Co-author Gunner West
Defendants – five oil and gas operators – challenged a venue selection clause requiring that suits be filed in Nueces County for disputes over La Salle County acreage. In In re INEOS USA Oil & Gas LLC, (disclosure and shout out: Gray Reed lawyers Justin Lipe, Bill Drabble and David Pruitt represented INEOS) a Texas Court of Appeals deemed the venue clause unenforceable as a “major transaction” when the agreements at issue on its face provided for less than $1 million in aggregate consideration.
The plaintiff, apparently having experience in Congress, engaged in creative math that added contingent drilling costs or potential penalties to the amount of consideration stated in the documents to push the value over that statutory threshold. This was rejected by the Court.
The facts: half-a-million + $10 is not a million
Texas Lone Star Petroleum assigned 14 Eagle Ford leases covering 633 acres through a Purchase and Sale Agreement stating $538,237 as the purchase price and an Assignment for consideration of “ten dollars ($10.00) and other good and valuable consideration.”
The Assignment included a reversionary “take-over” right keyed to production thresholds that allowed Lone Star to terminate and reclaim the acreage. Both agreements contain venue selection clauses designating Nueces County, Texas, as the exclusive venue for disputes.
Lone Star sued in Nueces County alleging breaches related to production levels that triggered Lone Star’s rights under the Assignment. Lone Star claimed equitable title in the leases. The defendants moved to transfer venue to La Salle County, contending that the venue selection clauses were unenforceable because the agreements did not evidence a “major transaction” under Texas Civil Practice and Remedies Code Section 15.020, and that venue was mandatory in La Salle County, the location of the real property at issue.
The trial court denied transfer; defendants sought mandamus relief.
The Court’s analysis
The Court first addressed whether the venue selection clause was enforceable as a “major transaction”. The statute requires that the written agreement evidence consideration with an aggregate stated value equal to or greater than $1 million. The Court explained that the aggregate stated value must be specifically stated on the face of the agreement, and contingent or prospective amounts cannot be considered.
Responding to defendants’ assertion that the agreements reflect payments totaling less than $1 million. Lone Star argued that the drilling obligation, which could cost over $1 million, combined with the purchase price and penalty provisions, should be aggregated to meet the threshold. In rejecting that argument, the Court held that the drilling obligation is a contingent and prospective cost, not a stated value in the agreement. Therefore, the agreements do not evidence a major transaction. The venue selection clause was unenforceable on that basis.
Next, the court considered whether venue was mandatory in La Salle County under Section 15.011, which governs actions related to ownership of real property. The court examined the “essence” or “substance” of Lone Star’s claims, which sought ownership and operation of wells and leases located in La Salle County, as well as constructive trusts on interests in those properties. The Court concluded that the lawsuit constituted an action for recovery of an interest in real property, making venue mandatory in La Salle County.
Because Section 15.020 did not apply, it did not preempt Section 15.011. Thus, venue must be transferred to La Salle County. The defendants carried their burden of proof to establish mandatory venue in La Salle County.
The result
The Court granted the petition for writ of mandamus and ordered the trial court to vacate its prior order denying the motions to transfer and to issue an order granting those motions and transferring the case to La Salle County.