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SOUTH TEXAS LAw REVIEW FALL 2016

VOL. 58 No. 1

EDITORIAL BOARD 2016-2017 EMILY PENDLETON

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viii

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SOUTH TEXAS LAw REVIEW FALL 2016

VOL. 58

No. 1

ARTICLES VOLUMETRIC PRODUCTION PAYMENTS IN BANKRUPTCY...................................

Jeff Nichols Karl Burrer Ellen Conley

AN ANALYTICAL APPROACH TO DISCOVERING AND CURING INEFFECTIVE UCC FILINGS.......................Matt

Crockett

O'Connell

A GUIDE To RESEARCHING TEXAS PRIMARY LAw..................................Jane THE LEGACY OF THE 1/8TH LANDOWNER'S ROYALTY AND THE TEXAS SUPREME COURT:

HAS HYSAW v. DAWKINS RESOLVED

THE "DOUBLE FRACTION" DILEMMA? . . . . . .

. . .

Laura Burney 115

COMMENTS CLOAKED IN ATrORNEY IMMUNITY: THE LONE STAR STATE'S LICENSE

To LIE?

. . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Aaron K. Bender

Andrew B. Bender

145

VOLUMETRIC PRODUCTION PAYMENTS IN BANKRUPTCY JEFF NICHOLS, KARL BURRER, ELLEN CONLEY I. INTRODUCTION.............................................2 II. VOLUMETRIC PRODUCTION PAYMENT. ..........................

A. B.

IIl.

SECTION 5411(B): SAFE HARBOR FOR PRODUCTION PAYMENTS.....8

IV.

Characteristicsof a VPP ............... .......... 3 Documenting the VPP.................... .......... 4 1. The Purchaseand Sale Agreement .................. 4 2. The Conveyance..............................5 3. The Production andDelivery Agreement.. ....... 6 4. Deed of Trust ....................... ............. 7 . Hedge Agreements ................... .............. 8 Safe HarborProvisions Under Section 541(b)(4)..........9 1. Transfer of a ProductionPayment by a Written Conveyance ................................ 10 2. VPP Buyer Does Not Participatein Operations........11 3. The VPP is Only Subject to Inclusion Pursuantto Sections 365 or 542............ ....... 12 a. Inclusion Under Section 365 ............ ..... 13 b. Inclusion Under Section 542 ................. 13 c. Inclusion Through Other Means ................ 13 PotentialExclusionfrom the Estate on Other Grounds........... 14 1. Jurisdictions Onere Minerals are Considered Interests in Land the. sts........................ ..... 14 2. JurisdictionsWhere Minerals are Considered PersonalProperty ............................. 15

RECHARACTERIZATION OF THE VPP AND THE POTENTIAL CONSEQUENCES ..............

............... 15

Recharacterizationof Transactionsin Bankruptcy ............... 15 1. Recharacterizationof VPPs: In re Senior-G&A Operating Co ................. .......... 17 2. Applicability of Senior-G&A to Modern VPP Transactions ............................. 19 3. PossibleIssuesfor the VPP Grantee IfIts Interests were Recharacterized ............................... 21 V. AVOIDANCE OF UNRECORDED VPPS .......................... 23 A. The Debtor'sAvoidance Power Under Section 544(a) (3) ..... 23 1

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24 Conflict Between Section 541(d) and Section 544(a) (3) ..... Resolving the DisputeBetween Section 541(d) 25 and Section 544(a)(3) ............................ ......... 26 ..................... D. Effect of Avoidance B. C.

VI.

..............................................

CONCLUSION I.

INTRODUCTION

Exploration and production companies have employed volumetric production payments (VPPs) for several decades to monetize oil and gas reserves when traditional financing sources were unavailable or were less attractive.' VPPs are transactions where VPP grantees receive a percentage of the hydrocarbons produced from the burdened leases of a VPP grantor until a specific volume of hydrocarbons has been delivered. 2 In return for the promised volume of hydrocarbons, the VPP grantor, the producer of the oil and gas, receives a payment to be used for operations or further financing of oil and gas leases.3 The payment is one lump-sum, paid upfront. The volumes are delivered over time in increments, usually specified as a minimum volume each month. Large exploration and production companies have taken advantage of the VPP structure to monetize billions in assets without adding debt to their balance sheet under generally accepted accounting principles.4 Notwithstanding its expansive lineage, there are few reported decisions analyzing the impact of a bankruptcy filing on these financing arrangements.' In the recent past, the few lawsuits that have challenged the characterization and effectiveness of nontraditional oil and gas finance vehicles such as VPPs have settled in one way or another, leaving practitioners with no clear, authoritative guidance.6 See Peter J. Speer, Volumetric Production Payments-Analytical Implications and 1. Adjustments for E&P Companies, MOODY'S INVESTORS SERV. SPECIAL COMMENT, Mar. 2006, at 1 (discussing the economic impact of VPPs on creditors and how to analyze VPPs in different ways). Michael P. Pearson, A Primer on Production Payments, in STATE BAR OF TEXAS, 28TH 2. ANNUAL ADVANCED OIL, GAS AND ENERGY RESOURCES LAW COURSE ch. 11, at 25-26 (2010).

Id. at 24.

See, e.g., Chesapeake Energy Corporation Announces Three Oil and Gas Asset 4. Monetization Transactionsfor Proceeds of $2.6 Billion, BUS. WIRE (Apr. 9, 2012, 4:01 PM) Energy], Chesapeake [hereinafter

http://www.businesswire.com/news/home/20120409005855/en/Chesapeake-Energy-CorporationAnnounces-Oil-Gas-Asset ("[T]he company has completed 10 VPP transactions since December 2007 and, in doing so, has sold approximately 1.37 trillion cubic feet of natural gas equivalent (tcfe) of proved reserves for combined proceeds of approximately $6.4 billion ....

5. See cases cited infra note 6. 6. See generally Diamond Offshore Co. v. Bennu Oil & Gas, LLC (In re ATP Oil & Gas Corp.), 540 B.R. 294, 295-99 (Bankr. S.D. Tex. 2015); NGP Capital Res. Co. v. ATP Oil & Gas Corp. (In re ATP Oil & Gas Corp.), No. 12-03443, 2014 WL 61408, at *1-11 (Bankr. S.D. Tex.

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VOLUMETRIC PRODUCTIONPAYMENTS IN BANKRUPTCY

This Article discusses the potential implications of a bankruptcy filing on a VPP. Part II provides an overview of the characteristics and documentation of a VPP. Part III analyzes the parameters for determining whether the VPP is excluded from the debtor's bankruptcy estate under the safe harbor for "production payments." Part IV of this Article analyzes the potential for the recharacterization of VPPs as a disguised financing. Part V discusses the impact of the "avoidance" powers under Section 544(a)(3) of the Bankruptcy Code on unrecorded or partially recorded VPPs. II.

VOLUMETRIC PRODUCTION PAYMENT

Characteristicsof a VPP

A VPP is a "non-operating, non-expense bearing, limited term overriding royalty interest carved out of the working interests of oil and gas leases."' In most states, a VPP, like other overriding royalty interests, is treated as an interest in real property (i.e., the VPP grantee is considered to have an interest in minerals in the ground).' A VPP covers a fixed quantity of hydrocarbons underlying, and to be produced from, the burdened oil and gas leases [of the VPP grantor] (the VPP Hydrocarbons). Typically a VPP is structured so as to deliver to the VPP [grantee] a scheduled quantity of the VPP Hydrocarbons per day over a fixed time period.9

A VPP usually terminates when the VPP Hydrocarbons, as adjusted for any differences in factors assumed by the VPP grantee (i.e., time and location of delivery, quantity to be delivered, and the quality of the hydrocarbons), are fully delivered or the leases that are burdened by the VPP terminate.o "The VPP Hydrocarbons are typically taken in kind by the VPP grantee, as compared to traditional production payments" which grant revenue from the production to the interest owner." Because the VPP grantee can only stake a claim to the VPP Hydrocarbons actually produced,

Jan. 6, 2014); Rancher Energy Corp. v. Gas Rock Capital, LLC (In re Rancher Energy Corp.), No. 10-1173 MER, 2011 WL 5320971, at *3-15 (Bankr. D. Colo. Nov. 2, 2011); Verified Complaint of East Cameron Partners, L.P. for Temporary Restraining Order, Preliminary Injunction Declaratory Judgment at 4-5, East Cameron Partners, L.P. v. La. Offshore Holding, LLC (In re East Cameron Partners, L.P.), Adv. No. 08-05041 (Bankr. W.D. La. Oct. 16, 2008) [hereinafter Verified Complaint of East Cameron Partners, L.P.]. 7. Jeffrey S. Mufioz, Financing of Oil and Gas Transactions, 4 TEX. J. OIL GAS ENERGY L. 223, 228 (2008). 8. EOG Res., Inc. v. Dep't of Revenue, 2004 WY 35, T 5, 86 P.3d 1280, 1282-83 (Wyo. 2004). 9. Mufioz, supra note 7, at 229 (internal quotation marks omitted). 10. Id. 11. Id.

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"the VPP [grantor] is not personally liable for the payment or discharge of 2 the VPP except out of the VPP Hydrocarbons that are actually produced." Financially, a VPP involves an upfront payment by the VPP grantee, and return "payments"-production distributions-over time by the VPP grantor.' 3 There are, however, two important characteristics that distinguish a VPP from a traditional loan. First, the VPP grantee's upfront payments are at risk of production problems, meaning that if the VPP grantor's production slows or stops, the VPP's return on its "investment" may be delayed or never realized.14 Second, the VPP grantee takes a commodity price risk, meaning that even if the VPP grantor produces the specified quantities, if the market prices drop, the sales of those volumes may not be sufficient for the buyer to recoup its investment.' 5 B.

Documenting the VPP

Typically, VPP transactions consist of three documents: (1) a Purchase and Sale Agreement; (2) a Conveyance of Overriding Royalty; and (3) a Production and Delivery Agreement.1 6 In addition to these instruments, the VPP grantee may also enter into commodity hedges, interest rate swaps, and other related agreements to mitigate risk." The Purchase and Sale Agreement is necessary to memorialize the contractual terms of the VPP Hydrocarbon transfer between the VPP grantor and VPP grantee, while the Conveyance of Overriding Royalty is necessary to legally transfer title of the VPPs involved in the transaction.'s Finally, the Production and Delivery Agreement specifies the details of the transfer and includes the VPP grantor's duty to market the contracted VPP Hydrocarbons if they are not taken in kind by the VPP grantee.'I All of these documents are necessary to ensure a successful VPP financing agreement and to protect both parties. 1.

The Purchaseand Sale Agreement

The Purchase and Sale Agreement (PSA) states the terms and conditions of the transfer of the VPP Hydrocarbons from the VPP grantor to Id.; see Pearson,supra note 2, at 3. 12. See Pearson,supra note 2, at 3. 13. Mufioz, supra note 7, at 229. 14. Id. at 230. 15. EOG Res., Inc. v. Dep't of Revenue, 2004 WY 35, 1 5, 86 P.3d 1280, 1283 (Wyo. 16. 2004). Mufioz, supra note 7, at 229; see also Charles E. Harrell et al., Securitization of Oil, 17. Gas, and Other Natural Resource Assets: Emerging Financing Techniques, 52 BuS. LAW. 885, 906-07 (1997). Pearson, supra note 2, at 24-25. 18. See id. at 31. 19.

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VOLUMETRIC PRODUCTIONPAYMENTS IN BANKRUPTCY

the VPP grantee. The PSA will generally include representations and warranties similar to those found in a traditional credit agreement with respect to the following: title; reserve reports; organization; authority; enforceability; taxes; compliance with laws and permits; litigation, breaches of oil and gas leases; timely and proper payment of rentals, royalties and operating costs; disclosures of any dedications of hydrocarbons to existing transportation; marketing, processing, and similar agreements; imbalances; and the absence of casualties or other material adverse changes.2 0 These covenants are limited to the operation of the properties. 2 1 Once all scheduled volumes are delivered, the VPP grantee's interest in the VPP terminates.22 The VPP grantee retains no residual interest, an attribute the VPP shares with traditional loans, but unlike traditional loans, the VPP PSAs do not include "events of default" or the right to accelerate and demand the return of the purchase price.23 There are often, however, provisions that allow for an increase in scheduled quantities if the size of the remaining reserves held by the VPP grantor are small in proportion to the remaining reserves held by VPP grantee, which is referred to as the "tail ratio."24 VPP PSAs can also contain covenants that impose additional development, plugging, and abandonment liabilities. 2.

The Conveyance

The Conveyance of the Overriding Royalty Interest (the Conveyance) in a VPP transaction transfers the VPP to the VPP grantee and should abide by state law regulations for a conveyance of a real property interest.25 "If adjustments are necessary to make up for shortages in scheduled deliveries or quality [and] location differences, then the VPP [grantee] is entitled to take more than the scheduled volumes, limited, however, to the set percentage of hydrocarbons specified in the Conveyance. "26 The Conveyance often provides mechanisms, called "make-whole provisions," to adjust the quantity of VPP Hydrocarbons to be delivered 20. See Mufioz, supra note 7, at 231 (providing additional representations and warranties typical of a PSA); see also Pearson,supra note 2, at 24. 21. Mufioz, supra note 7, at 232. 22. Id. at 229. 23. See Pearson, supra note 2, at 23-24. 24. See Credit FAQ: Volumetric Production Payments for US. Oil and Gas Companies, STANDARD & POOR'S 3 (Apr. 14, 2005) [hereinafter Credit FAQ], www.standardandpoors.com/ratingsdirect (discussing tail reserves). 25. See Mufioz, supra note 7, at 232 & n.9 ("Providing for the delivery of the quantity of the VPP Hydrocarbons to the VPP [grantee] from a certain percentage-typically 80% to 90%of the hydrocarbons attributable to the VPP seller's working interest, but not to exceed a specified scheduled quantity of hydrocarbons per day, as adjusted for shortages and other factors."). 26. Id. at 232.

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with an interest component to compensate for any delay in delivery of volumes.2 7 The Conveyance also specifies the delivery points where the VPP Hydrocarbons are to be delivered to the VPP grantee.28 In addition, the Conveyance addresses the termination of the VPP through express provisions. Termination usually occurs when the scheduled quantity of hydrocarbons, including make-up amounts, if applicable, have been delivered.29 Lastly, to protect the VPP grantee, the Conveyance will usually contain a provision prohibiting the transfer or mortgage by the VPP grantor of the underlying oil and gas leases during the term of the VPP without first obtaining the VPP grantee's consent.30 3.

The Productionand Delivery Agreement

The Production and Delivery Agreement (the P&D Agreement) obligates the VPP grantor to market the VPP Hydrocarbons if the VPP grantee does not take them in kind and includes provisions governing gathering, transportation, and processing issues. To protect the VPP grantee, the P&D Agreement also contains covenants regarding operations by the VPP grantor, including requiring the wells to be produced at the assumed rate of production, scheduling of the delivery of the VPP Hydrocarbons, quality requirements of the VPP Hydrocarbons, development of the oil and gas leases burdened by the VPP, insurance coverage, maintenance of the burdened oil and gas leases and wells, and drilling replacement wells under certain circumstances." In some instances, depending on the structure of the transaction, the P&D Agreement can also contain a requirement that the VPP grantor make certain capital expenditures within a set time period, such as drilling new wells on the burdened oil and gas leases.3 2 The VPP grantor retains the operation risk related to the leases burdened by the VPP and is obligated to act as a prudent operator.33 The VPP grantee, however, must still account for the risk that the VPP grantor is unable or unwilling to fulfill this obligation.34 VPP [grantees] attempt to minimize the risk that the VPP [grantor] (or the operator of the properties) will not be able to perform the See Speer, supra note 1, at 3. 27. See id. at 2. 28. Pearson, supra note 2, at 26. 29. See id. at 35. 30. Id. at 30. 31. 32. Id. See Bruce Schwartz, VPP or VIG?, PROJECTFINANCE GLOBAL OIL & GAS REP., Dec. 33. 2003, at 24, 24. Id. at 25. 34.

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operational requirements related to the underlying properties in several ways, including: [(1)] adequately assessing the quality of the operator of the oil and gas leases to be burdened by the VPP (generally, there is a preference by the VPP [grantee] that the oil and gas properties are operated by the VPP [grantor]); [(2)] adequately assessing the financial strength of the operator, including operating covenants in the VPP documents; and [(3)] appropriately sizing the VPP [so that the VPP grantor retains a large enough interest to remain incentivized to preserve the value in the property]." The VPP grantee may further mitigate the risks it will assume through the transaction by requiring the VPP grantor to "provide certain reports and information to the VPP grantee throughout the term of the VPP, and ... grant[] the VPP grantee the right of access to the oil and gas leases burdened by the VPP."3 6 The P&D Agreement "also typically contains broad indemnities by the VPP grantor regarding the operations of the oil and gas leases burdened by the VPP."37 In addition to other remedies the VPP [grantee] may have under law or in equity, the [P&D Agreement] usually specifies remedies for the VPP [grantee] if the VPP [grantor] fails to comply with its covenants under the [P&D Agreement], including rights of the VPP [grantee] to pay unpaid expenses, . . . to sell hydrocarbons attributable to the VPP [grantor's] working interest,... to pay amounts owed under the [P&D Agreement] by the VPP [grantor], [and to] enforce rights of setoff, and rights of specific performance. 38 4.

Deed of Trust

The VPP's grantor will generally execute a mortgage or deed of trust to secure the VPP grantor's obligations to the VPP grantee under the P&D Agreement. The liens created under the deed of trust generally attach to the VPP grantor's remaining working interests in the oil and gas leases burdened by the VPP (subject to such burden) and related properties.39 "For state law purposes, it is critically important that the lien and security interest secure only the [V]PP Grantor's performance obligations under the P&D Agreement, and not create a recourse obligation on the part of the [V]PP Grantor, to satisfy the production payment" and to avoid recharacterization as a secured loan.40

35. 36. 37. 38. 39. 40.

Mufioz, supra note 7, at 231. Id. at 232. Mufioz, supra note 7, at 233; see Harrell et al., supra note 17, at 908. Mufioz, supra note 7, at 233-34. See id. at 234. Pearson, supra note 2, at 35.

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Hedge Agreements

Under most VPPs, the VPP grantee assumes the risk that the VPP production will be sold at a price sufficient to recover its "investment" in the VPP-the purchase price of the VPP-and the VPP grantee's expected return. "The VPP [grantee] commonly mitigates this risk by arranging to sell [or hedge] the VPP Hydrocarbons at monthly index-related prices."4 1 If the designated delivery point at which the VPP grantee will receive and sell the commodity offers prices that are different from the selected few index prices at which hedges are available, the commodity buyer will hold "basis risk," which is the difference between the price at the delivery location and the index price at which the volumes are hedged.4 2 There are markets for commodity buyers to purchase hedges, which will lock in the basis differential and remove the basis risk, but these markets are typically only liquid in the near term and will not offer hedges as far into the future to match the tenor of VPPs. 43 However, the price hedges should be with third parties. If price hedges were with the VPP grantor, the hedges would remove commodity price risk, which is one of the two principal characteristics that distinguish VPPs from purely financial transactions, 44 even though the other characteristic, production risk, would remain. The VPP grantee also assumes the risk that interest rates will rise or fall during the term of the VPP, thereby affecting the rate of return on its investment.45 The VPP grantee can mitigate this risk by sizing the VPP appropriately and, again, entering into interest rate price hedges to eliminate the risk of interest rate fluctuations.4 6 III. SECTION 54 1(B): SAFE HARBOR FOR PRODUCTION PAYMENTS

Commentators analyzing the effects of a VPP grantor's bankruptcy filing generally concur that "properly-structured and documented VPPs

41. Mufioz, supra note 7, at 230. 42. See A Guide to Energy Hedging, N.Y. MERCANTILE EXCHANGE 9, http://www.kisfutures.com/GuideEnergyHedgingNYMEX.pdf (last visited Dec. 14, 2016). There are no quotes on the value of crude oil past March 2017, suggesting an 43. uncertainty in the market. Crude Oil Futures Quotes, CME GROUP, http://www.cmegroup.com/trading/energy/crude-oil/light-sweet-crude.htnil (last visited June 13, 2016). 44. Cf Pearson, supra note 2, at 28 (discussing when price hedges are with the VPP grantee). See John Bradford & Morgan Holtman, Volumetric ProductionPayments in Property 45. Transactions: Tax Rules and Potential Benefits, OIL & GAS FIN. J. (Sept. 1, 2004), http://www.ogfj.com/display-article/212849/82/ARCHI/none/none/l/Volumetricproductionpayments-in-property-transactions:-tax-rules-and-potential-benefits/. Id.; see Mufioz, supra note 7, at 231. 46.

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have fared well in bankruptcy." 47 Commentators have attributed this treatment to the assumption that the VPP is not part of the VPP grantor's bankruptcy estate pursuant to statutory "safe harbors" for production payments embodied in Section 541(b) of the Bankruptcy Code.48 Accordingly, commentators have reasoned that the automatic stay would not prevent the VPP grantee from receiving the VPP share of production (or the proceeds thereof) during any bankruptcy proceedings of the VPP grantor.49 Due to the lack of case law analyzing VPP transactions in bankruptcy, this view of commentators is based on general principles rather than specific precedent. A.

Safe HarborProvisions Under Section 541(b) (4)

Section 541(a) of the Bankruptcy Code defines property of the debtor's estate to consist of "all legal or equitable interests of the debtor in 5 The United States property as of the commencement of the case."o Section 541 to from language quoted the construed has Court Supreme mean that the property of the debtor's estate is property owned by the debtor upon the filing of the bankruptcy petition." In 1994, Section 541 was amended to provide specific exclusions to the definition of property for certain oil and gas interests.5 2 With respect to "production payments," Section 541 was amended to provide that [p]roperty of the estate does not include . . any interest of the debtor in liquid or gaseous hydrocarbons to the extent that (i) the debtor has transferred such interest pursuant to a written conveyance of a production payment to an entity that does not participate in the operation of the property from which such production payment is transferred; and (ii) but for the operation of this paragraph, the estate could include the interest referred to in clause (i) only by virtue of section 365 or 542 of this title.53 In order for VPP Hydrocarbons to be excluded under Section 541(b), and therefore not property of the debtor's estate, the VPP grantee must demonstrate: (1) it has transferred a "production payment" pursuant to a Mufioz, supra note 7, at 234. 47. 48. Cf 11 U.S.C. § 541(b)(4) (2012) (listing the safe harbor provision for production payments). See EOG Res., Inc. v. Dep't of Revenue, 2004 WY 35, 1 15, 86 P.3d 1280, 1285 (Wyo. 49. 2004); Speer, supra note 1, at 3. 11 U.S.C. § 541(a)(1). 50. United States v. Whiting Pools, Inc., 462 U.S. 198, 203-05, 209-11 (1983). 51. Compare 11 U.S.C. § 541(b)(4) (1988) (omitting any mention of hydrocarbons), with § 52. 541(b)(4) (1994) (excluding hydrocarbons from the definition of the property of the estate). Id. § 541(b)(4)(B) (1994). 53.

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written conveyance; (2) the VPP grantee does not participate in operations; and (3) the debtors' bankruptcy estate could only include the VPP Hydrocarbons by virtue of Sections 365 or 542 of the Bankruptcy Code.54 Excluding the VPP from the estate of the debtor (the VPP grantor) is consistent with the essence of the VPP being a transfer of property and such exclusion would protect the VPP grantee from the restrictions of the stay." 1.

Transfer of a Production Payment by a Written Conveyance

The initial element to establish that VPP Hydrocarbons are excluded from the bankrupt estate requires a written conveyance of a "production payment." 5 6 Section 101 of the Bankruptcy Code defines the term "production payment" as a term overriding royalty satisfiable in cash or in kind-(A) contingent on the production of a liquid or gaseous hydrocarbon from particular real property; and (B) from a specified volume, or a specified value, from the liquid or gaseous hydrocarbon produced from such property, and determined without regard to production costs. 57

Clause (A) is referred to as "production risk." Section 101 further defines "term overriding royalty" as "an interest in liquid or gaseous hydrocarbons in place or to be producedfrom particularreal property that entitles the owner thereof to a share of production, or the value thereof, for a term limited by time, quantity, or value realized."" A properly structured conveyance of a VPP facially appears to satisfy the first element under Section 541(b) because the Conveyance should constitute a written conveyance of a "production payment." When the term "production payment" is read with the Bankruptcy Code's definition of a "term overriding royalty," however, the issue is less clear as the Bankruptcy Code definition is limited to "hydrocarbons in place or to be produced from particular real property."59 Most VPPs provide for the circumstance of a shortfall in production.60 Though these provisions vary, they normally allow for a temporary shortfall if the volumes, or their cash-equivalent, are delivered later with interest. 61 As long as the volumes or payments remain contingent on production from the circumscribed VPP real property, the 54. 55. 56. 57. 58. 59. 60. 61.

See id. See id. Id. Id. § 101(42A) (2012) (emphasis added). Id. § 101(56A) (emphasis added). Compare id. § 101(56A), with § 101(42A). Speer, supra note 1, at 3. Id.

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VPP grantee retains production risk, and the VPP should remain a "production payment" under the definition in the Bankruptcy Code. 6 2 If, however, the documents force the VPP grantor to utilize production from outside the VPP volumes to provide substitute hydrocarbons in place of the VPP Hydrocarbons, then the VPP grantee has reduced production risk, forfeiting one of the key characteristics of a "production payment" under the Bankruptcy Code. 63 Changing the facts slightly, if the VPP grantor may, but is not required to, substitute volumes, the VPP grantee would not have reduced production risk very much at all. If, however, the VPP grantor would bear a cost or a penalty in the form of interest charges and would be incentivized to substitute volumes rather than fail to deliver, it is unclear whether the VPP grantee retains production risk. 64 This is usually how VPPs are arranged, economically compelling the seller to deliver from substitute volumes from the retained mineral interest. 65 Given the lack of any published opinion on the subject, it is unclear whether a VPP with such a make-whole provision would satisfy the definition of "term overriding royalty," and therefore be a "production payment" as defined by the Bankruptcy Code. One can assume that a court would examine the facts and circumstances to determine to what degree the VPP grantee has retained production risk in order to preserve the VPPs status as a production payment. In addition, the terms of the make-whole provision itself may be a factor. The degree of penalty may also be a factor. While a small penalty for a delay in deliveries may be considered acceptable, a harsh penalty to ensure that deliveries would be sourced from outside properties if necessary may invite closer scrutiny. 2.

VPP Buyer Does Not Participatein Operations

The next requirement to establish that a VPP qualifies for safe harbor under Section 541(b) is that the VPP buyer does not "participate" in the "operations" of the property from which the VPP Hydrocarbons were transferred.66 The terms "participate" and "operations" are not defined by

The Bankruptcy Code definition of production payment would include production 62. contingent payments. 11 U.S.C. § 101(42A). Id. § 101(42A)(A). 63. Speer, supra note 1, at 2 ("Although the VPP seller has substantially eliminated its 64. commodity price risk on the VPP reserves, the seller continues to be exposed to all of the production cost risks . . . that vary with commodity prices and future inflation in production and workover costs .... Production interruptions, particular extended ones such as those caused by hurricanes Katrina and Rita, expose the VPP seller to commodity price risk on delivery shortfalls and contingent claims on its remaining reserves in the specified properties."). 65. See id. at 3. 11 U.S.C. § 541(b)(4). 66.

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the Bankruptcy Code. Accordingly, courts would employ the plain meaning of the words to interpret the statute.67 In searching for the plain meaning of the word "participate," courts have generally held that the word means "to take part." 68 Similarly, courts have interpreted the word "operations" to generally mean "overall process aimed at achieving a particular end" and, in the context of oil and gas leases, the "production of minerals." 69 Whether the VPP grantee would be considered to "participate" in the "operation" of the property would likely turn on the terms of the P&D Agreement, as well as the VPP grantee's conduct. For example, many P&D Agreements require that the operator obtain the VPP grantee's "consent" to enter into material agreements, suggesting that the VPP grantee may be taking part in operations. 7 0 Under a strict reading of the terms "participate" and "operations," the requirement of a VPP grantee's consent to development decisions or expenditures could be considered as "taking part" in the "overall process" of the "production of minerals."n If so, the VPP grantee could be considered to have taken part in the operations, and it may risk excluding itself from the protections of Section 541 and subjecting the VPP to inclusion into the bankruptcy estate. Moreover, where the VPP grantee is also a service provider on the burdened leases-a practice often utilized by producers to obtain vendor financing-the VPP grantee's direct participation in the actual operations of the property may be taken into consideration when evaluating whether the VPP grantee is entitled to the protections of Section 541(b). 72 Again, this issue will remain unresolved absent judicial guidance on the matter. 3.

The VPP is Only Subject to Inclusion Pursuantto Sections 365 or 542

The final requirement for a VPP to be excluded from the debtor's estate under Section 541(b) occurs when the production payment would not be included in the debtor's estate except by operation of Sections 365 or 542." Stated another way, this final requirement is met if the debtor could

67. See United States v. Ron Pair Enters., Inc., 489 U.S. 235, 241 (1989). 68. Powell Elec. Sys. v. Nat'1 Union Fire Ins. Co. of Pittsburgh, Pa., No. H-10-993, 2011 WL 3813278, at *19 (S.D. Tex. Aug. 29, 2011) (quoting Participate,WEBSTER'S NINTH NEW COLLEGIATE DICTIONARY 858 (1991)).

69. Sun Operating Ltd. P'ship v. Holt, 984 S.W.2d 277, 285 (Tex. App.-Amarillo 1998, pet. denied). 70. Mufioz, supra note 7, at 233. 71. See Holt, 984 S.W.2d at 285; Mufioz, supra note 7, at 233. 72. See Rhett G. Campbell, A Survey of Oil and Gas Bankruptcy Issues, 5 TEX. J. OIL GAS & ENERGY L. 265, 284 (2010). 73. See 11 U.S.C. § 541(b)(4)(B)(ii) (2012).

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only reacquire the VPP Hydrocarbons by virtue of the statutory powers granted under Sections 365 or 542 of the Bankruptcy Code. a.

Inclusion Under Section 365

Section 365 of the Bankruptcy Code provides certain powers to the 74 Of debtors with regard to executory contracts and unexpired leases. a permits 365 relevance to Section 541's safe harbor analysis, Section debtor to reject an executory contract, which has the effect of breaching the agreement and providing the non-debtor counterparty with an unsecured claim for the breach.7 5 As such, if the debtor sought to reject the VPP transaction, retain the VPP Hydrocarbons, and permit the VPP grantee a mere unsecured claim in the bankruptcy case, Section 541(b) would apply to prevent the rejection and "reacquisition" of the VPP Hydrocarbons by the estate. 76

Inclusion Under Section 542

Section 542(a) states that an entity in possession, custody, or control of property that a debtor may use, sell, or lease under Section 363 of the Bankruptcy Code shall deliver to debtor such property, unless it is of inconsequential value or benefit to the estate. As such, if the debtor solely sought to reacquire the VPP Hydrocarbons by arguing that they were the debtor's property that could be sold under Section 363, Section 541(b) would apply to prevent the turnover of the VPP Hydrocarbons to the estate. c.

Inclusion Through Other Means

Importantly, Section 541(b) does not reference the other ways in which a debtor may recover its property, including its avoidance power under Chapter 5 of the Bankruptcy Code, or its power to recharacterize a transaction (discussed below in Part IV).` A debtor may also use other state law mechanisms to recover property transfers.so If the debtor successfully sought to avoid the VPP transaction under one of these powers, the VPP Hydrocarbons would not benefit from safe harbor under Section 541(b) for

Id. § 365. 74. 75. Id. See id. § 541(b)(4)(A)(ii). 76. Id. § 542(a). 77. Id. § 541(b)(4)(B)(ii). 78. See infra Part IV (discussing id. § 544(a)(3)). 79. See infra Part IV (discussing recharacterization of VPP transactions and their effects on 80. bankruptcy proceedings).

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"production payments," and would therefore remain a part of the debtor's estate 1 B.

PotentialExclusion from the Estate on Other Grounds

Even if a VPP fails to qualify under Section 541(b)'s safe harbor, properly structured VPPs may nonetheless be excluded from the definition of property of the estate under principles of state law. As explained above, property of the estate is property in which the debtor held an interest at the time of the commencement of the bankruptcy case, as determined by nonbankruptcy law.82 The inclusion or exclusion of the production payment therefore turns on the underlying state law, which, for purposes of oil and gas law, breaks down into two theories of ownership for mineral interests: interests in land and interests in personalty." These two theories of ownership will ultimately affect whether the VPP grantee loses his interest during bankruptcy proceedings. 1.

Jurisdictions Where Mineral Interests are ConsideredInterests in Land

Numerous jurisdictions, including Texas, California, and North Dakota, hold that ownership of oil and gas interests in oil and gas leases, including an overriding royalty interest, is held as fee simple determinable ownership of real property.84 In these jurisdictions, the VPP would be deemed to have been conveyed out of the estate as of commencement of the case and would not-absent some other provision of the bankruptcy codebe reacquired by the debtor's estate simply by virtue of a bankruptcy filing." Consequently, courts have held that these oil and gas interests constitute "real property interest" in most U.S. states, and do not become property of the debtor's estate upon a bankruptcy filing.86 In these jurisdictions, VPP grantees should not have to worry about losing their

81. 5 COLLIER ON BANKRUPTCY ¶ 541.20, at 541-89 (Alan N. Resnick & Henry J. Sommer eds., 16th ed. 2015) ("The latter limitation means that the production payment will remain property of the estate if the claim to such production payment arises on some other basis-e.g., under section 544(a)(3)."). 82. See 11 U.S.C. § 541(a). 83. See Harrell et al., supra note 17, at 922; see also Habib Yunus, OverridingRoyalty Interest (ORRI) in Oil and Gas Propertiesin the US, W ENERGY ADVISORY 3 (Sept. 2014), www.wadvisory.com/ORRI%20Introduction%20W%2Energy/2OAdvisory.pdf 84. See Yunus, supra note 83, at 3. 85. See, e.g., Terry Oilfield Supply Co. v. Am. Sec. Bank, N.A., 195 B.R. 66, 70 (S.D. Tex. 1996) ("A mineral lease in Texas is a determinable fee. It is not a lease or other form of executory contract that a debtor may accept or reject."). 86. Yunus, supra note 83, at 3.

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interests should the debtor default." It should be noted, however, that the initial exclusion of these interests from the debtor's estate does not impact the debtor's ability to exercise avoidance powers to recover any transfers of the hydrocarbons in the first place." JurisdictionsWhere Mineral Interests are ConsideredPersonal Property

Other jurisdictions, such as Kansas and Oklahoma, consider overriding royalty interests to be personal property before and after production.89 In addition, in a number of states the classification of mineral and leasehold interests remains uncertain, and in a number there is lacking complete consistency in classification. 90 In these jurisdictions, the VPP Hydrocarbons may be deemed to remain property of the estate subject to assumption or rejection of the underlying lease and/or VPP transaction documents pursuant to Section 365 of the Bankruptcy Code.91 Any VPP grantee in these jurisdictions risks having the VPP transaction attached to the debtor's bankruptcy estate and subject to claims of senior creditors. 92 IV. RECHARACTERIZATION OF THE VPP AND THE POTENTIAL CONSEQUENCES

Recharacterizationof Transactions in Bankruptcy

Bankruptcy courts have long held that "substance will not give way to form, that technical considerations will not prevent substantial justice from being done." 93 Employing their equitable powers,94 bankruptcy courts have 87. 88.

Id. See 11 U.S.C.

89.

Yunus, supra note 83, at 3.

90.

PATRICK H. MARTIN & BRUCE M. KRAMER, WILLIAMS & MEYERS OIL AND GAS LAW

§ 544(a)(3) (2012); see also COLLIER, supra note 81, ¶ 541.20, at 541-

89.

§ 214 (LexisNexis Matthew Bender 2016); Yunus, supra note 83, at 3. 11 U.S.C. § 365(a). 91. 92. See Yunus, supra note 83, at 3. 93. Pepper v. Litton, 308 U.S. 295, 305 (1939). 94. Some courts have relied on provisions of the Bankruptcy Code to supply the basis for the exercise of equitable powers. See Int'l Trade Admin. v. Rensselaer Polytechnic Inst., 936 F.2d 744, 750 (2d Cir. 1991); City of San Francisco Market Corp. v. Walsh (In re Moreggia & Sons, Inc.), 852 F.2d 1179, 1182 (9th Cir. 1988) (stating explicitly that appropriate focus for interpretation of section 365 is federal law); Liona Corp., N.V. v. PCH Assocs. (In re PCH Assocs.), 804 F.2d 193, 199 (2d Cir. 1986) (examining the legislative history of section 502 for definition of lease); In re Lansing Clarion Ltd. P'ship, 132 B.R. 845, 850 (Bankr. W.D. Mich. 1991) (relying on federal law). Other courts have employed applicable state law. See All Am. Mfg. Corp. v. Quality Textile Screen Prints, Inc. (In re All Am. Mfg. Corp.), 172 BR. 394, 397 (Bankr. S.D. Fla. 1994); Venn v. Howell's Auto Repair Ctr., Inc. (In re Howell), 161 BR. 285,

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disregarded the form of various transactions to declare the substance of the relationship.9 5 For example, courts have employed these powers to characterize loan transactions as equity contributions,9 6 lease agreements as disguised financing,97 and insurance relationships as a partnership.9 In each of these cases, the determination of whether funds furnished to a business venture are debt, equity or the proceeds from a sale ultimately depends upon the economic substance of the transactions between the parties and not 287 (Bankr. N.D. Fla. 1993); Royal Food Mkts., Inc. v. U.S. Berkel Food Machs. (In re Royal Food Mkts., Inc.), 121 B.R. 913, 915 (Bankr. S.D. Fla. 1990). As a general matter, the determination of property rights in the assets of the debtor's estate is generally a matter of state law. See Butner v. United States, 440 U.S. 48, 54 (1979). 95. In In re Delta Petroleum Corp., Delta attempted to acquire Whiting's ownership interest in properties. Delta Petroleum Gen. Recovery Tr. v. BWAB Ltd. Liab. Co. (In re Delta Petroleum Corp.), Nos. 12-50898 (KJC), 12-50877 (KJC), 2015 WL 1577990, at *2 (Bankr. D. Del. Apr. 2, 2015). Delta agreed to pay BWAB a fee, which included an overriding royalty interest (ORRI), in consideration of BWAB's efforts in assisting Delta with negotiations to acquire that interest. Id. Whiting executed and delivered a Conveyance and Assignment to Delta, in which Whiting conveyed a net operating interest (NOI) in the properties to Delta. Id. at *3. Delta and BWAB had also entered into an Assignment of Overriding Royalty Interest where Delta conveyed an ORRI to BWAB. Id. at *2. Delta could only convey a real property interest (the ORRI) if the NOI was a real property interest. Id. at *9. The NOI was defined as "the monthly payable positive or negative cash flow resulting to the Interests [pursuant to an] eight step calculation." Id. at *3. Summary judgment was denied due to an issue of material fact: whether Delta and Whiting intended the NOI to be a real property interest or a contractual right to payment. Id. at *10-12. 96. See, e.g., Grossman v. Lothian Oil Inc. (In re Lothian Oil Inc.), 650 F.3d 539, 544 (5th Cir. 2011) ("Because Texas law would not have recognized Grossman's claims as asserting a debt interest, the bankruptcy court correctly disallowed them as debt and recharacterized the claims as equity interests."); Miller v. Dow (In re Lexington Oil & Gas Ltd.), 423 B.R. 353, 371 (Bankr. E.D. Okla. 2010) ("The Court concludes that the Dow Note and the Cox Note should be recharacterized as equity contributions. When viewed as a whole, the transaction is an attempt to provide Dow and Cox all of the benefits of equity ownership without any of the attendant risks."). See Cor Route 5 Co., LLC v. Penn Traffic Co. (In re Penn Traffic Co.), 466 F.3d 75, 77 97. n.2 (2d Cir. 2006) (noting that a disguised financing arrangement is ineligible for treatment as an executory contract); Liona Corp., N.V. v. PCH Assocs. (In re PCH Assocs.), 804 F.2d 193, 201 (2d Cir. 1986) ("[V]iewing the transaction as a whole, we hold that the Ground Lease and SaleLeaseback Agreement do not constitute a true lease. Therefore section 365(d)(3), (4) of the Bankruptcy Code has no application here."); Big Buck Brewery & Steakhouse, Inc. v. Eyde (In re Big Buck Brewery & Steakhouse, Inc.), No. 04-CV-74771, 2005 WL 1320165, at *1 (E.D. Mich. May 25, 2005) (affirming Bankruptcy Court's adversary proceeding ruling that a purported ground leaseback transaction between Eyde and Big Buck was a "disguised financing statement"); In re Opelika Mfg. Corp., 67 B.R. 169, 171-72 (Bankr. N.D. Ill. 1986) (finding a purported lease agreement in reality to be a "disguised security agreement"); In re Independence Vill., Inc., 52 B.R. 715, 720 (Bankr. E.D. Mich. 1985) (rejecting section 365 application and holding that "lease" was in actuality an "equitable mortgage" in real property and a security interest in the debtor's personalty); Scottsdale Assocs., Inc. v. Seatrain Lines, Inc. (In re Seatrain Lines, Inc.), 20 B.R.. 577, 582 (Bankr. S.D.N.Y. 1982) (recharacterizing purported sale and leaseback as an "equitable mortgage"); Burke Investors v. Nite Lite Inns (In re Nite Lite Inns), 13 BR. 900, 909 (Bankr. S.D. Cal. 1981). 98. Lain v. ZC Specialty Ins. Co. (In re Senior Living Props., L.L.C.), 309 BR. 223, 26769 (Bankr. N.D. Tex. 2004) (holding an insurer to be de facto partners of debtor and therefore liable for 100% of the debtor's debts).

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upon the form in which any part or parts of the monetary advances happen to be cast.99 It is important to consider the risk of judicial recharacterization because of the implications the recharacterization will have on bankruptcy proceedings and the VPP grantee's interest in the VPP.100 1.

Recharacterizationof VPPs: In re Senior-G&A Operating Co.

The Fifth Circuit's 1992 decision in In re Senior-G&A Operating Co. 10 analyzes the issue of whether a transaction-characterized by the parties as a production payment-was in substance a financing transaction. 102 In Senior-G&A, an exploration and production company (E&P Co.) entered into a "Production Payment Loan Agreement" (Agreement) with PSI of Missouri, Inc. (PSI)."o3 Pursuant to the Agreement, the PSI advanced $5.1 million to E&P Co. in exchange for a production payment from the burdened leases totaling $12.75 million.104 The production payment was free from expenses of drilling, production, and maintenance. 1 Subsequently, E&P Co. filed a Chapter 11 bankruptcy, which was subsequently converted to a case under Chapter 7.106 The trustee asserted that PSI was a secured creditor and requested that the court compel PSI to pay certain costs associated with the maintenance and improvement of its collateral. 1 7 PSI denied that it was a secured creditor and asserted that it was the fee simple owner of production payment hydrocarbons.' The bankruptcy court rejected PSI's arguments and required PSI to fund the costs associated with the properties as a secured creditor.109 After the decision was affirmed by the district court, PSI appealed the decision to the Fifth Circuit arguing-interalia-thatthe bankruptcy court

99. Growe v. Bedard, No. Civ. 03-198-B-S, 2004 WL 2677216, at *43 (D. Me. Nov. 23, 2004) ("[T]he court must look to the economic substance of a challenged transaction rather than its form to determine whether the transaction's ultimate effect is to transfer corporate assets to a corporation's shareholders." (citations omitted)). 100. See generally id. 101. PSI, Inc. of Mo. v. Aguillard (In re Senior-G & A Operating Co.), 957 F.2d 1290 (5th Cir. 1992). 102. Id. at 1296-97. 103. Id. at 1293. 104. Id. 105. See id. at 1294. 106. Id. 107. Id. at 1294-95. 108. Id. at 1295. 109. In re Senior G & A Operating Co., 118 B.R. 444, 446 (Bankr. W.D. La. 1990), aff'd in part, rev'd in partsub nom. PSI, Inc. of Mo. v. Aguillard (In re Senior-G & A Operating Co.), 957 F.2d 1290 (5th Cir. 1992).

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erred in determining that PSI was a "secured creditor" 1 o and arguing "that the transaction between it and [E&P Co.] was actually a mineral sale and its interest is a royalty.""' Applying Louisiana law, the court found "a number of reasons to reject PSI's argument that it is the owner of a royalty interest." 1 2 First, the court reasoned that PSI's interest did not possess certain characteristics of a "royalty" under Louisiana law, stating: [t]he royalty owner holds a nonexecutive interest-an interest that does not include the right to grant leases. The distinguishing characteristic of a non-executive royalty interest is its "passive"

nature. The royalty owner has no right to explore, develop, or lease the subject tract. Moreover, the landowner has no obligation to develop or lease the premisesfor the benefit of the royalty owner. ... Certainly, PSI's interest has none of these characteristics. [E&P

Co.] was obligated to produce the well and to make payments from that production. If it failed to do so, PSI could foreclose on the well, then operate it and make production. It, therefore, appears clear that 1 13 PSI does not own a pure royalty interest in the well. After determining that PSI's interest did not constitute a true royalty, again turned to Louisiana law to determine the characterization of court the the interest based on the substance of the Agreement.1 14 In making this determination, the court primarily relied on the fact that the Agreement

In re Senior-G & A Operating Co., 957 F.2d at 1295. PSI further asserted that the 110. Agreement made clear that it was only styled as a "loan" for tax purposes. Id. Id. The court summarized PSI's argument as follows: 111.

PSI argues that the transaction between it and [E&P Co.] was actually a mineral sale and its interest is a royalty. It says that a production payment is by definition a royalty interest-a share of actual product at the wellhead free of costs of extraction, but limited by amount, value or time and expiring when the limit is reached. The only difference, according to PSI, between a royalty interest and a production payment is that a royalty interest continues indefinitely while a production payment terminates when the predetermined limiting factor is met. Thus, PSI argues, the interest granted it by the Agreement is a share of production, free of costs of extraction, which share expires when the monetary limit set out in the agreement is reached; it is therefore a royalty. PSI does admit that its interest is a "hybrid," as the Agreement gives PSI a lien on [E&P Co.'s] mineral interest under the well. Addressing this point, however, PSI contends that while its production interest in the well is a royalty, the lien created by the Agreement attached to [E&P Co.'s] mineral interest, thus allowing PSI to seize and operate the well if [E&P Co.] failed to do so in breach of the Agreement. According to PSI's view, the fact that it had a lien securing its "royalty" does not convert that "royalty" to repayment of a loan secured by the minerals producing the "royalty." Id. at 1295-96. 112. Id. at 1296. 113.

Id.

114.

Id.

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provided "secured creditor" type rights to PSI."' Specifically, the court focused on the fact that the Agreement provided a "lien" on the hydrocarbons as well as the ability to take the minerals "in kind."ll6 The court equated the lien with a "mortgage" of the hydrocarbons under Louisiana law, that, if foreclosed, would have given PSI the right to take over oil and gas operations on the burdened leases."' The court further equated the ability to take the minerals in kind with the pledge provisions of Louisiana law." 8 Based on the fact that these rights under the Agreement are available to secured creditors under Louisiana law, the court held that E&P Co., in substance, mortgaged its mineral interest and pledged its production to PSI and under Louisiana law.119 Consequently, the court held that PSI was a secured creditor, as opposed to a royalty owner. 12 0 2.

Applicability of Senior-G&A to Modern VPP Transactions

As exemplified by the Senior-G&A decision, whether modem VPP transactions may be recharacterized as a disguised financing vehicle will necessarily turn on the specific facts and circumstances of the case, as well as applicable substantive law governing the transaction.121 A significant body of law, however, has developed in the context of the characterization of lease transactions and sale buy-back transactions as disguised financing. In these cases, courts have examined various factors to determine the true characterization of the transaction, including: (i) whether the "rental" payments were calculated to compensate the lessor for the use of the land, or rather were structured for some other purpose, such as to ensure a particular return on an investment; (ii) whether the purchase price was related to the fair market value of the land, or whether it was calculated as the amount necessary to finance the transaction; (iii) whether the property was purchased by the lessor 115. Id at 1297. 116. Id. at 1296-97. 117. Id 118. Id. 119. Id. at 1297. 120. Id. 121. Id A lack of other precedent is likely due to many factors. First, the Senior-G&A decision was based upon Louisiana law making it, at best, persuasive authority for VPPs governed by other states' laws. Second, modern VPP transactions appear to be structured to avoid the factors identified by the Senior-G&A Court. For example, unlike the Agreement in Senior-G&A, modern VPP Transactions are structured to separate the grant of the VPP (embodied in the Purchase and Sale Agreement and the Conveyance) from the production and development obligations and liens (contained in the P&D Agreement). In this regard, practitioners have erected

a firewall between the "sale aspects" of the modern VPP Transactions and the "secured lending aspects" of the transaction.

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specifically for the lessee's use; (iv) whether the transaction was structured as a lease to secure certain tax advantages; (v) whether the lessee assumed many of the obligations normally associated with outright ownership, including the responsibility for paying property taxes and insurance. Also relevant are lease provisions which permit or require the lessee to purchase the premises for a nominal sum at the end of the lease term. 122 At heart, the determination turns on whether "the true nature of the transaction, [is] such that the legal rights and economic consequences of the agreement bear a greater similarity to a financing transaction or to a sale."l 23 Employing the analysis provided by the Fifth Circuit and the factors described in the subsequent disguised financing cases could be instructive to practitioners who would like to avoid providing future courts a basis to recharacterize modem VPPs as disguised financing vehicles. First, VPP transactions should avoid providing secured creditor-type rights that may be construed as being indicative of a financing vehicle as opposed to a sale. To address this issue, practitioners have drafted modem VPP transactions to carve these rights out of the Conveyance and insert them into the Purchase and Sale Agreement, P&D Agreement and Deed of Trust.124 Due to this separation of powers from the Conveyance, VPP grantees can argue that their Conveyance is unlike the situation presented in 25 Senior-G&A because VPP grantees lack the secured creditor type rights.1 It is also important to avoid a fact pattern that would suggest that the P&D Agreement (and other related agreements) could be interpreted as an "integrated" transaction.1 26 Parties would want to avoid creating the wrong impression that if the VPP transaction were considered as a whole, the modem VPP structure would accomplish, in substance, the same effect that 7 was pursued in Senior-G&A. 12 In addition, VPP parties should avoid the hallmarks of disguised financing identified by the courts in a sale lease-back context. Specifically, the actual payments under the transaction, after giving effect to the commodity hedges and interest rate swaps, should not be structured to Hotel Syracuse, Inc. v. City of Syracuse Indus. Dev. Agency (In re Hotel Syracuse, 122. Inc.), 155 B.R. 824, 838-39 (Bankr. N.D.N.Y. 1993) (citation omitted). Major's Furniture Mart, Inc. v. Castle Credit Corp., 602 F.2d 538, 544 (3d Cir. 1979). 123. Pearson, supra note 2, at 30, 35. 124. See In re Senior-G & A OperatingCo., 957 F.2d at 1297. 125. LaRosa v. LaRosa, Nos. 11-1234, 11-1306, 2012 WL 1499522, at *5 n.3 (4th Cir. Apr. 126. 30, 2012) (noting bankruptcy court's ability to "collapse a series of transactions and treat[] them as a single integrated transaction" (internal quotation marks omitted) (quoting Official Comm. of Unsecured Creditors of Sunbeam Corp. v. Morgan Stanley & Co. (In re Sunbeam Corp.), 284 B.R. 355, 370 (Bankr. S.D.N.Y. 2002))); see also United States v. Tabor Court Realty Corp., 803 F.2d 1288, 1302 (3d Cir. 1986). See supra Part IV.A.1. 127.

