Mail Order Mineral Rights Legislation: Is It Too Onerous?

By Steven Cheatham, Senior Associate 

Introduction

The 2016 Louisiana legislative session will long be remembered for the budget crisis that faced the state and its newly elected governor. While most of the activity in Baton Rouge during the spring of 2016 related to debates on how to resolve those budget woes, non-budget related bills were also passed. Among those was Act 179.  Act 179 (“the Act”) provides for sweeping regulation of the sale of mineral rights through mail solicitation.[1]  This regulation provides safeguards for the seller of mineral rights by mail that are far more robust than other consumer protection laws found in the Civil Code or Revised Statutes. This comment will discuss the effects of the Act, highlighting the extraordinary protections provided in several areas of the Act that are not typically provided for in Louisiana law.

Revised Statutes 9:2991.1 et seq.

The Act was enacted as Louisiana Revised Statutes 9:2991.1 through 9:2991.11.  These statutes provide a definition of the sale of mineral rights by mail solicitation, which serves as a limitation on the scope of the legislation.[2] These statutes only apply to transfers of mineral rights that are contracted “pursuant to an offer that is received by the transferor through the mail or by common carrier and is accompanied by any form of payment.”[3] Mail solicitations that occur after prior personal contact or meaningful exchanges of the parties are excluded from the application of the statute.[4] Sales of mineral rights procured through mail solicitation must be in the form of an authentic act or act under private signature, and must be signed by the transferor.[5] The statutes require each mail solicitation to contain a disclaimer in large font that explains clearly the consequences of the execution of the document.[6]  Furthermore, the solicitation must include a form notice of cancellation, which can be executed by the transferor within 60 days of the transfer of the mineral rights.[7]  If the mail solicitation does not include a notice of cancellation, the seller has a three-year peremptive period to rescind the agreement.[8] The statutes also define the form requirements of the rescission of a sale, its effects on third persons, and the effects of rescission on the parties.[9] Finally, the statutes provide several prohibited terms that cannot be included in a mail solicitation or the contract becomes absolutely null.  Among these are forum selection clauses that move the jurisdiction out of the state of Louisiana, indemnification clauses, the waiver of rights created by these statutes, and the prohibition of any “provision [that] authorizes the transferee to act as a mandatary of the transferor.”[10]

Overprotection?

The new statutes regulating the sale of mineral rights by mail solicitation are sweeping and provide rights and safeguards that are not typically found in the Civil Code or Revised Statutes. The question arises as to why there is a need for expansive regulation of such a particularized segment of the economy. No epidemic of deceptive mail solicitation in the state has been found.  There is  only anecdotal evidence of situations when sellers have been abused by these practices.[11] Furthermore, the bulk of these practices has been isolated to two specific companies.[12] In an environment where mineral rights purchasers are often required to locate and contract with numerous parties to secure the mineral rights on a particular piece of property, mail solicitation appears to be an economical method to procure those rights.[13]

Even if there was a substantial need for specific regulation of mail order solicitation, two particular provisions of the statutes are contrary to long-standing Louisiana law. First is the requirement that the transferor must sign the act of sale for it to be valid.  Second is the right of rescission that is created as a matter of law. It is unclear why these particular provisions are required to make this new statutory scheme effective.

Why do I have to sign it?

It is a long held principle of Louisiana contract law that an act under private signature does not require the signature of both parties. Comment (b) to Louisiana Civil Code article 1837 cites six cases that stand for the proposition that only one party must sign an act under private signature.[14]  Historically, a single signature validates an act when the party that does not sign has availed himself to the contract.[15] However, new Louisiana Revised Statute 9:2991.4 requires that the transferor of mineral rights by mail solicitation sign the contract for it to be valid.[16] This statute is written to combat a practice of mail solicitors who include checks with a solicitation.[17] Unknowing or confused transferors will sometimes validate a mail solicitation by cashing the check without ever having read the solicitation.  This is particularly a problem for holders of numerous mineral rights over multiple tracks of land with several different owners who may unwittingly cash a check believed to be a royalty payment from a preexisting lease.[18] A strict reading of Louisiana Civil Code article 1837 could hold that the cashing of a check is availing oneself to a contract, thereby validating a contract that had never been read or signed. This new legislation prevents this possibility.

