Orca Assets, G.P., L.L.C. v. Burlington Resources Oil and Gas Company, L.P., Petrohawk Properties, L.P., and Geosouthern Dewitt Properties, L.L.C

NUMBER 13-13-00462-CV
COURT OF APPEALS
THIRTEENTH DISTRICT OF TEXAS
CORPUS CHRISTI – EDINBURG
ORCA ASSETS, G.P., L.L.C., Appellant,
v.
BURLINGTON RESOURCES OIL AND GAS
COMPANY, L.P., PETROHAWK PROPERTIES, L.P.,
AND GEOSOUTHERN DEWITT PROPERTIES, L.L.C., Appellees.
On appeal from the 267th District Court
of De Witt County, Texas.
MEMORANDUM OPINION
Before Justices Garza, Benavides and Perkes
Memorandum Opinion by Justice Garza
Appellees, Burlington Resources Oil and Gas Company, L.P. (“Burlington”),
Petrohawk Properties, L.P. (“Petrohawk”), and GeoSouthern DeWitt Properties, L.L.C.
(“GeoSouthern”) sued appellant, Orca Assets G.P., L.L.C. (“Orca”), in a dispute over
competing oil and gas leases in DeWitt and Gonzales Counties, Texas. The trial court
rendered summary judgment in favor of appellees, finding that the conveyances granted
to them were superior in title and rights to Orca’s leases. We affirm.
I. BACKGROUND
The Red Crest Trust (the “Trust”) owns tens of thousands of acres of mineral
interests across the Eagle Ford Shale in south Texas. On June 17, 2010, the Trust, by
its trustee JPMorgan Chase Bank, N.A. (“Chase”), entered into a lease agreement under
which it leased the mineral rights to fifteen different tracts of land, covering 1,811 acres,
to GeoSouthern. Later, GeoSouthern assigned a portion of its interest in that lease to
Petrohawk, and Petrohawk assigned part of its interest to Burlington. GeoSouthern
recorded a “Memorandum of Oil and Gas Lease” (the “GeoSouthern Memorandum”) in
the public records of DeWitt County on December 9, 2010.
Before the GeoSouthern Memorandum was recorded, on December 6, 2010,
Chase, as trustee of the Trust, and Orca executed a “Letter of Intent” concerning mineral
interests to fifteen tracts of land, ten of which were the same as those previously leased
to GeoSouthern. The Letter of Intent stated, in relevant part, as follows:
1. [Orca] has caused a search to be made of the records of Karnes and
DeWitt Counties and has preliminarily determined that [the Trust] is the
owner and holder of the mineral estate underlying the [subject
properties] . . . which lands [Orca] has further determined to be free of any
recorded oil and gas lease heretofore executed the rightful owner thereof;
2. [Orca] has heretofore offered [the Trust] a consideration of $3,500
per net mineral acre owned by [the Trust] for separate leases covering the
land above described, such lease to be in all matters, except the land
description and date thereof, like, and on the form heretofore employed by
them on other acreage recently leased by [the Trust] to [Orca], specifically
a lease covering 258.1 acres in the Pickett Survey in Karnes County, Texas,
Memorandum of which is recorded in Volume 945, Page 426 of the Official
Records of Karnes County, which [the Trust] has accepted, provided,
however, that [the Trust] has stated that the form to be employed for the
leasing of the acreage that is the subject of this agreement shall be modified
2
by deleting paragraph 18 previously appearing thereon and substituting
therefor, the following new paragraph 18, to wit:
18. Negation of Warranty. This lease is made without warranties
of any kind, either express or implied, and without recourse against
Lessor in the event of a failure of title, not even for the return of the
bonus consideration paid for the granting of the lease or for any
rental, royalty, shut-in payment, or any other payment now or
hereafter made by Lessee to Lessor under the terms of this lease.
3. [Orca] has accepted the counteroffer of [the Trust] proposing to
modify paragraph 18 of the form to be used for the leasing of the land above
described, (provided that it is clearly understood that such modification
applies to the lands affected by this letter agreement and not to the 458.1
acres above-mentioned or to any other land previously leased by [the Trust]
to [Orca]) but, in light of such requested modification to the lease form has
requested, and [the Trust] has agreed to, a delay of up to 30 calendar days
in the closing of the proposed transaction to allow [Orca] the opportunity to
re-examine its title work upon which its determination of ownership is based,
such 30 calendar day period to commence upon the execution of this
agreement as reflected in the first paragraph hereof.
