Opinion by: PHYLIS J. SPEEDLIN, Justice.
This appeal arises out of a title dispute over oil and gas producing property in McMullen County, Texas. The trial court resolved the issues of title in a summary judgment, rejected the plaintiffs' bad faith trespass claims against the working interest owners, and after a bench trial awarded damages for unpaid net revenues and royalties. The court declined to award attorney's fees to any party. Five parties appeal from the judgment.
The underlying lawsuit arises out of a title dispute to mineral interests in a 690.54-acre tract known as the Baker Property, which comprises Section 3, Seale & Morris Survey A-434, in McMullen County, Texas. In 2001, the period of time relevant to this appeal, there were four owners of the mineral estate in the Baker Property:
A joint operating agreement ("JOA") covered the Baker Property (the
The El Paso and Baker Leases each contained a "continuous production or operations" clause providing for continuation of the lease after the expiration of its primary term for as long as operations or production was on-going. The clauses were substantially the same, and provided that the lease would "remain in force so long as drilling, mining or reworking operations are prosecuted (whether on the same or different wells) with no cessation of more than sixty (60) consecutive days, and if they result in production, so long thereafter as oil or gas is produced from said land or land pooled therewith." With respect to the term of the JOA, Article 10 provided that the JOA "shall remain in full force and effect for as long as any of the oil and gas leases subjected to this agreement remain or are continued in force as to any part of the Unit Area, whether by production, extension, renewal or otherwise..."
In 1986, ARCO entered into a purchase and sale agreement with Prize Energy ("Prize"), known at that time as Petrus Energy, pursuant to which it sold all its rights under the JOA. Under the terms of the agreement, ARCO retained its royalty interest and its right of reverter to its 25% mineral interest subject to the JOA's "deemed lease," which mineral interest would revert back to ARCO free and clear if the JOA ever terminated. After the 1986 sale, Prize and the P.R. Rutherford Group were the operators under the JOA on the Baker Property from 1986 forward.
During June—August 2001, there was a 71-day period when no well on the Baker Property was operating or producing in
In 2004, Cliff Hoskins, who had no previous connection to the Baker Property, conducted some research on leases in the area, and became aware of the possible termination of the Baker Property's Leases and the JOA in August 2001. Hoskins, through his company Cliff Hoskins, Inc. ("Hoskins"), contacted BP (f/k/a ARCO), and offered to buy its 25% mineral interest which Hoskins asserted had reverted to BP in August 2001—when the JOA had purportedly terminated due to the cessation of operations. On June 25, 2004, BP sent a letter to Magnum Hunter Resources, Inc.
Hoskins filed suit to quiet title on January 25, 2005.
In their suits against Prize and the Rutherfords, Hoskins and BP asserted claims to quiet title to their interests and for declaratory relief, plus claims for bad faith trespass, theft/conversion, recovery of unpaid proceeds under the Texas Natural Resources Code, breach of contract, and recovery of attorney's fees. The Bank, as trustee for the Baker Trusts, also asserted various claims against Prize and the Rutherfords, including claims for fraud, trespass, and theft, rescission of its Ratification, and to quiet title to the Baker Trusts' mineral interest.
Competing summary judgment motions were filed by all the parties. On February
The parties were unable to stipulate to the net revenues, so a bench trial was held on that issue. On September 11, 2009, the trial court signed its final judgment which incorporated its interlocutory judgment "addressing the liability issues in this case," and then awarded damages for net revenues to Hoskins of $1,267,482, plus pre-judgment and post-judgment interest, and damages for net revenues and royalty revenues to BP of $3,252,827, plus pre-judgment and post-judgment interest. The court found the "underlying nature of Hoskins' and BP's suit was to obtain a determination of title," and declined to award attorney's fees to any party. The court made an alternative finding, however, that each party had incurred reasonable attorney's fees of $900,000 each. All parties appealed from the judgment.
In the main appeal, appellants Prize
As noted, supra, the trial court granted declaratory relief to Hoskins and BP on the question of their title to the 25% unleased mineral interest. Specifically, the court held that, in August 2001, the El Paso and Baker Leases and the JOA terminated, and BP's 25% mineral interest reverted to it free and clear of the JOA; therefore, from August 2001 through August 15, 2004, BP had clear fee simple title to its undivided 25% mineral interest. On August 16, 2004, Hoskins acquired title to such 25% mineral interest from BP, subject only to BP's retention of a 6.25% nonparticipating royalty interest. In their appeal, Prize and the Rutherfords assert the judgment in favor of Hoskins and BP on their title claims should be reversed and rendered because, as a matter of law, the JOA never terminated; therefore, there was no reversion to BP of the 25% mineral interest contributed to the JOA, and BP could not sell the 25% mineral interest to Hoskins. Thus, Hoskins owns no interest in the Baker Property. Under Prize's and the Rutherfords' theory, BP still holds only the reversionary right to the 25% mineral interest plus the right to receive royalties.
In support of their position, Prize and the Rutherfords make the following arguments: (1) as an initial matter, BP and Hoskins have no standing to assert that the JOA terminated because they are not parties to the operating agreement; (2) the JOA never terminated because it was continued or revived by the Ratifications of the El Paso and Baker Leases signed by Burlington, the Rutherfords, and the Bank; (3) the JOA never terminated because it was extended by the conduct of the parties to the agreement, i.e., Prize and the Rutherfords continued to operate under the JOA; and (4) even if the Leases and JOA terminated due to the cessation of production/operations, the "deemed lease" created by Article 3 of the JOA did not terminate because it contains no "cessation of production" clause.
Standing is a component of subject matter jurisdiction and must be resolved first before the merits of an issue may be addressed. DaimlerChrysler Corp. v. Inman, 252 S.W.3d 299, 304 (Tex.2008) (noting a court lacks jurisdiction over a claim made by a plaintiff without standing to assert it). To have standing, a plaintiff must be "personally aggrieved" and his injury must be "concrete and particularized, actual or imminent, not hypothetical." Id. at 304-05. Standing cannot be waived and may be raised for the first time on appeal. Tex. Ass'n of Bus. v. Tex. Air Control Bd., 852 S.W.2d 440, 445 (Tex. 1993). A party's standing is determined at the time suit is filed. Id. at 446 n. 9; In re Guardianship of Archer, 203 S.W.3d 16, 23 (Tex.App.-San Antonio 2006, pet. denied). In determining standing, we look to the facts alleged in the petition, but may consider other evidence in the record if necessary to resolve the question of standing. Bland Indep. Sch. Dist. v. Blue, 34 S.W.3d 547, 555 (Tex.2000).
Prize and the Rutherfords assert that neither BP nor Hoskins has standing to assert the JOA terminated because (i) neither is a party to the JOA, and (ii) neither is a third party beneficiary of the JOA. BP and Hoskins respond that they have standing because BP is the successor to ARCO, an original signing party to the JOA, who retained a contractual interest in the JOA after the 1986 sale because its unleased 25% mineral interest was "contractually committed" to the JOA under Article 3; therefore, the reversionary interest retained by ARCO/BP was directly tied to, and wholly dependent on, the termination of the JOA, giving BP standing to sue to declare the JOA terminated.
First, it is undisputed that neither BP nor Hoskins is a signing party to the JOA.
Prize and the Rutherfords assert that because ARCO sold all its rights under the JOA in 1986, and BP succeeded only to the royalty and reversionary interests retained by ARCO, BP has no standing to challenge the JOA because it is not a party to the JOA, and is not a third party beneficiary of the JOA; alternatively, at most, BP is only an incidental beneficiary who may not bring an action on the JOA. We agree that, under well-settled contract principles, only the parties to a contract have the right to complain of a breach of the contract, with the exception that a nonparty who proves the contract was made for his benefit, and that the contracting parties intended he benefit from the contract, may bring an action on the contract as a third party beneficiary. See Grinnell v. Munson, 137 S.W.3d 706, 712 (Tex.App.-San Antonio 2004, no pet.); Tennessee Gas Pipeline Co. v. Lenape Resources Corp., 870 S.W.2d 286, 295 (Tex. App.-San Antonio 1993), aff'd in part and rev'd in part on other grounds, 925 S.W.2d 565 (Tex.1996); Bruner v. Exxon Co., 752 S.W.2d 679, 682-83 (Tex.App.-Dallas 1988, writ denied). In contrast to a donee or creditor beneficiary, an "incidental beneficiary" who may receive only an incidental benefit from the performance of the contract, does not have a right of action on the contract. MCI Telecomm. Corp. v. Tex. Utilities Elec. Co., 995 S.W.2d 647, 651 (Tex.1999); see Grinnell, 137 S.W.3d at 712-14 (surface estate owner, who as shareholder of corporate mineral owner had indirect right to receive share of royalties when paid under oil and gas leases, was merely an incidental beneficiary who did not have standing to sue to declare leases terminated; he was not a party to leases and leases were not intended to benefit surface owner); see also Bruner, 752 S.W.2d at 682-83 (party with assignment of rentals was merely incidental beneficiary of lease, and had no standing to sue for wrongful termination of oil and gas lease).
