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Civil Action No. 98-859-A-M3
December 10, 2001
MAGISTRATE JUDGE'S REPORT
This estate tax refund action comes before the Court on a motion (rec.doc. no. 43) for summary judgment by the defendant United States of America (the "Government") and a crossing motion (rec.doc. no. 46) for partial summary judgment by plaintiffs (collectively, the "Estate"). The central dispute of both motions concerns whether or not the Government properly disallowed an estate tax deduction for what the Estate claims is a usufructuary accounting debt.
Factual Background
While the present suit concerns taxes on the estate of William Louis Albritton ("Louis Albritton"), the pertinent factual background begins with the will of his father, Alvin R. Albritton ("Grandfather Albritton"), which was executed on March 28, 1957. Grandfather Albritton's will provided for a lifetime usufruct to his two sons, Sterling Albritton and Louis Albritton:
B. To my sons . . . I bequeath in equal shares:
2. The usufruct of all of the property of which I die possessed, for the rest of their natural life, without bond . . .
3. The usufruct created by this will shall include all minerals, mineral rights, royalty, proceeds of oil leases, proceeds of sales of timber and all similar revenues accruing during the term of the usufruct whether or not the lands subject to the usufruct have been leased and whether or not wells have been drilled thereupon prior to my death and the usufructuaries shall be entitled to all income therefrom.
Grandfather Albritton bequeathed the naked ownership of the one-half of the property subject to Louis Albritton's usufruct to his granddaughters, Mary Louise Albritton LeBlanc and Carol Albritton Biedenharn.
The will bequeathed the naked ownership to the daughters in trust, with Louis Albritton acting as the trustee of the naked ownership trust. The trusts terminated prior to Louis Albritton's death, and the daughters thereafter held their naked ownership interests either individually or through revocable trusts.
Grandfather Albritton died on December 3, 1957, commencing Louis Albritton's usufruct. Louis Albritton's usufruct ended upon his death on September 2, 1994, and his daughters simultaneously obtained full ownership of the property left to them by Grandfather Albritton.
The usufruct interests were held in a separate property trust, and the daughters did not terminate the trust and receive a distribution of its assets until after their mother's death.
Although the land subject to Louis Albritton's usufruct was worth less than $200,000 in 1957, it proved to be the source of great wealth during Louis Albritton's lifetime, chiefly from oil and gas wells drilled after Grandfather Albritton's death. After Louis Albritton's death, and in order to calculate the federal taxes due as the result of this accumulation of wealth from mineral revenue collected during the term of his usufruct, the co-executors of Louis Albritton's estate claimed a tax deduction of almost $9 million as the amount they contended Louis Albritton owed for a mineral "usufructuary accounting debt." This debt arose, they explained, because Louis Albritton, as usufructuary, had a duty to account to his daughters, as naked owners, for the money he had received from mineral revenues throughout the life of the usufruct. The co-executors calculated the amount of the deduction by subtracting sums paid for various taxes from the nearly $14 million of gross mineral revenues produced from mineral interests in land subject to the usufruct (as opposed to mineral interests separated from the land) that were generated from wells drilled after the commencement of the usufruct.
The parties stipulate that "[a]ll payments . . . were attributable to producing and nonproducing mineral rights regarding oil, gas and other minerals occurring naturally in liquid or gaseous form." Both the Estate and the Government believe that the amount of revenues received from mineral interests separated from the land and/or from mineral production that began prior to the commencement of the usufruct is minimal. The specific dollar amount received from such collateral production is not material to the motions before the Court. The core dispute concerns the nearly $14 million received from production from mineral interests in land that came from wells drilled after the commencement of the usufruct. The Court will address this central issue before turning to the minimal production from separated interests.
The Government disallowed the Estate's mineral usufructuary accounting debt deduction for all mineral proceeds received after a July 17, 1975, amendment to Louisiana Mineral Code article 194, which provided that neither a usufructuary of land or of mineral rights has to account to the naked owners for income received from production. After disallowing all but approximately $228,004 of the deduction, the Government assessed an estate tax deficiency in the amount of $3,451,895 plus $1,107,658 in statutory interest. The Estate paid the deficiency assessment and filed the present claim for a refund.
Following the 1975 amendment, article 194 (La. R.S. 31:194) reads as follows:
A usufructuary of land benefitting under Article 190 or 191 or a usufructuary of a mineral right is not obligated to account to the naked owner of the land or of the mineral right for production or the value thereof or any other income to which he is entitled.
Principal Contentions of the Parties
The Estate maintains that the law in force at the time of Grandfather Albritton's death in 1957 governs the effect to be given the testamentary usufruct, and that law requires that an accounting be made to the naked owners at the termination of the usufruct.
In support of its position, the Estate's first argument is that Grandfather Albritton created an imperfect usufruct over mineral rights or proceeds under the law in effect in 1957. The Estate cites articles 535 and 536 of the Louisiana Civil Code of 1870 as authority clearly establishing the differing obligations arising from perfect and imperfect usufructs. Under an imperfect usufruct, ownership of the proceeds of mineral production went to the usufructuary, subject to an obligation under article 549 of the 1870 Code to return things of the same quantity, quality and value at the termination of the usufruct.
Article 535 of the Civil Code of 1870 provided:
Perfect usufruct does not transfer to the usufructuary the ownership of the things subject to the usufruct; the usufructuary is bound to use them as a prudent administrator would do, to preserve them as much as possible, in order to restore them to the owner as soon as the usufruct terminates.
Article 536 of the Civil Code of 1870 provided:
Imperfect usufruct, on the contrary, transfers to the usufructuary the ownership of the things subject to the usufruct, so that he may consume, sell or dispose of them, as he thinks proper, subject to certain charges hereinafter prescribed.
