San Augustine Appraisal District v. Oliver Lane Chambers ( 2021 )

NO. 12-20-00128-CV
IN THE COURT OF APPEALS
TWELFTH COURT OF APPEALS DISTRICT
TYLER, TEXAS
SAN AUGUSTINE COUNTY § APPEAL FROM THE 273RD
APPRAISAL DISTRICT,
APPELLANT
V.
§ JUDICIAL DISTRICT COURT
OLIVER LANE CHAMBERS, DONNA
KAY CHAMBERS-JONES, RHONDA
THOMPSON, CLINTON L.
CHAMBERS, AND BRANDI N.
CHAMBERS, § SAN AUGUSTINE COUNTY, TEXAS
APPELLEES
OPINION
San Augustine County Appraisal District appeals from the trial court’s summary
judgment rendered in favor of Oliver Lane Chambers, Donna Kay Chambers-Jones, Rhonda
Thompson, Clinton L. Chambers, and Brandi N. Chambers in their suit contesting SCAD’s
assessment of ad valorem tax on certain mineral interests. In its sole issue, SCAD asserts the
trial court erred in granting Appellees’ motion for summary judgment and denying SCAD’s
motion for summary judgment. We affirm.
BACKGROUND
Appellees, who own 652 acres of land in Shelby County, entered into oil and gas leases
that unitized their mineral interests to form two separate gas units. Also contained in those units
were interests from land located in San Augustine County. In 2013, SCAD sent notices of
appraised value to Appellees for their fractional royalty interest in each of the two production
units and stated the owner’s proposed tax estimate. Appellees filed a notice of protest asserting
that SCAD does not have authority to tax their mineral interests. The appraisal review board
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ordered that the chief appraiser make no change to the appraisal records concerning Appellees’
property.
Appellees sought judicial review of that order, contending their mineral interests are
properly taxed in Shelby County. SCAD moved for summary judgment, arguing that Appellees
had cross-conveyed their mineral interests with other mineral owners and are appropriately taxed
in both Shelby and San Augustine Counties. The trial court granted the motion, and Appellees
appealed that judgment to this court. On review, we concluded, as a matter of law, that
Appellees’ leases authorized pooling but prohibited cross-conveyance of interests. See
Chambers v. San Augustine Cty. Appraisal Dist., 514 S.W.3d 420, 425 (Tex. App.―Tyler
2017, no pet.). Therefore, SCAD did not establish that Appellees own an interest in pooled
minerals located in San Augustine County or had an obligation to pay taxes in that county. Id.We reversed the trial court’s judgment and remanded the cause to the trial court. Id.On remand, Appellees filed a motion for summary judgment asserting that, because their
leases expressly prevented any cross-conveyance from occurring when a unit was formed, their
interests could not have been cross-conveyed with any interests in San Augustine County, their
royalty interests lie outside of SCAD’s boundaries, and SCAD is not authorized to assess ad
valorem taxes on Appellees’ mineral interests. SCAD filed its second motion for summary
judgment asserting the affirmative defenses of waiver, ratification, and estoppel. The trial court
granted Appellees’ motion and denied SCAD’s motion. This appeal ensued.
SUMMARY JUDGMENT
In its sole issue, SCAD contends the trial court erred in granting Appellees’ motion for
summary judgment and denying SCAD’s motion for summary judgment. In sub-parts one
through three, SCAD asserts that, notwithstanding any language in the leases, it should prevail
on its affirmative defenses. SCAD argues that, by signing division orders that acknowledge their
interests and ownership within the units and accepting royalty payments pursuant to the division
orders, Appellees waived their right to protest the cross-conveyance language in their leases,
ratified the unit designations, and agreed to combine and share in the production from the units,
effecting a cross-conveyance of their mineral interests with other mineral interest owners in the
units. Additionally, SCAD asserts that Appellees are estopped from denying their ratification of
the unit designations because they accepted royalty payments. Therefore, SCAD argues,
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Appellees’ mineral interests are a properly taxable situs within SCAD’s boundaries because the
units extend into San Augustine County.
