EOG Resources, Inc. v. James R. Hurt, Jr.

COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 02-11-00093-CV
EOG RESOURCES, INC. APPELLANT AND APPELLEE
V.
JAMES R. HURT, JR. APPELLEE AND APPELLANT
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FROM THE 355TH DISTRICT COURT OF HOOD COUNTY
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OPINION
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I. INTRODUCTION
Appellant and Cross-Appellee EOG Resources, Inc. appeals from an
adverse judgment in favor of Appellee and Cross-Appellant James R. Hurt, Jr.
Hurt appeals a postverdict ruling by the trial court. As to EOG‘s appeal, we will
reverse and render. As to Hurt‘s appeal, we will affirm.
II. FACTUAL AND PROCEDURAL BACKGROUND
EOG is an oil and gas exploration and development company. Standard
Investment Company (SIC) is a Texas corporation whose owners include John E.
Houston and Molly D. Houston.
In August 2004, EOG, as lessee, and SIC, as lessor, entered into an oil
and gas lease agreement in which SIC granted EOG the right to ―explore[], drill[],
and construct[] roads and structures thereon to produce, save, care for, treat and
transport oil, gas and liquid hydrocarbons‖ from a tract of land covering over
11,000 acres in Hood and Erath Counties known as the Houston Ranch. In
addition to royalties and other matters, the oil and gas lease addressed in detail
―Surface Use Restrictions [and] Damages.‖
Hurt was in the ranching business for thirty-five to forty years. In January
2005, he entered into an agreement with SIC to lease grassland on the Houston
Ranch for purposes of grazing cattle.1 The lease began on February 1, 2005,
and expired in January 2006. This was the first time that Hurt had grazed cattle
on the Houston Ranch, and he had no other leases or contracts with SIC prior to
January 2005.
1
According to Hurt, grazing cattle includes the following: ―[S]omeone
furnishes the cattle, someone furnishes the grass and the care, and the owner of
the cattle pays a grazing fee, normally per head per month.‖
2
In July 2006, Hurt executed another agreement to lease grassland on the
Houston Ranch. The lease identified the ―LESSOR‖ as ―Molly Houston (in care
of Jim Howard . . ),‖ and it expired by its terms on June 31, 2007.
In early January 2008 at the Houston Ranch, Hurt received a shipment of
cattle owned by John Bill Oman.2 Hurt grazed Oman‘s cattle over the next few
months before moving 327 head of cattle to the Houston Ranch‘s Northwest
Trailer pasture on June 21, 2008. Hurt had checked the condition of the
Northwest Trailer pasture‘s perimeter fence about three weeks to a month before
moving the cattle there, but he did not check the fence on or about June 21,
2008. On June 27, 2008, Hurt retrieved Oman‘s cattle from the pasture and
shipped 293 head of cattle—thirty-four less than he had transferred into the
pasture on June 21, 2008. Hurt searched the pasture for the cattle but only
discovered that parts of between 100 and 200 feet of a portion of the perimeter
fence were damaged or down. The section of damaged fence was located
approximately 250 feet from the edge of the Houston Ranch Number 22-H well
site. Outlaw Enterprises, a contractor hired by EOG, had performed work at the
22-H well site from June 16, 2008 to June 18, 2008.
On July 8, 2008, Hurt contacted Marco Herrera, a project coordinator for a
company that performed work on the Houston Ranch, and notified him about the
2
Hurt had grazed cattle owned by Oman on ―many occasions.‖
3
damaged fence at the 22-H well site.3 Hurt and Herrera met J.D. Fish, an EOG
foreman, at the well site that same day to view the fence, and EOG repaired the
fence the following two days, on July 9 and 10, 2008.4 According to Herrera and
Fish, Hurt did not say anything about lost or missing cattle at the July 8, 2008
meeting. Hurt eventually recovered all but ten or eleven head of Oman‘s cattle,
and he demanded that EOG compensate him for ten head of cattle at a total of
$7,250 because, according to Hurt, EOG was responsible for the damage to the
fence near the 22-H well site. EOG never compensated Hurt for the lost cattle.
