Armour Pipe Line Co. v. Sandel Energy, Inc.
| Decision Date | 29 September 2022 |
| Docket Number | 14-20-00412-CV |
| Parties | ARMOUR PIPE LINE COMPANY, MARY PATRICIA CASHMAN, JOANCASHMAN, NOREEN CASHMAN, CATHLEEN CASHMAN, ANDCAROLINE DECHANT, Appellants v. SANDEL ENERGY, INC., DOUBLE H INVESTMENTS, L.P., LAURASANDEL GILBREATH, KERCO ASSET MANAGEMENT, LLC, SUCCESSOR IN INTEREST TO KERRI A. COLEMAN D/B/A KERCO, EDDIE THOMPSON AND EDNA ANN TEPE THOMPSON, CO-TRUSTEES OF THE EDGAR CARMEN THOMPSON FAMILY TRUST B, BILL AND LYNN MIZELL, JOE B. SANDEL, RICKY W. SLEDGE, AND CML EXPLORATION, LLC, Appellees |
| Court | Court of Appeals of Texas |
On Appeal from the 12th District Court Grimes County, Texas Trial Court Cause No. 32962
Panel consists of Justices Wise, Poissant, and Wilson.
We grant appellants' Motion for Rehearing as to the first issue on rehearing deny the remainder of the motion, withdraw the opinion issued in this case on September 29, 2022, and issue this Opinion on Rehearing. In an assignment conveying interests in oil and gas leases, the assignors purported to reserve an overriding royalty interest in some of the leases in favor of one assignor. A dispute arose as to the validity of that reservation. The trial court granted a summary-judgment motion filed by the assignee and related parties, impliedly determining that the assignor was a "stranger to title" with respect to the subject leases and therefore the attempted reservation of the overriding royalty interest in favor of the assignor was void and of no force and effect. We conclude that under the binding precedent of Greene v White, 153 S.W.2d 575 (Tex. 1941) and the unambiguous language of assignment, as between the assignor and the assignee and their successors, the reservation of the overriding royalty interest was binding and effective under the estoppel-by-deed doctrine, even if the assignor held no title in the leases in question when the assignor executed the assignment. After distinguishing between the stranger to title rule and the stranger to deed rule, we conclude that the Greene precedent precludes us from applying the stranger to title rule in this case, and that the stranger to deed rule does not apply either. We conclude that the trial court erred in failing to apply the estoppel-by-deed doctrine to determine that the assignor is entitled as a matter of law to a declaration that as between the assignor and the assignee and their successors, the assignor owns the disputed overriding royalty interest. After addressing various other issues raised by the parties, we affirm in part, reverse and render in part, and reverse and remand in part.
Effective July 1, 1999, appellant Armour Pipe Line Company ("Armour"), Cashco L.L.C., Cashco Oil Company, Thomas J. Cashman, Individually and as Trustee under Eugene C. Cashman Children's Grimes County, Texas Irrevocable Trusts dated September 30, 1976, Eugene C. Cashman, Eugene C. Cashman d/b/a Cashman Oil & Gas and d/b/a Cashman Oil & Gas Company, and Eloc Oil & Gas Company, Inc. (collectively the "Assignors") executed an assignment (the "First Assignment") in which they:
In this opinion, we refer to the 76 leases listed in Exhibit A-1 to the First Assignment collectively as the "Subject Leases." The Assignors did not make any general warranty of title, but they did make a special warranty of title against any person claiming title by, through, or under the Assignors, and limited to "the purchase price of said lease and said wells, herein." Sandel Energy signed the First Assignment.
Summary-judgment evidence showed that in 1992 Armour purchased certain non-recourse mortgage notes, becoming a lienholder in the Subject Leases. The documents evidencing the transfer of the liens were not filed in the Grimes County real property records. There is no evidence that Armour ever foreclosed on any lien in the Subject Leases or ever held title to the Subject Leases. For the purposes of this opinion, we presume that, at the time of the First Assignment, Armour was a lienholder in the Subject Leases who had not foreclosed any of those liens and did not hold title to any of the Subject Leases. As part of this transaction, Armour released all liens it held in any of the leases involved in the First Assignment, including the Subject Leases (the "Release").
