Enerquest Oil & Gas, LLC et al v. Plains Exploration & Production Company et al
ORDER DENYING 147 Motion for Reconsideration. Signed by Judge David A. Ezra. (rg)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
ENERQUEST OIL & GAS, LLC, and
CHIEFTAIN ENERGY, LLC,
PLAINS EXPLORATION &
PRODUCTION COMPANY, EOG
RESOURCES INC., DENIS BRYSCH, )
RACHEL BRYSCH, LISA ANN
LABUS, KEVIN V. LABUS, KAREN S. )
BRYSCH, LEONARD MOY JR.,
EDWIN MOY, DIANE PAPE, LEROY )
MOY, and ADELENE MANKA,
ORDER DENYING MOTION FOR RECONSIDERATION
On April 16, 2014, the Court heard oral argument on a Motion for
Reconsideration filed by EnerQuest Oil & Gas, LLC (“Enerquest”) and Chieftain
Energy LLC (“Chieftain”) (collectively, “Plaintiffs”). (“Mot.,” Dkt. # 147.)
Plaintiffs’ Motion requested that this Court reconsider the portion of its November
7, 2013 Order (“Order,” Dkt. # 145) determining that, as a matter of law, the
Brysch and Moy Leases are not paid-up delay rental leases. John Matthew
Sjoberg, Esq., appeared on behalf of Plaintiffs. Michael McElroy, Esq., appeared
on behalf of Defendant Plains Exploration & Production Company; J. Derrick
Price, Esq., appeared on behalf of Defendant EOG Resources, Inc.; and John
Bennett, Esq., and Ronald Walker, Esq., appeared on behalf of Defendants Denis
Brysch, Rachel Brysch, Lisa Ann Labus, Kevin V. Labus, Karen S. Brysch,
Leonard Moy Jr., Edwin Moy, Diane Pape, Leroy Moy, and Adelene Manka
(collectively, the “Mineral Owners”). After careful consideration of the
memoranda and exhibits in support of and in opposition to the motions, and in light
of the Parties’ arguments at the hearing, the Court, for the reasons that follow,
DENIES Plaintiffs’ Motion.
In 2008, EnerQuest 1 acquired two oil, gas, and mineral leases in
Karnes County, Texas (collectively, the “Leases”). These lands are owned by
Defendants the Mineral Owners. The Leases, which were identical in all relevant
respects, had two-year primary terms and could be maintained “for so long
thereafter as a covered mineral [was] produced in paying quantities” or the Leases
were “otherwise maintained in effect pursuant to [their] provisions . . . .”
(Dkt. ## 114-2, 114-3 (“Leases”) ¶ 2.)
Among the provisions capable of extending the Leases in the absence
1 Plaintiffs EnerQuest and Chieftain are Oklahoma oil companies. Chieftain
Energy is wholly owned by its sole member, EnerQuest. (“SAC,” Dkt. # 66
of actual production was the following “shut-in well” clause:
[I]f, during or after the primary term one or more wells on the leased
premises or lands pooled therewith are capable of producing oil and
gas or other substances covered hereby in paying quantities, but such
well or wells are either shut-in or production therefrom is not being
sold by Lessee for a period of 90 consecutive days, then Lessee may
pay shut-in royalty of one dollar per acre of land then covered by this
lease, such payment to be made to Lessor on or before the end of said
90-day period and thereafter on or before each anniversary of the end
of said 90-day period while the well or wells are shut-in and it shall be
considered that such well is producing paying quantities for all
purposes hereof during any period for which shut-in royalty is
tendered; provided that if this lease is otherwise being maintained by
the payment of rentals or by operations, or if a well or wells on the
leased premises is producing in paying quantities, no shut-in royalty
shall be due until the end of the 90-day period next following the end
of the rental period or the cessation of such operations or production,
as the case may be.
(Id. ¶ 3(c) (emphases added).)
Although there were a number of old wells on the leased land, none
was producing at the time EnerQuest acquired the Leases in 2008. (Dkt. # 126
Ex. G at 2–3.) On June 2, 2010, EnerQuest ran a diagnostic test on an old oil
well. (Id. Ex. K at 10–11.) That well was originally completed in 1961 and had
been shut in by the prior operator approximately four years prior to the diagnostic
test. (Dkt. # 122 Ex. F ¶ 6.) During the production test, the well produced about
47,000 cubic feet of gas. (Id. Ex. F ¶ 7.) After approximately nine hours, its
pressure and flow rate dropped too low to measure. (Dkt. # 113 Ex. I at 13.)
Once the test was completed, the well was shut in. (Dkt. # 122 Ex. E ¶ 12.) On
June 3, 2010, EnerQuest changed out the wellhead and several valves. (Id. Ex. K
Based on the results of the June 2, 2010 test, EnerQuest reclassified
the old oil well as a gas well, renamed it the Brysch No. 1 Well (the “Well”), and
pooled the Leases’ acreage into a single gas unit. (Dkt. # 122 Ex. C.)
EnerQuest performed no additional operations on the Well before the Leases’
two-year primary terms expired on July 28, 2010, and August 4, 2010.
(Dkt. # 122 at 5.)
On September 10, 2010, the Brysches’ attorney sent a letter to
EnerQuest’s president, Greg Olson, stating that the Leases had terminated.
(Dkt. # 126 Ex. C at 1.) On September 14, 2010, EnerQuest attempted to pay
shut-in royalties to the Mineral Owners (Dkt. # 126 Ex. D at 1; Dkt. # 122 Ex.
E ¶¶ 15–18), arguing that the Well, while not actually producing, was “capable of
producing in paying quantities” within the meaning of the shut-in well provision
excerpted above (Dkt. # 122 Ex. E ¶¶ 13, 20; Dkt. # 126 Ex. L at 1).
Believing that the Leases had expired,2 the Mineral Owners signed
In April 2011, EnerQuest—still maintaining that the Leases had not expired
because it had timely tendered shut-in royalties—continued to work on the Well so
that gas could be marketed. (Dkt. # 126 Ex. F at 1–2; Dkt. # 126 Ex. G at 8.) In
early July 2011, EnerQuest began producing the well using unassisted intermittent
flow. (Dkt. # 126 Ex. H at 6.)
new leases with Dan Hughes Company, L.P. (“Dan Hughes”) a few weeks later.
