Elmen Holdings v. Martin Marietta ( 2023 )

Case: 23-20023 Document: 00516968730 Page: 1 Date Filed: 11/15/2023
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
____________ FILED
November 15, 2023
No. 23-20023 Lyle W. Cayce
____________ Clerk
Elmen Holdings, L.L.C.,
Plaintiff—Appellee,
versus
Martin Marietta Materials, Incorporated,
Successor by Merger to Texas Industries, Incorporated,
Defendant—Appellant.
______________________________
Appeal from the United States District Court
for the Southern District of Texas
USDC No. 4:19-CV-3293
______________________________
Before Higginbotham, Smith, and Elrod, Circuit Judges.
Jerry E. Smith, Circuit Judge:
This appeal concerns a sand and gravel mining lease executed in 1970.
The original leaseholder transferred its interest to Martin Marietta Materials,
Inc. (“Martin Marietta”), in 2014, and Elmen Holdings, L.L.C. (“Elmen”),
acquired title to the underlying land in 2018. Elmen contends that Martin
Marietta did not make required royalty payments to it or prior lessors; Elmen
sought a declaration that the lease had terminated. Both parties moved for
summary judgment, and a magistrate judge recommended that the district
court grant Elmen’s motion and deny Martin Marietta’s. The district court
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adopted that recommendation.
Though we disagree with the magistrate judge’s and district court’s
reasoning, they reached the correct result, and we AFFIRM the summary
judgment for Elmen and AFFIRM the denial of summary judgment for
Martin Marietta.
I.
In 1970, Wilma and Minton Minarcik leased a portion of their land to
Texas Industries, Inc., to mine sand and gravel (“the Gravel Lease”). The
Gravel Lease was to extend “for as long as merchantable materials are mined
or produced from the leased premises, or for as long as Lessee shall pay the
advance minimum royalty as hereinbelow specified.”1 Paragraph six of the
lease specified the advanced minimum royalty payments that would be due:
Commencing on April 16, 1972, and on or before said day and
month of each successive year hereunder, Lessee shall pay or
tender to Lessor, annual advance royalties as follows:
(a) $2,500 per year for the years 1972 and 1973; then,
(b) $4,000 per year for each year thereafter up to and including
the year during which mining or production operations are
commenced on any portion of the land; then,
(c) $3,000 per year for each year following the year in which
mining or production operations are begun on any portion of
said land, until this agreement is terminated.
No mining operations ever took place on the Minarcik land, meaning that—
after 1973—the lease could be maintained only by the payment of $4,000 on
or before April 16 each year.
_____________________
1
Paragraph two of the lease reads in full, “Subject to the other provisions herein
contained the term of this lease shall be for as long as merchantable materials are mined or
produced from the leased premises, or for as long as Lessee shall pay the advance minimum
royalty as hereinbelow specified.”
2
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Paragraph six of the Gravel Lease included a notice-and-cure
provision:
Notwithstanding anything contained in this lease to the con-
trary, should Lessee fail to pay or tender any amount of ad-
vance royalties when due, then lessor shall notify Lessee in
writing of such failure and this lease shall not terminate unless
and until Lessee shall have failed to pay or tender the amount
of advance royalties due within ten (10) days following Les-
see’s receipt of such notice from Lessor.
That paragraph also made clear that “[n]otwithstanding the death of
the lessor, or any of them, the payment of royalties when due hereunder
within the time and in the manner provided herein shall be binding upon the
heirs, executors, successors, assigns and legal representatives of Lessor.”
Paragraph sixteen of the Gravel Lease required that all notices of missed pay-
ments be in writing and that all payments and notices “shall be deemed to
have been properly given and made at the time when delivered in person or
at the time when posted by certified or registered mail.”
Martin Marietta acquired Texas Industries’s leasehold interest in 2014.
At that point, the ownership of the land had splintered, but Wilma Minarcik
was still alive and owned a portion.2 Wilma died in early 2017, and her re-
maining portion passed to her heirs: Sam and Gary O’Callaghan. Martin
Marietta attempted to pay royalties to Wilma Minarcik on April 12, 2017, un-
aware that she had died. On May 15, 2017, Gary O’Callaghan sent an email
to Martin Marietta requesting that it “send the 2017 royalty payment.” Mar-
tin Marietta never sent this payment because neither Gary nor Sam ever gave
it a copy of their W-9 tax forms.
