Union Gas Corp. v. Dorothy Arnold ( 2003 )

NUMBER 13-01-737-CV

COURT OF APPEALS

THIRTEENTH DISTRICT OF TEXAS

CORPUS CHRISTI-EDINBURG

  UNION GAS CORP., Appellant,

v.

DOROTHY ARNOLD, Appellee.

On appeal from the 267th District Court of Victoria County, Texas.

MEMORANDUM OPINION

Before Justices Hinojosa, Rodriguez, and Wittig ⁽¹⁾

Opinion by Justice Wittig

This memorandum opinion is the fourth of seven related cases. The factual background, the standard of review, and a majority of the issues are addressed in our prior opinion, Union Gas Corp. v. Gisler, No. 13-01-00734-CV, 2003 Tex. App. LEXIS 7581 (Corpus Christi Aug. 29, 2003, no pet. h.). In this case, Union Gas Corporation (Union) appeals the summary judgment granted in favor of appellee, Dorothy T. Arnold. Union asserts that the trial court entered contradictory summary judgments on essentially the same though separate contract language. It argues that appellee should not have been awarded royalties accruing before August 7, 2000, the recordation date of the unit designation. ⁽²⁾ We agree with Union that the trial court erred in awarding unit royalties before August 7, 2000. Thus, we reverse and render only the portion of the summary judgment dealing with this issue, and affirm the balance of the trial court's judgment. We have previously addressed Union's other issues relating to severance, interpleader, and its motion to dismiss. We adopt those holdings from Gisler, 2003 Tex. App. LEXIS 7581, at *2, *20, *29, and overrule these issues. While Union complained of the attorney's fee award in the Gisler case, it did not complain of the attorney's fee award to appellee. Therefore, this issue is waived. Tex. R. App. P 38.1(e), (h).

I

Union contracted with appellee and various adjoining land owners for multiple oil and gas leases beginning in 1999. These leases contained pooling provisions allowing for unitized production of gas in ten adjacent tracts. The designation for the pooling of the Watts-Gisler #1 well was recorded August 7, 2000. This is the only well in the unit, and it began production on March 27, 2000. The well is located upon land owned by Jimmie B. Gisler, Jenell Gisler, Ralph K. Gisler, and Doris Gisler. While the Gislers became part of the pooled unit, they claimed entitlement to 100% of the royalties from the date of first production until the pooling designation was recorded on August 7, 2000. We agreed with the Gislers and so held in the prior related case. Gisler, 2003 Tex. App. LEXIS 7581, at *13.

Union brought appellee into the initial litigation by way of a third-party action and interpleader. Appellee filed a general denial and, by her amended counterclaim, sought a declaration that she was due royalties from first production on March 27, 2000, and that she was entitled to a unit royalty of .01790690. Appellee also contended that she was entitled to contractual liquidated damages of $10 per day. Appellee filed a motion for summary judgment on the lease contract issues, inception-of-royalty issues, attorney's fees, interest, and costs. Appellee's motion was granted by the trial court and is the genesis of this appeal.

The Gislers' lease provided that the unit designation was not effective until its recordation (August). While appellee's lease also had a provision that the lease's pooling option was effective on the date of recordation, the unit designation itself provided that the pooling was retroactively effective to the date of first production (March). The trial court agreed with appellee and granted her motion for summary judgment. Union appealed. As we noted in our first opinion, appellee apparently did not join the Gislers' claim for bad faith pooling and other claims. ⁽³⁾ The trial court severed essentially all the contract claims of the various parties and left the tort claims of the Gislers to be adjudicated at a later date. ⁽⁴⁾

II

Union filed essentially the same briefs in the seven related cases. We adopt our ruling on Union's issues two, four, five, and six relating to the Gislers' claim to the initial royalties, interpleader, severance, and Union's motion to dismiss. Gisler, 2003 Tex. App. LEXIS 7581, at *2, *13, *20, *29. We now address Union's issues relating to this appellee.

III

Union makes the following arguments. If, as we have previously held, the pooling is not effective until the August 7 recordation date, then there is no unit production until that time. The same effective date should be applied to all leases. There is only one well, and, while that well began production in March, there was no producing well in the pooled unit until August. Thus, no royalty payments were due to appellee until August 7th. In short, appellee was not entitled to royalties until the unit was properly pooled. Furthermore, the court's construction of the language of the various leases must be consistent, and the same effective pooling date should be applied to all leases. Union cites Sauder v. Frye, 613 S.W.2d 63, 64 (Tex. Civ. App.-Fort Worth 1981, no writ). Sauder held:

We find that the provision in the Frye lease evidenced the intent of the parties that for unitization to be effective one of its required conditions was the recordation of the designation of pooling. Only at that point would the unitization validly come into being under the terms of the lease.

