Oliver Lane Chambers, Donna Kay Chambers-Jones, Rhonda Thompson, Clinton L. Chambers and Wife, Brandi N. Chambers v. San Augustine County Appraisal District ( 2015 )

ACCEPTED
12-15-00201-CV
TWELFTH COURT OF APPEALS
TYLER, TEXAS
10/15/2015 3:13:06 PM
Pam Estes
CLERK
NO. 12-15-00201-CV
____________________________________
FILED IN
IN THE TWELFTH COURT OF APPEALS12th COURT OF APPEALS
TYLER, TEXAS
TYLER, TEXAS 10/15/2015 3:13:06 PM
____________________________________ PAM ESTES
Clerk
Oliver Lane Chambers, Donna Kay Chambers-Jones, Rhonda Thompson,
Clinton L. Chambers and wife, Brandi N. Chambers,
Appellants,
v.
San Augustine County Appraisal District,
Appellee.
____________________________________
On Appeal from the 273rd Judicial District Court
San Augustine County, Texas
Trial Court No. CV-13-9481
APPELLEE’S BRIEF
GUIDRY, BATES & HOYT
ATTORNEYS, LLP
Jeff Bates
State Bar No. 01905200
bates@gbhattorneys.com
118 E. Hospital Street, Suite 100
Nacogdoches, Texas 75961
(936) 560-6954 telephone
(936) 560-5996 facsimile
ORAL ARGUMENT REQUESTED
TABLE OF CONTENTS
TABLE OF CONTENTS………………………………………………….…….…ii
INDEX OF AUTHORITIES…………………………………………….………...iii
STATEMENT ON ORAL ARGUMENT ...…………………………….………...iv
STATEMENT OF THE CASE…………………………………………………….v
STATEMENT OF FACTS…………………………………………….…………...1
SUMMARY OF THE ARGUMENT…………………………………….……..….2
ARGUMENT AND AUTHORITIES……………………………………………...3
I. THE TRIAL COURT DID NOT ERR IN GRANTING
THE APPRAISAL DISTRICT’S TRADITIONAL
MOTION FOR SUMMARY JUDGMENT…………………………………3
LEASE PROVISIONS……………………………………………………....3
UNIT DECLARATIONS……………………………………………….…...3
METHOD OF TAXATION………………………………………………....5
APPELLANTS’ LEASE INTERPRETATION………………………..……6
LIMITED ISSUES……………………………………………...………..….8
CONCLUSION AND PRAYER…………………………………………….…..…9
CERTIFICATE OF COMPLIANCE………………………………….……….….10
CERTIFICATE OF SERVICE………………………………………….………...10
APPENDIX……………………………………………………………………….11
Texas Attorney General Opinion DM-490 (1998)…………………………12
ii
INDEX OF AUTHORITIES
Cases:
Hooks v. Samson Lone Star, 58 Tex. Sup. Ct. J. 252 (Tex. 2015)…………………5
Key Operating & Equip., Inc. v. Hegar, 435 S.W.3d 794 (Tex.2014)………….….6
London v. Merriman, 756 S.W.2d 736 (1988)………………………………….….5
Minchen v. Fields, 162 Tex. 73 (1961)………………………………………….…5
Montgomery v. Rittersbacher, 424 S.W.2d 210 (Tex. 1968)………………………6
Pipe Line Co. v. Tichacek, 997 S.W.2d 166 (Tex.1999)…………………………...6
Veal v. Thomason, 159 S.W.2d 472 (Tex. 1942……………………………………7
Wagner & Brown, Ltd. v. Sheppard, 282 S.W.3d 419 (Tex.2008)………………...7
Other Authorities:
Texas Attorney General Opinion DM-490 (1998)…………………………………5
Basics of Oil and Gas Leases – The Producers 88 Lease Form
and its Mutant Progeny, Terry I. Cross, State Bar of Texas,
Oil Gas and Energy Resources 101, October 17, 2012, Houston…………………..8
iii
STATEMENT REGARDING ORAL ARGUMENT
Appellee respectfully requests oral argument.
iv
STATEMENT OF THE CASE
Appellants complain that they do not owe property taxes in San Augustine
County because the surface portion of the real estate for which the minerals are
being taxed is within the boundary of Shelby County. It is undisputed that the
surface estate of Appellants’ real estate lies exclusively within Shelby County.
