Mafrige v. US, Civ.A. No. L-91-95.

• Decision Date: 06 July 1995
• Docket Number: Civ.A. No. L-91-95.
• Citation: 893 F. Supp. 691
• Parties: Carolyn H. MAFRIGE, Plaintiff, v. UNITED STATES of America and Louis Dreyfus Natural Gas Corp., Defendants.
• Court: U.S. District Court — Southern District of Texas

893 F. Supp. 691

Carolyn H. MAFRIGE, Plaintiff, v. UNITED STATES of America and Louis Dreyfus Natural Gas Corp., Defendants.

Civ.A. No. L-91-95.

United States District Court, S.D. Texas, Laredo Division.

July 6, 1995.

COPYRIGHT MATERIAL OMITTED

Richard Morales, Jr., Person, Whitworth, Ramos, Borchers & Mor, Laredo, TX, for plaintiff.

Charles Wendlandt, Asst. U.S. Atty., Corpus Christi, TX, for defendant U.S.

William B. Burford, Hinkle, Cox, Eaton, Coffield & Hensley, Midland, TX, Ricardo Daniel Palacios, Laredo, for defendant Louis Dreyfus Natural Gas Corp.

MEMORANDUM AND ORDER

KAZEN, District Judge.

This quiet title action involves a dispute over the ownership interests of Carolyn H. Mafrige, the United States of America, and Louis Dreyfus Natural Gas Corp. in the mineral rights to land deeded by Mafrige to the United States. Pending are the United States' motions to dismiss Mafrige's complaint and to dismiss Louis Dreyfus' cross-complaint. Also pending are Mafrige's motions for partial summary judgment and for payment of royalties into the Court's registry.

Background

In February of 1978, the U.S. Department of the Interior (DOI) determined it required land owned by Carolyn H. Mafrige and her mother, Edna Gibbens Henry, for its "Nueces River Project" in McMullen County, Texas. The United States Government then negotiated with Mafrige and Henry for the sale of 365.41 acres of their property in McMullen County. The parties signed the land purchase contract on May 23, 1979. The contract called for sale to the United States subject to interests reserved to the vendors. It states in part:

This contract, and subsequent conveyance, is made subject to the following reservations:

(1) All of the Vendor's non-participating royalty interest in and to oil, gas, and other mineral interest in and under the property described in;

(2) The Right of Vendor, herein, to receive royalty and/or rent payments from all existing oil, gas, and other mineral leases until such leases expire by their own terms.

U.S. Department of the Interior; Bureau of Reclamation, Contract No. 9-07-5B-L0642. Although the Government concedes it drafted the contract, it maintains Mafrige was represented throughout the negotiations by her husband, Stevens Mafrige, an attorney licensed by the State Bar of Texas.

In a June 7, 1979 letter to Henry, Ronald W. Mills, Acting Project Construction Engineer for the Bureau of Reclamation (BOR), confirmed that the purchase contract contemplated the vendors' reserving their royalty interests. "The contract clearly indicates that you, along with your daughter, reserved all your nonparticipating royalty interest. This insures your right to derive all benefits from this nonparticipating royalty interest. The United States is obtaining no interest in this nonparticipating royalty." Ex. I, Plf. Mafrige's Mot. for Partial Summ. J., Apr. 28, 1993. The Bureau of Reclamation reconfirmed this arrangement in a July 2, 1979 letter to Henry from Project Construction Engineer Allen C. Gates. That letter states the following:

In the Land Purchase Contract between you and the United States, and the subsequent Warranty Deed to the United States, you are retaining all your nonparticipating royalty interest in the property conveyed to the Government. It is the policy of this agency, as well as the United States, to lease property for oil and gas exploration and development. It is also a policy of the United States that, when a lease is negotiated, it will be for no less consideration (bonuses, delay rentals, and royalties) than the consideration of other similar leases on adjoining property. With this in mind, when the Government would negotiate a lease for the property you are conveying to the United States, the royalty would be no less than similar leases on the adjacent and adjoining property not owned by the Government

Ex. J, Plf. Mafrige's Mot. for Partial Summ. J., Apr. 28, 1993 (emphasis added).

The warranty deed, drafted by the Government and executed on July 4, 1979, differed from the purchase contract in one significant respect. Instead of stating that the conveyance was "subject to the following reservations," it merely stated:

This conveyance is subject to the following:

. . . . .

(2) Outstanding oil, gas, and other mineral interests, including leases, outstanding in the public or third parties.

(3) All of the Grantors' non-participating royalty interest in and to oil, gas and other mineral interests in and under the property described herein.

(4) The right of Grantors, herein, to receive royalty and/or rent payments from all existing oil, gas, and other mineral leases until such leases expire by their own terms.