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ensure a particular return on an investment to the VPP grantor rather than a long-term purchase contract. 128 Additionally, to avoid comparison to the lease transactions held to be disguised financing, the VPP grantor should not retain too much of the obligations normally associated with outright ownership, such as the responsibility for paying property taxes and insurance. 129 One very effective way to distinguish a transaction from this line of cases is for the VPP grantee to retain some form of perpetual interest.130 Finally, it would be helpful to avoid structuring the transaction so as to be considered "loans" under tax law,"' or "loans" by ratings agencies. 13 2 Tax law and rating agency analysis are not strictly relevant, but may nonetheless be noteworthy to a court's consideration.1 3 3 3.

PossibleIssues for the VPP GranteeIf Its Interests were Recharacterized

In Texas, courts have held that production payments, whether volumetric or dollar denominated, constitute interests in land rather than security for a debt as long as the right of the production payment owner to receive payment, either in kind or in money, is conditioned upon the sufficiency of the hydrocarbon production from the burdened lease, and is not an absolute obligation of the grantor.1 34 In other words, a VPP grantee in Texas has an interest in land, and not a secured creditor-type right, as long as the VPP grantee is subject to the production risks discussed earlier. Otherwise, "if . . the payment is required to be made whether or not production is obtained or is sufficient for the purpose, there is no true 128. See, e.g., Liona Corp., N.V. v. PCH Assocs. (In re PCH Assocs.), 804 F.2d 193, 20001 (2d Cir. 1986). 129. See id. at 201. 130. See Pearson, supra note 2, at 3, 22-23 (discussing the potential liability of production payments). 131. See I.R.C. § 636(b) (2012); John W. Leggett, ProductionPayment Tax Issues, in 45TH ANNUAL INSTITUTE ON OIL AND GAS LAW AND TAXATION § 16.05, at 16-18 (Carol J. Holgren

ed., 1994). 132. See Speer, supra note 1, at 1, 6 ("Moody's considered treating these transactions as a sale of reserves and adding only the future production cost and tax obligation to debt, consistent with the transaction's legal structure and in recognition that the VPP seller is not legally obligated to provide any volumes to the VPP buyer beyond those of the specific properties burdened by the VPP. However, the substantial mitigation of (i) the VPP buyer's production risks through overcollateralization of the reserves and fixed priority ownership rights to any production and (ii) the VPP buyer's commodity price risk during production interruptions through the make-whole provisions, leads us to conclude that there is insufficient risk transference for sale treatment."). 133. See generally Leggett, supra note 131, § 16.01, at 16-4; Speer, supra note 1, at 6. 134. State v. Quintana Petroleum Co., 133 S.W.2d 112, 115 (Tex. 1939); Tennant v. Dunn, 110 S.W.2d 53, 57 (Tex. 1937); Prince Bros. Drilling Co. v. Fuhrman Petroleum Corp., 150 S.W.2d 314, 316 (Tex. Civ. App.-El Paso 1941, writ ref d); Sheppard v. Stanolind Oil & Gas Co., 125 S.W.2d 643, 649 (Tex. Civ. App.-Austin 1939, writ ref d).

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[production] payment; instead there is a debtor-creditor relationship and a lien or other security interest in production. "135 In Texas, as well as other similarly situated states, if a bankruptcy court found that a VPP transaction was simply a disguised financing vehicle, the decision would impact a VPP grantee's rights in various ways. In at least one New York case, the structure of the transaction was recast to make the consideration used to pay for a lease a simple term loan with repayments to be made in kind.1 36 The case suggests that a VPP grantee, subsequently dubbed a VPP lender, could face issues of usury under applicable state law. 137 Moreover, depending on the terms of the applicable mortgage or deed of trust, the VPP lender may or may not have a perfected security interest in the VPP Hydrocarbons or the proceeds of production.' 38 Then, if the VPP lender were deemed to be an unsecured creditor, the VPP lender would have no specific rights in the VPP Hydrocarbons and would only be entitled to a pro rata distribution from unencumbered assets of the debtors' bankruptcy estate after all senior claims were paid in full.1 3 9 Finally, if the VPP transaction were to be rejected under Section 365 of the Bankruptcy Code, the damages to be paid to the buyer could be difficult to calculate because they would be based on the discounted future value of the volumes, which would be subject to projections about future commodity prices.1 4 0 If, on the other hand, VPP lender was considered to have a lien on the VPP Hydrocarbons, the debtor could seek to sell the VPP Hydrocarbons to fund operations under Section 363 of the Bankruptcy Code, or seek to encumber the interest with primary priority liens without the VPP lender's consent by providing "adequate protection" of the VPP's interest in the collateral. 14 1 Moreover, the debtor would have the ability to stretch out the term of the repayment from the original term of the VPP for an extended period of time under certain circumstances.1 4 2 Another possibility is that the debtor

135. Cf MARTIN & KRAMER, supra note 90, § 422.2 (citing Nat'l Bank of Tulsa v. Warren, 279 P.2d 262, 264-65 (Kan. 1955) (holding that a document titled "Collateral Assignment of Production Payment" was really a mortgage)). See Nassau Trust Co. v. Midland Manor Home for Adults, 393 N.Y.S.2d 778, 778-79 136. (N.Y. App. Div. 1977). See id. at 779 ("If the lease was in fact security for a disguised loan, then the defense of 137. usury could be interposed by defendants."). See 11 U.S.C. § 544 (2012). 138. See id. 139. 140. Id. § 365(h)(1)(B). See id. § 363(e); see also PSI, Inc. of Mo. v. Aguillard (In re Senior-G & A Operating 141. Co.), 957 F.2d 1290, 1294-96 (5th Cir. 1992). See id. § 502(h) note (Legislative Statements). 142.

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could seek to simply turn over the collateral (i.e. the VPP Hydrocarbons) to the VPP lender instead of making payments. 14 3 Finally, under appropriate circumstances, the VPP lender could be "surcharged" for the costs of maintaining and improving the lender's collateral.144 Section 506(c) permits the debtor to "recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim, including the payment of all ad valorem property taxes with respect to the property."l4 5 V. AVOIDANCE OF UNRECORDED VPPS A large VPP transaction can include hundreds of leases in dozens of counties across numerous states. 146 In some cases, understaffed county recording offices may delay the recordation of conveyances for weeks and months. 147 Moreover, the sheer volume of recordations associated with large VPPs creates many opportunities for interests in oil and gas leases to go unrecorded.' 48 The treatment of these unrecorded interests can create tension between different provisions of the Bankruptcy Code, particularly when a VPP grantor files for bankruptcy before recording the Conveyance in each of the respective counties encompassed by the VPP.1 49 A.

The Debtor'sAvoidance Power Under Section 544(a) (3)

Upon the commencement of a bankruptcy case, the Bankruptcy Code confers on the debtor certain legal statuses under which avoidance rights, as determined by non-bankruptcy (state) law, can be exercised.' The purpose 143. Id. 144. See id. § 506(c) note (Legislative Statements). 145. Id. 146. See Pearson, supra note 2, at 26 (noting VPP transactions can burden multiple leases across several states). 147. See generally id. at 11-12 (noting that VPP transactions are subject to recording statutes). 148. See 11 U.S.C. § 541(d) note (Legislative Statements). 149. In Texas, the holder of an unrecorded interest in an oil and gas lease may attempt to impose a constructive trust on the oil and gas lease in which the holder claims an interest so as to be recognized as an owner. Haber Oil Co. v. Swinehart (In re Haber Oil Co.), 12 F.3d 426, 43537 (5th Cir. 1994). A constructive trust is not actually a trust,,but rather an equitable remedy

imposed by law to prevent unjust enrichment resulting from an unconscionable act. Id. Establishing the existence of a constructive trust involves elements that are difficult to prove in the typical oil and gas case. Id. at 437. Thus, it is relatively rare that an unrecorded assignee will prevail on a constructive trust theory in Texas. Wilson v. Parson (In re Jones), 77 B.R. 541, 549 (Bankr. N.D. Tex. 1987). 150. 11 U.S.C. § 522(f)(3) (stating that a debtor's avoidance power is subject to state law limitations); see also Butner v. United States, 440 U.S. 48, 54-55 (1979) ("Congress has generally

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of these rights is to help debtors strike down "secret" liens and other suspect dealings, thereby increasing the pool of assets available for distribution to creditors."s' Specifically, Section 544(a) of the Bankruptcy Code, commonly known as the "strong arm" clause, confers upon the debtor the hypothetical role of a bona fide purchaser of real property under which to exercise avoidance rights.'52 Section 544(a)(3) permits the debtor to avoid any transfer of property that is voidable by . . a bona fide purchaser of real property .. . from the debtor, against whom applicable law permits such transfer to be perfected, that obtains the status of a bona fide purchaser and has perfected such transfer at the time of the commencement of the case, whether or not such purchaser exists.' 5 3 Section 544(a)(3) puts the debtor, for avoidance purposes, "in the same position, with respect to real estate, as if he were a bona fide purchaser who bought the property from the debtor on the filing date and simultaneously perfected the transfer by recording a deed." 54 In essence, Section 544(a)(3) empowers the debtor to avoid any liens or conveyances a bona fide purchaser could avoid, as determined by applicable state law. B.

Conflict Between Section 541(d) and Section 544(a) (3)

Section 541(d) of the Bankruptcy Code excludes from the general definition of "property of the estate" any property as to which the debtor merely holds bare legal title.155 In this regard, Section 541(d) clarifies Section 541 (a)(1), which states the debtor's estate includes all legal or equitable interests of the debtor.15 6 Therefore, a debtor's legal interest is left the determination of property rights in the assets of a bankrupt's estate to state law. Property interests are created and defined by state law. Unless some federal interest requires a different result, there is no reason why such interests should be analyzed differently simply because an interested party is involved in a bankruptcy proceeding." (footnote omitted)).

Weiman v. Stopher (In re Weiman), 22 B.R. 49, 50 (B.A.P. 9th Cir. 1982) ("[T]he 151. strong arm rights and powers . . . [are] 'employed primarily to protect general creditors of the bankrupt against secret liens."' (quoting Sampsell v. Straub, 194 F.2d 228, 231 (9th Cir. 1951))). 11 U.S.C. § 544(a)(3). 152. 153. Id. 154. Mayer v. United States (In re Reasonover), 236 B.R. 219, 227 (Bankr. E.D. Va. 1999). 11 U.S.C. § 541(d). Section 541(d) provides inpertinent part: 155. Property in which the debtor holds, as of the commencement of the case, only legal title and not an equitable interest . . . becomes property of the estate under subsection (a)(1) or (2) of this section only to the extent of the debtor's legal title to such property, but not to the extent of any equitable interest in such property that the debtor does not hold. Id. (emphasis added). As discussed below, courts have attached significance of the limitation of Section 541(d) to subsections (a)(1) and (a)(2) of Section 541 because subsection (a)(3) provides for the inclusion of property avoided under Section 544(a)(3). 156. Id. § 541(a)(1), (d).

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included in the debtor's estate only to the extent of the debtor's legal title to such property, but not to the extent of any equitable interest in such property that the debtor does not hold. Under this provision, the putative VPP grantee of an unrecorded interest in an oil and gas lease from a debtor-VPP grantor could argue that the interest never entered into the bankruptcy estate as property of the debtor because the debtor held mere legal title to the interest, while the putative grantee maintains a qualifying equitable interest in the assignment. Section 544(a)(3) applies, by its own terms, only to property of the estate.15 1 Application of Section 541(d) would, therefore, entirely preclude any power the debtor-VPP grantor has to avoid the unrecorded assignment as a hypothetical bona fide purchaser. C.

Resolving the Dispute Between Section 541(d) and Section 544(a)(3)

Courts and commentators disagree when it comes to resolving competing claims to unrecorded interests based upon Section 544(a)(3) and Section 541(d). Courts, including the Fifth and Eleventh Circuit Courts of Appeal, have held that Section 541(d) prevails over an avoidance claim made under Section 544(a)(3).' These courts argue that Section 541(d) must generally prevail over the debtor's avoidance powers because "Congress did not mean to authorize a bankruptcy estate to benefit from property that the debtor did not own." 15

A substantial number of other courts and commentators, including the Seventh and Ninth Circuit Courts of Appeal, have reached the opposite conclusion, finding that the debtor's avoidance power under Section 544(a)(3) should trump claims based solely on the debtor's lack of equitable title.160 These cases contend that a modification, made in 1984, to Section 157. See id. § 544(a)(3). 158. See, e.g., City Nat'l Bank of Miami v. Gen. Coffee Corp. (In re Gen. Coffee Corp.), 828 F.2d 699, 706 (11th Cir. 1987); Sandoz v. Bennett (In re Emerald Oil Co.), 807 F.2d 1234, 1238 (5th Cir. 1987); Vineyard v. McKenzie (In re Quality Holstein Leasing), 752 F.2d 1009, 1013 (5th Cir. 1985). 159. In re Emerald Oil. Co., 807 F.2d at 1238 (quoting In re Quality Holstein Leasing, 752 F.2d at 1013). 160. See, e.g., Belisle v. Plunkett, 877 F.2d 512, 516 (7th Cir. 1989); Chbat v. T1eel (In re Tleel), 876 F.2d 769, 772-73 (9th Cir. 1989); Ebel v. Ebel (In re Ebel), 144 B.R. 510, 515 (D. Colo. 1992); see also David Gray Carlson, The Trustee's Strong Arm Power Under the Bankruptcy Code, 43 S.C. L. REv. 841, 930 (1992). Courts have defined "equitable title" as "the beneficial interest of one person whom equity regards as the real owner, although the legal title is vested in another." Arachnid, Inc. v. Merit Indus., Inc., 939 F.2d 1574, 1578 n.3 (Fed. Cir. 1991) (internal quotation marks omitted) (quoting Equitable Title, BLACK'S LAW DICTIONARY 1486 (6th ed. 1990)). Conversely, courts have defined "legal title" as "title that evidences apparent ownership but does not necessarily signify full and complete title or a beneficial interest." In re Eagleton, No. 04-444085-DML-7, 2004 Bankr. LEXIS 1001, at *13 (Bankr. N.D. Tex. July 22,

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541 of the Bankruptcy Code makes Section 541(d) inapplicable to exclude from the debtor's estate property recovered by the debtor using Section 544(a)(3). 16 1 Therefore, these cases and commentators conclude that the 1984 amendment signals Congress's intent for the debtor's avoidance powers to trump claims based on Section 541(d). 162 D.

Effect of Avoidance

When a transfer is avoided under Section 544(a)(3), Section 550 permits the estate to recover the property or the value of the property transferred. Section 550(a) of the Bankruptcy Code provides in relevant part that "to the extent that a transfer is avoided under [S]ection 544 . . the trustee may recover, for the benefit of the estate, the property transferred, or, if the court so orders, the value of such property."16 Upon the return of the property to the estate, the defendant-VPP grantee would possess an allowed unsecured claim for the value of the property pursuant to Section 502(h) of the Bankruptcy Code.164 Applying the recovery principles of Section 550 to a modern unrecorded VPP transaction presents several complex issues. Assuming that no portion of the Conveyance is recorded, a court must determine whether to re-convey the remaining VPP Hydrocarbons to the debtor-VPP grantor by voiding the Conveyance, or award a money judgment. 165 Additionally, to the extent that the debtor-VPP grantor continued to deliver the VPP Hydrocarbons after filing bankruptcy until the order avoiding the unrecorded interest, which could take several years, a court would likely have to award money damages for the VPP Hydrocarbons delivered after the date the debtor-VPP grantor assumed its hypothetical bona fide purchaser position at the commencement of the

2004) (internal quotation marks omitted) (quoting Legal Title, BLACK'S LAW DICTIONARY 1493 (7th ed. 1999)). Specifically, the 1984 amendment to Section 541(d) struck the phrase "under 161. subsection (a) of this section" and replaced it with "under subsection (a)(1) or (2) of this section." Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub. L. No. 98-353, § 456(c), 98 Stat. 333, 376 (1984). This amendment altered the operation of Section 541(d) to exclude only property coming into the estate under Section 541(a)(1) or (2), not under (a)(3). Id. Section 541(a)(3) brings into the debtor's estate any interest in property recovered by the debtor under Section 550, which, in turn, allows the debtor to recover transfers avoided by the debtor's strongarm powers under Section 544(a)(3). See 11 U.S.C. §§ 541(a)(3), 544(a)(3). Thus, Section 54 1(d) does not apply to property recovered by the debtor with its avoidance power under Section 544(a)(3). See supra note 161 and accompanying text. 162. 11 U.S.C. § 550(a). 163. See id § 502(h). 164. See supra note 160-61 (discussing cases on the issue of claims of ownership). 165.

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bankruptcy case. Due to the commodity price volatility, the award of any money judgment would be a complex undertaking. 16 6 Assuming that the Conveyance was recorded in some (but not all) jurisdictions raises additional issues. While the court could void the Conveyance as to the unrecorded leases, the debtor-VPP grantor would still be obligated to deliver the VPP Hydrocarbons from the remaining burdened leases. 167 Moreover, the make-whole provision, if enforceable after the bankruptcy filing, could still require the debtor-VPP grantor to make deliveries of the VPP Hydrocarbons from its non-burdened leases.1 68 VI. CONCLUSION

VPP transactions remain a valid form of conveyance-based financing that are intended to allow oil and gas companies to convey interests in their properties through a real property conveyance, free from recharacterization or other attacks in bankruptcy. Nonetheless, practitioners should take care to follow the rules of the road. The Bankruptcy Code, as well as the equitable rights developed by case law, provide the map. Those who take short cuts are inviting challenges to their structure.

166. See generally Bradford & Holtman, supra note 45 (discussing the shifting price risk on oil and gas commodities). 167. See Mufioz, supra note 7, at 229. 168. See id. at 233-34.

AN ANALYTICAL APPROACH TO DISCOVERING AND CURING INEFFECTIVE UCC FILINGS MATT CROCKETTt

I. INTRODUCTION........................................30 II. RULES...............................................32

DebtorName Rules..............................32 1. Single Search Rule ..................... ........... 32 2. Debtor's CorrectName.............. ........... 33 3. Standard Search Logic...................... ......... 36 Additional Rules.................. .............. 39 1. FilingLocation................. ............. 39 2. Trust Filings-CollateralHeld in Trust ............. 41 3. Estate Filings-Administeredby Personal Representative...............................41 4. Termination.................................42 5. CollateralDescription.........................42 6. Box Checking...............................42

III. ERROR TYPES....................

.....................

Wrong Name Errors................ ............. 43 1. Registered OrganizationName Errors .............. 43 2. Individual Name Errors........................46 3. Trust Name Error.................. .......... 49 4. Estate Name Error................ ............ 49 5. UnregisteredOrganizationName Error... ...... 49 Non-DebtorName Errors................ .......... 50 1. Wrong State Error................ ............ 50 2. CollateralHeld in Trust Error.... ................ 50 3. PersonalRepresentativeError ................... 51 4. TerminationError................. ........... 51 5. CollateralDescriptionError........... .......... 51 6 Box Checking Error................................ 52

t Assistant Professor of Law, UNT Dallas College of Law; Of Counsel, Gardere Wynne Sewell LLP.

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........................................

IV. FILING ANALYSIS

55 ................................... DebtorName Errors 57 Non-DebtorName Errors....................... .....................................60 V. SECURED PARTY MASKING 61 ..................... VI. CONCLUSION AND SUGGESTIONS A. B.

Abstract UCCfiling errors, despite all of the scholarly and legislative attention paid to them, are still pervasive. It may be that UCC filing errors cannot be completely prevented. This Article proposes that securedparties should procure a layer of protection against UCC filing errors by obtaining a 'filing analysis, " a process in which a researcher analyzes a secured party's existing filings for errors. This Article discusses common UCC filing errors andprovides instructionsfor conducting a filing analysis. I.

INTRODUCTION

A central principle of Article 9 of the Uniform Commercial Code (Article 9) is that, unless otherwise provided in Article 9, an effective financing statement (a UCC filing or filing) must be filed to perfect all security interests.' A secured party with an ineffective UCC filing (who is not otherwise perfected) has an unperfected security interest.2 UCC filing errors have long plagued lenders.' As could be anticipated given the extraordinary importance of UCC filings,4 there is no shortage of commentary, instruction, and proposal for change on the issue.' Most of the discussion has centered on the established and ever-evolving problem of

1. TEX. Bus. & COM. CODE ANN. § 9.310(a) (West 2011). 2. See id. § 9.506(a)-(c) (stating that failure to properly provide the debtor's name makes a UCC filing "seriously misleading" unless a search under the debtor's correct name nevertheless discloses the UCC filing). See infra Part III, for a discussion on cases pertaining to UCC filing errors. 3. 4.

See Kris Fredrickson, Amending UCCArticle 9 to Fix the Name-ErrorProblem,40 No.

1 UCC L. J. 43, 44 (2007) (referring to the UCC filing system as "the backbone of the trilliondollar secured credit industry"). See, e.g., id. at 46; Kenneth C. Kettering, Standard Search Logic Under Article 9 and 5. the Florida Debacle, 66 U. MIAMI L. REV. 907, 921 (2012); Margit Livingston, A Rose by Any Other Name Would Smell as Sweet (or Would It?): Filing and Searching in Article 9's Public Records, 2007 BYU L. REV. 111, 114-15 (2007); Harry C. Sigman, Improvements (?) to the UCC Article 9 Filing System, 46 GONZ. L. REV. 457, 459 (2010); Kevin V. Tu, The Rise of StateSpecific Attempts to Decipher the Sufficiency-of-a-Debtor-Name Standard Under Revised Article 9 and the End of Uniformity in Secured Transactions, 59 U. KAN. L. REV. 85, 88-89 (2010); The DebtorName Disaster, UCC FILING FLASH, Dec. 2006, at 1-2.

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debtor name errors. 6 While debtor name errors properly garner a majority of the attention, a separate set of non-debtor name errors are also frequently made in UCC filings. This Article discusses both debtor name errors and non-debtor errors. For purposes of this Article, UCC filing errors are either serious or minor. Serious errors make a UCC filing ineffective or substantially pose a threat of making a UCC filing ineffective, while minor errors do not. This Article focuses, almost exclusively, on serious errors. Despite the attention paid to UCC filing errors, they remain ubiquitous. Part TV of this Article discusses the author's research supporting that claim. The prevention of UCC filing errors may be impossible so long as the UCC filing rules lack uniformity among states and the reality of human error exists.' Given that reality, this Article proposes that secured parties should procure a layer of protection against UCC filing errors. That layer of protection is an analytical approach to discovering serious errors in existing UCC filings. This Article refers to that approach as a "filing analysis," and provides instructions for conducting a filing analysis. As discussed in this Article, the same tools used to conduct a filing analysis are used to cure UCC filing errors discovered in a filing analysis. Because central UCC filings are made and searched at the state level, and because the filing rules lack uniformity from state to state, a filing analysis must be conducted state by state.' For this reason, it is helpful to provide instructions for conducting a filing analysis under the rules of a single state. This Article provides instructions for conducting a filing analysis under Texas law. Texas is a good state in which to conduct a filing analysis because UCC filings are voluminous in Texas,' and as discussed in Part IV of this Article, the tools required to conduct a complete filing analysis are easily accessible in Texas. Because this Article focuses on Texas law, citations to the UCC in this Article are generally to the Uniform Commercial Code as adopted in Texas (the Texas UCC), including Chapter 9 of the Texas UCC (Texas's version of Article 9) and references to the "Texas SoS" are to the Texas Secretary of State, the central UCC filing office in Texas."o As discussed in Part IV of this Article, a filing analysis 6. Id. The 2010 amendments to Article 9, adopted in many states in the summer of 2013, aimed in large measure at addressing debtor name problems. See UCC Article 9 Amendments (2010)

Summary,

UNIF.

LAW

COMM'N,

http://www.uniformlaws.org/ActSummary.aspx?title=UCC%20Article%209%2OAmendments%2 0(2010) (last visited Dec. 6, 2016). 7. See generally Tu, supra note 5, at 88, 110-19. 8. See generally id. (stating that ambiguities in the UCC have led states to enact nonuniform amendments attempting to resolve uncertainty in secured transactions). 9. Sigman, supra note 5, at 458 n.2. 10. See generally TEX. BUS. & COM. CODE ANN. § 9.501(a)(2) (West 2011).

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can be done in any state by modifying the information in this Article in minor respects. Part II of this Article discusses the rules under which serious errors in UCC filings are made. Part III of this Article discusses the types of errors that violate the rules discussed in Part II of this Article and make (or pose a threat of making) a UCC filing ineffective. Part IV of this Article provides instructions for conducting a filing analysis. Part V of this Article briefly discusses secured party masking and its relationship to a filing analysis. II. A.

DebtorName Rules

Single Search Rule

RULES

A UCC filing must provide "the name of the debtor."" The "debtor's name is particularly important," because UCC filings are "indexed under the name of the debtor," and searchers must search for UCC filings "under the debtor's name." 12 Section 9.503(a) of the Texas UCC provides instructions for determining the debtor's name.1 3 Those instructions are discussed in more detail in Part II.A.2 of this Article. Under Section 9.506(c) of the Texas UCC, a UCC filing which provides the debtor's name and meets the other filing requirements of the Texas UCC is effective, even if it has minor errors or omissions, unless the errors or omissions make the UCC filing "seriously misleading." 4 Under the Texas UCC, [i]f a search of the records of the filing office under the debtor's correct name, using the filing office's standard search logic ... would disclose a financing statement [UCC filing] that fails sufficiently to provide the name of the debtor in accordance with Section 9.503(a), the name provided does not make the financing statement [UCC filing] seriously misleading.1 5 Alternatively, if the search does not disclose the UCC filing that fails to sufficiently provide the name of the debtor in accordance with Section 9.503(a) of the Texas UCC, the filing is seriously misleading, and is ineffective.'" This set of rules is often called the "single search" rule because it obligates a searcher to make only one search under the debtor's

11. 12.

13. 14. 15. 16.

Id. § 9.502(a)(1). Id. §§ 9.503 cmt. 2, .519(c)(1). Id. § 9.503. Id. § 9.506(a). Id. § 9.506(c). Id.

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correct name." The single search rule is, in the view of many courts, a reasonable construction of the statutory language." The rule also appears to be consistent with the intent of the drafters of revised Article 9.19 The single search rule only works, of course, if the debtor truly has only one correct name. 2.

Debtor's Correct Name

In all but a few instances discussed below, the Texas UCC provides a framework for a person to determine a debtor's correct name with certainty. To simplify certain parts of this Article, the following defined terms, when used herein, are given the following meanings: (a) "trust," unless otherwise indicated, means a trust that is not a registered organization;20 (b) "estate" means a debtor whose name must be determined under Section 9.503(a)(2) of the Texas UCC, which applies to collateral being administered by the personal representative of a decedent; and (c) "unregistered organization" means a debtor that is not a registered organization, individual, trust, or estate, as contemplated by Section 9.503(a)(l)-(5) of the Texas UCC. 2 1 The following rules apply under Section 9.503(a) of the Texas UCC: (a) Registered Organization. The correct name of a registered organization is "the name that is stated to be the registered organization's the name on the public organic record most recently filed with . . registered organization's jurisdiction of organization that purports to state, 17. See Tu, supra note 5, at 123. 18. See In re Jim Ross Tires, Inc., 379 B.R. 670, 679 (Bankr. S.D. Tex. 2007) ("[I]f a search using the 'standard search logic' fails to disclose the financing statement, the statement is 'seriously misleading' and ineffective." (quoting Bus. & COM. § 9.506(c))); see also Genoa Nat'l Bank v. Sw. Implement, Inc. (In re Borden), 353 B.R. 886, 890-91 (Bankr. D. Neb. 2006) ("[T]he legislative language and purpose [of the revised UCC] evidenced an intent to shift the responsibility of getting the debtor's name right to the party filing the financing statement. This approach would enable a searcher to rely on that name and eliminate the need for multiple searches using variants of the debtor's name, all leading to commercial certainty." (citing Pankratz Implement Co. v. Citizens Nat'l Bank, 130 P.3d 57, 63 (Kan. 2006))). See Tu, supra note 5, at 87-88 ("Article 9, which sought to eliminate the need for 19. searchers to guess all potential variations of a debtor name in favor of an approach where searchers could reliably conduct a single search using the debtor's correct name."); see also id. at 102-03 ("The apparent intent of the drafters in moving to a safe harbor based on a filing office's computerized search logic was to . . . ensur[e] that UCC searchers need only conduct a single search of the filing-office records under the debtor's 'correct' name to discover all security interests affecting a particular debtor's property."). The only trusts that can be registered organizations in Texas are real estate investment 20. trusts. See TEX. Bus. ORGS. CODE ANN. § 1.002(22) (West 2012 & Supp. 2016) ("'Filing entity' means . . . a corporation, limited partnership, limited liability company, professional association, cooperative, or real estate investment trust."); see also id. §§ 3.001 (outlining requirements for forming a filing entity), 4.009 (outlining requirements for filings by real estate investment trusts). 21. See Bus. & COM. § 9.503(a).

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amend, or restate the registered organization's name." 2 2 In other words, for a Texas registered organization, its correct name is the name stated on its formation document, as most recently amended or restated, on file with the Texas SoS. 2 3

(b) Individual. The correct name of an individual is the name set forth on the individual's unexpired driver's license. 24 A discussion of the correct name of an individual either (1) without a driver's license; (2) with an expired driver's license; or (3) with more than one driver's license or identification card is, in each case, outside the scope of this Article.25 (c) Trust. The correct name of a trust that is not a registered organization is the name set forth as the trust's name in the organic record of the trust.2 6 A discussion of the correct name of a trust in which the organic record of the trust does not specify a name for the trust is outside the scope of this Article.27 (d) Estate. The correct name of an estate is the individual decedent's name as set forth "on the order appointing the personal representative of the decedent issued by the court having jurisdiction over the collateral." 28 (e) Unregistered Organization. The correct name of an unregistered organization is "the organizational name of the debtor." 29 The phrase "organizational name of the debtor" is not defined in the Texas UCC, and the name of the organization may be stated, among other places, in its most 22. Id. § 9.503(a)(1). 23. Id. 24. Id. § 9.503(a)(4). 25. See id. ("[I]f the debtor is an individual to whom . . . the agency of this state that issues driver's licenses has issued, in lieu of a driver's license, a personal identification card that has not expired, [the financing statement must provide] the name of the individual that is indicated on the driver's license or personal identification card."); see also id. § 9.503(a)(5) (providing that if the individual does not have an unexpired driver's license or a personal identification card, the financing statement must provide "the individual name of the debtor or the surname and first personal name of the debtor"). 26. Id. § 9.503(a)(3)(A)(i). The name of a trust that is a registered organization is the registered organization's most recently filed name on the public organic record. Id. § 9.503(a)(1). 27. See id. § 9.503(a)(3)(A)(ii) (providing that the financing statement must provide "the name of the settlor or testator" as the name of the debtor where the name for the trust is not specified in its organic record). 28. Id. § 9.503(a)(2). The typical driver's license requirement for determining an individual's name does not, however, apply. See id. § 9.503(f) ("The name of the decedent indicated on the order appointing the personal representative of the decedent issued by the court having jurisdiction over the collateral is sufficient as the 'name of the decedent' under [Section 9.503(a)(2)]."). 29. See id. § 9.503(a)(6)(A). A discussion of the correct name of an unregistered organization that does not have a name is outside the scope of this Article. See id. § 9.503(a)(6)(B) ("[I]f the debtor does not have a name, [the filing must] provide[] the names of the partners, members, associates, or other persons comprising the debtor, in a manner that each name provided would be sufficient if the person named were the debtor.").

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recent federal income tax return, organizational agreement, or filing under an assumed name statute.30 The organization's name may vary from document to document.3 1 Therefore, the Texas UCC's current framework does not establish sufficient rules for determining with certainty an unregistered organization's correct name. (f) Governmental Debtor. The correct name of a governmental debtor, which is generally an unregistered organization for purposes of Section 9.503 of the Texas UCC, can present difficulties.32 Some states exclude governmental debtors from the scope of Article 9 in secured lending transactions.33 In those states, at least for purposes of UCC filings, secured parties avoid the task of determining the applicable debtor's correct name. However, in Texas and many other states, governmental debtors are within the scope of Article 9. Some governmental entities, such as cities, have adopted city charters. 34 By extending the debtor name rules for registered organizations (i.e., the name on its public organic record (charter) constitutes the registered organization's correct name), it would seem that, for purposes of Section 9.503 of the Texas UCC, the correct name of a governmental debtor that has adopted a charter would be the name on its charter. 5 Other governmental entities, such the Teacher Retirement System of Texas, are named in state statutes. 36 A statutory name given to an organization would seem to be that organization's name for purposes of Section 9.503 of the Texas UCC. (g) Serial Limited Liability Company. The correct name of a serial limited liability company debtor can also be difficult to determine. Serial limited liability companies are available in Texas. 37 A particular series of a Texas series limited liability company is not registered with the Texas SoS.38 Therefore, to the extent a particular series is the debtor, it should be treated as an unregistered organization under Section 9.503(a)(6) of the

See Livingston, supra note 5, at 155-56. 30. 31. Id. at 156. Governmental debtors, such as cities, counties, school districts, and other governmental 32. departments are typically unregistered organizations for purposes of 9.503 of the Texas UCC because they do not fit any of the other categories of debtors. Note that such entities are not "filing entities" under the Texas Business Organizations Code. See supra note 20 and accompanying text. See, e.g., KY. REv. STAT. ANN. § 355.9-109(4)(q) (LexisNexis 2008) (excluding from 33. the scope of Kentucky's Article 9 "[a] public-finance transaction or a transfer by a government or governmental unit"). 1 § 1 (2010), See, e.g., CORPUS CHRISTI, TEX., CITY CHARTER art. 34. http://www.cctexas.com/government/city-secretary/city-charter/index (last visited Aug. 1, 2016). See TEX. Bus. & COM. CODE ANN § 9.503(a) (West 2011 & Supp. 2015). 35. 36. TEX. Gov'T CODE ANN. § 821.003 (West 2012). 37. TEX. BUS. ORGS. CODE ANN. §101.601 (West 2012). Id. §101.622. 38.

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Texas UCC.3 9 By the same logic applied to unregistered organization names in the preceding paragraph, the particular series' name should be the name given to the series in the governing organizational documents of the master (parent) limited liability company.40 Applying the rules above, Section 9.503(a) of the Texas UCC lays the groundwork for determining with certainty a debtor's correct name, with exceptions for: (1) an individual without a driver's license or with an expired driver's license (outside the scope of this Article); and (2) unregistered organizations. 3.

StandardSearch Logic

As discussed in Part II.A of this Article, if a Texas SoS UCC search, performed under the Texas SoS's standard search logic, does not disclose a UCC filing that fails to sufficiently provide the name of the debtor in accordance with Section 9.503(a) of the Texas UCC, the UCC filing is seriously misleading, and is ineffective. 4 ' The standard search logic, therefore, is fundamental in determining whether a UCC filing with a debtor name error is effective. After applying the standard search logic to modify the name being searched, a Texas UCC search will retrieve all UCC filings with debtor names that "exactly match the modified name being searched." 4 2 If the standard search logic disregards an error in the debtor's name in a UCC filing, the UCC filing should be retrieved in a search under the debtor's correct name, and should be effective.43 If the standard search logic does not disregard the error in the debtor's name, the UCC filing should not be retrieved in a search under the debtor's correct name, and should be ineffective.44 The International Association of Commercial Administrators (IACA) promulgates standard search logic under Article 9.45 A majority of states, including Texas, have adopted a standard search logic closely patterned on 39. Bus. & COM. § 1.201(b)(25) ("'Organization' means a person other than an individual."), (27) ("'Person' means ... a particular series of a for-profit entity."). See generally Norman M. Powell, Series LLCs, the UCC, and the Bankruptcy Code-A Series of Unfortunate Events?, 41 No. 2 UCC L. J. 103, 105 (2008). 40. Texas Business Organizations Code seems to contemplate that one or more of the governing organizational documents of a series limited liability company will indicate the name of each individual series. See Bus. ORGS. §§ 101.601, .603, .605. 41. Bus. & COM. § 9.506(a)-(c). 42. 1 TEX. ADMIN. CODE § 95.503(1)(J) (2016) (Office of the Sec'y of State, Search Methodology). 43. See Bus. & COM. § 9.506(a), (c). 44. See id. 45. Uniform Commercial Code, Article 9: Model Administrative Rules, INT'L ASS'N COM. ADMINISTRATORS § 503 (2015), https://www.iaca.org/wp-content/uploads/Model-AdministrativeRules.pdf.

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the IACA promulgated standard search logic. 4 6 To illustrate the operation of the Texas SoS's standard search logic and to describe various debtor name errors, this Article uses the following hypothetical debtors: 4 7 (a) a corporation named "ABC Widget Corporation" that uses the trade name "Easy Widget"; and (b) an individual named "Jonathan Matthew Butler Jr.," who uses the same trade name as the corporation, "Easy Widget." (a) Non-Individual Debtors. For non-individual debtors, the Texas SoS's standard search logic is, in pertinent part for purposes of this Article, as follows: (a) there is "no distinction . .. between upper and lower case letters";4 8 (b) "[t]he character '&' . . . is replaced with the character 'and';4 9 (c) "all characters other than the numerals 0 through 9 and letters A through Z [are disregarded]";"o (d) "[n]oise [w]ords" are disregarded;" (e) "[t]he word 'the' at the beginning of an organization debtor name is disregarded";S2 and (f) "[a]ll spaces are disregarded."" Based on the foregoing, the Texas SoS's standard search logic should disregard (accommodate) the following debtor name variations for the hypothetical organization debtor ABC Widget Corporation: (1) "A.B.C. Widget Corporation" or "ABC A*&*$ Widget Corporation," because characters other than the numerals 0 through 9 and letters A through Z are disregarded;54 (2) "ABC Widget," "ABC Widget LLC," and "ABC Widget Partnership Corporation Limited Liability Company PA," because noise words, either missing, wrong, or incorrectly added after the last word in a debtor's name that is not a noise word, are disregarded;" and 46. Id.; see also 1 ADMIN. § 95.503(1) (providing the standard search logic used in Texas). 47. Any actual UCC filings under these debtor names are purely coincidental. 48. 1 ADMIN. § 95.503(1)(B). This Article disregards distinctions between upper and lower case letters in debtor names. 49. Id. § 95.503(l)(C). 50. Id. § 95.503(l)(D). 51. Id. § 95.503(1)(E) ("The following words and abbreviations at the end of an organization name that indicate the existence or nature of the organization are 'disregarded' to the extent practicable as determined by the filing office's programming of its UCC information management system: . . . And, Assn, Assoc, Association, Business Trust, Chartered, Chtd, Co, Co-Op, Company, Cooperative, Corp, Corporation, Credit Union, CU, FCU, Federal Credit Union, Federal Savings Bank, FSB, General Partnership, GMBH, GP, Inc, Incorporated, Joint Stock Company, Joint Venture, JSC, JV, LC, Limited, Limited Company, Limited Liability Company, Limited Liability Limited, Limited Liability Limited Partnership, Limited Liability Partnership, Limited Partnership, LLC, LLLP, LLP, LP, LTD, LTD Co, MD, MDPA, Medical Doctor, NA, National Association, PA, Partnership, PC, PLC, PLLC, Professional Association, Professional Corporation, Professional Limited Company, Professional Limited Liability Company, Registered Limited Liability Partnership, RLLP, SA, Savings Association, SSB, [and] Trust."). Id. § 95.503(1)(F). 52. 53. Id. § 95.503(1)(G). 54. Id. § 95.503(1)(D). 55. Id. § 95.503(1)(E).

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(3) "ABCWidgetCorporation" or "ABCWidgetCorporation" because spaces, either missing or added, are disregarded.5 6 (b) Individual Debtors. For individual debtors, the Texas SoS's standard search logic is, in pertinent part for purposes of this Article, as follows: (a) there is "no distinction . .. between upper and lower case letters";" (b) first personal name equivalents are disregarded;" (c) initials are treated as the logical equivalent of all first and middle names that are such initials or that begin with such initials;" (d) middle names and suffixes are not required,60 (e) the suffix is disregarded;"1 (f) a wrong middle name (regardless of whether it has a name equivalent) is not disregarded; 62 (g) a search under an individual's last name only will retrieve UCC filings with individual debtor last names under the last name being searched. 63 The following examples, using the hypothetical individual debtor Jonathan Matthew Butler Jr., illustrate the preceding rules: (1) the Texas SoS's standard search logic should disregard (accommodate) the names 56. Id. § 95.503(l)(G). 57. Id. §95.503(l)(B). 58. Id. § 95.503(l)(H). Texas will retrieve UCC filings with first personal name equivalents. For example, a search for "John Smith" will also retrieve records with the first personal name "Jack," "Johnnie," "Johnny" and "Jonathan." Section 95.503(l)(H) of the Texas Administrative Code contains a list of first personal name equivalents. 59. Id. ("For first personal name and additional name(s)/initial(s) of individual debtor names, initials are treated as the logical equivalent of all names that begin with such initials or no name or initial, and first personal name and no additional name(s)/initial(s) is equated with all additional name(s)/initial(s). For example, a search request for 'John A. Smith' would cause the search to retrieve all filings against all individual debtors with 'John' or the initial 'J' as the first personal name, 'Smith' as the surname, and with the initial 'A' or any name beginning with 'A' or no name or initial in the additional name(s)/initial(s) field. If the search request were for 'John Smith' (first personal name and surname with no designation in the additional name(s)/initial(s) field), the search would retrieve all filings against individual debtors with 'John' or the initial 'J' as the first personal name, 'Smith' as the surname and with any name or initial or no name or initial in the additional name(s)/initial(s) field."). 60. Id. As to middle names and suffixes, test searches were conducted on October 21, 2016 with the Texas SoS. SOSDirect, TEX. SECRETARY ST., http://www.sos.state.tx.us/Corp/sosda/index.shtml (last visited October 21, 2016) [hereinafter SOSDirect, TEX. SECRETARY ST.]. A search under "Edward McCarthy," omitting the middle name and the suffix, located a UCC filing under name "Edward Robert McCarthy Jr."; alternatively, a search under "Ross Paul Featherston Sr." located a UCC filing under "Ross Featherston," indicating that the Texas SoS does not require middle names or suffixes. 61. Test searches were conducted on October 21, 2016 with the Texas SoS. SOSDirect, TEX. SECRETARY ST., supra note 60. A search under "Edward Bobby McCarthy r." located a UCC filing under the name "Edward Robert McCarthy Jr.," indicating that the Texas SoS disregards the suffix. 62. Test searches were conducted on October 21, 2016 with the Texas SoS. Id. A search under "Edward Bobby McCarthy" did not locate a UCC filing under "Edward Robert McCarthy Jr.," even though "Bobby" is a logical equivalent of "Robert" under Section 95.503(l)(H) of the Texas Administrative Code. Note that the Texas SoS requires greater accuracy for a debtor's middle name than it does for a debtor's first name. 63. See 1 ADMIN. § 95.303(l)(I).

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"Johnnie," "Jack," "John," or "Johnny," because such names are first personal name equivalents for Jonathan (a UCC filing with any other first personal name should not be retrieved under a search of the debtor's correct name); 64 (2) a UCC filing against "J. M. Butler" should be retrieved in a search under the debtor's correct name because initials are treated as the logical equivalent of all first and middle names that are such initials or that begin with such initials6 5 (i.e., a search under the debtor's correct name should retrieve all UCC filings with the initial "J" for the first personal name, or with any first name beginning with "J" and the initial "M" for the middle name, or with any middle name beginning with "M"); (3) a UCC filing against "Jonathan Butler" should be retrieved in a search under the debtor's correct name, even though the middle name and suffix are absent because middle names and suffixes are not required;6 6 (4) a UCC filing against "Jonathan Matthew Butler III" should be retrieved in a search under the debtor's correct name, even though the suffix is wrong, because the suffix is disregarded; 67 (5) a UCC filing against "Jonathan Michael Butler Jr." should not be retrieved in a search because the middle name is wrong and a wrong middle name will not be disregarded; 68 and (6) a UCC filing under only the last name "Butler" should be retrieved under a search of the debtor's correct name because a search including the correct last name of an individual will retrieve all UCC filings with individual debtor last names under the last name being searched.69 B.

Additional Rules

The following rules pertain to certain errors, other than debtor-name errors, described in this Article: 1.

FilingLocation

Under the Texas UCC, in general, central UCC filings must be made as follows: See statute cited supra note 58 and accompanying text. 64. See statute cited supra note 59 and accompanying text. 65. 66. See statute cited supra note 60. 67. See source cited supra note 61 and accompanying text. 68. See source cited supra note 62 and accompanying text. See 1 TEX. ADMIN. CODE § 95.503(l)(I) (2016) (Office of the Sec'y of State, Search 69. Methodology). Such a UCC filing clearly fails to state the debtor's correct name and could be ineffective for failing to do so, even though a UCC search retrieves it. For common last names, UCC search results under the last name can be voluminous and naturally, rife with false positive UCC filings, since all UCC filings with a debtor with the last name searched will be retrieved. A search under the last name "Butler" with the Texas SoS as of a recent date, for example, retrieved 715 UCC filings.

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(a) Registered Organization: in the state where the organization is organized. 0 (b) Individual: in the state of the individual's principal residence." (c) Trust: in the state of the trustee's principal residence (assuming the trustee is an individual) because a trust is located in the state where the trustee (the debtor) is located.7 2 (d) Estate: in the state of the personal representative of the estate's principal residence (assuming the principal representative is an individual), if the personal representative is the debtor, because an estate is located in the state where the personal representative (the debtor) is located.73 (e) Unregistered Organization: in the state where the organization's principal place of business is located unless the organization has more than one principal place of business, in which case the state is the state where the organization's chief executive office is located.74 Under Section 9.501 of the Texas UCC, there is only one exception to the general rule that a central UCC filing must be made in the state where the debtor is located. That exception arises when the debtor is a transmitting utility located in another state with rights in fixtures located in Texas.75 A central UCC filing in the wrong state is ineffective.7 6

70. TEX. Bus. & COM. CODE ANN. §§ 9.301(1), .307(e), .501(a)(2) (West 2011). 71. Id. 72. Id. § 9.307 cmt. 2 ("Questions sometimes arise about the location of the debtor with respect to collateral held in a common-law trust. A typical common-law trust is not itself a juridical entity capable of owning property and so would not be a 'debtor' as defined in Section 9102. Rather, the debtor with respect to property held in a common-law trust typically is the trustee of the trust acting in the capacity of trustee. (The beneficiary would be a 'debtor' with respect to its beneficial interest in the trust, but not with respect to the property held in the trust.) If a common-law trust has multiple trustees located in different jurisdictions, a secured party who perfects by filing would be well advised to file a financing statement in each jurisdiction in which a trustee is located, as determined under Section 9-307.") 73. Id. §§ 9.503 cmt. 2c (indicating that the personal representative of a decedent is often the debtor), .307(b)(1) (explaining that individual debtor is located at the individual's principal residence). 74. Id. § 9.307(b)(2)-(3). 75. Id. § 9.501(b) ("The office in which to file a financing statement to perfect a security interest in collateral, including fixtures, of a transmitting utility is the office of the Secretary of State."); see also Aura Sys., Inc. v. Barovich (In re Aura Sys., Inc.), 347 B.R. 720, 724 (Bankr. C.D. Cal. 2006), affd, 286 F. App'x. 446 (9th Cir. 2008); 9B WILLIAM D. HAWKLAND ET AL., UNIFORM COMMERCIAL CODE SERIES §§ 9-501:2, :4 (2001); Steven 0. Weise & Stephen L. Sepinuck, Personal PropertySecured Transactions,67 BuS. LAW. 1311, 1326 (2012). The debtor will most likely be a registered organization if it is a transmitting utility. See Bus. & COM. § 9.102(a)(7 1). 76. Bus. & COM. § 9.506(a); Lange v. Inova Capital Funding, LLC (In re Qualia Clinical Serv., Inc.), 441 B.R. 325, 328 (B.A.P. 8th Cir. 2011), affd, 652 F.3d 933 (8th Cir. 2011) (filing in Nebraska against Nevada entity ineffective); Lovett v. Basile (In re Diabetes Am., Inc.), No. 12-03286, 2012 WL 6694074, at *4-5 (Bankr. S.D. Tex. Dec. 21, 2012) (filing in Texas against Delaware entity ineffective).

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Trust Filings-CollateralHeld in Trust

A UCC filing against a trust must indicate, in a separate part of the filing, that the collateral is held in a trust.77 Field 5 in the UCC Financing Statement form UCC1 (revised April 20, 2011) (referred to herein as the "current UCC1 form"; the pre-2010 amendment UCC form, the UCC Financing Statement form UCCI (revised May 22, 2002), is referred to herein as the "prior UCC1 form") permits a filer to indicate, by checking a box, that collateral is held in a trust." Failure to comply with this second requirement, according to Official Comment 2b to Section 9-503 of the

UCC, makes a UCC filing ineffective." 3.

Estate Filings-Administeredby PersonalRepresentative

A UCC filing against an estate must, in a separate part of the filing, indicate that the collateral is being administered by a personal representative of the decedent." Field 5 in the current UCC-1 form permits the filer to indicate, by checking a box, that collateral is being administered by a decedent's personal representative. Failure to comply with this second requirement, according to Official Comment 2c to Section 9.503 of the UCC, makes the filing ineffective." 77. Bus. & COM. § 9.503(a)(3)(B)(i). 78. See The Debtor Name Disaster, supra note 5, at 1. Given various courts' struggles to find that UCC filings with serious errors are ineffective, it would be interesting to see a case where the trust's name complied with Section 9-503(a)(3), but the financing statement did not separately indicate that the collateral is held in trust. Is it obvious (or at least enough of an indication) that the collateral is held in trust when the debtor is, in fact, a trust? Going a step further, is a UCC filing with two debtors, one a trust and one not a trust, which indicates that collateral is held in trust, effective as to each debtor, or only the trust debtor? The current UCC1 form instructions seem to emphasize the importance of a clear indication as to which debtor holds collateral in trust, as evidenced by Instruction 5 to the current UCCI form, which states: "If more than one Debtor has an interest in the described collateral and the check box does not apply to the interest of all Debtors, the filer should consider filing a separate Financing Statement (Form UCC1) for each Debtor." UCC Financing Statement, TEX. SECRETARY ST., http://www.sos.state.tx.us/ucc/forms/uccl.pdf (last visited Aug. 25, 2016). 79. U.C.C. § 9-503 cmt. 2b (AM. LAW INST. & UNIF. LAW COMM'N 2014) ("[I]f a trust's organic record specifies a name for the trust . . . the financing statement [must] provide, as the name of the debtor, the name for the trust specified in the organic record. In addition, the financing statement must indicate, in a separate part of the financing statement, that the collateral is held in a trust . . . . [T]he indication that the collateral is held in a trust . . . is [not] part of the

debtor's name. Nevertheless, a financing statement that fails to provide, in a separate part of the financing statement, [that the collateral is held in a trust] does not sufficiently provide the name of the debtor . . . does not 'substantially satisfy the requirements' of Part 5 within the meaning of Section 9.506(a), and so is ineffective."). 80. BuS. & COM. § 9.503(a)(2). 81. U.C.C. § 9-503 cmt. 2c ("In addition to providing the name of the decedent, the financing statement must indicate, in a separate part of the financing statement, that the collateral is being administered by a personal representative. Although the indication is not part of the

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Termination

A UCC filing that has been terminated with the secured party's authorization ceases to be effective.8 2 The secured party cannot revive the initial filing by filing an amendment or by filing an information statement 83 indicating that the UCC filing was mistakenly terminated. 5.

