In Re: Moose Oil

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In Re: Moose Oil Doc. 0 Case: 08-40840 Document: 00511189321 Page: 1 Date Filed: 07/29/2010 IN THE UNITED STATES COURT OF APPEALS United States Court of Appeals FOR THE FIFTH CIRCUIT Fifth Circuit FILED July 29, 2010 N o . 08-40840 Lyle W. Cayce Clerk I n the Matter of: MOOSE OIL & GAS CO; MOOSE OPERATING COMPANY IN C , Debtors O LEE TAWES, III A p p e lla n t v. D O R I S BARNES, Individually and as Independent Executrix of the Estate of L e o n McNair Barnes, Deceased A p p e lle e A p p e a l from the United States District Court for the Southern District of Texas B e fo r e GARWOOD, SMITH, and CLEMENT, Circuit Judges. P E R CURIAM: A s stated below, this case involves important and determinative questions o f Texas law as to which there is no controlling Texas Supreme Court precedent. Accordingly, we certify those unresolved questions to the Supreme Court of T exas. Dockets.Justia.com Case: 08-40840 Document: 00511189321 Page: 2 Date Filed: 07/29/2010 No. 08-40840 C E R T I F I C A T I O N FROM THE UNITED STATES COURT OF A P P E A L S FOR THE FIFTH CIRCUIT TO THE SUPREME COURT O F TEXAS, PURSUANT TO THE TEXAS CONSTITUTION ART. 5, 3-C AND TEXAS RULE OF APPELLATE PROCEDURE 58.1. T O THE SUPREME COURT OF TEXAS AND THE HONORABLE J U S T I C E S THEREOF: I . Parties & Counsel T h e Style of the case is O Lee Tawes, III, Appellant, v. Doris Barnes, I n d iv id u a lly and as Independent Executrix of the Estate of Leon McNair Barnes, D e c e a s e d , Appellee, No. 08-40840, in the United States Court of Appeals for the F ifth Circuit, an appeal by appellant O. Lee Tawes, III, from the judgment of the U n ite d States District Court for the Southern District of Texas, Victoria D iv is io n , affirming in part and reversing in part the November 2009 judgment o f the United States Bankruptcy Court for the Southern District of Texas in the a d v e r s a r y proceeding, styled Doris Barnes v. Marlin Data Research, Inc., et al, p e n d in g in the bankruptcy proceeding in said court styled In the Matter of: M o o s e Oil & Gas Co; Moose Operating Company Inc., Debtors. The appellant, O Lee Tawes, III, is represented by Barnet B. Skelton, Jr. o f Barnet B. Skelton, Jr. P.C., 1111 Bagby St., 47th Floor, Houston, Texas 77002, T e l. 713-659-8761. Doris Barnes, the appellee, is represented by Tom Kirkendall o f the Law Office of Tom Kirkendall, 2 Violetta Ct., The Woodlands, Texas 7 7 3 8 1 -4 4 5 0 , Tel. 281-364-9946 and Dick Watt, of Watt Beckworth Thompson & H e n n e m a n , LLP, 711 Louisiana St., 1800 South Tower, Houston, Texas 77002, T e l. 713-650-8100. I I . Statement of the Case T h is case involves the construction and application of the hereinbelow id e n tifie d Texas oil and gas Working Interest Unit Agreement and Joint O p e r a t in g Agreement. 2 Case: 08-40840 Document: 00511189321 Page: 3 Date Filed: 07/29/2010 No. 08-40840 A . The Leases, Lessors, & Lessees I n 1996, Moose Oil & Gas Company (Moose O&G) acquired oil, gas and m in e r a l leases in Lavaca County, Texas. Moose O&G assigned some of its lease in t e r e s t s to a group of investors (the Moose Assignees), including appellant h e r e in O. Lee Tawes, III (Tawes). Collectively, these lands will be referred to as t h e Baker Lease. A ls o in 1996, American Exploration Company acquired from Leon Barnes a n d Doris Barnes (appellee herein individually and as executrix of the estate of L e o n Barnes, deceased) an oil, gas and mineral lease (the Barnes Lease). The B a r n e s Lease covered 345.5 acres of property adjacent to the Baker Lease. Ultimately, American Exploration Company's interest in this lease was passed t o Louis Dreyfus Natural Gas Corporation, which interest in turn later passed t o Dominion Oklahoma Texas Exploration and Production, Inc. (collectively D o m in io n ). I n July 1998, Moose O&G, the Moose Assignees, Dominion and Seisgen E x p lo r a tio n Inc. (Seisgen) pooled their interests in the oil, gas and mineral l e a s e s discussed above.1 Of the 640 total acres in the pooled unit, the Barnes le a s e constituted 54% of the land. Each of these parties agreed to be bound by t h e terms of a Working