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Energy & the Law

Title Suit Booted for Failure to Join Parties

Posted in Lease Disputes, Litigation, Title Issues

unhappy partyLongoria v. ExxonMobil is like throwing a big party but failing to invite all the right guests.

The Longorias – 59 of them – sued producer-defendants over ownership of 9,200 acres in Brooks County, Texas, acquired in the 1800’s. Plaintiffs claimed their ownership was not recognized in subsequent conveyances and judgments and sought an accounting, damages for conversion of their share of production, to quiet title, and to declare their ownership in the mineral estate.

Trouble for the Longorias

Plaintiffs identified 82 absent interest owners as “Necessary, Nominal Parties” – let’s call them the “uninvited” – but did not join them as defendants. Facing motions to abate and to dismiss, Longoria claimed the uninviteds were not necessary because there was no claim against them. But their pleadings made claims on their interests. The court denied that argument.

Alternatives to joinder and service

Longoria offered to pay the unserved interest owners amounts equal to the royalty paid by the producers for as long as production continued.  Like a party favor for not even being invited. The court dismissed that rationale. If the plaintiffs won the suit the producers’ interests would be diminished. The “uninvited” wouldn’t be bound by the judgment, and could continue to look to the producers for payment of 100% of their royalty.

How long is long enough?

Longoria argued that they served 57 of 64 absent owners (producers argued it was fewer) and weren’t allowed sufficient time to locate and serve the others.  Observing that they had been given nine months to accomplish this task, the court concluded that the Longorias, having made half-hearted efforts at service, were not diligent in pursuing the unserved interest owners.

To understand this result, you need to know that this dispute is the progeny of a suit originally filed in 2004. In a 2008 opinion this same court dismissed that suit on the more or less same grounds as this one, but without prejudice, giving the Longorias another chance to assemble the proper guest list.  Looks like the court finally invoked a judicial curfew, sending everybody home.

Finally, Longoria asked the court to allow substituted service on the unserved defendants.  The denied the motion. It was late and was defective because it was not supported by an affidavit. Even new affidavits filed with a motion for new trial were insufficient because they stated conclusions with no supporting facts.

The takeaways

  • A suit is likely to be dismissed if all parties whose interests could be affected by a judgment are not before the court.
  • Left unsaid in the opinion is that if a party is deliberate in refusing to do what the court orders, the court’s patience will eventually run out, with unpleasant results. In this case, 12 years was enough.

A musical interlude, dedicated to the Longorias’ empty feeling as the producer-defendants and the court of appeal leave the party, hand in hand.

Securities Fraud – a Lesson for Promoters

Posted in Litigation, Regulations

We discussed SEC v. Arcturus et al last week and promised more. Here it is.

Did defendants commit securities fraud?

It doesn’t matter. Violations of Sections 5 of the Securities Act and 15.A of the Exchange Act are strict liability offenses; the defendant’s state of mind is not a consideration.  Thus, because they sold unregistered securities through the United States mail or interstate commerce these defendants were liable unless they could prove an exemption.  They offered no proof of an exemption (such as registration) so they were liable.

But we still wanna know, did they commit fraud?

Yes. It is unlawful under the Exchange Act to use or employ any manipulative or deceptive or contrivance in contravention of SEC rules to sell a security.  If a person makes a material misrepresentation or omission or uses some other fraudulent device in connection with the offer, sale or purchase of a security and acts in interstate commerce he is liable.

The test under Section 17 of the Securities Act is similar. The Fifth Circuit’s standard for misrepresentation is whether the information disclosed, understood as a whole, would mislead a reasonable potential investor.  A statement or omission is “material” if there a substantial likelihood that a reasonable investor would consider the information important in making a decision to invest.

Who, me? 

What information did the the Parvizian defendants omit?  They sold working interests in a prospect that had been forfeited. In other words, they sold interests they didn’t own. Defendants argued that the interests were “in dispute” and they expected to get them back. As you might expect, the court said they should have told that fact to the investors.

“Scienter” galore 

Scienter is a mental state involving an intent to deceive, manipulate or defraud.  It also includes severe recklessness, the definition of which is lengthy, but includes words like “highly unreasonable”, “extreme” and “inexcusable”. Selling interests that you know were terminated without disclosing that to investors evidences “a high degree of scienter”, said the court.

