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Perryman v. Spartan Texas Six Capital Partners, Ltd.

Supreme Court of Texas

April 27, 2018

Gary Don Perryman, Nancy K. Perryman and Leasha Perryman Bowden; and EOG Resources Inc., Petitioners,
v.
Spartan Texas Six Capital Partners, Ltd., Spartan Texas Six-Celina, Ltd. and Dion Menser, Respondents

          Argued December 5, 2017

          On Petition for Review from the Court of Appeals for the Fourteenth District of Texas

          Justice Blacklock did not participate in the decision.

          OPINION

          Jeffrey S. Boyd Justice.

         Buried in a mound of real-property deeds lies a single contract-interpretation question: What is the function of a clause that "saves and excepts" 1/2 of "all royalties from the production of oil, gas and/or other minerals that may be produced from the above described premises which are now owned by Grantor, " when the deed does not disclose that the grantor does not own all of the royalty interests and does not except any other royalty interests from the conveyance? The trial court construed the clause to reserve for the grantor 1/2 of all of the "royalties . . . which [were then] owned by Grantor, " and thus the deeds did not create a so-called Duhig problem, where the grantor owns less than he purports to convey. The court of appeals disagreed and held that the clause reserved for the grantor 1/2 of all royalties produced from the "above described premises which [were then] owned by Grantor, " and thus created a Duhig problem.

         We agree with the court of appeals that the phrase "which are now owned by Grantor" modifies "the above described premises" and does not put the grantee on notice that the grantor may not then own all of the royalties, and the deeds thus purported to exclude 1/2 of the entire royalty interest and convey the other 1/2. But we also conclude that, instead of reserving a 1/2 royalty interest for the grantors, the clause merely excepted that interest from the grant, so the deeds did not create a Duhig problem. We agree with the court of appeals' ultimate conclusions about the parties' respective ownership of the royalty interests as to the larger tract at issue here, but not as to the smaller tract. However, we base our conclusions on the deeds' language, rather than on the Duhig-estoppel theory. Applying our conclusions to the chain of deeds in this case, we hold that each party with an interest in the tracts owns a 1/4 interest in the royalties produced. We also hold that judicial estoppel does not bar Petitioners from claiming their royalty interests, and that the trial court did not err in denying Petitioners' motion to transfer venue. We modify the court of appeals' judgment in part and affirm the judgment as modified.

         I. Background

         This complicated dispute involves a chain of eight separate real-property deeds. The first was executed in 1977, when Ben Perryman conveyed property to his son and daughter-in-law, Gary and Nancy Perryman. The deed (Ben's Deed) conveyed a parcel of land referred to as the "First Tract"[1] to Gary and Nancy, "LESS, SAVE AND EXCEPT an undivided one-half (1/2) of all royalties from the production of oil, gas and/or other minerals that may be produced from the above described premises which are now owned by Grantor." Because Ben owned all of the royalties, minerals, and premises at the time of the conveyance, the parties all agree that, as a result of Ben's Deed, Gary and Nancy owned all of the surface and mineral interests and 1/2 of the royalty interests in the First Tract, and Ben retained the other 1/2 of the royalty interests.

         After Ben died in 1980, his 1/2 royalty interest in the First Tract passed through intestacy in equal amounts to Gary and his brother, Wade. Wade's interest later passed upon his death to his daughter, Leasha Perryman Bowden.[2] All parties agree that, as a result of these events, Gary and Nancy owned all of the surface and minerals and 3/4 of the royalties, and Leasha owned the remaining 1/4 of the royalties.

         The trouble began in 1983 with the second of the eight deeds, in which Gary and Nancy conveyed the First Tract to GNP Inc., a corporation they created and controlled. This deed (Gary and Nancy's Deed) included a "less, save and except" clause identical to the clause that Ben's Deed contained:

LESS, SAVE AND EXCEPT an undivided one-half (1/2) of all royalties from the production of oil, gas and/or other minerals that may be produced from the above described premises which are now owned by Grantor. It being understood that all of the rest of my ownership in and to the mineral estate in and under the above described lands is being conveyed hereby.