The Estate supports this first argument with primary citation to Succession of Blake, 428 So.2d 1118 (La.App. 1st Cir.), writ denied, 433 So.2d 152 (La. 1983), and Marshall v. United States, 67 F. Supp.2d 627 (E.D. La. 1999), aff'd 251 F.3d 157 (5th Cir. 2001) (table). According to the Estate, Blake holds that under the Civil Code and Mineral Code provisions in force prior to 1975, a usufruct of mineral rights constituted a usufruct over the proceeds, which was an imperfect usufruct under which the usufructuary had a duty to account to the naked owner. The Estate asserts that the district court and unpublished appeals court decisions in Marshall followed Blake and held that a testament giving the usufructuary the right to "receive the income attributable to production from all royalty interest owned by me" created an imperfect usufruct that included a usufruct over the future income attributable to the royalty interests, under which the usufructuary had a duty to account for the royalties received during the usufruct. The Estate argues that Grandfather Albritton's testament created an even more encompassing usufruct over royalties, revenues, and proceeds than that created by the testator in Marshall.
The Estate contends, second, in the alternative, that an accounting is due even if Louis Albritton's usufruct constituted a perfect usufruct over land rather than an imperfect usufruct over mineral rights or proceeds. Under Gueno v. Medlenka, 238 La. 1081, 17 So.2d 817 (1960) and the "open mines doctrine," embodied in article 552 of the Civil Code of 1870, a usufructuary of land had no right to the proceeds of mineral exploration unless those mines, quarries and wells were actually worked (or "open") at the commencement of the usufruct. The Estate argues that before the 1975 amendment to Mineral Code article 194, a usufructuary of land enjoying the benefit of the open mines doctrine had a duty to account to the naked owner for the production received during the usufruct. The Estate further argues that Gueno establishes that a usufruct of land established before 1975 could be extended conventionally to mines and wells that were not opened at the commencement of the usufruct — subject to a corresponding duty to account to the naked owner. The Estate concludes, therefore, that even if Grandfather Albritton's testament created a perfect usufruct over land, it merely conventionally extended what was a typical, perfect usufruct to include the enjoyment of the proceeds of all mineral production, both from opened and yet-to-be-opened wells, all with a concomitant duty to account.
Article 552 of the Civil Code of 1870 provided:
The usufructuary has a right to the enjoyment and proceeds of mines and quarries in the land subject to the usufruct, if they were actually worked before the commencement of the usufruct; but he has no right to mines and quarries not opened.
The Estate continues in this same general vein that Louis Albritton, as usufructuary and trustee of the naked ownership trusts, converted any perfect usufruct into an imperfect usufruct over the proceeds when he "sold" the minerals. This imperfect usufruct over the proceeds carried with it a corresponding obligation to account to the naked owners for the disposition of the proceeds.
The Estate next minimizes the impact of the 1975 amendment to Mineral Code article 194, which states that the usufructuary has no duty to account, by arguing that regardless of the amendment's terms, it does not relieve the Estate from its duty to account for three reasons. First, the article does not apply to a conventional usufruct of the landowner's mineral rights or mineral proceeds. Second, it constitutes substantive legislation and thus applies only prospectively under Civil Code article 6 and Mineral Code article 214. And, third, the Estate urges that federal and state constitutional guarantees prevent retroactive application of the amendment to divest rights and impair obligations created by Grandfather Albritton's will.
The Government responds, inter alia, that the testament created a perfect usufruct over land rather than an imperfect usufruct over mineral proceeds. It maintains, contrary to the Estate's assertion, that a usufructuary of land enjoying a right to mineral production under the open mines doctrine did not have a duty to account to the naked owner at the end of the usufruct under the law in force in 1957. The Government distinguishes the Blake and Marshall cases on the basis that those cases involved mineral rights separated from land rather than mineral rights in the land enjoyed by a usufructuary of the land. It further asserts that the cases were incorrectly decided and that they are inconsistent with the Louisiana Supreme Court decision in Succession of Goode, 425 So.2d 673 (La. 1982).
The Court has outlined the parties' contentions as they relate to the core dispute over mineral production from lands subject to the usufruct. The parties' arguments also pertain to an extent to the minimal production from mineral interests separated from land, which — the extensive arguments notwithstanding — represents only a collateral dispute. The parties further present another collateral dispute concerning the categories of expenditures to be offset against the gross mineral revenue proceeds in order to determine the net alleged usufructuary accounting debt. The Estate maintains that the gross figure should be reduced only by Louisiana severance taxes, windfall profits taxes, and federal and state income taxes. The Government contends that various administrative expenses also should be charged against the gross amount. The Court addresses both of these collateral issues at the end of this report.
The Government's position potentially calls into question the Internal Revenue Service's earlier allowance of the $228,004 deduction pertaining to mineral production prior to the 1975 amendment to Mineral Code article 194. The Government has reserved the right to challenge this allowance, but it is not directly at issue on the present cross-motions.
The Government, in lengthy briefing, additionally raises a number of alternative arguments. The Court was not persuaded by these arguments, and they form no basis for its recommended decision. For example, the Government maintains that no enforceable obligation existed because the alleged usufructuary accounting debt was never intended to be paid. It urges that the daughters took inadequate actions to collect the intra-family debt after Louis Albritton's death, as they only listed the debt in the succession's descriptive list and estate tax return. The Government's position on this point is unpersuasive because the procedure followed by the daughters is the way that such inter-generational debts are discharged under Louisiana law. Nor is the Court persuaded by the Government's argument that the respective rights of the usufructuary and naked owners vested for purposes of determining the law to be applied only when mineral revenues were actually received. Those respective rights, whatever they might prove to be, vested at the creation of the usufruct in 1957. The ultimate determining issue in this case instead is whether the usufructuary had a duty to account to the naked owners under the law in force in 1957 in the circumstances presented.