What about the brokers?

The interests were sold through the Balunas companies, who were not registered as brokers with the SEC. There were “consulting agreements”. Balunas would “introduce” prospective venturors and would receive 12% commission and a $4,000 monthly “retainer”. Balunas would cold-call prospects from a lead list.

The “introducing” part is important.  A broker is “any person engaged in the business of effecting transactions and securities for the account of others.”  A mere introduction is deemed not to be effecting a transaction.

Investors, think about this

Have you ever considered the relationship between “invest” and “investigate”. They both derive from Latin but, to my surprise, are not from the same root. Nevertheless, in real life – especially when taking a random phone call from a fast-talking stranger – one should do the first only after doing the other.

Musical Interlude; you can’t do it alone

Promoters like Parvizian need backup. Sometimes backup takes center stage. Here’s betting you can’t name the lead singer for the  Reflections,  or the Tokens.

When is a Joint Venture a Security?

Posted in Litigation, Regulations

salesmanHere are several things to note about SEC v. Arcturus et al:

  • Pay attention to this post if you sell oil deals in the way these defendants did.
  • This is a civil enforcement suit, so nobody’s headed to jail.
  • Not all of the SEC’s many rules make sense. Think Leviticus and the wrong way to sacrifice a goat, except nobody’s headed for the unrelenting wrath of Yahweh.
  • Your “good intentions” won’t save you.
  • The SEC enforces when there are complaints. Break the rules and you‘d better go “yard” for your investors.

Parvizian controlled Arcturus and Aschere, buying and selling interests in drilling projects.  Each project had a managing venturor which supervised the project. Each venture included a confidential information memorandum, PPM, joint venture agreement, subscription agreement, and investor questionnaire.

The SEC alleged that the defendants violated the Securities Act of 1933 and the Securities Exchange Act of 1934, and sought injunctions and money. The SEC contended that the projects were securities. Defendants referred to them as “joint ventures” and the investors as “partners” or “venturors”.

First, definitions

A “security” includes an “investment contract”, but that term is not defined in either statute. The courts say an “investment contract” is a transaction or scheme whereby a person:

  • invests his money
  • in a common enterprise
  • expecting profits derived solely from the efforts of others.

The agreements

  • Parvizian’s power was limited to day-to-day management and was subject to the “affirmative vote” of the venturors.
  • The venture was to be “managed and controlled collectively by all the venturors”, including the ability to call a meeting.
  • The venturors had voting rights and could remove the managing venturor by a 60 percent vote.

The reality


  • The court couldn’t find that the venturors had any real powers, based on the way the ventures were actually constituted.
  • The venturors had no information about each other and thus no way to actually have a vote. Parvizian refused to disclose the identities of other venturors when requested.
  • In a process never disclosed to the venturors, Parvizian combined the assets of the partnerships into pools of accounts held by a third party.
  • Parvizian alone controlled and authorized every aspect of drilling and producing operations.
  • The venturors had no personal or firsthand knowledge about any activities or decisions related to the venturess and relied completely on information from Parvizian.
  •  The venturors were unknowledgeable in the oil and gas business.

SEC wins

Courts focus on the “economic realities underlying the transaction and not in the name appended thereto.” Here are factors (among others) that made this investment a security:

  • Access to information does not necessarily protect an investor from complete dependence from a third-party when that party is the sole source of the information and advice regarding the venture and the investor does not have the expertise necessary to make the essential management decisions themselves.
  • Venturors are not similar to general partners when they have no real power.
  • The partners were so dependent on a particular manager that they could not replace him or otherwise exercise ultimate control.
  • The venturors were so inexperienced and unknowledgeable in business affairs as to be incapable of intelligently exercising their venture powers.


Did they commit securities fraud, … and what about the brokers?

Our musical interlude desperately needs a theme. Ladies whose names begin with “C”?  Corrine and Colinda?

Texas Supreme Court Clarifies Nuisance Law

Posted in Litigation

nuisanceGardiner v. Crosstex North Texas Pipeline LLC, has brought clarity to Texas nuisance law. It took the Texas Supreme Court 54 pages; we have it in under 600 words. (We explained the lower court case here.)