         The deed also included a warranty clause in which Gary and Nancy agreed to "Warrant and Forever Defend, all and singular the said premises." The deed did not mention that Leasha already owned 1/4 of the royalty interest or expressly except that interest from the grant.

         GNP then executed the third of the eight deeds, a deed of trust in favor of Gainesville National Bank, to secure a promissory note. GNP's Deed of Trust included the same "less, save and except" and warranty clauses as Gary and Nancy's Deed. This deed did not mention or expressly except Leasha's 1/4 royalty interest or any royalty interest Gary and Nancy may have retained in their deed to GNP.

         GNP defaulted on the note. After the Bank purchased the property at a foreclosure sale, the trustee-acting under GNP's Deed of Trust-conveyed the First Tract to the Bank through the fourth of the eight deeds, the Trustee's Deed. The Trustee's Deed contained the same "less, save and except" clause as the three prior deeds, except that it referred to the premises "now owned by Gary Perryman, " instead of the premises "now owned by Grantor." It also contained a similar warranty clause, covering "the property hereinbefore described." It did not mention Leisha's 1/4 royalty interest or any royalty interest Gary and Nancy or GNP may have retained in their prior deeds.

         Although Ben's Deed had described the First Tract as containing 177 acres "more or less, " a new "modern" survey conducted when the Bank acquired the First Tract concluded that the First Tract actually included about 206 acres. In the fifth of the eight deeds, the Bank conveyed the 206 acres to Dion Menser and her then-husband David Johnson.[3] The Bank's Deed did not contain a "less, save and except" clause similar to the clauses in the prior deeds, but instead excluded from the conveyance and warranty "all presently recorded restrictions, reservations, covenants, conditions, oil and gas leases, mineral severances, and other instruments, other than liens and conveyances, that affect the property."

         In the sixth deed, Menser-as part of a divorce settlement-conveyed her interest in the 206 acres to Johnson via a special warranty deed, but reserved to herself "an undivided one-half (1/2) of all the oil, gas and other minerals on, in and under" the property conveyed. Menser's Deed expressly made the conveyance "subject to the terms of any valid . . . mineral severance."

         In the seventh deed, Johnson conveyed 28 of the 206 acres to a third party. That interest is now owned by James and Mildred Wright, who are not parties to this appeal. In the eighth and final deed, Johnson conveyed the remaining 178 acres to Spartan Texas Six Capital Partners, Ltd., and Spartan Texas Six-Celina, Ltd. Similar to Menser's Deed, Johnson's Deed to Spartan excepted "all presently recorded restrictions, reservations, covenants, conditions, oil and gas leases, mineral severances, and other instruments, other than liens and conveyances, that affect the property."

         Spartan and Menser, as lessors, entered into oil-and-gas leases that the lessee later assigned to EOG Resources, Inc. Spartan's lease covered the 178-Acre Tract, while Menser's lease covered both the 178-Acre Tract and the 28-Acre Tract, since she had reserved a mineral interest in all 206 acres. According to Spartan and Menser, EOG wrongfully pooled the First Tract with horizontal wells it had drilled on an adjacent tract, even though the leases do not allow for, and Spartan refused to consent to, pooling. Spartan and Menser sued EOG for breach of the lease and for an accounting. After Spartan disclosed that a dispute existed over who owned what portions of the royalty interests, EOG counterclaimed and filed third-party claims against Gary and Nancy and Leasha (collectively, the Perrymans), seeking a declaratory judgment resolving that dispute. The Perrymans cross- and counter-claimed for a declaration of their royalty interests and moved to transfer venue to Montague County, where the property is located. The trial court denied the motion to transfer venue. The Perrymans sought mandamus relief from that ruling, but the court of appeals denied the petition. See In re Perryman, No. 14-13-00131-CV, 2013 WL 1384914 (Tex. App.-Houston [14th Dist.] Apr. 4, 2013, no pet.) (mem. op.) (per curiam).

