Rustic Nat. Res. v. De Midland III LLC

• Court: Texas Court of Appeals
• Writing for the Court: W. STACY TROTTER JUSTICE.
• Decision Date: 15 December 2022
• Docket Number: 11-21-00033-CV
• Citation: Rustic Nat. Res. v. De Midland III LLC, 11-21-00033-CV (Tex. App. Dec 15, 2022)
• Parties: RUSTIC NATURAL RESOURCES LLC (F/K/A RUSTIC RESOURCES, LLC), RUSTIC LAND HOLDINGS, LLC, AND TORTOISE HOLDINGS, LLC, Appellants/Cross-Appellees v. DE MIDLAND III LLC AND ENDEAVOR ENERGY RESOURCES, L.P., Appellees/Cross-Appellants

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RUSTIC NATURAL RESOURCES LLC (F/K/A RUSTIC RESOURCES, LLC), RUSTIC LAND HOLDINGS, LLC, AND TORTOISE HOLDINGS, LLC, Appellants/Cross-Appellees
v.
DE MIDLAND III LLC AND ENDEAVOR ENERGY RESOURCES, L.P., Appellees/Cross-Appellants

No. 11-21-00033-CV

Court of Appeals of Texas, Eleventh District

December 15, 2022

On Appeal from the 142nd District Court Midland County, Texas, Trial Court Cause No. CV54515

Panel consists of: Bailey, C.J., Trotter, J., and Wright, S.C.J. ^[2]

OPINION

W. STACY TROTTER JUSTICE.

This appeal concerns the interpretation and application of the terms of a mediated settlement agreement (MSA) executed by Appellants (the Rustic parties) and Appellees, DE Midland III LLC and Endeavor Energy Resources, L.P.^[1] After

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the execution of the MSA, the parties continued to negotiate the inclusion of other conditions to their agreement. However, a dispute arose over proposed conditions, including the execution of a stipulation and cross-conveyance (stipulation) between Appellants and Endeavor, as well as the specific terms of several joint operating agreements (JOAs) which the MSA required that the parties execute to govern their future relationships. After the parties' post-MSA negotiations failed, Appellees filed a joint motion for summary judgment to enforce the MSA. The trial court granted the motion and entered judgment in favor of Appellees. In its judgment, the trial court further ordered Appellants to execute the versions of the stipulation and JOAs proposed by Appellees.

Appellants appeal the trial court's grant of summary judgment in favor of Appellees. In three issues, Appellants contend: (1) the trial court erred when it granted summary judgment and found that the parties were bound by the MSA, despite the plain intent of the parties to continue negotiating essential terms of the MSA, which left unresolved a multitude of critical issues related to mineral interest ownership and the rights and remedies of the parties; (2) the MSA merely constitutes an "agreement to agree" because it left the essential terms of the agreement open to further negotiation; and (3) the trial court impermissibly supplied the missing essential terms of the agreement and imposed upon Appellants a deal to which they did not agree. Additionally, Appellees filed a conditional cross-appeal in which they urge us to consider the merits of the underlying title dispute in the event that we hold that the MSA is unenforceable. For the reasons discussed below, we reverse and remand.

I. Factual and Procedural Background

The underlying dispute that resulted in the execution of the MSA involves the ownership of certain mineral interests. Appellants claim mineral interest ownership

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in certain depths under thirty-nine tracts of land located in Midland County. The origins of this title dispute concern a complicated web of farmout agreements and assignments that were executed in the 1960s and 1970s. Each disputed tract is subject to a farmout agreement with a continuous drilling program. Under the terms of the continuous drilling programs, if the farmee drills a well on a tract, the farmee earns an assignment of that tract for depths that extend to 100 feet below the total depth of each well drilled on the tract by the farmee.

Appellants' predecessors-in-interest-we refer to them as the Baxter Group- held interests in the subject tracts. Through a series of farmout agreements and subsequent assignments, the Baxter Group conveyed its rights and interests to John L. Cox.

The Baxter Group first executed a farmout agreement with Cox. This instrument, referred to as the 1969 Baxter Group/Cox Farmout, concerned nineteen of the subject tracts. Soon after this, the Baxter Group assigned "all of their right, title and interest" in the nineteen farmout tracts, from "the surface of the ground to the base of the Wolfcamp formation" to Cox. This instrument, referred to as the First Baxter Group/Cox Assignment, recited that the parties were executing a single blanket assignment for their convenience, rather than a separate assignment for each tract drilled upon as per the terms of the continuous drilling program of the farmout agreement. This assignment further included a "Reassignment Clause," which provided that upon completion of the continuous drilling program, Cox would reassign any interests for the interval between the depth of 100 feet below the total depth drilled on each tract and the base of the Wolfcamp formation. It is undisputed that Cox drilled and completed wells on all nineteen tracts, but often not to the base of the Wolfcamp formation. Thus, under the terms of the continuous drilling program, Cox arguably left "unearned" some intervals between 100 feet below the

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total drilling depth and the base of the Wolfcamp formation. Because the Baxter Group had already conveyed their interests via the First Baxter Group/Cox Assignment, they did not execute any further assignments to Cox for these tracts after a well was successfully drilled.

Next, for the remaining twenty tracts that are in dispute, the Baxter Group executed two other assignments to Cox (referred to as the Second and Third Baxter Group/Cox Assignments). These two assignments differed from the First Assignment in one significant respect: they covered interests from "the top of the Spraberry formation down to the base of the Wolfcamp formation," rather than from "the surface of the ground to the base of the Wolfcamp formation." It is undisputed that Cox drilled and completed wells on all twenty tracts as well, but often not to the base of the Wolfcamp formation. Again, because the Baxter Group had already assigned their interests in the farmout tracts to Cox, via the Second and Third Assignments, from "the top of the Spraberry formation down to the base of the Wolfcamp formation," they did not execute any further assignments to Cox after a well was subsequently drilled.

Decades later, in 2018, the successors-in-interest to John L. Cox-JM Cox Resources, L.P., Alpine Oil Company, and James Kelly Cox-executed an assignment purporting to convey Cox's interests in the tracts to DE Midland. DE Midland then executed an assignment purporting to convey some of its interests in the tracts to Endeavor. In the underlying suit, Appellants' primary claim is that by drilling wells on these tracts, Cox failed to earn title to all of the depths which Cox's assignment to DE Midland (and therefore DE Midland's assignment to Endeavor) purported to convey.

In 2018, Endeavor filed suit against JM Cox Resources, L.P., Alpine Oil Company, James Kelly Cox, and Texas Settlers Resources, Inc. for trespass to try

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title and to remove a cloud on its title. Appellants intervened in the case and also asserted claims for trespass to try title and to quiet title. Soon thereafter, Endeavor nonsuited the Cox Defendants and Texas Settlers. Appellants then amended its Petition in Intervention and joined DE Midland and Endeavor as defendants to its title claims.

In their operative pleading, Appellants claimed (1) title to certain depths in all thirty-nine farmout tracts and (2) title to all depths claimed by the farmees in twenty-six of the farmout tracts. Throughout the trial court proceedings, the parties referred to these two distinct types of claims as the "Unearned Depths" claims and the "Terminated Depths" claims. As to the "Unearned Depths" claims, Appellants claimed title to depths ranging from 100 feet below the total depth of any well drilled by Cox to the base of the Wolfcamp formation. In that regard, Appellants asserted that Cox...