Governing Law
On a motion for summary judgment, the question before the Court is whether the evidentiary materials on file "show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.Pro. 56(c). When a summary judgment motion is properly made and supported under Rule 56(c), the nonmoving party must come forward with specific facts showing that there is a genuine issue of material fact for trial. E.g., Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986). On the present cross-motions, there are no disputed issues of material fact; and the parties present only outcome determinative legal issues to the Court for resolution.Under the Internal Revenue Code, for a claim to be deductible against an estate it must be: (1) allowable under the laws of the state in which the estate is administered; and (2) an enforceable obligation of the decedent at the time of his death. 26 U.S.C. § 2053 (a)(3). The taxpayer bears the burden of establishing that the tax was assessed incorrectly. E.g., Carson v. United States, 560 F.2d 693, 695-96 (5th Cir. 1977).
In determining whether the debt was an allowable and enforceable obligation under state law, the Court must conduct essentially an Erie inquiry to ascertain the relevant state law rule. E.g., Delaune v. United States, 143 F.3d 995, 1001-02 (5th Cir. 1998), cert. denied, 525 U.S. 1072, 119 S.Ct. 805, 142 L.Ed.2d 666 (1999). Under Erie, the federal court must apply the state law as the state's highest court would apply it. E.g., McAvey v. Lee, 260 F.3d 359, 365 n. 3 (5th Cir. 2001). However, when there is no controlling authority by the state's high court directly on point, the federal court then conscientiously must make its best " Erie guess" as to how it believes the state high court would rule on the question, looking to the same sources of law that the state court would look to for authority. See id; Rogers v. Hartford Life and Acc. Ins. Co., 167 F.3d 933, 940 (5th Cir. 1999).
Erie of course applies with a civilian twist in Louisiana. It is axiomatic in Louisiana that courts must begin every legal analysis by examining the primary sources of law reflected in the positive codal and statutory expressions of legislative will. See, e.g., Prytania Park Hotel, Ltd. v. General Star Indemnity Co., 179 F.3d 169, 175 (5th Cir. 1999). Jurisprudence, even jurisprudence that rises to the level of jurisprudence constante, constitutes only a secondary source of law. Id. On issues not yet squarely addressed by the Supreme Court of Louisiana, the federal court must rely primarily on the history and lineage of code provisions, their construction by commentators, and their place in the statutory framework. Delaune, 143 F.3d at 1002 n. 6; see also Songbyrd, Inc. v. Bearsville Records, Inc., 104 F.3d 773, 776-77 (5th Cir. 1997); Green v. Walker, 910 F.2d 291, 293-94 (5th Cir. 1990). Thus, a federal tax case in Louisiana may well be resolved primarily by reference to early nineteenth century French antecedents to the Louisiana Civil Code of 1825 together with French and Louisiana commentary. See, e.g., Delaune, 143 F.3d at 1002-1005 (the court of appeals resolved the tax issue by conducting an extensive analysis of the Louisiana code article's Code Napoléon antecedent and relevant scholarly comment).
Issues Presented
In this estate tax case, the record and arguments present the following core Louisiana civil law issues:
1) What was the testamentary usufruct over?
2) How did the Louisiana law in force in 1957 treat mineral production under such a testamentary usufruct? In particular, did the law in force at the time obligate the usufructuary to account to the naked owner at the termination of the usufruct for the mineral revenues received during the usufruct?
Discussion
What was the Testamentary Usufruct Over?The specific legal effect of a usufruct turns in large measure upon the nature of the thing subject to the usufruct. The threshold question, then, is what was the usufruct over?
The most natural, common sense reading of Grandfather Albritton's will is that he granted a usufruct over all of his property, including his lands, and conventionally extended this usufruct over the lands to include future mineral exploitation of those lands. In the words of Grandfather Albritton, his sons were to enjoy all mineral revenues emanating from his lands, "whether or not the lands subject to the usufruct have been leased and whether or not wells have been drilled" prior to his death.
The Estate focuses in isolation on the testamentary references to "minerals," "mineral rights," "proceeds," "revenues," and "production." Yet the will lays out these specifics to emphasize the expansive rights to be enjoyed from the "lands subject to the usufruct." The will reflects the testator's effort to use specific and explicit language to clearly reflect and confirm his intent that, notwithstanding any rule or limitation that otherwise applied to a usufruct over land at that time, the usufructuary of his land was to enjoy all mineral income, including that generated by production from wells opened after the commencement of the usufruct. The usufruct of the land thus would include the right to enjoy production from future wells, and no separate usufruct over production from the land was created by the testament.
Tne Court reaches this conclusion based solely upon the language of the testament rather than by reference to any extrinsic parol evidence.
How Did Louisiana Law Treat Mineral Production Under Such a Usufruct?
The question of how Louisiana law treated mineral production under such a usufruct in 1957 involves two intertwined subsidiary questions. First, how did Louisiana law treat mineral production from land subject to a usufruct absent any further conventional stipulation? And, second, what was the specific legal effect of a conventional stipulation that derogated from the rules that otherwise applied? Both questions, in civilian terms, concern the distinctions between "fruits" and "consumables." There is agreement that while a usufructuary does not have to account for any fruits received during the usufruct, he must account, however, for any consumables received. The first issue, then, is whether Louisiana law treated mineral production from land in the situation presented here as a fruit or a consumable.Resolution of this dispute turns in part upon article 552 of the Civil Code of 1870, which stated the following rule for mineral production from land subject to a usufruct:
The usufructuary has a right to the enjoyment and proceeds of mines and quarries in the land subject to the usufruct, if they were actually worked before the commencement of the usufruct; but he has no right to mines and quarries not opened.
