Peter J. Dragon v. Charles E. Harrell and Hollis R. Harrell ( 2015 )

ACCEPTED
04-14-00711-CV
FOURTH COURT OF APPEALS
SAN ANTONIO, TEXAS
6/18/2015 5:16:29 PM
KEITH HOTTLE
CLERK
NO. 04-14-00711-CV
FILED IN
4th COURT OF APPEALS
IN THE COURT OF APPEALS SAN ANTONIO, TEXAS
FOURTH DISTRICT OF TEXAS 06/18/2015 5:16:29 PM
SAN ANTONIO DIVISION KEITH E. HOTTLE
Clerk
___________________________________________________
PETER J. DRAGON,
Appellant,
V.
CHARLES E. HARRELL AND HOLLIS R. HARRELL,
Appellees.
__________________________________________________
Cause No. 13-1100232-CVK
On Appeal from the 218th Judicial District Court, Karnes County, Texas
Honorable Donna S. Rayes, Judge Presiding
___________________________________________________
BRIEF OF APPELLEES
____________________________________________________
Jesse R. Castillo
State Bar No. 03986600
jcastillo@casnlaw.com
CASTILLO SNYDER, P.C.
Bank of America Plaza, Suite 1020
300 Convent Street
San Antonio, Texas 78205
Telephone: (210) 630-4200
Facsimile: (210) 630-4210
Attorneys for Appellees Charles E.
Harrell and Hollis R. Harrell
ORAL ARGUMENT REQUESTED
IDENTITY OF PARTIES AND COUNSEL
Plaintiffs/Appellees: Charles E. Harrell
Hollis R. Harrell
Trial and Appellate Counsel: Jesse R. Castillo
jcastillo@casnlaw.com
Edward C. Snyder
esnyder@casnlaw.com
Melanie A. Castillo
mcastillo@casnlaw.com
CASTILLO SNYDER, P.C.
300 Convent Street, Suite 1020
San Antonio, Texas 78205
(210) 630-4200
(210) 630-4210 (Facsimile)
Defendant/Appellant: Peter J. Dragon
Trial and Appellate Counsel: Clinton M. Butler
cbutler@langleybanack.com
Elizabeth R. Kopecki
ekopecki@langleybanack.com
LANGLEY, BANACK & BUTLER
114 N. Panna Maria Avenue
Karnes City, Texas 78118
(830) 780-2700
(830) 780-2701 (Facsimile)
ii
TABLE OF CONTENTS
IDENTITY OF PARTIES AND COUNSEL ......................................................................... ii
TABLE OF AUTHORITIES ........................................................................................... iv
REFERENCE CITATION GUIDE ................................................................................... vii
STATEMENT OF THE CASE ....................................................................................... viii
STATEMENT REGARDING ORAL ARGUMENT ........................................................... viii
STATEMENT OF FACTS.................................................................................................1
SUMMARY OF ARGUMENT ...........................................................................................3
ARGUMENT .................................................................................................................5
I. After considering the competing motions for summary judgment and
responses thereto, the trial court properly granted the Harrells’ traditional
motion for summary judgment. .......................................................................5
A. Standard of Review ...............................................................................5
B. The trial court properly adopted the Harrell’s construction of the
Reservation in the Harrell Deed ............................................................7
II. After considering the competing motions for summary judgment and
responses thereto, the trial court properly denied Dragon’s traditional motion
for summary judgment...................................................................................13
A. Impairment Of Future Leasing Not A Factor ......................................18
B. Appellant Did Not Plead Ambiguity ...................................................20
PRAYER FOR RELIEF ..................................................................................................22
CERTIFICATE OF COMPLIANCE ..................................................................................23
CERTIFICATE OF SERVICE ..........................................................................................24
iii
TABLE OF AUTHORITIES
Cases
Altman v. Blake,
712 S.W.2d 117 (Tex. 1986) .......................................................................5, 9
Arnold v. Ashbel Smith Land Co.,
307 S.W.2d 818 (Tex. Civ. App.—Houston 1957, writ ref’d n.r.e.) .......4, 18
Ayert v. Grande, Inc.,
717 S.W.2d 891 (Tex. 1986) .........................................................................21
Benge v. Scharbauer,
152 Tex. 447, 259 S.W.2d 166 (1953) ..........................................................22
BP America Production Co. v. Zaffirini,
419 S.W.3d 485 (Tex. App.—San Antonio 2013, pet. denied) ......................6
Brown v. Howard,
593 S.W.2d 939 (Tex. 1980) .............................................................. 4, 10, 12
Brown v. Smith,
141 Tex. 425, 174 S.W.2d 43 (1943) ........................................................4, 10
City of Galveston v. Tex. Gen. Land Office,
196 S.W.3d 218 (Tex. App.—Houston [1st Dist.] 2006, pet. denied) ............6
City of Keller v. Wilson,
168 S.W.3d 802 (Tex. 2005) ...........................................................................6
Clifton v. Koontz,
325 S.W.2d 684 (Tex. 1959) .................................................................. 19, 20
Cockrell v. Gulf Sulphur Co.,
157 Tex. 10, 15, 299 S.W.2d 672 (1957) ......................................................21
Coghill vs. Griffith,
358 S.W.3d 834 (Tex. App. —Tyler 2012, pet. denied) ............ 11, 12, 13, 15
Columbia Gas Transmission Corp. v. New Ulm Gas, Ltd.,
