in Re: Rusk Energy, Ltd. ( 2008 )

                                                NO. 12-07-00245-CV

IN THE COURT OF APPEALS

TWELFTH COURT OF APPEALS DISTRICT

TYLER, TEXAS

§                     

IN RE:

§                      ORIGINAL PROCEEDING

RUSK ENERGY, LTD.

§                     

MEMORANDUM OPINION

            Rusk Energy, Ltd. seeks a writ of mandamus requiring the trial court to vacate the portion of its December 15, 2006 order requiring a $100,000 bond from Rusk and to release the funds posted in compliance with the order back to Rusk.¹  We conditionally grant the writ.

Background

            Kim R. Smith, the real party in interest, owns the surface of 79 acres of land in Rusk County, Texas.  Smith purchased the tract subject to a reservation of the minerals and an existing oil, gas, and mineral lease that does not provide for surface damages. Rusk is the majority working interest owner.  In early November 2006, Rusk notified Smith that it intended to drill the Gray Unit No. 2 gas well on Smith’s land.  Rusk ultimately determined that its operations would occupy two acres of Smith’s land.  In what it describes as a “gesture of good will,” Rusk offered Smith $12,500 as compensation for any damages its operations might cause to Smith’s land.  When Smith did not accept its offer, Rusk delivered a $12,500 check to Smith’s office.  Smith never cashed the check.

            By the end of November 2006, Pioneer Drilling Company, the drilling contractor, had completed the well location.  On December 12, 2006, Smith sued Pioneer seeking an ex parte temporary restraining order (TRO) as well as temporary and permanent injunctive relief to prevent Pioneer from directly or indirectly developing the well site. Smith alleged, in part, that the 79 acre tract was “being developed for real estate and . . . that Defendant’s usage of the surface [was] excessive and unreasonable in the placement of its well and [has] rendered Plaintiff’s property virtually useless.”  Smith also alleged that Pioneer had moved its rig immediately adjacent to a dedicated city street without seeking the proper permits for a variance in constructing its well at that location.  As grounds for injunctive relief, Smith alleged that Pioneer had threatened irreparable harm to his property and rights; that Pioneer’s conduct was completely without right; and that Smith had no adequate remedy at law for the injuries and losses that had been caused by Pioneer’s conduct and would continue to be caused without injunctive relief. 

            The trial court granted the TRO and required Smith to post a $5,000 bond. Rusk and Chalker Energy Management II, LLC, the operator of the well, intervened in the suit and filed a motion to dissolve the TRO.  After a hearing on December 15, 2006, the trial court dissolved the TRO and ordered that drilling could resume “upon the filing of a bond in the amount of $100,000.00.” Later that day, Rusk posted a cash bond in the required amount and also filed an objection and motion for reconsideration of the trial court’s order.²  The trial court heard the motion for reconsideration on February 15, 2007, took the matter under advisement, and ordered mediation.  After a failed mediation, Rusk filed a second motion for reconsideration and again requested that the court release its cash bond.  After a hearing, the court denied Rusk’s motion by letter on June 6, 2007.  This original proceeding followed.

Prerequisites to Mandamus

            Mandamus is available to correct a clear abuse of discretion when there is no adequate remedy by appeal.  In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 135-36 (Tex. 2004). A trial court abuses its discretion if it reaches a decision so arbitrary and unreasonable as to amount to a clear and prejudicial error of law.  Walker v. Packer, 827 S.W.2d 833, 839 (Tex. 1992).  A trial court has no discretion in determining what the law is or in applying the law to the facts.  Id. at 840.  Thus, a clear failure by the trial court to analyze or apply the law correctly constitutes an abuse of discretion.  Id.  A trial court also abuses its discretion when there is no evidence to support its ruling. Weisel Enters., Inc. v. Curry, 718 S.W.2d 56, 58 (Tex. 1986); D.N.S. v. Schottman, 937 S.W.2d 151, 155 (Tex. App.–Fort Worth 1997, orig. proceeding).

