Articles Posted in Recent Cases

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Top-TenOn October 28 Judge David Jones, US Bankruptcy Court for Southern District in Houston, issued a memorandum opinion in Chesapeake Energy’s bankruptcy (Case No. 20-33233), granting Chesapeake’s motion to reject its contract to sell gas to ETC Texas Pipeline.

The Bankruptcy Code allows a debtor in bankruptcy to “reject” an “executory contract.” As the court explained,

In simple terms, Sec. 365(a) allows a debtor to re-evaluate the wisdom of continued performance of a particular contract based upon the circumstances faced by the debtor during the bankruptcy case. By rejecting an executory contract, a debtor is permitted to disavow further performance of its obligations under a burdensome contract. … The rejection of an executory contract constitutes a breach by the debtor of the contract immediately before the petition date. … In general terms, this breach results in a general unsecured claim against the bankruptcy estate for the damages caused by the debtor’s future nonperformance. … Thus, any allowed claim would be paid pro rata with the debtor’s other unsecured creditors.

Chesapeake considered its gas purchase contract with ETC to be burdensome and so sought permission from the court to reject the contract, leaving ETC with an unsecured claim for damages caused by Chesapeake’s breach. Continue reading →

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The Texas Supreme Court will hear arguments in December in Concho Resources v. Ellison, No. 19-0233, a fight over ownership of the minerals in 154 acres in Irion County. (The population of Irion county was 1,599 in 2010. Its county seat is Mertzon. The county was once the hideout of outlaw Tom Ketchum. Irion County was the home of Mont Noelke, a rancher, writer and renaissance man who wrote a column for many years beloved by the readers of the Livestock Top-TenWeekly.)

In 1927, the Sugg family agreed to a land swap with the Noelke family, and to effectuate the swap, the Suggs executed a deed conveying a tract described as follows:

All of Survey 1, Block 6, HTC Ry Co land located North and West of the public road which now runs across the corner of said Survey, containing 147 acres, more or less.”

A later survey in 1939 determined that in fact the portion of Section 1 lying north and west of the public road contained 301 acres. The crux of the dispute is whether the 1927 deed conveyed only 147 acres or instead conveyed all of the 301 acres north and west of the highway (which everyone agreed remained as it was in 1927). Samson, based on a lease from the successors in title to the land lying south and east of the road, claimed that the boundary was not the road but was limited to a 147-acre tract lying north and west of the road. Samson drilled a well on the disputed 154-acre tract, leading to the litigation. Marsha Ellison, claiming to own the minerals in the 154 acres (as successor to Noelke), brought suit. Continue reading →

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U.S. District Judge Matthew Kacsmaryk, in Amarillo, recently wrote an opinion in Mayo Foundation for Medical Education and Research v. BP America Production Company, 447 F.Supp.3d 522 (March 3, 2020) dealing with the enforceability of a lease provision requiring the lessee to obtain the lessor’s consent to assign an oil and gas lease. The opinion addresses issues that, remarkably, have never been discussed by a Texas court. Judge Kacsmaryk provides a detailed discussion and analysis of legal arguments on the construction and enforceability of consent-to-assign clauses in oil and gas leases.

Barbara Lips owned a ranch in Roberts and Ochiltree Counties. She signed an oil and gas lease to Alpar Resources in 1994. Ms. Lips died in 1995 and devised the ranch to the endowment arm of the Mayo Clinic. Bank One was hired as agent to manage the Clinic’s interest. The lease was later amended to contain the following provision:

The rights and obligations of the Lessee hereunder are not assignable or transferable in any respect by it, except upon the written approval of Bank One Trust Company, N.A., as Agent, or any successor Agent, which approval shall not be unreasonably withheld.

The lease, as to a portion of the land, came to be owned by BP America, which asked Bank One for permission to assign its interest in the lease to Courson Oil & Gas. Bank One refused to grant consent, citing past business dealings and litigation with Courson. Mayo Foundation then sued BP seeking an injunction to prevent the assignment. Continue reading →

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The Texas Supreme Court has agreed to hear argument in BPX Operating v. Strickausen, Case No. 19-0567, an important case for royalty owners. I wrote about this case when it was decided last year by the Corpus Christi Court of Appeals (Strickhausen v. Petrohawk Operating, No. 04-18-00636-CV). That court ruled for Ms. Strickhausen, the royalty owner, on the issue of whether she had ratified a pooled unit by accepting royalties, despite protests by her and her lawyer that Petrohawk (now BPX) was not authorized by her lease to form the pooled unit. Briefs in the case can be found here.

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It seems that Jimmy McAllen’s troubles over damages and injuries he suffered when Forest Oil buried mercury-contaminated iron sponge wood chips on his ranch will never end. Arbitration of his claims resulted in a $20 million award which was affirmed by the Corpus Christi Court of Appeals, and the Supreme Court denied review.

But shortly thereafter, McAllen got in a dispute over attorneys’ fees related to the case with his lawyer and former son-in-law Chris Amberson. McAllen claimed his lawyer overcharged for fees and submitted bills for fraudulent expenses. That dispute also went to arbitration, and the arbitrator, Tom Collins, entered an award against Amberson for more than $15 million. Collins found that Amberson had billed McAllen almost $1.7 million in “reimbursable expenses” to retain 38 experts for the Forest Oil litigation. “These were made-up expenses,” Collins wrote, adding that “almost 100% percent of the expert retainers were not paid.” Collins found almost $2.6 million in fraudulent charges.

