Piranha Partners v. Neuhoff
| Decision Date | 21 February 2020 |
| Docket Number | No. 18-0581,18-0581 |
| Parties | PIRANHA PARTNERS, Randolph Mundt, and Thomas H. Owen, Jr., Individually and as Partners of Piranha Partners, and Charles Ray Owen, Petitioners, v. Joe B. NEUHOFF and Nancy M. Neuhoff; Thomas H. Neuhoff and Judy A. Neuhoff; Robert V. Neuhoff and Andrea D. Neuhoff; and Boca Vail, Inc., Respondents |
| Court | Texas Supreme Court |
This case involves a written assignment of an overriding royalty interest in minerals produced from land in Wheeler County. The assignment identifies the single well that was producing at the time of the assignment, the land on which that well is located, and the lease under which the overriding royalty interest exists. The issue is whether the assignment conveyed the assignor's interest only in production from the identified well, in production from any well drilled on the identified land, or in all production under the identified lease. Rejecting inapplicable rules of construction and finding no reliable guidance from the surrounding facts and circumstances, we construe the assignment in its entirety and conclude that it unambiguously conveyed the assignor's overriding royalty interest in all production under the lease. We reverse the court of appeals' judgment and reinstate the trial court's summary judgment.
In 1975, Neuhoff Oil & Gas purchased an undivided two-thirds interest in a mineral lease known as the Puryear Lease. The lease—between the Puryears (and others) as lessors and Marie Lister as lessee—covered all of the minerals under a tract of land referred to as Section 28.1 A few years later, Neuhoff Oil sold and assigned its two-thirds interest but reserved for itself a 3.75% overriding royalty interest on all production under the Puryear Lease.2
From 1975 through 1999, only one well was completed on Section 28. That well, named the Puryear B #1-28, was located in the section's northwest quarter. Neuhoff Oil received royalty payments on production from the Puryear B #1-28 until 1999, when it sold its overriding royalty interest along with several other mineral interests through an auction. Piranha Partners was the successful bidder. To effectuate the sale, Neuhoff Oil and Piranha executed a written agreement entitled "Assignment of Overriding Royalty Interests and Oil and Gas Leases." The following year, Neuhoff Oil went out of business and assigned all of its remaining assets to individual members of the Neuhoff family.3
After 1999, the operator under the Puryear Lease paid the 3.75% overriding royalty on production from the Puryear B #1-28 to Piranha. Over time, the operator drilled additional wells on Section 28, including at least one other in the section's northwest quarter. The operator paid a 3.75% overriding royalty on production from these new wells to the Neuhoffs, believing Neuhoff Oil had conveyed to Piranha only the overriding royalty interest in production from the Puryear B #1-28, not in all production from Section 28's northwest quarter or under the Puryear Lease. In 2012, however, the operator obtained title opinions concluding that Piranha owned the overriding royalty interest on all production under the Puryear Lease, and not just production from the Puryear B #1-28. Based on these opinions, the operator retroactively paid Piranha the overriding royalty on all Section 28 wells and demanded a refund of the amounts it had paid the Neuhoffs.
The Neuhoffs filed this suit, claiming Neuhoff Oil assigned to Piranha its overriding royalty only in production from the Puryear B #1-28. On summary-judgment cross-motions, the trial court sided with Piranha, declaring that Neuhoff Oil sold the overriding royalty on all production under the Puryear Lease, which covered all of Section 28.4 The court of appeals disagreed with the trial court, but it also disagreed with the Neuhoffs. It held that Neuhoff Oil sold the overriding royalty in production not from all of Section 28, and not just from the Puryear B #1-28, but from all of the northwest quarter of Section 28. Neuhoff v. Piranha Partners , 578 S.W.3d 543, 551–52 (Tex. App.—Amarillo 2018). We granted Piranha's petition for review. The Neuhoffs—content to give up any interest in production from any wells on Section 28's northwest quarter—did not file a cross-petition.
