Recent Cases

Published on: March 21, 2016

Ruling on Remand in Hooks v. Samson

In January of last year the Texas Supreme Court decided Hooks v. Samson, a suit by royalty owners against Samson Lone Star Limited Partnership. I wrote a post on the Supreme Court’s decision, found here. The Hooks obtained a $21 million fraud judgment against Samson, but the First District Court of Appeals reversed and rendered judgment that the Hooks should take nothing. The Hooks appealed to the Texas Supreme Court. The focus of the Supreme Court’s opinion was whether the Hooks’ claim was barred by limitations — whether the Hooks should have discovered Samson’s conduct more than four years before it sued Samson. The court of appeals had held that, under prior Supreme Court cases, it was bound to rule that the Hooks’ case was barred by limitations and should be dismissed. But the Supreme Court distinguished its prior opinions and held that, when the fraudulent documents Samson gave to Hooks were filed by Samson in the Railroad Commission, the Hooks could rely on them, even if the documents are contradicted by other public records.

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Published on: February 8, 2016

Supreme Court Decides Hysaw v. Dawkins

By John McFarland

On January 29, the Texas Supreme Court issued its opinion in Hysaw v. Dawkins, a unanimous decision with opinion by Justice Guzman. Our firm represents one group of the plaintiffs in the case, which concerns construction of Ethel Hysaw’s will.

Ethel Hysaw had three children: Dorothy, Howard and Inez. Her will, executed in 1947, divided her lands in Karnes County among her three children. She gave one tract to each child. But she divided the royalties on oil and gas differently, and the dispute in the case was over how the will disposed of her royalty interest in the three tracts. The descendants of Dorothy and Howard argued that Ethel’s will divided all oil and gas royalties equally among Dorothy, Howard and Inez. The descendants of Inez argued that Ethel’s will divided a 1/8th royalty equally among her children, but left all other royalties to the child who got the surface of the property. Wells producing from the Eagle Ford shale were drilled on the lands willed to Inez, and the lease signed by Inez’s descendants provides for 22.5% royalty. Inez’s heirs argued that Dorothy and Howard’s descendants each should receive 1/3 of 1/8th royalty, or 4.1666%, from those wells, and that they should receive the rest, .141666%. Dorothy and Howard’s descendants argued that each family should receive 1/3 of the 22.5% royalty, or 7.5% each.

Ethel’s will provided that

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Published on: February 1, 2016

Texas Supreme Court Denies Motion for Rehearing in Chesapeake v. Hyder

By John McFarland

Last week the Texas Supreme Court denied Chesapeake’s motion for rehearing in Chesapeake v. Hyder. The court originally affirmed the lower courts’ opinions in favor of the Hyders, with four justices dissenting. On rehearing, the court’s alignment did not change, but Justice Hecht issued a new opinion for the majority, and Justice Brown issued a new dissenting opinion, joined by Justices Willett, Guzman and Lehrmann.

These new opinions end a long fight between Chesapeake and the Hyders over the deductability of post-production costs from their gas royalties in the Barnett Shale area. Although the leases contain strong language against deduction of post-production costs, Chesapeake argued that, under the precedent of the prior Supreme Court decision of Heritage Resources v. NationsBank, 929 S.W.2d 118 (Tex. 1996), it could deduct post-production costs. Chesapeake lost in the trial court and the court of appeals. The Supreme Court granted Chesapeake’s petition for review but affirmed the decisions below, split 5 to 4. With the denial of Chesapeake’s motion for rehearing, that decision is now final.

The Hyders’ lease allows Chesapeake to drill horizontal wells from surface locations on the Hyders’ property which produce from adjacent lands — in other words, to use the Hyders’ land to produce oil and gas from adjacent properties. As consideration for that right, the Hyder lease grants the Hyders a royalty interest in production from those wells — an “overriding royalty,” carved out of Chesapeake’s working interest in the leases covering those adjacent lands. The Hyder lease provides that the Hyders are granted “a perpetual, cost-free (except only its portion of production taxes) overriding royalty of five percent of gross production obtained” from such wells. The argument was over the meaning of that language. Chesapeake argued that “cost-free” meant free of production costs; the Hyders argued that “cost-free” means fee of production and post-production costs.