4. In consideration of the facts above stated and the payment of an
earnest money consideration paid by [Orca] to [the Trust] of FIFTY
DOLLARS ($50) for each acre of the land above described, [Orca and the
Trust] acknowledge, and hereby confirm, that they have a firm agreement
to complete the leasing transaction herein contemplated, it being
understood that such transaction may be closed on a piecemeal basis, that
is to say, as the title to the individual tracts is examined and approved,
[Orca] may tender the balance of the $3,500 per acre consideration for a
lease thereon and [the Trust] shall execute and deliver to [Orca] such lease,
provided that all title examination must be concluded, and consideration on
all tracts tendered, on or before the end of [the] thirty-day period allowed
under agreement. In the event that such re-examination of title should
reveal information to [Orca] heretofore unknown to it about one or more
tracts above described that brings into question the ownership of [the Trust]
therein, it may, in its sole and absolute discretion, elect to not take a lease
on such tract or tracts and such tract or tracts shall be treated as if never a
part of this agreement. If any such determination is made, the portion of
earnest money hereby tendered and attributable thereto shall be credited
to the rest of the land remaining covered hereby.
The Letter of Intent was signed by a Chase representative and an Orca vice-president.
Pursuant to the Letter of Intent, Orca made an earnest money payment of over $84,000
3
on December 8, 2010.
Orca executed leases on the subject properties1 as contemplated in the Letter of
Intent in early January of 2011. Despite the fact that the Letter of Intent provided for a
thirty-day period during which it could “re-examine its title work,” Orca did not check the
DeWitt County property records, either before or after December 6, 2010, to determine if
the properties were subject to other leases. Orca’s landman, Tony Villalon, who drafted
the Letter of Intent, provided the following deposition testimony:
I wrote the [Letter of Intent] with the intent of having a binding agreement to
the extent that equitable title would pass to Orca at that point. And I felt no
need for there to be any further scrutiny of title. We had a deal with them
at that point.
Orca paid the Trust over $3 million on January 11, 2011 and memoranda of the leases
(the “Orca Memoranda”) were recorded on January 12, 2011.
Burlington filed the instant lawsuit asserting claims of trespass to try title, suit to
quiet title, and declaratory judgment against Orca arising out of Orca’s assertion of rights
in the subject properties. Petrohawk and GeoSouthern intervened in the suit, asserting
similar claims against Orca, and Orca counterclaimed asserting its claim to the property.
Appellees filed motions for summary judgment2 and Orca filed a response to which it
attached evidence. Appellees objected to some of Orca’s summary judgment evidence.
1 Orca exercised its option to not lease some of the tracts specified in the Letter of Intent. Orca did
not, however, opt out of any of the ten tracts covered by the GeoSouthern lease.
2 Several motions for summary judgment appear in the record, including motions for traditional
summary judgment filed by each appellee, a motion for no-evidence summary judgment filed by Burlington,
and a joint motion for traditional summary judgment on Orca’s bona fide purchaser defense. The trial court’s
final judgment does not specify which of these motions was granted. However, because Orca only argues
its bona fide purchaser defense on appeal, we will only consider the various motions to the extent that they
concern that defense. We note that Burlington’s no-evidence motion contends only that there was no
evidence supporting Orca’s claim for money damages; it does not claim that there was no evidence to
support the bona fide purchaser defense. Accordingly, we do not address the no-evidence motion.
4
The trial court granted appellees’ objections to the evidence and their motions for
summary judgment.3 The final judgment declared that appellees’ rights to the subject
properties are superior to Orca’s and it ordered that Orca take nothing by way of its
counterclaim. This appeal followed.
II. DISCUSSION
Orca argues by one issue on appeal that the trial court erred in granting appellees’
traditional motions for summary judgment. Specifically, Orca argues that it was a bona
fide purchaser of the subject properties and that, therefore, the conveyance by the Trust
to GeoSouthern was void. See TEX. PROP. CODE ANN. § 13.001 (West, Westlaw through
2013 3d C.S.).
A. Standard of Review
We review summary judgments de novo. Joe v. Two Thirty Nine Joint Venture,
145 S.W.3d 150, 156 (Tex. 2004); Nalle Plastics Family L.P. v. Porter, Rogers, Dahlman
& Gordon, P.C., 406 S.W.3d 186, 199 (Tex. App.—Corpus Christi 2013, pet. denied). We
take as true all evidence favorable to the nonmovant and indulge every reasonable
inference and resolve any doubts in the nonmovant’s favor. Joe, 145 S.W.3d at 157.
