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Devon Energy Corp. v. Iona Energy, L.P.

Court of Appeals of Texas, Second District, Fort Worth

January 9, 2020

Devon Energy Corporation; Devon Energy Production Company, L.P.; and Devon Gas Services, L.P., Appellants
v.
Iona Energy, L.P., Appellee

          On Appeal from the 271st District Court Wise County, Texas Trial Court No. CV18-05-382

          Before Gabriel, Womack, and Wallach, JJ.

          MEMORANDUM OPINION

          Lee Gabriel, Justice.

         Appellants Devon Energy Corporation (Devon Energy); Devon Energy Production Company, L.P. (DEPCO); and Devon Gas Services, L.P. (Devon Gas) (collectively, the Devon Parties) appeal from the trial court's order denying their motion to transfer venue of appellee Iona Energy, L.P.'s claims to Tarrant County. The Devon Parties failed to establish their pleaded mandatory-venue provision applicable to major transactions. However, Iona similarly failed to prove that Wise County was a county of permissive venue. Because the Devon Parties, in turn, established that Tarrant County was a county of proper, permissive venue, the trial court erred by denying the Devon Parties' motion to transfer venue. We reverse the trial court's order and remand the case with instructions to sustain the motion and to transfer Iona's claims to Tarrant County. See Tex. R. App. P. 43.2(d); Tex.R.Civ.P. 89.

         I. BACKGROUND[1]

         In 2001, Iona entered into an individualized oil and gas lease with DEPCO, allowing DEPCO to produce Iona-owned minerals on 7, 238.944 acres in Tarrant and Parker Counties.[2] The lease set venue in Tarrant County for any disputes: "Jurisdiction and venue of any action relating to this lease or the leased premises shall lie in Tarrant County, Texas."[3] The parties stipulated that the wells at issue were located in Tarrant and Parker Counties and that the gas produced from those wells was "primarily processed" at a large plant in Wise County-the Bridgeport Plant.[4]Iona's "offices" and principal place of business are in Tarrant County; the Devon Parties' principal places of business are in Oklahoma.

         On May 8, 2018, twenty-seven plaintiffs, all of whom had signed leases with DEPCO regarding their mineral interests located in Wise, Denton, and Tarrant Counties, sued the Devon Parties for alleged royalty underpayments.[5] Almost a year later on April 22, 2019, Iona and other mineral owners joined the suit as plaintiffs.[6]The plaintiffs raised claims for (1) breach of the leases' royalty clauses against DEPCO, (2) breach of the implied contractual duty to deduct only reasonable expenses for processing against DEPCO, (3) fraud by affirmative misrepresentations against DEPCO, (4) fraud by nondisclosure against DEPCO, (5) statutory fraudulent transfer against the Devon Parties, (6) "Corporate Entities Used to Perpetrate Fraud" against the Devon Parties, and (7) conspiracy against the Devon Parties. Iona and the other plaintiffs pleaded for the recovery of their damages (including exemplary damages), attorney's fees, a constructive trust on the money that the Devon Parties retained as a result of their royalty calculations, and the disgorgement of the Devon Parties' profits. To support their chosen venue of Wise County, the plaintiffs alleged general, permissive venue under Section 15.002(a)(1)-all or a substantial part of the acts or omissions giving rise to their claims occurred in Wise County.[7] Tex. Civ. Prac. & Rem. Code Ann. § 15.002(a)(1); see also Tex. Specialty Trailers, Inc. v. Jackson & Simmen Drilling Co., No. 2-07-228-CV, 2009 WL 2462530, at *5 (Tex. App.-Fort Worth Aug. 13, 2009, pet. denied) (mem. op.) (referring to Section 15.002 as permissive venue).

         The Devon Parties quickly filed a motion to transfer venue of Iona's claims to Tarrant County and denied Iona's pleaded venue facts.[8] The Devon Parties asserted mandatory venue based on the contractual venue provision in DEPCO's lease with Iona, arguing that the lease was a major transaction; permissive, general venue based on their payment of royalties to Iona in Tarrant County-the site of the execution of the lease and the location of some of Iona's wells; and permissive venue based on its contractual obligation to remit payment to Iona in Tarrant County. See Tex. Civ. Prac. & Rem. Code Ann. §§ 15.002(a)(1), 15.004, 15.020, 15.035; Tex.R.Civ.P. 86.3, 87.3(a). Iona responded that the contractual venue provision did not relate to a major transaction, that the events occurred in Wise County because the gas produced from Iona's wells in Tarrant and Parker Counties was processed in Wise County, that Iona met the joinder elements to permit venue in Wise County, and that DEPCO's contractual payment obligation in the transfer order was irrelevant because Iona did not allege wrongdoing under the transfer order. See Tex. Civ. Prac. & Rem. Code Ann. §§ 15.002(a)(1), 15.003(a); Tex.R.Civ.P. 87.2(b). The Devon Parties filed a reply, attaching affidavits and documents in support of their venue arguments.

