Rosetta Res. Operating, LP v. Martin

• Decision Date: 06 May 2022
• Docket Number: 20-0898
• Parties: ROSETTA RESOURCES OPERATING, LP, Petitioner, v. Kevin MARTIN, Jamie Martin, and Ashley Lusk, Respondents
• Court: Texas Supreme Court

645 S.W.3d 212

ROSETTA RESOURCES OPERATING, LP, Petitioner,

v.Kevin MARTIN, Jamie Martin, and Ashley Lusk, Respondents

No. 20-0898

Supreme Court of Texas.

Argued February 2, 2022

OPINION DELIVERED: May 6, 2022

Zachary Paul Hudler, Juan J. Hinojosa, for Respondents.

Amy Pharr Hefley, James Danford Jr., Charles Stephen Kelley, Macey Reasoner Stokes, Susan Alkadri, Houston, Joshua Morrow, for Petitioner.

Christopher Michael Hogan, for Amicus Curiae Texas Oil and Gas Association.

George Scott Christian, for Amicus Curiae Texas Civil Justice League.

Justice Busby delivered the opinion of the Court.

In this oil and gas case, the parties dispute the meaning and application of an express covenant to protect against drainage. The covenant appears in a unique and mistake-ridden lease addendum, which expressly limits the location of wells that may trigger the lessee's obligation to protect against drainage but does not directly address the location of wells that may cause drainage. The lessor plaintiffs argue that the covenant's language allows for separate triggering and draining wells, and that the lessee breached the covenant by failing to protect against drainage from a non-triggering well. The lessee defendant responds that it is only obligated to protect against drainage from the limited class of triggering wells.

We conclude that the addendum is ambiguous because both interpretations of this poorly drafted covenant are reasonable. We also reject the lessee's res judicata defense, but we conclude that the court of appeals improperly reversed the trial court's take-nothing summary judgment on the lessors’ tort and statutory claims, which they did not challenge on appeal. We therefore reverse the court of appeals’ judgment, reinstate the trial court's summary judgment in part as to the lessors’ tort and statutory claims, and remand for further proceedings on their claim for breach of the lease.

BACKGROUND

The lessors are respondents Kevin Martin, Jamie Martin, and Ashley Lusk (the Martins), who own land in Live Oak County. They entered into mineral lease agreements with Mesquite Development in 2001 and 2006. The leases contain two key provisions related to drainage. Paragraph 5 of the 2001 agreement provided:

In the event a well or wells producing oil or gas in paying quantities should be brought in on adjacent land and within 330 feet of and draining the leased premises, or land pooled therewith, Lessee agrees to drill such offset well or wells as a reasonably prudent operator would drill under the same or similar circumstances. Lessee may at any time execute and deliver to Lessor or place of record a release or releases covering any portion or portions of the above described premises and thereby surrender this lease as to such portion or portions and be relieved of all obligations as to the acreage surrendered.

In 2006, the parties agreed to various amendments and extensions including Addendum 18, which altered the terms of Paragraph 5 and is at issue here. The unique, customized language of Addendum 18 includes several typographical and grammatical errors and lacks helpful punctuation. We have inserted bold numbers and letters into its text (using brackets) to help organize its content and facilitate our analysis. Addendum 18 provides:

Notwithstanding anything contained herein to the contrary, it is further agreed that [(1)(a) ] in the event a well is drilled on or in a unit containing part of this acreage or is drilled on acreage adjoining this Lease, [(b) ] the Lessor [read "Lessee"], or its agent(s) shall protect the Lessee's [read "Lessor's"¹ ] undrilled acreage from drainage and [(2) ] in the opinions of reasonable and prudent operations [read "operators"² ], [(a) ] drainage is occurring on the un-drilled acreage, even though the draining well is located over three hundred-thirty (330) feet from the un-drilled acreage, [(b) ] the Lessee shall spud an offset well on said un-drilled acreage or on a unit containing said acreage within twelve (12) months from the date the drainage began or release the acreage which is un-drilled or is not a part of a unit which is held by production.

Mesquite assigned its rights as lessee to petitioner Rosetta Resources Operating, LP, in 2007. Shortly thereafter, Newfield Exploration Co. and Dynamic Production, Inc. (collectively Newfield) joined with Rosetta to create the Martin Unit, which contained portions of the Martin Lease (the Martin Pooled Acreage) and property from unrelated leases. The southern portion of the Martin Lease acreage was not included in the unit. Rosetta assigned a percentage of its royalty interest in the Martin Pooled Acreage to Newfield but retained its entire interest in the non-unitized acreage to the south.

In 2008, Newfield drilled a well on the Martin Pooled Acreage (the Martin Well). In 2009, Newfield created a separate unit (the Simmons Unit) that does not adjoin the Martin Lease and drilled a well on that acreage (the Simmons Well).

