VEL Holdings, LLC v. Milhorn Development, LLC ( 2019 )

In The
Court of Appeals
Ninth District of Texas at Beaumont
__________________
NO. 09-17-00464-CV
__________________
VEL HOLDINGS, LLC, Appellant
V.
MILHORN DEVELOPMENT, LLC, Appellee
__________________________________________________________________
On Appeal from the 356th District Court
Hardin County, Texas
Trial Cause No. 58156
__________________________________________________________________
MEMORANDUM OPINION
Appellant VEL Holdings, LLC (VEL) appeals the trial court’s order granting
summary judgment on Milhorn Development, LLC’s (Milhorn) declaratory
judgment action. See generally Tex. Civ. Prac. & Rem. Code Ann. § 37.001–.011
(West 2015). In two issues, VEL asks (1) whether Milhorn had standing to bring its
cause of action in the trial court, and (2) whether the trial court erred “in granting
Milhorn’s Motion for Summary Judgment and Declaratory Judgment when it ruled
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that Claire Oil and Gas, Inc. did not own any oil and gas leases covering all or a
portion of the described lands in the July 2, 2014 Deed of Trust[.]” We affirm the
trial court’s judgment.
I. Background
On March 1, 2006, WFMMS, Inc. assigned oil and gas leases of Lots fourteen
through thirty-one as described in an Agreement between S.R. Buchanan and B.G.
Dowell, et al., dated December 8, 1927, to Claire. On March 15, 2011, Claire and
Vanguard Energy Corporation (Vanguard) entered into a farmout letter agreement
whereby Vanguard would “conduct further operations for the exploration and
development of said land for the mutual benefit of [Claire] and [Vanguard.]” The
farmout letter agreement described the property as “100 acres, more or less, out of
the Josephine Milhorn Survey, A-387, Hardin County, Texas, sometimes referred to
as the Tomlinson Unit, and being Lots 14 through 31 described in an instrument
dated March 29, 2006, from WFMMS, Inc. to Claire[.]” The farmout letter
agreement between Claire and Vanguard outlined the terms for percentages earned,
drilling test wells, number of wells to be drilled, operations, extensions and renewals,
plugging and abandoning wells, and termination of the agreement, among other
things. Thereafter, on April 18, 2011, Claire and Vanguard executed a memorandum
of farmout agreement containing the same property description which referenced the
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farmout letter agreement between the parties. The parties recorded the memorandum
of farmout agreement in the real property records of Hardin County on April 20,
2011.
On June 26, 2012, Claire executed a Quitclaim Deed conveying its interests
in the leased property to Wendy Southerland. This conveyance expressly provided
that it was subject to the March 15, 2011 farmout agreement between Claire and
Vanguard. On December 20, 2012, Southerland and Vanguard agreed in writing to
extend the March 15, 2011 farmout agreement previously made between Claire and
Vanguard. This extension provided that Southerland waived any requirement
regarding the number of wells to be drilled through the date of the letter. Further, the
extension additionally reduced the number of wells Vanguard had to drill from six
wells to three. With the exception of those amendments, the prior farmout agreement
remained “in force and effect in accordance with its terms.”
On June 13, 2014, Vast Exploration (Vast), a successor in interest to
Vanguard, executed a deed of trust for a $6.9 million promissory note held by VEL.
As security for the note, Vast used its “interest” in five of the oil and gas leases at
issue, in addition to interests it held in other unrelated leases. Specifically, the
description indicated the security interest attached to
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[a]ll those oil and gas leases owned by Dr. Michael C. Holmes,
WFMMS, Inc., and/or Claire Oil and Gas, Inc. covering all or a portion
of the following described lands:
100 acres, more or less, out of the Josephine Milhorn Survey, A-387,
Hardin County, Texas, sometimes referred to as the Tomlinson Unit,
and being Lots 14 through 31 described in an instrument dated March
29, 2006, from WFMMS, Inc. to Claire[.]
VEL ultimately foreclosed on the note. The substitute trustee executed a deed,
assignment, conveyance, and bill of sale on April 4, 2017, each using the same
property description as the original deed of trust. Vast was the grantor, and VEL was
the grantee, with the stated consideration of a $2 million credit on the deed of trust.