Interest Unit Agreement (WIUA) and an attached Joint O p e r a t in g Agreement (JOA). Dominion later acquired Seisgen's interest. The WIUA designated Dominion as the operator of any wells that would b e drilled on the pooled unit. Dominion drilled and operated wells on the pooled u n it . Moose O&G proposed to drill two additional wells that would have their surface location on the Baker Lease, but would directionally extend to bottom At the time, the Barnes Lease contained an express no-pooling clause. Dreyfus, Dominion's predecessor in interest, obtained a pooling agreement from Barnes in exchange for $125,000, access to 3D seismic test results, and the release of certain shallow rights from the Barnes' lease. 1 3 Case: 08-40840 Document: 00511189321 Page: 4 Date Filed: 07/29/2010 No. 08-40840 o u t under the Barnes Lease. The contracts allowed Dominion to not participate in the drilling of these wells if it chose to go "non-consent." For a certain "nonc o n s e n t" period under the contract, Dominion would not receive any revenues fr o m production, nor would it incur liabilities in drilling and maintaining the w e lls . D o m in io n elected to go "non-consent" on the proposed wells. Moose O&G d e c id e d to and did drill and operate these two wells (designated Baker-Barnes N o s . 1 & 2) anyway. Moose O&G and the Moose Assignees, including Tawes, w e r e Consenting Parties under the WIUA and JOA. At all herein relevant t im e s , Moose O&G was the operator of the Baker-Barnes Nos. 1 & 2 wells. B . The Working Interest Unit Agreement A t issue in this case is Tawes' liability, as a Consenting Party, for royalty r e s p e c t in g production from the Baker-Barnes 1 & 2 wells under the WIUA and J O A . The WIUA, in a section titled "Lease Burdens," provided: " E a c h Party hereto shall bear and be responsible for their own lease b u r d e n s including, but not limited to their Lessor's royalty, o v e r r id in g royalty along with any and all other royalty burdens w h ic h may have been created by the party contributing the lease or le a s e s to this Working Interest Unit." F u r t h e r , in a section titled "Provision V," it also provided that: " M o o s e Oil & Gas Company shall be the liable party to the Operator fo r the entire forty-six percent (46%) working interest within the W o r k in g Interest Unit for the parties hereinabove referred to as M o o s e [including Tawes]. Moose Oil & Gas Company shall be the r e s p o n s ib le party, for each of said parties, to the Operator for o b ta in in g and delivering any and all elections, notices, invoices p a y m e n t s and billings. S h o u ld one or more Moose parties decide not to participate in a p r o p o s e d operation, the participating Moose party or parties shall h a v e the option of disbursing the non-participating Moose parties in t e r e s t proportionately among the participating Moose parties." F in a lly , in an section titled "Lease Rentals," the WIUA stated: 4 Case: 08-40840 Document: 00511189321 Page: 5 Date Filed: 07/29/2010 No. 08-40840 " R e n t a ls , shut-in payments, or minimum royalties which may b e c o m e due on leases committed hereto shall be paid by the c o n t r ib u t o r of the lease to the Working Interest Unit. It is the o b lig a t io n of the contributing Lessee to maintain its own lease or L e a s e s subject to this Agreement." T h e parties agreed in the WIUA that it would be "governed by" the JOA that was a t t a c h e d as an exhibit to the WIUA. C . The Joint Operating Agreement T h e JOA, in its Article III.B, set out a general scheme of liability apportionment: " U n le s s changed by other provisions, all costs and liabilities in c u r r e d in operations under this agreement shall be borne and p a id , and all equipment and materials acquired in operations on the C o n t r a c t Area shall be owned, by the parties as their interests are s e t forth in [the WIUA]. In the same manner, the parties shall also o w n all production of oil and gas from the Contract Area subject to t h e payment of royalties to the extent of their interests which shall b e borne as hereinafter set forth. R e g a r d le s s of which party has contributed the lease(s) and/or oil