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Reed v. Maltsberger/Storey Ranch, LLC

Court of Appeals of Texas, Fourth District, San Antonio

May 3, 2017

Charles Edward REED Jr.; Amos E. Reed III, Individually and as Representative of the Estate of Delores Perrin, Deceased; Curtis Cullen Smith, as Trustee of the Laura Dossett Smith Family Trust; Reeder Walter Dossett and Mary Martha Dossett, as Trustees of the Mary Martha Dossett Second Trust; Alethea Brooks Bateman, as Trustee of the Alethea Brooks Bateman 1993 Trust; Jane Elizabeth Sheppard; Susannah Sheppard Benner; Thomas D. Swann; Andrew R. Swann; and Alethea Swann Bugg, Appellants
v.
MALTSBERGER/Storey Ranch, LLC; Storey Minerals, Ltd.; Tom O. Hanks; Karen R. Hanks; and TK Hanks Royalties, LP, Appellees

         From the 81st Judicial District Court, La Salle County, Texas Trial Court No. 13-03-00057-CVL Honorable Donna S. Rayes, Judge Presiding

          Sandee Bryan Marion, Chief Justice Karen Angelini, Justice Irene Rios, Justice

          OPINION

          Karen Angelini, Justice.

         REVERSED AND RENDERED IN PART; REVERSED AND REMANDED IN PART

         At issue in this appeal is the interpretation of a 1942 Deed that conveys to the grantees "an undivided one-fourth (1/4) interest in and to all of the oil, gas and other minerals in and under and that may be produced from the following described lands" but then proceeds to strip certain rights of mineral ownership from the grantees. Appellants (collectively "the Reed Plaintiffs") argue the trial court erred in determining that the 1942 Deed conveys a fixed non-participating royalty interest to the grantees. According to the Reed Plaintiffs, the 1942 Deed conveys a 1/4 mineral interest and not a fixed royalty interest. Alternatively, they argue the 1942 Deed conveys a "floating" royalty interest. We agree with the Reed Plaintiffs that the 1942 Deed conveys a 1/4 mineral interest to the grantees.

         Background

         In 1942, through an instrument titled "Royalty Deed, " L.V. Chenoweth conveyed to W.B. Dossett and E.M. Benz "an undivided one-fourth (1/4) interest in and to all of the oil, gas and other minerals in and under and that may be produced from" described lands in La Salle County, Texas. The 1942 Deed acknowledges that, at the time the deed was signed, the described lands were subject to an existing oil and gas lease:

And said above described lands being now under an oil and gas lease originally executed in favor of L.V. Chenoweth, Trustee and now held by said L.V. Chenoweth, Trustee, it is understood and agreed that this sale is made subject to said lease, but covers and includes one-fourth (1/4) of all the oil royalty and gas rental or royalty due and to be paid under the terms of said lease, insofar as it covers the above described property.

         The deed then strips Grantees W.B. Dossett and E.M. Benz of certain rights normally given to mineral-interest owners:

In the event the above lease to L.V. Chenoweth, trustee, shall for any reason become cancelled or forfeited, it is agreed that the joinder or consent of grantee, his heirs or assigns, shall not be required to another or new lease upon said property by L.V. Chenoweth, his heirs or assigns, nor shall grantee, his heirs or assigns, be entitled to share in any bonus consideration therefor or delay rentals thereunder, it being the purpose and intent hereof to grant and convey an undivided one-fourth (1/4) of the one-eighth (1/8) royalty (including any annual gas rentals) under said existing lease and an equivalent royalty interest under any future mineral leases thereon by the said L.V. Chenoweth, his heirs, administrators or assigns.

         The underlying dispute arose out of the amount of royalty payments owed to the Reed Plaintiffs, as successors in interest to Grantees W.B. Dossett and E.M. Benz. At the time the 1942 Deed was signed, the lease referred to in the deed provided for a 1/8 royalty. The current lease, "the Hanks Lease, " provides for a royalty of 22.5%.

         Tom O. Hanks and Linda R. Hanks are the current lessors of the mineral estate. Their assignee is TK Hanks Royalties, L.P. Rosetta Resources Operating, L.P. ("Rosetta") is the current lessee[1] and has been conducting operations on the land described by the 1942 Deed. Rosetta was thus responsible for distributing royalty payments and had been paying a fixed 1/32 royalty to the Reed Plaintiffs as W.B. Dossett's and E.M. Benz's successors in interest.

         The Reed Plaintiffs, believing they owned a 1/4 mineral interest and thus were owed 1/4 of the 22.5% royalty, sued Rosetta, TK Hanks Royalties, L.P., Tom O. Hanks, and Linda R. Hanks for declaratory judgment. The Reed Plaintiffs also brought a declaratory judgment action against Maltsberger/Storey Ranch, LLC and Storey Minerals, Ltd. (collectively, "Storey"), the successors in interest to a claimed royalty reservation burdening the leased property. The Reed Plaintiffs alleged they were entitled to royalty payments calculated based on their ownership of 1/4 of the minerals as provided in the 1942 Deed. That is, the Reed Plaintiffs alleged they were entitled to 1/4 of the 22.5% royalty. Storey filed a counterclaim for declaratory relief, alleging that Rosetta had correctly construed the 1942 Deed and was properly paying the Reed Plaintiffs a 1/32 fixed royalty. Tom O. Hanks, Linda R. Hanks and TK Hanks Royalties, L.P. (collectively "the Hanks") filed a counterclaim for declaratory relief, also alleging the Reed Plaintiffs were entitled to only a 1/32 fixed royalty.