  • “Nuisance” now refers, not to a defendant’s conduct or a legal claim or cause of action, but to a type of legal injury involving interference with the use and enjoyment of real property.
  • It refers to a condition that substantially interferes with the use and enjoyment of land by causing unreasonable discomfort or annoyance to persons of ordinary sensibilities attempting to use and enjoy it.

The interference must be substantial

To quote a treatise, the law “does not concern itself with trifles or seek to remedy all the petty annoyances and disturbances of everyday life in a civilized community even from conducted committed with knowledge that annoyance and inconvenience will result.” Crybabies not allowed!

The effect must be unreasonable

Substantial interference is not a nuisance unless the effect on those who otherwise use and enjoy their land is “unreasonable”, based on an objective standard of persons of ordinary sensibilities, not the subjective response of any particular plaintiff. Some plaintiffs are not as special as they think they are.

It’s the effect, not the conduct

The plaintiff must establish that the plaintiff’s discomfort or annoyance is unreasonable, not that the defendant’s conduct or land use was unreasonable.  It concerns the reasonable expectations of a normal person occupying the plaintiff’s land. The effects of the defendant’s conduct or land use must be such that would disturb and annoy persons of ordinary sensibilities and ordinary tastes and habits.

Let us count the factors

The court identified at least ten factors which could determine whether a defendant’s interference with a plaintiff’s use and enjoyment of the land is substantial and whether any particular effect of that interference is unreasonable. This indicates how fact-intensive nuisance cases can be.

The standard of care

Actionable nuisance can be divided into three classifications; in each there must be some level of culpability.

Intentional nuisance

“Intent” here means that the actor desires to cause a consequence of his act or that he believes that the consequences are substantially certain to result from it.  An intent to inflict injury or desire to do harm is not required.  Intent is measured by subjective standard: the defendant must have actually desired or intended to create the interference or must have actually known or believed that the interference would result.

The evidence must establish that the defendant intentionally caused the interference that constitutes the nuisance, not just that defendant intentional engaged in the conduct that caused the interference.

The plaintiff need not separately establish that the defendant’s conduct was also “unreasonable”.

Negligent nuisance

Nuisance not limited to intentional interferences.  A claim of nuisance is appropriate so long as it refers solely to the alleged legal injury.  If the allegation is negligent nuisance, the rules of ordinary negligence apply.

Strict liability

Any activity which involves an unusual hazard or risk relies on a strict liability nuisance. Strict liability is based on the idea that the defendant was engaged in some kind of activity exposing others to a risk of harm from accidental invasion under circumstances that justify allocating certain losses from such risk to the defendant, even though defendant acted with reasonable care. One takeaway from the decision is that the court found no evidence that a compressor station is abnormally dangerous.

Thanks to your supreme court, Texas nuisance law has gone from this to this.

Wyoming Federal Court Strikes Down BLM Fracking Rule

Posted in Environmental Policy, Hydraulic Fracturing, Regulations
wolfCo-author Sandra Mazan

U.S. District Court Judge Scott Skavdahl in State of Wyoming et al v. U.S. Department if Interior et al. struck down Bureau of Land Management regulations applying to hydraulic fracking on federal and Indian lands. He concluded that the BLM had no authority from Congress to issue such regulations.


In March 2015, the BLM issued the regulations, which addressed three areas of oil and gas development: wellbore construction, chemical disclosure and water management, each of which is already subject to state or federal regulation. According to BLM, the Rule was enacted in response to public concern about whether fracturing can cause underground water contamination and an increasing need for stronger regulation.  In response, industry proponents (the IPAA, Petroleum Association of America, Western Energy Alliance, the states of Wyoming and Colorado, and intervenors the states of North Dakota and Utah and the Ute Indian Tribe of the Uintah and Ouray Reservation) filed petitions for review of the regulations under the Administrative Procedure Act contending that it should be set aside as:

  • arbitrary,
  • not in accordance with law,
  • in excess of the BLM’s statutory authority, and
  • contrary to the federal trust obligation to Indian tribes.