and g a s interest(s) hereto on which royalty is due and payable, each p a r t y entitled to receive a share of production of oil and gas from the C o n t r a c t Area shall bear and shall pay or deliver, or cause to be p a id or delivered, to the extent of its interest in such production, the r o y a lt y amount stipulated hereinabove and shall hold the other p a r t ie s free from any liability therefor. No party shall ever be r e s p o n s ib le , however, on a price basis higher than the price received b y such party, to any other party's lessor or royalty owner, and if a n y such other party's lessor or royalty owner should demand and r e c e iv e settlement on a higher price basis, the party contributing t h e affected lease shall bear the additional royalty burden a t t r ib u ta b le to such higher price." A fte r thus setting out the relationship between the parties generally, the JOA t h e n specifically addressed the situation where a signatory did not want to take p a r t in a proposed well drilling operation. If a party did not consent to the d r illin g of a proposed well, the JOA gives Consenting Parties the right to drill a n y w a y and lays out the rights and obligations of the consenting parties. Article 5 Case: 08-40840 Document: 00511189321 Page: 6 Date Filed: 07/29/2010 No. 08-40840 I of the JOA also defined the terms "consenting party" and "non-consenting p a r ty ": " T h e terms `Drilling Party' and `Consenting Party' shall mean a p a r t y who agrees to join in and pay its share of the cost of any o p e r a tio n conducted under the provisions of this agreement. . . . T h e terms `Non-Drilling Party' and `Non-Consenting Party' shall m e a n a party who elects not to participate in a proposed operation." T h e JOA states in its Article VI.B2, "[t]he entire cost and risk of conducting such o p e r a t io n s shall be borne by the Consenting Parties in the proportions they have e le c t e d to bear. . . ." Finally, in a subsequent portion of its Article VI the JOA c o n t a in s the statement that: " D u r in g the period of time Consenting Parties are entitled to receive N o n -C o n s e n t in g Party's share of production, or the proceeds t h e r e fr o m , Consenting Parties shall be responsible for the payment o f all production, severance, excise, gathering and other taxes, and a ll royalty, overriding royalty and other burdens applicable to NonC o n s e n t in g Party's share of production . . . ." T h is JOA provision, which for convenience of identification we call the "Royalty P r o v is io n ," is the language principally at issue here. Barnes argues that Tawes, a s a Consenting Party, is responsible for "all royalty" owed to her. D . The Resulting Lawsuit I n 2000, Barnes sued Dominion and Moose O&G in Lavaca County, Texas d is t r ic t court to recover damages to real property, breach of contract for failure t o pay royalties, fraudulent inducement, and negligent misrepresentation. Tawes and the other Moose Assignees were originally brought into the suit as t h ir d -p a r t y defendants. Under her original contract with Dominion, Barnes was o w e d a 17.916% royalty. No party, including Tawes, disputes that Barnes was o w e d a royalty proportional to her land's contribution to the pooled unit, or 9 .6 75 % . The remaining 8.241% (17.916-9.675) was disputed between the parties. 6 Case: 08-40840 Document: 00511189321 Page: 7 Date Filed: 07/29/2010 No. 08-40840 I n February of 2002, Tawes and Marlin Data Research, Inc. (MDR)2 a c q u ir e d Moose O&G's working interest in the Baker Lease and the BakerB a r n e s Nos. 1 & 2 wells at a foreclosure sale. The following chart displays the w o r k in g interest ownership of the wells at issue: Tawes Baker-Barnes Wells: Before Feb. 13, 2002: After Feb. 13, 2002: Well 1 12.5% 40.901324% Well 2 13.1146% 41.023051% Well 1 0% 10.451376% MDR Well 2 0% 10.258449% I n March of 2002, payout of the proceeds received from the sale of p r o d u c t io n from the Baker-Barnes Nos. 1 & 2 wells was suspended and such p r o c e e d s began to be held in suspense pursuant to court order. The production p a y m e n t s are held in two accounts: one for the benefit of the working interests, in c lu