Carson et al v. Winter Gordon, Junior is a reason you should not name your son after yourself. But if you insist, at least spell his name correctly.

The Gordons

Winter Gordon was born in the 19th century. His son was Winter Gordon, Junior. The court referred to him as “Father” or “Decedent”. Father had a son born in 1955 named on the birth certificate as “Wenter” Gordon, Junior. The court referred to him as “Gordon”. His opponents in the litigation probably used other names more akin to epithets.

Throughout his life Gordon referred to himself as “Winter Gordon, Junior”. Father died in 2011 and Gordon reported Father/Decedent’s name as “Winter Gordon” and his own name as “Winter Gordon, Junior”. Father’s will was deemed valid after a will contest. Father left his entire estate to Carson, who was Gordon’s niece and Father’s granddaughter.

A tax suit leads to confusion

The Brazos ISD sued Carson for delinquent taxes claiming two tracts of land comprising 49 acres were owned by “Winter Gordon, Junior, et al“.  Carson claimed she had never heard of the property and alleged that the property was vested in the heirs at law or devisees of “Winter Gordon, Junior, deceased”. (That would be Father.) She paid the taxes, obtained an Independent Executor’s Deed (the executor was her mother), and requested the taxing authority to place title in her name.

Unsuppported assertions fail to persuade

Gordon sued alleging that he, rather than Father, purchased the property by a deed in 2008. Carson responded by relying on the Executor’s Deed to her as the sole beneficiary of the estate of Father. She claimed that Gordon only changed his name from ”Wenter” to obfuscate and remove ownership of the property from Father’s estate.

Summary judgment for Gordon was affirmed. His declaratory judgment action was treated as a trespass to try title claim requiring proof of a regular chain of conveyances from the sovereign and through a superior claim from a common grantor.

Gordon presented evidence demonstrating a chain of conveyances from the Sovereign up to the 2008 deed showing the grantors conveyed the property to “Winter Gordon, Junior”. He offered several detailed affidavits supporting his claim that he was the actual buyer. Carson’s response was that the property was actually purchased by Father and not Gordon, they never shared the same name during Father’s lifetime, and Gordon only changed his name five years after Father’s death. She presented a title company’s letter concluding record title appeared to be vested in Father.

The court believed that Gordon’s proof was the kind that could have been easily and conveniently rebutted and the testimony was of a nature which could be effectively countered by opposing evidence. That, Carson did not do.

Carson missed the point. The fact in dispute was whether Gordon or Father was “Winter Gordon, Junior who purchased the property in 2008.” The court found no authority requiring a purchaser to identify himself in a deed by his name exactly as it is written on his birth certificate.

Carson asserted that Gordon was not the true purchaser but was unable to refute the material facts in Gordon’s affidavits testifying that he was the purchaser of the property in 2008. Carson presented argument and supposition but no evidence that discredited Gordon’s association with the transaction.  

Carson did not carry her burden to demonstrate that Junior’s claim that he was the signatory on the 2008 deed was false. The trial court judgment was affirmed. Carson demonstrated no genuine issue of material fact.  Gordon was entitled to a judgment on his trespass to try title claim.

Your musical interlude.

Remnant LLC v. Permico Royalties LLC, et al determined that a 90-year-old claim to ownership of a forfeited corporation was not valid.

The players

Hoffman: By most accounts was a scoundrel and con man who plied his iniquitous trade during the Texas oil boom of the 1930’s. He was indicted for telling people he was the owner of Mid-Tex Corporation, holder of mineral interests in several counties.

Remnant:  Successor-in-interest to Hoffman.

DeMotte: Former owner of Mid-Tex (charter forfeited in 1950).

Permico, Parkcrest and Roemer: Successors-in-interest to DeMotte.

The receiverships

1983: Receiver was appointed to represent former owners of Mid-Tex for execution of a mineral lease in Howard County. An order was entered approving a lease.  

2016: Receivership in Glasscock County over Mid-Tex property. An order was entered approving a lease.