Court’s Findings

  • Hydraulic fracking does not fall within BLM’s jurisdiction. Existing BLM regulations pertaining to surface disturbance, reporting requirements and pollution to groundwater in oil and gas operations do not evidence BLM’s broad authority to regulate the fracking process.
  • Congress had not delegated authority to BLM to regulate hydraulic fracking.
  • By enactment of the Safe Drinking Water Act (the SDWA) in 1974, Congress delegated authority to the Environmental Protection Agency to regulate hydraulic fracking on federal, state, and Indian lands; however, by amendment in the 2005 Energy Policy Act, Congress unambiguously excluded hydraulic fracking operations (not involving diesel fuels) from EPA regulation under the SDWA. (You may thank U.S. Rep. Joe Barton for that provision.)
  • By specifically removing the EPA’s authority to oversee fracking under the SDWA, Congress did not intend for another federal agency (i.e., the BLM) to step in and assume a similar role.

The Takeaways

There are several:

  • There is no statutory authority for a federal agency’s regulation of fracking.
  • Score this as a victory for proper statutory interpretation and the rule of law.
  • And a defeat for federal encroachment into activities already regulated by the states.
  • We’ll have to wait and see if this remains the status quo. The BLM has appealed.

To commemorate this ruling we need a happy song.

Texas Comptroller Prevails in Tax Exemption Claim

Posted in operations, Taxation

tooth fairyA fight over the Texas sales tax drew industry-wide attention when the trial judge commented from the bench that he was inclined to exempt purchases of casing, tubing, pumps and related services from Texas state sales tax. His actual ruling denied the relief sought by the taxpayer. In Southwest Royalties v. Hegar, the Texas Supreme Court agreed.

You will want to study this case if you are a tax lawyer, or if you expected the judiciary, channeling the tooth fairy, to redirect to producers millions of dollars in badly-needed state sales tax revenues. Otherwise, proceed directly to the musical interlude. (Tea Party: No micro-aggression here; I acknowledge your sincerely-held belief that no governmental unit, especially the Godless ones, really needs or deserves tax revenues.)

The Tax Code says

The tubulars would be exempt if:

  • They are sold to a manufacturer and directly used or consumed in or during the actual manufacturing, processing, or fabrication of tangible personal property if the use or consumption is necessary or essential to the processing operation and directly makes or causes a chemical or physical change to the product being manufactured, processed or fabricated for ultimate sale;
  • They are used or consumed in actual manufacturing, processing or fabrication of tangible personal property for ultimate sale if the use or consumption of the property is necessary and essential to a pollution control process; or
  • The use or the consumption of the property is necessary and essential to comply with laws or rules that establish requirements related to public health.

Bored yet? Read on. The worst is over.

Southwest said

Hydrocarbons are tangible personal property once they are severed.  The equipment was used for processing because it was used in or during the process of extracting hydrocarbons from underground reservoirs, separating them into their component parts and bringing them to the surface. Thus, the equipment was used in “processing” the hydrocarbons as they were extracted.

Another point: The equipment was used in processing and is essential for controlling pollution.

The State said

The manufacturing exemption must be construed narrowly, which yields a conclusion that mineral extraction is not manufacturing, processing or fabrication. Construing the statute otherwise is inconsistent with the other provisions of the Tax Code.

Another point: Minerals below the surface are real property and not tangible personal property.

The trial court findings of fact

Physical changes occur in hydrocarbons when they are extracted and lifted, but the equipment was not the direct cause of the changes.  Rather, the changes were directly caused by temperature and pressure changes as the hydrocarbons moved up toward the surface. Southwest did not challenge these findings.

The Supreme Court declared

The court pondered the notion of ambiguity, and gave “processing” its ordinary meaning. Southwest did not prove that the equipment was used in actual processing of hydrocarbons within the meaning of the Tax Code.

There was no evidence that the equipment was applied to cause changes to the characteristics of the hydrocarbons. The change was caused by natural pressure and temperature changes as the hydrocarbons were moved to the surface.This is different from, say, pumps that send superheated water into sulphur formations, causing a physical or chemical change in the sulphur.

Ralph Stanley, RIP.

Take a listen before writing off this tune or this one as whiney vocals and tinny hillbilly banjo noise.