(Dkt. # 122 Exs. G–N.) In November of 2010, Dan Hughes assigned half of its
interest in the new leases to Defendant EOG Resources, Inc. (“EOG”) and sold the
remainder to Defendant Plains Exploration and Production Company (“PXP”).
(Dkt. # 131 Exs. N–O.)
On June 1, 2012, EnerQuest and Chieftain filed this lawsuit against
PXP, EOG, and the Mineral Owners, bringing claims for breach of EnerQuest’s
leases, trespass to try title, removal of cloud on title, and declaratory relief.
(Dkt. # 1 ¶¶ 33–41.) PXP and EOG brought counter-claims for trespass, trespass
to try title, conversion, and declaratory relief (Dkt. # 32 ¶¶ 62–65; Dkt. # 33
¶¶ 62-66); and the Mineral Owners brought counter-claims for bad-faith pooling,
trespass, conversion, breach of contract, suit to quiet title, and declaratory relief
(Dkt. # 31 ¶¶ 66–74). EnerQuest later amended its complaint to include
additional claims against EOG that stem from an alleged seismic trespass. (See
SAC ¶¶ 43–49.)
On November 7, 2013, this Court entered an Order that, relevant to
the instant Motion for Reconsideration, granted the Mineral Owners’ Motion for
Partial Summary Judgment (Dkt. # 126), denied PXP’s Motion for Partial
Summary Judgment (Dkt. # 113), and denied EnerQuest’s Motion for Partial
Summary Judgment (Dkt. # 122).3 The Court concluded that the Leases are not
“paid-up” delay rental leases and Plaintiffs made no delay rental payment. (Order
at 41.) Thus, the Court concluded, the Leases expired and the Mineral Owners
were entitled to summary judgment. (Id.)
On November 22, 2014, Plaintiffs filed the instant Motion for
Reconsideration of the Court’s Order, requesting that the Court reconsider the
portion of the November 7, 2013 Order determining that, as a matter of law, the
Leases are not paid-up delay rental leases. (Mot. at 2.)
As explained in the Court’s Order, the facts relevant to the instant
Motion concern whether Plaintiffs timely tendered shut-in royalties in accordance
with the terms of the Leases. The issue turns upon whether the Leases were “held
by rentals” such that the shut-in royalties were not due until ninety days after the
end of the term that was secured by the rentals, or whether the Lease were not
“held by rentals” such that the shut-in royalties were due ninety days after the date
the well was shut in. If the lease was “held by rentals,” as Plaintiffs argue it was,
the shut-in royalties were timely tendered within the ninety-day period following
the expiration of the primary term; however, if the lease was not “held by rentals,”
The Order also denied PXP’s Motion for Partial Summary Judgment (Dkt. #
113) and EOG’s motion joining and adopting it (Dkt. # 124), granted EOG’s
Motion for Partial Summary Judgment on Plaintiffs’ Seismic Claims (Dkt. # 125),
denied as moot PXP’s Motion to Sever (Dkt. # 105), and denied EnerQuest’s
Motion for Leave to File Third Amended Complaint (Dkt. # 107).
the shut-in royalties were due ninety days following the shut-in of the Well and
were not timely tendered. In the Court’s Order that Plaintiffs now seek
reconsideration of, the Court concluded the Leases were not “held by rentals,” and
thus, the Leases expired when Plaintiffs failed to timely tender shut-in royalties
within ninety days of the Well’s shut-in.
STANDARD OF REVIEW
Motion for Reconsideration
Rule 54 of the Federal Rules of Civil Procedure permits courts to
revise “any order or other decision, however designated, that adjudicates fewer than
all the claims or the rights and liabilities of fewer than all the parties . . . before the
entry of judgment.” Fed. R. Civ. P. 54(b); see eTool Dev., Inc. v. Nat’l
Semiconductor Corp., 881 F. Supp. 2d 745, 748 (E.D. Tex. 2012) (holding that
under Rule 54(b), a court retains the power to revise an interlocutory order before
entry of a final judgment). “Rule 54(b) authorizes a district court to reconsider and
reverse its prior rulings on any interlocutory order ‘for any reason it deems
sufficient.’” United States v. Renda, 709 F.3d 472, 479 (5th Cir. 2013) (quoting
Saqui v. Pride Cent. Am., LLC, 595 F.3d 206, 210–11 (5th Cir. 2010)).
Although a court has broad discretion to grant a motion for
reconsideration under Rule 54(b), considerations similar to those under Rule 59(e)
inform the court’s analysis.4 See, e.g., Valles v. Frazier, No. SA-08-CA-501-XR,
2009 WL 4639679, at *2 (W.D. Tex. Nov. 30, 2009). A Rule 59(e) motion to alter
or to amend judgment “calls into question the correctness of a judgment.” Indep.
Coca-Cola Employees’ Union of Lake Charles, No. 1060 v. Coca-Cola Bottling
Co. United, Inc., 114 F. App’x 137, 143 (5th Cir. 2004) (quoting Templet v.
HydroChem, Inc., 367 F.3d 473, 478 (5th Cir. 2004)). Rule 59(e) “provides relief
to a party when there has been an intervening change in the controlling law.” Id.
(citing Schiller v. Physicians Res. Group, Inc., 342 F.3d 563, 567–68 (5th Cir.
2003)). Like Rule 54(b), “[a] district court has ‘considerable discretion in
deciding whether to grant or deny a motion to alter a judgment.’” McGillivray v.
Countrywide Home Loans, Inc., 360 F. App’x 533, 537 (5th Cir. 2010) (quoting
Hale v. Townley, 45 F.3d 914, 921 (5th Cir.1995)). To prevail on a Rule 59(e)
motion, however, the movant must show at least one of the following: (1) an
intervening change in controlling law; (2) new evidence not previously available;
or (3) the need to correct a clear or manifest error of law of fact to prevent manifest
injustice. In re Benjamin Moore & Co., 318 F.3d 626, 629 (5th Cir. 2002).
Rule 59(e) requires that “[a] motion to alter or amend a judgment must be filed
no later than 28 days after the entry of the judgment.” Fed. R. Civ. P. 59(e).
Here, the “judgment” (i.e., the Order) was entered on November 7, 2013, and
Plaintiffs’ motion for reconsideration was timely filed on November 22, 2013.
