ConocoPhillips Co. v. Koopmann

• Decision Date: 23 March 2018
• Docket Number: No. 16–0662,16–0662
• Citation: 547 S.W.3d 858
• Parties: CONOCOPHILLIPS COMPANY and Burlington Resources Oil & Gas Co., L.P., Petitioners, v. Ralph Wade KOOPMANN, Karen Marie Koenig, Lorene H. Koopmann, and Lois Strieber, Individually and as Executrix of the Estate of Jerry Strieber, Respondents
• Court: Texas Supreme Court

547 S.W.3d 858

CONOCOPHILLIPS COMPANY and Burlington Resources Oil & Gas Co., L.P., Petitioners,

v.Ralph Wade KOOPMANN, Karen Marie Koenig, Lorene H. Koopmann, and Lois Strieber, Individually and as Executrix of the Estate of Jerry Strieber, Respondents

No. 16–0662

Supreme Court of Texas.

Argued December 5, 2017

OPINION DELIVERED: March 23, 2018

Rehearing Denied June 22, 2018

Amicus Curiae George S. Christian, Austin, TX, for Texas Civil Justice League.

Amicus Curiae Cory Pomeray, Austin, TX, for Texas Oil and Gas Association.

W. Scott Hastings, Andrew M. Buttaro, Michael V. Powell, Locke Lord LLP, Dallas, TX, Elizabeth L. Tiblets, Winstead PC, Fort Worth, TX, Kevin D. Cullen, Cullen Carsner Seerden & Cullen LLP, Victoria TX, for Petitioners.

J. Mike Johanson, Johanson & Fairless, L.L.P., Sugar Land, TX, Ronald B. Walker, Walker Keeling, L.L.P., Victoria, TX, Chris M. Volf, G. Todd Taylor, Kevin Christopher Kyser, Johanson & Fairless, L.L.P., Sugar Land, TX, for RespondentsKaren Marie Koenig and Lorene H. Koopmann, Ralph Wade Koopmann.

Caroline C. Schadle, D. Mitchell McFarland, Munsch Hardt Kopf & Harr PC, Houston, TX, Errol J. Dietze, Dietze & Reese, Cuero, TX, Individually and as Executrix of the Estate of Jerry Strieber, for RespondentLois Strieber.

Justice Greendelivered the opinion of the Court.

In this case, we must determine whether the common law rule against perpetuities invalidates a grantee's future interest in the grantor's reserved non-participating royalty interest.We hold that it does not, but on grounds different from those expressed by the court of appeals.However, we hold that the reservation's savings clause is ambiguous and affirm the court of appeals' remand on this issue.In addition, we hold that section 91.402 of the Texas Natural Resources Code does not preclude a lessor's common law claim for breach of contract.Finally, we affirm the court of appeals' judgment as to attorney's fees pursuant to Texas Rule of Civil Procedure 91a.

I.Background

In 1996, Lois Strieber conveyed, by warranty deed, fee simple title to a 120–acre tract of land in Dewitt County to Lorene Koopmann and her late husband.The deed included the following language:

RESERVATIONS FROM AND EXCEPTIONS TO CONVEYANCE AND WARRANTY:

1.There is EXCEPTED from this conveyance and RESERVED to the Grantor and her heirs and assigns for the term hereinafter set forth one-half (½) of the royalties from the production of oil, gas ... and all other minerals ... which reserved royalty interest is a non-participating interest and is reserved for the limited term of 15 years from the date of this Deed and as long thereafter as there is production in paying or commercial quantities of oil, gas, or said other minerals from said land or lands pooled therewith.If at the expiration of 15 years from the date of this Deed, oil, gas, or said other minerals are not being produced or mined from said land ... this reserved royalty interest shall be null and void and the Grantor's rights in such reserved royalty shall terminate.It is expressly understood, however, that if any oil, gas, or mineral or mining lease covering said land ... is maintained in force and effect by payment of shut-in royalties or any other similar payments made to the lessors or royalty holder in lieu of actual production while there is located on the lease or land pooled therewith a well or mine capable of producing oil, gas, or other minerals in paying or commercial quantities but shut-in for lack of market or any other reason, then ... it will be considered that production in paying or commercial quantities is being obtained from the land herein conveyed.

Thus, Strieber reserved a fifteen-year, one-half non-participating royalty interest (the NPRI), which could be extended "as long thereafter as there is production in paying or commercial quantities" under an oil and gas lease.The deed was dated December 27, 1996.Lorene Koopmann later executed a gift mineral deed conveying an undivided two-thirds of her mineral interest to her two children (together, the Koopmanns).

