Articles Posted in Recent Cases

The Texas Supreme Court has once again reversed a jury verdict in favor of a royalty owner, holding that their claim is barred by limitations. The Court today issued its opinion in Shell Oil Company v Ross, reversing the judgments of the courts below in favor of Ross for $72,000 in unpaid royalties.

I wrote about this case back in January, see my previous post here.

Ross’ lease required that royalties on gas be based on the “amount realized” by the lessee. But from 1988 to 1994 Shell paid royalties based on a weighted-average price instead of the price it received for the gas. Then from 1994 to 1997, Shell paid royalties based on an internally generated “transfer price,” which Shell admitted it could not explain. In both cases, Shell admitted that it had not paid royalties as required by the lease. Its sole defense was that the royalty owner had failed to bring his claim within the four-year statute of limiations.

Another interesting case is pending before the Texas Supreme Court, this one involving condemnation of a pipeline easement. The San Antonio Court of Appeals, in LaSalle Pipeline v. Donnell Lands, affirmed a jury verdict awarding $650,000 to the landowner. The Supreme Court has asked for briefs on the merits but has not yet agreed to hear the case.

The Donnell family own an 8,000-acre ranch in McMullen County. LaSalle Pipeline sued to condemn an easement for a sixteen-inch gas pipeline across the ranch, for a length of 4.4 miles. In Texas, a condemnation case originally goes to three “commissioners” – citizens in the county appointed by the court to determine the amount to be awarded the landowner for the pipeline easement. The commissioners awarded the Donnells $226,000 for the easement – about $160 per rod, or $9.73 per foot. (A rod is 16.5 feet.) The Donnells appealed to the district court in McMullen County, where there was a trial de novo, meaning that the commissioners’ award was not considered and the jury was asked to determine the amount of the award based on evidence at the trial.

There are three elements of damages in a pipeline condemnation case: the damage to the land within the permanent easement; the temporary damage caused to the land by the additional workspace needed to lay the pipeline; and the diminution in value of the remaining property caused by the existence of the pipeline. These damages are estimated by qualified real estate appraisers, who testify as experts at the trial.

Mineral owners have lost another substantial verdict against an oil company based on their failure to bring the claim within four years. In Samson Lone Star v. Hooks, No. 01-09-00328-CV, the Houston First District Court of Appeals reversed a verdict and judgment against Samson for $21 million, holding that the claim was barred by the four-year statute of limitations as a matter of law — even though the jury had found that the Hooks should not have discovered Samson’s fraudulent conduct until April 2007, less than four years prior to their suit.

The case is reminiscent of a similar case, Exxon v. Emerald, decided by the Texas Supreme Court in 2009, in which the Supreme Court reversed an $18 million verdict against Exxon, again on the basis that the mineral owners’ claims were barred by limitations — despite an express finding by the jury that the plaintiffs had filed their claim within four years after they discovered or should have discovered Exxon’s fraudulent conduct. (Pat Lochridge, the lawyer who represented Exxon in the trial court in Exxon v. Emerald, represented the plaintiffs in Samson v. Hooks. You win some, you lose some.)

The Supreme Court did it again in BP v. Marshall, decided earlier this year. Again the Court overruled a jury verdict in favor of royalty owners, holding that their claim was barred by limitations as a matter of law.

Earlier this year, the San Antonio Court of Appeals issued an opinion in a case contesting the will of Belton Kleberg (B.K.) Johnson, greatgrandson of the founder of the King Ranch. Johnson died in 2001 at the age of 71. In the 1950’s, Johnson was passed over to head the management of the 825,000-acre King Ranch lands, and he sold his interest in the Ranch in 1976, but kept his royalty interests.

Johnson’s life and the will contest opinion give a rare glimpse into the world of the rich and powerful in South Texas. Johnson was educated at Deerfield Academy, Cornell and Stanford. He served on the board of directors of AT&T, Tenneco, Campbell Soup, the Southwest Foundation for Biomedical Research, and several Texas banks. He was the owner of Chaparrosa south of San Antonio, where he lived and raised his family and raised registered Santa Gertrudis cattle. He owned the Hyatt Regency Hotel on the San Antonio Riverwalk, and he restored the Fairmount Hotel in San Antonio.