d in g Tawes, based on their respective interests in the wells, and another for t h e benefit of all the royalty owners. In April of 2002, Moose O&G filed in the bankruptcy court a voluntary b a n k r u p t c y petition under Chapter 7 of Title 11 of the United States Code. In A u g u s t , notice of removal was filed, removing the Barnes' state-court action to t h e bankruptcy court below as part of the Moose O&G bankruptcy proceeding. I n September of 2003, the parties notified the bankruptcy court that a s e t t le m e n t had been reached among Barnes, Dominion, and the Moose A s s ig n e e s , but not Tawes or MDR. Under the terms of the settlement, Barnes w o u ld receive $356,124.96. Barnes agreed to ratify her royalty to the undisputed 9 .6 7 5 % in all the wells in the pooled unit and release her claims against the p a r tie s to the settlement agreement. Dominion agreed to release its third-party c la im s against the Moose Assignee signatories to the settlement agreement. The b a n k r u p t c y court issued a Final Case Management Order directing all nonMDR is a Texas Corporation that is owned by John F. Terwilliger, the former CEO and majority owner of Moose O&G. 2 7 Case: 08-40840 Document: 00511189321 Page: 8 Date Filed: 07/29/2010 No. 08-40840 s e t t lin g parties to file amended pleadings and a stipulation of facts and law. Barnes amended her complaint to allege that Tawes and MDR were responsible fo r royalties due from Baker-Barnes Nos. 1 and 2 wells that accrued prior to F e b r u a r y 2002. In October 2004, the bankruptcy court approved the settlement. I n August of 2006, the bankruptcy court found Tawes, but not MDR, liable t o Barnes for unpaid royalties on the Barnes Nos. 1 and No. 2 wells that accrued fr o m the date of first production to February 2002. Specifically, the bankruptcy c o u r t relied on the above-noted Royalty Provision of the JOA stating that C o n s e n t in g Parties shall be responsible for "all royalty" applicable to the nonC o n s e n t in g Party's share of production. However, the bankruptcy court found n o evidence that Barnes was owed 17.916% royalty. Instead, the bankruptcy c o u r t held that Barnes was owed royalty proportional to her land's contribution t o the pooled unit, or 9.675%--the undisputed royalty amount. The bankruptcy c o u r t held that Barnes' damages, $291,846, should not be offset by her s e t t le m e n t with Dominion and the other Moose Assignees because the evidence d o e s not establish which portion of the settlement, if any, was payment of the p r e -F e b r u a r y 2002 royalties, as opposed to post-February 2002 royalties or dam ages for her claims of fraudulent inducement and negligent m is r e p r e s e n t a t io n .3 Finally, the bankruptcy court rejected Barnes' claim for a t t o r n e y s fees. T a w e s appealed the bankruptcy court's decision to the United States D i s t r ic t Court for the Southern District of Texas. Barnes cross appealed the b a n k r u p t c y court's decision on attorneys fees. The district court affirmed the b a n k r u p t c y court's holding as to liability, but reversed its decision on attorneys fe e s and remanded it for factual development. The district court compared MCI T e le c o m m u n ic a tio n s Corp. v. Texas Utilities Electric Co., 995 S.W.2d 647 (Tex. The bankruptcy court held that Tawes did not establish proof by a preponderance of the evidence that Barnes' damages should be offset by the Dominion settlement. 3 8 Case: 08-40840 Document: 00511189321 Page: 9 Date Filed: 07/29/2010 No. 08-40840 1 9 9 9 ), with Stine v. Stewart, 80 S.W.3d 586 (Tex. 2002), and held that Barnes w a s a third-party beneficiary of the WIUA and JOA. Interpreting the contract u n d e r Texas law, the district court held that the contract did not preclude r e c o v e r y against Barnes. Finally, it held that the Non-Consenting Parties had b a r g a in e d for the consenting parties to be fully liable for all royalties due by a N o n -C o n s e n t in g Party. III. Legal Issues A . Barnes Rights Under the WIUA and JOA A s an initial matter, Tawes argues that the lower courts erred in holding t h a t Barnes was a third-party beneficiary to the WIUA and the