Ridgefield Permian, LLC v. Diamondback E & P LLC

• Citation: 626 S.W.3d 357
• Decision Date: 05 May 2021
• Docket Number: No. 08-19-00156-CV,08-19-00156-CV
• Parties: RIDGEFIELD PERMIAN, LLC and Albert Jeffryes Griffiths, as Trustee of the Albert Jeffryes Griffiths Trust, Appellants, v. DIAMONDBACK E & P LLC and Magnolia, LLC, Appellees.
• Court: Texas Court of Appeals

626 S.W.3d 357

RIDGEFIELD PERMIAN, LLC and Albert Jeffryes Griffiths, as Trustee of the Albert Jeffryes Griffiths Trust, Appellants,

v.DIAMONDBACK E & P LLC and Magnolia, LLC, Appellees.

No. 08-19-00156-CV

Court of Appeals of Texas, El Paso.

May 5, 2021

ATTORNEY FOR APPELLANTS: John H. McFarland, Joyce + McFarland LLP, 712 Main St., Ste. 1500, Houston, TX 77002.

ATTORNEYS FOR APPELLEES: Anna Brandl, Kelly Hart & Hallman, L.L.P., 508 W. Wall St., Ste. 800, Midland, TX 79701, Jacob Davidson, Davis, Gerald & Cremer, P.C., 400 W Illinois Ave Ste 1400, Midland, TX 79701-4310, Tiffany P. Means, William B. Burford, Kelly Hart & Hallman, LLP, 508 W. Wall, Suite 444, Midland, TX 79701, Matthew D. Stayton, Kelly Hart & Hallman LLP, 201 Main St., Ste. 2500, Fort Worth, TX 76102.

Before Rodriguez, C.J., Palafox, and Alley, JJ.

OPINION

GINA M. PALAFOX, Justice This is another dispute coming before us whose origin traces back to a 1999 tax foreclosure of several hundred property interests in Reeves County, Texas. In 2020, we decided Mitchell v. Map Resources, Inc. ,¹ a case arising from the same foreclosure suit, in which the heirs of one of the purported tax debtors presented a collateral attack against the 1999 judgment based on allegations of due process violations. Here, the dispute differs from Mitchell as no similar attack is made on the judgment per se. Rather, Appellants merely dispute the scope of property interests foreclosed upon by the tax suit pursuant to Texas real property and tax law. On cross-motions for summary judgment, the trial court declared that Appellee Magnolia, LLC—as successor to the tax-sale purchaser—holds superior title to the interest at issue here, a one-fourteenth mineral estate in the subject tract. On appeal, Appellants argue the tax judgment foreclosed upon—and the sheriff's deed conveyed—only the tax debtor's royalty interest then existing under a producing mineral lease but not lessor's possibility of reverter. Finding error, we reverse and render judgment for Appellants.

I. BACKGROUND

The Parties²

The Trust and Magnolia both purport they obtained the same one-fourteenth interest in the mineral estate of a section of land in Reeves County when an oil-and-gas lease automatically terminated in 2012. Magnolia—believing the minerals reverted to it—entered into a new oil-and-gas lease, which is now owned by Diamondback. The Trust, also believing the minerals reverted to it, entered into its own oil-and-gas lease, which is now owned by Ridgefield.

The Land & The Lease

The land in dispute in this case has a long history in the Jeffryes family. By 1965, Alberta Jeffryes Griffith (Mrs. Griffith) owned a one-seventh interest in both the surface and mineral estates of the subject tract.³ Mrs. Griffith died intestate on December 15, 1974, having never conveyed any interest in such tract during her lifetime. Upon Mrs. Griffith's death, the following interests in the subject tract were conveyed to her surviving heirs: one-twenty-first in fee simple to each of her sons—David Royer Griffith (David) and Albert Jeffryes Griffith (Albert)—and one-twenty-first in a life estate to her husband, David W. Griffith (Mr. Griffith). Upon the termination of Mr. Griffith's life estate, the interest was to be split evenly between David and Albert.

In 1975, Mr. Griffith, David, and Albert (the Griffith Lessors) executed an oil-and-gas lease (the Meriwether Lease) in favor of D.E. Billings (Billings), covering the subject tract. The lease is a three-page document titled, "Oil, Gas and Mineral Lease," and it contains the Producer's 88 designation. Although the copy provided for our record is of poor quality and appears with very small print, the lease terms themselves are not disputed by the parties. Under the Meriwether Lease, the Griffith Lessors, who each owned an undivided one-twenty-first of the minerals in the subject tract, reserved a one-eighth royalty. The lease contained a three-year primary term and was perpetuated into its secondary term by production from the Meriwether No. 1 Well (the Meriwether Well) drilled on the subject tract.