Here, however, the critical factor is that BP is claiming an ownership interest by virtue of the reversion of its mineral interest. An oil and gas lease generally conveys a fee simple determinable in the mineral estate with the possibility of reverter. Natural Gas Pipeline Co. v. Pool, 124 S.W.3d 188, 192 (Tex.2003) (lessee acquires ownership of all the minerals in place that lessor owned and leased, subject to possibility of reverter in the lessor); Concord Oil Co. v. Pennzoil Exploration and Prod. Co., 966 S.W.2d 451, 460 (Tex. 1998) (lessor also receives the rights bargained for under the lease, typically the payment of royalties, delay rentals and bonuses). A "`possibility of reverter' is the real property term of art for what the
Termination of an oil and gas lease is a contractual matter. Wagner & Brown, Ltd. v. Sheppard, 282 S.W.3d 419, 424 (Tex.2008); Tittizer v. Union Gas Corp., 171 S.W.3d 857, 860 (Tex.2005) (oil and gas lease is a contract and its terms are interpreted as such). In construing an unambiguous oil and gas lease, we seek to enforce the parties' intent as expressed within the four corners of the lease document. Tittizer, 171 S.W.3d at 860; Anadarko Petroleum Corp. v. Thompson, 94 S.W.3d 550, 554 (Tex.2002). We construe the lease as a whole, attempting to harmonize all its parts, and attribute to the lease's language its plain, grammatical meaning unless it would undermine the parties' intent. Anadarko, 94 S.W.3d at 554. A typical Texas mineral lease contains an habendum clause that defines the duration of the lease, typically providing a relatively short fixed term of years as the primary term and then a secondary term for "as long thereafter as oil, gas or other mineral is produced." Id.; Grinnell, 137 S.W.3d at 714. A lease that states its secondary term lasts for "as long as oil or gas is produced" automatically terminates if actual production ceases other than temporarily. Anadarko, 94 S.W.3d at 554; Amoco Prod. Co. v. Braslau, 561 S.W.2d 805, 808 (Tex.1978).
Here, the Baker and El Paso Leases expressly provided for a fixed primary term, and upon its expiration for a secondary term during which
Therefore, the life of the secondary term of the Leases was dependent on the continuation of operations with no interruption of more than sixty consecutive days. Upon the undisputed cessation of operations for more than sixty consecutive days in June-August 2001, both the Baker and El Paso Leases automatically terminated according to their express language, without the need for any legal action by the lessors. See Anadarko, 94 S.W.3d at 554; Braslau, 561 S.W.2d at 808; W.T. Waggoner Estate v. Sigler Oil Co., 118 Tex. 509, 19 S.W.2d 27, 30 (1929); see also BP Am. Prod. Co. v. Marshall, 288 S.W.3d 430, 451 (Tex.App.-San Antonio 2008, pet. granted); Woodson Oil Co. v. Pruett, 281 S.W.2d 159, 164-65 (Tex.Civ.App.-San Antonio 1955, writ ref'd n.r.e.) (under terms of particular lease, parties stipulated that a cessation of production for more than sixty consecutive days was not "temporary," and if re-working or additional operations did not begin during the 60-day period the lease would terminate by its own terms; therefore, lessees were not entitled to reasonable time to remedy problem and resume production).
Termination of the Leases in August 2001 in turn triggered the automatic termination of the JOA according to its own contractual language. Article 10 of the JOA expressly provided that the agreement "shall remain in full force and effect for as long as any of the oil and gas leases subjected to this agreement remain or are continued in force as to any part of the Unit Area, whether by production, extension, renewal or otherwise." The language of Article 10 clearly makes the term of the JOA dependent on the continuation of the "leases subjected to this agreement;" it is undisputed that the Baker and El Paso Leases were the only leases that were contributed to the JOA. When the Baker and El Paso Leases terminated due to the more than sixty-day cessation of operations, the JOA automatically terminated according to the express language of Article 10. Wagner & Brown, 282 S.W.3d at 424; Anadarko, 94 S.W.3d at 554.
Upon termination of the Leases and JOA, the mineral interests immediately and automatically reverted back to the mineral owners, without the need for any action; the unleased 25% mineral interest contributed by BP's predecessor ARCO immediately reverted to BP, free and clear of the JOA. See Sigler Oil, 19 S.W.2d at 30 (if a lease terminates, the fee interest reverts to the lessor without the lessor taking any legal action); see also Marshall, 288 S.W.3d at 451 ("If the lease's primary term expires when there is non-production and the lessee fails to comply with any savings clause in the lease, the lease and the lessee's determinable fee interest `automatically terminates' ... and the fee interest reverts to the lessor without the lessor taking any legal action."). At that point, in August 2001, upon the termination of the JOA and the concurrent reversion to BP, BP became an unleased co-tenant in the Baker Property. Marshall, 288 S.W.3d at 460; Ladd Petroleum Corp. v. Eagle Oil and Gas Co., 695 S.W.2d 99, 110-11 (Tex.App.-Fort Worth 1985, writ ref'd n.r.e.) (if leases terminated, lessee would be considered a co-tenant of the leasehold estate with right to enter tract
Prize and the Rutherfords argue that the JOA never terminated because the Ratifications of the Baker and El Paso Leases signed by the Rutherfords, Burlington, and the Bank in February 2005 either continued or renewed the JOA under Article 10.
Even the JOA recognizes that any unleased mineral interest must be affirmatively "contributed" to the Unit Area in order for the "deemed lease" provision of Article 3 to apply.
We similarly reject the argument made by Prize and the Rutherfords that the JOA was extended by their conduct in treating the JOA as on-going, or, alternatively, that their conduct in continuing to develop the Baker Property created an implied joint operating agreement. This is a species of the same argument we rejected above. The argument ignores the fact that the mineral interests immediately reverted to the lessors/owners upon the cessation of production, and termination of the Leases
In conclusion, according to the written documents' unambiguous terms, the Leases automatically terminated upon the more than sixty-day cessation of operations in August 2001, causing the JOA to simultaneously terminate and BP's 25% mineral interest contributed to the JOA to revert back to BP free and clear. Accordingly, we hold the trial court correctly resolved the question of title, holding in relevant part that, "from August 2001 forward, the interests owned by Hoskins and BP in and to the Baker Ranch property ... are as follows: (1) from August 2001 through August 15, 2004, BP had an undivided 25% mineral interest, subject only to a 1/64th non-participating royalty interest burden (herein the `BP 25% mineral interest'); and (2) from August 16, 2004 forward, the `BP 25% mineral interest' passed to Hoskins, subject to BP retaining an undivided.06250 of 8/8ths royalty interest, which burdens the `BP 25% mineral interest' now owned by Hoskins." Therefore, we overrule Prize's and the Rutherfords' Issue No. 3 concerning title. Having resolved the issues of standing and title, we next address Hoskins' allegation of bad faith trespass against Prize and the Rutherfords.
The parties contested whether Prize and the Rutherfords were bad faith trespassers because they continued to operate on the Baker Property after the cessation of operations in August 2001, and, in fact, drilled and completed Baker Well Nos. 7 through 13 after termination of the Leases and the JOA, and over BP's protest. Hoskins, BP, and the Bank moved for summary judgment declaring that the Leases and JOA terminated in August 2001 and to clear title to their respective interests. Prize moved for summary judgment, arguing: (1) that the JOA had never terminated because of "production, extension, renewal, or otherwise;" (2) that Prize and the Rutherfords had the right to drill and operate on the Baker Property because they were co-tenants, or had the consent of a co-tenant; and (3) that Prize and the Rutherfords had adversely possessed any interest allegedly reserved by BP or its predecessor. As we have previously discussed, the trial court granted Hoskins' and BP's request for declaratory relief on the title issues. As part of the declaratory relief granted on summary judgment, and re-stated in the final judgment, the court made a finding that Prize and the Rutherfords "as mineral owners or invitees of mineral owners were not trespassers, or alternatively, were `good faith trespassers,' immediately after termination of the Leases and the 1967 JOA in August 2001 and at all times thereafter." Furthermore, the court ordered that the plaintiffs "take nothing ... on any trespass claim in this cause."
