South Texas Law Review Vol.59 No.3

SOUTH TEXAS LAW REVIEW

SOUTH TEXAS COLLEGE OF LAW HOUSTON HOUSTON, TEXAS

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SOUTH TEXAS LAW REVIEW SPRING 2018

VOL. 59 NO. 3

EDITORIAL BOARD 2018–2019 MATTHEW FIORILLO Editor in Chief MITCHELL AUSTIN Managing Editor

HEATHER PENNING Research Editor

ASHLEIGH NWAGUMA Executive Editor

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SOUTH TEXAS LAW REVIEW SPRING 2018

VOL. 59 NO. 3

Members GRANT BEINER MIA BERRYMAN MEREDITH CLARK MERCER DAY DAVID DORRIS HANNAH FRED JOHN GARZA SANDRA GUILLEN

JAMES HARRIS ZACHARY HORNE CHRISTY KOTTWITZ NICOLAS KROEKER VESTA KUNTZ MAGGIE LU VARVARA MARMARINOU HOUSTON MORGAN

SARAH PRESAS JENNA SHORTER LAUREL SMITH NATALIE STANLEY DAVID TRAUSCH BRYAN VECEREA NATHAN VRAZEL WALTER WILLIAMS

The opinions expressed in the South Texas Law Review are those of the contributors and are not necessarily representative of the views of the editors of the Review or of South Texas College of Law Houston.

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SOUTH TEXAS LAW REVIEW SPRING 2018

VOL. 59 NO. 3

SOUTH TEXAS COLLEGE OF LAW — HOUSTON — DONALD J. GUTER, President, Dean, and Professor of Law VANESSA BROWNE-BARBOUR, Vice President, Associate Dean, and Professor of Law CATHERINE GREENE BURNETT, Vice President, Associate Dean, Professor of Law, and Director of the Pro Bono Honors Programs JOHN J. WORLEY, Vice President, Associate Dean for Academic Affairs, and Professor of Law

FACULTY JAMES J. ALFINI, B.A., Columbia University; J.D., Northwestern University School of Law; Dean Emeritus and Professor of Law. JOHN H. BAUMAN, B.A., Pomona College; J.D., Stanford Law School; Professor of Law. DEBRA BERMAN, B.S., Georgetown University; J.D., American University Washington College of Law, Assistant Professor of Clinical Studies and Director of the Frank Evans Center for Conflict Resolution.

JOSH BLACKMAN, B.S., The Pennsylvania State University; J.D., George Mason University School of Law; Professor of Law. VANESSA BROWNE-BARBOUR, B.A., Carnegie-Mellon University; J.D., Duquesne University School of Law; Vice President, Associate Dean, and Professor of Law. CATHERINE GREENE BURNETT, B.A., University of Texas; J.D., University of Texas School of Law; Vice President, Associate Dean, and Professor of Law. ELAINE A. CARLSON, B.S., Southern Illinois University; M.A., McMaster University; J.D., South Texas College of Law Houston; Stanley J. Krist Distinguished Professor of Texas Law; 2008 Distinguished Alumna and Professor of Law. RICHARD R. CARLSON, B.A., Wake Forest University; J.D., University of Georgia School of Law; Professor of Law. AMANDA HARMON COOLEY, B.A., University of North Carolina at Chapel Hill; J.D., University of North Carolina School of Law; Wayne Fisher Research Professor, and Professor of Law. GEOFFREY S. CORN, B.A., Hartwick College; J.D., George Washington University Law School; LL.M., The Judge Advocate General’s School, United States Army; Vinson & Elkins Research Professor and Professor of Law. v

SUSAN WAITE CRUMP, A.B., University of California at Davis; J.D., University of Houston Law Center; Professor of Law. ELIZABETH A. DENNIS, B.A., Hollins College; J.D., South Texas College of Law Houston; Assistant Dean, Director of Academic Internships, and Associate Professor of Clinical Studies.

W. DAVID EAST, B.A., Baylor University; J.D., Baylor University School of Law; LL.M., George Washington University Law School; Director of Transactional Practice Center and Professor of Law. MATTHEW J. FESTA, B.A. University of Notre Dame; M.P.A., Murray State University; M.A., Vanderbilt University; J.D., Vanderbilt University Law School; Professor of Law. TED L. FIELD, B.A., University of Illinois at Chicago; M.A., Northwestern University; J.D., The John Marshall Law School; Professor of Law. DEREK FINCHAM, B.A., University of Kansas; J.D., Wake Forest University School of Law; Ph.D., University of Aberdeen School of Law; Professor of Law. SHARON FINEGAN, B.A., University of Virginia; J.D., American University Washington College of Law; LL.M., Columbia Law School; Professor of Law. PAMELA E. GEORGE, B.S., University of Texas; M.L.S., University of Texas; J.D., University of Texas School of Law; Professor of Law. MAXINE D. GOODMAN, B.A., Brandeis University; J.D., University of Texas School of Law; Professor of Law. DONALD J. GUTER, B.A., University of Colorado; J.D., Duquesne University School of Law; President, Dean, and Professor of Law. HELEN BISHOP JENKINS, B.M.E., Peabody Conservatory of Johns Hopkins Institute; M.M.E., Howard University; J.D., University of Houston Law Center; Executive Vice President Emeritus and Professor of Law. R. RANDALL KELSO, B.A., University of Chicago; J.D., University of Wisconsin Law School; Spurgeon E. Bell Distinguished Professor of Law. CHRISTOPHER S. KULANDER, B.S., Wright State University; J.D., University of Oklahoma College of Law; Ph.D., Texas A&M University; Director and Professor, Oil & Gas Law Institute.

JOSEPH K. LEAHY, B.A., Swarthmore College; J.D. New York University School of Law; Professor of Law. KATERINA LEWINBUK, B.A., Minnesota State University; J.D., John Marshall Law School; Professor of Law. BETTY J. LUKE, B.S., Lamar University; B.S., University of Texas Medical Branch; J.D., South Texas College of Law Houston; LL.M., University of Houston Law Center; Associate Professor of Clinical Studies.

BRUCE A. MCGOVERN, B.A., Columbia University; J.D., Fordham University School of Law; LL.M., University of Florida College of Law; Professor of Law. SHELBY A.D. MOORE, B.A., Towson State University; J.D., University of Baltimore School of Law; LL.M., Harvard Law School; Professor of Law. RAY E. MOSES, B.A., University of Texas; J.D., University of Texas School of Law; LL.M., Northwestern University Law School; S.J.D., Southern Methodist University School of Law; Professor of Law. vi

OLGA L. MOYA, B.A., University of Texas; J.D., University of Texas School of Law; Professor of Law. JAMES L. MUSSELMAN, A.A., Illinois Central College; B.S., Illinois State University; J.D., Brigham Young University; J. Reuben Clark Law School; Professor of Law. FRANCESCA ORTIZ, B.A., University of Texas; J.D., Harvard Law School; Professor of Law. PHILLIP E. PAGE, B.S., University of Tennessee; J.D., Memphis State University College of Law; LL.M., New York University School of Law; Professor of Law. JAMES W. PAULSEN, B.F.A., Texas Christian University; J.D., Baylor University School of Law; LL.M., Harvard Law School; Professor of Law. AMANDA J. PETERS, B.A., Texas Tech University; J.D., Texas Tech University School of Law; Helen and Harry Hutchens Research Professor and Professor of Law. JEAN FLEMING POWERS, B.A., University of Texas; J.D., University of Houston Law Center; Professor of Law. SCOTT REMPELL, B.A., University of Michigan; J.D., American University, Washington College of Law; Godwin Bowman & Martinez PC Research Professor, and Professor of Law. JEFFREY L. RENSBERGER, B.A., Wabash College; J.D., Indiana University, Bloomington; Vice President for Strategic Planning and Institutional Research and Professor of Law. CHARLES W. “ROCKY” RHODES, B.B.A., Baylor University; J.D., Baylor University School of Law; Professor of Law. VAL D. RICKS, B.A., Brigham Young University; J.D., Brigham Young University, J. Reuben Clark Law School; Charles Weigel II Research Professor and Professor of Law. ARNOLD ROCHVARG, B.A., University of Pennsylvania; J.D., George Washington University; Visiting Professor of Law. GARY S. ROSIN, B.S., Texas A&M University; J.D., University of Texas School of Law; Professor of Law. NJERI MATHIS RUTLEDGE, B.A., Spelman College; J.D., Harvard Law School; Professor of Law. MARK R. SIEGEL, B.S., B.A., University of Florida; J.D., Florida State University College of Law; LL.M., Emory University School of Law; Professor of Law. ANDREW T. SOLOMON, B.A., University of Michigan; J.D., Boston University School of Law; Professor of Law. TOBIN A. SPARLING, B.A., Dartmouth College; M.S., Columbia University School of Library Service; M.A., Columbia University Graduate School of Arts & Sciences; J.D., Columbia Law School; Professor of Law. MARK E. STEINER, B.A., University of Texas; J.D., University of Houston Law Center; Ph.D., University of Houston; Professor of Law. DRU STEVENSON, B.A., Wheaton College; J.D., University of Connecticut School of Law; LL.M., Yale Law School; Professor of Law. CHERIE O. TAYLOR, A.B., Harvard University—Radcliffe College; J.D., University of Georgia School of Law; LL.M., Georgetown University Law Center; Professor of Law. vii

T. GERALD TREECE, B.A., University of Houston; J.D., University of Houston Law Center; Vice President, Associate Dean, Special Counsel to the President and Dean, and W. James Kronzer, Jr. Distinguished Professor of Law. KENNETH WILLIAMS, B.A., University of San Francisco; J.D., University of Virginia School of Law; Professor of Law. JOHN J. WORLEY, A.B., University of Georgia; J.D., University of Georgia School of Law; M.A., Rice University; Vice President, Associate Dean, Director of Transactional Law Practice Certificate Program and Professor of Law. KEVIN M. YAMAMOTO, B.S., University of California at Davis; J.D., University of San Diego School of Law; LL.M., University of Florida College of Law; Professor of Law.

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SOUTH TEXAS COLLEGE OF LAW —HOUSTON— BOARD OF DIRECTORS EXECUTIVE COMMITTEE J. KENNETH JOHNSON ‘86 Chairman GENORA KENDRICK BOYKINS ‘85 STEWART W. GAGNON ‘74 NICHOLAS J. LANZA, JR. ‘89 MICHAEL W. MILICH ‘97 IMOGEN S. PAPADOPOULOS ‘84 JEFFREY RUSK ‘83 RANDALL O. SORRELS ‘87 MICHAEL S. HAYS ’74, EX OFFICIO DON D. JORDAN ’69, EX OFFICIO MEMBERS LARRY BAILLARGEON ‘74 DARRYL M. BURMAN ‘83 HON. THERESA W. CHANG HON. ROBERT A. ECKELS ‘93 HON. EVA GUZMAN ‘89 CHRIS HANSLIK ‘95 JON PAUL HOELSCHER ‘05 RANDY R. HOWRY ‘85 MICHAEL K. HURST ‘90 JOSEPH K. LOPEZ ‘78 GORDON QUAN ‘77 ANDREW SOMMERMAN ‘86 JAMES D. THOMPSON III ‘86 RUTHIE NELSON WHITE ‘96 CHAIRMEN EMERITUS MICHAEL S. HAYS ‘74 DON D. JORDAN ‘69

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SOUTH TEXAS LAW REVIEW

ADVISORY COUNCIL

MEMBERS N. TERRY ADAMS, JR. HON. JEFF BOHM ASHLEY GARGOUR JAMES STUART LAWSON JAMES D. SEEGERS STACEY L. SEVEROVICH DRU STEVENSON DULCIE G. WINK JOHN J. WORLEY

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SOUTH TEXAS LAW REVIEW SPRING 2018

VOL. 59 NO. 3

ARTICLES 2017 OIL & GAS CASE LAW UPDATE .................................Christopher Kulander

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THE PREPAREDNESS PIÑATA: KNOCKING OUT THE PROBLEMS IN TEXAS’S EMERGENCY MANAGEMENT LEGAL FRAMEWORK TO ENHANCE PERFORMANCE AT THE LOCAL LEVEL ............... William S. Gribble

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CURRENT ISSUES UNDER THE LOUISIANA LAW OF OIL AND GAS .......................................................................... Patrick S. Ottinger

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FORUM SHOPPING: DEFENSIVE ABUSE OF THE INTRASTATE FORUM NON CONVENIENS DOCTRINE ........................ Eliot T. Tracz

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2017 OIL & GAS CASE LAW UPDATE CHRISTOPHER KULANDER, DIRECTOR AND PROFESSOR, HARRY L. REED OIL & GAS LAW INSTITUTE SOUTH TEXAS COLLEGE OF LAW HOUSTON† I.

DENBURY GREEN PIPELINE-TEXAS, LLC V. TEXAS RICE LAND PARTNERS, LTD. .............................................................................. 281 A. Texas Rice I ............................................................................ 282 B. Texas Rice II ........................................................................... 284 II. BP AM. PROD. CO. V. LADDEX, LTD. ................................................ 289 III. DAVIS V. MUELLER .......................................................................... 296 IV. FOREST OIL CORP. V. EL RUCIO LAND & CATTLE CO. .................... 299 V. LIGHTNING OIL CO. V. ANADARKO E&P ONSHORE LLC.................. 305 VI. SAMSON EXPL. V. T.S. REED PROPS. ................................................ 309 VII. WENSKE V. EALY .............................................................................. 314 VIII. HIGH MOUNT EXPL. & PROD. LLC V. HARRISON INTERESTS, LTD. .. 320 IX. RING ENERGY, INC. V. TREY RES., INC. ............................................ 323 X. ARUBA PETROLEUM, INC. V. PARR. .................................................. 327 XI. REED V. MALTSBERGER ................................................................... 331 XII. TEXAS OUTFITTERS LTD. V. NICHOLSON ........................................... 334 XIII. CHIEFTAN EXPL. CO. V. GASTAR EXPL., INC. & CUBIC ASSETS ........ 336 XIV. XTO ENERGY V. GOODWIN .............................................................. 339 XV. BOERSCHIG V. TRANS-PECOS PIPELINE ........................................... 344

I.

DENBURY GREEN PIPELINE-TEXAS, LLC V. TEXAS RICE LAND PARTNERS, LTD.1

On January 6, 2017, the Supreme Court of Texas reversed the judgment of the Beaumont Court of Appeals (Ninth District) and reinstated the judgment of the trial court.2 The court held that because the summary judgment evidence produced by Denbury Green Pipeline-Texas, LLC † B.S. (Geology) and M.S. (Geophysics), Wright State University; Ph.D., Texas A&M University (Petroleum Seismology); J.D., University of Oklahoma. The author wishes to thank Aaron Epstein, Pierre Grosdidier, Donald Jackson, Kyle Kemp, Cameron Shepherd, and Rachel Schiller for their assistance with this paper. © 2017 Christopher Kulander. All rights reserved.

1. Denbury Green Pipeline-Tex., LLC v. Tex. Rice Land Partners, Ltd., 510 S.W.3d 909 (Tex. 2017).

2. Id. at 911.

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(“Denbury Green”) established conclusively “a reasonable probability that, at some point after construction, the carbon dioxide pipeline known as ‘the Green Line’ would serve the public, as it does currently,” Denbury Green could be categorized as a common carrier for the Green Line.3 Denbury Green built a pipeline that became part of a network of pipelines formed in part for the transportation of carbon dioxide (“CO2”) from Jackson, Mississippi to Texas.4 The route followed by the Green Line ran through eastern Texas and, prior to construction, Denbury Green had tried to get the permission of landowners across the proposed pipeline route, one of whom was Texas Rice Land Partners, Ltd. (“Texas Rice”), to perform surveys of their property.5 In 2007, Denbury Green was denied access to Texas Rice’s land after attempting to survey two of its Jefferson County, Texas tracts.6 The following year Denbury Green sought common-carrier status and, to that end, filed a T-4 permit application with the Texas Railroad Commission (“RRC”).7 After receiving the permit, Denbury Green sued to obtain an injunction against Texas Rice to stop Texas Rice’s prevention of its entry onto the Texas Rice tracts in Jefferson County for the purpose of completing the pipeline survey.8 Then, while the suit remained unresolved, Denbury Green took possession of the property pursuant to the Texas Property Code9 and proceeded to survey for and build the Green Line.10 A.

Texas Rice I11

The trial court found Denbury Green to be a common carrier with the power of private eminent domain in accordance with the Natural Resources Code, and this judgment was affirmed on appeal.12 In Texas Rice’s first appeal to the Supreme Court of Texas,13 however, the court reversed and remanded the case to the trial court. According to the court at the time, reversal and remand were intended to allow for proceedings in line with the common-carrier test established by the court therein, which would provide 3. Id. 4. Id. 5. Id. 6. Id. 7. Id.; see also TEX. NAT. RES. CODE § 111.019(a) (West 2017) (“Common carriers have the right and power of eminent domain.”).

8. Denbury Green Pipeline-Tex., 510 S.W.3d at 911–12.

9. Specifically, TEX. PROP. CODE § 21.021(a).

10. Denbury Green Pipeline-Tex., 510 S.W.3d at 912.

11. Tex. Rice Land Partners, Ltd. v. Denbury Green Pipeline-Tex., LLC, 296 S.W.3d 877 (Tex. App.—Beaumont 2009), rev’d, Tex. Rice Land Partners, Ltd. v. Denbury Green PipelineTex., LLC (Texas Rice I), 363 S.W.3d 192 (Tex. 2012).

12. Id. at 881.

13. Texas Rice I, 363 S.W.3d 192.

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an opportunity for Denbury Green to “present reasonable proof of a future customer, thus demonstrating that [the Green Line] will indeed transport ‘to or for the public for hire’ and is not ‘limited in [its] use to the wells, stations, plants, and refineries of the owner.’”14 On remand, the trial court observed that Denbury Green produced evidence including transportation agreements with both Air Products & Chemicals, Inc. and Airgas Carbonic, Inc., both unaffiliated entities.15 The court also noted the inclusion in the evidence of another transportation agreement, this one between Denbury Onshore and Denbury Green.16 The court of appeals’ review of the evidence produced on remand led it to the conclusion “that reasonable minds could differ regarding whether, at the time Denbury Green intended to build the Green Line, a reasonable probability existed that the Green Line would serve the public,” and it reversed the trial court’s grant of summary judgment for Denbury Green as the case wound through the court system for a second time.17 The Texas Supreme Court then turned to its first decision in Texas Rice I where, to conform with the Texas Constitution, it had held that “[t]o qualify as a common carrier with the power of eminent domain, the pipeline must serve the public; it cannot be built only for the builder’s exclusive use.”18 The court noted it had then specifically found: [F]or a person intending to build a CO2 pipeline to qualify as a common carrier under Section 111.002(6) [of the Natural Resources Code], a reasonable probability must exist that the pipeline will at some point after construction serve the public by transporting gas for one or more customers who will either retain ownership of their gas or sell it to parties other than the carrier.19 According to the court, a reasonable probability under the test “is one that is more likely than not.”20 The court further observed that when a challenge to common-carrier status is brought by a landowner, “the burden falls upon the pipeline company to establish its common-carrier bona fides if it wishes to exercise the power of eminent domain.”21 The court noted it held “Denbury Green [was] not entitled to common-carrier status simply because it obtained a common-carrier permit, filed a tariff, and agreed to make the pipeline available to any third party wishing to transport its gas in the pipeline

14. Id. at 204.

15. Tex. Rice Land Partners, Ltd. v. Denbury Green Pipeline-Tex., LLC, 457 S.W.3d 115, 118 (Tex. App.—Beaumont 2015), rev’d, 510 S.W.3d 909 (Tex. 2017).

16. Id. at 121.

17. Id. at 121–22.

18. Texas Rice I, 363 S.W.3d at 200.

19. Id. at 202 (footnotes omitted).

20. Id. at 202 n.29.

21. Id. at 202.

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and willing to pay the tariff.”22 The court observed that, while the Texas Rice I affidavit testimony supported the existence of negotiations between Denbury Green and parties seeking to use the Green Line to transport CO2, it failed to show whether the gas would be used for other parties’ benefit or entirely by Denbury Green.23 Per the court, evidence in the record did not identify any possible customers; rather, the evidence merely attested to a likelihood of future customers making use of the Green Line.24 The court also noted there had been evidence of an intention by Denbury Green to operate the Green Line wholly for purposes of its own,25 and Denbury Green’s website included statements suggesting the pipeline would be used for its tertiary recovery operations.26 The court observed the evidence in Texas Rice I failed to show there was a reasonable probability the pipeline would serve the public “at some point after construction,”27 and led it to then hold that Denbury Green’s contentions were not enough to find it was a common carrier.28 The court noted it had ultimately remanded the case for further proceedings in the trial court, having concluded that when the commoncarrier status of a pipeline has been challenged, “the company must present reasonable proof of a future customer, thus demonstrating that the pipeline will indeed transport ‘to or for the public for hire’ and is not ‘limited in [its] use to the wells, stations, plants, and refineries of the owner.’”29 B.

Texas Rice II30

The Texas Supreme Court then turned to the dispute among the parties in the more current appeal (Texas Rice II): whether the new evidence, provided by Denbury Green on remand after Texas Rice I, entitled it to summary judgment as to whether it was a common carrier. Here, the court found its task was to apply the Texas Rice I test to the facts of the new case.31 Therefore, the court observed that it would consider whether, as a matter of law, Denbury Green established a reasonable probability the Green Line, after construction, “would serve the public by transporting gas for one or 22. Id. 23. Id. at 202–03.

24. Id. 25. Id. 26. Id. at 203–04.

27. Id.; cf. State v. K.E.W., 315 S.W.3d 16, 23 (Tex. 2010) (recognizing that “probability” is synonymous with “likelihood”).

28. Texas Rice I, 363 S.W.3d at 202.

29. Id. at 204 (alteration in original).

30. Tex. Rice Land Partners, Ltd. v. Denbury Green Pipeline-Tex., LLC (Texas Rice II), 457 S.W.3d 115 (Tex. App.—Beaumont 2015), rev’d, 510 S.W.3d 909 (Tex. 2017).

31. Denbury Green Pipeline-Tex., LLC v. Tex. Rice Land Partners, Ltd., 510 S.W.3d 909, 914 (Tex. 2017).

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more customers who will either retain ownership of their gas or sell it to parties other than the carrier.”32 The court reflected on its own review of the evidence in Texas Rice I, noting it had then been limited to assertions by Denbury Green regarding its intention to have the public use the Green Line. The court noted it was the lack of evidence demonstrating “a reasonable probability of the Green Line’s future public use” that led it to determine Denbury Green was not entitled to summary judgment.33 The court observed that, by itself, such evidence of intent failed to meet the reasonable probability standard from Texas Rice I.34 There was also affidavit testimony in support of Denbury Green’s contention that there were other parties with which it was negotiating for the transportation of CO2 over the Green Line, but the court found this testimony suggested Denbury Green would only transport gas for tertiary recovery operations of its own and, therefore, without evidence to the contrary, this did not establish public use.35 According to the court, “[t]he testimony ‘did not identify any possible customers and [Denbury Green] was unaware of any other entity unaffiliated with Denbury Green that owned CO2 near the pipeline route in Louisiana and Mississippi.’”36 As to the claims of Denbury Green on its website, the court concluded: Denbury Green’s representations suggesting that it (1) owns most or all of the naturally occurring CO2 in the region, (2) intends to purchase all the man-made CO2 that might be produced under current and future agreements, (3) see its access to CO2 as giving it a significant advantage over its competitors, and (4) intends to fully utilize the pipeline for its own purposes, are all inconsistent with public use of the pipeline.37 The court had thus held Denbury Green had not established “a reasonable probability that, ‘at some point after construction,’ the Green Line would serve the public.”38 The court next considered the court of appeals’ decision against Denbury Green, noting that the court of appeals, in holding “central to our inquiry is Denbury Green’s intent at the time of its plan to construct the Green Line,” had wrongly interpreted the Texas Rice I test’s introductory phrase “for a person intending to build.”39 The court observed it was improper to

32.

33.

34.

35.

36.

37.

38.

39.

Id. Id. at 915 (citing Texas Rice I, 363 S.W.3d at 204).

Id. Id. Id. (citing Texas Rice I, 363 S.W.3d at 203).

Id. (quoting Texas Rice I, 363 S.W.3d at 204).

Id. (quoting Texas Rice I, 363 S.W.3d at 202).

Id.

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focus on intent, as “person intending to build” did not describe the “intent” required of a party when the pipeline was being considered.40 According to the court, this phrase merely showed who had to prove common-carrier status—the pipeline company.41 The court observed the court of appeals’ focus on intent led it to discount relevant evidence Denbury Green had submitted regarding a contract with Airgas Carbonic for transportation of its CO2 over the Green Line, which the court of appeals noted had been entered into following construction of the pipeline.42 The court also noted “the court of appeals rejected relevant evidence that the Green Line’s future public use could be supported by its proximity to other CO2 shippers once construction was completed.”43 According to the court, the court of appeals shifted the analysis to focus on intent and, consequently, disregarded relevant evidence supporting the common-carrier status of Denbury Green.44 Next, the court reflected on the nature of the Texas Rice I test, observing it balanced landowner property rights with the public policy interest of the state in development of pipelines, even as it preserved respect for constitutional limitations on the oil and gas industry.45 The court noted that before Texas Rice I, obtaining common-carrier status required pipeline owners “to do little more than “check[] a certain box on a one-page government form . . . .”46 According to the court, the Texas Constitution demands considerably more,47 requiring some objective evidence that the public will probably be served by a pipeline in order for its owner to obtain the right to condemn private property under eminent domain authority.48 The court observed that when contracts with unaffiliated entities demonstrate the transportation of gas, not owned by the pipeline, is benefitting an unaffiliated entity, such contracts “can be relevant to showing reasonable probability of future public use.”49 The court then noted Texas Rice wanted the court to hold that the Airgas Carbonic contract, made after contemplation of the Green Line and the Texas Rice I holding, was irrelevant and, if anything, merely raised an issue of fact

40.

41.

42.

43.

44.

45.

46.

47.

48.

49.

Id. Id. Id. Id. Id. Id. Id. at 915–16 (quoting Texas Rice I, 363 S.W.3d at 199).

Id. Id. at 916.

Id.

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regarding Denbury Green’s intent to offer use of the pipeline to the public.50 The court held this reading misunderstood the test from Texas Rice I.51 The court found that, in the absence of additional relevant evidence, post-construction contracts typically established only pre-construction possibilities regarding future public use.52 However, the court determined these contracts could be relevant to demonstrating a reasonable probability that, “at some point after construction,” the public would be served by a pipeline.53 According to the court, post-construction contracts, in combination with additional evidence, have the potential to lead to a determination by a reasonable observer that, due to a pipeline’s proximity to possible customers and given the regulatory environment, when a challenge was made to common-carrier status it was “more likely than not” that someday the public would be served by a pipeline.54 The court ultimately found Denbury Green had established a reasonable probability existed “that, ‘at some point after construction,’ the Green Line would serve the public.”55 The court further found the evidence of Denbury Green’s 2013 CO2 transportation contract, in combination with the Green Line’s proximity to possible customers like Air Products and Airgas Carbonic, meant a reasonable fact-finder could no longer find genuine fact issues “as to whether the Green Line would, at some point after construction, do what it now most certainly does: transport CO2 owned by a customer who retains ownership of the gas.”56 According to the court, the contract with Airgas Carbonic showed present public use of the Green Line.57 Of great significance to the court was the support, provided by the transportation agreement with Air Products, for Denbury Green’s assertion that the design of the pipeline’s route was intended to enable third parties to transfer their own gas.58 The court determined the evidence before it established conclusively “that it was ‘more likely than not’ that, ‘at some point after construction,’ the Green Line would serve the public.”59 The court next addressed the court of appeals’ erroneous requirement “that the reasonably probable future use of the pipeline serve a ‘substantial public interest.’”60 According to the court, the court of appeals disregarded a 50.

51.

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Id. Id. Id. Id. Id. Id. Id. Id. Id. Id. at 917.

Id. (quoting Texas Rice II, 457 S.W.3d at 121).

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claim by Denbury Green that owners of small interests in the Jackson Dome and West Hastings fields were benefitted by the transfer of CO2 from those units via the Green Line despite Denbury Onshore’s ownership of controlling interests in those units, which led the court of appeals to conclude a fact issue as to the substantiality of this non-Denbury Green use had been raised.61 The court also noted the court of appeals found the agreement with Air Products was not substantial enough to withstand summary judgment.62 The court found, by levying this added requirement, the court of appeals had wrongly relied on the court’s Coastal States Gas Producing Co. v. Pate decision.63 In Pate, which involved “eminent domain authority to drill a directional well,” the court observed it had held the benefit to the state, the dedication to the Permanent School Fund of a fraction of gross production revenue, “was a ‘direct, tangible and substantial interest’ in the taking.”64 According to the court, it had not held an interest had to “be direct, tangible, or substantial,” but instead that the Pate facts provided support “that the public’s interest would be served.”65 The court observed, “[t]o the extent that the degree of service to the public was woven into our test in Texas Rice I, we held that for the pipeline to serve the public it must ‘transport[] gas for one or more customers who will either retain ownership of their gas or sell it to parties other than the carrier.’”66 The court held evidence that establishes “a reasonable probability that the pipeline will, at some point after construction, serve even one customer unaffiliated with the pipeline owner is substantial enough to satisfy public use under the Texas Rice I test.”67 In conclusion, the court then held the evidence Denbury Green produced on remand established a reasonable probability as a matter of law “that, at some point after construction, the Green Line would serve the public by transporting CO2 for one or more customers who will either retain ownership of their gas or sell it to parties other than the carrier.”68 The court reversed the judgment of the court of appeals and reinstated the judgment of the trial court.69

61.

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64.

65.

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67.

68.

69.

Id. Id. Id. Id. (quoting Coastal States Gas Producing Co. v. Pate, 309 S.W.2d 828, 833 (Tex. 1958)).

Id. Id. (quoting Texas Rice I, 363 S.W.3d at 202).

Id. Id. at 917–18.

Id. at 918.

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BP AM. PROD. CO. V. LADDEX, LTD.70

On March 3, 2017, the Supreme Court of Texas affirmed the holding of the Amarillo Court of Appeals (Seventh District) and held that (1) a top lease entered into by Laddex, Ltd. (the “Laddex lease”) did not violate the rule against perpetuities (the “Rule”) and, therefore, Laddex had standing to file its lawsuit, and (2) the court of appeals had correctly remanded the case for a new trial because the trial court erroneously charged the jury on the question of cessation of production in paying quantities.71 In 1971, BP acquired an oil and gas lease (the “BP lease”) by assignment.72 The lease, covering property in Roberts County, Texas, had a five-year primary term and was to continue “as long thereafter as oil or gas is produced from said land hereunder.”73 The BP lease had a single producing well (the “Mahler D-2”) during the relevant period and, in August 2005, it began experiencing significantly slowed production.74 In November 2006, the Mahler D-2 returned to producing quantities similar to those prior to the slowdown.75 In April 2006, during the slowed production period, the lessors’ attorney, believing the well had completely stopped producing, sent BP a letter stating the BP lease appeared to have terminated due to “failure to produce in paying quantities and cessation of production.”76 The letter included a request for BP to contact the lessors’ attorney to speak about the issue, but there was no response from BP.77 In March 2007, around five months after the well returned to preslowdown levels of production, the lessors of the BP lease made a top lease with Laddex.78 The Laddex lease covered the same property as the BP lease, and provided in part: It is agreed that this is a top lease and, subject to the other provisions herein contained, the primary term of this lease shall commence [(a)] upon the date that written releases are filed in the official public records of the county in which the land is located by all owners of record of the prior terminated lease, releasing the last recorded prior now-terminated lease (the “base lease”); or (b) upon the date upon which a judgment of a court of competent jurisdiction terminating the base lease and all interests under the base lease becomes final and

70.

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513 S.W.3d 476 (Tex. 2017).

Id. at 477.

Id. Id. at 477–78 (quoting the BP lease agreement).

Id. at 478.

Id. Id. Id. Id.

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nonappealable. This Lease is intended to and does include and vest in Lessee any and all remainder and reversionary interest and afteracquired title of Lessor in the Leased Premises upon expiration of any prior oil, gas or mineral lease.79 Laddex filed a suit against BP one month after execution of the Laddex lease, claiming the failure to produce in paying quantities terminated the BP lease.80 BP sought dismissal of the suit based on lack of subject-matter jurisdiction, contending Laddex did not have standing to submit its claims.81 According to BP, the source of Laddex’s standing, the Laddex lease, was void because it was in violation of the Rule of Perpetuities.82 Following the denial of BP’s motion, the case was tried before a jury.83 The charge to the jury posed the following questions: [W]hether the Mahler D-2 failed to produce in paying quantities “[f]rom August 1, 2005 to October 31, 2006” and whether, “under all the relevant circumstances, a reasonably prudent operator would not continue, for the purpose of making a profit and not merely for speculation, to operate the Mahler D-2 Well in the manner in which it was operated between August 1, 2005 to [sic] October 31, 2006.”84 The jury answered both questions “Yes,” and further found the April 2006 letter from the lessor’s attorney “did not repudiate BP’s title to the [BP] lease.”85 In delivering judgment on the verdict, the trial court decreed the BP lease had “lapsed and terminated for failing to produce in paying quantities” and granted possession of the relevant leasehold estate to Laddex.86 BP then appealed.87 As to the issue of standing, the court of appeals held that because the Laddex lease “conveyed to Laddex a vested interest in the lessors’ possibility of reverter,” it was not subject to the Rule.88 Concerning the jury charge, the court of appeals held “the trial court erred in limiting the jury’s paying-production inquiry to the specific fifteen-month period in which production slowed,”89 and concluded the charge had “limited the jury’s consideration to a period of time that was not reasonable.”90 The court of appeals also rejected the challenge by BP to the legal sufficiency of evidence 79. Id. 80. Id. 81. Id. 82. Id. at 478–79.

83. Id. at 479.

84. Id. 85. Id. (internal quotation omitted).

86. Id. 87. Id. 88. Id. (quoting BP Am. Prod. Co. v. Laddex, Ltd., 458 S.W.3d 683, 686–87 (Tex. App.— Amarillo 2015), aff'd, 513 S.W.3d 476 (Tex. 2017)).

89. Id. (citing BP Am. Prod. Co., 458 S.W.3d at 688).

90. Id. (quoting BP Am. Prod. Co., 458 S.W.3d at 688).

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supporting the verdict, and held the record showed “sufficient evidence to have allowed a reasonable jury to differ as to whether the lease produced in paying quantities when a reasonable period of time is considered.”91 Both parties filed petitions to review.92 The Supreme Court of Texas began its analysis by addressing the perpetuities issue.93 Here, BP challenged “Laddex’s standing to seek termination of the BP lease” and argued the top lease which this standing depended upon was void as a perpetuity.94 The court noted the Texas Constitutional prohibition on perpetuities95 is manifested in the Rule which states, “no interest is valid unless it must vest, if at all, within twenty-one years after the death of some life or lives in being at the time of the conveyance.”96 The court observed that applying the Rule required them to “look at the conveyance instrument as of the date it is executed, ‘and it is void if by any possible contingency the grant or devise could violate the Rule.’”97 The court acknowledged “that where an instrument is equally open to two constructions, the one will be accepted which renders it valid rather than void, it being assumed that a grantor would intend to create a legal instrument rather than one which is illegal.”98 The court noted the Rule has no application to present or future interests vesting at their creation.99 Therefore, the court observed that to determine whether the Rule applied it had to analyze the nature of the interest the Laddex lease conveyed.100 The court noted, “[i]n Texas, a typical oil and gas lease actually conveys the mineral estate (less those portions expressly reserved, such as royalty) as a determinable fee.”101 It further noted, “[a] possibility of reverter is the interest left in a grantor after the grant of a fee simple determinable.”102 Finally, the court observed “[t]he possibility of reverter, though not presently possessory, is presently vested at the time the lease is executed.”103 The court turned to the BP lease, and observed it conveyed the mineral estate of the lessors, as a determinable fee, to BP’s predecessor “subject to a 91. Id. (quoting BP Am. Prod. Co., 458 S.W.3d at 688).

92. Id. 93. Id. 94. Id. 95. Id. (citing TEX. CONST. art. I, § 26).

96. Id. (quoting Peveto v. Starkey, 645 S.W.2d 770, 772 (Tex. 1982)).

97. Id. at 479–80 (quoting Peveto, 645 S.W.2d at 772).

98. Id. at 480 (quoting Kelly v. Womack, 268 S.W.2d 903, 906 (Tex. 1954)).

99. Id. (“The requirement of the rule in this respect is complied with when a future estate or interest becomes vested in interest regardless of when it becomes vested in possession.” (quoting Kelly, 268 S.W.2d at 905–06)).

100. Id. 101. Id. (quoting Luckel v. White, 819 S.W.2d 459, 464 (Tex. 1991)).

102. Id. (quoting Jupiter Oil Co. v. Snow, 819 S.W.2d 466, 468 (Tex. 1991).

103. Id. (citing Snow, 819 S.W.2d at 468).

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vested possibility of reverter in the lessors.”104 Noting they had acknowledged a lessor’s ability to sell or assign, in whole or in part, a possibility of reverter, the court turned to Laddex’s contention that, through the Laddex top lease, the Lessor’s vested reversionary interest in the mineral estate had been conveyed to Laddex.105 In responding to Laddex, BP argued that, to the degree Laddex’s lease conveyed the possibility of reverter of the lessors, the vesting of this interest was delayed by the language of the lease until an uncertain future event occurred, this event being the expiration of the lease held by BP.106 According to the court, this argument amounted to a claim the Rule was violated by the top lease and therefore was void.107 The court observed that, generally, the conveyance of a top-lease that is contingent on a determinable-fee bottom lease expiring, without more, would violate the Rule.108 Noting this did not necessarily mean the Laddex lease violated the Rule, the court turned its attention to the Laddex lease provisions.109 The court noted the Laddex lease’s primary term began the date that either the BP lease (1) was released, or (2) was terminated by a final and nonappealable judgment.110 Therefore, the court observed that Laddex had no right to possess the mineral estate until the BP lease was adjudged terminated or released.111 The court then turned to the Laddex lease provision forming the root of the dispute between the parties: “This Lease is intended to and does include and vest in Lessee any and all remainder and reversionary interest and after-acquired title of Lessor in the Leased Premises upon expiration of any prior oil, gas or mineral lease . . . .”112 While Laddex claimed the lease presently conveyed the possibility of reverter of the lessors, BP argued the language expressly delayed the reversionary interest from vesting until the BP lease expired, to the extent vesting of the interest could occur outside the period of the Rule.113 The court concluded, “a plausible interpretation of this language is that the Laddex lease is a present ‘partial alienation’ of the lessors’ possibility of reverter under the BP lease,” insofar as Laddex’s acquisition “is capable of ripening into a fee simple determinable 104. Id. 105. Id. (“[A] top lease ‘may be classified as a partial alienation of a possibility of reverter,’ in that ‘a lessee under a top lease acquires the lessor’s possibility of reverter to the extent that what he has acquired is capable of ripening into a fee simple determinable interest upon expiration of the bottom lease’ (emphasis omitted).” (quoting Michael L. Brown, Effect of Top Leases: Obstruction of Title and Related Considerations, 30 BAYLOR L. REV. 213, 239 (1978))).

106. Id. 107. Id. 108. Id. 109. Id. at 481.

110. Id. 111. Id. 112. Id. 113. Id.

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interest upon expiration of the [BP] lease.”114 The other plausible interpretation, which BP subscribed to, was “that the vesting of Laddex’s interest is contingent on the BP lease’s expiration.”115 The court again noted, “where an instrument is equally open to two constructions, the one will be accepted which renders it valid rather than void, it being assumed that a grantor would intend to create a legal instrument rather than one which is illegal.”116 If viewed in accordance with BP’s interpretation, the provision in dispute would serve only to guarantee violation of the Rule by the lease, so the court instead held the Laddex lease was “a present conveyance of a vested interest” that did not contravene the Rule.117 The court then turned to the remaining disputes of the parties, which involved the finding by the jury “that the Mahler D-2 well failed to produce in paying quantities,” as well as the court of appeals’ remand of the case for a new trial.118 The court began with a reiteration of the framework under which it evaluated claims for termination of production in paying quantities.119 The court observed that the BP lease, having entered its secondary term, would continue so long as oil or gas was “produced,” which meant “produced in paying quantities.”120 The court further observed that whether a well is generating production in paying quantities is a fact question for the jury, and the lessor has the burden of proving an absence of such production for the purpose of terminating a lease.121 The court then turned to Clifton v. Koontz, where it had set forth an analysis for answering this question: [H]olding that whether a well is producing paying quantities depends on (1) whether the well “pays a profit, even small, over operating expenses,”122 and (2) if not, whether, “under all the relevant circumstances a reasonably prudent operator would, for the purpose of making a profit and not merely for speculation,” continue to operate the well as it had been operated.123 The court also noted Clifton had emphasized “there can be no limit as to time, whether it be days, weeks, or months, to be taken into consideration

114. Id. at 482 (quoting Brown, supra note 105, at 239).

115. Id. 116. Id. (quoting Kelly v. Womack, 268 S.W.2d 903, 906 (Tex. 1954)).

117. Id. 118. Id. 119. Id. 120. Id. (quoting Garcia v. King, 164 S.W.2d 509, 511 (Tex. 1942)).

121. Id. 122. Id. at 482–83 (quoting Clifton v. Koontz, 325 S.W.2d 684, 691 (Tex. 1959)).

123. Id. at 482–83 (quoting Clifton, 325 S.W.2d at 691); see also (citing Skelly Oil Co. v.

Archer, 356 S.W.2d 774, 783 (Tex. 1962) (per curiam)).

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in determining the question of whether paying production from the lease has ceased.”124 The court then reviewed the questions and instructions in the jury charge.125 Question 1 asked in part, “[f]rom August 1, 2005 to October 31, 2006, did the Mahler D-2 Well fail to produce in paying quantities?”126 Noting the jury answered this question “Yes,” the court reviewed Question 2, which was based on a “Yes” answer to Question 1, and asked in part if, “under all the relevant circumstances, a reasonably prudent operator would not continue, for the purpose of making a profit and not merely for speculation, to operate the Mahler D-2 Well in the manner in which it was operated between August 1, 2005 to [sic] October 31, 2006?”127 The jury answered this question “Yes” as well.128 The court noted the court of appeals held Question 1 to be erroneous because it restricted the jury’s deliberation to the fifteen months during which production had slowed, thus preventing the jury from taking into consideration the restoration of the Mahler D-2’s profitability following that time period.129 The court observed the court of appeals had remanded the case for a new trial when it concluded evidence on the record “would ‘have allowed a reasonable jury to differ as to whether the lease produced in paying quantities when a reasonable period of time is considered,’” but noted the court of appeals specifically declined to make a determination as to “what would be an appropriate period of time in this case.”130 Turning to the parties’ arguments, the court first took note of BP’s contention that the evidence conclusively established the profitability of the lease over a reasonable time and, therefore, a finding in its favor instead of remand was justified.131 BP took the position that a reasonable period here would, at the least, be the 27 months before Laddex filed its April 2007 suit.132 Laddex responded by arguing the jury’s finding—that throughout the fifteen-month slowdown the well was operated at a loss—was supported by the evidence, and further contended “that the trial court ‘acted properly in stating the period over which Laddex alleged there was a lack of paying production and instructing the jury that the measuring period must be 124. Id. at 483 (quoting Clifton, 325 S.W.2d at 690).

125. Id. 126. Id. 127. Id. 128. Id. at 484.

129. Id. (citing BP Am. Prod. Co. v. Laddex, Ltd., 458 S.W.3d 683, 689 (Tex. App.—Amarillo 2015), aff’d, 513 S.W.3d 476, 487 (Tex. 2017)).

130. BP Am. Prod. Co., 513 S.W.3d at 484 (quoting BP Am. Prod. Co., 458 S.W.3d at 688 n.3, 689).

131. Id. 132. Id.

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reasonable.’”133 According to the court, Laddex essentially argued the proper period for analysis was “that in which there is evidence of nonpaying production,” and it was for the jury to determine whether, under the circumstances, this period was reasonable.134 According to the court, both parties’ positions conflicted with Clifton.135 In Clifton, the primary term of a lease terminated in 1950 and, on September 12, 1956, the operator began reworking operations.136 The trial court in Clifton determined the well on the lease “had at all material times produced gas in paying quantities,” and the issue considered was whether there existed any record evidence that would sustain this finding.137 The lease had a clause barring termination due to cessation of production as long as reworking operations began “within sixty days of such cessation,” leading the Clifton court to consider “whether there was evidence of paying production through July 12, 1956.”138 The court “considered record evidence of monthly and aggregate profits and losses throughout 1954, 1955, and the first six months of 1956,” and held there was such evidence.139 In rejecting one of the lessors’ contentions regarding the relevance of the clause, the court observed: There can be no arbitrary period for determining the question of whether or not a lease has terminated for the additional reason that there are various causes for slowing up of production, or a temporary cessation of production, which the courts have held to be justifiable.

We again emphasize that there can be no limit as to time, whether it be days, weeks, or months, to be taken into consideration in determining the question of whether paying production from the lease has ceased.140 After reviewing BP’s arguments about how paying production should have been evaluated by the jury, the court agreed with BP that an evaluation of the question regarding any specific period violated Clifton.141 According to the court, narrowing the paying production question to any specific period was “necessarily ‘arbitrary.’”142 The court further noted the jury’s verdict, which benefited from considerable deference on appeal, could be influenced 133.

134.

135.

136.

137.

138.

139.

140.

141.

142.

Id. Id. Id. Id. (citing Clifton, 325 S.W.2d at 688).

Id. at 484.

Id. at 484–85 (quoting Clifton, 325 S.W.2d at 689).

Id. at 485 (quoting Clifton, 325 S.W.2d at 689–90).

Id. (emphasis added) (citation omitted) (quoting Clifton, 325 S.W.2d at 690).

Id. Id. at 485–86 (quoting Clifton, 325 S.W.2d at 690) (citing 1 ERNEST E. SMITH & JACQUELINE LANG WEAVER, TEXAS LAW OF OIL & GAS § 4.4[A][2][b], at 4–40 (2009)) (“Unless the lease defines the period for which production in paying quantities is measured, a well’s profitability is not determined by looking at any specific accounting period.”).

