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Virtex Operating Co., Inc. v. Bauerle

Court of Appeals of Texas, Fourth District, San Antonio

November 8, 2017

VIRTEX OPERATING CO., INC. and VirTex Producing Company, L.P., Appellants
Robert Leon BAUERLE and Cynthia Bauerle, Appellees

          From the 81st Judicial District Court, Frio County, Texas Trial Court No. 12-10-00365-CVF Honorable Donna S. Rayes, Judge Presiding

          Karen Angelini, Justice Marialyn Barnard, Justice Luz Elena D. Chapa, Justice


          Marialyn Barnard, Justice

         This is an oil and gas case concerning the application of the accommodation doctrine. Appellees, Robert Leon Bauerle and Cynthia Bauerle (collectively, "the Bauerles"), filed suit against appellants, VirTex Operating Co., Inc. and VirTex Producing Company, L.P. (collectively, "VirTex"), seeking a declaration that VirTex's proposal to install overhead power lines across their ranch was prohibited under the accommodation doctrine. In addition to their declaratory judgment action, the Bauerles also alleged VirTex breached a surface use agreement. A jury returned a verdict in favor of the Bauerles as to each of their claims; the trial court then rendered judgment on the jury's verdict and awarded the Bauerles attorney's fees. On appeal, VirTex raises several issues, arguing the evidence is legally and factually insufficient as to all three elements of the accommodation doctrine and the Bauerles were not entitled to attorney's fees. VirTex also argues the trial court abused its discretion with regard to the admissibility of certain evidence. We affirm the trial court's judgment.


         This appeal arises from a dispute between the Bauerles and VirTex concerning the installation of overhead power lines across the Bauerles' ranch property - known as the Todos Santos Ranch - in Dilley, Texas. The Todos Santos Ranch comprises approximately 8, 500 acres in Frio and Zavala Counties. It is undisputed that the Bauerles own the surface estate of the 8, 500-acre tract as well as a 2% royalty interest in the property. The Bauerles primarily use the ranch property to run a commercial hunting business and a cattle operation. The ranch is equipped with a hunting lodge, cookhouse, three bunkhouses, and a man-made lake. The Bauerles lease the ranch and its facilities to hunters on a yearly basis, and under these leases, hunters have the opportunity to hunt deer, turkey, and quail. In addition to the hunting leases, the Bauerles also maintain cattle on the ranch; however, the main source of income for the ranch stems from the hunting leases.

         Under the hunting leases, hunters use helicopters several times throughout the year on the ranch for a number of game operations, including brush and predator control, game surveys, and deer captures. Of these operations, deer captures are arguably the most important. In an effort to manage the number of Whitetail deer on the ranch, hunters use helicopters to locate and capture deer quickly. Once pilots locate a deer, they are able to push the deer into an open area, where the deer can be captured with a net gun. The operation requires pilots to fly alongside the deer - approximately 4 to 5 feet above ground - weaving in and out of brush, while at the same time, dodging trees and other obstacles. The process has been described as one of "the most extreme [forms of] flying that you can possibly do." According to several hunters, this method of deer capture is less stressful for the deer and more cost efficient for hunters. Additionally, this method has, to date, eliminated injuries to the deer. Ultimately, the captured deer are relocated to a fenced enclosure for breeding or to another nearby ranch in the event the Bauerles' ranch has a surplus of deer.

         In addition to the deer capture operations, hunters also use helicopters for maintaining brush operations and predator control. Equipped with a tank and sprayers for brush control, helicopters fly over certain areas of the ranch and spray in order to enable taller brush to grow in a more favorable way for the deer. Hunters also use helicopters to hunt predators, such as coyotes, on the ranch.

         As indicated above, it is undisputed the Bauerles own the entire surface estate and a 2% royalty interest in the ranch property. ExxonMobil owns the full mineral fee estate underlying the property and executed an oil and gas lease - known as the Mars Mclean Lease - to VirTex. The Mars Mclean Lease covers approximately 3, 000 acres of the Bauerles' ranch. Although there was no oil and gas activity on the property when the Bauerles first acquired the property, a VirTex landman informed Mr. Bauerle that VirTex was interested in drilling a well to determine whether there was oil and gas on the property. Because the well was productive, VirTex drilled several more wells, paying monthly royalties to the Bauerles. By the fall of 2008, the Bauerles had entered into a surface use agreement with VirTex, allowing VirTex to install tank batteries. Currently, VirTex operates nine wells on approximately 2, 000 acres of the leased acreage.

