Recent Cases

Published on: March 2, 2021

Due Process and the No-Extrinsic-Evidence Rule: Challenges to Default Judgments When Service Was By Publication

Governmental entities in Texas like school districts, municipalities, hospital districts, and counties rely heavily on property taxes to finance their operations. Mineral interests are real property interests, and when a producing well is drilled the owners of rights to production from the well, both the working interest and the royalty owners, are subject to being levied a property tax on the value of their interests. When those property taxes are not paid, the taxing districts can file suit to foreclose their tax lien securing payment of the tax.

It has become the practice of some taxing districts to hire private law firms to file tax suits to collect taxes. Multiple small delinquent tax accounts are combined into one suit. The attorneys handling the case charge a flat fee per account to handle the matter and are responsible for trying to locate and serve the defendants with the lawsuit. In many cases, the delinquent taxes go back years and the taxing authorities have no current address for the royalty owners. So many named defendants are served by publication notice in a local newspaper or posting notice at the county courthouse. If the defendants do not answer, a default judgment is entered and the sheriff of the county is ordered to sell the royalty interests at a public sale.

Mitchell v. Map Resources, Inc. involves such a delinquent tax sale. In 1998, the Pecos-Barstow-Toyah Independent School District and the Reeves County Hospital District filed suit to foreclose tax liens against a some 673 defendants for delinquent taxes on royalty interests. One of the named defendants was Elizabeth Mitchell. The taxing authorities’ lawyers filed an affidavit seeking the court’s permission to serve the named defendants by posting, saying that each defendants is “either nonresident(s) of the State of Texas, absent from the state or transient,” and that “the names or residences of the owner or owners of the land or lots involved in said suit … are unknown and cannot be ascertained after diligent inquiry ….” Based on that affidavit, the court authorized service of the suit on the defendants by posting notice of the suit at the Reeves County courthouse. The court appointed an attorney ad litem to represent the defendants served by posting who had not appeared or answered. Continue reading →

Published on: January 4, 2021

Lyle v. Midway Solar: Solar farm meets accommodation doctrine

By John McFarland

The El Paso Court of Appeals tangled with the accommodation doctrine in Lyle v. Midway Solar, LLC, No. 08-19-00216-CV, and the mineral owner lost.

The Lyles own a 27.5% mineral interest in 315 acres in Pecos County. Gary Drgac owns the surface. Drgac leased the 315 acres to Midway Solar for a solar farm. Midway constructed its solar array, leaving 17 acres on the south end and 80 acres on the north end for “Designated Drill Sites.” Midway did not get a surface waiver from the Lyles. The solar array covers 70% of the surface above the Lyles’ mineral estate.

The Lyles sued Midway for trespass and breach of contract. The breach of contract claim was based on the language in the deed that reserved the mineral interest owned by the Lyles. It provided that the Grantors reserve “the right to such use of the surface estate in the lands as may be usual, necessary or convenient in the use and enjoyment of the oil, gas and general mineral estate ….” It also provided that Grantors would never be liable to Grantees for any damage or injury to the surface estate by reason of such use. The trespass claim was based on the theory that Midway’s use deprived the Lyles of the right to use the land under its solar array and therefore trespassed on the Lyle’s right to use the surface estate of that land. Continue reading →

Published on: December 21, 2020

After Five Years of Litigation, Texas Supreme Court Concludes that Lease’s Continuous Development Clause is Ambiguous

By John McFarland

Texas courts are very reluctant to hold that oil and gas lease provisions are ambiguous. The same holds true for deeds and wills. These instruments affect title to land, and if an instrument is ambiguous it inserts uncertainty into land titles and results in litigation over the parties’ intent using extrinsic evidence, usually before a jury. Such litigation often ends up with each party testifying as to what they meant in the instrument, leaving a jury with little go to on. Or the instrument in question is so old that no person is alive who could testify as to the parties’ intent.

The meaning of a contract, deed or lease is a “question of law,” meaning it is decided by a judge, not a jury, based solely on the “four corners” of the instrument. Only if an instrument is ambiguous can outside evidence of the parties’ intent be considered, and then the meaning of the contract is a fact question that may be submitted to a jury. Courts bend over backwards to avoid holding that an instrument is ambiguous. It is often the case that an appellate court will hold that the language of an instrument is unambiguous even though the court does not agree on the meaning!

But in Endeavor Energy Resources v. Energen Resources, the Supreme Court reached the conclusion, after eighteen pages of reasoning, that it was impossible to tell from the language in the lease what the parties intended, and that it was ambiguous. The Court remanded the case to the trial court to admit evidence of the parties’ intent.

Continue reading →

Published on: December 3, 2020

Another Case on Post-Production Costs

By John McFarland

Netty Engler Energy, LP has asked the Texas Supreme Court to review the decision of the Fort Worth Court of Appeals in Netty Engler Energy, LP v. Bluestone Natural Resources II, LLC, 2020 WL 3865269 (July 9, 2020).

Engler owns a royalty interest in a section of land in Tarrant County on which Bluestone owns a lease and operates gas wells. Engler’s royalty interest originated in a deed in which the grantor reserved a one-eighth non-participating royalty interest. The deed provides that the grantor reserves “a free one-eighth (1/8) of production … to be delivered to Grantor’s credit, free of cost in the pipe line, if any, otherwise free of cost at the mouth of the well or mine.”

Bluestone contracted with Crestwood Equity Partners to gather its gas through a gathering system owned by Crestwood and deliver it to various delivery points into a pipeline owned by Energy Transfer, where the gas is sold. Bluestone deducted the gathering fees charged by Crestwood from Engler’s royalty. Continue reading →

Published on: November 17, 2020

Another Bankruptcy Court Weighs In On Rejection of Gas Contracts

By John McFarland

On 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 →

Published on: October 28, 2020

Mineral Title Dispute Before Texas Supreme Court

By John McFarland

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 Weekly.)

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 →

Published on: October 5, 2020

GDHM Land & Mineral Owner Webinars

By John McFarland

Published on: September 28, 2020

Consent-to-assign Provisions in Oil and Gas Leases – Mayo Foundation v. BP America

By John McFarland

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 →

Published on: August 28, 2020

Supreme Court agrees to hear BPX v. Strickhausen

By John McFarland

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.

Published on: July 23, 2020

Another Chapter in Jimmy McAllen’s Fight with Forest Oil

By John McFarland

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.