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MJR Oil & Gas 2001 LLC v. Ariesone, LP

Court of Appeals of Texas, Sixth District, Texarkana

June 22, 2018

MJR OIL & GAS 2001 LLC, Appellant
v.
ARIESONE, LP, GFP TEXAS, INC., MIKEN OIL, INC., AND SND ENERGY COMPANY, INC., Appellees

          Submitted Date: June 4, 2018

          On Appeal from the County Court at Law No. 2 Gregg County, Texas Trial Court No. 2016-1054-CCL2

          Before Morriss, C.J., Moseley and Burgess, JJ.

          OPINION

          Bailey C. Moseley Justice

         This dispute is about a right of first refusal (ROFR) in certain oil and gas leases on various properties located in Gregg and Rusk Counties. It is undisputed that a ROFR in favor of MJR Oil & Gas 2001 LLC (MJR) is contained in a May 2002, unrecorded Settlement and Release Agreement (the Settlement Agreement) between two groups of owners of an oil company, including MJR and Energy 2000, Inc. (Energy). At issue in this case is whether MJR's ROFR is a covenant running with the land, and therefore enforceable against the assignees and successors in interest to Energy: AriesOne, LP (AriesOne), GFP Texas, Inc. (GFP), Miken Oil, Inc. (Miken), and SND Energy Company, Inc. (SND) (collectively, Appellees). The trial court held that it was not a covenant running with the land and entered summary judgments in favor Appellees on that basis.[1] The trial court also denied MJR's motion for partial summary judgment against AriesOne, which asked for summary judgment against AriesOne on liability and contended that the ROFR was a covenant running with the land. After the parties agreed to non-suit all other claims and counterclaims, the trial court entered a final judgment in favor of Appellees.

         On appeal, MJR contends that the trial court erred in holding that the ROFR was not a covenant running with the land and asks us to reverse the trial court's rulings. We agree that the trial court erred in granting the motion for summary judgment in favor of Appellees.

         I. Standard of Review

         "We review the trial court's summary judgment de novo." Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211, 215 (Tex. 2003) (citing FM Props. Operating Co. v. City of Austin, 22 S.W.3d 868, 872 (Tex. 2000)). In our review, all evidence favorable to the non-movant is deemed true, and every reasonable inference and any doubts are resolved in the non-movant's favor. Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005). To be entitled to traditional summary judgment, a movant must establish that there is no genuine issue of material fact so that the movant is entitled to judgment as a matter of law. Tex.R.Civ.P. 166a(c); Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex. 2009). Once the movant produces evidence entitling it to summary judgment, the burden shifts to the non-movant to present evidence raising a genuine issue of material fact. Walker v. Harris, 924 S.W.2d 375, 377 (Tex. 1996). A defendant is entitled to summary judgment on a claim only when it conclusively negates a single essential element of a cause of action or conclusively establishes an affirmative defense. Frost Nat'l Bank v. Fernandez, 315 S.W.3d 494, 508-09 (Tex. 2010).

         When, as in the case of AriesOne, both sides file motions for summary judgment and the trial court grants one motion and denies the other, we consider both sides' summary judgment evidence and determine all questions presented, and if the trial court erred, we render the judgment the trial court should have rendered. Mann Frankfort, 289 S.W.3d at 848 (citing Comm 'rs Court of Titus Cty. v. Agan, 940 S.W.2d 77, 81 (Tex. 1997)).

          II. The Summary Judgment Evidence

         MJR's ROFR appears in the Settlement Agreement, which was executed May 5, 2002. The Settlement Agreement arose out of a lawsuit filed in the County Court at Law No. 3 of Dallas County between MJR and others (referred to collectively in the Settlement Agreement as the Ryan Parties), Energy and others (referred to collectively in the Settlement Agreement as the Dickerson Parties), and Ascend Oil & Gas, L.L.C. (Ascend), over the ownership and operation of Ascend and certain oil and gas properties. Under the Settlement Agreement, the various parties agreed to convey all of their interest in the oil and gas properties to Energy, and Energy agreed to convey varying overriding royalty interests (ORRI) in certain oil and gas properties to MJR. The Settlement Agreement also contained a section that set forth the continuing obligations of Energy to MJR.[2] These obligations included the actions Energy would take to insure the proper and prompt payment of the overriding royalties for any production from the oil and gas properties to MJR, and also included a ROFR that provided:

[Energy] shall advise MJR within ten business (10) days of any assignment, farmout, sale or transfer of any property, lease, or well in which MJR has any interest and shall give MJR a [ROFR] to purchase such interest upon the same terms as offered to [Energy] by a bona fide third party. If MJR does not agree to purchase such interest within ten (10) days, [Energy] shall advise the new operator and/or transferee of MJR's overriding royalty interest. As a condition precedent to the transfer, any transferee shall be required to agree to be bound by the obligations to MJR contained in this agreement as it pertains to any interest transferred and give MJR evidence of same.