_____________________
2
Martin Marietta had been paying the royalties in a pro-rata share to the different
owners of the Minarcik land.
3
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Elmen acquired the land from the O’Callaghans on August 10, 2018.
Elmen then sued Martin Marietta in Texas state court seeking a declaration
that the failure to pay had terminated the Gravel Lease. Martin Marietta re-
moved the case to the Southern District of Texas, where the parties pro-
ceeded through discovery and cross-moved for summary judgment. Neither
party disputed that paragraph six’s notice-and-cure provision applied to any
missed or late royalty payments under the Gravel Lease. Elmen averred that
the undisputed facts showed that the Gravel Lease had terminated because
Martin Marietta had missed royalty payments, had been adequately notified,
and had failed to cure. Martin Marietta contended that the Gravel Lease was
still in force because it had made all needed royalty payments or had cured
any late ones, and, alternatively, that it had never received the notice required
by paragraphs six and sixteen of the lease.
The magistrate judge recommended that the district court grant
Elmen’s motion for summary judgment and deny Martin Marietta’s. But the
recommendation did not address the parties’ contentions regarding whether
Martin Marietta had satisfied the notice-and-cure provision. Rather—
despite the parties’ agreement that the notice-and-cure provision applied—
the magistrate judge determined that, given the absence of mining on the
Minarcik land, the Gravel Lease terminated automatically upon a late royalty
payment. Because Martin Marietta had been late with several royalty pay-
ments, the magistrate judge recommended that the district court enter sum-
mary judgment for Elmen. The district court adopted that recommendation
in a one-page order.3
_____________________
3
Because the district court adopted the magistrate judge’s report in full, all refer-
ences to the magistrate judge’s analysis are synonymous with references to the district
court’s final order and judgment.
4
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II.
Martin Marietta first contends that the magistrate judge violated the
principle of party presentation by ignoring the parties’ agreement that para-
graph six’s notice-and-cure provision applied to Martin Marietta’s alleged
missed royalty payments. We disagree.
“In our adversarial system of adjudication, we follow the principle of
party presentation.” See United States v. Sineneng-Smith, 140 S. Ct. 1575,
1579 (2020). That means “we rely on the parties to frame the issues for deci-
sion and assign to courts the role of neutral arbiter of matters the parties pre-
sent.” Greenlaw v. United States, 554 U.S. 237, 243 (2008). Therefore, we
“normally decide only questions presented by the parties.” Sineneng-Smith,
140 S. Ct. at 1579 (internal quotation marks omitted). We review a district
court’s decision to ensure that it has not “departed so drastically from the
principle of party presentation as to constitute an abuse of discretion.” Id.
at 1578.
Martin Marietta’s contention centers on the fact that the parties
agreed the Gravel Lease would terminate for failure to pay royalties only
upon Elmen’s provision of notice and Martin Marietta’s failure to cure. The
only issues the parties presented to the district court were (1) whether Martin
Marietta in fact had missed its royalty payments, (2) whether Elmen had pro-
vided sufficient notice of any non-payment, and, if so, (3) whether Martin
Marietta had cured any non-payment. The magistrate judge nonetheless dis-
posed of the case by determining that the lease had terminated automatically
upon Martin Marietta’s nonpayment. In Martin Marietta’s view, the magis-
trate judge ignored how the parties had “frame[d] the issues” and instead
decided the summary judgment motions on an issue “framed by the [court].”
Id. at 1578–79.
That contention has some merit, but unlike the Ninth Circuit in
5
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Sineneng-Smith, the magistrate judge did not “depart[] so drastically” from
the issues and arguments presented “as to constitute an abuse of discretion.”
See id. at 1578. Elmen alleged that the Gravel Lease had terminated because
of Martin Marietta’s failure to make timely royalty payments. One of Martin
Marietta’s main responses was that, even if it had missed payments, Elmen
did not give it notice and an opportunity to cure as required by paragraph six
of the Gravel Lease. The magistrate judge resolved that dispute by constru-
ing the Gravel Lease to determine that paragraph six’s notice-and-cure provi-
sion applies only to royalties paid under paragraph 6(c) but not to royalties
paid under 6(b) and 6(a). That construction meant Martin Marietta, which
was paying royalties under 6(b), had no right to notice or cure: The lease
terminated automatically after a late royalty payment under paragraph two.
