News

The Texas Bar College Welcomes New Member

AUSTIN – The Texas Bar College congratulates Jason C. Nelson on his membership in the College. Mr. Nelson is a Partner with Barry Conge Harris LLP in Houston, Texas. He practices in corporate, securities, mergers and acquisitions, and finance. Mr. Nelson is a graduate of the University of Michigan Law School as well as Stanford University, Tulane University, and the University of Houston Clear Lake.

The Texas Bar College, the only organization in the United States formed for this purpose, is an honorary society of lawyers, chartered by the Supreme Court of Texas in 1981, to recognize and encourage lawyers who maintain and enhance their professional skills and the quality of their service to the public by completing at least double the required hours of continuing legal education each year. The College also sponsors or otherwise assists in educational activities of significant merit and widespread relevance and applicability to the legal profession.

Is That Reserved Non-Participating Royalty Interest “Fixed” or “Floating”?

The Latest Development in a Persistent Controversy

  • Laborde Properties, L.P. v. U.S. Shale Energy II, LLC; No. 04-16-00168-CV, ___ S.W.3d ___ (Tex. App. – San Antonio Oct. 12, 2016)

Yesterday, the San Antonio Court of Appeals once again addressed the question of whether a reserved nonparticipating royalty interest (“NPRI”) was “fractional” (i.e., a reserved fixed 1/16 of future production) or a fraction of royalty (i.e., a reserved floating royalty dependent upon the magnitude of the royalty fraction contained in future leases). Arising out of cross-motions for partial summary judgment to determine this very question, the Karnes County district court had held for the grantors’ successors, who claimed their reserved NPRI “floated” and entitled them to receive proceeds of production based upon 1/2 of the 20% lease royalty, and against the grantees’ successors, who claimed the reservation was limited to merely a “fixed” 1/16 of production. The San Antonio court reversed, holding that the 1951 warranty deed, as a matter of law, reserved to the grantors’ successors only a fixed 1/16 NPRI. The operative language in the deed stated:

There is reserved and excepted from this conveyance unto the grantors herein, their heirs and assigns, an undivided one-half (1/2) interest in and to the Oil Royalty, Gas Royalty and Royalty in other Minerals in and under or that may be produced or mined from the above described premises, the same being equal to one-sixteenth (1/16) of the production. This reservation is what is generally termed a non-participating Royalty Reservation. . . .

(emphases added). When the dispute finally arose, EOG Resources, Inc. had become the lessee under an oil and gas lease providing for a 20% landowner’s royalty. The grantors’ successors argued to the court that they were entitled to 1/2 of 20% (or 10%) of production. Conversely, the grantees’ successors argued EOG Resources was overpaying the grantors’ successors and that their own royalty payments were, therefore, being improperly burdened with a 10% NPRI instead of only 6.25% (1/16) of production.

Deed Construction Outcome

After restating the rules of deed construction under Texas law, the San Antonio court applied those rules to find the 1951 warranty deed to be unambiguous and to provide for the reservation of a fixed 1/16 NPRI. Focusing on the operative reservation language – “an undivided one-half (1/2) interest in and to the . . . Royalty . . . in and under or that may be produced . . ., the same being equal to one-sixteenth (1/16) of the production” – the San Antonio court concluded that none of the remaining terms of the deed altered its decision regarding whether the reserved NPRI was fixed or floating. Both sides argued the court’s prior decision in Graham v. Prochaska, 429 S.W.3d 650 (Tex. App. – San Antonio 2013, pet. denied) (in which Justice Barnard, the author of this current opinion, dissented) in support of their position (“the phrase ‘same being equal to one-sixteenth (1/16th) of all oil, gas and other minerals,’ in the absence of other language, would express an intent to create a fixed interest”). Justice Barnard carefully distinguished both Graham and Hausser v. Cuellar, 345 S.W.3d 462 (Tex. App. – San Antonio 2011, pet. denied) from the deed language at issue in the present dispute (“in both cases we determined the interests at issue were floating interests based on additional language in either the deed or outside documents incorporated into the deed showing an intent to create a floating interest”).

Justice Barnard also reconciled this current opinion with the court’s opinion in Medina Interests, Ltd. v. Trial, 469 S.W.3d 619 (Tex. App. – San Antonio 2015, pet. denied) and the Supreme Court’s most recent pronouncement in Hysaw v. Dawkins, 483 S.W.3d 1 (Tex. 2016).