In a second assignment, effective July 1, 2000, Armour conveyed and assigned the Royalty to Sandel Energy to the extent it applied to existing wells, but Armour did not assign the Royalty as to any well drilled in the future (the "Second Assignment"). Sandel Energy signed the Second Assignment.
In May 2011, Sandel Energy, Inc. executed a farmout agreement with appellee CML Exploration, LLC pertaining to thirteen oil, gas, and mineral leases that under the terms of the First Assignment were assigned to Sandel Energy subject to the Royalty ("Farmout Leases"). Under the farmout agreement, (1) if CML timely commenced and completed a test well as a commercial well, CML had the right to form a pooled unit including the Farmout Leases and also acreage not covered by the Farmout Leases; and (2) if CML drilled the test well into a specified formation and completed it as a well capable of producing oil or gas in paying quantities, CML would earn all of the interest of appellees/plaintiffs Sandel Energy, Inc., Double H Investments, L.P., Laura Sandel Gilbreath, Kerco Asset Management, LLC, Successor in Interest to Kerri A. Coleman d/b/a KERCO, Eddie Thompson and Edna Ann Tepe Thompson, Co-Trustees of the Edgar Carmen Thompson Family Trust B, Bill and Lynn Mizell, Joe B. Sandel, and Ricky W. Sledge (collectively the "Sandel Parties") in the Farmout Leases to the extent the leases are included in a pooled unit for the well, subject to the reservation of a 12.5% interest in the Farmout Leases in favor of the Sandel Parties, as described in the farmout agreement. CML successfully drilled producing wells pursuant to the farmout agreement.
In 2013 after consulting with legal counsel, CML concluded that the purported exception and reservation of the Royalty unto Armour in the First Assignment was "ineffective" and that Armour did not own any part of the Royalty because Armour was a stranger to title as to the Subject Leases. After CML reached this conclusion, the Sandel Parties agreed with CML's position and began asserting that the purported exception and reservation of the Royalty unto Armour in the First Assignment was void. The Sandel Parties had previously assumed that Armour owned the part of the Royalty not assigned to the Sandel Parties in the Second Assignment (the "Remaining Royalty"). Recognizing that a dispute likely would arise as to the validity of the Remaining Royalty, CML held in suspense the funds that would be subject to this royalty if it were valid.
The Sandel Parties filed suit against Armour and CML. The Sandel Parties sought a declaratory judgment that any purported reservation in the First Assignment in favor of Armour is of no legal force or effect and is void. In the alternative, the Sandel Parties sought a declaratory judgment that to the extent Armour had a valid claim to the Royalty, all such rights were extinguished and the Royalty is of no further legal force or effect, resulting in Armour having no claim to the Royalty. The Sandel Parties sought the alternative declaration based on Armour's forfeiture, in February 2003, of Armour's certificate of authority to do business in Texas. In the alternative, the Sandel Parties asserted a trespass to try title action in which they sought judgment for title to and possession of the Royalty.
Armour answered and asserted the following counterclaims or crossclaims: (1) a claim for a declaration that Armour is the rightful owner of the Remaining Royalty based on the estoppel-by-deed doctrine; (2) a claim for breach of contract against Sandel Energy based on its alleged breaches of the First Assignment and of the Second Assignment; and (3) money-had-and-received claims against the Sandel Parties and CML. CML asserted claims seeking interpleader relief and attorney's fees.
Appellants/intervenors Mary Patricia Cashman, Joan Cashman, Noreen Cashman, Cathleen Cashman, and Caroline DeChant (collectively the "Cashman Sisters") filed a petition in intervention as counterplaintiffs against the Sandel Parties and CML. The Cashman Sisters' primary claim was a claim for a declaration that Armour is the rightful owner of the Remaining Royalty based on the estoppel-by-deed doctrine. This claim was substantially similar to Armour's declaratory-judgment claims and requested a declaration that Armour, not the Cashman Sisters, was the rightful owner of the Remaining Royalty. In the alternative, the Cashman Sisters asserted that if the First Assignment did not effectively convey and reserve the...
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