Headington Oil Co., L.P. v. White

• Decision Date: 26 March 2009
• Docket Number: No. 14-07-00050-CV.,14-07-00050-CV.
• Citation: 287 S.W.3d 204
• Parties: HEADINGTON OIL COMPANY, L.P., On its Own Behalf and as Successor-In-Interest to Headington Canada Corp. and Headington Oil Company and Bruce Gary d/b/a Gary Oil and Gas, Appellants, v. Modesto WHITE, Jr. and Richard N. Evans, Appellees.
• Court: Texas Court of Appeals

287 S.W.3d 204

HEADINGTON OIL COMPANY, L.P., On its Own Behalf and as Successor-In-Interest to Headington Canada Corp. and Headington Oil Company and Bruce Gary d/b/a Gary Oil and Gas, Appellants, v. Modesto WHITE, Jr. and Richard N. Evans, Appellees.

No. 14-07-00050-CV.

Court of Appeals of Texas, Houston (14th Dist.).

March 26, 2009.

Rehearing Overruled May 21, 2009.

J. Robert Beatty, Dallas, Rex H. White, Jr., Austin, for appellants.

Richard N. Evans, Beaumont, for appellees.

Panel consists of Chief Justice HEDGES, and Justices BROWN and BOYCE.

OPINION

JEFFREY V. BROWN, Justice.

Headington Oil Company, L.P. and Bruce Gary appeal a judgment awarding unpaid royalties on the sale of oil and gas, prejudgment interest, attorney's fees, and expert-witness fees to the appellees. Headington appeals the award of statutory prejudgment interest because it is barred by a "safe harbor" provision; the award of attorney's fees because the appellees are not "prevailing parties"; and the award of expert-witness fees because they are not taxable court costs. Gary joins Headington in contending that the trial court erred in awarding prejudgment interest and expert-witness fees. Gary further argues that the trial court erred in awarding royalties against him based on all production in the field, rather than just one specific well, and that the statute of limitations bars most of the claimed royalties. We reverse the trial court judgment and remand for recalculation of the damages awarded against Gary, as well as the attorney's fees awarded against both appellants.

The Facts

This appeal involves ten years of litigation aimed at recovering the possession of oil and gas royalties allegedly withheld by successive well operators. Appellee Modesto White, Jr., owns a fractional non-participating royalty interest in oil and gas produced from a property known as the Luke Bryan Survey, Abstract 41, in Chambers County. In January 1993, White assigned an undivided one-fourth interest in his then-existing ownership interest jointly to Rex G. Fortenberry and appellee Richard N. Evans.

In 1994, Headington purchased leases on the Luke Bryan Survey where producing oil and gas wells already existed. In August of that year, Headington requested signatures on division orders from each of the known interest owners—both royalty and working interests—to authorize payment of royalties on two wells known as the Furl White No. 1 and the Pearl White No. 1. These division orders set forth the names of and fractional interests held by each of the sixty-five interest owners, including White, Fortenberry and Evans. Additionally, the division orders provided that the appellees and Fortenberry together owned a 0.003777 total fractional royalty interest.

Evans returned the division order to Headington unsigned, maintaining that the order incorrectly stated the proper ownership interests of Evans, Fortenberry, and White. In a letter accompanying the returned order, Evans stated that the correct total interests owned by White, Evans, and Fortenberry was 0.053571-a difference of 0.049794 from the interest amount recited in the division order, and almost five percent of the total fractional interests in the two wells. Evans enclosed with the letter copies of relevant court decisions and other documents to substantiate his contention. Based on this information, Headington placed the royalties accruing to White, Evans, and Fortenberry in a suspense account while it studied the matter to "determine the correct ownership for each interest." In so doing, Headington stated that it would seek additional information from prior lease operators.

In January 1995, Evans demanded payment from Headington of accrued royalties based on the combined 0.053571 royalty interest, citing rights guaranteed under the prevailing Texas oil and gas statutes. Later, in December of that year, having still not received payment, Evans demanded it again. In January 1996, Headington informed Evans that it was still trying to clarify the ownership interests, and stated that it had commissioned a supplemental title opinion on the lease. Headington contended that it would be impossible to determine ownership interest amounts without such an opinion.

On November 6, 1996, White, Evans, and Bettie Fortenberry—the late Rex Fortenberry's widow—made another demand for payment of royalties. The parties continued to discuss this demand in light of Headington's efforts to obtain a title opinion.