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significantly by the chosen period.143 The court took note of Laddex’s insistence that the jury’s verdict be upheld because the jury determined the fifteen-month time frame was a reasonable period over which to evaluate paying production.144 After noting this argument was based on the accompanying instruction to Question 1, the court found it disagreed with Laddex, observing “the submission served to ‘focus the jury’ on the period of slowed production and then ‘imply that that is a reasonable time period.’”145 According to the court, even if the jury had been given a more direct instruction that the selected period of time was required to be reasonable, “the question would still improperly direct the jury toward a specific period instead of allowing it to evaluate cessation of paying production with ‘no limit as to time . . . to be taken into consideration.’”146 The court observed that while it was permissible for the parties to use evidence and argument to focus the jury, “the charge may not ask or instruct the jury about a specific period without unduly influencing the jury and violating Clifton.”147 The court concluded the charge failed to allow the jury it fulfill its duties and, since “a reasonable jury could have differed as to whether the well ceased to produce in paying quantities under the Clifton standard,” it was appropriate to remand the case for a new trial.148 III.

DAVIS V. MUELLER149

On May 26, 2017, the Texas Supreme Court reversed the Texarkana Court of Appeals and held that blanket grants in multiple deeds were valid and unambiguous, conveying title to mineral interests.150 In 1991, Virginia Cope and James Mills, two separate parties from outside Texas, conveyed several tracts of vaguely-described land in Harrison County, Texas to James Davis (“Davis”).151 Both conveyances were on a printed form with small text.152 The list of tracts was followed by this sentence: “Grantor agrees to execute any supplemental instrument requested by Grantee for a more complete or accurate description of said land.”153

143.

144.

145.

146.

147.

148.

149.

150.

151.

152.

153.

Id. at 486.

Id. Id. Id. (quoting Clifton, 325 S.W.2d at 690) Id. Id. at 487.

Davis v. Mueller, 528 S.W.3d 97 (Tex. 2017).

Id. at 98–99.

Id. at 99.

Id. Id.

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Later in the grants was found a two-sentence Mother Hubbard clause and a general granting clause: The “Lands” subject to this deed also include all strips, gores, roadways, water bottoms and other lands adjacent to or contiguous with the lands specifically described above and owned or claimed by Grantors. If the description above proves incorrect in any respect or does not include these adjacent or contiguous lands, Grantor shall, without additional consideration, execute, acknowledge, and deliver to Grant[ee], its successors and assigns, such instruments as are useful or necessary to correct the description and evidence such correction in the appropriate public records. Grantor hereby conveys to Grantee all of the mineral, royalty, and overriding royalty interest owned by Grantor in Harrison County, whether or not same is herein above correctly described.154 In 2011, however, the same individuals deeded the same interests to Mark Mueller (“Mueller”).155 In a subsequent quiet title action, Mueller asserted that the property descriptions in the original conveyances to Davis were vague and did not satisfy the requirement of the Statute of Frauds that the property conveyed be identified with reasonable certainty.156 Mueller also sued for conversion of the royalties from the mineral interests.157 The trial court held for Davis.158 On appeal, Mueller argued that the general granting clause in the first deed was ambiguous as it purported to convey all the grantor’s interests in Harrison County while also following, in the same paragraph, the Mother Hubbard clause, a catch-all device useful only for conveying small, contiguous, and undescribed interests.159 The court of appeals reversed, agreeing with Mueller that the conveyances were vague and that the placement of the general granting clause after the Mother Hubbard clause in the same paragraph negated the former’s effectiveness.160 The Texas Supreme Court reversed, acknowledging that, although the 1991 conveyances did not satisfy the Statute of Frauds,161 Texas law regards

154. Id. 155. Id. at 100.

156. Id. 157. Id. 158. Id. 159. Id. 160. Id. (citing Muller v. Davis, 485 S.W.3d 622, 631 (Tex. App.—Texarkana 2016), rev’d, 528 S.W.3d 97 (Tex. 2017)).

161. The court noted that the test to satisfy the Statute of Frauds was provided by Morrow v.

Shotwell wherein the court had opined “the writing must furnish within itself, or by reference to some other existing writing, the means or data by which the land to be conveyed may be identified with reasonable certainty.” 477 S.W.2d 538, 539 (Tex. 1972).

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general granting clauses as valid and effective.162 Mueller argued that the general granting clause was only for small tracts such as those conveyed via the preceding Mother Hubbard clause.163 However, as the court pointed out, if this had been the case there would not have been a need for the Mother Hubbard clause, which covers small pieces of land contiguous to the described tract.164 The court held that the granting clause, standing separately in its own sentence, indeed conveyed all the interests owned by Cope and Mills in Harrison County, not just the kind of small, contiguous tracts that the Mother Hubbard clause would have passed.165 The court differentiated the present case with J. Hiram Moore, Ltd. v.

Greer,166 a well-known Texas case wherein four sisters partitioned an 80-acre tract in the “Railroad Survey” in Wharton County into four 20-acre tracts.

Each received the entire surface estate and minerals in one tract and a nonparticipating royalty interest (“NPRI”) in each of the other three tracts.167 Two of the tracts—neither owned by sister (and litigant) Greer—were pooled with an adjacent tract in the “Barnard Survey” to form the “SixS Frels” unit.168 Greer then deeded the mineral royalties produced from “[a]ll of that tract of land out of the [Barnard Survey]” known as the SixS Frels unit.169 Thus, the specific description conveyed nothing as Greer owned no royalty interest in any tract in the Barnard Survey.170 Greer’s deed continued, however, by adding “it is the intent of this instrument to convey . . . all of [Greer’s] royalty and overriding royalty interest in [Wharton County].”171 The Railroad Survey being in Wharton County, this general grant would have included the interests she did own in that survey.172 Because the deed “in effect states that Greer conveys nothing, and that she conveys everything,” the J. Hiram Moore court had concluded that it was ambiguous and could not be construed as a matter of law.173 The court here noted that in J. Hiram Moore, the general granting clause in the deed at issue created an ambiguity, whereas in the present case, the general granting clause did not and so the cases could be differentiated.174

162.

163.

164.

165.

166.

167.

168.

169.

170.

171.

172.

173.

174.

Davis, 528 S.W.3d at 101.

Id. at 102.

Id. Id. J. Hiram Moore, Ltd. v. Greer, 172 S.W.3d 609 (Tex. 2005).

Davis, 528 S.W.3d at 101 (citing Greer, 172 S.W.3d at 610).

Id. Id. (citing Greer, 172 S.W.3d at 612).

Id. Id. Id. Id. (citing Greer, 172 S.W.3d at 614).

Davis, 528 S.W.3d at 101.

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Finally, Mueller argued that the 1991 grant should not be enforced because Davis was a bad actor.175 The court held that Mueller’s evidence of Davis’ character has no effect on the interpretation of the 1991 grants.176 Ultimately, since Mueller’s other claims, including a Fraudulent Claim against real property action, failed, the court concluded that the 1991 deeds that conveyed title of Cope’s and Mills’ mineral interests to Davis were valid and unambiguous.177 Since those recorded grants pre-dated Mueller’s grants, Davis’ deed superseded Mueller’s and the court therefore reversed judgment and rendered that Mueller take nothing.178 IV. FOREST OIL CORP. V. EL RUCIO LAND & CATTLE CO.179 On April 28, 2017, the Texas Supreme Court considered the question of whether the RRC has exclusive or primary jurisdiction over actions for environmental contamination, which would possibly abrogate suits for monetary damages or another relief in civil court.180 In affirming the Houston Court of Appeals (First District), the court decided that the RRC did not have exclusive or primary jurisdiction over such claims.181 In addition, the court considered whether the award given to the respondent in arbitration before litigation occurred should have been nullified due to alleged impartiality of the part of one the arbitrators or if the arbitrators had surpassed their powers, or both.182 James A. McAllen (“McAllen”), respondent, owned a ranch in South Texas.183 Forest Oil Corporation (“Forest”) had leased 1,500 acres of the 27,000-acre ranch and produced oil from the ranch for more than 30 years, processing the production at facilities also located on the ranch.184 After litigation in the 1990s involving claims for the underpayment of royalties and alleged violations of the implied covenant to develop the lease and express lease terms, the parties executed a “Surface Agreement” and a “Settlement Agreement.”185 Among other things, the Surface Agreement provided that Forest: (i) would not bring any hazardous material onto the leases; (ii) would perform necessary remediation work on the leases for harm caused by

175.

176.

177.

178.

179.

180.

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182.

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184.

185.

Id. at 102.

Id. Id. at 102–03.

Id. at 104.

Forest Oil Corp. v. El Rucio Land and Cattle Co., Inc., 518 S.W.3d 422 (Tex. 2017).

Id. at 425.

Id. Id. Id. at 426.

Id. Id.

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operations; (iii) would comply with all germane laws and regulations; and (iv) would not dispose of any hazardous materials on the surface of the leases.186 An apparently disgruntled former employee of Forest informed McAllen in 2004 that Forest had both contaminated the leased premises and had donated used oilfield tubing to McAllen for a project involving construction of a rhinoceros pen.187 After handling the used oilfield tubing, McAllen had to get a portion of one of his legs amputated due to sarcoma, a form of tissue cancer.188 McAllen then sued, claiming Forest had maliciously gave him tubing imbibed with radioactive material as well as alleging environmental contamination and improper disposal of hazardous items on the leased premises.189 After McAllen objected to Forest’s motion to compel arbitration, the trial court denied arbitration.190 The Texas Supreme Court eventually reversed.191 While the arbitration imbroglio bubbled up towards the supreme court, McAllen invited the RRC to investigate the ranch for contamination caused

by Forest.192 The RRC, in turn, invited Forest to propose and begin remediation plans under its voluntary Operator Cleanup Program.193 Meanwhile, arbitration began with the attempted selection of three (it was hoped) neutral arbitrators.194 Forest and McAllen each selected one arbitrator, but the two selected arbitrators could not agree upon the third.195 Forest invited District Judge Ramos in Houston to appoint the third arbitrator.196 Judge Ramos chose one of the candidates McAllen had proposed.197 After appointment, the panel split.198 The two McAllen-favored arbitrators awarded McAllen $15,000,000, $500,000 in exemplary damages and $6,700,000 in attorney fees, as well as a $500,000 award to McAllen

186. Id. 187. Id. 188. Id. 189. Id. 190. Id. 191. Forest Oil Corp. v. McAllen, 268 S.W.3d 51, 62 (Tex. 2008).

192. Forest Oil Corp., 518 S.W.3d at 426.

193. Id. The court noted that, as of Apr. 28, 2017, the RRC had approved portions of Forest’s remediation proposals but had not yet approved its final remediation plans.

194. Id. 195. Id. 196. Id. 197. Id. at 426 n.5. Interestingly, the court points out that McAllen, two of his lawyers, and their paralegal (none of them Houston residents) had donated money to Judge Ramos’s election campaign, their first such donations.

198. Id. at 426–27.

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personally for physical injury.199 Furthermore, the majority of the troika decided that: a. [Forest] has a continuing obligation and duty under the Surface Agreement to locate, remediate, and dispose of all hazardous and non-hazardous materials from the [Ranch] related to [Forest’s] operations; b. [Forest] is required to perform remedial work where the need therefore arises, which shall include the removal of any and all hazardous and non-hazardous materials when those materials are no longer necessary in the conduct of [Forest’s] operations on the lease; c. [Forest] is solely responsible for reimbursing [McAllen] for any future costs and expenses incurred by [McAllen] in conducting investigations which result in the identification of additional locations requiring remediation of hazardous and non-hazardous materials on the [Ranch] resulting from [Forest’s] operations; and d. [Forest] is solely responsible for all future remediation costs and activities related to pollutants, contaminants, and hazardous and non-hazardous materials that are known to be present and/or discovered under those lands covered by the Surface Agreement.200 To help insure that Forest would perform these commands, the split panel demanded that Forest post a $10 million-dollar bond.201 The arbitrator appointed by Forest wrote a 40-page dissent.202 Not surprisingly, Forest sought to have the arbitrators’ decision set aside in district court.203 Forest first argued that the RRC had exclusive or primary jurisdiction over the dispute.204 A finding that exclusive jurisdiction lay with the RRC would eliminate the arbitrator award because the troika would have lacked subject-matter jurisdiction to make its ruling and the trial court would have lacked jurisdiction to order its enforcement.205 Forest also presented evidence that it had not been informed of a possible conflict of interest regarding one of the arbitrators that required vacating the award.206 Finally, Forest argued more generally that the damages were “in manifest disregard of Texas law, and that the parties had agreed to expanded judicial review of

199.

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201.

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Id. at 427.

Id. Id. Id. Id. Id. Id. at 428.

Id. at 427.

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the arbitration award.”207 The trial court held for McAllen with the exception of the bond requirement, and the Houston Court of Appeals (First District) affirmed.208 In its review, the Texas Supreme Court first turned to the matter of whether the RRC has primary or exclusive jurisdiction over issues of environmental contamination.209 If the agency has exclusive jurisdiction, a party must exhaust all agency remedies in order to advance to district court.210 After noting that “[a]n agency has exclusive jurisdiction when the Legislature gives the agency alone the authority to make the initial determination in the dispute,”211 the court stated that to abrogate the common-law right to seek a judicial remedy and to replace it with (an initial) agency primacy, the legislature must make its intent clear to do so.212 The court also noted that tribunals are not to interpret a law creating an agency-driven remedy to deprive a party of common-law remedies unless the statute clearly reflects the legislature’s intent to preempt the common-law remedy with the statutory or regulatory one.213 In seeking to prove such intent, Forest cited the Texas Water Code, which provides that the RRC is “solely responsible for the control and disposition of waste and the abatement and prevention of pollution of surface and subsurface water” by activities arising from exploration and production activities. 214 The court countered, however, that the legislative record showed that the “solely responsible” language was added to settle an interagency dispute between the RRC and the predecessor to the Texas Commission on Environmental Quality (the “TCEQ”).215 Forest also cited the Texas Health and Safety Code, which provides the RRC with the “sole authority to regulate . . . the disposal of oil and gas [radioactive] waste.”216 Again, the court noted in response that this citation was part of a subchapter requiring the RRC, the TCEQ, and other agencies to define their roles among themselves under the Texas Radiation Control Act, not to abrogate the right of common-law actions.217

207. Id. 208. Forest Oil Corp. v. El Rucio Land and Cattle Co., Inc., 446 S.W.3d 58, 87 (Tex. App.— Houston [1st Dist.] 2014), aff'd, 518 S.W.3d 422 (Tex. 2017).

209. Forest Oil Corp., 518 S.W.3d at 427.

210. Id. at 428.

211. Id. (quoting Cash Am. Int’l Inc. v. Bennett, 35 S.W.3d 12, 15 (Tex. 2000)).

212. Id. 213. Id. 214. Id. (quoting TEX. WATER CODE § 26.131(a)(1) (West 2017)).

215. Id. 216. Id. (quoting TEX. HEALTH & SAFETY CODE § 401.415(a) (West 2017)).

217. Id.

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Continuing in its attempts to find clear legislative intent to show exclusive jurisdiction, Forest argued that § 85.321 of the Texas Natural Resource Code, which provides that a property owner’s remedy for harm arising from a violation of Chapter 85 or “another law of this state prohibiting waste or a valid rule or order of the [RRC] may sue for and recover damages and have any other relief to which he may be entitled at law or in equity,” necessarily precluded any common-law action stemming from the same violations. 218 The court, however, saw no language that clearly abrogated a common-law action in the regulatory language cited by Forest.219 Unrelated to actual statute language, Forest more broadly argued that the ability to seek statutory remedies through an agency and common-law remedies through a court could lead to the unfair result of a defendant paying twice for the same injury.220 Such a result may arise, it noted for example, if monetary damages from a suit are not used to remedy actual environmental harm and the appropriate agency, perhaps the RRC in the event of harm arising from oil and gas exploration, might still have a responsibility to order site remediation.221 In response, the court noted that the operator could seek an RRC cleanup order and fulfill its requirements, thus providing evidence in the concurrent lawsuit of lessened or remedied environmental harm and reduced or no monetary damages.222 Ultimately, the court held that Forest was unable to cite any statutes that indicated the legislature’s clear intent to replace a landowner’s right to obtain common-law relief in court for environmental contamination or other liabilities that may emit from the common law, such as contract disputes or for damage to property.223 The court then turned to the question of whether the RRC had primary jurisdiction over claims for environmental damage arising from oil and gas operations.224 The court first noted that primary jurisdiction, a judiciallycreated “doctrine that allocates power between courts and agencies when both have authority to make initial determinations in a dispute,” typically results in an agency being given the first opportunity to decide an issue, with a court deferring to the agency for an initial determination.225 This doctrine relies on the notions that agencies are typically staffed with trained specialists in the field at issue, unlike courts and juries, and that such agencies would

218.

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222.

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225.

Id. at 429 (quoting TEX. NAT. RES. CODE § 85.321 (West 2017)).

Id. Id. Id. Id. Id. Id. Id.

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provide more consistent interpretations of specialized regulations and statutes than courts or juries.226 Applying the doctrine to the facts before it, the court determined that several of McAllen’s claims were inherently judicial in nature, like trespass, fraud, negligence, and even assault.227 It noted that the RRC’s jurisdiction was not so broad as to oust a court’s jurisdiction.228 Turning to the requirements placed on Forest by the Surface Agreement, the court answered Forest’s claim that only the RRC could determine what hazardous materials had to be removed by law when it opined that, while the RRC could inform the extent of legally required remediation, the RRC could not supplant Forest’s common-law duties.229 In addition, the court noted that the Surface Agreement expressly disallowed placing hazardous materials on the leases and that violation of those terms did not entail primary RRC jurisdiction as such violations were purely contractual and beyond the standards of regulatory compliance.230 Turning finally to Forest’s claim of alleged arbitrator partiality, the court first established that arbitration awards must be set aside when “the rights or a party were prejudiced by . . . [e]vident partiality by an arbitrator appointed as a neutral arbitrator.”231 Quoting itself further, “evident partiality is established by the nondisclosure of ‘facts which might, to an objective observer, create a reasonable impression of the arbitrator’s partiality,’”232 but not does require the disclosure of “trivial” facts.233 Agreeing with the trial court, the supreme court held that Arbitrator Ramos should not have been disqualified for failing to disclose what the trial court referred to as a “trivial, non-prejudicial, not consummated invitation to act as mediator” in another matter.234 Regarding the scope of the arbitration troika’s awards, Forest argued that the panel had exceeded its authority both under the terms of the Settlement Agreement and by requiring damages that were not allowed under Texas law.235 Here, the court turned to the terms of the Settlement and Surface agreements themselves, noting that the Settlement Agreement allowed arbitrators “to award punitive damages where allowed by Texas 226. Id. at 429–30.

227. Id. at 430.

228. Id. 229. Id. 230. Id. 231. Id. at 430–31 (quoting TEX. CIV. PRAC. & REM. CODE § 171.088(a)(2)(A)).

232. Id. at 431 (quoting Tenaska Energy, Inc. v. Ponderosa Pine Energy, LLC, 437 S.W.3d 518, 524 (Tex. 2014)).

233. Id. (quoting Burlington N. R.R. v. TUCO Inc., 960 S.W.2d 629, 636–37 (Tex. 1997)).

234. Id. 235. Id.

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substantive law” and that all “disputes relating to his Agreement or disputes over the scope of this arbitration clause will be resolved by arbitration.”236 The court held that, under these provisions, the panel had very broad authority, including determining what damages Texas law allows, as well as the amounts to be awarded as damages.237 The court observed that the panel had defined the remediation requirements and costs—both within the boundaries of the agreements.238 Forest finally argued that, since the parties had authorized the troika “to award punitive damages where allowed by Texas substantive law,” the parties had allowed for judicial review of any exemplary damages.239 The court noted that, while the Texas Arbitration Act limits judicial review of awards made by arbitration, parties can—by “clear agreement”—allow for judicial review.240 In the present case, however, the court contrasted the Settlement Agreement’s terms concerning discovery protocols—which “apply the Texas Rules of Civil Procedure” and allow for parties to apply for relief in district court—with exemplary damages, where no provision is made for judicial review.241 Finding no clear agreement by the parties in the Settlement and Surface agreements to allow judicial review of exemplary damages, the court declined to exercise judicial review of the punitive damages.242 V. LIGHTNING OIL CO. V. ANADARKO E&P ONSHORE LLC.243 On May 19, 2017, the Texas Supreme Court affirmed the San Antonio Court of Appeals (Fourth District) and held that an oil and gas operator could drill through the mineral estate underlying an adjacent tract of land without the adjacent mineral lessee’s permission.244 After balancing the interests of the oil and gas industry against evidence showing only a small loss of minerals caused by off-site drilling, the Texas Supreme Court rejected the adjacent lessee’s claims for trespass and injunctive relief.245 Consequently, this holding permits an operator to locate its drill sites on the surface above an adjacent lease so long as the surface owner grants permission and the

236.

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240.

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242.

243.

244.

245.

Id. at 432.

Id. Id. Id. Id. (quoting Nafta Traders, Inc. v. Quinn, 339 S.W.3d 84, 101).

Id. Id. 520 S.W.3d 39 (Tex. 2017).

Id. at 43.

Id. at 51.

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interference with the adjacent mineral estate is no more burdensome than was shown in this opinion.

Anadarko leased the minerals under the Chaparral Wildlife Management Area (“WMA”), a tract controlled by the Texas Parks and Wildlife Department.246 The state lease required Anadarko to locate its drill sites on other tracts whenever possible.247 Anadarko contracted with adjacent surface owner Briscoe Ranch, Inc. (the “Ranch”) for the right to place wells on the Ranch’s surface.248 Under that agreement, Anadarko could also drill through the mineral estate beneath the Ranch so that Anadarko’s horizontal wells could then reach the minerals underlying the adjacent Chaparral WMA.249 Lightning Oil Co. (“Lightning”), lessee of the minerals underlying the Ranch, was not a party to the Anadarko-Briscoe Ranch agreement and objected to Anadarko’s plans to drill through Lightning’s mineral estate.250 Lightning sued Anadarko for underground trespass and tortious inference with its mineral lease, seeking a temporary restraining order and an injunction against drilling on the Ranch’s surface.251 The trial court granted partial summary judgment in favor of Anadarko, and the San Antonio Court of Appeals affirmed.252 Noting that “the mineral estate owner does not control the subsurface mass,” the court of appeals reasoned that the surface owner could grant a third-party permission to locate a well on its tract to produce from the adjacent mineral estate.253 Lightning appealed this decision to the Supreme Court of Texas.254 Although the supreme court generally agreed with the court of appeals’ reasoning, it found significant that Anadarko’s wellbore would displace a small quantity of Lightning’s recoverable minerals, namely the volume of minerals contained in the wellbore cuttings.255 To assess the implications of this fact—which were not addressed in the cases cited by the court of appeals—the court reviewed the attributes of mineral ownership (the “bundle of rights”), focusing on a mineral lessee’s right to develop.256 The court then divided Lightning’s trespass claim into two inquiries: (1) whether Anadarko’s drilling would impermissibly interfere with Lightning’s use of

246. Id. at 43.

247. Id. 248. Id. 249. Id. at 43–44.

250. Id. at 43.

251. Id. 252. Id. at 44.

253. Id. (citing Lightning Oil Co. v. Anadarko E&P Onshore, LCC, 480 S.W.3d 628, 635 (Tex. App.—San Antonio 2015), aff’d, 520 S.W.3d 39 (Tex. 2017)).

254. Id. 255. Id. at 47.

256. Id.

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the surface and subsurface terrain under its lease; and (2) whether Anadarko’s drilling would impermissibly interfere with the minerals themselves.257 To guide the first inquiry, the court set out the following rule: “an unauthorized interference with the place where the minerals are located constitutes a trespass . . . only if the interference infringes on the mineral lessee’s ability to exercise its rights.”258 Within this context, Lightning argued that Anadarko’s drill sites would interfere with its right to develop by limiting Lightning’s access to the surface and subsurface of its leased tract.259 Noting that Lightning’s speculation that this would occur was not enough, the court found that Lightning had not demonstrated an unauthorized interference for two reasons.260 First, Lightning had presented no evidence that the RRC’s drilling regulations were insufficient to protect its rights to use the surface.261 Second, because Anadarko’s rights under the contract were not any greater than those of the surface owner, the accommodation doctrine still afforded Lightning’s dominant mineral estate the same protections.262 In conducting the second inquiry, the court weighed the interests of society and the oil and gas industry against Lightning’s individual interest in its leased minerals.263 Even though it acknowledged that Anadarko’s drilling would inevitably destroy some small fraction of Lightning’s leased minerals, the court recognized that the loss would be relatively small.264 In fact, the drilling process would only extract “fifteen cubic yards of dirt and rock for each thousand linear feet drilled with an eight-inch wellbore,” and Lightning only had a right to the even smaller quantity of minerals contained within that volume of drilled-out subsurface.265 Additionally, the off-lease drilling strategy would likely avoid some of the waste associated with horizontal drilling and reduce the number of wells required to extract the minerals underlying the Chaparral WMA.266 Drilling from an adjacent tract, instead of the leased tract, would help eliminate the unproduced volumes of reservoir left behind below the kick off point and before the wellbore complete its turn to the horizontal plane.267 Starting drilling operations on an adjacent tract would instead allow the wellbore to

257.

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264.

265.

266.

267.

Id. at 48.

Id. at 49.

Id. Id. Id. at 49–50.

Id. at 50.

Id. Id. Id. Id. Id. at 51.

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enter the formation completely horizontally.268 Thus, given the “longstanding policy of this state to encourage maximum recovery of minerals and to minimize waste,” the industry and societal interests in recovering oil and gas outweighed Lightning’s individual right to extract all its leased minerals.269 In conclusion, the court rejected Lightning’s underground trespass claim and related request for injunctive relief.270 The court then dispatched Lightning’s remaining arguments. First, Lightning had argued that finding in favor of Anadarko would legitimize other types of underground trespass that the court had impliedly recognized, such as trespass resulting from the migration of wastewater injected into a well.271 In response, the court clarified that it had not impliedly recognized such a cause of action, as it had never addressed the issue on the merits.272 The court then rejected Lightning’s argument that its decision would impair the dominance of Lightning’s mineral estate.273 The court refused to expand the accommodation doctrine to grant Lightning “the right to prevent any surface or subsurface use that might later interfere with its plans.”274 Addressing Lightning’s related contention that this decision would make the accommodation doctrine applicable to adjacent mineral owners, the court reiterated that any rights Anadarko had under the contract were as a surface owner’s assignee, not an adjacent mineral lessee.275 Turning finally to the tortious inference claim, the court agreed with the lower court that Anadarko could raise a valid justification defense because it had received a contractual right to drill on the surface of the Briscoe Ranch.276 Thus, Anadarko was entitled to summary judgment on Lightning’s claims for underground trespass and tortious inference with contract.277 Accordingly, the court affirmed the decision of the San Antonio Court of Appeals that summary judgment was appropriate.278 Prior to this decision, Texas case law was uneven on the issue of who exactly comprises the necessary parties to drill-through agreements. For example, Humble Oil and Refining Company v. L & G Oil Company seemed to established that a leasehold owner only needed permission from the surface owner to drill from a tract in which it had no leasehold interest to 268.

269.

270.

271.

272.

273.

274.

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276.

277.

278.

Id. Id. Id. Id. Id. at 51–52.

Id. at 52.

Id. Id. Id. at 53.

Id. Id.

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penetrate laterally a tract in which it held a lease, although that case focused on the ability of state authorities to grant permits for such wells.279 Conversely, in Chevron Oil Company v. Howell, the court granted an injunction against Chevron from drilling a directional well from a surface tract on which it did not own the lease.280 The Chevron court quoted favorably a witness in the case that stated “any time you drill into something there is bound to be some damage.”281 VI. SAMSON EXPL. V. T.S. REED PROPS.282 On June 23, 2017, the Supreme Court of Texas affirmed in part and reversed in part the Beaumont Court of Appeals (Ninth District), holding that one group of royalty owners were entitled to royalties from a well located in two units while another group of royalty owners that were dropped from a unit were not so entitled.283 The lessors and other stakeholders (as below defined, the “Overlapping Stakeholders” and “Unpooling Stakeholders”) alleged that the lessee, Samson Exploration (“Samson”), underpaid royalties on their mineral leases and pooling agreements.284 All parties involved petitioned the court for review of the court of appeals’ judgment.285 The case involved multiple gas units.286 The first unit at issue was created in 2001 when Samson formed the “Black Stone Minerals A No. 1 Gas Unit” by filing a unit declaration with the RRC.287 This unit had vertical boundaries of 6,000 to 13,800 feet of depth.288 Two wells were completed within this unit.289 The first—producing from a depth interval of 12,304 feet to 12,332 feet—was located on property leased by Black Stone Minerals Co. (“Black Stone”).290 Late in 2002, Samson successfully completed a second gas well within the Black Stone Minerals A No. 1 Gas Unit’s existing

279. See Humble Oil & Ref. Co. v. L & G Oil Co., 259 S.W.2d 933, 938 (Tex. Civ. App.— Austin 1953, writ ref’d n.r.e.). A similar decision was reached in Atlantic Refining Co. v. Bright & Schiff six years later. See also Atl. Ref. Co. v. Bright & Schiff, 321 S.W.2d 167, 169–70 (Tex. Civ. App.—San Antonio 1959, writ ref’d n.r.e.).

280. Chevron Oil Co. v. Howell, 407 S.W.2d 525, 528 (Tex. Civ. App.—Dallas 1966, writ ref’d n.r.e.).

281. Id. 282. Samson Expl. v. T.S. Reed Props., Inc., 521 S.W.3d 766 (Tex. 2017).

283. Id. at 770–71.

284. Id. at 770.

285. Id. at 773.

286. Id. at 771.

287. Id. 288. Id. 289. Id. 290. Id.

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boundaries on the Joyce DuJay lease.291 The gas from this well was produced from 13,150 to 13,176 feet subsurface.292 Black Stone later declined to give its consent when Samson tried to pool its lease into the Black Stone Minerals A No. 1 Gas Unit, although a co-tenant lessor approved, and Samson changed the Black Stone Minerals A No. 1 Unit’s pool boundaries via a unilateral declaration.293 This amendment changed the unit’s name from “Black Stone Minerals A No. 1 Gas Unit” to the “Joyce DuJay No. 1 Gas Unit” (“Joyce DuJay Unit”).294 After this amendment and change of boundaries, Samson no longer attributed gas produced by the first well on the Black Stone lease to the renamed and amended Joyce DuJay Unit.295 Samson later completed another gas well, the producing interval of which was shallower than the pool associated with the Joyce DuJay Unit.296 This third well was on the Joyce DuJay lease, and this lease was one of a number that the Joyce DuJay Unit included.297 Less than a year later, Samson formed the “Joyce DuJay A No. 1 Gas Unit” (“DuJay-A Unit”), which retroactively defined a pool between a depth interval of 12,197 to 12,342 feet and included most of the leases and a significant portion of the zones that Samson previously defined as being in the Joyce DuJay Unit.298 Both units shared a zone being produced by the Joyce DuJay lease well (the second well described above) as the Joyce DuJay lease had been pooled into these units— the well and lease were in two units.299 Samson, however, only paid royalties derived from production from the second well to the stakeholders in the Joyce DuJay Unit and not to the stakeholders in the DuJay-A Unit.300 All these maneuvers eventually gave rise to two groups of claimants against Samson.301 The first group—the Unpooling Stakeholders in the Joyce DuJay Unit, which was originally composed of six Joyce DuJay Unit stakeholders—sued Samson in 2004, contending that in refusing to allocate production from the first well (on the Black Stone lease) that had been excised from the Joyce DuJay Unit to their accounts, Samson had breached its obligations under the leases.302 They also argued that Samson had

291.

292.

293.

294.

295.

296.

297.

298.

299.

300.

301.

302.

Id. Id. Id. Id. Id. Id. at 772.

Id. Id. Id. Id. See id. at 773.

Id. at 771, 773.

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improperly amended the unit.303 The second group—the Overlapping Stakeholders of the Joyce DuJay Unit, none of whom were being paid royalties for production from the second well—sued, seeking to be paid royalties.304 Samson argued that establishing overlapping pools was never its intent but rather represented a mistake it made internally over ten years before the current litigation.305 Samson contended that the DuJay-A Unit was invalid because of its overlap with the older Joyce DuJay Unit.306 Even if the overlapping did not invalidate the pool, Samson argued, the fact that the Overlapping Stakeholders had accepted payments attributed only to the third well should deny enforcement of the DuJay-A Unit.307 Samson also argued that the pooling designation should be reformed to allow for a bottom depth boundary of 12,400 feet subsea because of a scrivener’s error.308 The trial court awarded contract damages to all the claimants under a breach of contract theory.309 Specifically, the Unpooling Stakeholders were awarded $450,000 while the Overlapping Stakeholders received $2,500,000 in damages.310 The trial court also awarded pre-judgment interest of more than $1,500,000 as well as post-judgment interest at statutory and contractually specified rates.311 All parties cross-appealed.312 The Beaumont Court of Appeals reversed and remanded in part the decision of the trial court, holding: (1) the Unpooling Stakeholders were not entitled to recovery on their claims due to their ratification of a unit amendment; (2) the Overlapping Stakeholders could recover on their claims for an operator’s breach of their leases; and (3) the trial court’s awards to the Overlapping Stakeholders were excessive.313 The first cluster of issues the supreme court reviewed was Samson’s challenges to the judgment in favor of the Overlapping Stakeholders.314 Samson argued that its pooling agreement constituted an impracticable and invalid contract as actually written and raised the affirmative defenses of quasi-estoppel and reformation based on scrivener’s error that were triggered

303.

304.

305.

306.

307.

308.

309.

310.

311.

312.

313.

314.

Id. at 771.

Id. at 772.

Id. Id. at 773.

Id. Id. Id. Id. Id. Id. Id. Id. at 774.

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when it had created the overlapping pooling unit.315 Samson also contended that it was not obligated to pay royalties on the third well because its unit overlapped with the second well’s unit, and that the unit was therefore invalid.316 Samson sought reimbursement from stakeholders in the Joyce DuJay Unit to the extent it might be liable to the Overlapping Stakeholders.317 On the judgment favoring the Overlapping Stakeholders, the supreme court first agreed that the breach of contract theory was proper and affirmed the court of appeals.318 Samson had claimed that, since pooling in general effectuated a cross-conveyance of real property, it was impossible for it “to cross-convey the same pooled lands, substances, and depths twice at the same time” and hence the pooling of the minerals owned by the Overlapping Stakeholders was invalid and payment of royalty to them was unnecessary despite what the requirements of contract law may be.319 The court countered that “pooling implicates both contract and property law—authority to pool emanates from contract but pooling agreements give rise to interests in realty.”320 The court saw no reason not to enforce Samson’s obligations under a theory of contract despite the possibility that the pooling designation failed to convey title.321 Second, Samson also claimed that because the Overlapping Stakeholders accepted the lower royalty payments they waived any contractual entitlement to a higher rate under the equitable defense of quasiestoppel.322 The supreme court held, however, that accepting the underpayment was not inconsistent with claiming entitlement to more.323 Regarding Samson’s argument that since a scrivener’s error existed due to a mutual mistake in the contract, and thus providing the grounds for reformation, the court held that the evidence showed the Overlapping Stakeholders had taken no part in outlining the pooled unit’s boundaries, writing the description of the unit, or filing the designation.324 Crucially, the court also noticed that Samson alone was responsible for all aspects of pooled-unit designation.325 Without any participation by the Overlapping

315.

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318.

319.

320.

321.

322.

323.

324.

325.

Id. Id. Id. Id. at 778.

Id. at 775.

Id. at 777.

Id. at 778.

Id. Id. Id. at 779.

Id.

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Stakeholders, the court opined, the defense of mutual mistake could not be invoked.326 Samson also further claimed the right to seek reimbursement from the stakeholders in the DuJay 1/Amended Unit in order to pay the Overlapping Stakeholders.327 The court noticed that Samson was on record notice that it had paid the now-disputed royalty fees despite knowing that the units overlapped.328 Moreover, Samson did not try to correct the alleged error in the pooling designation.329 Therefore, the court held that Samson must fulfill its contractual obligation and pay the due royalties out of its working interest and denied reimbursement from the DuJay 1/Amended Unit stakeholders.330 After a lengthy determination that Samson had reserved the argument for appeal, the issue of whether the Unpooling Stakeholders had ratified the change in the Joyce DuJay Unit was considered.331 The court affirmed that the Unpooling Stakeholders had been aware that Samson had changed the parameters of the unit designation, although the court recognized the change was not entirely clear.332 Because the Unpooling Stakeholders had continued to accept payments according to the terms of the amended unit designation without complaint, the court affirmed that the record established that the Unpooling Stakeholders had ratified the amendment.333 In making this determination, the court relied on its holding in Hooks v. Samson Lone Star, Ltd. Partnership, wherein a claim by similarly-situated stakeholders arising from a similar unpooling situation had invoked a ratification defense like Samson’s in the present case.334 In Hooks, the court had found ratification occurred based “solely on the facts that [the lessors] received notice of an amendment to the unit designation, accepted royalties from the amended unit, and [did] not challenge the amended unit.”335 Here, the court had found the Unpooling Stakeholders had actual notice of a change in the unit designation that, when followed by acceptance of royalties without protest, amounted to ratification.336 The final issue addressed by the court was the Overlapping Stakeholders’ assertion that the damages awarded for breach of contract had been improperly reduced by Samson due to its reliance on a proportionate326.

327.

328.

329.

330.

331.

332.

333.

334.

335.

336.

Id. Id. Id. at 779–80.

Id. at 780.

Id. Id. at 781.

Id. at 785.

Id. at 784.

Id. (citing Hooks v. Samson Lone Star, Ltd. P’ship, 457 S.W.3d 52 (Tex. 2015)).

Id. (quoting Hooks, 467 S.W.3d at 66).

Id. at 785.

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reduction clause in the lease.337 The lower court had found—and the supreme court took notice—that the lease terms required a 50% reduction in the royalty payments to the Overlapping Stakeholders.338 Samson asserted that the lease covered an undivided 50% interest in the oil, gas, and other minerals across the total acreage described in the lease, which was necessarily less than the entire undivided fee simple estate of the total acreage of all that certain land.339 The Unpooling Stakeholders asserted that the lease covered a 100% interest in the oil, gas, and other minerals, equivalent to the entire undivided fee simple mineral estate of the acreage covered by the lease.340 After analysis of the lease’s language, the court agreed with Samson’s understanding of the lease and affirmed the court of appeals ruling of the applicability of the proportionate reduction clause.341 VII. WENSKE V. EALY342 On June 23, 2017, a sharply divided Supreme Court of Texas considered how to interpret reservation and exception language within a mineral conveyance, deciding whether the language of the instrument passed the entire burden of a prior outstanding NPRI to the grantee of the minerals or whether the NPRI proportionately burdened the grantor’s reserved mineral interest as well.343 The majority affirmed the decision of the court of appeals, but for different reasons, that the NPRI burden should be proportionately spread.344 The four-justice dissent maintained that the language of the mineral deed clearly required only the grantee to bear the NPRI burden.345 In 1988, the Wenskes purchased land burdened by a 1/4th NPRI via a deed subject to a reservation (the “1988 Deed”).346 Specifically, each of the two grantors in the 1988 Deed reserved a 1/8th NPRI, resulting in a total reservation of 1/4th of the royalty estate.347 The Wenskes sold the property

337. Id. at 786.

338. Id. at 786–87.

339. Id. at 788.

340. Id. 341. Id. 342. Wenske v. Ealy, 521 S.W.3d 791 (Tex. 2017).

343. Id. at 792.

344. Id. at 793.

345. Id. at 799 (Boyd, J., dissenting).

346. Id. at 793 (majority opinion).

347. Wenske v. Ealy, 521 S.W.3d 369, 370 (Tex. App.—Corpus Christi 2016) (mem. op.), aff’d on other grounds, 521 S.W.3d 791 (Tex. 2017) (The 1988 Deed provided “there is expressly excepted and reserved to the grantors herein, [Vyvjala] and [Novak], their heirs and assigns . . . an undivided one-fourth (1/4) interest in and to all of the oil royalty, gas royalty, and royalty in casinghead gas, gasoline and royalty in other minerals in and under and that may be produced from the above described tract or parcel of land for a period of twenty-five years”) (emphasis omitted).

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in 2003, reserving an undivided 3/8th fee mineral estate interest (the “2003 Deed”).348 The purchasers from the Wenskes, the Ealys, received an undivided 5/8th mineral estate interest.349 Specifically, the reservation in the 2003 Deed provided the following “Reservations from Conveyance”: For [appellants and appellants’] heirs, successors, and assigns forever, a reservation of an undivided 3/8ths of all oil, gas, and other minerals in and under and that may be produced from the Property. If the mineral estate is subject to existing production or an existing lease, the production, the lease, and the benefits from it are allocated in proportion to ownership in the mineral estate.350 Following that reservation, the 2003 Deed thereafter contained the following “Exceptions to Conveyance and Warranty”: Undivided one-fourth (1/4) interest in all of the oil, gas, and other minerals in and under the herein described property, reserved by [Vyvjala], et al for a term of twenty-five (25) years in an instrument recorded in Volume 400, Page 590 of the Deed Records of Lavaca County, Texas, together with all rights, express or implied, in and to the property described herein arising out of or connected with said reserved interest and reservation reference to which instrument is here made for all purposes. ...

Grantor, for the Consideration and subject to the Reservations from Conveyance and the Exceptions to Conveyance and Warranty, grants, sells, and conveys to Grantee the Property, together with all and singular the rights and appurtenances thereto in any way belonging, to have and to hold it to Grantee and Grantee’s heirs, successors, and assigns forever. Grantor binds Grantor and Grantor’s heirs and successors to warrant and forever defend all and singular the Property to Grantee . . . except as to the Reservations from Conveyance and the Exceptions to Conveyance and Warranty.351 In 2011, the Wenskes and Ealys leased their respective mineral estates.352 The Wenskes filed a declaratory judgment petition in 2013, arguing their 3/8th interest had been taken free and clear of the NPRI. 353 According to the Wenskes, the NPRI should have been deducted exclusively from the 5/8th interest owned by the Ealys.354 The Ealys’ counter summary

348.

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354.

Wenske, 521 S.W.3d. at 793.

Id. Id. Id. Id. Id. See id. at 796.

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judgment motion was granted by the trial court, which concluded both parties’ mineral estates would share the 1/4 NPRI burden proportionately.355 On appeal, the Wenskes argued the 2003 Deed conveyed the NPRI burden to the Ealys alone.356 Thus, the Wenskes’ reserved mineral interest was unburdened by the NPRI. The Wenskes pointed to the following provision in the 2003 Deed for support: Grantor, for the Consideration and subject to the Reservations from Conveyance and the Exceptions to Conveyance and Warranty, grants, sells, and conveys to Grantee the Property, together with all and singular the rights and appurtenances thereto in any way belonging to have and to hold it to Grantee and Grantee’s heirs, successors, and assigns forever.357 The Ealys countered that the NPRI burdened the entire mineral estate and that the resultant mineral estates were proportionally burdened.358 The Corpus Christi Court of Appeals (Thirteenth District), following a de novo review, overruled the Wenskes’ sole issue and affirmed the trial court’s decision that the Ealys were entitled to summary judgment.359 The court concluded that a reservation of a 1/4th NPRI burdened subsequent owners of both mineral estate interests.360 The Wenskes had argued the use of the phrase “subject to” in the 2003 Deed was an unqualified limitation on the conveyance, making the Ealys entirely responsible for the NPRI.361 The court of appeals distinguished Bass, however, noting it “sa[id] nothing about how to apportion a separate royalty estate that corresponds with the minerals.”362 The court of appeals found the 2003 Deed did not supply guidance as to this apportionment and, therefore, “the default rule should apply: ‘Ordinarily the royalty interest . . . would be carved proportionately from the two mineral ownerships . . . .’”363 The court of appeals noted the exception in the 2003 Deed provided the NPRI owners “own an undivided one-fourth (1/4) interest in all of the oil, gas, and other minerals in and under the land for a term of twenty-five (25) years.”364 It then also noticed the 1988 Deed stated the NPRI owners owned a 1/4th interest in the royalties produced from the land, while the 2003 Deed 355. Id. at 794.

356. Wenske v. Ealy, 521 S.W.3d 369, 372 (Tex. App.—Corpus Christi 2016) (mem. op.), aff’d on other grounds, 521 S.W.3d 791 (Tex. 2017).

357. Id. at 372–73.

358. Id. at 372.

359. Id. at 375.

360. Id. 361. Id. at 374; Bass v. Harper, 441 S.W.2d 825 (Tex. 1969).

362. Wenske, 521 S.W.3d at 374.

363. Id. (quoting Pich v. Lankford, 302 S.W.2d 645, 650 (Tex. 1957)).

364. Id.

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made no mention of royalties.365 The court stated it disagreed with the Wenskes: [T]hat they could be unburdened by the NPRI simply by stating in the 2003 Deed that they conveyed the property to the Ealys ‘subject to’ the exception without even mentioning anything about royalties or that the portions of the royalty estate owned by [the NPRI owners] would be paid entirely by the Ealys.366 The Wenskes appealed to the Texas Supreme Court.367 The five justices composing the majority affirmed the lower courts.368 In doing so, the court provided perhaps its strongest message yet, reaffirming what it called “the paramount importance of ascertaining and effectuating the parties’ intent.”369 The court held that, in such interpretive cases, it must “determine that intent by conducting a careful and detailed examination of a deed in its entirety, rather than applying some default rule that appears nowhere in the deed’s text.”370 Like the lower courts, the supreme court agreed with both parties that the instrument was unambiguous, allowing the court to interpret its meaning as a matter of law.371 As the Wenskes had done at before the court of appeals, they again relied on the court’s treatment of a similar “subject-to” clause in Bass v. Harper,372 wherein the court had considered the effect of a prior reservation of 6/14 of the 1/8th lessor’s royalty under an existing lease on a subsequent conveyance of a 1/2 interest in the minerals to a later grantee.373 As in the present case, a dispute on the payment of royalty later arose with the grantor in that case claiming that the grantee should bear all of the outstanding 6/14 royalty interest (1/2 of 1/8 less 6/14 of 1/8 or 1/14) while the grantee believed the 6/14 of 1/8 royalty burden should be proportionately apportioned between the grantor and grantee.374 In Bass, the court agreed with the grantor, reasoning that the exception of the 6/14ths lessor’s royalty was “tied specifically to the grant” and so operated to limit the mineral grant in addition to protecting the grantor against warranty claims.375 In response here, the court noted that Bass was decided “under the specific wording of the instrument” and its effects should be limited to 365.