Standard of Review
We review the trial court’s decision to grant summary judgment de novo. Tex. Mun.
Power Agency v. Pub. Util. Comm’n, 253 S.W.3d 184, 192 (Tex. 2007). The movant for
traditional summary judgment has the burden of showing that there is no genuine issue of
material fact and it is entitled to judgment as a matter of law. TEX. R. CIV. P. 166a(c); Mann
Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex. 2009). When a
defendant moves for summary judgment on an affirmative defense, it must prove all the essential
elements of its defense as a matter of law. Ryland Group, Inc. v. Hood, 924 S.W.2d 120, 121
(Tex. 1996) (per curiam). Once the movant establishes a right to summary judgment as a matter
of law, the burden shifts to the nonmovant to present evidence raising a genuine issue of material
fact, thereby precluding summary judgment. See City of Houston v. Clear Creek Basin Auth.,
589 S.W.2d 671, 678-79 (Tex. 1979). Review of a summary judgment requires that the evidence
be viewed in the light most favorable to the nonmovant. Town of Shady Shores v. Swanson,
590 S.W.3d 544, 551 (Tex. 2019). We indulge every reasonable inference and resolve any
doubts in the nonmovant’s favor. Ernst & Young, L.L.P. v. Pac. Mut. Life Ins. Co., 51 S.W.3d
573, 577 (Tex. 2001).
When both sides move for summary judgment and the trial court grants one motion but
denies the other, the appellate court should review both sides’ proof and determine all questions
presented by the motions. Mid-Continent Cas. Co. v. Global Enercom Mgmt., Inc., 323 S.W.3d
151, 153-54 (Tex. 2010) (per curiam). The appellate court should then render the judgment the
trial court should have rendered. Id. at 154.
Applicable Law
Ratification occurs when a person who knows all the material facts confirms or adopts a
prior act that did not then legally bind him and which he could have repudiated. Bank of Am.,
N.A. v. Prize Energy Res., L.P., 510 S.W.3d 497, 505 (Tex. App.―San Antonio 2014, pet.
denied). Proof of ratification requires evidence establishing (1) approval by act, word, or
conduct, (2) with full knowledge of the facts of the earlier act, and (3) with the intention of
giving validity to the earlier act. Id. at 505-06.
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Waiver is defined as an intentional relinquishment of a known right or intentional
conduct inconsistent with claiming that right. Jernigan v. Langley, 111 S.W.3d 153, 156 (Tex.
2003) (per curiam). There can be no waiver of a right if the person sought to be charged with
waiver says or does nothing inconsistent with an intent to rely upon such right. Id. When the
surrounding facts and circumstances are undisputed, waiver is a question of law. Id. at 156-57.
Quasi estoppel precludes a person from asserting, to another’s disadvantage, a right
inconsistent with a position previously taken. Lopez v. Munoz, Hockema & Reed, L.L.P., 22
S.W.3d 857, 864 (Tex. 2000). The doctrine applies when it would be unconscionable to allow a
person to maintain a position inconsistent with one in which he acquiesced. Id.Analysis
Appellees moved for summary judgment on the basis that their leases prevented cross-
conveyance of interests and their royalty interests lie outside the boundaries of San Augustine
County. Therefore, they argued, SCAD has no authority to tax their interests.
Appellees’ leases contain pooling provisions granting the lessee power to pool or
combine acreage covered by two or more leases. See Browning Oil Co. v. Luecke, 38 S.W.3d
625, 634 (Tex. App.―Austin 2000, pet. denied) (op. on reh’g). The legal effect of a unitized
lease is the sharing of the proceeds of production. See French v. George, 159 S.W.2d 566, 569
(Tex. Civ. App.―Amarillo 1942, writ ref’d). While there is a presumed intent to cross-convey
participating lessors’ interests, pooling does not require cross-conveyance. See Southland
Royalty Co. v. Humble Oil & Refining Co., 249 S.W.2d 914, 916 (Tex. 1952). As we
determined in the prior appeal of this case, Appellees’ leases expressly prohibited cross-
conveyance of interests. Chambers, 514 S.W.3d at 425; see also Wagner & Brown, Ltd. v.