940 S.W.2d 587 (Tex. 1996) .........................................................................20
Dawkins v. Hysaw,
450 S.W.3d 147 (Tex. App.—San Antonio 2014, pet. filed) ........... 13, 17, 18
FM Props. Operating Co. v. City of Austin,
22 S.W.3d 868 (Tex. 2000) .............................................................................6
iv
Frost Nat'l Bank v. L & F Distribs., Ltd.,
165 S.W.3d 310 (Tex.2005) ............................................................................8
Gavenda v. Strata Energy, Inc.,
705 S.W.2d 690 (Tex. 1986) .....................................................................4, 18
Harris v. Ritter,
279 S.W.2d 845 (Tex. 1955) .................................................................. 11, 12
HECI Exploration Co. v. Neel,
982 S.W.2d 881 (Tex. 1998) ...........................................................................8
Helms v. Guthrie,
573 S.W.2d 855 (Tex. App. —Fort Worth 1978, writ ref'd n.r.e.)................11
Hicks v. Castille,
313 S.W.3d 874 (Tex. App. 2010) ..................................................................6
J.M. Davidson, Inc. v. Webster,
128 S.W.3d 223 (Tex.2003) ............................................................................8
Luckel v. White,
819 S.W.2d 459 (Tex. 1991) .......................................................................5, 9
Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding,
289 S.W.3d 844 (Tex. 2009) ...........................................................................6
Markert v. Williams,
874 S.W.2d 353 (Tex.App.-Houston [1st Dist.] 1994, writ denied) ...............9
Matagorda Hosp. Dist. v. Burwell,
189 S.W.3d 738 (Tex. 2006) ...........................................................................8
Moore v. Noble Energy, Inc.,
374 S.W.3d 644 (Tex. App.—Amarillo 2012, no pet.) .................................19
Range Resources Corporation v. Bradshaw,
266 S.W.3d 490 (Tex. App.—Fort Worth 2008, pet. denied) ...................3, 13
Reeves v. Towery,
621 S.W.2 209 (Tex. App.—Corpus Christi 1981, writ ref’d n.r.e. (citations
omitted) ..........................................................................................................21
Schlitter v. Smith,
128 Tex. 628, 101 S.W.2d 543 ............................................................... 11, 13
Stag Sales Co. v. Flores,
697 S.W.2d 493 (Tex. App.—San Antonio 1985, writ ref’d n.r.e.) ....... 14, 16
v
State Nat. Bank of Corpus Christi v. Morgan,
143 S.W.2d 757 (Tex. 1940) .................................................................. 14, 17
Tenneco, Inc. v. Enterprise Products Co.,
925 S.W.2d 640 (Tex. 1996) ...........................................................................8
Tex. Mun. Power Agency v. Pub. Util. Comm'n of Tex.,
253 S.W.3d 184 (Tex.2007) ............................................................................7
Tyler v. Bauguss,
148 S.W.2d 912 (Tex. Civ. App.—Dallas 1941, writ dism’d judgm’t cor.) 14,
16
Valence Operating Co. v. Dorsett,
164 S.W.3d 656 (Tex. 2005) ...........................................................................8
White v. White,
830 S.W.2d 767 (Tex. App.—Houston [1st Dist.] 1992, writ denied) .....4, 10
Wynne/Jackson Development, L.P. vs. PAC Capital Holdings, Ltd.
No. 13-12-00449-CV, (Tex.App. —Corpus Christi 2013, pet. denied)........11
Rules
TEX. R. CIV. P. 166a(c) ...............................................................................................6
Other Authorities
2 Patrick H. Martin & Bruce M. Kramer, Williams & Meyers Oil and Gas Law, §
327.2 (LexisNexis Matthew Bender 2009) .....................................................4
vi
REFERENCE CITATION GUIDE
The Parties
This Brief may refer to the parties as follows:
Appellant Peter J. Dragon “Appellant” or “Dragon”
Appellees Charles E. Harrell “Appellees” or “Harrells”
The Record on Appeal
This Brief will refer to the record as follows:
Appellant’s Brief “A’ants Br. At __”
Clerk’s Record “CR __”
Reporter’s Record “RR __”
vii
STATEMENT OF THE CASE
Nature of the This is a declaratory judgment action on the construction and
case interpretation of a reservation clause in a Warranty Deed with
Vendor’s Lien (the “Harrell Deed”) dated February 8, 1991,
executed by Hollis R. Harrell and wife, Mary Harrell, conveying
a 9.954 acre tract in Karnes County, Texas, to Peter J. Dragon
and Sharon Dragon. 1 CR 8.
Course of Appellees Charles E. Harrell and Hollis R. Harrell (the
proceedings “Harrells”) and Appellant Peter J. Dragon (“Dragon”) filed
competing motions for summary judgment. After considering
the motions and responses thereto, the Court granted Appellees’
Motion for Summary Judgment and denied Appellant’s Motion
for Summary Judgment. 1 CR 141-43.
Trial court’s The trial court found that the reservation clause in the Warranty
disposition Deed granted Appellees a fractional royalty interest. The trial
court entered final judgment whereby it ordered and decreed that
the Harrells own a one half (1/2) royalty interest in the 9.954
acre tract of land situated within the Ramon Musquiz Four
League Grant, A-7 Karnes County, Texas, and being that certain
Tract No. One (4.85 acres) and Tract No. Two (3.51 acres) (by
re-survey found to contain 9.954 acres) as described in the
Warranty Deed. 1 CR 141-42. The trial court awarded
attorneys’ fees and post judgment interest to the Harrells
pursuant to Chapter 37 of the Texas Civil Practice and Remedies
Code. 1 CR 142. Appellant is not appealing the attorney’s fees
award.
