Tri-C Resources, Inc. v. Estate of H.H. Coffield--Appeal from 128th District Court of Orange County

IN THE

TENTH COURT OF APPEALS

No. 10-00-323-CV

TRI-C RESOURCES, INC.,

Appellant

v.

ESTATE OF H.H. COFFIELD,

Appellee

From the 128th District Court

Orange County, Texas

Trial Court # A-990479-C

O P I N I O N

This appeal arises from competing summary judgment motions filed by the parties in an action for declaratory judgment brought by appellant Tri-C Resources, Inc. [ Tri-C ]. Both parties agree the facts of the underlying case are undisputed and that the claims of the parties present pure issues of law. The substance of the suit concerns the proper apportionment of royalty interests in a unit created by two pooled oil and gas leases. Tri-C brought suit seeking a judicial declaration that its position is correct with respect to the size of the royalty interest owned by the Estate of H.H. Coffield [ the Estate ] in an 80-acre tract of land [ the southern tract ] that was pooled with another 249-acre adjacent tract of land containing a producing well [ the northern tract ], in which the Estate had no previous royalty interest, to create a 329 acre producing unit. Tri-C owns the two and gas leases that cover these tracts of land. Both parties agree the Estate is bound by its ratification of a written pooling agreement under which it acquiesced to pool, combine and unitize the leases relating to both land tracts. The dispute centers on the legal implications of that ratification on the Estate s royalty interest.

Tri-C s position is that following ratification of the pooling agreement, the Estate s royalty interest should be computed as 1/5 of 80/329, or .048632218. The Estate, on the other hand, contends Tri-C s calculation is wrong and that the proper computation of its royalty interest is of 80/329, or .12150547. // The difference between the two figures arises from the parties disparate views on whether the Estate s ratification of the pooling agreement combined and unitized the leases so as to change the previously applicable royalty calculation reserved by the Estate in a land deed.

The trial court granted summary judgment in favor of the Estate, ruling that the Estate s ratification of the pooling agreement entitled it to a share of the proceeds of the producing well located on the Northern tract without obligating that its royalty interests be determined under the unitized leases. Tri-C appeals the trial court s ruling and presents three issues:

1. Whether the Estate s ratification of the pooling agreement made its royalty interest subject to the unitized leases as a matter of law;

2. Whether the Estate could avail itself of the benefits of the pooling agreement, while avoiding the limitation on its royalty reservation in the unitized leases, by ratifying only the pooling agreement; and

3. Whether the Estate could participate in the pooling agreement, thereby availing itself of royalty payments from production of a well on a tract of land in which it owns no interest, and not be bound by the terms of the governing leases which determine the size of the royalty interest payable to all mineral interest owners.

We will reverse and render in favor of Tri-C.

The parties respective motions for summary judgment were traditional motions, as opposed to no-evidence motions. See Tex. R. Civ. P. 166a. The general rules for reviewing traditional summary judgment motions are well-known. In a summary judgment case, the issue on appeal is whether the movant met his summary judgment burden by establishing that no genuine issue of material fact exists and that the movant is entitled to judgment as a matter of law. Tex. R. Civ. P. 166a(c); KPMG Peat Marwick v. Harrison County Hous. Fin. Corp., 988 S.W.2d 746, 748 (Tex. 1999); City of Houston v. Clear Creek Basin Auth., 589 S.W.2d 671, 678 (Tex. 1979). The burden of proof is on the movant, and all doubts about the existence of a genuine issue of material fact are resolved against the movant. Rhone-Poulenc, Inc. v. Steel, 997 S.W.2d 217, 223 (Tex. 1999); Friendswood Dev. Co. v. McDade + Co., 926 S.W.2d 280, 282 (Tex. 1996); Great Am. Reserve Ins. Co. v. San Antonio Plumbing Supply Co., 391 S.W.2d 41, 47 (Tex. 1965).

In deciding whether there is a material fact issue precluding summary judgment, all conflicts in the evidence are disregarded and the evidence favorable to the nonmovant is accepted as true. Rhone-Poulenc, 997 S.W.2d at 223; Harwell v. State Farm Mut. Auto. Ins. Co., 896 S.W.2d 170, 173 (Tex. 1995). Evidence that favors the movant's position will not be considered unless it is uncontroverted. Great Am., 391 S.W.2d at 47.

The summary judgment will be affirmed only if the record establishes that the movant has conclusively proved all essential elements of the movant's cause of action or defense as a matter of law. Clear Creek Basin, 589 S.W.2d at 678. Here, each party contended in the trial court that it was entitled to judgment as a matter of law under the uncontroverted facts presented in the written documents in this case.