Thus, the magistrate judge recommended granting Elmen’s motion
for summary judgment because Martin Marietta had been late on several
royalty payments. The magistrate judge did not “radical[ly] transform[]”
this case to such an extent as to constitute an abuse of discretion; she merely
took a different route than Martin Marietta and Elmen had suggested to
“decide . . . questions presented by the parties.” Id. at 1579, 1582. There-
fore, the magistrate judge did not violate the party presentation principle by
interpreting the Gravel Lease to terminate automatically upon a missed
royalty payment, even if that interpretation was contrary to the parties’
reading of their contract.
III.
Martin Marietta next contends that the magistrate judge erred in con-
struing the Gravel Lease to terminate automatically upon a missed royalty
payment. We agree. The magistrate judge’s interpretation of the Gravel
Lease contravenes the lease’s plain language by subordinating paragraph
six’s notice-and-cure provision to paragraph two’s termination provision.
6
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“On appeal, a district court’s interpretation of a contract is a matter
of law reviewable de novo.” Am. Totalisator Co. v. Fair Grounds Corp., 3 F.3d
810, 813 (5th Cir. 1993). We review “the record independently and under
the same standard that guided the district court.” Id. “In a diversity case
involving the interpretation of a contract, we apply the substantive law of
[Texas] . . . according to the general principles of contract interpretation
articulated by the Texas Supreme Court.” McLane Foodshare, Inc. v. Table
Rock Rests., L.L.C., 736 F.3d 375, 377 (5th Cir. 2013).
In Texas, “[a] mineral lease is the conveyance of a determinable fee
interest in land” and “does not in all respects create the relationship of land-
lord and tenant.” Parker v. Standard Oil Co., 250 S.W.2d 671, 680 (Tex. Civ.
App.—Galveston 1952, writ ref’d n.r.e.). That fee interest may be subject to
three types of qualifications: (1) a special limitation, (2) a condition subse-
quent, or (3) a covenant.4
“A special limitation . . . provides that the lease will automatically ter-
minate upon the happening of a stipulated event.” Endeavor Energy Res., L.P.
v. Discovery Operating, Inc., 554 S.W.3d 586, 606 (Tex. 2018). Texas courts
have consistently held that provisions stating that the lease’s duration shall
be “for as long as” certain conditions are met creates a special limitation on
the leasehold interest.5 But a lease will not create a special limitation “unless
_____________________
4
A.W. Walker, Jr., The Nature of the Property Interests Created by an Oil and Gas
Lease in Texas, 8 Tex. L. Rev. 483, 483–84 (1930). Texas courts typically apply the same
principles of law to a mining lease as they do to an oil-and-gas lease, so any oil-and-gas
precedents are applicable. See, e.g., Cole Petro. Co. v. U.S. Gas & Oil Co., 41 S.W.2d 414,
417 (Tex. 1931); Roach v. Chevron U.S.A., Inc., 574 S.W.2d 200, 203 (Tex. Civ. App.—San
Antonio 1978, no writ).
5
See, e.g., Clark v. Perez, 679 S.W.2d 710, 712 (Tex. App.—San Antonio 1984, no
writ) (holding that a lease term stating that the lease “shall be for . . . as long thereafter as
oil, gas or other minerals [are] produced” created a special limitation); Discovery Operating,
554 S.W.3d at 597 (stating that a lease term “as long as oil or gas is produced” will termin-
7
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[its] language is so clear, precise, and unequivocal that [the court] can
reasonably give it no other meaning.” Endeavor Energy Res., L.P. v. Energen
Res. Corp., 615 S.W.3d 144, 148–49 (Tex. 2020) (internal quotation marks
omitted).
“A condition subsequent designates an event which, when it happens,
gives the grantor the right to terminate the estate by reentry.” Field v. Shaw,
535 S.W.2d 3, 5 (Tex. Civ. App.—Amarillo 1976, no writ); see also W.T.
Waggoner Est. v. Sigler Oil Co., 19 S.W.2d 27, 30 (Tex. 1929). A condition
subsequent is typically created by language “allowing the lessor the option of
terminating the lease in the event of the lessee’s failure to pay royalty,” as
distinguished from language that “terminates the lease, without the necessity
of re-entry.” XTO Energy, Inc. v. Pennebaker, No. 07-10-00396, 2011 Tex.
