Merit Management Partners I, L.P. v. Noelke

• Decision Date: 03 October 2008
• Docket Number: No. 03-07-00058-CV.,03-07-00058-CV.
• Citation: 266 S.W.3d 637
• Parties: MERIT MANAGEMENT PARTNERS I, L.P. (formerly known as Merit Partners, L.P.); Merit Energy Partners III, L.P.; and Merit Energy Partners D-III, L.P., Appellants, v. Walter D. NOELKE, as general partner of the NF5 Family Limited Partnership, Appellee.
• Court: Texas Court of Appeals

266 S.W.3d 637

MERIT MANAGEMENT PARTNERS I, L.P. (formerly known as Merit Partners, L.P.); Merit Energy Partners III, L.P.; and Merit Energy Partners D-III, L.P., Appellants, v.Walter D. NOELKE, as generalpartner of the NF5 Family Limited Partnership, Appellee.

No. 03-07-00058-CV.

Court of Appeals of Texas, Austin.

October 3, 2008.

Matthew W. Baab, McElroy Sullivan & Miller, L.L.P., Austin, William Keith

Davis, Hay, Whittenburg, Davis, Caldwell & Bale, LLP, San Angelo, for appellants.

Jon J. Bailey, The Bailey Law Firm, San Angelo, Rick Thompson, Law Office of Deborah Hankinson PC, Dallas, for appellee.

Before Justices PURYEAR, WALDROP and HENSON.

OPINION

G.ALAN WALDROP, Justice.

This appeal arises from a suit filed in county court seeking damages for breach of a lease agreement.The county court rendered judgment in favor of the Plaintiff/AppelleeWalter D. Noelke as general partner of the NF5 Family Limited Partnership.The issue presented is whether the county court had jurisdiction to render the judgment.Defendants/AppellantsMerit Management Partners I, L.P., Merit Energy Partners III, L.P., and Merit Energy Partners D-III, L.P.(collectively, "Merit") assert that while they have a real property lease with the NF5 Family Limited Partnership, they are not bound by the particular document or provisions at issue.They argue that rendering judgment based on the document and provisions in question necessarily involves adjudicating title to real property in the form of determining the nature and extent of their leasehold.We agree and hold that the county court was without jurisdiction over the lawsuit because the suit involves an adjudication of title to real property.

Factual and Procedural Background

This case involves the lease of a one-acre tract used as a pipe and equipment storage yard for servicing oil and gas properties.The pipe yard was originally leased by NF5's predecessors in interest to a predecessor in interest of Merit under the terms of a document titled "Pipe Yard Lease" dated June 1, 1978.The Pipe Yard Lease was for a term of twenty years and provided for annual rental payments.Under the Pipe Yard Lease, the lessee's rights were not assignable "without the express written consent of Lessor."After the Pipe Yard Lease's twenty-year term expired, NF5 entered into a two-page letter agreement (the "Letter Agreement") with its tenant at the time, Devon Energy Corporation("Devon").The Letter Agreement required compliance with the Pipe Yard Lease as modified by the Letter Agreement's additional terms, which include an increased lease rate adjustable according to future increases in the consumer price index, and a reimbursement provision for certain expenses incurred in connection with the Letter Agreement.Two years later, Devon assigned the lease to its affiliate Devon Energy Production Company("Devon Production").NF5 consented to this assignment in writing.

In 2002, Devon Production sold Merit various oil and gas property interests, including an oil and gas lease obtained from the Noelke family estate covering thousands of acres in Irion County.As part of this transaction, Devon Production was to assign to Merit its interest in the Pipe Yard Lease and Letter Agreement.On May 2, 2002, Devon Production requested NF5's consent to the assignment.NF5 requested financial and other information relating to Merit, which Merit provided.NF5 provided no further response to the request for consent to assignment for over a year.

In April 2003, not having heard from NF5 regarding the consent to assignment, Merit calculated the amount of rent due under the terms of the Letter Agreement at $3,108.79 and sent a check for that amount to NF5.By letter dated May 19, 2003, Noelke informed Merit that the amount due was actually $3,079.65 and returned Merit's check together with a copy of the Letter Agreement.Merit sent a check for the revised amount to NF5, dated May 29, 2003, which NF5 deposited on June 2, 2003.