In March 2009, Hurt sued EOG for breach of the 2004 oil and gas lease
agreement, alleging that he was a third-party beneficiary under the lease
agreement.5 At the jury trial, the trial court denied EOG‘s motions for a directed
verdict on Hurt‘s breach of contract claim, and the jury awarded Hurt (1) $7,250
for damages caused by EOG‘s failure to comply with the oil and gas lease
agreement and (2) $25,000 in attorneys‘ fees. After the jury returned its verdict,
Hurt orally requested a ruling that EOG‘s breach of the oil and gas lease
agreement resulted in an ipso facto termination of the lease agreement, but the
3
Hurt testified that he contacted EOG on or about June 28, 2008.
4
Fish opined that the fence had been ―run into and run over‖ by some kind
of machinery.
5
At one point, Hurt asserted a claim against EOG for negligence, but he
amended his pleadings to assert only claims sounding in contract. In his live
pleading, Hurt alleged in part that he was entitled to enforce the lease agreement
against EOG as a third-party creditor beneficiary and because he was an
assignee or successor in interest of SIC.
4
trial court denied the request. EOG filed a motion for new trial and a motion for
judgment notwithstanding the verdict and, alternatively, a motion to modify,
correct, or reform the judgment. All were denied. These appeals followed.
III. HURT’S BREACH OF CONTRACT CLAIM
In its first issue, EOG argues that ―[t]he trial court erred in holding that Hurt
is a third-party beneficiary‖ of the oil and gas lease agreement. EOG contested
Hurt‘s status as a third-party beneficiary in its motions for a directed verdict on
Hurt‘s breach of contract claim and in its motion for judgment notwithstanding the
verdict as to the jury‘s finding that EOG failed to comply with the oil and gas
lease agreement. We therefore construe EOG‘s argument as challenging the
trial court‘s rulings denying EOG‘s motions contesting Hurt‘s breach of contract
claim on the basis of his status as a third-party beneficiary.
A directed verdict is proper when the evidence conclusively establishes the
right of the movant to judgment as a matter of law. See Prudential Ins. Co. of
Am. v. Fin. Review Servs., Inc., 29 S.W.3d 74, 77 (Tex. 2000); Farlow v. Harris
Methodist Fort Worth Hosp., 284 S.W.3d 903, 919 (Tex. App.—Fort Worth 2009,
pet. denied). A trial court may disregard a jury verdict and render judgment
notwithstanding the verdict if a directed verdict would have been proper. See
Tex. R. Civ. P. 301; Tiller v. McLure, 121 S.W.3d 709, 713 (Tex. 2003); Fort
Bend Cnty. Drainage Dist. v. Sbrusch, 818 S.W.2d 392, 394 (Tex. 1991).
5
Hurt was neither a party to nor an assignee of the oil and gas lease
agreement between EOG and SIC. Therefore, he could maintain an action to
enforce the oil and gas lease agreement only if he was a third-party beneficiary
of the lease agreement. See MCI Telecomms. Corp. v. Tex. Utils. Elec. Co., 995
S.W.2d 647, 650–51 (Tex. 1999) (―We agree with MCI that TU is not a third-party
beneficiary of the contract between MCI and MoPac; therefore, it cannot maintain
an action to enforce the contract.‖); Allan v. Nersesova, 307 S.W.3d 564, 571
(Tex. App.—Dallas 2010, no pet.).
It is well settled that third-party beneficiary claims succeed or fail according
to the provisions of the contract upon which suit is brought. Union Pac. R.R. Co.
v. Novus Int’l, Inc., 113 S.W.3d 418, 421 (Tex. App.—Houston [1st Dist.] 2003,
pet. denied). When, as here, a contract is unambiguous, the construction of the
written instrument is a question of law for the court. MCI, 995 S.W.2d at 650.
When interpreting a contract, we must examine the entire agreement and give
effect to all of its provisions. Id. at 652.
