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Co-author David Pruitt

Our Cornucopia post was a reminder that “subject to” is a phrase that punches well above its weight. In Brown et al v. Endeavor Energy Resources, L.P., those same two words undid a $2.3 million summary judgment and returned the case to the trial court for a do-over.

 The facts

Randy Brown earned overriding royalty interests while working as a geologist in the Permian Basin. In 1998 he assigned his overrides to ARCO, Endeavor’s predecessor. The assignment was “made subject to the terms and conditions” of an unrecorded letter agreement. After Randy died in 2018 and his sons inherited his estate, Endeavor sent division orders naming them as owners and over time paid $2.3 million in royalties. Each DO required the payee to refund amounts attributable to an interest he is paid on but does not own. After finding the ARCO assignment, Endeavor concluded it owned the overrides and demanded repayment. The Browns refused. Endeavor sued for breach of contract. The trial court ruled in Endeavor’s favor. The Browns appealed.

The question

Did Endeavor conclusively prove the Browns did not own the overrides, given that the assignment it relied on was expressly subject to a letter agreement Endeavor never produced. (Spoiler Alert: No.)

The “writing” problem (the Statute of Frauds)

An override is an interest in land, and it has long been Texas law that such interests live and die by the writing that creates them. The law’s insistence on a complete writing is what made the missing letter agreement so consequential.

Two threads illustrate the point. First, Endeavor argued that the deceased Randy could not have reserved any interest because the letter agreement predated the assignment, and a reservation must be made at the time of the conveyance. The court was unpersuaded because the assignment was expressly subordinate to the writing.

Second, the contents of a lost writing cannot simply be assumed. The proponent must first prove the document was lost and account for its absence under Texas Rule of Evidence 1004 before offering secondary evidence of its terms. Endeavor did neither, so the writing that defined the transaction remained a mystery. And a party cannot carry that burden with its own interrogatory answer (that it could not find the letter agreement).

 Evidentiary issues

As is common in these title cases the trial court struck portions of an affidavit of an Endeavor landman on the basis that they constituted factual and legal conclusions.

The ruling

“Subject to” means “subordinate to, subservient to or limited by”. The assignment and the unproduced letter agreement had to be construed together, and Endeavor—bound by every recital and reference in its chain of title—took the assignment with a duty to inquire into the document it incorporated. Endeavor’s evidence painted an incomplete picture of title, supporting “multiple, equally probable inferences” about whether title ever passed.

The circumstantial evidence deepened the doubt: Endeavor kept paying the Browns, the tax rolls still showed Randy as owner, and ARCO never claimed title. There were genuine issues of material fact. The Court reversed and remanded.

 “Subject to” is not boilerplate

Those words fold the referenced writing into the purported owner’s title and charges the owner with notice and a duty to track the writing down. When the writing is missing the proponent must establish its loss under Rule 1004 and prove its whole case. An incomplete chain of title, propped up by the proponent’s own self-serving discovery responses, will not carry the day.

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James Hunter Six

We begin our discussion of Cornucopia Oil and Gas, LLC v. Berry et al with a quiz:

“Subject to” means:

  1. Subordinate to, subservient to;
  2. A term that does not limit the scope of a conveyance but instead notifies the grantee of a right or obligation attended to the property;
  3. The USA is captive to the whims and caprices of our president (Thinking Trump? How about FDR?);
  4. Chuck Norris will always kick the bad guy’s butt;
  5. It depends on the context in which it is used;
  6. All of the above.

The takeaway

After being sued by Berry and Davis in Harris County, Texas, Cornucopia asserted a special appearance, which was unsuccessful. Cornucopia consented to personal jurisdiction in Texas under a forum selection clause.

The facts

There were a two agreements, executed by Cornucopia’s predecessor at around the same time, governing the Kitchen Lights Unit in Alaska: a Lease Assignment and an Amended Joint Operating Agreement.  The Amended JOA was “subject” to the Assignment and in the event of conflict, the Assignment would control.

In the Assignment’s forum selection clause the parties consented to jurisdiction in Harris County for “any dispute or disagreement arising under or relating to this Agreement”. In the Amended JOA’s forum selection clause the parties consented to jurisdiction in New Castle County, Delaware, for “any dispute or disagreement arising under or related to this Agreement.”  

The Davis parties asserted claims for breach of the Assignment. Cornucopia’s special appearance denied general jurisdiction and minimum contacts with Texas. Davis claimed Cornucopia had consented to personal jurisdiction by virtue of the Assignment’s forum selection clause. Cornucopia alleged it did not consent to jurisdiction under the Assignment because it was not a party to the Assignment, which was executed by a predecessor in interest. Davis responded that Cornucopia consented to the Assignment by executing the Amended JOA, which was subject to the Assignment.

The law

If a party contractually consents to jurisdiction in a particular forum then the typical need to determine whether a defendant has purposefully established minimum contacts in Texas giving rise to either specific or general jurisdiction and whether assertion of jurisdiction comports with fair play and substantial justice is not necessary.

An unsigned document may be incorporated by reference in a document signed by the person or entity sought to be charged. The language used is not important, provided the signed document plainly refers to another writing and indicates the parties’ intent to confer jurisdiction. The court concluded the parties’ agreement was accomplished in both the Amended JOA and the Assignment.

“Subject to”

Cornucopia alleged that the “subject to” phrase in the Amended JOA meant “subordinate to, subservient to, or limited by the referenced agreement”. The court determined that “subject to” can be used in multiple ways and cannot be read in isolation. In another situation the phrase may convey.(Occidental), or “to make accountable, to reduce to subservience or submission.” (Webster’s Third New International Dictionary.) In short, the meaning of “subject to” depends on the context of the use of the language.  The import of the language must be drawn from the surrounding context, particularly when construing everyday words and phrases that are inordinately context sensitive. The court concluded that “subject to” in the Amended JOA incorporated the Assignment by reference.

Going further, even assuming that the term means that the Amended JOA was subservient to the Assignment, the two forum selection clauses conflict. Under the Amended JOA the Assignment’s forum selection clause controlled.

The court declined to consider extrinsic evidence of the parties’ intent because the language was not ambiguous.

The court also construed broadly the terms “related to” and “in connection with” in the forum selection clause. The claims against Cornucopia fell within the clause’s scope.

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