In 2007, Lorene Koopmann entered a three-year lease of the tract with Hawke Enterprises.The lease provided for a three-year primary term ending October 2010, and it gave Hawke the option to extend the primary term an additional two years in exchange for a $24,000 payment.Hawke later assigned the lease to Burlington Resources Oil & Gas Company, L.P.¹No production had occurred in 2009, and that year Burlington tendered the $24,000 payment to the Koopmanns to extend the lease's primary term until October 22, 2012.This tract was pooled with other leases over 600 acres known as "Lackey Unit A."In December 2010, Burlington and the Koopmanns executed an amended lease, which brought the Koopmann children's interests under the Burlington lease along with other amendments.Strieber ratified this amended lease.

As of August 2011, there still had been no production from the Koopmanns' land and only four months remained on the initial fifteen-year period of Strieber's reserved NPRI.Strieber conveyed to Burlington a 60% interest in her NPRI, presumably as an incentive to motivate Burlington to begin drilling.

Thereafter, Burlington identified a well site on Lackey Unit A, and on December 7, 2011, Burlington sent a letter to the Koopmanns informing them that a well was anticipated to begin producing oil and gas in the first quarter of 2012.The letter noted that the reservation's savings clause in Strieber's deed required payment of shut-in royalties in order to maintain the NPRI interests, and Burlington included "shut-in royalty payments," explaining that these payments were made "to ensure that all parties' interest, if any, in the well is maintained."

The parties do not dispute that there was no well actually producing on December 27, 2011, but the parties offered conflicting summary judgment evidence as to whether there was a well capable of producing in paying or commercial quantities as of that date.Actual production was not accomplished on Lackey Unit A until February 2012, about two months after the end of the NPRI's initial fifteen-year term.On February 6, Burlington notified the Koopmanns that because there was a dispute over the royalty interests in Lackey Unit A, Burlington would be "suspending payments to anyone" until the matter was resolved.A few days later, the Koopmanns returned the "shut-in royalty payments"they had received from Burlington.

The Koopmanns sought declaratory judgment against Burlington and Strieber to construe the deed, claiming that they were the sole owners of the NPRI as of December 27, 2011.They also asserted non-declaratory claims against Burlington for breach of contract, unjust enrichment (money had and received), conversion, negligence, and negligence per se.²

Burlington filed a motion to dismiss the non-declaratory claims under Texas Rule of Civil Procedure 91a, asserting that the Koopmanns' claims were barred by section 91.402(b) of the Texas Natural Resources Code, which provides lessees the right to suspend royalty payments when there is a title dispute.See generallyTEX. R. CIV. P. 91a;TEX. NAT. RES. CODE § 91.402(b).In the same motion, Burlington argued that the Koopmanns' negligence and negligence per se claims were barred by the common law economic-loss rule.The trial court denied this motion and awarded attorney's fees to the Koopmanns under the loser-pays provision of Rule 91a.See generallyTEX. R. CIV. P. 91a.7(providing that a court must award the "prevailing party" on the motion to dismiss all costs and reasonable and necessary attorney's fees).Burlington later filed a motion for summary judgment on the same claims asserting similar arguments.The trial court granted summary judgment and ordered that the Koopmanns take nothing as to those claims.

As to the declaratory action, the parties filed competing motions for summary judgment.The trial court granted the Koopmanns' motion, concluding: (1) on December 27, 2011, there was no well that was actually producing in paying or commercial quantities on Lackey Unit A; (2) accordingly, Burlington's and Strieber's NPRI expired at that time; and (3) the Koopmanns, as sole owners of the royalty interest, were due royalty payments under their lease with Burlington.

Both parties appealed.Burlington appealed the declaratory judgment, claiming that Strieber's reservation created a future interest in the Koopmanns that was void under the rule against perpetuities (the Rule) and that Burlington's interest was independently maintained because its activities satisfied the deed's savings clause.Burlington also asserted that the trial court's award of attorney's fees to the Koopmanns under Rule 91a was improper.The Koopmanns appealed the trial court's summary judgment on all of its non-declaratory claims, arguing that section 91.402(b) of the Natural Resources Code does not bar those claims.

The court of appeals affirmed in part, reversed in part, and remanded for further proceedings.542 S.W.3d 643, 648, 2016 WL 2967689(Tex. App.–Corpus Christi2016, pet. granted)(mem. op.).By applying the "two-grant theory" developed in Bagby v. Bredthauer , 627 S.W.2d 190(Tex. Civ. App.–Austin 1981, no writ), the court concluded that the Rule did not bar the Koopmanns' future interest in the NPRI.Id. at 658.The court found that the reservation's savings clause was ambiguous, however, and remanded the case for a jury to determine the proper interpretation.Id. at 661.With regard to the non-declaratory claims, the court of appeals upheld the trial court's summary judgment dismissing the Koopmanns' claims for negligence, negligence per se, conversion, unjust enrichment, and money had and received under the economic-loss rule.Id. at 668.However, it held that section 91.402 of the Natural Resources Code does not bar a claim for breach of contract, and it reversed on that issue.Id. at 667–68.Finally, although the court of appeals...