure 12(b)(6), arguing that
Plaintiffs’ claims were barred by state statute. See La. Stat. § 6:1124 (“No
implied fiduciary obligations”). The magistrate judge recommended denying
the motion because that statute didn’t apply and because Plaintiffs alleged
that Regions breached specific contractual provisions.
Regions objected to the magistrate judge’s report and
recommendation. Regions argued that Plaintiffs’ claims sounded in tort, not
contract, and were therefore barred by Louisiana’s one-year statute of
limitations for tort claims. See La. Civ. Code art. 3492. The magistrate
judge then issued a supplemental report and recommendation. In it, the
magistrate judge found that Plaintiffs’ claims were tort-based because
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Plaintiffs allege that Regions breached a duty of care; therefore, Louisiana’s
one-year statute of limitations applied. The district court, after de novo
review, rejected Plaintiffs’ objections, adopted the supplemental report and
recommendation, and dismissed Plaintiffs’ suit with prejudice. Plaintiffs
appeal this dismissal.
II.
We review motions to dismiss de novo, accepting all well-pleaded
facts as true and drawing all reasonable inferences in the nonmoving party’s
favor. Club Retro, L.L.C. v. Hilton, 568 F.3d 181, 194 (5th Cir. 2009). We
don’t, however, accept as true legal conclusions, conclusory statements, or
“‘naked assertion[s]’ devoid of ‘further factual enhancement.’” Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S.
544, 557 (2007)). To survive a Rule 12(b)(6) motion, a plaintiff must plead
factual allegations that, if true, “raise a right to relief above the speculative
level.” Twombly, 550 U.S. at 555.
III.
A.
In Louisiana, contract claims have a ten-year statute of limitations
unless legislation states otherwise, La. Civ. Code art. 3499, and tort
claims have a one-year limitations period, La. Civ. Code art. 3492. 1 The
nature of the breached duty determines whether the claim sounds in tort or
contract. Roger v. Dufrene, 613 So. 2d 947, 948 (La. 1993). Contract damages
“flow from the breach of a special obligation contractually assumed by the
obligor, whereas [tort damages] flow from the violation of a general duty
1
In Louisiana, contract claims are often called “personal” claims, tort claims are
often called “delictual” claims, and the limitations periods are often called “prescriptions”
or “prescriptive periods.”
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owed to all persons.” Smith v. Citadel Ins. Co., 285 So. 3d 1062, 1067 (La.
2019) (quoting Thomas v. State Emps. Grp. Benefits Program, 934 So. 2d 753,
757 (La. App. 1 Cir. 2006)). As a Louisiana treatise explains,
[f]ault is contractual when it causes a failure to perform an
obligation that is conventional in origin, that is, an obligation
created by the will of the parties, while fault is delictual when it
causes the dereliction of one of those duties imposed upon a
party regardless of his will, such as a duty that is the passive
side of an obligation created by the law.
6 Saul Litvinoff & Ronald J. Scalise Jr., Louisiana Civil
Law Treatise, Law of Obligations § 5.2 (2d ed. 2018), cited
favorably in Smith, 285 So. 3d at 1067.
Plaintiffs and Regions had a principal-mandatary relationship, which
is equivalent to a common-law principal-agent relationship. Gerdes v. Estate
of Cush, 953 F.2d 201, 204 (5th Cir. 1992). “A mandate is a contract by which
a person, the principal, confers authority on another person, the mandatary,
to transact one or more affairs for the principal.” La. Civ. Code art. 2989.
“The mandatary is bound to fulfill with prudence and diligence the mandate
he has accepted. He is responsible to the principal for the loss that the
principal sustains as a result of the mandatary’s failure to perform.” Id. art.
3001.
Plaintiffs argue that Regions breached the contracts by negligently
failing to perform its contractual obligation. Because Regions breached the
contracts by acting negligently, Plaintiffs claim that they can choose to sue in
contract or in tort. Regions argues that, as a professional mandatary, it can be
liable under a contract only if it (1) breached certain fiduciary duties, (2)
failed to take any action whatsoever in fulfilling its contractual obligations, or
(3) promised a particular result yet failed to deliver on that promise;
otherwise, Plaintiffs’ suit sounds in tort. Regions claims that these
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contingencies don’t apply, so Plaintiffs’ suit sounds in tort and, therefore, is
time-barred. No one disputes that, if this is a tort suit, it’s time-barred. The
issue, therefore, is whether Plaintiffs can choose to sue Regions in contract.
They can.
For most contracts, a party can be liable for breaching a contract if it
negligently performs its contractual duties. “An obligor is liable for the
damages caused by his failure to perform a conventional obligation. A failure
to perform results from nonperformance, defective performance, or delay in
performance.” La. Civ. Code art. 1994. When such negligent
performance causes damages, the injured party “may have two remedies, a
suit in contract, or an action in tort, and . . . may elect to recover his damages
in either of the two actions.” Fed. Ins. Co. v. Ins. Co. of N. Am., 263 So. 2d
871, 872 (La. 1972). The applicable limitations period therefore depends on
the nature of the pleadings. Id. Indeed, Louisiana courts have long honored a
plaintiff’s choice to sue in contract when alleging that a defendant negligently
performed his contractual duties. See, e.g., Lafleur v. Brown, 67 So. 2d 556
(La. 1953); Am. Heating & Plumbing Co. v. W. End Country Club, 131 So. 466
(La. 1930); Wilson v. Two SD, LLC, 186 So. 3d 103 (La. App. 1 Cir. 2015);
Cameron v. Bruce, 981 So. 2d 204 (La. App. 2 Cir. 2008); La. Alligator
Wholesale, Inc. v. Prairie Cajun Seafood Wholesale Distribs., Inc., 981 So. 2d
929 (La. App. 3 Cir. 2008).