         The Settlement Agreement also provided, "This Agreement shall be binding upon and inure to the benefit of the parties, and all of their respective assigns, successors, agents, servants, employees, insurers, and legal representatives."

         On the same day, Energy executed an Assignment of Overriding Royalty Interest, effective as of May 1, 2002 (the ORRI Assignment) to MJR that conveyed varying ORRI in certain oil and gas properties, including some, but not all, [3] of the oil and gas leases in dispute in this case.[4] After setting forth the varying ORRI and their definition, the ORRI Assignment stated:

ASSIGNOR (Energy) further hereby irrevocably consents to, allows and directs any and all current and future purchasers of production from these properties and leases to issue Division Orders to ASSIGNEE (MJR) or ASSIGNEE's designee covering this overriding royalty interest and to pay ASSIGNEE or ASSIGNEE's designee directly for its royalty interest. ASSIGNOR agrees that this obligation is a covenant running with the land and any transfer by ASSIGNOR, its successors or assigns must include this right of direct payment as well as all the accounting obligations set out in the Settlement and Release Agreement executed this date by ASSIGNEE and ASSIGNOR and any assignee or successor in interest must agree to be bound by the terms of the Settlement and Release Agreement as a condition precedent to the transfer of any of the Properties.

         The ORRI Assignment also provided, "The terms of this Assignment will be binding upon the parties, and upon their respective successors and assigns."[5]

         Within a few months, Energy conveyed its interests in the various oil and gas properties, including some of the leases in dispute in this case, [6] to Gaywood Oil & Gas, L.L.C. (Gaywood), in an Assignment of Lease and Bill of Sale (the Energy Assignment) on October 1, 2002.[7] The Energy Assignment does not contain any direct or indirect reference to the ORRI Assignment or the Settlement Agreement.

         By Assignment and Bill of Sale effective December 10, 2010, Gaywood conveyed its interests in certain oil and gas properties in Gregg and Rusk Counties to GFP (the Gaywood Assignment). The Gaywood Assignment included all of the oil and gas leases in dispute in this case, except the Tuttle-A- Lease, RRC 06167.[8] Although it did not directly refer to the ORRI Assignment or the Settlement Agreement, the Gaywood Assignment provided that it was made by Gaywood and accepted by GFP subject to the following terms, representations, agreements, and provisions:

. . . .
(b) [GFP] shall at the Effective Date assume and be responsible for and comply with all duties and obligations of [Gaywood], express or implied, with respect to the Assets, including without limitation, those arising under or by virtue of any lease, contract, agreement, document . . . .

         It also provided that "[t]he provisions of this Assignment shall be binding on and inure to the benefit of [Gaywood] and [GFP] and their respective . . . . successors and assigns and shall constitute covenants running with the Lands and the Assets."

         By an Assignment, Conveyance, and Bill of Sale executed March 14, 2013, GFP conveyed its interest in certain oil and gas properties in Gregg and Rusk Counties to AriesOne (the GFP Assignment). Prior to its assignment to AriesOne, GFP notified MJR of the pending transfer by letter dated March 11, 2013. In pertinent part, the letter provided:

GFP . . . hereby notifies MJR . . . of the receipt of an offer to purchase all of its oil and gas interests and assets in Gregg & Rusk counties (the "Assets"). The Assets and the transaction are described in a letter of intent and assignment and bill of sale (the "LOI & Assignment") signed with AriesOne [] . . ., the relevant pages of which are attached hereto, to close a transaction on or about March 13, 2013[, ] but no later than March 31, 2013.
. . . .
To the extent that MRJ has a right of refusal to purchase the [sic] some of these properties on the same terms as [AriesOne], please let us know if you intend to exercise any such rights at your earliest convenience. If it is not your intention, kindly sign below and return to us by fax.

         At the bottom of the page, Michael J. Ryan, Managing Member of MJR, affirmed that "MJR . . . [would] not exercise any [ROFRs] the [sic] purchase the Assets per the terms of the LOI and Assignment signed with [AriesOne] if such transaction would close prior to March 31, 2013."

         The GFP Assignment conveyed all of GFP's interest in certain oil and gas properties, including some of the leases in dispute in this case.[9] It does not contain any direct or indirect reference to the ORRI Assignment or the Settlement Agreement.

         In their motions for summary judgment, SND acknowledged that it was assigned an interest in five of the leases in dispute that were formerly owned by Energy, and Miken acknowledged that it received an assignment of two of the leases in dispute.

         III. Procedural Background

         MJR filed a motion for partial summary judgment on liability against AriesOne only and argued that AriesOne was bound by MJR's ROFR because it was a covenant running with the land. AriesOne responded, arguing that it was not bound because MJR's ROFR was not a covenant running with the land, that it was an unreasonable restraint on alienation, and that it violated the statute of frauds. AriesOne also filed traditional and no-evidence motions for summary judgment in which it adopted the arguments and evidence set forth in its response to MJR's motion for partial summary judgment in support of its traditional motion. The trial ...


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