A Development in Trade-Secret Cases

Posted in Contract Disputes, Litigation

angry woman

Co-author Skyler Stuckey

The big trade-secret case, Southwestern Energy v. Berry-Helfand, reported on these pages here and here, has been worked over by the Texas Supreme Court. Highlights:

  • Lack of certainty in damages does not preclude recovery.
  • A “Flexible and imaginative” approach to damages in trade secret cases has its limits
  • For the limitations clock to begin running, notice must be more than a suspicion or subjective belief.

A good tactical call

A defendant’s decision not to call an expert damages witness is reminiscent of the suicide squeeze. Judgment is withheld until the result is in. Run scores – manager is a genius; runner out at the plate – manager is reckless and should be fired. Here Southwestern introduced no witness of its own, but instead attacked factual underpinnings of Helfand’s expert’s methodology and the reliability of his calculations. Decision vindicated? Looks like yes. The jury awarded far less than Helfand’s expert calculated.

Reduced damages for misappropriation

As the court saw it, the only figure in the calculations that bore a relationship to the jury’s award was three-percent override applied to past production revenue on the disputed wells. There was no basis for valuing an override in Southwestern’s deep-rights sale. An estimate based on that sale was no evidence to support the jury’s $10.6 million award. The remainder of his calculations, though overstated, was sufficient evidence of actual damages for trade-secret misappropriation.

The proper measure was the reasonable royalty that would be obtained for the trade secret’s use, not an override. Relying on a “flexible and imaginative approach” for trade secret misappropriation is not justified when objective evidence is available. The compensation in the comparable Petrohawk agreement was probative of the trade secret’s value, and not necessarily of a reasonable royalty. Legally sufficient evidence existed to support actual damages, but insufficient evidence exists to support the entire amount the jury awarded.

The expert’s opinion was insufficient to support the entire judgment because he applied the total average payout (3%) received by the plaintiff under an exemplar agreement with Petrohawk to the total number of wells drilled by the defendant. He should have applied the specific formula for payout in the exemplar contract to each well to determine the exact amount that would have been paid for the trade secret.

Damages remanded – not rendered

Overstated damages do not entirely defeat recovery when legally sufficient evidence shows damages exist. There were damages to be had, just not in the amount awarded.

Breach of contract do-over

The court of appeals’ take-nothing judgment on breach of the confidentiality agreement was reversed and remanded. The jury award, based on the “value of the trade secret”, was not a proper measure of contract damages. Error in the measure of contract damages was not before the appeals court because Southwestern abandoned it on appeal. There was evidence of damages, but not enough to support the full award.

Limitations and the discovery rule – plaintiff survives

For the statute to begin to run on a trade secret misappropriation claim based solely on notice of sufficient facts that would cause a reasonable person to make further inquiry, the facts of which the plaintiff has notice must be egregious. Suspicions, subjective beliefs, and concerns are not sufficient. Southwestern failed to establish the date the misappropriation was discovered or as a matter of law, should have been, and couldn’t identify evidence revealing what Helfand would have discovered had she made further inquiry.

And we close with this enticement from the Supreme Court to unhappy defendants.

The Model Form JOA in Hard Times (and Farewell, Rally Possum)

Posted in Operating Agreements
Rally Possum May 7 - June 12, 2016

Rally Possum RIP. May 7 – June 12, 2016

Co-author Nathan Cox *

Good morning class. Welcome to an advanced course on what can go wrong with the Model Form just when you need it.


Do you know where to file your UCC financing statement?

Operator wants to perfect both a mineral lien and a financing statement against Non-operator, a Delaware Corporation. The property is in Texas. The mineral lien, of course, will be filed in the county where the property is located. Where to file the UCC financing statement? With the Secretary of State of Texas, the state where the property is located, or in Delaware, the state where Non-op is registered?

See Article VII B of the 1989 Model Form Operating Agreement:

“To perfect the lien and security agreement provided herein….Operator is authorized to file this agreement or the recording supplement executed herewith as a lien or mortgage in the applicable real estate records and as a financing statement in the applicable real estate records and as a financing statement with the proper officer under the [UCC] in the state in which the Contract Area is situated and such other states as Operator shall deem appropriate…. ” (our emphasis)

So, you file with the Texas SOS?  Not so fast.

The Uniform Commercial Code itself requires that a financing statement be filed in the proper office (usually the Secretary of State) in the jurisdiction where the entity is organized. One arrives at that conclusion by a circuitous route through UCC Sections 9-501, 9-301 and 9-307.