The “Estate Misconception” Theory to No Avail

It is of acute interest to those following this subject that the opinion concludes: “[e]ven application of the [estate] misconception theory would not change the result.” Justice Barnard explained:

If the grantors and grantee in this case assumed a one-eighth lease royalty, the reference to a one-sixteenth (1/16) of production (in the absence of the more specific language and outside deeds relied upon in Graham) shows an intent to reserve an unchanging one-half (1/2) of the assumed one-eighth (1/8) lease royalty, or one-sixteenth (1/16) of production . . ., i.e., a fixed interest. In Graham, the reference to “one-sixteenth (1/16th),” which the court found was merely a mathematical calculation, did not include, as here, the phrase “of production.” The inclusion of the phrase “of the production” in the 1951 warranty deed suggests a different intent from that found in Graham. There is nothing in the disputed language in the 1951 deed to suggest the parties intended the reservation “come out of the landowner’s royalty and vary in accordance with that fraction of production,” i.e., a floating interest.

Cf., Graham, 429 S.W.3d at 657–58. Finally, the Karnes County trial court had awarded attorneys’ fees to the grantors’ successors because they had prevailed on their declaratory judgment claim that a floating royalty interest was reserved. Tex. Civ. Prac. & Rem. Code § 37.009 (West 2015). Having reversed that outcome, the San Antonio court – citing Hausser, 345 S.W.3d at 471 – remanded the case to the trial court for its reconsideration of attorneys’ fees.

The opinion may be reviewed here in its entirety.

  • Questions about this case or other commercial litigation matters may be referred to Barry Conge Harris LLP litigation partner Robert S. Ballentine, LL.M. by either calling (713) 331-7629 or writing to rballentine@barrycongeharris.com.

 

 

Barry Conge Harris LLP is pleased to make the following announcement:

Michael J. Spalding and Kene Chinweze have been elected partners in the firm’s Energy Practice Group, on the oil and gas title and due diligence team.

Michael has over 16 years’ experience, including preparing title opinions and counseling clients on complex legal matters involving upstream acquisitions and operations issues. In addition to Texas, Michael is also licensed in Oklahoma and Kansas.

Kene has more than 10 years’ experience examining title instruments and exploration and production contracts, in addition to rendering various types of title opinions. Kene is Board Certified in Oil, Gas and Mineral Law by the Texas Board of Legal Specialization.

Founded on January 1, 2016, Barry Conge Harris LLP is a full-service law firm having significant experience and expertise representing clients in a diverse range of legal matters, including commercial litigation, corporate and energy. For additional information contact Barry Conge Harris LLP, Felicia Harris, 1800 West Loop South, Suite 750, Houston, Texas 77027; 713.331.7662; fharris@barrycongeharris.com.

Ultra Vires: Governmental Immunity Will Not Protect Government Officers Acting Outside of Granted Discretion

In another decision rendered on April 1, 2016, the Texas Supreme Court, again, disagreed with a city’s effort to invoke governmental immunity protections. In Houston Belt & Terminal Railway Co. v. City of Houston[1], the Court was asked to determine whether governmental immunity barred a claim against a Public Works Director alleging he exceeded the authority granted to him under a local ordinance.

In this case, the City of Houston enacted a drainage-fee ordinance, which proposed a “pay-as-you-go” system. The ordinance gave the Public Works Director authority to administer its provisions in compliance with the terms of the ordinance, which included provisions to guide its application. Three railroad companies received notices of proposed charges totaling an estimated payment of $3 million annually based on the Director’s determination that the railroads’ properties contained about 93,000,000 square feet of impervious area. The railroads determined the impervious area of their properties was only 72,364 square feet, less than 1% of the city’s count (92,927,636 square feet less). The variance derives from the different measurement tools. The railroads used digital map data – a method expressly permitted under the ordinance – to determine the amount of impervious area. The Director, relying on “other similar reliable data” language in the ordinance, used aerial images, and decided that, if the area appeared green it was pervious, and if it appeared brown it was impervious, without regard to any other factors.

The city contended governmental immunity was an absolute bar to the suit because the Director exercised discretion granted to him under the ordinance. Specifically, the city alleged governmental immunity barred all claims against a governmental official who had some discretion to act. The railroads argued governmental immunity did not bar the claims because the Director exceeded his authority. Conceding that governmental immunity barred the claims if the ordinance afforded the Director absolute discretion (i.e., discretion where no specific, substantive, or objective standards govern the exercise of judgment), the railroads argued the ordinance is not that broad. Thus, the railroads argued the Director’s decisions were made “without legal authority” under the ordinance and, therefore, were not precluded by governmental immunity.