STATEMENT REGARDING ORAL ARGUMENT
Appellees Charles E. Harrell and Hollis R. Harrell request oral argument in
this proceeding. While the issue presented may be summarily dismissed based on
this court’s review of the record below, oral argument will assist the court in
analyzing the legal issues herein presented.
viii
STATEMENT OF FACTS
On or about March 17, 1978, General Portland, Inc., as Grantor, executed a
Special Warranty Deed conveying three parcels of land in Karnes County, Texas to
Hollis R. Harrell and his wife, Mary Harrell, as Grantees (the “Special Warranty
Deed”). CR 5. On or about February 8, 1991, by Warranty Deed with Vendor’s
Lien, Hollis R. Harrell and wife, Mary Harrell, conveyed 9.954 acres of land to
Peter J. Dragon and wife, Sharon M. Dragon (the “Warranty Deed”). CR 6. The
Warranty Deed conveyed a 9.954 acre tract of land situated within the Ramon
Musquiz Four League Grant, A-7 Karnes County, Texas, and being that certain
Tract No. One (4.85 acres) and Tract No. Two (3.51 acres) (by this survey found to
contain 9.954 acres) as described in the Special Warranty Deed (“Subject Land”).
Id. The Warranty Deed contained the following non-participating royalty interest
reservation:
“SAVE AND EXCEPT HOWEVER, and there is hereby reserved
unto the Grantors, their heirs and assigns, a free non-participating
interest in and to the royalty on oil, gas and other mineral in and under
the hereinabove described property, consisting of ONE-HALF (1/2) of
the interest now owned by Grantors together with ONE-HALF (1/2)
of the reversionary rights in and to the presently outstanding royalty in
on and under said property, perpetually from date hereof”
(the “Reservation”). Id.
On or about February 17, 1993, as a result of the divorce between Sharon M.
Dragon and Peter J. Dragon, Sharon M. Dragon executed a Special Warranty Deed
1
conveying 6.44 acres (called 4.85 acres) of land, more or less out of the Roman
Musquiz Four League Grant, to Peter J. Dragon, a/k/a Peter Joseph Dragon, as
Grantee, LESS AND EXCEPT, 3.51 acres of land, more or less, being described as
Tract Two in that certain Special Warranty Deed effective March 17, 1978, from
General Portland, Inc., as Grantor, to Hollis R. Harrell and wife, Mary Harrell, as
Grantees, recorded in Volume 474, Page 514 of the Deed Records of Karnes
County, Texas. CR 6-7. As a result of the Sharon M. Dragon Special Warranty
Deed, Defendant Peter J. Dragon owns the mineral interest conveyed in the
Warranty Deed subject to the Reservation. CR 7.
As of March 17, 1978, the Hollis R. Harrell and Mary Harrell ownership
interest was subject to a 1/32 nonparticipating royalty interest in Dorice Winerich
for her life. Id. Dorice Winerich died on October 6, 1994, and her 1/32 non-
participating royalty interest terminated. Id.
By Special Warranty Deed dated July 10, 2006, Charles E. Harrell and
Hollis R. Harrell, Jr., Trustees of the Mary Swain Harrell Living Trust, conveyed a
fifty percent (50%) interest in the undivided mineral interest in the Subject Land to
Charles E. Harrell and a fifty percent (50%) interest in the undivided mineral
interest in the Subject Land to Hollis R. Harrell. Id.
The Harrells filed their Original Petition for Declaratory Judgment asking
the court to interpret the Reservation as reserving a one half (1/2) royalty interest
2
in the Subject Land, entitling the Harrells to a stated fraction of total production of
the oil and gas produced from the land. CR 4-15. Dragon filed his Original
Answer and Original Counterclaim asking the court to interpret the Reservation as
reserving a one-half fraction of royalty interest, conveying a fractional share of the
royalty. CR 17-31.
SUMMARY OF ARGUMENT
This case hinges on the construction and interpretation of the reservation
clause in the Warranty Deed. The critical question is whether the Reservation
constitutes a “fractional royalty interest” or a “fraction of royalty.” The law makes
a major distinction between a “fractional royalty interest” and a “fraction of
royalty.” A “fraction of royalty” conveys a fractional share of the royalty that is
contained in an oil and gas lease and is not fixed, but rather “floats” in accordance
with the size of the landowner’s royalty in the lease. Range Resources
Corporation v. Bradshaw, 266 S.W.3d 490, 493 (Tex. App.—Fort Worth 2008,
pet. denied). The amount to be paid to the owner is determinable upon the
execution of some future lease and is calculated by multiplying the fraction in the
royalty reservation by the royalty provided by the lease.
There is no language in the Reservation that is typical of—or indicates that
the parties intended to—create a “fraction of royalty” interest. Instead, the Harrell
Deed, when read as a whole, shows an unambiguous intent by the Grantors to
3
reserve a one-half (1/2) fractional royalty interest. The owner of a fractional
royalty is entitled to the stated fraction of gross production, unaffected by the
royalty reserved in the lease. See Brown v. Smith, 141 Tex. 425, 174 S.W.2d 43
(1943). “Thus the owner of a 1/16 royalty takes 1/16 of gross production whether
the lease provides for a lessor’s royalty of 1/16, 1/8 or ¼.” 2 Patrick H. Martin &
Bruce M. Kramer, Williams & Meyers Oil and Gas Law, § 327.2 (LexisNexis
Matthew Bender 2009). Texas case law is clear that a reservation of an undivided
fractional royalty interest is just that—an undivided interest in production, not an
interest reduced by a base royalty. See Brown v. Howard, 593 S.W.2d 939 (Tex.