App. LEXIS 10194, at *6–7 (Tex. App.—Amarillo Dec. 29, 2011, no pet.);
Waggoner, 19 S.W.2d at 30.
Finally, a covenant is a provision in a lease the breach of which “does
not automatically terminate the estate, but instead subjects the breaching
party to liability for monetary damages.” See Rogers v. Ricane Enters., Inc.,
772 S.W.2d 76, 79 (Tex. 1989). A covenant is created when the lease imposes
an obligation on the parties, but the breach of that obligation gives rise only
to an action for damages. Cf. Waggoner, 19 S.W.2d at 29.
Paragraph two of the Gravel Lease, viewed in isolation, creates a spe-
cial limitation on Martin Marietta’s leasehold interest. It states that the
Gravel Lease was to extend “for as long as merchantable materials are mined
or produced from the leased premises, or for as long as Lessee shall pay the
advance minimum royalty as hereinbelow specified.” The “for as long as”
_____________________
ate automatically if production permanently ceases). Texas courts will sometimes refer to
such provisions as “habendum clauses.” See id.
8
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language so clearly creates a special limitation on the Gravel Lease under
Texas law that we “can reasonably give it no other meaning.” See Energen,
615 S.W.3d at 148 (cleaned up). Thus, paragraph two causes Martin Mari-
etta’s leasehold estate to terminate automatically unless Martin Marietta is
mining or producing merchantable materials or paying the required royalties.
Because no mining operations ever took place on the Minarcik land, para-
graph two—read independently of any other provision—causes the leasehold
estate to terminate upon a missed royalty payment automatically.
But we cannot view paragraph two in a vacuum: It must be construed
in light of the notice-and-cure provision of paragraph six.6 Paragraph two
says that it is “[s]ubject to the other provisions herein contained[,]” and the
notice-and-cure provision says that it applies “[n]ot withstanding anything
contained in this Lease to the contrary.” The best reading of the Gravel
Lease is that paragraph six’s notice-and-cure provision modifies paragraph
two’s creation of a special limitation such that, upon a missed royalty pay-
ment, the lease does not terminate until Martin Marietta has been notified
and has failed to cure.7
The magistrate judge determined that paragraph six’s notice and cure
provision applied to royalties paid under paragraph 6(c) but not to royalties
paid under 6(b) and 6(a). That construction defies the language of the Gravel
Lease. The notice-and-cure provision makes no distinction between the
various categories of royalty payments and instead applies to “any amount of
_____________________
6
Piranha Partners v. Neuhoff, 596 S.W.3d 740, 746–47 (Tex. 2020) (explaining how
the Texas Supreme Court has “cast off” rules of interpretation like “giving . . . [a] haben-
dum clause [] absolute priority over other clauses.” (cleaned up)).
7
Cf. Pathfinder Oil & Gas Co. v. Great W. Drilling, Ltd., 574 S.W.3d 882, 889 (Tex.
2019) (“[A] specific contract provision controls over a general one.”).
9
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advanced royalties when due.”8
The magistrate judge makes two main contentions in support of her
interpretation.9 First, she avers that if the parties had intended the Gravel
Lease to continue absent mining and royalty payments, they could have in-
cluded express language demonstrating their intent to keep the lease in force.
But paragraph six contains express language demonstrating that intent. It
states explicitly, “This lease shall not terminate unless and until Lessee shall
have failed to pay or tender the amount of advanced royalties due within ten
(10) days following Lessee’s receipt of such notice from Lessor.” That lan-
guage demonstrates a clear intent to keep the lease in force “unless and
until” Martin Marietta has been notified of a missed payment and has failed
to cure.
Second, the magistrate judge stated that “[t]o interpret the notice pro-
vision in Paragraph 6 to preclude automatic termination of the lease term
would render Paragraph 2 meaningless.” No. 4:19cv3293, 2022 U.S. Dist.
LEXIS 230446, at *33 (S.D. Tex. Nov. 22, 2022) (magistrate judge’s
amended memorandum and recommendation). As described above, para-
graph two creates a special limitation—not a covenant or a condition
subsequent—on Martin Marietta’s leasehold interest, meaning that upon the
happening of the stated conditions the lease will terminate automatically. See
_____________________
8
The magistrate judge’s view that the Gravel Lease can never terminate automati-
cally when royalties are paid under 6(c) is not correct. Royalties under 6(c) are due only in
the years following the commencement of mining operations. The lease cannot terminate
when mining or production of materials is ongoing, regardless of what royalties are paid.
