Nat. Gas Pipeline Co. v. Pool

• Decision Date: 12 October 2000
• Parties: (Tex.App.-Amarillo 2000) NATURAL GAS PIPELINE COMPANY OF AMERICA, ET AL., APPELLANTS v. JOSEPH H. POOL, ET AL., APPELLEES NO. 07-99-0428-CV
• Court: Texas Court of Appeals

Page 639

30 S.W.3d 639 (Tex.App.-Amarillo 2000)

NATURAL GAS PIPELINE COMPANY OF AMERICA, ET AL., APPELLANTS v. JOSEPH H. POOL, ET AL., APPELLEES

NO. 07-99-0428-CV

IN THE COURT OF APPEALS FOR THE SEVENTH DISTRICT OF TEXAS AT AMARILLO PANEL B

OCTOBER 12, 2000

Rehearing Overruled November 21, 2000.

FROM THE 69th DISTRICT COURT OF MOORE COUNTY; NO. 98-30; HONORABLE RON ENNS, JUDGE

[Copyrighted Material Omitted]

[Copyrighted Material Omitted]

Before BOYD, C.J., and QUINN and JOHNSON, JJ.

John T. Boyd, Chief Justice.

This appeal arises from a dispute between parties to two oil and gas leases in which the lessors claim that the leases have terminated due to a cessation in production. In the appeal, appellants Natural Gas Pipeline Company of America (NGPL), MidCon Gas Services Corp. (MidCon), and Chesapeake Panhandle Limited Partnership (Chesapeake) challenge a judgment in favor of appellees¹ declaring that the subject oil and gas leases terminated pursuant to the terms of the habendum clause of the leases, and awarding damages plus attorney's fees and sanctions.

In eight points, appellants claim that the trial court erred in (1) disregarding the jury's findings of adverse possession; (2) disregarding the jury's finding that appellants' failure to produce gas was excused by laches; (3) granting summary judgment that the leases terminated because of cessation of production; (4) awarding damages for the four-year period preceding the filing of the lawsuit; (5) awarding attorney's fees; (6) awarding to appellees ownership of appellants' well and lease equipment; (7) not awarding a credit to appellants for the amount of good faith improvements and expenses; and (8) awarding sanctions against appellants for failing to admit that appellees owned a specified mineral interest. Although appellees have designated several of their issues as "cross points," they appear to be inextricably linked as alternative issues to their "reply points," and we will discuss them at the time we discuss the reply points. For the reasons set forth below, we modify the judgment and, as modified, affirm it.

On January 15, 1926, J. T. Sneed, Jr. and wife Zella Sneed executed an oil and gas lease in favor of Marland Oil Company covering, among other lands, Section 25, Block 1, J. Poitevent, Grantee, Moore County, Texas. The lease was to remain in force "for a term of ten years from this date, and as long thereafter as oil or gas, or either of them, is produced from said land by the lessee." By subsequent assignment, the lease was transferred to Texoma Natural Gas Company.

On June 16, 1936, J. T. Sneed, Jr. and Elizabeth Sneed Pool, each individually and as independent executor of the estate of Zella Sneed, deceased, executed a gas mining lease to Texoma Natural Gas Company covering the southwest and northeast quarters of Section 25, Block 1, J. Poitevent, Original Grantee, Moore County, Texas. The lease was to remain in force "so long as natural gas is produced from any portion of said Section 25 under this contract, or under the terms and provisions of the consolidation agreement covering the land hereinabove described, as well as the Southeast 1/4 and Northwest 1/4 of said section."² The consolidation agreement, dated the same date and between the same parties, consolidated the two leases for the purpose of gas production, with the leases to continue in force "so long as natural gas is produced from any portion of said land, either under the well heretofore drilled as aforesaid, or from other wells." Appellants are successors-in-interest to Texoma Natural Gas Company under the Sneed Leases.

The Sneed J.T. #1 well was the first gas well drilled on the Sneed Leases. There is apparently no dispute that the original production was obtained in a timely manner. A replacement well, the J.T. Sneed #1R, was completed in 1994. On May 11, 1998, successors-in-interest to the lessors of the Sneed Leases filed this lawsuit, alleging that the wells on the Sneed Leases ceased to produce during various time periods: August 1941, June - September 1963, July - August 1964, June 1979, March 1983, July 1984, and February - July 1997.³ They sought a decree that the Sneed Leases terminated automatically by their own terms as well as seeking damages for conversion. In addition to denying the allegations and asserting various counterclaims, appellees also asserted affirmative defenses of statute of limitations, title by adverse possession, ratification, revivor, estoppel, quasi estoppel, laches, and waiver.

