Teon Mgmt., LLC v. Turquoise Bay Corp.

• Decision Date: 05 January 2012
• Docket Number: No. 11–10–00050–CV.,11–10–00050–CV.
• Citation: 357 S.W.3d 719
• Parties: TEON MANAGEMENT, LLC and Republic Oil & Gas Company, Appellants, v. TURQUOISE BAY CORPORATION d/b/a Bay Operators et al., Appellees.
• Court: Texas Court of Appeals

357 S.W.3d 719

TEON MANAGEMENT, LLC and Republic Oil & Gas Company, Appellants,

v.TURQUOISE BAY CORPORATION d/b/a Bay Operators et al., Appellees.

No. 11–10–00050–CV.

Court of Appeals of Texas, Eastland.

Oct. 27, 2011.

Rehearing Overruled Jan. 5, 2012.

Richard E. Booth, Steven C. Kiser, Lynch, Chappell & Alsup, P.C., Midland, for appellants.

Kirk W. Evans, Evans, L.L.P., James Hutchinson, London & Schaeffer, Houston, Charles Sartain, Looper, Reed & McGraw, Dallas, John T. Ferguson, Weaver & Ferguson, P.C.,Big Springs, Michael T. Morgan, Bullock Scott, PC, Judith M. Carr, Michael A. Short, Midland, for appellees.

Panel consists of WRIGHT, C.J., McCALL, J., and KALENAK, J.

OPINION ON MOTION FOR REHEARING

TERRY McCALL, Justice.

On original submission, we held that the trial court committed reversible error by failing to render a take-nothing judgment in trespass to try title against Turquoise Bay Corporation d/b/a Bay Operators et al.¹ based on Turquoise Bay's judicial admission of title in the opposing parties. Turquoise Bay filed a motion for rehearing, claiming in part that any judicial admission it had made did not admit better title in the opposing parties sufficient to defeat its trespass to try title action. We grant the motion for rehearing, withdraw our opinion and judgment dated April 7, 2011, and substitute the following.

Turquoise Bay filed suit against Teon Management, LLC, et al.² seeking, among other things, a declaratory judgment that seven oil and gas leases had not terminated and that Turquoise Bay was the operator of four wells located on those leases. Teon Management and Republic Oil & Gas Company filed a counterclaim asking the court to declare that the leases had terminated and that Turquoise Bay was a bad faith trespasser. They also requested an accounting and damages. The jury answered several questions favorably for Turquoise Bay, and the trial court entered a declaratory judgment that the leases were still in effect as to specifically described lands but had otherwise terminated, that Turquoise Bay was not a trespasser but was the proper operator of three wells, and that Turquoise Bay was entitled to the suspended production payments. The trial court also awarded Turquoise Bay its attorney's fees. We affirm in part and reverse and render in part.

I. Background Facts

This suit arises out of four wells drilled on lands covered by seven leases. The wells are the Nichols No. 2, the Nichols No. 3, the Elkin–Nichols Unit No. 1–1, and the Elkin–Nichols Unit No. 2–1.³ In 2006, they were operated by McFarland & Scobey. McFarland & Scobey filed for bankruptcy on October 22, 2006, and the Texas Railroad Commission shut in all four wells on December 14, 2006. The working interest owners selected Turquoise Bay as the new operator. It commenced operations, and production resumed on March 8, 2007. Meanwhile, in February, Teon Management and Republic Oil & Gas Company secured new leases covering the four wells.

Turquoise Bay applied with the Railroad Commission to become the operator. Teon Management contested its application. Because of the controversy, the production purchasers placed all revenue from the four wells in suspense. Turquoise Bay subsequently filed suit against Teon Management and Republic Oil & Gas Company seeking a declaratory judgment that Turquoise Bay was a valid operator and not a trespasser. Eventually, all royalty, overriding royalty, and working interest owners were joined as parties.

The jury found that Turquoise Bay timely commenced reworking operations on three wells: the Nichols No. 2, the Nichols No. 3, and the Elkin–Nichols Unit No. 1–1. The trial court did not submit an issue on the Elkin–Nichols Unit No. 2–1 well, finding as a matter of law that the leases covering that well had terminated with respect to the land allocated to it. The trial court entered a declaratory judgment holding that the leases covering the Nichols No. 2, the Nichols No. 3, and the Elkin–Nichols Unit No. 1–1 were valid as to the proration units attributable to those three wells; that two other leases were valid as to all lands covered by them; that Turquoise Bay was not a trespasser as to the three wells; and that the leases covering the proration unit attributable to the Elkin–Nichols Unit No. 2–1 well had terminated. The trial court also awarded Turquoise Bay its attorney's fees, and it authorized the purchasers to release all suspended funds to Turquoise Bay. Teon Management and Republic Oil & Gas Company filed a notice of appeal.⁴ The remaining defendants did not.