Johnson was married three times. He and his first wife, Patsy, had three children: Ceci, Sarah and Kley. Kley died in a car accident in 1991, survived by his wife and two children. Sarah married Steven Pitt and they have three children. Ceci married Mark McMurrey, and they have three children.

The Texas Supreme Court issued three opinions last week of interest to Texas land and mineral owners: one dealing with the duties of holders of executive rights, one limiting the condemnation powers of pipelines, and one addressing whether injection well operators can be held liable for trespass if the injected substances migrate onto adjacent lands.

Leslie v. Veteran’s Land Board – The duty of the executive rights holder

The Supreme Court again considered what duty the holder of the
right to lease (“executive right”) minerals owned by another has to the
non-executive mineral interest owner. The court significantly weakened
its prior decision in In re: Bass, and increased the duties of
the holder of the executive right. The right to lease is often separated from the mineral interest. For example, if I sell a tract to a
developer, but want to keep part of the mineral interest, the developer
may object, worried that I, as a mineral interest owner, might lease my
interest and allow a company to drill wells on the property he intends
to develop for a residential subdivision. A common solution to this
problem is for me to retain a part of the mineral interest (or a part of the royalty interest) but convey to the developer the exclusive right
to lease the minerals. The developer is then protected, because no
mineral development can take place without his consent. Whenever the
right to lease is separated from the mineral or royalty interest, the
holder of the leasing right is called the holder of the “executive
right,” and the other mineral or royalty owner without any leasing right is called the owner of the “non-executive” interest.

In the Leslie case, a developer named Bluegreen
purchased 4,100 acres of land in southwest Tarrant County, outside of
Fort Worth, to develop a large residential subdivision, Mountain Lakes,
of over 1700 lots. Bluegreen acquired some of the minerals in the 4,100
acres and all of the executive rights to the minerals. Bluegreen then
imposed restrictive covenants on its development to govern what kinds of homes could be built, what uses of the property could be made, etc. One of those restrictive covenants prohibited “commercial oil drilling, oil development operations, oil refining, quarrying or mining operation.”
Later, development of the Barnett Shale formation in Tarrant County
occurred, and companies sought to lease the 4,100 acres to drill Barnett wells, but found that the restrictive covenant prohibited development.
Evidence in the case showed that “Mountain Lakes is sitting on $610
million worth of minerals that, in large part, cannot be reached from
outside the subdivision.” So the non-executive mineral owners sued,
seeking to have the restrictive covenants declared void. Their theory
was that, by imposing the restrictive covenant prohibiting mineral
development, Bluegreen had breached its duty as the holder of the
executive rights. The trial court declared the restrictive covenant
void, but the Eastland Court of Appeals upheld it. The Supreme Court
agreed with the trial court, holding that “Bluegreen breached its duty
to [the non-executive mineral owners] by filing the restrictive
covenants. The remedy, we think, should be the … cancellation of the
restrictive covenants.”

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The Texas Supreme Court on August 19 overruled the royalty owners’ motions for rehearing of their decision in BP v. Marshall. For my prior discussion of this case, go here. To see the Court’s original opinion, go here.

Counsel for the plaintiffs in BP v. Marshall filed unusual motions for rehearing after the Texas Supreme Court reversed the judgments of the courts below awarding substantial damages for fraud. See my discussion of the Supreme Court’s decision here. The Marshalls’ attorneys’ motion for rehearing accuses the court of engaging in “de novo review of a jury finding,” exceeding the court’s constitutional authority, violating the Marshalls’ constitutional right to a jury trial, ignoring uncontradicted expert testimony, and ignoring its own prior precedent. The motion calls the court’s reasoning “disingenuous.” The Vaquillas attorneys’ motion for rehearing says that “the decisional process has gone awry,” and the court “has not decided, or even recognized, the main issue in the Vaquillas-Wagner case.” From the Vaquillas motion for rehearing:

“The Opinion resolves the BP-Marshall dispute on a legal insufficiency point, but the Opinion never uses the phrase ‘standard of review,’ never alludes to the standard of review, and never undertakes to apply one.”

“Perhaps the Court has in mind an explanation — maybe even a devastating explanation — for making the evidence that supports the verdict all vanish. Very well, then, but the Opinion ought to opine on these things, rather than leaving the world wondering.”