The Court agreed with the railroads. In doing so, it clarified that immunity only applies when a decision or act is committed to the public officer’s unfettered discretion:

governmental immunity bars suits complaining of an exercise of absolute discretion but not suits complaining of either an officer’s failure to perform a ministerial act or an officer’s exercise of judgment or limited discretion without reference to or in conflict with the constraints of the law authorizing the official to act. Only when such absolute discretion – free decision-making without any constraints – is granted are ultra vires suits absolutely barred. And, as a general rule, ‘a public officer has no discretion or authority to misinterpret the law.’ … [G]overnmental immunity only extends to those government officers who are acting consistently with the law, which includes those who act within their granted discretion.

The Court found this rationale consistent with public policy because governmental immunity is intended to prevent suits designed to control state action by imposing liability on the state. Contrary to the city’s position, when properly alleged, “ultra vires suits do not attempt to exert control over the state – they attempt to reassert control of the state.” Thus, for government immunity to “serve the pragmatic purpose of protecting public resources, [the Court has] recognized … extending immunity to officers who violate the law [would] not further that goal.”

Applying these principles to the facts at hand, the Court concluded the ordinance did not grant the Director absolute discretion and, instead, imposed “specific restraints on the type of data that can be used to determine ‘impervious surface.’” Thus, by alleging the Director acted outside the bounds of the discretion afforded by the ordinance, the railroads asserted a viable claim, and trial court erred in dismissing the complaint. The Court remanded the case back to the trial court for further proceedings.

Although the Supreme Court has limited remedies for ultra vires claims against officers to prospective declaratory and injunctive relief, this decision highlights the importance of clearly stating who has, and how broad is the, discretion to enforce and carry out the laws passed by the elected.

Questions about this case or other commercial litigation matters may be referred to Barry Conge Harris LLP litigation partner and former Councilmember (City of Pearland, Texas, 2006-2012) Felicia L. Harris (fharris@barrycongeharris.com; 713.331.7662) or appellate partner Andrew Parma (dparma@barrycongeharris.com; 713.331.7624).

Barry Conge Harris LLP is a full-service law firm with experience representing clients in diverse legal matters including commercial litigation and appeals, corporate and energy.

[1] ___ S.W.3d ___, 2016 WL 1312910 (Tex., April 1, 2016).

Supreme Court Clarifies Abuse of Discretion Standard In Merits-Based Review of New Trial Motions

On April 1, 2016, the Texas Supreme Court sought to clarify “merits review” of new trial orders on mandamus review. In In re Bent[1], the Court confirmed that the familiar “abuse of discretion” standard applied to merits review of orders granting a new trial. In doing so, the Court may be reining in merits review before it crosses too far into sufficiency issues.

The controversy in In re Bent was between homeowners and an insurer, which originated in the aftermath of Hurricane Ike, and escalated in the wake of several re-assessments of the damage, the intervention of the City of Piney Point Village, and eventual foreclosure of the residence. A jury found no breach of contract by the Bents’ insurer, but did find the insurer violated certain Insurance Code provisions and awarded $400,000 in damages and $185,000 in attorney’s fees (but no appellate fees). The Bents successfully moved for a new trial. The court cited five reasons for granting a new trial, four of which were the focus of the Supreme Court’s opinion.

In re Bent is the latest opinion in an evolving area: mandamus review of a trial court’s power to grant a new trial. Until recently, the trial court’s discretion to grant a new trial “in the interests of justice and fairness” was largely unfettered. See Johnson v. Fourth Court of Appeals, 700 S.W.2d 916, 917 (Tex. 1985). The landscape shifted in 2009, when the Supreme Court found that litigants were entitled to a “reasonably specific explanation” from the trial court as to why a new trial after jury verdict was required. In re Columbia Med. Ctr. of Las Colinas, Subsidiary, L.P., 290 S.W.3d 204, 213 (Tex. 2009). Subsequent opinions sketched the contours of the new duty: the trial court’s order must identify an appropriate basis for a new trial, and the reasons given must be tied to the facts of the case before it. In re United Scaffolding, Inc., 377 S.W.3d 685, 688–89 (Tex. 2012). Finally, a trial court’s order must do more than meet these criteria; the reasons given must be supported by the record. In re Toyota Motor Sales, U.S.A., Inc., 407 S.W.3d 746, 749 (Tex. 2013). The Court labeled this last requirement “merits review.”