Prior to the foreclosure and Vast’s conveyance to VEL, Southerland entered
into a separate farmout agreement with Milhorn covering the same property interests
and expressed that the prior agreement between Southerland and Vanguard “expired
and/or terminated in accordance with their terms prior to Milhorn’s acquisition of
any rights in such agreement(s).” Following the foreclosure, VEL advised Sunoco
of the title dispute. Upon learning of the dispute, Sunoco withheld further revenue
payments to Milhorn until the parties resolved the dispute.
Milhorn filed suit for declaratory judgment and to quiet title. 1 VEL’s answer
contained a general denial. Milhorn later moved for summary judgment on its
1
VEL did not file special exceptions in the trial court, did not complain in its
summary judgment response, and does not raise an issue on appeal regarding
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declaratory judgment claim and sought “summary judgment that Milhorn is the
rightful owner of the mineral interests subject to the Farmout Agreement.” In the
trial court, in its response to the summary judgment motion, VEL argued that
Vanguard’s interest in the mineral leases continued despite Claire’s conveyance (by
Quitclaim Deed) to Southerland. VEL argued that the Vanguard farmout agreement
predated the conveyance from Claire to Southerland, and Southerland purchased her
interests from Claire subject to the farmout agreement; however, VEL did not
Milhorn’s use of a declaratory judgment action in the underlying litigation. See Tex.
R. Civ. P. 91, 329b; see also Tex. Prop. Code Ann. § 22.001 (West 2014). While we
have previously held a trespass to try title action is the proper vehicle to resolve such
issues, a complaint about the failure to use a trespass to try title action instead of a
declaratory judgment action can be waived if not raised in the trial court. See M &
M Res., Inc. v. DSTJ, LLP, 564 S.W.3d 446, 456 (holding that determination of
superior title to the mineral estates must be pursued as a trespass to try title action in
a case where a party specially excepted to claims being pursued as a declaratory
judgment action); Lackey v. Templeton, No. 09-17-00183-CV, 2018 WL 3384570,
at *6 (Tex. App.—Beaumont July 12, 2018, pet. denied) (mem. op.) (concluding that
plaintiffs seeking adjudication of title to mineral estates were required to plead and
prove a trespass to try title action when defendants specially excepted to use of a
declaratory judgment action); Lake Livingston Props., Inc. v. Stephens Hills Prop.
Owner’s Assoc., Inc., No. 09-15-00304-CV, 2016 WL 7177698, at *3 (Tex. App.—
Beaumont Dec. 8, 2016, no pet.) (mem. op.) (noting that “by voluntarily allowing
the matter to be resolved as a declaratory judgment action, the Appellants waived
their right to complain that the trial court relied on the wrong statute when it resolved
the dispute”). Because VEL contests a single declaration in the trial court’s summary
judgment order, we limit our inquiry to the issue raised, specifically, the trial court’s
declaration that “Claire Oil and Gas, Inc. did not own any of the oil and gas leases
covering all [or] a portion of the described lands in the July 2, 2014 Deed of Trust.”
See Tex. R. App. P. 47.1.
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challenge the validity of the Claire Quitclaim Deed to Southerland in its summary
judgment response. The trial court granted Milhorn’s motion for summary judgment.
The summary judgment order contained the following declarations:
1. VEL Holding’s Deed of Trust would have only attached, if at all, to
leases owned by Dr. Michael C. Holmes, WFMMS, Inc., and/or Claire
Oil and Gas, Inc. on July 2, 2014.
2. Dr. Michael C. Holmes, WFMMS, Inc., and/or Claire Oil and Gas,
Inc. did not own any oil and gas leases covering all [or] a portion of the
described lands in the July 2, 2014 Deed of Trust.
3. Defendant VEL Holdings has no property or lien interest in any oil
and gas leases owned by Wendy Southerland.
4. Milhorn Development, LLC’s interest in the oil and gas leases owned
by Wendy Southerland is and was unaffected by the foreclosure sale
conducted by VEL Holdings.
