This seems to be the season for oil patch courts to return property to its rightful owners. Last week it was a regulatory taking by the City of Dallas. This week it is Northwest Landowners Association v. State of North Dakota, in which the North Dakota Supreme Court deemed unconstitutional on its face a statute that stripped landowners of their rights in subsurface pore space.

SB 2344

In 2019 the North Dakota Legislature passed SB 2344, which allowed an oil and gas operator to use subsurface pore space in its operations and denied the surface owner the right to exclude others or demand compensation for subsurface use. The Bill granted the North Dakota Industrial Commission rulemaking authority to effectuate the purposes of the Bill and revised the definition of land to exclude pore space. The purpose was to overcome North Dakota’s Damage Compensation Act, which requires mineral developers to compensate landowners for lost land value and use. Finally, the Bill barred tort claims for injection or migration of substances into pore space.

The suit

The Association alleged that 2344 constituted an impermissible taking because it stripped landowners of their right to possess and use pore space and allowed the State to redistribute that right to others without the consent of or compensation to the landowners. The Fifth Amendment of the US Constitution guarantees that private property shall not be taken for public use without just compensation. The North Dakota Constitution prohibits taking or damage to private property for public use without just compensation having been first made to or paid into court for the owner.

The result

In its analysis the Court found a number of existing laws establishing the surface owner’s right to subsurface pore space, providing a statutory definition of pore space, and confirming that title to pore space is vested in the surface owner. The Court concluded that the surface owners demonstrated a constitutionally protected property interest in pore space that is recognized under state law.

The Court concluded that 2344 constituted a per se taking by allowing third-party oil and gas operators to physically invade a landowner’s property by injecting substances (such as CO2 or produced water) into the pore space.

An oil and gas operator does have an implied easement to dispose of wastewater into pore space produced within the same unit or pool, but the operator must compensate the surface owner for such disposal.

The Court relied on the plain meaning of ths statute to reject the State’s argument that the dominant mineral estate principle saved 2344 from constitutional infirmity. The statute applied to a broader set of circumstances.

The Court noted that although the use of pore space does not seriously interfere with a landowner’s use of the rest of his land because the pore space is beneath the surface, compensation is required for physical invasions even if the owner suffers only a minimal economic impact. This refuted intervenor Continental Resources’ assertion that pore spaces have no inherent value.

The Court denied the State’s argument that 2344 is not an unconstitutional taking because it is a proper exercise of its police power. The State may use police power only within constitutional limitations.

The Court determined that the constitutional and unconstitutional portions of the statute are independent and that the valid portions could be given effect without the invalid portion. Thus, the entire statute was not unconstitutional.

Your musical interlude

Co-author Trevor Lawhorn

If you have ever wondered how many ways a cocktail of stupidity*, treachery and feckless government can inflict financial harm on the undeserving, including the citizens the feckless government leaders are supposed to serve, see City of Dallas v. Trinity E. Energy, LLC.

 Facts

In 2008 during the Barnett Shale drilling boom, the City of Dallas issued an RFP to lease several thousand acres owned by the City. Trinity won the bid and agreed with the City that two additional tracts (the “Radio Tower Tract” and the “Gun Club Tract”) would be included in the lease, but only as drill site locations. Trinity paid a $19 million bonus for the lease.

Trinity submitted applications for special use permits (SUPs) from the City for the two tracts and a a private tract. The applications were filed correctly and in accordance with applicable laws. Pulling a Lucy on Trinity’s Charlie Brown, after a lengthy delay the City Plan Commission denied the applications. No other drill sites were feasible for various reasons. Trinity lost its appeal of the SUP denials to the city Council.

The City then amended its gas drilling ordinance to impose restrictions that effectively precluded drilling anywhere on the lease. The lease expired and the interest reverted to the City, never to be drilled.

Procedure

Trinity sued the City on several causes of action. The jury found the City committed statutory fraud and negligent misrepresentation and awarded damages to Trinity.

Over the City’s objection, the trial court submitted a jury question of the fair market value of Trinity’s property before and after denial of the SUPs. The jury found the FMV before denial was $33,639,000 and zero after. The trial court determined that the City committed a regulatory taking by failing to approve the SUPs and awarded Trinity $33,639,000.  The City appealed.