Id.

Union further argues that the unit designation language relied on by appellee was not a contract or an offer; there was no new consideration; and the designation was just that, a designation. The unit designation language provided in the last paragraph: "IN WITNESS WHEREOF, this instrument is executed this 29th day of July, 2000 but effective as of the date of first production from the Union Gas Operating Company, Watts-Gisler #1 well." This contrasts with appellee's lease provision that gave Union the right to pool. The lease provided that the unit was effective upon recordation.

Appellee counters that Union is estopped from raising this argument on appeal because in its third-party claim it sought to have the unit retroactively effective to the March date of first production. She cites Samedan Oil Corp. v. Louis Dreyfus Natural Gas Corp., 52 S.W.3d 788 (Tex. App.-Eastland 2001, pet. denied). That case held that because Samedan had consistently asserted that a Colorado court's arbitration award was a final judgment disposing of all claims and issues, it was estopped to later assert otherwise. Id. at 793. Appellee also cites Austin Transportation Study Policy Advisory Committee v. Sierra Club, 843 S.W.2d 683, 689 (Tex. App.-Austin 1992, writ denied) (party may not request that the trial court take a particular action and then complain on appeal that the court committed error in granting its request).

While appellee's argument is partially correct that Union made this assertion, ⁽⁵⁾ she ignores other alternative assertions made by Union. Specifically, Union sought a uniform determination applicable to all royalty owners. It sought to avoid the competing claims of the Gislers, appellee, and the other lessors in the unit. In its supplemental counterclaim and third-party interpleader claim, Union asserted it was liable for royalties due to some or all of the other parties. It also delineated the competing claims of the Gislers and other lessors for the first production. Specifically, Union sought relief from having to pay royalties twice and to pay inconsistent claims. Thus, Union did not consistently plead solely for retroactive application of royalty payments, and Samedan is not controlling. See Samedan Oil Corp., 52 S.W.3d at 793. Similarly, the argument under Sierra Club fails. See Sierra Club, 843 S.W.2d at 689.

Appellee next argues that her lease is effective notwithstanding other leases. Appellee's lease provides: "[Union] shall file for record . . . an instrument describing and designating the pooled acreage as a pooled unit; and upon such recordation the unit shall be effective as to [appellee and Union] . . . irrespective of whether or not the unit is likewise effective as to all other owners." The lease further provides the pooled unit may include land or leases on which a well is capable of producing gas or has been completed and regardless of whether the production was secured before or after execution of the lease or pooling designation. The entire acreage constituting the unit shall be treated as if it were included in appellee's lease, except for the payment of royalties.

Appellee also argues that no provision should be read in isolation from the rest of the contract, citing Gibson Drilling Co. v. B & N Petroleum, Inc., 703 S.W.2d 822, 826 (Tex. App.-Tyler 1986, writ ref'd n.r.e.). We agree. We also note that in the cited case, the unit designation was recorded prior to production, which would have obviated this litigation and the resultant harm to appellee. See id. at 824. We are also constrained to construe all of the leases, Union's late recorded unit designation, and the interplay of these instruments, which we discuss below.

Appellee further asserts, based on her lease, that the unit is effective as to her regardless of whether it is effective to the other lessors. This argument cannot stand, however, if the unit was not effectively pooled until recordation, as we discuss below.

Finally, appellee argues ratification. Because Union had a common law obligation to protect from drainage, Union's unilateral pooling designation filed August 7 and stated to be retroactive, was an appropriate response to this duty. ⁽⁶⁾ This theory was not advanced in appellee's summary judgment motion and accordingly is not properly before us. Tex. R. Civ. P. 166a(c).

IV

Absent express authority, a lessee has no power to pool the lessor's interests with the interests of others. ⁽⁷⁾ Southeastern Pipe Line Co. v. Tichacek, 997 S.W.2d 166, 170 (Tex. 1999); Browning Oil Co., Inc. v. Luecke, 38 S.W.3d 625, 640 (Tex. App.-Austin 2000, pet. denied). "For pooling to be valid, it must be done in accordance with the method and purposes specified in the lease." Tichacek, 977 S.W.2d at 170. "The lessors' land may be pooled only to the extent stipulated in the lease." Jones v. Killingsworth, 403 S.W.2d 325, 327 (Tex. 1965). A contract is not ambiguous if it can be given a certain or definite legal meaning or interpretation. Columbia Gas Transmission Corp. v. New Ulm Gas, Ltd., 940 S.W.2d 587, 589 (Tex. 1996); Friendswood Dev. Co. v. McDade + Co., 926 S.W.2d 280, 282 (Tex. 1996).