On cross-appeal, Hoskins and the Bank
When reviewing a no-evidence motion for summary judgment, we review the evidence in the light most favorable to the respondent against whom the no-evidence summary judgment was rendered, disregarding all contrary evidence and inferences. City of Keller v. Wilson, 168 S.W.3d 802, 823 (Tex.2005); Reynosa v. Huff, 21 S.W.3d 510, 512 (Tex.App.-San Antonio 2000, no pet.). If the respondent brings forth more than a scintilla of probative evidence to raise a genuine issue of material fact, a no-evidence summary judgment cannot properly be granted. TEX.R. CIV. P. 166a(i); Reynosa, 21 S.W.3d at 512. More than a scintilla of evidence exists when the evidence "rises to a level that would enable reasonable and fair-minded people to differ in their conclusions," while less than a scintilla exists when the evidence is "so weak as to do no more than create mere surmise or suspicion." Reynosa, 21 S.W.3d at 512 (internal citations omitted).
Where both parties file competing motions for summary judgment, and one is granted and one is denied, we review the record and consider all questions presented and render the decision the trial court should have rendered. Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005); Holy Cross Church of God in Christ v. Wolf, 44 S.W.3d 562, 566 (Tex. 2001). If a movant does not establish its entitlement to summary judgment as a matter of law, we must remand the case to the trial court. Gibbs v. Gen. Motors Corp., 450 S.W.2d 827, 829 (Tex.1970). When summary judgment is sought on multiple grounds and the trial court's order does not indicate the basis for its ruling, we will affirm the summary judgment if any theory advanced by the movant is meritorious. Carr v. Brasher, 776 S.W.2d 567, 569 (Tex.1989); Villanueva v. Gonzalez, 123 S.W.3d 461, 464 (Tex.App.-San Antonio 2003, no pet.).
As one of their affirmative defenses, Prize and the Rutherfords asserted their entry after August 2001 was justified under the law of co-tenancy which provides that a co-tenant has a right to explore, drill, and produce minerals from the common estate without consent from any other cotenant. Byrom v. Pendley, 717 S.W.2d 602, 605 (Tex.1986); Cox, 397 S.W.2d at 201 (each co-tenant has right to enter common estate and corollary right of possession). It is a well-established principle in Texas that a co-tenant has the right to extract minerals from common property without obtaining consent from the other co-tenants, subject only to a duty to account to them for the value of any minerals taken, less the reasonable costs of production and marketing. Wagner & Brown, 282 S.W.3d at 426.
We agree with the trial court that Prize and the Rutherfords established that, as a matter of law, they were co-tenants, or invitees of co-tenants, in the Baker Property after the Leases and JOA terminated in August 2001. It is undisputed that, at all times relevant to this case, the Rutherfords held a 25% mineral interest in the Baker Property, in addition to acting as one of the operators on the property. The Rutherfords, along with the Bank, were lessors under the Baker Lease. When that Lease terminated in August 2001 due to the lack of operations, the Rutherfords' mineral interest subject to the Lease reverted back to them. From August 2001 forward, the Rutherfords were therefore co-tenants in the Baker Property along with the other mineral interest owners—the Bank, Burlington, and BP. See Marshall, 288 S.W.3d at 459-60. Prize operated on the Baker Property as a co-operator with the Rutherfords, who were both mineral interest owners and co-operators.
Having determined that the JOA terminated in August 2001, and having affirmed the trial court's determination of title, we next turn to the issue of damages. Prize, the Rutherfords, Hoskins, and BP all raise various challenges to the trial court's award of damages to Hoskins and BP. We begin by addressing the arguments raised by Prize and the Rutherfords in the main appeal, then address the issues raised on cross-appeal by Hoskins and BP, and finally address the conditional issues raised separately by the Rutherfords.
As noted, the trial court awarded Hoskins $1,267,482 as its share of the net revenues from August 16, 2004 to October 31, 2008, and awarded BP $3,252,827 as its share of the net revenues from August 1, 2001 to August 15, 2004 and its royalties from August 16, 2004 to October 31, 2008.
In their appeal, Prize and the Rutherfords argue the damages awarded to Hoskins and BP must be reversed, and a take-nothing judgment must be rendered, because (i) Hoskins and BP did not recover under any legal theory that supports an award of damages, and (ii) all of the damages awarded to BP represent royalties, and Prize and the Rutherfords are not liable to BP for any royalties after BP sold its mineral interest to Hoskins. In addition, Prize and the Rutherfords complain the final judgment improperly awards future relief.
Here, both Hoskins' and BP's live pleadings included, among others, a claim for declaratory relief and to quiet title to BP's 25% mineral interest which was transferred
In its final judgment rendered after the bench trial on damages, the trial court made no express finding as to the legal theory under which it was awarding the "net revenues" damages to Hoskins and BP (plus "royalty revenues"), but did explain its method of calculating the damages. The court's award of "net revenues" calculated as "gross revenues less reasonable and necessary expenses beneficial to the Subject Acreage" conforms to the TNRC's requirement that a payee is entitled to receive its share of the "proceeds derived from the sale of oil or gas from an oil or gas well." See TEX. NAT. RES.CODE ANN. §§ 91.401(1), 91.402(a) (West 2001); see also Concord Oil, 966 S.W.2d at 461 (while statute was designed to protect royalty interest owners, it also encompasses working interest owners and operators); Headington Oil Co., L.P. v. White, 287 S.W.3d 204, 209-10 (Tex.App.-Houston [14th Dist.] 2009, no pet.). Moreover, the court's assessment of pre-judgment interest on the damages awards is also consistent with recovery under the TNRC, as section 91.403(a) expressly provides for pre-judgment interest as a penalty for failure to meet the prompt payment requirements of the statute. See TEX. NAT. RES. CODE ANN. § 91.403(a). In addition, the record of the bench trial clearly shows that BP's and Hoskins' right to recover their share of the proceeds under the TNRC
Prize and the Rutherfords assert there is "no cause of action" under the TNRC, and characterize it as merely a "prompt payment statute." To the contrary, section 91.404 clearly and expressly provides a payee with a cause of action for nonpayment of its share of mineral proceeds, and/or interest on those proceeds, under the TNRC. Id. § 91.404(c) ("A payee has a cause of action for nonpayment of oil or gas proceeds or interest on those proceeds as required in Section 91.402 or 91.403 of this code ...."); see Bright & Co. v. Holbein Family Mineral Trust, 995 S.W.2d 742, 744 (Tex.App.-San Antonio 1999, pet. denied); see also Anadarko E & P Co., LP v. Clear Lake Pines, Inc., No. 03-04-00600-CV, 2005 WL 1583506, at *2 (Tex. App.-Austin July 7, 2005, no pet.) (mem. op.). As noted, both Hoskins and BP specifically pled for their share of unpaid production proceeds under the TNRC.
In addition, Prize and the Rutherfords argue they are relieved of any liability under the TNRC based on the absence of a signed division order by BP and Hoskins. We disagree. First, the plain language of section 91.402(c) makes the existence of a signed division order only a precondition for "payment" of a payee's share of oil and gas proceeds, not a precondition to a payor's liability to pay oil and gas proceeds. Section 91.402(c)(1) states, "As a condition for the payment of proceeds from the sale of oil and gas production to payee, a payor shall be entitled to receive a signed division order from payee...." TEX. NAT. RES.CODE ANN. § 91.402(c)(1). The purpose of a division order is to provide the procedure for distributing the oil and gas proceeds to the payees "by authorizing and directing to whom and in what proportion to distribute the sale proceeds." Neel v. Killam Oil Co., 88 S.W.3d 334, 341 (Tex.App.-San Antonio 2002, pet. denied), disapproved of on other grounds by Hausser v. Cuellar, 345 S.W.3d 462 (Tex.App.-San Antonio 2011, no pet. h.) (en banc); see also Gavenda v. Strata Energy, Inc., 705 S.W.2d 690, 691 (Tex.1986). In other words, the division order is merely the mechanism for payment to a payee of its share of oil and gas proceeds. Second, the statute places the burden on the payor to submit a division order to the payee for its signature; it is not the royalty owner or mineral interest owner's burden to draft its own division order, sign it, and submit it to the payor. TEX. NAT. RES.CODE ANN. § 91.402(c)(1) ("... a payor shall be entitled to receive a signed division order from payee ..."); see, e.g., Headington Oil, 287 S.W.3d at 207 (oil company that purchased leases with producing oil and gas wells submitted division orders to the known interest owners for signature).
In the absence of express findings in a bench trial, we presume the trial court impliedly made all findings necessary to support its judgment, and affirm the judgment if it can be upheld on any basis. Holt Atherton Indus., Inc. v. Heine, 835 S.W.2d 80, 83-84 (Tex.1992); Point Lookout West, Inc. v. Whorton, 742 S.W.2d 277, 278 (Tex.1987) (per curiam). Here, construing the entire texts of the final judgment and summary judgment order (incorporated by reference in the final judgment) as a whole, it is clear the trial court (i) reserved from the summary judgment the recovery by Hoskins and BP of their share of net revenues and royalties attributable to their respective interests as declared by the court, and (ii) in the final judgment awarded damages to Hoskins and BP consisting of "net revenues" and "royalty revenues" under section 91.402(a) of the TNRC after conducting a bench trial to determine the specific amounts.