Regulatory taking

The Texas Constitution prohibits the taking, damaging or destroying of private property for public use without adequate compensation.  Inverse condemnation is a cause of action against a governmental defendant to recover the value of property which has been taken in fact by the governmental defendant, even though no formal exercise of the power of eminent domain has been attempted by the taking agency.  To plead a claim for inverse condemnation, the claimant must allege an intentional government act that resulted in the uncompensated taking of his property.

The City’s arguments:

  • There was insufficient evidence to support the finding that the City’s action constituted a regulatory taking. Trinity still had beneficial use of its property because it had other drill sites from which it could access some of the leased acreage. Trinity produced evidence that the best way to maximize the value of its interest was to use the three tracts as drill sites. This was why the sites were included in the lease.
  • Trinity could have drilled on other tracts in Irving and Farmers Branch to access its acreage. The City produced no evidence that those drill sites provided reasonable or economically viable access to Trinity’s minerals. Trinity showed that those sites would require complex drilling and excessively long well bores.
  • Trinity could have sought SUPs for different sites. But there was no evidence that Trinity would have been able to obtain SUPs for other sites that would have permitted Trinity to reasonably and economically develop its interests.

 The court of appeals affirmed the judgment.

 Sufficiency of expert testimony

 The City argued that Trinity’s expert’s testimony on market value was unreliable and therefore the evidence was insufficient to support the jury’s findings. In short, the court found that the expert’s testimony regarding value using the “proposed units” method was sufficient.

 The court also found that the expert’s use of the “comparable sales” method was sufficient. Testimony regarding comparable sales from other counties was appropriate because those sales included acreage with similar thickness as the City acreage. Comparable sales need not be in the immediate vicinity of the subject land, so long as they meet the similarity test.

Finally, the court found that the expert’s “discounted cash-flow” analysis was sufficiently certain. The expert relied on estimated future production, future prices, and estimated costs of production to calculate the net income for the property. He used publicly available price forecasts for his calculations.  While there was conflicting evidence regarding whether Trinity’s interests would be productive, resolving those conflicts was for the jury.

Your musical interlude.

* This is an opinion of course. We can’t certify that the then-City Council members who voted against granting the SUPs have IQ’s of two digits. Maybe they were driven by misinformed and misplaced ideology. Either way, $36 Million would fill a lot of potholes in South Dallas. Can’t blame Mayor Rawlings; he warned them.

Co-author Justin Cowan

Just because parties agree that disputes over a contract will be subject to binding arbitration doesn’t mean there won’t be wrestling at the courthouse beforehand. In LLOG Exploration Offshore, LLC v. Samson Contour Energy E&P, LLC, the United States District Court for the Eastern District of Louisiana resolved a motion to compel arbitration and to dismiss a lawsuit by staying the litigation pending the outcome of the arbitration but not dismissing the case. Continue Reading Arbitration Over Offshore Leases Does Not Warrant Lawsuit Dismissal

Co-author Jeremy Walter

Ark Sand Co., Inc. v. Bradley Demolition & Constr., LLC, et al has the appearance of a Hatfield and McCoy-grade grudge match. As often happens when litigation gets personal, the Texas Citizens Participation Act was invoked. The TCPA is the statute that protects citizens’ First Amendment rights such as free speech and the right to petition the government. As we will see, the statute will not cure all insults, real or perceived.

Ark owned an industrial sand pit, which it leased to Bradley Demolition & Construction, LLC (“BD&C”).  Ark alleged the lease was oral only, for a term of five years with no option to renew.  BD&C showed a written lease with a term of ten years.  Ark claimed that the signature on the lease was a forgery and the lease was unenforceable. BD&C refused to vacate after the five-year term.

Ark sued BD&C for several causes of action, inflammatory and otherwise, and sought a declaratory judgment.  BD&C counterclaimed.

The parties tried the declaratory judgment claim first because whether the purported written lease was valid would determine whether Ark had other claims.  The jury found that Ark did not sign the purported written lease and that lease was not valid.  The trial court granted declaratory relief and granted possession of the sand pit to Ark.