The trial court also awarded Milhorn $15,000.00 in attorney’s fees. On appeal, VEL
challenges Milhorn’s standing to sue and only the trial court’s summary judgment
declaration that “Claire Oil and Gas, Inc. did not own any oil and gas leases covering
all [or] a portion of the described lands in the July 2, 2014 Deed of Trust.”2
II. Standard of Review
“In reviewing a declaratory judgment, we refer to the procedure for resolution
of the issue at trial to determine the applicable standard of review on appeal.”
Farmers Ins. Exch. v. Rodriguez, 366 S.W.3d 216, 222 (Tex. App.—Houston [14th
2
VEL does not challenge any other declaration contained in the trial court’s
summary judgment order.
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Dist.] 2012, no pet.) (citations omitted); see also Tex. Civ. Prac. & Rem. Code Ann.
§ 37.010. Because the trial court determined the underlying declaratory judgment
action via summary judgment, we apply the applicable summary judgment standard
of review. See Farmers, 366 S.W.3d at 222 (citing English v. B.G.P. Int’l, Inc., 174
S.W.3d 366, 370 (Tex. App.—Houston [14th Dist.] 2005, no pet.)). We review the
trial court’s ruling on a summary judgment de novo. See SeaBright Ins. Co. v. Lopez,
465 S.W.3d 637, 641 (Tex. 2015) (citation omitted). The moving party must prove
no genuine issue of material fact exists, and it 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). We review the evidence in the light most
favorable to the party against whom the summary judgment was rendered, crediting
evidence favorable to that party if reasonable jurors could, and disregarding contrary
evidence unless reasonable jurors could not. See Mann Frankfort, 289 S.W.3d at 848
(citing City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005); Johnson v. Brewer
& Pritchard, P.C., 73 S.W.3d 193, 208 (Tex. 2002)). When a movant provides
evidence establishing its entitlement to summary judgment, the burden shifts to the
nonmovant to present evidence raising a genuine issue of material fact. Walker v.
Harris, 924 S.W.2d 375, 377 (Tex. 1996).
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III. Analysis
A. Milhorn’s Standing
In its second issue, VEL asserts that Milhorn lacked standing to bring a cause
of action. Since the question of standing implicates jurisdiction, we address this issue
first. See Heckman v. Williamson Cty., 369 S.W.3d 137, 150 (Tex. 2012 (citation
omitted) (explaining that “[a] court has no jurisdiction over a claim” if the plaintiff
“lacks standing to assert it”). Standing is a constitutional prerequisite to maintaining
a lawsuit. See Williams v. Lara, 52 S.W.3d 171, 178 (Tex. 2001) (citing Texas Ass’n
of Bus. v. Tex. Air Control Bd., 852 S.W.2d 440, 444 (Tex. 1993)). Generally, unless
conferred by statute, to have standing, a plaintiff must show it possesses an interest
in a conflict distinct from that of the general public, “such that the defendant’s
actions have caused the plaintiff some particular injury.” Id. at 178–79 (citing Hunt
v. Bass, 664 S.W.2d 323, 324 (Tex. 1984)). “[U]nder Texas law, standing limits
subject matter jurisdiction to cases involving a distinct injury to the plaintiff and ‘a
real controversy between the parties, which . . . will be actually determined by the
judicial declaration sought.’” Brown v. Todd, 53 S.W.3d 297, 305 (Tex. 2001)
(quoting Tex. Workers’ Compensation Comm’n v. Garcia, 893 S.W.2d 504, 517–18
(Tex. 1995)); see also Neeley v. West Orange-Cove Consol. Indep. Sch. Dist., 176
S.W.3d 746, 774 (Tex. 2005).
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VEL foreclosed on a deed of trust which purported to create a security interest
in the mineral leases at issue. Milhorn’s original petition claimed that “[b]ecause of
Defendant’s interference with Plaintiff’s proper ownership, Plaintiff has suffered
actual damages.” In its motion for summary judgment, Milhorn asserted that by
proceeding with the foreclosure sale and notifying Milhorn’s first purchaser it was
the valid owner of the property, VEL interfered with its rights. Milhorn asserted in
its summary judgment motion that VEL’s conduct caused it to suffer a suspension
of revenue payments until the title dispute was resolved. As part of its summary
judgment evidence, Milhorn submitted the affidavit of its president which described
the suspension of its revenue payments caused by the dispute.
