texland-petroleum-lp-and-james-j-reeves-trustee-v-scythian-ltd-ck ( 2012 )

NO. 07-11-00141-CV
IN THE COURT OF APPEALS
FOR THE SEVENTH DISTRICT OF TEXAS
AT AMARILLO
PANEL B
APRIL 13, 2012
TEXLAND PETROLEUM, L.P.
AND JAMES J. REEVES, TRUSTEE, APPELLANTS
v.
SCYTHIAN, LTD., CK GAS & OIL INVESTMENTS, LTD.,
BKDK, LP, KURT CHAPMAN, ROCKER A OPERATING
COMPANY AND CONOCOPHILLIPS COMPANY,
APPELLEES
FROM THE 286TH DISTRICT COURT OF HOCKLEY COUNTY;
NO. 09-04-21678; HONORABLE PAT PHELAN, JUDGE
Before QUINN, C.J., and CAMPBELL and HANCOCK, JJ.
MEMORANDUM OPINION
Appellants, Texland Petroleum, L.P., and James J. Reeves (collectively,
“Texland”), appeal the trial court’s summary judgment in favor of appellees, Scythian,
Ltd., CK Gas & Oil Investments, Ltd., BKDK, L.P., Kurt Chapman, Rocker A Operating
Company, and ConocoPhillips Company (collectively, “the Scythian Group”). We will
reverse the judgment and remand to the trial court for further proceedings.
Background
The Scythian Group acquired its interest in the subject property1 through the
assigns of Tamarack Petroleum Company. Whatever interest Texland acquired in the
subject property was acquired from the assigns of Craig, Ltd. The core issue involved
in this appeal relates to whether and to what extent Texland acquired interest in the
subject property.
After acquiring Craig’s interest in the subject property, Texland sued the Scythian
Group to establish its ownership of 25 percent of the leasehold interest in the subject
property, and to recover its proportionate share of production from two producing wells.
To establish its rights, Texland moved for partial summary judgment on the basis of
certified copies of all of the instruments in its chain of title.
The Scythian Group moved for summary judgment on the basis that an
unrecorded May 7, 1984 Letter Agreement between Texland’s predecessor in interest,
Craig, and the Scythian Group’s predecessor in interest, Tamarack, established that
any interest holder that went nonconsent on the initial drilling of a well would forfeit its
interest to the entire area of interest, including the subject property. It is undisputed that
Craig did not consent to the initial drilling of the Arnwine 12A #1 well. Consequently, the
Scythian Group contended, by its motion for summary judgment, that Craig had forfeited
its interest in the subject property, and, as assignee of Craig’s interest, Texland had no
ownership interest in the subject property. Texland responded by citing to the Joint
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The subject property in dispute in this appeal is the leasehold interests in the
North Half of Labor 12, League 26, Lamar County School Land, Hockley County, Texas
from the surface to a depth of 7,000 feet subsurface.
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Operating Agreement (JOA) which omitted the Letter Agreement’s forfeiture provision
and, instead, made going nonconsent on the initial drilling of a well subject to a 400
percent penalty.
The trial court denied Texland’s motion for partial summary judgment and, about
a month later, granted the Scythian Group’s motion for summary judgment. It is from
this Summary Judgment that Texland appeals. By its first issue, Texland contends that,
assuming the Letter Agreement constitutes a contract, it was superseded by the
subsequent, inconsistent JOA. Texland also argues, in the alternative, that, if the
forfeiture provision of the Letter Agreement survived the JOA, Texland’s predecessor in
interest retained its ownership interest in the subject property because it had previously
acquired that interest prior to going nonconsent on the initial drilling of the Arnwine 12A
#1 well.
Summary Judgment
By their first issue, Texland contends that the trial court erred in granting the
Scythian Group’s summary judgment on the basis of the forfeiture provision of the Letter
Agreement. Texland’s contention is that the JOA’s 400 percent penalty provision
superseded the inconsistent forfeiture provision of the Letter Agreement and, therefore,
Texland retains its interest in the subject property once the 400 percent penalty has
been recovered. In response, the Scythian Group contends that the trial court correctly
construed the two agreements, and that Texland’s predecessors in interest forfeited
their rights in the subject property.
