Hurd Enterprises, Ltd. v. Bruni

• Court: Texas Court of Appeals
• Writing for the Court: Before REEVES; BIERY
• Citation: Hurd Enterprises, Ltd. v. Bruni, 828 S.W.2d 101 (Tex. App. 1992)
• Decision Date: 12 February 1992
• Docket Number: No. 04-90-00330-CV,A,No. 2,2,04-90-00330-CV
• Parties: HURD ENTERPRISES, LTD., Killam & Hurd, Ltd., & Killam and Hurd, Appellants, v. Fred M. BRUNI, Ernest M. Bruni & Ernesto Ramirez as Trustees of the Bruni Mineral Trustppellees.

Page 101

828 S.W.2d 101

HURD ENTERPRISES, LTD., Killam & Hurd, Ltd., & Killam and Hurd, Appellants, v. Fred M. BRUNI, Ernest M. Bruni & Ernesto Ramirez as Trustees of the Bruni Mineral Trust No. 2, Appellees.

No. 04-90-00330-CV.

Court of Appeals of Texas San Antonio.

Feb. 12, 1992.

Rehearing Denied April 14, 1992.

Richard N. Hansen, Law Offices of Richard N. Hansen, Laredo, Bertrand C. Moser, Paul Herrmann, William Pannill, Pannill & Moser, Houston, Emilio Davila, Jr., Laredo, William C. Denton, Conoco, Inc., William M. Sutton, Exxon Co., U.S.A., Michael L. Homeyer, Amoco Corp., Everard A. Marseglia, Jr., JoAnn P. Russell, Butler & Binion, Houston, for appellants.

Steve A. Whitworth, Donato Ramos, George J. Person, Person, Whitworth, Ramos, Borchers & Morales, Laredo, for appellees.

Before REEVES, C.J., and BUTTS and BIERY, JJ.

OPINION

BIERY, Justice.

This is an appeal from a jury verdict and judgment thereon in a suit to recover royalty on a take-or-pay settlement and damages for breach of an asserted duty of good faith and fair dealing. We reverse and render judgment that the appellees take nothing on their claims.

In 1974, the trustees of the Bruni Mineral Trust ¹ (Bruni) entered into an oil and gas lease with Killam & Hurd, Ltd. ² The net effect of the lease was that Bruni conveyed all of the oil and gas estate to Killam & Hurd, Ltd. Killam and Hurd took on the risk and expense of exploration and drilling; Bruni was to receive a one-eighth royalty if, as, and when oil and gas was produced. Nine producing gas wells were completed on the lease premises, and gas production from two of the wells was marketed under a gas purchase contract between Killam & Hurd, Ltd. and United Texas Transmission Company (UTTCO). The gas purchase contract provided for a 15-year term and included a take-or-pay provision. ³ Shortly after the gas contract was signed, the gas market collapsed and by 1984, UTTCO was buying only five to ten percent of the contract amount and refused to pay for the gas not taken. Hurd could not sell the gas elsewhere because the contract contained a dedication clause; therefore, Hurd strived to obtain marketing concessions from UTTCO. The contract was amended in January of 1986 to lower the contract price gradually, and a second amendment was made at the end of 1986, to allow either party to change the price of the gas by giving 30 days' notice. Hurd's next mission was to obtain a release of the dedication clause so it could market the gas elsewhere. The release was obtained and in exchange, UTTCO received a volume credit under the contract for gas sold to others. Hurd was still in a predicament because the only pipeline available to transport the gas to other markets was owned by UTTCO which demanded a high transportation fee. In response, Hurd invested $1.5 million in a pipeline to compete with UTTCO, and UTTCO reduced its transportation rate by 17 cents per Mcf. ⁴

In the meantime, the owner of the other fifty percent interest, Killam Oil Company, sued UTTCO for take-or-pay deficiencies arising under the gas purchase contract. A cash settlement was reached, and Killam dismissed its suit. Hurd negotiated a settlement with UTTCO without filing suit, and Hurd released UTTCO from all prior claims under their 1981 contract for take-or-pay deficiencies and agreed to cancel the contract. At the request of UTTCO, the settlement agreements were to be kept confidential; however, Bruni learned of the Killam settlement and made demand for its royalty share. When Killam refused the Bruni demand, Bruni filed suit against Killam. Hurd was later added as a defendant when Bruni learned of Hurd's settlement with UTTCO during the course of the Killam discovery.

Cross motions for summary judgment were filed. The trial court concluded as a matter of law that the gas royalty clause was applicable to the settlement payments and rendered judgment for Bruni. The trial court severed the royalty claim, and Killam and Hurd appealed the partial summary judgment to this Court. The remaining issues were tried before a jury ⁵ and the following verdict was rendered:

1. Bruni was entitled to $98,048 as its share of the royalty interest of the settlement that Hurd obtained from UTTCO.

2. Hurd did not fail to reasonably market the gas by (a) agreeing to the two contract amendments and (b) settling the contract claims as it did.