1980); White v. White, 830 S.W.2d 767 (Tex. App.—Houston [1st Dist.] 1992, writ
denied).
The size of the fractional interest reserved, or the possibility that the
reservation would impair the future ability to lease, are not factors to be considered
in the construction of fractional royalty interest reservations. See Arnold v. Ashbel
Smith Land Co., 307 S.W.2d 818 (Tex. Civ. App.—Houston 1957, writ ref’d
n.r.e.); Gavenda v. Strata Energy, Inc., 705 S.W.2d 690 (Tex. 1986). The court
does not determine the parties’ intent based on the quantum of production to which
the holder of a particular interest may be entitled. The primary duty of a court in
determining the construction of an unambiguous deed is to ascertain the intent of
the parties by a fundamental rule of construction known as the “four corners” rule.
4
Luckel v. White, 819 S.W.2d 459, 461 (Tex. 1991). The interpretation of the
contract is controlled by the parties’ intentions as expressed within the four corners
of the instrument. Altman v. Blake, 712 S.W.2d 117, 118 (Tex. 1986). In seeking
to ascertain the intention of the parties, the court must attempt to harmonize all
parts of the deed. Id. Qualifiers and parentheticals are critical in the final
construction and interpretation. Brown, 593 S.W.2d at 942. No case has found
that “in and to” means “of” without additional qualifiers in the instrument.
In considering the competing motions for summary judgment and responses
thereto and the arguments of counsel, the trial court properly rendered final
judgment in favor of appellees. The trial court properly determined that the
Harrells are entitled to judgment as a matter of law construing the Reservation as
reserving a one-half (1/2) royalty interest in the Subject Land.
ARGUMENT
I. After considering the competing motions for summary judgment and
responses thereto, the trial court properly granted the Harrells’
traditional motion for summary judgment.
A. Standard of Review
To prevail on a traditional motion for summary judgment, the movant must
show “there is no genuine issue as to any material fact and the movant is entitled to
judgment as a matter of law.” BP America Production Co. v. Zaffirini, 419 S.W.3d
5
485, 495 (Tex. App.—San Antonio 2013, pet. denied); TEX. R. CIV. P. 166a(c). In
reviewing the trial court’s judgment, the appellate court typically examines “the
evidence presented in the motion and response in the light most favorable to the
party against whom the party the summary judgment was rendered, crediting
evidence favorable to that party if reasonable jurors could, and disregarding
contrary evidence unless reasonable jurors could not. Mann Frankfort Stein &
Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex. 2009); see City of
Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005). However, “[w]hen both sides
move for summary judgment and the trial court grants one motion and denies the
other, the reviewing court should review both sides’ summary judgment evidence
[,]…determine all questions presented[,]…[and] render the judgment that the trial
court should have rendered.” BP America Production Co, 419 S.W.3d. at 495
(citing FM Props. Operating Co. v. City of Austin, 22 S.W.3d 868, 872 (Tex. 2000)
(citations omitted)).
When a trial court resolves a declaratory judgment action on competing
motions for summary judgment, the appellate court reviews the propriety of the
declaratory judgment under the same standards applied in reviewing a summary
judgment. Hicks v. Castille, 313 S.W.3d 874, 879-80 (Tex. App. 2010) (citing
City of Galveston v. Tex. Gen. Land Office, 196 S.W.3d 218, 221 (Tex. App.—
Houston [1st Dist.] 2006, pet. denied)). The appellate court reviews a trial court's
6
decision to grant or to deny a motion for summary judgment de novo. See Tex.
Mun. Power Agency v. Pub. Util. Comm'n of Tex., 253 S.W.3d 184, 192
(Tex.2007). Although the denial of summary judgment is ordinarily not appealable,
an appellate court may review such a denial when both parties moved for summary
judgment and the trial court granted one and denied the other. Id.
Here, both parties moved for summary judgment on their respective claims
involving the interpretation of the Reservation clause. The trial court, after
reviewing the motions and responses thereto and hearing arguments of counsel,
found that as a matter of law the Harrells’ interpretation of the Reservation clause
entitled them to a fractional royalty interest and properly granted summary
judgment in their favor. This court should affirm the trial court’s decision.
B. The trial court properly adopted the Harrell’s construction of the
Reservation in the Harrell Deed
The trial court's judgment adopted the Harrells construction of the
unambiguous warranty deed Reservation. The Harrells read the Warranty Deed
Reservation as reserving a one-half (1/2) royalty interest in the Subject Land. CR
7. In other words, the Reservation reserved a fixed fractional royalty interest
entitling the Harrells to the one-half (1/2) of total production of the oil and gas
produced from the Subject Land. Dragon, on the other hand, reads the Reservation
as unambiguously reserving a one-half fraction of royalty interest that was owned
by the Harrells at the time the Harrell Deed was executed. CR 19.
7
1. Legal Standard for Deed Construction
In construing a written contract, the court’s primary concerns are to ascertain
and to give effect to the parties' intentions as expressed in the document. Frost
Nat'l Bank v. L & F Distribs., Ltd., 165 S.W.3d 310, 311–12 (Tex.2005).
Ordinarily, the writing alone is sufficient to express the parties' intentions for it is
the objective, not subjective, intent that controls. Matagorda Hosp. Dist. v.
