Opinion
No. 02-07-263-CV
Delivered: May 8, 2008.
Appeal from the 355th District Court of Hood County.
PANEL A: CAYCE, C.J.; LIVINGSTON and MCCOY, JJ.
MEMORANDUM OPINION
See Tex. R. App. P. 47.4.
I. Introduction
In three issues, Appellants, Range Resources Corporation, Range Production, I, LP, Steadfast Financial, LLC, R.J. Sikes, Roger Sikes, Kathy Sikes, Christy Rome, Greg Louvier, Pam Louvier, Dacota Investment Holdings, LLP, and R. Crist Vial (collectively "Range"), appeal the trial court's partial summary judgment in favor of Appellee, Betty Lou Bradshaw ("Bradshaw"). We affirm.
II. Factual and Procedural History
The issue in this interlocutory appeal by agreed order is whether the trial court correctly decided that two 1960 deeds reserved a "fraction of royalty" interest, rather than a "fractional royalty" of one-sixteenth.
A "fractional royalty" is a fixed fractional amount of the oil, gas, or other minerals produced from the land. It remains a constant amount, notwithstanding that royalty rates in leases may vary. See Winslow v. Acker, 781 S.W.2d 322, 327 (Tex.App.-San Antonio 1989, writ. denied); Tiller v. Tiller, 685 S.W.2d 456, 458 (Tex.App.-Austin 1985, no writ).
A "fraction of royalty" is not a fixed fractional amount but is determinable upon the execution of some future lease. The amount to be paid to the owner of the fraction of royalty interest is calculated by multiplying the fraction in the royalty reservation by the royalty provided in a lease. See Winslow, 781 S.W.2d at 327; Tiller, 685 S.W.2d at 458.
The underlying case is a suit for breach of fiduciary duty and conspiracy brought by Bradshaw, the holder of a non participating royalty interest ("NPRI"). Bradshaw holds the NPRI in approximately 1800 acres in Hood County. Bradshaw inherited the NPRI from her parents, J.A. and Lota Fay Driskill, who reserved the royalty interest in two deeds they executed in 1960.
A non-participating royalty is non possessory in that it does not entitle its owner to produce the minerals himself. It merely entitles its owner to a share of the production proceeds, free of the expenses of exploration and production. See Plainsman Trading Co. v. Crews, 898 S.W.2d 786, 789 (Tex. 1995).
In one deed, the Driskills conveyed approximately 600 acres to Mitchell Son. In the other deed, the Driskills conveyed approximately 1,173 acres to The Wheatland Retreat, Inc. These two deeds are referred to as the "1960 deeds." Bradshaw holds the royalty interest reserved by her parents in the 1960 deeds.
In April 2006, Appellant Steadfast Financial, LLC ("Steadfast") — who owned the surface and mineral rights to the land at issue — conveyed the surface estate to Appellant Range Resources Corporation, reserving all of the oil, gas, and other hydrocarbons. On the same day, Steadfast entered into an oil and gas lease with Range, providing for a one-eighth royalty. In connection with the transaction, Steadfast assigned portions of its royalty to several individuals and an entity. Most of them are also Appellants.
Steadfast assigned portions of its royalty interest to Peter G. Bennis, R.J. Sikes, R. Crist Vial, Roger Sikes, Kathy Sikes, Greg Louvier, Pam Louvier, and Dacota Investment Holdings, LLP.
In January 2007, Bradshaw sued, alleging that Steadfast breached its fiduciary duty by entering into the one-eighth royalty lease with Range when Steadfast owed her a duty to obtain a one-fourth royalty. Bradshaw argued that she was entitled to a one-fourth royalty because at the time Steadfast executed the lease to Range, the "going royalty rate in Hood County, Texas, was one-fourth." Bradshaw claims that she should have a one-eighth share in production (1/2 of a 1/4 lease royalty) instead of a one-sixteenth share (1/2 x 1/8).
The parties filed competing motions for summary judgment on whether the 1960 deeds reserved a "fraction of royalty" or a "fractional royalty" interest. In Range's motion, it argued that Bradshaw's NPRI is a fixed one-sixteenth "fractional royalty" (1/2 x 1/8) and therefore, no fiduciary duty was owed or breached. In Bradshaw's motion, she argued that the 1960 deeds provided for a "fraction of royalty." Bradshaw argued that the deeds reserved a one-half fraction of royalty interest and provided that her share of royalty could never go below one-sixteenth. Thus, if a future lease provided for a one-eighth royalty, she would get a one-sixteenth (1/2 x 1/8) share of production. If a future lease provided for a one-sixth royalty, she would be entitled to one-twelfth (1/2 x 1/6) share of production.