2020: Parkcrest and Roemer intervened in the Glasscock receivership claiming 48.4% of minerals through DeMotte as former owner of Mid-Tex. The ad litem had no notice of the hearing and did not attend. An order was entered that Parkcrest and Roemer were successors in interest to DeMotte’s share of Mid-Tex.

2021: Remnant filed a petition in the Glasscock receivership claiming to be the successor-in-interest to Hoffman. Permico (apparently a lessee) was accused of wrongfully asserting an adverse ownership interest in Mid-Tex.

The trial court granted summary judgment that Permico et al were successors-in-interrest to DeMotte as a former owner of Mid-Tex. Remnant appealed.

Res judicata and collateral estoppel

Ordinarily there can be only one final judgment in a lawsuit, but orders in receivership proceedings are an exception. Remnant complained that the order awarding partial ownership of Mid-Tex to Permico et al was not final because it failed to identify the remaining successors to Mid-Tex. However, Permico et al’s pleadings did not request determination of ownership of all successors of Mid-Tex. All they sought, and all they were granted, was confirmation of their particular interest.

Remnant maintained the because it was not a party or in privity with any party in the Glasscock receivership, Permico et al failed to satisfy this element of res judicata. The court agreed. Remnant was not in control of Permico et al’s actions at the time the judgment was rendered. Remnant was not a successor-in-interest to any party in Permico’s et al’s action.

Permico et al claimed that when they sued to determine their interest in Mid-Tex they “represented” the same interests Remnant now pursued because all of the parties derived their claim from Mid-Tex. That interpretation would effectively deprive Remnant of its right to due process under the 14th Amendment. Permico et al did not represent Remnant’s interest at the time they sought a declaration of their interests. Remnant wins on this point.

Permico et al also failed to demonstrate that the current dispute is based on the same claims that were at issue when the trial court resolved their petition.

The court also concluded that the present dispute involved facts that were not essential to the previous judgment and that the parties were not in privity. Collateral estoppel did not apply.  

Regardless of all of that, summary judgment was proper because Remnant failed to submit evidence raising a fact issue on its claim that Hoffman owned Mid-Tex or that Mid-Tex was his alter ego.

For lawyers

The court discussed the hearsay objection to summary judgment evidence (p. 2-3), whether the judge in the Glasscock proceeding should have been disqualified for having an interest in the case (p. 7-8), and whether service by publication was effective (p. 7-8).

Your musical interlude

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If you follow the Texas Railroad Commission closely, you should read Ammonite Oil & Gas v. Railroad Commission of Texas, in which the Supreme Court rejected a mineral owner’s effort to force pool an interest under the Mineral Interest Pooling Act. (Read here for the Austin Court of Appeals ruling and the underlying facts). If you are like the rest of us, read on.

The offers were not “fair and reasonable”

The Commission must dismiss a MIPA forced-pooling application if it finds that a fair and reasonable offer to pool voluntarily has not been made. EOG’s wells as permitted would not reach Ammonite’s riverbed minerals. The Commission rejected the applications because Ammonite failed to make a fair and reasonable offer and because forced pooling would not prevent waste, protect correlative rights, or require the drilling of unnecessary wells. The Court held that the Commission’s conclusion that Ammonite failed to make a fair and reasonable offer to voluntarily pool was reasonable.

All production would be from EOG’s lease and none from Ammonite’s. Thus, proceeds from the pool would not be allocated on the basis of the parties’ respective contributions to production.  

The MIPA does not define a fair and reasonable offer. Thus, a decision on that question is left to the discretion of the Commission. The decision must only be supported by substantial evidence, which gives significant deference to the agency.

The Court concluded that the Commission’s rejection of the applications because Ammonite’s offers were not fair and reasonable was based on EOG’s wells as permitted, which did not drain Ammonite’s riverbed tract, and Ammonite did not ask EOG to modify its drilling plans and made no effort to show that it was possible for EOG to revise its plans or extend the wells to reach the riverbed.

