879 P.2d 779 (N.M. 1994), 20892, Team Bank v. Meridian Oil Inc.

Docket Nº:20892.
Citation:879 P.2d 779, 118 N.M. 147, 1994 -NMSC- 083
Opinion Judge:[10] Franchini
Party Name:TEAM BANK, a corporation, as Trustee for the San Juan Basin Royalty Trust, Plaintiff-Appellee, v. MERIDIAN OIL INC., a corporation, and Southland Royalty Company, a corporation, Defendants-Appellants.
Attorney:Campbell, Carr, Berge & Sheridan, P.A., Michael B. Campbell, Michael H. Feldewert, Santa Fe, for appellants., Gallegos Law Firm, P.C., J.E. Gallegos, Santa Fe, for appellee. [7] Campbell, Carr, Berge & Sheridan, P.A., Michael B. Campbell, Michael H. Feldewert, Santa Fe, NM, for Defendants-Appell...
Judge Panel:MONTGOMERY, C.J., and RANSOM, J., concur.
Case Date:August 08, 1994
Court:Supreme Court of New Mexico

Page 779

879 P.2d 779 (N.M. 1994)

118 N.M. 147, 1994 -NMSC- 083

TEAM BANK, a corporation, as Trustee for the San Juan Basin

Royalty Trust, Plaintiff-Appellee,

v.

MERIDIAN OIL INC., a corporation, and Southland Royalty

Company, a corporation, Defendants-Appellants.

No. 20892.

Supreme Court of New Mexico.

August 8, 1994

Page 780

[118 N.M. 148] Campbell, Carr, Berge & Sheridan, P.A., Michael B. Campbell, Michael H. Feldewert, Santa Fe, for appellants.

Gallegos Law Firm, P.C., J.E. Gallegos, Santa Fe, for appellee.

OPINION

FRANCHINI, Justice.

We granted an interlocutory appeal to Defendants Meridian Oil Inc. and Southland Royalty Co. ("Southland") from an order denying a motion to dismiss for improper venue. Team Bank, a corporation acting as Trustee for the San Juan Basin Royalty Trust, seeks monetary damages from Southland in a suit for breach of contract brought in Rio Arriba County. Team Bank alleges that Southland has underpaid royalties on natural gas production in Rio Arriba and other counties. We find that the trial court improperly denied the motion to dismiss, reverse the trial court, and remand for dismissal of the cause of action without prejudice.

Facts and proceedings below. Southland and Team Bank are Texas residents. Southland is the settlor, or creator, of an oil and gas royalty trust that is to receive royalties from oil and gas leasehold interests, royalty interests, and overriding royalty interests Southland owns in the San Juan Basin. The Trust is to collect the assets produced by the interests, convert them to cash, and distribute the cash to unit holders of the Trust. In 1980 Southland and Team Bank entered into a contract in Texas whereby Southland was to collect the proceeds from the sale of the oil and gas produced from certain lands in the Basin and pay to Team Bank, as Trustee, 75% of the net proceeds as an overriding royalty interest.

In 1992 Team Bank brought suit for breach of contract, alleging underpayment of royalties. Southland moved for dismissal of the suit on the basis of improper venue. At the hearing on the venue motion Team Bank withdrew its claims for divestiture and partition. Relying on Fullerton v. Kaune, 72 N.M. 201, 205, 382 P.2d 529, 533 (1963) (stating that funds resulting from the sale of production of a mineral well are realty interests), and NMSA 1978, Section 38-3-1(D)(1) (Cum.Supp.1993) (mandating venue in the county where real property is located when an interest in land is the object of the suit), the trial court found venue to be proper in Rio Arriba County. Alternatively, the court found that the subject contracts were performed in part in Rio Arriba County, and

Page 781

[118 N.M. 149] therefore, under NMSA 1978, Section 38-3-1(F) (allowing suit against foreign corporations to be brought in the county where the contract is to be performed), venue also was proper.

Venue in New Mexico is not mandatory under NMSA 1978, Section 38-3-1(D)(1). Under NMSA 1978, Section 38-3-1(D)(1), it is mandatory to bring all civil actions involving a dispute "[w]hen lands or any interest in lands are the object of any suit in whole or in part ... in the county where the land ... is situate." Team Bank argues that an action to determine the nature and extent of royalty interests has as its object an "interest in land" for venue purposes, citing to Fullerton for authority. In Fullerton the plaintiffs claimed ownership of a royalty interest in an oil and gas well, thus the trial court correctly held that the suit was for an interest in realty such that the statute of frauds applied to the contract. 72 N.M. at 205, 382 P.2d at 533. Fullerton, however, does not dispose of the issue in this case, which is: What is the object of this suit?

Southland argues that the Trust does not own an overriding royalty interest but rather only a "net profits interest" in the proceeds of the royalty. We disagree. The Conveyance, by its express terms, conveys a "net overriding royalty interest ... in and to the...

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