Second, as the entities operating on and producing oil and/or gas from the Baker Property, Prize and the Rutherfords, and their successor operators, constitute "payors" under the TNRC, and as such are responsible for distributing the oil and gas proceeds to the "payees," defined as "persons legally entitled to payment from the proceeds derived from the sale of oil or gas," which includes royalty interest owners. TEX. NAT. RES.CODE ANN. § 91.401(1), (2) (defining a "payor" as "the party who undertakes to distribute oil and gas proceeds to the payee, whether as the purchaser of the production of oil or gas . . . or as operator of the well from which such production was obtained or as lessee under the lease on which royalty is due."); see Concord Oil, 966 S.W.2d at 461. Thus,
In its third issue on cross-appeal, Hoskins
The trial court expressly rejected the "well by well" method in its final judgment, stating "the Court FINDS that Hoskins' and BP's argument for damages based on a well-by-well basis is not meritorious, and the Court rejects that argument." The court then proceeded to make additional findings that: (i) there is no applicable limitation to Defendants' obligation to account to Hoskins and BP, and therefore no time bar to any of their claims; and (ii) the COPAS production overhead should be allowed as reasonable and necessary costs. In awarding Hoskins unpaid "net revenues," the judgment states the amounts represent "net revenues (i.e., gross revenues less reasonable and necessary expenses beneficial to the Subject Acreage and including Baker Well
To support its well by well approach, Hoskins relies on the court of appeals opinion in Wagner & Brown, Ltd. v. Sheppard, 198 S.W.3d 369 (Tex.App.-Texarkana 2006), rev'd by 282 S.W.3d 419 (Tex.2008), as "the only case on point found by either party directly considering how damages should be calculated when an unleased cotenant drills both profitable and unprofitable wells." That case turned on, as a question of first impression, how a pool of producing oil and gas properties is affected if a lease in the pool expires. Wagner & Brown, 282 S.W.3d at 421. Specifically, the case involved an operator seeking to recover reimbursement for a mineral interest owner/unleased co-tenant's share of costs for drilling a gas well before and after the lease on the land had mistakenly expired due to failure to pay the owner's royalties within 120 days of the first gas sales. Id. at 421-22. In reversing the Texarkana court, the Supreme Court held in relevant part that: (i) termination of the lease did not terminate the owner's participation in the pooling unit because mineral owners can agree to pool their lands even if no lease exists; and (ii) an operator who drills a well in good faith is entitled to equitable reimbursement of costs, even if the operator's lease is not valid, as long as the operator believed in good faith the lease was valid. Id. at 422-23, 426-27. Finally, the Supreme Court confirmed the long-standing rule in Texas that "a cotenant has the right to extract minerals from common property without first obtaining the consent of his cotenants; however, he must account to them on the basis of the value of any minerals taken, less the necessary and reasonable costs of production and marketing." Id. at 426 (citing Byrom, 717 S.W.2d at 605). As to the reason Hoskins relies on the Texarkana opinion, its deduction of expenses on a well by well basis, the Supreme Court expressly noted that it would not reach that issue because it was not raised on review. See id. at 425 n. 24 (noting the court of appeals "held that the defendants could not deduct expenses incurred on the first well
To further support its well by well approach, Hoskins asserts the evidence is "uncontroverted" that the Baker Well Nos. 8, 11, and 13 were unprofitable, and thus did not benefit the co-tenancy. Hoskins contends that failure to calculate damages on a well by well basis, in the absence of a joint operating agreement stating otherwise, is contrary to well-established Texas law because a co-tenant is not entitled to reimbursement for unsuccessful operations. See Neeley v. Intercity Mgmt. Corp., 732 S.W.2d 644, 646 (Tex.App.-Corpus Christi 1987, no writ) (if co-tenant drills a dry hole, he does so at his own risk and without right to reimbursement for the drilling cost); see also Burnham v. Hardy Oil Co., 147 S.W. 330, 335 (Tex.Civ. App.-San Antonio 1912), aff'd, 108 Tex. 555, 195 S.W. 1139 (1917) (expenses connected with nonproducing wells are not chargeable to other co-tenants but should be borne by those who incurred them).
In response to Hoskins' argument for the well by well calculation, Prize and the Rutherfords note the Texarkana opinion in Wagner & Brown cites no authority supporting the well by well approach. See Wagner & Brown, 198 S.W.3d at 380-81. They further argue that based on the Supreme Court's holdings and tenor in its
We have found no case other than the Texarkana opinion which applies a strict well by well analysis to a co-tenant's reimbursement claim. See Wagner & Brown, 198 S.W.3d at 380-81. We note, however, that as a general rule oil and gas wells are characterized as improvements to real property; as such, equitable principles apply and dictate that a person who "in good faith makes improvements upon property owned by another is entitled to compensation therefore." Wagner & Brown, 282 S.W.3d at 425-26. Furthermore, "[i]t has long been the rule in Texas that a cotenant has the right to extract minerals from common property without first obtaining the consent of his cotenants; however, he must account to them on the basis of the value of any minerals taken, less the necessary and reasonable costs of production and marketing." Id. at 426 (emphasis in original). The Supreme Court in reversing the court of appeals, although not addressing the well by well analysis, clearly stressed the equitable nature of a reimbursement-for-improvements claim. Id. at 428. The Court stated,
Id. at 428-29 (emphasis in original).
Applying the above principles to the facts in Wagner & Brown, the Supreme Court held that the trial court and court of appeals abused their discretion in declaring costs unrecoverable, because there was evidence that those costs benefitted the estate. Id. at 429. The Supreme Court relied on fairness considerations, as well as past and potential future benefits to the estate from future wells that may be drilled, when ruling the trial court abused its discretion in refusing reimbursement of drilling costs. Id. at 424-25, 428-29. Applying the reasoning found in the Supreme Court's decision in Wagner & Brown, we decline to apply a strict well by well approach to the costs at issue in this case, and instead will review the trial court's determination of the equities from the evidence presented under an abuse of discretion standard.
Turning to the evidence, Hoskins discounts the argument by Prize and the Rutherfords that the unprofitable Baker wells nonetheless benefitted the co-tenancy by (i) preventing drainage from nearby development, (ii) providing beneficial geological "wellbore" information, and (iii) permitting re-entry of the unplugged wells in the future. The record confirms that Prize's expert, Don Ray George, testified extensively that the expenses from Baker Well Nos. 8, 11, and 13 were reasonable and necessary and benefitted the estate. Specifically, George testified that Well Nos. 8, 11, and 13 were drilled in "good faith to offset and develop the reservoirs." He testified the operator and the other mineral interest owners gained a myriad of valuable information "beneficial to the overall development of the minerals underlying the Earl Baker Estate" from the drilling of these wells. George opined,
Hoskins also complains that all of the costs of the non-producing wells were incurred after BP's June 25, 2004 letter concerning termination of the JOA, and after suit was filed. As noted earlier, however, the long standing rule is that a co-tenant has the right to extract minerals from the common estate without the consent of his cotenants.
In summary, the trial court did not abuse its discretion in rejecting a well by well approach to calculate Prize's and the Rutherfords' reimbursement-for-improvements claim and in awarding Hoskins unpaid "net revenues" calculated as "gross revenues less reasonable and necessary expenses beneficial to the Subject Acreage
In its third issue on cross-appeal, BP complains the trial court erred in permitting Prize and the Rutherfords to satisfy their obligation to account to BP for its share of net revenues by tendering to BP its applicable share of gas in-kind at the wellhead in lieu of payment of its share of proceeds from the sale of production. The trial court ordered in the last substantive paragraph of the judgment that, "any party who is a producing co-tenant of oil, gas and/or condensate from the Subject Acreage shall account to the non-producing parties." Specifically, the court ordered that Prize and the Rutherfords, "for so long as they remain as producing co-tenants, shall have the continuing obligation to account to Hoskins and BP for their respective shares of net revenues attributable to the Subject Acreage." The trial court further provided:
(emphasis added).
BP argues the trial court's judgment should be modified to remove the take-in-kind option because no legal authority exists allowing the producing co-tenant to force the non-producing co-tenant to take a share of gas at the wellhead instead of receiving its share of net production proceeds after the gas is treated and marketed. In response, Prize and the Rutherfords argue the trial court acted within its discretion in allowing them to tender gas in-kind at the wellhead.