That Ammonite proposed to obtain a share of EOG production without Ammonite’s contribute any minerals of its own could justify the Commission’s considering the offer unfair on its face.

The Court also discussed the MIPA-required risk charge.

Stranded minerals?

The Commission made no finding about whether Ammonite’s riverbed minerals were stranded. EOG’s expert testified that drilling a well to produce Ammonite’s minerals might be viable in the future. Ammonite criticized that testimony as beyond speculative but did not put on expert testimony of its own.

The Commission assumed Ammonite’s minerals are stranded but concluded that because the EOG wells were already completed and there was no drainage, granting Ammonite’s applications would not prevent waste or protect correlative lights.

The DISSENT

Justices Young and Busby were happy with anybody. They saw it this way:

The Court of Appeals should have reviewed the Commission’s denial of Ammonite’s applications on the merits.

Ammorite did make fair and reasonable voluntary pooling offers. The Commission’s failure to explain why Ammonite’s offers were not fair and reasonable in itself requires reversal and remand.

The case should be remanded to the Commission so it could decide whether forced pooling of Ammonite’s interest was proper under MIPA §102.011 (which the Commission did not do). The Commission’s explanation on that issue was conclusory at best based upon its mistaken understanding of the fair and reasonable offer point.

The lack of drainage is the very thing that allegedly makes the minerals stranded. Stranded minerals constitutes waste. If there is waste then pooling is on the table and sometimes is mandatory. 

The Commission’s application of the statutory language to the facts was at best unexplained and thus unsustainable as a matter of law. Without knowing anything more than the bottom-line conclusion it is anyone’s guess whether the Commission’s order was reasonable.

Your musical interlude.

Once again, a federal district court has enjoined enforcement of a rule implemented by a wayward federal agency as it governs oil and gas activities. This one is North Dakota, et al v. US Department of Interior, et al. from the District of North Dakota.

The Department of the Interior implemented the Waste Prevention, Production Subject to Royalties, and Resource Conservation Rule (the 2016 Rule) that mandated flaring rather than venting of excess methane gas. The 2016 Rule was struck down as unlawful. Not to be denied, the BLM published the 2024 Rule, which continued the same mandate.

In this suit the plaintiff States claim that the 2024 Rule exceeds BLM’s statutory authority, is an unlawful regulation of air emissions, unlawfully regulates state and private mineral interests, and is arbitrary and capricious.

 The arbitrary and capricious claim is based on allegations that the BLM:

  • Reversed itself on a communitization issue (burdening private lands with regulatory burdens that are lawful only on federal lands) without adequate explanation;
  • Failed to adequately explain how the air emission requirements are justified as cost-effective waste prevention measures;
  • Failed to account for the possible decrease in royalties that is likely attributable to the Rule that will decrease gas production; and
  • Failed to adequately respond to plaintiffs’ comments.

Defendants disagreed strongly on all points raised by the States.

Plaintiff States sought a preliminary injunction pending final trial. The court considered the four factors in determining whether to issue a preliminary injunction, of which the most significant was the probability of success on the merits.

The States showed that they are likely to succeed on the merits of their claim that the 2024 Rule is arbitrary and capricious. “Arbitrary and capricious” in this context means the agency has

  • relied on factors which Congress has not intended it to consider,
  • entirely failed to consider an important aspect of the problem,
  • offered an explanation of its decision that runs counter to the evidence before the agency, or
  • is so implausible that it could not be ascribed to a difference in view or the product of agency expertise.  

In issuing the injunction the court discussed the requirements and purposes of several federal statutes: the Mineral Leasing Act, the Clean Air Act, the Federal Oil and Gas Management Act, the Federal Land Policy and Management Act, and 2023’s Inflation Reduction Act.   

The court concluded that several of the requirements imposed by the 2024 Rule:

  • are unsupported by ancillary environmental benefits,
  • conflict with other state and federal laws, and
  • add another layer of federal regulation on top of a myriad of existing state and federal regulations.

