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Armour Pipe Line Co. v. Sandel Energy, Inc.

Court of Appeals of Texas, Fourteenth District

March 28, 2018

ARMOUR PIPE LINE COMPANY, MARY PATRICIA CASHMAN, JOAN CASHMAN, NOREEN CASHMAN, CATHLEEN CASHMAN, AND CAROLINE DECHANT, Appellants
v.
SANDEL ENERGY, INC., DOUBLE H INVESTMENTS, L.P., LAURA SANDEL GILBREATH, KERCO ASSET MANAGEMENT, LLC, SUCCESSOR IN INTEREST TO KERRI A. COLEMAN D/B/A KERCO, EDDIE THOMPSON AND EDNA ANN TEPE THOMPSON, CO-TRUSTEES OF THE EDGAR CARMEN THOMPSON FAMILY TRUST B, BILL AND LYNN MIZELL, JOE B. SANDEL, RICKY W. SLEDGE, AND CML EXPLORATION, LLC, Appellees

          On Appeal from the 12th District Court Grimes County, Texas Trial Court Cause No. 32962

          Panel consists of Chief Justice Frost and Justices Donovan and Wise.

          OPINION

          Kem Thompson Frost Chief Justice.

         In this oil and gas case we consider whether the trial court erred in granting summary judgment and declaring that a purported exception and reservation in an assignment of oil, gas, and mineral leases is of no legal force or effect. We conclude that the trial court erred in granting summary judgment and in making this declaration and that the trial court also erred in granting another summary-judgment motion that was based on the first summary judgment. We conclude that the trial court did not err in denying a cross-motion for summary judgment to the extent the movants sought declaratory relief as a matter of law in favor of the party unto whom the purported exception and reservation was made. Because our disposition on appeal substantially affects the trial court's judgment, we reverse the trial court's awards of attorney's fees made under the Declaratory Judgments Act. After reversing the summary judgments and attorney's fee-awards, we remand the case to the trial court.

         I. Factual and Procedural Background

         Effective July 1, 1999, appellant Armour Pipe Line Company, Eugene C. Cashman, Eugene C. Cashman d/b/a Cashman Oil & Gas and d/b/a Cashman Oil & Gas Company, and several other entities (collectively the "Assignors") executed an assignment (the "First Assignment") in which they:

(1) assigned to appellee Sandel Energy, Inc. "any and all of Assignors' right, title and interest in and to [99 Oil, Gas, and Mineral Leases described in Exhibits A and A-1 to the First Assignment] (the "Leases"),
(2) assigned to Sandel "any and all of Assignors' right, title and interest in [13 wells described in Exhibit B to the First Assignment], "
(3) excepted and reserved unto Eugene Cashman and his respective heirs, administrators, successors, and assigns a specified overriding royalty interest in 23 of the Leases-those listed in Exhibit A to the First Assignment, and
(4) purported to except and reserve unto Armour and its respective heirs, administrators, successors, and assigns a specified overriding royalty interest in the oil, gas, and other minerals produced from 76 of the Leases-those listed in Exhibit A-1 to the First Assignment (hereinafter the "Royalty Interest").

         The Assignors did not make any general warranty of title, but made only a special warranty of title against any person claiming title by, through, or under the Assignors, and limited to "the purchase price of said lease and said wells, herein."

         In a second assignment, effective July 1, 2000, Armour purported to assign to Sandel the Royalty Interest as this interest pertained to production from the existing wells described on Exhibit B to the 2000 assignment (the "Second Assignment"). In the Second Assignment the parties recite that the assigned interest "does not pertain to production attributable to these leases from any new wells drilled in the future at different locations."

         In 2011, Sandel, on its own behalf and on behalf of certain "partners" executed a farmout agreement with appellee CML Exploration, LLC. CML then drilled several successful wells on leases subject to the Royalty Interest. CML concluded that the purported exception and reservation of the Royalty Interest unto Armour was "ineffective." Recognizing that a dispute likely would arise as to the validity of the Royalty Interest, CML held in suspense the funds that would be subject to the Royalty Interest if it were valid.