However, the mineral interest which is being taxed has been unitized, and a portion
of the Unit lies within San Augustine County. Because Appellants’ lands have
been unitized and pooled with other lands, the minerals are appropriately taxed in
both San Augustine and Shelby counties in proportion to the percentage of the unit
lying within each county.
v
STATEMENT OF FACTS
Appellant’s Statement of Facts is correct.
This appeal arises from a summary judgment from the District Court relating
to a protest of property taxes in the following amounts:
Donna Kay Chambers $14.49 [CR 14]
Oliver Lane Chambers $14.49 [CR 16]
Rhonda Thompson $14.49 [CR 18]
Clinton and Brandi Chambers $13.99 [CR 20]
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SUMMARY OF THE ARGUMENT
Appellants’ leases provide that the lessee has the right to pool lessor’s lands
with other lands. Appellants’ leases were, in fact, pooled with other lands and a
designation of unit was appropriately filed. Because the unit contains pooled lands
within both Shelby and San Augustine counties, it is appropriate for both counties
to tax a portion of the mineral interests within the unit in the percentage of total
surface area contained within each county.
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ARGUMENT AND AUTHORITIES
I. The Trial Court Did Not Err in Granting the Appraisal District’s
Traditional Motion for Summary Judgment.
LEASE PROVISIONS
Appellants’ mineral leases [CR 82, 85, and 88] provided their lessee the
right at its option to pool or unitize land covered by the lease with other land. The
leases provide:
“Lessee is hereby granted the right, at its option to pool or unitize any
land covered by this lease with any other land covered by this lease,
and/or with any other land, lease, or leases, as to any or all minerals or
horizons…”. [ CR 82, 85, and 88]
The lease further provides that:
“Any operations conducted on any part of such unitized land shall be
considered, for all purposes, except the payment of royalty, operations
conducted upon said land under this lease. There shall be allocated to
the land covered by this lease within each unit, after deducting any
used in lease or unit operations, which the number of surface acres in
such land (or in each such separate tract) covered by this lease within
the unit bears to the total number of surface acres in the unit, and the
production so allocated shall be considered for all purposes, including
payment or delivery of royalty, overriding royalty and any other
payments out of production, to be the entire production of unitized
minerals from the land to which allocated in the same manner as
though produced therefrom under the terms of this lease.” [CR 82, 85,
and 88]
UNIT DECLARATIONS
It is undisputed that the Chambers’ interests subject to this appeal are
included in the Tigers DU No. 1H Unit (“Tigers Unit”) and the Wolfpack (SL) DU
3
No. 1H Unit (“Wolfpack Unit”). The Unit Designations are included in the
Summary Judgment evidence. [CR 97, 104, and 114]. (The “Wolfpack Unit also
had an amended Designation of Unit which is included in the evidence). From the
face of the documents, the unit designations were in place prior to and on January
1st of the tax year subject to this protest. The designations also demonstrate the
San Augustine/Shelby county boundary consistent with the description set forth in
Appellants’ Statement of Facts. [CR 109, 118]
The Lessees of Appellants Mineral Interests, and all other lessees in the
Unit, XH, LLC, XTO Energy Inc., HHE Energy Company, and Southwestern
Energy Production Company certified pursuant to Railroad Commission
requirements that they held the leases in the unit and that each of said leases:
“provide that the lessee shall have the right and power to designate,
pool or combine, as to the gas rights therein and thereunder, the
acreage coverage thereby, or portions thereof, with other land, lease,
or leases in the immediate vicinity thereof, in order to form a gas
unit…”. [CR 97, 114]
By filing the Unit Designation, lessees invoked those rights. Utilizing their
rights under the leases, the Lessees did pool said gas rights and created the unit.