Summary judgment is granted under Federal Rule of Civil Procedure
56 when “the movant shows that there is no genuine dispute as to any material fact
and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a);
see also Cannata v. Catholic Diocese of Austin, 700 F.3d 169, 172 (5th Cir. 2012).
The main purpose of summary judgment is to dispose of factually unsupported
claims and defenses. Celotex Corp. v. Catrett, 477 U.S. 317, 323–24 (1986).
The moving party bears the initial burden of demonstrating the
absence of any genuine issue of material fact. Id. at 323. If the moving party
meets this burden, the non-moving party must come forward with specific facts
that establish the existence of a genuine issue for trial. ACE Am. Ins. Co. v.
Freeport Welding & Fabricating, Inc., 699 F.3d 832, 839 (5th Cir. 2012). In
deciding whether a fact issue has been created, “the court must draw all reasonable
inferences in favor of the nonmoving party, and it may not make credibility
determinations or weigh the evidence.” Reeves v. Sanderson Plumbing Prods.,
Inc., 530 U.S. 133, 150 (2000). However, “[u]nsubstantiated assertions,
improbable inferences, and unsupported speculation are not sufficient to defeat a
motion for summary judgment.” Brown v. City of Hous., 337 F.3d 539, 541 (5th
Cir. 2003). “Where the record taken as a whole could not lead a rational trier of
fact to find for the non-moving party, there is no ‘genuine issue for trial.’”
Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)
(quoting First Nat’l Bank of Ariz. v. Cities Serv. Co., 391 U.S. 253, 289 (1968)).
As a preliminary matter, Plaintiffs titled their Motion as “Plaintiffs’
Motion to Reconsider Summary Judgment Ruling That, as a Matter of Law, the
Brysch and Moy Leases Are Not ‘Paid-Up’ Leases,” and ask the Court to
reconsider its ruling in that regard; however, Plaintiffs misconstrue the Court’s
ruling. The Court held that, based upon the facts of this case and the Leases’
provisions, the Leases did not provide for delay rentals (whether paid annually or
up front) and the shut-in royalties, therefore, were due at the end of the Leases’
primary terms. (Order at 41.)
In other words, the Court did not hold that the
Leases were not “paid-up” Leases; rather, the Court held that they were indeed
“paid-up,” but were not “paid-up” by the prepayment of delay rentals. In this
case, due to the lack of a drilling/delay rental clause or any other evidence to
demonstrate that delay rentals were in fact prepaid, the Leases were “paid-up” by
the payment of a bonus, not delay rentals.
Plaintiffs now argue that the Court should reconsider its holding
because “paid-up” is a term of art, meaning that delay rentals have been prepaid in
all circumstances. Plaintiffs contend that a paid-up lease can never be held by a
bonus or any other type of payment, even in the complete absence of a delay rental
clause. However, for the reasons that follow, this Court cannot accept Plaintiffs’
argument that delay rentals must have been paid in this case because they are paid
in all cases involving a “paid-up” lease. The Court declines to give the label of
“Paid Up” in the corner of each page the meaning Plaintiffs ask this Court to give
it and finds that the record, when viewed as a whole, supports the conclusion that
the Leases held in this case were held for their primary terms by some other
consideration (i.e., a bonus). The Court will not imply that delay rentals were
paid simply because a lease is labeled “paid-up.” In this case, the Leases were
“paid-up” by the payment of a bonus, not delay rentals.
Each of Plaintiffs’ arguments as to why this Court should reconsider
its analysis and holding that the Leases are not paid-up delay rental leases as a
matter of law will be addressed in turn.
The Court will not consider previously asserted arguments refuting
the Mineral Owners’ arguments.
Plaintiffs first attempt to refute the Mineral Owners’ summary
judgment arguments because “the Court’s Order may have been influenced by
the . . . mistaken arguments,” and dedicate approximately eight pages to reasserting
their previous arguments against the Mineral Owners. (Mot. at 2–10.)
However, “[i]t is well settled that motions for reconsideration should not be used to
raise arguments that could, and should, have been made before entry of judgment
or to re-urge matters that have already been advanced by a party.” Helena Labs.
Corp. v. Alpha Scientific Corp., 483 F. Supp. 2d 538, 539 (E.D. Tex. 2007) (citing
Browning v. Navarros, 894 F.2d 99, 100 (5th Cir. 1990)).
In their July 26, 2013 Response to the Mineral Owners’ Motion for
Partial Summary Judgment, Plaintiffs argued that “[b]oth the Brysch and Moy
leases are ‘paid-up’ leases and therefore, do not require the payment of delay
rentals to maintain either lease during their primary terms.” (Dkt. # 133 at 3.)
Plaintiffs asserted that “[u]nder a paid-up lease, the delay rentals are paid when the
lease is executed, and this single payment maintains the lease during the primary
term,” (id.) and cited to various treatises to support their proposition. (See id.
(citing Ernest E. Smith and Jacqueline Lang Weaver, Texas Law of Oil & Gas
§ 4.3[A] (2d ed. 2012); 3 Kuntz, A Treatise on the Law of Oil & Gas, § 28.6
(1989)).) Plaintiffs argued that the absence of an “unless” clause (or
drilling/delay rental clause) confirmed that the Leases were “paid-up” with the
delay rentals having been “fully paid” when the Leases were executed (id. at 4),
and thus asserted that the end of the rental period referred to in the shut-in royalty
clause coincided with the end of the Leases’ two-year primary terms. (Id.)
Now, in their Motion for Reconsideration, Plaintiffs attempt to
“refute” the Mineral Owners’ arguments regarding the paid-up lease construction
because they are concerned the Court may have relied upon the Mineral Owners’
“improper arguments” in issuing its ruling. (Mot. at 2–10.) Plaintiffs assert that
“the Mineral Owners’ arguments about paid-up leases contradict settled law, have
no support in any authority, and are unmeritorious.” (Id. at 7.) However, this is
not a proper basis for reconsideration of the Court’s Order. Because Plaintiffs
simply re-urge matters already advanced to the Court and reassert arguments in
opposition to the Mineral Owners that were previously presented and argued in
their Response to the Mineral Owners’ Motion for Partial Summary Judgment,
those arguments are not proper in a motion for reconsideration. Helena Labs.