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Standard of Review
In reviewing a summary judgment, the reviewing court must apply the following,
well-established standards: (1) the movant for summary judgment has the burden of
showing that there is no genuine issue of material fact, and that it is entitled to judgment
as a matter of law; (2) in deciding whether there is a disputed material fact issue
precluding summary judgment, evidence favorable to the non-movant will be taken as
true; and (3) every reasonable inference must be indulged in favor of the non-movant,
and any doubts resolved in its favor. Am. Tobacco Co. v. Grinnell, 951 S.W.2d 420,
425 (Tex. 1997); Nixon v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546, 548-49 (Tex. 1985).
To prevail on a motion for summary judgment, the movant must conclusively
establish the absence of any genuine issue of material fact and that he is entitled to
judgment as a matter of law. TEX. R. CIV. P. 166a(c). Once the movant has established
a right to summary judgment, the nonmovant has the burden to respond to the motion,
and present to the trial court any issues that would preclude summary judgment.
Barbouti v. Hearst Corp., 927 S.W.2d 37, 64 (Tex.App.--Houston [1st Dist.] 1996, writ
denied); see City of Houston v. Clear Creek Basin Auth., 589 S.W.2d 671, 678 (Tex.
1979). When both parties move for summary judgment, the reviewing court should
determine all questions presented and render the judgment the trial court should have
rendered. Dow Chem. Co. v. Bright, 89 S.W.3d 602, 605 (Tex. 2002).
Superseded or Merged Letter Agreement
Within the law of contracts, merger is the extinguishment of one document by its
absorption into another document, which is largely a matter of intention of the parties.
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S. Plains Lamesa R.R., Ltd. v. Kitten Family Living Trust, No. 07-06-0209-CV, 2008
Tex.App. LEXIS 603, at *6 (Tex.App.—Amarillo Jan. 28, 2008, pet. denied) (mem. op.);
Satre v. Dommert, 184 S.W.3d 893, 899 (Tex.App.—Beaumont 2006, no pet.); Hill v.
Spencer & Son, Inc., 973 S.W.2d 772, 775 (Tex.App.--Texarkana 1998, no pet.). “As a
general principle, when two contracts are entered into by the same parties, covering the
same subject matter, but containing terms which are so inconsistent that the terms of
the two contracts cannot subsist together, the legal effect of the subsequent contract is
to rescind the earlier contract.” S. Plains Lamesa R.R., Ltd., 2008 Tex.App. LEXIS 603,
at *6 (citing Willeke v. Baylor, 144 Tex. 157, 189 S.W.2d 477, 479 (1945)). However,a
prior agreement is not superseded by or merged into a subsequent agreement relating
to the same subject matter if the first agreement could constitute a separate agreement
or where the first agreement is not fully integrated into the second agreement but
merely modifies the first agreement in some respect. Id. at *6-7 (citing Hubacek v.
Ennis State Bank, 159 Tex. 166, 317 S.W.2d 30, 32 (1958)). Stated another way, when
the parties manifest an intent to have any of the original contract's provisions survive,
merger is inapplicable. Id. at *7. Thus, application of the doctrine of merger completely
discharges the earlier, inconsistent contract. See id.
In the present case, the JOA did not contain a merger clause nor include any
reference to the Letter Agreement. However, the Letter Agreement specifically
referenced terms that were to be included in the JOA, and the parties to those
agreements expressed their intent in the assignment of interest from Craig to Tamarack
that both the Letter Agreement and JOA would govern their operations on the subject
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property. As such, we conclude that the doctrine of merger is inapplicable because the
parties did not manifest an intent to have the JOA supersede the Letter Agreement.
Harmonizing the Letter Agreement and JOA
However, even though the parties did not intend for the JOA to supersede the
Letter Agreement, inconsistencies between the provisions of the two agreements, if not
capable of being harmonized as a matter of law, would preclude summary judgment.
“Multiple contracts pertaining to the same transaction, executed by the same parties, at
the same time or contemporaneously with one another, may be construed as if they
were part of a single unified instrument, even if the contracts do not expressly refer to
each other.” Id. at *7-8 (citing Fort Worth Indep. Sch. Dist. v. City of Fort Worth, 22
S.W.3d 831, 840 (Tex. 2000)). To determine whether multiple contracts are ambiguous
when construed together, the reviewing court must consider the entire agreements in an
attempt to harmonize and give effect to all the provisions of the contracts in a manner
that will not render any of the provisions meaningless. J.M. Davidson, Inc. v. Webster,
128 S.W.3d 223, 229 (Tex. 2003); S. Plains Lamesa R.R., Ltd., 2008 Tex.App. LEXIS
603, at *8. If the contracts can be harmonized in a manner in which they have a definite
and certain legal meaning, the contracts are unambiguous. See J.M. Davidson, Inc.,
128 S.W.3d at 229. On the other hand, if the contracts are subject to two or more
reasonable interpretations, they are ambiguous, and give rise to a fact issue regarding
the intent of the parties. See id.