366.

367.

368.

369.

370.

371.

372.

373.

374.

375.

Id. at 375.

Id. Wenske, 521 S.W.3d at 794.

Id. at 799.

Id. at 792.

Id. Id. at 794.

Id.; Bass v. Harper, 441 S.W.2d 825 (Tex. 1969).

Bass, 441 S.W.2d at 825.

Id. Id. at 827.

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similarly-worded instruments.376 Specifically, the court noted that the Bass instrument’s “subject-to” clause was in the granting clause and not the warranty clause.377 More broadly, the court also noted that, since Bass, interpretive jurisprudence in Texas has moved towards focusing on the intent of the parties and harmonizing all parts of a disputed instrument when interpreting its parts.378 After discounting Bass, the court admonished the court of appeals for turning to a “default rule” to interpret the deed instead of seeking the parties’ intent.379 The court claimed it could ascertain the drafters’ intent from “careful examination of the entire deed” before it focused almost exclusively on the “subject-to” clause and its location within the deed.380 The court noted that “subject-to” clauses can have two uses: protecting the grantor from breaching a warranty and making the grantee’s interest bear the burden of an outstanding royalty.381 The first use is commonplace and relatively straightforward, but the court, citing Professor Ernest Smith, observed that relying on a “subject-to” clause to perform some other function can be fraught with ambiguity requiring litigation to unravel.382 Turning to the instrument itself, and “[g]iving the words of this deed their plain meaning, reading it in its entirety, and harmonizing all of its parts, [the court could not] construe [the deed] to say that the parties intended the Ealys’ interest to be the sole interest subject to the NPRI.”383 The court’s majority agreed with the dissent that the amount of royalty a mineral interest grantee receives is typically the same fraction as the amount of the fractional mineral interest received in the deed and that under the same reasoning, a freestanding royalty that encumbered the entire mineral interest before a partial conveyance of that mineral interest would generally burden a proportional share of each of the split mineral interests after the partial conveyance.384 The court observed, however, that parties could contract for whatever division of burden by a freestanding royalty they desire and that their intent, as expressed in a deed, controls.385 Here, the court’s majority found no intent in the deed indicating that the drafters wanted to deviate from the general rule.386 376.

377.

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379.

380.

381.

382.

383.

384.

385.

386.

Wenske, 521 S.W.3d at 795 (citing Bass, 441 S.W.2d at 828).

Id. at 796.

Id. at 792.

Id. at 795–96.

Id. at 796.

Id. at 796–97.

Id. at 796.

Id. at 798.

Id. at 797 (citing Woods v. Sims. 273 S.W.2d 617, 621 (Tex. 1954)).

Id. Id.

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Further, the court’s majority noted that in the disputed deed, the exceptions to the conveyance and the exceptions to the warranty were combined into one clause.387 The fact that the clauses were combined, when read with the reservations from conveyance clause, indicated to the majority an intent to avoid breaching the warranty only, and not an intent to reserve to the Wenskes a full, unencumbered 3/8 interest.388 In addition, the majority noted that the mineral-reservation paragraph ended with this sentence: “If the mineral estate is subject to existing production or an existing lease, the production, the lease and the benefits from it are allocated in proportion to ownership in the minerals.”389 The dissent, composed of four justices, believed that, by the deed’s plain language, the interest of the Ealys was the only one burdened by the NPRI. 390 The minority noticed that the 2003 Deed described one “Reservation from Conveyance”—a reservation by the grantors of “an undivided 3/8th of all oil, gas, and other minerals in and under and that may be produced” from the captioned land—and multiple “Exceptions to Conveyance and Warranty,” including the NPRI.391 Further, in the minority’s eyes, the granting clause unambiguously identified what the “subject-to” clause modified.392 Noting that the deed identified the reservation as a “Reservation from Conveyance” and the exception as an “Exception from Conveyance and Warranty,” the minority thought it clear that the conveyance to the Ealys was subject exclusively to the reservation and exceptions—including the NPRI.393 The minority believed that the “subject-to” clause did not just act to prevent a warranty breach and that the deed described precisely one interest that was subject to the NPRI—the mineral interest of the Ealys.394 The minority then examined whether principles that govern the inherent nature of interests being conveyed and reserved in an instrument altered the deed’s express language and determined it did not.395 The minority included in its dissent a very lengthy description and analysis of precedent it claimed supported its position and that, it claimed, was ignored by the majority,

387.

388.

389.

390.

391.

392.

393.

394.

395.

Id. Id. Id. at 798.

Id. at 801 (Boyd, J., dissenting).

Id. at 799.

Id. at 801.

Id. at 806–07.

Id. at 802.

Id. at 806–07.

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including Duhig v. Peavy-Moore Lumber Co.,396 Benge v. Scharbauer,397 Pich v. Lankford,398 Selman v. Bristow,399 and Bass v. Harper.400 VIII. HIGH MOUNT EXPL. & PROD. LLC V. HARRISON INTERESTS, LTD.401 On October 6, 2016, the Houston Court of Appeals (Fourteenth District) decided a question about whether the producer was underpaying and improperly deducting marketing costs from the royalty owners.402 The court affirmed the trial court ruling, that the producer did miscalculate the royalties and improperly deduct marketing costs.403 In 1990 Harrison Interests, Ltd. (“Harrison” or the “Harrison Parties”404) reserved 5% of 8/8th perpetual NPRIs in a conveyance (the “1990 Conveyance”) to Meridian Oil Production (“Meridian”).405 Harrison and Meridian also executed a royalty agreement (the “Agreement”) that provided terms governing the administration and payment of royalties.406 One of the appellants/defendants, Dominion Oklahoma Texas Exploration & Production (“Dominion”), successor-in-interest to Meridian, sold its interest to appellant/defendant High Mount Exploration & Production (“High Mount”) in 2007.407 That same year, Harrison requested an audit after Harrison concluded that the defendants, Dominion and High Mount (collectively the “High Mount Parties”), failed to pay the full amount of royalties owed to Harrison.408 In 2009, the Harrison Parties filed suit against the High Mount Parties raising two issues.409 First, Harrison claimed that the High Mount Parties did not pay the correct royalties owed based on terms of the 1990 Conveyance and the Agreement.410 They claimed that the High Mount Parties did not pay royalties on the gas produced from the captioned property, the oil and gas leases, the oil, gas, and mineral leases that were subject to the terms of the Agreement; and on the gas used as fuel to power the equipment on the

396.

397.

398.

399.

400.

401.

402.

403.

404.

405.

406.

407.

408.

409.

410.

Duhig v. Peavy-Moore Lumber Co., 144 S.W.2d 878 (Tex. 1940).

259 S.W.2d 166 (Tex. 1953).

302 S.W.2d 645 (Tex. 1957).

402 S.W.2d 520 (Tex. Civ. App.—Tyler 1966, writ ref’d n.r.e.).

441 S.W.2d 825 (Tex. 1969).

503 S.W.3d 557 (Tex. App.—Houston [14th Dist.] 2006, no pet.).

Id. at 560.

Id. at 569.

The Harrison Parties include: Harrison Interests, Dan J. Harrison III, and BFH Mining.

HighMount Expl. & Prod., LLC, 503 S.W.3d at 559.

Id. Id. Id. Id. Id.

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captioned land.411 Second, Harrison claimed that the High Mount Parties were improperly deducting marketing costs.412 The High Mount Parties moved for partial summary judgment.413 They claimed that the Harrison Parties were not entitled to compensation for gas used as fuel on the captioned land and that they were entitled to deduct marketing costs.414 The Harrison Parties countered by filing two petitions for summary judgment based on the accounting and deduction issues.415 The trial court granted both summary judgment motions to the Harrison Parties and denied the High Mount Parties.416 The trial court also rendered a final judgment and awarded actual damages, prejudgment interest, and attorney’s fees to the Harrison Parties.417 The High Mount Parties appealed the judgment.418 Reviewing the summary judgment de novo, the court found that the evidence raised a genuine fact issue.419 The court concluded that the Harrison Parties were in fact entitled to receive the royalty share of the gross proceeds of the gas that was used for fuel on the captioned land.420 Specifically, the court noted that Section 4(e) of the Agreement provided: “Owners shall receive their royalty share of the gross proceeds for gas used or utilized on or off the Subject Interests, such as gas used for fuel.”421 The Agreement defined “gross proceeds” as “the entire economic benefit and all consideration in whatever form received by or accruing to Producer . . . .”422 Thus, the court concluded that, under the plain language of the Agreement, the High Mount Parties did owe royalties to the Harrison Parties for the gas used for fuel.423 The High Mount Parties further asserted that the gas used for fuel on the leases covering the captioned land was part of post-production activities, and that the Agreement allowed for some cost sharing.424 Additionally, they asserted that because the gas used for fuel also benefitted the Harrison Parties such cost sharing should be permitted.425 However, the court maintained its

411.

412.

413.

414.

415.

416.

417.

418.

419.

420.

421.

422.

423.

424.

425.

Id. at 559–60.

Id. at 560.

Id. Id. Id. Id. Id. Id. Id. Id. at 563.

Id. at 561.

Id. at 562.

Id. at 563.

Id. at 561.

Id.

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decision that the plain language of the Agreement entitled the Harrison Parties to royalties on gas used for fuel.426 Finally, the High Mount Parties also claimed that it was impossible to calculate the amount of royalties owed on the gas used for fuel.427 However, the court accepted the auditor’s royalty calculations showing that the High Mount Parties shorted the Harrison Parties, and that was used as the basis for the suit in the trial court.428 The court also pointed out that the High Mount Parties never objected to the calculation of the damages in the trial court.429 Thus, the court determined that the trial court did not err in granting the Harrison Parties the summary judgment motion regarding the royalties owed for the gas used as fuel on the captioned land.430 Turning to the deduction issue, the court noted the language of the Agreement provided that any deductions for compressors first required that the compressors be located downstream from a “central facility,” as defined therein, and that the Harrison Parties’ evidence had established that the compressors in question were not located downstream from such a “central facility.”431 The High Mount Parties submitted a memorandum in response to the Harrison Parties summary judgment motion and their corresponding evidence.432 However, the High Mount Parties failed to submit any authentication of the memorandum and diagram.433 The court determined that the High Mount Parties’ failure to authenticate their evidence was a substantive defect that could not be waived, and therefore there was no issue of fact to appeal the second summary judgment.434 Due to the Harrison Parties’ failure to authenticate their evidence, or to produce any other substantial evidence, the court found that the Harrison Parties did not raise a genuine issue of fact.435 Thus, the trial court did not err in granting the Harrison Parties’ second summary judgment.436 Ultimately, the court concluded that the trial court did not err in granting either summary judgments—that the High Mount Parties miscalculated the

426.

427.

428.

429.

430.

431.

432.

433.

434.

435.

436.

Id. at 563.

Id. at 565.

Id. Id. Id. Id. Id. at 567.

Id Id. at 567–68.

Id. at 568.

Id.

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royalties owed to the Harrison Parties or that the High Mount Parties improperly deducted marketing costs.437 IX. RING ENERGY, INC. V. TREY RES., INC.438 On January 18, 2017, the El Paso Court of Appeals (Eighth District) decided a question of first impression concerning whether a district court not located in Travis County, Texas had jurisdiction to enjoin the holder of a permit issued by the RRC allowing for the use of injection wells used for disposal wastes associated with oil and gas operations.439 After considering questions of statutory interpretation, legislative intent, and the nature of the common-law claim (waste), the court of appeals reversed and held that a local court retained subject matter jurisdiction to deliver injunctive relief to the producer/appellant for a probable, imminent, and irreparable injury.440 In addition, the court held that the RRC did not retain exclusive or primary jurisdiction over actions for common-law claims and that such actions did not constitute a collateral attack on the permit.441 On September 6, 2012, Trey Resources, Inc. (“Trey”) applied for nine permits from the RRC to conduct injections operations into certain wells in Andrews County, Texas.442 At the time, Stanford Energy operated five producing wells proximal to the proposed operations.443 These five wells were later assigned to Ring Energy, Inc. (“Ring”).444 Ring did not file a protest of the proposals for a permit, as allowed by RRC regulations, and the RRC granted the permits on Jan. 17, 2013.445 On September 23, 2013, before any injection operations had occurred, Ring sued Trey in state district court in Andrews County, seeking a declaration that the RRC permits were void and that injunction operations would limit recovery by Ring of its mineral interest and thus constituted waste.446 In its suit, Ring sought both damages and equitable relief in the forms of temporary and permanent injunctions.447

437. Id. at 570.

438. 546 S.W.3d 199 (Tex. App.—El Paso 2017, no pet.).

439. Id. at 202.

440. Id. at 215.

441. Id. at 210, 212.

442. Id. at 202–03.

443. Id. at 203.

444. Id. 445. Id. Although the court did not consider the question in the present case, a dispute existed about whether Trey had provided the required notice of the proposed operations—delivering a copy of the injection proposal to any owners and/or operators of wells located within a half mile of the proposed operations and publication in the local newspaper of record.

446. Id. 447. Id.

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After several temporary injunctions had lapsed, Trey filed in Andrews County a motion to dismiss for lack of subject matter jurisdiction, arguing that Ring had both failed to exhaust its administrative remedies before the RRC and had failed to file suit in the proper venue—Travis County, Texas.448 Ring responded, conceding its claim that the permits should be invalidated out of hand, but that its claims for damages and injunctive relief under § 85.321 of the Texas Natural Resources Code were rightly placed before the trial court located where the captioned land and alleged harm might take place.449 The trial court granted Trey’s motion to dismiss and Ring appealed.450 Ring contended in its appeal that the trial court had mistakenly dismissed the suit for lack of subject matter jurisdiction.451 In its response, Trey argued that Ring could seek injunctive relief before possibly damaging activities occurred only in Travis County where, by statute, orders by the RRC authorizing injection of oil and gas waste are exclusively considered.452 Any other such action outside Travis County, Trey contended, would be a collateral attack on a valid RRC permit. Ring answered that § 85.321 allows for equitable relief to prevent waste.453 The court first considered whether equitable relief was available at the trial court proximal to the affected properties.454 Trey asserted that § 85.241 of the Texas Natural Resources Code455 required that such actions must be brought in Austin (Travis County) where the headquarters of the RRC are located.456 After noting Trey’s argument, the court noticed that, after an RRC permit has been put to actual use, all courts in Texas with subject matter jurisdiction can hear cases addressing the consequences of use of the permit and highlighted case law that compared the permit to a driver’s license which permits driving but not immunity to damages resulting from same.457 The court then considered § 85.321, which Ring argued expressly authorized it to seek local equitable (injunctive) relief for a common law

448. Id. 449. Id. 450. Id. 451. Id. 452. Id. 453. Id. 454. Id. at 207.

455. Id. at 210. (Specifically, section 85.241 provides that “[a]ny interested person who is affected by the conservation laws of this state or orders of the commission relating to oil or gas and the waste of oil or gas, and who is dissatisfied with any of these laws or orders, may file suit against the [RRC] . . . in Travis County to test the validity of the law or order.”).

456. Id. at 207.

457. Id. at 205–06 (internal citations omitted) (quoting Berkley v. R.R. Comm’n of Tex., 282 S.W.3d 240, 243 (Tex.App.—Amarillo 2009, no pet.)).

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action like waste before the permit was utilized.458 Ring focused on the opening phrase of the section, which states that a party owning property “that may be damaged by another” may sue, and argued that this implied injunctive relief could be sought before the possibility of damaging activities even began.459 The court was unconvinced, answering that the meaning of the word “may” depended on the surrounding language in the law and could have instead been used to express the probability of damages happening, not that injunctive relief could be sought before the possibly damaging activities occurred.460 Trey countered Ring with the argument that § 85.321 only allowed for local judicial review of actions brought after injection operations had commenced and any alleged damages had arisen.461 If Ring wanted injunctive relief before injection operations had begun, Trey also argued, it would have to bring such action in Travis County.462 The court was again unconvinced with the presented definition, however, answering that the case law cited by Trey covering this section—wherein no party had sought injunctive relief— did not mean that injunctive relief was not available.463 The words of the statute, the court stressed, primarily drove any interpretive decision.464 With the interpretive schemes proffered by both sides thus discounted, the court then dove into an analysis of the entire act.465 Ultimately, the court focused on § 85.322 of the Natural Resource Code, which provides that: None of the provisions of this chapter that were formerly a part of Chapter 26, Acts of the 42nd Legislature, 1st Called Session, 1931, as amended, no suit by or against the [RRC], and no penalties imposed on or claimed against any party violating a law, rule, or order of the [RRC] shall impair or abridge or delay a cause of action for damages or other relief that an owner of land or producer of oil or gas . . . may have or assert against any party violating any rule or order of the commission or any judgment under this chapter.466 While the court admitted it seemed odd that the legislature would draft laws that detailed how suits would have to be brought in Travis County in one section (§ 85.241) and then would allow such suits to be tried locally in another section of the act (§ 85.322), the court believed that it could interpret

458.

459.

460.

461.

462.

463.

464.

465.

466.

Id. at 208.

Id. at 206.

Id. at 208–09.

Id. at 208.

Id. Id. at 210–11.

Id. at 208.

Id. at 210.

Id. (emphasis by court) (quoting TEX. NAT. RES. CODE ANN. § 85.322 (West 2017)).

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§ 85.322 no other way but to allow the injunctive relief sought by Ring to be brought in the local court.467 The court also held that the RRC did not have exclusive or primary jurisdiction over Ring’s claims.468 Citing In re Discovery Operating, Inc.469 for the proposition that the RRC does not have exclusive jurisdiction over injection wells used for secondary recovery operations, the court also agreed with the Eastland Court of Appeals (Eleventh District) that the language of §§ 85.321–.322 clearly allowed district courts to hear claims for common law actions like waste and negligence.470 As for the allocation of primary jurisdiction between courts and agencies, the court first noted that a trial court should abate its own actions to allow initial agency primacy if the agency is properly staffed with experts and “great benefit is derived from an agency’s uniformly interpreting its laws, rules, and regulations, whereas courts and juries may reach different results under similar fact situations.”471 Then, the court noticed that Trey had not sought abatement, but rather outright dismissal of Ring’s claims.472 It also noticed that the legislature had not clearly and expressly granted the RRC exclusive or primary jurisdiction over the type of claims Ring brought.473 And, again, the court agreed with the determination of the Eastland Court of Appeals in In re Discovery that claims such as negligence and waste were “inherently judicial” and thus did not warrant giving the RRC primary jurisdiction.474 In ruling against Trey, the court acknowledged that injunctive relief of the kind Ring sought could negate use of an RRC permit but pointed out that injunctions required the complaining party name a cause of action and probable right to relief, along with a “probable, imminent, and irreparable injury” as well as the posting of a substantial bond.475 Turning at last to Trey’s argument that the injunction sought by Ring amounted to a collateral attack on the RRC’s permit, the courted noted that Trey had cited a handful of cases in support of the general proposition that 467. Id. at 210–11.

468. Id. at 211.

469. 216 S.W.3d 898 (Tex. App.—Eastland 2007, no pet.).

470. Ring, 546 S.W.3d at 211–12.

471. Id. at 212 (quoting Subaru of Am., Inc. v. David McDavid Nissan, 84 S.W.3d 212, 221 (Tex. 1961)).

472. Id. 473. Id. 474. Id. at 213 (citing In re Discovery, 216 S.W.3d at 904–05).

475. Id. at 213–14 (citing Butnaru v. Ford Motor Co., 84 S.W.3d 198, 204 (Tex. 2002)). The court noted that the injunctive relief sought by Ring was brought under §§ 65.011–.012 of the Texas Civil Practice and Remedies Code. Id. at 215 n.14. Interestingly, § 65.012 allows for relief that prohibits “subsurface drilling or mining operations” when an injury is threatened that cannot be remedied with damages for the resultant injuries. TEX. CIV. PRAC. & REM. CODE ANN. § 65.012 (West 2017).

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an order of the RRC cannot be collaterally attacked, particularly outside of Travis County.476 The court dismissed consideration of any of the cases, noting that they either did not concern a claim brought under § 85.321 or simply did not support Trey’s claims.477 In addition, the court held that none of the cases undermined the possibility of bringing an equitable claim as expressly allowed by §§ 85.321–.322.478 X. ARUBA PETROLEUM, INC. V. PARR479 On February 1, 2017, the Dallas Court of Appeals (Fifth District) considered whether an operator had created an intentional nuisance that affected neighboring surface owners when it conducted exploration and production activities in the Barnett Shale.480 Three members of the Parr family—Robert, Lisa, and Lisa’s daughter, E.D. (collectively, the “Parrs”)— sued several oil and gas companies including Aruba Petroleum, Inc. (“Aruba”), alleging that “environmental contamination and polluting events” had occurred on the captioned land.481 The court of appeals concluded that no legally sufficient evidence of intent to cause a nuisance had been presented by the Parrs and reversed the district court.482 The Parrs owned forty acres of land in Wise County, Texas.483 Since approximately 2000, the region has seen extensive activity related to development of the Barnett Shale.484 All three Parrs lived on the property after 2007, with one family member present on the captioned land since 2002.485 After litigation began, several other defendants either settled with the Parrs or were released from liability in the case by either summary judgment or claim severance through the trial court, eventually leaving Aruba as the sole defendant.486 The Parrs alleged a variety of environmental claims, including nuisance, stemming from Aruba’s activities.487 All claims except private nuisance were eventually dismissed, nonsuited, or abandoned prior to trial.488 As for negligent private nuisance, the trial court granted a directed

476.

477.

478.

479. pet.)

480.

481.

482.

483.

484.

485.

486.

487.

488.

Ring, 546 S.W.3d at 214.

Id. Id. No. 05-14-01285-CV, 2017 Tex. App. LEXIS 873 (Tex. App.—Dallas Feb. 1, 2017, no Id. at *2.

Id. Id. at *18–19.

Id. at *1.

Id. at *1–2.

Id. at *2 n.1.

Id. at *2.

Id. Id.

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verdict to Aruba.489 The jury, however, found that Aruba had intentionally created a private nuisance and awarded the Parrs $2.65 million in damages for “past and future physical pain and suffering and mental anguish” and $275,000 for loss of market value of the captioned land.490 Aruba appealed, marshalling six issues. Among them, the court of appeals focused on Aruba’s argument that no legally sufficient evidence existed allowing the jury to establish that Aruba had any intent to create a private nuisance targeting the Parrs or their land.491 The court acknowledged that it must sustain a no-evidence challenge if the evidence presented by the Parrs illustrated a complete absence of any proof of a vital fact, including evidence it could not consider due to the rules of law or evidence.492 In addition, the court noted it must sustain a no-evidence challenge if the evidence offered of a vital element is no more than a “mere scintilla” or the evidence shows the opposite of the vital fact.493 In establishing the applicable law, the court first turned to the definition of intentional nuisance in Texas, quoting recent case law that: [A] defendant may be held liable for intentionally causing a nuisance based on proof that he intentionally created or maintained a condition that substantially interferes with the claimant’s use and enjoyment of land by causing unreasonable discomfort or annoyance to persons of ordinary sensibilities attempting to use and enjoy it.494 Aruba argued that no evidence existed that it knew it was harming the Parrs or their properties or that harm was substantially sure to occur due to its conduct.495 Furthermore, Aruba noted that the jury had found that its activities were not abnormal or unusual for the area and were no different than any of the other operators nearby.496 Therefore, Aruba could have had no notice that its activities were uniquely affecting the Parrs or their property, or both.497 In response, the Parrs argued that evidence existed that Aruba did know that its activities were harmful to the Parrs and their property and was significantly interfering with their use and enjoyment of the property.498 In support of this assertion, they offered three categories of evidence showing

489. Id. 490. Id. at *2–3.

491. Id. at *3.

492. Id. (citing Serv. Corp. Int’l v. Guerra, 348 S.W.3d 221, 228 (Tex. 2011)).

493. Id. 494. Id. at *4 (alteration in original) (quoting Crosstex N. Tex. Pipeline, L.P. v. Gardiner, 505 S.W.3d 580, 604–05 (Tex. 2016)).

495. Id. at *6.

496. Id. 497. Id. 498. Id. at *7.

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Aruba’s knowledge of the harm it caused the appellees: (1) complaints made by a neighbor; (2) their own complaints to the TCEQ and (3) their own complaints directly to Aruba and contractors hired by Aruba.499 In support of the first category of evidence showing Aruba’s knowledge of the specific harm to the Parrs, the Parrs offered evidence from trial that Lisa Parr had testified that a neighbor had complained to Aruba through various outlets multiple times.500 This meant, the Parrs believed, that Aruba had knowledge it was harming the neighboring landowners—including the Parrs—and that that sufficed to satisfy the knowledge requirement of harm and thus established intent.501 Aruba countered that none of this evidence showed that the complaints included specifics about the Parrs or their property.502 Aruba could not have known about alleged nuisance activities directed at the Parrs and, therefore, the evidence was not germane to a claim of intentional negligence.503 In support of the second category of evidence, the Parrs argued that they had offered evidence at trial of complaints they made to the TCEQ about Aruba’s activities.504 In response, Aruba pointed out that no evidence existed that the Parrs had identified themselves or their property to the TCEQ or that Aruba knew about the complaints the Parrs had made to the TCEQ.505 The court noted that the Parrs had offered no evidence that Aruba knew the Parrs were making complaints to the TCEQ about their activities on the captioned land.506 In support of the third category of evidence, the Parrs offered evidence that they had alerted Aruba directly of the harm caused by Aruba’s operations.507 Here, the case provides a lengthy recap of the testimony at trial of Lisa and Robert Parr regarding various haphazard encounters Lisa had with Aruba field personnel and contractors on or near the captioned property, and phone calls made by Lisa to various people at Aruba, with each person reached vaguely remembered by Lisa only on a first name basis.508 The court noted that Lisa Parr had testified under cross examination that the Parrs had not contacted Aruba via letter or email.509 In response, Aruba argued that the Parr’s evidence of anonymous complaints to people near the wellsite—some 499.

500.

501.

502.

503.

504.

505.

506.

507.

508.

509.

Id. Id. at *7–8.

Id. at *8.

Id. at *14.

Id. at *14–15.

Id. at *8.

Id. at *15.

Id. Id. at *9.

Id. at *9–14.

Id. at *12.

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of them contractors—or on the telephone did not suffice to prove it had knowledge and intent on its part to create a nuisance.510 The court noted that Aruba had no producing wells on the Parr’s property and that the jury had, when asked if Aruba’s operations were abnormal and out of place such as to constitute a private nuisance, answered “No.”511 The Parrs, while conceding that intentional nuisance “requires evidence of more than an ‘awareness of the mere possibility of damage,’”512 presented evidence they claimed showed Aruba was aware that its operations generally resulted in smells, noise, light, and vibrations.513 They cited testimony of an Aruba corporate officer that locals neighboring operations would “probably” find the activities a nuisance and that Aruba had “probably” had complaints about approximately twenty wells near the Parrs and their property.514 Ultimately, however, the court stressed that the question before it was not whether Aruba had created a nuisance or acted negligently, but rather whether it had created an intentional nuisance as to the Parrs.515 Returning to Crosstex for the legal standard of intentional nuisance, the court noted that a party intentionally creates a nuisance if it “actually desired or intended to create the interference” or actually knew or believed “that the interference would result” from its activities.516 The court noted that evidence showing Aruba had “intentionally engaged in the conduct that caused the interference”517 was not enough to show an intentional nuisance. Instead, Aruba must have “intentionally caused the interference that constitutes the nuisance.”518 In other words, Aruba must have specifically known that the Parrs’ use and enjoyment of their land was being interfered with by its operations.519 Here, the court held that none of the evidence presented by the Parrs showed that Aruba knew it was interfering with the Parrs or their property or that the Parrs had expressly made their complaints known to Aruba.520

510.

511.

512.

513.

514.

515.

516.

2016)).

517.

518.

519.

520.

Id. at *15.

Id. at *15–16.

Id. at *16 (quoting City of San Antonio v. Pollock, 284 S.W.3d 809, 821 (Tex. 2009)).

Id. Id. Id. at *17.

Id. (quoting Crosstex N. Tex. Pipeline, L.P. v. Gardiner, 505 S.W.3d 580, 605 (Tex. Id. Id. Id. at *18.

Id. at *18–19.

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XI. REED V. MALTSBERGER521 On May 3, 2017, the San Antonio Court of Appeals (Fourth District) reversed the judgment of the trial court regarding the interpretation of a mineral conveyance from 1942 (the “1942 Deed”).522 The court held that the 1942 Deed conveyed a 1/4 mineral interest to the grantees/appellants.523 The appellants (collectively, the “Reed Plaintiffs”), successors of the original grantees, argued that a 1/4 mineral interest was conveyed in the 1942 Deed.524 The appellees argued that the 1942 Deed conveyed only a fixed NPRI.525 At the time of the 1942 conveyance, the captioned land was already subject to an oil and gas lease that provided for a 1/8 lessor’s royalty under that existing lease.526 The court affirmed that, although the 1942 Deed conveyed: “an undivided one-fourth (1/4) interest in and to all of the oil, gas, and other minerals in and under that may be produced from the following described lands.”527 The language in the 1942 Deed also stripped the grantees (W.B. Dossett and E.M. Benz) of certain fee mineral rights: In the event the above lease. . .shall for any reason become cancelled or forfeited, it is agreed that the joinder or consent of grantee, his heirs or assigns, shall not be required to another or new lease upon said property. . .nor shall grantee, his heirs or assigns, be entitled to share in any bonus consideration therefor or delay rentals thereunder, it being the purpose and intent hereof to grant and convey an undivided one-fourth (1/4) of the one-eighth (1/8) royalty (including any annual gas rentals) under said existing lease and an equivalent royalty interest under any future mineral leases thereon by [lessor], his heirs, administrators or assigns.528 The dispute over whether the conveyance amounted to a fixed royalty or a mineral interest lay at the heart of the case.529 Under the terms of the lease covering the captioned land at the time of the dispute (the “Hanks Lease”), the lessee, Rosetta Resources Operating, was paying a fixed 1/32 royalty to the Reed Plaintiffs.530 However, because the Reed Plaintiffs believed that they owned a 1/4 mineral interest in fee, they argued that they 521. Reed v. Maltsberger/Storey Ranch, LLC, 534 S.W.3d 51 (Tex. App.—San Antonio 2017, pet. denied).

522. Id. at 53.

523. Id. 524. Id. 525. Id. 526. Id. at 54.

527. Id. at 53.

528. Id. at 54.

529. Id. at 53.

530. Id. at 54.

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were owed 1/4 of the 22.5% royalty (the agreed royalty in the Hanks Lease) instead of the fixed 1/32 royalty that Rosetta had been paying.531 Both parties moved for summary judgment with the district court.532 The trial court determined that the Reed Plaintiffs owned only a fixed 1/32 NPRI.533 The Reed Plaintiffs appealed.534 Reviewing the trial court’s grant of summary judgment de novo, the court of appeals considered the nature of the conveyance, noting that the primary objective in interpreting mineral grants is to determine intent from the four corners of the instrument and not the subjective intent that would benefit each party.535 The court used a “holistic” approach to discern the intent of the parties from the 1942 Deed as to whether a mineral interest or a royalty interest had been conveyed.536 The court first delineated the five components of a mineral interest in Texas: (1) the right to develop; (2) the right to lease (the executive right); (3) the right to receive bonus payments; (4) the right to receive delay rentals; and (5) the right to receive royalty payments.537 The court clarified, however, that not all the elements of a mineral interest must be conveyed; a grantor may reserve specific interests in the conveyance.538 In contrast, the court noted that a royalty interest comes from the grantor’s mineral interest, is non-possessory, and could be separated.539 A royalty interest has two distinct characteristics: (1) it is non-possessory; and (2) it is free of production and operating expenses.540 The court further noted that, just as it is possible to strip certain rights from a mineral fee interest, it is also possible to strip or add certain rights to a royalty interest.541 Hybrid fee and royalty interests occur frequently despite the problems created.542 Distinct conveyance or reservation language may help indicate which type of interest is being conveyed or reserved.543 Traditional mineral fee language refers to the “oil, gas, and other minerals ‘in

531.

532.

533.

534.

535.

536.

537.

538.

539.

540.

541.

542.

543.

Id. Id. at 54–55.

Id. at 55.

Id. Id. (citing Hysaw v. Dawkins, 483 S.W.3d 1, 8 (Tex. 2016)).

Id. Id. at 56 (citing Altman v. Blake, 712 S.W.2d 117, 118 (Tex. 1986)).

Id. (quoting French v. Chevron U.S.A. Inc., 896 S.W.2d 795, 797 (Tex. 1995)).

Id. (quoting Hysaw, 483 S.W.3d at 9).

Id. Id. Id. at 57.

Id.

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and under’ the described land.”544 On the other hand, simply using the word “royalty” typically creates a royalty.545 The court then compared several cases546 to determine whether a conveyed mineral interest that strips the grantee of several mineral interest rights remains a mineral fee interest or converts it into a royalty interest.547 Ultimately, the court noted that each case varied in analysis and conclusion, and determined that no fixed rule existed, concluding that the court must analyze the language of the instrument to glean and interpret the intent of the drafters.548 Getting down to business, the court then applied rules of construction to the 1942 Deed.549 First, the court noted that the traditional mineral fee conveyance language of “in and under” was used in the 1942 Deed.550 Second, the court noticed that at the time the 1942 Deed was conveyed, the land was already subject to an existing oil and gas lease.551 This implied the possibility of future leases (which was believed consistent with conveying a mineral interest).552 Third, the court noted that the 1942 Deed stripped the grantees of certain rights and opined, “if the grantor had intended to convey only a royalty interest, this language stripping the grantee of rights would be redundant because a royalty interest owner has no such rights.”553 Finally, the court considered the provision in the 1942 Deed regarding future royalties.554 The lease stated that the grantees were entitled to an “equivalent royalty interest under any future mineral leases.”555 The court decided that this provision made it clear that under future leases, which could provide for an amount differing from the amount in the original lease (1/8 royalty), “the grantees will be entitled to ‘an equivalent royalty interest’— that is, 1/4 of any future royalty negotiated.”556

544. Id. 545. Id. 546. Temple-Inland Forest Prods. Corp. v. Henderson Family P’ship, 958 S.W.2d 183 (Tex. 1997); French v. Chevron U.S.A, 896 S.W.2d 795 (Tex. 1995); Altman v. Blake, 712 S.W.2d 117 (Tex. 1986); Watkins v. Slaughter, 189 S.W.2d 699 (Tex. 1945); Coates Energy Trust v. Frost Nat’l Bank, No. 04-11-00838-CV, 2012 Tex. App. LEXIS 9718 (Tex. App.—San Antonio Nov. 28, 2012, pet. denied); Hamilton v. Morris Res., 225 S.W.3d 336 (Tex. App.—San Antonio 2007, pet. denied); Garza v. Prolithic Energy Co., 195 S.W.3d 137 (Tex. App.—San Antonio 2006, pet. denied).

547. Reed, 534 S.W.3d at 57.

548. Id. at 64.

549. Id. 550. Id. 551. Id. 552. Id. 553. Id. 554. Id. 555. Id. 556. Id. at 65.

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Ultimately, the court held that the 1942 Deed conveyed a 1/4 mineral interest, not a royalty interest.557 Therefore, the court reversed the judgment of the trial court.558 XII. TEXAS OUTFITTERS LTD. V. NICHOLSON559 On May 17, 2017, the San Antonio Court of Appeals (Fourth District) addressed whether Texas Outfitters, the surface owner and executive mineral rights owner, breached its duty to the mineral owners in the Derby Ranch by turning down several mineral lease offers, and subsequently refusing to execute a mineral lease.560 The court of appeals affirmed the trial court’s ruling, holding that Texas Outfitters breached its duty.561 The Carters, part of the Nicholson appellee group, owned a 1,082-acre tract known as the Derby Ranch in Frio County.562 The Carters owned a 50% undivided mineral interest, along with the surface estate, and the Hindeses, relatives of the Carters, owned the other 50% undivided mineral interest. 563 In 2002, the Carters sold the surface estate to Texas Outfitters.564 The Carters also conveyed 4.16% of their mineral interest, along with their executive mineral leasing rights, to Texas Outfitters.565 Texas Outfitters received two offers to lease its and the Carter’s mineral interests in 2010.566 The second offer was also extended to the Hindeses, who accepted.567 Texas Outfitters’ sole owner, Frank Fackovec (“Fackovec”), communicated to the Carters that he had no intention of leasing the mineral rights because drilling operations would interfere with his hunting business.568 In August of 2010 the Carters and Fackovec agreed to mediation.569 The Carters, who had owner-financed the sale of their surface rights and executive mineral interest rights offered to forgive a portion of Fackovec’s debt if he agreed to execute the lease with El Paso Exploration, the company to whom the Hindeses had already leased their mineral rights.570

557.

558.

559.

560.

561.

562.

563.

564.

565.

566.

567.

568.

569.

570.

Id. Id. 534 S.W.3d 65 (Tex. App.—San Antonio 2017, pet. granted).

Id. at 68.

Id. Id. Id. Id. Id. Id. Id. at 68–69.

Id. at 69.

Id. Id.

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However, by October, the parties had still failed to reach an agreement.571 New offers were made and discussed, but by May there was still no agreement.572 The Carters then sued Texas Outfitters for breaching its duty of upmost good faith and fair dealing to the non-executives by refusing to lease.573 Texas Outfitters received two additional mineral lease offers, one was refused, and the other withdrawn due to the Hindenses’ prior existing lease agreement.574 Texas Outfitters then sold its surface and executive rights to a third party.575 Following a bench trial, the court awarded the Carters $867,654.32 in damages.576 The trial court also found that Texas Outfitters breached its duty to the Carters by refusing to lease their mineral interest.577 Texas Outfitters then appealed the trial court’s ruling.578 The court of appeals first noted that the executive mineral rights owner owes a duty of upmost good faith and fair dealing to the non-executive mineral rights owner; the court then observed that the Texas Supreme Court has found that, although this duty is fiduciary in nature, it does not “incorporate the traditional fiduciary obligation to place the interest of the other party before its own.”579 The court observed also, however, that the Texas Supreme Court has held that the executive can breach its duty either by executing a lease or by refusing to execute a lease, opining that “the executive breaches its duty by ‘engag[ing] in acts of self-dealing that unfairly diminish[] the value of the non-executive interest.’”580 “The executive engages in self-dealing by exacting a benefit for itself that it does not also acquire for the non-executive.”581 Finally, the court observed the Texas Supreme Court has held “an executive can breach its duty by refusing to lease ‘[i]f the refusal is arbitrary or motivated by self-interest to the nonexecutive’s detriment.’”582 Texas Outfitters argued that it did not breach any duty, but rather, merely sought reasonable surface protections.583 However, the court found that Texas Outfitters had not only tried to protect its surface rights, but also 571. Id. 572. Id. at 70.

573. Id. 574. Id. 575. Id. 576. Id. 577. Id. 578. Id. 579. Id. at 71 (quoting KCM Fin. LLC v. Bradshaw, 457 S.W.3d 70, 81 (Tex. 2015)).

580. Id. (alteration in original) (quoting Bradshaw, 457 S.W.3d at 82).

581. Id. (quoting Bradshaw, 457 S.W.3d at 80–82).

582. Id. (quoting Lesley v. Veterans Land Board of the State of Texas, 352 S.W.3d 479, 491 (Tex. 2011)).

583. Id. at 77.

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tried to exact a benefit from the Carters at their own expense.584 The court inferred this through the parties’ failed negotiations, noting that: The correspondence between the parties suggests Texas Outfitters’ actual motive in refusing to lease was to exact a benefit from the Carters to their detriment, including by diminishing their royalty interest, by exacting a $263,000 reduction on the note, or by selling its mineral interest to the Carters for $4.2 million.585 Therefore, the court held that Texas Outfitters had breached its executive duty by refusing to lease.586 XIII.CHIEFTAIN EXPL. CO. V. GASTAR EXPL. INC. & CUBIC ASSETS587 On August 30, 2017, the Waco Court of Appeals (Tenth District) issued an opinion that considered the question of whether a lease had been included in a unit with a producing non-tract well.588 The case concerned the Streater Gas Unit (“Unit”), which was formed in 2010 by Gastar Exploration Inc. (“Gastar”) and two other entities.589 The Unit was comprised of 56 oil and gas leases and covered 702.3 acres of land.590 The leases included in the Unit were listed in the Unit Designation that was recorded in the official public records.591 Tract 17, which was comprised of 56 surface acres, was included in the Unit.592 A producing well—the Streater Well—was drilled on the Unit, but not on Tract 17.593 Two parties, the McBeth Family Limited Partnership and Lone Oak, each owned one-half of the minerals in Tract 17.594 An undivided 1/4 NPRI, currently owed by Chieftain, encumbered Lone Oak’s mineral estate.595 Before Chieftain acquired the NPRI, two oil and gas leases were executed, one each by the McBeth Family Limited Partnership and Lone Oak.596 The Lone Oak Lease covered 3,466 acres, including the 56-acre tract.597 The McBeth Lease covered 591.3 acres, which also included the 56acre tract.598 584. Id. at 78.

585. Id. 586. Id. 587. Chieftain Expl. Co., Inc. v. Gastar Expl. Inc., No. 10-15-00037-CV, 2017 WL 3860357 (Tex. App.—Waco Aug. 30, 2017, pet. filed) (mem. op.).

588. Id. at *2.

589. Id. at *1.

590. Id. 591. See id.

592. Id. 593. See id.

594. Id. 595. Id. 596. Id. 597. Id. 598. Id.

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Claiming it was owned royalties from the Streater Well, Chieftain sued Gastar asserting violations of the Natural Resources Code, breach of contract, and violations of the Texas Theft Liability Act.599 As a successor-in-interest to Gastar’s rights in the Streater Unit, Cubic intervened in the suit.600 Each party filed competing motions for summary judgment.601 The trial court granted the motions of Gastar and Cubic and denied Chieftain’s motion.602 The Waco Court of Appeals considered whether the Lone Oak Lease was included in the Streater Gas Unit in the first place, determining that if it was thusly pooled, Chieftain would be owed royalties.603 The court determined that the plain language of the Unit Designation indicated the Lone Oak Lease was not pooled into the Streater Unit.604 The court noticed that, while Tract 17 was listed, the Lone Oak Lease itself was not listed as being one of the 56 leases included within the Streater Unit.605 The court also noticed that the Lone Oak Lease had expressly provided that the lessee “may pool all or any portion of the leased premises” into a unit of up to 640 acres only if the leased premises comprised at least 50 percent of the unit.606 Because the Streater Unit was composed of over 700 acres, and because Tract 17—the 56 acres in which half of the minerals were the subject of the Lone Oak Lease—did not make up at least 50 percent of the Unit, the court held the Lone Oak Lease, by its express terms, could not have been pooled as Chieftain claimed.607 Further, even if the Lone Oak Lease had it been pooled by the pooling agreement (the Streater Gas Unit Designation), the terms of the Lease would have made the pooling invalid and unenforceable.608 Ultimately, the court held the Lone Oak Lease had expired before creation of the Unit, was not revived by creation of the Unit, and that Chieftain was not entitled to payment under a pooling theory.609 Despite the expiration of the Lease, Chieftain argued that the rule of Wagner & Brown, Ltd. v. Sheppard610 and Ladd Petroleum Corp. v. Eagle Oil & Gas Co.611 applied, and that the Unit Designation pooled not only “leases” but also “lands,” and that “lands” included freestanding royalties 599. Id. 600. Id. 601. Id. 602. Id. 603. Id. at *2.

604. Id. 605. Id. 606. Id. 607. Id. 608. Id. 609. Id. 610. Wagner & Brown, Ltd. v. Sheppard, 282 S.W.3d 419, 422 (Tex. 2008).

611. Ladd Petroleum Corp. v. Eagle Oil & Gas Co., 695 S.W.2d 99, 106 (Tex. App.—Fort Worth 1985, writ ref'd n.r.e.).

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such as the NPRI burdening the minerals estate leased by Lone Oak.612 The court noted, however, that unlike the pooling agreements in Wagner and Sheppard, the Unit Designation in the current case instead provided that the “[l]eases, insofar and only insofar as the leases cover the lands described and delineated . . . are hereby combined, unitized and/or pooled into a single, consolidated pooled unit . . . .”613 Therefore, with no “lands” mentioned, only the leases could be combined, not the lands and the associated NPRI.614 Chieftain also argued that since its predecessor-in-interest had ratified the Streater Gas Unit Designation, it was entitled to royalties.615 The ratification provided that: [P]ooling or unitization shall occur only by the Lessee’s exercise of the pooling provision of the above referenced lease and in such event the royalty interest of the undersigned shall be pooled or unitized to the extent, and only to the extent, that the tract or land in which the royalty interest is owned is included within such unit.616 Chieftain argued this language amounted to an “anti-pooling provision” and, per the rule established in London v. Merriman617 and Verble v.

Coffman,618 was ineffective to prevent an NPRI owner from ratifying the unit designation.619 The court countered that, unlike the scenario encountered in London and Verble, wherein “anti-pooling” language had attempted to prevent an NPRI owner from being able to ratify a lease, the present case presented no ratification of a lease by an NPRI owner and that the supposed “anti-indemnity” language never attempted to prevent the NPRI owner from receiving benefits under the Lone Oak Lease.620 Therefore, because “Gastar did not include the Lone Oak Lease in the Streater Unit . . . Gastar never exercised the pooling provision of the Lease.”621 Consequently, neither the Lone Oak Lease lessor nor Chieftain the NPRI owner were entitled to royalties from the Unit.622 Chieftain argued that because an NPRI owner is entitled to revive a dead lease it was permitted to collect payment.623 The court countered that because

612.

613.

614.

615.

616.

617.

618.

619.

620.

621.

622.

623.

Chieftain Expl. Co., Inc., 2017 WL 3860357, at *2.

Id. at *3.

Id. Id. Id. London v. Merriman, 756 S.W.2d 736 (Tex. App.—Corpus Christi 1988, writ denied).

Verble v. Coffman, 680 S.W.2d 69 (Tex. App.—Austin 1984, no writ).

Chieftain Expl. Co., Inc., 2017 WL 3860357, at *3.