The court found that the Rule interfered with the States’ sovereign authority by “haphazardly adding more stringent flaring restrictions and “bureaucratic hoops” for the States to jump through when they have crafted their own plans under the Clean Air Act, cited “evidence” from a 1980 source without explanation,

The court gratuitously observed that “this case is an example of the left hand of the government not knowing what the right hand of the government is doing.”  

Kris Kristofferson RIP

Unitex WI LLC v. CT Land and Cattle Company LLC rejected the surface owner’s effort to force the mineral lessee to bury a pipeline below plow depth. Surface owner CT’s claim was based on a mineral lease signed by former owner Fuller in 1948. CT had acquired the surface from Senns, who acquired it from Fuller. Wells had been drilled and numerous pipelines existed when CT bought the surface in 2013.

Lessee Unitex refused to bury the pipeline and CT sued. The trial court declared that CT had the right to enforce the burial covenant, Unitex was required to bury all pipelines covered by the Fuller lease below plow depth, and Unitex was compelled to satisfy the burial requirement as rapidly as reasonably possible.

The court of appeals reversed. The lease provided, “When required by Lessor, Lessee will bury all pipelines below ordinary plow depth … ” CT was not the lessor or successor to the lessor and as a result did not have the right to enforce the burial provision.

The deed by which Senns acquired the surface was by its terms “subject to” all valid and subsisting oil and gas leases. The parties agreed that 1948 lease claim was within the scope of that clause.

The meaning of “subject to”

The court disagreed with CT’s assertion that “subject to” meant that Senns and then CT were assigned the lessor’s rights, interests and obligations under the lease which pertained to the surface. Quite the opposite. The deed said nothing about Fulller assigning rights in the lease to Senns. The court declined to impose language evidencing an assignment where none existed. If the surface owner intended to transfer the lessor’s rights under the lease it could have memorialized that intent.

The word “subject to”, used in the ordinary sense, means subordinate or subservient to or limited by. That clause limits the estate and associated rights granted to a party. It does not create affirmative rights.

The covenant did not run with the land

CT also argued that the duty to bury pipelines ran with the land. That is generally correct. However, the subject-to clause limited the estate and associated rights that passed to Senns. The lease identified the category of people entitled to require burial of the pipelines: The lessor and his assigns, successors, and heirs. The provision did not include future surface owners. The parties could have said that but didn’t.

The pipe burial provision did not pass or was otherwise detached from the conveyance. Whether viewed as a reservation or detachment or whatever, the words selected by Fuller clearly revealed the intent to prevent Senns and their successors from gaining interests in or rights under the 1948 lease.

Fuller reserved and excepted from the conveyance so much of the surface as may be required to permit Fuller (and his lessee, of course) to drill wells and transport production. That clearly reveal an intent to bar impediment to the development of minerals and use of the surface to further that purpose. It follows that the reservation revealed an intent to restrict potential impediments such as the burial covenant.

Your musical interlude.

Once upon a time a good way to commit oil patch theft was to back a truck up to the tank battery in the middle of the night, fill ‘er up, and drive off into the darkness. In re: Black Elk Energy Offshore Operations LLC shows that modern methods don’t require heavy machinery.

Speaking of theft, LSU beats South Carolina

The facts

Black Elk was an offshore Gulf of Mexico operator in financial straits, plagued by rampant mismanagement, poor financial planning and “opulent spending by executives and employees”. After an explosion on one platform the regulators shut down another one, and Black Elk declared bankruptcy. The trustee initiated an adversary proceeding to recover money received by favored investors Schlomo and Tamar Rechnitz.  

Anticipating Black Elk’s insolvency, Nordlicht, the boss of Black Elk’s controlling shareholder, concocted a scheme to pay the Rechnitzes rather than paying Black Elk’s substantial debts. Nordlicht was found to have defrauded Black Elk’s creditors of $80 million by a complex series of machinations involving (among other moving parts) the sale of Black Elk’s best assets for $125 million, issuance of Series B equity shares to the Rechnitzes, having the Rechnitzes appoint him as their agent for all Black Elk transactions, creation of a special purpose entity to hold bonds, rigging a vote to subordinate the bonds to equity holders through manipulation of entities secretly controlled by Nordlicht, the result of which was the transfer $10.3 million to the Rechnitzes.  