In In re Bent, the Court revisited the standard of review (which was not mentioned in the Toyota opinion). The Court first acknowledged that reviewing a trial court’s new trial order for support in the record “broke new ground,” but dismissed the idea that it had created a new standard. Instead, merits-based review was presented as a different aspect of the traditional use of mandamus: “Importantly, this Court has never suggested merits review of new-trial orders should be conducted under anything other than the abuse-of-discretion standard that is familiar and inherent to mandamus proceedings… ‘Merits review’ was simply a reference to the new authority granted to courts of appeals to consider, in mandamus proceedings, whether the record supports the trial court’s rationale for ordering a new trial.”

The Bents challenged four of the trial judge’s five enumerated reasons for granting a new trial. Specifically, the Bents argued: (1) the jury’s failure to find breach of the homeowner’s policy was contrary to the great weight and preponderance of the evidence; (2) there was no violation of the trial court’s order in limine concerning the Bents’ purported failure to seek a variance from Piney Point Village; (3) the diminished-value award was not supported by the evidence; and (4) the jury improperly failed to award appellate attorney’s fees. The Court disposed of reason (1) because the trial court presented matter-of-law or no-evidence complaints; the Court reasoned these are not “facially valid” reasons for granting a new trial. Reason (2) was disposed of based on the merits-based review announced in Toyota; the record showed that the insurer did not violate the motion in limine. Reasons (3) and (4) were rejected because the trial court’s order failed to show “that the trial judge considered the specific facts and circumstances of the case at hand and explain how the evidence (or lack of evidence) undermines the jury’s findings.”

Ultimately, the Court’s decision in In re Bent highlights the importance of a trial court’s duty to dot the “I’s” and cross the “T’s” if it intends to grant a new trial after jury verdict. By stressing that “merits review” is but one facet of the mandamus power, In re Bent reminds reviewing courts that the trial court’s decision to grant a new trial is still subject to some deference.

Questions about this case or other commercial litigation matters may be referred to Barry Conge Harris LLP appellate partner Andrew Parma (dparma@barrycongeharris.com; 713.331.7624) or litigation partner Felicia L. Harris (fharris@barrycongeharris.com; 713.331.7662).

Barry Conge Harris LLP is a full-service law firm with experience representing clients in diverse legal matters including commercial litigation and appeals, corporate and energy.

[1] No. 14-1006, __ S.W.3d __, 2016 WL1267580 (Tex., April 1, 2016).

Sovereign Immunity
Not a Defense for Contracts Involving Proprietary Functions

On April 1, 2016, in a matter of first impression, the Texas Supreme Court held in Wasson Interests, Ltd. v. City of Jacksonville[1] that municipalities are not immune from breach of contract lawsuits related to their proprietary, non-governmental acts. Notably, the Court’s decision extends to contract claims not covered by Chapter 271 of the Texas Local Government Code, the holding the Court made in tort claims: that municipalities are “not immune from suit for torts [and contract violations] committed in the performance of its proprietary functions.”

The Wasson case involved a city’s 99-year lease of real property to a private party. Wasson, the tenant, filed suit against the city for breach of contract after the city sent an eviction notice contending Wasson violated the lease agreement. In response, the city filed a traditional and no-evidence motion for summary judgment claiming immunity from suit. The motion was granted by the trial court. The court of appeals affirmed that decision, finding that immunity for municipalities was the “default position” in contract cases. A unanimous Texas Supreme Court disagreed, rejecting the city’s argument that “a city is never subject to suit for contract claims unless there is a legislative waiver.” The Court found the long-term lease contract was excluded from immunity under Chapter 271, and held immunity would apply only if the contract involved a governmental function of the City, a point for which no finding was made in the courts below.

