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.

By Gus Laggner, Senior Associate

Introduction

One of the most important Congressional acts of the previous century is the National Labor Relations Act (“NLRA”).[1] It was enacted in 1935 to protect the rights of American employees and employers, curtail harmful workplace management practices, and promote collective bargaining.[2] Before the NLRA, “a single employee was helpless in dealing with an employer,” and thus a “union was essential to give laborers opportunity” to deal equally with their employers.[3] In other words, the NLRA attempted to put employers and employees on equal footing when negotiating labor conditions.

Although the NLRA has drawn both ire and praise from every conceivable source, this comment highlights a recent decision in the Seventh Circuit Court of Appeals that demonstrates how two skilled minds may arrive at different conclusions when applying the laws of Congress to labor disputes. In Lewis v. Epic Systems Corp., the Seventh Circuit held that an arbitration agreement requiring employees to waive the right to bring collective actions for federal wage-and-hour violations in favor of individual arbitration was a violation of the NLRA.[4] Surprisingly, the Seventh Circuit decided this case in express contravention[5] of the Fifth Circuit’s earlier opinion in D.R. Horton, Inc. v. NLRB, in which the court found that such a clause did not violate the NLRA and enforced the agreement.[6] This circuit split may well end up on the steps of the U.S. Supreme Court, and this comment addresses the tribunals’ difference of opinion.

The Fifth Circuit: D.R. Horton, Inc. v. NLRB

            In 2006, D.R. Horton, Inc., began requiring all its employees to sign a “Mutual Arbitration Agreement.[7] The agreement required all wage-and-hour disputes to be resolved by individual arbitration, regardless of whether the alleged violation was occurring simultaneously with multiple employees.[8] In 2008, Michael Cuda, a Horton employee, along with a nationwide class of similarly situated Horton employees, sought to initiate collective arbitration on the grounds that Horton had misclassified some of its employees as exempt from overtime pay under the Fair Labor Standards Act (“FLSA”).[9] Horton asserted that the Mutual Arbitration Agreement barred such a collective proceeding and instead required the employees to initiate individual arbitration.[10] Cuda then filed an unfair labor practice charge with the NLRB, alleging that the waiver violated the NLRA.[11]

The NLRB found that the Mutual Arbitration Agreement violated the substantive rights granted to employees under section 7 of the NLRA, which provides that employees have the right to engage in “concerted activities for the purpose of collective bargaining or other mutual aid or protection.[12] By prohibiting collective action under the Mutual Arbitration Agreement, the NLRB held that Horton committed an unfair labor practice by requiring employees not to act “in concert” in the pursuit of their claims.[13]

The Fifth Circuit disagreed with the NLRB. The Fifth Circuit held that the Federal Arbitration Act (“FAA”) mandated enforcement of the agreement.[14]  The FAA, which was enacted in 1926 in response to judicial hostility to arbitration, “establishes a liberal federal policy favoring arbitration agreements.”[15] Under the FAA, arbitration agreements must be enforced according to their terms, [16] except “upon such grounds as exist at law or in equity for the revocation of any contract.”[17]

The Fifth Circuit then held that because the “overarching purpose of the FAA . . . is to ensure the enforcement of arbitration agreements according to their terms so as to facilitate streamlined proceedings,” mandating the availability of classwide arbitration procedures “interferes with fundamental attributes of arbitration” and “creates a scheme inconsistent with the FAA.”[18] The court found that the effect of the NLRB’s interpretation of the NLRA as prohibiting class action waivers was to disfavor arbitration by sacrificing “the principal advantage of arbitration—its informality—and mak[ing] the process slower, more costly, and more likely to generate procedural morass than final judgment.”[19] The court held the NLRB’s interpretation of the NLRA to be in conflict with the FAA and ultimately enforced the Mutual Arbitration Agreement per the FAA’s general mandate of enforceability.[20]

The Seventh Circuit: Lewis v. Epic Systems Corp.