         The trial court severed the parties' royalty-interest claims from Spartan's and Menser's wrongful-pooling claims against EOG. The parties then filed cross-motions for summary judgment, and the trial court granted a final summary judgment declaring, with respect to the 178-Acre Tract, that Menser and Spartan each own 3/32 of the royalty interest, Gary and Nancy own 9/16 of the royalty interest, and Leasha owns 1/4 of the royalty interest. The court also declared that the same parties own the same interests in the 28-Acre Tract, except that Spartan owns no interest in that tract. Spartan appealed, and Gary and Nancy raised conditional cross-issues in response.[4]

         The court of appeals mostly disagreed with the trial court. It modified the trial court's judgment to declare that Menser, Spartan, Gary and Nancy, and Leasha each own 1/4 of the royalty interest in the 178-Acre Tract. Although its reasoning would appear to apply also to the 28-Acre Tract, the declaration language in its opinion and its judgment retained the trial court's allocation of the royalty interests in the 28-Acre Tract: Menser owns 3/32, Gary and Nancy own 9/16, and Leasha owns 1/4 of the royalty interest (the remaining 3/32 presumably belonging to the Wrights). 494 S.W.3d at 751-52. The Perrymans petitioned for this Court's review, arguing that the court of appeals erred in its allocation of the royalty interests and, alternatively, the trial court erred by denying their venue motion. EOG filed a separate petition, agreeing with the Perrymans' position regarding the royalty interests. Spartan and Menser then filed their own petition, arguing that the court of appeals erred only as to its allocation of the royalty interests in the 28-Acre Tract and also by refusing to hold that Gary and Nancy are judicially estopped to claim at least a portion of their royalty interests.

         We granted all three petitions. We will first address the parties' respective royalty interests, including the judicial-estoppel argument, and then address the venue issue.

         II. The Royalty Interests

         The trial court resolved this case on the parties' cross-motions for summary judgment. "When we review cross-motions for summary judgment, we consider both motions and render the judgment that the trial court should have rendered." Coastal Liquids Transp., L.P. v. Harris Cty. Appraisal Dist., 46 S.W.3d 880, 884 (Tex. 2001) (citing Comm'rs Ct. v. Agan, 940 S.W.2d 77, 81 (Tex. 1997); Jones v. Strauss, 745 S.W.2d 898, 900 (Tex. 1988)). Each party bears the burden of establishing that it is entitled to judgment as a matter of law. City of Garland v. Dall. Morning News, 22 S.W.3d 351, 356 (Tex. 2000). To resolve these royalty-interest claims, we must first determine whether Gary and Nancy are judicially estopped from claiming any interest. We conclude that they are not, and then determine the parties' royalty interests based on the deeds' language.

         A. Judicial Estoppel

         Gary and Nancy contend that they reserved a royalty interest when they conveyed the First Tract to GNP in 1983. Five years later, Gary declared personal bankruptcy, and he did not list any royalty interest as an asset in his bankruptcy filings. Spartan and Menser argue that Gary and Nancy are therefore judicially estopped from claiming any royalty interest in the First Tract. The trial court rejected this argument, and the court of appeals affirmed. 494 S.W.3d at 738.

         "Judicial estoppel is a common law doctrine that prevents a party from assuming inconsistent positions in litigation." Kane v. Nat'l Union Fire Ins., 535 F.3d 380, 385 (5th Cir. 2008) (quoting In re Superior Crewboats, 374 F.3d 330, 334 (5th Cir. 2004)). Because it is an equitable doctrine, the trial court has discretion whether to invoke it, and we review the trial court's decision for abuse of that discretion. Id. at 384. Judicial estoppel may apply against a party who claims an asset it failed to disclose in a prior bankruptcy proceeding if (1) by claiming a right to the asset, the party asserts a position that is clearly inconsistent with its failure to disclose the asset in the bankruptcy; (2) the bankruptcy court accepted and relied on the party's failure to disclose the asset; and (3) the party's failure to disclose the asset in the bankruptcy was not "inadvertent." Id. at 385-86.