         Each of the existing wells on the property is equipped with a pumpjack, which extracts crude oil from the ground so that the oil can be refined and placed on the market. VirTex currently operates each of the pump jacks with four portable diesel generators that it rents. According to VirTex, the generators were intended to be a temporary means of generating power to the pump jacks until the installation of permanent overhead power lines. In 2012, VirTex approached the Bauerles and asked them to sign an easement for the installation of power lines. Currently, the property has a single power line that runs alongside a black paved road to the hunting lodge and other facilities on the ranch. VirTex's proposed power line configuration consists of a box with overhead power lines running to the individual wells; overall, the design would create a perimeter the Bauerles describe as a spiderweb. It is undisputed VirTex would pay for the costs of the proposed power lines.

         Due to a concern that the overhead power lines would interfere with the helicopter operations, the Bauerles refused to sign the easement. The Bauerles also asked VirTex to halt any construction plans concerning the installation of the overhead power lines. VirTex agreed. The Bauerles then filed a declaratory judgment action, requesting the trial court to render judgment declaring that VirTex's installation of the proposed overhead power lines would substantially impair their preexisting use of the "lateral surface and super-adjacent airspace" of the property, which included use of the helicopters for game operations. The Bauerles also alleged VirTex breached the surface use agreement by failing to install tank batteries within a specified distance of F.M. #117 in accordance with the terms of the Agreement. In response, VirTex counterclaimed, asserting the Bauerles were unreasonably interfering with its right to extract the minerals by prohibiting the installation of the overhead power lines. According to VirTex, the installation of the overhead power lines is a reasonable and customary practice operators use to generate power to wells, and there is no other industry accepted method available.

         The parties proceeded to trial, and the jury returned a verdict in favor of the Bauerles as to each of their claims. VirTex subsequently filed numerous post-trial motions, including a motion for judgment notwithstanding the verdict as to the Bauerles' breach of contract claim, which was based on the surface use agreement. The trial court granted the JNOV as to the breach of contract claim, but denied all other requested relief.[1] The trial court subsequently rendered an amended final judgment, deleting the Bauerles' recovery on their breach of contract claim. VirTex then perfected this appeal.


         On appeal, VirTex raises several issues, arguing the evidence is legally and factually insufficient to support the jury's findings as to all three elements of the accommodation doctrine, the Bauerles were not entitled to attorney's fees, and the trial court erred in admitting and excluding certain evidence. With respect to its accommodation doctrine argument, VirTex specifically argues the Bauerles failed to prove: (1) the proposed power lines would completely preclude or substantially impair their existing hunting and cattle operations; (2) there was no reasonable alternative method available by which they could continue their existing hunting and cattle operations; and (3) there was a reasonable, customary, and industry-accepted method available to VirTex by which it could recover the minerals. With regard to attorney's fees, VirTex argues the trial court erred in awarding attorney's fees to the Bauerles because although framed as a request for declaratory relief, the Bauerles sought injunctive relief on their accommodation doctrine claim, and there is no statute permitting the recovery of attorney's fees on an accommodation doctrine claim. VirTex also argues the trial court abused its discretion in admitting testimony from the Bauerles' expert, Mike Kramer, and excluding multiple photographs showing helicopter operations were possible on ranch lands with overhead power lines.