Burwell, 189 S.W.3d 738, 740 (Tex. 2006) (per curiam). To give effect to the
parties’ intentions, the court should consider the entire writing and attempt to
harmonize and give effect to all of the provisions of the agreement by analyzing
the provisions with reference to the whole agreement. Id. at 312. The court should
not give any single provision controlling effect. J.M. Davidson, Inc. v. Webster,
128 S.W.3d 223, 229 (Tex.2003).
Contract terms are given their plain, ordinary, and generally accepted
meanings unless the contract itself shows them to be used in a technical or
different sense. Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex.
2005). Courts are not authorized to rewrite agreements to insert provisions parties
could have included or to imply terms for which they have not bargained.
Tenneco, Inc. v. Enterprise Products Co., 925 S.W.2d 640, 646 (Tex. 1996). In
other words, courts cannot make contracts for the parties. HECI Exploration Co. v.
Neel, 982 S.W.2d 881, 888 (Tex. 1998).
8
A contract is not ambiguous simply because the parties disagree over its
interpretation. Markert v. Williams, 874 S.W.2d 353, 355 (Tex.App.-Houston [1st
Dist.] 1994, writ denied). Nor does uncertainty or a lack of clarity in the language
chosen by the parties suffice to render a contract ambiguous. Id. If, after applying
the relevant rules of construction, the court can give the agreement a definite or
certain legal meaning, the agreement is unambiguous, and is construed as a matter
of law Altman v. Blake, 712 S.W.2d 117, 118 (Tex. 1986).
In interpreting a deed, the primary duty of a court is to ascertain the intent of
the parties by a fundamental rule of construction known as the "four corners" rule.
Luckel v. White, 819 S.W.2d 459, 461 (Tex. 1991). The interpretation of the
contract is controlled by the parties' intentions as expressed within the four corners
of the instrument. Altman, 712 S.W.2d at 118. In seeking to ascertain the intention
of the parties, the court must attempt to harmonize all parts of a deed. Id. Even if
different parts of the deed appear contradictory or inconsistent, the court must
strive to construe the instrument to give effect to all of its provisions. Luckel, 819
S.W.2d at 462.
2. The Language of the Reservation Reserved a Fractional Royalty
The dispute hinges on the construction and interpretation of the reservation
clause in the Warranty Deed. The Harrells’ interpretation of the Reservation is that
the Grantors reserved a one-half (½) royalty interest in the Subject Land as a result
9
of the Reservation. Appellant’s interpretation of the Reservation is that Grantors
reserved a one-half (½) of royalty in the Subject Land as a result of the
Reservation. The Harrells met their burden to establish they are entitled to
judgment as matter of law, that the Reservation reserved a one-half (½) royalty
interest, in the Subject Land.
The language in question is a reservation of “a free non-participating interest
in and to the royalty on oil gas and other mineral in and under the above described
property consisting of one-half (1/2) of the interest now owned by Grantors
together with one-half (1/2) of the reversionary rights in and to the presently
outstanding royalty in, on and under said property, perpetually from date hereof”
(the “Reservation”).
Where a conveyance or reservation is phrased as a fractional royalty interest,
the owner is entitled to the stated fraction of total production of the oil and gas
produced from the land. Brown v. Smith, 141 Tex. 425, 174 S.W.2d 43 (1943).
This interest in production is fixed and does not vary with the fractional royalty
that may be payable under a particular lease. Texas case law is clear that a
reservation of an undivided fractional royalty interest is just that--- an undivided
interest in production, not an interest reduced by a base royalty. See Brown v.
Howard, 593 S.W.2d 939 (Tex. 1980) and White v. White, 830 S.W.2d 767
(Tex.App.-Houston [1st Dist.] 1992, writ denied).
10
The Warranty Deed, when read as a whole, shows an unambiguous intent by
the Grantors to reserve a one-half (1/2) fractional royalty interest. The first part of
the Reservation, “a free non-participating interest in and to the royalty on oil gas
and other mineral in and under the above described property,” does not quantify
the interest reserved, and necessarily relies on the language following to define and
clarify the interest reserved. In fact, without the additional language, the phrase
would necessarily reserve a one hundred percent (100%) royalty interest then
owned by the Harrells. There is no reference in the phrase to existing leases or
existing or future production. All cases that have held similar language to be either
a “fractional royalty interest” or a “fraction of royalty” have looked at the
instrument as a whole, particularly with respect to qualifiers, parentheticals, or
other clarifications included in the instrument. Eg. Schlitter v. Smith, 128 Tex. 628,
101 S.W.2d 543, 544 (Tex. Comm’n App. 1937); Coghill vs. Griffith, 358 S.W.3d
834, 838 (Tex. App. —Tyler 2012, pet. denied); Harris v. Ritter, 279 S.W.2d 845
(Tex. 1955); Helms v. Guthrie, 573 S.W.2d 855, 857 (Tex. App. —Fort Worth
1978, writ ref'd n.r.e.); Wynne/Jackson Development, L.P. vs. PAC Capital
Holdings, Ltd. No. 13-12-00449-CV, (Tex.App. —Corpus Christi 2013, pet.
denied).
As an example, Coghill involved a reservation of “an undivided one-eighth
(1/8th) interest in and to all of the oil and gas royalty”. Although the Court found
11
this to be a “fraction of royalty”, the Court relied on “qualifiers” in making its
ruling. The deed in Coghill included additional language that it was subject to an
existing lease and reserved a 1/8th royalty under that lease and the usual 1/8th of
1/8th royalties in any future leases. So Coghill is distinguishable based on the
additional qualifying language.