The Tax Proceedings

By 1998, there was a relatively small tax debt owed by Mr. Griffith and Albert on the royalties received respectively under the Meriwether Lease. On July 23, 1998, Reeves County, the Pecos-Barstow-Toyah ISD, and the Reeves County Hospital District (the Taxing Authorities) filed suit (the Tax Suit) against several hundred defendants, including Mr. Griffith's life estate and "Jeffryes Griffith," seeking to collect the unpaid taxes under the terms of the Meriwether Lease.⁴ As to each defendant, the specific interests being foreclosed upon was identified in a spreadsheet attached to the petition as an exhibit. On the exhibit, both interests relevant to this appeal were described as 0.005952 decimal interests in the Meriwether Lease, operated by Richard A. McDonald, in Section 5, Block 7, H&GN Survey, Abstract 356. Such a decimal interest accurately represents a one-eighth royalty on a one-twenty-first mineral interest.⁵

By judgment from the 143rd District Court of Reeves County, dated February 19, 1999 (the Tax Judgment), the Taxing Authorities foreclosed upon the various interests as described in another exhibit attached to the Tax Judgment. On March 3, 1999, the Reeves County Clerk issued an Order of Sale to the sheriff, which also described the interests authorized to be sold in an exhibit. By Sheriff's Tax Deed (Sheriff's Deed) dated April 6, 1999, the Reeves County Sheriff sold certain foreclosed interests, each of which was described in an exhibit to that document. The interests previously owned by Mr. Griffith and Albert (together referred to as the Tax Debtors) were included in each of the exhibits attached to those documents.

Subsequent Transfers and Lease Termination

On June 14, 2008, Albert granted whatever interest(s) he still owned in the subject tract to the Trust. Meanwhile, the tax-sale purchaser conveyed whatever interest(s) it purchased in the tax sale to Magnolia. In October 2012, the Meriwether Well on the subject property stopped producing, causing the lease to automatically terminate. Accordingly, the working-interest owners—McDonald Investment Corporation, as trustee for the McDonald Family Trust and Richard McDonald—released the Meriwether Lease on April 24, 2013. On August 6, 2015, Magnolia—believing the possibility of reverter had been foreclosed upon, sold by the sheriff, and transferred to it—then executed an oil-and-gas lease covering the property with Finley Resources, Inc. After a series of assignments, Diamondback acquired the leasehold interest formerly held by Finley Resources, Inc.

On November 7, 2016, the Trust—believing the possibility of reverter had never been foreclosed upon—executed its own oil-and-gas lease with Ridgefield Energy Investments, LLC. On June 27, 2017, Ridgefield Energy Investments, LLC transferred its interest under that lease to Appellant Ridgefield. Ridgefield and the Trust sued Magnolia and Diamondback, seeking to quiet title, among other claims. The parties filed competing motions for summary judgment on the issue of whether the possibility of reverter had been foreclosed by the Taxing Authorities and sold by the Reeves County Sheriff. The trial court granted summary judgment quieting title in favor of Magnolia and Diamondback. Upon the trial court entering a final judgment, this appeal followed.

II. ISSUES ON APPEAL

The Appellants enumerate four issues on appeal: (1) whether the trial court erred in ruling that the possibility of reverter was foreclosed upon; (2) whether the trial court erred in ruling that the possibility of reverter was conveyed by the Sheriff's Deed; (3) whether the trial court erred in ruling that a possibility of reverter is an interest in an oil-and-gas lease; and (4) whether, after a horizontal severance, a possibility of reverter remains attached to the surface estate or is part of the mineral estate.

Because we view all four issues as being interrelated, we combine them into a single issue for review.

III. THE SCOPE OF THE TAX FORECLOSURE

The parties dispute the scope of the tax judgment and subsequent Sheriff's Deed. Specifically, the dispositive issue is whether the possibility of reverter in the minerals conveyed by the Meriwether oil-and-gas lease was foreclosed upon by the tax judgment and subsequently conveyed by the Sheriff's Deed at issue. For the reasons below, we conclude such contingent interest was not then foreclosed. Because Appellants do not challenge the validity of the tax judgment or Sheriff's Deed as to the royalty interest, we further conclude there are no procedural bars to Appellants' claims of superior title over the minerals which had only reverted back to the lessor upon the termination of the determinable estate due to the lack of production from the Meriwether Well.

A. Standard of Review

This Court reviews a trial court's summary judgment de novo. Valence Operating Co. v. Dorsett , 164 S.W.3d 656, 661 (Tex. 2005) ; Provident Life & Accid. Ins. Co. v. Knott , 128 S.W.3d 211, 215 (Tex. 2003). Under the traditional standard for summary judgment, the movant has the burden to show that no genuine issue of material fact exists and that the trial court should grant a judgment as a matter of law. TEX. R. CIV. P. 166a(c) ; KPMG Peat Marwick v. Harrison County Hous. Fin. Corp. , 988 S.W.2d 746, 748 (Tex. 1999). When reviewing a summary judgment, the Court takes as true all evidence favorable to the nonmovant and indulges every reasonable inference and resolves any doubts in the nonmovant's favor. Dorsett , 164 S.W.3d at 661 ; Knott , 128 S.W.3d at 215.

When both sides move for summary judgment on the same issue, each bears the burden of establishing that it is entitled to judgment as a matter of law; neither side can prevail merely because the other side failed to meet this burden. City of Garland v. Dallas Morning News , 969 S.W.2d 548, 552 (Tex. App.—Dallas 1998) (en banc),...