The 2016 revision repeats the 1989 language, so this problem, if that’s what it is, will be around for a while.

So do this

Record the financing statement both in the state where the lands are located and the state where the debtor is organized. Otherwise, the debtor could make a mess of your foreclosure efforts.


When can you recover attorney’s fees under the Model Form? See Article VII.D.5 of the 1989 form (far different from the 1982 form): “In the event any party is required to bring legal proceedings to enforce any financial obligation of a party hereunder, the prevailing party in such action shall be entitled to recover all court costs, costs of collection, and a reasonable attorney’s fee…”

The answer, according to the U. S. Bankruptcy Court for the Western District of Texas, in In re, WEB LP et alis when you obtain a monetary award, but not when you obtain injunctive relief.

WBH, LP was the operator; USED was a non-operator. WBH failed to pay vendors who filed lien affidavits. USED obtained injunctive relief in state court to remove WBH as operator. WBH filed for bankruptcy and the bankruptcy court adopted the state court injunction. Eventually, the court ordered the sale of the assets to Castlelake, WBH’s lender.  The order of sale provided that the debtors assets were subject to any valid senior liens asserted by USED under the JOA.  USED’s proof of claim totaled $500,000 in attorney fees for the injunction action. The court reasoned that the word in the document was “financial” obligations, which an injunction was not. No attorney’s fees for USED.


Our treasured marsupial was with us for a mere 36 days; a life too short but yet so full of memories, beginning a half-inning after he was carried off the Alex Box outfield in a trash bag. Overcoming a nine-run deficit against Arkansas, sweeping Tennessee, taking 3 of 5 from No. 1 Florida, thwarting the Cowbells and the Brainiacs. Done in by sloppy fielding and poor clutch hitting, he has shrugged off the mortal coil, much like a freshman would the “take” sign. But our good Possum is not really gone.  He is with his Higher Power, and we who have faith are solid in our conviction that one day we will be reunited with him in a glorious homecoming in that Heaven that he would call Omaha. That is, if he could talk. But he can’t talk because he’s a possum and he’s dead, so we have to imagine that’s what he would say. (Unless he was “talking” through that lady’s balloon hat at the Super Regional.) Nevertheless, his death is our inspiration to a greater cause, like going 1st-to-3rd on a single to right field.

Let’s hope our journey with Mr. RP does not parallel this musical interlude. May his rallying powers return on September 3.

* Nathan is a 2L at Baylor Law School, U.C. Davis undergrad, clerking at Gray Reed for the summer.

The Accommodation Doctrine Gets Its Feet Wet

Posted in Contract Disputes, Land Titles, operations

gliderLet’s start with a little background: Under the Accommodation Doctrine an oil and gas lessee has an implied right to use the land as reasonably necessary to produce and remove the minerals, but must exercise the right with due regard for the landowner’s rights.

As a result of Kelly Lake Ranch v. City of Lubbock, the doctrine now applies between the landowner and the owner of an interest in the groundwater. You think this decision pertains to ranchers? I report it because as we know from Bernie, you oil people frack the earth, poison our babies, and spend undeserved riches that should go to the government on vast, water-starved ranches in West Texas.

How did we get here?

In 1953, the City bought the Ranch’s groundwater via a deed that had very detailed provisions regarding the City’s rights. The Ranch reserved water for certain specified uses. In 2012, the City announced plans to increase water extraction by drilling as many as 20 test wells and 60 additional wells. The Ranch objected and sued to enjoin the City from implementing its plan.

The Ranch argues … and honors the Lesser Prairie Chicken

  • The City has contractual and common law responsibility to use only that amount of the surface that is reasonably necessary for its operations and to conduct operations with due regard to the rights of the surface owner.
  • Mowing or removing vegetation would cause destructive wind erosion.
  • The City could drill only where the Ranch allows it as long as full access to groundwater is not impaired.
  • Elevated power lines would allow hawks to roost and prey on the Lesser Prairie Chicken, a threatened species. So bury them (the lines, not the chickens).

The City argues

  • The deed gives the City very broad rights to pursue its plan.
  • The City owes no duty to surface owners (as would mineral owners to accommodate surface owners).
  • The City can drill wherever it chooses, even if it could drill in places less damaging to the surface and still access the water.