            An appellate remedy is “adequate” when any benefits to mandamus review are outweighed by the detriments.  In re Prudential, 148 S.W.3d at 136.  When the benefits to mandamus review outweigh the detriments, appellate courts must consider whether the appellate remedy is adequate.  Id.  This determination is not an abstract or formulaic one; it is practical and prudential. Id.  Whether an appellate remedy is “adequate” so as to preclude mandamus review depends heavily on the circumstances presented and is better guided by general principles than by simple rules.  Id. at 137.  The word “adequate” is simply a proxy for the careful balance of jurisprudential considerations that determine when appellate courts will use original mandamus proceedings to review the actions of lower courts.  Id. at 136.

Preliminary Arguments

            Smith contends that we need not reach the substance of Rusk’s petition because (1) Rusk voluntarily posted the $100,000 cash bond rendering the controversy moot; (2) Rusk cannot challenge the order requiring the bond because it has accepted the benefits of it; and (3) Rusk waited seven months after the date of the order, without explanation or justification, before filing its petition for writ of mandamus.  We address each of these arguments in turn.

            Mootness.  Usually when a judgment debtor voluntarily satisfies a judgment rendered against it, the case becomes moot.  See, e.g., Marshall v. Housing Auth. of City of San Antonio, 198 S.W.3d 782, 787 (Tex. 2006).  The purpose of this rule is to prevent a party who has freely decided to pay a judgment from changing its mind and seeking the court’s aid in recovering payment. Highland Church of Christ v. Powell, 640 S.W.2d 235, 236 (Tex. 1982).  Stated another way, a party should not be allowed to mislead its opponent into believing the controversy is over and then contest the payment and seek recovery of it.  Id.   Smith contends that the complaint Rusk makes here was rendered moot when it voluntarily posted the bond based upon a “calculated business decision . . . so it could drill its well.” 

            Payment is not voluntary when a business is faced with the choice of making the payment or losing its right to do business while contesting the payment. See, e.g., id. at 237; State v. Akin Prods. Co., 155 Tex. 348, 351, 286 S.W.2d  110, 111-12 (1956).  The record includes the affidavit of Bill Dukes, vice president of land and business development for Rusk and for Chalker, who was the operator of record for the Gray Unit No. 2 well and contracted with Pioneer to drill the well. In his affidavit, which Smith did not controvert, Dukes provides information about the cost and status of the drilling operations as well as the damages Rusk would suffer if drilling ceased. According to Dukes, by December 12, 2006, the date Smith filed suit, Pioneer had been continuously drilling for six days and had charged Rusk $22,000 a day.  When the TRO was entered, Pioneer had reached a depth of approximately 8,500 feet.  Including all drilling related costs, Rusk’s daily expenses on the Gray Unit No. 2 were approximately $25,000.  As of December 14, 2006, Rusk had invested over $620,000 in the well.  Duke further states that “[d]rilling on the Gray Unit [No.] 2 simply cannot be stopped at its current stage.”  He explains that ceasing to drill at the well’s current stage would create an unsafe condition, cause the rig to lose fluid, cause permanent damage to the reservoir, and create a substantial risk that Rusk could lose the hole and its $620,000 investment.  Furthermore, to pull the pipe out of the well, properly plug the well with a concrete plug, and move the rig off the well would cause Rusk to incur at least $250,000 in additional expenses. 

             In sum, Dukes’s affidavit shows that Rusk was faced with the choice of posting the bond or losing its right to drill, and possibly its investment, while contesting the validity of the trial court’s order.  Under these circumstances, Rusk’s choice to post the bond was not voluntary. See, e.g., id. at 237; Akin Prods., 155 Tex. at 351, 286 S.W.2d at 111-12. Moreover, in the six months following its posting of the bond, Rusk filed two motions for reconsideration of the trial court’s ruling.  Reconsideration was denied on June 6, 2007.  Because Rusk continued to challenge the trial court’s ruling after the order was signed, Smith could not have been mislead into believing the controversy was over.  See Powell, 640 S.W.2d at 236.  Consequently, the reasoning behind the general rule is inapplicable here. Based on the foregoing, we hold that the controversy presented in this proceeding is not moot.