Corp., 483 F. Supp. 2d at 539 (“A motion for reconsideration is not ‘the proper
vehicle for rehashing old arguments or advancing legal theories that could have
been presented earlier.’” (quoting Resolution Trust Corp. v. Holmes, 8466 F. Supp.
1310, 1316 (S.D. Tex. 1994))).
The Court’s Order does not disregard the “paid-up” characteristics of
the Leases, nor does it transform paid-up delay rental into bonus.
Next, Plaintiffs argue that the Court’s Order “disregards the now
common ‘paid-up’ characteristics of the Leases and transforms paid-up delay
rental into bonus.” (Mot. at 10.) Plaintiffs contend that the Court has
“dismissed and disregarded the now common format and terms for paid-up leases
that are consistent with those used in the Leases.” (Id.) Specifically, Plaintiffs
argue that the Court has “conflated a delay rental payment with a bonus payment,
based on the notion that a single payment made at the inception of the Lease is
entirely comprised of a bonus, even if part of the payment is included to delay a
drilling obligation during the primary term—the very function of a delay rental
payment, but not a bonus payment.” (Id. at 10–11.) In support of this argument,
Plaintiffs cite multiple treatises and form leases for the proposition that paid-up
leases commonly contain no provisions concerning the payment of delay rentals.
(Id. at 11 (“As Smith and Weaver and other authorities make clear, however,
paid-up leases commonly contain no provisions concerning the payment of delay
rentals, because the lessee makes the delay rental payment when the lease is
executed.”).) Plaintiffs contend that because the language of the treatises and
form leases conform to the language of the Leases “in that they eliminate the delay
rental payment clause” (Id. at 12), the treatises and form leases demonstrate that
the Leases are paid-up delay rental leases and the “paid-up nature of the Leases
attempted to be achieved should be given effect.” (Id.) However, Plaintiffs’
arguments fail because while the Leases may lack a delay rental clause and, thus,
be similar to form leases in that regard, the form leases contain other provisions
that indicate that delay rentals have in fact been prepaid. Here, the Leases do not
contain the same.
Plaintiffs first direct the Court to a paid-up lease form published by
West that does not contain any provision for the payment of delay rentals, arguing
that the Leases in question substantially comply with the suggested form due to the
lack of a delay rental provision. See 28A West’s Legal Forms, Specialized Forms
§ 22:37 Oil and gas lease—Paid-up—Another form; (Mot. Ex. E-1.) While the
Leases and this particular form certainly have similarities, the form differs from the
Leases in question by its inclusion of an important provision:
4. This is a paid-up lease, and Lessee shall not be obligated during the
primary term hereof to commence or continue any operations of
whatsoever character or to make any payments hereunder in order to
maintain this Lease in force during the primary term . . . .
(Id.) (emphases added).
Thus, while this particular West form, like the Leases, contains no
delay rental clause, the form has additional language to indicate that it is in fact a
paid-up lease that requires “no payments hereunder in order to maintain this Lease
in force during the primary term.” 5 (Id.) (emphasis added). As discussed in the
Court’s Order, in most cases the exact form of “payment” makes no difference;
here, however, it is critical. 6
Therefore, the Court finds that this particular West
The Court also finds it particularly important that like the Leases in question,
this form makes no distinction as to what form of “payment” that is. In fact, the
title of the form is “Oil and gas lease—Paid-Up—Another form.” The form is not
categorized as a “paid-up delay rental” form and makes no reference to “rentals” in
any provision whatsoever.
If the “payment” holding the Leases was in fact a delay rental, Plaintiffs
argue they had ninety days following the expiration of the primary term (or “rental
period”) in which to tender shut-in royalties therefore rendering their September
14, 2010 shut-in royalty payment timely.
form relied upon by Plaintiffs in support of their argument that paid-up delay rental
leases commonly have no mention of delay rentals at all, actually supports the
Court’s ruling that paid-up leases are not always paid-up by delay rentals, but can
also be paid-up by additional “payments,” including, for example, a bonus as in
this case. To highlight this distinction, the Court will analyze the additional
forms relied upon by Plaintiffs.
One of the form leases from West, entitled “Oil, gas and mineral
lease—Paid-up form—With pooling provision—Modern Form,” is attached to
Plaintiffs’ Motion for Reconsideration. (See Mot. Ex. E-2.) Plaintiffs cite to
this form, arguing that the Leases “conform” to West’s form lease that Plaintiffs
characterize as a “model paid-up delay rental form that eliminates a delay rental
clause.” (Mot. at 11–12.) This form includes the following language:
2. Term of Lease. This lease, which is a “paid-up” lease requiring no
rentals, shall be in force for a primary term of [identification of years]
years from the dates hereof . . . .
3. Royalty Payment. Royalties on oil, gas and other substances
produced and saved hereunder shall be paid by lessee to lessor . . . If
at the end of the primary term or any time thereafter one or more wells
on the leases premises or lands pooled or unitized therewith are
capable of producing oil or gas or other substances covered hereby in
paying quantities, but such well or wells are either shut in or
production therefrom is not being sold by lessee, . . . then lessee shall
pay an aggregate shut-in royalty of $1 per acre . . . on or before the
end of said -day period while the well or wells are shut in or
production therefrom is not being sold by lessee; provided that if this
lease is otherwise being maintained by operations, or if production is
being sold by lessee from another well or wells on the leased premises
. . . no shut-in royalty shall be due until the end of the -day period
next following cessation of such operations or production.
6 West’s Tex. Forms, Minerals, Oil & Gas § 3:4 (4th ed.) (emphases added).
In contrast, however, the Leases state the following regarding shut-in
provided that if this lease is otherwise being maintained by the
payment of rentals or by operations, or if a well or wells on the leased
premises is producing in paying quantities, no shut-in royalty shall be
due until the end of the 90-day period next following the end of the
rental period or the cessation of such operations or production, as the
case may be.
(Leases ¶ 3(c) (emphases added).)