CollateralDescription

A UCC filing must sufficiently indicate the collateral covered by the filing.84 The filing must describe the collateral (1) as all assets or all personal property," or (2) at a minimum, by a method in which the identity of the collateral is objectively determinable." A UCC filing that fails to sufficiently indicate the collateral covered by the filing is ineffective.

Box Checking

The current UCC 1 form and its addendum provide several check boxes in addition to those discussed in Part II.B.2 of this Article (collateral held in trust) and Part II.B.3 of this Article (collateral administered by a personal representative of the decedent). These include, for example, boxes permitting the filer to indicate that the filing is a fixture filing, the financing is a public-finance transaction, or the debtor is a transmitting utility. The law appears to be undefined as to whether an error in checking such a box would cause a UCC filing to be ineffective. This issue is discussed in greater detail in Part III.B.6 of this Article.

debtor's name, a financing statement that fails to provide the indication does not sufficiently provide the name of the debtor . . . does not 'substantially satisfy the requirements' of Part 5 within the meaning of Section 9.506(a), and so is ineffective."). 82. Bus. & COM. § 9.513(d). 83. See id. § 9.518(c) ("The filing of an information statement does not affect the effectiveness of [a] ... filed record."); see also Official Comm. of Unsecured Creditors of Motors Liquidation Co. v. JPMorgan Chase Bank, N.A. (In re Motors Liquidation Co.), 486 B.R. 596, 605-06 (Bankr. S.D.N.Y. 2013), rev'd, 777 F.3d 100 (2d Cir. 2015) (explaining that although the termination statement mistakenly identified for termination a security interest that the secured party did not intend to terminate, the secured party authorized the filing of the document, and the termination statement was effective to terminate the security interest); Ward v. Bank of Granite (In re Hickory Printing Grp., Inc.), 479 B.R. 388, 397, 401 (Bankr. W.D.N.C. 2012) ("[T]he Correction Statement was ineffective to nullify the Termination Statement and to revive the Financing Statement because ... correction statements have no effect on a filed record."). 84. Bus. & COM. §§ 9.502(a)(3), .504, .506(a). 85. Id. § 9.504(2), 86. Id. §§ 9.504(1), .108(b)(6).

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III. ERROR TYPES

Wrong Name Errors

This Subpart A discusses debtor name errors that should not be disregarded under the Texas SoS's standard search logic or that otherwise make a UCC filing ineffective. 1.

Registered OrganizationName Errors

For registered organizations, errors in the debtor's name are made in five distinct ways: (a) State/Type Error. The state/type error occurs when the debtor's name has been inputted with additional information about the debtor's state of formation and type of entity. For the hypothetical organization debtor, this error is made by inputting the debtor's name as "ABC Widget Corporation, a Texas corporation" rather than its correct name, "ABC Widget Corporation." This error has many variations, such as: "ABC Widget Corporation of Dallas County," "ABC Corporation, a registered Texas corporation," and "ABC Corporation, a for-profit Texas corporation."87 A Texas SoS UCC search should disregard the noise word "corporation" at the end of a debtor's name. It should not, however, disregard the words "a Texas" in a debtor's name. Accordingly, a Texas SoS UCC search for "ABC Widget Corporation," the debtor's correct name, should not retrieve a UCC filing under "ABC Widget Corporation, a Texas corporation."88 (b) Trade Name Error. The trade name error occurs when the debtor's name has been inputted with extra identifying information about the debtor (typically its trade name), other than the debtor's state of formation and type of entity. For the hypothetical organization debtor, this error could be made, for example, by inputting the debtor's name as "ABC Widget Corporation d/b/a Easy Widget" rather than its correct name, "ABC Widget Corporation." This error has many variations, such as: "ABC Widget Corporation doing business as Easy Widget," "ABC Widget Corporation Easy Widget," "ABC Widget Corporation, f/k/a Texas Widget

87. The examples are based on UCC filings I have discovered. 88. 1 TEX. ADMIN. CODE § 95.503(1)(J) (2016) (Office of the Sec'y of State, Search Methodology) ("After using [the standard search logic] to modify the name being searched, the search will retrieve from the UCC information management system all Active Records that pertain to financing statements with debtor names that, after being modified as provided in this section, exactly match the modified name being searched.").

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Corporation," and "ABC Widget Corporation (Serial No. 12345)."89 A Texas SoS UCC search will not disregard "d/b/a" or the other words in the preceding examples (i.e., doing business as, Easy Widget, f/k/a, and Serial No.) in a debtor's name.90 Accordingly, a Texas SoS UCC search under the debtor's correct name, "ABC Widget Corporation," should not locate UCC filings with any of such variations.91 This error was litigated in at least two reported cases: In Re Edm Corp. (EDM) (the debtor's name was inputted on the UCC filing as "EDM Corporation D/B/A EDM Equipment" rather than the debtor's correct name, "EDM Corporation"),92 and In re Jim Ross Tires, Inc. (the debtor's name was inputted on the UCC filing as "Jim Ross Tires, Inc. dba HTC Tires & Automotive Centers" rather than the debtor's correct name "Jim Ross Tires, Inc.").93 In each case, the court determined that the respective UCC filing was ineffective because the applicable UCC filing failed the single search rule. The EDM case has been criticized as being wrong based on the argument that the debtor's name, "EDM Corporation d/b/a EDM Equipment," meets the requirement of Section 9-503 of the UCC because it contains the correct name of the debtor.94 If the UCC filing in EDM was effective on the basis that it contains the debtor's correct name, every searcher would be obligated to search under a debtor's correct name, the debtor's correct name with each variation of the state/entity type error referenced in paragraph (a) immediately preceding, and the debtor's correct name with each variation of the trade name error referenced in this Article (including, for debtors with multiple trade names, each variation of the trade name error for each such trade name). Such a result would abrogate the single search rule. From the perspective of the Texas SoS's UCC search system, which is essentially all that matters under the single search rule, a UCC filing with the debtor's correct name, plus extra information such as a trade name, does not contain the debtor's correct name. (c) Typographical Error. The typographical error occurs when the debtor's name has been inputted with a typographical error in a non-noise

The examples are based on UCC filings I have discovered. As these examples illustrate, 89. the error is broader than simply adding a debtor's trade name after the debtor's name. However, because the most common variation of the error, based on the UCC filings I have discovered, is made by adding the debtor's trade name after the debtor's name, this Article refers to the error as the "trade name error." See discussion supra Part II.A.3. 90. See discussion supra Part II.A.3. 91. Hastings State Bank v. Stalnaker (In re EDM Corp.), 431 B.R. 459, 462 (B.A.P. 8th 92. Cir. 2010). In re Jim Ross Tires, Inc., 379 B.R. 670, 679 n.7 (Bankr. S.D. Tex. 2007). 93. 4 JAMES J. WHITE ET AL., UNIFORM COMMERCIAL CODE § 31-31, at 273 (6th ed. 94. 2015).

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word. For the hypothetical organization debtor, this error may occur, for example, by inputting the debtor's name as "ABC Wigdet Corporation" rather than its correct name, "ABC Widget Corporation." This error has unlimited variations, such as "Canters" rather than "Centers," "Bulilding" rather than "Building," "Plumbling" rather than "Plumbing," "Jewlery" rather than "Jewelry," and "Loan" rather than "Lone."95 This error was litigated in a case: In re PTM Technologies, Inc. ("Tecnologies" rather than "Technologies").96 (d) Additional or Missing "s" Error. The additional or missing "s" error occurs when the debtor's name has been inputted with the letter "s" added to, or missing from, a non-noise word in the debtor's name. For the hypothetical organization debtor, this error may occur, for example, by inputting the debtor's name as "ABC Widgets Corporation" rather than its correct name, "ABC Widget Corporation." This error was litigated in the following three cases: In re Jim Ross Tires, Inc.97 ("Tire" rather than "Tires"), In re Augusta Tissue Mill, LLC98 ("Mills" rather than "Mill"), and CNH Capital America LLC v. Progreso Materials, Ltd.99 ("Material" rather than "Materials"). (e) Other Name Errors. This error type is a catch-all category for any other wrong name errors not covered by immediately preceding paragraphs (a)-(d). This error often occurs when: (1) the debtor's name has been inputted with words added to, or missing from the name; (2) a name other than the debtor's correct name, such as a trade name, has been inputted; and (3) UCC filings that become seriously misleading following a change in the debtor's name.100 This error was litigated in many cases.101 95. The examples are based on UCC filings I have discovered. Inputting the word "Loan" rather than "Lone" likely results from inadvertently using a homonym rather than making a keystroke typographical error. For convenience, this Article includes homonym errors as a subset of typographical errors. 96. PTM Techs., Inc. v. Maxus Capital Grp., LLC (In re PTM Techs., Inc.), 452 B.R. 165, 167-68 (Bankr. M.D.N.C. 2011). 97. In re Jim Ross Tires, 379 B.R. at 675-79. 98. In re Augusta Tissue Mill, LLC, No. 07-10531, 2007 WL 2572451, at *2 (Bankr. M.D.N.C. Sept. 5, 2007). 99. CNH Capital Am. LLC v. Progreso Materials Ltd., No. M-10-478, 2012 WL 5305697, at *4 (S.D. Tex. Oct. 25, 2012). 100. TEX. Bus. & COM. CODE ANN. § 9.507(b)-(c) (West 2011 & Supp. 2015). As to debtor name changes, this Article does not use the word "ineffective" because UCC filings under the debtor's prior name are generally effective to perfect a security interest in collateral acquired by the debtor before, or within four months after, the name change. Id. A filing analysis is particularly useful for discovering debtor name changes. 101. See, e.g., United States v. Crestmark Bank (In re Spearing Tool & Mfg. Co.), 412 F.3d 653, 654 (6th Cir. 2005) ("Spearing Tool & Mfg. Company Inc." rather than "Spearing Tool and Manufacturing Co."); Jones v. First Cmty. Bank E. Tenn. (In re Silver Dollar, LLC), Nos. 2:07cv-25, 2:07-cv-26, 2008 WL 53695, at *1 (E.D. Tenn. Jan. 2, 2008) ("Silver Dollar Stores, LLC" rather than "Silver Dollar, LLC"); Gold v. Pasternak (In re Harvey Goldman & Co.), 455 B.R.

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IndividualName Errors

For individuals, errors in the debtor's name are made in seven distinct ways: (a) Trade Name Error. The trade name error is the same as discussed in Part III.A.1.(b) of this Article, except that in this case it occurs in a UCC filing against an individual rather than a registered organization. For the hypothetical individual debtor, this error could be made, for example, by inputting the debtor's name as "Butler d/b/a Easy Widget" in the surname field of the UCC filing. This error has other variations, such as: inputting "Jonathan Matthew Butler Jr. d/b/a Easy Widget" in the organization's name field on the current UCC 1 form, or "Jonathan (d/b/a Easy Widget)" in the first personal name field on current UCC1 form. Similar to registered organization names, a Texas SoS UCC search will not disregard "d/b/a" or the other words in the preceding examples (i.e., Easy Widget) in a debtor's name. Like the trade name error in registered organization names, UCC filings against individuals with the trade name error often provide the debtor's correct name, but with other additional information. And, also like the trade name error in registered organization names, from the perspective of the Texas SoS's UCC search system, a UCC filing with the debtor's correct name, plus extra information such as a trade name, does not contain the debtor's correct name. (b) Sole ProprietorName Error. The sole proprietor name error occurs

when a UCC filing names a sole proprietorship as the debtor. Under Texas 102 law, a sole proprietorship is considered an individual. A UCC filing against a sole proprietorship must indicate the individual name of the sole proprietor.10 3 Filers may, understandably, be uncertain whether a debtor is a sole proprietorship or an unregistered organization, since the distinguishing

621, 625 (Bankr. E.D. Mich. 2011) ("Worldwide Equipment Co." (an assumed name) rather than "Harvey Goldman & Company"); Bankr. Estate of Wing Foods, Inc. v. CCF Leasing Co. (In re Wing Foods, Inc.), No. 09-08062, 2010 WL 148637, at *1 (Bankr. D. Idaho Jan. 14, 2010) ("Wing Fine Food" rather than "Wing Foods, Inc."); In re John's Bean Farm of Homestead, Inc., 378 B.R. 385, 386 (Bankr. S.D. Fla. 2007) ("John Bean Farms, Inc." rather than "John's Bean Farm of Homestead, Inc."); In re Nittolo Land Dev. Ass'n, 333 B.R. 237, 239 (Bankr. S.D.N.Y. 2005) ("Nittolo Land Development Associates, Inc." rather than "Nittolo Land Development Association, Inc."); Miller v. Van Dorn Demag Corp. (In re Asheboro Precision Plastics, Inc.), No. 04-2043, 2005 WL 1287743, at *2 (Bankr. M.D.N.C. Mar. 1, 2005) ("Wade Technical Molding, Inc." rather than "Asheboro Precision Plastics, Inc."); In re FV Steel & Wire Co., 310 B.R. 390, 391-92 (Bankr. E.D. Wis. 2004) ("Keystone Steel & Wire Co." rather than "Keystone Consolidated Industries, Inc."); In re Summit Staffing Polk Cnty., Inc., 305 B.R. 347, 349 (Bankr. M.D. Fla. 2003) ("Summit Staffing" rather than "Summit Staffing of Polk County, Inc."). See Ideal Lease Serv., Inc. v. Amoco Prod. Co., 662 S.W.2d 951, 952 (Tex. 1983). 102. Instruction la to the current UCC1 form states: "A sole proprietorship is not an 103. organization, even if the individual proprietor does business under a trade name." UCC Financing Statement, supra note 78.

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factor may be simply whether one individual or multiple individuals claim ownership in the business. Because a UCC filing against a sole proprietorship must be made in the individual's name, and a UCC filing against an unregistered organization must be made under the organization's name, it is paramount that the filer either choose correctly, or file against both the company name (either a sole proprietorship or an unregistered organization) and the individual(s) involved. At least one state, Kansas, expressly permits such dual UCC filings.104 A UCC filing that names only a sole proprietorship name is ineffective. (c) Typographical Error. The typographical error occurs when the debtor's name has been inputted with a typographical error. For the hypothetical individual debtor, this error could be made, for example, by inputting the debtor's last name as "Bulter" rather than "Butler.""os This error has unlimited variations, such as: "Steaedman" rather than "Steadman," "Billye" rather than "Billy," and "Junes" rather than "Jones."' 06 This error was litigated in at least one case: In re Brawn ("Brown" rather than "Brawn").1 07 (d) Suffix Error. The suffix error occurs when a suffix has been inputted into a field other than the suffix field. For the hypothetical individual debtor, this error would be made by inputting the debtor's last name as "Butler Jr." in the surname field in the current UCC1 form rather than "Butler" in the surname field and "Jr." in the suffix field. (e) TransposedName Error. The transposed name error occurs when an individual debtor's first name has been inputted in the surname field and the debtor's last name has been inputted in the first personal name field.'s For the hypothetical individual debtor, the error would be made by inputting "Jonathan" as the surname and "Butler" as the first personal name. Anecdotally, the transposed name error seems to be more prevalent under the current UCCI form than it was under the prior UCCI form. This may result from the current UCC1 form using the word "surname" rather than the informal "last name" used in the prior UCCI form, "first personal name" rather than the informal "first name" used in the prior UCC1 form, and "additional name(s)/initial(s)" rather than the informal "middle name" 104. See KAN. STAT. ANN. § 84-9-503(a)(6) (West 2008) ("[I]f the debtors are married debtors jointly engaged in business and it is unclear whether a partnership exists, the financing statement may be filed in the names of the individual debtors."). 105. See, e.g., In re Brawn, No. BK-69-238-ND, 1969 WL 11009, at *1 (Bankr. D. Me. Sept. 18, 1969) (misspelling the debtor's last name as "Brown" instead of "Brawn"). 106. The examples are based on UCC filings I have discovered. 107. In re Brawn, 1969 WL 11009, at *1. 108. I have also discovered UCC filings with the debtor and secured party transposed. A secured party can order a debtor name search under its own name to check whether this error has been made.

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used in the prior UCCI form. (f) Wrong Field Error. The wrong field error occurs when an individual debtor's name has been inputted in the organization name field in a UCC filing. For the hypothetical individual debtor, the error would be made by inputting "Jonathan Matthew Butler Jr." in the field for an organization's name in a UCC filing. The Texas SoS maintains separate indexes for organization debtor names and individual debtor names.o9 As a result, a search for "Jonathan Matthew Butler Jr." as an individual should not locate a UCC filing in which the individual's name has been inputted in the organization name filed. (g) Other Name Errors. This error type is a catch-all error for any other wrong name errors not covered by immediately preceding paragraphs (a)-(f). This error often occurs when words are added to, or missing from, the debtor's correct name, or a name other than the debtor's correct name, such as a trade name, is used. Similar to the registered organization other name error, this error also covers UCC filings that become seriously misleading following a change in an individual debtor's name. "o This error was litigated in many cases."' 1 TEX. ADMIN. CODE § 95.302(1) (2016) (Office of the Sec'y of State, Individual 109. Debtor Names) ("Individual debtor names are stored in files that include only the individual debtor names, and not organization debtor names."); see also id. § 95.301(7) ("The filing office maintains in the UCC information management system a searchable index of organization debtor names, and a searchable index of individual debtor names."). See TEX. Bus. & COM. CODE ANN. § 9.507(b)-(c) (West 2011 & Supp. 2015); see also 110. supra note 100 and accompanying text. See, e.g., Peoples Bank v. Bryan Bros. Cattle Co., 504 F.3d 549, 558 (5th Cir. 2007) 111. ("Louie Dickerson" rather than "Brooks L. Dickerson"); Clark v. Deere & Co. (In re Kinderknecht), 308 B.R. 71, 76 (B.A.P. 10th Cir. 2004) ("Terry" rather than "Terrance"); Bloom v. Behles Law Firm, P.C. (In re Green), No. 11-1023 T, 2012 WL 5550767, at *1 (Bankr. D.N.M. Nov. 14, 2012) ("Ron Green" rather than "Ronnie J. Green"); Hopkins v. NMTC Inc. (In re Fuell), No. 07-8046, 2007 WL 4404643, at *1 (Bankr. D. Idaho Dec. 13, 2007) ("Fuel" rather than "Fuell"); Corona Fruits & Veggies, Inc. v. Frozsun Foods, Inc., 48 Cal. Rptr. 3d 868, 870 (Ct. App. 2006) ("Armando Munoz" rather than "Armando Munoz Juarez"); Pankratz Implement Co. v. Citizens Nat'l Bank, 130 P.3d 57, 59 (Kan. 2006) ("Roger" rather than "Rodger"). In at least four cases, the first name "Mike" was inputted rather than the debtor's correct first name "Michael". See Farmers & Merchs. State Bank Larsen (In re Larsen), No. 09-30054-als, 2010 WL 909138, at *1 (Bankr. S.D. Iowa Mar. 10, 2010); Genoa Nat'l Bank v. Sw. Implement, Inc. (In re Borden), 353 B.R. 886, 887 (Bankr. D. Neb. 2006); Parks v. Berry (In re Berry), No. 05-5755, 2006 WL 2795507, at *1 (Bankr. D. Kan. Sept. 26, 2006), judgment entered, No. 05-5755, 2006 WL 3499682 (Bankr. D. Kan. Dec. 1, 2006); Nazar v. Bucklin Nat'l Bank (In re Erwin), No. 025176, 2003 WL 21513158, at *2 (Bankr. D. Kan. June 27, 2003). Those UCC filings should be effective under current Texas law because Mike is a permissible first personal name equivalent of Michael. See 1 TEX. ADMIN. CODE § 95.503(l)(H) (2016) (Office of the Sec'y of State, Search Methodology). There are other cases where the UCC filings should be effective in Texas. See, e.g., Morris v. Snap-On Credit, LLC (In re Jones), No. 06-5015, 2006 WL 3590097, at *1 (Bankr. D. Kan. Dec. 7, 2006) ("Chris Jones" rather than "Christopher Gary Jones"; Chris and Christopher are Texas first personal name equivalents); Morris v. Snap On Credit, L.L.C. (In re Stewart), No. 05-5090, 2006 WL 3193374, at *1 (Bankr. D. Kan. Nov. 1, 2006) ("Richard Stewart" rather than

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Trust Name Error

The trust name error occurs when the debtor's name, other than the debtor's correct name as discussed in Part II.A.2.(c) of this Article, is used in a UCC filing. Because a Texas trust is an organization,1 2 a trust debtor's name must be input in the organization name field on the current UCCi form.' 13 A UCC filing specifying the individual name of the settlor or the trustee, where the trust has a name, is also ineffective." 4 For a hypothetical trust debtor named "The Butler Family Trust," this error could be made, for example, by describing the trust as "The Butler Family Trust, created and held under the Amended and Restated Family Trust, dated January 1, 2015, as amended." All registered organization name errors discussed in Part III.A. 1 of this Article would also constitute trust name errors. 4.

Estate Name Error

The estate name error occurs when a debtor's name, other than the debtor's correct name as discussed in Part II.A.2.(d) of this Article, is used in a UCC filing. For the hypothetical individual debtor (assuming he was deceased), the name "The Estate of Jonathan Matthew Butler Jr." (as an organization) would not satisfy the decedent name requirements in the Texas UCC. A UCC filing against a decedent is a UCC filing against an individual; therefore, the decedent's name must be inputted in the individual name fields on the current UCC1 form." 5 Most individual name errors discussed in Part III.A.2 of this Article with respect to the decedent's name would also constitute decedent name errors. 5.

UnregisteredOrganizationName Error

The unregistered organization name error occurs when a debtor's name, other than the debtor's correct name as discussed in Part II.A.2.(e), is used in a UCC filing. Registered organization name errors discussed in Part III.A.1 of this Article with respect to an unregistered organization's name "Richard Morgan Stewart IV"; omission of middle name and suffix are disregarded by a Texas SoS search); see also supra note 60 and accompanying text. 112. TEX. BUS. & COM. CODE ANN. § 1.201(b)(25) ("'Organization' means a person other than an individual."), (27) (stating that "Person" includes a trust) (West 2009 & Supp. 2015). 113. 1 ADMIN. § 95.305 ("In order for the UCC information management system to function in accordance with the usual expectations of filers and searchers, the name of a trust . .. should be provided as an organization debtor name."). 114. BUs. & COM. § 9.503(a)(3)(A)(ii) ("[Ilf the organic record of the trust does not specify a name for the trust, [the financing statement must provide] the name of the settlor or testator."). 115. 1 ADMIN. § 95.304 ("In order for the UCC information management system to function in accordance with the usual expectations of filers and searchers, the filer should provide the debtor name as an individual debtor name.").

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would also constitute unregistered organization name errors. For a governmental debtor, this error could occur in a UCC filing with "City of Corpus Christi, Texas" as the debtor, rather than "City of Corpus Christi,"116 since, under Corpus Christi's city charter, the city's name seems to be "City of Corpus Christi.""' Because "Texas" is not a noise word, such a UCC filing would likely be ineffective. The same conflict might arise in describing county debtors such as "Nueces County" versus "Nueces County, Texas." B.

Non-DebtorName Errors

This Subpart B discusses non-debtor name errors that make a UCC filing ineffective, or substantially pose a threat of making a UCC filing ineffective. 1.

Wrong State Error

The wrong state error occurs when a UCC filing is not filed in the correct state, as required by the Texas UCC, as discussed in Part II.B.1 of this Article. For purposes of this Article, this error also covers UCC filings that become ineffective following a change in the debtor's location."'s This error was litigated in at least two cases.1 19 2.

CollateralHeld in Trust Error

This error occurs when a UCC filing against a trust does not indicate that the collateral is held in trust, as required by the Texas UCC, as discussed in Part II.B.2 of this Article. 12 0

116. I randomly selected the City of Corpus Christi and Nueces County. No analysis of actual UCC filings against such organizations is intended. 117. CORPuS CHRISTI, TEX., CITY CHARTER art. 1 § 1 (2010), http://www.cctexas.com/government/city-secretary/city-charter/index (last visited Aug. 1, 2016). 118. See Bus. & COM. § 9.316(a) ("A security interest perfected pursuant to the law of [Texas] remains perfected until the earliest of: (1) the time perfection would have ceased under [Texas law]; (2) the expiration of four months after a change of the debtor's location to another jurisdiction."). For purposes of this Article, a Texas SoS UCC filing that becomes ineffective, pursuant to Section 9.316(a) of the Texas UCC, to perfect a security interest in collateral of a debtor after the debtor changes location, is categorized as a wrong state error. 119. See Lange v. Inova Capital Funding, LLC (In re Qualia Clinical Serv., Inc.), 441 B.R. 325 (B.A.P. 8th Cir. 2011), aff'd, 652 F.3d 933 (8th Cir. 2011) (filing in Nebraska against Nevada entity); Lovett v. Basile (In re Diabetes Am., Inc.), No. 12-03286, 2012 WL 6694074, at *5 (Bankr. S.D. Tex. Dec. 21, 2012) (filing in Texas against Delaware entity). 120. BUS. & COM. § 9.503(a)(3).

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PersonalRepresentativeError

This error occurs when the filing does not indicate that the collateral is being administered by a personal representative of the decedent, as required by the Texas UCC, as discussed in Part II.B.3 of this Article.12 4.

Termination Error

This error occurs when a secured party fails to recognize the effect of a properly authorized and filed termination statement, and continues to treat its initial filing as effective, as discussed in Part II.B.4 of this Article. This error typically occurs when a secured party attempts to resuscitate a terminated filing by filing an amendment or an information statement indicating that the UCC filing was terminated in error. In either case, the initial filing ceased to be effective on the date it was terminated, so long as 22 the secured party authorized the filing of the termination statement.1 5.

CollateralDescriptionError

The collateral description error occurs when a UCC filing fails to sufficiently indicate the collateral, as required by the Texas UCC, as discussed in Part II.B.5 of this Article. For example, a UCC filing that describes the collateral only as a "promissory note payable by debtor to secured party" is probably sufficient if only one such note exists. The UCC filing is probably insufficient if more than one such note exists. This is because the collateral is objectively determinable in the first instance and not objectively determinable in the second instance. 123 For purposes of this Article, the collateral description error also includes UCC filings covering collateral in which a security interest cannot be perfected by a UCC filing. For example, a UCC filing covering a single automobile could be ineffective because a UCC filing is generally not effective to perfect a

Id. § 9.503(a)(2). 121. Id. § 9.513 cmt. 5 (stating that if a UCC filing has multiple secured parties, a 122. termination statement is effective only as to the secured party(ies) that authorized it). Compare Deere Credit, Inc. v. Pickle Logging, Inc. (In re Pickle Logging, Inc.), 286 123. B.R. 181, 184 (Bankr. M.D. Ga. 2002) (holding that a UCC filing was ineffective because collateral could not be identified by description given where serial number for skidder on UCC filing was wrong by one-digit and debtor had multiple skidders), with Maxus Leasing Grp., Inc. v. Kobelco Am., Inc., No. 5:04-CV-518 (FJS/DEP), 2007 WL 655779, at *3 (N.D.N.Y. Feb. 26, 2007) (holding that a UCC filing was effective because collateral could be identified by description given where serial number for crane on UCC filing omitted one-digit but debtor had only one crane).

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security interest in an automobile covered by a certificate of title (unless, as a general rule, the debtor holds the automobile as inventory).124 6.

Box Checking Error

The box checking error occurs when a UCC filing indicates something about the transaction that is incorrect, as discussed in Part I.B.6 of this Article. Unlike the other errors, Chapter 9 of the Texas UCC does not provide, or provides much less, guidance as to whether the various box checking errors would cause a UCC filing to be ineffective. This Article attempts to fill in the gaps. The following are examples of box checking errors, assuming, in each case, that the applicable indication below was incorrect: * Filing indicates that it "covers timber to be cut," "covers asextracted collateral," or "is filed as a fixture filing" (the applicable box in field 14 of the current UCCI form addendum is checked). * Filing indicates that it covers "Public-Finance Transaction," 2 5 a "Manufactured-Home Transaction,"l26 or that "a debtor is a Transmitting Utility"1 27 (the applicable box in field 6a of the current

UCCI form is checked). * Filing indicates that it is filed as an "Agricultural Lien" or a "NonUCC Filing" (the applicable box in field 6b of the current UCC1 form is checked). * Filing indicates an "alternative designation" of "Lessee/Lessor," "Consignee/Consignor," "Seller/Buyer," "Bailee/Bailor," or "Licensee/Licensor" (the applicable box in field 7 of the current UCCI form is checked).

124. Bus. & COM. § 9.311(a)(2), (a)(3), (d); TEX. TRANSP. CODE ANN. § 501.111 (West 2013). 125. Bus. & COM. § 9.102(a)(68) ("'Public-finance transaction' means a secured transaction in connection with which . . . the debtor, obligor, secured party, account debtor or other person obligated on collateral, assignor or assignee or a secured obligation, or assignor or assignee of a security interest is a state or a governmental unit of a state."). If a state or a governmental unit of a state was not any of such listed persons, a box-checking error would occur. 126. Id. § 9.102(a)(54) ("'Manufactured-home transaction' means a secured transaction: (A) that creates a purchase-money security interest in a manufactured home [as defined in Section 9.102(a)(53) of the Texas UCC], other than a manufactured home held as inventory; or (B) in which a manufactured home, other than a manufactured home held as inventory, is the primary collateral."). If the debtor held the applicable manufactured homes as inventory, a box checking error may have occurred. 127. Id. § 9.102(a)(81) ('Transmitting utility' means a person primarily engaged in the business of: (A) operating a railroad, subway, street railway, or trolley bus; (B) transmitting communications electrically, electromagnetically, or by light; (C) transmitting goods by pipeline or sewer; or (D) transmitting or producing and transmitting electricity, steam, gas, or water."). If the debtor was not a "transmitting utility" a box checking error would occur.

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ANANALYTICAL APPROACH: UCC FILINGS

At first sight, it would seem that a UCC filing with any of the foregoing box checking errors could be effective, as the filing seems to do the simple job assigned to it under Chapter 9 of the Texas UCC: it indicates that the secured party may have a security interest in the collateral covered by the UCC filing.128 Upon further inquiry, however, that may not be the case, as discussed in the following paragraphs. (a) Field 14 Boxes. The Texas UCC seems to establish that a UCC filing that indicates that it "is filed as a fixture filing" is ineffective if it is filed with the Texas SoS because a fixture filing must be filed at the county level.129 This rule seems to apply even though a security interest in fixtures may be perfected by filing a UCC filing with the Texas SoS.130 Applying the rule, a Texas SoS UCC filing indicating that it "is filed as a fixture filing" should be ineffective.131 By extension, because a UCC filing that covers "timber to be cut" or "as-extracted collateral" must also be filed at the county level,132 it seems that a Texas SoS UCC filing indicating that it "covers timber to be cut" or "covers as-extracted collateral" should be ineffective. (b) Field 6a Boxes. A UCC filing indicating that it covers a "publicfinance transaction," a "manufactured-home transaction," or that "a debtor is a transmitting utility," is different from any other filing because those three types of UCC filings either have extended lapse dates or do not lapse. A UCC filing indicating a "public-finance transaction" or a "manufactured-

128. See id. § 9.502 cmt. 2 ("The [filing] itself indicates merely that a person may have a security interest in the collateral indicated. Further inquiry from the parties concerned will be necessary to disclose the complete state of affairs."). 129. See id. § 9.501(a)(2). The Texas SoS is the central filing office in which to file a UCC filing to perfect a security interest in all instances not covered by Section 9.501(a)(1), "including a case in which the collateral is goods that are or are to become fixtures and the financingstatement is not filed as a fixture filing." Id. (emphasis added); see also id §§ 9.501 cmt. 4 (stating that a secured party may file a fixture filing "in the office in which a record of a mortgage on the related real property would be filed"), .102(a)(40) (defining "fixture filing" as "the filing of a financing statement covering goods that are or are to become fixtures and satisfying Sections 9.502(a) and (b)"), .502(b)(l)-(2) (stating that a "fixture filing" is a financing statement that, among other things, indicates that it is to be filed in the real property records of the county where the fixtures are located and indicates that it covers fixtures). 130. See id. § 9.501 cmt. 4 ("There are two ways in which a secured party may file a financing statement to perfect a security interest in goods that are or are to become fixtures. It may file in the Article 9 records, as with most other goods . . . . Or it may file the financing statement as a 'fixture filing,' defined in Section 9-102, in the office in which a record of a mortgage on the related real property would be filed."). 131. See id. § 9.501(a)(1)(A). Although Section 9.501 of the Texas UCC does not expressly state it, if a Texas SoS fixture filing is ineffective, it is logical to assume that a Texas SoS UCC filing indicating that it covers "timber to be cut" or "as-extracted collateral" should be ineffective for the same reasons, since a security interest in such collateral, unlike fixtures, cannot be perfected with a Texas SoS UCC filing. 132. Id.

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home transaction," is effective without lapse for thirty years,1 33 and a UCC filing indicating that "a debtor is a transmitting utility" is effective without lapse until terminated. 13 4 A UCC filing with any such indication will nevertheless be retrieved in a standard UCC search of the debtor's name, 3 1 so long as the debtor's correct name is used in the filing. Even if such a UCC filing is retrieved, however, a question arises as to whether the filing is ineffective if the transaction is not a public-financing transaction, or a manufactured-home transaction, or the debtor is a not a transmitting utility. If such erroneous UCC filings were effective, would it incentivize filers to erroneously check one of the field 6a boxes to obtain the benefit of a longer effectiveness period for their UCC filings and prevent their UCC filings from lapsing after the typical five year effectiveness period for normal UCC filings?13 6 Moreover, it could be that such a UCC filing has not been properly authorized by the debtor under Section 9.509 of the Texas UCCl37 because the type of filing does not reflect the nature of the transaction or the type of debtor, or because the filing's longer effectiveness period is adverse to the debtor. If such a UCC filing was not authorized, it should be ineffective because unauthorized UCC filings are ineffective.' (c) Field 6b Boxes. A UCC filing indicating that it is an "agricultural lien" or a "non-UCC filing" is only effective for an initial five years.1 39 As such, the longer effectiveness period is not adverse to the debtor, unlike the UCC filings discussed above in paragraph (b). Do such UCC filings fail the authentication test of Section 9.509 of the Texas UCCl 40 because they fail Id. § 9.515(b). 133. 134. Id. § 9.515(f). Test searches were conducted on October 21, 2016 with the Texas SoS. SOSDirect, 135. TEX. SECRETARY ST., supra note 60. Search under "Denton County Electric Cooperative" located UCC filings indicating that "a debtor is a transmitting utility"; search under "Texas Department of Housing and Community Affairs" located UCC filings indicating a "public-finance transaction"; search under "Luther D. Hoosier" located filing indicating "manufactured-home transaction." See Bus. & COM. § 9.515(a), (b), (f). Filers of bogus UCC filings have already picked 136. up on this trick. See State Strategies to Subvert FraudulentUniform Commercial Code (UCC) Filings, NAT'L Ass'N SECRETARIES ST. 4 (2014), http://www.nass.org/news-releases-andstatements/news-release-new-ucc-report-augl2/ ("According to the American Bar Association, the vast majority of all bogus UCC financing statements also share another important characteristic: They indicate that the debtor is a transmitting utility . . .. Fraudulent filers . . . use this designation in an attempt to ensure that their financing statements remain indefinitely on file."). See generally BUs. & COM. § 9.509. 137. Id. § 9.510. 138. Id. § 9.515(a). 139. See id. § 9.509. Additionally, Section 9.509 of the Texas UCC states that a person may 140. also file an initial financing statement with respect to an agricultural lien if "the person holds an agricultural lien that has become effective at the time of filing and the financing statement covers only collateral in which the person holds an agricultural lien." Id. § 9.509(a)(2). An unauthorized filing is ineffective. See id. § 9.5 10.

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to reflect the nature of the transaction? If no harm is done to the debtor, it would seem not. (d) Field 7 Boxes. The boxes in field 7 are expressly optional. 41 There does not appear to be anything in the Texas UCC or the current UCCI form instructions indicating that either failing to check a box or mistakenly checking a box in field 7 would cause an otherwise effective UCC filing to be ineffective. IV. FILING ANALYSIS

This Part IV provides instructions for conducting a filing analysis. As an initial matter, not all ineffective UCC filings can be identified on their face. Some UCC filings require further inquiry by the secured party. Therefore, the secured party will generally need to give a researcher instruction as to whether the secured party desires to review all UCC filings that require further inquiry, as discussed in this Part IV, or only those that the researcher believes are reasonably likely to be ineffective. The mechanics of a filing analysis, at least in Texas, are relatively straightforward. The researcher should start by obtaining a web-based secured party search on the Texas SoS website.1 42 Next, the researcher should review the UCC filings retrieved in the search for the errors described in this Article. A.

DebtorName Errors

Most UCC filings can be reviewed for debtor name errors against publicly available information. For registered organization or individual debtor name errors (other than the sole proprietorship name error), the researcher can check the accuracy of: (1) a registered organization's name informally with the Texas Comptroller of Public Accounts,1 43 free of charge, or formally, by reviewing its public organic record on file with the

UCC FinancingStatement, supra note 78. Instruction 7 to the current UCC1 form 141. states: "If filer desires (at filer's option) to use the designations lessee and lessor, consignee and consignor, seller and buyer . . . bailee and bailor, or licensee and licensor instead of Debtor and Secured Party, check the appropriate box in item 7." Id. 142. SOSDirect, TEX. SECRETARY ST., supra note 60. 143.

Taxable

Entity

Search,

TEX.

COMPTROLLER

PUB.

ACCTS.,

https://mycpa.cpa.state.tx.us/coa/Index.html (last visited July 3, 2016). Online searches with the Texas SoS and Texas Comptroller of Public Accounts are helpful, but not dispositive, because registered organization names are not always correctly listed on such websites. A Texas registered organization's correct name should be confirmed by cross-checking the organization's public organic record on file with the Texas SoS.

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Texas SoS for $1.00 per search,144 and (2) an individual's name by reviewing the individual's driver's license information on public information websites such as Publicdata.com, a subscription-based public data provider. 145 The state/type error and the trade name error (for any type of debtor) are easily recognized on a Texas SoS UCC search report because the report will show the additional information causing the error as being part of the debtor's name. 146 The suffix error can, in most cases, be easily recognized on a Texas SoS UCC search report because the suffix will often be formatted differently on the report than it would be if the debtor's name did not have a suffix error. 147 The transposed name error can also be easily recognized on a Texas SoS UCC search report because the report will indicate that the individual's last name is his first name, and his first name is his last name. 148 All other registered organization and individual debtor name errors (other than the sole proprietorship error) should be apparent when the researcher checks the debtor's name with the applicable public information resources. Any filing against a registered organization or an individual with a debtor name error can be immediately tested for effectiveness under the single search rule (i.e., by simply ordering a webbased debtor name search under the debtor's correct name). The trust name error is often made where the filing references either the trustee or a will under which the trust is created. Such UCC filings are easy to recognize. The sole proprietorship name error, the trust name error (other than obvious errors), the estate name error, and the unregistered organization name error are typically more difficult to recognize than other debtor name errors Business Filings & Trademarks Fee Schedule - Form 806 (Revised 09/15), TEX. 144. SECRETARY ST. 1, http://www.sos.state.tx.us/corp/forms/806_- boc.pdf (last visited Aug. 25, 2016). 145. PUBLIC DATA, http://publicdata.com/ (last visited July 3, 2016). A search with publicdata.com is helpful, but not dispositive, because publiedata.com does not provide images of driver's licenses, but rather, a statement of the information in the driver's license. An individual's correct name should be confirmed by cross-checking the individual's unexpired driver's license. 146. In some cases, the state/type or the trade name will be part of the debtor's correct name. I once discovered a UCC filing in which the debtor's correct name included its trade name (which was likely a mistake by the filer of the public organic record). The UCC filing omitted the trade name portion of the debtor's correct name. 147. A Texas SoS UCC search report lists debtor names in all-capital letters, except that the words "Jr." or "Sr.," when such suffix is correctly inputted in the suffix field on an electronically filed UCC- 1, are shown in the search report with a lowercase "r" and with no comma between the last name and the suffix. A search report listing a UCC filing with a suffix error (e.g., the surname field shows "Butler, Jr") may show the suffix as "JR." or "SR." in all-capital letters, or show a comma preceding the suffix. See SOSDirect, TEx. SECRETARY ST., supra note 60. For further discussion on the suffix, see supra Part II.A.3(b). 148. For example, a Texas SoS UCC search report listing a UCC filing against the hypothetical debtor with this error would list the debtor's name as "Butler Matthew Jonathan Jr." In contrast, the wrong field error cannot typically be discovered in a Texas SoS UCC search report, as the reports do not distinguish between organization and individual names. See SOSDirect, TEX. SECRETARY ST., supra note 60.

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because a researcher often cannot verify sole proprietorship, trust, estate (decedent), or unregistered organization names against publicly available information. Note, however, that some governmental debtors have publicly available charters, or are named in state statutes, as discussed in Part II.A.2.(e) of this Article. Depending on the secured party's instructions, a researcher will either set aside all UCC filings against sole proprietorships, trusts, estates, and unregistered organizations, or will set aside UCC filings against such debtors that, in the researcher's judgment, are reasonably likely to have name errors for further inquiry by the secured party.149 B.

Non-Debtor Name Errors

For non-debtor name errors, a filing analysis involves fairly straightforward issue spotting. The wrong state error, in the case of a registered organization, is easy to identify because a Texas SoS entity search for the debtor will fail to locate such debtor's public organic record. Further, for a registered organization located in another state but registered to do business in Texas, a Texas SoS entity search should locate the organization's foreign registration documents, which indicate the entity's state of formation. To determine whether a secured party is perfected after discovering a UCC filing with a wrong state error, the researcher must simply order a debtor name UCC search in the state where the debtor is located and confirm whether the secured party has a UCC filing of record in such state.150 The wrong state error, in the case of an individual, is more difficult to identify because information about the state of an individual's principal residence may not be available to the researcher. For individuals, a UCC 149. UCC filings indicating that an unregistered organization debtor's full name is an acronym (e.g., debtor's full name is "A.B.C.") or is just one word (e.g., debtor's full name is "Flatrock") are good candidates for further inquiry. 150. See, e.g., Uniform Commercial Code (UCC) CentralFile Search, ALASKA DEP'T NAT. RESOURCES, http://dnr.alaska.gov/ssd/recoff/searchUCC.cfm (last visited July 6, 2016); UCC Lien Search, ARIZ. SECRETARY ST., http://apps.azsos.gov/apps/ucc/search (last visited July 6, 2016); UCC Home, COLO. SECRETARY ST., https://www.sos.state.co.us/ucc/pages/home.xhtml (last visited July 3, 2015); UCC Public Search, SECRETARY COMMONWEALTH MASS., http://corp.sec.state.ma.us/corpweb/UCCSearch/UCCSearch.aspx (last visited July 3, 2016); Public Inquiry System: UCC Lien Search, N.Y. ST., DEP'T ST., https://appext20.dos.ny.gov/pls/ucc-public/web search.mainframe (last visited July 3, 2016), Uniform Commercial Code Services (UCC), OR. SECRETARY ST., https://secure.sos.state.or.us/ucc/home.action (last visited July 3, 2016); Uniform Commercial Code: File and Search Online, WASH. ST. DEP'T LICENSING, https://fortress.wa.gov/dol/ucc/search.aspx (last visited July 3, 2016). These states and many other states permit free or inexpensive debtor name searches. Most states also permit free business name searches, making an initial inquiry into the state where the debtor is organized simple, so long as the searcher knows where to look.

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filing that indicates the debtor's address as being in a state other than Texas, or a UCC filing against a debtor without a Texas driver's license, is typically set aside for further inquiry by the secured party. As with debtor name errors, wrong state errors for trusts, estates, and unregistered organizations are typically more difficult to handle than other wrong state errors because a researcher cannot typically verify the location of a trust, estate, or unregistered organization against publicly available information. A researcher will either set aside all UCC filings against trusts, estates, and unregistered organizations, or will set aside UCC filings against such debtors that, in the researcher's judgment, are reasonably likely to have wrong state errors (i.e., UCC filings that indicate the debtor's address as being in a state other than Texas), for further inquiry by the secured party. The collateral held in trust error is easy to identify in a UCC filing against a trust because the error is typically a result of failing to check the box in field 5 of the current UCC 1 form. The personal representative error is difficult to identify. If the filing properly states the name of the estate (the decedent's individual name) and the filing does not indicate that the collateral is being administered by a personal representative of the decedent, the filing will appear to be the same as a UCC filing against any other individual. Estate debtors are rare, so many secured parties may, in fact, be able to direct researchers to UCC filings against the secured party's estate debtors for confirmation that its UCC filings are effective. The termination error is easy to identify by searching for UCC filings for which both a termination statement and later filings (generally, either amendments or information statements) have been filed. Such later filings indicate that the secured party of record may be treating the initial filing as effective notwithstanding its termination. "I Collateral description errors can either be easy or difficult to identify. Occasionally, a UCC filing will, on its face, have a collateral description error by reason of its obvious failure to reasonably identify collateral. Generally, however, as with the promissory note example given in Part III.B.5 of this Article, a researcher will need to set aside any filing with a potential collateral description error for further inquiry by the secured party.

In Texas, terminated UCC filings generally stay of record until one year after their 151. lapse date. See 1 TEX. ADMIN. CODE § 95.313 (2016) (Office of the Sec'y of State, Removal of Record) ("A financing statement must remain as an Active Record until at least one year after it lapses, or if it is indicated to be filed against a transmitting utility, until at least one year after it is terminated with respect to all secured parties of record. On or after the first anniversary of such lapse or termination date, the filing office or the UCC information management system may remove the financing statement and all related UCC records from the Searchable Indexes or from the UCC information management system and upon such removal, the removed UCC Records shall cease to be Active Records.").

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The box checking error, in the case of a timber to be cut filing, asextracted collateral filing, or fixture filing is easy to identify because the error is a result of simply checking the applicable box in field 14 of the current UCC1 form. The other box checking errors require knowledge of facts about the nature of the transaction or the nature of the debtor, and a researcher will typically set aside any such filing that appears questionable for further inquiry by the secured party.152 I have conducted Texas filing analyses for several lenders, with noteworthy results. For one lender with approximately 1,100 Texas SoS UCC filings on the date of my search, I located over thirty UCC filings that were ineffective on their face,1 5 3 as well as several other questionable UCC filings that I sent to the lender for further inquiry. For another lender with 2,100 Texas SoS UCC filings on the date of my search, I located over forty UCC filings that were ineffective on their face. Over the first half of 2016, I also informally reviewed tens of thousands of Texas SoS UCC filings, filed from January 1, 2014,154 to present, made by over fifty of the top one hundred banks in Texas by asset size (including the top ten banks in Texas), as well as various other lenders. 5 In minimal search time, I found at least

152. There are many other UCC filing issues that a researcher can investigate that are not covered by this Article. Such issues include: (1) recently lapsed UCC filings; (2) continuation statements filed before or after the six-month window under Section 9.515(d) of the Texas UCC; and (3) filing mistakes by the applicable secretary of state. 153. The UCC filings included the following errors: wrong state, typographical (registered organization and individual), state/type, trade name (registered organization), suffix, other name errors (registered organization and individual), sole proprietorship (filing indicated that debtor was sole proprietorship), trust name, collateral held in trust, and box checking (fixture filing). 154. January 1, 2014 is a good starting date because it is well after Texas' adoption of the 2010 amendments to the Texas UCC, which occurred in the summer of 2013. All UCC filings after the adoption of the 2010 amendments should comply with the Texas UCC's current rules. A researcher reviewing UCC filings made prior to adoption of the 2010 amendments by the applicable state would need to know the rules that applied prior to adoption. See Richard H. Nowka, Twenty Questions About an Individual Debtor's Name Under Amended Article 9 Section 9-503(A)(4) Alternative A, 3 WM. & MARY BUS. L. REv. 139, 178 (2012) ("The implicit meaning is that a [UCC filing] effective under pre-amendment Article 9 remains effective regardless of whether it satisfies the perfection requirements of amended Article 9."). 155. See Top 100 Banks in Texas by Asset Size, TEX. DEP'T BANKING, http://www.dob.texas.gov/public/uploads/files/Applications-Forms-Publications/Publications/Top Banks/top0316.pdf (last updated Mar. 31, 2013). At least one other researcher, Carl Ernst, has undertaken an extensive, research based approach to reviewing UCC filings. See generally The Debtor Name Disaster, supra note 5. Ernst reviewed central filings in California, Florida and Vermont over a four-year period. Id. Ernst's research is significant. Analyzing only registered organizations, Ernst found that even after ignoring punctuation errors, 33% of the UCC filings he reviewed failed to provide the exact name of the debtor. Id. The approach in this Article is different than Ernst's approach. Where Ernst focuses on the incidence of errors, this Article focuses on the types of errors made by filers, and how to find UCC filings with those errors. Finding five ineffective UCC filings for a given lender was typically easy because many of the lenders whose UCC filings I reviewed have UCC filings with state/type errors, trade name errors,

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five ineffective UCC filings for each lender, mostly reviewing search reports only, and confirming apparent errors in the search reports against actual UCC filings. 15 6 In most instances, I found many more than five ineffective UCC filings. Although this Article provides instructions for conducting a filing analysis of Texas UCC filings, a filing analysis works in any state that permits secured party UCC searches, so long as the researcher adjusts for differences in Article 9 of the UCC of that state,1 5 7 the standard search logic, if any, adopted in that state, and the public resources available for obtaining information about debtors located in that state. After a filing analysis is complete, the secured party will need to cure the ineffective UCC filings the researcher has located. A researcher that can identify the errors discussed in this Article should be in a position to help a secured party cure such errors. Other legal considerations are relevant as well. If an intervening creditor has asserted a security interest in the collateral covered by the ineffective filing, an intercreditor agreement may be needed for the secured party to establish priority. If the debtor named in the ineffective filing is in financial trouble, the secured party should be concerned about a preferential transfer arising from the secured party perfecting its security interest during a potential bankruptcy preference period. 5

SECURED PARTY MASKING

For some secured parties, easy secured party UCC searches pose a problem because they permit any third party, including a secured party's competitor, to obtain what amounts to a list of the secured party's past and present customers.1 59 To avoid this problem, some secured parties use "secured party masking," a process by which a third party representative of

suffix errors, and collateral held in trust errors, all of which are very easy to recognize by reviewing a search report. An indication of certain errors can be discovered by reviewing a UCC search report 156. alone. See supra note 149. The applicable UCC rules are relatively uniform in most states except, generally, with 157. respect to individual debtor names. See WILLIAM D. HAWKLAND, UNIFORM COMMERCIAL CODE:

LOCAL CODE VARIATIONS §§ 9-307, -501, -503, -506 (2015-2016 ed. 2015) (listing local code variations). 158. Lange v. Inova Capital Funding, LLC (In re Qualia Clinical Serv., Inc.), 441 B.R. 325, 327 (B.A.P. 8th Cir. 2011), aff'd, 652 F.3d 933 (8th Cir. 2011) (perfecting a security interest within the preference period made the security interest avoidable by bankruptcy trustee). For Texas, see, e.g., 1 TEX. ADMIN. CODE. § 95.108 (2016) (Office of the Sec'y of 159. State, Public Records Services) ("Public records services are provided on a non-discriminatory basis to any member of the public.").