Amberson then asked the district court which appointed the arbitrator to set aside part of the award. But a company owned by Amberson, also a party to the case, has now sought bankruptcy protection, and the case was removed to bankruptcy court. The battle continues.

 

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The First Court of Appeals in Houston agreed with the Hlavinkas that HSC Pipeline Partnership, an Enterprise Products company, had failed to prove it has authority to condemn a pipeline easement across their land in Brazoria County. Hlavinka v. HSC Pipeline Partnership, No. 01-19-00092-CV.

The  Hlavinkas purchased 15,000 acres in 2002-2003 “for the primary purpose of generating income by acquiring additional pipeline easements.” When they purchased the land there were more than twenty-five pipelines traversing the property. HSC proposed to acquire an easement across the land for a pipeline from Texas City to a plant in Brazoria County owned by Braskem America which would carry propylene. Propylene is a product of refining crude oil. Enterprise purchases refinery-grade propylene from various refineries and further refines it into polymer grade propylene (PGP) at its facilities in Mont Belvieu.  HSC contracted with Braskem to sell it propylene at Mont Belview, and then to ship it for Braskem to Braskem’s plant in Brazoria County.

The Hlavinkas and HSC could not agree on terms for an easement, so HSC sued to condemn the easement. The Hlavinkas challenged HSC’s right to condemn on various grounds, which the trial court overruled. The trial court also excluded testimony of Terrance Hlavinka related to damages and valuation of the easement. After trial, the Hlavinkas were awarded $132,293.36, representing $108,957.35 for crop and surface damages and $23,326 for the easement. The Hlavinkas appealed.

The Court of Appeals ruled in favor off the Hlavinkas on two issues: first, it held that HSC did not prove as a matter of law that it was a common carrier with the power of eminent domain, and that a fact issue was raised on that point by the evidence presented. Second, it held that the trial court should not have excluded Terrance Hlavinka’s testimony on the value of the easement. Continue reading →

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The Fifth Circuit Court of Appeals has held that a landowner has stated a judiciable claim against the Brazos Valley Groundwater Conservation District (BVGCD) for an unconstitutional taking of his groundwater rights. David Strata, et al. v. Jan A. Roe, et al., No. 18-60994. Fascinating facts.

Groundwater Districts were created by the Texas Legislature to manage production of groundwater. Most Districts cover one county. The BVGCD covers Robertson and Brazos Counties. There are nearly 100 Districts encompassing 72 percent of major and minor aquifers in the State. Each District adopts its own rules governing permitting of and production from water wells.

BVGCD’s rules create three categories of water wells: Existing Wells, New Wells, and Wells with Historic Use. Its rules are designed to “minimize as far as practicable the drawdown of the water table and the reduction of artesian pressure, to control subsidence, to prevent interference between wells, to prevent degradation of water quality, and to prevent waste.” The rules provide that Historic Use Wells are generally limited to producing the maximum amount of groundwater used before the effective date of the District’s rules. New Wells have a maximum allowable production based on the number of contiguous acres assigned to the well. When a water well is produced it creates a “cone of depression” in the aquifer – the more water withdrawn, the greater the cone of depression.  The District’s rules establish a formula that calculates the amount of water that can be withdrawn from a well based on the number of acres assigned to the well. For example, a New Well producing 3,00 gallons per minute must have 649 continuous acres assigned the well – a circle with a radius of 3,003 feet. No other wells may be permitted in this 649 acres. The District’s rules define “Existing Wells” as those wells “for which drilling or significant development of the well commenced before the effective date of these Rules.” But the rules do not establish production limits for Existing Wells that have no established historic use. Continue reading →

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Yesterday the Texas Supreme Court denied a petition in one case and granted a petition in the other, both dealing with provisions in oil and gas leases.Top-Ten

The Court denied Chesapeake’s petition in Chesapeake v. Bell, construing an express drainage offset clause in Bell’s lease. The San Antonio Court of Appeals’ decision in favor of Bell stands – for now. The case goes back to the trial court for trial on the merits. I wrote about the Court of Appeals’ decision here.

The Supreme Court granted Endeavor Energy’s petition for review in Endeavor Energy Resources v. Energen Resources, No. 18-1187, dealing with a continuous drilling provision in a lease retained acreage clause.

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Lone Oak Club, a hunting and fishing club, owns a tract of land in Galveston County near Galveston Bay, through which runs Lone Oak Bayou:

lone-oak-bayou

Top-TenMembers of the public boat up into Lone Oak Bayou and sometimes wade and fish or hunt in its shallow waters. Lone Oak complained about this activity and asserted that it owns the bed of Lone Oak Bayou and that members are trespassing when they set foot on the bayou’s bed. The Club agrees that the public has the right to boat on the public waters of the bayou, but when the fisherman or hunter steps out of his boat, they claimed trespass. The Texas General Land Office disagreed. It said the State owns the bed of Lone Oak Bayou adjacent to the Club’s land because the bayou is influenced by tides from the bay and is below the line of mean high tide, and the State owns all submerged lands within tidewater limits. So the Club sued George P. Bush, Commissioner of the Land Office, to establish its title to the bed of the bayou within the boundaries of its 160 acres.

Nature sometimes does not cooperate with the laws created by humans to establish the boundary between the land and water. In Texas especially these laws, mostly created by courts, can sometimes be confusing and complex. Water boundaries shift with the rise and fall of tides, erosion and evulsion, and changes in watercourses. I learned this when I was asked, in my first year of law practice many years ago, to summarize Texas laws regarding land boundaries and rights of public access for a client who owned land along the coast. Continue reading →

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