Given the notable differences in the language between the form lease
and Plaintiffs’ Leases, the form cited by Plaintiffs in actuality cuts against
Plaintiffs’ argument that delay rentals are always paid in a paid-up lease. If
Plaintiffs’ argument that delay rentals are always prepaid in a paid-up lease were
the case, then the primary term would always be the “rental period” such that
shut-in royalties would never be required to be tendered until the number of days
provided for in the lease after the expiration or the “rental period,” or primary
term. However, the West form cited by Plaintiffs omits the “rental period” by
removing the language “if otherwise being maintained by the payment of rentals”
and only containing the phrase: “if otherwise being maintained by operations.” It
seems logical when looking at the language of the West form that because it is a
paid-up lease “requiring no rentals,” there would never be a “rental period,” per se.
Thus, it is illogical to allow Plaintiffs to rely upon a poorly-drafted lease 7
containing no language mentioning that the lease is paid-up requiring “no rentals,”
then utilize language in the shut-in royalties clause pertaining to a “rental period”
and assert that a “rental period” exists because delay rentals have been paid
because they are always prepaid in a paid-up lease. Rather, looking to the West
form that Plaintiffs have asserted is a true “paid-up” delay rental lease, it is
apparent that if all delay rentals have been prepaid under the Leases such that it is
“requiring no rentals” (although the Leases here do not say as much), there would
never be a “rental period” provision in the shut-in royalty clause (as demonstrated
by the West form). Because the Leases do not mention anything about “requiring
no rentals” or suggest the lack of a rental period as in the West form lease, the
Leases do not conform to West’s paid-up lease.
Plaintiffs also assert that the Court’s analysis “repeatedly relies on the
absence of a clause in the Leases reciting annual delay rental obligations or
otherwise providing for the payment of delay rentals in support of its conclusions
that the Leases are not paid-up leases.” (Mot. at 11.) But Plaintiffs assert that
Indeed, Plaintiffs admit in their Motion that “some of the references to delay
rentals in other clauses of the Lease could have been more carefully drafted . . . .”
(Mot. at 12.)
paid-up leases commonly contain no provisions concerning the payment of delay
rentals, because the lessee makes the delay rental payment when the lease is
executed. (Id.) Thus, Plaintiffs argue that the Court improperly interpreted their
Leases that provided for no delay rental clause. However, this argument, as
demonstrated by the above discussed forms (and for the additional following
reasons), is incorrect.
The West form specifically pertaining to a paid-up delay rental lease
contains language indicating that it is in fact paid-up by prepaid delay rentals and
includes a paragraph providing for delay rentals. West’s Paid-Up delay rental
form recommends including the following language: “Lessor acknowledges that all
of the delay rentals required annually under Paragraph __ have been prepaid at the
time of Lessor’s execution and delivery of this lease.” 28A West’s Legal Forms,
Specialized Forms § 22:87 – Paid-up delay rentals (4th ed. 2012) (emphases
added). Thus, the “Paid-up delay rental” form lease expressly provides that the
delay rentals “required annually under Paragraph __” are not required, because
they have been paid, and contemplates the inclusion of a delay rental paragraph.
The commentary to this West paid-up delay rental form states:
Lease forms that call for payment of delay rentals and also allow the
lease to be maintained by shut-in royalty often specify that the amount
of shut-in royalty is to be the same as the amount of the delay rental
payment and that shut-in royalty may be paid for the lessor’s account
into the depository bank named for delay rental payments. If such a
form is used, the provision of the lease for payment of delay rental
should therefore not be entirely stricken, or the result may be that the
shut-in provision is rendered ineffective or ambiguous.
Id. (emphasis added).
While Plaintiffs may be correct that paid-up leases may completely
remove the delay rental clause, this West form demonstrates that, at least in some
cases, the delay rental clause should be retained. Accordingly, the West paid-up
delay rental form lease disproves Plaintiffs’ argument that the absence of a delay
rental clause is consistent with a paid-up delay rental lease.
Additionally, West’s “Oil, gas and mineral lease—Paid-up
form—With pooling provision—Modern form” cited by Plaintiffs in which they
direct the Court to the lack of a delay rental clause contains the following
language: “[t]his lease, which is a ‘paid-up’ lease requiring no rentals . . . .” 6
West’s Tex. Forms, Minerals, Oil & Gas § 3:4 (4th ed.) (emphasis added). Thus,
while Plaintiffs are correct that this form does not include a delay rental clause, this
form specifically informs that no delay rentals are required and there is no
provision for delay rentals because delay rentals have been prepaid. Here, the
Leases contain no such provision.
As these forms illustrate, the Court did not simply rely upon the lack
of a delay rental clause in the Leases. The Court recognizes that some forms of
paid-up leases may not contain a delay rental clause. See e.g., 6 West’s Tex.
Forms, Minerals, Oil & Gas § 3:4 (4th ed.). However, when comparing the
construction of the Leases here with the forms cited by Plaintiffs, it is apparent that
they differ in their provisions in important respects. While the Leases may lack a
delay rental clause, the forms contain other provisions that, when viewed as a
whole, indicate that delay rentals have in fact been prepaid. This is not the case
with Plaintiffs’ Leases.
The Court does not disagree with treatises stating that “a ‘paid-up’
lease . . .contains no provision for the payment of delay rentals.” (Mot. at 11
(citing Smith and Weaver § 4.3).) But while the Leases, like these purported
paid-up delay rental clause leases, do not contain a delay rental clause, the Court is
required to review the contract as a whole. Coker v. Coker, 650 S.W.3d 391, 393
(Tex. 1983) (“[C]ourts should examine and consider the entire writing in an effort
to harmonize and give effect to all the provisions of the contract so that none will
be rendered meaningless.”). In doing so, the Court has not relied simply on the
lack of a delay rental clause, but has considered the document in its entirety and
concluded that the Leases are not paid-up delay rental leases. Without any
additional provisions and/or evidence to the contrary, the Court cannot conclude
that the Leases are paid-up delay rental leases.