On March 17, 1997, White filed suit in the Chambers County district court against Headington and Graham Royalty Ltd., the prior operator of the lease, alleging trespass, wrongful eviction, and conversion of royalties, and seeking to determine title. White further asked the court to determine his fractional royalty interest, and to quiet title to it. White's petition alleged that he owned a 0.0491 fractional interest in the wells. Headington answered with a general and verified denial.

On October 27, 1997, Headington forwarded to Evans a limited title report prepared by A. Wayne Breeland. In his report, Breeland stated that circumstances in the chain of title prevented him from being able to "separately state the interests owned by [White], and his assigneees [Evans] and [Fortenberry]." But Breeland was able to state the total interests owned in combination by a group consisting of White, Evans, Fortenberry, Melovee White, and Gielda White. Melovee and Gielda were also known fractional royalty interest owners in the Luke Bryan Survey.

Between 1997 and 2003, White and Evans filed five more amended petitions against Headington. Along the way, they dropped their claims against Graham Royalty Ltd., but added Melovee White, Gielda White, and other parties as co-defendants. During this period the appellees narrowed their causes of action against the defendants to the recovery of unpaid royalties, prejudgment interest, attorney's fees, and the reformation of the deed to reflect White's conveyance to Fortenberry and Evans. In each of their amended pleadings, the first through the fifth, the appellees sought to recover unpaid royalties based on their claim of a 0.053571 fractional royalty interest in the lease. Melovee and Gielda White filed counter-claims against White and Evans to secure their title rights on the lease, as well as cross-claims against Headington and other well operators for royalties based on the disputed interests.

In May 1998, Headington assigned the lease on the Luke Bryan Survey to the Pearl River Corporation. Pearl River's contract operator, Bruce Gary, took over operation of four wells on the lease, including the Furl White No. 1 and the Pearl White No. 1. Headington informed Gary that title to some of the royalty interests was disputed. Headington also transferred its suspense account to Gary, who did not pay royalties to White, Evans, or Fortenberry's estate; but instead, Gary continued Headington's practice of holding the royalties in suspense until the dispute was resolved. Gary operated the wells until October 1, 2000, when it transferred operations, along with the suspended funds, to American Coastal Energy.

In July 2005, the appellees filed a seventh amended petition against Headington, Gary, the assignee of Fortenberry's heir, and another producer on the lease. In this complaint, the appellees sought an accounting of all production on the Luke Bryan Survey for a specified period, unpaid royalties based on this production, prejudgment interest, attorney's fees, expert-witness fees, and a reformation of the deed to reflect White's conveyance to Evans and Fortenberry. For the first time, the appellees based their claim for unpaid royalties on a combined 0.01577116 fractional royalty interest. This new royalty amount was taken from a title-opinion letter commissioned by Headington and prepared by attorney T. Michael Harrell.

In response to this amended pleading, Headington filed a stipulation and interpleader with the trial court. Headington stipulated that appellees held title to a 0.01577116 fractional royalty interest in the Luke Bryan Survey. Further, Headington deposited into the registry of the court $38,310.20, a royalty amount based on the 0.01577116 combined interest, pending the signing of a final judgment as to the claims between the appellees and Melovee and Gielda White.

The parties tried the case to the bench on March 28, 2006. Neither Melovee White nor any representative of Gielda White's estate¹ appeared for trial. At the beginning of the proceedings, the appellees announced that settlements had been reached with all of the operators except Headington and Gary. In trying the appellees' claims against Headington and Gary, the court heard testimony from White, Evans, Gary, and two other witnesses. The court found in favor of the appellees, awarding them the royalties held in the court registry, additional royalties owed by Gary, prejudgment interest, attorney's fees, and expert-witness fees. The court also dismissed all of Melovee's and Gielda White's claims based on their failure to appear, and filed findings of fact and conclusions of law. This appeal followed.

Analysis

In three issues, Headington contends that the trial court erred by awarding the appellees prejudgment interest, attorney's fees, and expert-witness fees. Gary asserts two issues on the same grounds. Additionally, Gary asserts a third issue arguing that the trial court improperly assessed damages based on the production of gas from all Gary-operated wells on the lease, rather than just the Furl White No. 1, and that the statute of limitations barred most of the royalties claimed against Gary.

A. Standard of Review

Most of Headington's and Gary's issues concern the trial court's conclusions of law. We review such conclusions de novo. In re Moers, 104 S.W.3d 609, 611 (Tex.App.-Houston [1st Dist.] 2003, no pet.). If the evidence supports the conclusions under any legal theory, we will sustain...