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the secured party is named as the secured party on a UCC filing. Many secured parties use the same company as their representative. 160 The Texas UCC requires that a UCC filing provide "the name of the secured party or a representative of the secured party."' 6 1 A UCC filing does not need to indicate a representative's capacity as representative of the actual secured party. 162 While the Official Comments to the UCC contemplate a representative arrangement arising in a syndicated financing in which a third party is acting as collateral agent for a group of secured parties, 163 nothing in Article 9 seems to prevent a third party, even one who is unrelated to a financing transaction, from serving as the secured party's representative in a UCC filing. Case law, while sparse on the matter, seems to support this notion. In In re Borges, a secured party argued that a UCC filing with its name as the secured party was sufficient to perfect a security interest granted to certain of its affiliates.' 64 The court implied that the secured party might have prevailed had it asserted that it was acting in a representative capacity for such affiliates.' 65 When several secured parties use the same representative, secured party masking largely prevents a filing analysis because the results of a lien search against the representative are generally voluminous and locating a specific secured party's UCC filings becomes difficult or impossible. VI. CONCLUSION AND SUGGESTIONS This Article proposes filing analysis as a tool for discovering and curing UCC filing errors. Attached as an addendum to this Article is a short-form checklist that lists Texas's standard search logic and the errors

160. For example, a Texas SoS secured party search conducted on April 4, 2016 for "Corporation Service Company, as representative," a company that advertises it provides secured party representative services, retrieved 15,733 UCC filings with varying collateral descriptions, an indication that the UCC filings have been made on behalf of different secured parties because many secured parties tend to use the same collateral descriptions in each of their UCC filings. Several of the UCC filings retrieved mention the name of the actual secured party within the collateral description, a better indication that different secured parties are using the same representative. 161. TEX. BUS. & COM. CODE ANN. § 9.502(a)(2) (West 2011 & Supp. 2015). 162. Id. § 9.503(d) ("Failure to indicate the representative capacity of a secured party or representative of a secured party does not affect the sufficiency of a financing statement."). 163. Id. § 9.503 cmt. 3 ("Example 2: Debtor creates a security interest in favor of Bank X, Bank Y, and Bank Z, but not to their representative, the collateral agent (Bank A). The collateral agent is not itself a secured party. See Section 9-102. Under Sections 9-502(a) and 9-503(d), however, a financing statement is effective if it names as secured party Bank A and not the actual secured parties, even if it omits Bank A's representative capacity."). 164. Ag N.M., FCS, ACA v. Borges (In re Borges), No. 10-01170 S, 2011 WL 4101096, at *5 (Bankr. D.N.M. Sept. 6, 2011). 165. See id. at *5 n.9.

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discussed in this Article, along with short descriptions of the errors and corresponding examples, where applicable. The checklist is designed for use by researchers conducting filing analyses. As discussed in Parts I and IV of this Article, UCC filing errors are still ubiquitous. Various proposals for tweaking the filing or search system have not yet gained traction. 166 Further, simply relaxing the IACA standard search logic is generally unpalatable because loose search standards increase false positive results in searches, which increases the time and cost of reviewing UCC filings.167 However, balancing the competing interests of accommodating UCC filing errors and limiting false positive search results, the Texas SoS, as well as other states that have adopted the IACA standard search logic, could tweak their standard search logic to accommodate certain errors with little risk of increasing false positive results in searches. For one, the Texas SoS could make "Texas" and "a Texas" noise words (and other states could make similar adjustments), which would cause UCC filings with most variations of the state or type error to be effective because the string of words "a Texas corporation" at the end of a name would constitute noise words disregarded (accommodated) by the standard search logic. Second, such states could cause first personal name equivalents to apply to middle names, which would cause UCC filings with individual middle name errors caused by the use of a name equivalent to be effective in the same way that UCC filings with certain first personal name errors are effective when a first personal name equivalent is used in the UCC filing.1 68

See Fredrickson, supra note 4, at 45 (proposing a social security number requirement); 166. Kettering, supra note 5, at 921 (proposing re-adoption prior UCC search standard); Livingston, supra note 5, at 154 (proposing uniform adoption of "flexible search logic"). This has been a problem in Florida. See Kettering, supra note 5, at 916 ("[A Florida 167. UCC] search does not result in the identification of any particular entries as hits. The search returns the filing officer's entire index. It merely places the closest match at the top of the first page shown to the searcher.") Neither change should be retroactive to existing erroneous UCC filings because current 168. secured parties may have relied on the absence of a then-ineffective UCC filing in extending credit.

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ANANALYTICAL APPROACH: UCC FILINGS

APPENDIX

CHECKLIST: TEXAS STANDARD SEARCH LOGIC AND UCC ERRORS I.

TEXAS STANDARD SEARCH LOGIC

Rules

Notes

Replace "&" with "and"

Disregard characters other than numerals 0 through 9 and letters A through Z Disregard "noise words"

See Texas Code list

Administrative

See Texas Code list

Administrative

Disregard word "the" at beginning of organization name Disregard spaces

Disregard "first personal name equivalents" Name equivalents do not apply to middle names Disregard wrong suffix Initials are acceptable for individual first and middle names

II. A.

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NAME ERRORS

Registered Organizations

Example (assuming Brief Description

Error Name

includes name Debtor information about the state of formation and type of

State/type

.ABC Corporation" is debtor's correct name) Widget "ABC Corporation, a Texas corporation"

entity

Trade Name

Typographical Additional Missing "s" Other Name

Debtor name includes additional information about the debtor (e.g., DBA, FKA, serial number) Typographical error in the debtor'sname

"ABC Widget Corporation, d/b/a Easy Widget"

The letter "s" is erroneously missing from or added to a word Catch-all category (generally occurs where words are added to, or missing from, the name, or a name other than the debtor's correct

"ABC Corporation"

name, such as a trade name, is used)

"ABC Corporation

"Easy Widget"

Widgets

2016] B.

AN ANALYTICAL APPROACH: UCC FILINGS

Individuals

Error Name Trade Name

Sole Proprietor Name

Typographical Suffix Transposed Name

Brief Description includes name Debtor additional information about the debtor (e.g., d/b/a) sole is name Debtor proprietor business name rather than individual's name

Typographical error in the debtor's name Suffix is placed in a field other than the suffix field Debtor's first and last name are transposed

Wrong Field

Debtor name has been for field in inputted organization names

Other Name

Catch-all category (debtor name is not the same as in driver's license)

Example (assuming "Jonathan Matthew Butler Jr." is debtor's correct name) In the surname field: Easy d/b/a "Butler Widget" "Easy Widget" where sole is a debtor of proprietorship Matthew Jonathan Butler Jr. Matthew "Jonathan Bulter, Jr." In the surname field: "Butler, Jr." In the surname field:" Jonathan" In the first personal name field: "Butler" In Field 1 a. (the field for names): organization Matthew "Jonathan Butler Jr." "James Matthew Butler Jr."

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SouTH TEXAS LAW REVIEW

Other

Error Name Trust Name

Brief Description Debtor name is not the same as in its organic record

Estate Name

Debtor name is individual name decedent See Article

Unregistered Organization Name

not of

the the

Example "Jonathan Butler, trustee of The Butler Family Trust" where "The Butler Family Trust" is debtor's correct name "The Estate of Jonathan Matthew Butler Jr." See Article

III. OTHER ERRORS

Error Name Wrong State Collateral Held in Trust Decedent

Termination Collateral Description Box Checking

Brief Description Filing not made in state of debtor's location Failure to indicate that collateral is held in trust Failure to indicate that . the collateral is being administered by a personal representative of the decedent Secured party attempting to treat terminated filing as effective Collateral description insufficient under Section 9.108 of the Texas UCC Filing erroneously filed as timber to be cut filing, asextracted collateral filing, fixture filing, public-finance transaction, manufactured-home transaction, transmitting utility filing, agricultural lien, or non-UCC filing

A GUIDE TO RESEARCHING TEXAS PRIMARY LAW JANE O'CONNELL

INTRODUCTION........................................68 .............. 69 CITATION FORMAT IN TEXAS................ THE TEXAS CONSTITUTION.................................69 A. Historic Texas Constitutions...........................70 B. Current Texas Constitution............................71 IV. SESSION LAWS AND STATUTES.............................74 ................. 74 Session Laws..................... A. I. II. III.

........... 76 ........................... Current Statutes 77 Statutory Revision Program ............................ Locating Historic Versions of Civil Statutes..................78 HistoricStatutory Compilations ..... 83 (Pre-1925 Vernon's Publications). .................. 84 ....................................... V. LEGISLATIVE HISTORY VI. COURT STRUCTURE, CASE LAW AND COURT RULES................... 95 95 A. Structure of Texas Courts.............................................. ................ 98 B. Unique Aspects of the Texas Court Structure B. C. D. E.

C. D. E. F. G. H.

........ 99 ........................ Historic Case Reports ................... ......... 100 Court ofAppeals Opinions The GeographicalOverlap of the First and Fourteenth Courts 101 ........... .............................. of Appeals ..... 102 ............................... Petition History 104 ....... Texas Digest and Texas Digest, 2d ............... 95.... ............ 104 s ..................... Court ......... 105 1. Texas Rules of Civil Procedure ............. 105 ...... 2. Texas Rules ofAppellate Procedure............

................. 3. Texas Rules ofEvidence. o p Texas Judicial Branch Website .................... ..... 106 VII.

REGULATIONS, TEXASR

VIII. ATTORNEY GEN I. X.

LEGAL ETHICS MUNICIPAL CODES

............. 106

STER, AND TE.AD.MSTRATIVE CODE..

dAL OPINIONS .

d.................................

107

110

112 .............................................. 113 ..........................................

t Deputy Director, Tarlton Law Library, University of Texas School of Law.

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INTRODUCTION

Legal research in Texas poses unique challenges. Prior to joining the United States, Texas was an independent republic. Before independence, it was part of Mexico, and even earlier, part of New Spain.1 Although Texas adopted parts of the common law of England as early as 1836, Texas law shows the influence of the Spanish and Mexican civil law in its early development along with French civil law influence from Louisiana.2 Texas is one of only two states with a bifurcated highest court.3 Texas has appellate courts with geographic overlap that share concurrent jurisdiction;' the geographic overlap can create confusion about what Texas case law is precedential. Since 1963, the Texas statutes have been slowly reorganized from the compiled civil statutes into subject-specific codes.' These factors contribute to a legal research environment with numerous hazards for the inexperienced researcher. This Article aims to provide an overview of researching primary law materials in Texas with a focus on the often confusing and unique issues that arise in Texas. This Article also aims to direct researchers to the best resources for Texas legal materials, regardless of their format. Texas state agencies provide free online access to numerous legal materials and in some cases provide more extensive information than commercial legal information providers. For example, the Legislative Reference Library of TexaS 6 and the Texas Legislative Council' both provide extensive information about legislation on their websites. The Legislative Reference Library serves the reference and research needs of the legislature, its staff, and its committees.' As part of this mission, the Legislative Reference Library has created numerous online databases related to Texas statutory and legis-

1. See Donald E. Chipman, Spanish Texas, TSHA: HANDBOOK TEX. ONLINE (June 15, 2010), https://tshaonline.org/handbook/online/articles/nps0l. 2. See Ford W. Hall, An Account of the Adoption of the Common Law by Texas, 28 TEX. L. REv. 801, 805-10 (1950). 3. Oklahoma is the only other state with a bifurcated highest court. Paul M. Lucko, Texas Court of Criminal Appeals, TSHA: HANDBOOK TEX. ONLINE (June 15, 2010), http://www.tshaonline.org/handbook/online/articles/jpt01. 4. See Texas Courts: A Descriptive Summary, TEX. JUD. BRANCH 6-8, http://www.txcourts.gov/media/994672/Court-Overview.pdf (last visited Oct. 16, 2016). 5. Code Projects, TEX. LEGIS. COUNCIL, http://www.tlc.state.tx.us/codeoverview (last visited Sept. 23, 2016); Texas Legislative Council Drafting Manual, TEX. LEGIS. COUNCIL 153 (Aug. 2016), www.tlc.texas.gov/docs/legref/draftingmanual.pdf. 6. See generally Legislation, LEGIS. REFERENCE LIBR. TEX., http://www.lrl.state.tx.us/legis/index.cfin (last visited Oct. 17, 2016) (providing a wide range of searches involving its legislative databases). 7. See generally About the Council, TEX. LEGIS. COUNCIL, http://www.tlc.state.tx.us/about (last visited Aug. 10, 2016). 8. See generally Mission, LEGIS. REFERENCE LIBR. TEX., http://www.1rl.state.tx.us/Library/index.cfin (last visited Aug. 10, 2016).

A GUIDE TO RESEARCHING TEXAS PRIMARY LAW

2016]

lative history research. The Texas Legislative Council provides "professional, nonpartisan service and support to the Texas legislature and the legislative agencies."' They are also the agency tasked with implementing a "complete nonsubstantive revision of the Texas statutes.""o While many state agencies have created online access to materials for other research tasks, particularly historic research, the only way to access materials may be print resources.

II.

CITATION FORMAT IN TEXAS

Due to the numerous unique features of Texas law, the Texas Law The Greenbook: Texas Rules of Form," a Texas-specific produces Review citation manual that is meant to be used in conjunction with The Bluebook: A Uniform System of Citation.12 The Greenbook is used by numerous law reviews in Texas including Texas Law Review, Baylor Law Review, South Texas Law Review, Texas Journal of Oil, Gas and Energy Law, Texas HispanicJournal of Law Policy, and is also required by some Texas courts.13 In addition to providing citation information, The Greenbook also includes historical information about courts, reporters, statutory compilations, and administrative publications in Texas. Becoming familiar with The Greenbook is essential for any legal researcher in Texas. III. THE TEXAS CONSTITUTION A constitution is the foundational document of a government. Texas has had seven constitutions during its history.1 4 These constitutions represent Texas's time as part of the United Mexican States, as an independent republic, as a state of the Confederate States of America, and as a state of the United States." The current Texas Constitution was enacted in 1876," and through numerous amendments, has become one of the largest state constitutions.

9. About the Council, supra note 7. 10. Code Projects, supra note 5. 11. THE GREENBOOK: TEXAS RULES OF FORM (Texas Law Review Ass'n ed., 12th ed. 2010). 12. THE BLUEBOOK: A UNIFORM SYSTEM OF CITATION (Columbia Law Review Ass'n et al. eds., 20th ed. 2015). 13. E.g., 4th Tex. App. (San Antonio) Loc. R. 8 notes & cmts. 14. Texas Constitutional History, DALL. LEARNING SOLUTIONS,

https://dlc.dcced.edultxgovl-2/texas-constitutional-history (last visited Dec. 22, 2016). 15.

See

Texas

Constitutions

1824-1876,

TARLTON

http://tarlton.law.utexas.edu/constitutions/ (last visited Aug. 18, 2016). 16.

TEX. CONST.

LIBR.,

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Historic Texas Constitutions

Texas's historic constitutions reflect the politics and issues relevant at the time of their drafting. While no longer in effect, each historical constitution continues to exert some degree of effect on Texas today. The six historical Texas constitutions are: (1) Constitution of the State of Coahuila and Texas (1827)17 This constitution was the Mexican state constitution 18that governed Texas when it was part of the United Mexican states. (2) Constitution of the Republic of Texas (1836)19 Drafted quickly during the Texas Revolution, this constitution incorporated large sections of the United States Constitution along with some Mexican law. 20 (3) Constitution of the State of Texas (1845)21 The first official Texas state constitution, this constitution was adopted as part of the annexation of Texas into the United States; 22 (4) Constitution of the State of Texas (1861);23 This constitution transfers Texas statehood from the United States of America to the Confederate States of America; 24 (5) Constitution of the State of Texas (1866)25 After the Civil War, the former Confederate States were required to adopt new constitutions in order to rejoin the United States. Of special note, the 1866 Constitution declared the secession ordinances null and void and repudiated all war debts. 26

17.

CONST. OF THE STATE OF COAHUILA & TEX. of 1827.

18. S. S. McKay, Constitution of Coahuila and Texas, TSHA: HANDBOOK TEX. ONLINE (June 12, 2010), https://tshaonline.org/handbook/online/articles/ngc0l. 19. REPUB. TEX. CONST. of 1836, reprintedin 1 H.P.N. Gammel, The Laws of Texas 18221897, at 1069 (Austin, Gammel Book Co. 1898). See Joe E. Ericson, Constitution of the Republic of Texas, TSHA: HANDBOOK TEX. 20. ONLINE (June 12, 2010), http://www.tshaonline.org/handbook/online/articles/mhc01. 21. REPUB. TEX. CONST. of 1845, reprintedin 2 H.P.N. Gammel, The Laws of Texas 18221897, at 1277 (Austin, Gammel Book Co. 1898). S. S. McKay, Constitution of 1845, TSHA: HANDBOOK TEX. ONLINE (June 12, 2010), 22. http://www.tshaonline.org/handbook/online/articles/mhcO3. 23. See generally TEX. CONST. of 1861, art. I-XIII. 24. See generally id. art. I. 25. TEX. CONST. of 1866. 26. S. S. McKay, Constitution of 1866, TSHA: HANDBOOK TEX. ONLINE (June 12, 2010), http://www.tshaonline.org/handbook/online/articles/mhc05; TEX. ORD. nos. 1, 2 (Mar. 15 1866), reprintedin 5 H.P.N. Ganmel, The Laws of Texas 1822-1897, at 887 (Austin, Gammel Book Co. 1898).

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A GUIDE TO RESEARCHING TEXAS PRIMARY LAW

(6) Constitution of the State of Texas (1869)27

Drafted in response to the Congressional Reconstruction Acts of 1867, the 1869 constitution outlawed slavery and recognized the equality of all persons before the law. Viewed as the work of military outsiders by many Texans the 1869 constitution was controversial and unpopular in Texas. The best online resource for historic Texas constitutions is Tarlton Law Library's Texas constitutions 1824-1876.29 The digital collection provides images and text of historical Texas constitutions along with PDFs of constitutional journals and debates to provide additional context for the constitutions. The unannotated prior constitutions are reprinted in Volume 3 of Vernon's Annotated Constitution of the State of Texas.30 B.

Current Texas Constitution

The current Texas constitution was adopted in 1876 and has been amended numerous times.3 1 As adopted, the constitution had seventeen articles containing a total of 283 sections and twenty-six pages in length. 32 As of 2015, 491 amendments have been approved by voters (out of 673 amendments that have been proposed with 179 amendments rejected).33 The result is a large and detailed document with 385 sections.34 The current printing of the Texas constitution by the Texas Legislative Council has 194 pages of unannotated constitutional text.35 The complete text of the current Texas constitution is available in PDF format from the Texas Legislative Council.3 6 The Texas legislature's website also provides online access to the constitution.37

27. TEX. CONST. of 1869. 28. S. S. McKay, Constitution of 1869, TSHA: HANDBOOK TEX. ONLINE (June 12, 2010), https://tshaonline.org/handbook/online/articles/mhcO6. 29. See generally Texas Constitutions 1824-1876, supra note 15 (providing access to Texas's constitutions and a historical overview of the creation of Texas). 30. See generally 3 TEX. CONST. ANN. art. XVII (West 1993) (providing an overview of the previous Texas Constitutions followed by the unannotated reprints). 31. See Constitutional Amendments Search, LEGIS. REFERENCE LIBR. TEX., http://www.lrl.state.tx.us/legis/constAmends/lrlhome.cfn (last visited Aug. 18, 2016), to search for amendment of interest. 32. See generally TEX. CONST. of 1876, arts. I-XVII, §§ 1-283. 33. For reasons that have been lost to time, three proposed amendments never made it to the ballot. See Constitutional Amendments, LEGIS. REFERENCE LIBR. TEX., http://www.1rl.state.tx.us/1egis/ConstAmends/index.cfmn (last visited Aug. 18, 2016). 34. Id. (2015), COUNCIL LEGIS. TEX. Constitution, Texas 35. See

http://www.tlc.state.tx.us/pubslegref/TxConst.pdf 36. Id. Home, TEX. CONST. & STATUTES, http://www.constitution.legis.state.tx.us (last visited 37. Oct. 16, 2016).

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Vernon's Annotated Constitution of the State of Texas is a multivolume set including both extensive commentary and related case law.3 8 This set complements Vernon's Texas Statutes Annotated and Vernon's Texas Codes Annotated (commonly known as Vernon 's, the standard compilation of Texas statutes that is discussed below). Vernon's Annotated Constitution of the State of Texas is available both in print and on Westlaw. In addition to the notes of decisions with summaries of cases interpreting constitutional sections, Vernon's Annotated Constitution of the State of Texas includes historical notes that reference sections of earlier Texas constitutions. For example, the historical notes for Article XVI, § 15, "Separate and community property of husband and wife" include references to sections of the 1845, 1861, 1866, and 1869 Texas constitutions.39 Another feature of Vernon's Annotated Constitution of the State of Texas is the interpretative commentaries prepared by Professor A.J. Thomas and Ann Van Wynen Thomas in 1955.40 These commentaries provide background and historical information about constitutional sections. In the case of Article XVI, § 15, the interpretative commentary traces community property law in Texas to the Gothic rulers of Spain. 4 1 Due to their age, the interpretative commentaries are most useful for historical analysis of constitutional sections that have not been amended or added since 1955. The length of time the Texas constitution has been in effect, the age of the constitution, and the number of amendments that have occurred can make research challenging. There are several unique resources that can assist researchers in navigating the numerous constitutional amendments that have been enacted since 1876. Texas Legislative Council produces Amendments to the Texas Constitution of 1876, a guide to the amendments organized by constitutional section.42 This guide covers original sections of the Texas constitution and adopted and defeated amendments.43 The guide includes a topic for each section, the joint resolution number for amendments, the date and outcome of constitutional amendment elections, and comments for many sections.4 The Legislative Reference Library of Texas created a database of amendments to the Texas constitution. 45 This database can be searched by legislative session, proposition number, constitution article or section number, caption, and whether the amendment was adopted or de-

38. 39.

See generally TEX. CONST. ANN. (West 1993). TEX. CONST. art XVI, § 15 interp. commentary (West 1993).

40.

Janice C. May, THE TEXAS STATE CONSTITUTION: A REFERENCE GUIDE 418 (1996).

41. TEX. CONST. art XVI, § 15 interp. commentary (West 1993). 42. Amendments to the Texas Constitution Since 1876, TEX. LEGIS. COUNCIL (Feb. 2016), http://www.tlc.state.tx.us/pubsconanend/constamendl 876.pdf. 43. See generally id. 44. See generally id. 45. ConstitutionalAmendments, supranote 33.

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A GUIDE TO RESEARCHING TEXAS PRIMARY LAW

feated.4 6 This database provides the text of the joint resolution along with legislative history and election information for each proposed amendment. 47 Determining the effective date of constitutional amendments can be tricky. The Texas Constitution does not state when an adopted constitutional amendment takes effect, but Texas courts have consistently held that the effective date is the date of the official canvass of election returns showing adoption of the amendment, unless another date is clearly specified.48 The Texas secretary of state's office provides information on the effective date of constitutional amendments since 1972,49 along with recent constitutional election results."o The Texas State Archive can provide information on pre1972 canvass dates. There are references in numerous publications to the election date rather than the canvass date. For example, Article XV, § 9 was added to the Texas Constitution in 1980 by S.J.R. No. 8.52 The date of the election was November 4, 1980 and the canvass date was November 25, 1980.5' The Texas legislature's online version of the Texas constitution includes a history note stating, "Added Nov. 4, 1980."54 The history note in Vernon's Annotated Constitution of the State of Texas states, "Adopted Nov. 4, 1980."5 While these sources do not use the term "effective date," the use of the election date rather than the canvass date creates confusion about the effective date of constitutional amendments. Although the current Texas constitution is a lengthy and detailed document, there are many subjects it does not address. It does vest legislative authority in the Texas legislature.56

46. See id. 47. Id. 48. See, e.g., Childress v. State, 278 S.W.2d 857, 858 (Tex. Crim. App. 1955); Torres v. State, 278 S.W.2d 853, 855 (Tex. Crim. App. 1955); Tex. Water & Gas Co. v. City of Cleburne, 21 S.W. 393, 395 (Fort Worth 1892, no writ); Sewell v. State, 15 Tex. Ct. App. 56, 56-57 (1883); Amendments to the Texas Constitution Since 1876, supra note 42, at 1. 49. Effective Dates of Constitutional Amendments, TEX. SECRETARY ST., http://www.sos.state.tx.us/elections/historical/canvasdt.shtml (last visited Aug. 18, 2016). 50. Election Results, TEX. SECRETARY ST., http://www.sos.state.tx.us/elections/historical/index.shtml (last visited Oct. 16, 2016). 51. Amendments to the Texas Constitution Since 1876, supra note 42, at 1. 52. Id. at 122. 53. Id. 54. TEX. CONST. art XV, § 9. 55. TEX. CONST. ANN. art. XV, § 9 (West 1993). 56. TEX. CONST. art. III, § 1.

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IV. SESSION LAWS AND STATUTES

In Texas, statutes are enacted by the Texas legislature, a bicameral body with a house of representatives and a senate." The Texas legislature meets regularly only every two years; the regular session convenes on the second Tuesday in January of each odd-numbered year." The length of the 59 regular session is limited to 140 days by the Texas constitution. The Texas constitution also provides that the Governor may convene additional sessions referred to as "called" or "special" sessions.60 During special sessions, only legislation on subjects designated by the Governor may be considered.6 1 Since special sessions cannot last more than thirty days, there can be numerous special sessions after a regular session.62 For example, in 1989, the 71st legislature had six called sessions and the legislature was in session off and on from January 10, 1989, until June 7, 1990.63 Due to the frequency and number of called sessions, the Legislative Reference Library of Texas has compiled information regarding called sessions that includes the text of the Governor's proclamation calling the session and any subsequent proclamation about topics to be considered, along with information about 64 the dates of the called sessions. A.

Session Laws

While the official version of laws in Texas are the final, signed copies of legislative bills and resolutions filed with the secretary of state,65 the secretary of state compiles the session laws and publishes them as the General and Special Laws of the State of Texas.6 6 Due to the issues with accessing versions of individual laws on file with the secretary of state, the General & Special Laws of the State of Texas is the preferred source for Texas session law citations by both the Bluebook and the Greenbook.67 The GenId. 57. TEX. Gov'T CODE ANN. § 301.001 (West 2013). 58. TEX. CONST. art. III, § 24(b). 59. Id. art. IV, § 8(a). 60. Id. art. III, § 40. 61. Frequently Asked Questions About Special Sessions, LEGIS. REFERENCE LIBR. TEX., 62. http://www.1rl.state.tx.us/sessions/specialSessions/FAQ.cfin (last updated June 8, 2011). 63. Texas Legislative Sessions and Years, LEGIS. REFERENCE LIBR. TEX., http://www.1rl.state.tx.us/sessions/sessionYears.cfm (last visited Aug. 18, 2016).

64.

Id.

TEX. CONST. art. IV, § 21; TEX. Gov'T CODE ANN. §§ 405.011, .014 (West 2013); Bills 65. ST., TEX. SECRETARY 84th Legislature, of the and Resolutions https://webservices.sos.state.tx.us/legbills/index.aspx (last visited Aug. 3, 2016). Guide to Texas Legislative Information (Revised), TEX. LEGIS. COUNCIL 9 (Mar. 2015), 66. http://www.tlc.state.tx.us/pubslegref/gtli.pdf. THE BLUEBOOK: A UNIFORM SYSTEM OF CITATION, supra note 12, at 296 tbl.T.1; THE 67. GREENBOOK: TEXAS RULES OF FORM, supra note 11, R. 10.3.4.

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A GUIDE TO RESEARCHING TEXAS PRIMARYLAW

eral and Special Laws of the State of Texas is a complete set of the texts of all bills, joint resolutions, and concurrent resolutions passed into law by each session of the Texas legislature.68 Each session, after a bill is signed by the Governor, the bill is filed with the secretary of state and is assigned a chapter number beginning with Chapter 1 that corresponds with the chronological order in which the bill is received by the secretary of state.69 Unlike general laws that have applicability throughout the state, a "special law" is a law that applies to a single person or class of persons.7 0 These special laws can be passed during either a regular session or a special session of the legislature.71 Prior to the 40th legislature (1927), special laws were bound and issued separately from general laws, resulting in two separate publications for each legislative session: Special Laws of the State of Texas and General Laws of the State of Texas.72 Now, the special laws are intermixed with general laws in the General and Special Laws of Texas with special laws being assigned chapter numbers in the same manner and as part of the same sequence as general laws.73 For bills passed during called sessions, the secretary of state assigns chapter numbers starting with Chapter 1 again. Because of this, a citation to a session law in Texas requires information about whether it was passed in a regular or called session. 74 For example, citation to the session law for the 2011 amendment to Insurance Code § 83.002 is Act of September 28, 2011, 82nd Leg., 1st C.S., Ch. 2, Sec. 1, 2011 Tex. Gen Laws 5180. In the General and Special Laws of the State of Texas, the called session chapters are after the regular session chapters. While some laws, particularly special laws of limited applicability, can only be found in the General and Special Laws of the State of Texas, most legislation creates or amends sections of the civil statutes or subject specific codes. Researchers are more likely to conduct research using the resources discussed in the next section.

68. Guide to Texas Legislative Information (Revised), supra note 66, at 25. 69. Reading Statutes and Bills, TEX. LEGIS. COUNCIL 1, http://www.t1c.state.tx.us/docs/legref/readingabill.pdf (last visited Oct. 16, 2016). 70. Memorandum from Jeffrey J. Thorne, Deputy Dir., Legal Div., Tex. Legislative Council on Local and Special Bills and Laws, Notice for Local and Special Bills, and Bracket Bills to Members of the 84th Legislature 1 (Jan. 26, 2015), http://www.tlc.state.tx.us/docs/legref/LocBracBill.pdf. 71. See supra notes 58, 62-63. 72. THE GREENBOOK: TEXAS RULES OF FORM, supra note 11, R. 10.3.4 (historical note). 73. Id. R. 10.3.2. 74. Id.

76 B.

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Current Statutes

In 1925, the 39th legislature adopted a new revision of Texas laws. 75 The 1925 revision was prepared by Vernon Law Book Company in conjunction with West Publishing and included new versions of the Revised Civil Statutes, Code of Criminal Procedure, and Penal Code.76 Vernon 's Annotated Revised Civil Statutes of the State of Texas and Vernon's Annotated CriminalStatutes of the State of Texas were received with acclaim. In his review of the new publications, Professor Leon Green wrote: "The importance of this publication at this time cannot be briefly stated. Its many points of superiority over any other publication of its nature which has yet made its appearance in Texas or perhaps elsewhere would warrant a much longer review than space permits."77 He also noted that one of the distinctive and valuable features of the publications was the quarterly and annual cumulative supplements. Professor Green foresaw that "[t]his will tend to do away with the necessity for frequent revisions if not for revisions altogether."" While Vernon's planned for supplementation, they did not plan well for subsequent changes or additions to the Texas statutes. The Revised Civil Statutes articles are organized alphabetically by subject and were originally numbered from Article 1 to Article 8324.0 Unfortunately, no room was left in the numbering for expansion and additional articles. As new sections were added to the civil statutes, the legislature did not designate where in the statutes they were to go. Instead, new sections were reviewed by West Publishing, and West's editors selected the appropriate placement within the Revised Civil Statutes." West was not consistent in its creation of new articles. Some articles had numeric additions for new sections (Article 581-35-2), some had alphabetical additions for new sections (Article 1011m), and some had both (Article 1015c-2).82 The numbering schema of the Revised Civil Statutes eventually became inconsistent and confusing, leading to a new revision of the statutes.83 The Revised Civil Statutes are still published and continue to contain the uncodifled Texas statutes. 84

Historical Texas Statutes, TEX. ST. L. LIBR., http://www.sll.texas.gov/library75. resources/collections/historical-texas-statutes (last updated Jan. 20, 2016) [hereinafter Historical Texas Statutes]. 76. Leon Green, Book Review, 4 TEX. L. REv. 396 (1926). Id. at 396-97. 77. Id. at 398. 78. Id. 79. See TEX. REV. CIv. STAT. ANN. arts. 1-8324. 80. Texas v. West Publ'g Co., 882 F.2d 171, 173 (5th Cir. 1989). 81. See Texas Legislative CouncilDrafting Manual, supra note 5, at 30-31. 82. Id. at 162. 83. Id. at 30. 84.

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A GUIDE TO RESEARCHING TEXAS PRIMARY LAW

Statutory Revision Program

In order to resolve these issues, Texas started a statutory revision program in 1963 resulting in the production of subject-specific codes."s The purpose of the statutory revision program is "to clarify and simplify the statutes and to make the statutes more accessible, understandable, and usable." 8 6 The Texas Legislative Council is responsible for the ongoing process that involves reclassifying and rearranging the statutes in a more logical order, employing a numbering system and format that will accommodate future expansion of the law, eliminating repealed, invalid, duplicative, and other ineffective provisions, and improving the draftsmanship of the law, if practicable, without altering the sense, meaning, or effect of the law.87

Information about their current and recently completed projects is available on the Texas Legislative Council's website." The Revised Civil Statutes are still published and continue to contain the uncodified Texas statutes, although there are rarely new articles added to the Revised Civil Statutes. When the statutory revision process is complete, all statutes will have been incorporated into one of the codes. The following subject-specific codes have been developed through the statutory revision process and are currently in force: Agriculture Insurance Alcoholic Beverage Labor Business and Commerce Local Government Business Organizations Natural Resources Civil Practice and Remedies Occupations Education Parks and Wildlife Election Penal Estates Property Family Special District Local Laws Finance Tax Government Transportation Utilities and Water89 Health and Safety Human Resources

85. 86. 87. 88. 89.

Reading Statutes andBills, supra note 71, at 1. TEX. Gov'T CODE ANN. § 323.007 (West 2013). Code Projects, supra note 5. Id. Home, supra note 37.

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However, the Code of Criminal Procedure is the last "independent" that has not yet been revised as part of the statutory revision procode 90 grain. It will eventually be reenacted as the Criminal Procedure Code.91 Appendix H of the Greenbook provides the appropriate abbreviation for current and historic codes.92 The Texas legislature provides online access to the unannotated text of the Texas statutes.93 Be sure to check the updating information at the top of the page, as the site is often not updated for months after the close of a legislative session. Westlaw provides electronic access to the same information as the print version of Vernon's Annotated Revised Civil Statutes of the State of Texas and Vernon 's codes since the Vernon's publications and Westlaw are both Thomson Reuters products. Lexis creates and provides access to their own annotated versions of the Texas statutes and codes. D.

Locating Historic Versions of Civil Statutes

As the vast majority of Texas's civil statutes have been reclassified into subject-specific codes, locating the prior civil statutes articles of a current subject specific code section presents a challenge. For example, Section 21.051 of the Texas Labor Code prohibits discrimination by employers on the basis of race, color, disability, religion, sex, national origin, or age.94 Specifically, the unannotated version of the statute provided by the Texas legislature states: Labor Code § 21.051 § 21.051. Discrimination by Employer An employer commits an unlawful employment practice if because of race, color, disability, religion, sex, national origin, or age the employer: (1) fails or refuses to hire an individual, discharges an individual, or discriminates in any other manner against an individual in connection with compensation or the terms, conditions, or privileges of employment; or (2) limits, segregates, or classifies an employee or applicant for employment in a manner that would deprive or tend to deprive an individual of any employment opportunity or adversely affect in any other manner the status of an employee.

Texas Legislative Council Drafting Manual, supra note 5, at 156; THE GREENBOOK: 90. TEXAS RULES OF FORM, supra note 11, R. 10.2.2(d); see also Estates Code, TEX. LEGIS. COUNCIL, http://www.tlc.state.tx.us/code-currentestates (last visited Aug. 18, 2016) (discussing the revision of the Texas Probate Code as the Estates Code, which became effective on January 1, 2014). Texas Legislative CouncilDraftingManual, supra note 5, at 155. 91. THE GREENBOOK: TEXAS RULES OF FORM, supra note 11, app. H. 92. Home, supra note 37. 93. TEX. LAB. CODE ANN. § 21.051 (West 2015). 94.

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[Credits] Acts 1993, 73rd Leg., ch. 269, § 1, eff. Sept. 1, 1993.95 Based on the credits provided at the end of the statute, it appears that the statute was only enacted in 1993, but it would seem logical that Texas prohibited discrimination by employers prior to 1993. The issue is how this hunch can be verified. The Legislative Reference Library of Texas has created the Texas Law Timeline that provides information about major events in Texas going back to the adoption of the Federal Constitution of the United States of Mexico in 1824.96 The Texas Law Timeline provides information about the date of enactment of each subject-specific code.9 7 Reviewing the timeline shows that the Labor Code was enacted in 1993, but it does not give any indication about prior related laws that may have been in effect. 98 Based upon this, it is clear why 1993 shows up in the credits to Labor Code § 21.051, but still does not provide guidance as to what the law was prior to the enactment of

the Labor Code in 1993. The Historical and Statutory Notes under the statute in the print version of Vernon's Texas Codes Annotated: Labor Code provide a direct reference to the relevant article of the Revised Civil Statutes. 99

§ 21.051. Discrimination by Employer An employer commits an unlawful employment practice if because of race, color, disability, religion, sex, national origin, or age the employer: (1) fails or refuses to hire .an individual, discharges an individual,, or discriminates in any other manner against an individual in connection with compensation or the terms, conditions, or privileges of employment; or (2) limits, segregates, or classifies an employee or applicant for employment in a manner that would deprive or tend to deprive an individual of any employment opportunity or adversely affect in any other manner the status of an employee. Acts 1993, 73rd Leg., ch. 269, § 1, eff. Sept. 1, 1993. Historical and Statutory Notes Prior Laws: Acts 1983, 68th Leg., 1st cS., p. 37, ch. 7, § 5.01.

Acts 1989, 71st Leg., ch. 1,186, § 11. Vernon's Ann.Civ.St. art. 5221k, § 5.01.

95. Id., http://www.statutes.legis.state.tx.us/Docs/LA/htm/LA.21.htm#21.051. 96. Texas Law Timeline, LEGIS. REFERENCE LIBR. TEX. (Jan. http://www.1rl.state.tx.us/legis/TexasLawTimeLine.cfin. 97. Id. 98. See id. 99. LAB. § 21.051.

25,

2013),

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There are significant differences in how this information is presented in the major online databases. For example, the Editor's and Revisor's Notes under the History tab on Westlaw provide similar information to the print version's Historical and Statutory Notes. Lexis Advance, however, does not provide historical notes for current code sections. Another method of discovering the history of Texas statutes is to use derivation and disposition tables in the print code volumes. The derivation tables at the beginning of each subject-specific code volume show where each section of the new code had been in the Revised Civil Statutes. For example, the derivation table at the beginning of Vernon's Texas Codes Annotated: Labor Code shows that current Labor Code § 21.051 had been Vernon's Civ. Stat. Art. 5221, § 5.01.100

DERIVATION TABLE Showing where provisions of the Labor Code were formerly covered in Vernon's Annotated Civil Statutes.

Vernon's Civ.St. Labor Code Article Section 5221k, § 1,02 21.001 .................. 21.002 ......... 5221k, § 2.01(1) to (4), (6) to (10), 6.01(a) 21.003 ............ 5221k, § 3.02(a), (d) 21.004 ...... ............ 5221k, § 9.02 21.005 ................ 5221k,§ 10.01 21.006 ............... 5221k,§ 10.05 21.051....... ......... 5221k,§ 5.01 21.052 .................. 5221k, § 5.02 21.053 .................... 5221k, § 5.03 ..... 5221k, § 5.04 21.054 ........... 21.055 ................ 5221k, § 5.05(a)

Labor Code Section

Vernon's Civ.St. Article

....... 5221k, § 6.01(a) 21.204 5221k, § 6.01(b) 21.205 ................ 21.206 ................ 5221k, § 6.01(c) 21.207 ................ 5221k, § 6.01(c) 5221k, § 7.01(a) 21.208 ................ 5221k,§ 6.01(d) 21.209 ................ 21.210 ................ 5221k,§ 6.01(e) 21.211 ..... .........- 5221k,§ 6.01(f) 5221k,§ 7.01(a) 21.251 .. ............. 5221k,§ 7.01(a),(i) 21.252 ............. 5221k,§ 7.01(a) 21.253 ................ 21.254 .... ........ I.... 5221k, § 7.01(a)

Derivation tables can easily be found in print, but the availability of the information online is mixed. Westlaw does not include the derivation tables, but provides the information under History - Editor's and Revisor's Notes for each individual code section. Lexis Advance provides access to derivation tables at the beginning of each code as a PDF, but does not provide the information at the end of each individual code section. Disposition tables can be used to determine where revisors have placed a Revised Civil Statutes article in the new codes. The usefulness of disposition tables can be shown when attempting to locate a Revised Civil Statute section that has been repealed as part of the codification process and reenacted into a new code. For example, Article 23721 dealt with zoning on

100.

LAB. derivation tbl.

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A GUIDE TO RESEARCHING TEXAS PRIMARY LAW

Padre Island."o' Westlaw, Lexis Advance, and the current print version of Vernon's Annotated Revised Civil Statutes only contain information regarding the repeal of the article.10 2 The print edition of Vernon's Annotated Revised Civil Statutes has a reference to the Disposition Table in the Historical and Statutory Notes.103 Arts. 23721, 23721-1. Repealed by Acts 1987, 70th Leg., ch. 149, § 49(1), eff. Sept. 1, 1987 Historical and Statutory Notes Repealed art. 23721, relating to zoning of Padre Island, was derived from Acts 1953, 53rd Leg., p. 636, ch. 246 and Acts 1981, 67th Leg., p. 2632, ch. 707, § 4(9). Repealed art. 23721-1, relating to the zoning of a portion of Val Verde County surrounding Amistad Recreation Area, was derived from Acts 1971, 62nd Leg., p. 1125, ch. 250. Continuation of provisions under § 2 of this repealed article describing that por-

tion of Val Verde county surrounding Am-

istad Recreation area and subject to zoning requirements, see V.T.C.A., Local Government Code § 231.032. Acts 1987, 70th Leg., ch. 149, which repealed these articles, also enacted the Local Government Code. For disposition of the subject matter of the repealed artireceding cles, see the Disposition Tabl V.T.C.A., Local Government Code.

This note indicates that Tex. Rev. Civ. Stat. Ann. art 23721 and 23721-1 were reenacted as part of the Local Government Code. Using this information, the disposition table at the beginning of the Vernon 's Texas Codes Annotated: Local Government Code can be used to determine the relevant section of the new code. 10 4

TEX. REV. CIV. STAT. ANN. art. 23721 (West Supp. 1986). 101. See, e.g., TEX. REV. Civ. STAT. ANN. art. 23721 (West, Westlaw through 2015 Reg. 102. Sess.), https://l.next.westlaw.com/Document/NBA7FB840BE6FllD9BDF79F56AB79CECB/View/Full Text.html?transitionType=UniqueDoctem&contextData=(sc. Search); https://advance.lexis.com/search/?pdmfid=1000516&crid=f208b1f4-1049-427d-84420760a8161949&pdsearchterms=Tex.+Rev.+Civ.+Stat.+Art.+23721&pdstartin=hlct%3A1%3Al& pdtypeofsearch=searchboxclick&pdsearchtype=SearchBox&pdqttype=and&pdpsf=&ecomp=q8ltk&earg= pdpsf&prid=8c47664f-b596-4ba7-b434-cfefdee444ac. Id. 103. See, e.g.,TEX. LOC. Gov'T CODE ANN. §§ 1.001-62.204 disposition tbl. (West 2007 104. Supp. 2016).

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DISPOSITION TABLE V.T.C.A. Local Vernon's Government Civ.St. Code Section Article .............. 158.008 § 6 .......... §7.......................158.011 § 8.... ............. 158.009 158.010 §SA ........................ 158.012 .,............ § 9..... § 10 ....................... 158.013 § 11 ......... .......... ....... 158.014 § 12 ....................... 158.015 § 13 ............. ..... 158.015 note 2372h-7.......................157.041 2372h-8,§ 1......................158.031 § 2 . ... ............. ........... 158.032 § 3........................158,033 § 4........................158.034 158.036 § 5 .............................. 158.035 § 6.. ...................... 158.037 § 7 .............................. § 8..........................158.038 § 9.... ........ ................ 158.039 158.040 § 10 ......................... .......... 157.042 2372h-9 .................. ......... .......... .... 292.021 2372j,§ 1 292.021note § 2........ ............... 292.021 note ................ § 3..... 292.021 note § 4..................... 23721, §§ 1, 2 ............... 231.011 ..... 231.012 § 2 ....................... 231.013 § 3.........................231.015 § 4......... .............. .. 231.014 231.015 231.023 ............ ....... 231.016 § 5, 6 .. 231.017 ............. §7......... 231.018 to § 8.............. .......... 231.021 § 9.......................231.022 § 10 ...................... 231.023 231.023 § 10a ...................... 23721-1,§§ 1,2._........... ....... 231.031

V.T.C.A. Local Government Code Section 293.024 293.025 ............ § 6(b) § 7........................293.026 293.030 § 8..... ................. 293.022 293.031 § 9.......................293.025 293.026 ......... 293.032 § 10 ......... ........ 293.051 §§ 11, 12 ............. .......... 293.052 § 13 ........... § 14 ............................ 293.056 293.055 § 15 ....................... § 16 . ............ ........... 293.053 293.054 § 17 ....................... § 18 ....................... 293.027 § 19 ............ .............. 293.028 ........ 293.027 § 20 ................... § 21 ....................... .... 293.026 293.029 ................ ... 293.056 note §22 293.033 § 23 ......................... 293.034 § 24 ....................... 81.023 ......................... 2372p . 318.021 2372r--1 ....................... 445.002 ..................... 2372s-1 445,003 2372s-2 .......................... ........... 445.001 2372s-3 ................. 445.002 ........................ 2372s234.001 2372u, § 1........................... .......... 234.002 § 2............. 234.003 § 3 .............................. §M 4, 5 .. ......... ........ .... 234.002 234.004 § 6....................... 234.005 § 7. .......................... 243.001 2372w,§ I ...................... ....... 243.009 note S2........ 243.002 § 3(a) ....................... 243.003 .243.005 § 3(a-1)............... Vernon's Civ.St. Article

Westlaw and Lexis Advance both include disposition tables at the beginning of every code. With this information, the current subchapter covering zoning on Padre Island, Local Government Code subchapter 231, can be easily located in the Local Government Code:

A GUIDE TO RESEARCHING TEXAS PRIMARY LAW

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SUBCHAPTER B.

ZONING ON PADRE ISLAND Cross References

County parks, recreational and cultural resources, see V.T.C.A., Local Government Code § 316.001

et seq. Padre Island National Seashore, see V.T.C.A., Parks & Wildlife Code § 23.011 et seq.

§ 231.011.

Legislative Findings; Purpose

(a) The legislature finds that: (1) the part of Padre Island located in Cameron and Willacy counties is frequented for recreational purposes by residents from every part of the state; (2) orderly development and use of the area is of concern to the entire state; and (3) buildings on islands frequented as resort areas tend to become congested and to be used in ways that interfere, to the detriment of the public health, safety, morals, and general welfare, with the proper use of the areas as places of recreation. (b) The powers granted under this subchapter are for the purpose of promoting the public health, safety, peace, morals, and general welfare and encouraging the recreational use of county parks in Cameron and Willacy counties. Acts 1987, 70th Leg., ch. 149, § 1, eff. Sept. 1, 1987.

Disposition and derivation tables are invaluable for historic Texas legal research and allow researchers to easily and accurately navigate between the current subject specific codes and earlier revised civil statute articles. HistoricStatutory Compilations (Pre-1925 Vernon's Publications)

Prior to 1925, the Texas legislature ordered official compilations of the statutes several times resulting in the publication of official statutory compilations in 1879, 1895, and 1911.105 The Texas State Law Library provides online access to the 1879, 1895, and 1911 versions of the Revised 10 6 AdditionalCivil Statutes, Penal Code, and Code of CriminalProcedure. ly, there are numerous statutory compilations of Texas law which predate the official versions. Some of the more prominent nineteenth century statutory compilations are: * JAMES WILMER DALLAM, A DIGEST OF THE LAWS OF TEXAS

(Baltimore, John D. Toy 1845).

105. 106.

Texas Law Timeline, supra note 96. HistoricalTexas Statutes, supra note 75.

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* OLIVER CROMWELL HARTLEY, A DIGEST OF THE LAWS OF TEXAS (Philadelphia, Thomas Cowperthwait 1850). * WILLIAMSON SIMPSON OLDHAM & GEORGE W. WHITE, A DIGEST OF THE GENERAL STATUTE LAWS OF THE STATE OF TEXAS (Austin, J. Marshall & Co. 1859). * GEORGE W. PASCHAL, A DIGEST OF THE LAWS OF TEXAS (Gal-

veston, S.S. Nichols 1866). * JOHN SAYLES & HENRY SAYLES, EARLY LAWS OF TEXAS (St. Louis, The Gilbert Book Co. 1888). * JOHN SAYLES & HENRY SAYLES, REVISED CIVIL STATUTES (St.

Louis, The Gilbert Book Co. 1888). * R. L. BATTS, ANNOTATED REVISED CIVIL STATUTES OF TEXAS

(Austin, E. von Boeckmann Pub. Co. 1897). The most commonly cited historic statutory compilation is Gainmel's The Laws of Texas, 1822-1897.107 Gammel's The Laws of Texas is by far the most comprehensive nineteenth century statutory compilation, originally published in 1898 as a ten volume set and subsequently expanded with an additional twenty-two volumes that cover the years 1897-1939.o1 Although the compiler's notice states only that the "collection of the documents cost me much labor and research,"109 family lore "holds that the compilation grew out of the [wet and damaged] papers H.P.N. Gammel rescued from the ruins of the 1852 Texas Capitol building when it burned on November 9, 1881."'l0 "He and his wife painstakingly dried the sheets, and then stored them for more than a decade" before beginning to publish Laws of Texas in 1898.' The University of North Texas's Portal to Texas History provides online access to all thirty-two volumes of Gammel's Laws of Texas. 112 V.

LEGISLATIVE HISTORY

After locating a statute, either current or historical, questions may arise about why the statute was enacted. Legislative history can be used to answer these questions.