Id. Id. Id. Id. at *4.

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the Lone Oak Lease was never part of the Unit, whether the Lease was revived was immaterial.624 Finally, the court held that because Chieftain was never entitled to royalties generated under the terms of the Unit, its claim under the Texas Theft Liability Act625 axiomatically failed.626 XIV. XTO ENERGY, INC. V. GOODWIN627 On October 18, 2017, the Tyler Court of Appeals (Twelfth District) reversed a trial court’s decision to award a mineral owner over two million dollars in a dispute with an operator specializing in hydraulic fracturing, holding instead that no evidence existed of actionable trespass or a breach of the lease terms.628 The court also held, however, that the lease was correctly declared void by the trial court and that the operator was not owed the royalty back it mistakenly paid the lessor.629 In 2007, Elton Goodwin executed an oil and gas lease with CS Platinum as lessee.630 The lease covered three tracts Goodwin owned in San Augustine County, Texas, consisting of approximately 27 acres, 55 acres, and 2 acres.631 Within the lease was incorporated a letter agreement that provided CS Platinum would pay Goodwin a lease bonus.632 The amount of the bonus was dependent on the lessee’s determination that Goodwin owned a 50% undivided mineral interest in the 55-acre tract and an undivided 100% mineral interest across each of the other tracts.633 After Goodwin accepted the bonus, he discovered he might own more than half the minerals in the 55-acre tract.634 Meanwhile, XTO Energy (“XTO”) was assigned CS Platinum’s interest in the lease.635 Goodwin notified XTO that he thought the lease was void as he had not been paid the correct bonus as required under the letter agreement.636 XTO later agreed a

624. Id. 625. TEX. CIV. PRAC. & REM. CODE ANN. § 134.003(a) (West 2017).

626. Chieftain Expl. Co., Inc., 2017 WL 3860357, at *4.

627. XTO Energy Inc. v. Goodwin, NO. 12-16-00068-CV, 2017 Tex. App. LEXIS 9739 (Tex. App.—Tyler Oct. 18, 2017, pet. filed).

628. See id.

629. Id. at *13.

630. Id. at *1.

631. Id. 632. Id. 633. Id. 634. Id. 635. Id. 636. Id. at *1–2.

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mistake had been made in the acreage calculation, but disagreed the lease was void.637 XTO included Goodwin’s tracts in a new unit called the Butler Rooney Unit (“Rooney Unit”) in 2010.638 A year later, XTO completed a producer known as the Butler Rooney 1H well within the new unit.639 Goodwin began accepted royalty payments from the well in 2012.640 During this time, XTO created the Terrapins Unit adjacent to the Rooney Unit wherein it planned to drill two horizontal wells that were platted to be close to—but not cross—the vertical plane of Goodwin’s 27-acre tract.641 While drilling and completing the Terrapins 1H well, the drill bit deviated horizontally from the planned route but away from the boundary plane with Goodwin’s tract.642 The drill bit for the second well—the Terrapins 1HB well—also deviated horizontally during drilling but towards Goodwin’s property.643 A gyroscopic survey later showed the wellbore of the second was within 60 feet of the boundary plane of Goodwin’s tract, but XTO continued drilling.644 A second survey later revealed the wellbore had penetrated 126 feet into Goodwin’s tract at approximately 10,000 feet subsurface.645 XTO continued drilling, but by changing the direction of the bit, managed to exit Goodwin’s tract at 13,200 feet subsurface.646 Ultimately, a 2,900 feet segment of the completed well was located inside the volume of Goodwin’s strata.647 After the second well was completed, XTO requested a subsurface easement from Goodwin.648 Meanwhile, XTO had suspended Goodwin’s royalty payments from production in the Rooney Unit, claiming he had been overpaid because of an accounting error.649 After the parties were unable to resolve the disputes over the trespass and easement, the lease’s validity and the bonus payment, and the royalty payments, Goodwin sued.650 At district court, Goodwin was granted a partial summary judgment that retroactively voided the lease due to nonpayment of the full amount of

637.

638.

639.

640.

641.

642.

643.

644.

645.

646.

647.

648.

649.

650.

Id. at *2 Id. Id. Id. Id. Id. Id. at *2–3.

Id. at *3.

Id. Id. Id. Id. Id. at *3–4.

Id. at *4.

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bonus.651 At trial, the jury found that XTO committed: (1) a trespass for which it awarded $815,392.00 in damages; (2) bad faith trespass for which it awarded $78,000.00 in damages; (3) bad faith pooling for which it awarded $1,272,331.80 in damages; and (4) conversion for which it awarded $636,668.90 in damages.652 The jury also found that XTO had not acted with malice or committed fraud.653 Goodwin chose to accept the damages awards for trespass and bad faith pooling, and the trial court awarded damages of $2,088,723.80 and interest.654 On appeal, XTO presented seven issues.655 The court’s opinion considered five.656 First, XTO argued that Goodwin did not have a “legally protected ownership interest” in the portion of its subsurface estate that was impacted by the trespass, noting that no evidence existed that its trespass interfered with Goodwin’s ability to develop his minerals or that the trespass affected Goodwin’s surface.657 XTO cited dicta from Coastal Oil & Gas Corp v. Garza Energy Trust658 for the supposition that, for such a deep intrusion, Goodwin could not support a trespass claim, noting in particular the court’s quote that the ad coelum doctrine “has no place in the modern world.”659 The court of appeals disagreed, looking instead to the more recent holding of Lightning Oil Co. v. Anadarko E & P Onshore, LLC, in which the Texas Supreme Court held that the ownership rights of the surface owner included the non-mineral matrix of strata that held up the surface and extended those ownership rights to the “geologic structures beneath the surface.”660 Noting that the Lightning opinion mentioned Coastal but attached no limitation to the ownership right of the surface owner, even at great depths, the court held that Goodwin did have legally protected ownership rights in the strata at the depth of the second Terrapin well’s intrusion that could, in turn, give rise to a trespass action.661 Then the court turned toward the question of calculating trespass damages. Goodwin relied on an expert to measure the damages he sought.662 The expert, in turn, used a two-step methodology.663 First, he measured the length of the wellbore trespass and compared that to the wellbore’s overall 651.

652.

653.

654.

655.

656.

657.

658.

659.

660.

661.

662.

663.

Id. Id. Id. Id. at *4–5.

Id. at *5.

Id. Id. 268 S.W.3d 1 (Tex. 2008).

XTO Energy, 2017 Tex. App. LEXIS 9739, at *7–8.

520 S.W.3d 39, 46–47 (Tex. 2017).

XTO Energy, 2017 Tex. App. LEXIS 9739, at *10.

Id. at *11.

Id. at *12.

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length.664 Second, he estimated the value of the well using XTO’s annual filings with the Securities and Exchange Commission.665 XTO argued that this methodology was impermissible because it did not measure the permanent injury to the land as XTO believed a traditional trespass action should require.666 The court agreed for three reasons.667 First, the expert’s voluminous valuations were based on company-wide economic forecasts and not analysis of the actual productive formation found in the trespassed interval.668 The court found this to be an unreliable source.669 Second, no evidence of production from the well was presented.670 The court highlighted the speculative nature of the well’s ultimate value, if it produced and, if so, for how long.671 XTO was waiting to see how the lawsuit turned out before it decided on either completing or plugging the well.672 Third, the court noted that XTO could not have produced from the well in the first place without some kind of drill-through agreement or easement from Goodwin and that the expert’s estimation did not explain how his estimated trespass award would provide XTO any right to move gas through that portion of the well traversing Goodwin’s strata.673 The court therefore set aside the expert’s estimate.674 As its second issue, XTO argued that no evidentiary basis existed for the jury’s finding of bad faith pooling and the award of over a million dollars.675 Specifically, XTO argued that when the lease taken by CS Platinum in the Rooney Unit was deemed void, the lessor of that lease lost the ability to rightfully claim royalty from wells not drilled on the leased land.676 Further, since the lease was void, it could not be pooled in the first place, much less in bad faith.677 Goodwin countered, arguing that termination of the lease had no effect on his bad faith pooling complaint, citing Wagner & Brown, Ltd. v. Sheppard678 for the proposition that termination of a lease in a pool does not necessarily terminate the pool as to the previously-leased 664.

665.

666.

667.

668.

669.

670.

671.

672.

673.

674.

675.

676.

677.

678.

Id. at *12–13.

Id. at *13.

Id. at *14.

Id. at *15.

Id. Id. at *16.

Id. Id. Id. at *16–17.

Id. at *17.

Id. at *18–19.

Id. at *19.

Id. Id. 282 S.W.3d 419 (Tex. 2008).

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land.679 Further, Goodwin argued that bad faith pooling can arise merely from wrongful attempts to pool.680 The court disagreed with Goodwin, noting that to pool, the lessee must have the contractual ability to do so.681 If it does not, pooling does not occur.682 Since XTO had no lease, it could not pool.683 Bad faith pooling, the court explained, arises when the lessee has the ability to pool but does so for reasons that violate the implied duty to only pool in a way fair and in good faith to the lessor.684 In the present case, unlike in Sheppard, there was never a lease that authorized pooling—it had been retroactively found void.685 Pooling with no authority is not pooling at all and binds no one.686 In XTO’s fourth issue, the court considered Goodwin’s allegation of bad faith trespass.687 Bad faith trespass—in this case, continuing to enter under an expired oil and gas lease without a good faith reason to believe the lease still existed—can give rise to additional damages.688 Goodwin argued that XTO’s actions—misrepresentations to the RRC, continuing to drill despite knowledge that the wellbore was approaching the unpermitted tract, and the filing of a modified pooled unit declaration in the public property records— showed that XTO was a bad faith trespasser.689 Further, these facts would have allowed the jury to find that XTO acted “with a conscious indifference to and disregard of Goodwin’s rights” and therefore entitled him to additional damages.690 The jury did not find, however, that XTO acted with malice or fraud.691 The court held that, with no finding of fraud or malice, and no evidence to support a recovery for actual damages, XTO’s appeal on this point was sustainable.692 In the same issue, XTO also argued that no sufficient evidence supported the jury’s award of $636,668.90 for conversion because nothing showed that any of Goodwin’s minerals were extracted as a result of the intrusion by XTO’s wellbore or through pooling of Goodwin’s mineral tracts.693 The court agreed, noting that the expiration of the lease meant no 679.

680.

681.

682.

683.

684.

685.

686.

687.

688.

689.

690.

691.

692.

693.

XTO Energy, 2017 Tex. App. LEXIS 9739, at *21.

Id. at *21–22.

Id. at *23.

Id. Id. at *24–25.

Id. at *23.

Id. See id. at *24.

Id. at *24–25.

Id. at *25.

Id. at *26.

Id. Id. at *27.

Id. at *28.

Id.

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bad faith pooling could have occurred and that the trespassing well had yet to produce.694 In XTO’s fifth issue it argued that, because of the voidance of the CS Platinum Lease, Goodwin was not entitled to receive the royalty— $386,000—paid to him by XTO and should be made to pay it back. 695 Goodwin answered XTO’s unjust enrichment claim with the defense that XTO had voluntarily paid the money without any input by Goodwin.696 The court noted that, while all the royalty payments Goodwin received through the Rooney Unit were derived from the Butler Rooney 1H well and no part of the Butler Rooney 1H was drilled on Goodwin’s property, Goodwin had no hand in creating the mistakes that led to XTO’s overpayment and even informed XTO that the lease might be void due to bonus underpayment.697 Further, XTO had created the division orders associated with the Rooney Unit—division orders that reflected XTO’s mistaken belief it owed Goodwin royalty—and no other royalty owner was negatively affected by the overpayment to Goodwin.698 XTO had all the necessary data to evaluate whether the lease was still in effect after Goodwin claimed it was not and XTO still paid the money.699 The court overruled XTO’s fifth issue, opining that, “[m]oney voluntarily paid on a claim of right, with full knowledge of all the facts, in the absence of fraud, deception, duress, or compulsion, cannot be recovered merely because the party [paying the money] at the time of the payment was ignorant of or mistook the law as to his liability.”700 XV. BOERSCHIG V. TRANS-PECOS PIPELINE701 On October 3, 2017, the Fifth Circuit Court of Appeals held that the private condemnation process utilized by pipelines in the Texas Utility Code did not violate the private nondelegation doctrine as applied to the Fourteenth Amendment of the U.S. Constitution.702 Trans-Pecos Pipeline (“Trans-Pecos”) was constructing an intrastate pipeline and wanted to cross Boerschig’s land in Presidio County, Texas.703 After negotiations failed, Trans-Pecos initiated the power of private eminent 694. Id. at *30.

695. Id. at *30–31.

696. Id. at *35.

697. Id. at *36.

698. Id. at *37.

699. Id. at *37.

700. Id. at *37–38 (citing BMG Direct Mktg., Inc. v. Peake, 178 S.W.3d 763, 768 (Tex. 2005)).

701. Boerschig v. Trans-Pecos Pipeline, LLC, 872 F.3d 701 (5th Cir. 2017).

702. Id. at 709.

703. Boerschig v. Trans-Pecos Pipeline, LLC, No. PE:16-CV-00056-RAJ, 2016 U.S. Dist.

LEXIS 191266, at *2 (W.D. Tex. July 13, 2016).

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domain provided under Texas Utility Code § 181.004, which allows a pipeline to exercise the power of private eminent domain “if it devotes its private property and resources to public service and allows itself to be publicly regulated.”704 The court noted that this process generally proceeded in two phases.705 First, if initial negotiations failed, a gas utility, upon determining that a taking was necessary to further a public purpose (i.e., transporting the gas of the public as a common carrier), could initiate an administrative procedure whereby a state district court appoints special commissioners who assess the value of the property being condemned.706 After the assessment, the condemner could then assume control of the contested property.707 A second judicial phase could follow in state district court if the landowner contesting the award challenges the utility’s finding of public necessity.708 In this case, before the commissioners assessed the property, Boerschig filed a federal case seeking an injunction to stop the state condemnation proceeding from going forward.709 Boerschig sought the injunction on the grounds that the Texas eminent domain process for pipelines violated the Due Process Clause of the U.S. Constitution both because of the delegation of condemnation power to a private party and because the process did not provide for judicial hearing before the commissioners’ assessment of the takings and award of the property.710 The federal district court did not issue the desired injunction, instead finding that the federal Anti-Injunction Act applied.711 Following the district court’s ruling, the state special commissioners determined the award value due Boerschig and Trans-Pecos assumed control of the property.712 While Boerschig appealed the district court’s opinion, Trans-Pecos completed the pipeline over Boerschig’s land.713 On appeal, a preliminary matter was first considered: Trans-Pecos argued that, since the pipeline was complete, the issue was moot.714 In response, the federal court of appeals noted that, while injunctive relief typically becomes moot if the event sought to be stopped with an injunction 704. Boerschig, 872 F.3d at 703 (citing Anderson v. Teco Pipeline Co., 985 S.W.2d 559, 565 (Tex.App.—San Antonio 1998)).

705. Id. 706. Id. at 704 (citing City of Tyler v. Beck, 196 S.W.3d 784, 786 (Tex. 2006)).

707. Id. 708. Id. 709. Id. 710. Id. 711. This Act prohibits federal courts from enjoining ongoing state proceedings. See 28 U.S.C. § 2283 (2012).

712. Boerschig, 872 F.3d at 704.

713. Id. 714. Id.

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occurs, an exception exists when the party that was going to be potentially enjoined goes ahead with the act with notice of the request for injunctive relief and the reviewing court can restore the original status quo.715 Here, the court noted the pipeline could be removed, restoring the land to its original condition, and thus the appeal of Boerschig before it was not moot.716 Turning to Boerschig’s argument that the district court had wrongly applied the Anti-Injunction Act before a judicial process had started in state court, the court of appeals noted that the Texas condemnation process indeed had two stages—an administrative stage possibly followed by a judicial stage and that a question may exist whether the entire Texas eminent domain scheme at issue could be considered one proceeding (administrative and judicial) or two separate proceedings (one administrative and then one judicial).717 The court side-stepped this conundrum, however, by determining that Boerschig had not satisfied the “demanding” standard for successfully seeking an injunction in the first place.718 Noting that the district court’s failure to determine whether an injunction should be issued did not preclude the court of appeals from considering the facts and equitable factors dispositive for a forthcoming injunction, the appellate court made such a determination.719 Observing that Boerschig’s challenge was one of constitutionality and was not related to the traditional factors involved with determining whether an injunction could be forthcoming (such as claims related to the actual parameters of the land or Trans-Pecos use of it), the court denied the injunction.720 The court then turned to Boerschig’s claim that Texas’ private eminent domain ability for pipelines was an unconstitutional delegation of powers to private entities.721 After considering the three private nondelegation opinions that have been handed down by the Supreme Court,722 the court found that the Texas “scheme” avoided the two pitfalls encountered in the Court’s nondelegation cases—it both imposed a standard to guide the pipelines— ”public use” was necessary for a taking—and also allowed for judicial review that could trump the pipeline’s initial determination on public use.723

715. Id. (citing Porter v. Lee, 328 U.S. 246 (1946)).

716. Id. at 704–05.

717. Id. at 705.

718. Id. at 705–06.

719. Id. at 706.

720. Id. 721. Id. at 707. In other words, a “private nondelegation” claim rooted in the Due Process Clause that stands in contrast to another type of delegation that can be found unconstitutional: delegation by Congress of its powers to executive branch agencies.

722. Carter v. Carter Coal Co., 298 U.S. 238 (1936); Seattle Title Trust Co. v. Roberge, 278 U.S. 116 (1928); Eubank v. City of Richmond, 226 U.S. 137 (1912).

723. Boerschig, 872 F.3d at 708.

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Ultimately, the court held that the Texas private eminent domain law could stand.724

724.

Id. at 709.

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THE PREPAREDNESS PIÑATA: KNOCKING OUT THE PROBLEMS IN TEXAS’S EMERGENCY MANAGEMENT LEGAL FRAMEWORK TO ENHANCE PERFORMANCE AT THE LOCAL LEVEL WILLIAM S. GRIBBLE† I. ABSTRACT ...................................................................................... 350 II. INTRODUCTION ............................................................................... 351 III. FRAMING THE ISSUE ....................................................................... 352 A. Background on Texas Emergency Management Law ............. 352 1. Texas Government Code Chapter 418 .............................. 352 2. Texas Administrative Code Title 37, Chapter 7 ................ 353 B. What Does It Look Like Today? .............................................. 354 1. The Texas Disaster Act of 1975......................................... 354 2. Formal Rules via the Texas Administrative Code ............. 355 3. Agency Explanatory Material and Compliance Manuals . 356 IV. WHAT DOES THE CURRENT SITUATION BRING TO LIGHT?............ 358 A. Narrowing and Framing the Issue? ........................................ 358 B. Exploring the Statute ............................................................... 359 C. Exploring the Agency Rules .................................................... 361 1. The Text ............................................................................. 361 2. The Analysis ...................................................................... 363 3. Conclusion ......................................................................... 364 D. What Does an Analysis of the Agency’s Material Look Like? ........................................................................................ 364 1. What is “Ad Hoc” Rulemaking? ....................................... 364 2. Evaluating TDEM Material Under an “Ad Hoc” Rulemaking Analysis ......................................................... 365 a. The Statement Element ................................................. 366 b. The Amendment or Repeal Element .............................. 367 c. The Non-Internal Element ............................................ 367 † J.D., Texas A&M University School of Law, 2017; Master of Public Administration focused in Disaster Management, American Military University, February 2014; B.S. in Emergency Administration and Planning, University of North Texas, May 2009; Certified Law Enforcement Planner, International Association of Law Enforcement Planners, 2015. The views and opinions expressed in this article are the author’s and not that of the Department of Defense or the United States Army.

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3. Ad Hoc Rulemaking Conclusion ....................................... 368 V. WHAT’S THE MATTER AND WHAT’S THE FIX? .............................. 369 A. The Impact of an Ad Hoc Rule ................................................ 369 1. Opportunity Cost and Limited Resources ......................... 369 2. The Potential Socio-Politcal Fallout................................. 370 B. What Are the Options?................... ......................................... 371 1. Solutions Common to All Courses of Action ..................... 371 2. Course of Action One: Promulgate Agency Material as Formal Rules or Legislation ............................................. 372 3. Course of Action Two: Revise TDEM’s Explanatory Material and Compliance Manuals................................... 373 4. Course of Action Three: Do Nothing ................................ 373 C. Could it be Time for a Uniform Emergency Management Code or Rules? ........................................................................ 373 VI. CONCLUSION .................................................................................. 374 I.

ABSTRACT

Texas has a very comprehensive emergency management program that should be the envy of every state in the union. However, the manner in which we as a profession have achieved this may have inadvertently circumvented the proper administrative law procedures required in Texas. This has likely caused Texas to accidently engage in ad hoc rulemaking that—if left as is— could set the conditions to create a damaging friction between the state and municipal governments. That friction would erode the interoperability necessary to protect property and to save lives during a disaster. This Article provides: (1) a brief history of the development of statutes and formal rules related to emergency management in Texas; (2) an examination of ad hoc rulemaking in Texas and how Texas Division of Emergency Management explanatory material and compliance manuals may have exceeded simply being “guidance”; and (3) solutions that may preserve interoperability within the profession and compliance with the Texas Administrative Procedures Act. Common to each solution, though, two themes develop: (1) the need for a comprehensive study on how municipalities plan, train, and prepare for disasters; and (2) the need for collaboration between the legal and emergency management professions throughout the state.

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INTRODUCTION

Emergency management in Texas follows a bottom-up approach to emergency and disaster response.1 This means everything begins and ends with a local municipality’s response capabilities. Since 1998, Texas has had more federal disaster declarations than any other jurisdiction in the United States.2 With local governments at the forefront in a seemingly disaster-prone State, it is clear why Texas wants to be disaster ready. The Texas Division of Emergency Management (“TDEM”) emphasizes that every local government in the state must be ready for a disaster.3 This has led the agency to require all municipal and county governments achieve the “Basic Level” standards for planning, training, and exercises.4 Though preparing for an emergency is right thing to do; does state statute or agency rules allow TDEM to require every municipality to have an emergency management program, whether they can afford it or not?5 This Article examines how current TDEM’s wellintended material may have exceeded the agency’s statutory authority and explores how these mandatory emergency management standards may inhibit preparedness activities in rural and smaller communities throughout the state.

1. TEX. GOV’T CODE ANN. § 418.101 (West 2016) (“Each political subdivision is . . . responsible for disaster preparedness and coordination of response.”); 37 TEX. ADMIN. CODE § 7.23 (2016) (“[A] local government is expected to use its own resources and the resources available to it through mutual aid agreements before requesting assistance from the state. Municipalities must request assistance form their county before requesting assistance from the state.”).

2. Texas has had 348 federal disaster declarations since 1988. There has been a total of 3,993 declarations for all U.S. states, territories, and federally recognized tribal governments. States have an average of seventy-one declarations each. Declarations for territories, federally recognized tribes, and affiliated states—like the Federated States of Micronesia—make up approximately 2.3% of the total declarations. These statistics include Major Disaster Declarations, Emergency Declarations, and Fire Management Assistance Grants. See Disaster Declarations by State/Tribal Government, FEMA, https://www.fema.gov/disasters/state-tribal-government/ [https://perma.cc/BN3N-SYCF] (last visited June 30, 2018).

3. See TEX. GOV’T CODE § 418.044 (West 2017) (stating that TDEM shall “take an integral part in the development and revision of local and interjurisdictional emergency management plans”).

4. TEX. DIV. OF EMERGENCY MGMT., TEX. DEPT. OF PUBLIC SAFETY, TDEM-100: PREPAREDNESS STANDARDS FOR EMERGENCY MANAGEMENT IN TEXAS 1-3 (2000) [hereinafter TEX. DIV. OF EMERGENCY MGMT, PREPAREDNESS STANDARDS] (“The Basic Level of Planning Preparedness is the minimum acceptable level of preparedness.”).

5. See generally David A. McEntire & Amy Myers, Preparing Communities for Disasters: Issues and Processes for Government Readiness, 13 DISASTER PREVENTION & MGMT.: AN INT’L J. 140 (2004) (highlighting what local governments must do to prepare for disasters and lessons learned); Laurie Pearce, Disaster Management and Community Planning, and Public Participation: How to Achieve Sustainable Hazard Mitigation, 28 NAT. HAZARDS 211, 223 (2003) (discussing how county funds used to repair damage from a landslide were more than the new town could afford).

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This Article will first provide an overview of Texas’s statutes, rules, and agency material at the heart of the matter. Next, this Article will analyze state statutes, rules, and agency material to attempt to validate a mandatory municipal emergency management program requirement. Finally, this Article concludes with a brief description of potential impacts, possible solutions, and areas for future research. This Article will specifically not assess the ability for TDEM to enforce this requirement or if it has been enforced since implantation.

III.

FRAMING THE ISSUE

To coherently frame the issue at hand, it is necessary to briefly examine how the current enabling statues and agency rules came to be.

A. Background on Texas Emergency Management Law 1. Texas Government Code Chapter 418 Emergency management in the United States did not really develop until after World War II. In 1947, the U.S. War Department6 published the Bull Report. This report was commissioned to study the role of the War Department in “Civil Defense”7 and illustrated the necessity of local governments being the first level of response, rather than the federal government.8 After publication, Congress responded by passing various statutory provisions that would lay the groundwork for the establishment of today’s Federal Emergency Management Agency.9 Texas has had a comprehensive emergency management statute since the early 1950’s.10 The adoption of the Texas Civil Protection Act in 1951 echoed the “self-help” strategy proposed by the Bull Report.11 The initial Texas statute is only four

6. The War Department (later becoming the Department of the Army) was merged together with the Navy Department in the late 1940’s to become the U.S. Department of Defense, headed by the Secretary of Defense. About the Department of Defense, U.S. DEP’T OF DEF., https://dod.defense.gov/About/ [https://perma.cc/UZ22-XRMZ] (last visited Dec. 5, 2016).

7. Civil Defense is a predecessor to today’s emergency management profession.

HOMELAND SEC. NAT’L PREPAREDNESS TASK FORCE, CIVIL DEFENSE AND HOMELAND SECURITY: A SHORT HISTORY OF NATIONAL PREPAREDNESS EFFORTS 12 (2006).

8. Id. at 6 (discussing how the War Department’s Civil Defense Board released a report finding that civil defense is primarily the responsibility of civilians and proffered that it was best implemented locally using a concept of “self-help”); see id. (noting that the board was led by Major General Harold Bull, giving the report the name of “the Bull Report”).

9. Id. 10. The Texas Civil Protection Act of 1951 was enacted on June 1, 1951. See 1951 Tex. Gen Laws 529, 531. It was later repealed and codified to its current version. See 1975 Tex. Gen. Laws 731, 740 (codified at TEX. GOV’T CODE ANN. § 418.001 (West 2017)).

11. See HOMELAND, supra note 7, at 6.

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pages long but provided the necessary statutory authority for the state, counties, and municipalities to establish a civil defense organization for their jurisdiction.12 The statute was more aspirational in that it permitted—but did not mandate—civil defense organizations at the municipal level.13 In fact, during two of Texas’s major overhauls of emergency management in the mid-1970’s, it was still optional for a municipality to have its own emergency management agency unless the governor specifically required one due to the municipality’s vulnerability.14 Municipalities were not void of having any emergency management responsibilities though. An alternative to having a civil defense or emergency management agency established was to identify a liaison to help coordinate disaster management functions within the jurisdiction.15 The only formal planning required by the Texas Legislature was for established programs.16 The purpose of the liaison was to provide a singular point of contact at the municipality for the county program to coordinate with before, during, and after a disaster.17 Subsequent legislation has brought some additions and changes to requirements and terminology; however, the changes do not substantively impact this Article’s analysis.18 2. Texas Administrative Code Title 37, Chapter 7 Agency rules play a special role in public governance. They allow for an agency to carry out a legislature’s intent by regulating an activity or a class of persons—like an occupation—within their jurisdiction.19 Unlike statutes, agency rules can be more adaptable to the changing needs of the population being regulated than what it might take to revise a statute.20 12. See generally Texas Civil Protection Act of 1951, 52d Leg., R.S., ch. 311, 1975 Tex. Gen. Laws 529, 529 (“An Act relating to the development of a civil defense and disaster relief plan for this State and its political subdivisions; granting necessary powers to State and local governments of this State to cope with emergencies threatening life and property within the State; authorizing cooperative and mutual aid agreements for relief work between this and other States; and for related purposes; and providing a means for financing of such program by counties, towns and cities; repealing all laws or parts of laws in conflict; providing a saving clause; and declaring an emergency.”).

13. Id. §§ 4(f), 6.

14. See Texas Disaster Act of 1973, 63d Leg., R.S., ch. 216, § 8(c), 1973 Tex. Gen. Laws 493, 498 (repealed 1975); Texas Disaster Act of 1975, 64th Leg., R.S., ch. 289, § 8(c), 1975 Tex. Gen. Laws 731, 738 (repealed 1987).

15. Texas Disaster Act of 1973 § 8(e); Texas Disaster Act of 1975 § 8(e).

16. See Texas Disaster Act of 1975 § 8(f)–(g).

17. See TEX. GOV’T CODE ANN. § 418.105 (West 2017).

18. Compare Texas Disaster Act of 1975, with GOV’T § 418.105.

19. PHILLIP J. COOPER, PUBLIC LAW & PUBLIC ADMINISTRATION 143 (4th ed. 2007).

20. See generally, OFFICE OF THE FED. REGISTER, A GUIDE TO THE RULEMAKING PROCESS 2–9 (2011), https://www.federalregister.gov/uploads/2011/01/the_rulemaking_process.pdf [https://perma.cc/T3VC-C9ES] (discussing the process for federal agency rulemaking and formalities required for promulgating rules which are usually more efficient than revising statutes).

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Shortly after the Civil Protection Act of 1951, the Texas Department of Public Safety adopted a set of rules similar to the statutory language, briefly outlining what disaster agencies of municipalities would be required to do if they were established.21 By 1977, Texas passed the Texas Administrative Procedures Act and implemented the Texas Administrative Code, which compiled, indexed, and published all state agency rules in the State of Texas.22 Before 1976, Texas did not require state agencies to publish rules or give public notice of them.23 With the development of the Texas Register and Texas Administrative Code, rules that had been previously promulgated by Texas agencies were transferred to the Secretary of State’s Office of the Texas Register for safekeeping, but were not necessarily included in the new Texas Administrative Code.24 The codification of the Texas Administrative Code, required that new rules be promulgated in accordance with the Administrative Procedures Act.25 The rules created by the Governor’s Division of Disaster Emergency Services—essentially TDEM’s predecessor—essentially tracked the 1970s statute in that only municipalities with disaster agencies (now called programs) were required to have a written emergency management plan and have it submitted to the state for review.26 B. What Does It Look Like Today?

1. The Texas Disaster Act of 1975 Today’s statutory guidance has expanded as needed to address new problems the emergency management profession in Texas faces. Though it is still known as the Texas Disaster Act of 1975, it has undergone several 21. See Tex. Dep’t of Pub. Safety, Rules 201.04.02.001–003 (1975). Though it is unclear if the rules that were submitted at the Texas Register’s creation were the only rules, it appears that the pre-Texas Administrative Code rules were incorporated into the final set of rules found in the 1977 Texas Administrative Code. Because of the lack of records of the rules prior to 1975, it is reasonable to presume that the filing made in 1975 by the Texas Department of Public Safety were the complete agency rules as they existed before the Disaster Acts of 1973 and 1975.

22. The Texas Administrative Code, TEX. SECRETARY OF ST., https://www.sos.state.tx.us/tac/index.shtml [https://perma.cc/2RCN-566Z] (last visited July 1, 2018).

23. THE GREENBOOK: TEXAS RULES OF FORM 93 (Texas Law Review Ass’n ed., 13th ed.

2015).

24. State agencies promulgated, codified, and maintained their own rules and were not required to give public notice, since there was no public notice requirement necessarily in place. Id. 25. Id. 26. See Tex. Dep’t of Pub. Safety, supra note 21 at 201.04.002. Compare Texas Civil Protection Act of 1951, 52nd Leg., R.S., ch. 311, §§ 4(f), 6, Tex. Sess. Law Serv. 529, 529–30 (West) (amended 2007) (current versions at TEX. GOV. CODE ANN. §§ 418.101–103 (West 2017) & 37 TEX. ADMIN. CODE §§ 7.11–12 (2018)), with Tex. Dep’t of Pub. Safety, supra note 21 at 201.04.002.

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amendments since then.27 The statutory guidance for municipalities to have emergency management programs states: “The governor shall determine which municipal corporations need emergency management programs of their own and shall recommend that they be established and maintained. The governor shall make the determinations on the basis of the municipality’s disaster vulnerability and capability of response related to population size and concentration.”28 The statute continues by requiring each emergency management agency to provide an emergency management plan in writing.29 The statute has several additional requirements including: (1) that TDEM is to assist local and county governments in developing their own emergency management programs;30 (2) county and municipal governments may participate in interjurisdictional programs;31 and (3) municipalities without an emergency management program must at least have a liaison assigned to emergency management activities.32 2. Formal Rules via the Texas Administrative Code TDEM’s formally promulgated rules in the Texas Administrative Code are expansive of the initial 1951 rules.33 The two rules setting the stage for this paper’s issue is Title 37, sections 7.1 and 7.12 of the Texas Administrative Code: Each county and incorporated city in Texas shall maintain an emergency management agency or participate in a local or interjurisdictional emergency management agency.34 ....

Each local and interjurisdictional emergency management agency shall prepare, keep current, and distribute to appropriate officials a local or interjurisdictional emergency management plan that includes the minimum content specified by the Texas Division of Emergency Management in its local emergency planning standards and has been signed by the presiding officer(s) of the jurisdiction(s) for which it was prepared.35 27. GOV’T § 418.001.

28. Id. § 418.103(a).

29. Id. § 418.106.

30. Id. § 418.044.

31. Id. § 418.104.

32. Id. § 418.105. Compare Tex. Dep’t of Pub. Safety, Rules 201.04.02.001-003 (1975), with 37 TEX. ADMIN. CODE § 7 (2016).

33. 37 TEX. ADMIN. CODE. Although double what the original rules state, the current rules do not exceed five pages.

34. 37 TEX. ADMIN. CODE § 7.1 (2016).

35. Id. § 7.12.

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One section of the Texas Administrative Code requires the applying jurisdiction to have an established emergency management program to be eligible for certain federal incentive programs.36 Under this section, each local emergency management program must: (1) be legally established; (2) have an emergency management plan that meets the planning standards for minimum content and is current; and (3) have formally adopted and be implementing the National Incident Management System.37 An argument could be made that this aspect would essentially eliminate every excuse for municipalities not to have an emergency management program. It is important to note that applying to these incentive programs are optional and financial awards made under them are often discretionary.38 This makes longterm budgeting primarily on grants an almost impossible task. Additionally, some disaster preparedness programs can impact post-disaster recovery funding—such as the National Flood Insurance Program.39 From a macro perspective, emergency management rules in the Texas Administrative Code closely track the statute—except for the program participation requirement.40 In fact, TDEM has very few formal rules in comparison to other Texas agencies and the formal emergency management rules of other disaster-prone states.41 3. Agency Explanatory Material and Compliance Manuals To supplement the formal rulemaking process, Texas agencies are allowed to issue explanatory material and compliance manuals to help regulated parties comply with laws and rules.42 Though helpful, explanatory material has sometimes led an agency to inadvertently engage in ad hoc

36. Id. § 7.13.

37. Id. There is a fourth requirement for the submission of a work plan and budget for specific projects, however, it is irrelevant to this paper’s analysis.

38. See 42 U.S.C. § 5148 (2018); see also 42 U.S.C. § 5133(b) (2018) (“The President may establish a program to provide technical and financial assistance . . . .”); 42 U.S.C. § 5196c(a) (2018) (“The Administrator of the Federal Emergency Management Agency may make grants . . . .”); St. Tammany Parish v. FEMA, 556 F.3d 307, 319 (5th Cir. 2009).

39. Communities are required to meet certain standards for planning and land use controls before the National Flood Insurance Program will issue policies in the community. 42 U.S.C. § 4022(a)(1) (2018). However, disaster relief can be unavailable in non-NFIP communities. Id. § 5154a(a). But see Nat’l Wildlife Fed’n. v. FEMA, 354 F. Supp. 2d 1151, 1157 (W.D. Wash. 2004) (noting that disaster relief is unavailable to non-NFIP communities that suffer from floods and that federally regulated banks, lenders, and agencies are prohibited from offering loans or other financial assistance for acquisition or construction in non-NFIP communities).

40. Compare TEX. GOV'T CODE ANN. §§ 418.001–.192 (West 2017), with ADMIN. § 7.13.

41. Compare ADMIN. § 7, with 25 TEX. ADMIN. CODE § 296 (2016). Texas’s Administrative Code has 18 sections for Emergency Management while California has 225, Florida has 47, Oklahoma has 45, and Washington State has 44.

42. See GOV’T §§ 2001.004, 2001.007(a)(2).

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rulemaking when the issued explanatory material creates a new rule.43 Generally, ad hoc rulemaking occurs when explanatory materials meet the definition of a rule, but does not go through the formal procedures required by the Texas Administrative Procedures Act.44 TDEM has a robust array of explanatory material, compliance resources, and job aids for emergency managers to use in the development of their local programs and plans.45 These resources range from standardized formats for emergency management planning, training, and exercises46 to guides in how to research current and pending legislation.47 The state has even published Emergency Operations Plans (“EOP”) templates for local level emergency management programs to use in developing their own plans and programs.48 These tools can be a great resource for emergency managers—who often do not serve as the emergency manager on a full-time basis—to use as a starting point in their own plans. However, like the legal world, forms and templates are only a starting point. There is no template that can replace a well-drafted and specifically tailored document which addresses the unique needs and challenges of the community.

Two of TDEM’s explanatory materials in this Article’s discussion are the Texas Emergency Management Executive Guide (“TEMEG”) and the TDEM-100: Preparedness Standards for Emergency Management in Texas (“TDEM-100”).49 The TEMEG provides a comprehensive overview of statutes and agency policies; TDEM-100 details specific emergency

43. OFFICE OF THE TEX. ATTORNEY GEN., ADMINISTRATIVE LAW HANDBOOK 50–51 (2016).

44. Recall, that a “rule” under the Texas Administrative Procedures Act is an agency statement that makes some requirement that generally applies to the regulated population beyond an agency’s internal operations and replaces or amends some previously issued rule. See GOV’T § 2001.003(6)(A)–(C).

45. See, e.g., 37 TEX. ADMIN. CODE §§ 7.1–.45 (2016).

46. TEX. DIV. OF EMERGENCY MGMT., PREPAREDNESS STANDARDS, supra note 4.

47. TEX. DIV. OF EMERGENCY MGMT., TEX. DEP’T OF PUB. SAFETY, THE PLANNER’S TOOLKIT, 2 (2014).

48. Though the webpage is no longer updated with the local emergency operations plan templates, Texas previously had all example annexes and base plans in a Microsoft Word format with notes and examples. TEX. DIV. OF EMERGENCY MGMT., TEX. DEP’T OF PUB. SAFETY, FORMS AND PUBLICATIONS, http://www.txdps.state.tx.us/dem/downloadableforms.htm#annexindex [https://perma.cc/W622-MZH5] (last visited June 26, 2018).

49. Though there are likely other relevant agency publications for this discussion, this article will focus on the TEMEG and TDEM-100. Both documents were published for use by elected leaders of and public safety practitioners within county and municipal governments throughout the State of Texas. This narrowing helps simplify this article’s analysis. See TEX. DIV. OF EMERGENCY MGMT., TEX. DEP’T OF PUB. SAFETY, TEXAS EMERGENCY MANAGEMENT EXECUTIVE GUIDE (2015) [hereinafter TEX. DIV. OF EMERGENCY MGMT, EXECUTIVE GUIDE]; see also TEX. DIV. OF EMERGENCY MGMT., PREPAREDNESS STANDARDS, supra note 4.

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management training,50 exercises, and planning standards required by the agency.51 IV.

WHAT DOES THE CURRENT SITUATION BRING TO LIGHT?

To understand the issue, we must first narrow the question to what statement TDEM has made consistently across at least two of its materials.

Once narrowed, the next step is to determine whether there is a statute or rule on point. If not, an analysis of ad hoc rulemaking is done to determine if the agency’s statement violates the Texas Administrative Procedures Act. A. Narrowing and Framing the Issue?

Comparing the explanatory material with the statute and regulations reveals that TDEM’s well-meaning actions may have amounted to ad hoc rulemaking. Though Texas statute requires that municipalities and counties participate in an emergency management program, it does not necessarily require that every municipality have their own emergency management plan.52 Even the formally promulgated rules show that not every municipality is mandated to have its own emergency management program that meets the TDEM standards.53 Consider TDEM-100 and the TEMEG. The TEMEG implies that both the Texas Government Code and Texas Administrative Code require jurisdictions to develop their own emergency operations plans to meet the agency’s standards.54 Additionally, TDEM-100 guides local emergency management programs in an emergency management program’s three main areas: (1) planning; (2) training; and (3) exercises. Each of the areas is broken down into a “basic,” “intermediate,” and “advanced” level of preparedness.

50. Though training is a relevant standard, an exploration of the statutory authority and agency rules in this area exceeds the scope of this article’s discussion.

51. See TEX. DIV. OF EMERGENCY MGMT., PREPAREDNESS STANDARDS, supra note 4; TEX. DIV. OF EMERGENCY MGMT., EXECUTIVE GUIDE, supra note 49.

52. By nearly any interpretation, counties are required to maintain an emergency management program and provide a liaison officer to work with state and federal emergency management officials. See TEX. GOV’T CODE ANN. §§ 418.102(a), 105(a), 106(a), (c) (West 2017).

53. See 37 TEX. ADMIN. CODE §§ 7.1, .12 (2016) (supporting that those who need to have a written plan in place, must have one that meets the minimum content specified by TDEM).

54. TEX. DIV. OF EMERGENCY MGMT., EXECUTIVE GUIDE, supra note 49, at 4, 6 (“In accordance with Chapter 418 of the Texas Government Code and Title 37, Part 1, Chapter 7 of the Texas Administrative Code, Texas jurisdictions develop emergency operations plans that consist of a basic plan and functional annexes and appendices.”). As identified later in this Section, the statement in the guide addressed to mayors and judges does not delineate that counties are required to have a developed emergency management program by statute, that municipalities that have emergency management agencies or programs are required to adhere to these standards, and that if an agency does not have a program or agency, they are required to participate in an interjurisdictional program.

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For planning, TDEM-100 states that: “All jurisdictions are expected to meet Basic Level planning requirements, which is the minimum acceptable level of preparedness.”55 For training, TDEM-100 outlines what kind of training is available from the state for free and what types of training individuals within the jurisdiction should have.56 For exercises, TDEM-100 states that: “All local governments and emergency management organizations are expected to achieve a Basic Level of Preparedness.”57 An exercise is intended to train personnel in emergency management duties, test and validate plans, procedures, policies, and facilities, and enhance the capabilities of an emergency or disaster response activity.58 Essentially, before a jurisdiction can have an exercise—at a very minimum—there needs to be a plan.59 By combining at least the exercise and planning components, arguably the implied requirement for each municipality to possess an emergency management program comes into existence.60 The question becomes, what is the statutory or rulemaking support for this statements?

B. Exploring the Statute The first step is to analyze the statute to determine if there is a basis for the agency’s statement in its material. Statutory interpretation begins with reading the statute as a whole and considering the plain meaning of the text and intent of the legislature.61 If the statute is clear and unambiguous on its 55. TEX. DIV. OF EMERGENCY MGMT., PREPAREDNESS STANDARDS, supra note 4, at 1-2.

The basic level of preparedness requires the basic plan and ten functional annexes to address specific situations. Id. at 1-3.These include: (A) Warning, (B) Communications, (C) Shelter and Mass Care, (E) Evacuation, (I) Public Information, (M) Resource Management, (N) Direction and Control, (O) Human Services, (Q) Hazardous Materials and Oil Spill Response, and (V) Terrorist Incident Response. Id. These requirements also meet both the federal requirement for adoption of the National Incident Management System (NIMS) and the Emergency Planning and Community Right-to-Know Act (EPCRA). Id. 56. See id. at 2-1 to 2-6.

57. See id. at 3-1, 3-3 (discussing the “Basic Level of Preparedness” requirement that an agency have one exercise annually, either table-top, operations-based functional, full-scale, or an actual event).

58. See id. at 3-1.

59. In theory, even personnel lacking formal emergency management could pick-up at least some individual position-specific skills during a disaster exercise. See Course IS-120.b: An Introduction to Exercises, FEMA EMERGENCY MGMT. INST., https://training.fema.gov/is/courseoverview.aspx?code=is-120.c [https://perma.cc/9WNU-5KZ5] (last visited July 1, 2018).

60. See generally GEORGE D. HADDOW ET AL., INTRODUCTION TO EMERGENCY MANAGEMENT 98–103 (Pamela Chester & Gregory Chalson eds., 4th ed. 2011) (illustrating the systems approach to emergency management planning involves the emergency operations plan itself, training, and exercising the plan to truly be effective).

61. See Theil v. Harris Cty. Democratic Exec. Comm., 534 S.W.2d 891, 894 (Tex. 1976) (“[Cannons of Statutory Construction] are necessarily subordinate to the plain intent of the Legislature as manifested in the clear language of statutes.”); see also Ron Beal, Statutory

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face, the interpretation stops there.62 If a statute is ambiguous or unclear, a court can help interpret a statute’s language by referring to: (1) the intent of the legislature; (2) the history of statute’s development; or (3) canons of construction.63 Considering Chapter 418 of the Texas Government Code as a whole— the Texas Disaster Act of 1975—the following sections stand out in the issue at hand: Texas Government Code Section 418.103(a): The governor shall determine which municipal corporations need emergency management programs of their own and shall recommend that they be established and maintained. The governor shall make the determinations on the basis of the municipality’s disaster vulnerability and capability of response related to population size and concentration.64 Texas Government Code Section 418.105(a): Each city that does not have a program and has not made arrangements to secure or participate in the services of an existing program shall designate a liaison officer to facilitate the cooperation and protection of the city in the work of disaster mitigation, preparedness, response, and recovery.65 Texas Government Code Section 418.106(a): Each local and interjurisdictional agency shall prepare and keep current an emergency management plan for its area providing for disaster mitigation, preparedness, response, and recovery.66 Texas Government Code Section 418.1015(a)–(c): The presiding officer of the governing body of an incorporated city or a county . . . is designated as the emergency management director for the officer’s political subdivision.