That means, when mining operations are ongoing, paragraph 6(c) functions only as a cove-
nant, not a special limitation. But if mining operations have started and then stopped, royal-
ties under 6(c) will still be due, with 6(c) functioning as a special limitation, given that there
is no mining or production continuing the lease in the absence of payment.
9
Elmen does not engage with this issue on appeal and just urges us to affirm for all
the reasons stated by the magistrate judge.
10
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Discovery Operating, 554 S.W.3d at 606.
Far from being meaningless, paragraph two ensures that—in the
absence of both mining operations and relevant royalty payments—Martin
Marietta’s leasehold interest terminates automatically ten days after receiv-
ing notice of non-payment from Elmen. If paragraph two did not exist, Elmen
would have to either take affirmative steps to end the lease (if the remainder
of the lease is read as creating condition subsequent) or settle for a damages
suit (if read as a covenant) upon Martin Marietta’s failure to cure.
In sum, the magistrate judge erred by holding that the Gravel Lease’s
notice and cure provision applies only to royalty payments due under para-
graph 6(c) and not to payments due under paragraph 6(a) or 6(b). On de novo
review, the plain language of the Gravel Lease shows that paragraph six’s
notice and cure provision applies to all types of royalty payments. Therefore,
the lease terminates only if Martin Marietta misses a royalty payment,
receives notice of non-payment, and fails to cure the non-payment within ten
days.
IV.
We now turn to the issue the parties presented to the district court
originally: whether the Gravel Lease had terminated because Martin Marietta
had missed royalty payments, had been adequately notified, and had failed to
cure. Because Martin Marietta did not make timely royalty payments in 2017,
received notice of this failure, and failed to cure its non-payment within the
Gravel Lease’s 10-day grace period, the district court properly granted
Elmen’s motion for summary judgment.10
_____________________
10
We “can affirm the granting of summary judgment on any ground supported by
the record, even where the district court granted summary judgment based upon erroneous
reasoning.” Cherokee Pump & Equip., Inc. v. Aurora Pump, 38 F.3d 246, 249 (5th Cir. 1994)
11
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“When parties file cross-motions for summary judgment, we review
each party’s motion independently, viewing evidence and inferences in the
light most favorable to the nonmoving party.” Green v. Life Ins. Co. N. Am.,
754 F.3d 324, 329 (5th Cir. 2014) (internal quotation marks omitted). Sum-
mary judgments are reviewed de novo. See id. A party is entitled to summary
judgment if “there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a).
A dispute of fact is genuine if “the evidence is such that a reasonable juror
could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 248 (1986).
The interpretation of a contract is a question of law. Fair Grounds,
3 F.3d at 813. Whether a contract provision requires strict or substantial
compliance with its terms is governed by state law in diversity cases. Cf.
Rogers v. Aetna Cas. & Sur. Co., 601 F.2d 840, 844 (5th Cir. 1979). But where
state substantive law requires substantial compliance, “whether a party has
substantially complied with the terms of a contract presents a pure question
of fact that the trier of fact alone may decide.” Turriull v. Life Ins. Co.,
753 F.2d 1322, 1326 (5th Cir. 1985). That is true even in diversity cases
because “where federal rules would entitle litigants to a jury determination
of a particular issue, the court will not yield to a state practice to the
contrary.” Nunez v. Super. Oil Co., 572 F.2d 1119, 1125 (5th Cir. 1978).11
Whether a party has breached a contract is also governed by state law
in diversity cases. See Ziegler v. Champion Mortg. Co., 913 F.2d 228, 229 (5th
Cir. 1990). “Where the evidence is undisputed regarding a person’s conduct
_____________________
(internal citation omitted).
11
Texas law also treats whether a party has substantially complied with the terms
of a contract as a question of fact. See James Constr. Grp., L.L.C. v. Westlake Chem. Corp.,
650 S.W.3d 392, 404–05 (Tex. 2022).
12
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under a contract, the court alone must determine whether such conduct
shows performance or a breach of a contractual obligation.” Trinity Indus.,
Inc. v. Ashland, Inc., 53 S.W.3d 852, 868 (Tex. App.—Austin 2001, pet.
denied).
