BP Am. Prod. Co. v. Laddex, Ltd.

• Citation: 458 S.W.3d 683
• Decision Date: 17 February 2015
• Docket Number: No. 07–13–00392–CV,07–13–00392–CV
• Parties: BP America Production Company, Appellant v. Laddex, Ltd., Appellee
• Court: Court of Appeals of Texas

458 S.W.3d 683

BP America Production Company, Appellant

v.Laddex, Ltd., Appellee

No. 07–13–00392–CV

Court of Appeals of Texas, Amarillo.

February 17, 2015

Joe L. Lovell, Brian W. Farabough, Lovell, Lovell, Newsom & Isern, L.L.P., Amarillo, Ronald D. Nickum, Amarillo, for Appellee.

John Ben Blanchard, Conrad Hester, Robert C. Vartabedian, Brown & Fortunato, P.C., Amarillo, Christopher Dove, Locke Lord LLP, Houston, Mike A. Hatchell, Susan A. Kidwell, Charles R. “Skip” Watson Jr., Locke Lord LLP, Austin, for Appellant.

Before QUINN, C.J., and CAMPBELL and HANCOCK, JJ.

OPINION

Mackey K. Hancock, Justice

Appellant, BP America Production Company (BP), appeals a judgment finding that its mineral lease covering certain lands had terminated for failing to produce in paying quantities and declaring that appellee, Laddex, Ltd., possesses all right, title, and interest to the mineral estate on the land by virtue of its subsequent lease. We will reverse and remand.

Factual and Procedural Background

On January 13, 1971, an oil and gas lease (“the Arrington lease”) covering certain property in Roberts County was executed, providing for a primary term of five years and further providing that the lease would continue thereafter as long as oil or gas is being produced from the land. The landowners expressly retained the right of reverter. Under this lease, one producing well was drilled on the property. Eventually, these leasehold rights were assigned to BP.

The well on the property produced steadily until August of 2005, when production slowed significantly. Inexplicably, in November 2006, the well resumed producing in quantities comparable to what it had produced prior to its 2005 slowdown.

In 2007, the landowners entered into a “top lease” with Laddex which purported to convey the landowners' reversionary interest in the mineral estate of the property covered by the Arrington lease to Laddex (“the Laddex lease”). However, as a top lease, the terms of the Laddex lease provide that it cannot begin until the Arrington lease is terminated, either by BP's written release or by judgment terminating the Arrington lease.

A month after the Laddex lease was completed, Laddex filed suit seeking termination of the Arrington lease and possession of the mineral estate. The basis of Laddex's claims was that, during the fifteen months of slowed production, there was no production in paying quantities under the Arrington lease and, therefore, the lease should be terminated. The effect of the termination of the Arrington lease would be that the Laddex lease would entitle Laddex to assume operations.

Before trial, BP moved the trial court to dismiss Laddex's claims for lack of subject matter jurisdiction on the basis that the Laddex lease was void because it violates the Rule against Perpetuities. The trial court heard this motion and denied it by written order.

The case went to trial. Testimony was presented over five days. The jury returned a verdict finding that the well failed to produce in paying quantities under the Arrington lease and that a reasonably prudent operator would not continue to operate the well for profit. On the basis of this verdict, the trial court entered judgment declaring the Arrington lease terminated and finding that the mineral estate reverted back to the landowners and to their lessee, Laddex. BP moved for judgment notwithstanding the verdict and for new trial, which were denied. BP filed notice of appeal.

BP presents three issues by its appeal. By its first issue, BP contends that the trial court erred in overruling BP's motion to dismiss for lack of jurisdiction based on the Laddex lease being void because it violates the Rule against Perpetuities. BP's second issue contends that there was no evidence that the well on the property had ceased producing in paying quantities and that a reasonably prudent operator would not have continued to operate it for profit. Finally, BP's third issue contends that the jury charge in this case allowed the jury to rely on expert testimony that was not reliable, relevant, or competent.

Issue One: Standing

BP's first contention is that the trial court lacked subject matter jurisdiction over this case because Laddex lacked standing due to its top lease being void because it violates the Rule against Perpetuites (“the Rule”). Laddex responds by contending that the Laddex lease does not violate the Rule because it conveyed to Laddex a present and vested interest in the landowners' right of reverter.

Our jurisdiction over the merits of this case extends no further than the jurisdiction possessed by the trial court. See Pearson v. State, 159 Tex. 66, 315 S.W.2d 935, 938 (1958). If the trial court lacked jurisdiction, this court only has jurisdiction to set any judgment aside and dismiss the cause. See City of Garland v. Louton, 691 S.W.2d 603, 605 (Tex.1985). Whether the trial court had subject matter jurisdiction is a question of law that we review de novo . Tex. Dep't of Parks & Wildlife v. Miranda, 133 S.W.3d 217, 226 (Tex.2004).