In rejecting broad immunity, the Court weighed the policy arguments favoring the defense of sovereign immunity against the rationale the Legislature previously adopted in the tort arena. Using that analysis, the Supreme Court noted that, although “[p]olitical subdivisions of the state—such as counties, municipalities, and school districts—share in the state’s inherent immunity[,] … [t]hey represent no sovereignty distinct from the state and possess only such powers and privileges as have been expressly or impliedly conferred upon them.” Highlighting the “derivative” nature of a municipality’s immunity, the Court considered the Legislature’s adoption of Chapter 271, noting it expressly provides immunity to contracts for goods and services only, which a lease is neither. Finding no language in Chapter 271 extending immunity to real estate leases, the Court undertook the task of determining whether immunity barred the tenant’s claims; but, first explained its jurisdiction and process for doing so.

Specifically, the Court acknowledged that sovereign immunity protects a state from suit for money damages; thus, Texas cannot be sued, unless it “consents.” And, when such immunity is granted either in a constitutional provision or by legislative enactment, courts are bound to enforce the defense. When, however, such immunity is not afforded by the constitution or legislative enactment, the Court found the doctrine has evolved in the common law, granting courts authority to shape the doctrine by balancing the dichotomy between governmental and proprietary functions.

“[I]n the realm of sovereign immunity as it applies to … political subdivisions—referred to as governmental immunity—th[e Supreme] Court has distinguished between those acts performed as a branch of the state and those acts performed in a proprietary, non-governmental capacity.” Governmental acts are those done as a branch of the state—such as when a city “exercise[s] powers conferred on [it] for purposes essentially public … pertaining to the administration of general laws made to enforce the general policy of the state.” Proprietary functions “are those functions performed by a city, in its discretion, primarily for the benefit of those within the corporate limits of the municipality.” While the distinction is not always clear, the Texas Supreme Court pointed out that definitional guidance is found – and can be relied upon in contract cases – in the Texas Tort Claims Act. Because neither the trial court nor the court of appeals determined whether the long-term lease agreement involved governmental functions, the Supreme Court remanded the case for that question to be answered.

In sum, the Court held that sovereign immunity is not a defense when (1) the city performs proprietary functions,” (2) such functions result in the commission of a tort or breach of contract, and (3) “the city acts of its own volition for its own benefit and not as a branch of the state.”

Apparently recognizing the potential liability risks if immunity is denied, amicus briefs were filed in support of each side of the debate.[2] If the court of appeals determines on remand that leasing of public property to a private party is a proprietary function, the ruling should enhance a tenant’s rights to enforce such agreements with public entities, and expand governmental exposure for monetary relief to those generally available to private litigants, including benefit of the bargain damages and recovery of attorneys’ fees.

Although the Court was asked to consider only the question of municipal immunity, the analysis likely applies to other political subdivisions of the State, like ports, counties, economic development entities, and school districts. That is to say, this holding is not limited to real estate contracts, but will likely impact economic development and other revenue creating agreements local governments have been known to enter into. Thus, to mitigate potential contractual risks, whether contracting with or on behalf of a political subdivision, the Wasson case may signal a change to negotiation strategies for certain government contracts. It also may signal, regardless of what the appellate court decides, a topic of interest for the 2017 Legislative Session.

Questions about this case or other commercial litigation matters may be referred to Barry Conge Harris LLP litigation partner and former Councilmember (City of Pearland, Texas, 2006-2012) Felicia L. Harris (fharris@barrycongeharris.com; 713.331.7662), senior litigation associate Craig J. Geraci, Jr. (cgeraci@barrycongeharris.com; 713.331.7621), or appellate partner Andrew Parma (dparma@barrycongeharris.com; 713.331.7624).

Barry Conge Harris LLP is a full-service law firm with experience representing clients in diverse legal matters including commercial litigation and appeals, corporate and energy.

[1] 2016 WL 1267697 (Tex. 2016, Apr. 1, 2016).

[2] The Texas Municipal League and the City of Dallas filed amicus briefs on behalf of the City of Jacksonville. Trinity East Energy filed an amicus brief in support of Wasson.

Fraction of Minerals vs. Fraction of Royalty – Court of Appeals Determines Whether Deed Reserved a One-Half Royalty, or Merely a “Floating” Fraction of Royalty

  • Dragon v. Harrell, No. 04-14-00711-CV, ___ S.W.3d ___ (Mar. 30, 2016)

In yet another warranty deed construction case originating out of Karnes County, the San Antonio Court of Appeals today issued its opinion in Dragon v. Harrell where it reversed and remanded the trial court’s judgment on cross-motions for summary judgment in favor of the grantors (the Harrells) and against the grantee (Dragon) where the outcome hinged upon the proper characterization of the grantors’ 1991 royalty reservation. Finding the 1991 warranty deed to be unambiguous, the Court construed it as a matter of law. By applying “a holistic approach that considers all of the deed’s words and parts in context,” the Court held it reserved a floating fraction of royalty interest to the Harrell grantors: 1/2 of 15/16ths of whatever royalty is to be paid on the oil, gas, and minerals produced from the property.