The law governing third-party beneficiaries is ―relatively settled.‖ Basic
Capital Mgmt., Inc. v. Dynex Commercial, Inc., 348 S.W.3d 894, 899 (Tex. 2011).
A third party may recover on a contract made between other parties if the parties
(1) intended to secure a benefit to that third party and (2) entered into the
contract directly for the third party‘s benefit. In re Palm Harbor Homes, Inc., 195
S.W.3d 672, 677 (Tex. 2006); Stine v. Stewart, 80 S.W.3d 586, 589 (Tex. 2002).
6
A third party does not have the right to enforce a contract if it received only an
incidental benefit, and a court will not create a third-party beneficiary contract by
implication. Stine, 80 S.W.3d at 589; MCI, 995 S.W.2d at 651. An agreement
must clearly and fully express an intent to confer a direct benefit on the third
party. Stine, 80 S.W.3d at 589. Therefore, a party is presumed to contract only
for its own benefit, and any intent to benefit a third party must be clearly apparent
and will not be presumed. MCI, 995 S.W.2d at 651; see Tawes v. Barnes, 340
S.W.3d 419, 425 (Tex. 2011). Any doubt concerning intent should be resolved
against the third party. Tawes, 340 S.W.3d at 425; MCI, 995 S.W.2d at 651.
To qualify as an intended third-party beneficiary, a party must show that
she is either a ―donee‖ or ―creditor‖ beneficiary of the contract. 6 Stine, 80 S.W.3d
at 589. A creditor beneficiary is a third person to whom the contract promisee
owes a debt, contractual obligation, or other legally enforceable commitment.
See MCI, 995 S.W.2d at 651.
Here, the oil and gas lease agreement was ―made and entered into‖
between only SIC and EOG. SIC holds executive rights ―for the leasing of the oil,
gas and other related hydrocarbons in and under‖ the Houston Ranch, and EOG
is an oil and gas exploration and development company. In exchange for
royalties paid by EOG to SIC, EOG acquired the right to explore and develop oil,
gas, and other hydrocarbons on the Houston Ranch. The numerous obligations
6
Hurt does not contend that he is a third-party donee beneficiary under the
oil and gas lease agreement.
7
set out in the lease agreement run between SIC and EOG. Hurt acknowledged
at trial that he had not contracted with either EOG or SIC nor did either EOG or
SIC owe him the performance of any duty or obligation prior to EOG‘s and SIC‘s
execution of the August 2004 oil and gas lease agreement. An examination of
the entire lease agreement confirms that neither EOG nor SIC intended to confer
any benefit upon Hurt when they executed the lease agreement; instead, EOG
and SIC sought to benefit themselves by entering into the lease agreement.
Hurt argues that the oil and gas lease agreement does confer a benefit
upon him because he is a person identified as a ―Lessor‘s tenant‖ in sections
13(d) and 13(f) of the lease agreement. Section 13 of the oil and gas lease
agreement is entitled ―Surface Use Restrictions; Damages.‖ Section 13(d) states
in relevant part as follows:
(d) Lessee will not cut or go over any fence or fences of
Lessor, or Lessor’s tenant, at any time or in connection with any
operations of the Land without first obtaining Lessor‘s and Lessor’s
tenant[‘]s, expressed consent thereto in writing. . . . Lessee agrees
to pay to Lessor the replacement cost for any livestock lost or killed
as a result of Lessee‘s operations upon the Land or Lessee‘s entry
or exit from the Land. [Emphasis added.]
Section 13(f) states in relevant part as follows:
(f) Lessee shall at all times use reasonable care in all of
the Lessee‘s operations on the premises of Lessor to prevent injury
or damage to the cattle, livestock, buildings or other property of
Lessor or Lessor’s tenant situated on the surface of said Land, . . .
and Lessee shall pay Lessor and Lessor’s tenants for all actual
damages . . . to the Land, crops, buildings, livestock, fences, tanks,
water wells, and without limitation, all other property of Lessor
8
situated on the surface of the Land resulting from [Lessee‘s]
operations on the Land.[7] [Emphasis added.]