1. Martin Marietta did not pay or tender royalties in 2017.
The Gravel Lease requires Martin Marietta to pay or tender annual
royalties by April 16 of each year. In Texas, payment occurs when “money
passes from the debtor to the creditor for the purpose of extinguishing the
debt, and the creditor [receives] it for the same purpose.” Rowlett v. Superior
Ins. Co., 325 S.W.2d 921, 923 (Tex. Civ. App.—Eastland 1959, writ ref’d
n.r.e.). “A tender is an unconditional offer by the debtor to pay another . . .
a sum not less in amount than that due on a specified debt or obligation.”
Baucum v. Great Am. Ins. Co., 370 S.W.2d 863, 866 (Tex. 1963). Payment to
a person having no authority to receive it does not discharge the debt. See
Bluntzer v. Dewees, 15 S.W. 29, 30 (Tex. 1891); 58 Tex. Juris. Payment
§ 29. Likewise, tender of payment must be to whom a debt or obligation is
due. Arguelles v. Kaplan, 736 S.W.2d 782, 784 (Tex. App.—Corpus Christi
1987, writ ref’d n.r.e); 58 Tex. Juris. Payment § 6.
If Martin Marietta misses a royalty payment, Elmen is required to
notify it in writing, and, upon such notification, Martin Marietta has ten days
to cure. In Texas, “substantial compliance is the appropriate standard when
evaluating whether a party complied with a contractual notice condition.”
James, 650 S.W.3d at 405. A party substantially complies with a notice pro-
vision when it “communicate[s] sufficient information to enable [the other
party] to reasonably conclude that the [provision] was in play and that the
. . . clock was ticking. See id. at 410. That means “[t]he doctrine of substan-
tial compliance excuses a party’s deviations from a contractual requirement
. . . if those deviations do not severely impair the purpose of the require-
ment.” S. Tex. Elec. Coop. v. Dresser-Rand Co., 575 F.3d 504, 508 (5th Cir.
13
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2009) (applying Texas law). A defect in the mode by which notice was sent
will substantially comply with a notice provision if the content of the com-
munication has put the party on notice. See Barbier v. Barry, 345 S.W.2d 557,
562 (Tex. Civ. App.—Dallas 1961, no writ).
Martin Marietta sent a royalty check addressed to Wilma Minarcik on
April 12, 2017. But Wilma had died in January 2017, and her land passed to
her heirs: Sam and Gary O’Callaghan. Consequently, on April 12, 2017,
Wilma was not the lessor of the Minarcik land—Sam and Gary O’Callaghan
were. But Martin Marietta never sent a check to the O’Callaghans in 2017.
So, Martin Marietta never made its required royalty payment—because the
money never passed to the O’Callaghans—nor tendered one—because ten-
der is not made in Texas when the funds are not given to the person holding
the debt—in 2017. See Rowlett, 325 S.W.2d at 923; Dewees, 15 S.W. at 30.
Martin Marietta contends that the April 12 tender discharged its
royalty obligation because paragraph six of the lease provides that “[n]ot-
withstanding the death of Lessor, or any of them, the payment of royalties
when due hereunder within the time and in the manner provided herein shall
be binding upon the heirs . . . of lessor.” Martin Marietta misreads that por-
tion of paragraph six. That part of the Gravel Lease says that a royalty pay-
ment sent “in the manner provided herein” will bind the lessor’s heirs. Para-
graphs six and sixteen state that payments and tenders must be made to the
lessor and the lessor only.
A payment or tender—such as Martin Marietta’s April 12 check—
made to someone other than the lessor is not made “in the manner provided”
by the Gravel Lease. The sentence in paragraph six that Martin Marietta
relies on would apply only had Martin Marietta paid Wilma Minarcik before
her death, and the O’Callaghans tried to claim an additional payment. There-
fore, Martin Marietta did not pay or tender royalties to the lessor (Sam and
14
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Gary O’Callaghan) on or before April 16, 2017.12
2. Martin Marietta received adequate notice of non-payment and failed to cure
within ten days.