Plaintiffs allege that Regions negligently signed a lease on their behalf
without reading it. This, Plaintiffs claim, was a breach of Regions’s
contractual obligation to, among other things, “do what is usual and
customary” with Plaintiffs’ mineral interests and to execute forms that
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Regions “shall deem proper.” 2 As a result, Plaintiffs had a choice: sue
Regions for negligently performing its contractual duties in tort or in
contract. See Fed. Ins. Co., 263 So. 2d at 872. Plaintiffs chose to sue Regions
in contract. Louisiana law permits that choice; therefore, the ten-year
limitations period applies to Plaintiffs’ suit.
B.
Regions argues, however, that Louisiana case law prohibits Plaintiffs
from making this choice for mandataries like Regions. That argument is
unavailing. Regions claims that this is a case of professional negligence or
professional malpractice, and professionals, unlike normal obligors, can’t be
sued in contract for breaching a contractual duty by performing that duty
negligently. Regions gets this so-called “professional negligence” exception
from Roger v. Dufrene. That case addressed limitations periods for suits
against certain professionals whose client relationships are inherently
mandatary in nature—doctors, lawyers, accountants, and insurance agents:
The nature of certain professions is such that the fact of
employment does not imply a promise of success, but an
agreement to employ ordinary skill and care in the exercise of
the particular profession. The duty imposed upon [such
professions] is that of “reasonable diligence[,]” a breach of
which duty results in an action in negligence.
Roger, 613 So. 2d at 949 (citation omitted). Regions’s argument is essentially:
(a) Louisiana courts have applied this exception to some mandataries; (b)
Regions is a mandatary; therefore, (c) that exception should apply to Regions.
But the latter doesn’t logically follow from the former. Furthermore, nothing
2
Although Plaintiff Marceaux had an oral agreement with Regions, Plaintiffs claim
this same conduct constituted a breach of Regions’s alleged contractual obligation to
“provide advice on [the] management of [her] mineral interest.”
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about this exception prohibits Plaintiffs from suing Regions for violating
duties that they allege arose from their contracts rather than duties that arose
in tort. Even if Louisiana recognizes such an exception for some professionals
who act as mandataries, we have three good reasons to conclude that
Louisiana doesn’t apply this alleged exception to all mandataries
categorically.
First, after the events in Roger, the Louisiana legislature shortened the
limitations periods for claims against doctors, lawyers, accountants, and
insurance agents—i.e., all the professions listed in Roger. La. Stat.
§§ 9:5628, 5605, 5604, 5606. The legislature also shortened the limitations
periods for claims against engineers, surveyors, professional interior
designers, architects, real-estate developers, and home inspectors. Id.
§§ 9:5607, 5608. Instead of shortening the limitations period for all
mandataries, the legislature chose to single-out certain professions for special
treatment. This strongly suggests that Louisiana treats only these
professionals differently, but doesn’t shorten the limitations period for all
mandataries categorically.
Second, Louisiana strictly interprets its limitations statutes and
doesn’t apply limitations periods to new scenarios by analogy. Duer & Taylor
v. Blanchard, Walker, O’Quin & Roberts, 354 So. 2d 192, 194 (La. 1978)
(noting that limitations periods are “stricti juris and the statutes on the
subject cannot be extended from one action to another, nor to analogous
cases beyond the strict letter of the law” (emphasis added)). This means that,
even though the mandate relationships between a doctor or a lawyer or an
accountant and their clients might seem analogous to the mandate
relationship here, Louisiana law forbids us from applying the statutorily
imposed limitations periods for those relationships to this relationship by
analogy.
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Third, limitations statutes are “strictly construed against [limitations]
and in favor of the obligation sought to be extinguished by it.” Wimberly v.
Gatch, 635 So. 2d 206, 211 (La. 1994). So, even if this were a close call,
Louisiana’s preference for preserving obligations strongly militates against
extinguishing Regions’s obligation by applying this supposed professional-
negligence exception. These three reasons weigh decisively against finding
that Louisiana categorically applies this professional-negligence exception to
all mandataries.
Regions’s final argument is that several of our cases—Copeland v.
Wasserstein, Perella & Co., 278 F.3d 472, 478 (5th Cir. 2002), FDIC v. Barton,
96 F.3d 128, 133 (5th Cir. 1996), and Gerdes v. Estate of Cush—control the
outcome of this case. They don’t. They involved different claims and
professions than the ones here. Barton involved an alleged breach of a
fiduciary duty by directors of a bank, 69 F.3d at 131; Copeland involved an
alleged breach of a fiduciary duty by a financial advisor, 278 F.3d at 476; and
Gerdes involved alleged negligence by an attorney, 953 F.2d at 205–06. None
involved an alleged contract breach by a landman or mineral-rights manager.
These cases are therefore factually distinguishable. Moreover, because
Louisiana doesn’t apply statutes of limitations to new scenarios by analogy,
these cases—even if analogous—can’t compel the outcome here. See Duer &
Taylor, 354 So. 2d at 194.
Regions wasn’t acting as a doctor, lawyer, accountant, insurance
agent, or any other professional explicitly subject to a shortened limitations
period. Even if Louisiana recognizes a professional-negligence exception for
some mandataries, that exception doesn’t apply to Regions.
IV.
Plaintiffs allege that Regions breached their contracts by acting
negligently. Under Louisiana law, they had the choice to sue Regions for this
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alleged breach in tort or in contract. They chose contract. That means that
Louisiana’s ten-year limitations period applies to their claim. We therefore
REVERSE the district court’s judgment dismissing Plaintiffs’ suit and
REMAND for further proceedings.
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