JOA. He claims t h a t the JOA was not intended to be for the benefit of lessors and as a result, u n d e r Texas law, the JOA created no third-party liability. U n d e r our reading of Texas law, a contract creates a third-party creditor b e n e fic ia r y only if the signatories (l) intended to confer a benefit on that thirdp a r ty and (2) entered the contract to confer that benefit on the third party. MCI T e le c o m m . Corp., 995 S.W.2d at 651. The language of the contract must be clear, a n d the intent of the contracting parties controls. Id. "[A] presumption exists t h a t parties contracted for themselves unless it `clearly appears' that they in t e n d e d a third party to benefit from the contract." Id. For this purpose, there s e e m s to be a distinction between direct or express benefit, on the one hand, and in c id e n t a l benefit on the other hand. Stine, 80 S.W.3d at 586. That a contract in c id e n t a lly benefits some third party is insufficient to establish an intent to c r e a t e a third-party beneficiary. Id. The would-be third-party beneficiary has t h e burden of proof on this issue. MCI Telecomm. Corp., 995 S.W.2d at 651. T h e instant case seems to fall somewhere between Stine and MCI T e le c o m m u n ic a tio n s . In Stine, the would-be beneficiary was named in a couple's d iv o r c e agreement as a creditor to whom a debt was owed. Stine, 80 S.W.3d at 5 8 8 . The divorce agreement also clearly defined the terms of the repayment due 9 Case: 08-40840 Document: 00511189321 Page: 10 Date Filed: 07/29/2010 No. 08-40840 t o the beneficiary. Id. The court noted that the divorce agreement was not solely in t e n d e d to provide for repayment of the would-be beneficiary. Id. at 591. But t h e court held that express references to the beneficiary and the clear intent to e n s u r e her repayment created more than an incidental benefit, and was s u ffic ie n t to make her a third-party creditor beneficiary under the terms of the d iv o r c e agreement. Id. at 59192. I n MCI, however, that company sought to install fiber optic cable along a r a ilr o a d right-of-way. MCI Telecomm. Corp., 995 S.W.2d at 64849. Years b e f o r e , Texas Utilities had installed transmission poles along that same r ig h t -o f- w a y . MCI contractually agreed with the railroad to "secure such p e r m is s io n as may be necessary on account of any other existing rights in any t h ir d party (including, without limitation, rights of . . . licensees[) and] MCI h e r e b y agrees to exercise the herein granted rights in such a manner as not to in t e r fe r e in any way with any existing prior rights." Id. at 649. Texas Utilities c la im e d MCI's work damaged its transmission poles and sought to enforce its r ig h t s as a third-party creditor beneficiary under MCI's contract with the r a ilr o a d . Id. The court in MCI held that the contract created no third-party b e n e fic ia r y rights for licensees. Id. at 652. As in MCI, the JOA identifies a s p e c ific group of royalty owners that Barnes argues have third-party beneficiary r ig h ts . W h ile the MCI contract seemingly identifies a definite group of potential t h ir d -p a r t y beneficiaries, an arguably significant difference between Stine and M C I may be that the MCI contract does not identify what rights of the class are t o be respected. Unlike MCI, but like Stine, the contract here identifies a s p e c ific , limited group of individuals and identifies what rights are owed to the t h o s e individuals (payment of royalties). Further, in MCI, there was particular la n g u a g e in the contract that explicitly stated that the contract was not to be in t e r p r e t e d as conferring any benefits on non-signatory parties. Id. In fact, 10 Case: 08-40840 Document: 00511189321 Page: 11 Date Filed: 07/29/2010 No. 08-40840 o p in io n s in some Texas cases state that MCI turned on that express language in the contract. E.g., Pratt-Shaw v. Pilgrim's Pride Corp., 122 S.W3d 825, 831 (T e x . App.