Article 552 did not state, however, whether the mineral production so enjoyed constituted a fruit (with no corresponding duty to account) or a consumable (with a duty to account). Nor did article 552 state whether the mineral production enjoyed under a contractual extension of this principle to unopened mines was a fruit or a consumable. A chronological review of the relevant civilian authorities, however, leads to the answers to these questions.
This chronological review properly begins with the 1804 antecedent to article 552 found in article 598 of the Code Napoléon. Planiol's Traité Élémentaire de Droit Civil constitutes an authoritative source regarding the intent and operation of the Code Napoléon. With regard to mineral production and article 598, Planiol's placement of his discussion of the treatment of mineral production from land subject to a usufruct is as telling as the discussion itself. Planiol discusses the treatment of mineral proceeds from usufruct land under a section concerning the "Analysis of [the] Right of Enjoyment." That section, in turn, is divided into a subsection concerning "The Use of the Thing" and a subsection concerning "Right to Fruits." Significantly, Planiol discusses a usufruct of consumables under the first subsection pertaining to the usufructuary's right to use the thing, usus; and he discusses the treatment of mineral proceeds from land subject to a usufruct in the second section pertaining to the usufructuary's right to receive the fruits, fructus. Thus, even before one begins to read the text, it is evident that the usufructuary's right to enjoyment of mineral production from the land, deriving from the right of fructus, was fundamentally different from the rights of a usufructuary with a usufruct over consumables, deriving from the right of usus.
See Delaune, 143 F.3d at 1003 n. 13 quoting Dreyfous, Partial Defacement of Olographic Wills, 15 Tul. L. Rev. 272, 274 (1941) ("The codes of Louisiana can be [best] explained by assuming that the redactors concluded that in most respects the law of Louisiana was the same as the law of France.")
Article 552 of the Civil Code of 1870 carried forward without change article 545 of the Civil Code of 1825, which was was derived from article 598 of the Code Napoléon. An English language translation of Code Napoléon article 598 reads as follows:
He enjoys as well, in the same manner as the owner, the mines and quarries which were actually worked at the commencement of the usufruct; nevertheless, if such working cannot be carried on without a concession, the usufructuary shall be able to enjoy it only after having obtained permission of the Government.
He has no right to mines and quarries not yet opened, nor to peat-bogs, exploitation of which has not been begun, nor to treasure which might be discovered during the term of the usufruct.
16 West's Louisiana Statutes Annotated: Civil Code, 1972 Compiled Edition of the Civil Codes of Louisiana, at 341-42 (J. Dainow ed. 1973). The compiled edition contains the original French language versions of the French and Louisiana articles, and it notes certain minor errors in the English translation of the French text of article 552. The French text of Louisiana articles unchanged from the 1825 code ultimately is controlling in Louisiana. See, e.g., Ross v. La Coste de Monteville, 502 So.2d 1026, 1029-30 (La. 1987).
Marcel Planiol et George Ripert, Traité Élémentaire de Droit Civil, pt. 2, at 643 (Louisiana State Law Institute trans., 1959) (12th ed. 1939) (hereafter "Planiol").
Id., at 643 644.
This fundamental distinction between the two different situations is carried through in Planiol's discussion. In the first subsection on usus, Planiol writes as follows with regard to "The Usufructuary's Right in Consumable Things:"
The right of use accorded usufructuaries merely permits them to use the thing, to avail themselves of it. They are not permitted to destroy it, to consume it. They have not the abusus. The Code says, in its definition of usufruct, that usufructuaries have the right to enjoy the thing, "provided they preserve its substance" (Art. 578).
It has already been seen (supra no. 2748) that this limitation of the rights of usufructuaries makes impossible the establishment of usufructs upon consumable things, things of which no use can be made without consuming them. Usufructs upon such things are replaced by a special right, called quasi-usufruct, which amounts to this: the usufructuary acquires the ownership of the things which are subject to his right. This permits him to make use of them in consuming them. But these things are vested in him solely upon condition that he return their equivalent, at the moment of restitution.
Planiol, supra, pt. 2, no. 2777, at 643-44 (final emphasis added).
In contrast, in the second subsection on fructus, under a subdivision concerning "Things Assimilated to Fruits," Planiol discusses the "Nature of the Products of Mines and Quarries" as follows:
Id., at 648. See also id., no. 2790. To "assimilate" is to make similar to or treat similarly as.
What is extracted from a mine or quarry is not a product of the soil. No earth produces a mineral, sand or limestone. It is the soil itself that is taken out and sold piece by piece. The exploitation of a mine or quarry leads inevitably to its exhaustion. Nevertheless, on account of the abundance of the materials, the custom is to look upon what is withdrawn as a product. This is what the Code does. It classifies these products as fruits. It attributes them to usufructuaries because they are income upon which owners live (Art. 598).
The law however imposes a condition to the granting of this right to usufructuaries. It is the same as the one already mentioned in connection with tall forest trees. The mine or the quarry must already have been opened before the commencement of the usufruct. Usufructuaries may therefore continue an exploitation that has already begun. They may not themselves start it when it has not yet been commenced.
Planiol, supra, pt. 2, no. 2794, at 650-51 (emphasis added).