In 2014, the Martins sued Rosetta and Newfield for breach of Addendum 18, alleging that the addendum obligated the lessees to protect the undrilled lease acreage south of the Martin Unit from drainage caused by the Simmons Well. The Martins also brought claims for common-law fraud, negligence, conversion, mineral trespass, breach of fiduciary duty, and violation of the Theft Liability Act. The lessees responded that the Simmons Well had not triggered their obligation to protect the undrilled acreage from drainage because it was not drilled on property adjoining the Martin Lease.

The trial court granted summary judgment for Newfield and severed the claims against it from those against Rosetta. Rosetta then moved for its own summary judgment on all the Martins’ claims on several grounds.

On appeal from Newfield's summary judgment, the Martins argued—for the first time—that the Martin Well had triggered Addendum 18's covenant to protect against drainage, and that this obligation encompassed any drainage from the Simmons Well. Martin v. Newfield Expl. Co. , No. 13-17-00104-CV, 2018 WL 1633574, at *3 (Tex. App.—Corpus Christi–Edinburg Apr. 5, 2018, pet. denied) (mem. op.). Rejecting that position as waived, the court of appeals affirmed, agreeing with Newfield that the Simmons Well did not trigger Addendum 18. Id.

After the Newfield appeal, the trial court returned to Rosetta's motion for summary judgment, inviting the Martins to submit additional briefing and to move for summary judgment regarding the effect of the Martin Well. The Martins filed a second amended petition and a motion for partial summary judgment, asserting that Rosetta's obligation to protect against drainage—including that caused by the Simmons Well—was triggered by the Martin Well. The trial court granted Rosetta's motion for summary judgment on all the Martins’ claims and denied the Martins’ motion.

The court of appeals reversed and remanded, instructing the trial court to grant partial summary judgment for the Martins. ––– S.W.3d ––––, 2020 WL 5887566, at *6 (Tex. App.—Corpus Christi–Edinburg Oct. 1, 2020). Construing Addendum 18, the court concluded that the Martin Well triggered both a general duty to protect against drainage and a specific obligation to spud an offset well or release the undrilled acreage if, "in the opinions of reasonable and prudent operations, drainage is occurring on the un-drilled acreage." Id. at ––––, 2020 WL 5887566 at *5. The court of appeals also concluded that the record showed drainage was indisputably occurring. Id. Additionally, because Rosetta and Newfield owned different interests and Rosetta's interests were not at issue during Newfield's summary judgment proceedings, the court of appeals rejected Rosetta's res judicata defense. Id.

Rosetta petitions for review, arguing that (1) Addendum 18 cannot be construed to allow separate triggering and draining wells, (2) the Martins’ argument that the Martin Well triggered Addendum 18 is barred by res judicata, (3) the court of appeals erroneously concluded that drainage was not in dispute, and (4) the court erroneously reversed Rosetta's summary judgment as to all the Martins’ claims when the Martins’ appeal addressed only their claim for breach of contract. In response, the Martins argue that (1) the plain language of Addendum 18 allows for separate triggering and draining wells, (2) the court of appeals correctly concluded that the elements of res judicata were not met, (3) the summary judgment record includes production reports that establish drainage, and (4) in the alternative, Addendum 18 is ambiguous.

ANALYSIS

I. Addendum 18 is ambiguous regarding whether the Martin Well triggered Rosetta's obligation to protect against drainage from the Simmons Well.

A. Standard of review and applicable law

We review summary judgments de novo. Scripps NP Operating, LLC v. Carter , 573 S.W.3d 781, 790 (Tex. 2019). To prevail on a motion for traditional summary judgment, the movant must show that no material fact issues exist and that it is entitled to judgment as a matter of law. TEX. R. CIV. P. 166a(c). "When both parties move for summary judgment and the trial court grants one motion and denies the other, ... we review both sides’ summary judgment evidence and render the judgment the trial court should have rendered." S. Crushed Concrete, LLC v. City of Houston , 398 S.W.3d 676, 678 (Tex. 2013).

Mineral leases are contracts, so their meaning is determined using general principles of contract construction. Endeavor Energy Res., L.P. v. Energen Res. Corp. , 615 S.W.3d 144, 147–48 (Tex. 2020). The goal of contract construction is to ascertain the parties’ intent as expressed in the language of the agreement. Id. at 148.

Whether a mineral lease is ambiguous is a question of law. R & P Enters. v. LaGuarta, Gavrel & Kirk, Inc. , 596 S.W.2d 517, 518 (Tex. 1980). An ambiguity exists when a contract's "meaning is uncertain and doubtful or it is reasonably susceptible to more than one interpretation." In...