An emergency management director serves as the governor’s designated agent in the administration and supervision of duties under this chapter. An emergency management director may exercise the powers granted to the governor under this chapter on an appropriate local scale.

An emergency management director may designate a person to serve as emergency management coordinator. The emergency management coordinator shall serve as an assistant to the emergency management director for emergency management purposes.67 Construction: Texas Style, 64 BAYLOR L. REV. 339, 363–65 (2012) (using cannons of construction are inappropriate if the statute is clear and unambiguous using the plain meaning of words, defined by dictionaries of the time).

62. Beal, supra note 61, at 363–64.

63. See id. at 342.

64. TEX. GOV’T CODE ANN. § 418.103(a) (West 2017).

65. Id. § 418.105(a).

66. Id. § 418.106(a).

67. Id. § 418.1015(a)–(c).

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From these relevant sections, three major points can be drawn. First, the Texas Legislature intended every municipality of the state to be capable of handling emergencies as they come up, whether it is by having an internal program of their own or by providing a conduit for the county to do so.68 Second, unless directed, municipalities do not necessarily need to establish an emergency management program. Should a municipality establish a program, it must meet the minimum planning, exercise, and training criteria that the Texas Division of Emergency Management establishes.69 Finally, the governor—through TDEM—can require a municipality to have an emergency management program, but doing so must be for a specific reason and not be simply an arbitrary and generic requirement.70 Considering these conclusions from the four corners of the statute, the Texas Legislature did not intend to require each municipality to have its own emergency management program. The requirement to have a local emergency management program likely cannot be found in the statute.

Chapter 418 does allow TDEM to promulgate rules via the Texas Administrative Procedures Act.71 Logical progression then leads to an analysis of TDEM’s formal rules encapsulated by the Texas Administrative Code.

C. Exploring the Agency Rules Because an analysis of Chapter 418 likely reveals no statutory requirement in Texas to establish an emergency management program, the next analytical stop is TDEM’s formally promulgated rules. This Section examines relevant rules within the Texas Administrative Code.

1. The Text Similar in a statutory interpretation analysis, the first step is to analyze TDEM’s rules.

Considering the formally promulgated emergency management rules in the Texas Administrative Code72—the following sections stand out to answer this question: Each county and incorporated city in Texas shall maintain an emergency management agency or participate in a local or interjurisdictional emergency management agency.73 68. See id. §§ 418.105(a), 418.1015(a)–(c).

69. See id. §§ 418.103(a), 418.106(a).

70. See id. § 418.103(a).

71. See id. § 418.043(3), (4), (11), (12), (21).

72. These rules are found in their entirety within Title 37, Chapter 7 of the Texas Administrative Code.

73. 37 TEX. ADMIN. CODE § 7.1 (2016).

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The mayor of each municipal corporation and the county judge of each county are designated as the emergency management director for their respective jurisdictions. The mayor and county judge may each designate an emergency management coordinator who shall serve as an assistant to the presiding officer of the political subdivision for emergency management purposes when so designated.74 Each local and interjurisdictional emergency management agency shall prepare, keep current, and distribute to appropriate officials a local or interjurisdictional emergency management plan that includes the minimum content specified by the Texas Division of Emergency Management . . . .75 To participate in [Federal Incentive Programs under the Robert T. Stafford Disaster Relief and Emergency Assistance Act] a city or county must meet, as a minimum, the basic eligibility requirements of this subsection: (1) Have a local emergency management agency legally established . . . . (2) Have a local or interjurisdictional emergency management plan that meets state planning standards for minimum content and is current.76 In responding to emergencies and disasters, a local government is expected to use its own resources and the resources available to it through mutual aid agreements before requesting assistance from the state. Municipalities must request assistance from their county before requesting assistance from the state.77 Isolating an analysis to the relevant portions of the Chapter, it can be surmised that TDEM’s formal rules track very close to the statute in that: (1) every jurisdiction in Texas must participate with or have a stand-alone emergency management program; (2) programs and agencies must have a written plan that meets TDEM standards; (3) the mayor is responsible for emergency management in their jurisdiction; and (4) not participating in an emergency management program can inhibit the ability of the jurisdiction from participating in federal emergency management grant programs.78 It is important to note that the only mandatory provision in the rules comes into effect when competing for grant funding through the U.S. Department of

74. Id. § 7.2.

75. Id. § 7.12.

76. Id. § 7.13(a)(1)–(2). The other requirements include having formally adopted the National Incident Management System (NIMS) and submitting acceptable project narrative or work plan and budget for eligible activities.

77. Id. § 7.23.

78. Compare id. § 7.1, with TEX. GOV’T CODE ANN. §§ 418.101(a), 418.103, 418.104, 418.105 (West 2016) (municipalities and counties must have a program of their own or participate in an emergency management program); Compare ADMIN. § 7.2, with GOV’T § 418.1015 (mayor or county judge is the emergency management director). Compare ADMIN. CODE § 7.12, with GOV’T § 418.106(a), (c) (local planning required).

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Homeland Security and the Federal Emergency Management Agency.79 It is also important to note that grant funding is a discretionary function and may come with more unfunded mandates.80 Though this is not in the Texas statute, it is generally a condition of grant funding that an organization meet the requirements outlined in section 7.13.81 A liberal interpretation of section 7.1 might allow for the agency to require each municipality to meet the basic standards of emergency management planning and exercises since it would imply the creation of a quasi-program.

2. The Analysis Texas courts have held that an agency rule “is reasonable when it is based on some legitimate position by the agency” and is generally “in harmony with the general objectives of the enabling statute.”82 It is a rebuttable presumption that agency rules are facially valid. 83 The burden of proof is on the party challenging the rule to show that it is not.84 For a challenger to do so, he or she must show that the rule: “(1) contravenes specific statutory language, (2) is counter to the statute’s general objectives, or (3) imposes additional burdens, conditions, or restrictions in excess of or inconsistent with the relevant statutory provisions.”85 Here, it is likely that loosely construing the rule could fall in line with the Texas Disaster Act’s general objectives of providing for the cooperation and coordination of political subdivisions within the state in disaster mitigation, preparedness, response, and recovery.86 However, this interpretation would run afoul of the statute requiring the governor to base the requirement for a mandatory municipal emergency management program on the “disaster vulnerability and capability of response related to population size and concentration,”87 and that only formally established emergency 79.

80.

ADMIN. CODE § 7.13.

MARTHA DERTHICK, THE INFLUENCE OF FEDERAL GRANTS: PUBLIC ASSISTANCE IN MASSACHUSETTS 3–4 (1970).

81. See Homeland Security Presidential Directive/HSPD-5: Management of Domestic Incidents (Feb. 28, 2003), https://www.dhs.gov/sites/default/files/publications/Homeland%20Security%20Presidential%20D irective%205.pdf [https://perma.cc/AL2C-7YGY].

82. McCarty v. Tex. Parks & Wildlife Dep’t., 919 S.W.2d 853, 854 (Tex. App.—Austin 1996, no writ).

83. Id. 84. Id. 85. Ware v. Tex. Comm’n on Law Enf’t Officer Standards and Educ., No. 03–12–00740– CV, 2013 WL 2157244, at *2 (Tex. App.—Austin May 16, 2013, no pet.) (mem. op.) (citing Pub. Util. Comm'n of Tex. v. City Pub. Serv. Bd., 53 S.W.3d 310, 315–16 (Tex. 2001); Pub. Util.

Comm'n of Tex. v. GTE–Southwest, 901 S.W.2d 401, 407 (Tex.1995)).

86. See TEX. GOV’T CODE ANN. § 418.002 (West 2016).

87. Id. § 418.103(a).

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management agencies are required to “prepare and keep current an emergency management plan.”88 Municipalities without a program simply need a liaison office to be a conduit for the county program.89 Read together plainly, the statute requires that municipalities at least provide for someone to spread the word about emergency management within a community, but it does not need to be a full-fledged program with planning and exercises. Thus, such a liberal interpretation of section 7.1 would likely run afoul of the specific statutory language allowing for municipalities to be exempt from the specific requirements of a formal emergency management program.

3. Conclusion The forgoing considered; it is likely to be found clear and unambiguous that the TDEM’s formal rulemaking would not require each municipality to have its own emergency management program. State agencies are allowed to develop compliance manuals and explanatory material for its rules and enabling statutes.90 Logical progression takes us to evaluate TDEM’s explanatory material and compliance manuals.

D. What Does an Analysis of the Agency’s Material Look Like?

Finding that the enabling statute and agency’s formal rules lack a provision requiring municipal emergency management programs, the next place to evaluate is agency explanatory material and compliance manuals.

1. What is “Ad Hoc” Rulemaking?

Ad hoc rulemaking occurs when a Texas agency issues a statement or material that meets the APA’s definition of a rule but did not complete the formal rulemaking procedures required by the APA.91 Sometimes ad hoc rulemaking can occur within the statements and material lawfully issued by an agency under the APA to help the regulated population comply with a rule or statute.92 Ad hoc rulemaking is only considered “illegal” because Texas law favors adopting rules through formal rule-making procedures, ensuring

88. Id. § 418.106(a).

89. Id. § 418.105(a).

90. See id. § 2001.007(a)(2).

91. OFFICE OF THE TEX. ATTORNEY GEN., supra note 43, at 50–51; see also El Paso Hosp.

Dist. v. Tex. Health and Human Serv. Comm’n., 247 S.W.3d 709, 714 (Tex. 2008).

92. OFFICE OF THE TEX. ATTORNEY GEN., supra note 43, at 50.

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the public and affected persons have an opportunity to be heard on the matter.93 A “rule” under the Texas APA: (A) [M]eans a state agency statement of general applicability that: (i) implements, interprets, or prescribes law or policy; or (ii) describes the procedure or practice requirements of a state agency; (B) includes the amendment or repeal of a prior rule; and (C) does not include a statement regarding only the internal management or organization of a state agency and not affecting private rights or procedures.94 Simply restating an already promulgated rule does not count as ad hoc rulemaking.95 Generally, if a court finds that an agency implemented a rule without undergoing the formal rulemaking processes, a court may invalidate, enjoin enforcement, or remand the rule to the agency to meet the rulemaking requirements.96 2. Evaluating TDEM Material Under an “Ad Hoc” Rulemaking Analysis The first step in the analysis is to consider what rule is purportedly being established in the explanatory material or compliance manuals. Here, an analysis focuses on two statements made by the agency in TDEM-100: “All jurisdictions are expected to meet Basic Level planning requirements, which is the minimum acceptable level of preparedness,”97 and “all local governments and emergency management organizations are expected to achieve a Basic Level of Preparedness [in the exercise category].”98 Considered together, these functions require all municipalities in Texas to have an emergency management program or agency that can build, maintain, 93. El Paso Hosp. Dist., 247 S.W.3d at 715 (The formal rulemaking process includes: (1) providing the public notice, (2) publication of the proposed rule, and (3) public comment on the proposed rule).

94. GOV’T § 2001.003(6)(A)–(C) (West 2016); see also El Paso Hosp. Dist., 247 S.W.3d at 714.

95. See Teladoc, Inc. v. Tex. Med. Bd., 453 S.W.3d 606, 616 (Tex. App.—Austin 2014, pet. denied).

96. See GOV’T §§ 2001.035(a), 2001.040 (West 2016); see also El Paso Hosp. Dist., 247 S.W.3d at 715 (“When an agency promulgates a rule without complying with the proper rulemaking procedures, the rule is invalid.”).

97. TEX. DIV. OF EMERGENCY MGMT., PREPAREDNESS STANDARDS, supra note 4, at 1-2, 31. The basic level of preparedness requires the basic plan and ten functional annexes to address specific situations. Id. at 1-3. These include: (A) Warning, (B) Communications, (C) Shelter and Mass Care, (E) Evacuation, (I) Public Information, (M) Resource Management, (N) Direction and Control, (O) Human Services, (Q) Hazardous Materials and Oil Spill Response, and (V) Terrorist Incident Response). Id. These requirements also meet both the federal requirement for adoption of the National Incident Management System (NIMS) and the Emergency Planning and Community Right-to-Know Act (EPCRA). Id. 98. Id. at 3-1, 3-3 (discussing the “Basic Level of Preparedness” requirement that an agency have one exercise annually, either table-top, operations-based functional, full-scale, or actual event).

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test, and revise an emergency management operations plan. It was not likely the intent of the legislature that municipalities have a “boilerplate”99 emergency operations plan developed and have a “check the box” drill once a year and call it “disaster preparedness.” It would not only be meaningless to the municipality, but it would do nothing more than provide a “smoke and mirrors” effect on how ready the municipality is for a disaster. The next step is to evaluate the purported rule against the APA’s definition of a rule. a. The Statement Element The first of the three elements is whether the purported rule is a “statement [by a state agency] of general applicability that: (i) implements, interprets, or prescribes law or policy; or (ii) describes the procedure or practice requirements of a state agency.”100 A statement has “general applicability” if it “affect[s] the interest of the public at large such that they cannot be given the effect of law without public comment.”101 In one case, a letter from the Texas Medical Board warning a medical provider against a certain business practice was considered a generally applicable statement because it: (1) “implements, interprets, or prescribes law or policy”; (2) was written by the agency’s general counsel in their official capacity; and (3) “implements a broader policy judgement by the Board.”102 However, a letter from the Texas State Securities Board to a settlement company was not considered to have general applicability because it was narrowly directed at the specific type of security that was being issued by the company at that time.103 Here, both TDEM-100 and the TEMEG appear to be statements of general applicability. TDEM-100 was developed and issued by the agency’s preparedness section in June 2000 based on its authority in Chapter 418 of the Texas Government Code.104 In contrast, though, the TEMEG was actually written by the agency and addressed to the senior leaders of political subdivisions across the state and joint boards in the State of Texas and signed by the Chief of the Texas Division of Emergency Management.105 99. The term “boilerplate” is used to describe (1) “Ready-made or all-purpose language that will fit in a variety of documents” or (2) “Fixed or standardized contractual language that the proposing party views as relatively nonnegotiable.” Boilerplate, BLACK’S LAW DICTIONARY (2nd Pocket ed. 2001).

100. GOV’T § 2001.003(6)(A).

101. Teladoc, Inc. v. Tex. Med. Bd., 453 S.W.3d 606, 615 (Tex. App.—Austin 2014, pet. denied).

102. Id. at 614–15.

103. See Trinity Settlement Servs., LLC v. Tex. State Secs. Bd., 417 S.W.3d 494, 502 (Tex. App.—Austin 2013, pet. denied).

104. TEX. DIV. OF EMERGENCY MGMT, PREPAREDNESS STANDARDS, supra note 4, at i.

105. See TEX. DIV. OF EMERGENCY MGMT., EXECUTIVE GUIDE, supra note 49.

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b. The Amendment or Repeal Element The second of the three elements is that a rule “includes the amendment or repeal of a prior rule.”106 An agency’s “interpretation” or “application” of existing formally enacted rules will be held as a “rule” when they have the effect of amending existing rules or creating new rules and the other two elements of the APA’s rule definition are met.107 However, an agency statement is not a rule when it restates its own rules that had undergone the formal rulemaking procedure.108 Courts have noted that agency interpretation and application of formally promulgated rules can fall along a spectrum ranging from “amendment” to “notice.” At one end, an agency’s creation of a requirement not found in the Texas Administrative Code was found to be an amendment to the formally promulgated rules.109 On the other end of the spectrum, an agency’s informational notice on regulatory changes was substantively identical to the agency’s formally promulgated rules.110 Here, the statement made in the TEMEG at least partially contradicts both the statutory provision and formally promulgated rules on emergency management planning.111 This would likely place the statement towards the “amendment” end of the spectrum. Additionally, TDEM’s statements on planning and exercises would likely not be found as an “informational notice” because of the amount of additional matter. Specifically, the statutory provisions and formal rules on the optional aspect of having an emergency management program so long as there is a liaison, are likely contradicted by the statement.112 A similar analysis would likely place TDEM’s statement in TDEM-100 on the “amendment” end of the spectrum. c. The Non-Internal Element The final element of an APA rule is that it is not “a statement regarding only the internal management or organization of a state agency and not affecting private rights or procedures.”113 An agency’s internal operating

106. TEX. GOV’T CODE ANN. § 2001.003(6)(B) (West 2016).

107. Teladoc, Inc., 453 S.W.3d at 616.

108. Id. 109. Id. at 620.

110. Id. (citing Tex. Dep’t of Trans. v. Sunset Trans., Inc., 357 S.W.3d 691 (Tex. App—Austin 2012, no pet.)).

111. Compare TEX. DIV. OF EMERGENCY MGMT., EXECUTIVE GUIDE, supra note 49, with GOV’T § 418.106, and 37 TEX. ADMIN. CODE § 7.12 (2016).

112. Compare TEX. DIV. OF EMERGENCY MGMT., EXECUTIVE GUIDE, supra note 49, with GOV’T §§ 418.044, .101, .1015, .103, .105, .106, and ADMIN. §§ 7.1, .12, .13, .23.

113. GOV’T § 2001.003(6)(C).

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procedures, which have no legal effect on private persons, are not under the APA.114 Technically, municipalities are not an agent of the state like counties are and could be considered analogous to an individual corporation under the law.115 Municipalities have the private right—as detailed in the statute—to design how they will plan and prepare for emergencies and disasters based on the individual needs of their community while considering some minimum content required by statute.116 Because municipalities are political subdivisions and analogous to a hospital district, the agency statement could be seen as having an effect on the private rights of the municipality.117 Further, if a municipality does have the ability to establish a small emergency management program to obtain grant funding through a FEMA grant program, it could be faced with an overwhelming requirement118 of developing and maintaining an emergency operations plan at the basic level of planning or higher—depending on the grant program. Thus, a court would likely consider that the rules established by both the TEMEG and TDEM100 implicate the private rights of political subdivisions in Texas, and not merely describe internal agency operating procedure.

3. Ad Hoc Rulemaking Conclusion A court would likely conclude that the agency statements contained in both TDEM-100 and TEMEG meet all three elements of a rule under the Texas APA. If a court finds that an agency implemented a rule without undergoing the formal rulemaking processes required by the APA, it could: (1) invalidate the rule; (2) enjoin its enforcement; or (3) remand the rule to the agency and allow reasonable time for the agency to revise or formally

114. Sunset Trans. Inc., 357 S.W.3d at 703–04.

115. See TEX. CONST. art XI, § 1. See generally Lyle v. State, 193 S.W. 680, 683 (Tex. Ct. App. 1917) (noting that unlike counties, municipal corporations are a tool of self-governance rather than an agent of the state).

116. See GOV’T §§ 418.044(b), .106.

117. El Paso Hosp. Dist. v. Tex. Health and Human Serv. Comm’n., 247 S.W.3d 709, 714–15 (Tex. 2008).

118. This can be overwhelming if done properly by a small municipality’s Department of Public Safety since it could result in an increased number personnel assigned to “administrative duties” rather than public safety duties, be it patrol or response. An empirical study is needed to collect actual data and determine the “full-time equivalent” requirements each section takes to prepare, coordinate, and maintain. A “full-time equivalent” is a unit of measurement used by governmental entities—most commonly the federal government—to easily compare workload across different agencies and organizations. See OFFICE OF MGMT. AND BUDGET, EXEC. OFFICE OF THE PRESIDENT, CIRCULAR NO. A-11: PREPARATION, SUBMISSION, AND EXECUTION OF THE BUDGET 20-6 (2016).

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readopt the rule under the APA.119 Here, the court would generally have any of these options available to it.

V.

WHAT’S THE MATTER AND WHAT’S THE FIX?

Because TDEM’s statements likely amount to an ad hoc rule, what should be done? There are three different courses of action for TDEM to consider. This Section analyzes (1) the potential socio-political impact of the ad hoc rule; (2) the courses of action; and (3) whether it is time to partner with the Uniform Law Commission (“ULC”) on a uniform emergency management law for consideration by the states.

A. The Impact of an Ad Hoc Rule Though it may seem annoying, a sound legal framework can mean the difference between compliance and non-compliance. A major reason for this is simply the lack of capacity for a municipal government to accomplish every requirement thrust upon them. At some point a decision is made to prioritize some things, while de-prioritizing others.

1. Opportunity Cost and Limited Resources Economists use the term “opportunity cost” to describe the dynamic of a consumer’s “highest valued alternative that the decision maker must forego [when pursuing some goal].”120 This concept of having to prioritize and deliberately allocate more resources to one endeavor at the cost of others is most prevalent in times of fiscal austerity.121 In our resource-constrained world, at some point there are not enough hours in the day or dollars in the bank to satisfy both our wants and needs. Public entities are no different from businesses or families in this context. Public entities have an additional dynamic of managing its capacity to accomplish what its citizenry’s expectations are. One public administration scholar has defined this capacity as being “the ability of a local government to do what it wants to do [based on] community expectations, resources and problems.”122 This intersection

119. GOV’T §§ 2001.035(a), .040; El Paso Hosp. Dist., 247 S.W.3d at 715 (“When an agency promulgates a rule without complying with the proper rule-making procedures, the rule is invalid.”).

120. Gary M. Lucas, Jr., Out of Sight, Out of Mind: How Opportunity Cost Neglect Undermines Democracy, 9 N.Y.U. J. L. & LIBERTY 249, 265 (2015).

121. Id. at 271.

122. Theodore H. Poister & Robert P. McGowan, The Use of Management Tools in Municipal Government: A National Survey, 44 PUB. ADMIN. REV. 215, 215 (1984).

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of problems, expectations, and resources is largely what drives the “opportunity cost” analysis at all levels of government.123 In small and rural municipal governments, where paid employees can be incredibly outnumbered by volunteers, the concept of opportunity cost is a constant consideration. In these areas, attempts to raise revenue for city services are often met with stiff resistance from citizens or fundamental economic principles.124 This tension often forces hard decisions to be made on what the local government can and cannot do.125 Sometimes, this leads municipal leaders to take on debt with no real plan for ensuring it is only a short-term solution, essentially setting a fiscal time bomb.126 When federal, state, or county leaders impose new unfunded program requirements on these municipalities, it can disturb a delicately balanced situation.

2. The Potential Socio-Political Fallout TDEM’s requirement for municipalities to essentially have an emergency management program adds an element of disruption into an already delicately balanced fiscal and political situation. This disruption could possibly create some level of implicit or explicit disdain for the agency within the community, negatively impacting cohesiveness during a disaster response. Despite the abundance of TDEM’s technical advice, it is no replacement for someone—or a team—at the municipality taking action on the plans and advice. It could be argued that grant funding is available to help these municipalities build programs of their own. However, these programs are often sporadic in availability and often include additional compliance and reporting requirements that can sometimes offset any perceived benefit from the grant award.127 This places smaller municipalities in the position to simply do what they can, when they can to meet TDEM’s program standards because there is no real consequence for non-compliance. After all, they are only risking discretionary pre-disaster grant money. Further, should a small municipality lacking any true capacity to maintain a program find the capacity to meet TDEM’s standards even once, it will likely find their efforts in a dust covered notebook on a shelf in the breakroom.

123. UNITED NATIONS CONFERENCE ON TRADE AND DEV., PRIORITIZATION AND RESOURCE ALLOCATION AS A TOOL FOR AGENCY EFFECTIVENESS 4 (2013), http://unctad.org/meetings/en/SessionalDocuments/ciclpd20_en.pdf [https://perma.cc/CHJ72PNC].

124. Thomas W. Fletcher, What Is the Future for Our Cities and the City Manager?, 31 PUB. ADMIN. REV. 14, 17 (1971); accord Edward M. Gramlich & Harvey Galper, State and Local Fiscal Behavior and Federal Grant Policy, 1 BROOKINGS PAPERS ON ECON. ACTIVITY 15, 34–37 (1973).

125. Fletcher, supra note 124, at 17–18.

126. Lucas, supra note 120, at 279–86.

127. See Gramlich, supra note 124, at 44–45.

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Was this the legislature’s intent, though? Was it to only inject grant funding requirements and metrics into statute so that federal agencies and the public that organizations getting grants do good things? All while our overall preparedness level as a state remains unchanged? Arguably, this is not what the legislature intended.

B. What Are the Options?

The premise of the options suggested in the next Section focuses on the idea that, by discovering how small and rural municipalities currently handle emergency management, and revising legal framework to match these current practices that are scalable based on the municipality’s capacity, true efficiency and effectiveness of a local emergency management program is attainable. This Section first analyzes general concepts that are common to all courses of action. Next, each of the three different courses of action will be assessed in turn.

1. Solutions Common to All Courses of Action Common to courses of action one and two, an empirical study is needed to show the effectiveness of current program requirements and assess how municipalities of varying sizes handle emergency management tasks and needs. Some departments may feel that they are already doing the majority of the work required by meeting other standards for their field—such as the Commission on Law Enforcement Accreditation (“CLEA”) or the National Fire Protection Association (“NFPA”). A study would highlight what programmatic areas Texas municipalities are focusing their efforts towards and allow TDEM and the legislature to develop a well-thought out plan to streamline the current emergency management legal framework. This study could be done by TDEM, the Emergency Management Association of Texas, or a Texas Emergency Management Reform Task Force to assess how some of the smaller municipalities are preparing for disasters and find a way to make the emergency management program scalable using the materials and resources provided by the FEMA and three of the nation’s leading emergency management educational icons—which all happen to be in Texas.

The University of North Texas (“UNT”) has the Emergency Management and Disaster Sciences (“EMDS”) Program in Denton, Texas.

The UNT EMDS program has an established degree program in Emergency Management and Public Administration at both the undergraduate and graduate levels.128 The Texas A&M University System has the Texas A&M 128. See Emergency Administration and Planning, THE UNIV. OF N. TEX., https://publicadministration.pacs.unt.edu/programs/undergraduate/emergency-administration-and-planning

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Engineering Extension Service (“TEEX”) in College Station, Texas, Texas A&M School of Law, and the Texas A&M Forestry Service. TEEX provides numerous training courses and research for the public safety industry in Texas. In 2013, Texas A&M University acquired its new law school in Fort Worth, Texas and since then has developed a public policy program.129 The Texas A&M Forestry Service assists the state in providing training and grant programs for career and volunteer fire departments throughout the state.130 The Texas A&M School of Law Public Policy Program could be the incubator needed to lead the research and help build a collaborative relationship between the legal and emergency management professions.131 The incubation of the Texas A&M School of Law Public Policy Program could create the opportunity for TDEM, TEEX, UNT EMDS, and the Texas A&M Forestry Service to come together and develop effective emergency management policy for Texas. In reality, the only thing preventing these organizations from collaborating now is an incentive to do so.

2. Course of Action One: Promulgate Agency Material as Formal Rules or Legislation The first option is to put TDEM’s explanatory material and compliance manuals that provide guidance and standards for emergency management in Texas through the formal rulemaking process. It is unclear whether the explanatory material and compliance manuals developed were part of a collaborative effort between TDEM and professionals in the field or not. If so, it is likely that formatting the agency material into proper rules and through the APA formal rulemaking process should be a formality. If not, this would be a new opportunity for the state’s emergency management profession to have input into an updated standard. Currently, the Texas Administrative Code’s compilation of emergency management rules is incredibly short when compared to other regulations such as the Indoor Air [https://perma.cc/MQ7N-Y7GF] (last visited Dec. 5, 2016); Programs, THE UNIV. OF N. TEX., https://public-administration.pacs.unt.edu/programs [https://perma.cc/68VA-QFRR] (last visited Dec. 5, 2016).

129. See Acquisition by Texas A&M University, TEX.A&M U. SCH. OF L., https://law.tamu.edu/about-us/acquisition-by-tamu [https://perma.cc/75S8-VYBG] (last visited Dec. 5, 2016); Residency Externship Program in Public Policy, TEX. A&M U. SCH. OF L., https://law.tamu.edu/current-students/academics/centers-clinics-programs/externshipprogram/residency-externship-program [https://perma.cc/9KV5-95ZP] (last visited Dec. 5, 2016).

130. Preparing for Wildfires, TEX. A&M FORESTRY SERV., http://texasforestservice.tamu.edu/FireDepartmentPrograms/ [https://perma.cc/48RL-TRCS] (last visited Mar. 3, 2017).

131. See generally William C. Nicholson, Obtaining Competent Legal Advice: Challenges for Emergency Managers and Attorneys, 46 CAL. W. L. REV. 343, 345–46 (2010) (noting a general lack of understanding of emergency management issues and connectedness among local government attorneys, emergency management, and political leadership).

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Quality/Asbestos Health Protection Rules.132 Doing so could help streamline the requirements for emergency management programs across the state of Texas and help the state be a further example for other states to follow.

3. Course of Action Two: Revise TDEM’s Explanatory Material and Compliance Manuals The second course of action is to revise TDEM’s explanatory material and compliance manuals to make the mandatory requirements clearly aspirational unless certain conditions are met. This would likely be the expedient and cost-effective approach to remedying any ad hoc rulemaking.

In theory, a change like this could cause some municipalities to place emergency management projects lower on the list of priorities. However, public expectations and a moral duty of the municipality to prepare for disasters may mitigate this loss in stature.

4. Course of Action Three: Do Nothing The third course of action is for TDEM and the state legislature to do nothing and maintain the status quo. This would keep predictability for both the agency and jurisdictions throughout the state. However, it may not prevent the friction and socio-political consequences caused by doing so. At the very least, the recommendations common to courses of action one and two should be actioned by either the agency or the legislature.

C. Could it be Time for a Uniform Emergency Management Code or Rules?

States generally follow the same types of methods and procedures when managing emergencies and disasters.133 Though each state’s statute follows the same principals of emergency management in slightly different ways, they all accomplish the same goals. Because of this parallel among the states, and a need for synchronization across the nation, it may be an appropriate time to consider the creation of a uniform law to help achieve interoperability at the national, state, and local level during times of crisis and disaster. To be clear, a uniform law is not a “cramdown” type of law. A uniform law provides

132. There are eighteen relatively broad rules dedicated to emergency management with numerous explanatory materials published by the agency, while the Texas Asbestos Health Protection rules have very little explanatory material and seventy-one highly detailed sections.

Compare 37 TEX. ADMIN. CODE § 7 (2018), with 25 TEX. ADMIN. CODE § 295(C) (2018).

133. Compare TEX. GOV’T. CODE ANN. § 418.002 (West 2017), with CAL. GOV’T. CODE § 8550 (West 2016), and FLA. STAT. ANN. § 252.32 (West 2018), and OKLA. STAT. ANN. tit. 63, § 683.2 (West 2018).

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a well thought out baseline that can be adopted in whole, part, or rejected by any state or local government.

To explore this idea, two distinct non-governmental organizations would need to collaborate to evaluate this idea, the Uniform Law Commission (“ULC”) and the National Emergency Management Association (“NEMA”). The ULC provides states with non-partisan legislation recommendations to address critical areas of state law common across all or many states.134 Further, the ULC has already touched on a uniform emergency management law with fourteen states enacting the Emergency Volunteer Health Practitioners Act since its development in 2007.135 The NEMA is an association of state, federal, and territory emergency managers from across the United States that seeks to enhance emergency management capabilities throughout the nation.136 What is important about this organization is that it has both a Legislation and Legal Council Committee that would be best suited to partner and develop a Uniform Emergency Management Act.137 A collaborative effort between the ULC and NEMA could help launch a nationwide streamlining and synchronization of efforts between the federal-state and the state-local relationships.

VI.

CONCLUSION

The Texas Division of Emergency Management may not have intended to circumvent the Administrative Procedures Act with ad hoc rulemaking by placing the majority of its requirements and standards into explanatory material and compliance manuals. It is not a fatal error though. If properly addressed, emergency management in Texas could be streamlined and encourage more municipalities to meaningfully participate in preparedness activities, increasing the number of municipalities who meet the preparedness standards (regardless of grant funding). Though there are several courses of

134. About the ULC, UNIFORM L. COMMISSION, http://www.uniformlaws.org/Narrative.aspx?title=About%20the%20ULC [https://perma.cc/654YTH6T] (last visited Dec. 5, 2016) (the ULC is also known as the National Conference of Commissioners on Uniform State Laws).

135. Emergency Volunteer Health Practitioners, UNIFORM L. COMMISSION, http://www.uniformlaws.org/Act.aspx?title=Emergency%20Volunteer%20Health%20Practitioner s [https://perma.cc/B7G3-F32Q] (last visited Dec. 5, 2016).

136. See What is NEMA?, NAT’L EMERGENCY MGMT. ASS’N, http://nemaweb.org/index.php/about/what-is-nema [https://perma.cc/X4C9-ACYJ] (last visited Dec. 5, 2016).

137. Legal Counsel Committee, NAT’L EMERGENCY MGMT. ASS’N, http://nemaweb.org/index.php/committees/legal-counsel-committee [https://perma.cc/9ESVSGML] (last visited Dec. 5, 2016); Legislative Committee, NAT’L EMERGENCY MGMT. ASS’N, http://nemaweb.org/index.php/committees/legislative-committee [https://perma.cc/3JGW-K4NK] (last visited Dec. 5, 2016).

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action that can address the issue, common to all is a study on how many municipalities in Texas currently meet the various standards or why they do not meet the standards compared with their size, location, and resources. This information would help any prospective Texas Emergency Management Reform Task Force in developing an appropriate set of scalable standards that are achievable for even the smallest municipality. Hopefully, the solutions in this article will allow for the development of a sound legal framework for emergency management in Texas and prevent the emergency management program standards’ singular purpose from being a paperweight at municipalities and a grant funding metric for the state.

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CURRENT ISSUES UNDER THE LOUISIANA LAW OF OIL AND GAS PATRICK S. OTTINGER† “The meek shall inherit the Earth, but not its mineral rights.”1 I. INTRODUCTION ............................................................................... 378 II. CURRENT ISSUES INVOLVING MINERAL SERVITUDES ................... 379 A. Altering a Mineral Servitude’s Duration: Fixed Term or Shortening of Prescription? .................................................... 379 B. Interruption of Prescription by Good Faith Operations: Is the Test Objective or Subjective? ............................................ 384 C. Liability of Servitude Owners for Damages to Land .............. 387 D. Imprescriptible Minerals Arising Out of Expropriation ......... 390 E. Right of Servitude Owner Under Non-compliant Reservation . 394 III. CURRENT ISSUES INVOLVING MINERAL ROYALTIES ..................... 395 A. “Royalty Acres” ...................................................................... 395 B. Recent Legislation—Unsolicited Offers to Purchase Mineral Royalties (or Servitudes) ......................................................... 397 IV. CURRENT ISSUES INVOLVING MINERAL LEASES ........................... 399 A. Production in “Paying Quantities” ........................................ 399 B. “Post-production” Costs ........................................................ 401 C. Transfers—Assignment or Sublease? ..................................... 402 D. Division of Mineral Leases ..................................................... 403 E. Rights Under the Well Cost Reporting Statute........................ 406 F. Payment of Royalties Under Louisiana Risk Fee Act ............. 408 G. Does the Lessee Owe a Duty of Disclosure to its Lessor? ...... 409 H. Authorized Damages for Unpaid Royalties ............................ 411 I. Liability of Mortgagee-Bank for Faults of its MortgagorBorrower ................................................................................. 413 V. CURRENT ISSUES INVOLVING EXECUTIVE RIGHTS ........................ 418 VI. CONCLUSION .................................................................................. 420

† Adjunct Professor of Law, Paul M. Hebert Law Center, Louisiana State University. Ottinger Hebert, L.L.C., 1313 West Pinhook Road, Lafayette, Louisiana 70503 (337) 232-2606 psottinger@ohllc.com. Member of Louisiana and Texas Bars.

1. J. Paul Getty (1892-1976).

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INTRODUCTION

The issues identified herein as being “current” could just as easily be called today’s “Hot Topics in Louisiana Mineral Rights,” and, on occasion, your author will so characterize them in the pages that follow.

First, a bit of context and background is in order. As used in the jargon of the industry in Louisiana, the term “mineral rights” is usually understood to mean distinctly a mineral servitude, properly speaking.2 Hence, it is often said that the “vendor reserved his mineral rights,” when it is actually envisioned that a mineral servitude was reserved by that seller of land.

For example, the Louisiana Supreme Court in one case noted that, “[o]n March 15, 1926, the Louisiana Central Lumber Company . . . transferred the whole 80,000 acres to the Brown Paper Mill Company, reserving . . . all of the mineral rights in the land transferred.”3 In another case, the court referred to the dispute before it as involving a party’s “reserved mineral rights,” in which the plaintiffs were “seeking a declaratory judgment that the servitude created by reservations in the sale included only the right to explore for and exploit oil, gas and kindred minerals and not the right to explore for or strip mine for solid minerals such as lignite.”4 Finally, another court examined the precursor statute to Article 149 of the Louisiana Mineral Code,5 describing it as having been “enacted . . . to make imprescriptible mineral servitudes that were created when landowners reserved mineral rights in a sale of land to school boards and other named agencies of the state.”6 With the adoption of the Louisiana Mineral Code, effective January 1, 1975,7 the term “mineral rights” now embraces three distinct real rights that are classified as incorporeal immovables.8 In this regard, Article 16 of the Mineral Code provides that the “basic mineral rights that may be created by

2. See LA. REV. STAT. ANN. § 31:21 (2018) (“A mineral servitude is the right of enjoyment of land belonging to another for the purpose of exploring for and producing minerals and reducing them to possession and ownership.”); see also Patrick S. Ottinger, Mineral Servitudes, in LOUISIANA MINERAL LAW TREATISE 99 (Martin, ed., Claitor’s Law Books & Publ’n Div., Inc., 2012) [hereinafter Ottinger, Mineral Servitude Treatise].

3. Lenard v. Shell Oil Co., 29 So. 2d 844, 845 (La. 1947) (emphasis added).

4. Cont’l Grp., Inc. v. Allison, 404 So. 2d 428, 430 (La. 1981) (emphasis added).

5. LA. REV. STAT. ANN. § 31:149.

6. Anadarko Prod. Co. v. Caddo Par. Sch. Bd., 455 So. 2d 699, 700 (La. Ct. App. 1984) (emphasis added).

7. 1974 La. Acts 1.

8. LA. CIV. CODE ANN. art. 470 (2018) (“Rights and actions that apply to immovable things are incorporeal immovables. Immovables of this kind are such as personal servitudes established on immovables, predial servitudes, mineral rights, and petitory or possessory actions.”).

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a landowner are the mineral servitude, the mineral royalty, and the mineral lease.”9 There is yet another mineral right, albeit not characterized by the Code as being “basic,” making it somewhat akin to the “Uncola,” or the “other white meat” of oil and gas, both of Madison Avenue fame. That is the “executive right,” defined in Article 105 of the Code as “the exclusive right to grant mineral leases of specified land or mineral rights.”10 Mineral Code Article 16 explicitly characterizes the executive right as a mineral right, thus invoking the attributes specified in Article 16 for those interests as being “real rights [that] are subject either to the prescription of nonuse for ten years or to special rules of law governing the term of their existence.”11 Article 18 provides the further characterization of the executive right as being an incorporeal immovable that is alienable and heritable.12 Hence, in view of the foregoing, an unnecessarily longer title to this Article might be “Current Issues in Louisiana Mineral Servitudes, Mineral Royalties, Mineral Leases, and Executive Rights,” but let’s agree to simply stick with the shorter moniker, and just call it “potpourri.”13 So, we begin our journey, identifying and discussing our “current” topics, followed in each instance with a “Moral of the Story,” or “Lessons to be Learned.”

II.

CURRENT ISSUES INVOLVING MINERAL SERVITUDES

A. Altering a Mineral Servitude’s Duration: Fixed Term or Shortening of Prescription?

Louisiana is a civil law jurisdiction, in contrast to Texas and the remaining states that are based in the common law.14 Accordingly, in Louisiana, it is not possible to own or hold a so-called “mineral estate,” as such is incompatible with fundamental principles of the civil law of property, which tend toward certainty and simplicity, and which disfavor the dismemberment or fractionalization of title.15 Indeed, as long ago as 1853, 9. LA. REV. STAT. ANN. § 31:16.

10. Id. § 31:105; see PATRICK S. OTTINGER, LOUISIANA MINERAL LEASES: A TREATISE 800 (Claitor’s Law Books & Publ’n Div., Inc., 2016) [hereinafter OTTINGER, LEASES].

11. LA. REV. STAT. ANN. § 31:16.

12. Id. § 31:18.

13. THE OXFORD AMERICAN DICTIONARY AND THESAURUS 1165 (Oxford Univ. Press 2003) (“[A] musical or literary medley.”).

14. For excellent commentary on the fundamental differences between the two systems of law, see Patrick H. Martin & J. Lanier Yeates, Louisiana and Texas Oil & Gas Law: An Overview of the Differences, 52 LA. L. REV. 769, 770–71 (1992).

15. Wemple v. Nabors Oil & Gas Co., 97 So. 666, 668–69 (La. 1923) (“And we therefore conclude that there is in this state no such estate in lands as a corporeal ‘mineral estate,’ distinct

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the Louisiana Supreme Court resisted the introduction or recognition of different regimes of ownership of land, saying, as follows: The general idea of property under the Roman Law, and under our system, is that of simple, uniform and absolute dominion. The subordinate exceptions of use, usufruct and servitudes are abundantly sufficient to meet all the wants of civilization, and there is no warrant of law, no reason of policy, for the introduction of any other.16 Rather, what one might own with respect to minerals underlying the lands of another, is a “mineral servitude”17 that is subject to being extinguished if not “used” for a period of ten years.18 Utilizing a common law notion of “forever,” a mineral servitude might actually exist in perpetuity (a term that does not appear in the Louisiana Civil Code), unless ten years elapse without a “use.”19 However, in one of the few opportunities afforded contracting parties to modify the durational attributes of a mineral servitude, Article 74 of the Louisiana Mineral Code provides: Art. 74. Right to fix term or shorten prescriptive period; effect of stipulation for prescriptive period greater than ten years.20 Parties may fix the term of a mineral servitude or shorten the applicable period of prescription of nonuse or both. If a period of prescription greater than ten years is stipulated, the period is reduced to ten years.21 This limitation on contractual liberality codifies pre-code jurisprudence that disallows the creation or perpetuation of a mineral servitude for more than ten years without operations or production.22 from and independent of the surface estate; that the so-called ‘mineral estate’ by whatever term described, or however acquired or reserved, is a mere servitude upon the land in which the minerals lie, giving only the right to extract such minerals and appropriate them.”).

16. State v. Ex’rs of McDonogh’s, 8 La. Ann. 171, 251 (1853).

17. See Ottinger, Mineral Servitude Treatise, supra note 2, at 107.

18. LA. REV. STAT. ANN. § 31:27(1) (2018) (“A mineral servitude is extinguished by: (1) prescription resulting from nonuse for ten years . . . .”); see Ottinger, Mineral Servitude Treatise, supra note 2, at 107. Louisiana’s regime of prescription of nonuse is akin to a sort of statute of limitations, resulting in the termination or extinguishment of rights if no “use” is made of the mineral servitude for the pertinent period of time.

19. Id. A “use” of a mineral servitude is the drilling of a well or production. A dry hole can constitute a “use” if it meets the standards for a “good faith operation.” See infra Section II.B. 20. Id. § 31:74.

21. Id.; see Ottinger, Mineral Servitude Treatise, supra note 2, at 136.

22. See, e.g., LeBleu v. LeBleu, 206 So. 2d 551, 557 (La. App. Ct. 1967) (holding that an agreement “constitut[ed] a scheme or a device to circumvent or avoid the law and public policy of this state that a mineral servitude will be subject to the prescription of ten years, that contracts which purport to extend such a servitude for a longer period of time without use will not be enforced, and that a party cannot waive or renounce the prescription applicable to a mineral servitude before it has accrued”).

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If parties “fix the term,” the mineral servitude comes to an end upon the accrual of that stated term, even if there then exists an activity that would otherwise perpetuate the servitude.23 If, instead, parties merely “shorten the applicable period,” the mineral servitude can still be perpetuated by a use accomplished within that shorter period, and so on, but it will thereafter extinguish if the truncated time period accrues without a use.24 A few cases in recent years have taken up the issue of whether parties, in availing themselves of this right of “freedom of contract,” intended to “fix the term” of the mineral servitude, or to merely “shorten the applicable period of prescription of nonuse.”25 The case of St. Mary Operating Co. v. Champagne26 was a concursus proceeding that was filed to determine the ownership of proceeds of production allocable to a mineral servitude that had been created “for a period of ten years.”27 As stated by the court, the issue was, as follows: “Under the Louisiana Mineral Code, does the phrase in a cash sale document, ‘for a period of 10 years,’ create a fixed, ten-year term, not subject to prescription, or is this phrase a reaffirmation of the parties’ adoption of the regular tenyear prescriptive period, making it subject to interruption?”28 The trial court held that “the reservation clause in the cash sale deed reserved a servitude for a fixed term that was not subject to the rules of prescription.”29 Thus, “it could not be perpetuated beyond ten years by the good-faith exploration for minerals within the ten-year period beginning on the date the servitude was established.”30 The mineral servitude owners appealed, and the judgment of the trial court was reversed.31 The appellate court held that “[t]he phrase ‘for a period of ten years’ was a restatement of the default prescriptive period assumed into all mineral rights created in the State of Louisiana because the parties did not specifically state otherwise.”32 The court further held, as follows: The mineral servitude reserved to them in the cash sale deed is still active and valid because the ten-year prescriptive period was

23. OTTINGER, LEASES, supra note 10, at 179–80.

24. Id. at 179.

25. Id. 26. St. Mary Operating Co. v. Champagne, 945 So. 2d 846 (La. Ct. App. 2006).

27. Id. at 847; see OTTINGER, LEASES, supra note 10, at 1317–18 (explaining that a “concursus proceeding” is essentially an interpleader, brought by a stakeholder to judicially resolve competing claims to money or property).