We must construe the written Assignment of Overriding Royalty Interests and Oil and Gas Leases through which Neuhoff Oil assigned its interests to Piranha following the 1999 auction. As with any deed or contract, our task is to determine and enforce the parties' intent as expressed within the four corners of the written agreement. Perryman v. Spartan Tex. Six Capital Partners, Ltd. , 546 S.W.3d 110, 117–18 (Tex. 2018).5 We must first determine whether the Assignment is ambiguous, considering its language as a whole in light of well-settled construction principles and the relevant surrounding circumstances. URI , 543 S.W.3d at 763 ; First Bank v. Brumitt , 519 S.W.3d 95, 109 (Tex. 2017).6 Whether the agreement is ambiguous is a question of law that we decide de novo. URI , 543 S.W.3d at 763.7
That the parties interpret an agreement differently does not make it ambiguous; ambiguity exists only if both parties' interpretations are reasonable. Id. at 763, 765. But it does not exist if the agreement's language creates a definite or certain legal meaning. Id. at 765.8 If we conclude the agreement is ambiguous, we must remand for a jury to determine its meaning as a factual issue; but if it is unambiguous, we will determine its meaning as a matter of law. Id. at 763, 766 ; Coker , 650 S.W.2d at 393–94. In doing so, we look not for the parties' actual intent but for their intent as expressed in the written document. Luckel , 819 S.W.2d at 461–62.9 We consider the entire agreement and, to the extent possible, resolve any conflicts by harmonizing the agreement's provisions, rather than by applying arbitrary or mechanical default rules. Wenske , 521 S.W.3d at 792, 796.10
We begin with the Assignment's granting clause, which appears within the introductory paragraph of Section I and provides:
[Neuhoff Oil] does hereby assign, sell and convey unto [Piranha] ... without warranty or covenant of title, express or implied, subject to the limitations, conditions, reservations and exceptions hereinafter set forth ... all of [Neuhoff Oil's] right, title and interest in and to the properties described in Exhibit "A" (the "Properties").
This clause does not describe the interest being assigned, but instead incorporates the description provided in a document attached as Exhibit A. Following this introductory paragraph, but still within Section I, are two numbered paragraphs. Paragraph 1 of Section I also incorporates the description in Exhibit A:
All oil and gas leases, mineral fee properties or other interests, INSOFAR AND ONLY INSOFAR AS set out in Exhibit A ... whether said interest consists of leasehold interest, overriding royalty interest, or both ....
So the Assignment requires us to look to Exhibit A to determine what interest was assigned. Exhibit A, however, is not particularly helpful.
The document attached to the Assignment as Exhibit A consists of two pages. Only the second page relates to Neuhoff Oil's interest in the Puryear Lease and the Puryear B #1-28 well. The entirety of its description appears as follows:
Lands and Associated Well(s): Puryear #1-28
Wheeler County, Texas
NW/4, Section 28, Block A-3, HG&N Ry Co. Survey
Oil and Gas Lease(s)/Farmout Agreement(s)
Oil & Gas Lease(s)
Lessor: [the Puryears]
Lessee: Marie Lister
Recorded: Volume 297, Page 818
The first part of this description, addressing the "Lands and Associated Well(s)," identifies the well that existed on Section 28 at the time of the assignment ("Puryear #1-28")11 and the portion of the "land" on which that well was located ("NW/4, Section 28"). The second part, addressing "Oil and Gas Lease(s)/Farmout Agreement(s)," identifies the "lease" under which Neuhoff Oil owned its 3.75% overriding royalty interest (the Puryear lease).12 The issue is whether the Assignment conveys Neuhoff Oil's overriding royalty interest in minerals produced by the well, from the land, or under the lease. In other words, which of the three identifies the "Properties" the Assignment conveys?
Piranha argues that the reference to the lease identifies the interest conveyed, so Neuhoff Oil assigned all of its overriding royalties due under the Puryear Lease, which covered all of Section 28, and which (at the time of the assignment) were being produced from the Puryear B #1-28, which was located in Section 28's northwest quarter. The Neuhoffs argued in the trial court that the reference to the well identifies the interest conveyed, so Neuhoff Oil assigned only its overriding royalties in the production from the Puryear B #1-28, which was located in Section 28's northwest quarter and from which royalties derived under the Puryear Lease. The court of appeals held, and the Neuhoffs now agree, that the reference to the lands identifies the interest conveyed, so Neuhoff Oil assigned the overriding royalties produced from Section 28's northwest quarter, which (at the time of the assignment) were produced from the Puryear B #1-28 and derived from the Puryear Lease. Nothing in Exhibit A, however, expressly states whether the well, the land, or the lease identifies the scope of the interest conveyed.
To support its position, Piranha relies primarily on rules we have sometimes applied when construing deeds, assignments, and similar documents. Specifically, Piranha asserts we must construe the Assignment (1) "to confer upon the grantee the greatest estate that the terms of the instrument...
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