Planiol's treatise thus reflects that, notwithstanding the conceptual arguments that might be made to the contrary if one were writing on a blank slate, the Code Napoléon antecedent to Louisiana Civil Code article 552 treated mineral production from land subject to a usufruct like a fruit. That is, after the Code Napoléon's article 598 the slate no longer was blank. The legislature had considered the anomalous nature of mineral production from land. And, having considered same, it made a legislative determination to treat the mineral production like a fruit, notwithstanding the fact that it in truth had the characteristics of a consumable resource, the "exploitation" of which "leads inevitably to its exhaustion." Accordingly, any effort to treat mineral production as a consumable on logical grounds flies in the face of the legislative determination actually made in the code to "nevertheless" treat the production as a fruit.
See Planiol, supra, pt. 2, no. 2794: "This is what the Code does." under fundamental civilian authorities such as article 1 of the Louisiana Civil Code of 1870, law of course is "a solemn expression of legislative will," a will which of course does not always bend inexorably to the apparent dictates of logic. See also Planiol, supra, pt. 2, no. 2790, at 648 ("the strict rules of logic are not enforced" as to mines and quarries, and they instead "are assimilated to fruits in order to permit usufructuaries to enjoy them in certain cases.").
Notably, consistent with the established rule that a usufructuary has no duty to account for his enjoyment of the right of fructus, and unlike his discussion of the right of usus of a usufruct over consumables, Planiol's discussion contains no statement that the usufructuary must account to the naked owner for the mineral production taken during the life of the usufruct.
Planiol's treatise thus suggests that, on the first question posed in this discussion, mineral production from land enjoyed under article 552 was to be treated as a fruit with no duty to account. Early civilian authorities also provide guidance on the second question of the effect of a conventional extension of the rule of article 552 to unopened mines. From their inception, both Louisiana and French civil law systems recognized the right of the creator of a testamentary or other conventional usufruct to alter the supplementary rules set forth in the codes. As stated in the Louisiana code:
Usufruct may be established simply, or to take place at a certain day, or under condition; in a word, under all such modifications as the person who gives such a right may be pleased to annex to it.
La. Civ. Code art. 542 (1870). The commentators Aubry and Rau elaborated on this concept in their treatise Droit Civil Français:
The statutory provisions governing usufruct apply not only to usufructs created by the statutes, but also to contractual and testamentary usufructs. But in the latter two instances, the statutory provisions declare the presumed will of the parties or of the testator. Hence they can be widely modified by the constitutive instrument. This instrument must be consulted first to determine the scope of the usufructuary's rights. The rights described [in the code] are those which exist when no such modifications have been made.
2 Aubry Rau, Droit Civil Français, § 230, para. 412 (7th ed. 1961) (Law Institute translation).
Thus, in principle, early civilian authorities provided a framework within which a testator could extend the effect of article 552 to unopened mines.
For the period following the adoption of the Codes, from the 1800s through to 1938, early civilian authorities in Louisiana provided little further guidance. Louisiana judicial decisions addressed the nature of mineral rights in a variety of contexts, and they reasoned back from general code articles and similarly general scholarly comment in their analyses. But no early published decision directly addressed either the nature of mineral production enjoyed by a usufructuary of land under article 552 (or a conventional modification thereof) or the question of whether the usufructuary had a duty to account to the naked owner.
See, e.g., Elder v. Ellerbe, 135 La. 990, 66 So. 337 (1914) (although the court referred to article 552 in its analysis, it held that a good faith possessor was required to account for mineral proceeds received because minerals did not have the renewable quality required to satisfy the general codal definition of a fruit).
Then, prior to the 1938 session of the Louisiana Legislature, a proposed mineral code was prepared for its consideration. Article 42 of the proposal included the following:
In the case of property subject to usufruct, except in the case where the property was actually producing minerals at the date of the creation of the usufruct, the consent of the usufructuary [to a mineral lease] is not necessary. . . .
However, when the property was actually producing minerals at the date of the creation of the usufruct, the lease may be validly executed by the usufructuary who shall be entitled to all of the avails of the lease, and the consent of the naked owner shall not be necessary.
Likewise, in such case, whatever shall have been received by the usufructuary shall be deemed income and therefore not due to be restored to the owner.
Proposed Louisiana Mineral Code, Second Revised Draft (1938).
The proposed article is reprinted in Harriet S. Daggett, Mineral Rights as They Affect the Community Property System, 1 La. L. Rev. 17, 43 n. 129 (1938) The paragraph breaks are those found in the copy of the complete proposed code at the Paul M. Hebert Law Center library, under call number "La. 104, M662s, 1938x."
Professor Harriet Daggett's 1938 and 1949 writings concerning proposed article 42 constitute the next noteworthy development. The parties to this litigation draw different conclusions from her work, however. The Estate maintains that Professor Daggett's writings establish that the proposed article departed from established pre-1975 Louisiana law that treated mineral production from land subject to a usufruct as a consumable that must be restored to the naked owner. The Government disputes this reading.
See Harriet S. Daggett, Mineral Rights in Louisiana, Chapter VII (rev. ed. 1949). The chapter first appeared at 1 La.L.Rev. 17 (1938) shortly after the 1938 Proposed Mineral Code.
Undeniably, Professor Daggett was sharply critical of Proposed Mineral Code article 42 and its Civil Code article 552 underpinnings. She assailed the logic of the articles as well as the wisdom and justice of the result. However, a reading of the entire work clearly shows that Professor Daggett was opining as to what the law " should be" rather than what it in fact was. While Professor Daggett plainly did not like article 552 and Code Napoléon article 598, she did not dispute the fact that, from 1804 forward, the legislatures in question had not adopted the position that she espoused, despite strong but unsuccessful opposition to article 598 in France and later unsuccessful efforts to change the law in Louisiana.
