Wenske v. Ealy

• Decision Date: 28 January 2016
• Docket Number: NUMBER 13–15–00012–CV
• Citation: 521 S.W.3d 369
• Parties: Benedict G. WENSKE and Elizabeth Wenske, Appellants, v. Steve EALY and Deborah Ealy, Appellees.
• Court: Texas Court of Appeals

521 S.W.3d 369

Benedict G. WENSKE and Elizabeth Wenske, Appellants,

v.Steve EALY and Deborah Ealy, Appellees.

NUMBER 13–15–00012–CV

Court of Appeals of Texas, Corpus Christi-Edinburg.

Delivered and filed January 28, 2016

Hon. Adam T. Uszynski, for Appellant.

Hon. Robert C. McKay, Hon. Robert Maiden, for Appellee.

Before Chief Justice Valdez and Justices Rodriguez and Perkes

MEMORANDUM OPINION

Memorandum Opinion by Chief Justice Valdez

Appellants, Benedict G. and Elizabeth Wenske, challenge the trial court's grant of traditional summary judgment in their cause of action for declaratory judgment in favor of appellees, Steve and Deborah Ealy. By one issue, appellants contend that as a matter of law they own 3/8ths of the minerals and 3/8ths of the royalties, unburdened by an outstanding 1/4th non-participating royalty interest (NPRI) belonging to former owners of the property.¹ We affirm.

I. BACKGROUND

In 1988, appellants purchased approximately fifty-five acres from, among others, Mahan Vyvjala and Margie Novak (the "1988 Deed"). Out of this conveyance, Vyvjala reserved a 1/8th NPRI and Novak reserved another 1/8th NPRI—resulting in a total reservation of 1/4th of the royalty estate. The NPRI from the 1988 Deed states, in relevant part, the following:

Anything in the foregoing conveyance to the contrary notwithstanding, it is expressly agreed and stipulated that out of the sale hereby made there is expressly excepted and reserved to the grantors herein, [Vyvjala] and [Novak], their heirs and assigns ... an undivided one-fourth (1/4) interest in and to all of the oil royalty, gas royalty, and royalty in casinghead gas, gasoline and royalty in other minerals in and under and that may be produced from the above described tract or parcel of land for a period of twenty-five years.... [ (Emphasis added).]

....

In the event any existing or future oil, gas and/or minerals lease provides for a royalty in excess of one-eighth (1/8) then grantors herein [Vyvjala] and [Novak], shall share in said royalty provided for in such lease or leases to the extent of an undivided one-fourth (1/4) thereof.

....

In the event that [appellants], their heirs, executors, administrators or assigns, in the status of fee owner or fee owners of any portion [of the land], or any interest therein, shall develop and/or operate said tract or parcel of land, or any portion thereof, in the production of oil, gas, or other minerals therefrom, then [Vyvjala and Novak], shall own and be entitled to receive as a free royalty, free and clear of all costs and expenses, one-fourth (1/4th) of the oil, gas and/or other minerals produced and saved under any such operation.

In 2003, appellants sold the property to the Ealys, reserving an undivided 3/8ths of all oil, gas, and other minerals, in and under, and that may be produced from the property (the "2003 Deed"). The conveyance to the Ealys was made specifically subject "to several Reservations and Exceptions to Conveyance and Warranty ‘for all purposes,’ " which included the NPRI. Thus, appellants reserved 3/8ths of the mineral estate, and the Ealys received 5/8ths of the mineral estate. The Reservation in the 2003 Deed states the following:

For [appellants and appellants'] heirs, successors, and assigns forever, a reservation of an undivided 3/8ths of all oil, gas, and other minerals in and under and that may be produced from the Property. If the mineral estate is subject to existing production or an existing lease, the production, the lease, and the benefits from it are allocated in proportion to ownership in the mineral estate.

(Emphasis added). The Exception from the 2003 Deed states the following:

Undivided one-fourth (1/4) interest in all of the oil, gas, and other minerals in and under the herein described property, reserved by [Vyvjala], et al. for a term of twenty-five (25) years in an instrument recorded in Volume 400, Page 590 of the Deed Records of Lavaca County, Texas, together with all rights, express or implied, in and to the property described herein arising out of or connected with said reserved interest and reservation reference to which instrument is here and now made for all purposes.

In 2011, appellants executed an oil and gas lease providing for a royalty payment on oil and gas production from the property. Contemporaneously, the Ealys also leased their share of the mineral estate.

In 2013, appellants filed a petition for declaratory judgment requesting a declaration that appellants were "the owners of an undivided 3/8ths interest in the oil, gas, and other minerals lying in, on and under the subject property which interest does not bear any portion of the royalty reserved under the 1988 deed." In plain terms, appellants argued that they had taken their 3/8ths interest free and clear of the 1/4th NPRI that had been reserved to Vyvjala and Novak, which they contended should be deducted solely from the Ealys' 5/8ths interest.