The relevant portions of the 1991 warranty deed under consideration included the reservation:

SAVE AND EXCEPT HOWEVER, and there is hereby reserved unto the GRANTORS, their heirs and assigns, a free non-participating interest in and to the royalty on oil, gas and other mineral in and under the hereinabove described property consisting of ONE-HALF (1/2) of the interest now owned by Grantors together with ONE-HALF (1/2) of the reversionary rights in and to the presently outstanding royalty in on and under said property, perpetually from date hereof. It being understood and hereby provided, however, that GRANTORS, their heirs or assigns, shall not be entitled to participate in the bonus money or annual delay rentals paid, or to be paid, under any present or future oil, gas and mineral lease on said premises, and that it shall not be necessary for GRANTORS, their heirs or assigns, to join in the execution of any future oil, gas or mineral lease or leases on said premises. [emphases added]

The Court of Appeals construed the Harrells’ reservation in light of the prior reservations also recited within the text of the 1991 warranty deed:

This conveyance is made SUBJECT, HOWEVER, to the following:
1. Mineral Reservation contained in, and herein quoted verbatim, from a Deed of Conveyance to Claude D. Winerich, from Frank A. Winerich and Ida Lee Winerich, dated February 17, 1940, recorded in Volume 118, Page 615-616, of the Deed Records of Karnes County, Texas, said reservation being as follows, to-wit: “It is expressly agreed under this conveyance that the Grantors hereby retain one-sixteenth (l/16th) or one-half (l/2) of the one-eighth (l/8th) of all minerals in, on and under said above described 611 acres, said interest to be a participating interest.

2. An undivided one-fourth (l/4th) interest in and to all of the oil royalty, gas royalty and royalty in other minerals reserved for the natural life of C. D. Winerich and Dorice Winerich, and contained in that certain Deed of Conveyance from C. D. Winerich and Dorice Winerich to Frances W. Bowers, said Deed of Conveyance being recorded in Volume 240, Pages 267–269, of the Deed Records of Karnes County, Texas. [emphases added]

First Prior Reservation

Because all five rights of mineral estate ownership had been retained (i.e., the rights to (1) develop, (2) lease, (3) receive bonus payments, (4) receive delay rentals, and (5) receive royalty payments), the first prior reservation referenced in the 1991 warranty deed was determined to be a participating interest. This 1940 deed reserved to Frank and Ida Winerich 1/16 of the mineral estate (“one-sixteenth (l/16th) or one-half (l/2) of the one-eighth (l/8th) of all minerals in, on and under said above described 611 acres, said interest to be a participating interest”). Therefore, as the Harrells acknowledged, they owned “15/16 of the mineral estate.”

Second Prior Reservation

The second prior instrument reserved “an undivided one-fourth (1/4th) interest in and to all of the oil royalty, gas royalty and royalty in other minerals reserved for the natural life of C. D. Winerich and Dorice Winerich.” This reserved a life estate of 1/4 of whatever leasehold royalty was paid on the oil, gas, or other minerals produced. Upon the execution of the 1991 warranty deed, the Harrells’ estate was burdened by the life estate, but the Harrell grantors’ estate retained the entire reversionary interest. Dorice Winerich died before the present suit was filed in 2013.

Construing the 1991 Warranty Deed with the Two Prior Reservations

First, the Court of Appeals reasoned that, when the 1991 warranty deed was executed, the Harrells owned and, therefore, could convey no more than “15/16 of the mineral estate, less a life estate in a 1/4 floating royalty interest, plus a reversionary interest to the then-outstanding life estate royalty interest.” This was the mineral estate owned by the Harrells when they signed the 1991 warranty deed.

Next, the 1991 warranty deed unambiguously reserved an interest in the royalty on the oil, gas, and other minerals. It also identified the two parts making up the reservation:

  • ONE-HALF (1/2) of the interest now owned by [the Harrells], together with
  • ONE-HALF (1/2) of the reversionary rights in and to the presently outstanding royalty in on and under said property.