The deed governs the City’s rights to use the Ranch land.  What is unsaid is whether the City has an “all but absolute” right to use the surface, heedless of avoidable injury, or only what is necessary or incidental to fully access the groundwater.

The Result

The deed alone did not determine the City’s right to use the Ranch.  There are sufficient similarities between mineral and groundwater estates and their conflicts with the surface estate to apply the Accommodation Doctrine.

See pages 10 through 12 for a history of the doctrine in Texas. See page 13 for the elements of a surface owner’s claim under the doctrine.

A concurring opinion pointed to the written agreement allowing the City to drill water wells at any time and location.  Thus, the doctrine should not apply.  It might apply to where and when the City could construct access roads, but not to where it may locate wells.  Access roads could be built only where “necessary or incidental,” which leaves substantial room for disagreement. To that, the concurring justices would apply a reasonableness standard.

This is a Supreme Court opinion, so treat it like it is a big deal.

A musical interlude.

Let’s not forget D- Day

Several years ago I commented about D-Day – which happened 72 years ago yesterday – and my uncle, who was there. It is worth reading again.

Lessee Escapes Termination

Posted in Contract Disputes, Lease Disputes

terminatorCo-author Trevor Lawhorn ∗

Escondido and Justapor. Next up on Tiny Desk Concert? Good guess, but no. They are the parties in Escondido v. Justapor, a Texas case presenting the perils of lease termination clauses and vaguely-drawn contracts.

The agreements

Justapor as lessor and Escondido as lessee entered into an oil and gas lease in 2008 on the 803-acre Justapor Ranch in Webb County. Among other provisions,

  • Escondido must pay royalties within 60 days.
  • Annual “true-up” of royalty underpayments.
  • Termination if Escondido doesn’t pay the correct royalty.

In 2011, the parties entered into a separate agreement under which Escondido would convey certain interests it acquired in the Ranch to an entity designated by Justapor.

The lawsuit

Justapor sued in 2013, alleging intentional failure to make up underpayments in 2012 and 2013, breach of contract, bad-faith trespass, trespass to try title, and declaratory judgment on lease termination and the parties’ rights relating to a 42-acre “vacancy tract” Escondido was to convey per the 2011 agreement.

Everybody moved for summary judgment on lease and vacancy tract issues. The (home town) trial court granted a final summary judgment for Justapor and denied Escondido’s cross-motion. Escondido appealed.

The court of appeals speaks                                         

  • The lease did not terminate due to Escondido’s breach of the true-up provision. The court parsed the lengthy and complicated termination clause and said it could not be applied without rendering the true-up provision superfluous or giving Escondido conflicting deadlines to make payments.
  • Judgment rendered for Escondido on Justapor’s remaining claims.
  • Because the trial court said the lease terminated in 2012, Justapor’s claim for breach of the true-up provision in 2013 was never addressed.  That claim was remanded so that the trial court could address a typo and determine if Escondido breached the true-up provision in 2013.
  • Judgment on the vacancy tract reversed. Justapor never designated an entity for Escondido to convey interests to. Justapor, therefore, could not establish a breach of contract claim.

Lawyers, pay attention

Escondido waived its defenses to Justapor’s breach of contract claim by failing to expressly present the defenses in its summary judgment response. A “mere reference” to facts supporting affirmative defenses was not enough. Summary judgment for Justapor affirmed for Escondido’s breach of the lease.


  • Lessees: Faced with a termination clause? Don’t agree to this Sword of Damocles! At best, it produces sleepless nights. At worst, it could mean an ugly end to your investment.
  • Drafters: Avoid using confusing language that leads to an unanticipated result.
  • Plaintiffs: Make sure you have performed your own obligations before seeking specific performance.
  • Defendants: Never make Her Honor have to guess about your defenses.

∗ Trevor is a 2-L at SMU’s Dedman School of Law, LSU undergrad, clerking at Gray Reed for the summer.

The New Orleans version of the gospel standard is really two halves of one song: The first half is the dirge, wherein the departed is brought to the final resting place; the second half is the march, the celebration by those left behind. Don’t give up on this one too soon.  Whatever it is you need to get back to can wait.