107. Gammel's Laws of Texas, PORTAL TO TEX. HIST., http://texinfo.library.unt.edullawsoftexas/ (last visited Oct. 16, 2016). 108. Id. 109. The Laws of Texas, 1822-1897 Volume I Page: C, PORTAL TO TEX. HIST., https://texashistory.unt.edu/ark:/6753 1/metapth5872/ml/3/ (last visited Oct. 16, 2016). 110. The First Comprehensive Compilation of Texas Law, TARLTON L. LIBR., http://tarlton.law.utexas.edu/gammel-laws-of-texas (last updated Sept. 7, 2016). 111. Id. 112. Gammel's Laws of Texas, supra note 107.

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A GUIDE TO RESEARCHING TEXAS PRIMARY LAW

Chapter 311 of the Texas Government Code is known as the "Code Construction Act."ll 3 Under this Act, Texas courts are expressly authorized to consider legislative history, along with the object and circumstances of a statute's creation, when interpreting statutory language.1 4 The Texas Supreme Court has endorsed the use of legislative history to interpret statutory language, stating: In construing a statute, a court "must look to the intent of the legislature and must construe the statute so as to give effect to that intent." Knight v. InternationalHarvester Credit Corp., 627 S.W.2d 382, 384 (Tex.1982). As a general rule, the legislative intent is to be derived from the language of the statute. Seay v. Hall, 677 S.W.2d 19, 25 (Tex. 1984). However, the court may also consider the "object sought to be attained . .. [the] legislative history . .. [and] consequences of a

particular construction." Tex. Gov't Code Ann. § 311.023 (Vernon 1986)."' The Texas legislature and the Legislative Reference Library of Texas provide numerous resources to assist researchers in compiling legislative history of Texas bills and statutes. The Legislative Reference Library's brochure, Compiling a Legislative History, provides an overview of the process." 6 The Texas legislature's website provides access to legislative materials going back to the 71st legislature in 1989."1 The Texas legislature's website provides information on the bill's history, the text of the bill, any amendments to the bill, fiscal notes, bill subjects, and author and sponsor information. Coverage for specific types of information is discussed in more detail below. The Legislative Reference Library has created the Legislative Archive System, a database of older legislative materials that includes information such as bill numbers, captions, and subjects going back to the 18th Legislative Session in 1883." Currently, the Legislative Archive System

TEX. Gov'T CODE ANN. § 311.001 (West 2013). 113. 114. Id. § 311.023 (West 2013). One 1980 Pontiac, VIN # 2D19SAP21357 v. State, 707 S.W.2d 881, 882 (Tex. 1986) 115. (alterations in original). 116. Compiling Texas Legislative History, LEGIS. REFERENCE LIBR. TEX. (Nov. 2008), http://www.1rl.state.tx.us/legis/leglntent/LegitentBrochure.pdf TEX. LEGIS. ONLINE, http://www.capitol.state.tx.us (last visited Oct. 16, 2016). 117. TEX., LIBR. REFERENCE LEGIS. System, Archive Legislative 118. http://www.1rl.state.tx.us/legis/BillSearch/index.cfim (last visited Aug. 18, 2016); Project Status, LEGIS. REFERENCE LIBR. TEX., http://www.lrl.state.tx.us/legis/BillSearch/LASstatus.cfin (last visited Oct. 24, 2016).

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provides bill files for the 33rd through 41st (1913-1929) and 46th through 79th (1939-2005) legislative sessions.119 Bill files may also include fiscal notes, bill analysis, witness lists, and committee report forms. 120 This system continues to be a work in progress with dates of coverage expanding. 12 1 Both the Texas legislature's website and the Legislative Archive System are invaluable resources for compiling legislative history in Texas. The basic steps below can be used to compile a legislative history for a Texas bill or statute. Step 1: Determine the bill number and the legislative session in which the statute was enacted. When looking at a revised civil statute article or subject-specific code section in print, notes on the history of the statute will generally be printed after the statutory text. Typically, these notes will list the history of the statute beginning with the session law which first added the statute and include all session laws that have amended the statute in chronological order. For example, the Texas legislature's version of Texas Alcoholic Beverage Code § 105.08 provides: § 105.08. Hours of Sale and Consumption: Winery The holder of a winery permit may sell, offer for sale, and deliver wine, and a person may consume wine on the premises of a winery: (1) between 8 a.m. and midnight on any day except Sunday; (2) between 10 a.m. and midnight on Sunday; and (3) between midnight and 2 a.m. on New Year's Day. Added by Acts 2005, 79th Leg., ch. 84 (S.B. 571), § 2, eff. May 17, 2005. Amended by: Acts 2013, 83rd Leg., R.S., ch. 394 (S.B. 131), § 1, eff Sept. 1, 2013.122 The Texas legislature now includes bill number information for statutes enacted or amended since 2005.123 If no bill number information is included, the session and chapter information from the history of the statute can be used to determine the bill number. It is important to note whether the legislative session is a regular or special called session because chapter numbers and bill numbers do not carry over across sessions. The three simplest ways to determine a bill number are:

119. 120. 121. 122. 123.

Project Status, supra note 118. See id. Id. TEX. ALCO. BEV. CODE ANN. § 105.08 (West 2007 & Supp. 2016). See, e.g., Tex. H.B. 50, 79th Leg., 2d C.S. (2005).

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A GUIDE TO RESEARCHING TEXAS PRIMARY LAW

a. Use the Legislative Reference Library of Texas's Legislative Archive Direct Search. 124 This allows a researcher who knows the chapter of a bill to determine its number, or the number of the bill to determine its chapter. b. Use the chapter number to locate the law in the General and Special Laws of Texas. 125 The chapter will include a reference to the bill number. c. Use an online version of the statute that provides hyperlinked bill information from the history section. Since 1987, both Westlaw and Lexis Advance typically provide the full text of all legislative session chapters hyperlinked from the history section. Since 2005, the Texas legislature's website provides links to bills. From the example above, Chapter 394 from the 83rd legislature's regular session in 2013 was Senate Bill 131. Once the bill number is determined, the bill history and bill file can be located and reviewed. Step 2: Find and examine the bill history. The bill history is a list of all actions on a bill and the dates when they occurred.126 This information can be found in different locations depending upon the legislative session.

124. Direct Search, LEGIS. REFERENCE LIBR. http://www.1rl.state.tx.us/egis/billsearch/Irlhome.cfm (last visited Aug. 18, 2016). 125. The General and Special Laws of Texas, LEGIS. REFERENCE LIBR. http://www.1rl.state.tx.us/collections/sessionlaws.cfm (last visited Oct. 24, 2016). Compiling Texas Legislative History, supra note 116. 126.

TEX., TEX.,

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If the bill is from the 71st legislature (1989) to the present, the bill history is available on Texas Legislature Online. 127 Using the "Search Legislation" option on Texas Legislature Online's main page, search the bill number in the appropriate session.

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A GUIDE TO RESEARCHING TEXAS PRIMARY LAW

In the search results under the "Actions" tab is the bill history, a chronological listing of the bill's events from its original receipt with the secretary of state.

t~~~~b~~~~qry~ug. Bill: 58

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So UTH TExA sLA wRE VIE W

If the bill is from the 63rd legislature (1973) to the present, the Legislative Archive System will provide bill history information."2 Search the bill number in the appropriate session and then select the "Actions" tab.

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A GUIDE TO RESEARCHING TEXAS PRIMARY LAW

For bill history prior to the 63rd legislature, the final volume of the house and senate journals for each session include the bill history. Step 3: Find and examine the bill file. The bill file contains the official documents produced for a bill during the legislative process. Bill files may include versions of the bill, bill analyses prepared by the Senate Research Center, fiscal notes, witness lists, and committee reports. As discussed below, analysis from the House Research Organization are not included in the bill file. If the bill is from the 73rd legislature (1993) to the present, the digital equivalent of the paper bill file is available on Texas Legislature Online under the "Text" tab.

If the bill is from the 33rd to 39th legislatures (1913 to 1925) or the 46th to 78th legislatures (1939 to 2003), the Legislative Archive System from the Legislative Reference Library provides access to the full bill file. 129 The print bill files from the 63rd legislature (1973) to the present may be viewed at the Legislative Reference Library. 130 The print bill files from the 1st to the 62nd legislature (1846 to 1971) are held by the Texas State Library and Archives Commission. 13 1

129. See id. (containing two search options for viewing full bill files from previous Texas Legislatures). 130.

Starting

With

What

You

Know,

LEGIS.

REFERENCE

LIBR.

http://www.1rl.state.tx.us/1egis/legintent/whatDoYouKnow.cfm (last visited Aug. 18, 2016). 131. Id.

TEX.,

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STEP 4: Review any audio or video recordings of committee meetings and hearings or floor debate related to the bill. Since the 63rd legislature (1973), the Texas legislature has recorded public committee hearings and house and senate floor debates. 13 2 Live and archived audio and video of house and senate committee meetings, hearings, and floor debates can be found online. 13 House floor and committee video recordings from the 77th legislature (2001) to the present are available on the house of representatives' website. 134 The house recordings are organized by date, time, and committee, if applicable.' 3 5 In order to determine when a bill was considered in committee, review the bill history noting the committee, date, and time a bill was considered in public hearing. House floor and committee audio recordings from the 63rd legislature (1973) to 76th legislature (1999) are available from the house video/audio services office." 6 Senate floor and committee recordings from the 76th legislature (1999) to present are available on the senate's website. 13 7 The recordings of senate committee meetings are organized by date and committee, if applicable. 138 This information can be determined by reviewing the bill history. For older materials, the Texas State Library and Archives Commission has digitized the audio tapes of senate floor and committee recordings from the 63rd (1973) to the 79th legislature (2005).1'1 For Senate Bill 131 (2013) from the above example, the bill history indicates that the bill was referred to the Texas Senate Committee on Business & Commerce and considered in a public hearing on March 19, 2013. Using this information, the video of this hearing can easily be streamed on the senate's website.140

132.

Typical

Materials,

LEGIS.

REFERENCE

LIBR.

TEX.,

http://www.1rl.state.tx.us/legis/legintent/typicalMaterials.cfin (last visited Aug. 18, 2016). 133. See id.; see also Senate Audio/Video Archive - 2016, TEX. SENATE, http://www.senate.state.tx.us/avarchive (last visited Aug. 18, 2016). Video/Audio, TEX. HOUSE REPRESENTATIVES, http://www.house.state.tx.us/video134. audio/ (last visited Aug. 18, 2016). 135. Id. See generally id. 136. Senate Audio/Video Archive - 2016, supra note 133. 137. Id. 138. 139. Texas Senate Recordings, 1972-2006, TEX. ST. LIBR. & ARCHIVES COMMISSION, https://www.tsl.texas.gov/ref/senaterecordings/index.html (last visited Aug. 18, 2016). 140. Senate Committee on Business and Commerce (PartI), TEX. SENATE (Mar. 19, 2013), http://tlcsenate.granicus.com/MediaPlayer.php?view-id=9&clipid=834.

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A GUIDE TO RESEARCHING TEXAS PRIMARY LAW

STEP 5: Examine other potentially helpful documents. a. House and Senate Journals House and senate journals do not contain printed debate on bills, but they do contain the text of bill amendments that did not pass (not in the bill file) and record votes. 14 1 House journals from the 74th legislature (1995) to the present are available on the house of representatives' website.1 4 2 Senate journals from the 76th legislature (1999) to the present are available on the senate's website.1 43 b. Legislative Interim Reports Standing or special legislative committees may create reports or studies between legislative sessions.144 These reports can provide in-depth background into legislation.1 4 5 The Legislative Reference Library of Texas provides online access to legislative reports since 1846.146 c. House Research Organization (HRO) Bill Analysis Beginning with the 64th legislature (1975), the House Research Organization (HRO) prepares bill analyses for some bills once they reach the second reading in the house. 147 Bill analyses prepared by the HRO reflect the version of the bill as it was reported by a house committee and first considered by the house.1 48 Any later changes or amendments made on the house floor, in the senate, or in a house-senate conference committee are not reflected in the analysis.1 49 Bill analyses are compiled in daily floor re-

141. Typical Materials, supra note 132. 142. Journals, TEX. HOUSE REPRESENTATIVES, http://www.journals.house.state.tx.us/hjrnl/home.htm (last visited Aug. 18, 2016) (select dropdown box "Select Legislature"; then select "74th Legislature - (1995)"). 143. Senate Journal Online, TEX. SENATE, http://www.journals.senate.state.tx.us/sjrnl/home.htm (last visited Aug. 18, 2016) (select dropdown box "Select Legislature"; then select "76th Legislature - (1999)"). 144. Legislative Reports, LEGIS. REFERENCE LIBR. TEX., http://www.1rl.state.tx.us/committees/help.cfin (last visited Aug. 18, 2016). 145. See id. 146. See Legislative Reports, LEGIS. REFERENCE LIBR. TEX., http://www.1rl.state.tx.us/research/interim/Ilrlhome.cfm (last visited Aug. 18, 2016). 147. Typical Materials, supra note 132 (follow the "Bill Analyses" hyperlink to see discussion of HRO Bill Analyses). 148. See id. 149. Bill Analyses, HOUSE RES. ORG., http://www.hro.house.state.tx.us/BillAnalysis.aspx (last visited Aug. 18, 2016).

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ports." 0 Starting with the 74th legislature (1995), the bill analyses are available at the House Research Organization's website."' For bill analyses prior to the 74th legislature (1995), contact the Legislative Reference Library. d. Senate Research Center (SRC) Bill Analysis Beginning with the 73rd legislature (1993), the Senate Research Center (SRC) "began preparing a bill analysis on every version of every Senate bill,... the engrossed version of House bills, and on every enrolled bill."' 5 2 "A bill analysis is composed of three sections: Author's/Sponsor's Statement of Intent; Rulemaking Authority; and a Section-by-Section Analysis. If the bill is amended in committee, a fourth section, entitled List of Committee Amendments, will be added to the analysis."l53 Starting with the 74th legislature (1995), SRC bill analyses are available online. 15 4 They are also generally available as part of the bill file on Texas Legislature Online and on the Legislative Reference Library of Texas's Legislative Archive System. e. State Agency Materials While more general, state agency materials may provide relevant background for bills. The Legislative Reference Library of Texas collects some state agency materials selectively, while the Texas State Library and Archives Commission collect all state agency materials.15 5 In addition to reflecting their print holdings, the Legislative Reference Library's online catalog provides links to numerous state agency publications that are available online.156 While compiling the legislative history of a Texas statute requires researching in a variety of sources, it can often be a useful exercise due to the weight accorded to legislative history by Texas's Code Construction Act and the Texas courts.

150. Floor Reports, HOUSE RES. ORG., http://www.hro.house.state.tx.us/FloorReport.aspx (last visited Oct. 24, 2016). Bill Analyses, supra note 149. 151. 152. Typical Materials, supra note 132. Bill Analysis, SENATE RES. CTR., http://www.senate.state.tx.us/SRC/BA.htm (last visit153. ed Aug. 18, 2016). Id. 154. Compare State Agency Hotlines and Citizen Assistance, LEGIS. REFERENCE LIBR. TEX., 155. http://www.1rl.state.tx.us/genInfo/stateAgencies.cfm (last visited Dec. 12, 2016), with A List of Archival

Series,

TEX.

ST.

LIBR.

ARCHIVES

COMMISSION,

https://www.tsl.texas.gov/arc/faq/listofseries.html (last modified Aug. 31, 2011). LRL Catalog, LEGIS. REFERENCE LIBR. TEX., http://Irlcatalog.1rl.state.tx.us/ (last visited 156. Aug. 18, 2016).

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A GUIDE TO RESEARCHING TEXAS PRIMARYLAW

VI. COURT STRUCTURE, CASE LAW, AND COURT RULES

Understanding the structure of Texas's court system is essential due to the issues raised by Texas's bifurcated highest appellate courts, the different jurisdiction of appellate courts during Texas's history, and appellate courts' geographical overlap. Comprehending the importance of petition history is also essential. Over Texas's history, numerous different reporters have published Texas case law and knowing the reporters and their coverage makes accessing older Texas case law easier. Court rules guide the courts and understanding which rules apply to which courts is imperative. A.

Structure of Texas Courts

As of September 1, 2014, the Texas judiciary has 2,720 courts and 2,809 judges. 5 7 The Texas Judicial Branch website" 8 provides an overview of the Texas court system including the following graphic representation of the current court structure:159

157. Texas Courts: A Descriptive Summary, supra note 4, at 2-3. 158. TEX. JUD. BRANCH, http://www.txcourts.gov/ (last visited Aug. 18, 2016). 159. Court Structure of Texas, TEX. JUD. BRANCH (Sept. 1, http://www.txcourts.gov/media/1435975/court-structure-chart-sept-2016.pdf.

2016),

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SOUTH TEXAS LA wREVIEW

Find tppellate jrisdiction in rivi andjuvenie

* Fia F appell laiejoridction in rin tas n idcse tjrdiio

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* 13 district courts aredesignated cirivia distric courts; some others are directed to give preference to certain specidiazed

areas * 367 districtscrntaing one ctoey and 98distcscomaining more than oe county

Constitutional County Courts (254) (l in eacth county) * Origind jurisdiction in civil actions berween $200 and '10,000

* Probate(contested matters may be transferredto District Court)

Statutory County Court s (243) (in as Ctuntiesplus I nttlti-tountycoult)

* All civi, crimind, original and

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probate matters

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* Exclusive aigind jurisdiction over maindeneanors wthfines greater * In additions jurisdiction over cii matters between 200 and than $500 or jail sentence $20,000 (some courts may hate * Juvenile matters higher maimurmjurisdiction *Appeedsdenavo from awer courts anount) or on the recordfrom municipal coutsofrecord

* Criminal misdemean orntidaleobyline only (no confinement) * Civil actionsof notmorethan 10,000 * Smal claims

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* Criminal misclmeanorspunishatleby fine an norcofirement) Exclusive orighid jurisdiction over

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In addition to appellate and district courts, Texas is served by a variety of county courts, justice courts, and municipal courts. Municipal and justice courts are local trial courts with limited jurisdiction and are the most numerous trial courts in Texas, with over 900 municipal courts and over

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800 justice courts.160 Under its authority to create such other courts as may be necessary, the Texas legislature has created municipal courts in each of Texas's incorporated cities, with larger cities often having multiple courts.

These courts have original and exclusive jurisdiction over violations of city ordinances and, within the city limits, have concurrent jurisdiction with justice of the peace courts over misdemeanor criminal cases where 62 the punishment upon conviction is by small fine only.' The Texas Constitution requires that each county establish between one and eight justice of the peace precincts, depending upon the population of the county with either one or two justice of the peace courts in each precinct. 163 Justice of the peace courts have original jurisdiction in misdemeanor criminal cases where punishment is by fine only, exclusive jurisdiction in civil matters when the amount in controversy does not exceed $200, and concurrent jurisdiction with the county courts when the amount in controversy does not exceed $10,000 (excluding cases where the district or county court have exclusive jurisdiction).' 64 The Texas Constitution provides for a county court in each of the 65 254 counties of the state, known as constitutional county courts.' The constitutional county courts have exclusive original jurisdiction over misdemeanors where punishment for the offense is a fine exceeding $500 or a jail sentence up to one year; concurrent jurisdiction with justice of the peace courts in civil cases where the matter in controversy exceeds $200 but does not exceed $10,000; concurrent jurisdiction with the district courts in civil cases where the matter in controversy exceeds $500 but does not exceed 66 $5,000; general jurisdiction over probate cases; and juvenile jurisdiction.' Because the Texas Constitution provides for only a single county court for each county, "the legislature has created statutory county courts at law in more populous counties."' 67 The legal jurisdiction of the special county-level trial courts varies considerably and is established by the statute which creates the particular court.1 6 8 Similar to the statutory county courts at law, the legislature has created specialized probate courts to exclusively hear probate matters in more populous counties. Statutory probate courts are located in ten counties and 160.

Id.

TEX. CONST. art. V, § 1. 161. TEX. Gov'T CODE ANN. § 29.003 (West 2004). 162. TEX. CONST. art. V, § 18. 163. Id. § 19; GOV'T § 27.031. 164. TEX. CONST. art. V, § 15. 165. See Gov'T §§ 26.041-.052. 166. About Texas Courts: Trial Courts, TEX. JUD. BRANCH, http://www.txcourts.gov/about167. texas-courts/trial-courts.aspx (last visited Oct. 16, 2016). See Gov'T § 25.0003. 168.

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have original and exclusive jurisdiction over their counties' probate matters, guardianship cases, and mental health commitments.169 District courts are the trial courts of general jurisdiction in Texas.170 The legislature establishes the geographical area of each court.17 ' Every county must be served by at least one district court. 172 However, in rural areas, several counties may be served by a single district court, while in more populous areas, a single county may be served by many district courts. 7 1 There are fourteen courts of appeals in Texas. 174 The courts of appeals have intermediate appellate jurisdiction in both civil and criminal cases appealed from district or county courts. 75 Each court of appeals has jurisdiction in a specific geographical region of the state, although there is geographic overlap between some courts of appeals, as discussed in the following section.176 Each court is presided over by a chief justice and has at least two other justices.17 7 The specific number of justices on each court is set by statute and ranges from three to thirteen." B.

Unique Aspects of the Texas CourtStructure

Texas has two high courts. The only other state with a similar high court structure is Oklahoma. 179 The Texas Supreme Court has exclusive jurisdiction over final civil appellate matters 8 o and the Court of Criminal Appeals has exclusive jurisdiction over final criminal appellate matters."' The fourteen courts of appeals have jurisdiction over intermediate civil and criminal appeals. 82 However, this was not always the case. The Texas Constitution of 1876 created the Court of Appeals, which originally had appellate jurisdiction in all criminal cases and select civil cases."' In 1891, a constitutional amendment removed all civil juris-

169. Id. § 25.0021. 170. See TEX. CONST. art. V, § 8. 171. See Gov'T §§ 24.101-276. 172. About Texas Courts: Trial Courts, supra note 167. 173. Id. 174. Gov'T § 22.201. 175. Texas Courts: A Descriptive Summary, supra note 4, at 8. 176. Gov'T § 22.220(a), (o); infra Part V.E. 177. Id. §§ 22.202-.215. 178. Id. 179. Lucko, supra note 3. 180. TEX. CONST. art. V, § 3; Gov'T § 22.001. 181. TEX. CONST. art. V, § 5. 182. Id. § 6 (excluding capital criminal cases, which are appealed directly to the Criminal Court of Appeals). 183. Ben L. Mesches, Bifurcated Appellate Review: The Texas Story of Two High Courts, JUDGES' J., Fall 2014, at 30, 30; see Texas Courts:A Descriptive Summary, supra note 4, at 7.

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diction from the court and changed its name to the Court of Criminal Appeals.184 The 1891 constitutional amendment also created new intermediate Courts of Civil Appeals. 18 s From 1892 to 1980, Texas intermediate courts handled only civil matters."' During that time all criminal matters were appealed directly to the Court of Criminal Appeals.187 Eventually, this structure caused an overwhelming caseload, prompting legislative action to decrease the burden on the Court of Criminal Appeals.188 In 1981, a constitutional amendment created the current fourteen intermediate courts known as the courts of appeals.1 8 9 The courts of appeals have civil and criminal jurisdiction in all matters except death penalty cases. 190 Death penalty cases are appealed directly to the Court of Criminal Appeals.1 9 HistoricCase Reports

Although West's South Western Reporter is the most common source for published Texas appellate case law, this was not always the case. As the court structure has changed since 1846, so have the reporters publishing Texas case law. The reporters discussed below were the official reporters for their respective courts. Texas Reports - From 1846 until 1962, Texas Reports was the official reporter for Texas Supreme Court opinions.192 Texas Reports ceased publication in 1962 and Texas has not had a designated official reporter since then.1 93 Some local rules may still require parallel citation to both the Texas Reports and the South Western Reporter for cases from 1886 (first year of South Western Reporter) to 1962.194 LLMC Digital, a subscription database of historic legal materials, includes from volume 1 (1846) to volume 113 (1924) of Texas Reports.'9 5 Select volumes of Texas Reports are available through University of North Texas's Portal to Texas History.19 6

184. 185. 186. 187. 188. 189. 190.

Texas Courts: A Descriptive Summary, supra note 4, at 7. Id. at 8. Id. Id. at 7. Id. Id. at 8. Id. at 7.

191.

Id.

192.

THE GREENBOOK: TEXAS RULES OF FORM, supra note 11, R 2.3.

193. Id. 194. Id. Description and Holding Information: 1846-, Texas Supreme Court Reports, LLMC 195. (last DIGITAL, http://www.11c.com/titledescfull.aspx?type=6&coll-47&div-188&set-80817 visited Oct. 27, 2016). PORTAL TO TEX. HIST., http://texashistory.unt.edu/search/?fq=strjtitle-serial:Texas 196. %20reports (last visited Oct. 27, 2016).

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Texas Court of Appeals Reports/Texas Criminal Reports - From 1876 to 1892, criminal opinions from the Court of Appeals were published in the Texas Court of Appeals Reports.1 97 With the change in the court structure in 1892 described above, Texas Criminal Reports became the official reporter for Texas Court of Criminal Appeals opinions. 98 Although the title changed in 1892, the numbering of the volumes runs through both series. Volumes 1 through 30 are Texas Court of Appeals Reports, and volume 31 starts the Texas Criminal Reports. Furthermore, "Texas Criminal Reports ceased publication in 1962," and the Court of Criminal Appeals has not had an official reporter since then.1 99 LLMC Digital includes Texas Court ofAppeals Reports from volume 1 (1876) to 30 (1892), and Texas CriminalReports from volume 31 (1892) to volume 96 (1923).200 Texas Civil Appeals Reports - From 1892 to 1911, Texas Civil Appeals Reports was the official reporter for Texas courts of appeals opinions. 2 0 ' These cases were also published in West's South Western Reporter, and publication of the official court of appeals reporter was discontinued in 1911.202 LLMC Digital includes the entire run of Texas Civil Appeals Reports from volume 1 (1892) to volume 63 (1911).203 D.

Court ofAppeals Opinions

The courts of appeals must hand down a written opinion in every case. Opinions "must be designated as either an 'opinion' or a 'memorandum opinion."'2 05 The Texas Rules of Appellate Procedure provide guidance for determining whether an opinion will be issued as an "opinion" or a "memorandum opinion." 2 06 Generally, if the issues of law are well settled, "the court should write a brief memorandum opinion no longer than necessary to advise the parties of the court's decision and the basic reasons for it." 207 The only opinions that should be designated as "opinions" are those that (1) establish 204

197.

THE GREENBOOK: TEXAS RULES OF FORM, supra note 11, app. B.

198.

See id. R. 3.3; Texas Courts: A Descriptive Summary, supra note 4, at 7.

199.

THE GREENBOOK: TEXAS RULES OF FORM, supra note 11, R. 3.3.

200. LLMC DIGITAL, http://llmc.com/browse.aspx?type=6&coll=47&div-188 Oct. 27, 2016). 201.

(last visited

THE GREENBOOK: TEXAS RULES OF FORM, supra note 11, R. 4.2.2.

202. See id. 203. Description and HoldingInformation: 1892-1911, Texas Civil Appeals Reports, LLMC DIGITAL, http://llmc.com/titledescfull.aspx?type=6&coll=47&div-188&set-84209 (last visited Oct. 27, 2016). 204. TEX. R. APP. P. 47.1. 205. Id. R. 47.2. 206. Id. R. 47.4. 207. Id.

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a new rule of law, alter, or modify an existing rule, or apply an existing rule to a novel fact situation likely to recur in future cases; (2) involve issues of constitutional law or other legal issues important to the jurisprudence of Texas; (3) criticize existing law; or (4) resolve an apparent conflict of authority.208 All opinions in civil cases issued after January 1, 2003, have precedential value. 20 9 Prior to January 1, 2003, court of appeals opinions in civil cases could be designated "do not publish." 2 10 Opinions issued before January 1, 2003, and designated "do not publish" have no precedential value but may be cited with the notation, "not designated for publication."211 In criminal cases, every opinion and memorandum opinion "must bear the notation 'publish' or 'do not publish' as determined ... by a majority of the justices considering the case" before the opinion is handed down.2 12 "The Court of Criminal Appeals may, at any time, order that a 'do not publish' notation be changed [to] 'publish." 213 Criminal case opinions designated as "do not publish" have no precedential value but may be cited with the notation, "not designated for publication," following the full citation.2 14 E.

The GeographicalOverlap of the Firstand Fourteenth Courts of Appeals

A unique aspect of the Texas courts of appeals is the overlapping geographic coverage of the First and Fourteenth courts of appeals. The First and Fourteenth Courts share concurrent jurisdiction over Austin, Brazoria, Chambers, Colorado, Fort Bend, Galveston, Grimes, Harris, Waller, and Washington counties. 2 15 The courts are located in the same building and share a central clerk's office in Houston. 2 16 All civil and criminal cases assigned to this district are randomly assigned to one of the courts. 217 The clerks of the First and the Fourteenth Courts may "equalize the dockets of the two courts by transferring cases from one court to the other." 218 Further,

208.

Id.

209. 210. 211. 212. 213. 214. 215. 216. 217. 218.

THE GREENBOOK: TEXAS RULES OF FORM, supra note 11, R. 4.1.2(a). TEX. R. APP. P. 47.2(c). Id. R. 47.7(b). Id. Id. Id. R. 47.7(a). TEX. Gov'T CODE ANN. § 22.201(a), (o) (West 2004). Id. § 22.202(f). Id. § 22.202(h). Id. § 22.202(i).

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related cases can be assigned or transferred to the other court of appeals either by a party's motion or by the court itself.219 While the First and Fourteenth Courts of Appeals have the greatest overlap, there are other appellate courts with geographic overlap. Gregg, Rusk, Upshur, and Wood counties are in the jurisdictions of the Sixth and Twelfth Courts of Appeals, 220 while Hunt County is in the jurisdiction of the Fifth and Sixth Courts.221 While the legislature has resolved several other geographic overlaps, 222 the overlapping jurisdiction of the appellate courts can lead to forum shopping and confusion over governing law when there are conflicts between the courts of appeals. A researcher in Texas must be aware that more than one court of appeals may have jurisdiction over a case depending upon the county. F.

PetitionHistory

Pursuant to The Greenbook Rule 4.1.1, a citation to a Texas court of appeals decision must include a notation showing the Texas Supreme Court's disposition of the case.223 For civil cases filed on or after September 1, 1997, the disposition of a case is referred to as "petition history" and for civil cases filed before September 1, 1997, this is referred to as "writ history."22 4 In addition to informing researchers how the Texas Supreme Court disposed of the case, this history can inform researchers of the precedential value of a case. The current notations for petition history are: Petition refused - The most important notation to be aware of is "petition refused." This means that the Texas Supreme Court has determined that the court of appeals opinion is correct and the legal principles announced in the opinion are also correct. 225 The court of appeals opinion has the same precedential value as a Texas Supreme Court opinion and binds the other courts of appeals.226 Petition denied - The Texas Supreme Court will deny the petition with the notation "petition denied" if "the Supreme Court is not satisfied that the opinion of the court of appeals has correctly declared the law in all

219. 1st Tex. App. (Houston) Loc. R. 1.5(a). 220. GOV'T § 22.201(g), (m). 221. Id. § 22.201 (f), (g). 222. Act of May 1, 2003, 78th Leg., R.S., ch. 44, § 1, 2003 TEX. GEN. LAWS 81 (codified at TEX. Gov'T CODE ANN. § 22.201(b), (o)) (removing Brazos County from the jurisdiction of the First and Fourteenth courts of appeals, leaving exclusive jurisdiction with the Tenth court of appeals). 223. THE GREENBOOK: TEXAS RULES OF FORM, supranote 11, R. 4.1.1. 224. Id. R. 4.4.1-4.4.2. 225. Id. app. D. 226. TEX. R. APP. P. 56.1(c).

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respects, but determines that the petition presents no error that requires reversal or that is of such importance to the jurisprudence of the state as to require correction." 2 27 Petition struck - Without reviewing the merits, the Texas Supreme Court may strike petitions that do not conform to the Rules of Appellate Procedure, discussed further below, and can either "require the document to be revised or may return the document to the party who filed it and consider the case without allowing the document to be revised." 22 8 Petition dismissed - Without reviewing the merits, the Texas Supreme Court may dismiss a petition for failure to follow any of the Rules of Appellate Procedure.229 Petition dismissed by agreement of the parties - By filing a signed agreement with the clerk, the parties can have the petition dismissed.23 0 Petition granted and judgment vacated without reference to the merits - "If a case is settled by agreement of the parties and the parties [request], the [Texas] Supreme Court may grant the petition if it has not already been granted and, without hearing argument or considering the merits, render a judgment to effectuate the agreement." 23 Petition dismissed for want of jurisdiction - "If the [Texas] Suthe petition with the notapreme Court lacks jurisdiction, [it] will dismiss 23 2 tion 'Dismissed for Want of Jurisdiction."' Petition withdrawn - Without reviewing the merits of the case, the Texas Supreme Court can dismiss an appeal in accordance with the motion of the appellant.233 Petition abated - The appeal is suspended due to a bankruptcy filing.234 Petitionfiled - "Petition has been timely filed, but the [Texas Supreme] Court has taken no action on [the appeal]."235 Petition pending - Petition has been filed and the Texas Supreme Court has requested briefing, but has not granted the petition.2 36 No petition history - "No petition has been filed, but the time for filing [a petition] has not [expired]."2 37

227. Id. R. 56.1(b)(1). 228. Id. R. 53.9. 229. See id. R. 60.6. 230. See id. R. 42.1(a)(2). 231. Id. R. 56.3. Id. R. 56.1(b)(2). 232. Id. R. 42.1(a)(1). 233. Id. R. 8.2. 234. 235. THE GREENBOOK: TEXAS RULES OF FORM, supra note 11, app. D; see also TEX. R. APP. P. 53.7(a) (providing deadlines for filing a petition with the Texas Supreme Court). 236. See Blake A. Hawthorne, Supreme Court of Texas Internal Operating Procedures, in STATE BAR OF TEXAS, PRACTICE BEFORE THE TEXAS SUPREME COURT ch. 2, at 16 (2015).

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No petition - "No petition has been filed, and the time for filing a petition has expired." 2 38 Petition granted-The Texas Supreme Court will consider the case on the merits.23 9 Similarly, The Greenbook Rule 4.5 requires petition history for criminal caseS2 40 and provides the appropriate abbreviations for criminal case petition history.24 1 Writ and petition history information can be determined using citators such as Lexis Advance's Shepard's and Westlaw's KeyCite. The Texas Subsequent History Table was the traditional print source for writ and petition history for Texas court of appeals opinions reported in the South Western Reporter, but Thomson Reuters ceased publication of the Texas Subsequent History Table with the publication of the 2014 edition.242 G.

Texas Digest and Texas Digest, 2d

West's Texas Digest, 2d, is the current print digest for Texas state and federal court decisions and provides coverage from 1935 to date. 243 As with other West/Thomson Reuters published digests, the topics are listed in alphabetical order and the Key Numbers within those topics are listed in numerical order.244 Texas Digest provides coverage of Texas state and federal court decisions from 1840 to the late 1970s or early 1980s depending on the specific volume. 245 This set is useful for historical case research from 1840 to 1935. H.

Court Rules

The Texas Constitution empowers the Supreme Court of Texas to make and enforce all necessary rules of civil trial practice and procedure, evidence, and appellate procedure, and to promulgate rules of administration to provide for the efficient administration of justice. 2 46 As part of their 237.

THE GREENBOOK: TEXAS RULES OF FORM, supra note 11, app. D; see also TEX. R.

APP. P. 53.7(a) (providing deadlines for filing a petition to the Texas Supreme Court). 238. THE GREENBOOK: TEXAS RULES OF FORM, supra note 11, app. D. 239.

Id.

240.

Id. R. 4.5.

241.

Id.; THE GREENBOOK: TEXAS RULES OF FORM, supra note 11, app. F.

Solutions to the End of the Texas Subsequent History Table, FRED PARKS L. LIBR. (June 4, 2015), http://thefredparkslawlibrary.blogspot.com/2015/06/solutions-to-end-of-texassubsequent.html. 243. West's Texas Digest, 2d (Key Number Digest®), THOMSON REUTERS, http://legalsolutions.thomsonreuters.com/law-products/Digests/Westsreg-Texas-Digest-2d-KeyNumber-Digestreg/p/100028354 (last visited Oct. 31, 2016). 244. Id. 245. Id. 246. TEX. CONST. art. V, § 31. 242.

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court administration powers, the Supreme Court of Texas supervises the State Bar of Texas, the licensing and the discipline of attorneys, and the licensing of court reporters.24 7 The Texas legislature has delegated to the Court of Criminal Appeals the power to promulgate rules of criminal evidence and criminal appellate procedure. 2 48 The legislature retains responsibility to write rules of criminal trial procedure, and the Code of Criminal Procedure, part of the Texas statutes, covers the conduct of criminal trials in Texas.24 9 1.

Texas Rules of Civil Procedure

The Texas Rules of Civil Procedure were originally promulgated by the Texas Supreme Court in 1940 and effective in 1941.250 The rules combined parts of the new 1938 Federal Rules of Civil Procedure and existing Texas procedural provisions from the Revised Civil Statutes. 251 The rules have been amended numerous times since their adoption with extensive changes to the discovery rules in 1999.252 2.

Texas Rules ofAppellate Procedure

In 1986, the rules governing appellate procedure were removed from the Texas Rules of Civil Procedure and the new Texas Rules of Appellate Procedure were promulgated. 253 The new rules originally only covered civil appeals.254 In 1997, the Texas Supreme Court, in conjunction with the Court of Criminal Appeals, promulgated an entirely new set of Rules of Appellate Procedure that incorporated criminal appellate procedure and heavily revised civil appellate procedure.255 3.

Texas Rules ofEvidence

In 1983, the Texas Supreme Court promulgated Rules of Civil Evidence, replacing numerous statutory provisions.2 5 6 In 1997, the Texas Su-

247. See TEX. Gov'T CODE ANN. § 81.011 (West 2013). 248. Id. §§ 22.108-109. 249. See id.; see, e.g., TEX. CODE CRIM. PROC. ANN. arts. 1.01-2.31 (West 2005 & Supp. 2016). 250. William V. Dorsaneo, III, The History of Texas Civil Procedure, 65 BAYLOR L. REV. 713, 737 (2013). 251. Id. 252. See id. at 802. 253. Id. at 795-96. 254. Id. at 794-95. 255. Id. at 796-97. 256. Id. at 792-93.

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preme Court and the Court of Criminal Appeals jointly promulgated new Rules of Evidence to govern both civil and criminal cases.25 Court rules can be located in many different places. Unannotated versions of the rules are available on the Texas Judicial Branch website.25 8 Vernon's Texas Rules Annotated provides the text of the rules along with extensive annotations. Jones McClure publishes a number of O'Connor's publications that provide court rules with select annotations. For example, O'Connor's Texas Rules: Civil Trials includes Texas Rules of Civil Procedure, Texas Rules of Evidence, and Texas Rules of Appellate Procedure with select annotations.259 Jones McClure also publishes Texas Rules of Evidence Handbook which provides the text of the Texas Rules of Evidence along with in-depth commentary on each rule.260 In addition to the statewide rules promulgated by the Texas Supreme Court and the Court of Criminal Appeals, individual courts, including appellate courts, district courts, and county courts, promulgate local rules. 2 6 1 Local rules often provide guidance to attorneys on topics such as setting cases, rules of decorum, electronic filing, and preparing drafts of orders and judgments, and can be quite extensive. I.

Texas JudicialBranch Website

The Texas Judicial Branch website is the official website for the Texas court system and provides links to the official websites for the Supreme Court, Court of Criminal Appeals, and the courts of appeals.262 The website provides access to the Texas Judicial Directory, which is both a print publication and online accessible database that provides contact information for every court and judge in the state.2 63 In addition to the Texas Supreme Court and Court of Criminal Appeals websites, the Texas Judicial Branch website also hosts the websites of the fourteen courts of appeals.2 64 While the dates of coverage vary, these websites also include opinions, dockets, and selected oral arguments.2 65 The Id. at 793. 257. Rules & Forms, TEX. JUD. BRANCH, http://www.txcourts.gov/rules-forms/rules258. standards.aspx (last visited Aug. 18, 2016). See generally MICHOL O'CONNOR, O'CONNOR'S TEXAS RULES: CIVIL TRIALS (2016). 259. See generally JEFF BROWN & REECE RONDON, TEXAS RULES OF EVIDENCE 260. HANDBOOK (2016).

TEX. R. APP. P. 1.2.; TEX. R. JuD. ADMIN. 10, reprinted in TEX. GOV'T CODE ANN., tit. 261. 2, subtit. F app. (West 2013). TEX. JUD. BRANCH, supra note 158. 262. JudicialDirectory, TEX. JUD. BRANCH, http://www.txcourts.gov/judicial-directory.aspx 263. (last visited Aug. 18, 2016). TEX. JuD. BRANCH, supra note 158. 264. Id. (select drop-down box "Courts"; then follow "[District] Court of Appeals" hyperlink 265. for desired court of appeals information).

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Texas Judicial Branch website also provides access to judicial statistics and other judicial publications.266 The Texas Supreme Court's website includes Texas Supreme Court opinions since October 1997, dockets of Texas Supreme Court cases since 1984, and Texas Supreme Court briefs since 1999.267 Streaming videos of oral arguments before the Texas Supreme Court since March 2007 are available through the State Bar of Texas website.26 8 The Court of Criminal Appeals' website includes Court of Criminal Appeals opinions and orders since 2003 with selective coverage to 1980 and dockets of Texas Court of Criminal Appeals cases since 1980.269 This overview of the Texas court system along with information about reporters and court rules should provide a solid foundation for understanding Texas courts. VII. REGULATIONS, TEXAS REGISTER, AND TEXAS ADMINISTRATIVE CODE While the Texas legislature meets only biennially for a limited period of time, the function of Texas's government goes on while it is not in session. 270 State agencies are often tasked with implementing or interpreting the statutes that the legislature passes during session.27 1 Regulations in Texas are promulgated pursuant to the Texas Administrative Procedure Act.272 The purpose of the Texas Administrative Procedure Act is to "(1) provide minimum standards of uniform practice and procedure for state agencies; (2) provide for public participation in the rulemaking process; and (3) restate the law of judicial review of state agency action." 273 The Texas Administrative Procedure Act defines a rule as "a state agency statement of general applicability that: (i) implements, interprets, or prescribes law or policy; or (ii) describes the procedure or practice require-

266. Id. (select drop-down box "Courts"; then follow "Judicial Data" or "Publications Trainings" drop-down box for desired information). 267. Supreme Court, TEX. JUD. BRANCH, http://www.txcourts.gov/supreme.aspx (last visited Aug. 18, 2016) (follow the "Orders & Opinions" and "Electronic Briefs" links for desired information). 268. Texas Supreme Court Oral Arguments and Meetings, TEX. B. CLE, http://www.texasbarcle.com/CLE/TSC.asp (last visited Aug. 18, 2016). 269. Court of CriminalAppeals, TEX. JuD. BRANCH, http://www.txcourts.gov/cca.aspx (last visited Aug. 18, 2016). 270. Frequently Asked Questions, TEX. HOUSE REPRESENTATIVES, http://www.house.state.tx.us/resources/frequently-asked-questions/#how leg (last visited August 18, 2016). 271. See TEX. GOv'T CODE ANN. § 2001.001 (West 2008). 272. See id. § 2001.002 (noting short title is the Administrative Procedure Act). 273. Id. § 2001.001.

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ments of a state agency. "274 Rules include "the amendment or repeal of a prior rule" but do not include "statement[s] regarding only the internal management or organization of a state agency" that does not affect "private 6 rights or procedures." 2 75 Except in the case of an emergency, 27 at least thirty days' notice is required before a state agency can adopt a rule and the agency must file notice of a proposed rule with the secretary of state for publication.2 77 The notice must include (1) a brief explanation of the proposed rule; (2) the text of the proposed rule . . (3) a statement of the statutory or other authority under which the rule is proposed to be adopted . . (4) a fiscal note . . (5) a note about public benefits and costs. . . (6) [a] local employment impact statement . .. if required; (7) a request for comments on the proposed rule from any interested person; and (8) any other statement required by law.278 Before adopting a rule, a state agency has to provide an opportunity for all interested persons to "submit data, views, or arguments, orally or in writing" and must "consider fully all written and oral submissions about a proposed rule."2 79 A state agency order adopting a final rule must include "a reasoned justification for the rule as adopted," including a "summary of comments received .. . a summary of the factual basis for the rule as adopted . . [and] the reasons why the agency disagrees with submissions received," along with "a concise restatement of the particular statutory provisions under which the rule is adopted" and "a certification that the rule . .. has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority."2 80 Notices filed with the secretary of state are published in the Texas Register. Texas Register serves as Texas's official journal of state agency rulemaking. 281 It was first published in 1976 and is now published weekly on Fridays.2 82 The Texas Register publishes notices of proposed rules filed with the office of the secretary of state ... ; the text of rules adopted and filed in the office of the secretary of state; notices of open meetings issued and filed in the office of the secretary of state . . . ; executive orders issued by the governor; Id. § 2001.003(6)(A). 274. 275. Id. § 2001.003(6). Id. § 2001.034. 276. Id. § 2001.023. 277. Id. § 2001.024(a). 278. Id. § 2001.029(a), (c). 279. Id. § 2001.033(a). 280. TEX. Section, Texas Register the 281. About http://www.sos.state.tx.us/texreg/about.shtml (last visited Aug. 18, 2016). Id. 282.

SECRETARY

ST.,

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summaries of requests for opinions of the attorney general and of the Texas Ethics Commission; [and] summaries of opinions of the attorney general and of the Texas Ethics Commission . . . ."283 The secretary of state is required to make the full text of the Texas Register available to the public through the Internet at no charge.284 The secretary of state's website provides the fastest access to the Texas Register since it is required by statute to be made available on its publication date.2 85 The secretary of state's website provides either full page PDF images or html versions available on the day of release.2 86 The Texas Register is available for approximately one year through the secretary of state's website.287 Additionally, the University of North Texas's Portal to Texas History maintains a historical archive of the Texas Register from its first publication in 1976.288 The secretary of state publishes the Texas Administrative Code, a compilation of state agency rules in Texas. 28 9 The Texas Administrative Code is organized into titles with each title representing a subject category. Currently, the Texas Administrative Code consists of the following sixteen non-sequentially numbered titles: Title 1 Administration Title 4 Agriculture Title 7 Banking and Securities Title 10 Community Development Title 13 Cultural Resources Title 16 Economic Regulation Title 19 Education Title 22 Examining Boards Title 25 Health Services Title 28 Insurance Title 30 Environmental Quality Title 31 Natural Resources and Conservation Title 34 Public Finance Title 37 Public Safety and Corrections

283. Gov'T § 2002.011. 284. Id. § 2002.0151. 285. See id. 286. See generally Issue of the Texas Register, TEX. SECRETARY ST., http://www.sos.state.tx.us/texreg/pdf/currview/index.shtml (last visited Oct. 28, 2016). 287. See generally Back Issues of the Texas Register, TEX. SECRETARY ST., http://www.sos.state.tx.us/texreg/pdf/backview/index.shtml (last visited Oct. 28, 2016). 288. Texas Register, PORTAL TO TEX. HIST., http://texashistory.unt.edu/explore/collections/TR/ (last visited Sept. 28, 2016). 289. TEX. Gov'T CODE ANN. § 2002.051 (West 2008).

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Title 40 Social Services and Assistance Title 43 Transportation 290 Based upon subject area, agency rules are assigned to an appropriate title. For example, the Texas State Library and Archives Commission rules are in Title 13-Cultural Resources, while the Texas Parks and Wildlife Department rules are in Title 31-Natural Resources and Conservation.2 91

The Texas Administrative Code was first published in 1979.292 The secretary of state is required to provide online access to the current version of the Texas Administrative Code at no cost.2 93 The secretary of state's website provides for historical versions of agency rules in effect or adopted since January 1, 1999.294 This coverage predates commercial vendors as Lexis Advance has historic versions of the Texas Administrative Code starting from 2004 and Westlaw has coverage starting from 2002. A unique feature of the Texas Register is the entire text of final rules is not reprinted when the rule is adopted if there are no changes from the proposed rule.2 95 This means that although the Texas Administrative Code provides a citation to the final rule, the text of the rule is generally not shown at that citation. Instead, the final rule has to be reviewed in order to determine when the rule was proposed and then the issue of the Texas Register with the proposed rule must be reviewed for actual text of the rule. VIII. ATTORNEY GENERAL OPINIONS

The attorney general is charged with many tasks including defending the Texas Constitution and the laws of Texas and representing the state in litigation.2 96 Part of fulfilling these responsibilities involves serving as general counsel for the governor, the legislature, and the agencies of the state. 2 97 As provided by statute, the attorney general issues opinions when 298 The attorney general is requested by officers and agencies of the state.

290. Texas AdministrativeCode, OFF. SECRETARY ST., http://texreg.sos.state.tx.us/public/readtac$ext.viewtac (last visited Dec. 26, 2016). 13 TEX. ADMIN. CODE § 1.21 (2016) (Tex. State Library & Archives Comm'n, State 291. Plan for the Library Services and Technology Act in Texas); 31 TEX. ADMIN. CODE (2016) (Tex. Parks & Wildlife Dep't, Content and Submission of Petitions for Rulemaking). See generally 1 TEX. ADMIN. CODE (1979). 292. Gov'T § 2002.057. 293. ST., SECRETARY OFF. Code, Administrative Texas 294. http://texreg.sos.state.tx.us/public/tacctx$.startup (last visited Aug. 18, 2016). See Gov'T §§ 2001.033, 2002.011-013. 295. See TEX. CONST. art. IV, § 22; Gov'T § 402.021. 296. See TEX. CONST. art. IV, § 22. 297. Gov'T § 402.042. 298.

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prohibited by statute from giving a written opinion to anyone other than an authorized requestor.299 The state and local officials who are authorized to request formal attorney general opinions on questions of law are: (1) the Governor; (2) the head of a department of state government; (3) a head or board of a penal institution; (4) a head or board of [specific charitable] institution[s]; (5) the head of a state board; (6) a regent or trustee of a state educational institution; (7) a committee of a house of the [Texas] legislature; (8) a county auditor authorized by law; or (9) the chairman of the governing board of a river authority. 00 A written request for an opinion must be submitted to the attorney general, and generally the attorney general must issue an opinion within 180 days after the request was submitted.30 The Opinion Committee, composed of a group of assistant attorneys general, conducts research and drafts responses for the attorney general.302 These opinions, while not binding, are considered very persuasive by Texas courts when interpreting state laws.303 Opinions (formerly known as formal opinions) address issues that will be of interest to people throughout the state. Formal opinions are numbered by initials of the attorney general and numbered in sequence of issuance. For example, Opinion GA-123 is the 123rd opinion issued during Greg Abbott's tenure as attorney general.304 Letter opinions deal with noncontroversial issues or those that impact a particular group, are local in nature, and do not require a meeting of the Opinion Committee.30 5 Beginning on January 4, 1999, the attorney general's office stopped issuing letter opinions.306 While their use has been dis299. Id. § 402.045. 300. Id. § 402.042(b). 301. Id. § 402.042(c)(2). 302. About Attorney General Opinions, ATT'Y GEN. TEX., https://www.texasattorneygeneral.gov/opinion/about-attorney-general-opinions (last visited Aug. 18, 2016). 303. Guerra v. McClellan, 250 S.W.2d 241, 243 (Tex. Civ. App.-San Antonio 1952), aff'd, 258 S.W.2d 72 (Tex. 1953). 304. Tex. Att'y Gen. Op. No. GA-0123 (2003); see generally About Attorney General Opinions, supra note 302. 305. Attorney General Opinions, TEX. ST. L. LIBR., https://www.sll.texas.gov/lawlegislation/texas/attomey-general-opinions/ (last updated July 9, 2015); cf About Attorney General Opinions, supra note 302 (requiring the Opinion Committee's involvement only in formal attorney general opinions). 306. About Attorney General Opinions, supra note 302.