In Luecke, the Austin appeals court succinctly articulated rules for oil and gas contract application of pooling clauses. Luecke, 38 S.W.3d at 640. Luecke observed:

1. Lessee's authority to pool is derived solely from the terms of the lease; a lessee is without such power absent express authority.

2. Parties to an oil and gas lease must strictly comply with its terms.

3. An oil and gas lease is a contract to be interpreted as such.

4. In construing an unambiguous oil and gas lease, the court must determine the intention of the parties as expressed in the lease.

5. The writing alone expresses the intent of the parties. Thus, the court will enforce an unambiguous lease as written.

Id.

From secondary sources, we also are informed that most pooling clauses now affirmatively require the unitization declaration to be filed of record. Cummings: "Pooling Issues-Avoiding Pitfalls," 1995 State Bar of Texas Advanced Oil, Gas & Mineral Law Course. If the pooling clause requires recordation, it is not effective until actually filed in the appropriate county; execution and acknowledgment is insufficient. Id.

Union did not pool in accordance with its lease with the Gislers, insofar as the effective inception date is concerned. Union cannot escape its prior and material contractual obligations to the Gislers. As Union admits, it must comply with the leases in forming the unit. See Tichacek, 997 S.W.2d at 170. The Gislers' lease was the situs of Watts-Gisler #1 well. The pooling rights of the parties emanated from the various leases. See id.; Killingsworth, 403 S.W.2d at 327-28; Luecke, 38 S.W.3d at 640. Because the unit was not effectively pooled until the August 7 recordation date, there was no unit production until that time. See Gisler, 2003 Tex. App. LEXIS 7581, at *10-*13. In other words, although there was production from March 27 on the Gislers' lease, there was no producing well in the pooled unit until August 7. We also agree with Union that the legal construction of the various leases and unit designation should be consistent. We accordingly apply the rationale of Sauder that the leases evidence the intent of the parties that unitization be effective upon the recordation. See Sauder, 613 S.W.2d at 64. "Only at that point would the unitization validly come into being under the terms of the lease." Id.

V

In appellee's motion for summary judgment, she also contended that she was entitled to a unit royalty of .01790690. Union does not dispute the percentage of unit royalty interest, as such. It only indirectly disputed this portion of the summary judgment in its interpleader and severance arguments. As stated, we overrule these arguments. See Gisler, 2003 Tex. App. LEXIS 7581, at *20, *29. Union did not appeal the award of attorney's fees, interest, and the contractual liquidated damages of $10 per day in this case.

VI

The judgment of the trial court is affirmed in all aspects save the inception date of appellee's right to royalties. That date is August 7, 2000. The portion of the judgment awarding royalties before August 7, 2000 is reversed and rendered. The remainder of the judgment is affirmed, including appellee's entitlement to her proportional royalties beginning August 7, 2000, attorney's fees, interest, liquidated damages, and costs.

DON WITTIG

Justice

Opinion delivered and filed

this 30th day of October , 2003.

1. Retired Justice Don Wittig assigned to this Court by the Chief Justice of the Supreme Court of Texas pursuant to Tex. Gov't Code Ann. § 74.003 (Vernon 1998).

2. The argument was in the alternative. Either the Gislers were not entitled to receive 100% of the royalties before August 7, 2000, or the other appellees in the related cases were not entitled to their unit share in the same time period.

3. In appellee's request for declaratory relief, she asserts a bad faith issue. Although appellee has a prayer for general relief in her counterclaim, we do not see a bad faith claim in that pleading. In any event, we do not address the potential bad faith claim of appellee; such a claim, if any, was presumably severed.

4. See footnote 3.

5. Indeed, in one of its arguments to the court, counsel for Union likewise took this position.

6. We assume, without deciding, that appellee's drainage claim, if any, was severed. We previously noted some of the inequities brought about by Union's nonpayments, late payments, and unilateral late designation of the pooled unit. See Gisler, 2003 Tex. App. LEXIS 7581, at *13, *20.

7. The Texas Supreme Court notes this authority is usually found in the lease's pooling clause. Southeastern Pipe Line Co. v. Tichacek, 997 S.W.2d 166, 170 (Tex. 1999).