In Harris v. Ritter, the Texas Supreme Court held that the phrase “grantors
herein reserve to themselves from this conveyance one-half (1/2) of one eighth
(1/8) of the oil, gas and other minerals royalty [emphasis added] that may be
produced from said land …” reserved a fractional royalty interest, despite the use
of the word “of” in the phrase based on the context of the deed. Harris v. Ritter,
279 S.W.2d at 847-8.
Qualifiers, and parentheticals and other clarifications are critical in the final
construction and interpretation. Brown v. Howard, 593 S.W.2d at 942. No case has
found that “in and to” means “of” without additional qualifiers, parantheticals and
other clarifications in the instrument.
The critical qualifier or clarification for the interest in the Reservation is
“consisting of one-half of the royalty interest now owned by” the Harrells at the
time of the Warranty Deed. At the time of the Warranty Deed, the Harrells owned
one hundred percent (100%) of the minerals, and thus, a one hundred percent
(100%) royalty interest. There were no outstanding leases covering the property at
12
the time the Warranty Deed was executed. The reservation was expressly for
“royalty on oil, gas and other minerals in and under” the property, without any
reference to future production. One-half (1/2) of a one hundred percent (100%)
royalty interest is logically and unambiguously a fifty percent (50%) fractional
royalty interest.
II. After considering the competing motions for summary judgment and
responses thereto, the trial court properly denied Dragon’s traditional
motion for summary judgment.
A “fraction of royalty” conveys a fractional share of the royalty that is
contained in an oil and gas lease is not fixed, but rather “floats” in accordance with
the size of the landowner’s royalty contained in the lease. Range Resources
Corporation v. Bradshaw, 266 S.W.3d 490, 493 (Tex. App. —Fort Worth 2008,
pet. denied). The amount to be paid to the owner is determinable upon the
execution of some future lease and is calculated by multiplying the fraction in the
royalty reservation by the royalty provided in a lease.
Appellant argues that the language in the Reservation is consistent with what
Texas cases have found to be a fraction of royalty. Appellant cites six cases to
support his contention that the Reservation is a fraction of royalty reservation and
not a fractional royalty: Dawkins v. Hysaw, 450 S.W.3d 147 (Tex. App.—San
Antonio 2014, pet. filed); Coghill v. Griffitti, 358 S.W.3d 834 (Tex. App. – Tyler
2012, pet. denied); Schlitter v. Smith, 101 S.W.2d 543 (Tex. 1937); Stag Sales Co.
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v. Flores, 697 S.W.2d 493 (Tex. App.—San Antonio 1985, writ ref’d n.r.e.); Tyler
v. Bauguss, 148 S.W.2d 912 (Tex. Civ. App.—Dallas 1941, writ dism’d judgm’t
cor.); State Nat. Bank of Corpus Christi v. Morgan, 143 S.W.2d 757 (Tex. 1940).
The language in the deeds in each of the six cases cited by Appellant is not the
language in the Reservation. The language in the Warranty Deed shows that under
the context of the Reservation, the grantors reserved a one-half royalty in the
Subject Lands.
The Court should compare the language in the Reservation with the
language in Coghill and the other cases cited by Defendant. The Reservation reads
as follows:
RESERVATION: SAVE AND EXCEPT HOWEVER, and
there is hereby reserved unto the Grantors, their heirs and
assigns, a free non-participating interest in and to the royalty on
oil, gas and other mineral in and under the hereinabove
described property consisting of ONE-HALF (½) of the
interest now owned by Grantors together with ONE-HALF (½)
of the reversionary rights in and to the presently outstanding
royalty in on and under said property, perpetually from date
hereof.
CR 11.
The reservation in the Coghill deed provided as follows:
[T]his Grantor excepts from this conveyance and reserves unto
himself, his heirs and assigns an undivided one-eighth (1/8)
interest in and to all of the oil royalty [and] gas royalty.... It
is understood and agreed that this sale is made subject to the
terms of said lease, but the Grantor reserves and excepts unto
himself, his heirs and assigns an undivided one-eighth (1/8) of
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all royalties payable under the terms of said lease, as well as an
undivided one-eighth (1/8) of the usual one-eighth (1/8)
royalties provided for in any future oil, gas and/or mineral lease
covering said lands or any part thereof.... Nevertheless, neither
the Grantee herein, nor his heirs, executors, administrators, and
assigns of the Grantee shall make or enter into any lease or
contract for the development of said land or any other portion
of the same for oil, gas or other minerals, unless each and every
such lease, contract, leases or contracts, shall provide for at
least a royalty on oil of the usual one-eighth (1/8) to be
delivered free of cost.... [A]nd in the event Grantee, nor [sic]
the heirs, executors, administrators and assigns of the Grantee,
or as in the status of the fee owners of the land and minerals, or
as a fee owner of any portion of the same, shall operate or
develop the minerals therein, Grantor shall own and be entitled
to receive as a free royalty hereunder, (1) an undivided one-
sixty fourth (1/64) .... (emphasis added).
Coghill, 358 S.W.3d at 835-36.
The reservation in Schlitter provides as follows:
Grantor H. F. Smith hereby reserves unto himself, his heirs and
assigns for a period of ten years and as much longer thereafter
as oil and gas or other minerals are being produced an
undivided one-half interest in and to the royalty rights on all of
oil and gas and other minerals in, on and under or that may be
produced from the land herein conveyed and described above.
In the event oil or gas or other minerals are not being produced
in paying quantities from said land at the expiration of said ten
year period then this reservation shall become null and void and
of no further force and effect.
Schlitter, 101 S.W.2d at 544.
The reservation in Stag Sales Company provides:
[Grantors convey to grantee] an undivided one-half (1/2)
interest in and to all of the oil royalty, gas royalty, royalty in
casinghead gas and gasoline, and royalty in all other minerals in
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and under, and that may be produced and mined from [the
2291.2 acre tract].