See id., § 69, at 304; § 74, at 328-29.
Id. § 74, at 337 (emphasis by Professor Daggett).
See also id., § 74, at 332 ("adherence to the provisions seems marked stupidity").
Id., § 74, at 336, 337 339.
Professor Daggett's 1938 and 1949 writings further clearly stated the understood effect of the Codal rule:
. . . If, however, a lease exists on the land when death occurs, then under what may be the popular interpretation of Article 552, the "proceeds" of the well, doubtless the main value of the inheritance, will go in perpetual ownership to the usufructuary, and the land may be returned to its owners exhausted of its richness and in many cases made valueless even for farming or any other purpose.
Id., § 74, at 328.
Professor Daggett's understanding of the prevailing view of the operation of article 552 fully accords with Planiol's discussion of the legislative determination made in the antecedent Code Napoléon article 598. Under that legislative determination, the mineral production that the usufructuary of the land was entitled to enjoy under the open mines doctrine was treated like a fruit, which the usufructuary could exploit fully — the acknowledged logical arguments that could be made to the contrary notwithstanding.
The only other development prior to 1957 was the Supreme Court of Louisiana's decision in Gulf Oil Refining Co. v. Garrett, 209 La. 674, 25 So.2d 329 (1945). On original hearing in Garrett, the Louisiana high court initially confirmed the prevailing view that article 552 governed the rights of a usufructuary of land to the proceeds of oil and gas production from wells opened at the commencement of the usufruct. See 209 La. at 685-693, 25 So.2d at 332-35. On rehearing, however, the state high court proceeded on other grounds and vacated the decision on original hearing, thereby reducing the comments regarding article 552 to dicta. See 209 La. at 702, 25 So.2d at 338.
In 1960, however, the Supreme Court of Louisiana expressly adopted the original holding in Garrett that article 552 applied to oil and gas production. See Gueno v. Medlenka, 238 La. 1081, 1090-95 n. 4, 117 So.2d 817, 820-22 n. 4 (1960). The Gueno decision thus removed any lingering doubt that may have existed as to whether article 552 governed the rights of a usufructuary of land to oil and gas production.
While the Court is seeking to determine what the law was in 1957, no legislation was adopted concerning a usufructuary's rights to mineral proceeds in the period between the 1870 Civil Code and the 1974 Mineral Code. Post-1957 commentary and jurisprudence — especially Supreme Court of Louisiana jurisprudence — concerning the usufructuary's rights under the pre-1974 legal regime thus are relevant.
Significantly, the Supreme Court of Louisiana expounded at some length in Gueno on the nature of mineral production falling under the article 552 open mines rule. The court began with the premise that oil and gas constituted a part of the land itself; thus, as a general matter, the mineral production could not be produced by the usufructuary of the land because such use would alter or deplete the land's substance. 238 La. at 1088-89, 117 So.2d at 819. The court then added the significant qualification that "[t]he right to consume the substance of the land is not permitted, save in the exceptional instance hereinafter pointed out." 238 La. at 1089, 117 So.2d at 819-20 (emphasis added). This caveat served as the court's segue into its extended discussion of article 552. This discussion included considerable reliance upon Planiol's treatise, including the passage quoted supra concerning the treatment of production from open mines as fruits. 238 La. at 1096-97, 117 So.2d at 822.
The Supreme Court further rejected application of article 549 of the 1870 code — an article relied upon by the Estate — to mineral production subject to article 552:
Article 549 of the Civil Code of 1870 provided:
If the usufruct includes things, which can not be used without being expended or consumed, or without their substance being changed, the usufructuary has a right to dispose of them at his pleasure, but under the obligation of returning the same quantity, quality and value to the owner, or their estimated price, at the expiration of the usufruct.
Article 549 . . . has no relevance to this case. That article applies to imperfect usufructs whereas . . . we are here concerned with a usufruct of land-a perfect usufruct.238 La. 1095, 117 So.2d at 822.
The Gueno decision thus tends to establish rather firmly that in approaching issues concerning the rights of a usufructuary of land to oil and gas production, the Supreme Court of Louisiana: (1) would apply article 552 to oil and gas production; (2) would follow, consistent with Planiol's discussion, the legislative determination in the antecedent Code Napoléon that production subject to article 552 was to be treated like a fruit rather than a consumable diminishing the land; and (3) would not apply Civil Code provisions pertaining to imperfect usufruct to that production because the underlying usufruct was a perfect usufruct over land rather than an imperfect usufruct over the minerals. Gueno did not specifically involve, however, issues concerning either accounting at the end of the usufruct or testamentary extension of the article 552 right of enjoyment to new wells.
In Gueno, the naked owners obtained declarations, first, that the usufructuary had no right to grant a mineral lease for production from wells to be drilled after the commencement of the usufruct, and, second, that the naked owner could execute a mineral lease on the property without the usufructuary's consent.
For the period between the 1960 Gueno decision and the 1974 Mineral Code, the only other significant civilian guideposts concerning the treatment of mineral production from usufruct land are found in the 1967 and 1968 writings of Professor A.N. Yiannopoulos. While both parties seek to draw support from his writings, the bottom line is that the writings are fully consistent with the civilian authorities previously discussed. First, Professor Yiannopoulos maintained — following Planiol — that in situations governed by the open mines rule of the Code Napoléon and 1870 Louisiana Civil Code, "the usufructuary is entitled to continue the operations of the owner and to treat the minerals as fruits of the ground." And, second, he reinforced the long-recognized principle that the grantor of the usufruct could conventionally extend the rule established by article 552.