In advancing a traditional motion for summary judgment, the movant has the
burden of showing 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); Joe, 145 S.W.3d at 157. But “[i]f the party
opposing a summary judgment relies on an affirmative defense, he must come forward
with summary judgment evidence sufficient to raise an issue of fact on each element of
3 Orca also filed traditional and no-evidence motions for summary judgment on its counterclaims.
The trial court implicitly denied those motions when it ordered in its final judgment that Orca take nothing.
Orca does not contend on appeal that the trial court erred in denying those motions.
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the defense to avoid summary judgment.” Brownlee v. Brownlee, 665 S.W.2d 111, 112
(Tex. 1984). An issue of fact is raised if more than a mere scintilla of evidence is
produced. See, e.g., City of Keller v. Wilson, 168 S.W.3d 802, 810 (Tex. 2005). Evidence
is less than a scintilla is if it is “so weak as to do no more than create a mere surmise or
suspicion that the fact exists.” Regal Fin. Co.. v. Tex Star Motors, Inc., 355 S.W.3d 595,
603 (Tex. 2010). Evidence is more than a scintilla if it “rises to a level that would enable
reasonable and fair-minded people to differ in their conclusions.” Serv. Corp. Int’l v.
Guerra, 348 S.W.3d 221, 228 (Tex. 2011).
B. Applicable Law
The longstanding general rule in Texas is that “earlier title emanating from [a]
common source is the better title and is given prevailing effect.” Rogers v. Ricane Enters.,
Inc., 884 S.W.2d 763, 769 (Tex. 1994) (citing Curdy v. Stafford, 30 S.W. 551, 552 (Tex.
1895)). However, “[s]tatus as a bona fide purchaser is an affirmative defense to a title
dispute.” Madison v. Gordon, 39 S.W.3d 604, 606 (Tex. 2001). To qualify as a bona fide
purchaser, “one must acquire property in good faith, for value, and without notice of any
third-party claim or interest.” Id.; see Swanson v. Grassedonio, 647 S.W.2d 716, 718
(Tex. App.—Corpus Christi 1982, no writ). Notice may be constructive or actual; actual
notice rests on personal information or knowledge, whereas constructive notice is notice
the law imputes to a person not having personal information or knowledge. Madison, 39
S.W.3d at 606. The bona fide purchaser doctrine is codified in section 13.001 of the
Texas Property Code, entitled “Validity of Unrecorded Instrument,” which states:
(a) A conveyance of real property or an interest in real property or a
mortgage or deed of trust is void as to a creditor or to a subsequent
purchaser for a valuable consideration without notice unless the
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instrument has been acknowledged, sworn to, or proved and filed for
record as required by law.
(b) The unrecorded instrument is binding on a party to the instrument,
on the party's heirs, and on a subsequent purchaser who does not
pay a valuable consideration or who has notice of the instrument.
(c) This section does not apply to a financing statement, a security
agreement filed as a financing statement, or a continuation
statement filed for record under the Business & Commerce Code.
TEX. PROP. CODE ANN. § 13.001. “An instrument that is properly recorded in the proper
county is: (1) notice to all persons of the existence of the instrument; and (2) subject to
inspection by the public.” Id. § 13.002 (West, Westlaw through 2013 3d C.S.).
C. Analysis
The motions for traditional summary judgment filed by appellees were
accompanied by, among other evidence, the GeoSouthern Memorandum, the Orca
Memoranda, and the assignment agreements applicable to each appellee. The
memoranda show that the conveyances to both GeoSouthern and Orca emanated from
the Trust. This evidence was sufficient to show appellees’ entitlement to judgment as a
matter of law because it established that appellees had “earlier title emanating from [a]
common source.” Rogers, 884 S.W.2d at 769; see TEX. R. CIV. P. 166a(c). The only
question on appeal, therefore, is whether Orca raised a fact issue as to its bona fide
purchaser defense. See Brownlee, 65 S.W.2d at 112.
The parties do not seem to dispute that Orca paid valuable consideration for the
rights conferred in the Letter of Intent, nor do they dispute that Orca lacked actual or
constructive notice of the GeoSouthern lease as of the date the Letter of Intent was
executed. The dispute instead centers on whether the Letter of Intent constitutes an
“acquisition of property” such that the bona fide purchaser defense would apply. See
7
Madison, 39 S.W.3d at 606. In response to appellees’ joint motion for traditional summary
judgment, Orca produced evidence including the Letter of Intent, which it claims
constituted a conveyance of equitable title to the subject properties.4 Appellees disagree
with Orca that the Letter of Intent conveyed any sort of property interest, and they further
argue that the language of the Letter of Intent precludes Orca from claiming bona fide
purchaser status.