--Dallas 2003, pet. denied). No party has asserted that such a clause e x is t s in either the WIUA or the JOA. B a r n e s also makes an alternative argument that even if she is not a t h ir d -p a r t y creditor beneficiary, she has a basis of recovery against Tawes b e c a u s e they are in privity of estate. "Liability to the original lessor for the p a y m e n t of rent or the performance of other lease covenants may arise from e it h e r privity of contract or privity of estate." Amco Trust Inc. v. Naylor, 159 T e x . 146, 14950, 317 S.W.2d 47, 50 (1958). She argues that Tawes came into p r iv it y of estate with her by undertaking the obligation to pay royalty under the B a r n e s Lease. She further argues that when Tawes increased his interest in the B a k e r -B a r n e s Nos. 1 & 2 wells by acquiring a portion of Moose O&G's working i n t e r e s t , Tawes stepped into Moose O&G's privity of estate with Barnes and u n d e r t o o k the same obligation as Dominion to pay Barnes' royalty. B . Contractual Bar to Recovery T a w e s contends that even if Barnes is a third-party creditor beneficiary, s h e cannot enforce her rights against Tawes because Dominion, Barnes' lessee, c o u l d not have enforced the Royalty Provision against Tawes. As Moose O&G w a s the party liable to Dominion on behalf of Tawes, Tawes claims the aboveq u o t e d Provision V4 of the WIUA insulated him from liability. Tawes' contention i m p li e s that Dominion would only be able to recover from Moose O&G for a b r e a c h of the WIUA so the same is true for Barnes. Barnes can have no greater r ig h t s to reach Tawes than did Dominion, Tawes contends. "Moose Oil & Gas Company shall be the liable party to the Operator for the entire forty-six percent (46%) working interest within the Working Interest Unit for the parties hereinabove referred to as Moose." 4 11 Case: 08-40840 Document: 00511189321 Page: 12 Date Filed: 07/29/2010 No. 08-40840 A s an initial matter, the Royalty Provision on which Barnes relies is c o n t a in e d in the JOA, while Provision V on which Tawes relies is contained in t h e WIUA. If Barnes is a third-party creditor beneficiary of the JOA, she Her a r g u a b ly has individual standing to assert her rights thereunder. t h ir d -p a r t y beneficiary status relies on her lease to Dominion, however, so D o m in io n 's rights under the contracts are relevant. In short, if Dominion could h o ld Tawes liable for breach of the JOA's Royalty Provision, and Barnes is a t h ir d -p a r t y beneficiary of the JOA, then she too, arguably could hold Tawes lia b le for breach of the JOA's Royalty Provision. The question then would a p p e a r to be whether Dominion could have held Tawes liable--separately from M o o s e -- fo r a breach of the Royalty Provision. Tawes was both a named party and a Moose Assignee under the terms of t h e WIUA. Provision V of the WIUA appears to have shielded Tawes from lia b ilit y to the WIUA Operator, Dominion. Consequently, if a Moose Assignee, s u c h as Tawes, breached the WIUA, Dominion's recourse would appear to have b e e n against Moose O&G. This may not necessarily be true for the JOA, h o w e v e r . The language of Provision V of the WIUA seems to make Moose O&G lia b le on behalf of the Moose Lessees to the Operator. The WIUA and the JOA n a m e d Dominion as the Operator, but Dominion was not the Operator of the B a k e r -B a r n e s Nos. l and 2 wells. Dominion went Non-Consent on the d e v e lo p m e n t of those two wells, and the Consenting Parties selected Moose as t h e Operator. As a result, Provision V of the WIUA may be less relevant, and t h e JOA's Royalty Provision may become the operative language. Further, the W I U A states, "the Working Interest Unit . . . will be governed by the Operating A g r e e m e n t attached hereto." The JOA's Royalty Provision assigns liability as b e tw e e n Consenting Parties and Non-Consenting Parties, rather than as b e tw e e n operator and non-operators. 