Allowing a co-tenant to tender gas in-kind at the wellhead is inconsistent with Texas cotenancy law which provides that "a cotenant who produces minerals from common property without having secured the consent of his cotenants is accountable to them on the basis of the value of the mineral taken less the necessary and reasonable cost of producing and marketing the same." Cox, 397 S.W.2d at 201. Prize and the Rutherfords cite us to no authority showing that a producing co-tenant can comply with its duty to account to a nonproducing co-tenant by tendering the applicable share of gas "in kind" at the wellhead. A trial court abuses its discretion if it acts without regard for any guiding rules or principles. City of Brownsville v. Alvarado, 897 S.W.2d 750, 754 (Tex.1995). Accordingly, we grant BP's third issue on cross-appeal and modify the trial court's judgment to remove the last sentence of
Because we have sustained the damages award to Hoskins and BP, we must address the issues raised by the Rutherfords with respect to damages. The Rutherfords assert in two issues that all of the Rutherford Children
As we have previously held, the court's damages award to BP and Hoskins was made pursuant to the TNRC. In its last amended petition regarding its claim under the TNRC, BP did not include the Rutherford Children, but sought to recover its share of production revenues "jointly and severally" only from "Prize Energy, Prize Operating, Gruy, Rutherford Oil and/or Hunter Gathering" as "payors" under the TNRC. Similarly, Hoskins affirmatively states that the "only" cause of action it asserts against the Rutherford Children is its suit to remove the cloud on Hoskins' title to an undivided 25% mineral interest in the Subject Acreage. In addition, the record does not reflect that the issue of the Rutherford Children's liability for any damages was actually tried by consent. Accordingly, the Rutherford Children's issue is sustained, and the judgment will be modified to reflect that the damages award is not assessed against the Rutherford Children.
The trial court again in its final judgment repeated that it was granting the defendants' motion for summary judgment on all claims of trespass and further "ORDER[ED] that Hoskins, BP and Bank of America, N.A., as Trustee of the Baker Trusts take nothing on their trespass claims. . . ."
Second, while we have upheld the award of damages under Chapter 91 of the TNRC, the statute does not address joint and several liability among payors. By analogy, co-tenancy law is clear that the obligations of co-tenants are based on their proportional share. As the Supreme Court has noted, when dealing with obligations of co-tenants, "the rule of accountability is the proportionate market value of the product less the proportionate necessary and reasonable costs of producing and marketing." Cox, 397 S.W.2d at 203. Here, during the time period from August 2001 to October 2008, the period for which damages were awarded against Prize and the Rutherfords, all the parties were in a co-tenancy relationship. Since a recovery against co-tenants is not generally imposed as a joint and several liability, we see no reason why a recovery of unpaid oil and gas proceeds against co-tenants under the TNRC would be treated any differently. Accordingly, we sustain the Rutherfords' issue, and will modify the judgment to delete the imposition of joint and several liability among all the defendants.
We next address the parties' arguments concerning recovery of attorneys' fees and interest. The trial court did not award attorneys' fees to any party because it found the underlying nature of the case was a determination of title; the court made an alternative finding that reasonable and necessary attorneys' fees were $900,000 for each group of parties. In awarding damages to Hoskins and BP, the court also awarded pre-judgment interest at 5% per annum simple interest from December 22, 2004 until the day before the date of the final judgment, and post-judgment interest at 5% per annum, compounded annually.
On appeal, Prize and the Rutherfords assert they are entitled to recover attorneys' fees because they prevailed on summary judgment against the theft claims brought by Hoskins, BP, and the Bank; they also assert the court's award of pre-judgment and post-judgment interest should be reversed. Hoskins and BP argue they should have been awarded attorneys' fees because they prevailed in obtaining their share of revenues under the TNRC.
Hoskins, BP, and the Bank offer several responses, one of which is that Prize and the Rutherfords failed to plead for recovery of their attorneys' fees under the Theft Liability Act. We agree. As noted, supra, a trial court may not grant relief on a theory of recovery not sufficiently stated in the party's live pleadings or tried by consent. Herrington, 222 S.W.3d at 102. The purpose of pleadings is to give an adversary notice of claims and defenses, as well as notice of the relief sought. Perez v. Briercroft Serv. Corp., 809 S.W.2d 216, 218 (Tex.1991). Here, Prize and the Rutherfords did not place the plaintiffs, or the trial court, on notice that they were seeking to recover their attorneys' fees under section 134.005(b) by so stating in their summary judgment motion or any other pleading before the trial court at the time it rendered judgment.
Because Prize and the Rutherfords failed to specifically request recovery of their attorneys' fees under section 134.005(b) in the trial court, and the issue was not tried by consent, we hold the trial court did not abuse its discretion in failing to award them attorneys' fees under the Theft Liability Act. See Bocquet v. Herring,
Here, as noted supra, the trial court found the underlying nature of Hoskins' and BP's suit was a title determination of their interest in the Baker Property. We agree. The record is clear that a legitimate question concerning title to the 25% unleased mineral interest originally owned by ARCO, to which BP succeeded and sold to Hoskins, was the underlying basis for this case, and that the title dispute affected the rights of Hoskins and BP to receive payments under section 91.402(a). Therefore, prejudgment interest was not recoverable under the plain language of section 91.402(b)(1). Concord Oil, 966 S.W.2d at 461. Finally, the award of pre-judgment interest may not be sustained under equity, or common law, as argued by Hoskins and BP, because the Supreme Court has stated that the statute controls. Id. at 462-63 (holding that, when there is a title dispute affecting distributions of oil and gas proceeds, equitable prejudgment interest may not be awarded under common law because it would be in direct conflict with section 91.402(b) of the TNRC).
On cross-appeal, Hoskins and BP assert in their third and first issues, respectively, that they are entitled to receive their attorneys' fees because they obtained relief under the TNRC. We agree. We have held, supra, that the court's award of net revenues and royalties to Hoskins and BP was made pursuant to section 91.402(a) of the TNRC. Section 91.406 provides that, "if a suit is filed to collect proceeds and interest under this subchapter, the court shall include in any final judgment in favor
Prize and the Rutherfords argue that because recovery of attorney's fees is barred in a trespass to try title action, and the trial court found the underlying nature of the case was "to obtain a declaration of title," an award of attorneys' fees to Hoskins and BP under the TNRC would be improper. See Marshall, 288 S.W.3d at 464 (citing EOG Resources, Inc. v. Killam Oil Co., 239 S.W.3d 293, 304 (Tex.App.-San Antonio 2007, pet. denied)). Prize and the Rutherfords cite us to no case under the TNRC holding that attorneys' fees should not be awarded in a case involving a title dispute. In fact, the statutory language of TNRC section 91.406 contains no exception prohibiting recovery of attorney's fees in a title dispute. Since the legislature excluded pre-judgment interest from a potential recovery in section 91.402(b)'s "safe harbor" provision, the legislature clearly also could have excluded attorney's fees from a potential recovery if that was its intent; the legislature chose not to do so. See Fireman's Fund County Mut. Ins. Co. v. Hidi, 13 S.W.3d 767, 769 (Tex.2000) (when the legislature employs a term in one section of a statute and excludes it in another, we must presume it had a reason for excluding the term); see also Columbia Med. Ctr. of Las Colinas, Inc. v. Hogue, 271 S.W.3d 238, 256 (Tex.2008) (court must not interpret a statute in a manner that renders any part meaningless or superfluous); Liberty Mut. Ins. Co. v. Garrison Contractors, Inc., 966 S.W.2d 482, 484 (Tex.1998) (we construe a statute to ascertain and effectuate the legislature's intent by first looking to the plain and common meaning of the statute's language, viewing it in the context of the statute as a whole and giving it full effect). Accordingly, we conclude the trial court erred in not awarding Hoskins and BP their attorneys' fees under section 91.406 of the TNRC. See Holland v. Wal-Mart Stores, Inc., 1 S.W.3d 91, 94 (Tex.1999) (availability of statutory attorney's fees is a question of law which appellate court reviews de novo).
Finally, Prize and the Rutherfords assert the $900,000 amount of attorneys' fees is excessive because it is "based on a 95% allocation of attorney work to the TNRC cause of action and only 5% to all other causes of action and defenses." They contend the majority of the issues in the case involved trespass and title, not "prompt-payment issues under the TNRC;" therefore, the $900,000 amount is not supported by the record. First, we have already rejected the argument that the TNRC is merely a prompt payment statute devoid of a cause of action for nonpayment of oil and gas proceeds, and have upheld the damages awards under the TNRC claims. Second, our review of the record confirms that the trial court's finding that the allocation of a majority (95%) of the attorneys' work to the TNRC
The record shows that BP and Hoskins sufficiently proved up their attorneys' fees at trial, with attorney Thomas Zabel
The trial court did not abuse its discretion in accepting the segregation of 5% of the attorneys' work as unique to non-fee claims and 95% to the TNRC claims. See Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299, 313-14 (Tex.2006) (requiring segregation of attorney's fees that relate solely to a claim for which fees are unrecoverable, but also noting that in many cases legal fees cannot and need not be precisely allocated to one claim or the other, and that segregation may be based on percentage estimates). Further, the reasonableness of the allocation and $900,000 amount of fees is supported by sufficient evidence in the record. Id. at 313-14 (segregation of attorney's fees among multiple claims is a mixed question of law and fact).