Hurt is not a ―Lessor‘s tenant‖ under section 13(d) or 13(f) of the oil and
gas lease agreement because his agreement with SIC to lease grassland on the
Houston Ranch expired by its own terms in January 2006. Hurt opined at trial
that his agreement with SIC was ―renewed‖ in July 2006 when he executed
another agreement to lease grassland on the Houston Ranch, but this
subsequent agreement was executed by Molly Houston (in care of Jim Howard),
not SIC.8 Although Molly is identified as one of SIC‘s owners in the oil and gas
lease agreement between EOG and SIC, there is no evidence that Molly signed
the July 2006 agreement with Hurt in a representative capacity for SIC. See
Morrow v. LaRue, 544 S.W.2d 842, 844 (Tex. Civ. App.—Dallas 1976, no writ)
(―If the contract shows on its face that the individual . . . signed in a
representative capacity, then it is established that the ‗person‘ who contracted
was the corporation rather than the individual.‖). There is also no allegation or
evidence that Molly and Hurt modified their agreement to make Hurt a grassland
7
Somewhat similar to paragraph 13(f), paragraph 13(m) addresses ―death
of or injury to . . . Lessor‘s tenant‘s livestock.‖
8
Even this agreement expired by its own terms on June 31, 2007, before
the June 2008 events forming the basis of Hurt‘s claims occurred, but the parties
to that agreement apparently continued to operate under it. See Sieber &
Calicutt, Inc. v. La Gloria Oil & Gas Co., 66 S.W.3d 340, 347 (Tex. App.—Tyler
2001, pet. denied) (reasoning that contract was still in effect when employee died
because parties had continued to operate under contract after it had expressly
expired).
9
lessee of SIC instead of Molly. See Arthur J. Gallagher & Co. v. Dietrich, 270
S.W.3d 695, 701–02 (Tex. App.—Dallas 2008, no pet.) (reasoning that contract
modification is an affirmative defense and must satisfy traditional requirements of
a contract—a meeting of the minds supported by consideration).
Even if Hurt is somehow a ―Lessor‘s tenant‖ under the oil and gas lease
agreement, which he is not, he would still not be entitled to enforce the oil and
gas lease agreement against EOG because he confirmed at trial that his claims
against EOG involved only ―lost‖ cattle and that he had no evidence of ―injury‖ or
―damage‖ to the ten cattle for which he was seeking compensation. Therefore,
section 13(d) of the oil and gas lease agreement, which addresses lost livestock,
not section 13(f), which addresses injured or damaged livestock, would cover
Hurt‘s claims. But section 13(d) requires EOG to pay replacement costs for lost
livestock to only the ―Lessor,‖ not the ―Lessor‘s tenant.‖ Consequently, the
unambiguous oil and gas lease agreement would not allow Hurt to enforce the
agreement against EOG.
Allan v. Nersesova is particularly instructive. 307 S.W.3d at 571–73.
There, the court of appeals held that Allan, a condominium owner who sustained
damage to her unit, was an intended third-party beneficiary entitled to enforce an
agreement (the declaration, bylaws, rules and regulations for the condominiums)
between the owners‘ association and Koraev, the owner of the condominium unit
above Allan whose tenant caused the damage to her unit. Id. at 568–69, 571.
10
The agreement imposed a duty on Koraev to follow the agreement‘s
requirements for the ―benefit of . . . any person acquiring or owning an interest in
the property,‖ which included Allan. Id. at 572. Thus, ―[t]he contract between the
Association and Koraev ‗clearly and fully express[ed] an intent to confer a direct
benefit to‘ Allan and others owning an interest in the property.‖ Id. The
agreement also provided that ―[f]ailure to comply with any [bylaws, rules, and
regulations] shall be grounds for an action to recover sums due, for damages . . .,
and for reimbursement of all attorney‘s fees incurred in connection therewith,
which action shall be maintainable . . . in a proper case, by an aggrieved owner.‖
Id. (emphasis added). Thus, the agreement ―gave authority to Allan as an
aggrieved owner to bring an action against Koraev for his failure to follow the‖
agreement. Id.