Sheppard, 282 S.W.3d 419, 422 (Tex. 2008); Southland Royalty Co., 249 S.W.2d at 916. In the
absence of cross-conveyancing, Appellees do not own an interest in minerals located in other
tracts in the pool. See Southland Royalty Co., 249 S.W.2d at 916. Accordingly, Appellees’
interests lie in Shelby County. SCAD has no authority to tax those interests. Thus, Appellees
established entitlement to judgment as a matter of law. See Fielding, 289 S.W.3d at 848.
SCAD argues that, notwithstanding any language in the leases, Appellees, “via execution
of their division orders and acceptance of royalties thereunder, have subsequently ratified the
unit designations . . . .” Any terms contained in the leases which purport to prevent the cross-
conveyance of Appellees’ interests, the argument continues, are “subordinated and superseded”
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by the division orders. SCAD also contends that by executing the division orders and accepting
royalties, Appellees have waived any right to protest the cross-conveyance of their mineral
interests. It follows, SCAD asserts, that by ratifying the unit designations and agreeing to share
in the production of the units, Appellees’ royalty payments are property that has a taxable situs
within the boundaries of San Augustine County.
Appellees signed division orders authorizing and directing distribution of funds from the
sale of oil and gas from the pooled units. See TEX. NAT. RES. CODE ANN. § 91.401(3) (West
2011); Yzaguirre v. KCS Res., Inc., 47 S.W.3d 532, 539 (Tex. App.―Dallas 2000), aff’d, 53
S.W.3d 368 (Tex. 2001). The division orders include the provision: “This Division Order does
not amend any lease or operating agreement between the undersigned and the lessee or operator
or any other contracts for the purchase of oil and gas.”
It may be said that signing the division order and accepting payment ratifies the
unitization. See Roberts v. Lone Star Producing Co., 369 S.W.2d 373, 377 (Tex. Civ.
App.―Eastland 1963, no writ). However, Appellees are not contesting unitization. Unitization,
in the absence of cross-conveyance, does not entitle SCAD to assess taxes on Appellees’
interests in the pooled units. Whether there is a cross-conveyance depends on the lease
language, not the presence of unitization. See Sheppard, 282 S.W.3d at 422; Southland Royalty
Co., 249 S.W.2d at 916. We have already determined that the leases involved in this case
authorize pooling but prohibit cross-conveyance of interests. See Chambers, 514 S.W.3d at 425.
Division orders do not convey royalty interests or supplant oil and gas leases. Yzaguirre, 47
S.W.3d at 539. While a division order can create a contractual relationship, it does not transfer
title. Rogers v. Ricane Enters., Inc., 884 S.W.2d 763, 770 (Tex. 1994).
Accordingly, signing division orders and accepting payment does not, through any
purported ratification of unitization, act as a ratification of cross-conveyancing. See Bank of
Am., N.A., 510 S.W.3d at 505. Cross-conveyancing, not unitization, is the factor SCAD needs to
prove to show entitlement to tax Appellees.
Moreover, approving the unitization by signing the division orders and accepting
payment does not modify the lease. See Yzaguirre, 47 S.W.3d at 539. Appellees did not, by
these acts, relinquish their right to disavow cross-conveyancing. See Jernigan, 111 S.W.3d at
156. Further, signing the division orders and accepting payment is not inconsistent with an
intent to rely on the lease provision prohibiting cross-conveyance of interests. See id. Appellees
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have not waived the right to rely on their lease language prohibiting cross-conveyancing of
interests. See id.
Next, SCAD argues that Appellees are estopped from asserting that the lease prevents
cross-conveyancing because they ratified the cross-conveyance, the unit designations, and
agreement to share in production of the units by signing the division orders and accepting
payment. In other words, SCAD argues that Appellees cannot accept the benefits of a
transaction, the unitization, and then take the position that there is no cross-conveyance to avoid
paying taxes on their mineral interests.