3. A confidential relationship existed between Hurd Enterprises, Ltd. and the Bruni Mineral Trust.

4. Hurd did not breach its duty of good faith and fair dealing in regard to its marketing obligations by agreeing to the two contract amendments but did breach its duty of good faith and fair dealing by settling the contract claims as it did.

5. The breach was a proximate cause of the damages sustained by Bruni in the amount of $183,926.

6. Bruni was not entitled to punitive damages.

7. Bruni was entitled to attorney's fees in the amount of $198,000 for trial and $25,000 for appeal in its claim against Hurd for its royalty share of the UTTCO settlement.

After the final judgment was entered, this Court issued its opinion on the previously severed motion for summary judgment concerning the royalty. We held, as a matter of law, that Bruni was not "entitled to royalties on the settlement proceeds arising from the take-or-pay provision of the contract between Killam, Hurd, and UTTCO." Killam Oil Co. v. Bruni, 806 S.W.2d 264, 268 (Tex.App.--San Antonio 1991, writ denied). The summary judgment granted in favor of Bruni was reversed, and judgment was rendered in favor of Killam Oil and Hurd Enterprises. Hurd brought its appeal from the jury trial, and oral argument was heard prior to the supreme court denying writ on the first Bruni decision. In its appeal, Hurd asserts three points of error contending the court erred in granting Bruni judgment because: (1) there is no duty of good faith and fair dealing in a lessor-lessee case, and there is no evidence to support the verdict; (2) Bruni is not entitled to share in the take-or-pay settlement because a royalty owner is not entitled to share in the settlement; and (3) Bruni is not entitled to attorney's fees because Hurd has no contractual liability.

In the second point of error, Hurd contends the trial court erred in granting Bruni judgment for royalty on Hurd's settlement with UTTCO because a royalty owner is not entitled to share in a take-or-pay settlement. Hurd requests that we reverse, as a matter of law, that portion of the judgment awarding $98,048 in royalty to Bruni because in the first appeal, this Court has already ruled that Hurd owes no royalty to Bruni.

In response to Hurd's argument, Bruni argues that although the settlement was labeled as a "take-or-pay settlement," the experts testified at trial that the settlement was not a take-or-pay settlement because there was no right of recoupment. ⁶ The jury, however, was not asked to determine whether the settlement was in fact a "take-or-pay" settlement but rather, based on the district court's ruling on the partial summary judgment that Bruni was entitled to royalty, was simply asked what amount Bruni's royalty share should be. Bruni also asks that we consider the arguments that it made in its Application for Writ of Error to the Texas Supreme Court. In addition, after oral argument in this case, Bruni filed a supplemental brief with this Court requesting that we reconsider our ruling on the royalty issue because the Fifth Circuit Court of Appeals reversed the district court in Frey v. Amoco, 708 F.Supp. 783 (E.D.La.1989), and allowed the royalty owners to share in the take-or-pay settlement. Frey v. Amoco Prod. Co., 943 F.2d 578 (5th Cir.1991). Bruni urges us to consider this decision and likewise find that it is entitled to its proportionate share of the settlement monies paid to Hurd.

The 5th Circuit Court in Frey distinguishes its previous decision in Diamond Shamrock Exploration Co. v. Hodel, 853 F.2d 1159 (5th Cir.1988), which did not allow royalty owners to share in the settlement and which is cited by this Court in the first Bruni decision, in three ways: (1) the cases concern different lease language; (2) federal law was applied in the Diamond Shamrock decision but the Frey decision was based on Louisiana law; and (3) the lessor wrote the lease in Diamond Shamrock whereas the lessee prepared the lease and presented it to the lessor for execution in Frey. Bruni contends that the Frey decision should be controlling because the lease language in Frey is the same as in the lease at issue here. Subsequently, on January 8, 1992, the Fifth Circuit in Frey, granted Amoco's petition for rehearing and certified the take-or-pay royalty issue to the Louisiana Supreme Court because of its "tremendous consequences for Louisiana's gas industry and its citizens who own mineral interests in Louisiana real estate." Frey v. Amoco Prod. Co., 951 F.2d 67 (5th Cir.1992).

In Frey, the language concerning royalty read that "the royalty on gas sold by Lessee to be one-fifth ( 1/5) of the amount realized at the well from such sales." The court stated that the lease provides for royalty on the amount realized from sales, not on production, and in Louisiana, a "sale is sometimes made of a thing to come: as of what shall accrue from an estate, of animals yet unborn, or such like other things, although not yet existing." (Emphasis added.) The court cites to Diamond Shamrock and this Court's first decision in Bruni by using a comparison signal which is used when the cited authority supports a proposition different from the main proposition but sufficiently analogous to lend support. The court further stated that the fact that "the Lease explicitly bases oil and miscellaneous mineral--but not gas--royalties on production strongly suggests that we not interpret production to be a prerequisite to royalties on gas." (Emphasis added.) In the Bruni lease, the royalty clause in the lease is as follows:

The...