Plaintiffs next argue that the Court’s reasoning is “circular,” in that
the Court rejects the import of the “Paid Up” statement on each page of the Leases
because the Leases purportedly do not ‘acknowledge such a payment,’ yet the
‘Paid Up’ statement is such an acknowledgment.” (Mot. at 13.) The Court
disagrees. Rather, the Court finds reason to believe that Plaintiffs’ argument, in
fact, is circular: Plaintiffs assert that the words “Paid Up” on the top of each page
are an “acknowledgment” that delay rentals were paid. However, that would
require the Court to first accept Plaintiffs’ unsupported argument that “paid-up” is
a “term of art” meaning that delay rentals have always been prepaid. The Court
has rejected that argument and has concluded that the term “paid-up” simply
means that there are no drilling obligations in the primary term (Order at 49); this
may be accomplished, with proper drafting, by the pre-payment of delay rentals, or
also by some other form of consideration or payment. See 28A West’s Legal
Forms, Specialized Forms § 22:37 Oil and gas lease—Paid-up—Another form
(stating “[t]his is a paid-up lease, and Lessee shall not be obligated . . . to make any
payments hereunder in order to maintain this Lease in force during the primary
term” (emphasis added)). In any event, the term “Paid Up” at the top of the page,
when considered with the Leases as a whole, does not infer that delay rentals have
been paid because only delay rentals are prepaid in any form of a paid-up lease.8
Plaintiffs take issue with the Court’s statement that the drafters of the Leases
could have recited in the Leases that delay rentals had been paid-up. Plaintiffs
assert that the Court, in making such a statement, ignored the fact that every page
of the Leases contains the statement “Paid Up” at the top right corner. (Mot. at
It could very well have been, as the Leases’ language indicates, that the rental
period was held by a bonus—not delay rentals. In sum, despite Plaintiffs’
arguments that the Leases substantially “conform” to West’s form paid-up leases,
an analysis reveals that they in fact contain critical differences that distinguish the
Leases here from the West forms cited by Plaintiffs.
At the hearing, Plaintiffs also directed the Court to Hitzelberger v.
Samedan Oil Corp., 948 S.W.2d 497 (Tex. App. 1997), for the proposition that
“paid-up” always means paid-up by delay rentals and the lack of a delay rental
clause is indicative of a paid-up delay rental lease. Plaintiffs argued the following
language describing the lease in Hitzelberger supports their argument: “Paragraph
4 of the lease contains a typewritten sentence, which provides ‘[t]his is a paid up
lease and all references to delay rentals shall be disregarded.’”
Id. at 504.
Because the Hitzelberger court concluded that “[p]aragraph 4 states that delay
rentals are paid-up,” Plaintiffs essentially argue that this Court should hold the
same regarding their Leases because their Leases likewise had no “references to
delay rentals” due to striking the delay rental clause.
The Court disagrees with
Plaintiffs’ interpretation of Hitzelberger.
12.) However, for the reasons stated above, the Court declines to give the
meaning to the term “paid-up” that Plaintiffs assert it means; thus, the label “Paid
Up” at the top of each page, without additional provisions, does not suggest that
the Court presume delay rentals have been paid.
First, Plaintiffs simply lift an out-of-context sentence from a case that
did not decide the issue before this Court, but instead decided whether the subject
lease terminated during the primary term due to the late tender of royalty
payments. The defendant, Samedan, argued that pursuant to paragraph 4, “the
paid-up nature of the lease gave Samedan an absolute and irrevocable right to the
oil and gas from for the Hitzelberger’s tracts for a three-year period” and, thus,
Samedan “need do nothing” to keep the lease in force during the primary term,
including paying royalties. Id. at 506. In concluding that royalties were in fact
due during the primary term, the court noted that “[b]ecause [paragraph 4]
certainly and definitely applies to delay rentals and not royalty payments, we will
apply this unambiguous provision as written.” Id. at 506 (emphasis added). The
court noted that “the paid-up provision in the lease did not require Samedan to
make delay rental payments during the primary term” (Id. at 505), but that
provision did not extend to royalty payments due during the primary term because
it “certainly and definitely” applied only to delay rentals. Id. (“Samedan’s
interpolation that royalty payments need not be made during the primary term goes
beyond the clear expressed intent of the typewritten language in Paragraph 4.”
In contrast, unlike the lease in Hitzelberger, the Leases here do not
“certainly and definitely” contain provisions to indicate that delay rentals have
been prepaid and there are none due during the primary term. In fact, there is no
provision to indicate that delay rentals were even contemplated, much less prepaid.
Instead, Plaintiffs essentially argue that the words “Paid Up” at the top of each
page, as a “term of art,” combined with the complete lack of a delay rental clause,
have the same effect as the quoted language from Hitzelberger. The Court
disagrees with Plaintiffs.
Second, the Court does not have a copy of the lease at issue in
Hitzelberger and, in all likelihood, there may have been other provisions that, when
taken as a whole, would indicate to the court of appeals that delay rentals have
been prepaid. Indeed, the Hitzelberger court noted that in determining the
parties’ intent in interpreting a lease “[n]o single provision taken alone will be
given controlling effect; rather, all the provisions must be considered with
reference to the whole lease.” Id. (citing Coker, 650 S.W.2d at 393) (emphasis
added). In any event, the Court disagrees that the Hitzelberger case stands for the
proposition that a “paid-up” lease is always paid-up by prepaid delay rentals.
Rather, the court held that based on the facts of the case and due to the language of
the lease provision in Hitzelberger (language that the Court notes is not present
here), delay rental payments were not required during the primary term. This
Court, however, is presented with different facts and declines to extend the
Hitzelberger holding to mean what Plaintiffs argue it means—that paid-up leases
are always paid-up by delay rentals.
The Court gave the proper weight to Plaintiffs’ cited treatises.
Next, Plaintiffs assert that the Smith and Weaver treatise is one of the
foremost Texas oil and gas law authorities. (Mot. at 15.) Plaintiffs argue that
the Court, in its Order, decided to give “not much” weight to the treatises cited by
Plaintiffs, including the Smith and Weaver treatise. (Id. at 16.) Plaintiffs then
elaborate as to the citations to such treatises and the qualifications and experience
of the authors, and thus urge the Court to reconsider the weight given to the
treatises. (Id.) However, Plaintiffs misconstrue the Court’s consideration of the
Smith and Weaver treatise—the Court did not simply give “not much” weight to
the treatise, but rather stated that “with due respect to their authors, the answer in
light of the facts of this particular case is ‘not much.’” (Order at 57 (emphasis
added).) The Court noted how for every treatise that, like the Smith and Weaver
treatise, states paid-up leases involve prepaid rentals, there are others indicating
that paid-up leases with no drilling clauses are maintained during the primary term
by bonus payments. (Id. at 57.)