(5) RESERVING, to the Grantors, their heirs and assigns the non-exclusive right of ingress and egress ... for domestic, and livestock uses....

Vol. 167, pg. 52 of Deed Records of McMullen County, Texas.

At the time of the conveyance, no leases burdened the mineral fee. The only outstanding interest in the property was a 1/32 nonparticipating term royalty interest (NPTRI), reserved by Mary, Adele, and Brookes Henderson in a warranty deed to Carl Poenisch dated October 10, 1941, in "all oil gas and other minerals produced for a term of fifty years from January 25, 1946 and so long thereafter as there is production."

Mafrige contends that, at the time of the conveyance, the parties intended the deed to convey only the surface estate and the executive interest in the mineral estate — i.e., the right to lease the mineral fee and the right to receive all bonuses and delay rentals. If the Government were to lease the mineral estate in the future, Mafrige would receive all royalty payments — except those due on outstanding mineral or royalty interests.

The BOR shared this view at least as late as February 23, 1989, when it responded to the Bureau of Land Management's (BLM) inquiry regarding the United States' interest in the mineral fee under the land deeded by Henry and Mafrige. "Our records indicate that a commitment can be made regarding a stipulation of interests whereby the United States owns the fee surface and the executory mineral rights with the nonparticipating royalty owners receiving all of the leasehold royalty. All of the royalty (8/8) belongs to the XKY owners and applicants."

As the BOR memorandum suggests, the Government and Mafrige did not dispute their respective rights in the mineral fee under the acreage for over ten years after the execution of the deed. Then on September 6, 1988, pursuant to the Mineral Leasing Act of 1920, 30 U.S.C. §§ 181 et seq., and the Mineral Leasing Act for Acquired Lands of 1947, 30 U.S.C. §§ 351 et seq., the BLM leased the oil, gas, and other minerals under 273.91 acres of this land to the Royal Oil & Gas Co. (Lease No. TX NM 77169).¹

The standardized DOI lease form, which incorporates the provisions of the Mineral Leasing Acts, granted the lessee "the exclusive right to drill for, mine, extract, remove and dispose of all the oil and gas (except helium)" in the subject lands. In return, Section One of the lease sets the annual rental fee at $1.50 per acre during the first five years of the lease. The rate would then rise to $2.00 per acre per annum for the duration of the lease. Section Two directs the lessee to pay a twelve and one-half percent ( 1/8 th) royalty interest. The rentals and royalties were to be paid "to the proper office of the lessor." The lease does not indicate whether the 1/8 th royalty was to be reduced by the 1/32 NPTRI reserved by the Hendersons in 1941, or whether the lessee must pay the Hendersons out of its own share. Nor does the lease mention any interest purportedly reserved by Mafrige.

Mafrige found the lease to Royal unacceptable. Her husband wrote a letter to the BLM on April 14, 1989 complaining of the 1/8 th royalty. Because other lessors in the vicinity had obtained royalties as high as 3/16 ths and ¼th, Mafrige urged the BLM to resubmit the lease for bids. The BLM refused to do so. The Mafriges then retained counsel to pursue a claim under the Federal Tort Claims Act for breach of the duty of utmost good faith. A June 19, 1990 letter from Mafrige's attorney to the BLM demanded the Government pay Mafrige $681,563.87 in "lost royalties." The Mafriges amended their demand to $1,899,129.82 in another letter to the BLM dated July 18, 1990.

In the meantime, Royal commenced exploration, drilling two producing wells by the fall of 1989. Royal paid the 1/8 th royalty, reduced by the Hendersons' 1/32nd NPTRI, to Mafrige,² even though the lease directed the payments to be made to the Government. The Government did not contest these payments for almost a year. Then, on February 14, 1990, the Field Solicitor's office of the DOI sent a memorandum to the BLM rejecting the view taken by the BOR. It stated that the DOI now believed the United States was entitled to a royalty of one-eighth of all oil and gas produced from the leased lands and that Mafrige was entitled to nothing. The Government also maintained the Hendersons' interest should not be deducted from its royalty interest, but rather should be taken from the lessee's 7/8 th share.

Royal Oil & Gas Co. subsequently assigned the lease, with the necessary approval of the Secretary of the Interior, to DeKalb Energy Texas, Inc. on August 1, 1990. Upon assignment, DeKalb continued paying Mafrige royalty payments under the lease. Soon thereafter, however, the Government reasserted the position taken in the February 14, 1990 memorandum. The Mineral Management Service of the Department of the Interior (MMS) verbally notified DeKalb that it claimed the right to a 1/8 th royalty interest free and clear of the 1/32nd nonparticipating term royalty interest reserved by the Hendersons in 1946. The Government reiterated this position once again when the MMS sent a letter to DeKalb inquiring whether any funds were being held in an escrow account on behalf of the United States.

DeKalb...