When an oil and gas lease is executed by the owners of different mineral interests in two or more tracts, the royalties payable under the lease may be pooled. London v. Merriman, 756 S.W.2d 736, 739 (Tex. App. Corpus Christi, 1988, writ denied). Under a pooling agreement all royalty interest owners in the land subject to the lease may share in production no matter where the well is drilled on the leasehold. Id. By an effective ratification of the lease after its creation, the non-executive (here, the Estate) accomplishes this result just as if it had been a party to the lease. Id. (citing Standard Oil v. Donald, 321 S.W.2d 602, 605-06 (Tex. Civ. App. Fort Worth 1959, writ ref d n.r.e.)). In our circumstances, however, there was no direct ratification by the Estate of the written lease covering the southern tract, the Mega Chips lease, which provided that Tri-C pay as royalty a one-fifth share of production. Instead, what was ratified in our case was the written Unit Designation, which incorporated by reference and attached exhibit attachment the Mega Chips lease. The question before us then, is whether the Unit Designation ratification was tantamount to ratification of the Mega Chips lease. We hold that it was.

Our decision turns on the terms of the Unit Designation. In relevant part, the written Unit Designation, Tri-C Resources, Inc. Stark Foundation No. 1 Gas Unit which was executed on September 18, 1998, provided:

The Subject Leases [the Stark Foundation lease and the Megachips, Inc. lease], any amendments or ratifications of Subject Leases, and all contracts and agreements concerning or relating to the same which pertain to the leasehold, mineral royalty, overriding royalty and/or production estates and rights in and under said lands, are hereby pooled, combined and unitized for the purpose of creating said Unit. (emphasis added).

On February 3, 1999, Robert Ellett, the independent executor of the Estate, executed a written Ratification of this Unit in which he agreed:

The Coffield Estate does hereby ratify the above-described unit designation for the Tri-C Resources, Inc. Stark Foundation No. 1 Gas Unit, as fully and to the same extent as if the Estate of H.H. Coffield were an original party to the unit designation.

The Estate s ratification of the unit designation, which incorporated by reference the Stark Foundation and Megachip leases, is construed by us to have been an acceptance by the Estate of Tri-C s offer to apportion the royalty proceeds under the pooled unit designation. Absent ratification of the unit designation, the Estate was not entitled to any share in the production of the well given the well s location on a tract of land for which the Estate owned no royalty interests. When presented with the offer to ratify the pooling agreement, the Estate was, in effect, presented with two choices: (1) it could ratify the unit designation proposed by Tri-C and share in the royalty proceeds of the Stark well under the provisions of the unitized leases; or (2) it could decline the offer for ratification of the unit designation and preserve the royalty reserved under its deed. Had it chosen the latter option, the Estate would have been entitled to a correspondingly greater royalty calculation if a producing well was drilled in the future on the 160-acre southern tract of land for which it held a mineral interest. Instead, the Estate chose to participate in the pooling arrangement offered by Tri-C for shared proceeds of the existing well on the northern tract.

The written ratification the Estate s executor signed on its behalf specifically provided for combination and unitization of the royalty rights provided by the subject leases. To adopt the Estate s argument that by signing the agreement it merely intended to acquiesce to the pooling of the land, without agreeing to pool and unitize the royalty interests set forth in the leases, would require that we ignore the unambiguous language contained in the written unit ratification.

The Estate cites three cases in support of its contention that a royalty owner may ratify a Unit Designation without being bound by the provisions of the lease of his tract. MCZ v. Triolo, 708 S.W.2d 49 (Tex. App. Houston [1st Dist.] 1986, writ ref d n.r.e.); Guaranty Nat l. Bank & Trust Co. v. May, 395 S.W.2d 80, 82 (Tex. Civ. App. Waco 1965, writ ref d n.r.e.); May v. Cities Service Oil Co., 444 S.W.2d 822 (Tex. Civ. App. Beaumont 1969, writ ref d n.r.e.). We agree with Tri-C that none of these cases involve the situation in which a royalty owner sought to participate in a pooling agreement without ratifying the terms of the governing lease. In our case, the Estate ratified a unit agreement which specifically provided for unification of the royalties from the pooling and unitization of the governing leases. Our decision today holds the Estate to the terms of that agreement. Issues one, two and three are sustained.

The trial court s summary judgment order in favor of the Estate is reversed, and the cause is rendered in favor of Tri-C.

DAVID L. RICHARDS

Justice

Before Chief Justice Davis,

Justice Vance, and

Justice Richards (Sitting by Assignment)

Reversed and rendered

Opinion delivered and filed December 31, 2002

Do not publish

[CV06]