On May 15, 2017, Gary O’Callaghan emailed Martin Marietta asking
it to “please send the 2017 royalty payment to [his] attention at the address
listed below.” Yet Martin Marietta never sent either of the O’Callaghans a
royalty payment in 2017. Rather, Martin Marietta contends that the email
could not serve as notice of non-payment because, contrary to paragraph
sixteen, it was sent as an email.13 It is true that paragraph sixteen requires
notice be “delivered in person or . . . posted by certified or registered mail.”
But Texas law is clear that notice substantially complies with the terms of a
contract even when it is not delivered in the precise manner the contract
contemplates. See Barbier, 345 S.W.2d at 562.
In Barbier, a Texas appellate court held that a party had substantially
complied with a notice provision when it sent a writing that adequately in-
formed the counterparty even where the written notice was not sent by regis-
tered mail as required by the contract. See id. Here too, Gary O’Callaghan’s
email was not sent in the manner prescribed by the Gravel Lease, but it was
received and understood by Martin Marietta, and it unequivocally identified
_____________________
12
Martin Marietta also contends that, because Elmen did not become the lessor
until August 10, 2018, Elmen does not have standing to claim that the O’Callaghans did
not receive a royalty payment. That contention lacks merit because, as discussed above,
failure to cure a missed royalty payment after receiving adequate notice terminates the
Gravel Lease automatically. Therefore, if Martin Marietta had failed to cure a missed roy-
alty payment at any point, it no longer has any rights to the Minarcik land, and Elmen has
standing to seek a declaratory judgment to that effect.
13
Martin Marietta does not dispute that the email constituted a writing as required
by the Gravel Lease. Cf. James, 650 S.W.3d at 409 (“[W]hen a contract requires written
notice . . . substantial compliance with that requirement may not be achieved in the absence
of a writing.”).
15
Case: 23-20023 Document: 00516968730 Page: 16 Date Filed: 11/15/2023
No. 23-20023
the missing royalty payment. Therefore, as a matter of Texas law, Gary
O’Callaghan’s email fulfilled the “purpose of the [notice] requirement” and
substantially complied with paragraphs six and sixteen of the Gravel Lease.
See Dresser-Rand, 575 F.3d at 508. Martin Marietta was on notice of its
missed payment on May 15, 2017, and had ten days to tender or pay the
O’Callaghans. It did not.
Martin Marietta contends that it cured this missed payment by offer-
ing to issue a check to Sam O’Callaghan once he sent it a W-9 tax form. But
Texas law is clear that “tender is an unconditional offer,” and a payment
occurs only when “money passes from the debtor to the creditor . . . and the
creditor [receives] it.” See Baucum, 370 S.W.2d at 866 (emphasis added);
Rowlett, 325 S.W.2d at 923 (emphasis added). Martin Marietta fell short of
tendering payment because its offer was conditioned on Sam O’Callaghan’s
returning a W-9 form. And Martin Marietta did not pay Sam O’Callaghan
because the money never passed to him. Contrary to Martin Marietta’s
assertions, the W-9 form was not necessary to pay or tender the check to the
O’Callaghans: The Gravel Lease made no mention of requiring a W-9 form,
and the IRS outlines steps a payor can take in the absence of the form. 14
In sum, the undisputed facts show that Martin Marietta failed to pay
royalties in 2017, received adequate notice of this failure, and did not cure
within ten days of that notice. Therefore, the Gravel Lease terminated ten
days after Martin Marietta received Gary O’Callaghan’s email, and summary
judgment in favor of Elmen is warranted.15
_____________________
14
See 26 U.S.C. § 3406(a); I.R.S. Pub. 1281 (Rev. 3-2017), Backup Withholding for
Missing and Incorrect Name/TIN(s), 2017 WL 4317150, at *1-3 (Jan. 1, 2017); Moore v.
Hickenlooper, 723 F. App’x 582, 585–86 (10th Cir. 2018) (rejecting the argument that the
absence of a W-9 form excused nonpayment of an award).
15
Because Martin Marietta’s non-payment in 2017 terminated the Gravel Lease,
16
Case: 23-20023 Document: 00516968730 Page: 17 Date Filed: 11/15/2023
No. 23-20023
******
The magistrate judge and district judge reached the right result. The
summary judgment for Elmen and the denial of summary judgment for Mar-
tin Marietta are AFFIRMED.
_____________________
we need not address Elmen’s contention that Martin Marietta also missed royalty pay-
ments in other years.
17