While the exchange relating to the rent checks was occurring, NF5 (Noelke) sent another letter to Merit, dated May 20, 2003, stating that Devon Production had not obtained the required consent to assignment and "therefore Merit has no right to use of the Lessor's property."¹The letter also stated that NF5 would consent to the assignment to Merit only under the terms of an enclosed nine-page document drafted by Noelke titled "Consent to Assignment."This new document — provided to Merit for the first time on June 3, 2003 — purported to make multiple changes to the terms of the Pipe Yard Lease and Letter Agreement.Of particular relevance to this case, the Consent to Assignment increased the annual rental payment, created additional obligations to reimburse NF5 for its legal fees, time, and expenses, and added a liquidated damages clause.In addition, the Consent to Assignment purported to unilaterally amend the terms of the oil and gas leases and real property interests Merit purchased from Devon Production.²The Consent to Assignment only had a single signature line for Noelke as general partner of NF5, and provided that Merit would be "deemed to have accepted" its terms by, at any time after June 9, 2003, "(1) using the pipe yard described in the Pipe-Yard Lease ...; (2) making the payment due of $3,079.65 as set out in [the Consent to Assignment]; or (3) making payments under any of the other Agreements."The term "Agreements," used throughout the Consent to Assignment, was defined to include twelve different documents, including the oil and gas leases, the Pipe Yard Lease, and the Letter Agreement, all of which were purportedly filed in the official public records of Irion County.NF5 (Noelke) filed the Consent to Assignment in the Irion County deed records on May 22, 2003, two days after mailing the document to Merit, several days before Merit saw the document, and well before having any response from Merit as to its acceptability.³Merit did not respond to the June 3, 2003 correspondence enclosing the Consent to Assignment.

Yet another year later, on May 26, 2004, NF5 (Noelke) sent Merit a demand for payment of $8,526.95 for legal fees, time, and expenses incurred in connection with preparing the 2003 Consent to Assignment.The contract provision Noelke relied on in making the demand for the $8,526.95 associated with the creation of the Consent to Assignment was, itself, a provision in the Consent to Assignment.The relevant provision states:

Lessee shall reimburse Lessor for all of Lessor's attorney's fees and expenses, recording and abstracting fees, time, travel, and all other expenses, and all costs, losses, expenses, interest (including CPI adjustments), incurred incident to the negotiation, preparation, implementation, enforcement, interpretation, ratification, consent to assignment of, and/or litigation concerning this agreement and all other negotiations or agreements between NF5 and its predecessors and successors and Merit and its predecessors and successors, regardless of what party ultimately prevails in the event of litigation.

Merit refused to pay the $8,526.95, and on March 29, 2005, Noelke filed a breach of contract action on behalf of NF5 to recover this amount in the County Court at LawNo. 2 of Tom Green County.

Noelke argues that Merit ratified the Consent to Assignment by its conduct, in accordance with the document's terms.Merit takes the position that it never agreed to the terms of the unilateral Consent to Assignment and, consequently, is not bound by any of its terms including those relating to "deemed acceptance."According to Merit, NF5's acceptance of Merit's $3,079.65 payment—which was made pursuant to the terms of the Letter Agreement attached to Noelke's May 19, 2003 letter—confirms that the Letter Agreement is the operative agreement between the parties.Merit likewise asserts that it paid its 2004 and 2005 rental payments pursuant to the terms of the Letter Agreement rather than the Consent to Assignment, and NF5 consented to the assignment of the Pipe Yard Lease and Letter Agreement without amendment by accepting the payments without objection.

The Letter Agreement between NF5 and Merit's predecessor Devon contained the following language, which Noelke claims binds Merit to the terms of the Consent to Assignment regardless of the "deemed acceptance" provisions of the Consent to Assignment:

Devon will be bound by the Agreements and this Letter Agreement as long as Devon's equipment, facilities, or operations affect Lessor's interests, and Devon is bound by all terms benefitting Lessor's interests in all documents affecting Lessor's interests of legal record or that may hereafter be executed by Lessor.

The Consent to Assignment certainly affects and benefits NF5's interests of legal record and was executed by NF5.Thus, according to Noelke, it is binding on Merit pursuant to the terms of the Letter Agreement in addition to the "deemed acceptance" provisions of the Consent to Assignment.Merit counters that to the extent the Letter Agreement provision purports to give NF5 the right to unilaterally change or revoke existing agreements, the provision is invalid and unenforceable.Merit also argues that a more reasonable interpretation of the provision is that the term "documents" refers not to any document that Noelke chooses to unilaterally file in the county deed records, but rather to any agreements between NF5 and a third party that might impact the pipe yard incidentally.

The Letter Agreement—which, together with the original Pipe Yard Lease, Merit asserts is the applicable lease agreement— also requires reimbursement for legal fees, time, and expenses, but contains less expansive language:

Devon will reimburse Lessor for all of Lessor's (1) attorney's fees and expenses, (2) surveyor's fees, and (3) time, travel and all other costs, losses, expenses, interest (including CPI adjustments), incurred incident to the negotiation,...