See A.N. Yiannopoulos, Rights of the Usufructuary: Louisiana and Comparative Law, 27 La. L. Rev. 668 (1967); A.N. Yiannopoulos, Personal Servitudes § 28, in 3 Louisiana Civil Law Treatise (1st ed. 1968) (hereafter " Personal Servitudes, 1968 ed.").
Professor Yiannopoulos appears of counsel on the Estate's memoranda. The Government, while acknowledging Professor Yiannopoulos' warranted reputation as a leading scholar on Louisiana law, questions whether the Estate is using his of counsel appearance as an in effect testimonial validation of its position that an accounting is owed. The Government further submits a copy of a memorandum from another case on which Professor Yiannopoulos was listed as of counsel and in which the party argued that an accounting was not owed under Grandfather Albritton's will. The parties debate vigorously in their memoranda regarding the propriety of the Estate's use of Professor Yiannopoulos' appearance and whether the memorandum from the other case arguing to the contrary conclusion should be stricken from the record. The only motions before the Court herein are the cross-motions for summary judgment. That is all that the Court addresses. On the motions before the Court, Professor Yiannopoulos' scholarly writings constitute a source to be referred to along with other authorities in determining the proper application of Louisiana usufruct law. Professor Yiannopoulos undeniably is an eminent and respected authority on Louisiana law. His opinions are only one datum, however, and his conclusions do not automatically control the outcome of a federal court's Erie analysis. Compare Songbyrd, 104 F.3d at 777-81 (extensively relying upon the Yiannopoulos property law treatise) with Prytania Park Hotel, 179 F.3d at 180-83 nn. 34-35 (examining and rejecting a position asserted by Professor Yiannopoulos as an expert witness on Louisiana law).
Personal Servitudes, 1968 ed., § 28, at 109 (emphasis added); see also A.N. Yiannopoulos, supra, 27 La. L. Rev. at 671, 682 685. The Estate draws support from Professor Yiannopoulos' statement that "[o]n principle, minerals extracted from the ground are not natural fruits because they are not `born and reborn of the soil.'" Personal Servitudes, 1968 ed., § 28, at 110-11, quoting Elder v. Ellerbe supra. This statement was made, however, in a paragraph that concludes with the observation that in the case of article 552 "mineral substances extracted from the ground, and the proceeds therefrom, could be exceptionally regarded as natural and civil fruits respectively." Id., at 111, citing Gueno.
See Personal Servitudes, 1968 ed., § 28, at 115. while the treatise arguably suggests that "Louisiana decisions" had held that minerals from unopened mines were to be regarded as fruits only in the case of "an express stipulation to that effect," no published Louisiana decision had made a holding concerning the specific language required to extend the rule of article 552 to unopened mines. Thus, while the treatise might be read to reflect a hard-and-fast established rule that minerals from unopened mines could be treated as fruits only if the instrument creating the usufruct expressly stated that the production and proceeds from unopened mines or wells "shall be regarded as natural and civil fruits," no such established rule existed in the jurisprudence. Rather, the only governing rule then actually in force appeared to be the general proposition that determining the intent of the creator of the usufruct would "be dealt with as a problem of interpretation of the intention of the parties," or, as in this case, of the testator. See also A.N. Yiannopoulos, Personal Servitudes § 65, at 142, in 3 Louisiana Civil Law Treatise (4th ed. 2000) ("Under the Louisiana Civil Code of 1870, a usufructuary of lands could claim the use and enjoyment of minerals, quite apart from the open mines doctrine, when this was the express or even implied intention of the grantor.") (emphasis in original). Accord AN. Yiannopoulos, Personal Servitudes § 65, at 136, in 3 Louisiana Civil Law Treatise (3rd ed. 1989); A.N. Yiannopoulos, Personal Servitudes § 28, at 140-41, in 3 Louisiana Civil Law Treatise (2nd ed. 1978).
Thereafter, during the 1974 Regular Session of the Louisiana Legislature, a comprehensive Mineral Code was proposed on recommendation of the Louisiana State Law Institute. The original bill included the following as article 194:
Art. 194. A usufructuary of land benefitting under Article 190 or 191 or a usufructuary of a mineral right is not obligated to account to the naked owner of the land or of the mineral right for production or the value thereof or any other income to which he is entitled.
In the original bill, article 190 provided for an open mines rule akin to Civil Code article 552; "If a usufruct of and is that of a surviving spouse in community, that of parents during marriage, or any other legal usufruct, o if there is no provision including the use and enjoyment of mineral rights in a conventional usufruct, the usufructuary is entitled to the use and enjoyment of the landowner's rights in minerals as to mines or quarries actually worked at the time the usufruct was created." Article 191 additionally provided that, in the context of a unitized pool of oil and gas, the usufructuary's enjoyment of open wells extended to "all pools penetrated by the well or wells in question."
The original bill was amended prior to final passage to delete the "not" from article 194, thereby providing for a duty to account. As thus amended, the new Mineral Code became law effective January 1, 1975.
A contemporaneous commentator described the Legislature's action in the new Mineral Code article 194, which deleted the "not" and created a duty to account, as "startling." Maunsel Hickey, a Louisiana writer on estate planning and tax issues, stated that the original Law Institute proposal was "consistent apparently with the law as it existed, and that the change was made in the legislature to create a death tax deduction." He questioned, however, whether the Legislature's assumption regarding the anticipated tax consequences would prove to be valid.
Maunsel W. Hickey, The usufruct and Taxation (Second Edition), 22 La. Bar Journal 261, 261 (1975). The text actually reads "starling," but that is an obvious typographical error.