28. St. Mary Operating, 945 So. 2d at 848.

29. Id. 30. Id. 31. Id. at 847–48.

32. Id. at 851.

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interrupted when mining activities began in March of 2003, within ten years of its creation on June 22, 1993. Accordingly, the mineral servitude will continue to exist until there is a ten-year lapse in the use of the servitude.33 At dispute in Moffett v. Barnes,34 was whether a mineral servitude was subject to a ten-year term that was “fixed.”35 The plaintiffs owned two tracts of land that they purchased from the defendants.36 The act of sale stated, “Vendor retains all oil, gas and other mineral rights in the land herein conveyed for ten (10) years.”37 The defendants granted mineral leases covering the tracts, and the lessees drilled and established production on each tract before the tenth anniversary of the plaintiffs’ purchase of the land.38 The plaintiffs argued that the act of sale’s statement that the defendants retained mineral rights “for ten (10) years” established a ten-year fixed term.39 Accordingly, the plaintiffs posited that the mineral servitudes terminated on the tenth anniversary of the act of sale, regardless of the existence of production.40 The trial court disagreed, ruling that the servitudes were not subject to a fixed term, and that prescription had been interrupted by drilling operations conducted, and production obtained, by the defendants’ lessees.41 Affirming, the appellate court stated that the act of sale’s reservation “merely confirm[ed] the normal 10-year limit for a servitude, and does not reject or renounce the normal operation of nonuse and interruption provided by the law.”42 The court rejected the plaintiffs’ contention that they should have been allowed to present evidence regarding the intent of the parties, stating that the act of sale was unambiguous, and therefore evidence of intent was not appropriate.43

33. Id. 34. Moffett v. Barnes, 149 So. 3d 475 (La. Ct. App. 2014).

35. Id. at 476.

36. Id. at 475.

37. Id. 38. Id. at 475–76.

39. Id. at 477.

40. Id. at 476; see also LA. REV. STAT. ANN. § 31:27(4) (2018) (“A mineral servitude is extinguished by . . . [the] expiration of the time for which the servitude was granted . . . .”); Ottinger, Mineral Servitude Treatise, supra note 2, at 107–08 (discussing section 31:27(4)).

41. Moffett, 149 So. 3d at 476.

42. Id. at 478.

43. Id.; see also OTTINGER, LEASES, supra note 10, at 80–83 (discussing the “parol evidence exclusionary rule”).

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Taylor v. Morris44 is a case with facts very similar to those presented in Moffett.45 However, it was decided by a different panel of the same appellate court.

This panel similarly held that an act of sale referring to a “period of ten (10) years” did not establish a fixed term, but instead merely referred to the law’s default prescriptive period.46 Notably, one judge submitted a concurring opinion stating that, under the court’s decision, “the literal words for a term period of years are being avoided and effectively interpreted out of the contract,”47 but that such a result was justified “[i]n this unusual setting.”48 The concurring judge identified two conceivable interpretations in cases under Article 74, one being the “Prescription Construction” (“the presumption that the parties were only referring in their contract to such normal prescription”),49 and the other being the “Literal Construction” (“words as literally expressing a term that could extinguish the servitude.”).50 He ordained the former as the “priority construction,” saying, as follows: “However, in the absence of such clarifying extrinsic evidence, I would hold that the near absurdity of a fixed-term mineral servitude on land, undeveloped for oil and gas, should make the Prescription Construction the priority interpretation which a court should apply.”51 While this approach would certainly be workable, it is discordant with case law that suggests that, in case of two possible constructions, the court should adopt that interpretation that tends to unburden the land.52 In a close case, the rule of interpretation is that “[d]oubt as to the existence, extent, or manner of exercise of a predial servitude shall be resolved in favor of the servient estate.”53

44. Taylor v. Morris, 150 So. 3d 952 (La. Ct. App. 2014).

45. Compare Taylor, 150 So. 3d at 953–54 (discussing a case in which plaintiffs purchased land subject to a reservation of a mineral servitude and sought a declaration that the mineral servitude expired by operation of a ten-year fixed term found in their deeds), with Moffett, 149 So. 3d at 475–76 (examining a case in which plaintiffs purchased land subject to a reservation of a mineral servitude and sought a “declaratory judgment as to the ownership of the minerals” after ten years had passed).

46. Taylor, 150 So. 3d at 958.

47. Id. at 959 (Caraway, J., concurring).

48. Id. 49. Id. at 960.

50. Id. 51. Id. at 961.

52. See, e.g., Whitehall Oil Co. v. Heard, 197 So. 2d 672, 678 (La. Ct. App. 1967) (“Ultimately, we conclude that, where the instrument could as reasonably be interpreted either way, the proper interpretation is that which least restricts the ownership of the land conveyed, as in the case of mineral servitudes.”).

53. LA. CIV. CODE ANN. art. 730 (2018) (emphasis added).

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The principal consequence of the fixing of a term is that any mineral lease granted by such servitude owner would concomitantly come to an end, regardless of the existence of a well situated on the servitude tract. This is an illustration of the important doctrine of “conditional title.”54 Moral of the Story—Lessons to be Learned If a party avails itself of one of the limited opportunities in the Mineral Code to contractually alter the intrinsic features of a mineral servitude, the scrivener should take care to express clearly the intention of the parties—that is, to expressly state whether the servitude is being subjected to a strict, fixed term, or that the prescription period is being shortened (remaining subject to the usual rules of use).55 If, for example, parties to a mineral servitude wish to use a six-year period rather than the default period of ten years, this could be accomplished by including language as simple as one or the other of the following alternative constructs, viz.: It is the intention of the parties that the prescriptive period is shortened to six years, but is otherwise subject to the usual rules of nonuse.

OR It is the intention of the parties that the reserved mineral servitude is subject to a fixed term of six years.

B.

Interruption of Prescription by Good Faith Operations: Is the Test Objective or Subjective?

Article 29 of the Mineral Code specifies that a “dry hole” may interrupt prescription if it meets the following requirements for a “good faith operation,”56 to-wit: The prescription of nonuse running against a mineral servitude is interrupted by good faith operations for the discovery and production of minerals. By good faith is meant that the operations must be (1)commenced with reasonable expectation of discovering and producing minerals in paying quantities at a particular point or depth, (2)continued at the site chosen to that point or depth, and

54. See LA. REV. STAT. ANN. § 31:117 (2018) (“A mineral lease may be granted by the owner of an executive interest whose title is extinguished at a particular time or upon the occurrence of a certain condition, but it terminates at the specified time or on occurrence of the condition divesting the title.”); see also OTTINGER, LEASES, supra note 10, at 177 (discussing section 31:117).

55. See Ottinger, Mineral Servitude Treatise, supra note 2, at 136.

56. See LA. REV. STAT. ANN. § 31:29.

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(3)conducted in such a manner that they constitute a single operation although actual drilling or mining is not conducted at all times.57 To be noted is that the requisites for “good faith” are expressed in the conjunctive, such that each distinct element must be satisfied. While elements (2) and (3) are essentially “mechanical,” and are easily discerned as having been met or not, element (1) is different in character in that it requires an evaluation of the reasonableness of the expectation of the party using the servitude.58 Concerning the element of “reasonable expectation” on the part of the party drilling the well, is this to be adjudged on an “objective” or a “subjective” basis? A recent case considered, but did not resolve, this issue.

In Indigo Minerals, LLC v. Pardee Minerals, LLC,59 a mineral servitude was created on 8,000 acres in December 1971; only four sections were at issue in the suit.60 Wells were drilled on the lands burdened by the servitude in 1980, 1989, and 1998.61 While all of the wells were dry holes, of particular relevance was the Famcor Well that was spud on December 4, 1998; drilled to a total depth of 3,563 feet before being plugged and abandoned as a dry hole on December 15, 1998.62 The surface owner, and the owner of a servitude that it later created in 2006, challenged the continued viability of the 1971 mineral servitude.63 In particular, the plaintiffs contested whether two of the dry holes, albeit timely commenced, constituted “good faith operations,” as contemplated by Article 29 of the Mineral Code.64 Defendants offered expert testimony establishing that the wells in question were drilled with a “reasonable expectation,” based essentially on a geological evaluation from distant or remote fields in which production had been obtained—in other words, objective evidence.65 Defendants did not demonstrate that the wells in the remote fields (in some cases, several

57. Id. 58. See id. § 31:42 (“Except as provided in Articles 44 through 52, use of a mineral servitude must be by the owner of the servitude, his representative or employee, or some other person acting on his behalf.”); see also Ottinger, Mineral Servitude Treatise, supra note 2, at 121 (discussing section 31:42).

59. Indigo Minerals, LLC v. Pardee Minerals, LLC, 37 So. 3d 1122 (La. Ct. App. 2010). In the interest of full disclosure, your author represented the plaintiff in this suit.

60. See id. at 1124.

61. Id. at 1124–25.

62. Id. at 1125.

63. Id. at 1124.

64. See id. at 1125.

65. See id. at 1126.

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parishes distant from the tracts involved) were geologically relevant or correlative to the lands in dispute.

Plaintiffs presented deposition testimony and documentary evidence that the driller “had evidence and knowledge in its possession at the time of the drilling of its well which demonstrated that production in the shallower formations was not expected.”66 That is to say, subjective evidence was presented in support of the parties challenging the continued existence of the mineral servitude.

After extensive discovery, cross motions for summary judgment were filed and the trial court granted the defendants’ motion for summary judgment and denied the motion by plaintiffs.67 On appeal, the Second Circuit Court of Appeal reversed the defendants’ motion for summary judgment, finding the existence of issues of fact that precluded its entry.68 At issue was whether the “reasonable expectation” standard of Article 29 is to be evaluated objectively or subjectively.69 Writs were denied by the Louisiana Supreme Court,70 and because the case was a reversal of a summary judgment and not a decision on the merits, the resolution of this important issue awaits another day.

Subsequent to this decision reversing summary judgment, certain parties (including the named plaintiff) settled and were dismissed, but the case was ultimately tried by the remaining parties who did not settle. On February 1, 2017, the jury found that the Famcor Well, drilled in December 1998, was not “a good faith operation for the discovery and production of minerals.” Since the jury accepted the plaintiffs’ subjective evidence, the case is not authority for the proposition that objective evidence would never be considered. As of the date of this Article, the case is not yet final.

Moral of the Story—Lessons to be Learned Issues not completely resolved, given the procedural context of the case, are the following: • Whether the “reasonable expectation” standard of Article 29 is to be evaluated objectively or subjectively.71 66. Id. at 1127.

67. Id. at 1126.

68. Id. at 1132 (“As to both the Sutton Well and the Famcor Well, there are genuine issues of material fact as to the reasonable expectation, at the time the wells were commenced, of discovering and producing minerals in paying quantities at the levels to which the wells were drilled.”).

69. Id. at 1128.

70. See, e.g., Indigo Minerals, LLC v. Pardee Minerals, LLC, No. 210-C-1677, 2010 La. LEXIS 2304 (La. Ct. App. Oct, 8 2010).

71. See Ottinger, Mineral Servitude Treatise, supra note 2, at 114.

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• Whether there is a presumption of good faith applicable to the activities of the servitude owner.72 • Who has the burden of proof as to compliance with the standards of Article 29?73

C.

Liability of Servitude Owner for Damages to Land

While the legal right to drill a well on a particular tract of land is indisputably granted by a mineral servitude,74 and although a landowner may drill a well on his own land in his own right,75 wells in search of oil and gas are rarely drilled on such a basis. Rather, as was aptly observed by one court: “Not one landowner in a hundred develops his own land. Even if he should be financially able to do so, not being in the oil business, he would not care to assume the risk. The usual and almost universal custom is to lease the land to an oil operator.”76 But whether a well is drilled by a mineral lessee or the mineral servitude owner, the Mineral Code recognizes a certain affirmative restoration duty as being owed by the latter to the surface owner. Thus, Article 22 of the Mineral Code provides, as follows: The owner of a mineral servitude is under no obligation to exercise it.

If he does, he is entitled to use only so much of the land as is reasonably necessary to conduct his operations. He is obligated, insofar as practicable, to restore the surface to its original condition at the earliest reasonable time.77 Case law is instructive in this regard. For example, in Dupree v. Oil, Gas & Other Minerals, Inc., a suit for damages to growing crops, roads, and culverts was brought by the surface owner against the lessors of a mineral

72. Early cases seem to suggest that the servitude owner who demonstrates the timely existence of a dry hole, is entitled to a “presumption of good faith.” Lynn v. Harrington, 192 So. 517, 519 (La. 1939) (“Taking all these things into consideration along with the legal presumption of good faith . . . .”); see also Keebler v. Seubert, 120 So. 591, 592 (La. 1929) (“There is nothing justifying the conclusion that the operations were not conducted in good faith.”); Kellogg Bros. v.

Singer Mfg. Co., 131 So. 2d 578, 580 (La. Ct. App. 1961) (“Without denying the existence of the presumption [of good faith] . . . .”). This author does not believe these cases remain authoritative for this proposition.

73. See Ottinger, Mineral Servitude Treatise, supra note 2, at 121–23.

74. See LA. REV. STAT. ANN. § 31:21 (2018); see also Ottinger, Mineral Servitude Treatise supra note 2 and accompanying text.

75. See LA. CIV. CODE ANN. art. 490 (2018) (“Unless otherwise provided by law, the ownership of a tract of land carries with it the ownership of everything that is directly above or under it. The owner may make works on, above, or below the land as he pleases, and draw all the advantages that accrue from them, unless he is restrained by law or by rights of others.”).

76. Mohawk Oil Co. v. Layne, 270 F. 851, 854–55 (W.D. La. 1921).

77. LA. REV. STAT. ANN. § 31:22.

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lease, and their lessee.78 After the lessee filed for bankruptcy, the lessee was dismissed by the plaintiff following the joinder of the owners of the mineral servitude.79 The trial court granted motions for summary judgment filed by the servitude owners on the basis that, following the execution of a mineral lease, the lessee, as the only party entitled to explore for and produce minerals, is the only party that may be liable for surface damages.80 At issue on appeal was the liability of a mineral servitude holder to the surface owner for damages caused by the former’s mineral lessee.81 The appellate court refused to excuse the servitude owners from the statutory obligation to restore the surface imposed by Article 22.82 The court reasoned that the servitude owners benefited from the lessee’s activities, which interrupted the running of prescription on the servitude only several months before its extinguishment.83 Moreover, the court noted that the mineral lease expressly obligated the lessee to indemnify the lessors for claims by the landowner, and the court refused to allow the servitude owners to benefit from the interruption of prescription while avoiding the obligations of Article 22 of the Mineral Code.84 Thus, by reversing the summary judgment in favor of the servitude owners, the court held that an owner of a mineral servitude may be liable for damages to the surface of land burdened by a mineral servitude that were caused by its lessee.85 Another court, reversing the trial court’s grant of an objection of prematurity, found “nothing in the mineral code that requires a landowner to wait until completion of all mineral production before he can bring a suit to enforce the mineral servitude’s restoration obligations.”86 Moral of the Story—Lessons to be Learned To the real estate practitioner: Did your client assume that the ownership of a mineral servitude could only be a positive thing, an asset of potential value? Was your client informed of the potentially significant—dare one say,

78.

1999).

79.

80.

81.

82.

83.

84.

85.

86.

Dupree v. Oil, Gas & Other Minerals, Inc., 731 So. 2d 1067, 1068–69 (La. Ct. App. See id.

Id. at 1069.

Id. at 1068.

Id. at 1071.

Id. See id.

Id. Crooks v. La. Pac. Corp., 155 So. 3d 686, 688 (La. Ct. App. 2014).

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catastrophic—circumstance arising out of the ownership of a mineral servitude?

Inasmuch as many mineral servitudes are held by parties who were formerly owners of the land, but who have sold the land and created a mineral servitude by reservation in the sale, the implications on the “servitude owner” could be quite extreme. In other words, a servitude owner is not always— perhaps is virtually never—a Fortune 500 company, but is an individual, a married couple, or the proverbial “Mom and Pop.” He or she who is, at one moment, the owner of the land, becomes, after the closing of the transaction, the owner of a mineral servitude (and no longer a landowner), and probably is one who was not educated or informed by the closing lawyer as to the potential consequences or exposure to the owner of the surface.

A lawyer representing a vendor of land, in which a mineral servitude is created by reservation in favor of that lawyer’s vendor client, should advise the soon-to-be servitude owner of the potential for restoration liability.

When the servitude owner grants a mineral lease, it should endeavor to exercise its right of “freedom of contact” so as to create a contractual undertaking in its favor whereby the lessee expressly obligates itself to protect the lessor by assuming its obligations to the surface owner under Article 22 of the Mineral Code, and indemnifying the lessor-servitude owner from any claims by the surface owner.87 Another “current” issue is the temporal meaning of “original condition” as used in the last sentence of Article 22 of the Mineral Code, quoted above.

That is to say, to what point in time is the land’s condition to be evaluated if E&P operations had occurred, and had been ongoing, for a period of time prior to the establishment of the mineral servitude?

A recent trial court ruling indicates that the servitude owner’s responsibility “to restore the surface to its original condition” means the condition of the property at the creation of the servitude—and not the property’s condition prior to the conduct of operations.88 In Sterling Sugars Inc. v. Amerada Hess Corp., E&P operations on the subject property had been underway and occurring more than forty years before a mineral servitude was created in 1979.89 Clearly, the condition of the property in 1979 was significantly different than the land’s condition prior to the first conduct of drilling operations on the burdened land decades before.

87. See OTTINGER, LEASES, supra note 10, at 115–20 (discussing the principle of “freedom of contract”).

88. Amended Reasons for Judgment, Sterling Sugars Inc. v. Amerada Hess Corp., No. C100091 (17th Judicial Dist. Mar. 30, 2017).

89. PXP Gulf Coast LLC and PXP La. LLC’s Memorandum at 2, Sterling Sugars Inc. v.

Amerada Hess Corp., Docket No. C-100091 (17th Judicial Dist. Mar. 30, 2017).

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The plaintiff landowner sued the present mineral servitude owner in 2012, and argued that, under Article 22, the servitude owner was required to restore the property to its “original condition” as of the 1930s—before the commencement of oil and gas operations.90 The court rejected this argument, concluding that “the phrase ‘original condition’ in Article 22 is tied to the exercise of a servitude and means the condition in which it was originally found by the servitude owner immediately before the servitude is exercised.”91 D.

Imprescriptible Minerals Arising Out of Expropriation

On first blush, amendatory legislation in 201292 would not seem to have much relevance as a “current” issue in the Louisiana law of oil and gas, or mineral rights, in that it amends certain sections of Title 19 of the Revised Statutes, Expropriation, including (relevant for our immediate purposes) Section 2 that identifies the types of juridical persons enjoying the power of expropriation.93 This Act made numerous procedural and other changes to the law of expropriation, including a change to the so-called “St. Julien Doctrine,”94 but for our immediate purposes, your author deems it appropriate to highlight only one change made to the statute.

Signed by the Governor on June 11, 2012, Act No. 702 amended Louisiana Revised Statutes Section 19:2 so as to expand the “created for” standard of eligibility for the right to expropriate, in order to now include a legal entity that is “engaged in” certain specified activities.95 We must first digress. Article 149 of the Louisiana Mineral Code deals with a mineral servitude that is not subject to the prescription of non-use.

Basically, if land is acquired by an “acquiring authority,” and the vendor reserves minerals in such transaction, the “prescription of the mineral right is interrupted as long as title to the land remains with the acquiring authority, 90. Id. 91. Amended Judgment at 1, Sterling Sugars Inc. v. Amerada Hess Corp., No. C-100091 (17th Judicial Dist. Mar. 30, 2017).

92. 2012 La. Acts 2921.

93. See id. at 2921–23. Expropriation in Louisiana-speak is condemnation or eminent domain in Texas jargon.

94. Taking its name from the decision in St. Julien v. Morgan Louisiana & Texas R.R. Co., 35 La. Ann. 924 (La. 1883), overruled by Lake, Inc. v. Louisiana Power & Light Co., 330 So. 2d 914, 917(La. 1976), this doctrine stands for the proposition that a landowner who acquiesces in the installation of facilities on its property by a party having the power of expropriation forfeits the right to demand the removal of the facilities and is relegated to a claim for money damages. This doctrine is now codified at section 19:14 of the Louisiana Statutes Annotated. LA. REV. STAT. ANN. § 19:14 (2018).

95. 2012 La. Acts 2923.

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or any successor that is also an acquiring authority.”96 As stated, these are euphemistically called “imprescriptible minerals,”97 and constitute a statutory innovation dating back to the acquisition of vast quantities of lands in the ‘30’s and ‘40’s in connection with public works projects. The statutes were intended to put Louisiana landowners on par with their Texas counterparts who had the ability—not enjoyed in Louisiana—to create a perpetual mineral estate.98 As defined in Article 149, an “acquiring authority” includes, in addition to the Federal and State governments (and certain political subdivisions thereof), “any legal entity with authority to expropriate or condemn, except an electric public utility acquiring land without expropriation.”99 Louisiana Revised Statutes Section 19:2 specifies the types of “legal entities with authority to expropriate or condemn,”100 and, hence, clarifies which non-governmental legal entities would constitute an “acquiring authority” as envisioned by Mineral Code Article 149.101 Prior to this legislation in 2012, those juridical persons included certain entities that were “created for” certain specific purposes, e.g., the construction of railroads, toll roads, or navigation canals; the construction and operation of street railways, urban railways, or inter-urban railways; the construction or operation of waterworks, filtration and treating plants, or sewerage plants to supply the public with water and sewerage; the piping and marketing of natural gas for the purpose of supplying the public with natural gas; the purpose of transmitting intelligence by telegraph or telephone; the purpose of generating, transmitting and distributing or for transmitting or distributing electricity and steam for power, lighting, heating, or other such uses, and piping and marketing of coal or lignite in whatever form or mixture convenient for transportation within a pipeline.102 In view of the foregoing, prior to 2012, it was both necessary and sufficient to examine the organizational papers of a legal entity involved in such a transaction, a legal entity being a vendee in a sale of land wherein the vendor reserves a mineral servitude, in order to determine with certainty if

96. LA. REV. STAT. ANN. § 31:149(B) (2018).

97. Id. One should note the inconsistent terminology employed in Article 149. In one instance, reference is made to the servitude’s “imprescriptibility” – that is, that it is not subject to prescription at all. In another instance, it states that the “prescription of the mineral right is interrupted as long as title to the land remains with the acquiring authority, or any successor that is also an acquiring authority,” a formulation suggestive of the notion that it is afflicted with prescription.

98. Wemple v. Nabors Oil & Gas Co., 154 La. 483, 490 (1923).

99. LA. REV. STAT. ANN. § 31:149.

100. See LA. REV. STAT. ANN. § 19:2 (2014).

101. LA. REV. STAT. ANN. § 31:149.

102. LA. REV. STAT. ANN. § 19:2.

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the legal entity had been “created for” any of the purposes enumerated in Louisiana Revised Statutes Section 19:2.

As noted, Act No. 702 of 2012 expanded the “created for” standard of eligibility for the right to expropriate, to now include a legal entity that is “engaged in” the specified activities.103 Thus, if a corporation was created “for any lawful business or activity,”104 or if a limited liability company was organized “for any lawful purpose,”105 and was not “created for” one of the enumerated purposes, but is in fact “engaged in” certain specified activities, a reservation of a mineral servitude in a sale to such entity might be imprescriptible.

Here is where the situation gets a bit unclear or complicated. Prior to the adoption of these amendments to the expropriation law, when the standard was simply whether the entity was “created for” a stated purpose, a title examiner had the actual ability to scrutinize the organizational articles,106 and make a determination as to whether the vendee was an “acquiring authority,”107 and hence, to determine if the vendor’s mineral servitude was or was not subject to prescription.

Now that the touchstone for the power of condemnation has been expanded to include an entity that is “engaged in” those specified activities, even if the entity is not explicitly “created for” such purpose, this gives rise to a factual matter not reflected by the public records and would seemingly require an inquiry as to the activities in which the entity is or has been “engaged.”

103. Id. Although section 19:2(11) describes an entity having the right to expropriate as “[a]ny domestic or foreign corporation, limited liability company, or other legal entity engaged in any of the activities otherwise provided for in this Section,” this subsection, by its explicit terms, does not reach or apply to corporations or partnerships. (emphasis added); see supra text accompanying note 97.

104. LA. REV. STAT. ANN. § 12:1-301 (2018) (“Every corporation incorporated under this Chapter has the purpose of engaging in any lawful business or activity unless a more limited purpose is set forth in the articles of incorporation.”).

105. Id. § 12:1302 (“A limited liability company may be organized under this Chapter and may conduct business for any lawful purpose, unless a more limited purpose is stated in its articles of organization.”).

106. The Model Business Corporation Act, effective January 1, 2015, has eliminated the requirement, under prior law, that the articles be filed in “the office of the recorder of mortgages of the parish in which the registered office of the corporation is located.” LA. REV. STAT. ANN. § 12:25 (repealed 2015). However, the articles would be available in the office of the Secretary of State. LA. REV. STAT. ANN. § 12:1-123 (2018).

107. See Calcasieu & S. Ry. v. Bel, 69 So. 2d 40, 42 (La. 1953) (“The plaintiff by its charter is an organization constituted under the laws of this state for the construction of a railroad, and is thus a corporation to which this article gives the right of expropriation.”) (emphasis added); Tex. E. Transmission Corp. v. Terzia, 138 So. 2d 874, 875–76 (La. Ct. App. 1962) (rejecting an argument that the plaintiff-corporation failed to prove it had right of expropriation, calling such an argument “so technical and unreasonable as to hardly be worthy of consideration”); Cent. La. Elec. Co. v.

Pugh, 96 So. 2d 523, 525–26 (La. Ct. App. 1957).

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And worse, the acquisition in question might be for purposes unrelated to the statutory activity, but if that entity is “engaged in” a prescribed activity in another parish or state (unrelated to the transaction at hand), is that sufficient to bring that transaction within the ambit of Article 149 so as to make the reserved servitude imprescriptible? Nothing in the new formulation requires that the land purchase (with attendant reservation of a mineral servitude) actually be effectuated in connection with a qualifying activity in which the vendee is then “engaged.”108 In other words, a corporation or LLC “created for” the generic purpose of engaging in “any lawful” activity or purpose might actually be “engaged in” a qualifying activity in Bossier Parish, and thereby might enjoy the power of expropriation in Terrebonne Parish, even though its activities in that latter parish (some 300 miles away) are unrelated to the conduct of “engaging in” the specified activity.

So, if one is examining title to land in that southern parish, and finds that the vendee purchased property in a deed in which the vendor reserved minerals, is the mineral servitude prescriptible or not? What inquiry must the title examiner make in order to ascertain the status or character of the reserved mineral servitude?109 Admittedly, the concern expressed herein might be assuaged somewhat by the requirement that the “instrument or judgment shall reflect the intent to reserve or exclude the mineral rights from the acquisition and their imprescriptibility as authorized under the provisions of this Section and shall be recorded in the conveyance records of the parish in which the land is located.”110 If there is no reference in the deed to the minerals’ “imprescriptibility as authorized under the provisions of this Section,” the inquiry should end there. This conclusion is reinforced by the code requirement that the “provisions of this Chapter shall not apply to . . . [a] transfer in which the acquiring authority neither expressly reserves or excludes nor conveys to the transferor a mineral right otherwise subject to prescription.”111 However, even with compliance with this requirement, it is still necessary to inquire into the underlying facts so as to determine that the vendee is in fact an “acquiring authority” by reason of the circumstance that 108. Seemingly, a large, multi-national, publicly-traded corporation might be “engaged in” the piping of natural gas in North Dakota, but not in Louisiana, and thereby qualify as an “acquiring authority” for purposes of Article 149.

109. There are sixty-four parishes in Louisiana. See About Louisiana, LOUISIANA.GOV, http://louisiana.gov/Explore/About_Louisiana/ [https://perma.cc/Z845-AVJQ] (last visited June 13, 2018).

110. LA. REV. STAT. ANN. § 31:149 (2018) (emphasis added).

111. Id.

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the vendee, while not “created for” a certain purpose, has “engaged in” a prescribed activity.

Said differently, merely stating in the deed or judgment that the reserved minerals are “imprescriptib[le] as authorized under the provisions of . . .

[Article 149],” does not make it so, unless it is actually so as a factual matter, compliant with the strictures of the relevant article.112 “Bootstrapping” is not allowed here. This legislation creates an unnecessary burden on a title examiner, and thus results in significant and unnecessary potential uncertainty in the law.

Moral of the Story—Lessons to be Learned While important, the issue is admittedly academic until 2022 which is ten years after the 2012 amendment, followed by the creation of a qualifying servitude. So, mark your calendar for then! It will be here before you know it.

If the mineral servitude has been used, the issue will still remain academic, but if the servitude is not used within ten years of its postamendment creation, in a sales transaction confected after August 1, 2012, it would be necessary to ascertain if the servitude is imprescriptible by reason of having been created in a sale of land to an “acquiring authority” that has been “engaged in” a qualifying activity.

E.

Right of Servitude Owner Under Non-Compliant Reservation

Article 11 of the Mineral Code was amended in 2006 to add Section B, requiring that language be included in a sale of land in which minerals are reserved, to essentially alert the vendee, as the new landowner subject to the vendor’s reserved mineral servitude, of the rights of the servitude owner to utilize the surface of the land.113 This requirement only applies to a mineral servitude created by reservation, but does not control if the servitude is created by grant.114 Subsection B(2) of the Article sets forth a “safe-harbor” clause that might be included to accomplish the intent of the Article.

As noted, Article 11B makes no mention whatsoever of the consequences of a failure to comply with the new requirement. Does non-

112. Id. 113. See 2006 La. Acts 1828; see also LA. REV. STAT. ANN. § 31:11 (2018) (“A reservation of mineral rights in an instrument transferring ownership of land must include mention of surface rights in the exercise of the mineral rights reserved, if not otherwise expressly provided by the parties.”).

114. See LA. REV. STAT. ANN. § 31:15 (“A landowner may convey, reserve, or lease his right to explore and develop his land for production of minerals and to reduce them to possession.”).

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compliance with the textual requirements of Article 11 mean that the reserved mineral servitude is not valid? Or might it mean that, while valid, no operations may be conducted on the surface of the burdened land?

If the vendor-servitude owner may not, for that reason, conduct operations on the surface of the burdened tract, may its lessee do so? Must the servitude owner or its lessee seek consent of the landowner to conduct operations? That this might be a concern to the lessee of such vendor is supported by the observation that one may not grant greater rights to another than it itself owns.115 Moral of the Story—Lessons to be Learned Any requirement that the servitude owner, or its lessee, must seek the permission or consent of the landowner to operate on the servitude tract is totally contrary to the essential nature of a mineral servitude, which is that the servitude owner may conduct operations on the burdened land without the need to secure the consent of the landowner.116 Indeed, the servitude itself constitutes the authority to enter the land and drill a well because that is its inherent purpose.

In the view of your author, the 2006 amendment to Article 11 was nothing more than “feel good” legislation. This author’s personal preference would be to repeal and remove that amendment, restoring Article 11 to its original verbiage, but if not, one should be mindful of the need to comply with this requirement in the preparation of a sale deed in which minerals are reserved.117 III. A.

CURRENT ISSUES INVOLVING MINERAL ROYALTIES

“Royalty Acres”

“A mineral royalty is the right to participate in production of minerals from land owned by another or land subject to a mineral servitude owned by another.”118 In contrast to a mineral servitude, a mineral royalty is a passive

115. See OTTINGER, LEASES, supra note 10, at 148–49 (discussing authority supporting the proposition that a party cannot grant, lease or convey any greater rights than it holds or owns).

116. Id. at 196; see, e.g., Peabody v. Weeks, 129 F.3d 608 (5th Cir. 1997) (“[T]he [trial] court found that Weeks had impermissibly interfered with the mineral owners’ reasonable use of the land to reach their minerals, and that their actions were ‘plainly contrary to the fundamental tenets of the Louisiana Mineral Code.’”).

117. OTTINGER, LEASES, supra note 10, at 195.

118. LA. REV. STAT. ANN. § 31:80; see Ottinger, Mineral Servitude Treatise, supra note 2, at 153.

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right, conferring on its holder the right to receive revenue in case production is obtained through the efforts and capital of others.119 Although it is more typically brought about by a sale of a mineral royalty, called a “Royalty Deed,” a mineral royalty may certainly be created by reservation.

A recurring, but regrettable, occurrence in connection with the sale of a mineral royalty is the use of the term “royalty acres.” This typically reads: “Grantor is hereby conveying twenty-two royalty acres.”

In the event of production, the interest in production to which a royalty owner is due is calculated by the operator, and is customarily expressed in decimals.120 The accepted formula to calculate a royalty interest in decimals, if one knows the number of royalty acres and the total number of acres in a tract of land, is to divide the royalty acres by the total acreage, and multiply by one-eighth (1/8).121 However, if the number of acres is shown to be inaccurate by a later survey, the royalty interest will necessarily change, thus arguably not effectuating the intention of the parties.122 Courts have recognized that “the term [royalty or] mineral acres has usage in the oil industry but does not have a simple definite meaning which is easily understood by a person who has little or no experience in the field of minerals.”123 The uncertainty of the meaning of this term often leads to conflict, in the event of production, and certainly to the need to undertake curative efforts or the institution of a concursus proceeding.124 The term “royalty acres” is often used as a “rule of thumb” basis to calculate the purchase price for the mineral royalty, such as “$200 per royalty acre.”125 Even if the term is understood by the contracting parties (which is unlikely), if it is determined that the tract involved is of a different size than the parties anticipated or believed it to be, problems may occur.126 Certainly, the expectation of one party or the other will not be achieved.127 Yet another problem is presented when the reservation of a mineral royalty in the sale of land states that the “vendor reserves all mineral

119. Spiner v. Phillips Petroleum Co., 94 F. Supp. 273, 277 (W.D. La. 1950).

120. Patrick S. Ottinger, A Dozen (or so) Oil and Gas Issues and Other Tidbits of Interest to the Real Estate Lawyer 28–29, Lafayette Bar Association CLE by the Hour (Dec. 15, 2017) [hereinafter Ottinger, Oil and Gas].

121. Id. at 29.

122. Id. 123. Light v. Crowson Well Serv., Inc., 313 So. 2d 803, 806 (La. 1975).

124. Ottinger, Oil and Gas, supra note 120, at 29.

125. Id. 126. Id. 127. Id.

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royalty.”128 This typically occurs when the scrivener takes a form of reservation of a mineral servitude (“Vendor reserves all minerals as a mineral servitude”), and merely changes the word “servitude” to “royalty.”129 The former works; the latter does not.

When the vendee who owns the rights to minerals later undertakes to grant a mineral lease, the prior recorded deed of “all” of the mineral royalty, leaves no entitlement to revenue to be enjoyed by either the lessor or its lessee.130 Moral of the Story—Lessons to be Learned This is a simple admonition: The phrase “royalty acres,” or (while we are at it) “mineral acres,” should be avoided. In like manner, one should not reserve “all” mineral royalty, as to do so necessarily withdraws the revenue feature from the rights in minerals inuring to the vendee in a sales transaction.131 B. Recent Legislation — Unsolicited Offers to Purchase Mineral Royalties (or Servitudes) In 2016, the Legislature enacted the Sale of Mineral Rights by Mail Solicitation Act.132 Brought about by abuses (perceived or actual) in the Haynesville Shale in Northwest Louisiana, this legislation creates a remedy to a landowner who sells a mineral royalty (or even a mineral servitude) to a purchaser who makes an unsolicited contact with the seller by mail.133 Experience indicates that certain companies would send out mass mailings to the parties identified on an interested party list used in connection with compulsory unitization applications.134 Anecdotally, unsophisticated parties would receive these “fancy-looking papers” in the mail, and sign and return them, thinking that they were necessary in order to place their interest in line for payment. When the sellers would later inquire of the operator as to when they would be paid, they were informed that, by signing those “fancy-looking papers,” they had divested themselves of their royalty (or worse, mineral) interest.

These unsolicited offers were typically accompanied by a draft, and a proposed deed with onerous terms, including the following, to-wit: 128.

129.

130.

131.

132.

(2018)).

133.

134.

Id. Id. Id. Id. 2016 La. Acts 911 (codified as amended at LA. REV. STAT. ANN. §§ 9:2991.1–2991.11 See LA. REV. STAT. ANN. § 9:2991.3 cmt.

LA. ADMIN. CODE tit. 43, pt. XIX, § 3907(B)(1) (2017).

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• The right of the transferee to amend the legal descriptions or other terms.

• Mandatory arbitration in state other than Louisiana.

• Choice of law in a foreign state.

• Duty on transferor to indemnify the transferee in certain respects.

• Making the transferee a mandatary for certain purposes.

Provisions of this type are now invalidated as being against public policy.135 The Act gives a right of rescission to the mail-solicited transferor, the duration of which depends on whether or not a certain disclosure is made by the transferee in the deed.136 If the instrument of transfer contains the disclosure prescribed by law,137 the transferor has sixty (60) days within which it might rescind the transaction.138 Otherwise, the offending transaction may be rescinded “within a preemptive period of three years.”139

Moral of the Story—Lessons to be Learned The Act was the result of a study committee by the Louisiana State Law Institute at the behest of the Louisiana State Senate.140 The statute explicitly excludes mineral leases as being within the ambit or scope of its features and protections.141 This is an important consideration of security of title to a lessee who otherwise would be at risk in spending significant amounts of money to drill a well on lands covered by a mineral lease granted by a lessor who had been contacted merely by mail. The legislation recognizes the need to protect third parties under the “Public Records Doctrine.”142 Upon receipt of a timely notice of rescission, the transferee must return to the transferor any royalties or other payments received by the transferee.143 Significant remedies are available to the transferor if the transferee does not comply with the transferor’s written notice of rescission.144 Included within 135. LA. CIV. CODE ANN. art. 7 (2018) (“Persons may not by their juridical acts derogate from laws enacted for the protection of the public interest. Any act in derogation of such laws is an absolute nullity.”).

136. LA. REV. STAT. ANN. § 9:2991.6.

137. Id. § 9:2991.5.

138. Id. § 9:2991.6(A).

139. Id. § 9:2991.6(B).

140. Your author served on this committee of the Louisiana State Law Institute.

141. LA. REV. STAT. ANN. § 9:2991.2 (“As used in this Part, the term ‘mineral rights’ does not include a mineral lease.”).

142. See OTTINGER, LEASES, supra note 10, at 60.

143. LA. REV. STAT. ANN. § 9:2991.9.

144. Id.

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the range of remedies is the potential for an enhanced recovery of royalties received by the transferee prior to rescission, but not restored to the transferor after a timely rescission of the transaction.145 IV. A.

CURRENT ISSUES INVOLVING MINERAL LEASES

Production in “Paying Quantities”

If a mineral lease is maintained in force and effect by production that production must be in “paying quantities.”146 This is so even if the mineral lease is silent in this regard.147 Developed jurisprudentially as a matter of public policy,148 the contours of the requirement are now codified in Article 124 of the Mineral Code that provides, as follows: When a mineral lease is being maintained by production of oil or gas, the production must be in paying quantities. It is considered to be in paying quantities when production allocable to the total original right of the lessee to share in production under the lease is sufficient to induce a reasonably prudent operator to continue production in an effort to secure a return on his investment or to minimize any loss.149 A production in “paying quantities” inquiry involves a comparison of revenue to expenses and is usually very expert-intensive.150 But what revenue, and what expenses? And for what period of time is the evaluation to be made? These significant issues are at the heart of the case.

It is appropriate to note the conflicting interests of the lessor and the lessee.151 On the one hand, the lessor will want to consider as many items of expense as possible, so as to require a greater amount of production to meet or exceed that amount.152 The lessor will also want to focus on the period of time when expenses were greater in comparison to revenue. On the other hand, the lessee will want to eliminate those items of expense that are not recurring in nature, so as to require a lesser amount of production to meet or 145. Id. § 9:2991.9(C); see infra Section IV.H as to the statutory formulation by which this remedy is provided.

146. LA. REV. STAT. ANN. § 31:124 (2018).

147. See Patrick S. Ottinger, Production in “Paying Quantities” – A Fresh Look, 65 LA. L. REV. 635, 663–64 (2005) [hereinafter Ottinger, Paying Quantities].

148. The comments to Article 124 indicate that “[t]he manner in which the test for production in paying quantities is stated in Article 124 is articulated well in the decision of the Texas Supreme Court in Clifton v. Koontz, 325 S.W.2d 684, 691 (1959) . . . .” LA. REV. STAT. ANN. § 31:124, cmt.

149. Id. § 31:124.

150. See OTTINGER, LEASES, supra note 10, at 250.

151. See id. at 250.

152. See Lege v. Lea Expl., Co., 631 So. 2d 716, 718 (La. Ct. App. 1994). In the interest of full disclosure, your author represented the defendant in this case.

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exceed that amount.153 The lessee will also want to make certain that the period of time that is studied by the court, will include periods of greater production relative to costs incurred.

The following diagram illustrates these features of the test for production in “paying quantities,” viz.:

Moral of the Story—Lessons to be Learned The “current issue” pertaining to the subject of production in “paying quantities,” is the impact of historically low commodity prices on this subject.154 Courts continue to apply the traditional tenets of this subject but remain mindful of the volatility of pricing for oil and gas as a relevant consideration.155 One of the more recent cases in this regard is Middleton v. EP Energy E&P Company, LP,156 where the court noted, as follows: In determining whether the Keatchie Well produced in paying quantities, the fact finder will need to consider all of the factors which would influence a reasonably prudent operator to continue production, including the market price available, the relative profitability of other 153. See OTTINGER, LEASES, supra note 10, at 250.

154. See Ottinger, Paying Quantities, supra note 147, at 662–63.

155. Id. 156. Middleton v. EP Energy E&P Co., 188 So. 3d 263 (La. Ct. App. 2016). In the interest of full disclosure, your author represented a defendant in this suit.

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nearby wells, the operating costs, the net income and the reasonableness of the expectation of profit.157

B.

“Post-production Costs”

This is probably the hottest of “hot topics,” due principally to the significant amounts of natural gas discovered and produced in the shale plays, particularly the Haynesville Shale in Northwest Louisiana.158 While the lessee is solely liable for all costs of exploration and production,159 the issue presented is whether the lessor has any responsibility for “post-production costs.”160 “Post-production costs” are those expenses incurred by the lessee operator after the gas is brought to the surface of the earth, and “reduced to possession” (the wellhead being the point of production), and that are necessitated in order to render the product marketable.161 Relevant in this regard is Article 7 of the Mineral Code that instructs that “[m]inerals are reduced to possession when they are under physical control that permits delivery to another.”162 This “reduction to possession” occurs at the wellhead.163 The wellhead is a device that controls the pressure of the well, and allows the operator to control the flow of the oil and gas.164 As to oil, it might be immediately directed to a tank battery. With respect to gas, it will be channeled to a pipeline. Regardless of the product, the wellhead is where the oil or gas is “reduced to possession.”165 Four things occur at the wellhead.166 First, the produced oil and gas ceases to be governed by the law of immovable property, and gains its status of mobility, becoming subject to the law of movable property.167 Secondly, under an “at the well” lease,168 the royalty interest of the lessor attaches, and 157. Id. at 267 (emphasis added).

158. See OTTINGER, LEASES, supra note 10, at 526.

159. See id.

160. See id. at 529–30.

161. See id. at 536.

162. LA. REV. STAT. ANN. § 31:7 (2018).

163. OTTINGER, LEASES, supra note 10, at 538.

164. See id. at 535.

165. Id. at 538.

166. See id. at 534.

167. Southport Petroleum Co. v. Fithian, 13 So. 2d 382, 383 (La. 1943) (“It is well settled in this State that there is no title to oil so long as it remains in the earth; consequently, no lien could attach to it as the property of anyone until it is brought to the surface, and when brought to the earth, it is clearly no part of the well.”).

168. Wall v. United Gas Public Serv. Co., 152 So. 561, 563 (La. 1934) (emphasis added) (“The reason why the division and delivery is made at the well, in cases where there is to be a division in kind, is that there is where the parties come into ownership of the commodity, there is where title

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is fixed to the oil or gas, as produced. Thirdly, the responsibility for severance taxes attaches at “severance,” which occurs at the wellhead when the production is “reduced to possession.”169 Finally, “the royalty attaching and being ‘fixed’ at that point, the ‘market value’ ‘at the well’ is applied or, if there is no value ‘at the well,’ is determined through a ‘net back,’ or ‘reconstruction,’ method of valuation, so as to ‘reverse determine’ the ‘market value at the well.’”170 Moral of the Story—Lessons to be Learned Legions could be written on this topic. The default rule in Louisiana is that the lessor’s royalty bears proportionately its share of “post-production costs,” unless the parties have agreed otherwise.171 The lessor’s responsibility for “post-production costs” is in rem only, never “out of pocket.”172 In the exercise of “freedom of contract,”173 parties might elect to include in their mineral lease a “No Deductions Clause,” but provisions of this type have been the subject of significant litigation to interpret them.174 It is the experience of your author that many operators based in Texas, but operating in Louisiana, are surprised that the “default” rule of Heritage Resources, Inc. v. NationsBank175 does not prevail in Louisiana.

C.

Transfers — Assignment or Sublease?

When a mineral lease is transferred, the transfer document is either an assignment or a sublease.176 The name affixed to the instrument is immaterial; rather, its true character is discerned from document itself.177 If the lessee conveys all of its interest in the lease, without a reservation of overriding royalty interest, or a consequential provision benefitting the vests. The lessor and lessee are vested with title to the gas at the well or in the field in the same proportion as the oil is owned.”).

169. See LA. REV. STAT. ANN. § 47:631 (2018); LA. REV. STAT. ANN. § 31:7 cmt. (2018).

170. See OTTINGER, LEASES, supra note 10, at 534.

171. Merritt v. Sw. Elec. Power Co., 499 So. 2d 210, 214 (La. Ct. App. 1986).

172. See OTTINGER, LEASES, supra note 10, at 540.

173. See id. at 115.

174. See id. at 707–08.

175. See Heritage Res., Inc. v. NationsBank, 939 S.W.2d 118, 121–22 (Tex. 1996) (finding that post-production costs may be charged to royalty owners); see also Chesapeake Expl., LLC v.

Hyder, 483 S.W.3d 870, 872–73 (Tex. 2016) (noting that royalty owners are not required to pay post-production costs where the lease clearly manifests a contrary intent).

176. See Patrick S. Ottinger, What’s in a Name? Assignments and Subleases of Mineral Leases under Louisiana Law, 58 ANN. INST. ON MIN. L. 283, 284 (2011); see also OTTINGER, LEASES, supra note 10, at 936 (emphasizing certain factors that must be considered to determine if a transfer is classified as an assignment or a sublease).