         Gary and Nancy primarily argue that judicial estoppel does not apply here because Gary's failure to disclose his royalty interests was inadvertent. A nondisclosure may be inadvertent if the party lacked knowledge of the asset or had no motive to conceal it. Id. at 386. Gary admitted that he knew he owned a royalty interest at the time of his bankruptcy filings and that he did not disclose it, but he testified that his failure "was an oversight." He argued that he had no motive to hide the asset from his bankruptcy creditors because no minerals were being produced from the First Tract and he had never received any royalty payments when he filed bankruptcy. In fact, no mineral leases were even signed until 2007, nearly twenty years after he filed bankruptcy. Based on this evidence, we cannot say that the trial court abused its discretion in refusing to conclude that Gary and Nancy were judicially estopped from claiming their royalty interest.

         B. The Deeds

         The parties' primary dispute involves the effect of the eight deeds on their respective royalty interests. Their differing positions derive primarily from their disagreement over the meaning of the "less, save and except" clause contained in the first three deeds, which excluded from the conveyances

an undivided one-half (1/2) of all royalties from the production of oil, gas and/or other minerals that may be produced from the above described premises which are now owned by Grantor. It being understood hereby that all of the rest of my ownership in and to the mineral estate in an under the above described lands is being conveyed hereby.

         We construe unambiguous deeds-like any other legal instrument-as a matter of law. Luckel v. White, 819 S.W.2d 459, 461 (Tex. 1991). We "ascertain the intent of the parties from all of the language within the four corners of the deed." Wenske v. Ealy, 521 S.W.3d 791, 794 (Tex. 2017) (citing Luckel, 819 S.W.2d at 461). When courts interpret particular language to carry a particular meaning, other parties drafting subsequent deeds often use that language in reliance on the courts' interpretation. Because our decisions "can imbue words with 'magic, ' and drafters rely on that talismanic power to create certainty in their instruments, " we must take care not to disturb the drafting parties' reasonable expectations. See id. at 803-04 (Boyd, J., dissenting). Deed construction requires us to traverse and reconcile well-settled principles of legal interpretation with principles of our oil-and-gas common law.

         The court of appeals held that the deeds in this case "purported to grant title to the land subject to a 1/2 royalty interest in the described property." 494 S.W.3d at 746. Ben's Deed, for example, conveyed all of the interests in the First Tract to Gary and Nancy, "less, save and except" 1/2 of the royalty interests. The simple result was that Gary and Nancy owned all of the property interests except for 1/2 of the royalties, which Ben necessarily retained. After inheriting 1/4 of the royalty interest when Ben died, Gary and Nancy then owned 3/4 of the royalty interest. When they later conveyed the property to GNP through a deed using the same exclusion clause, the result becomes more complicated. If Gary and Nancy conveyed all of the property interests to GNP but reserved for themselves 1/2 of all the royalty interests, GNP should expect to receive the other 1/2 of the royalty interests. But Leasha had also inherited 1/4 of the royalty interest from Ben, so Gary and Nancy could not convey 1/2 of the royalty interests to GNP if they reserved 1/2 for themselves. And when GNP conveyed the property through the Deed of Trust using the same exclusion clause, the result becomes even more complicated. The court of appeals concluded that, because the deeds made "no mention" of the "previously excepted" royalty interests, and yet provided general warranties covering all the title purportedly conveyed, the grantors breached their warranties and thus "are estopped from claiming a royalty interest in the subject property under the Duhig doctrine." 494 S.W.3d at 746-47; see Duhig v. Peavy-Moore Lumber Co., 144 S.W.2d 878, 880- 81 (Tex. 1940).