Accordingly, we hold that Hoskins and BP
Next, Hoskins challenges the trial court's assessment of $200,000 in sanctions against him for discovery abuse committed by counsel Bryan Leitch. Specifically, Hoskins asserts: (1) there was no pleading to support a monetary sanctions award; (2) defendants offered no competent evidence of monetary harm suffered as a result of the alleged discovery abuse; (3) there was no direct relationship between the discovery abuse and the sanction imposed; and (4) the award was unreasonable, excessive, unrelated to the alleged discovery abuse, and constitutes an impermissible penalty.
At the sanctions hearing, Prize and the Rutherfords offered 39 exhibits to support their claim of misconduct by Leitch. Without identifying himself as an attorney, Leitch wrote to potential witnesses and obtained documents for use in the case. Leitch used false letterhead in which he claimed to be a businessman for "Oil and Gas Properties" or "Mi Oil." Katy Brymer, an assistant to a Prize contract pumper, testified by deposition that Leitch contacted her and told her that he worked for an oil company and asked to meet with her to discuss a job opportunity. Leitch set up a meeting with Brymer, and at the meeting falsely told her he was investigating criminal conduct by Prize; he then offered to pay her in exchange for her assistance in the case. Leitch also went to Brymer's house when she was not home and tried to crawl through her fence. Brymer was upset when she learned that Leitch had misrepresented himself to her.
Rick Rudolph, president of South Texas Gas Services, a nonparty to this appeal, testified by deposition that he met with Leitch and Cliff Hoskins. At the meeting, in the presence of Hoskins, Leitch told Rudolph, who performed the gas-chart integrations, that if he would provide assistance to them in this case, they could "swing some business" his way. Rudolph stated that Leitch continually badgered him to produce documents that had already been provided, and also threatened him and South Texas Gas with criminal penalties for spoliation of evidence. Due to this harassment, Rudolph hired Thompson & Knight to represent him and South Texas Gas in this matter. Leitch was then notified by Thompson & Knight that Rudolph and South Texas Gas were represented and that all communications should be directed to counsel.
Despite this warning, Leitch hired a local attorney, John Miller, to visit the Rudolphs at their business in Sinton, Texas. Thompson & Knight was not informed that this contact would take place. Leitch told Miller that Rudolph was not represented by counsel. Miller informed the Rudolphs that it would be in their best interest to obtain counsel and that Hoskins would pay for a lawyer. Rudolph also remembered Miller saying that if they agreed to allow Leitch to pay for their legal representation, Leitch would keep them from being held liable to the other plaintiffs. At Leitch's direction, Miller spoke to Rudolph
At his deposition on August 12, 2005, Cliff Hoskins admitted that he was aware of some of Leitch's misconduct. Hoskins acknowledged that he authorized the letters sent to nonparties on false letterhead as part of the investigation Leitch was conducting. Additionally, Hoskins attended the deposition of Katy Brymer on May 17, 2006, and at that time became aware of Leitch's improper conduct as to Brymer. Additionally, Hoskins verified interrogatory answers which sought information about Leitch's misconduct. Hoskins' co-counsel, Timothy Robinson, was also copied on Prize's counsel's communications complaining of Leitch's improper conduct which were sent to all counsel of record from November 2005 through June 2006, thereby putting Hoskins on notice of Leitch's misconduct. Despite this knowledge, Hoskins continued to retain Leitch.
Following the presentation of this evidence, the trial court ordered that Leitch be removed as counsel and disqualified as an attorney for Hoskins. Thereafter, the trial court stated in a letter to counsel that, "After careful consideration, the court does find that the actions's [sic] attributable to Cliff Hoskins (Cliff Hoskins, Inc.) are sanctionable, however, such actions do not rise to the level that warrants striking all pleadings and resulting in the Death Penalty in this cause. . . . The Court will continue to examine the appropriate sanctions to deter Mr. Hoskins and other similarly situated parties of future litigations [sic]."
At a later date, the trial court heard evidence to determine monetary sanctions. Counsel for Prize testified that, in light of the facts and the goals of deterrence, and taking into account the lack of acceptance of responsibility by Hoskins or his counsel, a reasonable monetary sanction against Hoskins would be $300,000. Counsel for the Rutherfords testified that, in his opinion, an appropriate monetary sanction would be $500,000, due to Hoskins' affront to the judicial process and the court's inherent power to protect the judicial process. The trial court ordered that "based upon the scale of this litigation and the egregious conduct that abused the judicial process, the Prize Defendants shall have and recover attorneys' fees in the sum of $100,000.00 from Hoskins as monetary sanctions, and that the Rutherford Defendants shall have and recover attorneys' fees in the sum of $100,000.00 from Hoskins as monetary sanctions."
Next, Hoskins complains that Prize and the Rutherfords failed to offer competent evidence of monetary harm suffered as a result of the alleged discovery abuse. Specifically, Hoskins contends that because Prize and the Rutherfords did not introduce attorneys' fees bills, there was no evidence of the reasonable expenses related to the discovery abuse. When the judgment is not one for earned attorneys'
Hoskins also argues the trial court abused its discretion in awarding monetary sanctions because there was no direct relationship between the discovery abuse and the sanction imposed. Specifically, Hoskins maintains that its former counsel, Leitch, was solely responsible for the alleged discovery abuses. Hoskins argues that, of the discovery abuses cited, the only abuse that Prize and the Rutherfords allege Hoskins should have known about was the meeting between Leitch, Cliff Hoskins, and Rick Rudolph. The other alleged abuses involve Hoskins' attendance at depositions, where he merely obtained knowledge of Leitch's improprieties that had already occurred.
The trial court must at least attempt to determine whether the offensive conduct is attributable only to counsel, only to the party, or to both. Paradigm Oil, Inc. v. Retamco Operating, Inc., 161 S.W.3d 531, 537 (Tex.App.-San Antonio 2004, pet. denied) (citing TransAmerican, 811 S.W.2d at 917). Although a party should not be punished for counsel's conduct in which the party is not implicated apart from having entrusted its legal representation to counsel, a party must bear some responsibility for its counsel's discovery abuses when it is or should be aware of counsel's conduct and the violation of the discovery rules. Paradigm, 161 S.W.3d at 537. Ultimately, the sanction imposed by the trial court must relate directly to the abuse found. Id.
Here, Prize and the Rutherfords presented some evidence that Hoskins was at least aware of Leitch's misconduct. In his own deposition, Hoskins admitted that he authorized the letters sent by Leitch to nonparties on false letterhead as part of the investigation Leitch was conducting. Additionally, Hoskins verified interrogatory answers which sought information about Leitch's misconduct. Hoskins was also put on notice of Leitch's improper conduct because co-counsel was copied on Prize's counsel's communications to all counsel of record complaining of Leitch's improper conduct. We conclude the record supports the trial court's finding that Hoskins, not just Leitch, should be sanctioned. Thus, there was a direct relationship between Hoskins' conduct and the resulting sanctions.
Finally, Hoskins maintains that the award of $100,000 to each group of defendants was unreasonable, excessive, unrelated to the alleged discovery abuse, and constitutes an impermissible penalty. Reviewing the record as a whole, we conclude the trial court's order meets both parts of the test for a "just" sanction based on the discovery abuse by Leitch. Leitch's actions violated Texas Disciplinary Rules of Professional Conduct 4.01, 4.03, 4.04, and 8.04.
Finally, on cross-appeal, Bank of America challenges the summary judgment granted in favor of Prize and the Rutherfords "on all claims by Bank of America, N.A., as Trustee of the Baker Trusts, including claims of fraud and rescission of the Ratification." The Bank also challenges the trial court's assessment of Prize's and the Rutherfords' costs of court against the Bank.
In January 2005, attorneys for Hoskins sent Prize a demand letter claiming that the Baker Lease, the El Paso Lease, and the JOA had expired in August 2001 because "there has not in fact been continuous production (or Operations to restore same) either in paying quantities or otherwise
Baker No. 6 Baker No. 4 June 2001 1050 Mcf 0 Mcf July 2001 1050 Mcf 1085 Mcf
The 80 Mcf of gas reported for the Baker Well No. 6 in the amended report was attributed to field use (70 Mcf) and a venting/flaring operation (10 Mcf).
