Pbex II, LLC v. Dorchester Minerals, L.P.
| Decision Date | 28 April 2023 |
| Docket Number | 07-21-00212-CV |
| Parties | PBEX II, LLC; PBEX OPERATIONS, LLC; PBEX OPERATING, LTD.; WORD B.WILSON INVESTMENTS, LP; PRIMERO ENERGY, LLC; CHEL-TRAND HOLDINGS, LLC; WPW PERMIAN LLC; CBS PERMIAN, LLC; AND TORCH OIL & GAS COMPANY, APPELLANTS v. DORCHESTER MINERALS, L.P. AND DORCHESTER MINERALS OPERATING, L.P., APPELLEES |
| Court | Texas Court of Appeals |
On Appeal from the 142nd District Court Midland County, Texas Trial Court No. CV53556, Honorable David G. Rogers, Presiding
Before QUINN, C.J., and DOSS and YARBROUGH, JJ.
This appeal addresses the issue of whether a non-operating working interest in an oil and gas lease may be adversely possessed. The trial court held Dorchester[1] adversely possessed a working interest in an oil and gas lease. For more than a quarter of a century, Dorchester paid the operating expenses attributable to the working interest, paid the royalties owed under the lease on the production, and retained the revenues from the sale of the minerals (less expenses, royalties, and taxes)-while Torch[2] did none of these things. Because we find adverse possession of non-operating working interests is permitted under Texas law, we affirm the summary judgment.[3]
On April 19, 2017, Torch filed suit against Dorchester under the theories of money had and received and constructive trust and later added a claim for breach of contract. Dorchester after filing its original answer and counterclaims, added the PBEX[4] parties as third-party defendants. In addition to other claims, Dorchester claimed trespass-to-try-title by adverse possession against PBEX and Torch. Dorchester also asserted adverse possession as an affirmative defense against Torch's claims and PBEX's third-party counterclaims. Torch and Dorchester filed cross-motions for summary judgment on the issue of adverse possession. The trial court granted Dorchester's motion and denied Torch's motion. Torch and PBEX now appeal the summary judgment granted in favor of Dorchester.[5] Torch raises the following issues on appeal: (1) Dorchester could not establish adverse possession as a matter of law; (2) Dorchester failed to present sufficient evidence to establish its right to summary judgment; and (3) the trial court erred in granting a take-nothing judgment on all of Torch's claims against Dorchester. PBEX joins Torch's issues one and two and also raises its own separate issue: in the alternative, Dorchester's adverse possession was limited to the wells and the depths that were already drilled. Because Dorchester adversely possessed the working interest over the twenty-six years prior to Torch's filing the underlying lawsuit, we affirm the judgment of the trial court.
The parties agree in their pleadings on the following facts: The oil and gas working interest that is the subject of this litigation was first acquired by Torch's predecessor-in-interest, Felmont Oil Corporation. In May 1982, Felmont executed an oil and gas lease (the "Willis Lease") with John Jerome Willis, Jr. and others, as lessors, to lease oil, gas, and other minerals underlying Section 4, Block 39, of the T&P Railroad Company Survey, T-3-S, located in Midland County ("Section 4"). Under the Willis Lease, Felmont became owner of 25% of the working interest in Section 4 (the "Working Interest").[6] In February 1983, Felmont entered into a Joint Operating Agreement (the "JOA") with the other working interest owners that had leased the minerals under Section 4. The appointed operator under the JOA drilled two producing gas wells: the Moreland No. 1 and Moreland No. 2 wells (the "Moreland Wells").
In 1989, Torch succeeded to the interests of Felmont. In May 1990, Torch conveyed its interest in Section 4 to Dorchester's predecessors-in-interest, SASI Minerals Company ("SASI") and Baytech, Inc. ("Baytech"), and others (the "Assignment").[7] In June 1990, Torch, as seller, and SASI and Baytech, as buyers, also entered into an unrecorded Purchase Sale Agreement (the "PSA") for the sale of additional oil and gas interests.[8]Following these transactions, in October 1990, the appointed operator under the JOA at that time, Santa Fe Minerals, Inc. ("Santa Fe"), issued a division order confirming the reduction of Torch's interest in Section 4 to 0% (the "Division Order), and the Division Order was signed by Torch.[9] At the time of the conveyance, the Moreland Wells were still producing gas.
