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Texas Anti-SLAPP Statute Used in Oil & Gas Lease Dispute

Lona Hills Ranch, LLC v. Creative Oil & Gas Operating, LLC, et al., No. 03-17-00743-CV, Austin Court of Appeals.

Creative Oil & Gas held an oil and gas lease on Lona Hills Ranch’s property. Lona Hills concluded that the lease had expired, but Creative disagreed and filed for a permit to drill a new well on the lease. Lona Hills protested the permit on the ground that the lease had expired. But the Texas Railroad Commission ruled that Creative had a “good-faith claim” that its lease was still in effect and granted the permit. So Lona Hills sued Creative in Lee County for trespass and trespass to try title on the ground that the lease had expired.

TexasBarToday_TopTen_Badge_SmallIn response to Lona Hills’ suit Creative filed counterclaims for breach of the lease “by wrongfully claiming the Lease has terminated and wrongfully repudiating the Lease.” Lona Hills then filed a motion to dismiss Creative’s counterclaims under Texas’ Anti-SLAPP statute, the Texas Citizens Participation Act (TCPA), Tex.Civ.Prac. & Rem. Code Chapter 27.

A SLAPP is a “strategic lawsuit against public participation,” a suit intended to censor or intimidate critics by burdening them with the cost of a legal defense until they abandon their criticism or opposition.  Twenty-eight states have adopted statutes intended to protect against SLAPPs. In Texas, the Citizens Participation Act is intended to allow a person faced with a SLAPP an inexpensive procedure to challenge the validity of a claim that is “based on, relates to, or is in response to a party’s exercise of the right of free speech, right to petition, or right of association.”  The recipient of a SLAPP files a motion to dismiss and shows that the action is based on or in response to the recipient’s exercise of the right of free speech, right to petition, or right of association. The burden then shifts to the party bringing the SLAPP to
“establish by clear and specific evidence a prima facie case for each essential element of the claim in question” to avoid dismissal. All discovery in the case is stayed, except only affidavits filed by the parties, until the motion is decided.

The trial court denied Lona Hills’ motion to dismiss under the TCPA, and Lona Hills appealed.

The Austin Court of Appeals held that Lona Hills had met its burden of showing that some of Creative’s counterclaims “are predicated factually on the Ranch’s exercise of the right of free speech, specifically its communications to third parties that the lease had terminated.”  Creative contended that its counterclaims were based exclusively on alleged breach of the lease by failing to give notice and an opportunity to cure the lessee’s default. The lease provided:

no litigation shall be initiated by Lessee with respect to any alleged breach or default by Lessee hereunder, for a period of at least ninety (90) days after Lessor has given Lessee written notice fully describing the breach or default, and then only if Lessee fails to remedy or commence to remedy the breach or default within such period.

The court disagreed. Creative alleged in its pleadings that, because of Lona Hills’ claim that the lease had terminated, the purchasers of production had refused to pay for lease production, and that it had suffered damages “as a result of [Lona Hills’] breach of the Lease by wrongfully claiming the Lease has terminated and wrongfully repudiating the Lease.”  These allegations “plainly show that [Creative] seek[s] relief that is predicated, in addition to the alleged breach of [the lease], on an alleged injury caused by [Lona Hills’] communications regarding the lease termination. As such, [Lona Hills] established by a preponderance of the evidence that [Creative’s] counterclaims are ‘based on, relate to, or [are] in response to’ [Lona Hills’] ‘exercise of the right of free speech.'” The court held that Creative’s counterclaims based on Lona Hills’ communications to the purchaser of its claim that the lease had terminated should have been dismissed.

The court then examined whether Lona Hills had met its burden under the TCPA of showing that Creative’s suit for breach of the lease was predicated on its exercise of the right to petition. As to the breach of contract claim, the court held that Lona Hills had waived its right to protection under the TCPA because it agreed in the lease not to sue before giving prior notice and an opportunity to cure.

By agreeing to this provision, [Lona Hills] has contractually restricted its normally unrestricted constitutional right to petition. … Accordingly, [Lona Hills] cannot establish that [Creative’s] counterclaim is factually predicated on [Lona Hills’] exercise of a protected expressive activity because the Ranch has agreed by contract to a notice provision limiting its right to petition — i.e., the lease removes [Lona Hills’] petitioning from the realm of protected activity. … Therefore, the trial court did not err in refusing to dismiss the Lessee’s breach-of-contract counterclaim that is based on [Lona Hills’] complaint to the Railroad Commission and the filing of this lawsuit.

The court’s opinion does not say on what basis Lona Hills had for contending that its lease had terminated. The opinion only says that it sued for “trespass and trespass to try title, alleging that the lease had terminated.” Such a suit ordinarily is brought on the basis that production had ceased or had ceased in paying quantities.  Such a claim is not alleging that the lessee is in breach of the lease, only that the term of the lease has expired according to its own terms. Therefore, it seems to me that the lease requirement that the lessor give notice of the “breach or default” and an opportunity to cure would not apply to such a claim. If the lease has in fact terminated, the lessee cannot “cure” the termination.  It seems that Lona Hills could have argued that its right to petition that the lease had terminated was not waived by the notice provision in the lease.

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