Oil and Gas Lawyer Blog
Another case interpreting a royalty reservation in an old conveyance has been decided by the 11th Court of Appeals in Eastland: Boren Descendants and Mabee Descendants v. Fasken Oil and Ranch, Ltd., two consolidated appeals, Nos. 11-22-00365-CV and 11-23-00001-CV. This is the first skirmish in a fight that will undoubtedly end up in the Texas Supreme Court.
In 1933, Midland Farms Company sold to J.E. Mabee 60,000 acres of land in Andrews and Martin Counties. The deed reserves “an undivided one-fourth (1/4th) of the usual one eighth (1/8th) royalty.” The Boren and Mabee descendants are the successors-in-interest of J.E. Mabee in the minerals under this 60,000 acres. Fasken Oil and Ranch, Ltd. is the successor to Midland Farms Company and owner of the reserved royalty. Fasken is also the operator of wells on the 60,000 acres.
Fasken sued the Boren and Mabee descendants in 2019, contending that the 1933 deed reserved a floating 1/4th of the royalty. The Boren and Mabee descendants raised several affirmative defenses, including waiver, division order estoppel/estoppel by contract, judicial estoppel, estoppel by deed, limitations, ratification and/or quasi-estoppel, and presumed grant. The trial court sided with Fasken on construction of the royalty reservation and entered partial summary judgment denying the Boren and Mabee affirmative defenses, leaving only the question of damages. The judge suggested, and the parties agreed, to appeal the legal issues in both cases. The Eastland Court of Appeals affirmed the trial court’s rulings and remanded the cases.
The Eastland court followed the Supreme Court’s guidance in Van Dyke v. Navigator Group in construing the deed’s reservation language, applying Van Dyke’s presumption that, whenever a reservation contains a double fraction, the deed is intended to convey a floating royalty unless other language in the document leads to a different interpretation.
Van Dyke also addressed the “presumed grant doctrine.” The facts in Van Dyke showed that for many years and in many documents the parties had treated the interest as floating, and the presumed grant doctrine provided an independent basis for upholding its decision. the Van Dyke opinion said that the presumed grant doctrine has three elements:
(1) A long-asserted and open claim, adverse to that of the apparent owner; (2) nonclaim by the apparent owner; and (3) acquiescence by the apparent owner in the adverse claim. … The presumed grant doctrine, ‘also referred to as title by circumstantial evidence, has been described as a common law form of adverse possession.
The Boren and Mabee parties also pleaded that under the presumed grant doctrine they had established that the 1933 royalty reservation was a fixed 1/32 royalty. The trial court also overruled that claim, and the Boren/Mabee brief to the court of appeals goes to great lengths to describe the evidence they had submitted in support of their claim. But in this permissive appeal the trial court designated the issues to be appealed and that designation expressly did not include the presumed grant doctrine. The court of appeals held that it had no jurisdiction to address the Boren/Mabee arguments concerning presumed grant.
The evidence cited by Fasken in support of its presumed grant theory is voluminous: Fasken referred to its reserved royalty as 1/32 in sworn pleadings. Prior payments to Fasken under oil and gas leases with a royalty greater than 1/8 were 1/32, which Fasken accepted without objection. Prior correspondence from Fasken referred to its royalty as 1/32. Fasken signed division orders acknowledging that its royalty was 1/32. When Fasken became operator of leases on the property it credited itself with a 1/32 royalty. When Fasken conveyed its royalty to a different Fasken entity, Fasken Royalty Investments, Fasken credited the new entity with a 1/32 royalty. Fasken cites testimony from Boren and Mabee attorneys to the effect that the law on construction of reservations of double-fraction royalties has changed with new case law, and that they had no reason to consider whether the reservation was of a floating royalty until new cases construing similar language came out within the last several years.
Fasken’s evidence in support of its presumed grant argument is similar to the evidence the Supreme Court in Van Dyke found persuasive.
The Boren/Mabee brief argues that the court of appeals cannot consider Fasken’s presumed grant argument. But it also says the presumed grant doctrine is not applicable. The doctrine is sometimes described as an equitable form of adverse possession. Because a royalty interest is a nonpossessory interest and royalties cannot be adversely possessed, the presumed grant doctrine has no application to Fasken’s claim. They distinguish Van Dyke, which involved a mineral interest.
Millions of dollars are at stake in this case, and a lot of attorneys’ fees. The dispute will undoubtedly end up in the Supreme Court.