Ark then amended its petition to reflect that it owned the sand pit and added BD&C’s president Edward Bradley and BD&C affiliate Bradley Sand and Concrete Crushing Company to the suit, alleging BD&C sold them sand without authority, adding conspiracy, conversion, and other claims.

Turning up the heat, Defendants filed third-party claims against the president of Ark and others, alleging the sand pit was worthless when Defendants took over.  Defendants alleged a handshake deal whereby the president tricked Defendants into revitalizing the sand pit by leading them to believe they would own and operate it for ten years.  They argued the president always secretly intended to evict Defendants once the pit was profitable and that he operated Ark as his alter ego.

Ark moved to dismiss all third-party claims under the TCPA, arguing those claims were based on Ark’s exercise of its right to petition because they complained of Ark’s conduct in the lawsuit, pleadings, and previous trial. Defendants argued that Ark lacked standing to dismiss the third-party claims, that the motion was premature because those parties had not yet answered the lawsuit, and that the TCPA did not apply. The trial court denied the TCPA motion.

Ark argued on appeal that the TCPA applied to the third-party claims, specifically that those claims were based on Ark’s exercise of its right to petition and that Defendants failed to provide prima facie evidence of their claims.

Holding:

Ark Sand was not a named party in the third-party petition and the TCPA only allows “parties” to move to dismiss.  Although the third-party petition alleged Ark’s president operated Ark as his alter ego, it did not seek to hold Ark liable for the president’s conduct (only vice versa).

The Court held that a party cannot avail itself of a TCPA motion to dismiss unless the target of the TCPA motion seeks relief from the moving party. “Because Ark [Sand] is not named as a third-party defendant and the third-party petition does not otherwise seek to hold Ark [Sand] liable, Ark [Sand] has no need of protection from the third-party action [under the TCPA].”, said the Court.

The Court upheld the denial of Ark’s TCPA motion.

Your musical interlude.

You might recall this post on Broadway National Bank, Trustee v. Yates Energy Corporation. We now have Yates Energy Corporation et al v. Broadway National Bank, Trustee, the court of appeals’ ruling after remand. Recall the result from the Supreme Court: Execution of the 2013 Amended Correction Mineral Deed by the parties to the original 2005 Mineral Deed and the 2006 Correction Mineral Deed, without joinder of the current owners of the minerals, complied with Texas Property Code §5.029. The question remaining was whether the current owners were bona fide purchases for value without notice. Skipping all sorts of rulings on side issues, the result is that current owner Yates was not a BFP.  Other appellants survived to fight another day. Continue Reading Texas Correction Deed Statute Revisited … Again

Co-author Max Brown

In the Estate of Terry Banta presents yet another purported Texas land transaction doomed because of disregard for the Statute of Frauds. Terry Banta and the Herriotts entered into an oral agreement for the Herriotts to purchase a piece of property from Banta. In an unfortunate turn of events for everyone, Banta died before signing the written contract that would have memorialized the sale.  The Herriotts claimed to have made a down payment of $40,000 and regular monthly payments under the oral contract, paid ad valorem taxes, carried homeowners’ insurance while residing there, and made a number of repairs and improvements. (Discuss among yourselves: Why did they do this without a written contract?)

The administrator of Banta’s estate filed an application to sell the property. The Herriotts’ claim to the property was rejected by the administrator, who contended that the oral contract violated the SOF and was therefore unenforceable. The Herriotts cited the the “partial performance” exception to the SOF.  But the Herriotts failed to offer into evidence any exhibits supporting partial performance.  The trial court denied the Herriotts’ claim for a variety of reasons, one of which was their failure to satisfy the SOF, and granted the administrator’s application to sell the property.

On appeal the Herriotts challenged the legal and factual sufficiency of the evidence supporting the trial court’s adverse finding. After analyzing whether it had jurisdiction to review the claims (Appellate nerds: If jurisdiction is your thing, read the opinion), the court reviewed the ruling for an abuse of discretion and affirmed the trial court’s order.

What about the partial performance exception?

It was undisputed that the SOF applied because there was no written agreement evidencing the transaction.  The partial performance exception “requires more than just one party’s performance of some obligation under the alleged oral contract.”