The trial court agreed with Bradshaw and ruled that the royalty interest reserved in the 1960 deeds is a "fraction of royalty" interest. This interlocutory appeal by agreed order followed. See Tex. Civ. Prac. Rem. Code Ann. § 51.014(d). The issue in this interlocutory appeal is whether the trial court correctly decided that the 1960 deeds reserved a "fraction of royalty" interest rather than a "fractional royalty" of one-sixteenth. The trial court stayed the proceedings pending our review of the issue.
Under section 51.014(d) of the Texas Civil Practice and Remedies Code, a district court may issue a written order for interlocutory appeal in a civil action not otherwise appealable if:
(1) the parties agree that the order involves a controlling question of law as to which there is a substantial ground for difference of opinion;
(2) an immediate appeal from the order may materially advance the ultimate termination of the litigation; and
(3) the parties agree to the order.
TEX. CIV. PRAC. REM. CODE ANN. § 51.014(d) (Vernon Supp. 2007).
III. Standard of Review
Neither Bradshaw nor Range contends that the 1960 deeds are ambiguous. The interpretation of an unambiguous deed is a question of law. Altman v. Blake, 712 S.W.2d 117, 118 (Tex. 1986). Accordingly, we review the trial court's construction of an unambiguous deed by a de novo standard. EOG Res., Inc. v. Hanson Prod. Co., 94 S.W.3d 697, 701 (Tex.App.-San Antonio 2002, no pet.). When conducting a de novo review, the reviewing court exercises its own judgment and redetermines each issue. Quick v. City of Austin, 7 S.W.3d 109, 116 (Tex. 1998). In such a review, the reviewing tribunal accords the original tribunal's decision absolutely no deference. Id.
IV. "Fraction of Royalty" versus "Fractional Royalty"
The sole issue in this appeal is one of deed interpretation: whether the royalty reservations in the 1960 deeds constitute a "fractional royalty" or a "fraction of royalty."
The question regarding classification of the royalty interest is material to the disposition of this case. If the 1960 deeds are construed as conveying a "fractional royalty," which is a fixed, constant fractional amount of the oil, gas, or other minerals, then Bradshaw would only be entitled to recover one-sixteenth share of production under the deed (1/2 x 1/8). In contrast, if the deed is construed as conveying a "fraction of royalty," which is an amount determinable upon the execution of some future lease, then Bradshaw would be entitled to receive an undivided one-half of the royalty interest, and her share of production would be contingent upon the royalty provided for in any future leases.
A. Rules of Deed Interpretation
Our primary duty when construing a deed is to ascertain the intent of the parties from its four corners. Luckel v. White, 819 S.W.2d 459, 461-62 (Tex. 1991); Altman, 712 S.W.2d at 118; City of Del Rio v. Clayton Sam Colt Hamilton Trust, No. 04-06-00782-CV, 2008 WL 508682, at *2 (Tex.App.-San Antonio Feb. 27, 2008, no pet.). Thus, we may not ignore the plain language of the document. See City of Del Rio, 2008 WL 508682, at *2. And we must assume that the parties to an instrument intend every clause to have some effect and in some measure to evidence their agreement. Altman, 712 S.W.2d at 118. Thus, when ascertaining the parties' intent as stated in an instrument, we must harmonize all parts of a deed, even if those parts appear contradictory or inconsistent, so as to give effect to all its provisions. See Luckel, 819 S.W.2d at 462.
B. 1960 Deeds' Royalty Reservations
The disputed royalty reservations in the 1960 deeds are as follows:
[1] The Grantors herein reserve unto themselves, conveyance an undivided one half (2) Royalty (Being equal to not less than an undivided one sixteenty [sic] (1/16) of all the oil, gas and/or minerals in, to, and under or that may be produced from said [land]. . . .
[2] Said interest hereby reserved is a Non Participating Royalty and shall not participate in the Bonuses . . . nor shall it participate in the money rentals . . . It shall not be necessary for the Grantors, their heirs, and assigns, to join in the execution of any lease covering said Royalty interest herein reserved . . . provided, however, that all such leases shall provide for Royalty of not less than one eighth (1/8). . . .
[3] In the event oil, gas or other minerals are produced from said land, then said Grantors, their heirs and assigns, shall receive not less than one sixteenth (1/16) portion (being equal to one half (2) of the customary one eighth (1/8) Royalty) of the entire gross production and/or such net proceeds as hereinabove provided. . . .
C. Analysis
Construed as a whole, and harmonizing all parts to give effect to the parties' intent, we determine that a "fraction of royalty" was conveyed. See Luckel, 819 S.W.2d at 462. In reaching our conclusion, we examined the plain language of the 1960 deeds. See id. Each paragraph in the royalty reservation portion of the deeds contains "not less than"language. This language was pivotal in our determination that the deeds conveyed a "fraction of royalty" rather than a "fractional royalty."