            Shortly after Horton was decided, in 2014, Epic Systems Corp. emailed some of its employees an agreement stipulating that wage-and-hour claims could be brought only through individual arbitration and that the employees waived the right to participate in or receive relief from any other class proceeding.[21] Epic required the employees to accept the terms of the agreement if they wanted to keep their jobs.[22] Jacob Lewis, an employee at Epic, accepted this agreement by clicking the appropriate computer prompts.[23]

Thereafter, Lewis had a dispute with Epic and filed suit in federal court alleging that Epic misclassified Lewis and other technical writers as exempt from overtime in violation of the Fair Labor Standards Act.[24] Epic moved to dismiss and to compel arbitration, citing the agreement between Epic and its employees.[25] Lewis argued that the arbitration provision violated the NLRA by interfering with employees’ right to engage in concerted activity for mutual aid or protection.[26]

The Seventh Circuit agreed with Lewis and held the clause unenforceable. As mentioned, the NLRA protects the rights of employees to self-organize and collectively bargain for their mutual benefit.[27] The court cited longstanding NLRB decisions holding that employer-imposed, individual agreements that purport to restrict NLRA rights are unlawful and may be declared unenforceable by the NLRB.[28] In the first step of its analysis, the court held that imposing a waiver on all class remedies for labor disputes violated section 7 of the NLRA.[29]

As in Horton, the Seventh Circuit was required to take its analysis a step further and determine the applicability of the FAA. The Seventh Circuit diverged significantly from the Fifth Circuit in this step.[30] Instead of holding that the FAA required the enforcement of collective action waivers, the Seventh Circuit found that the FAA’s exception—the “saving clause”—applied to the enforceability of the agreement.[31] The saving clause allows for exceptions to the general rule of enforcing arbitration agreements “upon such grounds as exist at law or in equity for the revocation of any contract.”[32] Because the saving clause affords employers and employees the same defenses to arbitration contracts as any other contract and illegality is a standard contract defense, the court’s finding that the arbitration agreement violated the NLRA meant that the agreement was illegal and therefore unenforceable via the saving clause of the FAA.[33] The Seventh Circuit struck down the waiver.[34]

Conclusion

The only effective solution to a federal circuit split is for the Supreme Court to hear the issue and declare the law of the land. Given the current political climate and the current eight-justice Court, whether this split will be resolved in the near future is uncertain. Supreme Court justices, much like federal circuits, sometimes reach different conclusions when presented with the same law and facts. Therefore, the U.S. needs that ninth black robe back to resolve this significant circuit split. Writs have been filed.[35] Time will tell.

[1] 29 U.S.C. § 151–69 (2012).

[2] See 29 U.S.C. § 151.

[3] NLRB v. Jones & Laughlin Steel Corp., 301 U.S. 1, 33 (1937); see also NLRB v. City Disposal Systems Inc., 465 U.S. 822, 835 (1984) (stating that in enacting the NLRA, “Congress sought generally to equalize the bargaining power of the employee with that of his employer by allowing employees to band together in confronting an employer regarding the terms and conditions of their employment”).

[4] Lewis v. Epic Systems Corp., 823 F.3d 1147, 1151 (7th Cir. 2016).

[5] Id. at 1157.

[6] D.R. Horton, Inc. v. NLRB, 737 F.3d 344, 357 (5th Cir. 2013).

[7] Id. at 348.

[8] Id..

[9] Id. at 349.

[10] Id.

[11] Id.

[12] Id. at 355; 29 U.S.C. § 157 (2012).

[13] D.R. Horton, 737 F.3d at 355.

[14] 9 U.S.C. §§ 1–16 .

[15] CompuCredit Corp. v. Greenwood, 132 S. Ct. 665, 668–69 (2012).

[16] D.R. Horton, 737 F.3d at 358.

[17] 9 U.S.C. § 2; D.R. Horton, 737 F.3d at 358.

[18] D.R. Horton, 737 F.3d at 359 (citing AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 344 (2011) (holding that a California statute requiring the availability of class action proceedings in both judicial and arbitral forums was not an exception to the FAA’s enforcement requirement)).

[19] Id.

[20] Id. at 364. The court additionally analyzed whether the NLRA contained any congressional command such that the FAA would be precluded. Because the Seventh Circuit did not reach this issue, it has been omitted from this comment.

[21] Lewis v. Epic Systems Corp., 823 F.3d 1147, 1151 (7th Cir. 2016).

[22] Id. at 1151

[23] Id.

[24] Id.

[25] Id.

[26] Id.

[27] See 29 U.S.C. § 157 (2012).

[28] Lewis, 823 F.3d at 1152.

[29] Id. at 1154.

[30] The Seventh Circuit acknowledged the split created by its decision and asserted arguments as to why the Fifth Circuit’s decision was incorrect. For further reading see id. at 1158–61.

[31] Id. at 1159.

[32] 9 U.S.C. § 2; Lewis, 823 F.3d at 1157.

[33] Lewis, 823 F.3d at 1157.

[34] Id. at 1161.

[35] Lewis v. Epic Systems Corp., 823 F.3d 1147 (7th Cir. 2016), petition for cert. filed, (No. 16-285) (U.S. Sept. 2, 2016).