In a Partial Summary Judgment dated February 16, 1999, the trial court determined that the Sneed Leases "have lapsed and ended pursuant to the terms of their respective habendum clause due to one or more cessations of production from said land." The case subsequently went to trial on the remaining issues, including appellants' affirmative defenses. The jury returned a verdict finding that appellants acted in good faith in producing gas after August 1964, appellants did not produce gas after August 1964 as a result of fraud, appellants' failure to produce gas was excused, and appellants acquired title by adverse possession following termination of the lease, and that the lease was not revived. The jury also awarded attorney's fees to appellees. The trial court found the evidence was not sufficient to sustain the jury verdict with respect to the questions submitted as to whether the failure to produce was excused and the acquisition of title by adverse possession. Accordingly, it rendered judgment for appellees notwithstanding the jury verdict on those issues.

In their first issue, appellants claim that the trial court erred in disregarding the jury's findings on adverse possession. They argue that if the Sneed Leases terminated, appellants acquired title by adverse possession under the three-year statute, the five-year statute, the ten-year statute and both twenty-five year statutes. See Tex. Civ. Prac. & Rem. Code Ann. §§ 16.024 - 16.028 (Vernon 1986 & Supp. 2000). In its verdict, the jury found that appellants had acquired title under all five statutes.

In response, appellees assert that the trial court acted correctly in rendering its judgment because there was no evidence or insufficient evidence of any intent to adversely possess, commencement of hostile or inconsistent possession, continuation of hostile or inconsistent possession, repudiation of the permissive possession given by the lessors, or change of use or character of the possession. Alternatively, appellees claim that if there was sufficient evidence to support the submission of those issues to the jury, the instructions and definitions to each of those questions were improper in that they were confusing, misleading, and constituted a comment on the weight of the evidence.

In order to uphold a trial court's judgment notwithstanding the verdict, the court must determine that there is no evidence to support the jury's finding. Mancorp, Inc. v. Culpepper, 802 S.W.2d 226, 227 (Tex. 1990). In deciding that question, only evidence that supports the jury's findings may be considered, and all contrary evidence and inferences are ignored. Leitch v. Hornsby, 935 S.W.2d 114, 118 (Tex. 1996). However, if more than a scintilla of evidence supports the jury finding, it must be upheld. Mancorp, Inc., 802 S.W.2d at 228.

The evidence is undisputed that appellants or their predecessors have possessed the Sneed Leases since at least 1936 and produced and marketed gas from them. There was testimony that appellants have paid the ad valorem taxes on the 7/8 working interest, maintained signs on the Sneed Leases, filed reports with respect to the leases, and sent employees to the property. Appellants conducted activities in accordance with the Sneed Leases as if they were in full force and effect. The evidence is also undisputed that appellees never gave any indication to appellants that they considered the Sneed Leases to have terminated until the filing of this lawsuit in 1998.

Section 16.021 of the Texas Civil Practice and Remedies Code defines adverse possession as "an actual and visible appropriation of real property, commenced and continued under a claim of right that is inconsistent with and is hostile to the claim of another person." Tex. Civ. Prac. & Rem. Code Ann. § 16.021 (Vernon 1986). Since the original possession of the property by appellants was not only permissive, but also consistent with appellees' concurrent interest in the property, adverse possession cannot be established unless notice of the hostile nature of the possession or repudiation of appellees' title is clearly manifested. Killough v. Hinds, 161 Tex. 178, 338 S.W.2d 707, 711 (1960); Wright v. Wallace, 700 S.W.2d. 269, 271 (Tex.App. --Corpus Christi 1985, writ ref'd. n.r.e.); Hunt Oil Co. v. Moore, 656 S.W.2d 634, 641 (Tex.App.--Tyler 1983, writ ref'd n.r.e.). While appellants claim that recordation of an assignment from NGPL to MidCon, notice of recompletion of a new well, and MidCon's act of sending a new division order to appellees constituted notice of appellants' claim to the leases, these actions were also consistent with permissive possession of the property and do not provide any actual repudiation of appellees' interest.

Under the law, an oil and gas lessor has no duty to notify the lessee that the lease has terminated prior to filing suit. See Watson v. Rochmill, 137 Tex. 565, 155 S.W.2d 783, 785 (1941). When the provisions of the habendum clause are not met, the lease reverts without the necessity of re-entry, declaration of forfeiture, or legal action. Kincaid v. Gulf Oil Corp., 675 S.W.2d 250, 255 (Tex.App.--San Antonio 1984, writ ref'd n.r.e.). In fact, appellants should have had all the information available to them that was necessary to determine whether the leases had terminated at the time the cessations occurred.

Appellants argue that if they became trespassers upon termination of the lease, their possession...