            Acceptance of benefits.  Smith next contends that Rusk has accepted the benefits of the order dissolving the TRO by (1) using the order to dissolve the TRO and thereby immediately drill its well on Smith’s property and (2) by using it to eliminate the scheduled injunction hearing.  Therefore, Smith concludes, Rusk cannot challenge any portion of the order by mandamus.

            Under the acceptance of benefits doctrine, a party who accepts the benefit of a judgment is estopped from seeking appellate relief from that order. Tex. State Bank v. Amaro, 87 S.W.3d 538, 544 (Tex. 2002).   Thus, a “litigant cannot treat a judgment as both right and wrong, and if he has voluntarily accepted the benefits of a judgment, he cannot afterward prosecute an appeal therefrom.”  Carle v. Carle, 149 Tex. 469, 472, 234 S.W.2d 1002, 1004 (1951); Matlow v. Cox, 25 Tex. 578 (1860).  If economic circumstances compel a party to accept benefits, there is no voluntary acceptance or acquiescence in the judgment, and the acceptance of benefits doctrine does not apply.  Aycock v. Pannill, 853 S.W.2d 161, 163 (Tex. App.–Eastland 1993, writ denied).  We have held that under the economic circumstances described in Dukes’s affidavit, Rusk did not voluntarily post the bond required by the trial court.  Assuming that at least one of Rusk’s actions identified by Smith constitutes an acceptance of benefits, these same economic circumstances render any such acceptance involuntary.  Therefore, Rusk is not prohibited from seeking mandamus relief.

            Delay.  Smith contends that Rusk is not entitled to mandamus relief because “without any explanation or justification,” Rusk waited almost seven months after the trial court’s order to file this original proceeding.  See Rivercenter Associates v. Rivera, 858 S.W.2d 366, 367 (Tex. 1993) (orig. proceeding).  Rusk has included documentation in the record showing that the following events occurred after the trial court signed the December 15, 2006 order:

• December 15, 2006     Rusk posted the $100,000 cash bond and filed an objection to the cash bond and motion for reconsideration.

• February 15, 2007       The trial court heard Rusk’s motion for reconsideration and took the matter under advisement.

• February 21, 2007       The trial court granted Smith’s motion for court ordered mediation.

• May 15, 2007              Following an unsuccessful mediation, Rusk again requested the trial court to release the cash bond.

• May 29, 2007              The trial court held a hearing on Rusk’s motion for reconsideration.

• June 6, 2007                The trial court notified the parties by letter that Rusk’s motion for reconsideration was denied.

• July 3, 2007                 Rusk filed its petition for writ of mandamus.

From this chronology, it is apparent that during the six months following the signing of the December 15, 2006 order, Rusk twice sought to have the trial court vacate the bond requirement and return the posted cash.  The trial court did not rule on Rusk’s motion for reconsideration until June 6, 2007. Rusk filed this original proceeding one month later.  No further explanation or justification is necessary.  We now turn to the merits of Rusk’s request for mandamus relief.

The Bond Requirement

            Rusk contends that the trial court abused its discretion by conditioning the dissolution of the TRO on the posting of a bond to cover Smith’s alleged damages, which Rusk contends were never requested or supported by any evidence. Rusk further contends that the trial court’s action violated its constitutional right to due process. Because Rusk’s first argument is dispositive, we do not address its due process argument.  Nor do we address Smith’s argument  that the trial court could impose the bond requirement because it has broad discretion in fashioning equitable relief, unlimited by the rules of procedure, and that the trial court’s action is within that discretion. 

            The controversy.  The surface of Smith’s tract and the underlying minerals were severed by the execution of an oil and gas lease on February 25, 1977.  See W. T. Waggoner Estate v. Sigler Oil Co., 118 Tex. 509, 517, 19 S.W.2d 27, 28-29 (1929) (oil, gas, and mineral lease invests lessee with determinable fee in oil and gas in place).  This lease is still in force, and Rusk owns a majority of the working interest.  As a working interest owner, Rusk has the right to use as much of Smith’s tract as is reasonably necessary to produce and remove the minerals conveyed by the lease. See Tarrant County Water Control & Improve. Dist. No. One v. Haupt, Inc., 854 S.W.2d 909, 911 (Tex. 1993); Getty Oil Co. v. Jones, 470 S.W.2d 618, 621 (Tex. 1971).

