More Legal Woes for Oil Companies on Gulf Coast: Judge Awards $11 Million to Houma Family for Unpaid Oil Royalties


A Terrebonne judge has put oil companies on notice: If you withhold oil royalties from landowners, you will be held accountable. In a ruling that represents a significant victory for Louisiana landowners and marks the oil industry’s second major legal setback this year on the Gulf Coast, District Judge Johnny Walker awarded $11 million to the St. Martin family in a royalty dispute with Houston-based I.P. Petroleum.

From a Nov. 1 Houma Today report by Eric Heisig:

Attorney Michael St. Martin and his wife, Virginia, filed a lawsuit in December 2006 alleging that Houston-based I.P. Petroleum Co. and other parties failed to pay nearly $925,000 in royalties on oil and gas they produced from a well owned by the family.
The well, about two miles off Bayou Black Drive just west of Houma, is owned by the St. Martins and the Delaware-based Quality Environmental Processes.

I.P. Petroleum subleased the well from Mobil, which was leasing it from the St. Martins and Quality Environmental. Quality is owned by members of the St. Martin family. I.P. Petroleum stopped paying royalties July 1, 1997, court papers say.

For those of you unfamiliar with oil royalties, they are fees a company agrees to pay to a landowner for the right to produce oil on his or her property. Traditionally, the fees are a percentage of the production value. Judge Walker found I.P. Petroleum guilty of withholding such payments to the St. Martins for more than a decade. From the Houma Today report:

…Walker ordered I.P. Petroleum and International Paper Co. to pay about $6.7 million in combined penalties, which includes the royalties due, interest, damages and attorney fees.

“Despite legal demand by plaintiffs, I.P. Petroleum Co. Inc., without legal justification or reasonable grounds, willfully and deliberately refused to pay Michael St. Martin and Virginia Rayne St. Martin, and Quality Environmental Processes Inc.,” the judge’s ruling says.

Judge Walker also ruled that I.P. Petroleum’s lead attorney and law firm withheld royalties from the St. Martins, stating that John Pearce and the firm, Montgomery, Barnett, Brown, Read, Hammond & Mintz “conspired and developed a plan by which (I.P.) retained for itself ‘suspended’ royalty payments” totaling nearly $110,000. More from the Houma Today report:

In the other judgment, Walker ordered Pearce and the New Orleans-based law firm to pay about $4.55 million, including royalties, damages and attorney fees.

The judgment says the $107,000 in royalties were deposited in the law firm’s account in 2003. Pearce originally told the St. Martins that the money would be set aside until court proceedings could determine who owns the land, court papers show.

“The funds were kept by defendants, not returned to Pure Resources Inc., nor ever forwarded to plaintiffs,” the judgment says.

The $11-million award is noteworthy in itself but bears even more significance when coupled with another legal and legislative setback that rocked the oil industry less than six months ago. From my May 26 post:

Last week, our state legislature (and by extension, voters) took a stand against the most powerful industry in Louisiana, turning back a bill that would have shielded oil and gas companies from liability in the cleanup of lands contaminated by years of damaging oil production processes. The bill (HB 563), proposed by known industry booster Rep. Page Cortez (R-Lafayette), would have taken jurisdictional authority of so-called “legacy lawsuits” out of the local court system and handed it over to the Department of Natural Resources, an agency with an abysmal track record of regulatory enforcement against the oil industry.

In short, we defeated a bill that would have effectively stripped landowners of their right to sue oil and gas companies for contamination damages by permitting the industry to cleanup sites before lawsuits could be pursued.

As an attorney who has prosecuted oil companies for decades, this year’s two landmark rulings seem to signal a softening of the power and influence once wielded by the oil industry here on the Gulf Coast. Ten years ago, these pro-landowner, pro-environment victories would never have come to pass. Don’t look now, but we may be making progress.

In today’s climate, landowners can win oil pollution cases and royalty cases (see link below for more info). My law firm is currently working on several royalty cases and is actively pursuing others as the oil industry’s stranglehold on legal and legislative processes loosens. Our Louisiana mineral royalties lawyers have experience helping landowners on a raft of issues, ranging from recovery of lost payments and penalties to lease revisions and terminations.

At least for the moment, we have reason to celebrate for the St. Martins, who have closure. But let’s not forget the thousands of other Gulf Coast residents whose lives are still upside down and who are still seeking justice for damages tied to the BP spill.

“We’ve been waiting for this for a long time,” said Michael St. Martin. “There are a number of wells on that property. I’ve never had any troubles (with the land) until these people came along.”

Read the full Houma Today report here:

Read my previous post on the “legacy lawsuits”:

For more info on royalties, see:

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Stuart H. Smith is an attorney based in New Orleans fighting major oil companies and other polluters.
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