Said land being now under an oil and gas lease…this sale is
made subject to the terms of said lease, but covers and includes
one-half of all the oil royalty, gas royalty, casinghead gas and
gasoline royalty, and royalty from other minerals or products to
be paid under the terms of said lease…
In the event a future lease or leases are executed…then the
Grantee shall receive under such future lease or leases an
undivided one-sixteen [sic] part of all the oil, gas and other
minerals taken and saved under such lease or leases, and shall
receive the same out of the royalty therein provided for.
Stag Sales Company v. Flores, 697 S.W.2d at 494.
The reservation in Tyler provided as follows:
For and in consideration of the sum of Ten Dollars cash in hand
paid by Tyler & Smith, hereinafter called Grantee, the receipt of
which is hereby acknowledged, have granted, sold, conveyed,
assigned and delivered, and by these presents do grant, sell
convey, assign and deliver, unto the said Grantee, an
undivided one-tenth interest in and to all of the oil royalty,
gas royalty, and royalty in casing head gas, gasoline, and
royalty in other minerals in and under, and that may be
produced and mined from the following described lands
situated in the County of Henderson and State of Texas.
Tyler, 148 S.W.2d at 916.
The deed in State Natl. Bank of Corpus Christi provided the following
reservation language:
It is expressly agreed and understood that there is reserved
to granter, its successors and assigns forever, and excepted
from this conveyance an undivided 1/2 interest in and to all
of the royalty in oil, gas, casinghead gas, gasoline, and in
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all other minerals in and under and that may be produced and
mined from the above described land; however, granter does
not by this reservation and exception retain any right of
participating in the making of future oil and gas lease nor of
participating in the bonus or bonuses which shall be
received from any future lease nor of participating in any
rental to be paid for the privilege of deferring the
commencement of a well under any lease, now or hereafter;
it being intended and agreed that in no event will any lease
or contract be made for the development of said land or any
portion of same for oil, gas, or other minerals, providing for
a royalty of less than one-eighth on oil and gas.
State Natl. Bank of Corpus Christi, 143 S.W.2d at 758.
The language in the deeds in each of the five cases above, cited by
Appellant, is not the language in the Reservation. The language in the Warranty
Deed shows that under the context of the Reservation, the grantors reserved a one-
half royalty in the Subject Lands. As noted by Appellant, this Court recently
provided five examples of language used to create a fraction of royalty. A’ants Br.
at 6. Appellant argues that the language in the Reservation is “almost identical” to
the language cited in Dawkins as reserving a fraction of royalty: “(4) [a]n
undivided one-half interest in and to all of the royalty.” 450 S.W.3d at 153.
However, just because the Reservation has some of the same words does not make
the language identical. It is the additional language in the Reservation that makes
it clear that a fractional royalty was reserved, and that language cannot simply be
ignored so as to fit into Appellant’s argument.
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What Appellant failed to mention, is this Court also provided six examples
of language used to convey a fractional royalty: “(1) [a] one-fourth royalty in all
oil, gas and other minerals in and under and hereafter produced; (2) [a] fee
royalty of 1/32 of the oil and gas; (3) [a]n undivided one-sixteenth royalty interest
of any oil, gas or minerals that may hereafter be produced; (4) [o]ne-half of the
one-eighth royalty interest; (5) [a]n undivided 1/24 of all the oil and other minerals
produced, saved, and made available for market; (6) 1% royalty of all the oil and
gas produced and saved.” Dawkins, 450 S.W.3d at 153. The language cited by
this Court as conveying a fractional royalty is consistent with the language found
in the Reservation.
A. Impairment Of Future Leasing Not A Factor
The size of the fractional interest reserved, or the possibility that the
reservation would impair the future ability to lease, are not factors to be
considered in the construction of fractional royalty interest reservations. White v.
White involved a 3/8ths fractional royalty interest. A 1/4 th fractional royalty
interest was reserved in Arnold v. Ashbel Smith Land Co., 307 S.W.2d 818 (Tex.
Civ. App.—Houston 1957, writ ref'd n.r.e.). The reservation of an undivided ½
nonparticipating royalty entitling the grantor to ½ of all production was not even
questioned by the Texas Supreme Court in Gavenda v. Strata Energy, Inc., 705
S.W.2d 690 (Tex. 1986).
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Appellant suggests that “Texas courts are charged with interpreting deed
reservations in a manner that will not frustrate the ability of the mineral owners to
enter into a lease at some point in the future” and goes as far as asking this Court to
take judicial notice “that Harrells’ interpretation of the Reservation would render
the Property unleaseable and undevelopable ad infinitum.” A’ants Br. at 11-12.
Appellant cites two cases in support of his argument that Harrells’ interpretation of
the Reservation hinders future leasing1: Moore v. Noble Energy, Inc., 374 S.W.3d
644 (Tex. App.—Amarillo 2012, no pet.) and Clifton v. Koontz, 325 S.W.2d 684,
695-96 (Tex. 1959).
In Moore v. Noble Energy, the question before the court was whether a
reservation in a 1955 warranty deed was ambiguous. 374 S.W.3d 644. The court
considered each possible interpretation, and determined that the phrase “one-half
non-participating royalty interest,” standing along, would reserve to the grantor a
fifty percent interest in the production, free of production costs.” Id. at 650. The
court did note that a construction of the 1955 deed to reserve a one-half royalty is
“doubtful” but in no way charged courts with interpreting deed reservations in a
manner that will not frustrate the ability of the mineral owners to enter into a lease
at some point in the future. What the court was charged with was examining the
deed as a whole, including the parenthetical phrase. Id. (citing Columbia Gas
1 It is important to note that Appellant did not submit, and could not submit, any summary
judgment evidence showing that any leasing of the minerals is impaired.