We agree with appellees on the latter point. Even assuming, but not deciding, that
the Letter of Intent conveyed an equitable interest in the subject properties to Orca, that
instrument explicitly stated in paragraph 2 that no warranty of title would be provided in
any lease eventually executed pursuant thereto. In that regard, to the extent the Letter
of Intent conveyed any interest in the subject properties, it was equivalent to a quitclaim
deed under which the purchaser agrees to acquire whatever interests are actually owned
by the seller. See BLACK’S LAW DICTIONARY 477 (9th ed. 2009) (defining quitclaim deed
as “[a] deed that conveys a grantor’s complete interest or claim in certain real property
but that neither warrants nor professes that the title is valid”). And, courts have long held
that a party acquiring property under a quitclaim deed is not eligible to claim bona fide
purchaser status because it is charged with notice of title defects as a matter of law. See
Woodward v. Ortiz, 237 S.W.2d 286, 291–92 (Tex. 1951) (holding that a purchaser of
property under a quitclaim deed “cannot enjoy the protection afforded a bona fide
4 The parties disagree whether, in general, the acquisition of equitable title entitles a party to claim
bona fide purchaser status. Compare Madison v. Gordon, 39 S.W.3d 604, 606 (Tex. 2001) (stating that, to
be a bona fide purchaser, “one must acquire property,” but not distinguishing between legal and equitable
title) with Swanson v. Grassedonio, 647 S.W.2d 716, 718 (Tex. App.—Corpus Christi 1982, no writ) (noting
that “[a] bona fide purchaser is one who acquires (apparent) legal title to property in good faith for a valuable
consideration without actual or constructive notice of an infirmity in the title” (emphasis added)). We do not
address this issue because, even if equitable title is generally sufficient to allow a grantee to claim bona
fide purchaser status, the language of the Letter of Intent nevertheless precluded Orca from asserting such
status. See TEX. R. APP. P. 47.1.
8
purchaser” because “he takes with notice of all defects in the title and equities of third
persons”); Bright v. Johnson, 302 S.W.3d 483, 492 (Tex. App.—Eastland 2009, no pet.)
(“[A] subsequent purchaser is not a bona fide purchaser if the conveyance is made without
warranty.”); Kidwell v. Black, 104 S.W.3d 686, 691 (Tex. App.—Fort Worth 2003, pet.
denied) (“The purchaser of a quitclaim deed takes the deed with notice of all defects in
the title and equities of third persons. Because [appellant] is the grantee of a quitclaim
deed, he cannot be a bona fide purchaser.”); Diversified, Inc. v. Hall, 20 S.W.3d 403, 406
(Tex. App.—Houston [1st Dist.] 2000, pet. denied) (“As the purchaser of a quitclaim deed,
[appellant] cannot enjoy the protections afforded a bona fide purchaser, because a
grantee in a quitclaim deed is not an innocent purchaser without notice.”); Equitable Trust
Co. v. Roland, 721 S.W.2d 530, 534 (Tex. App.—Corpus Christi 1986, writ ref’d n.r.e.)
(“[A] grantee in a quitclaim deed is not an innocent purchaser, but takes with notice of all
defects in his grantor’s title”); see also Houston Oil Co. of Tex. v. Niles, 255 S.W. 604,
610 (Tex. Comm’n App. 1923, judgm’t adopted) (“[T]he holder of a title in which there
appears, however remote, a quitclaim deed is prevented from asserting the defense of
innocent purchaser as against an outstanding title or secret trust or equity existing at the
time the quitclaim deed was executed.”).
Because Orca’s interest in the subject property, if any, was obtained without
warranty, Orca did not raise a fact issue as to its status as a bona fide purchaser.
Therefore, the trial court did not err in granting summary judgment in favor of appellees.
Orca’s issue is overruled.5
5 Orca additionally argues in its brief, by an unenumerated issue, that the trial court erred in granting
appellees’ objections to some of Orca’s summary judgment evidence. However, in reaching our conclusion
regarding the summary judgment ruling, we have considered all of the evidence in the record, including the
evidence excluded by the trial court. Therefore, even if the trial court erred in excluding this evidence, the
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III. CONCLUSION
We affirm the judgment of the trial court.
DORI CONTRERAS GARZA,
Justice
Delivered and filed the
26th day of August, 2014.
error would not be reversible. See TEX. R. APP. P. 44.1(a) (“No judgment may be reversed on appeal on
the ground that the trial court made an error of law unless the court of appeals concludes that the error
complained of: (1) probably caused the rendition of an improper judgment; or (2) probably prevented the
appellant from properly presenting the case to the court of appeals.”). We reject this argument.
10