Because Milhorn claimed a distinct injury due to VEL’s conduct in the form
of interrupted revenue payments and sought judicial resolution of the dispute over
ownership interest in the leases, it had standing to maintain a suit against VEL. See
Neeley, 176 S.W.3d at 774; Williams, 52 S.W.3d at 178; Brown, 53 S.W.3d at 305.
We overrule VEL’s second issue.
B. Trial Court’s Summary Judgment and Declaration as to Claire’s Interest
We now turn to VEL’s remaining issue. The only declaration VEL challenges
on appeal from the trial court’s summary judgment order is that “Claire Oil and Gas,
Inc. did not own any oil and gas leases covering all or a portion of the described
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lands in the July 2, 2014 Deed of Trust[.]” Accordingly, we confine our review to
this issue. See Tex. R. App. P. 47.1; Tex. R. Civ. P. 166a(c) (stating that appellate
courts cannot reverse a summary judgment on grounds “not expressly presented to
the trial court by written motion, answer or other response”); Sonat Expl. Co. v. Cudd
Pressure Control, Inc., 271 S.W.3d 228, 236 (Tex. 2008) (citations omitted) (noting
that an appellate court cannot reverse on a ground an appellant has never raised). In
support of its issue, VEL argues that Milhorn based its summary judgment motion
on the assumption that the Claire-Southerland Quitclaim Deed was valid. VEL did
not challenge the validity of the Quitclaim Deed in response to Milhorn’s motion for
summary judgment but, VEL asserts for the first time on appeal, the Claire-
Southerland Quitclaim Deed is void because it fails to satisfy the statute of frauds or
statute of conveyances.
VEL is not a party to the instrument. Even if we assume without deciding that
VEL had standing to challenge the conveyance, the statute of frauds and statute of
conveyances are affirmative defenses that must be pleaded. See Tex. R. Civ. P. 94;
Kanan v. Plantation Homeowner’s Ass’n Inc., 407 S.W.3d 320, 333 (Tex. App.—
Corpus Christi 2013, no pet.) (citations omitted) (noting that Rule 94 “requires the
pleading of the statute of frauds and ‘any other matter constituting an avoidance or
affirmative defense,’ such as the statute of conveyances”). “Such matters must be
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pleaded or they are waived.” Id. (citations omitted). In the trial court, VEL neither
raised these affirmative defenses in its answer nor challenged the Claire-Southerland
Quitclaim Deed’s validity in its response to Milhorn’s motion for summary
judgment. We are precluded from reviewing the merits of this argument because
VEL failed to raise the issue first in the trial court. See Tex. R. Civ. P. 94, 166a(c);
MAN Engines & Components, Inc. v. Shows, 434 S.W.3d 132, 136–37 (Tex. 2014)
(concluding an affirmative defense cannot be raised for the first time on appeal);
Garcia v. Garza, 311 S.W.3d 28, 44 (Tex. App.—San Antonio 2010, pet. denied)
(citing City of Houston v. Clear Creek Basin Auth., 589 S.W.2d 671, 678–79 (Tex.
1979) (“A party cannot raise new reasons why a summary judgment should have
been denied for the first time on appeal.”); see also Tex. R. App. P. 33.1.
IV. Conclusion
We conclude Milhorn had standing to bring its lawsuit against VEL, and
because VEL failed to preserve the issue of the Claire-Southerland Quitclaim Deed’s
validity by raising it in the trial court, we are precluded from reaching its merits. See
Tex. R. Civ. P. 94, 166a(c); Tex. R. App. P. 33.1; MAN Engines & Components,
Inc., 434 S.W.3d at 136–37; Garcia, 311 S.W.3d at 44. Accordingly, we affirm the
trial court’s judgment.
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AFFIRMED.
_________________________
CHARLES KREGER
Justice
Submitted on January 2, 2019
Opinion Delivered July 11, 2019
Before McKeithen, C.J., Kreger and Johnson, JJ.
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