Plaintiffs quote the Smith and Weaver treatise as follows:
Called a “paid-up” lease, it contains no provision for the payment of
delay rentals. The rentals are paid when the lease is executed, and
this single payment maintains the lease during the primary term.
By paying the entire rental up-front, the lessee is relieved of the
requirement of annual payments and avoids the possibility of an
inadvertent loss of the lease by failure to make a timely or correct
The paid-up lease is normally drafted to last for the entire primary
term and no action on the part of the lessee is required to maintain it
for this period.
(Mot. at 3, 11 (quoting Ernest S. Smith and Jacqueline Lang Weaver, Texas Law
of Oil and Gas, § 4.3[A] (2d ed. 2012)).)
However, as the Court noted in its order, for every treatise that lends
itself to Plaintiffs’ argument, there are others to the contrary. For example, one
treatise states “[a] paid-up lease does not contain a drilling clause, and an
additional consideration provided for in such a lease is not a delay rental.” 3-28
Kuntz, Law of Oil and Gas § 28:6 (emphasis added) (citing Fuller v. Rainbow
Resources, Inc., 744 S.W.2d 232, 232 (Tex. App. 1987)). Also, another states
“[i]n a ‘paid up’ lease, the bonus pays for a primary term lease of three years, five
years, or ten years and ‘so long thereafter as oil and gas is produced in paying
quantities.’ During the primary term, there is then no commitment on the part of
the lessee to either drill or pay delay rentals.” Owen W. Anderson, David v.
Goliath: Negotiating the ‘Lessor’s 88’ and Representing Lessors and Surface
Owners in Oil and Gas Lease Plays, 27 RMMLF-INST 2 (1982) (emphasis added).
Another treatise provides, “most of the recent shale leases utilize an up-front,
per-acre bonus payment to the landowner rather than the concept of delay rentals.
The use of this type of payment arrangement is classified as a ‘paid up lease.’”
Baldwin’s Oh. Prac. Real Est. § 47:6 (2012–13 ed.).
As the aforementioned treatises demonstrate, the Court did not decline
to give weight to the Smith and Weaver treatises. The Court is of the opinion that
the authors are highly respected in the field. However, the Court, as stated in its
Order, concludes that the Smith and Weaver treatises are not controlling in this
case. As stated in the Order, and as Plaintiffs surely acknowledge, treatises are
not binding on this Court and are useful only insofar as they are persuasive.
When compared to the facts of this case and the language of the Leases, the
treatises, while certainly insightful, are not nearly as persuasive in this particular
case as Plaintiffs hold them out to be.
The summary judgment evidence supports judgment for the Mineral
Owners, not Plaintiffs.
Next, Plaintiffs argue that the summary judgment evidence supports
judgment for Plaintiffs, not the Mineral Owners, or at the least raises a fact issue
about whether the Leases are paid-up leases. (Mot. at 16.) Essentially, Plaintiffs
argue that the Leases themselves do not establish as a matter of law that they are
not paid up leases because their format, terms, and page-by-page “Paid Up” labels
are consistent with the Smith and Weaver treatises defining “paid-up” delay rental
leases. (Id. at 16–17.)
However, as discussed above, (1) the format of the Leases do not
“conform” to the paid-up form leases as Plaintiffs argue that they do; (2) the terms
of the Leases, likewise, neither conform to the form leases nor do they logically
result in the conclusion that delay rentals have been prepaid; and (3) the Court
declines to give the label “Paid Up” on each page the meaning Plaintiffs urge this
Court to give it—that delay rentals have been prepaid because they are always
prepaid in a “paid-up” lease.
Statements of Mr. Olson
Plaintiffs also argue that the statements of EnerQuest’s president,
Greg Olson, that Plaintiffs “paid all delay rentals to the Lessors at signing” was not
a legal conclusion but was rather a statement of fact, thus arguing that the Court
erred in “dismiss[ing]” his statement. (Mot. at 17.) The Court did not simply
“dismiss” Mr. Olson’s statements, but rather held that because Mr. Olson “attached
no exhibits to his affidavit and did not explain why any lump-sum payment that
EnerQuest made at signing should be construed as ‘all delay rentals’ rather than a
bonus,” the assertion was nothing more than a legal conclusion. (Order at 69.)
Indeed, “[u]nsupported allegations or affidavits setting forth ultimate or conclusory
facts and conclusions of law are insufficient to either support or defeat a motion for
summary judgment.” Ramon v. Continental Airlines, Inc., 153 F. App’x 257, 259
(5th Cir. 2005) (quoting Galindo v. Precision Am. Corp., 754 F.2d 1212, 1216 (5th
Cir. 1985)). Because EnerQuest presented no evidence that the payment at issue
was a delay rental rather than a bonus, Mr. Olson’s conclusory statement that “all
delay rentals” were paid at the Leases’ execution was nothing more than an
unsupported legal conclusion.
Statements of Mr. Frye
Plaintiffs also take issue with the Court’s interpretation of statements
made by David Nichols Frye (the EOG landman), as well as statements made by
Plaintiffs’ counsel at the summary judgment hearing. (Mot. at 18–19.)
Specifically, Plaintiffs argue that when Mr. Frye testified that “paid-up” implies
that “no rentals” were due during the primary term, he was “plainly” stating that
delay rentals had been paid. (Id. at 18.) As quoted in the Court’s Order, Mr.
Frye’s deposition read as follows:
Q. Okay. So when -- when we’re looking at these leases 9 and
they’re paid-up mineral leases, . . . once these leases have been signed
by the landowners and Dan A. Hughes paid them whatever bonus
consideration was paid, . . . Dan A. Hughes . . . doesn’t have to do
anything else for three years if -- if they -- if they choose not to,
correct, to hold these leases?
EnerQuest’s counsel was referring to the leases that the Mineral Owners
subsequently signed with Dan A. Hughes in 2010 (“Brysch-Hughes Lease”), which
are entitled “Paid-Up Oil, Gas, and Mineral Lease,” not to the Leases at issue in
this case, which are entitled “OIL, GAS AND MINERAL LEASE.”