I Changed My Mind and the Law Said I Could

In situations where the transferor signs the solicitation and mails it back to the solicitor, the transferor is always afforded an opportunity to rescind the contract. There is a 60-day rescission period if the solicitation contains a notice of cancellation, and a three-year period within which to rescind if the notice of cancellation is not included.[19] The right of rescission, or as the comments to Revised Statute 9:2991.6 call it, a “cooling off period,” is not something normally granted as a matter of law in Louisiana.[20] Typically, a rescission period is only granted when reserved by the parties to the contract. There is specialized legislation in Louisiana, such as the Louisiana Unfair Trade Practices Act (“LUTPA”), which sometimes provides similar safeguards.

There are, however, substantive differences between LUTPA and a similar application to mineral rights that are hard to reconcile. First, the new mineral rights law explicitly protects sellers. Courts have historically held that LUTPA claims are limited to plaintiffs that are consumers, business competitors, and potential business competitors—not sellers.[22] In this case, the mail solicitation is made to the party that is the eventual seller of the item. It is debatable whether LUTPA, when applied to a similar non-mineral circumstance, would protect a similarly situated seller. Second, LUPTA has historically only applied to movables.[23] Mineral rights are defined by the Mineral Code as incorporeal immovables.[24] It appears as though the legislature has tried to protect a class of persons and goods not historically protected by Louisiana consumer protection laws.

So why do we need this law?

As the Louisiana general law of contracts and specific consumer protection laws do not provide similar safeguards to other sellers of immovables, the need for this particular legislation is curious. The potential to create a three-year peremptive period of rescission on a technicality seems onerous when instituted for protection against a theoretical or “anecdotal” problem. Since there are practical applications of mail solicitation of mineral rights, the legislature may have created overly aggressive regulation with this legislation.

 

[1] 2016 La. Acts 179.

[2] La. Rev. Stat. § 9:2991.2 (2016).

[3] Id.

[4] Id. § 9:2991.3.

[5] Id. § 9:2991.4.

[6] Id. § 9:2991.5.

[7] Id.

[8] Id. § 9:2991.6.

[9] Id. § 9:2991.7, § 9:2991.9.

[10] Id. § 9:2991.10.

[11] Melissa Lonegrass, La. State Law Inst., Notes from the Reporter: Mineral Law-Unsolicited Offers Committee 4 (2013).

[12] Id. at 7.

[13] Id. at 5.

[14] La. Civ. Code art. 1837 cmt. b (2016).

[15] Id.

[16] La. Rev. Stat. § 9:2991.4 (2016).

[17] Lonegrass, supra note 11, at 3–4.

[18] Id. at 4.

[19] La. Rev. Stat. § 9:2991.6.

[20] La. Civ. Code art. 1919 reserves the right to plead rescission to a person without the legal capacity to make a contract. La. Rev. Stat. § 9:2043 allows for the rescission of an onerous disposition in trust.

[21] La. Rev. Stat. §51:1401–26.

[22] See Reporter’s Memorandum from the Mineral Law – Unsolicited Offers Comm. 7 (Jul. 11, 2014) (on file with the Louisiana Law Review) (citing Quality Environmental Processes, Inc. v. I.P. Petroleum Co., 2014 WL 1800081 (La. May 7, 2014) (quoting Cheramie Servs., Inc. v. Shell Deepwater Prod., 35 So. 3d 1053, 1059 (La. 2010))); see also Alexander M. McIntyre, Jr. et al., Standing Under the LUTPA—The Circuit Split Widens, 54 La. B.J. 362 (2007) (discussing the discrepancy among the Louisiana courts of appeal as to who may bring a private cause of action under LUTPA).

[23] Id. at 6.

[24] La. Rev. Stat. § 31:18.

 

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