12 Case: 08-40840 Document: 00511189321 Page: 13 Date Filed: 07/29/2010 No. 08-40840 T h e issue seems to turn on the relationship between the WIUA and the J O A , and which is given priority. Tawes contends that greater weight must be p la c e d on the WIUA; Barnes argues the JOA controls.5 C . Apportionment of Recovery T h e district court found Tawes liable for all royalties owed to Barnes from B a k e r -B a r n e s Nos. 1 and 2 wells that accrued as of February 2002. Tawes c o n t e n d s that the court erred, because he can, at most, be held responsible only fo r an amount proportionate to his interest in the properties at that time. Tawes a s k s this court to reduce the judgment by the corresponding amount. Tawes cites c o n t r a c t language limiting each party's responsibility to its proportionate share. He relies on, inter alia, Article III.B of the JOA, which states that "[u]nless c h a n g e d by other provisions . . . the parties shall also own all production of oil a n d gas from the Contract Area subject to the payment of royalties to the extent o f their interests." JOA Article I ("Definitions") bolsters this language, according t o Tawes.6 T h e district court determined that the above-quoted JOA "Royalty P r o v is io n " modified the proportionate share language generally employed in the W I U A and JOA by expanding the liability of Consenting Parties to the payment o f "all royalty." The court noted that the Consenting Parties' allocation of costs We note in passing that Tawes additionally and separately contends that because Barnes released Dominion from liability in the Settlement, she has lost whatever status she might have had under the JOA. The district court noted that that issue was not preserved for appeal to the district court under Bankruptcy Rule 8006 because Tawes did not include it in his appellate briefs nor in his statement of issues on appeal. Tawes did not raise this issue before the bankruptcy court, but raised it for the first time on motion for rehearing before the district court. As a matter of federal procedural law, we affirm the district court's ruling because Tawes waived this additional, separate settlement issue by waiting until a motion for rehearing to raise it. See In re GGM, P.C., 165 F.3d 1026, 103132 (5th Cir. 1999). Tawes points to Article I, paragraph G, which states: "The terms `Drilling Party' and `Consenting Party' shall mean a party who agrees to join in and pay its share of the cost of any operation conducted under the provisions of this agreement." (emphasis added). 6 5 13 Case: 08-40840 Document: 00511189321 Page: 14 Date Filed: 07/29/2010 No. 08-40840 w a s explicitly limited to each party's proportionate share whereas what we call t h e Royalty Provision of the JOA contained no such limitation. While the WIUA a n d JOA generally allocate responsibilities proportionately, Article III.B of the J O A , which generally sets out proportionate sharing of costs and production, b e g in s by stating "Unless changed by other provisions." The argument goes that s u c h sophisticated parties demonstrated their ability to apportion when they w is h e d and that they did not apportion in what we have called the JOA's " R o y a lty Provision" tends to suggest they did not intend apportionment there. The district court then distinguished costs from royalties: " [T ]h e relationship between non-operators and operators involving r o y a lt y payments is distinct from the relationship between nono p e r a to r s and operators involving development and operation costs. F ir s t , each non-operator independently chooses whether or not he w ill be specifically responsible for royalty payments. As lessees, the n o n -o p e r a t o r s choose to specifically obligate themselves to their le s s o r s for royalties under their respective oil, gas and mineral le a s e s . Therefore, the share of royalties due by each non-operator u n d e r the WIUA and JOA corresponds to his individual liability u n d e r his respective lease, except in the case of non-consent o p e r a tio n s . In the case of non-consent operations, the parties in d e p e n d e n t ly choose whether or not they wish to participate, and t h e r e fo r e have control over whether or not to specifically incur a d d it io n a l royalty obligations. Second, the operators in this case h a v e no discretion over royalty payments. Operators may not choose w h o to pay royalties to, what percentage royalty to pay, or when to p a y royalties." I f royalties are for this purpose distinguishable from costs, then apportionment a r g u a b ly may not be appropriate. Nonetheless, if the