Articles Posted in Recent Cases

The U.S. Court of Appeals for the Fifth Circuit recently handed down its opinion in Seeligson v. Devon Energy Production Co., Cause No. 17-10320. The case is an appeal from a decision in the District Court for the Northern District of Texas certifying a class of royalty owners to sue Devon for breach of the duty to market gas produced under the royalty owners’ leases. The Fifth Circuit affirmed all but one of the trial court’s findings on the appropriateness of allowing the class action to proceed.

The question of whether class actions are appropriate in federal courts are governed by federal rules and cases, but the class certification rules are very similar to those applied by Texas state courts. Although class actions are common in other contexts, such as suits by shareholders against their companies, they have not generally been successful in suits by royalty owners. The barriers created by the requirements to certify a class have usually been too great.

In Seeligson v. Devon, the plaintiffs claim that Devon breached its implied duty to market their gas. Devon’s wells in the Barnett Shale field are connected to a gathering system called the Bridgeport System, owned by an affiliate of Devon called Devon Gas Services. The gas is gathered and transported to the Bridgeport Gas Processing Plant, owned and operated by Devon Gas Services. Under a contract between Devon Energy and Devon Gas Services, Devon Gas Services takes delivery of the gas at the well and runs it through the plant, which separates the dry gas from the natural gas liquids and sells the dry gas and NGLs separately.  Under the contract, Devon Gas Services pays Devon Energy 82.5% of a published industry index price for the dry gas and NGLs. Devon Gas Services thus retains 17.5% of the value of the dry gas and NGLs to compensate it for the gathering and processing of the gas. Plaintiffs claim that this arrangement breaches Devon Energy’s duty to market because the 17.5% is in effect a processing fee that is far greater than the market rate for processing. Continue reading →

Two cases were argued in the Texas Supreme Court last week that bear watching, and a third interesting case is pending in the court on petition for review.

No. 17-0266, Burlington v. Texas Crude

Texas Crude and Burlington entered into a joint development agreement covering leases Texas Crude had acquired on lands in Live Oak County. As part of the deal, Texas Crude was entitled to an overriding royalty on all leases taken within the area of interest.  Multiple assignments of overriding royalty were made, all containing this language:

In Ridge Natural Resources v. Double Eagle Royalty, recently decided by the El Paso Court of Appeals, James and Jolinda McDaniel signed a “Royalty Lease” to Ridge, reading as follows:

Oil and Gas Royalty Lease

THIS LEASE AGREEMENT is made as of the 10th day of October, 2016 between

[the McDaniels]

as Lessor (whether one or more) … and Ridge Natural Resources … as Lessee. …

Continue reading →

The Senate hearings on Judge Brett Kavanaugh’s nomination to the Supreme Court have brought public attention to the role the Supreme Court, and courts in general, play in our trilateral system of government – a role that the public usually does not see in headlines other than when the Supreme Court considers hot-button social issues such as abortion and gun control. Most of the work done by courts flies under the radar and receives little public attention.

But a critical element in our system of government is its reliance on and belief in the “rule of law.” John Adams expressed this idea when he wrote that government should be a “government of laws and not of men.” It means that private citizens and government are accountable under the law; that laws be clear, just, publicized, and applied equally; that the process by which laws are enacted, administered and enforced are accessible, fair and efficient; and that justice is delivered timely by competent, ethical and independent representatives.  Lawyers have an obligation to uphold the rule of law independent of and superseding their obligation to clients. Every person, including lawmakers, law enforcement officials and judges, is subject to the law. The authority of our courts is based on this principle.

The US Court of Appeals for the D.C. Circuit issued an opinion last month that illustrates the rule of law in the context of the political shift that took place after the election of President Trump. The case, Air Alliance Houston v. EPA, No. 17-155, was heard by a panel of three judges on that court, Judges Rogers, Wilkins, and Kavanaugh. Because of Judge Kavanaugh’s nomination to the Supreme Court, he did not participate in the opinion. The opinion was issued “Per Curiam,” meaning it was not signed by a particular judge but was issued “by the court” collectively. Continue reading →

Jarndyce v. Jarndyce is a fictional court case in Charles Dickens’ Bleak House, an interminable suit over a large inheritance.  The case itself is a principal character in the book. Dickens wrote in Bleak House:

Jarndyce and Jarndyce drones on. This scarecrow of a suit has, over the course of time, become so complicated, that no man alive knows what it means. The parties to it understand it least; but it has been observed that no two Chancery lawyers can talk about it for five minutes without coming to a total disagreement as to all the premises. Innumerable children have been born into the cause; innumerable young people have married into it; innumerable old people have died out of it. Scores of persons have deliriously found themselves made parties in Jarndyce and Jarndyce without knowing how or why; whole families have inherited legendary hatreds with the suit. The little plaintiff or defendant, who was promised a new rocking-horse when Jarndyce and Jarndyce should be settled, has grown up, possessed himself of a real horse, and trotted away into the other world. Fair wards of court have faded into mothers and grandmothers; a long procession of Chancellors has come in and gone out.

A recent case filed in the Texas Supreme Court, In re: Occidental Chemical Corporation, et al., No. 18-0660, reminded me of Jarndyce.  The origin of the case is a dispute between San Patricio County and Nueces County over the boundary between them, which began in 1972, when San Patricio County sued Nueces County in Refugio County to establish their common boundary. (The Texas legislature, in its wisdom, enacted a statute requiring boundary suits between counties to be filed an an adjacent county, so as to avoid possible prejudice by judges in either of the warring counties.)  Two rulings were made by the district court in Refugio County, one on May 31, 1989 (not a typo), and one on April 11, 2003. The court established the boundary between the two counties at the shoreline of San Patricio County, and the court held that “past and future natural and artificial modifications to the shoreline of San Patricio County shall form a part of San Patricio County.”  Those judgments became final. Case finally resolved, right?

In U.S. Shale Energy II, LLC v. Laborde Properties, L.P., the Texas Supreme Court grappled again with a royalty reservation. In a 1951 deed, the grantors reserved the following:

There is reserved and excepted from this conveyance unto the grantors herein, their heirs and assigns, an undivided one-half (1/2) interest in and to the Oil Royalty, Gas Royalty and Royalty in other Minerals in and under or that may be produced or mined from the above described premises, the same being equal to one-sixteenth (1/16) of the production. This reservation is what is generally termed a non-participating Royalty Reservation.

The Bryans, who owned the reserved royalty, sued Laborde Properties, which owned the minerals subject to the reserved royalty, to determine whether the clause reserved 1/2 of the royalty or a 1/16 royalty.  The Court, in a 6-3 decision, held that the clause reserved 1/2 of the royalty – a “floating” royalty.