         Duhig involved a deed in which W. J. Duhig conveyed land to the Miller-Link Lumber Company. Duhig, 144 S.W.2d at 879. The deed conveyed all of the interests in the land to Miller- Link, except it reserved for Duhig "an undivided one-half interest in and to all mineral rights or minerals of whatever description in the land." Id. The deed did not mention, however, that a third party already owned 1/2 of the mineral interest. Id. The deed contained a general warranty covering "the said premises, " which meant "the land described in the granting clause, " and therefore warranted "the full fee simple title to the land except an undivided one-half interest in the minerals." Id. at 879-80. We held that Duhig breached the warranty the moment he conveyed the property because he could not both retain 1/2 the minerals and convey 1/2 to Miller-Link when the third party already owned 1/2. Although Duhig would be liable to Miller-Link for damages, the Court recognized that, by "virtue of the deed containing the warranty, " Duhig held "the very interest, one-half of the minerals, required to remedy the breach." Id. Applying an equitable remedy, the Court held that Duhig was estopped from claiming the 1/2 mineral interest he had reserved for himself; instead, Miller-Link received that interest as a remedy for Duhig's breach of the deed's warranty. Id. at 880-81.

         The court of appeals held here that Gary and Nancy's Deed and GNP's Deed of Trust suffer from the same failure as the Duhig deed: they purported to convey all of the interests in the First Tract but reserve 1/2 the royalty interests for the grantors, without mentioning or excepting the fractional royalty interests prior grantors had already reserved for themselves. 494 S.W.3d at 746. The grantors thus breached the deeds' warranties at the time of conveyance, but because of the reservations they held the very interests necessary to remedy the breach. The Perrymans argue, however, that the court failed to properly consider that these deeds expressly reserved only 1/2 of the royalties "now owned by Grantor." We disagree, and hold that the deeds excepted 1/2 of all the royalty interests in the premises conveyed, which premises were then owned by the grantors. But we also conclude that the deeds did not create a Duhig problem because the "less, save and except" clause created an exception from the grant, not a reservation for the grantor. We therefore reach the same basic outcome as the court of appeals, but we need not rely on Duhig estoppel to reach it.

         1. "Less, save and except"

         Before we address what interest is implicated in the "less, save and except" clause, we first address the function of the "less, save and except" language itself. The parties all agree that the less-save-and-except clause acts to reserve some interest to the grantor; their dispute relates only to the extent of that interest. We do not agree with the parties or the court of appeals that the "less, save and except" clause reserved any royalty interest for the grantors. Although an "exception" can refer to any "mere exclusion from the grant, " a "reservation" must "always be in favor of and for the benefit of the grantor." Pich v. Lankford, 302 S.W.2d 645, 650 (Tex. 1957). We will not find "reservations by implication." Sharp v. Fowler, 252 S.W.2d 153, 154 (Tex. 1952). "A reservation of minerals to be effective must be by clear language." Id

         The Perrymans argue that the "now owned by Grantor" phrase makes the clause a reservation because it "effectively incorporates all prior reservations in the conveyances because it limits the interest grantor conveys to only what he owns." But as we will explain, the phrase limits the interest the deeds except; it does not purport to limit the interest the deeds convey. These deeds conveyed the entire property interest "less, save and except" a 1/2 royalty interest, and they contained no language purporting to "reserve" that excepted interest for or unto the grantors.

         The same is true for any implication made by the clause's second sentence: "It being understood that all of the rest of my ownership in and to the mineral estate in and under the above described lands is being conveyed hereby." This sentence refers to the "mineral estate, " not to the royalty interests, even though the right to receive royalties is one of five "severable rights" in the minerals.[5]Hysaw v. Dawkins,483 S.W.3d 1, 9 (Tex. 2016). The sentence makes clear that the grantor conveyed all of the mineral estate except the portion of the royalty interests the prior sentence excepted. But it does not suggest that the exception was actually a reservation unto the grantor. Because the clause creates an exception and not a reservation, the deeds do not purport to both convey and reserve unto the grantors more than the grantors own, so they do not present an ...


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