Fraudster’s knowledge was imputed to the transferees

The question for the bankruptcy court was whether the Rechnitzes received Black Elk’s funds in good faith and whether their payment was properly traced to Nordlicht’s acts of fraud. In allowing the trustee to recover the $10.3 million the court rejected their argument that they were protected because they were good faith transferees.

Under Bankruptcy Code Sections 544, 548 and 550, a bankruptcy trustee may avoid or unwind transfers of a debtor’s assets and recover property from a transferee unless the transferee received the property in good faith and without knowledge of the voidability of the transfer.

The court’s decision turned on whether Nordlicht’s knowledge as the Rechnitzes’ agent was imputed to them as principals. They argued that Nordlicht acted outside the scope of his agency and that they should not be charged with knowledge of his fraudulent activities. Their hole card was that the trustee did not prove that they personally knew about Nordlicht’s wrongdoing and that their knowledge cannot be imputed or constructive. The court disagreed. Personal knowledge was not required.

Tracing

To decide the fraudulent transfer claim the court had to trace the funds paid to the Rechnitzes back to the proceeds received from the sale of the assets. The court found expert reports for both sides to be unsatisfactory and based the damage award on its own review of the flow of funds.

Tracing is a ”tool of equity” and the court’s conclusion was subject to review under an abuse of discretion standard. In other words, the ruling must have been so arbitrary and unreasonable as to constitute a clear and prejudicial error of law, or if it clearly fails to correctly analyze or apply the law.  

Here, great musicians who were called to the celestial chorus before their time (we’re going beyond the usual rock and roll suspects):

Tim Buckley

Sandy Denny

Charlie Parker

Gram Parsons

Townes Van Zandt

Mozart

In Self v. BPX Operating, a case with significant implications for Louisiana operators and royalty owners, the Supreme Court of Louisiana ruled that the doctrine of negotiorum gestio in La. Civil Code art. 2292 does not allow the operator of a drilling unit created by Louisiana’s conversation laws to withhold post-production expenses (PPCs) from the share of proceeds to be paid to an unleased mineral owner (a UMO). The doctrine does not apply to the relationship between the operator of a unit well and the UMO.   

Negotiorum gestio establishes a regime for management of the affairs of a person where the manager (the gestor) acts without authority to protect the interests of another (the owner) in the reasonable belief that the owner would approve of the action if made aware of the circumstances.

According to the Court, negotiorum gestio cannot be the basis for liability because a unit operator is always “acting with authority” under Louisiana’s oil and gas conservation laws which establish a quasi-contractual relationship between the operator and the UMO.

The court concluded that a party is only a gestor if his action is taken without authority, and La. R.S. 30:10 (A)(3) statutorily authorizes the unit operator to sell UMO’s share of unit production when the UMO has not arranged to dispose of its share. The requirement for 2295 to apply is not merely voluntariness but an absence of authority altogether, including authority granted by statute.  

A strenuous, and lonely, dissent

Justice Weimer would conclude that the authority should focus on the voluntary nature of the act of the gestor and be understood to mean the action is not taken pursuant to a legal obligation. A unit operator’s statutory authority to sell production is not the same as a statutory mandate.

The concept behind the establishment of drilling units is to prevent adjoining owners from having to drill offset wells by permitting them to share production proportionately to other unit owners. Forced pooling converts separate interests within the drilling unit into a common interest relative to the development of the unit and the drilling of the well.

Under the statutory scheme UMOs are entitled to sell their share production but the statute allows the operator to market production if a UMO fails to make his own arrangements. The UMO and the operator have no contractual relationship.

Justice Weimer noted that R.S. 30:10 is silent as to PPCs; thus there is no inherent prohibition against a unit operator looking to the Civil Code for a mechanism by which to recoup PPCs. Because the statute is silent as to PPCs, there is no conflict between that provision in the Conservation Act and art. 2292. Silence alone is insufficient to create a conflict.