         Appellees/plaintiffs Sandel Energy, Inc., Double H Investments, L.P., Laura Sandel Gilbreath, Kerco Asset Management, LLC, Successor in Interest to Kerri A. Coleman d/b/a KERCO, Eddie Thompson and Edna Ann Tepe Thompson, Co-Trustees of the Edgar Carmen Thompson Family Trust B, Bill and Lynn Mizell, Joe B. Sandel, and Ricky W. Sledge (collectively the "Sandel Parties") filed suit against Armour and CML. The Sandel Parties sought a declaratory judgment that any purported reservation in the First Assignment in favor of Armour is of no legal force or effect and is void. In the alternative, the Sandel Parties sought a declaratory judgment that to the extent Armour had a valid claim to the Royalty Interest, all such rights were extinguished and the Royalty Interest is of no further legal force or effect, resulting in Armour having no claim to the Royalty Interest. The Sandel Parties sought the alternative declaration based on Armour's forfeiture, in February 2003, of Armour's certificate of authority to do business in Texas.

         Armour answered and asserted counterclaims or crossclaims seeking (1) a declaratory judgment that Armour is entitled to the Royalty Interest and that the suspended or withheld royalty payments should be paid to Armour; (2) a money judgment based on a breach-of-contract claim against Sandel Energy; and (3) a money judgment based on money-had-and-received claims against the Sandel Parties and CML. CML asserted claims seeking interpleader relief and attorney's fees.

         Appellants/intervenors Mary Patricia Cashman, Joan Cashman, Noreen Cashman, Cathleen Cashman, and Caroline DeChant (collectively the "Cashman Sisters") filed a petition in intervention as counterplaintiffs asserting claims seeking: (1) a declaratory judgment that Armour is entitled to the Royalty Interest and that the suspended or withheld royalty payments should be paid to Armour; (2) in the alternative, a declaratory judgment that the Cashman Sisters are entitled to equal shares of the Royalty Interest as successors in interest to all of the Assignors and as Armour's shareholders; and (3) a money judgment based on money-had-and-received claims against the Sandel Parties and CML.

         The Sandel Parties filed a summary-judgment motion and asserted various grounds allegedly entitling them to a declaration as a matter of law regarding the Royalty Interest (the "First Motion"). Armour responded in opposition to the motion. The trial court signed an interlocutory order granting the First Motion and declaring that the Royalty Interest "is of no legal force nor effect, resulting in [Armour], its successors and assigns having no claim to any rights otherwise evidenced by [the Royalty]." On the same day, the trial court also granted CML's request for interpleader relief as to the funds attributable to the Royalty Interest. The trial court ordered CML to pay into the court's registry the disputed funds, which at that time exceeded $1, 500, 000, and the trial court ordered CML to continue to pay into the court's registry every month any funds attributable to the disputed interest. The trial court released and discharged CML from further liability to the Sandel Parties and Armour for payments made in compliance with the court's order, and the trial court awarded CML attorney's fees.

         CML later filed a summary-judgment motion asserting the sole ground that the claims against CML by Armour and the Cashman Sisters fail as a matter of law based on the trial court's summary-judgment order in which the court granted the First Motion ("CML's Motion"). The trial court granted CML's Motion and ordered that Armour and the Cashman Sisters take nothing by their claims against CML.

         Armour and the Cashman Sisters (collectively the "Cashman Parties") filed a joint motion for partial summary judgment, seeking to have the trial court reconsider its order granting the First Motion and grant declaratory relief in Armour's favor. The Cashman Parties also requested (1) certain declaratory relief if Armour is was not entitled to the Royalty because of the temporary absence of Armour's certificate of authority to do business in Texas, and (2) other declaratory relief if the First Assignment did not effectively convey and reserve the Royalty unto Armour. The Sandel Parties filed a second motion seeking summary judgment as to the Cashman Sisters' claims (the "Second Motion"). The trial court denied the Cashman Parties' motion, granted the Second Motion, and reaffirmed the court's prior order granting the First Motion.

         The Sandel Parties filed a third summary-judgment motion seeking judgment as a matter of law on their request for attorney's fees under the Declaratory Judgments Act. The trial court granted this motion, awarding the Sandel Parties recovery against the Cashman Parties jointly and severally for trial attorney's fees as well as making conditional awards of appellate attorney's fees.

         The trial court rendered a final judgment, in which the court incorporated and attached its prior summary-judgment orders.

         II. ...


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