177. See OTTINGER, LEASES, supra note 10, at 932.

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transferor in terms of the future administration of the mineral lease, it is an assignment.178 However, if the lessee reserves an economic interest—most usually an ORRI—or if the lessee imposes on the transferee a consequential duty, it is a sublease.179“Every sublease is, in a sense, an assignment, but every assignment of a lease is not a sublease.”180 In contrast to other oil and gas producing states, there are an array of significant consequences arising from the distinction between an assignment and a sublease.181 These include (but are not limited to) the following, to-wit: • Warranty of grantor.

• Authority of succession representative to grant.

• Ability to grant a complete release to a landowner.

• Remedy to the grantor if purchase price not paid.

• Duties owed by the grantee to the grantor.

• Prescriptive period applicable to claim for unpaid revenue due to the grantor.

• Divisibility of the mineral lease.

Moral of the Story—Lessons to be Learned Parties preparing instruments by which a mineral lease is to be transferred should be cognizant of the consequences that might arise if the transfer is structured as an assignment or a sublease. The next section discusses one particular consequence arising out of the distinction.

D.

Division of Mineral Leases

One of the more significant “sleeper” issues arising out of the distinction between an assignment and a sublease is the potential that a mineral lease might be “divided” by a partial assignment (but not by a sublease),182 if the mineral lease contains a “Division of Rental Clause.”183

178.

179.

180.

181.

182.

183.

See id. at 994.

See id.

Smith v. Sun Oil Co., 116 So. 379, 380 (La. 1928).

See OTTINGER, LEASES, supra note 10, at 963.

See id. at 604.

See id. at 596.

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To “divide” a mineral lease is to turn one mineral lease into two or more leases, each standing alone and having separate lease maintenance obligations.184 A “Division of Rental Clause” provides, in essence, that, “[i]n the event of an assignment of the lease as to a segregated portion of the land, delay rentals shall be apportioned among the several leasehold owners according to the surface area of each, and default in payment by one shall not affect the rights of others.”185 Particularly in connection with the purchase and sale of producing mineral leases, the purchaser, in conducting its due diligence, should be mindful of this possibility, and investigate the leasehold history of the leases in order to discern if any prior partial assignment in the chain of title has resulted in lease division.186 In the seminal case on this subject,187 the court relied upon the “Division of Rental Clause” as giving rise to a division of the lease in case of a partial assignment.188 This author questions the court’s reliance on this provision to find a division, since the principal purpose of this clause is of a different focus, viz., the apportionment of delay rentals among two or more assignees of a segregated portion of the leased premises, and the consequences of default in payment by one such assignee.

The Second Circuit Court of Appeal, in Hoover Tree Farm, L.L.C. v.

Goodrich Petroleum Co.,189 seems to have embraced this observation when it noted, as follows: While the contractual provision itself [i.e., the “Division of Rental Clause”] contemplated only a type of limited lease division upon the nonpayment of a portion of the lease rentals during the primary term, both Sun Oil and Roberson without explanation interpreted the clause broadly and by implication ruled that a lease containing such provision would be divided for all purposes into two leases upon the transfer of the entirety of the leasehold rights to a specific geographical portion.

Such broad interpretation therefore moved the clause beyond merely the subject of rental payment default to effect a stringent modification of the typical habendum clause principle for maintenance of the entire 184. LA. REV. STAT. ANN. § 31:130, cmt. (2018) (“The unarticulated premise of these cases is that in the absence of such provisions the lease would be indivisible in the sense that a partial assignment would not have the effect of creating two leases where but one existed before.”).

185. See OTTINGER, LEASES, supra note 10, at 595.

186. See Patrick S. Ottinger, Closing the Deal in the Bayou State: The Purchase and Sale of Producing Oil and Gas Properties, 76 LA. L. REV. 691, 738 (2016).

187. Swope v. Holmes, 124 So. 131 (La. 1929).

188. See id. at 132.

189. Hoover Tree Farm, LLC v. Goodrich Petroleum Co., 63 So. 3d 159 (La. Ct. App. 2011).

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lease beyond the primary term by the operations and production of one well.190 In Roberson v. Pioneer Gas Co.,191 the Louisiana Supreme Court again considered the issue of whether a certain transfer was an assignment or a sublease. It articulated the following distinction between the two types of transfer, to-wit: The distinction between an assignment of a lease and a sublease is that, in an assignment, the assignor transfers his entire interest in the lease in so far as it affects the property on which the lease is assigned; whereas, in a sublease, the original lessee, or sublessor, retains an interest in the lease in so far as it affects the property subleased—by imposing some obligation upon the sublessee in favor of the sublessor, such as an obligation to pay additional rent to the sublessor.192 The mineral lease covered 125 acres, and the lessee assigned the lease as to twenty-five acres, with no reservation sufficient to render the transaction a “sublease.”193 The mineral lease contained a “Division of Rental Clause,” and the court noted that such a clause “made the lease a divisible one,” citing Swope v.

Holmes.194 Thus, the partial assignment divided the lease, and the drilling of a well on one portion of the lease did not have any effect as to the other portion of the lease.195 In Noel Estate, Inc. v. Murray,196 the plaintiff-lessor sought cancellation of mineral lease on the whole of sixty acres.197 The lessee had obtained production on ten acres, and then later assigned the lease on the other fifty acres, but no production was secured on the fifty-acre tract.198 The court canceled the lease as to the fifty-acre tract, but not as to the ten-acre tract on which a well was located, and both parties appealed.199 The mineral lease contained a clause that “recited that the rights of either party thereunder could be assigned in whole or in part.”200 By assigning the lease on the fifty-acre tract, the court held that the lessee “divided a divisible lease, creating in favor of Smith an independent lease on the north ten

190.

191.

192.

193.

194.

195.

196.

197.

198.

199.

200.

Id. at 174.

Roberson v. Pioneer Gas Co., 137 So. 46 (La. 1931).

Id. at 48.

See id. at 46.

See id. at 47.

See id. at 48.

Noel Estate, Inc. v. Murray, 65 So. 2d 886 (La. 1953).

Id. at 887.

Id. Id. Id.

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acres.”201 Production never having been obtained on fifty acres, the lease as to that tract was properly canceled.

Moral of the Story—Lessons to be Learned One should be aware of the potential of lease division, and of the consequences on lease maintenance. While Article 130 of the Louisiana Mineral Code provides that a “partial assignment or partial sublease does not divide a mineral lease,”202 it is not a statement of public policy that cannot be modified in the exercise of “freedom of contract.”

This is particularly so in the Haynesville Shale in Northwest Louisiana, in which many old mineral leases are held by production (HBP) from shallow production and have been subject to numerous instruments of transfer at various subsurface depths over many years. The potential that the rule of divisibility would be held applicable to a horizontal transfer of a mineral could lead to significant (arguably catastrophic) consequences, in that shallow production might not hold deeper rights or vice versa.203 Such a ruling would clearly result in a new “Gold Rush” as lessees would be faced with lease expiration and significant accounting issues to lessors.

E.

Rights Under the Well Cost Reporting Statute

Louisiana law is well established that an unleased mineral owner (UMO) is not entitled to share in production from a compulsory unit until the operator has been reimbursed the costs of drilling, testing, completing, equipping, and operating the unit well, out of production.204 This point of time is called “payout.”

The dilemma of the UMO is that—lacking both the staff and sophistication of an E&P company—it has no way of ascertaining when “payout” occurs for this purpose. It is often at the mercy of the operator in this regard.

The Well Cost Reporting Statute, Louisiana Revised Statutes sections 30:103.1, et seq., affords the UMO the opportunity to call upon the operator to certify as to the amount of costs being recouped, and to thereby permit it to track the status of “payout.”

201. Id. at 888.

202. LA. REV. STAT. ANN. § 31:130 (2018).

203. See, e.g., Guy v. Empress, LLC, 193 So. 3d 177, 184 (La. Ct. App. 2016) (denying a horizontal division of a mineral lease).

204. See, e.g., Patrick S. Ottinger, After the Lessee Walks Away – The Rights and Obligations of the Unleased Mineral Owner in a Producing Unit, 55 ANN. INST. ON MIN. L. 59 (2008).

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Should the operator fail to properly and timely report to the UMO, it would incur the penalty prescribed by Louisiana Revised Statutes Section 30:103.2, reading as follows: Whenever the operator or producer permits ninety calendar days to elapse from completion of the well and thirty additional calendar days to elapse from date of receipt of written notice by certified mail from the owner or owners of unleased oil and gas interests calling attention to failure to comply with the provisions of R.S. 30:103.1, such operator or producer shall forfeit his right to demand contribution from the owner or owners of the unleased oil and gas interests for the costs of the drilling operations of the well.205 What is meant by “the owner or owners of unleased oil and gas interests?” Recent litigation addresses the issue of whether the Well Cost Reporting Statute may be availed only by a UMO (one who is truly unleased to any party), or also by a mineral lessee of an interest not under lease to the operator. Recent decisions have considered this issue.

In TDX Energy, LLC v. Chesapeake Operating, Inc., the plaintiff (TDX) sued the operator, claiming the operator forfeited its rights to recover well costs by failing to provide well-cost information under the Well Cost Reporting Statute.206 TDX was a mineral lessee, not “the owner . . . of unleased oil and gas interests.”207 It was not a UMO, certainly not in the industry understanding of the term.208 The court granted Chesapeake’s motion for summary judgment, holding that the Well Cost Reporting Statute only inures to the owner of a truly unleased mineral interest, and may not be availed by a lessee under a mineral lease in which the operator owns no interest.209 The Fifth Circuit Court of Appeal reversed,210 adopting the view of a Louisiana appellate court in another case.211 In that state case, the court also held that a lessee under a mineral lease, who had no contractual relationship with the operator and who did not agree to share in the cost, risk and expense of drilling the unit well, is an owner of a valid oil, gas, or mineral lease.212 205. LA. REV. STAT. ANN. § 30:103.2 (2018) (emphasis added).

206. TDX Energy, LLC v. Chesapeake Operating, Inc., No. 13-1242, 2016 WL 1179206, at *1 (W.D. La. Mar. 24, 2016). In the interest of full disclosure, your author represented the defendant-operator in this suit.

207. Id. at *5.

208. See id. at *5–6.

209. See id. at *11.

210. TDX Energy, LLC v. Chesapeake Operating, Inc., 857 F.3d 253, 267 (5th Cir. 2017).

211. See XXI Oil & Gas, LLC v. Hilcorp Energy Co., 206 So. 3d 885 (La. Ct. App. 2016). In the interest of full disclosure, your author represented the defendant–operator in this case to prepare and prosecute a writ application to the Louisiana Supreme Court but did not represent the defendant at the trial or appellate level.

212. Id. at 888.

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Additionally, the court held that the penalty to which the non-compliant operator was subject was not limited to “the costs of the drilling operations of the well,” but also forfeited the right to recover (out of production) “the costs of ‘drilling, completing, and equipping the unit well.’”213 Moral of the Story—Lessons to be Learned It has been held that that the Well Cost Reporting Statute, being penal in nature, “should be construed strictly against the party seeking to impose the penalty.”214 This means, at a minimum, that, if two interpretations of the statute are available, the court should choose the narrow one, not an expansive interpretation. Yet, the Fifth Circuit in TDX elected to follow the XXI decision, which “followed the latter, more expansive view.”215 This is clearly contrary to the rule of strict construction of a penal statute.

Until clarification by the Louisiana Supreme Court, if your operatorclient receives a proper demand for well-cost information from a lessee, one needs to evaluate the risk of non-compliance. Prudence would suggest that failing to comply with a demand from a lessee, despite the legal arguments to the contrary, is too risky a proposition to the operator.

F.

Payment of Royalties Under Louisiana Risk Fee Act

The Louisiana Risk Fee Act, codified at Louisiana Revised Statutes Section 30:10A(2)(a), permits a party intending to drill a unit well to call upon other lessees in the unit to make an election to participate, or not, in the cost, risk and expense of the well.216 If a party does not affirmatively elect to participate, its interest would be subject to the operator’s right of recoupment of allocated expenses, plus a risk charge of 200% of certain costs.217 Prior to 2012, while the operator could recoup its cost plus the risk charge, the non-participating lessee remained solely responsible for paying its royalties “out of pocket.”218 213. Id. at 890.

214. Scurlock Oil Co. v. Getty Oil Co., 324 So. 2d 870, 877 (La. Ct. App. 1975).

215. TDX Energy, 857 F.3d at 259.

216. See Patrick S. Ottinger, It’s a Risky Business, but There’s an Act for That: The Louisiana Risk Fee Act, delivered to the 63rd Institute on Mineral Law, Paul M. Hebert Law Center, Louisiana State University, Baton Rouge, Louisiana, on March 31, 2016.

217. Id. at 29.

218. See, e.g., Gulf Explorer, LLC v. Clayton Williams Energy, Inc., 964 So. 2d 1042, 1045 (La. Ct. App. 2007) (“Clayton Williams has no contractual relationship with Gulf’s lessors; under the facts presented herein, Clayton Williams has no obligation to pay Gulf’s royalty and overriding royalty owners before it legally recoups its expenses from production pursuant to LSA-R.S. 30:10A(2)(b)(i).”).

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This changed in 2012 when significant amendments were made to the Risk Fee Act.219 The most significant—and controversial—amendment is to now impose on the operator the duty to pay royalties to the lessor(s) of the nonparticipating party.

This radical amendment upset a century’s worth of jurisprudence, and results in the diminution of the revenue stream to which the operator has historically been entitled. Worse than that, it represents a public policy that encourages, rather than discourages, a “free ride.”

In 2016, the Senate adopted a resolution calling upon the Louisiana State Law Institute to study the 2012 amendments and to make recommendations for possible repeal, amendment or clarification.220 Moral of the Story—Lessons to be Learned Stay tuned for future amendments or clarifications to the Risk Fee Act, particularly the 2012 amendments that were so controversial. If, in the meantime, your client is complying with its terms by paying the royalties for the benefit of the non-participating owner, one might evaluate the possibility of enforcing reimbursement from that lessee after payout is achieved.

Although neither recognized nor disallowed by the amendments to the Risk Fee Act, theories of recoupment do exist, but have yet to be tested.

G.

Does the Lessee Owe a Duty of Disclosure to its Lessor?

A recent case took up the issue of whether the lessee owed to its lessor a duty to disclose potential transactions with respect to the sale of its working interest.

In McCarthy v. Evolution Petroleum Corp., the lessee purchased its lessors’ royalty interest for $40,000.221 After it was publicly announced that the lessee then sold its working interest to Denbury for $50 million, the lessors sued to rescind the royalty sale based upon error or fraud.222 The trial court sustained the defendants’ peremptory exception raising the objection of

219. See 2012 La. Acts 3030.

220. S. Res. 31, 2016 Leg., 2d Extraordinary Sess. (La. 2016). Your author is serving as the Reporter for the Risk Fee Act Committee of the Louisiana State Law Institute, tasked with evaluating the legislation (particularly the 2012 amendments), and making legislative recommendations in connection therewith.

221. See McCarthy v. Evolution Petroleum Corp., 180 So. 3d 252, 255 (La. 2015). In the interest of full disclosure, your author represented certain amicus curiae in support of the defendant’s writ application in this suit.

222. See id. at 254.

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no cause of action, but the Second Circuit Court of Appeal reversed.223 After the lessor amended its petition, in response to the appellate decision, the trial court again dismissed it, granting a second objection of no cause of action.224 The Second Circuit Court of Appeal again reversed, expressing the view that the plaintiffs could allege facts supporting a “novel and untested cause of action by a mineral lessor that has never been specifically addressed and decided in our law.”225 The Louisiana Supreme Court granted the defendants’ writ application (that was supported by numerous amici briefs), reversed the appellate court, and reinstated the trial court’s dismissal of the twice-amended petition.226 The court stated: Although “[f]raud may . . . result from silence or inaction, in order to find fraud from silence or suppression of the truth, there must exist a duty to speak or to disclose information.”227 Further, the court observed that a mineral lessee’s duty “to develop and operate as a reasonably prudent operator has no component of disclosing the information about which the plaintiffs complain. . . . Certainly, the information of the lessee gained through geological data and technical developments involving the lease premises remains proprietary information.”228 Although dicta, the Louisiana Supreme court stated that a cause of action based on fraud by silence in a purchase of royalty rights by a lessee from its lessor might be sustainable if the mineral lease at issue required disclosure of pertinent information that was withheld.229 The last sentence of Article 122 allows the parties to stipulate what shall constitute reasonably prudent conduct on the part of the lessee.230 The Louisiana Supreme Court noted that the lessor could expand on the lessee’s duties so as to include a duty to disclose information, but it did not do so in this case.231

223. McCarthy v. Evolution Petroleum Corp., 111 So. 3d 446, 449 (La. Ct. App. 2013), rev’d, 180 So. 3d 252 (La. 2015).

224. McCarthy, 180 So. 3d at 255.

225. McCarthy v. Evolution Petroleum Corp., 151 So. 3d 148, 159–60 (La. App. Ct. 2014), rev’d, 180 So. 3d 252 (La. 2015).

226. McCarthy, 180 So. 3d at 253.

227. Id. at 258 (internal quotations omitted) (quoting Greene v. Gulf Coast Bank, 593 So. 2d 630, 632 (La. 1992)).

228. McCarthy, 180 So. 3d at 259.

229. Id. at 262.

230. LA. REV. STAT. ANN. § 31:122 (2018) (“Parties may stipulate what shall constitute reasonably prudent conduct on the part of the lessee.”).

231. McCarthy, 180 So. 3d at 258.

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Moral of the Story—Lessons to be Learned It is often stated that “bad facts make bad law.” The facts of this case come very close to embracing that tenet. Purchasing its lessor’s royalty position is rarely a good idea on the part of the lessee. Certainly, under all circumstances, the lessee must be truthful and candid with its lessor so as to avoid misunderstandings such as led to this litigation.

H.

Authorized Damages for Unpaid Royalties232

Several articles of the Louisiana Mineral Code provide authority for the award, in a suit for nonpayment of royalties, of damages double the amount of royalties owed.233 In Article 138.1, the award of “double damages” is mandatory (“the court shall award”), while, in all other articles, it is permissive (“the court may award”).234 With respect to those articles stating that the court “may award” damages, the courts have recognized that the award of damages is discretionary, and not mandatory.235 One court has stated that, “generally, such a maximum penalty should be reserved for the most blameworthy conduct.”236 Where the award of double damages addresses itself to the discretion on the part of the court as set forth in Articles 139, 140 and 212.23 of the Mineral Code, each providing that the “court may award as damages double the amount of royalties due,” the court’s discretion pertains to whether damages will be awarded at all, as well as to the amount of the award, which should be capped at double the amount due.

Prior to the decision of the Louisiana Supreme Court in Gloria’s Ranch,237 an unsettled issue was whether the Mineral Code envisions a maximum award of “double,” or actually “treble,” the amount of unpaid

232. The following is an adaptation of OTTINGER, LEASES, supra note 10, at 1249.

233. Id. 234. Id.; see also LA. REV. STAT. ANN. § 1:3 (2018) (“The word ‘shall’ is mandatory and the word ‘may’ is permissive.”)

235. OTTINGER, LEASES, supra note 10, at 1249; see, e.g., Matthews v. Sun Expl. & Prod.

Co., 521 So. 2d 1192, 1196 (La. App. Ct. 1988) (“LSA-R.S. 31:140 provides the trial court with great discretion in awarding damages. It does not mandate that any award be given in excess of the royalties due.”); Wegman v. Cent. Transmission, Inc., 499 So. 2d 436, 451 (La. App. Ct. 1986) (“Under R.S. 31:140 if the lessee fails to pay royalties due or fails to inform the lessor of a reasonable cause for failure to pay in response to the required notice, the court may award as damages double the amount of royalty due. Hence the award is discretionary.”).

236. Samson Contour Energy E & P, L.L.C. v. Smith, No. 49,494-CA, No. 49,495-CA, 2015 La. App. LEXIS 1180, at *3 (La. App. Ct. June 10, 2015) (emphasis omitted).

237. Gloria’s Ranch, L.L.C. v. Tauren Expl., Inc., 2017-C-1518 C/W 2017-C-1519 C/W 2017-C-1522, 2018 La. LEXIS 1694 (La. June 27, 2018).

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royalties as damages. One school of thought was that the lessor is always entitled to its unpaid royalties, and the award of “double the amount of royalties due” is in addition to the royalties which are due, such that, in essence, the lessor might recover three times the royalties due.

While many courts have interpreted the codal provisions as authorizing, in essence, “treble” damages, Justice Knoll, in a dissenting opinion, expressed a contrary view.

Thus, in Cimarex Energy Co. v. Mauboules,238 Justice Knoll offered the following view on this issue, to-wit: The trial court awarded Orange River unpaid royalties of approximately $3.2 million dollars, plus statutory damages of approximately $6.4 million dollars. The court held Mineral Code art.

212.23(B), which allows an award of “damages double the amount due,” permits a court to award both the unpaid royalties and penalty damages in the amount of double the unpaid royalties, thereby effectively trebling the damages award. I would reverse the damages award as excessive.

The far more natural reading of article 212.23(B) is to permit the plaintiff a total award of double the amount of unpaid royalties. As a simplified example, if the unpaid royalties total $100, the court has discretion to “double” the award by adding an additional $100 in statutory damages, for a total of $200.

If the Legislature had intended article 212.23(B) to permit a treble damages award, it would have said so. Several Louisiana statutes unambiguously permit an award of treble damages. This is not one of them. Moreover, as Mineral Code article 212.23(B) is in the nature of a penal statute, it must be strictly construed in favor of the defendant. . . . I would remand for a recalculation of damages consistent with the statute.239 Justice Knoll gave numerous examples of “[s]everal Louisiana statutes [which] unambiguously permit an award of treble damages,”240 to indicate that the Legislature is fully aware as to how to provide for such recovery, if that were its intention in adopting these provisions of the Louisiana Mineral Code.241 238. Cimarex Energy Co. v. Mauboules, 40 So. 3d 931 (La. 2010).

239. Id. at 952.

240. Id. 241. See id. at 952 n.9 (“La. Rev. Stat. § 3:4278.1 (Unlawful cutting of timber leads to damages “for three times the fair market value of the trees cut”); LA. REV. STAT. § 22:1023(F) (permitting “treble damages” for unlawful disclosure of private genetic information); LA. REV. STAT. § 30:2027 (Employee may recover “triple damages” for retaliatory termination for environmental whistleblowing); LA. REV.STAT. § 39:2163 (Employee may recover “treble damages” for retaliatory termination for uncovering employers’ fraud in claiming hurricane relief monies); LA. REV. STAT. § 51:444 (Sales representative may recover “treble damages” for

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The decision in Gloria’s Ranch, discussed in Part IV.H hereof, also concerned the issue of the proper interpretation of “double damages” as a remedy for unpaid royalties, and now resolves the conflicting view on the topic. The court has now clarified this issue, holding, as follows: Based on this generally accepted definition of damages as compensation for the loss sustained, we interpret La. Mineral Code art.

140 as authority to award up to double the amount of royalties due.

Clearly, an award of the amount of royalties due is the compensation for the failure to perform that obligation. The use of the permissive word “may” gives the court the authority to double that amount if the court, in its discretion, finds the defendant’s conduct so warrants. A contrary reading that assumes the unpaid royalties are something separate from “damages” ignores the plain meaning of the word “damages.” We do not believe the law, as written, leads to any absurd results, and, thus, we conduct no further investigation as to the legislative intent. Accordingly, we amend the judgment to reflect that the damages due under La. Mineral Code art. 140 are equivalent to two times the amount of royalties due ($242,029.26 x 2 = $484,058.52).242 Moral of the Story—Lessons to be Learned In a case involving a suit by a lessor against its lessee for damages for non-payment of royalty, the Louisiana Supreme Court has now clarified that the statutory scheme set forth in the Mineral Code contemplates a potential recovery of twice, rather than thrice, the amount of royalties due.

I. Liability of Mortgagee-Bank for Faults of its Mortgagor-Borrower Energy lenders to the upstream sector released a collective sigh of relief, thanks to the Louisiana Supreme Court. In a highly anticipated ruling, the court, on June 27, 2018, reversed the controversial decision of the Second Circuit Court of Appeal, in Gloria’s Ranch v. Tauren Exploration.243 The underlying operative facts in the case are not particularly controversial or unusual for a case arising out of Haynesville Shale formation, but the ruling of the trial court, as modified and affirmed by the

nonpayment of commissions). LA. REV. STAT. § 51:1409 (Permitting recovery of “three times the actual damages sustained” in unfair trade practice claim.).”).

242. Gloria’s Ranch, 2018 La. LEXIS 1694, at *32–33.

243. Id. at *35. In the interest of full disclosure, your presenter represented American Bankers Association and Texas Bankers Association as Amici Curiae in support of Wells Fargo’s position.

Brief for Am. Bankers Ass’n & Tex. Bankers Ass’n as Amici Curiae Supporting Applicants, Gloria’s Ranch, L.L.C. v. Tauren Expl., Inc., No. 2017-C-1519, 2018 WL 1950804 (La. Jan. 24, 2018).

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appellate court, was both extreme and unprecedented in Louisiana law. It certainly was problematic, and a cause for significant concern to the energy lending industry.

The basic facts are these. Three companies held the mineral lease granted by Gloria’s Ranch: Cubic Energy, Inc. (Cubic), Tauren Exploration, Inc. (Tauren), and EXCO USA Asset, Inc. (EXCO).244 Cubic borrowed money from a Wells Fargo affiliate, which debt was secured by a mortgage containing, among other customary provisions, an assignment of production proceeds.245 The mortgage and the credit agreement were typical of most documentation in a reserve-based loan transaction, commonly called an “RBL.”246 The mineral lease participated in production from the Cotton Valley and Haynesville zones, but production diminished to the point that the lessor asserted that the lease had lapsed due to lack of production in “paying quantities.”247 Gloria’s Ranch issued a demand to the defendants for a release of the expired lease, but the defendants resisted, contending that the mineral lease had not lapsed.248 Additionally, royalties from a certain well completed in the Haynesville zone were not paid to Gloria’s Ranch by the lessees.249 Suit was filed by Gloria’s Ranch against the three companies, and Wells Fargo, the mortgagee of Cubic, to declare the mineral lease to have expired by its own terms; for damages for failure to release the expired lease,250 and for unpaid royalties from a well in Section 15.251 244. Id. at *3–4.

245. Id. at *3.

246. See Michael P. Marek & Robert A. Wilson, A Future For Reserve-Based Lending in Emerging Markets? Limitations on the Traditional Model, 10 TEX. J. OIL GAS & ENERGY L. 149, 150 (2014) (“At its core, the traditional reserve-based loan is little more than an asset-backed loan, a mortgage secured by oilfield reserves rather than a home.”).

247. Gloria’s Ranch, 2018 La. LEXIS 1694, at *3–4; see Patrick S. Ottinger, Production in “Paying Quantities”–A Fresh Look, 65 LA. L. REV. 635 (2005) [Ottimger, Paying Quantities]; see also OTTINGER, LEASES, supra note 10, at 1201 (“A mineral lease terminates at the expiration of the agreed term or upon the occurrence of an express resolutely condition.”)

248. See Gloria’s Ranch, 2018 La. LEXIS 1694, at *5; see generally LA. REV. STAT. ANN. § 31:206 (2018) (“[W]hen a mineral [lease] is extinguished by . . . expiration of its term, . . . the former owner shall, within thirty days after written demand by the person in whose favor the right has been . . . terminated, furnish him with a recordable act evidencing the extinction or expiration of the [mineral lease].”).

249. See Gloria’s Ranch, 2018 La. LEXIS 1694, at *4, *6–7.

250. See id. at *5–6; see generally LA. REV. STAT. ANN. § 31:207 (emphasis added) (“If the former owner of the . . . expired mineral [lease] fails to furnish the required act [evidencing the termination of the mineral lease] within thirty days of receipt of the demand[,] . . . he is liable to the person in whose favor the . . . lease has been . . . expired for all damages resulting therefrom and for a reasonable attorney’s fee incurred in bringing suit.”).

251. Gloria’s Ranch, 2018 La. LEXIS 1694, at *6 (noting that Exco settled with the plaintiff prior to trial, leaving only Tauren, Cubic, and its mortgagee, Wells Fargo, as defendants).

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The trial court found that the mineral lease had lapsed due to the failure to produce in “paying quantities,” and awarded damages for lost-leasing opportunities at $18,000 per acre ($22,806,000) due to the unreleased lease.252 It further awarded $726,087 for unpaid royalties for the well in Section 15 pursuant to article 140 of the Louisiana Mineral Code ($242,029.26 in royalties due plus $484,058.52 in “double royalties” as damages). Attorney’s fees in the amount of $936,803 were also awarded.

This judgment was rendered against all three remaining defendants (including Wells Fargo), in solido.253 Whatever can be said about the propriety of the court’s determination as to lease termination, the basis of damages “resulting from” the failure to release expired the lease, and the assessment of double royalties as damages,254 the most radical aspect of the decision is that the mortgageelender of the one of the lessees, Cubic, was held co-extensively liable along with the defaulting lessees.

Of particular relevance to this topic, with regard to Wells Fargo, was the trial court’s holding that the mortgage granted to it by Cubic contained an “assignment,” sufficient to make Wells Fargo some sort of lessee, and thus liable for the failure to release the expired mineral lease, for unpaid royalties, and codal damages.255 On appeal, the appellate court disagreed with that specific ruling, finding that the language of the mortgage on which the trial court relied was not an assignment of an interest in the Gloria’s Ranch lease, but, rather, an assignment or pledge of production, in the nature of a security interest.256

252. Id. at *6–7; see also OTTINGER, LEASES, supra note 10, at 105–06 (discussing the volatility in bonus prices in the Haynesville Shale in Northwest Louisiana in the year 2008, documenting per acre bonus payments ranging from $150 (February 2008) to $25,000 (July and August 2008)).

253. Id. at *6. Liability in solido is the rough equivalent to “joint and several liability.”

254. See Section IV.I hereof on the maximum award of damages for non-payment of royalties.

255. Gloria’s Ranch, 2018 La. LEXIS 1694, at *7.

256. Gloria’s Ranch, L.L.C. v. Tauren Expl., Inc., 223 So. 3d 1202, 1222 (La Ct. App. 2017), rev’d in part, aff’d in part, 2018 La. LEXIS 1694 (La. June 27, 2018). This typical mortgage provision read, thusly: 2.03 Assignment. To further secure the full and punctual payment and performance of all present and future Indebtedness, up to the maximum amount outstanding at any time. . . . Mortgagor does hereby absolutely, irrevocably and unconditionally pledge, pawn, assign, transfer and assign to Mortgagee all monies which accrue after 7:00 a.m. Central Time . . . to Mortgagor’s interest in the Mineral Properties and all present and future rents therefrom . . . and all proceeds of the Hydrocarbons . . . and of the products obtained, produced or processed from or attributable to the Mineral Properties now or hereafter (which monies, rents and proceeds are referred herein as the “Proceeds of Runs”). Mortgagor hereby authorizes and directs all obligors of any Proceeds of Runs to pay and deliver to Mortgagee, upon request therefor by Mortgagee, all of the Proceeds of Runs . . . accruing to Mortgagor’s interest[.]

Id. at 1220–21.

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Nevertheless, the appellate court found that the various covenants and provisions in the recorded mortgage (as well as the unrecorded credit agreement) constituted some indicia of “control,” sufficient to justify a finding that Wells Fargo “owned” an interest in the lease that supported its liability along with Cubic.257 Most important to the court seemed to be a mortgage provision that required the bank’s consent to the release by the lessee of an item of collateral, in this case, a mineral lease. As to this common clause, the court noted, as follows: Wells Fargo exercised control over Cubic’s oil and gas operations on the lease, and controlled Cubic’s ability to release the lease for failure to produce in paying quantities. As such, Wells Fargo shared coextensive liability with Cubic to provide a recordable act evidencing the release of its interest in the lease, and we discern no manifest error in the trial court finding Wells Fargo solidarily liable with the remaining defendants.258 In its analysis leading to the determination that Wells Fargo “exercised control over Cubic’s oil and gas operations on the lease, and controlled Cubic’s ability to release the lease for failure to produce in paying quantities,” the appellate court evaluated this novel theory under the definition of “ownership” under civil law as being composed of the rights of usus, fructus and abusus.259 When the appellate panel seemed to recognize that it was entering uncharted legal territory, with significant implications to the sanctity and utility of a mortgage, it attempted to limit its ruling with the following admonition, to-wit: “We note this case is highly fact-intensive and should not be construed as governing other cases that may follow unless the same facts exist.”260 After affirming the trial court’s award of damages, and awarding the additional award of attorney’s fee of $125,000, the defendants applied to the court for rehearing, which was denied. However, two of the five judges261 dissented vigorously from the denial of rehearing, stating, as follows: Devastating economic repercussions might possibly develop throughout the lending industry if the original opinion of this court is 257. See id. at 1223–24.

258. Id. at 1224.

259. Id. at 1223–24; see generally LA. CIV. CODE ANN. art. 477A (“Ownership is the right that confers on a person direct, immediate, and exclusive authority over a thing. The owner of a thing may use, enjoy, and dispose of it within the limits and under the conditions established by law.”)

260. Gloria’s Ranch, 223 So. 3d at 1225.

261. A panel of an appellate court is composed of three judges, but in order to consider an application for rehearing, two additional judges are randomly assigned. LA. CONST. art. V, § 8(B).

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maintained. Serious and harmful impact on the oil and gas industry is foreseeable. At a minimum, confusion will develop inside the legal community, as well as to other advisors to the respective companies within those industries if the original pronouncement of this court is maintained. Notwithstanding a generally well written and analyzed original opinion and the instructive language therein that this is a somewhat isolated fact setting, cautious managers and decision makers within those industries will incur a most chilling effect on their businesses. All of these developments can be potentially harmful in a broader sense; e.g. the potential impact on the financial condition of this state resulting from lost revenue.262 The defendants next sought writs from the Louisiana Supreme Court, supported by significant amici curiae briefing.263 Writs were granted,264 the case was briefed, and it was argued on March 13, 2018. The court issued its opinion on June 27, 2018, and unanimously reversed the Second Circuit’s decision as it relates to the liability of a mortgagee for the faults or inactions of its borrower-lessee.265 Justice Marcus Clark, writing for the court, noted that the mortgagee was not an “owner” for purposes of Article 207 of the Mineral Code and, therefore, was not liable for damages “resulting” from the lessee’s failure to release the expired mineral lease.266 Additionally, it found the mortgagee was not a “lessee” for purposes of Article 140 of the Louisiana Mineral Code and was not liable for failure to pay royalties that were due.267 Finding that a mortgage was expressly authorized by Articles 203 and 204 of the Louisiana Mineral Code, the court concluded, as follows: Based on the foregoing, we find no authority for the court of appeal’s holding that a mortgage and a credit agreement, which are both legally provided for in the La. Mineral Code, can be methods by which ownership of a mineral lease are conveyed simply because they assert some control over the collateral described therein. We find the “bundle of rights” controlled by Wells Fargo are not traits of ownership, but of

262. Gloria’s Ranch, 223 So. 3d 1225, 1225 (Bleich, J., dissenting) 263. As noted previously, your presenter filed an amici curiae brief on behalf of American Bankers Association and Texas Bankers Association.

264. Gloria's Ranch, L.L.C. v. Tauren Expl., Inc., 231 So.3d 639 (La. 2017) (mem.); Gloria's Ranch, L.L.C. v. Tauren Expl., Inc., 231 So.3d 640 (La. 2017) (mem.); Gloria's Ranch, L.L.C. v.

Tauren Expl., Inc., 231 So.3d 642 (La. 2017) (mem.).

265. Gloria’s Ranch, L.L.C. v. Tauren Expl., Inc., 2017-C-1518 C/W 2017-C-1519 C/W 2017-C-1522, 2018 La. LEXIS 1694, at * 35 (La. June 27, 2018).

266. See id. *9–13.

267. Id. at *24–25.

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security rights. The mortgage and credit agreement contain provisions typical of security contracts, all designed to protect the collateral.268 The decision of the Louisiana Supreme Court was both authoritative and comprehensive in rejecting the novel theory embraced by the appellate court.

Had the court not reversed the decision of the Second Circuit, the implications to lending practices in the upstream sector of the E&P industry would be far reaching and potentially problematic. If there were merit to the theory embraced by the appellate court (and the Louisiana Supreme Court correctly held there was not), there would be no reason what a bank could not be held co-responsible with its borrower for other faults or inactions of the latter, including personal injury or death on the rig floor, unpaid vendors, “legacy lawsuits,” and other claims encountered by the mineral lessee.

Additionally, notwithstanding the Second Circuit’s attempt to limit its decision, the ruling, while arising in the oil and gas context, would certainly be argued as applicable in other commercial contexts in which the loan documentation imposed covenants that could be assimilated to “control.”

Moral of the Story—Lessons to be Learned The Louisiana Supreme Court’s decision in Gloria’s Ranch was cogent and precise in rejecting the rationale of the courts below, restoring the mortgage to its historic role of being merely a security device with great commercial efficacy. The various covenants and provisions contained in the mortgage granted by the mineral lessee to its lender are matters between the parties to the mortgage only, and are designed to allow the lender to be informed as to the operations and activities of its borrower in order to be fully informed as to the borrower’s ability to repay the loan.269 There is no basis in the law to allow a third party, such as a mineral lessor, to avail the various provisions contained in the mortgage.

V.

CURRENT ISSUES INVOLVING EXECUTIVE RIGHTS

The Executive Right is a Mineral Right, with Attendant Consequences.

Although Article 16 states that the “basic” mineral rights are the mineral servitude, the mineral royalty, and the mineral lease, the executive right is

268. Id. at *34–35. Among other authority, the court cited OTTINGER, LEASES, supra note 10, at section 12-10, for the proposition that it is “customary in the oil and gas industry” to include covenants and provisions of the type as found in the Wells Fargo mortgage. Id. at *17–18.

269. Covenants of this type are typically contained in a mortgage in an RBL transaction, and are encouraged by Federal regulator. See OFF. OF THE COMPTROLLER OF THE CURRENCY, COMPTROLLER’S HANDBOOK: OIL AND GAS EXPLORATION AND PRODUCTION LENDING 11 (2016).

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explicitly stated in Article 106 to be a “mineral right.”270An executive right is “the exclusive right to grant mineral leases of specified land or mineral rights.”271 Being a mineral right, it is “alienable and heritable.”272 The fact that the owner of an executive right is free to alienate it, or that the exclusive leasing right would be subject to the law of inheritance, ought to give concern to the party creating the right.

An executive right is a “thing,” and could actually be a “thing” of great value.273 As held by a deceased, it constitutes part of his estate.274 As such, it devolves upon the heirs or legatees of the decedent.275 An undesirable situation might arise if the executive right owner bequeaths his estate in general, or the executive right in particular, to a multitude of parties. The need to deal with a vast number of parties in order to grant a mineral lease defeats the very purpose of the executive right, which often is to facilitate ease of leasing by a competent, experienced person.

Equally undesirable is the situation where the executive right is bequeathed, or falls by intestacy, to a person or persons who are totally unfit to serve in such capacity. One who creates an executive right obviously has a degree of faith, confidence and trust in the person to whom this right is initially granted, but may not have the same level of faith, confidence or trust in a stranger to whom it might be alienated, or in the heirs or legatees of the executive right owner. This is particularly so if the heirs or legatees of the executive right owner are minors or are impaired or incapable of managing their own affairs, not to mention having absolutely no talent or experience in the leasing of minerals.

Moral of the Story—Lessons to be Learned In order to obviate this possibility, the party creating the right should either negate or deny the owner’s ability to transfer it,276 or make it “strictly 270. See OTTINGER, LEASES, supra note 10, at 813.

271. LA. REV. STAT. ANN. § 31:105 (2018).

272. Id. § 31:18.

273. See LA. CIV. CODE ANN. art. 448 (“Things are divided into common, public, and private; corporeals and incorporeals; and movables and immovables.”).

274. See id. art. 872 (“The estate of a deceased means the property, rights, and obligations that a person leaves after his death.”).

275. See id. art. 880 (“In the absence of valid testamentary disposition, the undisposed property of the deceased devolves by operation of law in favor of his descendants, ascendants, and collaterals, by blood or by adoption, and in favor of his spouse not judicially separated from him, in the order provided in and according to the following articles.”).

276. See id. art. 1984 (“Rights and obligations arising from a contract are heritable and assignable unless the law, the terms of the contract or its nature preclude such effects.”); see also Bryan v. Griggs, 128 So. 3d 1255, 1264 (La. App. Ct. 2013) (“Based upon the entire record in this case, it is clear that the obligations created by the letter agreement were strictly personal on the part

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personal” to the original grantee,277 and subject to termination at the death of the executive. One might consider language such as the following in order to achieve this objective, to-wit: Grantor has designated and appointed Grantee as [her] [his] executive right owner based upon Grantee’s ability, talent and experience in matters concerning mineral leasing. Anything herein contained to the contrary notwithstanding, it is expressly understood and agreed that the rights conferred upon Grantee, as owner of the executive right herein [granted] [reserved], (i) are strictly personal to Grantee; (ii) shall not be conveyed, delegated or otherwise transferred by Grantee without the prior written consent of Grantor (which consent may be withheld for any reason whatsoever), and (iii) shall terminate upon the death or incapacity of Grantee; provided, however, that the termination under such circumstances shall be without prejudice to any lawful acts taken by Grantee pursuant to such executive right, prior to such event of termination.

VI.

CONCLUSION

At any point in time, the question of what is a “current issue” in the law of oil and gas in the Bayou State is determined by either economic or market conditions in the industry. While it is difficult to quarrel with this truism, it is equally true that legislative or regulatory actions, or jurisprudential developments, can also give rise to issues with which industry participants and the practicing bar must be concerned.

It is obvious that any identification of these “hot topics” at any particular point in time is more subjective than objective, and reasonable minds can certainly disagree on the litany of these issues. Perhaps this is a case of beauty vel non being in the eyes of the beholder.

Nevertheless, it is the hope of this author that a review of the issues and matters examined herein will provoke thought as to pitfalls in legislation, as well as providing a glance into future issues that might be presented.

of the obligor, Bryan, and required the special skills or qualifications that he represented that he possessed.”).

277. See, e.g., LA. CIV. CODE ANN. art. 1766 (“An obligation is strictly personal when its performance can be enforced only by the obligee, or only against the obligor.”).

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FORUM SHOPPING: DEFENSIVE ABUSE OF THE INTRASTATE FORUM NON CONVENIENS DOCTRINE ELIOT T. TRACZ† I. INTRODUCTION ............................................................................... 422 II. FORUM NON CONVENIENS ............................................................. 424 A. Forum Non Conveniens: A Brief History ................................ 424 1. Brief History ...................................................................... 424 2. Purpose ............................................................................. 425 B. At the Federal Level ................................................................ 426 1. Gilbert ............................................................................... 426 2. Koster ............................................................................... 427 3. Codification ...................................................................... 428 4. Piper ................................................................................. 428 C. State Level ............................................................................... 429 1. Intrastate ........................................................................... 429 2. Interstate............................................................................ 429 III. FORUM SHOPPING ........................................................................... 430 A. Forum Shopping: A Brief Background ................................... 430 1. What is Forum Shopping? ................................................ 430 2. Purposes of Forum Shopping ............................................ 431 B. Forum Shopping and the Courts ............................................. 432 1. Plaintiff’s Ability to Sue .................................................... 432 2. Potential Outcome ............................................................. 433 C. The Ethics of Forum Shopping................................................ 434 1. Is Forum Shopping Ethical? ............................................. 434 2. Should Forum Shopping be Sanctioned? .......................... 435 IV. DEFENDANT’S MISUSE OF FORUM NON CONVENIENS ................... 435 A. Defensive Forum Shopping ..................................................... 435 1. Defendants Regularly Engage in Forum Shopping .......... 436 2. Methods of Defensive Forum Shopping ............................ 436 B. Defensive Use of Forum Non Conveniens .............................. 438 1. Purpose.............................................................................. 438 2. Abuse ................................................................................ 438 C. Ethics of Defensive Forum Non Conveniens........................... 440 1. Claiming Home Forum is Not the Appropriate Forum ..... 440 † Judicial Clerk to Hon. Kathy Wallace, Minnesota Third Judicial District.

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2. Of Pots and Kettles: Motions with Unclean Hands .......... 441 V. SOME THOUGHTS ON LIMITING DEFENSIVE ABUSES OF FORUM NON CONVENIENS .......................................................................... 442 A. Statutorily Limit the Number of Jurisdictions ......................... 442 1. Site of Injury ...................................................................... 442 2. Defendant’s Home Forum ................................................ 443 B. Eliminate Intrastate Forum Non Conveniens................... ...... 443 C. Bar Defendants from Ever Claiming a Home Forum is Inappropriate .......................................................................... 444 VI. CONCLUSION .................................................................................. 444 I.

INTRODUCTION

During a Sunday afternoon spent watching football, your client’s father, John Doe, began experiencing acute onset pain in his upper right leg and hip.

His children persuade him to go to the hospital, the nearest one being in County B. Mr. Doe himself, as well as his children, are all residents of County A. Based on his symptoms, Mr. Doe is admitted to County B Hospital.

Soon afterwards, Dr. Smith, a vascular surgeon, visited Mr. Doe in the emergency department to perform an evaluation. Upon performing the evaluation, Dr. Smith recommended that Mr. Doe be admitted for observation and pain management, rather than receive emergency surgery to treat what appeared to be a symptomatic abdominal aortic aneurysm.1 A couple of hours later Mr. Doe coded. Upon being informed that Mr. Doe was coding, Dr. Smith decided to surgically repair the symptomatic abdominal aortic aneurysm.

Unfortunately, due to Dr. Smith’s treatment, Mr. Doe suffered permanent injuries and died soon after the surgery. His children filed suit in County A, where Dr. Smith also is a resident and has the main office for his practice group Vascular Surgery Associates (VSA). Shortly after the complaint is filed, Dr. Smith and VSA file a motion to dismiss based on the doctrine of intrastate forum non conveniens, claiming that County A, despite being the home forum for all parties, is inconvenient. It is well known in the local bar that County A was recently rated a “Judicial Hellhole.”2 Taking all

1. An aortic abdominal aneurysm occurs when there is an enlarged area in the lower part of the aorta.

Abdominal Aortic Aneurysm, MAYO CLINIC (Mar. 13, 2018), http://www.mayoclinic.org/diseases-conditions/abdominal-aortic-aneurysm/home/ovc-20197858 [https://perma.cc/33XT-2RN8]. Symptoms may include a pulsating feeling near the navel, deep constant pain in the abdomen or back pain. Id. 2. “Judicial Hellholes” are a myth perpetuated by the American Tort Reform Foundation for the purposes of presenting judicial districts which may, statistically, tend to favor plaintiffs as “places where judges systematically apply laws and court procedures in an unfair and unbalanced manner, generally against defendants in civil lawsuits.” Am. Tort Reform Found., About, JUD.

