Co-author Rusty Tucker

In Wheeler et al v. San Miguel  Electric Cooperative, we learn – again – the difficulty in asserting a position in litigation that is contrary to the actual words in the agreement you are fighting over.

In 1954, Clifton and Nora executed a lease covering a 2,210 acre ranch in McMullen County, Texas, for “only the coal, lignite and other minerals (except oil or gas) down to a depth of 350 feet below the surface and no further”. San Miguel succeeded as lessee. Clifton and Nora’s heirs partitioned the surface rights and Nancy Wheeler acquired the entire surface estate. In 2012, the Wheelers granted DCP San Hill an easement to lay pipeline across parts of the Ranch.  Those parts of the Ranch were where San Miguel intended to strip mine, which the pipeline would prevent.

The Wheelers sued to declare the lease invalid. The basic issue was Nancy s assertion that by virtue of her acquisition of the entire surface estate, she owned all of the coal and lignite.

San Miguel counterclaimed for breach of the lease. At the trial court San Miguel prevailed on construction of the partition agreement and its claim that the Wheelers breached the lease and was awarded damages.

On appeal the Wheelers argued the trial court erred in construing the partition agreement for three reasons: (1) the agreement was ambiguous, (2) the surface destruction test applies, and (3) there was a fact question on the parties’ intent in executing the partition agreement.

The surface destruction test and the partition agreement

The partition agreement wasn’t ambiguous (disposing of points 1 and 3.) The agreement expressly addressed disposition of the mineral interests: “[t]here is excepted from the partition . . . and not conveyed or partitioned thereby, all of the oil, gas and minerals ….”. The agreement defined “oil, gas and minerals” to include coal and lignite.  The court explained, “[a]lthough coal and lignite are generally part of the surface estate when those minerals are within 200 feet of the surface . . . the general rule does not apply if the conveyance severing the mineral estate affirmatively states a contrary intent.”

The surface destruction test for near- surface lignite, iron or coal:  If the deposit lies near the surface, the substance will not be granted or retained as a mineral if it is shown that any reasonable method of production would destroy or deplete the surface.

The agreement provided, “… ownership of the oil, gas and mineral [sic] shall not be affected by this partition but shall remain the same after the execution….”  That language expressly stated the opposite of the Wheelers’ contention. The partition agreement was unambiguous and Nancy did not own 100% of the coal and lignite based on her ownership of the surface.

The Wheelers also argued the trial court should not have dismissed their claim that San Miguel waited an unreasonable time to develop the lease.  Again, the lease said otherwise. The lease was to “ … remain in force so long as the rentals hereinafter provided for are paid and/or so long as the coal, lignite [are produced]’”), and it “… ‘shall not be forfeited for any failure to prosecute mining operations … .”

The court of appeals affirmed the trial court’s judgment.

Trial lawyers:

You might want to read those portions of the case addressing striking jurors, limitations on a claim for failure to pay delay rentals, Rule 248 dismissal, and insufficiency of evidence.

A musical interlude. Good advice for the appellants?