Responding to the majority’s conclusion that because the operator has specific authority to sell the UMO’s share of production, the operator cannot be a gestor under 2292, Weimer reasoned that reference to “without authority” does not encompass permissive authority to act such as in 30:10.

Where does this leave the ultimate question

… that being whether, on any theory, the UMO can be required to bear its proportionate share of PPCs incurred by the unit operator? The court in Self and Judge Hicks of the federal district court in Johnson v. Chesapeake (who ruled that negotiorum gestio applies) did not address other theories urged by the producers, such as Louisiana laws of mandate, co-ownership, unjust enrichment, and fundamental property law. Johnson was also appealed but this ruling is only in Self.

There is plenty more to come on this big issue.

Your musical interlude

How will you and I become extinct? The UN assures us that the weather will be unpleasant whenever it happens. The IPCC has predicted that global “warming”, “heating”, “baking” “broiling” and other Game of Thrones-worthy agony would be the end of humanity. The latest:  The earth will be boiling!

Except what if it’s not true, and if it is true and the cause is humans, what if the “cures” are worse than the ailment? Don’t take my word for it; read on.

Predictions – Below the Mendoza line

If climate predictions were baseball, the doomsayers would already be in the Arizona Instructional League. The current UN climate chief claims that we have TWO YEARS to save the world! Don’t trust him, given the dismal history of eco-pocalyptic predictions, say Watts Up With That? and the Competitive Enterprise Institute. 

Is the apocalypse at hand?

Wildfires are not increasing

Extreme heat is NOT the biggest cause of death despite the desperate warnings of President Biden. 

Main stream media, sloppy and misleading … again

The New York Times makes dire predictions with no evidence, says Mark Morano at Climate Depot … and is plain wrong on climate and California wildfires. USA Today is no better on a rare cactus.

Who wins and who loses?

According to Robert Bryce, China is the beneficiary of the North American authoritarian EV policies. China has a near monopoly on the metals and minerals needed to build EVs, wind turbines, military weapons, and other alternative energy technologies.

Bjorn Lomborg and three physicists speak below about how the poorest people in the poorest countries will lose.

Follow the “science” to where, exactly?

Real scientists Richard Lindzen, William Happer and Steven Koonin told the World Court in the Hague that the science does not support the claim that climate change is caused by CO2 emissions. The IPCC is a political, government-controlled entity and its conclusions have no value as science. Who would lose in a quest for “net-zero”? The poor, because of mass starvation and lack of affordable energy.

Lomborg tells us that “following the science” so as to end foss il fuels is a bad bargain. That assertion is convenient for politicians because it allows them to avoid responsibility for the costs and downsides of climate policy. The message confounds climate science with climate policy. The notion is that there is nothing but benefit to ending fossil fuels and a hellscape if nothing is done. The costs of “just stop” oil, gas and coal are massively downplayed.

There is hope. Thank God for the green crusaders!

Your musical interlude

The real takeaway from Pruett v. River Land Holdings LLC is the reminder that the Texas Railroad Commission cannot adjudicate questions of title.

The facts

In 2001 Pruett acquired 323 acres and his mother acquired 194 acres of an original 550-acre tract in Milam County, Texas, which was burdened by an oil and gas lease. In 2021 River Land purchased the 194 acres. The deed reserved “any oil and gas leases to the extent that these remain viable and in effect.”   

River Land sued for a declaration that the lease had terminated as to the 194 acres in accordance with the cessation of production clause. River Land claimed that oil production had ceased for more than 60 days and that Pruett was judicially estopped from denying the lease had terminated because he had taken a contrary position in a 2008 lawsuit with then-operator Smith. The trial court declared the lease terminated. The court of appeal reversed and remanded.