(Dkt. # 122 Ex. O at 69:21–70:5 (emphases added).) Based on this,
the Court concluded that EnerQuest’s counsel had asked Mr. Frye whether the
payment of a bonus—not the “prepayment of delay rentals”—maintained the
Brysch-Hughes Lease during the primary term, and Mr. Frye, consistent with the
above analysis, answered in the affirmative: A paid-up lease is one under which
the lessee has paid a bonus for the privilege of holding the lease during its primary
term—a lease with “no rentals.” (See Dkt. # 123 Ex. G (Brysch-Hughes Lease) ¶
3 (“This is a PAID UP LEASE. In consideration of the cash payment tendered
upon execution of this lease, Lessor agrees that Lessee shall not be obligated,
except as may otherwise be provided herein, to commence or continue any
operations during the primary term or to make any shut in royalty payment during
the primary term.” (emphasis added))).
Therefore, the Court properly concluded that contrary to EnerQuest’s
contentions, calling a lease with no drilling/delay rental clause “paid-up” does not
mean, as a matter of law, that the lessor paid “delay rentals” at execution. In the
Brysch-Hughes Lease, a bonus payment, not rentals, maintained the “paid-up”
lease during the primary term.
At the hearing, Plaintiffs’ counsel argued that the word “bonus” is
“shorthand” in the Texas Oil and Gas business that actually refers to the lump sum
of both delay rentals and bonus that is paid at the signing of a lease; thus, arguing
that Mr. Frye’s statements that a “bonus” was paid to maintain the lease should
actually be interpreted that bonus and delay rentals were paid because it is common
to simply refer to both as a “bonus.” Plaintiffs have not asserted this argument in
their Motion and, in any case, provide no evidence save for Plaintiffs’ counsel’s
statements at the hearing to support the argument that “bonus” is actually
“shorthand” for bonus plus delay rentals. Thus, the Court declines to accept
Plaintiffs’ argument. Plaintiffs have provided the Court with no reason that
would necessitate its reconsideration of the interpretation of Mr. Frye’s statements,
which are otherwise clear on their face.
Plaintiffs’ counsel’s statements at the summary judgment
As to the statements at the summary judgment hearing, Plaintiffs, in
their Motion for Reconsideration, urge that the Court was “mistaken about the
import of counsel for Plaintiffs’ statements at the summary judgment hearing.”
(Mot. at 19.) Again, the Court declines to reconsider its Order on this basis.
Plaintiffs agree that their counsel stated that the bonus and delay
rentals had been “wrapped into one payment,” and they also agree that he stated
that delay rentals were “deemed to have been paid” when the Leases were signed.
(Id.) However, Plaintiffs now argue that “[n]either of these statements or others,
however, extrapolate into counsel having ‘admitted that the only payment made at
execution was a bonus payment that allegedly had delay rentals ‘wrapped in.’”
(Id. (quoting Order at 70).). Plaintiffs misinterpret the Court’s analysis of
Plaintiffs’ counsel’s statements.
The Court, in its Order, noted that in response to the Court’s inquiry
as to what evidence there was that delay rentals had been paid at signing in
addition to the bonus, Plaintiffs’ counsel responded that there was “no distinction”
between the two and also that the two had been “wrapped into one payment.”
(Order at 69.) The Court then discussed his statements as they relate to Plaintiffs’
failure to present any evidence that delay rentals were actually paid. Because
Plaintiffs’ counsel’s statements were incorrect that there is “no distinction”
between a delay rental and a bonus payment, simply calling it a “delay rental” and
stating that delay rentals were “deemed to have been paid,” the Court determined,
was insufficient. Thus, the Court held that Plaintiffs had not provided the Court
with any reason at the hearing or in their motions to conclude that the payment at
issue was a delay rental rather than a bonus; Mr. Olson’s statements, 10 therefore,
were unsupported legal conclusions. (Id. at 69–70)
As stated above, Mr. Olson stated in his affidavit that Plaintiffs “paid all
delay rentals to the Lessors at signing.” (Dkt. # 133 Ex. A.)
Plaintiffs’ counsel’s statements, as discussed more thoroughly in the
Order, are simply not correct. A delay rental is “a periodic payment made by an
oil and gas lessee to postpone exploration during the primary lease term,” In re
Estate of Slaughter, 305 S.W.3d 804, 811 (Tex. App. 2010) (quoting Black’s Law
Dictionary 1411(9th ed. 2009)), while a bonus is “[a] payment that is made in
addition to royalties and rent as an incentive for a lessor to sign an oil-and-gas
lease,” id. (emphasis added) (quoting Black’s Law Dictionary 206 (9th ed. 2009)).
The statement that there is “no distinction” between the two, accordingly, is
incorrect and did not provide the Court with any evidence that delay rentals had
been paid at signing in addition to the bonus to support Mr. Olson’s statements.
Moreover, as discussed above, the Court finds Plaintiffs’ counsel’s arguments that
the word “bonus” is “shorthand” for the lump sum of both delay rentals and bonus
Timeliness of the Mineral Owner’s delay rentals arguments
In a separate argument, Plaintiffs assert that the Mineral Owners did
not give Plaintiffs any indication that they would contend that the Leases were not
paid-up leases or that a delay rental payment was not made until they filed their
Response to Plaintiffs’ Motion for Partial Summary Judgment. (Mot. at 18). In
other words, Plaintiffs assert they had no reason to believe that these were disputed
issues before the Mineral Owners filed their Response.
The Court is unsure how this is a point for reconsideration of its
ruling. In any case, the Mineral Owners stated in their Response to the Motion
for Reconsideration that they did not raise their arguments as to whether delay
rentals had been paid before their Response to Plaintiffs’ summary judgment
motion because the Leases did not provide for delay rentals. (“Resp.,” Dkt. # 150
¶ 9.) Thus, the Mineral Owners asserted they “did not see any need to argue
about delay rentals until after Plaintiffs argued in their motion for partial summary
judgment that the absence of a delay rental provision combined with the heading
‘Paid Up’ meant that delay rentals had been prepaid for the entire primary term of
each lease.” (Id.) Once the argument was made, the Mineral Owners
responded. (Id.) A review of the filings indicates the Mineral Owners’
explanation is correct.
Based on the foregoing, Plaintiffs’ Motion for Reconsideration (Dkt.
# 147) is DENIED.
IT IS SO ORDERED.
Dated: San Antonio, Texas, April 24, 2014.
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