            In his original petition for injunction, Smith alleged that he was developing the surface estate “for real estate” and that Rusk’s use of the surface was excessive and unreasonable in the placement of its well, rendering Smith’s property “virtually useless.”³  Smith also alleged that Rusk had moved its rig immediately adjacent to a dedicated city street and/or county road without seeking the proper permits for a variance in constructing their well site at that location.  He did not plead for damages.

             The hearing.  At the hearing on Rusk’s motion to dissolve the TRO, Rusk argued that it had the right to use as much of the surface of Smith’s tract as was reasonably necessary for its operations.  Rusk further pointed out that Smith’s motion did not allege what conduct by Rusk was unreasonable or describe any existing surface use.  Additionally, Rusk presented an aerial photograph of the property, which showed that the drillsite did not interfere with any existing roads. Smith argued that the TRO should not be dissolved based upon equity because the well was located so that it blocked a public dedicated road that was to be Smith’s access to “whatever we want to do with [the land]  . . . . If the well gets down, you’re going to have production and equipment and other facilities sitting there, which just continues to exacerbate our problem.  So I don’t know that there’s any equities at all that auger on their side.”

            Smith went on to suggest that

what might be a solution . . . the Court, being aware of all the equities in the case, could enter an order dissolving the temporary restraining order, conditioned upon Rusk posting a half million dollars bond for damages they caused in connection with drilling the well.  They claim they’re solvent, claim without having to show that they’re not.  So one thing that you’ve got the right to do as Judge, if you dissolve this TRO, is order them to post a bond.  So post a half million dollar bond.

Smith presented no testimony concerning his use of the tract or Rusk’s allegedly unreasonable use.  In response to Smith’s argument, Rusk informed the trial court that it had a landman in the courtroom who could prove up that the “1952 survey” relied upon by Smith, which showed the property as a platted subdivision with roads and streets, had been “dissolved” and that all proper drilling permits had been obtained.  The court ruled without taking the landman’s testimony.

            Analysis.  The substance of Smith’s argument at the hearing was that Rusk had made an unreasonable use of the surface of his tract, thereby entitling him to damages, but he could not be assured that Rusk could pay the ultimate award because it had not shown its solvency.  Thus, Smith urged the trial court to require Rusk to post a bond to assure his collection of any recovery against Rusk.  Smith’s live pleading at the time of the hearing requested injunctive relief, not damages.  Even if Smith had sought damages, he presented no evidence at the hearing supporting his assertion that Rusk’s use of the surface was unreasonable. Consequently, he made no showing that he had incurred damages as a result of any action by Rusk.  Therefore, even if a trial court has discretion to require a bond as a condition of dissolving a TRO in the absence of specific authority authorizing such action, the trial court abused its discretion by doing so in this case because the record contains no evidence supporting Smith’s contentions relating to his possible recovery of damages from Rusk.

Adequacy of Appellate Remedy

            Rusk argues that appeal is an inadequate remedy under the facts of this case. Smith disagrees and cites three cases in support of his position.  One such case, In re Young, No. 14-03-01271-CV, 2003 WL 22724731 (Tex. App.–Houston [14th Dist.] Nov. 20, 2003, orig. proceeding) (mem. op), addresses whether mandamus is available in a criminal case to challenge the amount of the appeal bond set by the trial court.  The court held that it was not, because, under article 44.04 of the Texas Code of Criminal Procedure, an order relating to an appeal bond is an appealable order.  See id., at *1 (citing In re Young, No. 01-03-00354-CV, 2003 WL 21101087 (Tex. App.–Houston [14th Dist.] May 15, 2003, orig. proceeding) (mem. op.)).  No such statute applies here, and Smith admits that any appeal of the challenged order must occur after a trial on the merits. 