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continued, "[a] letter opinion has the same force and effect as a formal Attorney General Opinion, and represents the opinion of the Attorney General unless and until it is modified or overruled by a subsequent letter opinion, a formal Attorney General Opinion, or a decision of a court of record."30 7 The best source for accessing Attorney General Opinions is the attorney general's website.308 The website provides PDF images of all opinions since 1939 and letter opinions since 1953,309 along with PDF images of all requests for opinions since 1991.310 The attorney general's website also includes a list of overruled, modified, affirmed, and withdrawn opinions. I IX. LEGAL ETHICS

Professional conduct of state bar members is governed by the Texas Disciplinary Rules of Professional Conduct. 312 The current version of the disciplinary rules was adopted in 1989 and became effective January 1, 1990.313 The Texas Rules of Disciplinary Procedure establish the procedures to be used in the professional disciplinary system for attorneys who violate Disciplinary Rules of Professional Conduct in the State of Texas.3 14 The current version of the Texas Rules of Disciplinary Procedure was adopted in 1991 and became effective May 1, 1992.315 The Texas Committee on Professional Ethics "consists of nine members of the [Texas] bar appointed by the [Texas] Supreme Court."316 The committee renders opinions on professional conduct either on its own initiative or at the request of a Texas bar member. 17 It is the only entity that, with authority from the Texas Supreme Court, may issue written ethics opinions.' "Committee opinions are not binding on the Texas Supreme 307. Attorney General Opinions, supra note 302 (citing 19 TEX. REG. 8089 (1994)). See ATT'Y GEN. TEX., https://www.texasattorneygeneral.gov/ (last visited Aug. 18, 308. 2016). TEX., GEN. ATT'Y Opinions, to Index 309. https://www.texasattomeygeneral.gov/opinion/index-to-opinions (last visited Aug. 18, 2016). 310. See Requests for Opinion (RQs), ATT'Y GEN. TEX., https://www.texasattomeygeneral.gov/opinion/requests-for-opinion-rqs (last visited Aug. 18, 2016). 311. Opinions Overruled, Modified, Affirmed, Withdrawn, ATT'Y GEN. TEX., https://www.texasattomeygeneral.gov/opinion/opinions-overruled-modified-affirmed-withdrawn (last visited Aug. 18, 2016). 312. See generally TEX. DISCIPLINARY RULES PROF'L CONDUCT, reprinted in TEX. Gov'T CODE ANN., tit. 2, subtit. G, app. A (West 2016) (TEX. STATE BAR R. art. X, § 9) (providing Texas's Disciplinary Rules of Professional Conduct). 313. Id. 314. TEX. RULES DISCIPLINARY P. R. 365, reprintedin TEX. Gov'T CODE ANN., tit. 2, subtit. G app. A-1 (West 2016). 315. Id. TEX. Gov'T CODE ANN. § 81.091(a) (West 2013). 316. 317. Id. § 81.092(a). 318. See id. § 81.011.

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Court." 319 Instead, the purpose is to provide guidance where professional discretion is required and to aid attorneys in avoiding grievance complaints under the Texas Disciplinary Rules of Professional Conduct.320 Opinions of the Professional Ethics Committee have been pubin lished the Texas Bar Journalsince 1972.321 Prior to 1972, the opinions of its predecessor, the Committee on Interpretation of the Canons of Ethics, were published in the Baylor Law Review.3 22 Texas Center for Legal Ethics provides access to all Texas ethics opinions along with current versions of Texas ethics rules.323 X.

MUNICIPAL CODES

The resolution of legal disputes can often hinge on local municipal ordinances. As discussed above, Texas's 926 municipal courts have jurisdiction over violations of municipal ordinances.324 Many cities and communities enter publication agreements with publishers to compile their ordinances into codes. These publishers sell print copies of the codes and host online codes. While the individual city websites often have links to their codes, it is worthwhile to be aware of the major municipal code publishers active in Texas. American Legal Publishing Corporation hosts the codes for over forty Texas cities, including Dallas, Edinburg, Fort Worth, Lufkin, and Tyler.325 Municode publishes codes for over 100 Texas cities, including Austin, Corpus Christi, Plano, San Antonio, and San Marcos.326 Franklin Legal Publishing hosts the codes for 7 over 100 Texas cities including Abilene, Beaumont, and Lubbock.3 2 Although legal research in Texas poses many unique challenges, knowledge gained from this overview of Texas primary law materials will help avoid the hazards posed by Texas legal materials. Understanding the statutory revision program allows a researcher to easily find prior versions of statutes. The ability to locate legislative history documents can help interpret a statute. Knowing the unique structure of the courts assists in locating relevant opinions. Comprehending the rule making process in Texas 319. Id. § 81.092(c). See id. 320. See Opinions, TEX. CTR. FOR LEGAL ETHICS, https://www.legalethicstexas.com/Ethics321. Resources/Opinions (last visited Aug. 18, 2016). See id. 322. Resources, TEX. CTR. FOR LEGAL ETHICS, https://www.legalethicstexas.com/Ethics323. Resources.aspx (last visited Aug. 18, 2016). See discussion supra Part VI.A. 324. Texas, AM. LEGAL PUB. CORP., http://www.amlegal.com/codes/tx/ (last visited Aug. 325. 18, 2016). Texas, MUNICODE, https://www.municode.com/library/tx (last visited Aug. 18, 2016). 326. Search Codes, FRANKLIN LEGAL PUB., http://www.franklinlegal.net/search-codes (last 327. visited Aug. 18, 2016).

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aids the finding of proposed and adopted regulations. Texas legal research is like Texas itself-large, unique, occasionally challenging, and ultimately, extremely rewarding.

THE LEGACY OF THE 1/8TH LANDOWNER'S ROYALTY AND THE TEXAS SUPREME COURT: HAS

HYSA w V. DA WKINS RESOLVED THE "DOUBLE FRACTION" DILEMMA? LAURA BURNEYt

I. INTRODUCTION

..........................................

116

II. BACKGROUND: WHY DRAFTERS USE DOUBLE, RESTATED, OR ..... 117 .......................... CONFLICTING FRACTIONS

Why Conflicting Fractions Were Used and Why They Are ...... 117 ........................... Not Necessary 1. Why Multiclause Deed Forms Were Used and Why ....... 118 ................ They Are Not Necessary 2. Role of the "Estate Misconception" and "The Legacy ........ 119 of the 1/8th Landowner's Royalty ......... InterpretingMulticlause Deeds with ConflictingFractions: The Birth andDemise of the "Two Grant"Doctrine ............. 120 1. Concord Oil Co. v. Pennzoil Exploration & Production

Co.

120

.....................................

The Court Declined to Follow the Kansas Approach ....... 122 Regarding the Estate Misconception ...... b. Guidelines from ConcordOil's "Four Corners" ............... 123 ..................... Approach 2. Post-ConcordOil Decisions: The Demise of the "Two a.

124

Grant" Doctrine................................

"Double"or "Restated" Fractions-TheContinued Legacy of the "Usual 1/8th Landowner'sRoyalty" in the Shale Era: The "Analyze" v. "Multiply" Debate.................. 126 1. Shale Era Cases: Conflicting Approachesfrom ........ 128 ................... Appellate Opinions. 2. Lessons from the Double and Restated FractionCases ........ 133 for the Shale Era ....................

III. HYSAW V. DAwKiNs: THE TEXAS SUPREME COURT ADDRESSES THE "DOUBLE FRACTION" DILEMMA

Hysaw Facts

.................

.............................

.....

135

..... 136

Professor, St. Mary's University School of Law, San Antonio, Texas

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The Texas Supreme Court Opinion:Affirming a "Holistic" Analytical Approach Rather Than "Merely Multiplying" Double Fractions .......................... ..... 140

CONCLUSIONS: HYSA W'S IMPLICATIONS FOR INTERPRETING AND DRAFTING IN THE SHALE ERA..........................

142

INTRODUCTION

"Blood may be thicker than water, but oil is thicker than both."' Lawyers, landmen, landowners, and producers face a long list of perennial problems when interpreting or drafting documents that affect mineral estates. I have written extensively about these problems, including the "fixed or floating" non-participating royalty issue addressed in a recent Texas Supreme Court case, Hysaw v. Dawkins.2 In that case, three siblings, who were beneficiaries of their mother's will, disputed the appellate court's holding that the double fraction 1/3 of 1/8 created a "fixed" 1/24th non-participating royalty interest (NPRi), rather than a "floating" 1/3 NPRi.3 The dispute arose when one sibling leased her land and negotiated a 1/5th landowner's lease royalty, rather than the once-common 1/8th.4 The case presented the Texas Supreme Court with the opportunity to clarify mixed results from appellate court cases. This Article reviews cases prior to Hysaw and discusses the lessons that opinion provides regarding the "fixed or floating" NPRi issue. The Article concludes that Hysaw has clarified the law by confirming a holistic approach that eschews bright-line rules, such as merely multiplying fractions in deeds with double or restated fractions. Instead, the opinion endorses an analysis approach that turns to the "estate misconception" and the legacy of the once-common 1/8th landowner's royalty when interpreting such deeds. Hysaw also provides direction for drafting and should create predictability for owners and producers that will improve title stability in the shale era.

1. Hysaw v. Dawkins, 483 S.W.3d 1, 6 n.4 (Tex. 2016) (citing Dallas Television Show, JR. Ewing, perf. by Larry Hagman). 2. 483 S.W.3d I (Tex. 2016). The author worked on this case in the Texas Supreme Court jointly with Mary Keeney, Boyce Cabaniss, and John McFarland, the lawyers who represented the Hysaw parties in the trial court and court of appeals.

Id. at 4, 6-7.

Id. at 6.

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BACKGROUND: WHY DRAFTERS USE DOUBLE, RESTATED, OR CONFLICTING FRACTIONS

Property owners face two key decisions when creating, by grant or reservation, interests in their subsurface estates: first, whether to create a

mineral interest or a royalty interest; and second, what the fractional size of that interest should be.' This section examines courts' interpretations of deeds affecting the second decision and the lessons those decisions teach regarding drafting in the shale era. A.

Why ConflictingFractions Were Used and Why They Are Not Necessary

Assume Owner has decided to convey to Grantee an undivided 1/2 fractional mineral interest, rather than a royalty interest. Assume also that Owner has previously leased his land to Oil Company with a familiar lease form, which is commonly viewed as creating a fee simple determinable estate in the lessee. That lease is an older version requiring the lessee to pay the owner-lessor the traditional, but no longer common, 1/8 landowner's royalty.' This form lease conveys a fee simple determinable estate in all, or 8/8, of the mineral estate to Oil Company, leaving Owner with a non-possessory future interest, called a possibility of reverter, in all, or 8/8, of the mineral estate.' Note that only in the oil patch will one find "the whole" defined as 8/8. As described below, this phenomenon and others stem from the legacy of the 1/8 royalty in older form leases. Today it is clear that Owner's pre-existing lease has not converted Owner's interest in the mineral estate from an interest in all (8/8) to only 1/8.8 The lease's royalty clause entitles Owner to a share of the proceeds 5. Part II of this Article is an excerpt from Laura H. Burney, Oil, Gas, and Mineral Titles: Resolving Perennial Problems in the Shale Era, 62 U. KAN. L. REV. 97, 103-22 (2013) [hereinafter Burney, Oil, Gas, and Mineral Titles]. This Article includes a discussion of the first question I mention: whether the parties intend to create a mineral or a royalty interest. 6. See Laura H. Burney, InterpretingMineral and Royalty Deeds: The Legacy of the OneEighth Royalty and Other Stories, 33 ST. MARY'S L.J. 1, 28 (2001) [hereinafter Burney, Interpreting Mineral and Royalty Deeds] (acknowledging leases traditionally convey a 1/8 royalty). See Concord Oil Co. v. Pennzoil Exploration & Prod. Co., 966 S.W.2d 451, 460 (Tex. 7. 1998); PATRICK H. MARTIN & BRUCE M. KRAMER, WILLIAMS & MEYERS MANUAL OF OIL AND

GAS TERMS 818 (11th ed. 2000) [hereinafter MARTIN & KRAMER, OIL AND GAS TERMS] (describing a possibility of reverter as the "interest left in a grantor or lessor after a grant of land or minerals subject to a special limitation"); I ERNEST E. SMITH & JACQUELINE LANG WEAVER, TEXAS LAW OF OIL AND GAS § 3.9(E), at 3-78 (2d ed. 2014) (noting possibility of reverter is vested interest lessor retains after granting a lease). Laura H. Burney, The Interaction of the Division Order and the Lease Royalty Clause, 8. 28 ST. MARY'S L.J. 353, 429 (1997) [hereinafter Burney, Interactionof the Division Order] ("[I]t

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from the sale of the production, but does not reduce the size of his possibility of reverter.9 Owner owns a non-possessory interest in all (8/8) of the minerals, but he can convey a fractional interest subject to the pre-existing lease. To convey the desired undivided 1/2 mineral interest, the Owner should use "mineral" language and insert the fraction 1/2 in the form's designated space for the fractional interest Owner intends to convey."o

Why MulticlauseDeed Forms Were Used and Why They Are Not Necessary

Another fact is clear today: as a matter of law, Grantee's 1/2 undivided ownership in Owner's mineral estate entitles her to a proportionate share of the rents and royalties payable under the terms of the pre-existing lease between Owner and Oil Company." Therefore, after the conveyance, Oil Company owes 1/2 of the 1/8 landowner's lease royalty to Owner and the other 1/2 to Grantee.12 That fact, however, eluded early courts. For example, in Caruthers v. Leonard,13 the court held that a conveyance subject to an existing lease did not entitle the grantee to a proportionate share of the rents and royalties payable under that existing lease. 14 In response to that decision, which was later overruled," a notorious deed form with multiple clauses and spaces for fractions developed to insure that Grantee received rents and royalties in proportion to the

should be considered well-settled in Texas that the oil and gas lease vests 8/8ths of the oil and gas in the lessee, not 7/8ths, with the lessor retaining a possibility of reverter in 8/8ths."). 9. Id. (noting lessor retains a possibility of reverter in all 8/8). For examples of deed forms for accomplishing these goals, see 6 WILLIAM B. 10. BURFORD, WEST'S TEXAS FORMS: MINERALS, OIL & GAS § 1:3, at 33-35 (4th ed. 2008) and 4 ALOYSIUS A. LEOPOLD, TEXAS PRACTICE SERIES: LAND TITLES AND TITLE EXAMINATION

§ 23.70, at 529 (3d ed. 2005).

11. See, e.g., Concord Oil, 966 S.W.2d at 464 (finding grantor's possibility of reverter of 1/12 of the mineral interests included a right to royalties under the lease terms); see also Burney, Interpreting Mineral and Royalty Deeds, supra note 6, at 14 (noting "the deed effectively conveyed all attributes" of the mineral lease, including the right to share royalties). 12. The proportionate reduction clause in typical lease forms allows the lessee to reduce these payments proportionately to Owner and Grantee if they have leased 100%. See MARTIN KRAMER, OIL AND GAS Terms, supra note 7, at 871-72 (defining "proportionate reduction clause" and noting that the purpose of such a clause is to reduce the payments to a lessor to be in proportion to the lessor's interest). 13. 254 S.W. 779 (Tex. 1923), abrogatedby Hager v. Stakes, 294 S.W. 835 (Tex. 1927). Id. at 782-83; see Laura H. Burney, The Regrettable Rebirth of the Two-Grant Doctrine 14. in Texas Deed Construction, 34 S. TEX. L. REv. 73, 87-89 (1993) [hereinafter Burney, Regrettable Rebirth of the Two-Grant Doctrine] (discussing the legacy of the Caruthersdecision). See generally Hager, 294 S.W. 835 (overruling Caruthers); Harris v. Currie, 176 15. S.W.2d 302, 306 (Tex. 1943) (noting Hager'soverruling of Caruthers).

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fractional mineral interest conveyed.' 6 Specifically, in addition to the granting clause, this deed form recited that the conveyance is made "subject to" the existing lease and "covers and includes" the specified fractional interest of rents and royalties in the existing lease." Another clause provided that the grantee would receive the stated fractional interest in rents and royalties payable under future leases." Notably, these additional "subject to" and "future lease" clauses lacked granting clause language. 1 9 The reason for this omission is simple: these clauses were inserted not to make additional grants, but to clarify that the grantee receives a proportionate amount of rents and royalties under any lease, whether existing or future.20 21 Courts eventually corrected the errors of Caruthers. But the form, 22 which should be avoided, exists in formbooks today. If filled out properly, with the same fraction in every clause, the form presents no problems for title examiners or courts. Unfortunately, misconceptions among laypersons and legal minds have complicated drafting and interpreting these deeds. The primary offender is the "estate misconception." 23 2.

Role of the "EstateMisconception"and "The Legacy of the 1/8th Landowner's Royalty"

The estate misconception-a legacy of the "usual 1/8th landowner's royalty"-describes the confusion regarding estate ownership after leasing property.2 4 In the example above, Owner, under the influence of the estate misconception, assumed the lease converted his ownership to 1/8 in the mineral estate. Therefore, if Owner intended to convey an undivided 1/2 16. See generally Burney, Regrettable Rebirth of the Two-Grant Doctrine, supra note 14, at 86-90 (outlining the development of the multiclause deed form). 17. Id. at 86. 18. Id. 19. See id. 20. Id. ("The . . . multiclause deed was created in response to an early Texas cause, Caruthersv. Leonard, which held that when a grantee received an interest in a mineral estate that was already under lease, only a reversionary interest passed ..... (footnote omitted)). 21. Harris v. Currie, 176 S.W.2d 302, 306 (Tex. 1943) (noting the court in Hager overruled Caruthers). 22. See, e.g., BURFORD, supra note 10, § 1.2, at 3-7 (outlining the various clauses included in a mineral deed form and cautioning against "coupling with a grant of the minerals the words 'royalty,' 'royalty interest,' or minerals 'produced and saved' from the land" to avoid conveying a royalty interest). See Concord Oil Co. v. Pennzoil Exploration & Prod. Co., 966 S.W.2d 451, 460 (Tex. 23. 1998) (defining "estate misconception" and describing its effect on drafting); Burney, Regrettable Rebirth of the Two-Grant Doctrine, supranote 14, at 87-89 (reviewing the estate misconception). 24. See Burney, Interpreting Mineral and Royalty Deeds, supra note 6, at 15 (explaining lessors sometimes believe they only own 1/8 interest in the minerals after the lease when in actuality they have a possibility of reverter in all, 8/8).

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interest, he multiplied that fraction by 1/8 and inserted the fraction 1/16 in the deed's granting clause. Because of the wording of the other post-Caruthers clauses-the "subject to" and "future lease" clausesOwner inserted the fraction 1/2 in those spaces, creating a deed with conflicting fractions.25 B.

InterpretingMulticlause Deeds with Conflicting Fractions:The Birth andDemise of the "Two-Grant" Doctrine

These multiple fractions created uncertainty for title examiners. Which fraction represented the size of the interest Owner intended to convey? Or, did the deed make multiple grants? Early cases provided an answer: deeds with multiple and conflicting fractions conveyed more than one interest. 26 Writers labeled this interpretative approach the "two-grant" doctrine.27 In this section, I review the development and demise of the two-grant approach to interpreting deeds with conflicting fractions. The next section updates a related issue: deed forms with double or restated fractions. 1.

Concord Oil Co. v. Pennzoil Exploration & Production Co.

The two-grant doctrine arose in Texas, where the multiclause deed form originated. Texas courts adopted this interpretative approach for multiclause deed forms with conflicting fractions beginning in the 1940s.28 The last supreme court case to address the two-grant doctrine is a 1998 opinion, Concord Oil Co. v. PennzoilExploration & ProductionCo.29 In Concord Oil, courts were confronted with this deed: a 1937 conveyance of a mineral interest with the fraction 1/96 in the granting

See Burney, Regrettable Rebirth of the Two-Grant Doctrine, supra note 14, at 86-87 25. (emphasizing the effect of the Caruthers decision on deed forms and noting that grantors wishing to convey a one-half mineral interest "can do so by simply conveying a 1/2 mineral interest, regardless of an existing lease"). 26. Some cases viewed these deeds as granting one fraction at delivery of the deed that expanded upon expiration of the existing lease. See, e.g., Jupiter Oil Co. v. Snow, 819 S.W.2d 466, 469 (Tex. 1991) (noting that upon termination of the lease, the grantee's interest "expanded into a full one-half [mineral interest] by operation of law"); see also Burney, Regrettable Rebirth of the Two-Grant Doctrine, supra note 14, at 92-94 (discussing the "expansion facet" and related decisions, including JupiterOil). See Concord Oil, 966 S.W.2d at 454 (discussing the trial court's reliance on the 27. two-grant doctrine in its decision and defining the doctrine); 2 PATRICK H. MARTIN & BRUCE M. KRAMER, WILLIAMS & MEYERS OIL AND GAS LAW § 327.2, at 90-91 (2012) [hereinafter MARTIN & KRAMER, OIL AND GAS LAW]; Tevis Herd, Deed Constructionand the "Repugnant to the Grant" Doctrine, 21 TEX. TECH L. REV. 635, 651-52 (1990). 28. Burney, Regrettable Rebirth of the Two-Grant Doctrine, supra note 14, at 90. 966 S.W.2d 451 (Tex. 1998). 29.

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clause and the fraction 1/12 in a subsequent clause.30 At the time, the grantor owned a 1/12 mineral interest in the property, which was burdened by a preexisting lease providing for a 1/8 landowner's royalty.31 Notably, the deed through which the grantor had received his 1/12 mineral interest a year earlier, was the same as the 1937 deed form, but the fraction 1/12 appeared in both clauses.3 2 By the 1960s, Pennzoil owned the grantor's interest, if any, under the 1937 deed, and Concord Oil owned the grantee's interest.3 3 Just as today's shale plays are spawning lawsuits over mineral deeds delivered decades ago, renewed production on property covered by the 1937 deed prompted Pennzoil to sue Concord Oil in 1993.34 Pennzoil relied on precedent establishing the two-grant approach for interpreting multiclause deeds with conflicting fractions.35 Under that approach, Pennzoil argued that the 1937 deed had conveyed a 1/96 mineral interest and a 1/12 interest in rents and royalties under an existing lease, which had terminated.36 Therefore, Pennzoil claimed that Concord Oil, as successor to the grantee, owned only a 1/96 interest in the mineral estate, meaning Pennzoil owned the grantor's remaining interest.37 Concord Oil, on the other hand, argued that the 1937 deed conveyed the grantor's entire 1/12 interest and Pennzoil received nothing through its chain of title.38 The trial court and court of appeals agreed with Pennzoil. 39 Eventually, however, the Texas Supreme Court ruled in favor of Concord Oil, holding that the conflicting fractions could be harmonized from the four-corners of the document.4 0 In light of the particular language of the 1937 deed, the court held it conveyed a single 1/ 12 mineral interest.41 However, because the opinion was a plurality, with concurring and dissenting opinions, the fate of the two-grant doctrine remained unclear.42 30. Id. at 453. 31. Id. 32. Id. 33. Id. (noting Concord Oil Company's claim was brought through the grantee of the 1937 deed and that the 1937 grantor conveyed another mineral deed in 1961 which was subsequently conveyed to Pennzoil Exploration and Production Company). 34. See id. 35. See id. at 454. 36. Id. 37. Id. 38. Id. at 453-54. 39. Concord Oil Co. v. Pennzoil Exploration & Prod. Co., 878 S.W.2d 191, 197 (Tex. App.-San Antonio 1994) (rejecting Concord's reading of the deed to convey two separate estates), rev'd, 966 S.W.2d 451 (Tex. 1998). 40. Concord Oil, 966 S.W.2d at 457-61, 463. 41. Id. at 459. 42. The opinion breaks down to a 4-1-4 decision. Id. at 451. The plurality found that the deed conveyed a single 1/12 mineral interest and harmonized the conflicting fractions within the

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Concord Oil had urged the court to reject the two-grant doctrine and embrace the estate misconception as the explanation for conflicting fractions in multiclause deed forms.43 As explained above, that misconception, which emanates from the typical 1/8 landowner's royalty, explains why the conflicting fractions follow a pattern: they are multiples of 1/8, even though the fraction 1/8 does not appear in the deed. Typically, drafters multiplied the intended fraction by 1/8 and inserted that number in the granting clause. Indeed, early case law sanctioned that approach." The 1937 Concord Oil deed followed the pattern: 1/96 in the granting clause 45 = 1/8 times 1/12 (the fraction in the subsequent clause). As noted in Concord Oil, in light of the language appearing in the subsequent clauses, that 1/12 fraction, rather than the smaller 1/96 fraction in the granting clause, reflects the drafter's intent about the size of the interest the grantor intended to convey.4 6 a. The Court Declined to Follow the Kansas Approach Regarding the Estate Misconception To convince the Texas court to incorporate the estate misconception into the interpretative process, Concord Oil pointed to Kansas decisions. 47 Specifically, in Shepard v. John Hancock Mutual Life Insurance Co., the Kansas Supreme Court construed a reservation in a deed that described the size of the interest as "an undivided 1/4 of the landowners [sic] 1/8 royalty, or, 1/32 of the interest in and to all oil, gas or other minerals . .. ."4 The

49 court held the grantor had reserved a 1/4 mineral interest. In reaching this conclusion, the court incorporated into its interpretative process the

deed. Id. at 459. The concurring opinion by Justice Enoch agreed that only a single estate was created but wrote separately to emphasize the overconveyance that would occur if the dissent's interpretations were used. Id. at 463-64 (Enoch, J., concurring). The dissent argued for the "two-grant" doctrine to determine that two estates were created, "a 1/96 perpetual interest in the minerals, and a 1/12 interest in rentals and royalties . . . ." Id. at 465 (Gonzalez, J., dissenting). See id. at 460 (plurality opinion). 43. Tipps v. Bodine, 101 S.W.2d 1076, 1079 (Tex. Civ. App.-Texarkana 1936, writ. 44. ref'd); see Concord Oil, 966 S.W.2d at 464-65 (Enoch, J., concurring) (blessing the use of different fractions to convey a single interest); see also Burney, Regrettable Rebirth of the TwoGrant Doctrine, supra note 14, at 102 (noting the reliance on Tipps in interpreting multiclause deeds). See ConcordOil, 966 S.W.2d at 453 (plurality opinion). 45. See id. at 457-59. 46. 368 P.2d 19 (Kan. 1962). 47. Id. at 21. The Shepard deed was not a multiclause deed form, but it contained multiple 48. fractions. The Shepard deed form involved "double and restated" fractions discussed in the next section. See infra Part II.C. Id. at 27. 49.

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pervasive confusion among "not only persons in the petroleum industry" but with courts: As the most common leasing arrangement provides for a one-eighth royalty reserved to the lessor, the confusion of fractional interests stems primarily from the mistaken premise that all the lessor-landowner owns is a one-eighth royalty. In conveying minerals subject to an existing lease .. . mistake is often made in the fraction of the minerals conveyed by multiplying the intended fraction by one-eighth.50 In Concord Oil, however, the Texas Supreme Court declined to fully follow the Shepard approach. Instead, the court noted the estate misconception, but viewed it as "instructive, but not dispositive." 1 In fact, the court declined to adopt any bright-line rules for this interpretative issue, focusing instead on the lack of any two-grant language in the 1937 deed. 52 b.

Guidelines from Concord Oil's "Four-Corners" Approach

Yet, as I wrote in an earlier article, the Concord Oil opinion provided "useful guidance to title examiners" for interpreting multiclause deeds: First, according to the opinion, a deed with multiple fractions should not be interpreted as making two grants unless express language to that effect appears in the deed. Such language would include the phrases "separate from" or "in addition to," phrases which were absent from the Concord deed. Notably, [the additional clauses in multiclause deed forms] do not contain such granting language. Therefore, multiclause deed forms should rarely, if ever, be interpreted as making separate grants.53 Because of the multiple opinions in Concord Oil, title examiners remained cautious about interpreting multiclause deed forms with conflicting fractions. The concurring opinion created particular concern by focusing on the "future lease" clause.54 In his opinion, Justice Enoch 50. Id. at 26 (citing Magnusson v. Colo. Oil & Gas Corp., 331 P.2d 577, 583-84 (Kan. 1958)). Shepard did not involve a multiclause deed form; rather, the language fits the "restated" or "double fraction" problem. See Heyen v. Hartnett, 679 P.2d 1152, 1158-59 (Kan. 1984) (construing deed with fractions 1/16 and 1/2 as conveying an undivided 1/2 mineral interest); see also Burney, Interpreting Mineral and Royalty Deeds, supra note 6, at 22 (noting the pervasiveness of the 1/8 royalty in other jurisdictions). 51. Concord Oil, 966 S.W.2d at 460. 52. See id. at 460-61. 53.

Burney, Interpreting Mineral and Royalty Deeds, supra note 6, at 16 (citations

omitted). 54. Concord Oil, 966 S.W.2d at 464 (Enoch, J., concurring) ("Further, we were wrong to conclude that the 'subject to' clause of the Crosby deed includes future leases."). For a complete analysis of the concurring opinion, see Burney, InterpretingMineral and Royalty Deeds, supra note 6, at 17-18. Justice Enoch was also concerned with the "overconveyance" issue. Id.

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criticized the plurality opinion for having emphasized a "future lease" clause in the deed as the basis for concluding the 1937 deed conveyed a 1/12 interest.55 However, the plurality opinion adopted a four-corners approach and placed no significance on the presence or absence of any clause, particularly a "future lease" clause.56 On the contrary, that opinion states that the "decision in this case does not depend on the presence or absence of a 'future lease' clause, which the court of appeals found dispositive."" 2.

Post-Concord Oil Decisions: The Demise of the "Two-Grant" Doctrine

Despite these words from the Texas Supreme Court about the relative insignificance of a "future lease" clause, a post-Concord Oil appellate opinion considered it determinative in Neel v. Killam Oil Co., Ltd.," which involved a multiclause deed form that departed from the typical pattern. Specifically, in the 1945 Neel deed, the larger fraction 1/2 appeared in the granting clause and "subject to" clause, and the smaller fraction 1/16 appeared in the "future lease" clause.5 9 The parties agreed the interest was a royalty interest, rather than a mineral interest. 60 Regarding the size of the interest, grantee's successor argued the deed conveyed a 1/2 royalty, which would entitle the grantee to 1/2 of the royalty reserved in any existing or future leases.61 To counter assertions that the granting clause and "future lease" clause made separate grants, the grantee pointed to this sentence in 62 the deed's granting clause: "This grant shall run forever." The controversy arose after the existing lease, with the typical 1/8 landowner's royalty, 63 terminated and new leases were executed providing for a 1/4 royalty. The court of appeals ruled against the grantee, holding the grantee was entitled to a fixed 1/16 interest in production under the new leases as provided in

(explaining a two-grant interpretation of the deed would result in the grantor conveying more than he owned, which he cannot do). See Concord Oil, 966 S.W.2d at 463-64. 55. See id. at 457-59 (plurality opinion). 56. Id. at 458-59. 57. 88 S.W.3d 334, 340-41 (Tex. App.-San Antonio 2002, pet. denied), disapproved ofby 58. Hausser v. Cuellar, 345 S.W.3d 462, 470 (Tex. App.-San Antonio 2011, pet. denied). Id. at 339. 59. See id. The parties disagreed about whether this royalty interest was a fixed 1/16 or a 60. 1/2 royalty that entitled the owner to 1/2 of the royalty reserved in any lease. See id. This "fixed" versus "of' royalty issue is common. See infra Part II.C (discussing double and restated fractions). Neel, 88 S.W.3d at 340. 61. 62. Id. 63. Id.

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the "future lease" clause. 64 In other words, in Neel the court reverted to the two-grant doctrine. In reaching this conclusion, the Neel court cited Concord Oil and Luckel, explaining that those cases required it to seek the parties' intent from the four corners of the document. 65 However, the Neel opinion omits any review of the two-grant saga, or of the specifics from Concord Oil, such as the court's admonition that to create separate grants a deed should contain clear evidence of such intent.66 Had the Neel court followed Concord Oil's guidance, the deed would have been interpreted as conveying the 1/2 "of' royalty forever as set forth in the granting clause. The estate misconception explains the fraction in the "future lease" clause: 1/16 reflects the amount of production owed to the owner of a royalty entitled to 1/2 of the 1/8 royalty reserved in the typical lease royalty clause. 67 Although the Texas Supreme Court declined to review Neel, a recent opinion from the same court of appeals "disapprove[d] of [its] analysis in Neel." 68 Hausser v. Cuellar69 involved a multiclause deed form that, like the deed in Neel, contained conflicting fractions that departed from the Concord Oil pattern. 70 In Hausser, the clauses provided as follows: granting clause: 1/2; "subject to" clause: 1/2; "future lease" clause: 1/16." After determining that the deed conveyed a royalty interest, the court considered whether it was a fixed 1/16 or a 1/2 royalty interest that entitled the owner to 1/2 of the 1/4 landowner's royalty in new leases on the property.7 2 In adopting the 1/2 royalty option, the court cited its 2006 opinion in Garza v. ProlithicEnergy Co.,` and explained its analysis as follows: "As in Garza, our decision is consistent with Concord Oil Co. because the [Hausser] deed does not contain 64. Id. at 341. Neel was heard by the Fourth District Court of Appeals in San Antonio, the same court that decided Concord Oil prior to its review by the Supreme Court. 65. Id. at 339-40 (citations omitted). 66. See id. (citing to Concord Oil but failing to mention the court's rejection of the twogrant doctrine); see also Concord Oil Co. v. Pennzoil Exploration & Prod. Co., 966 S.W.2d 451, 454, 457 (Tex. 1998) (rejecting the two-grant doctrine in favor of a clear intent approach). 67. See supra Part II.A.2. 68. Hausser v. Cuellar, 345 S.W.3d 462, 470 (Tex. App.-San Antonio 2011, pet. denied). In disapproving, the court pointed to the Neel opinion's reliance on a previous deed, which could suggest the court approved of Neel's focus on the "future lease" clause. Id. Fortunately, the Hausser court embraced Concord Oil's guidance and cited one of its previous opinions, Garza, which clearly rejected the two-grant doctrine and incorporated the estate misconception into its analysis. See id. at 470-71 (citing Garza v. Prolithic Energy Co., 195 S.W.3d 137, 145 (Tex. App.-San Antonio 2006, pet. denied) (noting the conflicting fractions arise due to the typical 1/8th royalty and confusion about what grantors actually own)). 69. 345 S.W.3d 462 (Tex. App.-San Antonio 2011, pet. denied). 70. See id. at 468-69. 71. Id. at 465, 468. 72. See id. at 470-71. 73. 195 S.W.3d 137 (Tex. App.-San Antonio 2006, pet. denied).

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any language suggesting two differing estates were being conveyed.... Rather, the [Hausser] deed, like the deeds in Garza, involves a single conveyance with fixed rights."74 A dissenting opinion in Hausser argued that the "future lease" clause should have controlled.75 However, in light of the majority's disapproval of Neel, its adherence to Concord Oil's guidelines, and other recent appellate court decisions that acknowledge the role of the estate misconception, the two-grant doctrine should disappear in Texas. Fortunately, other jurisdictions have wisely declined to adopt Texas's approach. Therefore, title examiners may report, without exaggerating, the death of the two-grant doctrine for interpreting multiclause deeds with conflicting fractions in the shale era. Unfortunately, as described in the next section, court opinions, at least prior to Hysaw, had not correctly incorporated the estate misconception or the "legacy of the 1/8th royalty" into the interpretative process for related issues: deeds with double or restated fractions. C.

"Double" or "Restated"Fractions-TheContinuedLegacy of the "Usual 1/8th Landowner'sRoyalty" in the Shale Era: The "Analyze" v. "Multiply" Debate

Writing before the shale era, I addressed these two interpretative issues: how should courts interpret deeds when the fractional interest conveyed or reserved is expressed (1) as a double fraction, such as "1/2 of 1/8," or (2) as a restated fraction, such as "an undivided 1/2 nonHausser, 345 S.W.3d at 470 (citing Garza, 195 S.W.3d at 146; Concord Oil Co. v. 74. Pennzoil Exploration & Prod. Co., 966 S.W.2d 451, 457 (Tex. 1998)). See Hausser, 345 SW.3d at 472-73 (Marion, J., dissenting). Note the same judge wrote 75. the majority opinion in Neel v. Killam Oil Co., Ltd., 88 S.W.3d 334, 337 (Tex. App.-San Antonio 2002, pet. denied), disapprovedof by Hausser, 345 S.W.3d at 470. See Hamilton v. Morris Res., Ltd., 225 S.W.3d 336, 343-44 (Tex. App.-San Antonio 76. 2007, pet. denied) (holding although there were differing fractions in the deed, only a single interest was actually conveyed); Garza, 195 S.W.3d at 145 (noting the "problematic conflict between the granting of a mineral interest and a future lease provision appearing to convey a smaller royalty interest"); see also Coates Energy Tr. v. Frost Nat'l Bank, No. 04-11-00838-CV, 2012 WL 5984693, at *6-7 (Tex. App.-San Antonio Nov. 28, 2012, pet. denied) (mem. op.) (relying on Hausser in determining the fraction conveyed); Hernandez v. El Paso Prod. Co., No. 13-09-184-CV, 2011 WL 1442991, at *4 (Tex. App-Corpus Christi Apr. 14, 2011, pet. denied) (mem. op.) (taking notice of the estate misconception). See Burney, Oil, Gas, and Mineral Titles, supra note 5, at 131 (describing Kansas's 77. method of dealing with mineral deeds); see also Burney, InterpretingMineral and Royalty Deeds, supra note 6, at 23 ("[T]he Arkansas Supreme Court considered the issue that led the Texas courts down the path to the creative two-grants rule . . . ." (quoting Owen L. Anderson, Recent Developments in Nonregulatory Oil and Gas Law, in 45TH ANNUAL INSTITUTE ON OIL AND GAS LAW AND TAXATION 1-1, § 1.03[4], at 1-14 (Carol J. Holgren ed., 1994))). But see Jolly v. Wilson, 478 P.2d 886, 888-89 (Okla. 1970) (holding reservation created 1/16th mineral interest, entitling owner to 1/128th of production where standard lease royalty was 1/8th).

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participating royalty (being equal to, not less than an undivided 1/16)."" In one article, I note courts' failure to address the "legacy of the usual 1/8th landowner's royalty," which contributes to the estate misconception, and its effect on drafting and interpreting double and restated fractions. 79 Because parties focused on that royalty, they expressed fractions with a double fraction, where one was invariably 1/8, or by restating with a fraction equal to a multiple of 1/8, as in the restated example above.80 Rather than analyze that legacy in light of other language in the deed, courts tended to ignore it or merely multiply the fractions. For example, in a 1984 Texas Supreme Court case, Alford v. Krum,8 1 the multiclause deed contained a double fraction, 1/2 of 1/8, in the granting clause.8 2 The court viewed that clause as conveying a 1/16 interest, without noting or analyzing this mode of expressing that single fraction." This phenomenon, like the use of the fraction 8/8 to express the term "all," appears only in the oil patch. And again, the legacy of the usual 1/8 royalty explains the practice, since one of the two fractions is invariably the traditional 1/8 landowner's royalty. Yet, in Alford and other cases, court opinions multiply the fractions without analyzing the reason for the formula.8 4 Before Alford, proponents of the analysis approach had argued that courts should incorporate the legacy of the 1/8 royalty into the interpretative process for these fractional issues." Under such an approach, the double or restated fractions "should not be multiplied, but analyzed to determine the parties' intent." 8 6 However, not all commentators agree with this approach. Specifically, the Williams & Meyers Treatise argues that double fractions should be multiplied under a plain meaning approach to document

78. Burney, Interpreting Mineral and Royalty Deeds, supra note 6, at 23-29; Burney, Regrettable Rebirth of the Two-Grant Doctrine, supra note 14, at 89-97. The restated language in the example appeared in Brown v. Havard, which held that the phrase "[bjeing equal to, not less than an undivided 1/16th" made the deed ambiguous and subsequently remanded the case to the trial court. Brown v. Havard, 593 S.W.2d 939, 942 (Tex. 1980). 79. See generally Burney, InterpretingMineral and Royalty Deeds, supra note 6. 80. See id. at 15. 81. 671 S.W.2d 870, 873 (Tex. 1984), overruled by Luckel v. White, 819 S.W.2d 459 (Tex. 1991).

82. Id. 83. See id. at 874. Alford adopted the "granting clause" prevails rule for the multiclause deed problem, but was subsequently overruled by Luckel. Luckel, 819 S.W.2d at 461. 84. See, e.g., Alford, 671 S.W.2d at 873. 85. Burney, InterpretingMineral and Royalty Deeds, supra note 6, at 24 (citing Ernest E. Smith, Conveyancing Problems, in STATE BAR OF TEXAS, ADVANCED OIL, GAS, & MINERAL

LAW COURSE G, G-2 (1981)). 86. Id. at 25. Not all commentators agree with this approach. See MARTIN & KRAMER, OIL AND GAS LAW, supra note 27, § 327.3, at 3-96.

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interpretation." As described below, recent court opinions also reflect contradictory opinions in resolving these disputes. 1.

Shale Era Cases: ConflictingApproachesfrom Appellate Opinions

Demonstrating that shale-production surges produce title-litigation surges, Texas courts addressed several disputes involving double and restated fractions. Most of these cases involve the grant or reservation of royalty interests in which the dispute centers on one question: whether the deed created a "fixed" or an "of' royalty interest, also known as a floating interest. A "fixed" royalty entitles the owner to a set share of the proceeds from the sale of production, regardless of the fractional size of the landowner's royalty in any lease." An "of' royalty interest varies or floats with the size of the landowner's royalty in leases." As demonstrated in the cases discussed below, these disputes arise when the royalty in a new lease departs from the traditional 1/8 landowner's royalty.

See, e.g., MARTIN & KRAMER, OIL AND GAS LAW, supra note 27, § 327.3, at 3-96; 87. Phillip E. Norvell, Pitfalls in Developing Lands Burdened by Non-Participating Royalty: Calculating the Royalty Share and Coexisting with the Duty Owed to the Non-Participating Royalty Owner by the Executive Interest, 48 ARK. L. REV. 933, 951 (1995). The author approves of the "multiply" approach used by the Arkansas Supreme Court in Palmer v. Lide, in which the court held:

It will be seen that the deed refers not once but four times either to 1/8th of 1/8th of the royalty or to 1/8th of 1/8th of the royalty to be retained or reserved in any oil, gas, or mineral lease, leases, or contracts. It is not possible to interpret the unmistakably clear language of the deed to mean 1/8th of 1/8th of the total production, as the appellant would have us do. Palmer v. Lide, 567 S.W.2d 295, 296 (Ark. 1978). The author concludes that

[o]ne cannot quarrel with the construction of the "double fraction" formula by the Arkansas Supreme Court in Lide .... However, one is haunted by the fear that the "horrors of the double fraction" may be the result of an error based simply on the parties' selection of the wrong royalty deed form. Norvell, supra at 951. SMITH & WEAVER, supra note 7, § 3.7, at 3-46 to -47. 88. See Range Res. Corp. v. Bradshaw, 266 S.W.3d 490, 493 (Tex. App.-Fort Worth 89. 2008, pet. denied) (comparing a fraction "of' royalty versus a "fractional" royalty and stating that a fraction "of' royalty "'floats' in accordance with the size of the landowner's royalty contained in the lease"); see also MARTIN & KRAMER, OIL AND GAS LAW, supra note 27, § 327.3, at 94. There is an additional difference: the effect of the executive's duty to lease. With an "of' royalty, the executive could potentially breach the duty of "utmost good faith" by negotiating a landowner's royalty that was too low. See Bradshaw v. Steadfast Fin., L.L.C., 395 S.W.3d 348, 364-65 (Tex. App.-Fort Worth 2013), aff'd in part, rev'd in partsub nom. KCM Fin. LLC v. Bradshaw, 457 S.W.3d 70 (Tex. 2015). If the royalty interest is fixed, however, the negotiated royalty cannot affect the "fixed" owner's share of production. See id. (discussing cases in which the executive breached the duty of utmost good faith by entering into a lease depriving the royalty owner of benefits they would have received in a lease to a disinterested party).

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Hudspeth v. Berry,90 a 2010 opinion, involved a dispute over a 1943 deed reserving an "undivided 1/40th royalty interest (being 1/5th of 1/8th)" with grantee reserving leasing rights, and the grantor receiving 1/5 of the usual 1/8 royalty. 9' The Berrys owned the reserved interest and claimed their predecessors were each entitled to 1/5 of the 1/5 landowner's royalty 92 reserved in a new lease, or 1/25 of the proceeds from production. As a result, the Berrys claimed they were entitled to a total of 2/25 of the production proceeds. 93 The trial court agreed with the Berrys' interpretation. 94 The court of appeals, however, held the deed reserved two fixed 1/40 royalty interests, a ruling the Berrys did not appeal to the Texas Supreme Court.95 However, an opinion decided two years before Berry addressed a deed with similar language, including an express reference to a royalty the size "of' the usual 1/8 lease royalty. The deed in that case, Range Resources Corp. v. Bradshaw,96 reserved: [A]n undivided one-half (1/2) Royalty (Being equal to not less than an undivided one-sixteent[h] (1/16)[)] of all the oil, gas and/or other minerals ... to be paid or delivered to said Grantors ... free of cost Forever .... In the event oil, gas or other minerals are produced ... Grantors ... shall receive not less than one-sixteenth (1/16) portion (being equal to one-half (1/2) of the customary one-eighth (1/8) Royalty) ... 97' Both the trial court and the court of appeals interpreted the reservation 98 as a fraction "of' royalty rather than as a "fixed" fractional royalty. The appellate court opinion contains an extensive discussion of the difference between the two types of interests and reviews a 1980 Texas Supreme Court case involving a reservation that raised the "restated" fraction problem. 99 In that case, Brown v. Havard,oo the majority concluded that the deed was ambiguous,'' but the dissent viewed the deed as having

90. No. 2-09-225-CV, 2010 WL 2813408 (Tex. App.-Fort Worth July 15, 2010, no pet.) (mem. op.). In the interest of full disclosure: I provided an expert opinion in support of Berry's position. 91. Id. at *2 (emphasis added). 92.

Id. at *1.

93. 94. 95. 96. 97. 98. 99. 100. 101.

See id. Id. See id. at *4. 266 S.W.3d 490 (Tex. App.-Fort Worth 2008, pet. denied). Id. at 493-94 (alteraton in original) (emphasis added and omitted). See id. at 497-98. See id. at 493-97 (discussing Brown v. Havard, 593 S.W.2d 939 (Tex. 1980)). 593 S.W.2d 939 (Tex. 1980). Id. at 942.

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unambiguously created a fraction "of' royalty.1 02 In Range Resources, the court addressed differences between the two deeds, but ultimately favored the dissent's approach in Brown.'03 The losing party in Range Resources asked the Texas Supreme Court to review the appellate court decision, but the court declined its petition.1 04 A case decided in 2011 appears consistent with Range Resources rather than Berry. In Sundance Minerals, L.P. v. Moore,'05 a deed reserved "an undivided and non-participating one-half interest in the oil, gas, and other mineral rights" or "one half of the usual one eighth royalty received forsuch [sic] oil, gas and other minerals produced." 106 The court held that the deed reserved 1/2 "of' the 1/5 landowner's royalty in the subsequent lease.' 07 Although the result in Sundance Minerals reflects the analysis approach, that opinion, like the Range Resources opinion, does not overtly address the estate misconception or the legacy of the 1/8 royalty. However, in reaching their conclusions, both opinions cite extensively to Luckel v. White and follow its harmonizing approach.'o That 1991 Texas Supreme Court opinion, in which the court interpreted a multiclause deed, such as the one at issue in Concord Oil, but with the conflicting fractions 1/4 and 1/32,

102. Id. at 945 (McGee, J., dissenting). 103. See Range Res., 266 S.W.3d at 495-96. A post-Hysaw appellate opinion failed to address the Brown decision, or the view of the Range Resources court, even though the deed in the dispute contained language that tracked the reservation in the Brown deed. See infra note 186 (criticizing Laborde). The initial dispute in Range Resources was whether the executive had breached its duty to the royalty owner by entering into a lease with only a 1/8 landowner's royalty. Id. at 492. That duty, however, has no application to a "fixed" royalty interest since leasing cannot affect the share owed to those interest owners. See id. at 493. The duty applies when the interest is a fraction "of' the lease royalty, since the executive must exercise leasing decisions according to an "utmost good faith" standard. See Bradshaw v. Steadfast Fin., L.L.C., 395 S.W.3d 348, 370 (Tex. App-Fort Worth 2013) (noting when the interest is a fraction "of' the lease royalty, the executive has more control and, therefore, is under an elevated duty), affd in part, rev'd in part sub nom. KCM Fin. LLC v. Bradshaw, 457 S.W.3d 70 (Tex. 2015). In Range Resources, the royalty owner claimed the executive could have negotiated for 1/4 landowner's royalty in the lease. See Range Res., 266 S.W.3d at 492. 104. Petition for Review of Range Resources Corporation and Range Production I, L.P. at 15, Range Res., 266 S.W.3d 490 (No. 08-0949). 105. 354 S.W.3d 507 (Tex. App.-Fort Worth 2011, pet. denied). 106. Id. at 510 (emphasis added). 107. See id. at 512-13 (affirming trial court's grant of summary judgment interpreting that the deed reserved 1/2 of the 1/5 royalty). 108. Id. at 511 ("All parts of the deed are to be harmonized, construing the instrument to give effect to all of its provisions."); see, e.g., Range Res., 266 S.W.3d at 496 ("Construing the deeds as a whole, and harmonizing all parts to give effect to the parties' intent, we determine that a 'fraction of royalty' was conveyed." (citing Luckel v. White, 819 S.W.2d 459, 462 (Tex. 1991))).