The first part of the Harrells’ reservation was “the interest now owned by Grantors,” which recognized that the reserved royalty interest was reduced by the two prior reservations. The second part of their reservation was one-half of “the reversionary rights in and to the presently outstanding royalty in on and under said property,” thereby reserving 1/2 of the reversionary interest in the outstanding royalty life estate, “rather than allowing the entire reversionary interest to be conveyed to Dragon.”

The Harrells had argued “the interest now owned by Grantors” meant the entire estate owned by them at the time the 1991 warranty deed was signed. They maintained the 1991 warranty deed reserved a fixed fraction of the oil, gas, and minerals produced from the land – a fixed fraction of the mineral estate. But the Court of Appeals reasoned that, if “the interest now owned by Grantors” meant the entire estate the Harrells owned at that time, the rest of the sentence (“together with the ONE-HALF (1/2) of the reversionary rights in and to the presently outstanding royalty”) would be rendered meaningless. The Court of Appeals could not accept a construction that would render this phrase meaningless.

Conclusion

In his motion for summary judgment, Dragon argued that the 1991 warranty deed reserved only a fraction of royalty to the Harrells. The Court of Appeals agreed by concluding the Harrells reserved a fixed fraction of the floating royalty interest – that is, 15/32nds (1/2 of 15/16) of whatever royalty may be paid on production in the future. Consequently, assuming a 20% royalty lease, for example, the Court of Appeals held the Harrells would be entitled to only 9.375% of production. The Harrells would not be entitled to one-half of the minerals produced – or a 1/2 royalty on production – as they had argued in their motion for summary judgment.

Holding the 1991 warranty deed reserved only a floating fraction of royalty interest, the Court of Appeals reversed and rendered judgment that the 1991 warranty deed reserved 15/32 of whatever leasehold royalty may be paid on the oil, gas, and other minerals produced from the property and remanded the case to the trial court solely for its reconsideration of the attorneys’ fees, if any, to which Dragon may be entitled.

The opinion may be reviewed here in its entirety.

  • Questions about this case or other commercial litigation matters may be referred to Barry Conge Harris LLP litigation partner Robert S. Ballentine, LL.M. either by calling (713) 331-7629 or writing to rballentine@barrycongeharris.com.

Barry Conge Harris LLP is pleased to make the following announcements:

Robert S. Ballentine has joined the firm as a partner in the Litigation Practice Group. Bob focuses his practice on complex commercial litigation and arbitration of commercial energy disputes in the upstream and midstream sectors of the oil and gas industry. Prior to joining the firm, Bob provided assistance to the firm’s lead trial counsel, Felicia Harris, in connection with the firm’s recent successful representation of Sunset Nursing Home, Inc.

Andrew P. Parma has joined the firm as a partner in the Litigation Practice Group. Drew’s practice focuses on civil appeals, summary judgments and other dispositive motions in both state and federal court.

Josh Van Maele has been elected partner in the firm’s Energy Practice Group, on the oil and gas title and due diligence team.

Calvin B. Garwood has joined the firm as Of Counsel in the Energy Practice Group, on the oil and gas title and due diligence team.

Founded on January 1, 2016, Barry Conge Harris LLP is a full-service law firm having significant experience and expertise representing clients in a diverse range of legal matters, including commercial litigation, corporate and energy. Each of the founding partners previously practiced at the Houston office of now-defunct Burleson LLP. For additional information contact Barry Conge Harris LLP, Felicia Harris, 1800 West Loop South, Suite 750, Houston, Texas 77027; 713.331.7662; fharris@barrycongeharris.com.

Barry Conge Harris LLP Scores Big For Nursing Home Client

Just 8 weeks after opening the firm’s doors, founding partner Felicia Harris, Craig Geraci and Andrew Parma scored a multi-million-dollar win for a Brazoria County nursing home owner and operator. After almost three years of litigation and a three-week trial, on Friday [February 26, 2016], the jury returned a unanimous verdict in favor of BCH’s client, Sunset Nursing Home, Inc., of more than $4 million for breach of contract. The 12-member jury found that Sunset’s prior tenants breached two lease agreements that allowed the tenants to operate Sunset’s two nursing homes. In addition to the breach of contract finding, the jury also found that a conspiracy existed between the tenants and the guarantors on the lease agreements to defraud Sunset. The jury’s verdict included $700,000 in actual damages and $2 million in punitive damages in connection with the fraud finding. Continue reading