Co-author Ethan Wood

In Texas losing a title dispute doesn’t mean you committed myriad heinous torts by asserting your rights in the first place. The test: Were you reasonable in bringing your colorable but not correct claim? So says Dorfman v. J P Morgan Chase Bank, NA.

The title dispute

In 1929, the Moravitses conveyed mineral interests in Karnes County to McMullen. McMullen conveyed the executive right to McMullen Oil & Royalty Company but retained the royalties. McMullen’s royalty interest passed to his wife when he died and then to the Langille Trust.

The Moravits sons sued to cancel the 1929 deed. McMullen Oil disclaimed any interest in the tract. A 1944 judgment (not recorded until 1991) canceled the 1929 deed. The interests of McMullen Oil and the Langille Trust ended up in the Red Crest Trust, JP Morgan as trustee.

In 2010, Orca approached JP Morgan to lease the tract in question and other tracts that might have already been leased. The Orca landman mentioned to JP Morgan that “there seems to be a problem with the title” but as far as JP Morgan was concerned, “nothing in [their] records [showed] that the Red Crest Trust did not own that acreage.” JP Morgan leased to Orca, and refused to execute a quitclaim demanded by the Moravits sucessors. Litigation ensued.

The tort claims

The Moravits successors won on their trespass to try title, to quiet title, and declaratory judgment claims. They also made several tort claims—slander of title; negligence, gross negligence and negligent hiring, retention, or supervision; and tortious interference with property rights and existing and prospective contractual relationships. The trial court granted summary judgment to JP Morgan and Orca on those claims and the Fort Worth Court of Appeals agreed. Here’s why:

Slander of title

Slander of title requires evidence that:

(1) the plaintiff possesses an interest in the property slandered,

(2) the defendant published a false statement about title to the property,

(3) the statement was published with legal malice, and

(4) the publication caused the loss of a specific sale.

Elements 1 and 2 were established, but the court concluded that element 3—legal malice—was not present. JP Morgan and Orca had a reasonable belief that Red Crest Trust’s title was good. Although they were aware that there might be “a problem with the title,” there was no evidence that they acted deliberately without belief that JP Morgan had a reasonable claim to title. Item 4 failed as well. The Moravits successors also could not establish that they lost a specific sale.

Negligence                             

The negligence claims turned in large part on whether JP Morgan and Orca owed any duty to the plaintiffs. Because they had a reasonable basis for their claim to title, they owed no duty to the plaintiffs to not cloud their title or to quitclaim their possible interests.

Tortious interference

Tortious interference with property rights requires interference with one’s property rights without just cause or legal excuse. JP Morgan and Orca had “just cause” because they had a reasonable belief that JP Morgan’s title was good.

Interference with existing contractual relationships requires a willful and intentional act of interference with an existing contract. Again, because JP Morgan and Orca believed the Red Crest Trust had good title, they could not have willfully and intentionally interfered with an existing contract.

Interference with prospective contractual relationships requires an independently tortious act to prevent a relationship from occurring. Because the Moravits successors’ other tort claims failed, there was no independently tortious act.

With the lopsided rejection of Colorado Proposition 112, oil and gas workers in that state can return to work happy.  Had it passed, there were other options, one in the cosmos and one in Montana.

Co-author Lydia Webb

Q: How many New York federal judges does it take to make a mess of Texas property law?

A: In In Re: Sabine Oil and Gas Corp., five. One to get it wrong, another to affirm the wrongness, and three more for reinforcement.

For the third time, a federal court in New York has allowed an E&P debtor to reject its gas gathering agreements because its midstream counter-parties could not establish that the agreements were covenants running with the land under Texas law. This time it was the Second Circuit, which upheld a district court ruling, which upheld a  bankruptcy court ruling.

E&P debtor Sabine sought to reject a series of above-market gas gathering agreements. The bankruptcy court allowed the debtor to do exactly that, over the objection of the midstream counter-party. The question on appeal: Under Texas law, are midstream agreements covenants running with the land (and thus, cannot be rejected in bankruptcy)?

This result could have wide-reaching negative effects on the oil and gas industry.  We won’t delve deep into the weeds of the legal analysis.  But we will raise a serious question about the process.

Horizontal privity?