         The Reed Plaintiffs moved for summary judgment, arguing that as a matter of law they were entitled to 1/4 of the 22.5% royalty provided in the Hanks Lease. Storey and the Hanks then, respectively, moved for their own summary judgment, arguing that as a matter of law the 1942 Deed conveyed to the grantees a 1/32 fixed royalty in all future leases. The Reed Plaintiffs and Storey also requested attorney's fees in their respective motions for summary judgment. The trial court denied the motion for summary judgment filed by the Reed Plaintiffs and granted the motions for summary judgment filed by Storey and the Hanks. In its order, the trial court declared that "the 1942 Royalty Deed . . . conveyed a fixed non-participating royalty interest to W.B. Dossett and E.M. Benz." The trial court ruled that the Reed Plaintiffs were "collectively entitled to a fixed 1/32 nonparticipating royalty interest associated with production from the property described in the Royalty Deed." It then awarded attorney's fees to Storey.

         The Reed Plaintiffs bring two issues on appeal: (1) whether the 1942 Deed conveyed a mineral ownership interest or a royalty interest; and (2) if the 1942 Deed conveyed a royalty ownership interest, whether the deed conveyed a floating royalty interest or a fixed royalty interest.

         Standard of Review

         To obtain a traditional summary judgment, a party moving for summary judgment must show that no genuine issue of material fact exists and that the party is entitled to judgment as a matter of law. Tex.R.Civ.P. 166a(c); Randall's Food Mkts., Inc. v. Johnson, 891 S.W.2d 640, 644 (Tex. 1995); Nixon v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546, 548 (Tex. 1985). In reviewing the grant of a summary judgment, we must indulge every reasonable inference and resolve any doubts in favor of the respondent. Johnson, 891 S.W.2d at 644; Nixon, 690 S.W.2d at 549. In addition, we must assume all evidence favorable to the respondent is true. Johnson, 891 S.W.2d at 644; Nixon, 690 S.W.2d at 548-49.

         A trial court's grant of summary judgment is reviewed de novo. Mid-Century Ins. Co. v. Ademaj, 243 S.W.3d 618, 621 (Tex. 2007). When both parties move for partial summary judgment on the same issues and the trial court grants one motion and denies the other, we consider the summary judgment evidence presented by both sides, determine all questions presented, and if we determine that the trial court erred, render the judgment the trial court should have rendered. Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005).

         Interpretation of Deeds

         The primary objective in construing mineral grants is to ascertain intent from the four corners of the instrument based on the words used and not the subjective intent of the parties. Hysaw v. Dawkins, 483 S.W.3d 1, 8 (Tex. 2016) (citing Luckel v. White, 819 S.W.2d 459, 461-62 (Tex. 1991)). A court determines intent "by construing the instrument holistically and by harmonizing any apparent conflicts or inconsistencies in the language." Id. at 4. While the supreme court recently acknowledged the "call for more certain and predictable guidance, " it nevertheless rejected "bright-line rules of interpretation that are arbitrary and, thus, inimical to an intent-focused inquiry." Id. The court mandated "a holistic and harmonizing approach and rejected mechanical rules of construction, such as giving priority to certain types of clauses over others or requiring the use of magic words." Id. at 8. The court emphasized that it could not "embrace a mechanical approach, " id. at 4, and that to "discern intent, words and phrases must be construed together and in context, not in isolation." Id. at 13. "Words and phrases generally bear their ordinary meaning unless the context supports a technical meaning or a different understanding." Id. "Similarly, apparent inconsistencies or contradictions must be harmonized, to the extent possible, by construing the document as a whole." Id. "But considering whether inconsistencies might exist and how they may be harmonized is part of the process for determining intent; it is not merely a cross-check method of validating an interpretation derived by segregating key terms and phrases." Id. "That is to say, meaning derived without reference to context is not confirmed merely because such a construction would not produce an inconsistency with another provision." Id.

          Mineral Interest vs. Royalty Interest

         In their first issue, the Reed Plaintiffs contend that as a matter of law, the 1942 Deed conveyed a mineral interest and not a royalty interest. "An instrument conveying land in fee simple transfers both the surface estate and all minerals and mineral rights, unless the instrument contains a reservation or expresses a contrary intention." Hysaw, 483 S.W.3d at 8. A mineral estate consists of five essential interests: (1) the right to develop, (2) the right to lease (the executive right), (3) the right to receive bonus payments, (4) the right to receive delay rentals, and (5) the right to receive royalty payments. Altman v. Blake, 712 S.W.2d 117, 118 (Tex. 1986). "The holder of the leasing privilege is the executive-interest holder." Hysaw, 483 S.W.3d at 9. "The executive enjoys the exclusive right to make and amend mineral leases and, correspondingly, to negotiate for the payment of bonuses, delay rentals, and royalties, subject to a duty of utmost good faith and fair dealing to non-executive interest holders." Id.

         "A conveyance of a mineral estate need not dispose of all interests; individual interests can be held back, or reserved, in the grantor." French v. Chevron U.S.A. Inc., 896 S.W.2d 795, 797 (Tex. 1995). "However, when an undivided mineral interest is conveyed, reserved, or excepted, it is presumed that all attributes remain with the ...


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