The exception applies only when the following three factors are present:

  • payment of the consideration, whether in money or services;
  • possession by the vendee; and
  • making by the vendee of valuable and permanent improvements upon the land with the consent of the vendor—or, without such improvements, the presence of such facts as would make the transaction a fraud upon the purchaser if it were not enforced.

The Herriotts relied on a letter sent to the administrator (not in evidence), their own pleadings, affidavits and documents attached to their pleadings, and counsel’s arguments at the hearing.  However, none of these things are admissible evidence.  Because the record contained no proof substantiating the Herriotts’ assertions concerning the payments and improvements, they offered no evidence to carry their burden on the exception.

Moreover, the court held that even if the evidence had been entered, the Herriotts may not have met their burden.  The purported evidence showed that their occupancy of the property and payment of nearly $600/month to Banta and his wife was just as consistent with a lease as with a purchase.  Even the alleged down payment, though it be in full, is, by itself, not sufficient.  The repairs and improvements did not necessarily constitute conclusive proof of the kind warranting the partial performance exception.  The judgment was affirmed.  The trial court did not abuse its discretion.

Your musical interlude. Apologies to Elvis for missing the anniversary of his passing. You can’t imagine any better leader of the Heavenly choir that greeted Mr. Banta at the pearly gates … the $40K, the rent and the land in tow.

Co-author Brittany Blakey

 In re: Estate of Robert Scott Masters, Deceased reveals the price to be paid for failing to timely admit a will to probate or as a muniment of title.

Know this about Texas probate law

The Estates Code requires that a will be submitted for probate (or as a muniment of title) within four years of the testator’s death. After that period, a will may still be probated or filed so long as the proponent is not in “default” for failing to act timely.  In the statute, “default” means failure to probate a will because of the absence of reasonable diligence.

A person having custody of a will is charged with knowledge that it must be filed for probate within the statutory period, whether he knows it or not. Ignorance of the law is no excuse for failure to comply. A person with custody of a will who refrains for the statutory period from presenting it for probate under the assumption that his title to property is safe without it is in default.

Case law liberally permits a will to be offered as a muniment of title after the four years has run. In some cases a proponent’s belief that probate was unnecessary, when coupled with other specific facts, has been adequate to avoid a default.

The facts of the case

  • Prior to his passing, Robert Masters lived with Kippy Bailey as domestic partners, but Masters was on the deed as the sole owner of the house.
  • In 2007, Masters executed a holographic will that bequeathed the house to Bailey.
  • Masters died in 2012 and Bailey discovered the will about a day after. The will named Bailey as executor.
  • Bailey distributed specific gifts to individuals named in the will without probating it.
  • Bailey continued to reside at the house, pay property taxes, and maintain the house.

Bailey applied to probate the will six years after Masters’ death. In response, Masters’ potential heirs filed a small-estate affidavit.

Bailey did not refute the claim that he failed to file the application timely. Rather, he said, the issue was whether he proved that he was not in “default”. Bailey explained that he did not attempt to file the will because, among other reasons, he did not know that the will had to be admitted to probate until he spoke to an attorney and realized that title to the house did not automatically pass to him through the will.

The result

The trial court denied Bailey’s application and approved the heirs’ small-estate affidavit. Bailey appealed. The appellate court upheld the trial court for several reasons:

  • Although Bailey and Masters resided together in the house, they were never legally married;
  • Bailey had experience with land titles, having conveyed and received title to real property earlier in his life;
  • Bailey had exclusive possession and control over the will in the years prior to filing his application; and
  • There was no evidence that Bailey had legal title to the house.

Bailey argued that the trial court’s approval of the small-estate affidavit was “wrong and unjust”; he has resided in and maintained the house since Masters’ death and that he would likely lose possession if the affidavit was upheld. But Bailey offered no legal authority for the court to grant him homestead rights and he lacked standing to challenge the affidavit. Bailey was not the executor of Masters’ will, and the record did not show he had any other interest in the estate.

Your musical interlude

Withrow v. Chevron is another Louisiana legacy lawsuit, this one claiming that defendants Chevron and Vernon E. Faulconer, Inc., and their predecessors, improperly disposed of toxic and hazardous oilfield wastes in unlined earthen pits causing leaks, spills and other surface and subsurface damages and contaminating the soil and groundwater.