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expressly acknowledges the effect of the 1/8 royalty on drafting, even though that fraction did not appear in the deed: We do not quarrel with the assumption that the parties probably contemplated nothing other than the usual one-eighth royalty. But that assumption does not lead to the conclusion that the parties intended only a fixed 1/32nd interest. It is just as logical to conclude that the parties intended to convey one-fourth of all reserved royalty, and that the reference to 1/32nd in the first three clauses is "harmonized" because one-fourth of the usual one-eighth royalty is 1/32nd.' 09 As in Range Resources, the losing party in Sundance Minerals petitioned the Texas Supreme Court to review the appellate court's ruling. That petition stressed the surge of shale production in Texas and the decline of the usual 1/8 landowner's royalty, and asked the court to provide guidance: Practitioners and lower courts dealing with the resurgence of cases need guidance on significant, recurring issues like the deed construction dispute presented in this petition for review. Especially when language in deeds use differing fractions to express the intent of the parties regarding the character and size of the interest reserved, it is vitally important that all of the reviewing courts consistently apply the rules of interpretation and follow established precedent to reach the same results. 110 Despite this plea for guidance, the Texas Supreme Court declined to review the court of appeal's decision in Sundance Minerals. The court also denied a petition for review in another appellate opinion from 2012, Coghill v. Griffith."' That opinion relies heavily on Luckel and cites Range Resources in concluding that a deed with restated and double fractions created an "of' royalty interest.' 12 However, another recent opinion retreats to the "multiply" approach. v. Noble Energy, Inc.,113 the court viewed the following language Moore In as creating a fixed 1/16 royalty interest: "a one-half non-participating Luckel, 819 S.W.2d at 462. 109. Petition for Review of Sundance Minerals, L.P. at vii, Sundance Minerals, 354 S.W.3d 110. 507 (No. 02-10-00403-CV), 2012 WL 3233719, at *vii. See generally Coghill v. Griffith, 358 S.W.3d 834 (Tex. App.-Tyler 2012, pet. 111. denied). Id. at 838-40 (citing Range Res., 266 S.W.3d at 496) ("The language used in Range 112. Resources Corp. and in the instant case establishes that the interest reserved was a fraction of royalty and not a fractional royalty."). The deed's language stated, "the Grantor reserves and

excepts unto himself.. . an undivided one-eighth (1/8) of all royalties payable under the terms of said lease, as well as an undivided one-eighth (1/8) of the usual one-eighth (1/8) royalties provided for in any future" lease. Id. at 836. 113. 374 S.W.3d 644 (Tex. App.-Amarillo 2012, no pet.).

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royalty interest (one-halfof one-eighth of production)."114 In that opinion, the court relies heavily on the Williams & Meyers treatise, which approves of multiplying rather than analyzing double fractions, and attempts, unsatisfactorily, to distinguish Range Resources."5 Another recent appellate court opinion also strains to distinguish Range Resources and Sundance Minerals and, like the Moore opinion, retreats to the multiply approach: Wynne/Jackson Development, L.P. v. PAC Capital Holdings, Ltd.,116 which involves Barnett shale production from property in Denton County, Texas."' The relevant language provided that the grantor reserved: [A] non-participating royalty of one-half (1/2) of the usual one-eighth (1/8) royalty in and to all oil, gas, and other materials produced, saved and sold from the above-described property, provided, however, that although said reserved royalty is non-participating and Grantee shall own and possess all leasing rights in and to all oil, gas and other minerals, Grantor shall, nevertheless, have the right to receive one-half (1/2) of any bonus, overriding royalty interest, or other payments, similar or dissimilar, payable under the terms of any oil, gas and mineral lease covering the above-described property.118 The parties framed the issue as whether the deed reserved a fixed or fraction "of' royalty.' 19 In reversing the trial court and holding the deed reserved a fixed fractional royalty, the court relied on cases, such as a 1955

114. Id. at 645 (emphasis added). 115. See id. at 647-51. The court also relied on Brown v. Havard, where a deed reserved an undivided one-half non-participating royalty "([b]eing equal to, not less than an undivided 1/16th)." Brown v. Havard, 593 S.W.2d 939, 940 (Tex. 1980). The Brown majority opinion determined the deed was ambiguous and returned the case to the trial court. See id. at 944. A dissenting opinion, however, argued that the deed was unambiguous and conveyed a 1/2 "of' royalty. Id. at 945 (McGee, J., dissenting). 116. No. 13-12-00449-CV, 2013 WL 2470898 (Tex. App.-Corpus Christi June 6, 2013, pet. denied) (mem. op.). 117. See id. at *1. 118. Id. at *4. 119. Id. at *2. The appellate opinion does not suggest that the deed reserved an undivided 1/2 non-executive mineral interest, perhaps in light of the "non-participating royalty" label. Id. at *4-5. The owner of an undivided 1/2 mineral interest is entitled to 1/2 of the royalty, as explained above. However, under the French redundancy approach, which focuses on express references to other mineral estate attributes, that may have been a viable argument. See id. at *3 (citing French v: Chevron U.S.A. Inc., 896 S.W.2d 795, 797 (Tex. 1995)) (comparing the attributes of the mineral estate owned by a mineral fee owner with those of a non-participating royalty owner). Here, the grantor reserved a royalty plus the right to receive bonus payments, a mineral-estate attribute. Id. at *4; see also Altman v. Blake, 712 S.W.2d 117, 120 (Tex. 1986) (finding the deed, which stripped some mineral-estate attributes, created a non-executive mineral interest rather than royalty interest). The Altman deed, however, did not expressly label the interest a "non-participating royalty interest." Id. at 118 (referring instead to a non-participating mineral interest).

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Texas Supreme Court decision, that multiplied, rather than analyzed, double fractions. 120 In other words, unlike Range Resources and Sundance Minerals, the Wynne/Jackson decision ignores the legacy of the usual 1/8 landowner's royalty, despite the express reference to that royalty in the deed. 2.

Lessonsfrom the Double and Restated FractionCasesfor the Shale Era

The results reached in Sundance Minerals, Range Resources, and Coghill reflect the analysis approach for double and restated fractions. 12 1 That approach respects the goal of deed interpretation, which is to ascertain the intent of the parties. The analysis approach also promotes title stability by seeking intent from the four corners of the deeds, without resorting to outside evidence. Sundance Minerals, Range Resources, and Coghill reach results consistent with language within the deeds. Specifically, the deeds in each of those cases mention the "usual 1/8 lease royalty" and describe the interest at issue as a fraction "of' that royalty.122 By noting those provisions and relying on Luckel's "harmonizing" approach, those opinions incorporate the legacy of that once-common royalty on drafting into the interpretative process. The Berry, Moore, and Wynne/Jackson opinions, on the other hand, ignore express references to the "usual 1/8 royalty" and other language, including the reference to a 1/5 interest in Berry and a 1/2 interest in Moore

120. The Wynne/Jackson court cited Harriss v. Ritter, a case which held that the double could have but one meaning and that is 1/16th of the fractions 'one-half of one-eighth ... royalty. . . .' See Wynne/Jackson Dev., 2013 WL 2470898, at *4 (quoting Harriss v. Ritter, 279 S.W.2d 845, 847 (Tex. 1955)). 121. See Coghill v. Griffith, 358 S.W.3d 834, 837-40 (Tex. App.-Tyler 2012, pet. denied) (using the four corners rule to determine that the parties intended to grant a fraction of royalty); Sundance Minerals, L.P. v. Moore, 354 S.W.3d 507, 511-13 (Tex. App.-Fort Worth 2011, pet. denied) (employing only "the express language found within the four corners of the [deed]" to determine the interest the parties intended to convey); Range Res. Corp. v. Bradshaw, 266 S.W.3d 490, 493, 496-97 (Tex. App.-Fort Worth 2008, pet. denied) (looking exclusively to the "[objective] intent expressed or apparent in the writing" to determine the royalty conveyed). Another recent case expressly endorses the analysis approach and consideration of the "estate misconception." See Hernandez v. El Paso Prod. Co., No. 13-09-184-CV, 2011 WL 1442991, at *4 (Tex. App.-Corpus Christi Apr. 14, 2011, pet. denied) (mem. op.) (citing Burney, Regrettable Rebirth of the Two-Grant Doctrine, supra note 14, at 86). See, e.g., Coghill, 358 S.W.3d at 838-39 (harmonizing the differing fractions in the 122. deed in light of the usual 1/8 royalty); Sundance Minerals, 354 S.W.3d at 511-12 (citation omitted) (finding the grantor meant to reserve "one half of the usual one eighth" royalty); Range Res., 266 S.W.3d at 493-95 (noting the problems the estate misconception played in deed construction).

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and Wynne/Jackson.'23 Further departing from the four-corners rule, the Moore and Wynne/Jackson opinions insert language not found in the document-the fraction 1/16.124 In short, these three decisions merely multiply and fail to analyze the language in the deeds. For future drafting, the decisions discussed above and others teach these lessons: drafters should state expressly whether they intend to convey or reserve a "fixed fractional interest" rather than a fraction "of' the royalty reserved in existing and any future leases. An additional statement should expressly clarify that, for instance, a fraction is not a "fixed" interest, if an "of' or floating royalty interest is intended. And the size of that "fraction 'of royalty" or "fixed royalty" should be stated as a single rather than a double fraction. However, as a Texas court noted in Barker v. Levy,125 when reviewing drafting advice regarding the "mineral or royalty" issue, "[i]t is quite probable that these [parties] now heartily agree with this advice.12 6 However, "it was written [decades] too late to have been helpful" in the shale era. 127 Title examiners could view the Texas Supreme Court's decisions declining petitions for review in Sundance Minerals, Range

See Wynne/Jackson Dev., 2013 WL 2470898, at *1-2, *5 (finding the interest conveyed 123. was a fractional royalty, not a fraction of royalty, and entitled Wynne/Jackson to one sixteenth of production instead of 1/2 of the usual 1/8 royalty); Moore v. Noble Energy, Inc., 374 S.W.3d 644, 651 (Tex. App.-Amarillo 2012, no pet.) (interpreting the deed to "reserve a royalty of one-half of one-eighth of production, or one-sixteenth"); Hudspeth v. Berry, No. 2-09-225-CV, 2010 WL 2813408, at *3 (Tex. App.-Fort Worth July 15, 2010, no pet.) (mem. op.) (interpreting the deed as granting two fixed royalty interest instead of the "1/5th of 1/8th" royalty). See Moore, 374 S.W.3d at 647-48 (relying on MARTIN & KRAMER, OIL AND GAS 124. LAW, supra note 27, § 327.2, at 83-94 to insert language into the deed). The Moore opinion also diverts to another troubled interpretative trail: the court views the lack of a producing well at the time the deed was drafted as relevant to interpreting the deed. See id. at 651. However, as I have written in other articles, allowing such extraneous facts to affect the interpretative process detracts from title stability. See Burney, InterpretingMineral and Royalty Deeds, supra note 6, at 29, 5253 (analyzing the Oklahoma approach, which allows the term "royalty" to change depending on existence of lease at time of drafting); see also Wynne/Jackson Dev., 2013 WL 2470898, at *1-2 (interpreting deed language describing a "'one-half (1/2) of the usual one-eighth (1/8) royalty in and to all oil, gas, and other minerals, produced, saved and sold from [such property]' as granting a fixed royalty of 1/16 of the production). 507 S.W.2d 613 (Tex. Civ. App.-Houston [14th Dist.] 1974, writ. ref'd n.r.e.). 125. 126. Id. at 618. See id. (alteration in original). In addition to the appellate cases discussed above, see 127. also Leal v. Cuanto Antes Mejor LLC, No. 04-14-00694-CV, 2015 WL 3999034, at *4 (Tex. App.-San Antonio July 1, 2015, no pet.) (mem. op.), for a case following the harmonizing approach and concluding the deed conveyed a floating royalty, and Butler v. Horton, 447 S.W.3d 514, 517, 519 (Tex. App.-Eastland 2014, no pet.), for a case construing the deed using the harmonizing approach to give effect to all provisions in the instrument. But see Jolly v. Wilson, 478 P.2d 886, 887-88 (Okla. 1970) (clinging to estate misconception and choosing to multiply double fractions).

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Resources, and Coghill as approval of those better-reasoned opinions.128 The Texas Supreme Court's opinions in Luckel and Concord Oil also support the approach in those three cases by acknowledging the legacy of the 1/8 royalty.12 9 Absent firmer endorsement from the state's high court, however, these mixed opinions may motivate parties to file lawsuits over deeds with double and restated fractions in the shale era. The next section addresses whether the recent Hysaw opinion has provided that endorsement. III. HYSAW V. DAWKINS: THE TEXAS SUPREME COURT ADDRESSES THE "DOUBLE FRACTION" DILEMMA

In addition to the appellate cases discussed above, the Fourth Court of Appeals produced two other opinions, reflecting different analytical approaches to double and restated fractions. One was Dawkins v. Hysaw,130 the opinion eventually reversed by the Texas Supreme Court, and another 131 was Graham v. Prochaska. Handed down only a few months before Dawkins, Graham held that a grantor reserved a floating 1/2 of the lease royalty in a new lease based on the reservation of "one-half (1/2) of the one-eighth (1/8) royalty ... same being equal to one-sixteenth (1/16th) of all oil, gas and other minerals ... ."132 In Graham, the court relied on Concord Oil and reasoned that the fraction 1/16 could be harmonized in light of the once-standard 1/8 lease royalty.133 Dissenting justices disagreed, having concluded that the majority opinion had improperly relied on outside deeds in reaching its conclusion.134 In Dawkins, however, the Fourth Court of Appeals does not cite Concord Oil, or invoke the effects of the "estate misconception" or the "legacy of the 1/8th lease royalty." Instead, the opinion viewed devises of a 1/3 of 1/8th non-participating royalty as creating a fixed 1/24th in certain lands, even though the fraction 1/24 does 128. The same reasoning would apply to the Texas Supreme Court's decision not to accept petitions for the multiclause deed cases, Garza and Hausser. But see TEX. R. APP. P. 56.1 (noting petitions denied do not carry the same precedential value as petitions refused, which are viewed as Supreme Court opinions). 129. See Luckel v. White, 819 S.W.2d 459, 462 (Tex. 1991) (discussing the "usual one-eighth royalty"); Concord Oil Co. v. Pennzoil Exploration & Prod. Co., 966 S.W.2d 451, 459 (Tex. 1998) (noting the prevailing royalty in private oil and gas leases was a 1/8 royalty during the Era in which the Concord deed was executed). 130. See generally Dawkins v. Hysaw, 450 S.W.3d 147 (Tex. App.-San Antonio 2014), rev'd, 483 SW.3d 1 (Tex. 2016) (providing a different analytical approach to double and restated fractions). 131. See generally Graham v. Prochaska, 429 S.W. 3d 650 (Tex. App.-San Antonio 2013, pet. denied) (providing another example of a case taking a different approach to double and restated fractions). 132. Id. at 658-59 (internal quotation marks omitted). 133. See id. at 659-60. 134. Id. at 666 (Barnard, J., dissenting).

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not appear anywhere in the mother's will.1 3 5 The losing parties in Graham and Dawkins filed petitions for review.13 6 Ultimately, the court denied the Graham petition and granted the petition in Dawkins.' 3 7 A.

Hysaw Facts138

The Will. Ethel Hysaw (Ethel) executed her Will in 1947 and died in 1949.139 She was survived by her three children, Inez Hysaw Foote (Inez), Howard Caldwell Hysaw, Jr. (Howard) and Dorothy Frances Hysaw Burris (Dorothy). 14 0 At the time she executed her Will, Ethel owned three non-contiguous tracts of land. Under the Will, she gave each child a specific tract of land-the north 600 acres of a 1065-acre tract went to Inez; the remaining 465 acres of that tract went to Dorothy; and a separate 200-acre tract (her homestead) and a 150-acre tract went to Howard.1 4 1 The Hysaw/Burris heirs, who lost in the court of appeals, argued that although Ethel gave different surface estates to each child, Ethel gave each child equal royalty interests in all of the tracts, including the surface tract willed to each child.1 4 2 The Will accomplishes this royalty grant in three paragraphs. The first paragraph sets out the basic grant to all three children and then provides a long clarification passage regarding what is granted to Inez.1 43 The second two paragraphs set out identical clarifying language with respect to Dorothy and Howard.144 The three paragraphs are set out below: That each of my children shall have and hold an undivided one-third (1/3) of an undivided one-eighth (1/8) of all oil, gas or other minerals in or under or that may be produced from any of said lands, the same being a non-participating royalty interest; that is to say, that neither of my children, to wit, Inez Hysaw Foote shall not participate in any of the bonus or rentals to keep any lease or leases in force; that it shall not be necessary for the said Inez Hysaw Foote to execute any oil, See Dawkins, 450 S.W.3d at 155-57. 135. See Brief for Appellants, Graham v. Prochaska, 429 S.W.3d 650 (Tex. App.-San 136. Antonio 2013, pet. denied) (No. 04-12-00755-CV), 2013 WL 6815120; Brief of Appellants, Dawkins, 450 S.W.3d 147 (No. 04-13-00539-CV), 2013 WL 7085831. See Hysaw v. Dawkins, 483 S.W.3d 1, 3 (Tex. 2016). See generally Graham, 429 S.W. 137. 3d 650 (displaying there is no subsequent Supreme Court opinion). The facts provided here appeared in Hysaw's Brief on the Merits in the Texas Supreme 138. Court. Petitioners' Brief on the Merits at 4-6, Hysaw, 483 S.W.3d 1 (No. 14-0984), 2015 WL 4162779, at *1 (citations omitted). 139. Id. at *1, *16. Id. at *1. 140. 141. Id. Id. at *4. 142. Id. at *2-3. 143. Id. at *3-4. 144.

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gas or mineral lease over the lands of Dorothy Frances Hysaw Burris or over the lands of Howard Caldwell Hysaw, Jr., and that it shall not be necessary for Inez Hysaw Foote to obtain the consent either orally or written of the said Dorothy Frances Hysaw Burris or Howard Caldwell Hysaw, Jr., to lease any portion of said land so willed to her for oil, gas or other minerals, but that the said Inez Hysaw Foote shall receive one-third of one-eighth royalty, provided there is no royalty sold or conveyed by me covering the lands so willed to her, and should there be any royalty sold during my lifetime then the said Inez Hysaw Foote, Dorothy Frances Hysaw Burris and Howard Caldwell Hysaw, Jr. shall each receive one-third of the remainder of the unsold royalty. That Dorothy Frances Hysaw Burris shall not participate in any of the bonus or rentals to keep any lease or leases in force; that it shall not be necessary for the said Dorothy Frances Hysaw Burris to execute any oil, gas or mineral lease over the lands of Inez Hysaw Foote or over the lands of Howard Caldwell Hysaw, Jr., and it shall not be necessary for Dorothy Frances Hysaw Burris to obtain the consent, either orally or written, of the said Inez Hysaw Foote or Howard Caldwell Hysaw, Jr., to lease any portion of said land so willed to her for oil, gas or other minerals, but that the said Dorothy Frances Hysaw Burris shall receive one-third of one-eighth royalty, provided there is no royalty sold or conveyed by me covering the lands so willed to her, and should there be any royalty sold during my lifetime then the said Dorothy Frances Hysaw Burris, Inez Hysaw Foote and Howard Caldwell Hysaw, Jr., shall each receive one-third of the remainder of the unsold royalty. That Howard Caldwell Hysaw, Jr., shall not participate in any of the bonus or rentals to keep any lease or leases in force; that it shall not be necessary for the said Howard Caldwell Hysaw, Jr., to execute any oil, gas or mineral lease over the lands of Inez Hysaw Foote or over the lands of Dorothy Frances Hysaw Burris, and it shall not be necessary for Howard Caldwell Hysaw, Jr., to obtain the consent either orally or written of the said Inez Hysaw Foote or Dorothy Frances Hysaw Burris to lease any portion of said land so willed to him for oil, gas or other minerals, but that the said Howard Caldwell Hysaw, Jr., shall receive one-third of one-eighth royalty, provided there is no royalty sold or conveyed by me covering the lands so willed to him, and should there be any royalty sold during my lifetime then the said Howard Caldwell Hysaw, Jr., Inez Hysaw Foote and Dorothy Frances Hysaw Burris shall each receive one-third of the remainder of the unsold royalty.145

145.

Id. at *2-4.

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The Hysaw and amici curiae briefs urged the Court to consider that Ethel's grant to each child of different surface tracts and a grant to each child of an equal share in the royalties in all tracts is a common approach in partitioning surface and mineral estates.146 When partitioning surface and mineral estates by deed or will, owners often grant unequal surface estates to family members but-because mineral estates cannot be easily valuedrequire equal sharing in the oil and gas production from all tracts. 147 In 1946, before she executed the Will, Ethel gave each child an equal share in some of her royalties in the 200- and 150-acre tracts given to Howard.148 The six deeds making these conveyances give each child an 149 equal portion of Ethel's royalty in each tract. The Hysaw and Weafer Petitioners (Hysaws) are Howard's descendants."so The Burrises, the Burris partnership and the Dziuk Petitioners are Dorothy's descendants or successors.15 1 The Burrises and Hysaws are referred to collectively as the "Hysaw/Burrisses." The Dawkins and Oxford Respondents are Inez's 52 descendants and are collectively referred to as the "Dawkins."l The Dispute. This dispute arose after production occurred on a 1/5 153 Under a 1/8 royalty lease the Dawkins executed on Inez's 600 acres. all parties Will, her executed Ethel when royalty lease that was the standard with children would have agreed that the Will provided each of her three 154 The Dawkins, however, contend[ed] that, equal shares of the royalty. under the 1/5 royalty lease they executed, the Will provide[d] them with over three times the royalty provided to Howard and Dorothy's

The Hysaw's Brief on the Merits urged the court to consider this customary approach to 146. partitioning land and minerals, as did Mr. Jeff Akins in an amicus curiae brief he filed. See id.; Brief of Amicus Curiae Jeffrey R. Akins, Attorney at Law at 1-3, Hysaw, 483 S.W.3d 1 (No. 140984), 2015 WL 636734, at *1-3. Two other amicus curiae briefs were filed. One by two former chairs of the Oil, Gas and Energy Resources Section of the State Bar of Texas, Cottingham Miles and Allen Cummings, and another on behalf of Trinity Minerals, Inc., filed by J. Byron Burton III. See Brief of Aniicus Curiae at 1-5, Hysaw, 483 S.W.3d 1 (No. 14-0984), 2015 WL 751689, at *15; Brief of Amicus Curiae Trinity Mineral Management, Ltd. at 6-15, Hysaw, 483 S.W.3d 1 (No. 14-0984), 2015 WL 1884828, at *6-15. Petitioners' Brief on the Merits, supra note 138, at 7 ("Because parties to a voluntary 147. partition are often unwilling to run the risk that only part of the land may contain oil and gas, it is not uncommon for cotenants to partition only the surface and continue to own undivided interests in the minerals estate." (internal quotation marks omitted) (quoting SMITH & WEAVER, supra note 7, § 2.3[A][4], at 2-41)). 148. Id. Id. 149. Id. 150. Id. at *7-8. 151. Id. at *8. 152. 153.

Id.

154.

Id.

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descendants."' The Hysaw/Burrisses contend[ed] that the Will created equal floating 1/3 of royalty interests, meaning all three children share equally regardless of the size of the lease royalty in all of the lands devised under the Will. 15 6

The Dawkins [argued] that Howard's and Dorothy's descendants each received only a fixed 1/24 royalty in Inez's land and that the Dawkins therefore get all royalty in excess of a 2/24 royalty on Inez's lands. At the same time, the Dawkins claim[ed] that equal sharing is required on Howard's two tracts because Ethel conveyed some of the royalty on those tracts before she died."' For this argument, they rely on the final phrase regarding any 'sale' of royalties before Ethel's death. The parties stipulated to the pertinent facts and filed cross-motions for summary judgment." The district court granted the Hysaw/Burrisses' motion, requiring equal sharing to apply for royalties in all of the lands. The Dawkins appealed.159 The court of appeals reversed. In its opinion, the court began by examining the three phrases in the royalty paragraphs "individually" and determining what each one meant. 160 The court first addressed the phrase that "each of my children shall have and hold an undivided one-third (1/3) of an undivided one-eighth (1/8) of all oil, gas or other minerals in or under or that may be produced" and held that this language "clearly and unambiguously describes a fractional royalty interest"-a 1/24 royalty. 16 1 The court stated this phrase was a "reservation" of fixed 1/24 royalties only for Dorothy and Howard. Later in the opinion, the court also calls it a "grant." 1 62

The court held that the second phrase, that "[each child] shall receive one-third of one-eighth royalty" also "clearly describes a fractional royalty interest-a fixed fraction of production' and further held that it 'simply restates the first provision's grant."1 63 The court treated this phrase as applying to all three children and stated it did not "limit[] the surface estate owner of any royalty in excess of 1/24 of production," indicating the surface estate owner's ownership of royalty in excess of 1/8 came from "the earlier grant of fee simple title." 64 Finally, the court held that the third 155. Id. 156. Id. 157. Id. at *8-9. 158. Id. at *9. 159. Id. 160. Id. 161. Id. (citing Dawkins v. Hysaw, 450 S.W.3d 147, 154 (Tex. App.-San Antonio 2014), rev'd, 483 S.W.3d 1 (Tex. 2016)). 162. Id. (quoting Dawkins, 450 S.W.3d at 155). 163. Id. at *10 (quoting Dawkins, 450 S.W.3d at 154, 156). 164. Id. (quotingDawkins, 450 S.W.3d at 156).

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phrase was "clear and unambiguous" and "conditionally conveys a fraction of royalty interest" i.e., a second grant of a floating 1/3 of the royalty in Howard's lands to each child because Ethel had conveyed some of those royalties to her children before she died. The court refers to this third phrase both as a conveyance and as a "conditional reservation of a fraction of royalty."l6 5 These holdings resulted in Inez's descendants receiving royalties under the Dawkins' lease more than three times greater than her siblings' descendants but sharing equally in royalties from any lease on the tracts given to Howard. 16 6 In contrast, under the Hysaw/Burrises' interpretation of Ethel's Will, the children share equally by owning a floating 1/3 NPRi in all three tracts.1 67 In its opinion, the Texas Supreme Court agrees with this equal-sharing interpretation.1 6 8 B.

The Texas Supreme Court Opinion: Affirming a "Holistic"Analytical Approach Rather Than "Merely Multiplying" Double Fractions

The Texas Supreme Court's opinion begins with this description of the issue: Questions arise about whether double fractions must be multiplied and the royalty interest fixed without regard to the royalty negotiated in a future mineral lease (fractional royalty) or whether 1/8 was intended as a synonym for the landowner's royalty, meaning the interest conveyed varies depending on the royalty actually obtained 169 in a future mineral lease (fraction of royalty). In answering these questions, the court reaffirmed its commitment to a "holistic approach" aimed at ascertaining intent from the entire document. 7 o For that reason, the court eschewed mechanical or bright-line rules, such as merely multiplying double fractions."' In criticizing the court of appeals' decision, the court opined that the lower court had departed from this holistic approach by viewing the separate clauses in the will in isolation. 17 2 Demonstrating its commitment to the "holistic approach," the opinion 73 carefully and thoroughly addressed all the language in the will.' Key 165. 166.

Id. (quoting Dawkins, 450 S.W.3d at 155). Id. at *10-11.

167.

Id. at *11.

168. 169. 170. 171. 172. 173.

See Hysaw v. Dawkins, 483 S.W.3d 1, 15 (Tex. 2016). Id. at 4. Id. at 13. See id. Id. at 13-14. See id. at 8, 13-15.

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phrases the court emphasized included the deliberate recitation of identical language to affect each child's royalty, and the use of a double fraction in lieu of single fixed fractions-with one suggesting "equality among the three children (1/3) and the other raising the specter of estate misconception or use of the then-standard 1/8 royalty as a synonym for the landowner's royalty." 17 4 By acknowledging the influence of the 1/8 landowner's royalty, the court confirmed its statement in Concord Oil that the "estate misconception" remains instructive but not determinative in the deed interpretation process."' Yet the opinion's thorough analysis of the estate misconception and the influence of the once-standard 1/8 royalty on drafting signals that title examiners should consistently turn to those explanations when interpreting deeds with different fractions that are multiples of 1/8. For example, citing Luckel, the Hysaw opinion describes, "The near ubiquitous nature of the 1/8 royalty-dubbed by some as 'the legacy of the 1/8th royalty' or 'historical standardization'-no doubt influenced the language used to describe the quantum of royalty in conveyances of a certain vintage."l7 6 Additionally, the opinion criticizes merely multiplying fractions as a "mechanical approach" that "fails to accord any significance to the use of double fractions."'7 7 Endorsing the analysis approach this Article describes above, the court describes its previous decisions, including Luckel and Concord Oil, as "our precedent" for "an analytical approach that emphasizes the four-corners rule and harmonization principles.""7 Adhering to the harmonizing principles, the opinion returns to the express language of Ethel's will. The court noted the equal-sharing language in the third and final provision of each royalty clause supported a conclusion that she intended for each of her three children to share equally in the royalties under all the divided tracts.179 After a review of case law and the language in the will, the court concluded: The only plausible construction supported by a holistic reading of the will is that Ethel used "one-eighth royalty" as shorthand for the entire royalty interest a lessor could retain under a mineral lease, anticipated the siblings would share that royalty equally, and intended proportional equalization of any royalty remaining following an inter

174. Id. at 15. 175. See id. at 8, 13. 176. Id. at 9-10 (citing Garrett v. Dils Co., 299 S.W.2d 904, 907 (Tex. 1957); Graham v. Prochaska, 429 S.W.3d 650, 657 (Tex. App.-San Antonio 2013, pet. denied)). 177. Id. at 12. 178. Id. 179. Id. at 15.

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vivos transaction. We therefore hold that Ethel's will devised to each child 1/3 of any and all royalty interest on all the devised land tracts. 180 IV. CONCLUSIONS: HYSAW'S IMPLICATIONS FOR INTERPRETING AND DRAFTING IN THE SHALE ERA

With Hysaw, the Texas Supreme Court answered pleas for guidance to resolve the conflicting interpretative approaches among appellate courts. As discussed above, those approaches fall into one of two camps: (1) the mechanical or "merely multiply" approach that failed to incorporate the legacy of the 1/8 royalty or the effect of estate misconception on drafting into the interpretative process; and (2) the analysis approach, which harmonized conflicting fractions, which are consistently multiples of the once-common 1/8 royalty, by acknowledging the effects of the estate misconception on drafting.' Although Hysaw reaffirms a "holistic" approach that requires analyzing all language and provisions in documents, it eschewed the mechanical approach and endorsed the analysis approach. Hysaw should provide confidence to title examiners who have declined to "merely multiply" double fractions when one of those fractions is the once-common 1/8th landowner's royalty. And for those considering litigation, other courts are likely to view the 1/8th as meaning "landowner's royalty," and the fraction paired with the 1/8th as reflecting the parties' intent regarding the size of the floating non-participating royalty interest conveyed or reserved. Moreover, in light of Hysaw's confirmation of the analysis approach as established in the multiclause deed cases, Concord Oil and Luckel, the estate misconception should be applied even when the 1/8th fraction does not appear in the deed. Recall that in Concord Oil, the court interpreted the conflicting fractions 1/12 and 1/96 as conveying a single 1/12 mineral interest. Similarly, in Luckel v White, the court interpreted the fractions 1/32 and 1/4 as conveying a floating 1/4th non-participating royalty interest. Neither deed contained express references to the oncecommon 1/8th landowner's royalty, yet both opinions addressed the legacy 182 of that royalty in the interpretative process. Unfortunately, a post-Hysaw opinion from the same court that Hysaw reversed has created title uncertainty in an opinion interpreting a deed with

180. 181. 182.

Id. at 15-16 (footnotes omitted). See supra Part II.C. See supra Part II.B.1; see also supra note 109 and accompanying text.

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"restated fractions." In Laborde Properties v. U. S. Shale Energy II,183 the court held the following reservation created a fixed 1/16th non-participating royalty rather than a 1/2 floating interest: "There is reserved and excepted from this conveyance unto the grantors herein,... an undivided one-half (1/2) interest in and to the Oil Royalty, Gas Royalty and Royalty . . . the same being equal to one-sixteenth (1/16) of the production."' 8 4 The court's opinion reversed the trial court's ruling that this language created a floating 1/2 royalty interest, and contradicted the same conclusion reached by a disinterested operator charged with paying royalties from the land.1 ss In reaching its conclusion, the court of appeals opinion departs from Hysaw, Concord Oil, and Luckel by failing to acknowledge that under the estate misconception the fractions 1/16 and 1/2 can be harmonized because 1/16 represents the amount of royalty owed to the owner of a 1/2 floating NPRi under a lease with the once-common 1/8 lease royalty. Contradicting those Texas Supreme Court opinions, the Laborde opinion suggests that such a harmonizing approach is not permitted unless the fraction 1/8 appears in the deed.' 86 Additionally, the Laborde reservation tracks language in a 1980 Texas Supreme Court case discussed above, Brown v. Havard, yet Laborde never cites or analyzes the Brown case.' 87 183. Laborde Props., L.P. v. U.S. Shale Energy II, LLC, No. 04-16-00168-CV, 2016 WL 5922404 (Tex. App.-San Antonio Oct. 12, 2016), reh'g denied, No. 04-16-00168-CV, 2016 WL 7445084 (Tex. App.-San Antonio Dec. 28, 2016, pet. filed) (mem. op.). 184. Id. at*1. 185. Appellees' Motion for Rehearing En Banc at 7, Laborde, 2016 WL 7445084 (No. 0416-00168-CV) (citing the trial court's ruling finding reservation created a floating NPRi and describing payor EOG's conclusion that the deed created a floating NPRi after reviewing Hysaw and other fourth district court of appeals decisions). The author of this article was hired to contribute to this Motion. 186. Compare Laborde, 2016 WL 5922404, at *9 ("The 1951 deed does not contain any languagefrom which we can objectively find the parties assumed a one-eighth (1/8) royalty in any current or future lease."), with Concord Oil Co. v. Pennzoil Exploration & Prod. Co., 966 S.W.2d 451, 459-60 (Tex. 1998) (recognizing court has taken judicial notice of usual 1/8 royalty when interpreting factions that are multiples of 1/8), and Luckel v. White, 819 S.W.2d 459, 462 (Tex. 1991) (recognizing parties "contemplated nothing other than the usual one-eighth royalty" and holding deed with fractions 1/32 and 1/4 conveyed a floating 1/4 NPRi). See supra Part IIB, for a discussion of the conclusions of Concord Oil and Luckel. In a footnote, the Laborde opinion proclaims, "There is nothing to suggest the [estate misconception] theory applies only to show an intent to create a floating as opposed to a fixed interest." Laborde, 2016 WL 5922404, at *10 n.3. Although it is correct that the estate misconception does not create a bright-line rule, the Laborde opinion fails to properly acknowledge that the fractions here are multiples of 1/8th, which effectively ignores the presence of the 1/2 fraction, an approach that violates Hysaw's holistic approach. Just as Hysaw criticized the lower court for reading the fraction 1/24 into that deed, in Laborde, the same court fails to give weight to the initial 1/2 fraction. 187. See Appellees' Motion for Rehearing En Banc, supra note 185, at 8-11. See supra Part II.C.1, for a discussion of Brown. See also Order on Appellees' Motion for En Banc Reconsideration, Laborde, 2016 WL 5922404 (04-16-00168-CV) (dissent to the denial by Chief Judge Marion and Judge Martinez; dissent with opinion by Judge Chapa).

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In contrast to Laborde, another post-Hysaw appellate court opinion, Greer v. Shook, emulates the Texas Supreme Court's approach to interpreting a multiclause deed with the conflicting fractions 1/16 and 1/2.188 After first determining that the multiclause deed conveyed a mineral interest, the court engaged in the harmonizing process to determine whether the grantee received a 1/16 or 1/2 interest. 189 in concluding the deed conveyed a 1/2 mineral interest, the court harmonized the presence of the 1/16 fraction by noting that the drafter "used the fraction 1/16 in paragraphs 1 and 6 as shorthand for expressing that he intended to convey 1/2 of what he believed was his remaining 1/8 mineral interest in the land, i.e., 1/2 of that purported 1/8 interest." 90 As part of that process, the court turned to the estate misconception and the effect of the once-common 1/8 royalty on drafting, even though the deed at issue did not contain the 1/8 fraction. For other post-Hysaw disputes over deeds with conflicting, double, or restated fractions, courts, producers, lawyers, and other title examiners should heed the lessons of Hysaw as reflected in Greer. Drafting Lessons. When drafting these interests in the future, parties can avoid the unpredictable results demonstrated in the pre-Hysaw (and post-Hysaw) opinions by using the "fixed" or "floating" labels."' For example: "Grantor hereby conveys to Grantee a fixed 1/16th nonparticipating royalty interest." If the parties intend to create an NPRi that will "float" with the royalty reserved in any lease on the property, existing or future, the document should make that statement: "Grantor hereby reserves a 1/2 non-participating royalty interest (not a mineral interest) that will float with the size of the landowner's royalty reserved in any lease on the premises conveyed herein." To avoid confusion and litigation, omit a second "restated" fraction reflecting the amount of production the owner will receive as a matter of law. Similarly, in describing the size of the intended floating fraction, which was 1/3 in Hysaw, parties should avoid double fractions ("1/3 of 1/8th" from Hysaw). In fact, the "legacy of the 1/8th lease royalty" includes the lesson that it has no place in drafting shale era mineral and royalty interests.

Greer v. Shook, No. 08-15-00040-CV, 2016 WL 6092963, at *8 (Tex. App.-El Paso 188. Oct. 19, 2016). 189. Id. at *11. 190. Id. at *14. 191. The Texas Supreme Court has confirmed that labels should be used to clarify whether the parties intend to create a mineral or a royalty interest. Burney, Oil, Gas, and Mineral Titles, supra note 5, at 126-28 (discussing Texas cases that confirmed the value of the "royalty" label in interpreting and drafting).

CLOAKED IN ATTORNEY IMMUNITY: THE LONE

STAR STATE'S LICENSE TO LIE? AARON K. BENDER AND ANDREW B. BENDER

I. PROLOGUE

...............................................

146

............ 148 ............................... II. INTRODUCTION III. BACKGROUND BEHIND THE ATTORNEY IMMUNITY DOCTRINE IN TEXAS

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149

...... 149 ..................... A. Laying the Foundation B. HistoricalOrigins ofAttorney Immunity in Texas.................. 150 ..... 150 1. Poole v. Houston & T.C. Railway Company .... 151 ........ ................... 2. Kruegel v. Murphy 152 TEXAS.. IN IMMUNITY IV. FIRMLY ROOTED ISSUES WITH ATTORNEY Judgment A. Texas CourtsApply InconsistentSummary ............. 152 Standardsfor Attorney Immunity........ Stem Immunity Attorney B. The Inconsistencies Surrounding Its and v. West on Bradt from Texas Courts'Reliance ............. 154 ............................ Progeny 155 ................ 1. Bradt v. West.................. 157 Cracken.......................... Bell v. Taco 2. 159 ...... ......... Bell and Taco Bradt with Problems The C. 160 ............ ... DEVELOPMENTS IMMUNITY ATTORNEY RECENT V. 161 ............................... Galbraith. A. Gaia v. B. Cantey Hanger, LLP v. Lucy Leasing Company, LLC........... 165 VI.

PROPOSED SOLUTIONS TO THE ATTORNEY IMMUNITY DOCTRINE................................................

A. B. VII.

167 ...... 167 Cantey Hanger and Gaia Should be Revisited ..... Texas Courts Need to Implement a Simple Burden Shifting ............. 171 ............................ Analysis

CONCLUSION

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171

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"Lawyers can steal more money with a briefcase than a thousand men with guns and masks." I.

PROLOGUE

In a cluttered boardroom on the top floor of a downtown Houston skyscraper, a young, overworked associate attorney exhales as he peers out the window at the sprawling urban landscape. The young attorney's gaze is only momentary, as the tense conversation in the boardroom between two partners at his firm and the Chief Executive Officer of a major oil and gas company captures his attention. CEO: Gentlemen, this is bad. Our former employees' pension fund is suing us for two million dollars. And now you're telling me that a senior accountant for a "Big 4" accounting firm just testified at a deposition that I pressured him into filing a falsified earnings report to the SEC and shredded documents to cover up the evidence? I don't care that his testimony is true; we need to fix this! Partner 1: Agreed. The senior accountant's testimony is critical because it establishes that the company knew about the falsified reports. We just need a little more time to figure this out. And we will. After all, you're paying us the big bucks. CEO: I have a plan. You need to convey the message to opposing counsel that if the senior accountant doesn't change his testimony, then we will take our nine-figure business elsewhere. Partner 2: Absolutely not. Have you lost your mind? That's against the law. We could get sanctioned! Partner 1: Sanctioned? We could get sued! We can't do that. Partner 2: We could be sued as co-conspirators. We need to stop this conversation immediately. Overworked Associate: Respectfully, I disagree. We could get sanctioned; the firm may get sued. But if the trial court follows the lawneither you, Mr. CEO, nor our firm will ever face a jury. CEO: Perfect. Let's do it. Partner 1: Not so fast. That sounds like suborning perjury. Partner 2: Yeah! How can that be true? Overworked Associate: I just read Gaia v. Galbraith, where the Fourteenth District Court of Appeals says that lawyers are immune from civil liability in this exact situation.2 In that case, the court affirmed the trial

1. MARio PUZo, THE GODFATHER 275 (Signet 1978) (1969). 2. See Gaia Envtl., Inc. v. Galbraith, 451 S.W.3d 398, 399-400 (Tex. App.-Houston [14th Dist.] 2014, pet. denied).

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court's grant of summary judgment based on the attorney immunity doctrine.' And the Supreme Court denied the petition for review. CEO: So it's settled then. Young associate, you will threaten the senior accountant to change his testimony. Overworked Associate: But I don't want to get sanctioned or lose my bar card. CEO: I'll make you an offer you can't refuse. You get that senior accountant to change his testimony. Make him say that he "misunderstood" the deposition questions. If you do that, I'll make it where you never have to work another day in your life. You can go ahead and tear that bar card of yours into pieces. How does a seven-figure bonus sound? Overworked Associate: Deal. These partners work me to the bone and I'd rather sip pifia coladas on a beach somewhere than draft memos in a windowless room all day. Fast forward three months and the overworked associate successfully coerces the senior accountant to change his testimony. At trial, the senior accountant testifies that his deposition testimony was a misunderstanding. As a result, the large oil and gas company escapes liability and the employees recover nothing from their lost pensions. Shortly after trial, counsel for the former employees learn that the overworked associate threatened the senior accountant to change his testimony. Enraged, the attorney relays this information to his clients. The clients then instruct the attorney to sue the young, overworked associate and his law firm for preventing their recovery from the pension fund. As instructed, the attorney files suit against the overworked associate and his firm. In response, the overworked associate files a motion for summary judgment based on the attorney immunity doctrine. Citing Gaia v. Galbraith,the trial court grants the motion. The opposing attorney files a grievance with the State Bar of Texas. But by this time, the now-retired, previously overworked associate has already collected his bonus and sent in his resignation to the State Bar of Texas. Now, on a beach somewhere, he smiles as he sips his pifia colada and watches the ocean's surf meet the sand.4

Id. at 400. 3. The authors would like to thank and acknowledge both Mike Hatchell and Bryan 4. Garner for the idea to include a fictional prologue in this Comment as a creative way to convey a point. See BRYAN A. GARNER, THE WINNING BRIEF 18, 22-28 (3d ed. 2014). The authors would also like to thank Michael C. Watson for helping develop the prologue's substance.

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INTRODUCTION

The above scenario is a hypothetical. But it illustrates a scene that could soon play out in law offices across the State of Texas. Imagine the result if lawyers begin to offer incentives for witnesses to change their sworn testimony. Imagine the result if lawyers begin to commit widespread fraud for their clients. A legal doctrine that permits such behavior would shift the litigation landscape from a search for the truth to a reward to those who bury it. In Texas, attorneys receive absolute immunity from civil liability for conduct that may harm a non-client during the litigation process.s This doctrine helps ensure that attorneys zealously represent their clients rather than balance their own exposure to liability against a client's best interests.6 Although the majority of states have adopted a version of the attorney immunity doctrine for this purpose,' Texas appellate courts have widened the scope of its version to broadly sweep improper attorney conduct under its cloak of protection.' With such a wide scope, the attorney immunity doctrine invites Texas attorneys to potentially act maliciously on behalf of their clients, pushing the boundaries of zealous representation too far. Unfortunately, the recent problems regarding the breadth of the doctrine's scope only scrape the surface of the deep-rooted problems the attorney immunity doctrine poses in Texas. Attorney immunity operates as an affirmative defense, often asserted at the summary judgment stage of litigation.9 Yet, Texas appellate courts have applied the attorney immunity doctrine inconsistently, creating conflicts of law between and, in some circumstances, within courts.o With no settled law in place, Texas appears to provide a place that promotes attorney misconduct. This Comment aims not only to expose the problematic developments regarding the attorney immunity doctrine in Texas, but also to propose simple solutions to those problems. First, it will give an overview of how attorney immunity works presently and contrast it with two cases that introduced the doctrine to Texas. Then, it will highlight the summary judgment inconsistencies with the doctrine and explore how two cases spawned those issues. Afterwards, this Comment will demonstrate the doctrine's broad scope by detailing two recent cases and their alarming 5. Troice v. Proskauer Rose, L.L.P., 816 F.3d 341, 346-47 (5th Cir. 2016). 6. Bradt v. West, 892 S.W.2d 56, 71 (Tex. App.-Houston [1st Dist.] 1994, writ denied). 7. T. Leigh Anenson, Absolute Immunity from Civil Liability: Lessons for Litigation Lawyers, 31 PEPP. L. REV. 915, 917-18 (2004). 8. See, e.g., Cantey Hanger, LLP v. Byrd, 467 S.W.3d 477, 488 (Tex. 2015) (Green, J., dissenting). 9. See Troice, 816 F.3d at 347. 10. See discussion infra Part IV.A.

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holdings. Finally, it will propose solutions to these problems and briefly conclude. III. BACKGROUND BEHIND THE ATTORNEY IMMUNITY DOCTRINE IN TEXAS What follows is a brief overview of the substantive and procedural rules of the attorney immunity doctrine in Texas, followed by a synopsis of the first two cases involving the doctrine in Texas. Laying the Foundation

"[A]ttorney immunity is properly characterized as a true immunity from suit."" Texas authorizes its attorneys "to practice their profession, to advise their clients and interpose any defense or supposed defense, without making themselves liable for damages." 2 This ensures "loyal, faithful, and aggressive representation by attorneys employed as advocates."l 3 To hold an attorney liable for actions taken in the course of representing a client would force the attorney to constantly "balance his own potential exposure against his client's best interest[s]."l 4 Such a "result would act as a severe and crippling deterrent to the ends of justice" due to the possibility "that a litigant might be denied a full development of his case."" Therefore, attorney immunity protects the attorney-client relationship by encouraging attorneys to zealously and loyally represent their clients.1 6 Attorney immunity protects not only attorneys and clients in private practice, but also the "substantial public interest" in the effective functioning of our adversary system.17 Courts often determine that the interest in preserving the integrity of our advocacy system outweighs any monetary interest of a party injured by an attorney's conduct during litigation.' 8 When balancing these interests, courts often put their "thumb on the scales" to extend attorney immunity to litigation lawyers. 19 Perhaps this stems from the view that if an attorney violates her professional

Troice, 816 F.3d at 346. 11. 12. Kruegel v. Murphy, 126 S.W. 343, 345 (Tex. Civ. App.-Dallas 1910, writ ref d). 13. Mitchell v. Chapman, 10 S.W.3d 810, 812 (Tex. App.-Dallas 2000, pet. denied). 14. Alpert v. Crain, Caton & James, P.C., 178 S.W.3d 398, 405 (Tex. App.-Houston [1st Dist.] 2005, pet. denied). 15. Morris v. Bailey, 398 S.W.2d 946, 947 (Tex. Civ. App.-Austin 1966, writ ref d n.r.e.). 16. Anenson, supra note 7, at 922-24. 17. Troice v. Proskauer Rose, L.L.P., 816 F.3d 341, 346-47 (5th Cir. 2016). 18. Anenson, supra note 7, at 921. 19.

See Paul T. Hayden, Reconsidering the Litigator'sAbsolute Privilege to Defame, 54

OHIO ST. L.J. 985, 1020 (1993).

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responsibility, the remedy is public, not private.20 In other words, court imposed penalties such as sanctions, contempt, and ethical violations act as a more appropriate deterrent for attorney misconduct.2 1 B.

HistoricalOrigins ofAttorney Immunity in Texas

The attorney immunity doctrine has not always swept so broadly. As a common law doctrine in Texas, its origins trace back to two seminal cases decided more than 100 years ago. This section explores those two cases in further detail and discusses how they serve as the foundation for the attorney immunity doctrine in Texas. 1.

Poole v. Houston & T.C. Railway Company

In 1882, the Texas Supreme Court first addressed what would later become the attorney immunity doctrine in Poole v. Houston & T. C Railway Co. 22 In that case, a Galveston, Texas merchant named W.E. Poole sold thirteen cases of boots and shoes to La Prelle & Bro., merchants based out of Marlin, Texas.23 Soon after Poole shipped the goods by train, he learned that La Prelle was insolvent and telegraphed his attorney in Marlin to intercept the goods.24 So Poole's attorney gave written notice to the station agent at the railroad company in Marlin to hold onto the shipment.25 But La Prelle heard about Poole's plan and conceived a counterplanto send their attorney, J.L. Scott, to intercept the goods in the nearby city of Hearne, Texas before they arrived in Marlin.26 La Prelle assigned a fraudulent bill of lading to Scott and a written order for the station agent for the railroad company in Hearne to re-route the shipment.27 Once Scott intercepted the goods in Hearne, he changed the recipient's name on the goods to the name of a fake firm, removed La Prelle's name from the goods, and reshipped them to the original destination.2 8 Shortly after, La Prelle received the shipment in Marlin.29

20. See Renfroe v. Jones & Assocs., 947 S.W.2d 285, 287 (Tex. App.-Fort Worth 1997, writ denied). 21. Cantey Hanger, LLP v. Byrd, 467 S.W.3d 477, 482 (Tex. 2015). Poole v. H. & T. C. Ry. Co., 58 Tex. 134 (1882). 22. 23. Id. at 135. 24. Id. 25. Id. 26. Id. 27. Id. 28. Id. 29. Id.

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Poole then sued the railroad company, La Prelle, and Scott for fraud.30 At trial, Scott argued that he could not be held liable because he acted merely as an attorney for La Prelle." The jury agreed and returned a verdict in favor of Scott and the other defendants.32 Poole appealed to the Texas Supreme Court.33 The court rejected the notion that Scott's status, as an attorney representing a client, would immunize him from suit when he knowingly committed willful and premeditated fraud against Poole.34 Although Scott acted under the guise of representing his client, his wrongful acts were "entirely foreign to the duties of an attorney."" Texas courts have used the "foreign to the duties of an attorney" language to limit the applicability of the attorney immunity doctrine.3 6 2.

Kruegel v. Murphy

Texas courts would not dismiss a claim based on attorney immunity until almost thirty years later in Kruegel v. Murphy.37 There, Kruegel lost an underlying suit as a plaintiff, alleging that he was damaged from a company's allegedly fraudulent commercial activities." Kruegel then sued the defendant company along with judges, court clerks, and opposing attorneys engaged in the underlying case for "conspiring to defraud him by preventing him from recovering in [the underlying] litigation."39 The district court dismissed the claim on special exceptions, as the petition generally alleged fraud and conspiracy but failed to allege any specific act.40 The court of appeals affirmed the dismissal, reasoning that all of the defendants were merely acting within their specific role during the litigation process.4 1 In regards to Kruegel's claim against his opposing counsel, the court noted that "[t]he attorneys are authorized to practice their profession, to advise their clients and interpose any defense or supposed defense,

30. Id. at 135, 137. Id. at 137 ("It is said by some of the witnesses that he was the attorney for and 31. representing the La Prelles."). 32. Id. at 135. 33. See id at 137. 34. Id. at 137-38. 35. Id. at 137. 36. Sam Johnson, The Litigation Privilege in Texas, 3 ST. MARY'S J. ON LEGAL MALPRACTICE & ETHICS 164, 193 (2013). Kruegel v. Murphy, 126 S.W. 343, 344-45 (Tex. Civ. App.-Dallas 1910, writ ref'd). 37. 38. Johnson, supra note 36, at 168. 39. Kruegel, 126 S.W. at 343. 40. Id. 41. Id. at 345.