Unlike in Allan, in which Allan was an ―aggrieved owner‖ entitled to ―bring
an action‖ against Koraev, in this case, Hurt is not a ―Lessor‘s tenant‖ under the
oil and gas lease agreement, and section 13(d) addressing ―lost‖ cattle does not
permit Hurt to enforce the lease agreement against EOG.
We make one additional observation regarding Hurt‘s ―Lessor‘s tenant‖
argument. As mentioned, SIC held the executive right to lease and develop
minerals on the Houston Ranch. The executive right is an interest in property,
one of several essential attributes of a severed mineral estate. Altman v. Blake,
712 S.W.2d 117, 118 (Tex. 1986); see Lesley v. Veterans Land Bd. of State,
11
No. 09-0306, 2011 WL 3796568, at *1 n.1, *5 (Tex. Aug. 26, 2011). It is well
settled that a grant of mineral interests by the fee owner creates two separate
and distinct estates: a surface estate and a mineral estate. Acker v. Guinn, 464
S.W.2d 348, 352 (Tex. 1971). In the absence of evidence demonstrating
otherwise, an owner of an executive right would not be capable of granting a right
to lease the surface for grazing purposes, that being the domain of the surface
title owner. Here, the evidence shows only that SIC held the executive right to
lease minerals on the Houston Ranch. There is no evidence that SIC possessed
the legal capacity to grant a grazing lease to Hurt—a use of the surface that is
distinct from the mineral interests covered by SIC‘s executive right.9
Hurt argues that ―[t]he fact that [EOG] will be forced by the Paid-Up Oil and
Gas Lease to pay for or replace fencing it destroys or otherwise damages makes
the fencing provision a direct benefit from [EOG] to [him] also.‖ However, EOG‘s
obligation to repair damaged fences on the Houston Ranch is merely an
incidental benefit to Hurt resulting from his presence grazing cattle on the
Houston Ranch.
We conclude and hold that, as a matter of law, Hurt is not a third-party
creditor beneficiary of the oil and gas lease agreement between EOG and SIC.
Therefore, he is unable to maintain an action against EOG to enforce the oil and
9
Indeed, regarding ―issues dealing with the surface estate of the Land,‖ the
oil and gas lease agreement between EOG and SIC appointed I.T. Houston, IV
―as its agent with full authority to make such elections, approvals and consents
on behalf of‖ SIC.
12
gas lease agreement. See MCI, 995 S.W.2d at 650–51. The trial court should
have sustained one of EOG‘s multiple challenges to Hurt‘s status as a third-party
beneficiary. We sustain this part of EOG‘s first issue, and we need not address
EOG‘s remaining arguments and issues. See Tex. R. App. P. 47.1.
IV. TERMINATION OF OIL AND GAS LEASE AGREEMENT
In his sole issue, Hurt argues that the trial court ―abused its discretion
when it failed to find the Paid Up Oil and Gas Lease on the I.T. Houston Ranch
did not terminate under the specific terms stated in the Lease.‖ He contends that
―there was sufficient evidence of a breach which constituted a ‗Lease Violation‘
under the Lease without remediation and the Lease should have terminated ‗ipso
facto‘ as negotiated by the Parties to the Lease.‖
Section 18 of the oil and gas lease agreement addresses ―Lease
Violation[s]‖ and provides in relevant part as follows:
Lessee shall strictly comply with all provisions of this lease,
and the failure by Lessee to strictly comply with each and every
provision of this lease shall be a breach of such terms and a
violation of the lease (a ―Lease Violation‖). In the event of a Lease
Violation, Lessee shall take all necessary actions to remedy the
Lease Violation and bring Lessee back into compliance with the
lease. In the event Lessee fails to immediately cure or remediate
the Lease Violation, the following provisions shall apply:
(a) Lessor shall provide Lessee with written notice of any
Lease Violation. . . .