The Ealys filed an answer and counter claim requesting a declaration

that when properly construed, the [2003] Deed reserved unto [appellants] therein, 3/8ths of all oil, gas and other minerals in and under the Land and conveyed unto [the Ealys] 5/8ths of all oil, gas and other minerals in and under the Land and that the interest reserved and conveyed each bear the Vyvjala Reserved Interest proportionately.

Both parties moved for summary judgment.

The trial court granted the Ealys' motion for traditional summary judgment concluding that the 2003 Deed conveyed to the Ealys "a 5/8ths mineral interest in fee as well as all of the surface in the Property" and "[t]hat the 3/8ths mineral interest reserved by [appellants] and the 5/8ths mineral interest conveyed to the [Ealys] in the Deed will proportionately bear in accordance with the reserved and conveyed mineral interests in the [2003] Deed." Thus, appellants' and the Ealys' mineral estates would share the burden of the 1/4th NPRI in proportion to the fractional interests; 3/8ths of the NPRI (a 3/32nds interest) would be carved out of appellants' mineral estate and 5/8ths of the NPRI (a 5/32nds interest) would be carved out of the Ealys' mineral estate. This appeal followed.

II. STANDARD OF REVIEW AND APPLICABLE LAW

In a traditional motion for summary judgment, the movant has the burden of showing that no genuine issue of material fact exists and that it is entitled to judgment as a matter of law. TEX. R. CIV. P. 166a ; Nixon v. Mr. Property Management Co., 690 S.W.2d 546, 548 (Tex. 1985). If the movant's motion and summary judgment proof facially establish a right to judgment as a matter of law, the burden shifts to the non-movant to raise a material fact issue sufficient to defeat summary judgment. Centeq Realty, Inc. v. Siegler, 899 S.W.2d 195, 197 (Tex. 1995). The construction of a deed is a question of law for the court, where the primary duty of the court is to ascertain the intent of the parties within the four corners of the deed. Altman v. Blake, 712 S.W.2d 117, 118 (Tex. 1986). Thus, our review of a deed is de novo.² Hausser v. Cuellar, 345 S.W.3d 462, 467 (Tex.App.—San Antonio 2011, pet. denied).

"A [NPRI] is an interest in the gross production of oil, gas, and other minerals carved out of the mineral fee estate as a free royalty, which does not carry with it the right to participate in the execution of, the [b]onus payable for, or the delay rentals to accrue under oil, gas, and mineral leases executed by the owner of the mineral fee estate." KCM Fin. LLC v. Bradshaw, 457 S.W.3d 70, 75 (Tex. 2015). A NPRI is non-possessory because it does not entitle its owner to produce the minerals himself and only entitles its owner to a share of the production proceeds, free of the expenses of exploration and production. Plainsman Trading Co. v. Crews, 898 S.W.2d 786, 789 (Tex. 1995). "A NPRI is an interest in the gross production of oil, gas, and other minerals carved out of the mineral fee estate as a free royalty...." KCM Fin., 457 S.W.3d at 75.

III. DISCUSSION

Appellants argue that the 2003 Deed conveyed the burden of the NPRI solely to the Ealys. Thus, appellants claim that they could reserve an interest in the mineral estate without the burden of the NPRI. As support, appellants point to the following portion of the 2003 Deed:

Grantor, for the Consideration and subject to the Reservations from Conveyance and the Exceptions to Conveyance and Warranty, grants, sells, and conveys to Grantee the Property, together with all and singular the rights and appurtenances thereto in any way belonging to have and to hold it to Grantee and Grantee's heirs, successors, and assigns forever. [ (Emphasis added) ].

The Ealys respond that the NPRI comes out of the entire mineral estate. Both parties rely on construction of the 2003 Deed; however, to determine the rights of the NPRI owners, we must construe the 1988 Deed first.

The mineral estate and the royalty estate are two separate and distinct estates. Extraction Res., Inc. v. Freeman, 555 S.W.2d 156, 158–59 (Tex.Civ.App.—El Paso 1977, writ ref'd n.r.e.).

"The words ‘Royalty,’ ‘Bonus,’ and ‘Rentals,’ each and all have a separate, distinct and well established meaning in the oil and gas business." There are varying forms of these estates, which we do not need to discuss, but it is important to note that each can be separately conveyed or reserved, and when so conveyed or reserved, they become separate estates. In Texas, oil and gas in place are, by the established rules of property, a part of the realty or corpus of the land and as such are subject to ownership, severance, conveyance, lease, and taxation. This includes royalty.

Id. (internal citations omitted, emphasis added).

The 1988 Deed's reservation states that an undivided 1/4th "interest in and to all of the oil royalty, gas royalty, and royalty in casinghead gas, gasoline and royalty in other minerals in and under and that may be produced from the above described tract" was reserved in favor of Vyvjala and Novak.³ (Emphasis added.) Thus, Vyvjala and...