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Published on: January 8, 2016

Aycock v. Vantage Fort Worth Energy – Effect of Lease Ratification

By John McFarland

The Texas Supreme Court recently denied a petition for review filed by the Aycocks in their suit against Vantage Fort Worth Energy. The trial court and court of appeals both ruled against the Aycocks’ claims. The holding in the case is not surprising, but dicta in the court of appeals’ opinion may raise some eyebrows among oil and gas lawyers.

Desdemona Cattle Company owned an undivided mineral interest in 1,409 acres in Erath County. In March 2008 Desdemona leased its undivided interest to Vantage Fort Worth Energy for $750 per net mineral acre, for a total of $394,574.60. The Aycocks also owned an undivided mineral interest in the 1,409 acres, and when they learned of Desdemona’s lease to Vantage, they contacted Vantage and sought to lease their interest. Vantage never replied. No well was ever drilled, and the Desdemona lease expired in March 2011.

In May 2012, the Aycocks sued Vantage. They claimed that they had ratified the Desdemona lease and were entitled to be paid a bonus of $750 per net mineral acre for their mineral interest. The trial court denied the Aycocks’ claim. The Eastland Court of Appeals affirmed, holding that the Aycocks had no basis to assert a claim for unpaid bonus against Vantage.

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Published on: December 9, 2015

Class Actions Against Chesapeake in Pennsylvania

By John McFarland

Lawyers have filed a new class action against Chesapeake in Pennsylvania. The suit is against Chesapeake Energy and Chesapeake Marketing, filed in the US District Court for the Middle District of Pennsylvania. The plaintiffs also filed a demand for arbitration with the American Arbitration Association against Chesapeake Appalachia, LLC. According to the arbitration demand, title to Chesapeake’s leases in Pennsylvania is held by Chesapeake Appalachia, and many of those leases contain arbitration clauses requiring the lessor to arbitrate its claims. The complainants make the arbitration demand on behalf of all royalty owners in Pennsylvania who have leases with arbitration clauses.

The suit and the arbitration demand make similar claims, that Chesapeake through its affiliated companies “(1) paid the royalties on less than the revenue paid by the buyer, (2) paid no royalty on the proceeds of derivative contracts, (3) deducted costs incurred after [Chesapeake] no longer held title to the gas, (4) deducted gathering costs that were inflated through collusion and self-dealing with Access Midstream Partners, L.P., (5) deducted transportation costs that were fraudulent in their amounts, (6) deducted marketing fees that were never incurred, and (7) calculated the royalties on some of the gas without determining either the price paid or the costs deducted.”

The plaintiffs are represented by Caroselli Beachler McTiernan & Coleman, LLC in Pittsburgh and Robert C. Sanders, of Upper Marlboro, Maryland.

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Published on: November 16, 2015

Amicus Briefs Support Royalty Owners in Chesapeake v. Hyder

By John McFarland

Three amicus briefs have been filed in support of the Hyders, opposing Chesapeake’s motion for rehearing of the Texas Supreme Court’s decision in Chesapeake v. Hyder.

An amicus brief was filed by the City of Fort Worth and others who have filed suits against Chesapeake and Total to recover additional royalties on production in the Barnett Shale area: City of Fort Worth Amicus Brief

An amicus brief was filed by a group of royalty owners represented by Dan McDonald, a Fort Worth attorney who has filed 430 separate suits against Chesapeake, representing more than 20,900 royalty owners in Johnson and Tarrant Counties: Barnett Shale Royalty Owners Amicus Brief

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Published on: October 26, 2015

Amici Weigh In on Motion for Rehearing in Chesapeake v. Hyder

By John McFarland

The Texas Supreme Court asked the Hyders to respond to Chesapeake’s motion for rehearing in Chesapeake v. Hyder, after the court’s recent 5-4 decision in favor of the Hyders. Several amicus briefs (“friend of the court” briefs by entities not parties to the case) were filed in support of Chesapeake’s motion for rehearing. Exploration companies are clearly unhappy with language in Chief Justice Hecht’s majority opinion and asking the court to modify its language. The amicus briefs made the San Antonio Business Journal’s “Eagle Ford Shale Insight” feature.

