Class Actions for Oil & Gas Royalty Owners

Ted Tredennick Energy

Like chili cook offs, high school football, and Texas toast, legal disputes over oil & gas royalties are a time- honored tradition in Texas—a tradition dating back to when oil was first discovered at Spindletop Field over 100 years ago. Two recent cases, Verde v. Burlington and Verde v. Koerner, demonstrate an unusual wrinkle to this common Texan squabble.

In the typical oil & gas royalty case, a royalty owner/payee contests either the nonpayment or calculation of the royalty payment. What’s slightly different about these two sister cases is that both involve a “class” of royalty owners. As with any class action in Texas, class certification—or certifying that the plaintiffs are similarly situated—is an uphill battle. This becomes especially arduous when the class consists of royalty owners with different royalty percentages.

The Burlington case was filed on behalf of royalty owners in approximately 2,092 acres in the Live Bee Sub- division No. 4 in Live Oak County, Texas. The Koerner case was filed on behalf of royalty owners in 1,061.34 acres out of Live Bee Subdivision No. 4.1

In Burlington, Defendants invoked the Texas Natural Resources Code (“Code”) and filed a motion to dis- miss arguing the royalty owners’ nonpayment claim was premature because there was a “dispute concerning title” and a “reasonable doubt” that the owners had an interest in the proceeds.2

Defendants also argued that “Plaintiffs must address the ‘elephant in the room’—the fact that they cannot ‘establish chain of title’ to the interest created by the Mattison Deeds.” According to the Defendants, Plaintiffs’ inability to establish their chain of title meant they were not members of the proposed class and there- fore lacked standing under the Federal Rules.3 The Burlington defendants stated class certification is inappropriate and “impractical without this matter devolving into thousands of mini-trials, without which Defendants would be deprived of the right to require each putative Plaintiff to prove his or her ‘clear title’ as required by Texas Law.” Defendants wrote, “It is not mere speculation that there will be immense chain of title issues in a case with 566 100-year-old deeds at issue…thus class certification would result in an unmanageable lawsuit.”

After the class certification hearing in Burlington, the court took the motion for class certification under advisement.4

In Koerner, the court said Plaintiffs failed to establish themselves as a payees under the statute. Plaintiffs argued the “safe harbor” provision of the Code only excuses interest payments—not principle payments; the Court disagreed.

In both cases, Defendants stated that even though Plaintiffs pled their cases as seeking declaratory judgments, “so long as the underlying nature of the case involves determination of title” the Texas Trespass to Try Title Statue controls.5 Plaintiffs in both cases sought declaratory and monetary relief for non-payment of proceeds as to mineral interests. In one small victory for the Plaintiffs, the Burlington court ruled that at least one (1) deed at issue conveys a royalty interest. To the extent that the interests at issue are royalty interests and not mineral interests, a declaratory judgment may be appropriate in Texas.6

Burlington defendants also argued for application of the four-year statute of limitations.7 The court predict- ably applied the statute of limitations and limited the Plaintiffs’ claims to within four years of the date of the complaint. The court declined to apply the discovery rule as the nonpayment of royalties was not “inherently undiscoverable” and the holder of royalty interests has “some obligation to exercise reasonable diligence in protecting its interests.”8

Both cases are interesting especially for owners of royalty interests. DT lawyers will continue to monitor and update our blog followers accordingly.

1 2:16-cv-00199
2 § 91.404.
3 FRCP 23
4 Verde Minerals, LLC, et al v. 1893 Oil & Gas, Ltd., et al., 2:16-cv-00463 5 Texas Property Code Section 22.001(a).
6 However, a royalty interest is non-possessory. See Richmond v. Wells, 395 S.W.3d 262, 266-67 (Tex. App.—Eastland 2012, no pet. And, “[g]enerally, non-possessory interests are not proper subjects of a trespass-to-try-title action.” Richmond, 395 S.W.3d at 267.
7 TEX. CIV. PRAC. & REM. CODE § 16.051.
8 Wagner & Brown, Ltd. v. Horwood, 58 S.W.3d 732, 736 (Tex. 2001) (quoting HECI Exploration Co. V. Neel, 982 S.W. 2d 881, 886 (Tex. 1998).