contractual interpretation u n d e r Texas law reveals the intent of the parties was to apportion, then that in t e n t likely should be given effect. I n sum, the language in the JOA, "Consenting parties shall be responsible fo r the payment of . . . all royalty," is arguably consistent with two in t e r p r e t a t io n s . First, it could mean that each Consenting Party is responsible 14 Case: 08-40840 Document: 00511189321 Page: 15 Date Filed: 07/29/2010 No. 08-40840 fo r all royalty.7 Second, it could mean that Consenting Parties as a group are r e s p o n s ib le for all royalty. I V . Questions Certified W e accordingly hereby certify the following three determinative questions o f Texas law to the Supreme Court of Texas: 1 . The Barnes leased their land to Dominion's predecessors in interest. Moose O&G and the Moose Assignees, including Tawes, leased the adjacent la n d s . Dominion, Moose O&G, and the Moose Assignees, including Tawes, s ig n e d the WIUA and JOA in an effort to pool the Barnes' lease with adjacent la n d s . Dominion did not consent under the contract to the drilling of two wells o n the pooled land. Moose O&G and the Moose Assignees, including Tawes, c o n s e n te d to the drilling of these two wells. C e r tifie d Question One: Does Barnes have any right enforce the contract the WIUA and JOA between Dominion, Moose O&G, and the Moose A ssig n ees , including Tawes, to recover unpaid royalties, between the date of first p r o d u c t io n and February 2002, of Baker-Barnes Nos. 1 & 2 wells under what we h a v e called the "Royalty Provision" of the JOA, either as a third-party b e n e fic ia r y of the WIUA and JOA or by virtue of having privity of estate with T aw es? 2 . The WIUA states that Moose O&G "shall be the liable party to the O p e r a t o r " on behalf of the Moose assignees, including Tawes. Dominion's p r e d e c e s s o r -in -in t e r e s t was originally agreed to be the Operator of the wells d r ille d . Dominion exercised its rights under the contract to remain a Non- If the interpretation that each Consenting party is responsible for all royalty is correct, another issue, potentially relevant to the case, is the question of whether Barnes may recover from Tawes more than the amount of production attributable to Tawes. That is, if Tawes is responsible for "all royalty" of Barnes, is he personally liable for any royalty beyond the actual amount he received from production from the Baker-Barnes 1 and 2 wells or is he only liable for "all royalty" up to the amount he received from that production? 7 15 Case: 08-40840 Document: 00511189321 Page: 16 Date Filed: 07/29/2010 No. 08-40840 C o n s e n t in g Party to the wells at issue, and Moose O&G was the operator t h e r e o f. The JOA states that "[C]onsenting Parties shall be responsible for the p a y m e n t of . . . all royalty, overriding royalty and other burdens applicable to N o n -C o n s e n t in g Party's share of production." C e r tifie d Question Two: If Barnes may enforce the contract, does the W I U A prevent Barnes from recovering from Tawes? 3. The JOA states, "[u]nless changed by other provisions . . . the parties s h a ll also own all production of oil and gas from the Contract Area subject to the p a y m e n t of royalties to the extent of their interests." As a Non-Consenting Party u n d e r the contract, Dominion, Barnes' lessee, received no production during the c o n s e n t in g period. The Royalty Provision states that in this situation, C o n s e n t in g Parties are responsible for all production. C e r tifie d Question Three: If Tawes, as a Consenting Party, is responsible fo r royalties under the JOA, does the JOA Royalty Provision change the a g r e e m e n t within the JOA such that Tawes is responsible for all of Barnes' u n p a id royalty jointly and severally, or does the JOA limit Tawes' liability for u n p a id royalty to the extent of his interest in the two wells at issue between the d a t e of first production and February 2002? W e disclaim any intention or desire that the Supreme Court of Texas c o n fin e its reply to the precise form or scope of the questions certified. 16

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