         The trial court held a nonevidentiary hearing and denied the Devon Parties' motion to transfer venue on September 2, 2019. See Tex. R. Civ. P. 87.3(b). The Devon Parties filed a notice of accelerated, interlocutory appeal and now argue that Iona did not independently establish venue in Wise County, that Iona failed to meet the joinder requirements that would allow venue in Wise County even though Iona failed to independently establish venue there, and that the Devon Parties established proper venue in Tarrant County. See Tex. Civ. Prac. & Rem. Code Ann. § 15.003(b)(1), (c); Tex.R.App.P. 26.1(b), 28.1.

         II. VENUE CONSIDERATIONS

         In reviewing a trial court's venue ruling, we must make "an independent determination from the record" that is not governed by "either an abuse of discretion or substantial evidence standard." Tex. Civ. Prac. & Rem. Code Ann. § 15.003(c)(1). In other words, we review the ruling de novo, considering the entire record. See id. § 15.064(b); Surgitek, Bristol-Myers Corp. v. Abel, 997 S.W.2d 598, 603 (Tex. 1999); Sustainable Tex. Oyster Res. Mgmt. LLC v. Hannah Reef, Inc., 491 SW.3d 96, 107 (Tex. App.-Houston [1st Dist] 2016, pet. denied). If we conclude that the trial court erred by denying the Devon Parties' motion to transfer venue, we must reverse the order without conducting a harm analysis. See Tex. Civ. Prac. & Rem. Code Ann. § 15.064(b).

         Once the Devon Parties moved to transfer venue, specifically denying Iona's pleaded venue facts and proffering affidavits and attachments, Iona was required to prove that venue was proper in the county of suit. See Tex. R Civ. P. 87.2(a)-(b), 87.3(a); Surgitek, 997 S.W.2d at 602; In re Masonite Corp., 997 S.W.2d 194, 197 (Tex. 1999) (orig. proceeding); Lynn Smith Chevrolet-GEO, Inc. v. Tidwell, 161 S.W.3d 738, 742 (Tex. App.-Fort Worth 2005, no pet). Because there was more than one plaintiff in the suit against the Devon Parties, Iona must have independently established proper venue through prima facie proof. See Tex. Civ. Prac. & Rem. Code Ann. § 15.003(a); Tex.R.Civ.P. 87.2(a), 87.3(a); Surgitek, 997 S.W.2d at 602-03.

         Here, Iona relied on the general venue statute and argued that all or a substantial part of the events or omissions giving rise to its claims occurred in Wise County. See Tex. Civ. Prac. & Rem. Code Ann. § 15.002(a)(1). Section 15.002 is a permissive-venue statute such that Iona's choice of venue controls if Iona independently established this ground of permissive venue and if the Devon Parties did not establish a ground of mandatory venue. See Tex. R Civ. P. 87.3(b); Perryman v. Spartan Tex. Six Capital Partners, Ltd., 546 S.W.3d 110, 130 (Tex. 2018); Kerri D. Condie, PC. v. McLaughlin, No. 05-18-00085-CV, 2019 WL 2353443, at *3 (Tex. App.-Dallas June 4, 2019, no pet.) (mem. op.). If Iona did not independently establish proper venue under the general venue statute, its claims were required to be transferred to a county of proper venue unless Iona independently established by prima facie proof that it, as one of multiple plaintiffs, met four statutory joinder factors. See Tex. Civ. Prac. & Rem. Code Ann. § 15.003(a); Surgitek, 997 S.W.2d at 602-03; Sustainable Tex. Oyster, 491 S.W.3d at 106-07. See generally 72 Tex. Jur. 3d Venue § 14 (2013) (recognizing joinder factors considered only if plaintiff failed to independently establish proper venue).