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of these things into consideration (apart from the reputation of County A which is irrelevant) how ought the judge rule on the defendant’s motion?

As a practical matter, a district or trial judge is likely to simply apply the facts of the case to a few simple rules governing the disposition of a forum non conveniens motion and make a ruling without digging deeper into the case at hand. This is to be expected, given the volume of cases facing the average judge, yet the necessity of dealing with such motions quickly inevitably leaves some important questions unanswered. Is this motion necessary? Is the plaintiff forum shopping? Is the defendant abusing forum non conveniens and using it as a form of forum shopping? It is this last question which is the focus of this Article—do defendant’s use forum non conveniens as a vehicle to forum shop, and if so, is that an acceptable practice?

In Section II of this Article, I begin by looking at the history of forum non conveniens as a common law doctrine, its adoption by the United States Supreme Court, and its codification via statute.3 This section also includes discussion of the various public and private factors which are assessed in a forum non conveniens motion and how much weight should be accorded to each.4 Finally, this section looks at the differences between interstate forum non conveniens and intrastate forum non conveniens.5 Section III looks at the phenomenon of forum shopping, beginning with a cursory definition of what forum shopping is.6 It continues by looking briefly at the treatment forum shopping has gotten from the courts.7 Finally, it discusses the ethics of forum shopping and investigates whether forum shopping is really as much of a problem as it is often made out to be. 8 Section IV argues that forum shopping is not an activity limited to plaintiffs, but is also engaged in by defendants as well.9 Next, it looks at forum non conveniens as a particularly popular means of defensive forum shopping.10 Finally, it discusses that, while not unethical, defensive use of forum non conveniens does little more than slow down the case.11 The final section, Section V, offers three suggestions to reduce the use of forum non conveniens as a forum shopping tool for defendants. First, I HELLHOLES, http://www.judicialhellholes.org/about/ [https://perma.cc/PDZ7-GXEQ] (last visited May 5, 2017).

3. See infra Section II(A).

4. See infra Section II(B)(1)–(2).

5. See infra Section II(C)(1)–(2).

6. See infra Section III(A).

7. See infra Section III(B).

8. See infra Section III(C)(1)–(2).

9. See infra Section IV(A).

10. See infra Section IV(B).

11. See infra Section IV(C).

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suggest that legislative redrawing of the rules for selecting a forum all but negate the necessity of forum non conveniens challenges in nearly all cases.12 Second, I suggest that intrastate forum non conveniens ought to be banned as state laws regarding venue and forum are sufficient to ensure that each case is brought in a proper forum.13 Finally, I argue that defendants should be barred from claiming that their home forum is inconvenient.14 II. A.

FORUM NON CONVENIENS

Forum Non Conveniens: A Brief History 1. Brief History

The doctrine of forum non conveniens is simply that a court may resist imposition upon its jurisdiction even when jurisdiction is authorized by the letter of a general statute.15 The origin of the doctrine itself has been described as murky and obscure.16 Robert Braucher, a former Harvard Law professor and later Associate Justice of the Massachusetts Supreme Court traced the doctrine’s origins to nineteenth century Scotland,17 where it first arose seemingly as a means to distinguish the courts’ discretionary power to hear a case from the plea of forum non competens which constituted a jurisdictional challenge.18 At about the same time that the Scottish courts were developing their doctrine, a similar discourse regarding judicial discretion was occurring in the United States.19 In 1929, an attorney named Paxton Blair published a law review article suggesting that the doctrine of forum non conveniens could be used to “reliev[e] calendar congestion by partially diverting at its source the flood of litigation by which our courts are being overwhelmed.”20 Until the Supreme Court introduced factors in the late 1940’s, however, the doctrine of forum non conveniens relied heavily on applying “a blend of notions of

12. See infra Section V(A).

13. See infra Section V(B).

14. See infra Section V(C).

15. Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 506 (1947).

16. Edward L. Barrett, Jr., The Doctrine of Forum Non Conveniens, 35 CALIF. L. REV. 380, 386 (1947); see also Julius Jurianto, Forum Non Conveniens: Another Look at Conditional Dismissals, 83 U. DET. MERCY L. REV. 369, 370 (2006).

17. Robert Braucher, The Inconvenient Federal Forum, 60 HARV. L. REV. 908, 909 (1947).

18. Id. 19. Jurianto, supra note 16, at 372 (citing WARREN FREEDMAN, FOREIGN PLAINTIFFS IN PRODUCT LIABILITY ACTIONS - THE DEFENSE OF FORUM NON CONVENIENS 4 (1988)).

20. Id. (citing Paxton Blair, The Doctrine of Forum Non Conveniens in Anglo-American Law, 29 COLUM. L. REV. 1 (1929)).

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international law, comity, convenience, judicial administration, and relation to the forum.”21 2. Purpose As suggested above, the original purpose of forum non conveniens was to distinguish a court’s jurisdictional authority over a case.22 In particular, forum non conveniens allowed courts to decline jurisdiction, even when all of the formal elements of personal and subject matter jurisdiction had been satisfied.23 In order to exercise this jurisdiction, the court must be “satisfied that there [was] some other tribunal, having competent jurisdiction, in which the case could be tried more suitably for the interests of all parties and for the ends of justice.”24 Another related purpose for forum non conveniens has been the ability to keep cases off the dockets of busy courts.25 As a practical matter, forum non conveniens has been successful at keeping dockets manageable by allowing courts to dismiss cases that ought to be heard elsewhere. This is especially helpful given that a congested court can dismiss the case without jeopardizing the plaintiff’s right to their day in court.

Hand in hand with keeping busy court dockets free from cases that should be heard elsewhere, is the use of forum non conveniens to combat the phenomenon of forum shopping.26 This is a thornier issue, since forum non conveniens requires an acknowledgment that the plaintiff has a right to be heard in the contested forum.27 While plaintiffs can and do forum shop, this Article concerns itself with the idea that defendants do not shy away from attempts to wield forum non conveniens as a tool for forum shopping as well.

21. Id. at 374 (citing GARY B. BORN, INTERNATIONAL CIVIL LITIGATION IN THE UNITED STATES COURTS 290 (3d ed. 1996)).

22. Id. at 371.

23. See id. at 369.

24. Id. at 371 (quoting Alexander Reus, A Comparative View of the Doctrine of Forum Non Conveniens in the United States, the United Kingdom, and Germany, 16 LOY. L.A. INT’L & COMP. L.J. 455, 459 (1994)).

25. Id. at 396–97.

26. Id. at 374.

27. Gulf Oil Corp., v. Gilbert, 330 U.S. 501, 504, 506–07 (1946), superseded by statute, 28 U.S.C. § 1404 (2012), as recognized in Quackenbush v. Allstate Ins. Co., 517 U.S. 706 (1996).

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B.

SOUTH TEXAS LAW REVIEW At the Federal Level 1. Gilbert

Gilbert was the first in a series of federal actions which would go on to define modern forum non conveniens doctrine in the United States.28 It is best known for being the case that introduced factors as a means for the court to weigh the propriety of dismissal of a case.29 It remains, to this day, the preeminent case in forum non conveniens case law.

Gilbert, the plaintiff, was a resident of Lynchburg, Virginia.30 Within Lynchburg, he operated a public warehouse which had burnt down due to the alleged careless handling of gasoline during a delivery by defendant Gulf Oil Corporation.31 Defendant was a Pennsylvania corporation qualified to do business in Virginia and New York.32 At the outset of the case, the plaintiff chose to file suit in New York, though the defendant invoked the doctrine of forum non conveniens, claiming that Virginia, the site of all relevant events as well as the location of witnesses, was the proper forum.33 The federal district court for the Southern District of New York granted the defense’s motion,34 but was reversed by the Second Circuit.35 Finally, the United States Supreme Court upheld the district court’s decision to dismiss the case on the grounds of forum non conveniens.36 In deciding to overturn the appeals court, the Supreme Court instituted a two-step test for the forum non conveniens doctrine.37 Step one requires that a court determine that an adequate alternative forum exists.38 Second, the Supreme Court determined that the appropriateness of a forum is based upon a number of factors which weigh either for or against the plaintiff’s selected forum.39 First, the Court considered a non-exhaustive list of what it considered private factors, including: ease of access to sources of evidence; availability of compulsory service and cost of obtaining attendance of 28. See Jurianto, supra note 16, at 375.

29. See id. at 375–76.

30. Gilbert, 330 U.S. at 502.

31. Id. at 502–03.

32. Id. at 503.

33. Id. 34. Gilbert v. Gulf Oil Corp., 62 F. Supp. 291, 292 (S.D.N.Y. 1945).

35. Gilbert v. Gulf Oil Corp., 153 F.2d 883, 886 (2d Cir. 1946).

36. Gilbert, 330 U.S. at 508.

37. Id. 38. Id. at 506–07 (“In all cases in which the doctrine of forum non conveniens comes into play, it presupposes at least two forums in which the defendant is amenable to process; the doctrine furnishes criteria for choice between them.”).

39. Id. at 508.

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witnesses; possibility of viewing accident premises, if necessary; and all other practical problems that make a trial of a case easy, expeditious, and inexpensive.40 The Supreme Court also considered that there were other, public factors that would also contribute to the decision whether to grant forum non conveniens.41 Such public factors take into consideration administrative difficulties that may befall courts. The factors include congestion of the court docket,42 imposing jury duty on members of a community that has no interest in the litigation at issue,43 and the idea that local controversies should be settled locally.44 2. Koster At the same time as Gilbert, the Supreme Court heard and decided Koster v. (American) Lumbermens Mutual Casualty Co.,45 a case in which the plaintiff, a resident of New York, brought a derivative suit in New York against a group of defendants located in Illinois.46 Lumbermens chose to invoke forum non conveniens to try to dismiss the case; a request granted by the district court47 and affirmed by the Second Circuit.48 The Supreme Court upheld the dismissal.49 In upholding the district court’s ruling, Supreme Court reasoned that “[i]n any balancing of conveniences, a real showing of convenience by a plaintiff who has sued in his home forum will normally outweigh the inconvenience the defendant may have shown.”50 This ruling set the precedent that when deciding a motion for forum non conveniens, the plaintiff’s choice of forum will receive deference.51 Together with Gilbert, Koster has come to represent the foundational common law approach to deciding a forum non conveniens motion.

40.

41.

42.

43.

44.

45.

46.

47.

48.

49.

50.

51.

Id. Id. Id. Id. at 509.

Id. at 508–09.

Koster v. (Am.) Lumbermens Mut. Cas. Co., 330 U.S. 518 (1947).

Id. at 519.

Id. at 520–21.

Koster v. (Am.) Lumbermens Mut. Cas. Co., 153 F.2d 888 (2d Cir. 1946).

Koster, 330 U.S. at 531–32.

Id. at 524.

See id. at 524–25.

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In 1948, the United States Congress amended the United States Code to provide a venue transfer provision.52 The new provision read that, “[f]or the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought or to any district or division to which all parties have consented.”53 This had the effect of codifying the doctrine of forum non conveniens on a federal level, while allowing greater leeway for courts to divest themselves of cases.

4. Piper Following the codification of the forum non conveniens doctrine, the Supreme Court did not issue another landmark forum case until 1981’s Piper Aircraft Co. v. Reyno.54 This case was brought in California55 by the Scottish descendants56 of the victims of an airplane crash that occurred in the Scottish Highlands.57 The plaintiff alleged negligence and strict liability against the manufacturers of the plane and its propeller.58 The plane was built in Pennsylvania,59 while the propeller was constructed in Ohio.60 The case was transferred to Pennsylvania, where it was dismissed due to a forum non conveniens challenge.61 The district court was subsequently overturned by the Third Circuit Court of Appeals.62 The Supreme Court ultimately overturned the appellate court, finding that a forum non conveniens dismissal is, absent a clear abuse of discretion, within the discretion of the trial court.63 Piper made use of the Gilbert and Koster factors analysis, but offered its own fundamental changes to the analysis of forum non conveniens. While Koster found there is a presumption in favor of the plaintiff’s choice of forum, “the presumption applies with less force when the plaintiff or real parties in interest are foreign.”64 Second, and equally important, Piper held 52.

53.

54.

55.

56.

57.

58.

59.

60.

61.

62.

63.

64.

28 U.S.C. § 1404 (2018).

Id. § 1404(a).

Piper Aircraft Co. v. Reyno, 454 U.S. 235 (1981).

Id. at 239.

Id. Id. at 238–39.

Id. at 239–40.

Id. at 239.

Id. Id. at 238.

Id. Id. at 257.

Id. at 255.

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that the public and private factors could not be determined in a “rigid rule to govern discretion.”65 The purpose of this was to ensure that no particular factor would carry any more weight than another.66 C.

State Level 1. Intrastate

Intrastate forum non conveniens applies the same basic principles as those discussed above. This is in part because many, if not all, state legislatures have drafted comprehensive venue schemes.67 The benefit of these venue schemes being statutory is that as statutes, they can better serve as bright line rules.68 In all current venue schemes, the plaintiff begins an action by selecting a court in which to file their complaint. In accordance with this scheme, forum non conveniens offers deference to the plaintiff’s choice of forum.69 Occasionally, state venue schemes allow a plaintiff many different choices as to where to file.70 Unfortunately, some commentators have suggested that this potential number of venues allows the plaintiff to intentionally pursue a forum which will be inconvenient to a defendant.71 Though some commentators have suggested modifications to the venue scheme that could result in a more limited number of available forums,72 this is largely beyond the scope of this Article since we are dealing with defensive forum shopping. Additionally, we have no reason to think that the current venue system is in need of a change. Therefore, we will concern ourselves only with the intrastate forum non conveniens system as it is, instead of how it could be.

2. Interstate Unlike the relative simplicity of intrastate forum non conveniens, interstate forum non conveniens raises more choice of law questions. In intrastate forum challenges, various county courts will not each promulgate differing schemes for shifting venue, however, when considering an

65. Id. at 249.

66. Jurianto, supra note 16, at 381.

67. Peter G. McAllen, Deference to the Plaintiff in Forum Non Conveniens, 13 S. ILL. U. L.J. 191, 255 (1989).

68. Id. 69. Id. at 256.

70. Id. 71. Id. 72. Id. at 256–57.

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interstate challenge there will not be a statutory scheme for something more complex such as the choice between a Minnesota court and a Texas court.73 As Professor McAllen has pointed out, in this regard interstate forum non conveniens resembles international forum non conveniens.74 In interstate forum dismissals, constitutional safeguards protect the plaintiff’s right to a hearing.75 Concurrently, the Constitution provides some level of assurance that the court that hears the case will apply the same substantive law as the dismissing forum.76 Further inquiry into interstate forum non conveniens is of little value here, however, since our topic deals with intrastate forum non conveniens.

III. FORUM SHOPPING A.

Forum Shopping: A Brief Background

Having discussed forum non conveniens, we turn to one of the more common causes for a forum non conveniens motion: forum shopping. This can be a slightly more complex issue than it seems at first as it requires not only that multiple forums be available to the plaintiff, but also that the chosen forum must also lack some other connection to the underlying action. It is well, therefore, to take a deeper look at what forum shopping is, and why it occurs.

1. What is Forum Shopping?

“Forum shopping” occurs when a party attempts to have their case heard in the court or jurisdiction most likely to return a favorable result.77 Forum shopping can occur in one of two ways: first, it can occur “horizontally,” such as when a party searches within the same court system for the best state court

73. See Pennoyer v. Neff, 95 U.S. 714, 722 (1877) (articulating the “two well-established principles of public law”: that states have exclusive jurisdiction over persons and property within state borders and lack jurisdiction of personas and property beyond state borders).

74. McAllen, supra note 67, at 260 (explaining that this means that interstate forum choice problems may be solved through local personal jurisdiction rules).

75. This includes the right to due process as well as full faith and credit. Id. 76. Id. at 260–61.

77. See Mary Garvey Algero, In Defense of Forum Shopping: A Realistic Look at Selecting a Venue, 78 NEB. L. REV. 79, 79 (1999) (“‘Forum shopping’ typically refers to the act of seeking the most advantageous venue in which to try a case.”); Kimberly Jade Norwood, Shopping for Venue: The Need for More Limits on Choice, 50 MIAMI L. REV. 267, 268 (1996) (“Forum shopping ‘occurs when a party attempts to have his action tried in a particular court or jurisdiction where he feels he will receive the most favorable judgment or verdict.’”).

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to hear the case.78 Alternatively, forum shopping can occur “vertically,” which simply entails a move from state court to federal court or vice versa.79 Some commentators seem to suggest that forum shopping is a problem verging on epidemic levels.80 This is somewhat misleading, as a case with only one appropriate venue is naturally immune to forum shopping.

Furthermore, the fact that forum shopping requires a case to have at least two appropriate forums raises the issue that such cases intrinsically require the plaintiff to select a forum from the available options.81 What does that mean for the plaintiff’s attorney? How does an attorney look their client in the eye and say, “The forum I selected is the one most convenient to all parties, not the one most likely to result in a favorable verdict?” I suggest that an attorney selecting such a course of action may well be guilty of malpractice. 82 If forum shopping is an often-unavoidable occurrence when an attorney must select between at least two forums, at what point does the attorney’s actions become forum shopping rather than merely selecting an appropriate venue? Is there a means to determine the answer to such a question? If so, it must be that the intent of the plaintiff in selecting a forum controls whether a forum has been selected honestly or for the purposes of forum shopping.

2. Purposes of Forum Shopping There are many possible reasons why a plaintiff might choose one forum over another, ranging from convenience to likelihood of a favorable verdict to favorable statutes of limitation.83 The fact that a venue may satisfy the statutory requirements does not alone make it the appropriate venue if it has no connection to the controversy at issue. This, in turn, raises the question: why would a plaintiff choose to engage in forum shopping?

The textbook case for forum shopping involves an attorney filing in a remote forum because it is the only chance for his client to prevail.84 This most likely occurs because a client has waited too long to seek help from an attorney, or, unfortunately, the attorney has not been diligent in filing.85 In

78. Algero, supra note 77, at 79–80.

79. Id. at 80.

80. See, e.g., J. Skelly Wright, The Federal Courts and the Nature and Quality of State Law, 13 WAYNE L. REV. 317, 333 (1967) (“[F]orum shopping, among both federal and state courts, [has become] a national legal pastime.”).

81. See Algero, supra note 77, at 82.

82. Id. at 81; see also MODEL RULES OF PROF’L CONDUCT r. 1.3 (AM. BAR ASS’N 1983) (“A lawyer shall act with reasonable diligence and promptness in representing a client.”).

83. See Algero, supra note 77, at 81.

84. Id. 85. Id.

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this scenario the attorney seeks a forum where their case will not run afoul of the statute of limitations.86 A second, common reason for forum shopping is to find a jurisdiction in which awards tend to be high, or where juries tend to fall towards a more liberal or conservative ideology based on the needs of the plaintiff.87 This is especially likely when one of the possible forums is what have come to be called a “judicial hellhole.”88 These are jurisdictions which tend to return higher than average verdicts, pro-plaintiff juries, and, if we were to accept the word of the American Tort Reform Association, the rule of law is absent.89 Regardless, plaintiff’s attorneys ostensibly seek these forums while shopping for the court that while provide the best return.

B.

Forum Shopping and the Courts

Knowing that forum shopping occurs, the next natural question is how the courts have responded to attempts of forum shopping. Conventional wisdom might lead to the belief that courts are inclined to deal harshly with attorneys engaged in forum shopping in their jurisdiction. But court responses have, in fact, been surprising.

1. Plaintiff’s Ability to Sue Ferens v. John Deere is one good example of a case in which the plaintiff attempted forum shopping in order to secure a more favorable choice of law.90 In Ferens, the plaintiff was injured in Pennsylvania by a product manufactured in Delaware, by a company whose principal place of business was in Illinois.91 The plaintiff’s contract and warranty claims were filed in a timely manner in a Pennsylvania federal court, but due to statute of limitations, the plaintiff was unable to file his tort claims.92 In order to preserve the tort claims, the plaintiff filed a tort action in Mississippi, a state where the defendant did business, and which had a six-year statute of limitations.93 After filing suit, the plaintiff invoked the federal transfer statute 86. Id.; see also Ferens v. John Deere Co., 494 U.S. 516, 519 (1990).

87. Algero, supra note 77, at 81.

88. It is well to remember that the concept of a “judicial hellhole” is the invention of the American Tort Reform Association, an organization formed solely for the purpose of advancing the agenda of corporate defendants.

89. See Victor E. Schwartz et al., Taking a Stand Against Lawlessness in American Courts: How Trial Court Judges and Appellate Justices Can Protect Their Courts from Becoming Judicial Hellholes, 27 AM. J. TRIAL ADVOC. 215, 216 (2003).

90. See Ferens, 494 U.S. at 519.

91. Id. 92. Id. 93. Id. at 519–20.

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as a means to bring the case back to Pennsylvania, while retaining access to the Mississippi statute of limitations.94 The plaintiff made no attempt to hide his attempt at forum shopping by filing in Mississippi.95 The Supreme Court found in favor of Ferens, reasoning that, in some cases, it may be appropriate to balance the advantages and disadvantages to each party, and that the best way to advance the policies of the Court was to allow some leeway to the plaintiff.96 The plaintiff’s forum shopping was therefore appropriate.97 The plaintiff successfully manipulated the federal transfer statute, 28 U.S.C. § 1404(a), to dictate which states’ law would control the suit.98 Although the transfer statute was created in order to discourage federal forum shopping, the Ferens decision had the effect of creating precedent that future plaintiffs could use in order to capture favorable state law to apply to their case.99 2. Potential Outcome While courts may be more lenient with plaintiffs seeking to preserve their ability to heard, the same may not be true with those seeking to ensure a better verdict.100 Litigants routinely file in forums due to the reputation of a judge or local juries favoring plaintiffs.101 Defendants also attempt to remove cases to venues which may have a reputation for favoring defendants.102 Professor Algero has noted that a forum shopping challenge may be difficult.103 A defendant raising forum shopping concerns may be viewed as challenging the integrity and impartiality of the court.104 Furthermore, without some showing that venue is improper, the motives of a plaintiff in selecting a forum are simply irrelevant.105

94.

95.

96.

97.

98.

99.

100.

101.

102.

103.

104.

105.

Id. at 520.

See id. at 519–20.

See id. at 530–31.

Id. at 532–33.

See Algero, supra note 77, at 93.

Id. at 94.

See id. at 102.

Id. at 101–02.

Id. Id. Id. Id.

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C.

SOUTH TEXAS LAW REVIEW The Ethics of Forum Shopping 1. Is Forum Shopping Ethical?

Both courts and attorneys have difficulty addressing whether forum shopping is ethical. In law school, we are taught that forum shopping is something that is wrong and in which only unethical attorneys would engage.106 The answer to the ethics question is one, however, which can swing either way.

Rule 3.1 of the ABA Model Rules of Professional Conduct requires that an attorney “shall not bring or defend a proceeding, or assert or controvert an issue therein, unless there is a basis in law and fact for doing so that is not frivolous, which includes a good faith argument for an extension, modification or reversal of existing law.”107 As Professor Algero has pointed out, this assumes that there is a non-frivolous basis for filing.108 Furthermore, the attorney has an obligation to use the law to the fullest extent possible to benefit their client.109 This means that, in order to serve the needs of their clients, an attorney may have no choice other than to engage in forum shopping.

At the same time, Rule 3.3 prohibits attorneys from making false statements of material fact or law to a tribunal.110 This rule may be violated if an attorney engages in forum shopping and represents to the court that their intention is for all issues in the case to be adjudicated in that forum.111 This may discourage attorneys from filing suit in a remote venue in order to preserve their clients’ claims in the face of an expired statute of limitations in a more appropriate forum.

106. Id. at 80; see also John B. Corr, Thoughts on the Vitality of Erie, 41 AM. U. L. REV. 1087, 1111 (1992) (accepting the “disreputable” connotation of the phrase “forum shopping”); Friedrich K. Juenger, Forum Shopping, Domestic and International, 63 TUL. L. REV. 553, 553 (1989) (“As a rule, counsel, judges, and academicians employ the term ‘forum shopping’ to reproach a litigant who, in their opinion unfairly exploits jurisdictional or venue rules to affect the outcome of a lawsuit.”).

107. MODEL RULES OF PROF’L CONDUCT r. 3.1 (AM. BAR ASS’N 1983).

108. Algero, supra note 77, at 106.

109. The ABA has addressed this: [1] The advocate has a duty to use legal procedure for the fullest benefit of the client's cause, but also a duty not to abuse legal procedure. The law, both procedural and substantive, establishes the limits within which an advocate may proceed. However, the law is not always clear and never is static. Accordingly, in determining the proper scope of advocacy, account must be taken of the law's ambiguities and potential for change.

Id. r. 3.1 cmt. 1.

110. Id. r. 3.3(a)(1).

111. Id.

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2. Should Forum Shopping be Sanctioned?

Given that forum shopping is looked upon with suspicion and disregard, is it an action that is so objectionable that it warrants sanction when it does occur? There are no ethical rules which overtly prohibit forum shopping; it would be difficult to justify sanctions based upon a potential violation of the Rules of Professional Conduct. Instead, when courts have sanctioned attorneys for forum shopping, it has been in situations involving either violations of Federal Rule of Civil Procedure 11112 or for ignoring court orders dismissing cases and shopping for better results elsewhere.113 Some courts, however, have been loath to issue sanctions for violations of Rule 11. One such example is the court in Coast Manufacturing Co. v.

Keylon,114 which opted not to apply sanctions, saying that: It is understandable that litigants will do a small amount of artful conniving to gain access to the diversity jurisdiction of the federal courts, and for a long time such efforts have been tolerated. It is our duty to protect the diversity jurisdiction from abuses of the sort attempted here. In doing so, we need not become punitive.115 Given the existence of such an attitude, it calls into question whether or not the oft-uttered statements about the evils of forum shopping ought to be taken seriously.

IV. DEFENDANT’S MISUSE OF FORUM NON CONVENIENS A.

Defensive Forum Shopping

Having addressed forum shopping as a common phenomenon and forum non conveniens as a means of changing forum when the plaintiff’s choice of forum may not be the most appropriate one for the case, it is time to look at a related, yet less discussed phenomenon of defensive forum shopping.

Defensive forum shopping deserves a closer look, not just of the reasons for defensive forum shopping, which, in truth, are fairly obvious, but also of the methods which a defendant might employ in order to have their case heard in a more favorable forum. Of particular interest is the use of the forum non conveniens doctrine by defendants in order to avoid being faced with a judge or jury perceived to be less friendly.

112. See, e.g., Y.J. Sons & Co. v. Anemone, Inc. (In re Y.J. Sons & Co.), 212 B.R. 793, 806 (D.N.J. 1997) (citing FED. R. CIV. P. 11; Teamsters Local Union No. 430 v. Cement Exp., Inc., 841 F.2d 66, 68 (3d Cir. 1988)).

113. Algero, supra note 77, at 108.

114. Coast Mfg. Co. v. Keylon, 600 F.Supp. 696 (S.D.N.Y. 1985).

115. Id. at 698.

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It is easy to think of forum shopping as the kind of activity which is limited only to unscrupulous plaintiff’s attorneys, but this would be an inaccurate and unfair generalization. The fact that some defendants forum shop is a fact that is no longer even a matter of dispute. The methods through which defendants forum shop may differ from the methods available to plaintiffs, yet both still retain the option for either vertical or horizontal forum shopping. The next question, then, is to consider why a defendant might feel that forum shopping is an acceptable action, given the extent to which defense attorneys and defense-oriented interest groups have decried forum shopping as an unethical practice of plaintiffs.

The most obvious reason a defendant might choose to forum shop is to find a forum which is friendlier to defendants. This may mean the defendant’s home forum if the defendant is popular or well respected in the community.

It may also mean a federal court, which are generally perceived as friendlier to defendants than many state courts. In commercial disputes, forum shopping may even have taken place preemptively via forum selection clause, perhaps with the plaintiff not even recognizing what they had agreed to.

2. Methods of Defensive Forum Shopping Just as a plaintiff’s attorney may be ethically required to find the most advantageous forum to present a client’s case, so too are defense attorneys required to make full use of the law to defend the interests of their clients.

This means not only responding to attempts by opposing counsel to try a case in a remote location with no connection to the case, but may also require that an attorney actively seek to move the case to a more favorable venue if such a venue exists. Several methods exist through which defense attorneys may attempt to forum shop, not all of which may be available in every type of case which will arise, but each of which may be sufficient for a defendant’s needs.

One option is the inclusion of a forum selection clause in any type of formal business agreement, whether a contract for sale of goods or a residential lease. Parties entering into contractual relations always seek to reduce risks, and one method for doing so is the forum selection clause.116 In a forum selection clause, the parties will agree to rules governing a dispute that may be as simple as “under the laws of England” or as specific as “any dispute must be litigated before the High Court of Justice in London,

116. See Lee Goldman, My Way and the Highway: The Law and Economics of Choice of Forum Clauses in Consumer Form Contracts, 86 NW U. L. REV. 700, 700 (1992).

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England.”117 The more specific the forum selection clause is, the more likely that it will be enforced by the courts.118 This is an option for preemptively forum shopping in the event of a potential contractual dispute between parties, yet it is of little use for parties in other sorts of cases.

A second option available is removal from state to federal court, in compliance with federal statutes governing jurisdiction.119 The removal statute controls “any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants, to the district court of the United States for the district and division embracing the place where such action is pending.”120 Federal courts may be preferable to some defendants, but this option is only available in cases in which the case could have been brought in federal court to begin with.121 A third option is the filing of a declaratory judgment action.122 This would involve a defendant preemptively filing suit against a potential plaintiff in order to have their rights and liabilities declared by the court.123 This particular method, however, has not been well received by the federal courts, who find that “[u]sing a declaratory judgment action to race to res judicata or to change forums is thoroughly inconsistent with the purposes of the Declaratory Judgment Act and should not be countenanced.”124 Its usage is limited to federal court.125 A fourth, and final potential option available to defendants is a forum non conveniens motion if there is a more appropriate forum available.126 Of the potential methods of changing a forum, this is most likely to be used because it is not subject solely to federal statutory requirements and is available in a host of different types of cases.127 Whether the use of a forum non conveniens challenge is for purposes of forum shopping depends on the needs and intent of the defendant and deserves a closer look. Because this Article is meant to consider intrastate forum shopping, we can remove a 117. M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 20–21 (1972) (Douglas, J., dissenting).

118. Id. at 15.

119. 28 U.S.C. § 1441 (2018).

120. Id. § 1441(a).

121. Id. 122. Id. § 2201(a).

123. Id.; see also Algero, supra note 77, at 102.

124. Travelers Ins. Co. v. La. Farm Bureau Fed’n, 996 F.2d 774, 777 n.7 (5th Cir. 1993) (citing Dresser Indus., Inc. v. Ins. Co. of N. Am., 358 F. Supp. 327 (N.D. Tex.), aff’d, 475 F.2d 1402 (5th Cir. 1973)).

125. Id. at 776.

126. See 28 U.S.C. § 1404(a) (2018); see, e.g., Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 507 (1947).

127. Forum non conveniens has been used to challenge forum in everything from divorce cases to bankruptcy filings.

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number of these potential options: forum selection clauses because they are preemptive, the Declaratory Judgment Act because we are considering state court actions, and removal for the same reason. What is left to discuss then, is forum non conveniens.

B.

Defensive Use of Forum Non Conveniens

We know that forum shopping is a tactic used by defendants in order to avoid having their cases tried in a forum which might be less amenable to the defendant. Having also looked at the various methods available to a defendant to move their case to a different forum, and determining that forum non conveniens is the most widely available method for a defendant to use to forum shop, the next question is why a defendant would choose to forum shop, knowing that it is an activity that is frowned upon by the courts and the rest of the legal community. It is worthwhile, then, to discuss the purpose of forum non conveniens abuse as well as the determining just when exactly the behaviors of the defendant rise to the level of abuse, which is to say, when does a defendant’s use of forum non conveniens become an abuse of process?

1. Purpose When it comes to litigation, no party wants a level playing field.

Plaintiffs seek a forum in which the rewards for their labors can be maximized. Defendants seek to move cases out of those forums and in to other forums, which are less likely to offer high awards.128 There is little more that can be said about the purpose of forum shopping from a defendant’s perspective. Given that the privilege of selecting a forum is granted to the plaintiff, there is little a defendant can do other than react to the plaintiff’s actions and seek to mitigate any potentially damaging situations.

Forum non conveniens is the among the most logical methods for defendants to use when it comes to forum shopping. It is available to defendants in both state and federal courts, and merely requires a second appropriate venue.129 2. Abuse If it is natural then that some forum shopping should occur, and forum non conveniens is one of the frequent vehicles through which this forum shopping is conducted, at what point does usage of forum non conveniens constitute an abuse? Once again, it is the intent behind the motion that should 128.

129.

See Algero, supra note 77, at 102.

See Jurianto, supra note 16, at 369.

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determine whether a defendant’s filing constitutes an abuse of forum non conveniens or is made in good faith. When the reasoning behind a motion strays away from legitimately seeking to move to a more appropriate venue into absurd attempts to avoid a specific venue at any cost, abuse is certain.

One of the most egregious abuses of forum non conveniens, is when a defendant attempts to argue that their own home forum is inconvenient. In Ellis v. AAR Parts Trading Inc., an Illinois case dealing with the aftermath of an airplane crash in the Philippines, the defendants sought to move their case from Cook County Illinois to the Philippines for trial.130 Defendant AAR was an Illinois corporation with its principal place of business in Illinois at the time that it purchased a Boeing 737 from its manufacturers.131 AAR subsequently sold the 737 and assigned its rights, title, and interests to Fleet, a Delaware corporation with its principal place of business in Illinois.132 In affirming the trial court’s decision to dismiss the forum non conveniens motion, the court wrote that, “it is incredulous for two Illinois resident corporations to argue that their home state is inconvenient to them to litigate this matter.”133 Similarly, in another Illinois case, Kwasniewski v. Schaid, the plaintiffs filed suit in Illinois following a three-car accident in Wisconsin.134 When the defendant raised the issue of forum non conveniens, it was rejected.135 The Illinois Supreme Court even went so far as to say that “[i]t is all but incongruous for defendants to argue that their own home county is inconvenient.”136 If even state courts reject such behavior, why is it possible for a defendant to claim that filing in a home forum is vexatious or harassment?

Some scholars have argued that this is because the doctrine of forum non conveniens has shifted away from its focus on judicial process, including David Robertson who wrote that: Clearly the pendulum has swung very far; granting forum non conveniens dismissal to a defendant sued at home is powerful evidence that the abuse of process approach to forum non conveniens has been wholly abandoned, because it should ordinarily be impossible for such a defendant to make a credible claim of vexation or harassment.137

130. See Ellis v. AAR Parts Trading, Inc., 828 N.E.2d 726, 729 (Ill. App. Ct. 2005).

131. Id. at 730.

132. Id. 133. Id. at 743 (emphasis omitted).

134. Kwasniewski v. Schaid, 153 Ill.2d 550, 551 (1992).

135. Id. at 552.

136. Id. at 555.

137. David W. Robertson, Forum Non Conveniens in America and England: “A Rather Fantastic Fiction”, 103 L. Q. REV. 398, 405 (1987); see also Jurianto, supra note 16, at 397.

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This shift away from the abuse-oriented process has left the door open for more abuse to occur since courts seem to favor bearing the cost of a few undeserving suits rather than denying justice to those meritorious claims which are brought before them.

C.

Ethics of Defensive Forum Non Conveniens

Is it ever ethical for a defendant to engage in any type of forum shopping? Just as with plaintiffs, this is an ethically gray area since attorneys must balance their duty to use the law to the fullest extent to benefit their clients, while at the same time refrain from violating any ethical rules which may be in place. I suggest that it is never ethical for a defendant to claim that their home forum is an inappropriate place to try a case, especially given that in an intrastate case the weight of factors combined with deference to the plaintiff’s choice of venue ought to result in a dismissal of the motion.

1. Claiming Home Forum is Not the Appropriate Forum As discussed above, one blatant abuse of the doctrine of forum non conveniens occurs when a defendant, sued at home and seeking a more favorable forum in the face of litigation, files a motion to dismiss for forum non conveniens alleging that pursuing the case in their home forum is vexatious and a form of harassment. This is a highly questionable act as it borders on dishonesty to the court and may even require the bringing of a frivolous motion. It serves no purpose to move the litigation forward and simply increases the cost of litigation.

Again, as with plaintiffs, defense attorneys are limited by ethics rules.

Model Rule of Professional Conduct 3.1 forbids the bringing of a proceeding that is frivolous.138 It is, however, difficult to conceive of a scenario in which a plaintiff seeks to undertake harassment or bring a vexatious action by filing a case in the defendant’s self-selected home forum. This is particularly true in cases involving large, sophisticated corporations that have the money and resources to thoroughly determine what jurisdiction they would like to call home and what jurisdictions they would like to do business in.

Furthermore, Rule 3.2 requires a lawyer to take steps to expedite their client’s case.139 The decision to invoke forum non conveniens as a means to attempt to have a case removed from the defendant’s home forum amounts to little more than slowing the pace of litigation, with no benefit to any party other than those attorneys involved who bill by the hour. It is hard to justify 138. MODEL RULES OF PROF’L CONDUCT r. 3.1 (AM. BAR ASS’N 1983).

139.

“A lawyer shall make reasonable efforts to expedite litigation consistent with the interests of the client.” Id. r. 3.2.

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such behavior when the doctrine being abused is the very same doctrine meant to prevent abuse of process in the first place.140 Finally, Rule 3.3 requires candor towards the tribunal hearing the 141 case. It is hard to argue that a party is being absolutely truthful when they bring a motion arguing for dismissal on the grounds that the plaintiff has chosen the defendants home forum as the place to file suit, a location that is not only inconvenient, but vexatious and solely for purposes of harassment.

It is more likely that the defendant has opted to make their home forum in a jurisdiction which tends to offer higher awards or has a history of judges or juries who tend to favor plaintiffs.

2. Of Pots and Kettles: Motions with Unclean Hands Oftentimes, a motion to dismiss under the doctrine of forum non conveniens will include an allegation of the plaintiff engaging in forum shopping. While forum shopping is not illegal, nor necessarily unethical (unless ethics rules have been broken in the process of forum shopping), it is still frowned upon by courts and commentators and such an allegation has the effect of suggesting impropriety in the plaintiff’s actions.142 It is hoped that this suggestion will take root and influence the court’s decision. But what happens when the party making the allegations of forum shopping is, in fact, engaging in forum shopping as well an attempt to lessen their potential liability?

In law, it is said that a party who accuses another party of certain behavior, whilst having engaged in the same behavior themselves has “unclean hands.”143 Although a doctrine of equity, forum non conveniens is a request for equitable relief,144 so it seems only fitting to say that a forum shopping defendant accusing a plaintiff of forum shopping has certainly come to the court with unclean hands. Bearing that in mind, it is worth

140. See Jurianto, supra note 16, at 374.

141. MODEL RULES OF PROF’L CONDUCT r. 3.3.

142. See Janet Hallahan, Damage Control: Should a Foreign Nation’s Jury Awards Limit American Juries? 67 TEMPLE L. REV. 729, 763–64 (1994) (discussing how forum shopping is generally considered to be against American public policy).

143. According to Barron’s Law Dictionary: [O]ne of the maxims of equity embodying the principle that a party seeking redress in a court of equity (equitable relief) must not have done any dishonest or unethical act in the transaction upon which he or she maintains the action in equity, since a court of conscience will not grant relief to one guilty of unconscionable conduct, i.e., to one with “unclean hands.”

Unclean Hands, BARRON’S LAW DICTIONARY (5th ed. 2003).

144. Griffith v. Mitsubishi Aircraft Int'l, Inc., 554 N.E.2d 209, 211 (Ill. 1990) (“The doctrine of forum non conveniens is an equitable doctrine that assumes the existence of more than one forum with jurisdiction over the parties and the subject matter of a case.”).

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considering potential means by which defendants can be prevented from abusing the forum non conveniens doctrine.

V. SOME THOUGHTS ON LIMITING DEFENSIVE ABUSES OF FORUM NON CONVENIENS We know that plaintiffs engage in forum shopping in order to find the most advantageous forum available to their client. Similarly, we know that defendants engage in forum shopping as well, and for the very same reason.

One of the main tools available for defendants is the doctrine of intrastate forum non conveniens, a doctrine which is easy for defendants to abuse in order to attempt to lower the potential impact of an adverse judgment. It is, therefore, important that legislatures and courts consider means which ensure that defendants cannot abuse the legal process through frivolous forum non conveniens motions. Here, I suggest three potential means to address this issue: (1) a statutory limit on the potential jurisdictions in which a case may be heard; (2) elimination of the doctrine of intrastate forum non conveniens; or (3) barring defendants from ever claiming that their home forum in an inconvenient forum.

A.

Statutorily Limit the Number of Jurisdictions

The first, and perhaps most obvious method of reducing defensive abuse of the forum non conveniens doctrine is for state legislatures to act. Through the use of statutes, the legislature could limit the number of forums available in any particular kind of case. I suggest that the list of potential forums can be effectively limited to two: (1) the site of the injury; and (2) the defendant’s home forum. These two forums are suitable for the reasons discussed below.

1. Site of Injury The site of the injury or incident is one logical place to consider as a practical place to file suit. Certainly the local county has an interest in resolving accidents or injuries which have occurred within its jurisdiction, and access to local witnesses and police or local medical records is most convenient.145 Finally, it would be difficult to argue that there is any reason not to pursue the case where the issue originated.

Needless to say, this limiting of the venue to the site of the occurrence or issue would include other cases beyond merely injury. Real property cases ought to be heard in the venue in which the property is located, as should 145. Though in the age of internet, most records are now stored electronically and can be sent anywhere in the world with the push of a button.

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various local business disputes. What limiting venue to the site of the controversy does is ensure that there is a venue with a strong local interest.

2. Defendant’s Home Forum A second possible option is to make the defendants home forum the location for filing suit. This is especially reasonable when the defendant is a business of some type, whether a brick and mortar store, hospital, professional practice group, retailer, or some other flavor of business. By requiring that suit be brought in the defendant’s home forum, there is no question as to whether the forum is a convenient one for the defendants.

There is easy access to evidence that the defendant may possess. Because the defendant’s home forum may not be convenient for the plaintiff, it demonstrates that the suit has merit and is not brought for the purpose of harassing the defendant.

Additionally, the defendant’s home forum has an interest in making sure that those who choose to live and work within its boundaries both treat others fairly and are treated fairly in a court of law. If a defendant has opted to reside or do business in a certain jurisdiction, then they have potentially placed themselves at the mercy of that jurisdiction should they find themselves hailed to court.

B.

Eliminate Intrastate Forum Non Conveniens

A second possible course of action is to completely eliminate the doctrine of intrastate forum non conveniens. Gordon Maag, formerly a Justice of the Illinois Appellate Court, Fifth District, has pointed out that the “sole reason for venue statutes was to foster convenience and place a limitation on the available forums.”146 Removing intrastate forum non conveniens restores some meaning to the tradition that plaintiffs are entitled to their choice of venue, by removing the mechanism defendants use to bypass that tradition.147 One method for eliminating intrastate forum non conveniens would be through the method described above: through statute. In this scenario, the state dictates what the requirements are for venue. If the venue statute is satisfied, then a defendant may not request that the court decline jurisdiction.148 In the event that a forum is not the proper forum, a defendant

146. Gordon E. Maag, Forum Non Conveniens in Illinois: A Historical Review, Critical Analysis, and Proposal for Change, 25 S. ILL. U. L.J. 461, 523 (2001).

147. Id. 148. Id. at 523.

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would still have recourse to a motion to transfer venue.149 The downside is that a few counties or judicial districts may find their dockets slightly more congested; however, this is a likely to be a small burden as few intrastate cases are likely to feature forums located great distances apart.

A second possible method for removing intrastate forum non conveniens would be to simply leave it to the state supreme courts to determine whether or not it is a worthwhile doctrine for their state. This is likely the most efficient approach to abolishing intrastate forum non conveniens, since it is a common law doctrine and the court could, with a single decision, wash its hands of the doctrine. However, it is unlikely that any state’s high court would choose to overturn such a doctrine as courts are jealously protective of safeguards for parties to access justice.

C.

Bar Defendants from Ever Claiming a Home Forum is Inappropriate

If both of the above suggestions were to prove too much to a reformminded legislature or a state supreme court, there is a much simpler response that, while not likely to result in wide reduction in the number of forum non conveniens abuses, may still result in a noticeable reduction in the number of motions filed. That is, either the state legislature or the states’ high courts could choose to bar all defendants from claiming that defending a suit in their home forum is inconvenient. As discussed above in detail, such a claim is frivolous at best, unethical at worst, and never made in good faith.

By this point, we have belabored the point to death that defendants attempting to avoid being sued at home by virtue of forum non conveniens is in bad faith. It would be repetitive to address the point and reasoning again, so suffice it to say that, if no other steps were taken to address defensive forum shopping, this minimal change would be a big step in restoring the doctrine of forum non conveniens as a tool to prevent abuse of process, rather than lower it to a tool for the abuse of process. Surely, that is reason enough to act.

VI. CONCLUSION Forum non conveniens is an equitable doctrine conceived as a means to ensure that plaintiffs did not abuse the litigation process by filing suit in remote venues with little or no connection to the case or controversy, merely to attempt to secure some type of advantage. To that end, it has been very successful, and federal courts have been fairly liberal in their willingness to

149.

Id. at 524.

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uphold dismissals on the grounds of forum non conveniens. But, that willingness to uphold such challenges has had drawbacks as well.

One of those drawbacks is the misuse of the intrastate forum non conveniens doctrine by defendants as a means of forum shopping in order to avoid litigating an issue in a forum they deem potentially hostile. Luckily, such forum shopping can be avoided in part by addressing these forum non conveniens abuses. In the process, the state courts and legislatures can restore the forum non conveniens doctrine to its original purpose as a safeguard of the litigation process.

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