19
Transmission Corp. v. New Ulm Gas, Ltd., 940 S.W.2d 587, 589 (Tex. 1996)
([c]onstruction of the language to reserve a one-half royalty would also require that
the parenthetical phrase be ignored, contrary to the rule of construction mandating
that we examine the deed as a whole)).
In Clifton v. Koontz, the issue before the court was whether a lessee violated
an implied covenant to reasonably develop the lease at issue by drilling additional
wells on a multi-strata property. 325 S.W.2d at 695. The court looked at both
“reasonable diligence” and what a “reasonably prudent operator” might do and
determined the lessee did not violate the implied covenant to reasonably develop
the lease. Id. It is not disputed that a reasonably prudent operator should proceed
with due regard to his own interests as well as those of a lessor, however the
“reasonably prudent operator” standard does not factor into the construction of the
reservation language in this deed. Furthermore, the “reasonably prudent operator”
or “reasonable diligence” in no way makes the Property unleaseable and
undevelopable ad infinitum, and such a conclusion is certainly misplaced.
B. Appellant Did Not Plead Ambiguity
Appellant argues that “it is well-established law that where an ambiguity
exists in a contract, the contract language will be construed strictly against the
party who drafted it since the drafter is responsible for the language used.” A’ants
Br. at 14. Appellant also argues that the Harrells offered no summary judgment
20
evidence to establish that Harrells did not draft the Warranty Deed. Id. The
Harrells did not offer summary judgment evidence because ambiguity was never
an issue. Appellant did not plead ambiguity nor did he argue ambiguity in his
Motion for Summary Judgment. In the absence of the allegations of
ambiguity…parole evidence is not admissible to show the intentions of either the
grantor or grantee in the deed, but such intention is to be determined by the trial
court as a matter of law from the language which appears in the deed itself, and the
deed will be enforced as written. Reeves v. Towery, 621 S.W.2 209, 212 (Tex.
App.—Corpus Christi 1981, writ ref’d n.r.e. (citations omitted); Ayert v. Grande,
Inc., 717 S.W.2d 891, 893 (Tex. 1986) (“[n]either party contended the 1983 deed is
ambiguous, so we construe the language of the deed to ascertain the intent of the
parties without considering parole evidence, i.e. as a matter of law”). Appellant
has never claimed, and cannot now claim, that the Warranty Deed is ambiguous.
Appellant also argues that it is well-established in Texas that deeds are
interpreted to convey the greatest estate possible to the grantee. See A’ants Br. at
15. Appellant’s argument is generally true in deed construction, but does not take
into account the reservation language. “A general warranty deed conveys all of the
grantor’s interest unless there is language in the instrument that clearly shows an
intention to convey a lesser interest.” Reeves, 621 S.W.2 at 212 (citing Cockrell v.
Gulf Sulphur Co., 157 Tex. 10, 15, 299 S.W.2d 672, 675 (1957)). The property
21
intended to be reserved is never included in the grant. Benge v. Scharbauer, 152
Tex. 447, 259 S.W.2d 166 (1953). As shown in the arguments above, the
Reservation in the Warranty Deed clearly shows the intention to reserve a
fractional royalty interest.
PRAYER FOR RELIEF
Appellees Charles E. Harrell and Hollis R. Harrell pray that this Court
affirm the traditional summary judgment granted by the trial court in favor of the
Harrells and against Dragon, in its entirety. Appellees Charles E. Harrell and
Hollis R. Harrell pray for whatever additional relief to which they may be entitled.
Respectfully submitted,
/s/ Jesse R. Castillo
Jesse R. Castillo
State Bar No. 03986600
jcastillo@casnlaw.com
CASTILLO SNYDER, P.C.
Bank of America Plaza, Suite 1020
300 Convent Street
San Antonio, Texas 78205
Telephone: (210) 630-4200
Facsimile: (210) 630-4210
Counsel for Appellees Charles E.
Harrell and Hollis R. Harrell
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CERTIFICATE OF COMPLIANCE
In Compliance with Texas Rule of Appellate Procedure 9.4(i)(3), Appellees
Charles E. Harrell and Hollis R. Harrell certify that the number of words in
Appellee’s Brief, including its headings, footnotes, and quotations, is 5,744.
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CERTIFICATE OF SERVICE
I certify that, on this 18th day of June, 2015, a true and correct copy of the
foregoing Brief of Appellee has been served as follows:
Clinton M. Butler ROBINSON C. RAMSEY
CLINTON M. BUTLER State Bar No. 16523700
State Bar No. 24045591 Email: rramsey@langleybanack.com
Email: cbutler@langleybanack.com LANGLEY & BANACK, INC.
ELIZABETH R. KOPECKI Trinity Plaza II, Suite
State Bar No. 24087859 900 745 E. Mulberry
Email: Avenue San Antonio,
ekopecki@langleybanack.com Texas 78212
LANGLEY, BANACK & BUTLER Telephone:
114 N. Panna Maria Avenue 210.736.6600
Karnes City, Texas 78118 Telecopier: 210.735.6889
Telephone: 830.780.2700
Telecopier: 830.780.2701 ATTORNEYS FOR APPELLANT
PETER J. DRAGON
/s/ Jesse R. Castillo
Jesse R. Castillo
24