Defendants’ filed a Rule 12(b)(6) motion to dismiss the whole shebang for failure to state a claim. To defeat the motion the plaintiff had to plead specific facts, not mere conclusory allegations or legal conclusions masquerading as factual conclusions. On the other hand, a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.

This the court did not offer much in the way of reasoning for its rulings; there will be plenty of time for that. The order is helpful as a laundry list of claims often asserted by legacy plaintiffs.

The court considered the following claims: Continue Reading Louisiana Legacy Lawsuit Survives Motion to Dismiss

A special thanks to Derek Younkers, a soon-to-be 1L at Baylor Law School, who gathered the material for this post.

Those with even a passing acquaintance with the Old Testament know that when the Good Book talks pestilence and destruction, its go-to is a horde of locusts. And so it is with the plethora of lawsuits by states, cities and counties against oil and gas producers claiming catastrophic damages from fossil fuels. Some time ago we reported on City of San Mateo v. Chevron.  There are others.

The causes of action vary from case to case. The common denominator is that the suits are filed in state court and allege only state law claims.  Despite producers’ best efforts, the federal courts have denied federal jurisdiction.

Mayor and City Council of Baltimore v. BP p.l.c.

Baltimore alleges oil company defendants violated state-laws and concealed dangers associated with their fossil fuel products. The defendants removed to federal court. The Fourth Circuit concluded that its appellate jurisdiction only allowed it to review the federal officer removal argument and remanded without considering defendants’ other arguments. The Supreme Court then held that §1447(d) allowed the Fourth Circuit to consider all other arguments put forth by defendants and remanded.

Defendants argued that under the federal removal statutes removal jurisdiction was proper on these eight bases: federal common law, raising of a substantial federal issue, Clean Air Act preemption, federal enclave jurisdiction, original jurisdiction under the Outer Continental Shelf Lands Act, the bankruptcy removal statute, the admiralty jurisdiction statute, and federal officer removal.

The Fourth Circuit rejected all eight arguments and affirmed the district court’s decision to remand the case back to the state court, where it will reside forever.

There are 14 more pending cases. Here they are:

Board of County Commissioners of Boulder County v. Suncor Energy 

The allegations in this 2018 suit are that fossil fuel companies concealed the effects of fossil fuels on climate change and disingenuously marketed their products to the harm of the people living in Boulder County. Defendants removed. The Tenth Circuit affirmed that the case could not be removed under federal officer removal statute. and stated that that statute did not grant the Court appellate jurisdiction to consider defendants’ other grounds for removal. The Supreme Court clarified that when federal officer removal is one of multiple arguments for removal, then, on appeal, the court may look at the merits of the other arguments. The case was remanded.

Six of the bases for removal were the same as in City of Baltimore, and met the same fate.  The Tenth Circuit sent the case back to the state courts where it will also reside forever.

Rhode Island v. Shell Oil Products Co.

This 2018 case against Shell and other oil companies alleges state tort claims. The 1st Circuit, observing the “mind-numbing complexities of federal removal statutes” ruled recently that the case did not satisfy the necessary conditions for federal removal and remanded the case to the state court.

City of Oakland v. BP p.l.c.

The Cities of San Francisco and Oakland sued five fossil fuel companies in September 2017. This case is pending in the North District of California awaiting a decision in light of City of San Mateo.

City & County of Honolulu v. Sunoco LP

The claims here are public nuisance, failure to warn, and trespass. The case is before the 9th Circuit with the defendants claiming that the record in this case supports removal to federal courts in light of San Mateo.

City of Charleston v. Brabham Oil Co.

The claims here are failure to warn, concealment of known hazards, and other state law claims. The case is pending in the District Court of South Carolina awaiting a decision in light of City of Baltimore.

Anne Arundel County v. BP p.l.c.

The County of Anne Arundel asserts that BP and other oil companies violated the Maryland Consumer Protection Act. The case is pending in the District Court of Maryland awaiting a decision in light of City of Baltimore.

City of Annapolis v. BP p.l.c.

The claims here are public nuisance, failure to warn, and other state causes of action. The case is before the U. S. District Court of Maryland awaiting a decision in light of the decision on remand in City of Baltimore.

District of Columbia v. Exxon Mobil Corp.