            Smith also cites Braden v. Downey, 811 S.W.2d 922 (Tex. 1991), in which the Texas Supreme Court held that an order imposing sanctions is not reviewable by mandamus unless the order threatens the continuation of the litigation and the sanctions must be paid prior to appeal.  Id. at 929.  In In re Certain Underwriters at Lloyd’s, 106 S.W.3d 332 (Tex. App.–Dallas 2003, orig. proceeding), also cited by Smith, the court denied mandamus to review a bond order because the relators did not show that the required deposit would preclude them from developing the merits of their case or placed them in danger of permanently losing substantial rights. Id. at 333.  In reliance on these cases, Smith argues that appeal is an adequate remedy because Rusk has not shown that the trial court’s order precludes Rusk’s development of the merits of its case or places it in danger of permanently losing substantial rights.  However, these cases were decided prior to In re Prudential, in which the Texas Supreme Court elaborated on the rules governing the issuance of mandamus.

            In In re Prudential, the court stated that mandamus review of

significant rulings in exceptional cases may be essential to preserve important substantive and procedural rights from impairment or loss, allow the appellate courts to give needed and helpful direction to the courts that would otherwise prove elusive in appeals from final judgments, and spare private parties and the public the time and money utterly wasted enduring eventual reversal of improperly conducted proceedings.

In re Prudential, 148 S.W.3d at 136. The court further stated that “rigid rules are necessarily inconsistent with the flexibility that is the remedy’s principal virtue.”  Id.  A strict application of Braden and In re Certain Underwriters at Lloyd’s, as urged by Smith, is more akin to the “rigid rules” approach, which is inconsistent with In re Prudential.  We therefore decline to adopt such an approach.

            Rusk maintains that the principles set forth in In re Prudential mandate a conclusion that appeal is an inadequate remedy under the facts before us. We agree.  It is axiomatic that a trial court’s orders and judgments must be supported by sufficient evidence.  Because Smith introduced no evidence at the hearing, there is a complete lack of evidence supporting the trial court’s implied finding that the bond was necessary.⁴  See id. at 137 (court had previously considered complete lack of authority for order as a factor in determining adequacy of appellate remedy). Second,  the trial court’s order eludes answer by appeal.  See id. at 138.  If Rusk were to obtain a favorable jury verdict, it would not appeal and its deposit would be released.  On the other hand, if the judgment were unfavorable, Rusk could not obtain reversal for the trial court’s error “unless the court of appeals conclude[d] that the error complained of . . . probably caused the rendition of an improper judgment.”  See Tex. R. App. P. 44.1(a)(1).  Even if Rusk could somehow obtain reversal based on the trial court’s error, it would not be awarded damages for its loss of use of the $100,000 it deposited.  Thus, at a minimum, Rusk will have been deprived of the use of its funds for an indefinite time without any evidence to show that the bond was necessary and without any likelihood of recovering damages for its loss of use. Consequently, we hold that Rusk has no adequate remedy by appeal.

Conclusion

            Rusk has shown that the trial court abused its discretion by requiring Rusk to post a $100,000 bond as a condition of dissolving the TRO and has also shown that it has no adequate remedy by appeal.  Accordingly, we conditionally grant mandamus.  We trust that the trial court will promptly vacate the portion of its order of December 15, 2006 requiring a $100,000 bond from Rusk and enter an order directing the district clerk to release the deposited funds to Rusk. The writ will issue only if the trial court fails to comply with this court's opinion and order within ten days. The trial court shall furnish this court, within the time for compliance with this court's opinion and order, a certified copy of its order evidencing such compliance.

            Mandamus conditionally granted.    

                                                                                                    SAM GRIFFITH  

                                                                                                               Justice

Opinion delivered January 31, 2008.

Panel consisted of Worthen, C.J., Griffith, J., and Hoyle, J.

(PUBLISH)

---

¹ The respondent is the Honorable J. Clay Gossett, Judge of the 4th Judicial District Court of Rusk County, Texas.

² The trial court did not order a cash bond.  However, the record reflects that Rusk posted the cash bond, rather than a surety bond, to expedite the resumption of drilling operations.

³ As previously stated, Smith sued Pioneer, the drilling contractor, and the TRO restrained Pioneer.  Rusk and Chalker (collectively “Rusk”) immediately intervened, and Pioneer did not participate in subsequent proceedings.  Therefore, we refer to Rusk, and not Pioneer, in our discussion.

⁴ Again, we point out that we do not decide whether the trial court has the discretion to condition the dissolution of a TRO on the posting of a bond.