The evidence

River Land introduced Commission records showing that no production had been reported by any operator of record for more than five years. Pruett claimed that when he acquired the 323 acres he became the sole owner of certain wells which he self-operated to produce every two months from 2005 to 2012.  He asserted that in 2012 Jet Tex obtained a P-4 and began to produce and sell oil from those wells on a profitable basis. He said he routinely pumped oil from the wells using portable generators, stored the oil in a tank battery, produced gauge reports showing 391 barrels on hand in December 2011, and thereafter the oil was stolen.

Property rights and the Railroad Commission

River Land said those claims failed to create a fact issue as to production. Smith, not Jet Tex or Pruett, was recognized by the Commission as operator of the wells at the time of the alleged operations and any production sold by Jet Tex during that time was illegal and could not constitute production under the lease.

The court disagreed with the trial court. Whether Jet Tex was legally entitled to engage in operations is a property rights issue. The Commission has no authority to determine ownership of land or property rights. Thus, the Commission’s records reflecting Smith as operator of record were not dispositive of whether Jet Tex was legally entitled to operate the lease. There were genuine issues of material fact. The court did assume without deciding that production by a nonregistered operator is unmarketable as a matter of law.

Production in paying quantities

There was a genuine issue of material fact about whether River Land met its burden to prove that lease terminated because of cessation of production in paying quantities. See pages 9 and 10 of the opinion for the two-prong test.  

The prudent operator test does not apply where there is total cessation of production for the number of days stated in the cessation-of-production clause. Cessation in paying quantities and total cessation are independent grounds for seeking termination of an oil and gas lease.

River Land’s summary judgment also failed because there was no evidence as to what time frame would constitute a reasonable time for measuring profitability and whether the wells were profitable during that time.

Judicial estoppel

In the 2008 lawsuit Pruett sought a declaration that the 1976 lease had terminated. But the court could not conclude that River Land met its burden to conclusively establish that Pruitt successfully maintained his prior position. There was no evidence that a final judgment that the lease terminated was signed by the court in that case.

Your musical interlude

It’s not exactly Deuteronomy 23:19, but the Supreme Court of Texas has an opinion about interest. They don’t like it if it’s compounded. Samson Exploration LLC v. Bordages addressed interest to be charged on unpaid royalties under an oil and gas lease.

The takeaway

Compound interest is disfavored in Texas law. An agreement for interest on unpaid amounts is an agreement for simple interest absent an express clear and specific provision for compound interest.

The late-charge provision

The oil and gas lease provided that royalty payments are due on the first day of the calendar month following some 60 days after production. If not timely paid, a late charge is imposed the next day “based on the amount due” and “at the maximum rate allowed by law”. That charge is payable on the last day of the month.

Royalty owner Bordages argued that when no payment is made by the specified date, another late charge calculation is triggered which includes not only past royalties as of the first day of the month but also accrued late charges as of the last day of the preceding month. Put differently: The provision imposes late charges on late charges, compounding them each month. 

The Court concluded that the late-charge provision calls for simple interest because of the absence of clear language specifying compound interest.

The court declined to define the degree of clarity and specificity that would be required to expressly stipulate to a compound rate of interest. The Court did say that “due and payable on the last day of each month” does not suffice. Temporal references such as “per annum” or “annually” standing alone are insufficient to sustain the assessment of compound interest. Those terms specify the time for payment. A plain reading of the late-charge provision shows that it calls only for simple interest, providing for a late charge based on the amount of royalty due.

Collateral estoppel

Bordages argued that Samson had previously litigated the identical lease language with a different lessor and lost (to the tune of $13 million in late charges. No wonder; the interest rate on both leases is 18%). This prompted the Court to examine the concept of “non-mutual collateral estoppel”, particularly regarding pure questions of law that have not been previously decided by the highest appellate court.

Texas courts disfavor applying collateral estoppel in the context of a pure question of law.  After a lengthy discussion, the Court concluded that collateral estoppel did not apply. If you really want to know more, see pages 3 through 8 of the opinion.  

Your musical interludes. It’s all about the ladies today.

I’m With Her

Molly Tuttle

Noeline Hoffman

and … Patti Smith?