Paragraph one reserves an undivided one-half royalty for Bradshaw. The parenthetical language that follows establishes that Bradshaw's share of production was to be "equal to not less than an undivided one-sixteenty [sic] (1/16) of all the oil, gas and/or minerals . . . that may be produced. " We read this language as expressing the intent to establish a minimum one-sixteenth share of production.
When paragraph two is read together with paragraph one, it is evident that the parties contemplated future leases on the property as well as the potential that the royalty rates in leases covering the property could vary because the language of paragraph two specifically provides that all leases "shall provide for Royalty of not less than 1/8." This language provides the assurance that should a lease be executed at a future date, at no time may the royalty be less than one-eighth. Thus, in the event that a future lease called for different royalty, Bradshaw was ensured that her royalty interest would be calculated at a one-eighth minimum and that, as a result of the language in paragraph one, her share of production would never drop below one-sixteenth (1/2 x 1/8=1/16). See Brown, 593 S.W.2d at 946 (McGee, J., dissenting) ; Hamilton v. Morris Res., Ltd., 225 S.W.3d 336, 343 (Tex.App.-San Antonio 2007, pet. denied). Therefore, if a subsequent lease called for a one-eighth royalty, Bradshaw's interest in one-half of royalties, or one-sixteenth, would continue to be "not less than 1/16." See Brown, 593 S.W.2d at 946 (McGee, J., dissenting); Hamilton, 225 S.W.3d at 343. However, if a future lease called for more than a one-eighth royalty, Bradshaw's interest in one-half of that royalty would continue to be consistent with the parenthetical language. See Brown, 593 S.W.2d at 946 (McGee, J., dissenting). Thus, it is our conclusion that when paragraphs one and two are read together, the "not less than" clauses work together to ensure that a one-sixteenth minimum "floor" is established. If the grantors possess an undivided one-half royalty, and the royalties on any future lease are a minimum of one-eighth, then the grantors are assured of receiving at least a one-sixteenth share of production.
This type of "not less than"parenthetical language is not unusual as the provision allows for the possibility of future leases. Indeed:
A prudent grantor who reserves a fraction of royalties may wish to ensure that his interest will not fall below a certain minimum. Careful drafting of royalty reservations requires that he recognize that future leases may be executed by his grantee that call for a different royalty than a lease existing at the time of the deed.
Brown v. Harvard, 593 S.W.2d 939, 946 (Tex. 1980) (McGee, J., dissenting); see also French v. Chevron U.S.A. Inc., 896 S.W.2d 795, 798 (Tex. 1995) (citing Justice McGee's dissent to explain "fraction of royalty").
Furthermore, the language of paragraph three supports the interpretation that the parties intended to establish a minimum share of production — determinable upon the execution of future leases — rather than a fixed share. The language in paragraph three specifically provides that Bradshaw is entitled to receive "not less than one-sixteenth (1/16) portion . . . of the entire gross production (being equal to 2 of the customary 1/8 royalty)." Once again, the parties included language requiring that the grantors receive a minimum one-sixteenth of production. Thus, when paragraph three is read together with paragraphs one and two it is evident that the parties included the "not less than" language to establish a floor from which Bradshaw's share of production could be calculated.
Because the "not less than" language indicates that the royalty calculation was not intended to be a fixed, constant amount, we hold that the deeds provided for a "fraction of royalty" rather than a "fractional royalty." Therefore, we agree with Bradshaw's interpretation that the language of the deed permits her to share in one-half of whatever royalties may be contracted for, and that her resulting share of production must not be less than one-sixteenth. This interpretation is consistent with the plain language of the deed and gives effect to all of the operative language in the deed so that all of the terms are in harmony. See Luckel, 819 S.W.2d at 462; see also Altman, 712 S.W.2d at 118; City of Del Rio, 2008 WL 508682, at *2.
D. Conclusion
Having determined that the trial court properly found that the 1960 deeds provided for a "fraction of royalty," we overrule Range's three issues and affirm the trial court's partial summary judgment in favor of Bradshaw.
DISSENTING OPINION
I respectfully dissent. As a matter of law, the two 1960 deeds at issue reserved a fixed fractional 1/16th non-participating royalty interest. The appellee's contention to the contrary requires us to ignore numerous rules of contract construction, to give no effect to the "being equal to" language in the deeds, and to imply from the "not less than" phrase in the deeds a reservation of interest in favor of the grantor that is more than the plain language of the deeds allows. I would, therefore, reverse the trial court's partial summary judgment and render judgment that appellee take nothing on her claims against appellants.