From May 1990 until September 21, 2016, Dorchester and its predecessors performed all the functions of the Working Interest owner: paying their share of the costs of production; receiving revenues from the sale of the Working Interest's share of gas; paying royalties to the lessors under the Willis Lease; and making elections required under the JOA. Torch did not file a lawsuit or take any other action to recover title to the Working Interest between 1990 and 2016.
On June 1, 2016, Torch assigned all of its interest in the Willis Lease and the minerals under Section 4, without limitation or exception, to PBEX II, LLC. Under this assignment, Torch no longer retained any interest in the Willis Lease or the mineral estate under Section 4.
On September 21, 2016, Torch sent a letter to Dorchester stating Torch "mistakenly notified the operator [under the JOA] that Torch had assigned its leasehold working interest in the Moreland Wells to [Dorchester's predecessors]" in 1990, thereby allowing Dorchester's predecessors to take "possession of Torch's interest." The letter also stated Torch "rescind[ed] and cancel[ed] any and all authority previously granted to [Dorchester and its predecessors] to possess" the Working Interest.[10]
Torch subsequently attempted to negotiate the execution of a "correction" by Dorchester to confirm that Torch retained the Working Interest in 1990, which Dorchester refused. Torch filed suit not long thereafter.
Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005) (citations original).
"If the movant initially establishes a right to summary judgment on the issues expressed in the motion, then the burden shifts to the nonmovant to present to the trial court any issues or evidence that would raise a fact issue or otherwise preclude summary judgment." Veliz v. Wells Fargo Bank, N.A., No. 07-18-00317-CV, 2020 Tex.App. LEXIS 3069, at *7 (Tex. App.-Amarillo Apr. 13, 2020, no pet.) (mem. op.) (citing Houston v. Clear Creek Basin Authority, 589 S.W.2d 671, 678-79 (Tex. 1979)). "To determine if a fact question exists, we must consider whether reasonable and fair-minded jurors could differ in their conclusions in light of all the evidence presented." Masgas v. Anderson, 310 S.W.3d 567, 572 (Tex. App.-Eastland 2010, pet. denied) (citing Goodyear Tire & Rubber Co. v. Mayes, 236 S.W.3d 754 (Tex. 2007)).
The parties in this matter agree on the operative facts of the underlying case, and therefore there are no disputed genuine issues of material fact precluding summary judgment.
Dorchester claimed adverse possession under the twenty-five-year statute of limitations as both the basis for Dorchester's trespass-to-try-title claim and an affirmative defense to the claims of Torch and PBEX. Brumley v. McDuff, 616 S.W.3d 826, 832 (Tex. 2021);[11] Tex. Civ. Prac. & Rem. Code Ann. §§ 16.027; 16.021(1), (3). Whether Dorchester established its claim to the Working Interest by adverse possession is dispositive of whether the trial court erred in granting Dorchester's summary judgment and denying Torch's cross-motion for summary judgment.
By way of its adverse possession claim, Dorchester claimed title to the Working Interest. The purpose of Texas's adverse possession statutes is to promote stability and marketability of title and to encourage the cultivation and development of property.[12] Statutes of limitation and repose offer certainty by barring stale claims from coming forward after a reasonable time thereby ensuring the settlement of title.[13]
In this case, Dorchester and its predecessors exercised rights belonging to the owners of the Working Interest for over twenty-six years prior to Torch's filing of the underlying lawsuit. By way of their claims, PBEX and Torch now seek to disturb the title to the Working Interest. As discussed below, the statute of limitations applies in this case, and Dorchester and its predecessors adversely possessed the Working Interest. For the reasons stated below, we overrule Torch and PBEX's first issue.
PBEX and Torch both argue that the Working Interest is "nonpossessory" in nature, and therefore not subject to adverse possession as a matter of law. PBEX and Torch insist that because the Working Interest is a "non-operator" interest, it is necessarily nonpossessory in nature, and nonpossessory interests in minerals are not subject to adverse possession. See generally Moore v. Moore, 568 S.W.3d 725, 733 (Tex. App.- Eastland 2019, no pet.) (possessory interests in minerals are subject to adverse possession, while nonpossessory interests, such as royalty interests, are not) (citations omitted).
In Texas, a working interest owner as a lessee under an oil and gas lease is granted the right to possess...
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