II. Issues

Teon Management challenges the trial court's judgment with six issues. Teon Management argues first that, because Turquoise Bay's suit was primarily one to determine title to land, it was required to file a trespass to try title action rather than a suit for declaratory judgment. In Issues Two and Five, Teon Management contends that the trial court erred by awarding attorney's fees or, alternatively, requests a remand for further consideration of their award. In Issues Three and Four, it challenges the sufficiency of the evidence to support specific jury findings. Finally, in Issue Six, Teon Management contends that it is entitled to the revenue attributable to production from the disputed interests.

III. Trespass to Try Title

The first question we must address is whether it was appropriate for Turquoise Bay to prosecute this as a declaratory judgment action rather than as a trespass to try title suit. Teon Management filed special exceptions challenging the propriety of a declaratory judgment action, and it filed a motion for judgment NOV asking the court to disregard the jury's answers because Turquoise Bay failed to plead or prove a trespass to try title claim. The trial court denied both motions.

Teon Management argues that the trial court erred because this suit was one to determine title to land. Turquoise Bay responds that the suit was not, in substance, a trespass to try title action and, therefore, that a declaratory judgment action was appropriate. Both causes of action are statutory creations. TEX. PROP.CODE ANN. § 22.001(a) (West 2000) provides: "A trespass to try title action is the method of determining title to lands, tenements, or other real property." The prevailing party's remedy is title to, and possession of, the real property interest at issue. Porretto v. Patterson, 251 S.W.3d 701, 708 (Tex.App.-Houston [1st Dist.] 2007, no pet.). Conversely, TEX. CIV. PRAC. & REM.CODE ANN. § 37.004(a) (West 2008) allows:

A person interested under a deed, ... written contract, or other writings constituting a contract ... may have determined any question of construction or validity arising under the instrument, ... and obtain a declaration of rights, status or other legal relations thereunder.

There are procedural differences between the two causes of action. One of the most important is the availability of attorney's fees. Trial courts have the authority to award attorney's fees in declaratory judgment actions. TEX. CIV. PRAC. & REM.CODE ANN. § 37.002(a) (West 2008) (courts may award costs and reasonable and necessary attorney's fees as are equitable and just). They do not in trespass to try title suits. See EOG Resources, Inc. v. Killam Oil Co., 239 S.W.3d 293, 304 (Tex.App.-San Antonio 2007, pet. denied) (holding recovery of attorney's fees is barred in a trespass to try title action because it is not provided for in the Property Code).

Texas case law indicates that, in most cases, the proper cause of action when title is in dispute is a trespass to try title action.⁵ Turquoise Bay argues that this rule is inapplicable here because the relief it sought and was awarded is significantly different from the relief available in a trespass to try title action. It notes that it received a declaratory judgment that it was the proper operator of three wells, that it was not a trespasser as to those wells, and that the purchasers were authorized to release all production payments to it. Turquoise Bay also argues that the judgment does not vest any title but merely recites that some of the leases were valid.

Turquoise Bay's argument misreads the trial court's ruling. When the trial court found that Turquoise Bay's leases were valid, the court was not resolving a question about the validity of those leases at the time of their execution or whether they were otherwise proper and enforceable. It found that those leases were still in existence. When the trial court found that Turquoise Bay was the proper operator, it was because Turquoise Bay had timely commenced reworking operations; therefore, the leases were still valid. When it found that Turquoise Bay and not Teon Management was entitled to the suspended runs, this was because Turquoise Bay's leases were still in existence. Each of these decisions is a title determination. See Marshall, 288 S.W.3d at 453 (case was not a proper declaratory judgment action because it did not involve the construction of a lease but whether the operator had engaged in good faith drilling or reworking operations without a sixty-day cessation and whether it had committed fraud); Pool, 30 S.W.3d at 636–37 (case was essentially a trespass to try title action because the suit did not involve the construction of the leases but an evidentiary determination of whether production had terminated).

Turquoise Bay contends that, nonetheless, a declaratory judgment action was appropriate because the construction of the leases' savings clause was a pervasive issue. Turquoise Bay argues, for example, that there was extensive dispute over the meaning of the phrase "operations for drilling or reworking." But, the jury charge confirms that this case, much like Marshall and Pool, was ultimately an evidentiary determination of whether Turquoise Bay's leases had expired.⁶ The jury was asked:

Question No. 1⁷

Did production of oil and gas from the wells listed below cease for a period of more than sixty (60) consecutive days?

Quest

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