Consistency is Key: King Operating Corp. v. Double Eagle Andrews, LLC
By Christopher Hogan, Trial Attorney & Founding Partner, Hogan Thompson LLP
In the oil patch, operators and lessees are almost always in a hurry. There is always another well to drill or another tract to lease up. Sometimes leases get pieced together from different forms and earlier examples, with the finished product featuring internally inconsistent terms and definitions. Often, these inconsistencies go unnoticed as disputes about the key terms don’t come up. But sometimes they do, and that’s when litigators like me get a call.
King Operating Corporation v. Double Eagle Andrews, LLC presents one of those situations. The case involved a property in Scurry County with four tracts. One set of lessors (the Robisons) owned a fifty percent mineral interest in tract 1 and one hundred percent of the mineral interest in tracts 2, 3, and 4. Another set of lessors (the Williams) owned the other half of the mineral interest in tract 1 and all of the executive rights (i.e., the right to lease the property) in tract 1 as well.
Both the Robisons and the Williams signed a lease with Maddox Oil under which the lessors leased these interests. The Robisons’ lease (the “Robison Lease”) covered the “leased premises,” which was defined as including all of tracts 1, 2, 3 and 4. The Williams’ lease (the “Williams Lease”) covered only tract 1. Maddox Oil eventually transferred its interests to entities related to King Operating, which then drilled a producing well on tract 1 during the term of the lease. King Operating did not, however, drill on tracts 2, 3, or 4.
Eight years after these leases, Double Eagle Andrews took a lease from the Robisons for their interest in tracts 2 and 3. By taking another lease on these tracts, Double Eagle Andrews was taking the position that the Robison Lease was no longer in effect. But King Operating apparently disagreed, as it filed an application to drill a well on tract 2 based on the Robison Lease. Double Eagle objected to the permit and then filed suit claiming that the Robisons’ earlier lease had expired.
King Operating found itself in an interesting position. While the Robison Lease (that King acquired) covered tract 1, and the Robisons owned half the mineral rights on that tract, they did not own the executive rights. Thus, the Robisons never leased tract 1 to Maddox Oil in the first place under the Robison Lease. See King Operating Corp. v. Double Eagle Andrews, LLC, 11-19-00336-CV, 2021 WL 4598819, at *5 (Tex. App.—Eastland Oct. 7, 2021, no pet. h.) (“Because the Robisons did not own the executive right on Tract One, they did not have the right to lease those minerals to Maddox. As such, when the Robisons included Tract One in the Robison Lease, they attempted to convey something that they did not have the right to convey.”).
But the Robison Lease had language that may have just bailed King Operating out. The Robison Lease had defined “leased premises” as including tract 1 and was clear that the lease would continue in force and effect as long as oil or gas was “produced in paying quantities from the leased premises or from lands pooled therewith.” Id. at 1. Thus, the key question was whether the parties’ definition of “leased premises” would mean that the Robison Lease was kept in force and effect from production on tract 1 even though the Robisons had not been able to lease that acreage to Maddox Oil.
Presumably, King Operating pushed hard on Texas caselaw requiring courts to follow the parties’ plain language and defined terms when construing leases. But these are not the only canons that courts follow, and the court here focused on two other important rules. First, the court mentioned the Texas Supreme Court’s recent emphasis on context when reading contracts. See id. at 4 (“Although we cannot interpret a contract to ignore clearly defined terms, we also cannot be blind to the commercial realities of the context in which the parties were operating.” (quotations and citations omitted)). The court also focused on a lesser-used canon about keeping terms in agreements consistent:
We favor the consistent use of a term that is used more than once in a lease. Words used in one sense in one part of a lease are, as a general rule, deemed to have been used in the same sense in another part of the instrument, where there is nothing in the context to indicate otherwise. While we are not required to apply this rule of construction rigidly, we presume that identical words used in different parts of the same instrument should generally be given the same meaning.
With these canons in mind, the court looked at the Robison Lease and noted that it used “leased premises” six different times, including parts of the lease that allowed the lessee to enter the “leased premises,” pool the “leased premises,” and drill on the “leased premises.” Because the Robison Lease could not have provided the lessee with the right to do any of those activities on the “leased premises” (as the Robisons did not have the authority to convey such rights), the court rejected a reading of “leased premises” that included tract 1. Instead, the Court held that “the parties intended for the term ‘leased premises’ to refer to those tracts of land that were covered by the Robison Lease, which were those tracts of land in which the Robisons actually conveyed a leasehold interest to Maddox,” and “[b]ecause the Robisons did not convey a leasehold interest in Tract One, Tract One was not land that was covered by the Robison Lease and was not part of the ‘leased premises.’” Id. at *7. Double Eagle Andrews therefore owned the mineral rights on tract 2 and prevailed in the case.
While Double Eagle Andrews prevailed on the lease question, the court did reverse the award of attorneys’ fees in its favor based on its declaratory-judgment claim. Parties are understandably always trying to secure attorneys’ fees when they can, but this case is another example of courts taking a strong line against the use of a declaratory judgment when only a trespass-to-try-title or quiet-title claim is permitted.
King Operating had a good argument based on the defined term of “leased premises,” but the use of that term throughout the Robison Lease undermined the company’s reading of the agreement. This case provides yet another reason for lessees to make sure that they are consistent in their use of terms throughout their leases.
Id. at *5 (quotations, citations, and brackets omitted).