On January 25, 2005, Hoskins filed suit to quiet title against Prize. As noted, supra, BP later joined the suit as a plaintiff, also asserting that the Leases and JOA expired in 2001. Also on January 25, 2005, the Rutherfords, acting for themselves and for Prize, approached the Bank, and requested that it sign a ratification of the Baker Lease. Rutherford representatives Mike Rutherford, Dave Lewis, and Jack Chenowith met with Penny Judge, a Bank property manager, to discuss the proposed ratification. The Rutherford representatives told Judge that Hoskins' threatened lawsuit was frivolous, but that even the threat of such a suit would cause them to stop development on the property, putting it at risk of drainage. Judge requested documentation demonstrating that the Baker Lease had not expired.
In response to her request, Mike Rutherford sent Judge a letter on February 2, 2005 attaching the Hoskins demand letter,
Prize then amended production reports ("P-2s") it had filed with the Railroad Commission in 2001. The amended P-2s, filed in 2005, reflect a reduction in the amount of gas produced (measured in a thousand cubic feet of natural gas, abbreviated as "Mcf") on the Baker Well No. 6 for June 2001 and on the Baker Well No. 4 for July 2001. The differences between the two reports are summarized below:
Baker No. 6 Baker No. 4 June 2001 80 Mcf 0 Mcf July 2001 1050 Mcf 0 Mcf
a second letter from Hoskins' attorneys, and production data, including P-2s and gauge reports for the Baker Well No. 6.
Rutherford's letter concludes that Hoskins' demand letter is simply an attempt to extort money from Prize, and asserts that Hoskins' allegation could harm the Baker Trusts:
In the letter, Rutherford also asserts the operators need assurance by way of a ratification that the Baker Lease remains in effect in order to avoid suspension of drilling activities.
Rutherford's letter goes on to explain the P-2s and gauge reports. He states that the Baker Well No. 4 was shut-in for a swabbing operation in early April 2001; the operation was not successful and the well was shut-in for further evaluation. He also states that the production volumes from the Baker Well No. 6 were not fully registered by the gas metering equipment during the relevant time period, and that Prize had confirmed that, "consistent with industry practice, the `sales' figures reported on the Forms P-2 and HPL's meter figures and the `lease use' figures are estimates of the quantities of gas consumed on the Lease for the operation of equipment and/or quantities lost to venting." As for the gauge reports, Rutherford states in Attachment C, entitled "Production Data," that "the No. 6 well was `shut-in for buildup' for much of June, all of July and the first half of August, but produced gas for a 3-day period in June (June 15th through 17th). [T]hus, there was no cessation of production for more than sixty consecutive days, as alleged in the Demand Letter." (emphasis added). Lewis testified that he and Chenowith went over the P-2s and gauge reports with Judge, and that they highlighted this 3-day period in June.
Judge took the ratification matter to her superior, Jeffrey Anderson, the Bank's regional team leader in the oil and gas asset management group. Judge expressed her concern to Anderson that "if there was no ratification, . . . the operator would not drill wells and the hydrocarbons couldn't be drained so there would be no royalties" for the Baker Trusts. She testified in deposition that the Bank's chief concern was future development, but that the possibility of drainage was also a concern. Judge viewed the ratification as the operator's "insurance policy" to justify spending a substantial amount of money to drill new wells. Judge stated the Bank felt the Baker Lease had not terminated because the P-2s and gauge reports did not show a cessation of production for more than sixty consecutive days and because the Bank had been consistently receiving revenues. She stated that the Bank decided to sign the ratification because of concerns over drainage and future development, and to receive $106,000 in consideration. Judge stated that had the Bank known that the Baker Lease had terminated, it would have renegotiated a lease with a higher royalty. Judge acknowledged that the Hoskins demand letter alleged that the Baker Lease had expired both because of a cessation of production exceeding sixty days and because of a failure to produce in paying quantities, but she could not recall discussing or investigating the paying quantities issue.
Jeffrey Anderson also explained that the Bank did not pursue an investigation of
In his deposition, Mike Rutherford testified he told Judge that the ratification was sought as insurance to allow Prize and the Rutherfords to continue developing the property. He acknowledged that he did not tell the Bank the following: that there was no production on the Baker Wells from June 1, 2001 to August 13, 2001; that the Baker Lease had expired in August 2001; that the claimed venting of the Baker Well No. 6 did not occur; that Prize had paid royalties on gas that was falsely reported; that Prize had filed false P-2s; or that Prize had filed false production reports.
On February 14, 2005, the Bank executed the Stipulation and Ratification of Oil and Gas Lease ("the Ratification") tendered by the Rutherfords. The Ratification provides, in pertinent part:
After the Bank signed the Ratification, Hoskins amended its petition and named the Bank as a defendant.
The Bank also alleged that Prize and the Rutherfords failed to disclose that:
The Bank alleged that these misrepresentations and concealments were material, made with knowledge of their falsity, or asserted recklessly without knowledge of the truth, were intended to be relied upon and were relied upon by the Bank to its detriment.
Thereafter, Prize and the Rutherfords jointly filed a traditional and no-evidence motion for summary judgment as to all causes of action asserted against them by Hoskins, BP, the Bank, and Burlington. In the motion, they contend the Bank's claims are precluded by the Ratification. Further, the Bank's claim that the Ratification was fraudulently induced fails because the alleged misrepresentations concerning flaring and production were neither material or justifiably relied upon by the Bank as a matter of law.
The Bank filed separate responses to the no-evidence and traditional summary judgment motion, to which Prize and the Rutherfords filed a joint reply. In its interlocutory judgment dated February 5, 2009, the trial court granted Prize's and the Rutherfords' motion for summary judgment on all claims by the Bank, including its claims of fraud and rescission of the Ratification. The court ordered that the Bank take nothing on its claims against Prize and the Rutherfords. The trial court's final judgment incorporated the interlocutory judgment and taxed Prize's and the Rutherfords' costs against the Bank; the Bank was also ordered to bear its own costs. The Bank timely filed its notice of cross-appeal.
In their traditional motion for summary judgment, Prize and the Rutherfords did not contest that their representations to the Bank were false, that they were known to be false when made or were made without knowledge of their truth, that they intended for the Bank to rely upon them, or that the Bank's reliance caused it injury, nor did they contend that they did not have a duty to speak. Thus, for summary judgment purposes, these elements of fraudulent inducement are not in dispute. Prize and the Rutherfords moved for summary judgment on the Bank's claim for fraudulent inducement on the grounds that, as a matter of law: (1) any misrepresentation concerning flaring is not material and could not have been justifiably relied upon because the Bank does not believe that flaring constitutes production; (2) any misrepresentation that the Baker Lease had not expired due to a cessation of production for more than sixty days is not material and could not have been justifiably relied upon because the Lease could also have expired for failure to produce in paying quantities; and (3) the Bank not only ratified the Baker Lease, but also entered into a new lease. We address each ground in turn.
The Bank first contends Prize and the Rutherfords did not conclusively establish that their misrepresentations and omissions concerning flaring were not material or that the Bank did not justifiably rely on them. We agree.
A representation is "material" if "a reasonable person would attach importance to [it] and would be induced to act on [it] in determining his choice of actions in the transaction in question." Citizens Nat'l Bank v. Allen Rae Invs., Inc., 142 S.W.3d 459, 478-79 (Tex.App.-Forth Worth 2004, no pet.). Here, before signing the Ratification, Prize and the
Finally, admission number 37 merely establishes that it is the Bank's present belief that flaring does not constitute production. A party's knowledge of falsity before or at the time of reliance is the only relevant inquiry in a fraud claim; knowledge gained after the fact cannot vitiate the fraud. Pankow v. Colonial Life Ins. Co. of Tex., 932 S.W.2d 271, 277 n. 6 (Tex.App.-Amarillo 1996, writ denied). The summary judgment record raises a fact issue that at the time the Bank signed the Ratification, it relied on the written materials provided by Prize and the Rutherfords which indicated that flaring is considered production sufficient to hold the Baker Lease. Specifically, Mike Rutherford's letter to Judge stated that the Baker Well No. 6 "produced gas for a 3-day period in June (June 15th through 17th)" 2001 and again in mid-August; "thus, there was no cessation of production for more than sixty consecutive days, as alleged in the Demand Letter." This assertion is based on the production data, which shows "flaring to tank" for the three days in question. Thus, Prize and the Rutherfords represented that flaring constituted production sufficient to hold the Baker Lease. Both Judge and Anderson testified that the Bank decided to sign the Ratification based on Rutherford's assurance that the Lease had not terminated; this assurance was based on the production data showing that there had been no cessation of production (due to flaring). Hence, the misrepresentation regarding flaring was material because it induced the Bank to sign the Ratification. See Citizens Nat'l Bank, 142 S.W.3d at 478-79.