          Accommodation Doctrine

         Standard of Review

         In reviewing the legal sufficiency of the evidence, we view the evidence in the light most favorable to the verdict, credit favorable evidence if reasonable jurors could, and disregard contrary evidence unless reasonable jurors could not. Reeder v. Wood Cty. Energy, LLC, 395 S.W.3d 789, 795 (Tex. 2012); SW Loan A, L.P. v. Duarte-Viera, 487 S.W.3d 697, 701 (Tex. App.-San Antonio 2016, no pet.) (citing City of Keller v. Wilson, 168 S.W.3d 802, 807 (Tex. 2005)). Evidence is legally insufficient when: (a) there is a complete absence of evidence of a vital fact; (b) the court is barred by rules of law or of evidence from giving weight to the only evidence offered to prove a vital fact; (c) the evidence offered to prove a vital fact is no more than a mere scintilla; or (d) the evidence conclusively establishes the opposite of the vital fact. HMC Hotel Props. II Ltd. P'ship v. Keystone-Tex. Prop. Holding Corp., 439 S.W.3d 910, 913 (Tex. 2013). More than a scintilla of evidence exists when the evidence supporting the finding, as a whole, "rises to a level that would enable reasonable and fair-minded people to differ in their conclusions." Gharda USA, Inc. v. Control Sols., Inc., 464 S.W.3d 338, 347 (Tex. 2015); Strad Energy Servs. USA, Ltd. v. Bernal, No. 04-16-00116, 2016 WL 6242839, at * (Tex. App.-San Antonio Oct. 26, 2017, pet. denied) (mem. op.). If the evidence is so weak that it does no more than create a mere surmise or suspicion of its existence, then its legal effect is that it is no evidence. Suarez v. City of Tex. City, 465 S.W.3d 623, 634 (Tex. 2015).

         In reviewing the factual sufficiency of the evidence, we must consider and weigh all of the evidence, not just the evidence that supports the verdict. Crosstex N. Tex. Pipeline, L.P. v. Gardiner, 505 S.W.3d 580, 615 (Tex. 2016). We will set aside the finding only if it is so contrary to the overwhelming weight of the evidence that the finding is clearly wrong and unjust. Gardiner, 505 S.W.3d at 615; Ellis, 971 S.W.2d at 407.

          With regard to either a legal or factual sufficiency review, the factfinder is the sole judge of witness credibility and the weight to be given to testimony. City of Keller, 168 S.W.3d at 819 (legal sufficiency); Golden Eagle Archery, Inc. v. Jackson, 116 S.W.3d 757, 761 (Tex. 2003) (factual sufficiency). An appellate court may not substitute its judgment for that of the factfinder merely because it might reach a different result. City of Keller, 168 S.W.3d at 819; Barker v. Eckman, 213 S.W.3d 306, 314 (Tex. 2006).

         Applicable Law

         "Texas law has always recognized that a landowner may sever the mineral and surface estates and convey them separately." Coyote Lake Ranch, LLC v. City of Lubbock, 498 S.W.3d 53, 60 (Tex. 2016). The severed mineral estate is known as the dominant estate because it receives the benefit of an implied right to use as much of the surface estate as reasonably necessary to produce and remove minerals; however this right must be exercised with "due regard" for the rights of the surface estate owner. Id. (citing Getty Oil Co. v. Jones, 470 S.W.2d 618, 621 (Tex. 1971)); Merriman v. XTO Energy, Inc., 407 S.W.3d 244, 249-50 (Tex. 2013) (stating dominant mineral estate owner has not only right to go onto surface to extract minerals, but also all incidental rights reasonably necessary for extraction). This concept of "due regard" is known as the accommodation doctrine and is aimed at balancing the rights of the surface owner and the mineral owner with regard to the use of the surface while at the same time recognizing the dominant nature of the mineral estate. Coyote Lake Ranch, 498 S.W.3d at 62-63; Tex. Genco, LP v. Valence Operating Co., 187 S.W.3d 121 (Tex. App.-Waco 2006, pet. denied).

         Under the accommodation doctrine, "if the mineral owner or lessee has only one method for developing and producing the minerals, [then] that method may be used regardless of whether it precludes or substantially impairs the surface estate owner's existing use of the surface." Merriman, 407 S.W.3d at 248-49. On the other hand, "if the mineral owner has reasonable alternative uses of the surface, one of which permits the surface estate owner to continue to use the surface in the manner intended … and one of which would preclude that use by the surface owner, [then] the mineral owner must use the alternative that allows continued use of the surface by the surface owner." Id. Accordingly, under ...

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