As provided in the Unit Designation, “production from the unit shall be allocated
proportionately among all of the tracts within the unit and in proportion which the
number of surface acres in each such tracts bears to the total number of surface
acres in the unit.” [CR 97, 115]
4
Both of the designations demonstrate that the leases included therein:
“provide that the lessee shall have the right and power to designate,
pool or combine, as to the gas rights therein and thereunder, the
acreage covered thereby, or portions thereof, with other land, lease, or
leases in the immediate vicinity thereof, in order to form a gas unit or
units of the size and type hereinafter described provided that lessee
shall execute an instrument in writing identifying and describing such
acreage”. [CR 97, 114]. The lessee found it “necessary and
advisable” to “pool and combine said leases and the lands covered
thereby”.
The designation further provides that:
“lessee, acting under and by future of the power and authority
conferred and granted by the provisions of said leases…does hereby
designate, pool, and combine said leases…and the lands covered
thereby…for the purpose of developing and operating the lands and
leases for the production, storage, processing, and marketing of
gas…”. The designation further provides that “production from the
unit shall be allocated proportionately among all of the tracts within
the unit in the proportion which the number of surface acres in each of
such tracts bears to the total number of surface acres in the unit”.
METHOD OF TAXATION
The method of taxation used herein has been consistently applied by
appraisal districts around the state and was approved in Texas Attorney General
Opinion DM-490 and included in the Appendix attached hereto. [CR 121].
The effect of unitization of minerals was also discussed in London v.
Merriman, 756 S.W.2d 736 (1988) and Minchen v. Fields, 162 Tex. 73 (1961).
The Texas Supreme Court recently discussed the concept of pooling in
Hooks v. Samson Lone Star, 58 Tex. Sup. Ct. J. 252 (Tex. 2015). They stated:
5
“To resolve this dispute, we apply the “ ‘primary legal consequence’
of pooling to this case---that production anywhere on a pooled unit is
treated as production on every tract in the unit.” See Key Operating &
Equip., Inc. v. Hegar, 435 S.W.3d 794, 798-99 (Tex.2014) (quoting
See Pipe Line Co. v. Tichacek, 997 S.W.2d 166, 170 (Tex.1999)).
The reason a lessor receives royalties under a pooling agreement, even
if no production occurs directly on that lessor’s tract, is because
production elsewhere on the pooled unit is attributed to the lessor’s
tract. And the reason the lessor receives royalties on production
attributed to the lessor’s tract is because of the underlying lease. It
follows that a lessor’s royalty on production from the unit as a whole
reflects the lessor’s royalty on production from its individual tracts in
proportion to the size of the tracts relative to the overall unit. This
accords with the nature of pooling, which “effects a cross-conveyance
among the owners of minerals under the various tracts of royalty or
minerals in a “pool so that they all own undivided interests under the
unitized tract in the proportion their contribution bears to the unitized
tract.” Montgomery v. Rittersbacker, 424 S.W.2d 210, 213
(Tex.1968). In other words, the royalty owed on production from the
whole unit is necessarily tied to the royalty owed on production from
the lessor’s individual tracts. To increase one is to increase the other.”
Having pooled and unitized their mineral interests with other mineral
interests lying within the boundaries of San Augustine Texas, Appellants have the
obligation to pay taxes on said mineral interests within the Unit to the extent they
lie within the boundaries of San Augustine Texas.
APPELLANTS’ LEASE INTERPRETATION
While Appellee believes that a cross conveyance was created by unitization,
Appellants’ reliance upon the words “cross conveyance” is not dispositive. The
fact that the tracts have been pooled and unitized and are treated as a single unit for
all purposes except payment of royalties is sufficient to permit proportional
6
taxation of the unit by the counties. The term cross conveyance (as opposed to
unitize or pool) becomes relevant only when issues arise relating to potential
termination of the unit or expiration of a lease as occurred in Wagner & Brown,
Ltd. v. Sheppard, 282 S.W.3d 419 (Tex.2008).