22 La. Bar Journal at 275.
Id. The Government further asserts that Professor Yiannopoulos characterized the 1974 version of article 194 as "a drastic change in the law." See Memorandum in Support of Motion for Summary Judgment (rec.doc. no. 53), at 50-51, quoting A.N. Yiannopoulos, The Usufruct of Mineral Rights in Louisiana, L.S.U. 22nd Annual Institute on Mineral Law 155, 184-85 (1975). while the Estate does not challenge the Government's characterization of the article, the Court has not been provided a copy for direct review. It thus only notes the reference. The Estate does not point to any published scholarly commentary stating that the 1974 version of article 194 merely codified the existing rule. The Court's independent research also has not produced any scholarly comment stating that the provision was consistent with prior law.
The 1974 version of article 194 requiring an accounting proved to be short-lived. During the 1975 Regular Session, the Louisiana Legislature restored the "not," effective July 17, 1975, making it clear once again that there was no duty to account..
Thereafter, there are few additional developments that have material bearing on the core issue presented. The parties devote extensive briefing to the Goode, Blake and Marshall decisions. But the three decisions are inapposite to the central issue presented on these motions. All three decisions concern the usufruct of mineral interests separated from the land rather than the usufructuary's rights to mineral production arising from a usufruct of land, which is the main issue before the Court. Indeed, Blake expressly distinguished the rules applicable to a usufruct of separated mineral rights from those applicable to a usufruct of land. See 428 So.2d at 1120. Once it is determined, as the Court has, that the usufruct was over land rather than over separated mineral interests, these cases, and the parties' arguments concerning them, no longer are pertinent to the to the core issue in dispute.
Summary
To paraphrase Justice Scalia, but for the 200-plus pages of argument herein, one would have thought that this was a remarkably simple case. Over nearly two centuries, civilian authorities discussing Civil Code article 552 and its Code Napoléon antecedent all agreed — whether or not they also applauded the rule's wisdom — that the mineral production from open mines enjoyed by a usufructuary of the land was treated like a fruit as to which the usufructuary had no duty to account to the naked owner. Substantial civilian authority further supports the conclusion that the grantor of the usufruct could conventionally extend the benefit of article 552 to mines opened after the commencement of the usufruct. In giving his sons a usufruct over the land, Grandfather Albritton added language extending the rule of Civil Code article 552, which stated that the usufructuary of the land had enjoyment and proceeds of open wells, to include the enjoyment of production from wells to be opened in the future. The most natural and common sense reading of the testator's bequest is that he intended for the usufructuary's rights of enjoyment under article 552 to apply in all respects to both currently existing and future wells. Louis Albritton thus had no duty to account to his daughters for the mineral production received during the usufruct.
Cf. Whitman v. American Trucking Associations, Inc., 121 S.Ct. 903, 908 (2001).
The Estate's specific arguments to the contrary are unpersuasive.
Separated Mineral Interests
One curve in this otherwise simple case concerns the minimal revenues received from mineral interests separated from the land. So that the "tail would not wag the dog" and unduly complicate the preceding discussion of the substantial matter at issue — mineral production from usufruct land — the Court pretermitted discussion of these relatively few proceeds until this point. The question of whether, under the law in force in 1957, a usufructuary of a separated mineral right had an obligation to account to the naked owner for production arguably is subject to more substantial debate than the preceding issue. There are cases and commentary supporting both sides, usually arising in contexts that are related but not directly on point. Ultimately, the Court concludes that implicit in the foregoing discussion is the corollary principle that mineral production that was not production from land subject to article 552 or a conventional extension thereof was not treated as a fruit. The usufructuary of the separated mineral right thus had a duty to account for the production at the end of the usufruct.
In this regard, the Court is not persuaded that the Supreme Court of Louisiana's Goode decision is controlling. Goode was decided under the Mineral Code, and the state high court expressly distinguished the analysis that might otherwise apply under the Civil Code of 1870 from the analysis under the Mineral Code. See 425 So.2d at 680. This Court further is not persuaded by the Government's argument late in the briefing cycle that the usufruct did not extend to proceeds from these separated mineral interests.
The Court thus holds that Louis Albritton had a duty to account to the daughters for the minimal production received from the few separated mineral interests.
Expense Accounting Issues
The Court's holding that an accounting was due on the production from separated mineral interests technically requires that it reach the parties' contentions regarding the categories of expenses that should be deducted from the accounting debt — the minimal financial impact of such a determination notwithstanding. Following review of the parties' respective contentions, the Court is persuaded by the Estate's argument that only income taxes, windfall taxes and severance taxes should be deducted from the accounting debt due. The office and other expenses by which the Government seeks to reduce the accounting debt must be borne by the usufructuary under the law in force at the relevant time. Cf. La. Civ. Code art. 570 (1870) ("The usufructuary is liable to all the necessary expenses for the preservation and working of the estates subject to the usufruct.")
RECOMMENDATION
Accordingly, the Magistrate Judge recommends that the motion (rec.doc. no. 43) for summary judgment by the defendant United States of America and the plaintiffs' motion (rec.doc. no. 46) for partial summary judgment both be GRANTED IN PART and DENIED IN PART, with the Court issuing an interlocutory partial judgment: (a) dismissing plaintiffs' refund claim with prejudice to the extent that it seeks a refund of an alleged mineral usufructuary debt arising from production attributed to mineral interests in the land subject to the usufruct; (b) recognizing the plaintiffs' entitlement to a deduction of an accounting debt for production from mineral interests separated from land; and (c) recognizing that only income, windfall, and severance taxes are to be deducted from that accounting debt.
If the recommendation is adopted, the Magistrate Judge will hold a conference to schedule the prompt resolution of the collateral calculation issues, so that a conclusive final judgment can be entered expeditiously.