Standing is a constitutional prerequisite to a court's subject matter jurisdiction. Heckman v. Williamson Cnty., 369 S.W.3d 137, 150 (Tex.2012). A plaintiff must have standing at every stage of the legal proceedings, including appeal. See Williams v. Lara, 52 S.W.3d 171, 184 (Tex.2001).

“Perpetuities ... shall never be allowed ... in this State.” Tex. Const. art. I, § 26. The Rule provides that “no interest is valid unless it must vest, if at all, within twenty-one years after the death of some life or lives in being at the time of the conveyance.” Peveto v. Starkey, 645 S.W.2d 770, 772 (Tex.1982). A challenged conveyance must be viewed as of the date the instrument is executed, and it is void if by any possible contingency the conveyance could violate the Rule. Id . The Rule is not applicable to present interests or future interests which vest at their creation. Bagby v. Bredthauer, 627 S.W.2d 190, 194 (Tex.App.–Austin 1981, no writ). As applicable to the Rule, the word “vest” refers to an immediate, fixed right of present or future enjoyment of the estate or interest. Id . The estate or interest may vest in interest before it vests in possession. Id .

The common oil and gas lease is a fee simple determinable estate in the realty. Luckel v. White, 819 S.W.2d 459, 464 (Tex.1991) ; Jupiter Oil Co. v. Snow, 819 S.W.2d 466, 468 (Tex.1991). A lessor is left with a possibility of reverter, which is the presently vested right to future possession of the mineral estate upon termination of the lease. See Luckel, 819 S.W.2d at 464. As such, upon termination of the lease, the mineral estate ordinarily reverts to the owner of the mineral estate. Snow, 819 S.W.2d at 468. However, the owner of the mineral estate can sell or assign the possibility of reverter. See id . ; Hamman v. Bright & Co., 924 S.W.2d 168, 171 (Tex.App.–Amarillo 1996, writ granted w.r.m.).

Being a presently vested interest, the possibility of reverter is not subject to the Rule. Hamman, 924 S.W.2d at 171. A conveyance of all or a portion of this present interest does not violate the Rule. Id. However, if the conveyance is of an executory interest which cannot vest until a condition precedent occurs, the interest is subject to the Rule. Id . In construing the vesting of an interest, the earliest possible time of vesting is favored and an interest will be construed as vested whenever it can be reasonably construed as such. See McGill v. Johnson, 799 S.W.2d 673, 675 (Tex.1990).

Looking at the language contained within the Laddex lease, it expressly acknowledges that it is a “top lease” and that the “primary term” of the lease commences on the date that written releases of the last recorded “base lease” is filed in the public records or judgment terminating the base lease becomes final and nonappealable. The lease further provides that it “is intended to and does include and vest in [Laddex] any and all remainder and reversionary interest ... in the Leased Premises upon expiration of any prior oil, gas or mineral lease....” Thus, while the Laddex lease does not convey the landowners' right of reverter, it does convey a vested interest in the landowners' reversionary right. This reversionary interest in the mineral estate does not come into existence upon the expiration of the Arrington lease, it came into existence and was presently vested in the landowners upon execution of the Arrington lease. Thus, the Laddex lease simply conveys to Laddex a presently vested interest in the mineral estate.¹ See 1 Ernest E. Smith & Jacqueline Lang Weaver, Texas Law of Oil and Gas § 4.2[C], at 6–7 (LexisNexis Matthew Bender 2014) (discussing vesting of top leases). The only right that is not presently vested is the right of possession. Because the Laddex lease conveys a presently vested interest, it is not subject to the Rule. See Hamman, 924 S.W.2d at 171.

BP cites Peveto and Hamman as invalidating the Laddex lease for violating the Rule. In Peveto, the Texas Supreme Court held that a conveyance of a vested interest in property was made contingent and, therefore, violated the Rule when a clause was added to the conveyance that provided that the grant “shall become effective only upon the expiration of” a then-existing deed. Peveto, 645 S.W.2d at 772. The Court explained that the words “ ‘effective only upon’ created a springing executory interest ... which may not vest within the period of the Rule; therefore, the deed is void.” Id . We read Peveto as providing that the conveyance violated the Rule because the conveyance of the vested interest was made contingent upon a future happening. By contrast, the conveyance in the Laddex lease is not made contingent upon any happening. Rather, the full presently vested right to future possession of the mineral estate of the landowners was leased to Laddex without any condition other than that inherent in the possibility of reverter.See Luckel, 819 S.W.2d at 464 ; Snow, 819 S.W.2d at 468.

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