This suit is for violation of The District’s Consumer Protection Procedures Act. The case is before the U. S. District Court of D.C. awaiting a decision on motions to remand.

Delaware v. DP America Inc.

The State of Delaware alleges oil and gas companies violated its Consumer Fraud Act and asserted common law claims. The case is in the 3rd Circuit where it has been consolidated with City of Hoboken.

City of Hoboken v. Exxon Mobil Corp.

This suit is pending in the 3rd Circuit where it has been consolidated with the State of Delaware.

Connecticut v. Exxon Mobil Corp.

The State of Connecticut sued Exxon and other oil companies alleging similar claims as the myriad of cases above. The case is currently before the 2d Circuit. awaiting a decision on a motion to remand.

Minnesota v. American Petroleum Institute

The State of Minnesota sued the API and oil companies alleging similar claims as other cases above. The case is before the 8th Circuit, where the parties await a decision on motions to remand.

Vermont v. Exxon Mobil Corp.

The State of Vermont sued Exxon and other oil companies in 2021. The case is currently in the District Court of Vermont awaiting a decision on motions to remand.

King County v. BP p.l.c.

King County Washington sued five fossil fuel companies in May 2018 and voluntarily dismissed its claim in September 2021.

A musical interlude about your musical interludes.  You might like an updated version.

 

Those who continue to be horrified by Broadway National Bank, Trustee v. Yates Energy Corp. should be relieved that the result in Endeavor Energy Resources, LP v. Anderson was more equitable. In Yates, the Texas Supreme Court held that Texas Property Code Section 5.029 permitted original parties to a conveyance to execute a correction deed without notice to or joinder of the current owners when the original grantees no longer owned the property.

The sale

In 2003 the Holcomb’s and Tom and Trudy Anderson signed a farm and ranch sale contract in which the Anderson’s were to acquire surface rights only in six tracts of a ranch and Holcomb’s were to reserve the minerals. The parties then signed a general warranty deed, the recitals of which did not comport with the intent to only convey the surface estate.

In 2007 the parties realized their error and executed a correction deed which recited that the parties intended to clarify and replace the original 2003 GWD.  It was specifically stated:

  • the parties ” … intended that all minerals owned by the Holcomb’s were to be reserved …” to the Holcomb’s and
  • “some question has arisen regarding whether the language of the mineral reservation accomplishes this intention.”
  • The 2003 GWD conveyed the surface only.

Trudy did not execute the correction deed because she had passed away.  Tom was executor of Trudy’s estate. Her will established a testamentary trust designating Tom as trustee and sole beneficiary. As trustee Tom had the authority:

  • To manage and handle all of the property passing to such trustee, in trust, as in the trustee’s judgment it may seem best,
  • To invade and use the corpus for his own benefit,
  • To do any and all things necessary for the best interests of the estate,
  • To do all acts of any kind and character in handling such estate.
  • To have all powers conferred under the Texas Trust Act, and
  • His acts would be conclusive and binding upon all persons.
  • His authority as executor of Trudy’s estate was similarly broad.

Section 5.029

The Supreme Court in Yates rejected the argument advanced by Anderson in this case that the current interest owners who were not parties to the original transaction must execute the correction deed. Because Trudy had passed away the court had to determine for purposes of Section 5.029 who is an heir, successor or assign.

The court in Yates said “successor” fills the gap between heirs and assigns, covering entities and legal representatives who succeed an original party other than as an heir or an assign.

Tom’s broad powers as executor and trustee permitted him to execute the 2007 correction deed as Trudy’s sole successor.  He possessed all decision-making authority regarding her estate and Trust assets with the exception of a conveyance of real property held by the Trust. That was not an impediment to execution of a valid correction deed.  A correction deed itself without more does not constitute a sale or conveyance of real property. It simply replaces and is a substitute for the original instrument.

Anderson also asserted that Tom’s signature block did not specifically recite the capacity in which he signed. But the correction deed clearly showed that the parties intended that it bind both Tom’s and Trudy’s interests.

Tom was Trudy’s sole successor within the meaning of Section 5.029. The consents of the children were not necessary.  The correction deed substantially complied with the requirements of Section 5.029.

Your musical interlude, with cowbell and without.