Further, we cannot conclude that Prize and the Rutherfords established as a matter of law that the Bank did not justifiably rely on the misrepresentations
Next, the Bank contends Prize and the Rutherfords did not conclusively establish that their statements and omissions concerning cessation of production were not material or that the Bank did not justifiably rely upon them.
Materiality is determined by examining whether a reasonable person would attach importance to and would be induced to act on the information in determining his choice of actions in the transaction in question. Reservoir Sys., Inc. v. TGS-NOPEC Geophysical Co., L.P., 335 S.W.3d 297, 305 (Tex.App.-Houston [14th Dist.] 2010, pet. filed); Am. Med. Int'l v. Giurintano, 821 S.W.2d 331, 338 (Tex. App.-Houston [14th Dist.] 1991, no writ). "In the context of fraudulent inducement, it is well established that a `representation is material if it induces a party to enter a contract.'" Reservoir Sys., 335 S.W.3d at 305 (quoting Brush v. Reata Oil & Gas Corp., 984 S.W.2d 720, 727 (Tex.App.-Waco 1998, pet. denied)). "Even if a misrepresentation is not a party's sole inducement for entering into the contract, it may still be material so long as the party relied on it." Reservoir Sys., 335 S.W.3d at 305.
In their motion for summary judgment, Prize and the Rutherfords claimed that their misrepresentations regarding cessation of production were not material because (1) the Bank was aware of a claim that the Baker Lease had expired for failure to produce in paying quantities, and (2) Prize and the Rutherfords made no misrepresentation concerning the paying quantities issue.
First, although the Bank was aware of the claim regarding paying quantities contained in Hoskins' demand letter, it was not the focus of Rutherford's letter to Judge; rather, cessation of production in excess of sixty days is the express reason Rutherford cites for Hoskins' conclusion that the Baker Lease expired. As previously discussed, however, Prize and the Rutherfords assured the Bank that there was no validity to the cessation of production allegation, and therefore induced the Bank to sign the Ratification. Clearly then, the misrepresentation regarding cessation of production, regardless of the Bank's knowledge of the paying quantities claim, was material. See Citizens Nat'l Bank, 142 S.W.3d at 478-79 (representation is material if a reasonable person would be induced to act on it in determining his choice of actions).
Second, we disagree that the summary judgment evidence establishes that Prize and the Rutherfords did not make a misrepresentation regarding the paying quantities issue. Jack Chenowith testified that when the Rutherfords asked the Bank to sign the Ratification, they represented to the Bank that the Leases had not terminated.
Moreover, we cannot conclude Prize and the Rutherfords conclusively established that the Bank did not justifiably rely on their misrepresentations and omissions regarding cessation of production. Although Prize and the Rutherfords contend that the Bank failed to investigate whether the Baker Lease terminated for failure to produce in paying quantifies, the Bank was justified in relying on Prize's and the Rutherfords' statements that the Lease had not terminated. Prize and the Rutherfords were the operators and had superior access to the necessary production and expense information. As Anderson testified, the Bank had no reason to disbelieve the representation that the Baker Lease produced in paying quantities because the Rutherfords, not the Bank, were the ones with access to such information. Again, justifiable reliance is generally a question of fact. 1001 McKinney, 192 S.W.3d at 30. We therefore hold that based on this record, Prize and the Rutherfords failed to establish that the Bank did not justifiably rely on Prize's and the Rutherfords' misrepresentations and omissions as a matter of law.
Finally, in their briefing, Prize and the Rutherfords also argue the Bank performed under the Ratification by signing division orders in 2006 and allowing Prize and the Rutherfords to drill under the Baker Lease, thereby ratifying the agreement and waiving any right to assert fraud as a ground to avoid or rescind the Ratification. However, these contentions were not raised as grounds in the motion for summary judgment. TEX.R. CIV. P. 166a(c) (motion for summary judgment must "state the specific grounds therefor" and the issues must be "expressly set out in the motion"); Stiles v. Resolution Trust Corp., 867 S.W.2d 24, 26 (Tex.1993) (summary judgment cannot be affirmed on grounds not expressly presented in the
Based on the foregoing, we sustain the Bank's first issue on cross-appeal, and reverse the granting of summary judgment on its claim for fraudulent inducement. Because enforcement of the Ratification was central to all of the Bank's claims for affirmative relief, we also reverse the summary judgment granted on the Bank's remaining claims for affirmative relief, and remand the cause to the trial court for further proceedings.
We additionally sustain the Bank's second issue on cross-appeal because we agree that the trial court erred in allocating all of Prize's and the Rutherfords' costs of court to the Bank. Rule 131 of the Texas Rules of Civil Procedure provides that, "[t]he successful party to a suit shall recover of his adversary all costs incurred therein, except where otherwise provided." TEX.R. CIV. P. 131. Rule 141 further provides that "the [c]ourt may, for good cause, to be stated on the record, adjudge the costs otherwise than as provided by law or these rules." TEX.R. CIV. P. 141. A "successful party" is "one who obtains a judgment of a competent court of jurisdiction vindicating a civil claim of right." Moore v. Trevino, 94 S.W.3d 723, 729 (Tex.App.-San Antonio 2002, pet. denied).
While the trial court denied all of the Bank's claims against Prize and the Rutherfords by summary judgment based on its enforcement of the Ratification, the court also denied Prize's and the Rutherfords' counterclaims against the Bank. Despite the fact that both parties were partially successful, the trial court assessed all of Prize's and the Rutherfords' costs against the Bank without stating on the record the reason for doing so. We conclude such an assessment was contrary to Rules 131 and 141. Because the trial court abused its discretion in assessing all costs against the Bank, San Antonio Housing Auth. v. Underwood, 782 S.W.2d 25, 27 (Tex.App.-San Antonio 1989, no writ) (assessment of court costs is a matter within the sound discretion of the trial court), we reverse the portion of the judgment assessing costs against the Bank, and remand the issue of those court costs to the trial court for reconsideration.
Based on the foregoing analysis, we conclude the trial court's judgment should be affirmed in part, modified and affirmed in part, reversed and rendered in part, and reversed and remanded in part, as follows:
1. We affirm the portion of the trial court's judgment rendering declaratory relief on the question of title;
2. We affirm the trial court's grant of summary judgment in favor of Prize and the Rutherfords on the claims of trespass;
3. We affirm the trial court's calculation and award of damages to Hoskins and BP, with the following exceptions:
(a) we sustain BP's issue on cross-appeal challenging the in-kind payment and modify the judgment to strike the last sentence of the last substantive paragraph of the judgment permitting Prize and the Rutherfords to satisfy their obligations to account to Hoskins and BP "by tendering
(b) we sustain the Rutherford Children's issue challenging their liability for damages, and modify the judgment to reflect that the damages award is not assessed against the Rutherford Children; and
(c) we sustain the Rutherfords' issue on joint and several liability, and modify the judgment to delete the imposition of joint and several liability among all the defendants;
4. We hold the trial court did not abuse its discretion in denying attorneys' fees to the parties, except that we sustain Hoskins' and BP's issue on cross-appeal and hold the court erred in denying their request for attorneys' fees and judgment is rendered that both Hoskins and BP each recover $900,000 in attorneys' fees;
5. We hold the trial court abused its discretion in awarding pre-judgment interest on the damages award, and modify the judgment to delete the assessment of pre-judgment interest;
6. We affirm the trial court's imposition of $200,000 in sanctions against Hoskins; and
7. We reverse the trial court's grant of summary judgment on all the Bank's claims, and reverse the assessment of costs against the Bank, and remand to the trial court for further proceedings on the Bank's claims. In all other respects, the trial court's judgment is affirmed.
Rule 4.03 provides: "In dealing on behalf of a client with a person who is not represented by counsel, a lawyer shall not state or imply that the lawyer is disinterested. When the lawyer knows or reasonably should know that the unrepresented person misunderstands the lawyer's role in the matter, the lawyer shall make reasonable efforts to correct the misunderstanding." TEX. DISCIPLINARY R. PROF'L CONDUCT 4.03.
Rule 4.04 provides: "(a) In representing a client, a lawyer shall not use means that have no substantial purpose other than to embarrass, delay, or burden a third person, or use methods of obtaining evidence that violate the legal rights of such a person. (b) A lawyer shall not . . . threaten to present: (1) criminal or disciplinary charges solely to gain an advantage in a civil matter." TEX. DISCIPLINARY R. PROF'L CONDUCT 4.04.
Rule 8.04(a)(3) provides: "A lawyer shall not engage in conduct involving dishonesty, fraud, deceit or misrepresentation." TEX. DISCIPLINARY R. PROF'L CONDUCT 8.04(a)(3).