         In any event, if the Devon Parties established mandatory venue by prima facie proof, the trial court was required to transfer Iona's claims to the county of mandatory venue. See Tex. R. Civ. P. 87.3(c); Sustainable Tex. Oyster, 491 S.W.3d at 106; In re City of Dall., 977 S.W.2d 798, 803 (Tex. App.-Fort Worth 1998, orig. proceeding). Thus, mandatory venue trumps permissive venue. See Perryman, 546 S.W.3d at 130; see also Tex. Civ. Prac. & Rem. Code Ann. § 15.001(b) (defining proper venue as a county of mandatory venue or if no mandatory-venue provision applies, a county of permissive venue).

         III. APPLICATION

         A. Mandatory Venue

         Because mandatory venue controls even if Iona independently established permissive venue in Wise County under Section 15.002(a)(1) or established the joinder factors under Section 15.003(a), we first address whether the Devon Parties established that a mandatory-venue provision applied to Iona's claims. As we recounted, the Devon Parties raised mandatory venue based on the fact that they and Iona had contractually agreed that jurisdiction and venue for any dispute involving the lease "shall lie" in Tarrant County.[9] See Tex. Civ. Prac. & Rem. Code Ann. § 15.020.

         Section 15.020 provides that in suits arising from a "major transaction," the parties' written agreement that a suit arising from the transaction may be brought in a particular county controls to set mandatory venue. Id. § 15.020(b); see also In re Fisher, 433 S.W.3d 523, 534 (Tex. 2014) (orig. proceeding) (op. as corrected on reh'g) (concluding Section 15.020 controls even over other mandatory-venue provisions). A major transaction is

a transaction evidenced by a written agreement under which a person pays or receives, or is obligated to pay or entitled to receive, consideration with an aggregate stated value equal to or greater than $1 million. The term does not include a transaction entered into primarily for personal, family, or household purposes, or to settle a personal injury or wrongful death claim, without regard to the aggregate value.

Tex. Civ. Prac. & Rem. Code Ann. § 15.020(a). Iona asserted that the lease was not a major transaction as that term is defined for venue purposes because the lease did not state on its face that it involved an aggregate value of $1 million or more.

         The aggregate stated value is the value of the consideration a person paid or was obligated to pay under the lease. See In re Tex. Ass'n of School Bds., Inc., 169 S.W.3d 653, 657-58 (Tex. 2005) (orig. proceeding); Shamoun & Norman, LLP v. Yarto Intl Grp., LP, 398 S.W.3d 272, 294 (Tex. App.-Corpus Christi-Edinburg 2012, pet. dism'd & orig. proceeding) (op. on reh'g). The Devon Parties asserted that because DEPCO has paid $52 million in royalties on the production from Iona's wells "pursuant to its written agreements with Iona, "[10] the aggregate-value requirement is met. But the lease itself stated that it was entered into "[f]or and in consideration of Ten ($10.00) Dollars and other cash paid to [Iona's predecessor-in-interest] concurrently with the execution and delivery of the lease" and that DEPCO was obligated to pay "an annual minimum royalty of $6, 000." There is no evidence of the amount of any additional consideration Iona's predecessor received over the stated $10 at the time the lease was executed.

         Section 15.020 requires that the aggregate value be "stated" and, thus, "requires the terms of the contract to include provisions stating the contract's value." Tex. Civ. Prac. & Rem. Code Ann. § 15.020(a); Blacklands R.R. v. Ne. Tex. Rural Transp. Dist, No. 1:19-CV-250, 2019 WL 3613071, at *4 (E.D. Tex. Aug. 5, 2019) (mem. & order); see also Tex. Ass'n of School Bds., 169 S.W.3d at 659-60; In re Togs Energy, Inc., No. 05-09-01018-CV, 2009 WL 3260910, at *1 (Tex. App.-Dallas Oct. 13, 2009, orig. proceeding) (mem. op.). The only value reflected in the lease is the $10 consideration and the minimum $6, 000 royalty per year. We decline the Devon Parties' invitation to look prospectively at the aggregate value of the lease instead of focusing on the aggregate value reflected on the face of the lease. The lease's stated value falls short of the statutory threshold amount; thus, Section 15.020 does not apply to set mandatory venue in Tarrant County.

         B. Permissive Venue

         1. General Venue-Site of ...


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