The Letter Agreement provides that the 400 percent nonconsent penalty will
apply “only to the completing, reworking or plugging back of any well.” It goes on to
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state that the nonconsent penalty “shall not apply to the drilling of any well” because any
party that declines to participate in the initial drilling of a well “shall forfeit all rights not
only in the proposed well, but also in the entire prospect remaining unearned . . . .”
However, the JOA provides that the 400 percent penalty is applied to drilling,
reworking/deepening, recompleting, plugging back, testing, and completing of any wells.
It is significant to note that “recompleting” was typed into the Model Form Operating
Agreement that provided the basis for the parties’ JOA. The JOA does not contain any
sort of forfeiture provision.
Consequently, if the Letter Agreement is given effect, the 400 percent penalty
would not apply to the recompleting or testing of a well because the Letter Agreement
specifically provides that the 400 percent penalty will apply “only to the completing,
reworking or plugging back of any well.” Thus, giving effect to the Letter Agreement
would render the terms “recompleting” and “testing” in the JOA meaningless.
However, because the parties to the JOA used a form operating agreement, the
Scythian Group contends that the Letter Agreement was intended by the parties to
render additional activities made subject to the 400 percent penalty by the form
agreement meaningless. And, the Scythian Group’s contention is well taken as it
applies to the Letter Agreement’s intent to remove “testing” from being subject to the
400 percent penalty. However, the modification of the form operating agreement to
include “recompleting” as an activity subject to the 400 percent penalty evinces that it
was the intent of the parties to that agreement to alter the effect of the Letter
Agreement. See Sims v. Century 21 Capital Team, Inc., No. 03-05-00461-CV, 2006
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Tex.App. LEXIS 7990, at *8-9 (Tex.App.—Austin Sept. 7, 2006, no pet.) (mem. op.)
(inclusion of typed in terms in a form agreement “are by their nature negotiable, and not
boilerplate contractual terms.”) As a result, it appears that it was the parties’ intent that
the JOA make the 400 percent penalty provision applicable to recompleting even
though the Letter Agreement would exclude recompleting from the scope of the penalty.
The typed-in addition of “recompleting” within the 400 percent penalty provision
of the form JOA gives rise to an inference that the parties renegotiated the terms of the
joint venture that they were entering into. See id. However, while the parties expressed
their intent that both the Letter Agreement and JOA would govern their operations on
the subject property, the inconsistency of making the 400 percent penalty applicable to
recompleting raises a genuine issue of material fact regarding the parties’ intended
effect when a party refused to consent to the initial drilling of a well. The existence of a
fact question precludes the granting of summary judgment. See S. Plains Lamesa R.R.,
Ltd., 2008 Tex.App. LEXIS 603, at *9-10. As such, we sustain that portion of Texland’s
first issue that requests that we reverse the trial court’s entry of summary judgment.
However, because the existence of a genuine issue of material fact precludes summary
judgment, see Am. Tobacco Co., 951 S.W.2d at 425; Nixon, 690 S.W.2d at 548-49, we
deny Texland’s request that we render summary judgment in favor of Texland.
Area of Mutual Interest
Because Texland’s second issue is presented in the alternative and is
conditioned upon this Court determining that the forfeiture provision of the Letter
Agreement survived the subsequent JOA, we need not address this issue. See TEX. R.
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APP. P. 47.1. However, for clarity, we will reiterate that we have concluded only that a
genuine issue of material fact has been raised regarding whether the forfeiture provision
of the Letter Agreement survived the subsequent entry of the JOA, which contains at
least one inconsistent provision.
Conclusion
Having found a genuine issue of material fact in attempting to harmonize the
Letter Agreement and JOA covering the subject property, we reverse the summary
judgment entered by the trial court, and remand the case for further proceedings
consistent with this opinion.
Mackey K. Hancock
Justice
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