As explained above, signing the division orders and accepting payment did not result in a
ratification of cross-conveyance. Moreover, Appellees have the right to prohibit cross-
conveyance of interests. See Sheppard, 282 S.W.3d at 422. Appellees are not estopped from
relying on their lease language, which is not inconsistent with accepting payment pursuant to
division orders, their entitlement to which is derived from unitization. See Lopez, 22 S.W.3d at
864.
In the fourth sub-part of its issue, SCAD explains that its assessment of ad valorem taxes
on Appellees’ mineral interests strictly follows the methodology widely and continually used by
appraisal districts throughout Texas. Taxing entities rely heavily upon unitization agreements
and division orders to apportion ad valorem taxes on mineral interests and depriving appraisal
districts the ability to rely on them, SCAD contends, would adversely affect assessment of taxes
on minerals. SCAD opines that Appellees’ position, if adopted, “would create uncertainty in
every royalty payment,” and taxing districts would be forced to review every lease, many of
which are not public record.
To address this complaint, we turn to the tax code. A royalty interest is subject to
taxation as real estate and taxable by a taxing unit if located in the taxing unit on January 1. TEX.
TAX CODE ANN. § 21.01 (West Supp. 2020); Electra Indep. Sch. Dist. v. W.T. Waggoner
Estate, 168 S.W.2d 645, 649 (Tex. 1943). SCAD can tax minerals outside San Augustine
County when cross-conveyance theory is properly applied. See Montgomery v. Rittersbacher,
424 S.W.2d 210, 213 (Tex. 1968). No Texas statute provides for taxation of minerals outside the
boundaries of the taxing unit merely by virtue of the fact that they are included in a production
unit pursuant to a pooling agreement. No statute provides that pooling results in a cross-
conveyance. As explained above, Appellees’ leases prohibit cross-conveyance of interests.
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SCAD is required to apply the law, even if it means adapting as the applicable law is clarified
through the judicial process.
SCAD has not, by the application of affirmative defenses or otherwise, raised an issue of
material fact regarding whether it may assess taxes on Appellees’ interests. Neither has it shown
that it is entitled, as a matter of law, to collect ad valorem taxes on Appellees’ mineral interests.
Therefore, SCAD did not show that summary judgment for Appellees is precluded or establish
its right to summary judgment. See Fielding, 289 S.W.3d at 848; Hood, 924 S.W.2d at 121. We
overrule SCAD’s sole issue.
DISPOSITION
Appellees established their right to judgment as a matter of law, and SCAD neither raised
a fact question nor established its right to judgment as a matter of law based on its affirmative
defenses. Accordingly, the trial court did not err in granting Appellees’ motion for summary
judgment and denying SCAD’s motion for summary judgment. We affirm the trial court’s
judgment.
GREG NEELEY
Justice
Opinion delivered January 21, 2021.
Panel consisted of Worthen, C.J., Hoyle, J., and Neeley, J.
(PUBLISH)
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COURT OF APPEALS
TWELFTH COURT OF APPEALS DISTRICT OF TEXAS
JUDGMENT
JANUARY 21, 2021
NO. 12-20-00128-CV
SAN AUGUSTINE APPRAISAL DISTRICT,
Appellant
V.
OLIVER LANE CHAMBERS, DONNA KAY CHAMBERS-JONES, RHONDA
THOMPSON, CLINTON L. CHAMBERS, AND BRANDI N. CHAMBERS,
Appellees
Appeal from the 273rd District Court
of San Augustine County, Texas (Tr.Ct.No. CV-13-9481)
THIS CAUSE came to be heard on the oral arguments, appellate record, and
briefs filed herein, and same being considered, it is the opinion of this court that there was no
error in the trial court’s judgment.
It is therefore ORDERED, ADJUDGED and DECREED that the judgment of
the court below be in all things affirmed, and that all costs of this appeal are hereby adjudged
against the Appellant, SAN AUGUSTINE APPRAISAL DISTRICT, for which execution may
issue, and that this decision be certified to the court below for observance.
Greg Neeley, Justice.
Panel consisted of Worthen, C.J., Hoyle, J., and Neeley, J.
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