The key question was whether Texas law requires a showing of horizontal privity as part of the covenant analysis.  The New York courts concluded that Texas requires horizontal privity, which was not satisfied under the present circumstances. This allowed Sabine to escape from its midstream agreements.

Horizontal privity requires that the parties make their covenant in connection with, and at the same time as, a conveyance of real property.  The Second Circuit acknowledged that the trend across the country is to do away with the horizontal privity requirement. However, the Court went on to rationalize that “[i]t would be improper for us to read a traditional requirement of real covenants out of Texas state law when there is no Texas law instructing courts to do so.”

The maddening reality

The test, according to the Texas Supreme Court, does not include horizontal privity as a requirement for a covenant to run with the land!

Rather than opining on the nuances of Texas property law, the Second Circuit could have (and should have) certified the question to the Texas Supreme Court so that the law could be uniformly applied by all federal courts in similar cases arising from contracts for the transportation or sale of Texas oil and gas production.  This option would have made the most sense and was proposed by several trade groups.

The Texas high court, the ultimate authority on Texas common law, should decide what it takes to constitute a covenant running with the land in this state – not a federal court sitting thousands of miles away and not at all versed in Texas property law. Leave it to the experts and let Texas tell the world how its laws should be interpreted and enforced.

Railroaded?

Co-author Ethan Wood

Let’s begin with a quiz. True or false:

  • Apache Resources, LLC (n/k/a “Pueblo Resources, LLC.” Wonder why?) is Apache Corporation.
  • Plains Natural Resources, LLC is Plains Exploration & Production Company.
  • Ridge Natural Resources, LLC is Oak Ridge Natural Resources, LLC.
  • Range Royalty, LLC is Range Resources Corporation.

If you answered “false” to all four, congratulations. In each category the latter companies are reputable independent oil and gas producers. The former are … well, let’s just call them “mineral buyers” (seemingly coordinated in their efforts in some murky way), one of which was the winner – for now – in Ridge Resources, LLC et al v. Double Eagle Royalty, LP Continue Reading An Arbitration Ruling That’s About More Than Arbitration

Co-author Chance Decker

Is an overriding royalty interest lasting beyond the term of a lease-now-in-effect impossible to create?  You saw the recent Texas Supreme Court opinion invalidating an anti-washout clause in TRO-X v. Anadarko Petroleum Corp. Now, you see Tommy Yowell et al v. Granite Operating Company et al.  In light of these opinions one could wonder if an override is as valuable a tool in an oil and gas trade as it used to be.

An assault on overrides? Continue Reading Anti-Washout Clause Defeated by the Rule Against Perpetuities

The pitches in your arsenal are your fastball and your curveball; it’s the late innings; third time around the batting order; they’re sitting on the fastball. Once they catch up to it (and they will unless you’re Justin Verlander which, face it, you are not), goodbye game. Why not go to the bender to keep ’em uncomfortable and give you options? In Lackey v. Templetonplaintiffs stayed with the heater. Goodbye game.

The lesson to be learned Continue Reading Texas Court Tells Plaintiffs How to Recover Title to Property

Co-author Ethan Wood

Coke or Pepsi? Elvis or the Beatles? Should there be a designated hitter? Fixed or floating royalty? Among the great debates of recent decades, few have proven quite as frustrating as the great “Fixed v. Floating” royalty debate in Texas jurisprudence.

A royalty can be conveyed or reserved in two ways: as a fixed fraction of total production (fractional royalty interest) or as a fraction of the total royalty interest (fraction of royalty interest). The fractional interest is “fixed” because it is untethered to the royalty in a particular oil and gas lease. A fraction of royalty is “floating” because it varies depending on the royalty in the lease. Continue Reading Texas Supreme Court Decides Another Fixed-or-Floating Royalty Case

Co-author Trenton Patterson*

We’re not saying you should do it, but there is a recipe for ridding oil and gas leases of pesky burdens: Enter into a new lease covering the same interest as the earlier lease and omit any reference to an intent that the later be subordinate to the earlier. You don’t even have to release the earlier lease. So says TRO-X, L.P. v. Anadarko Petroleum Corp.

You might remember a report on this case at the court of appeal, where we marveled at the skillful (or fortuitous, we’ll never know) way the Anadarko landman won the day via email. Continue Reading Texas Supreme Court Affirms Washout of a Back–in Interest