I’ve written about this case before, and our firm filed an amicus brief in the case before the court issued its opinions, on behalf of Texas Land & Mineral Owners’ Association and the National Association of Royalty Owners-Texas.

So far, on rehearing, the following parties have joined in amicus briefs criticizing the court’s majority opinion:

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Published on: October 15, 2015

Oral Argument in Coyote Lake Ranch Water Rights Case

By John McFarland

The Texas Supreme Court heard arguments yesterday in the fight between the City of Lubbock and Coyote Lake Ranch over whether the accommodation doctrine applies to severed water rights. Here is a good article from the Texas Tribune summarizing the arguments. The oral arguments can be viewed on the Texas Supreme Court website, here. My earlier discussion of the case can be found here.

Published on: October 12, 2015

San Antonio Court of Appeals Denies Cernys’ Nuisance Claim

By John McFarland

I have written before about landowners’ efforts to collect damages for personal injury and property damage caused by nearby oil and gas exploration operations on the theory that such activities cause a nuisance. Nuisance is a recognized tort claim. To recover, a person must prove that (1) the person has an interest in land (2) the defendant interfered with or invaded the person’s interest in the land by conduct that was negligent, intentional, or abnormal and out of place in its surroundings, (3) the defendant’s conduct resulted in a condition that substantially interfered with the person’s use and enjoyment of his land, and (4) the nuisance caused injury to the plaintiff.

In the case decided by the court of appeals in San Antonio, Cerny v. Marathon Oil, the Cernys bought an acre of land with a residence on it in 2002. In 2012, Marathon began drilling wells in the area. Plains Exploration and Production also constructed production facilities in the area. Eventually, there were 22 well sites within 1 1/2 mile of the Cernys’ home. The Cernys hired experts, who measured chemicals in the air around their home and near oil and gas production sites in the area. The experts included an air quality expert, a forensic meteorologist, and a toxicologist.

The Cernys sued Marathon and Plains, alleging that the fumes, odors and dust from their facilities caused physical health symptoms and made their home uninhabitable. Marathon asked the trial court to dismiss the case, on the ground that the Cernys had no evidence that their facilities were the “proximate cause” of the Cernys’ alleged damages.

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Published on: September 14, 2015

The Power to Regulate Pollution

By John McFarland

During my vacation I read The Quartet: Orchestrating the Second American Revolution, 1783-1789, by Joseph J. Ellis. Ellis tells the story of the writing and passage of the US Constitution, orchestrated, he asserts, by George Washington, Alexander Hamilton, John Jay and James Madison (the quartet).

Before the adoption of the Constitution, the thirteen states were essentially independent countries who had won their independence but failed to found a new country. The “United States” were always referred to in the plural. The genius of the quartet, says Ellis, was the compromise they crafted in the Constitution in the debate over federal vs. state power. States were understandably reluctant to relinquish their sovereignty, but the quartet knew that the new nation, to survive, had to have federal power – to levy taxes, provide for common defense, and regulate commerce among the states. The Constitution enumerates the powers of the federal government. The Bill of Rights – the first ten amendments to the Constitution, passed simultaneously — enumerates the rights retained by the states and the people, limitations on federal power. The tenth amendment provides: “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.” The contours of this compromise are still being debated in courts across the land. “States rights” were fighting words in the civil war, and today are the battle cry of states seeking to curb the federal government’s regulation of health care, water quality, voting rights, and abortion.

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