The language that Appellant describes as “anti-cross conveyance” language
reads:
“The production so allocated shall be considered for all purposes,
including the payment or delivery of royalty, to be the entire
production of pooled minerals from the portion of said land covered
hereby and included in said unit in the same manner as though
produced from said land under the terms of this lease.
Notwithstanding such allocation, the formation of any unit hereunder
which includes land not covered by this lease shall not have the effect
of exchanging or transferring any interest under this lease (including,
without limitation, any shut in royalty which may become payable
under this lease) between parties owning interests in land covered by
this lease and parties owning interests in land not covered by this
lease.” (emphasis added) [CR 131, 135, 139].
Appellee does not concede that the language negates a cross
conveyance. The words “cross conveyance” do not even exist in the
language relied upon by Appellant. Nonetheless, in a discussion of a lease
provision from another lease form which actually reads: “Pooling hereunder
shall not constitute a cross-conveyance of interest”, one author wrote the
following:
The last sentence, negating a cross-conveyance, is meant to fortify the
authority to modify units. Generally, in Texas, pooling does
accomplish a cross-conveyance, Veal v. Thomason, 159 S.W.2d 472
7
(Tex. 1942), and if a cross-conveyance is accomplished, then the
modification of the unit, i.e., “unconveying,” is harder to reconcile.
Disclaiming that pooling is a cross-conveyance is an attempt to keep
the relationship resulting from the pooling as merely contractual in
nature. Basics of Oil and Gas Leases – The Producers 88 Lease Form
and its Mutant Progeny, Terry I. Cross, State Bar of Texas, Oil Gas
and Energy Resources 101, October 17, 2012, Houston.
Another interpretation of the language relied upon by Appellants to simply
provide that each lessor shall retain their contractual interest “under their lease”,
and each shall be paid for their proportionate share of the production according to
their lease despite unitization.” In other words, each lessor within the unit shall be
paid according to the terms of their specific lease, and that their rights under their
lease shall not be cross conveyed to another lessor in the unit who may have
received a better or worse lease. Whatever rights each lessor may have regarding
the right to receive shut-in royalties, for example, are not transferred to other
members of the unit.
LIMITED ISSUES
Appellants do not contend that their total tax is in excess of 100% valuation.
Appellants do not contest the methods of appraisal. Appellants have not contested
the validity of the unit for any purpose other than assessment of tax. Appellants’
sole argument is that their mineral estate should be taxed in Shelby County because
their surface estate is within Shelby County and despite the unitization and pooling
with lands that cross the county line. There is no question of fact or law and
8
Appellee is entitled to summary judgment on the pleadings. Appellee incorporates
Plaintiff’s Original Petition by reference herein. [CR 5].
CONCLUSION AND PRAYER
The contractual language in the lease allows the lessee to pool or unitize the
lease with other lands. The lessee in this case did pool and unitize. A portion of
the unit which was created lies within the boundary of the entities for which the
San Augustine Appraisal District has taxing authority, and did so on January 1st of
the year of the protest.
Appellee prays that the Summary Judgment be affirmed and for such other
and further relief to which it may be entitled.
Respectfully submitted,
GUIDRY, BATES & HOYT
ATTORNEYS, LLP
118 E. Hospital Street, Suite 100
Nacogdoches, Texas 75961
(936) 560-6954 telephone
(936) 560-5996 facsimile
bates@gbhattorneys.com
/s/ Jeff Bates____________
Jeff Bates
State Bar No. 01905200
9
CERTIFICATE OF COMPLIANCE
I certify that this brief complies with the limitation of Tex.R.App.P.
9.4(i)(2)(B) because this brief contains 1,943 words, excluding the parts exempted
by Tex.R.App.P. 9.4(i).
/s/ Jeff Bates__________________
Jeff Bates
CERTIFICATE OF SERVICE
I hereby certify that the foregoing brief has been provided to counsel listed
below via electronic service on this 15th day of October, 2015.
April Gregston Prince
Mettauer Law Firm
403 Nacogdoches Street, Suite 1
PO Box 2016
Center, Texas 75935
april@mettauerlaw.com
/s/ Jeff Bates____________
Jeff Bates
10
APPENDIX
11