....
(c) For Lease Violations which pose an immediate threat to
people or livestock, Lessee shall have five (5) business day[s] after
13
the date of the notice to respond to Lessor and commence a
remediation plan.
....
(e) For delays under paragraph (c), where there is an
immediate threat to people or livestock, the fine shall commence the
sixth (6th) day after the effective date of the notice and shall be
$500.00 per day for each day of delay for days seven (7) through ten
(10), $1,000.00 per day for days eleven (11) through sixteen (16),
and $2,500.00 per day for each day thereafter. If a remediation plan
has not been agreed or commenced at the expiration of twenty (20)
days from the effective date of notice, all of Lessee’s right, title and
interest in the lease, shall ipso facto terminate . . . . [Emphasis
added.]
The following exchange occurred after the trial court announced the jury‘s
verdict and released the jury from service:
THE COURT: All right. [Hurt‘s counsel], prepare a proposed
judgment, please, sir.
[Hurt‘s counsel]: Your Honor, at this time, I would like to
request an instruction from the Court as to whether the breach and
the failure to cure in the appropriate time period resulted in a
termination of the lease ipso facto.
THE COURT: It did not.
[Hurt‘s counsel]: I‘ll prepare the judgment accordingly, sir.
Hurt‘s argument is unpersuasive for several reasons. First and foremost,
Hurt cannot enforce section 18 of the oil and gas lease agreement against EOG
because he is not a third-party beneficiary of the lease agreement.
Further, even if Hurt could enforce the lease agreement, unless the
evidence conclusively proved that the lease agreement terminated under the
14
provisions of section 18, Hurt waived this issue because he did not request a jury
question on this issue. See Tex. R. Civ. P. 279 (―Upon appeal all independent
grounds of recovery or of defense not conclusively established under the
evidence and no element of which is submitted or requested are waived.‖); Akin
v. Dahl, 661 S.W.2d 911, 913 (Tex. 1983), cert. denied, 466 U.S. 938 (1984).
The provision in section 18(e) addressing ipso facto termination of the oil and gas
lease agreement applies only if the lessee ―fails to immediately cure or remediate
the Lease Violation.‖ [Emphasis added.] Fish testified that, although he did not
think EOG was responsible for the damage to the fence, he caused the fence to
be repaired the following two days after he met Herrera and Hurt at the 22-H well
site. Thus, there is evidence that EOG immediately cured the alleged section
13(d) lease violation—damaging a fence—by repairing the fence, rendering
inapplicable section 18(e)‘s ipso facto termination provision. Moreover, even if
there was evidence that EOG failed to immediately cure the lease violation, there
is no evidence that SIC gave EOG written notice of a lease violation as required
by section 18(a). In the absence of written notice, the timetables in section 18(e)
cannot run. Because the evidence did not conclusively prove that the oil and gas
lease agreement terminated ipso facto under the provisions of section 18, Hurt
waived this issue for appellate review. See Tex. R. Civ. P. 279. Accordingly, we
overrule Hurt‘s only issue.
15
V. CONCLUSION
Having overruled Hurt‘s only issue, we affirm the trial court‘s postverdict
ruling denying Hurt‘s requested relief. Having sustained a dispositive part of
EOG‘s first issue, we reverse the trial court‘s judgment in favor of Hurt and
render judgment that he take nothing on his breach of contract claim and his
claim for attorney‘s fees.10
BILL MEIER
JUSTICE
PANEL: LIVINGSTON, C.J.; MEIER and GABRIEL, JJ.
DELIVERED: December 15, 2011
10
Hurt recovered attorney‘s fees in connection with his breach of contract
claim. See Marine Creek Partners, Ltd. v. Caldwell, 926 S.W.2d 793, 796 (Tex.
App.—Fort Worth 1996, no writ) (rendering judgment against plaintiff on claim for
attorney‘s fees recovered in connection with third-party beneficiary, breach of
contract claim).
16