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without making themselves liable for damages." 4 2 Texas courts generally agree with these foundational rules of law.4 3 The disagreement instead concerns the procedure governing how the rule operates. IV. FIRMLY-ROOTED ISSUES WITH ATTORNEY IMMUNITY IN TEXAS

As mentioned above, attorney immunity is an affirmative defense that generally protects an attorney from liability to a third party for actions taken while representing a client.44 A major underlying policy for immunizing attorneys from liability is to give them the ability to advocate for their clients "to the best and fullest extent allowed by law."45 "But even the most skilled attorney[s] cannot defend [their] client's position to the [best and] fullest extent 'allowed by law' when the law itself is unsettled." 46 Texas courts have varied in their procedural approaches-muddying the water in the process. A.

Texas Courts Apply InconsistentSummary JudgmentStandardsfor Attorney Immunity

Attorney immunity is an affirmative defense.4" To move for summary judgment on an affirmative defense, the movant bears the initial burden to conclusively prove each element of that defense as a matter of law.4 8 Once the movant meets its burden, the burden shifts to the non-movant to raise a genuine issue of material fact on at least one element of the affirmative defense to avoid summary judgment.49 Within the context of attorney immunity, Texas courts have applied summary judgment standards inconsistently. For example, depending on the jurisdiction, the attomey-defendant may have to prove: * "No privity of contract exist[ed] between [the plaintiff] and the attorney," 50 or

42. Id. 43. See, e.g., Cantey Hanger, LLP v. Byrd, 467 S.W.3d 477, 481 (Tex. 2015). 44. James v. Easton, 368 S.W.3d 799, 802 (Tex. App.-Houston [14th Dist.] 2012, pet. denied). 45. Morris v. Bailey, 398 S.W.2d 946, 947-48 (Tex. Civ. App.-Austin 1966, writ ref d n.r.e.). Petition for Review at 18, Gaia Envtl., Inc. v. Galbraith, 451 S.W.3d 398 (Tex. App.46. Houston [14th Dist.] 2014, pet. denied) (No. 14-1043). JJJJ Walker, LLC v. Yollick, 447 S.W.3d 453, 467-68 (Tex. App.-Houston [14th 47. Dist.] 2014, pet. denied). FDIC v. Lenk, 361 S.W.3d 602, 609 (Tex. 2012). 48. City of Houston v. Clear Creek Basin Auth., 589 S.W.2d 671, 678-79 (Tex. 1979). 49. 50. Renfroe v. Jones & Assocs., 947 S.W.2d 285, 287 (Tex. App.-Fort Worth 1997, writ denied).

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* the defendant "owed [the plaintiff] no duty,"5 1 or * the allegedly actionable conduct falls "within the bounds of the law,"52 or * the "allegedly actionable conduct was undertaken in the legal representation of a third-party client," 53 or * the allegedly actionable conduct was (1) "undertaken in the legal representation of his clients," and (2) "involved the office, professional training, skill and authority of an attorney," 54 or * (1) the allegedly actionable conduct involves "actions allegedly taken by [the defendant] during the course of [its] representation" of a third-party client, 5 and (2) the elements of any "claim based on or involving fraudulent conduct" cannot be met as a matter of law. 56 The application of the attorney immunity doctrine is inconsistent not only between Texas appellate courts, but also, in some circumstances, within them. For example, in Webb v. Peniche, the Fourteenth District Court of Appeals decided that the defendant had "the burden of proving as a matter of law that his actions were within the bounds of the law" to be entitled to summary judgment.57 Meanwhile, in Lackshin v. Spofford, the same court decided that the defendants had the burden of "prov[ing] as a matter of law that their allegedly actionable conduct was undertaken in the representation of a third-party client" to be entitled to summary judgment. Webb and Lackshin are identical in all material respects: both defendants moved for summary judgment, both motions relied on the affirmative defense of attorney immunity, both trial courts ruled in the defendant attorney's favor, both plaintiffs appealed, and both appeals were decided by the Fourteenth District Court of Appeals." Nevertheless, the same court imposed different burdens with no explanation as to why."o

51. Twist v. Flores, No. 13-03-171-CV, 2010 WL 1919505, at *6 (Tex. App.-Corpus Christi May 13, 2010, no pet.) (mem. op.). 52. Mendoza v. Fleming, 41 S.W.3d 781, 787 (Tex. App.-Corpus Christi 2001, no pet.). 53. Gaia Envtl., Inc. v. Galbraith, 451 S.W.3d 398, 402 (Tex. App.-Houston [14th Dist.] 2014, pet. denied). 54. Reagan Nat'l Advert. of Austin, Inc. v. Hazen, No. 03-05-00699-CV, 2008 WL 2938823, at *4 (Tex. App.-Austin July 29, 2008, no pet.) (mem. op.). 55. Toles v. Toles, 113 S.W.3d 899, 909 (Tex. App.-Dallas 2003, no pet). 56. Id. at 912. 57. Webb v. Peniche, No. 14-98-00222-CV, 1999 WL 459774, at *3 (Tex. App.-Houston [14th Dist.] July 8, 1999, no pet.) (not designated for publication). 58. Lackshin v. Spofford, No. 14-03-00977-CV, 2004 WL 1965636, at *3 (Tex. App.Houston [14th Dist.] Sept. 7, 2004, pet. denied) (mem. op.). 59. Webb, 1999 WL 459774, at *1; Lackshin, 2004 WL 1965636, at *2-3. 60. See Webb, 1999 WL 459774, at *3 ("[T]o be entitled to summary judgment, [Defendant] had the burden of proving as a matter of law that his actions were within the bounds of the law"); see also Lackshin, 2004 WL 1965636, at *9 ("Ifdefendants prove as a matter of law

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Tellingly, the Fourteenth District Court of Appeals is not the only court that has articulated internally inconsistent burdens.61 Equally inconsistent is what the plaintiff must plead or prove if the defendant meets its burden. For example, a plaintiff has been required to: * "allege[] actions [that] are outside the scope of representation of a client," 62 or

* "bring competent summary judgment evidence to raise a fact issue on an element of or an exception to [the defendant's] defense of attorney immunity," 63 or * "either raise a fact issue as to whether [the allegedly actionable] conduct was undertaken in the representation of a third-party client or plead sufficient facts to show that the plaintiff asserts one or more 64 claims that fall within an exception to attorney immunity." Some courts have gone even further, holding that once the defendant meets its burden, the plaintiffs case must be dismissed altogether because 5 no "right of recovery" exists "under any cause of action."6 At the summary judgment stage, one thing is clear: the only consistency is inconsistency. B.

The InconsistenciesSurroundingthe Application of the Attorney Immunity DoctrineStem from Texas Courts' Reliance on Bradt v. West and its Progeny

Two cases have continuously appeared in most (if not all) Texas appellate court opinions where attorney immunity is at issue: Bradt v. West6 6 and Taco Bell Corp. v. Cracken.67 When courts have had to apply the attorney immunity doctrine, they have repeatedly looked to at least one of that their allegedly actionable conduct was undertaken in the representation of a third-party client, then they have shown their entitlement to summary judgment .... ). Compare Mendoza v. Fleming, 41 S.W.3d 781, 787 (Tex. App.-Corpus Christi 2001, 61. no pet.) ("[T]o be entitled to summary judgment, [defendants] had the burden of proving as a matter of law that their actions were within the bounds of the law."), with Twist v. Flores, No. 1303-171-CV, 2010 WL 1919505, at *6 (Tex. App.-Corpus Christi May 13, 2010, no pet.) (mem. op.) (affirming trial court's grant of summary judgment on defendant's affirmative defense of attorney immunity because the summary judgment evidence proved that the attorney owed no duty to the plaintiff). Byrd v. Vick, Carney & Smith LLP, 409 S.W.3d 772, 781 (Tex. App.-Fort Worth 62. 2013, pet. granted), rev'd sub nom., Cantey Hanger, LLP v. Byrd, 467 S.W.3d 477 (Tex. 2015). Huff v. Hirsch, No. 01-09-00517-CV, 2010 WL 3294232, at *9 (Tex. App.-Houston 63. [1st Dist.] Aug. 19, 2010, no pet.) (mem. op.); see also Reagan Nat'l Advert. of Austin, Inc. v. Hazen, No. 03-05-00699-CV, 2008 WL 2938823, at *9 (Tex. App-Austin July 29, 2008, no pet.) (mem. op.). Lackshin, 2004 WL 1965636, at *10. 64. Taco Bell Corp. v. Cracken, 939 F. Supp. 528, 532 (N.D. Tex. 1996). 65. Bradt v. West, 892 S.W.2d 56, 71-72 (Tex. App.-Houston [1st Dist.] 1994, writ 66. denied). Taco Bell, 939 F. Supp. at 528. 67.

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these two cases for guidance. As a result, Bradt and Taco Bell have formed the basis of most, if not all, attorney immunity tests that courts have adopted, even in cases where the attorney allegedly engaged in criminal or fraudulent conduct. This is true, even though Bradt did not involve criminal or fraudulent conduct,68 and Taco Bell found that such conduct was not actionable at all."9 1.

Bradt v. West

In 1994, Bradt v. West, decided by the First District Court of Appeals, arose out of an underlying divorce and child custody action between Mark Metzger and his estranged wife." Metzger claimed that during the divorce and child custody dispute, his estranged wife and her attorneys made false allegations that he abused one of their children to squeeze more money out of him in the divorce settlement. 7 1 Not only did the scheme work, but as collateral damage, Metzger was also indicted by a grand jury for sexual abuse of a child.72 Metzger then sued his estranged wife, her attorneys, and numerous other people associated with the underlying suit in federal court, alleging that they participated in a "child abuse enterprise." 73 The case was dismissed.74 Metzger then brought the same lawsuit in state court and used L.T. "Butch" Bradt as one of the attorneys to represent him at trial.7 ' Before trial, the defendants filed a joint motion in limine to prevent Metzger or Bradt from referring to a lie detector test that Metzger had previously passed.7 6 The court granted the motion.77 Bradt, over objections, made repeated attempts to mention and even introduce records of the lie detector test before the jury.7 ' Accordingly, the defense attorneys moved for the judge to hold Bradt in contempt-the judge did.79

68. Bradt, 892 S.W.2d at 60-61. 69. Taco Bell, 939 F. Supp. at 532. 70. Bradt, 892 S.W.2d at 60-61. 71. Id. at 61. 72. Id. The indictment, however, was "dismissed because the judge ruled that the child was not competent to testify." Id. at 61 n.2. 73. Id. at 61. 74. Id.at 61 n.2. 75. Id. at 62. 76. Id. at 62-63. 77. Id. at 63. 78. Id. 79. Id. at 63-64. Bradt was (1) fined $500 and (2) ordered to confinement for 30 days. Id. at 64. Bradt requested an impartial judge to adjudicate his guilt or innocence on the contempt, and that judge dismissed the charges. Id. Bradt was reimbursed for paying the fine and never was confined. Id.

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Bradt then filed a lawsuit against the judge and opposing counsel, alleging that they conspired to maliciously prosecute him for contempt." Notably, Bradt never alleged facts or presented evidence suggesting that criminal or fraudulent conduct had occurred." The opposing counsel, and now defendants, moved for summary judgment on the claims, and the trial 3 court granted the motion, dismissing the claims.8 ' Bradt appealed. On appeal, the court affirmed and held that "an attorney does not have a right of recovery, under any cause of action, against another attorney arising from conduct the second attorney engaged in as part of the discharge of his duties in representing a party in a lawsuit in which the first attorney also represented a party." 84 The court emphasized that "the vigor with which. . . attorneys represent their clients" will be diluted if an attorney goes into court knowing that he may be sued for something in the course of representing his client." Accordingly, an attorney has no right of recovery against opposing counsel for actions taken during the discharge of his duties in representing a client.86 In the court's opinion, allowing such a policy "'would act as a severe and crippling deterrent to the ends of justice"' when the law already provides for the punishment of such acts by the court itself.8 The First District Court of Appeals also set forth a new standard-to focus "on the kind of conduct engaged in, not on whether the conduct was 88 meritorious in the context of the underlying lawsuit." The court gave the example that an attorney could not bring a lawsuit against opposing counsel for filing frivolous or meritless motions because filing motions qualifies as conduct that an attorney engages in as a part of discharging his duties to a client.89 In Bradt, the opposing attorneys merely moved to hold Bradt in contempt of court after he repeatedly violated the court's order on the motion in limine.90 The court reasoned that the opposing attorney's conduct 91 was no more than protecting their client's right to a fair and proper trial. 92 Therefore, the attorney-defendants were shielded by attorney immunity. Id. at 65. 80. Id. at 68-69. 81. Id. at 65. 82. Id. at 60. 83. Id. at 71-72. 84. Id. at 72. 85. Id. at 71-72. 86. Id. at 71 (quoting Morris v. Bailey, 398 S.W.2d 946, 947 (Tex. Civ. App.-Austin 87. 1996, writ refd n.r.e.)) (referring to contempt and other court-imposed sanctions). Id. at 72. 88. 89. Id. 90. Id. 91. Id. See id. 92.

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Taco Bell v. Cracken

Two years later, a federal district court extended Bradt's reasoning to cases involving an attorney's liability to an opposing party. 93 Taco Bell stems from Jerome Green's robbery of a Taco Bell in Irving, Texas that left four people murdered in its wake. 94 The survivors of the murder victims (the Fraga plaintiffs) hired John Cracken as their attorney to file a wrongful death lawsuit against Green and the manufacturer of Taco Bell's wall safe, American Security Products.9 s Before the Fraga plaintiffs filed suit, Cracken asked Green's court-appointed counsel from his criminal case, Douglas Parks, to also represent Green in the intended wrongful death action. 96 Cracken agreed to pay Parks $150 per hour for his services, and sent Parks a $1,500 retainer.97 Soon after, Cracken filed the wrongful death lawsuit in Duvall County-a plaintiffs friendly venue known for its large damage awardslocated several hundred miles away from the murder scene. 98 Although Green lived in Dallas County and had never been to Duvall County, the Fraga plaintiffs' petition alleged that Green lived there. 99 in response, Parks filed a general denial on Green's behalf, without objecting to venue, thus waiving the right to transfer venue. 00 "American Security [Products]whose counsel Cracken was not paying-was not so compliant."'o American Security Products filed a motion to transfer venue to Dallas County; the district court denied the motion.' 02 Within minutes of the district court's denial of the motion, Cracken added Taco Bell as a defendant because, under Texas law, a defendant added after venue has been established cannot challenge venue.' 0 3 Taco Bell, however, ignored this rule and moved to transfer venue; the district court denied the motion.' 04 Taco Bell then successfully removed the case to federal court and ended up settling with the Fraga plaintiffs for $8.25 million. "o

93. See Taco Bell Corp. v. Cracken, 939 F. Supp. 528 (N.D. Tex. 1996). 94. Id. at 529. 95. Id. at 529-30. 96. Id. at 530. 97. Id. 98. Id. 99. Id. 100. Id. During discovery, Parks also responded to the Fraga plaintiffs' requests for admissions that Green had chosen Duvall County as his residence. Id. 101. Id. 102. Id. 103. Id. 104. Id. 105. Id. at 530-31.

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Unlike the plaintiff in Bradt, who never complained about criminal or fraudulent conduct, the plaintiff in Taco Bell sued Cracken and Parks for fraud, conspiracy, and negligent misrepresentation. 106 Taco Bell alleged that it incurred damages in the form of attorney's fees and other costs to defend against venue fraud and abuse of the legal process. 107 Now defendants, Cracken and Parks, moved for summary judgment based on the attorney immunity doctrine and the district court granted their motion. "' The United States District Court for the Northern District of Texas dismissed the case based on its "predict[ion] that Texas would apply principles of Bradt to bar claims by one party against the opposing party's attorney" under any cause of action.109 Nor would it avail Taco Bell to assert that because defendants engaged in fraud and civil conspiracy, such acts cannot be classified as proper conduct for a lawyer representing a client. In Bradt the court affirmed a summary judgment that dismissed claims of a similar nature, rejecting the proposition that they did not address protected conduct.' 10 The district court further reasoned that "[t]he knowledge of an attorney for one party that he may be sued by the other party would exacerbate the risk of tentative representation to at least the same degree as would knowledge that opposing counsel could sue him.""' This would, in effect, create a "greater chilling effect" among legal professionals that would force them to consider their personal exposure to liability instead of zealously representing their clients." 2 The Taco Bell court also rubber stamped its approval on Bradt's test: that "under Texas law, it is the kind-not the nature-of conduct that is controlling."".3 The court reasoned that "[a]lthough Bradt addresses the liability . . of one attorney to an opposing attorney . . its reasoning applies with at least equal force to the liability of an attorney to the opposing party."ll 4 As a result, Taco Bell's claims were dismissed because the kind of conduct that the opposing attorneys engaged in-allegedly creating

106. Id. at 531. Id. 107. 108. See id. at 529. 109. Id. at 532. 110. Id. at 533 (citing Bradt v. West, 892 S.W.2d 56, 76 (Tex. App.-Houston [1st Dist.] 1994, writ denied). 111. Id. at 532. 112. Id. 113. Id. at 532-33. 114. Id. at 532.

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venue in Duval County-was conduct that the lawyers undertook to discharge their duties to their client.' 15 C.

The Problems with Bradt and Taco Bell

Bradt and Taco Bell are not helpful in determining how attorney immunity operates when criminal or fraudulent conduct is at issue. First, Bradt never alleged facts or presented evidence suggesting that criminal or fraudulent conduct had occurred.116 He only alleged that the defendants committed an intentional tort-that the judge and opposing counsel conspired to maliciously prosecute him for contempt.117 The court then granted the attorney-defendants' motion for summary judgment because they conclusively proved that the incident occurred while acting as a part of the discharge of an attorney's duties in representing a client." Because no exceptions to attorney immunity were implicated, the Bradt court never reached (much less resolved) the more fundamental question: what happens when the conduct at issue occurred not only as a part of the discharge to the attorney's duties in representing a client, but also in furtherance of a criminal or fraudulent underlying act? With regards to that question, Bradt has no answer. Second, the Taco Bell court refused to even recognize the existence of a cause of action for fraud.119 In Taco Bell, the court's dismissal of the case was predicated on the notion that no right of recovery exists for a non-client against an attorney under any cause of action for conduct undertaken while representing a client.120 The conclusion is sufficiently shocking to warrant repeating: Taco Bell stands for the proposition that "proper conduct for a lawyer representing a client" can include negligent misrepresentations, civil conspiracies, and fraud.121 Texas case law illustrates how reliance on Bradt and Taco Bell is the source of inconsistency surrounding the application of the attorney immunity doctrine. In 2000, the Fourteenth District Court of Appeals decided Chapman Children's Trust v. Porter & Hedges, L.L.P., where the plaintiff sued a law firm for its conduct during an underlying suit. 122 In that

115. Id. at 532-33. 116. Bradt v. West, 892 S.W.2d 56, 60-61 (Tex. App.-Houston [1st Dist.] 1994, writ denied). 117. Id. at 65. 118. Id. at 65, 71-72. 119. See Taco Bell, 939 F. Supp. at 533. 120. Id. at 532 (citing Bradt, 892 S.W.2d at 71-72). 121. See id. at 533. 122. Chapman Children's Trust v. Porter & Hedges, L.L.P., 32 S.W.3d 429, 429-30 (Tex. App.-Houston [14th Dist.] 2000, pet. denied).

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case, the defendant relied primarily on the decisions in Bradt and Taco Bell to argue that the plaintiffs have "no right of recovery, under any cause of action, as a matter of law, for conduct in connection with [the defendant's] representation of [its client]."123 Enforcing "the rule enunciated in Bradt and Taco Bell," the court affirmed the trials court's grant of summary judgment in the defendant's favor. 124 Four years later, the same court in Lackshin v. Spofford relied heavily, if not exclusively, on Chapman when it formally announced how the court analyzes the parties' burdens when attorney immunity forms the basis of a summary judgment motion and the attorney allegedly engages in fraudulent conduct: [U]nder this court's precedent, we must determine (1) if the summary-judgment evidence conclusively proves that [the defendant's] allegedly actionable conduct occurred during his legal representation of [his client]; and (2) if so, whether [the plaintiff] alleged sufficient facts in his petition to show that [the defendant] committed fraud-the exception asserted by [the plaintiff].125 Accordingly, the test announced in Lackshin came directly from Chapman, while the test applied in Chapman came directly from the "rule enunciated in Bradt and Taco Bell."l 26 Thus, the test in Lackshin derives from Bradt and Taco Bell. That the test in Lackshin explicitly addresses exceptions to attorney immunity, even though they were never discussed in Bradt and expressly rejected in Taco Bell, remains a mystery. Even less explicable is how the court in Lackshin claimed to apply the proper test "under [that] court's precedent" by citing Chapman, yet never so much mentioned the precedent from the same court (or same jurisdiction) to the contrary.1 27 V. RECENT ATTORNEY IMMUNITY DEVELOPMENTS Two recent decisions regarding the attorney immunity doctrine illustrate the snowball effect from Bradt and Taco Bell. First, the Fourteenth District Court of Appeals held that attorneys are immune from civil suit for

123. Id. at 439-40 (internal quotation marks omitted). 124. Id. at 440, 443 (citing Taco Bell, 939 F. Supp. at 523-33; Bradt, 892 S.W.2d at 74). Lackshin v. Spofford, No. 14-03-00977-CV, 2004 WL 1965636, at *3 (Tex. App.125. Houston [14th Dist.] Sept. 7, 2004, pet. denied) (mem. op). 126. Chapman Children'sTrust, 32 S.W.3d at 440-42. 127. Lackshin, 2004 WL 1965636, at *3; contra Webb v. Peniche, No. 14-98-00222-CV, 1999 WL 459774, at *3 (Tex. App.-Houston [14th Dist.] July 8, 1999, no pet.) (not designated for publication) ("[T]o be entitled to summary judgment, [the defendant] had the burden of proving as a matter of law that his actions were within the bounds of the law.").

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suborning perjury. 12 Second, in Cantey Hanger the Supreme Court of Texas recently rejected the notion that a fraud exception to the attorney immunity doctrine exists. 129 Both are detailed below. A.

Gaia v. Galbraith

In April 2003, BP North America Inc. (BP) and Gaia Environmental, Inc. (Gaia) entered into a Master Site Services Agreement (Agreement) under which BP agreed to pay Gaia for environmental consulting services. 130 In October 2008, Ramon Sifuentes, a Gaia employee, was killed while moving pumps on BP's property. 131 As a result, "[t]he deceased employee's family brought a wrongful death lawsuit against Gaia and BP."132 BP retained James Galbraith and McLeod, Alexander, Powel Apffel, P.C. (MAPA) for representation, and Gaia retained Phillip Sharp of Bracewell & Giuliani.1 33 The existence of BP's exposure to liability turned on the type of work Sifuentes was performing at the time of his death and whether that work was covered by the Agreement. 134 During discovery, a BP corporate representative testified that the work Sifuentes was performing when he died was covered by the Agreement. 135 By contrast, one of Gaia's owners, William Householder, testified that the work Sifuentes was performing was not covered by the Agreement. 136 In August 2009, Galbraith called Sharp and asked if Householder had already signed his deposition transcript. 137 Sharp said Householder had. 138 Galbraith went on to tell Sharp that the "people at BP" were upset with Householder's testimony." 9 Galbraith reminded Sharp that Gaia's Land Farm contract was up for renewal soon and urged Sharp to revisit the deposition with Householder.14 0 Galbraith then said that if Householder were not willing to change his testimony, then BP would not renew Gaia's

See Gaia Envtl., Inc. v. Galbraith, 451 S.W.3d 398, 410 (Tex. App.-Houston [14th 128. Dist.] 2014, pet. denied). Cantey Hanger, LLP v. Byrd, 467 S.W.3d 477, 484 (Tex. 2015). 129. Gaia Envtl., 451 S.W.3d at 400. 130. Id. 131. Id. 132. See id. at 399-400. 133. Id. at 400. 134. Id. (emphasis added). 135. Id. (emphasis added). 136. See id. 137. Id. 138. Id. 139. Id. 140.

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contracts. 14 1 "Householder did not change his testimony."1 4 2 BP did not renew Gaia's contract. 14 3 On May 2, 2011, Gaia sued Galbraith and MAPA for tortious interference with a prospective business relationship, tortious interference with an existing contract, fraud, fraudulent inducement, negligent misrepresentation, civil conspiracy, and aiding and abetting. 14 4 In January 2013, Galbraith and MAPA moved for summary judgment on three separate grounds: (1) Gaia's claims were barred by the attorney immunity doctrine; (2) Gaia's "claims were barred by a lack of privity; and (3) Galbraith and MAPA never engaged in the alleged conduct."1 45 The trial court granted Galbraith and MAPA's summary judgment motion. 146 On appeal, Gaia argued that the trial court's grant of summary judgment in Galbraith's favor was improper. 147 The reason, Gaia said, was because Galbraith's attempt to influence Householder's deposition testimony rose to the level of witness tampering, which is criminal conduct that falls outside the protection of the attorney immunity doctrine. 48 in response, Galbraith and MAPA argued that the trial court's grant of summary judgment was proper because Gaia did not allege sufficient facts to place its claims within the witness tampering exception to attorney immunity.1 49 The Fourteenth District Court of Appeals agreed with Galbraith and MAPA, holding that Gaia did not allege sufficient facts to prove the "to testify falsely" element of the Texas witness tampering statute. 5 o As a result, the court found that Galbraith could not be subject to liability as a matter of law because his conduct fell within the legal course of representation and was "'the type of [discovery] conduct in which attorneys routinely engage when zealously defending their clients." 151 In determining whether Galbraith's conduct fell within the criminal exception to the attorney immunity doctrine, the court was faced with the task of interpreting the Texas witness tampering statute. 152 Entitled

141. Id. 142. Id. at 401. 143. Id. 144. Id. 145. Id. 146. Id. 147. Id. at 401-02. 148. Id. at 408. 149. See id. 150. Id. at 410. 151. Id. at 406-07 (alteration in original) (quoting Sacks v. Zimmerman, 401 S.W.3d 336, 342 (Tex. App.-Houston [14th Dist.] 2013, pet. denied)). 152. See id. at 408.

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"Tampering with Witness," section 36.05(a)(1) of the Texas Penal Code imposes criminal penalties upon any person who, "with [the] intent to influence the witness, . . . offers, confers, or agrees to confer any benefit on a witness or prospective witness in an official proceeding, or . . . coerces a witness or a prospective witness in an official proceeding . . . to testify

falsely."l 5 3 The court had to decide whether Gaia alleged sufficient facts that, when taken as true, could support a reasonable inference that Galbraith tried to coerce Householder "to testify falsely."1 54 The court began its analysis by observing that "[t]he [Texas] Penal Code does not define the term 'to testify falsely'"155 and that no prior judicial interpretation of the term as it is used in the witness tampering statute could be found.156 Accordingly, the court relied on dictionaries to give the term its common and ordinary meaning.15 ' The court defined "testify" to mean "to give evidence as a witness" or "to make a solemn declaration under oath for the purpose of establishing a fact (as in a court)."' The court then defined "false" to mean "intentionally untrue."159 Although all relevant terms had been defined, the court went on to define "lie" as "to tell an untruth," "to speak. . . falsely," or "to make an untrue statement with intent to deceive." 60 The court used these definitions to reach the conclusion that "to commit witness tampering one must intend to and coerce a witness to provide intentionally untrue evidence, or to lie." 61 The court applied the definitions to the facts to determine that Galbraith's conduct was within the bounds of the law because Galbraith did not ask Sharp to tell Householder to change his testimony to knowingly false facts.1 62

TEX. PENAL CODE ANN. § 36.05(a)(1) (West 2015). The only disputed element was "to 153. testify falsely." Gaia Envtl., 451 S.W.3d at 408. See GaiaEnvtl., 451 S.W.3d at 408. 154. 155. Id. Id. 156. Id. at 408-09 (citing Olivas v. State, 203 S.W.3d 341, 345 (Tex. Crim. App. 2006)). 157. Id. (internal quotation marks omitted) (citing Testify, BLACK'S LAW DICTIONARY 1704 158. (10th ed. 2014); Testify, MERRIAM-WEBSTER'S COLLEGIATE DICTIONARY 1291 (11th ed. 2003)). Id. at 409 (internal quotation marks omitted) (citing False, MERRIAM-WEBSTER'S 159. COLLEGIATE DICTIONARY, supra note 158, at 451). The court's decision regarding which definition to use in defining "false" is interesting. The first definition of "false" in Black's Law Dictionary is "untrue." See False, BLACK'S LAW DICTIONARY, supra note 158, at 718. Yet instead of defining "false" as "untrue," the court decided to define the term to mean "intentionally untrue." Gaia Envtl., 451 S.W.3d at 409. In doing so, the court appears to have written an additional intent element into the statute. Id. (internal quotation marks omitted) (citing Lie, BLACK'S LAW DICTIONARY, supra 160. note 158, at 1062; Lie, MERRIAM-WEBSTER'S COLLEGIATE DICTIONARY, supra note 158, at 717). Id. 161. Id. at 410. 162.

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The court also relied on the Fifth Circuit Court of Appeals' decision in Resolution Trust Corp. v. Bright to find that Gaia's allegations did not meet the criminal element "to testify falsely."1 63 In Bright, two attorneys interviewed a prospective witness. 16 4 Afterwards, the attorneys asked the witness to sign a proposed affidavit summarizing her statements from the interviews.1 65 The attorneys also "instructed [her] to read the affidavit 'very carefully"' because it "contained a couple of things [they hadn't] discussed with [her]."l66 After reading the affidavit, she disagreed with some of its contents and changed it to reflect only those statements for which she had personal knowledge.1 67 In an attempt to convince the witness of their point of view, the attorneys "described their understanding of how certain events transpired at Bright Banc, presented [the witness] with independent evidence to support this interpretation of events, and aggressively challenged some of [the witness's] assumptions."1 68 But the witness remained unconvinced.1 69 As a result, the attorneys incorporated the witness's changes into the draft affidavit.' 70 The witness read it, signed it, and swore under oath for the first time that the facts stated in it were true and correct."' The witness later stated: that she did not think [the attorneys] were asking her to say something she did not believe but rather were trying to determine if she could see the case the way they did[,] . . . denied being harassed or intimidated[,] . . . [and] indicated that [the attorneys] were not

trying to have her change facts but rather to agree with a different "interpretation" or "slant" from the facts.1 72 The dispositive distinction between Bright and Gaia is that the attorneys in Bright tried to persuade the witness to adopt statements into a draft affidavit,1 73 whereas the attorney in Gaia tried to coerce the witness to alter testimony already sworn to be true. 174 This, alone, should render Bright inapplicable. But Bright is distinguishable for other reasons too. For example, the attorney in Bright did not engage in coercive conduct, while 163. 164. 165. 166. 167. 168.

Id. at 409 (citing Resolution Trust Corp. v. Bright, 6 F.3d 336, 341 (5th Cir. 1993)). Bright, 6 F.3d at 338. Id. Id. at 339. Id. Id.

169.

Id.

170. Id. 171. See id. Id. 172. 173. Id. at 341. 174. See Gaia Envtl., Inc. v. Galbraith, 451 S.W.3d 398, 409 (Tex. App.-Houston [14th Dist.] 2014, pet. denied).

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the attorney in Gaia did."' And the attorney in Bright relied on legitimate evidence and arguments to convince the witness, while the attorney in Gaia did not.17 6 Nevertheless, Bright concerned an attorney's attempt to persuade a witness to adopt statements in a proposed affidavit, while Gaia concerns an attorney's attempt to coerce a witness into changing sworn testimony.177 That distinction, alone, demonstrates why the court's reliance on Bright was misplaced. Cantey Hanger, LLP v. Lucy Leasing Company, L.L.C.

The Texas Supreme Court recently held that attorneys are immune from liability to non-clients if they act within the scope of representationeven if the attorneys' conduct is fraudulent. 17 8 In that case, the Cantey Hanger law firm represented Nancy Simenstad in a highly antagonistic divorce proceeding against Philip Byrd. 9 Around August of 2008, the parties settled: Byrd would receive Lucy Leasing Co. LLC, and Simenstad would receive three aircraft, including a Piper Seminole aircraft.'s Simenstad was responsible for the tax liability attributable to the aircraft. 18 The issue surrounding the attorney immunity doctrine arose from the bill of sale on the Piper Seminole aircraft. 18 2 Byrd and Lucy Leasing alleged that Cantey Hanger falsified the bill of sale to shift tax liability from Simenstad to Lucy Leasing. 83 Specifically, Byrd and Lucy Leasing claimed that Cantey Hanger helped Simenstad execute the bill of sale as "Nancy Byrd," a manager of Lucy Leasing, even though she had legally changed her last name to Simenstad and "was never an owner, officer, or manager" of Lucy Leasing.' 84 Byrd, Lucy Leasing, and PGB Air sued Cantey Hanger for fraud, conspiracy, and aiding and abetting.1'8 Cantey Hanger moved for summary judgment on the basis that its alleged misconduct occurred during the course of its representation of Simenstad in the underlying divorce

175. 176. 177. .178. 179.

See Bright, 6 F.3d at 341; id. at 401. See Bright, 6 F.3d at 338-39; GaiaEnvtl., 451 S.W.3d at 405. See Bright, 6 F.3d at 339; Gaia Envtl., 451 S.W.3d at 409. See Cantey Hanger, LLP v. Byrd, 467 S.W.3d 477, 485 (Tex. 2015). Id. at 479.

180.

Id.

181. 182. 183. 184. 185.

Id. Id. Id. at 480. Id. at 479. Id. at 479-80.

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proceeding."' The trial court granted summary judgment, the court of appeals reversed, and the Texas Supreme Court reversed."' The Court held that attorneys are immune from liability to adverse parties for conduct that is committed within the scope of the attorneys' representation of their clients in litigation.' Attorney immunity applies when the alleged misconduct involves the provision of legal services.' The Court highlighted that a broad, fraud exception does not exist to attorney immunity and the doctrine will apply as long as the attorney acts within the scope of representation, regardless of the type of misconduct alleged.190 Applied to the facts of Cantey Hanger, a divided Court determined that Cantey Hanger's alleged fraudulent misconduct fell within the scope of its representation to Simenstad for the divorce proceeding.' 1 The transfer of the ownership of the planes fell within its responsibility under the divorce decree despite the fact that the transfer shifted tax liability in a way that violated the divorce decree.' 92 The dissent chastised the majority for its conclusory analysis that failed to look at whether Cantey Hanger's alleged misconduct took place during litigation.193 The alleged misconduct took place over one year after the entry of the divorce decree, a final judgment that terminated the underlying divorce litigation.194 Accordingly, to reach its conclusion, the majority performed a scope-of-representation test to determine if attorney immunity would attach.' 9 5 But the dissent explained that a scope-ofrepresentation test has never been the law in Texas "and is inconsistent with the approach [that] the Restatement adopted."' 9 6 Therefore, the dissent concluded that Cantey Hanger failed to establish that conduct occurred during litigation and, as a result, failed to establish the affirmative defense of attorney immunity. 197

186. 187. 188. 189. 190. 191. 192. 193. 194. 195.

Id. at 480. Id. at 480, 486. See id. at 483. See id. at 482. See id. at 483-84. Id. at 484. Id. at 485. Id. at 490 (Green, J., dissenting). Id. at 491. Id.

196.

Id.; see RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS § 56 cmt. c (AM.

LAW INST. 1998) ("[A] lawyer is not always free of liability to a nonclient for assisting a client's act solely because the lawyer was acting in the course of a representation ..... 197. Cantey Hanger, 467 S.W.3d at 492-93.

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VI. PROPOSED SOLUTIONS FOR THE ATTORNEY IMMUNITY DOCTRINE

This section (1) calls for the rules of law announced in Cantey Hanger and Gaia to be revisited, (2) proposes a simple burden shifting analysis for claims involving attorney immunity, and (3) cautions attorneys to consider their actions given the current state of the law. A.

Cantey Hanger and Gaia Should be Revisited

After Cantey Hanger and Gaia, the attorney immunity doctrine immunizes attorneys from liability for suborning perjury and committing fraud during litigation. It protects against both statements and conduct made during litigation. The definition of litigation extends to alleged misconduct committed during litigation and sometimes long after that litigation as well. And attorney immunity is not just a defense to liability, but provides true, or absolute, immunity from civil suit. Given the expansive nature of the attorney immunity doctrine, both Cantey Hanger and Gaia need to be revisited. First, the Supreme Court of Texas needs to revisit its holding in Cantey Hanger. Otherwise, attorneys will enjoy immunity from civil liability for fraudulent conduct simply because the misconduct occurred while representing a client.' Under the current state of the law, "[f]raud is not an exception to attorney immunity" when the actionable conduct occurred within the litigation context. 19 9 Courts have interpreted and applied Cantey Hanger faithfully: In part of the Cantey Hanger opinion, the court appears to say that a defendant asserting attorney immunity in a litigation context need only conclusively prove that the allegedly actionable conduct, even if it is alleged to be fraudulent, was part of the discharge of the attorney's duties to the client in the litigation context. Given the high court's conclusion that an attorney's fraudulent misrepresentations still may fall within the scope of the attorney's representation of the client, if this were the only requirement for attorney immunity, then an attorney would enjoy complete immunity from civil liability for all conduct committed during the representation of a client in litigation, even if the conduct is fraudulent. 200 Following Cantey Hanger, the fact that the attorney "allegedly carried out some of his responsibilities in a fraudulent manner, is no matter."201 198.

See id. at 483 (majority opinion).

199.

Id. at 484.

200. U.S. Bank Nat'1 Ass'n v. Sheena, 479 S.W.3d 475, 479 (Tex. App.-Houston [14th Dist.] 2015, no pet. h.) (citation omitted). 201. Troice v. Proskauer Rose, L.L.P., 816 F.3d 341, 348 (5th Cir. 2016).

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To provide blanket immunity for attorneys who commit fraud in the course of judicial proceedings "not only victimizes the affected litigant, [but] it also strikes at the heart of the judicial process."20 2 At least a dozen states have dealt with the issue by passing laws renouncing any privilege or immunity for an attorney's fraudulent conduct committed during litigation.203 Courts in other jurisdictions have also expressly rejected the view that attorneys should be granted absolute immunity for fraud committed during litigation.2 0 4 Texas appellate courts, too, have consistently allowed plaintiffs to recover damages for harm caused by fraudulent conduct committed during litigation.2 05 Yet, Cantey Hanger somehow departs from this rationale. One solution worth considering is to restrict the scope of immunity afforded to attorneys in cases involving fraud. Given that absolute immunity is "strong medicine," a presumption against absolute immunity exists because it bars both frivolous and meritorious claims. 206 From this

202. Simms v. Seaman, 69 A.3d 880, 921 (Conn. 2013) (Palmer, J., dissenting). 203. See ARK. CODE ANN. § 16-22-310 (1987 & Supp. 2009); CAL. CIV. CODE §47 (West 2007); IND. CODE ANN. § 33-43-1-8 (West 2004); IOWA CODE ANN. §602.10113 (West 1996); MINN. STAT. ANN. § 481.07 (West 2002); MONT. CODE ANN. § 37-61-406 (West 2011); N.Y. JUD. LAW § 487 (McKinney 2005); N.C. GEN. STAT. ANN. § 84-13 (2011); N.D. CENT. CODE ANN. § 27-13-08 (1991); OKLA. STAT. ANN. tit. 21, §575 (West 2002); S.D. CODIFIED LAWS § 16-19-34 (2004); WYO. STAT. ANN. § 33-5-114 (2011). 204. See Robinson v. Volkswagenwerk AG, 940 F.2d 1369, 1373-74 (10th Cir. 1991) (refusing to apply immunity to a defendant law firm for allegedly fraudulent statements made in the course of discovery and at trial); Thompson v. Paul, 657 F. Supp. 2d 1113, 1122 (D. Ariz. 2009) (explaining that fraud claims arising during litigation do not receive immunity); McGee v.

Hyatt Legal Servs., Inc., 813 P.2d 754, 757 (Colo. App. 1990) (allowing for an attorney to be held

liable to an opposing party when that attorney commits fraudulent or malicious behavior); Matsuura v. E.I. du Pont de Nemours & Co., 73 P.3d 687, 697-98 (Haw. 2003) (noting that public remedies are inadequate to compensate a victim for an attorney's fraudulent misconduct and therefore attorney immunity does not apply to criminal or fraudulent conduct committed by an attorney during litigation); Taylor v. McNichols, 243 P.3d 642, 656 (Idaho 2010) (explaining an attorney that commits fraud in litigation acts in a manner foreign to the duties of an attorney); Clark v. Druckman, 624 S.E.2d 864, 870 (W. Va. 2005) (describing malicious prosecution and fraud as exceptions to attorney immunity). But see Bennett v. Jones, Waldo, Holbrook McDonough, 70 P.3d 17, 34 (Utah 2003) (extending attorney immunity to claims of fraud committed by an attorney during litigation). 205. See Sacks v. Zimmerman, 401 S.W.3d 336, 340 (Tex. App.-Houston [14th Dist.] 2013, pet. denied) (noting attorney immunity does not apply to torts based on malicious or fraudulent conduct); James v. Easton, 368 S.W.3d 799, 802 (Tex. App.-Houston [14th Dist.] 2012, pet. denied) ("[I]mmunity does not apply to alleged torts based upon the attorney's fraudulent or malicious conduct."); Rawhide Mesa-Partners, Ltd. v. Brown McCarroll, L.L.P., 344 S.W.3d 56, 60 (Tex. App.-Eastland 2011, no pet.) (stating attorneys can be held liable for fraudulent conduct); Likover v. Sunflower Terrace II, Ltd., 696 S.W.2d 468, 475 (Tex. App.Houston [1st Dist.] 1985) (affirming a judgment of damages against an attorney for acting a fraudulent business scheme). 206. Burns v. Reed, 500 U.S. 478, 486-87 (1991); Snell v. Tunnell, 920 F.2d 673, 696 (10th

Cir. 1990).

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line of thought, Justice Palmer proposed an alternative in his dissenting opinion in Simms v. Seaman, a Connecticut Supreme Court case.207 In his view, claims for civil fraud stemming from conduct during litigation should be permitted if the plaintiff first seeks sanctions or files a grievance complaint against the offending attorney, and succeeds in doing so.2 08 This process would provide protection for attorneys "against the threat of frivolous, retaliatory litigation, on the one hand, and provide[] a fair opportunity for recovery by a party who has been defrauded by opposing counsel, on the other." 2 09 Additionally, Cantey Hanger potentially opens the door for immunity to attach to attorney misconduct that occurs outside of litigation. While not expressly saying so, the Cantey Hanger court merely set forth a scope-ofrepresentation test to determine whether the law firm alleged misconduct on behalf of its client, despite the fact that it occurred over one year after the entry of final judgment. 210 By setting forth this example, Cantey Hanger enables Texas courts to merely analyze whether the attorney's actions relate to litigation-rather than occur during the litigation process itself. As the dissent in Cantey Hanger aptly explains, the majority opinion's expansive scope of attorney immunity ignores the two foundational attorney immunity cases in Texas: Poole and Kruegel.211 "In both cases, the attorney[s] or law firm[s] allegedly engaged in conduct that would be actionable without attorney immunity. "212 "The only meaningful distinction between the [two] is the context in which [they] occurred." 2 13 In Poole, the conduct occurred outside of litigation.214 And in Kruegel, the conduct occurred during litigation.215 Accordingly, "the only way to reconcile these cases and give meaning to the purpose behind attorney immunity is to require the defendant-attorney's conduct to have occurred in litigation." 2 16 Cantey Hanger'smajority opinion seems to miss this distinction. Gaia v. Galbraith must also be revisited. According to the holding in Gaia, Texas attorneys who try to coerce a witness into changing sworn testimony are immune from liability-as a matter of law-as long as they

207. See Simms v. Seaman, 69 A.3d 880, 915 (Conn. 2013) (Palmer, J., dissenting). 208. Id. 209. Id. 210. Cantey Hanger, LLP v. Byrd, 467 S.W.3d 477, 489-90 (Tex. 2015) (Green, J., dissenting). 211. Id. at 486-87. 212. Id. at 488. 213. Id. 214. Id. (discussing Poole v. H. & T. C. Ry. Co., 58 Tex. 134 (Tex. 1882)). 215. Id. (discussing Kruegel v. Murphy, 126 S.W. 343 (Tex. Civ. App.-Dallas 1910, writ ref'd)). 216. Id.

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do not intend for the witness to lie. That outcome, however, seems to be inconsistent with the statute's purpose, which is to criminalize "threat[s] ... made for the purpose of preventing any person from freely testifying before a grand jury or in a[n] official proceeding,""' as well as existing Texas case law.218 Interestingly, courts from other jurisdictions have interpreted the statutory term "to testify falsely" and have reached the same result.2 19 These authorities lend support to the conclusion that an attempt to coerce a witness to change prior sworn testimony constitutes an attempt to coerce a witness to testify falsely within the meaning of the Texas witness tampering statute. Importantly, however, this does not criminalize otherwise innocent conduct, such as where a person urges a witness to replace sworn testimony with what the person believes to be the truth, or where a person encourages a witness to invoke the witness's constitutional privilege against self-incrimination. Such conduct, without more, does not trigger criminal liability because it would not meet the 217. House Comm. on Criminal Jurisprudence, Bill Analysis, Tex. H.B. 534, 62d Leg., R.S. (May 18, 1971). 218. See Dyer v. State, No. 11-12-00057-CR, 2014 WL 268571, at *5 (Tex. App.-Eastland Jan. 16, 2014, pet. ref d) (mem. op.) (discussing how evidence that the defendant asked the witness to "change [her] testimony," which she had given in a statement to law enforcement, would rise to the level of witness tampering under section 36.05 but for the absence of "evidence of a benefit or coercion"); Board v. State, No. 03-96-00024-CR, 1998 WL 271043, at *10 (Tex. App.-Austin May 29, 1998, pet. ref d) (not designated for publication) (affirming defendant's conviction under section 36.05(a)(1), where defendant intended to subject the witness "to slanderous remarks regarding her integrity and business practices to get her to change or withdraw her affidavit"); Navarro v. State, 810 S.W.2d 432, 435-36 (Tex. App.-San Antonio 1991, writ ref d) (holding that a rational trier of fact could have found that the defendant offered money to the witness with the intent to cause the witness "to testify falsely," where the defendant offered to (and did) buy the witness's bar for $15,000 and then tried to convince the witness to sign an affidavit recanting his previous sworn statement that had incriminated the defendant); cf Smith v. State ex rel. Letson, No. 07-04-0038-CV, 2004 WL 2029609, at *4-7 (Tex. App-Amarillo Sept. 9, 2004, no pet.) (finding that petition alleging defendant induced a witness "to alter or withhold potential testimony," where defendant tried to induce witness to "change his story," was sufficiently specific to allege that defendant induced a witness to "testify falsely or withhold testimony" under section 36.05(a) of the Texas Penal Code). People v. Cunefare, 102 P.3d 302, 305-07 (Colo. 2004) (en banc) (holding that the jury 219. could have reasonably concluded that defendant tried to cause the witness "to testify falsely," where defendant encouraged the witness to recant a prior statement made to law enforcement incriminating the defendant); State v. McLaughlin, 988 S.W.2d 542, 543-45 (Mo. Ct. App. 1999) (concluding that the jury could have inferred from the evidence that defendant "sought to have [the witness] 'testify falsely,"' where defendant expressed his displeasure with the witness's testimony before the grand jury, emphasized that his co-conspirator's family "was in the mafia," and said that if the witness continued to talk about the details provided in her grand jury testimony, then it "would only hurt her"); State v. Williamson, 86 P.3d 1221, 1223-24 (Wash. Ct. App. 2004) (rejecting defendant's argument that insufficient evidence supported his conviction for attempting to induce the witnesses to "[t]estify falsely," where defendant offered one witness a share of his marital property after his divorce in exchange for the witness recanting his statement and tried to tell another witness that her "'daddy and mommy [we]re going to jail"' if she didn't recant her statement.).

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additional elements necessary to establish a conviction for tampering with a witness.220 B.

Texas Needs to Implement a Simple Burden Shifting Analysis

Courts need a clear standard for both plaintiffs and attorneydefendants. The proper summary judgment standard should be as follows. A third-party files suit against an opposing attorney, seeking damages allegedly caused by the attorney's criminal or fraudulent conduct in the underlying proceeding. The attorney-defendant moves for summary judgment based on the affirmative defense of attorney immunity. To meet the initial burden, the attomey-defendant must attach competent summary judgment evidence: (1) that specifically denies the conduct alleged in the plaintiffs petition, and (2) that establishes the alleged conduct occurred while representing a client. The burden then shifts to the plaintiff, who must present competent summary judgment evidence establishing that the alleged misconduct occurred. If the plaintiff meets this burden, then it would present a genuine issue of material fact and result in the denial of the attorney-defendant's motion for summary judgment. This standard balances the interests of both parties by requiring each party to submit competent summary judgment evidence in the form of affidavits. It raises the stakes by requiring the presentment of sworn testimony rather than mere allegations. As a practical effect, attorneys will not be dragged into court based solely on allegations. This standard still allows attorneys to zealously represent their client during the course of litigation, while giving plaintiffs the opportunity to survive summary judgment-a rare occurrence under the current state of the law. VII. CONCLUSION

The attorney immunity doctrine in Texas provides true immunity for attorneys representing their clients in the course of litigation. While serving the important purpose to allow attorneys to zealously represent their clients 220. See, e.g., Dyer, 2014 WL 268571, at *5 (discussing how evidence that the defendant asked the witness to "change [her] testimony ... [w]ithout evidence of a benefit or coercion .. . would not rise to the level of witness tampering" under section 36.05); accord Harrington v. United States, 267 F. 97, 101 (8th Cir. 1920) (explaining that it is not "unlawful ... to seek to obtain from a witness a statement of the facts as he believes them to be, without the exercise of undue influence, even though such a statement may conflict with prior testimony given by the one making the statement"); see also McNeal v. Hollowell, 481 F.2d 1145, 1152 (5th Cir. 1973) (recognizing that a defendant, who encourages a witness to assert his privilege against self-incrimination, is not subject to criminal liability under the federal witness tampering statute unless the defendant "bribe[s], coerce[s], force[s], or threaten[s] a witness to claim the privilege against self-incrimination").

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in legal proceedings, the doctrine has expanded so broadly that it may potentially foster attorney misconduct. Texas courts need to revisit the doctrine to not only reign in its reach but also delineate a clear standard for courts to apply. Until that happens, attorney immunity will serve as both a shield to protect attorneys from civil suit and a sword to inflict damage upon third parties with no repercussions.