Edith Elizabeth Ramsey, Buck Bryan Ramsey and Optimal Utilities, Inc. v. Joe Grizzle, Charles Calhoun and Donna Kay Calhoun

Citation: Not availableDocket: 06-09-00026-CV

Court: Court of Appeals of Texas; May 19, 2010; Texas; State Appellate Court

Original Court Document: View Document

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The Court of Appeals for the Sixth Appellate District of Texas reviewed a case involving appellants Edith Elizabeth Ramsey, Buck Bryan Ramsey, and Optimal Utilities, Inc. against appellees Joe Grizzle, Charles Calhoun, and Donna Kay Calhoun. The dispute arose over the validity of an oil and gas lease (the Hancock lease) after Ramsey claimed it had terminated due to over ninety consecutive days of inactivity, prompting him to lease the property to Optimal. Grizzle, the leaseholder, countered by seeking a declaration that the lease remained valid and filed suit against Ramsey to prevent exclusion from operations.

The trial consolidated multiple actions, including a declaratory judgment from all parties and an interpleader action by Eastex Oil, which sought clarity on payment obligations. A jury trial resulted in a verdict favoring Grizzle, confirming the lease's validity and awarding him over $49,000 in attorney's fees. Ramsey and Optimal's appeal raised several issues, including Grizzle's standing, proof of title, evidence sufficiency, attorney's fees, and jury conduct. The appellate court upheld the trial court's judgment in most respects but reversed the award of attorney's fees. 

The factual history detailed the origins of the Hancock lease dating back to 1975, with subsequent assignments leading to Grizzle acquiring rights from Dale Glass in 2003. Grizzle's operational challenges and management changes were also noted, highlighting the lease's contentious history.

Standing is contested in this case as Ramsey and Optimal argue Grizzle lacks the necessary title interest in the Hancock lease to pursue his claim, asserting it should be characterized as a trespass to try title action. The Texas Supreme Court's understanding of oil and gas leases is crucial; these leases do not function as traditional real property leases. Instead, they grant the lessee a fee simple determinable interest, allowing ownership of the minerals in place, while the lessor retains a royalty interest and a possibility of reverter, which can be triggered under specified conditions. Grizzle claims he maintains a fee simple determinable interest, asserting that operations ceased for less than ninety days, thus not terminating the lease. In contrast, Ramsey and Optimal contend that the possibility of reverter transferred to the Ramseys upon cessation of operations, followed by their lease with Optimal. 

Texas law establishes that a trespass to try title claim is the sole means to address disputed real property title claims, as outlined in the Property Code. Furthermore, if a case does not involve the interpretation of title documents, it cannot be classified as a declaratory judgment action. Past case law supports that when title is central to the dispute, as in cessation of operations cases, the appropriate legal mechanism is a trespass to try title. The court has reiterated this distinction, emphasizing that when title is at stake, the suit must proceed as a trespass to try title rather than a declaratory judgment.

Well-established legal authority indicates that this case cannot properly proceed as a declaratory judgment action. Citing Renwar Oil v. Lancaster, the court notes that disputes involving royalties are fundamentally about land recovery and quieting title, which, despite being framed as a declaratory judgment, are treated as efforts to clarify real property rights. Other cases, such as Kilgore v. Black Stone Oil Co. and Griffin v. Collins, further reinforce that actions concerning instruments related to real property are characterized as disputes over land title. Specifically, a dispute over overriding royalty interests requires determining the status of a lease, which is outside Texas jurisdiction if related to Mississippi property.

The court emphasizes that any title dispute is effectively an action in trespass to try title, regardless of how it is labeled. While declaratory judgments may be appropriate for boundary disputes or lease interpretations, the current case involves real property title, necessitating a trespass to try title action. This action, defined under Texas law, serves to resolve title issues related to real estate and is governed by specific statutory and procedural requirements.

To bring a successful trespass to try title action, the plaintiff must hold a legitimate interest in the property, as established by previous case law. The outcome of the action is determined by the strength of the plaintiff's title rather than the weaknesses of the opposing party's claims.

A defendant in a trespass to try title case is not required to prove ownership, and a plaintiff cannot rely on the defendant's failure to do so. A plaintiff may recover by demonstrating a valid chain of title from the sovereign, superior title from a common source, title by limitations, or prior possession without abandonment. Grizzle's standing to bring a declaratory judgment action was challenged by Ramsey and Optimal, who argued he failed to prove ownership of the disputed property. Although Grizzle did not provide documentary evidence of his leasehold interest, he testified about his acquisition of title. Notably, Ramsey admitted that Grizzle once held a valid lease for the Hancock well. The Ramseys claimed ownership of a forty-acre tract encumbered by the lease that Grizzle had previously held. While Ramsey cited legal authority indicating Grizzle must disclose his title to recover, Grizzle and the Calhouns contended that the standing issue was waived, which was incorrect as standing pertains to subject matter jurisdiction and cannot be waived. Ultimately, the court found sufficient evidence supporting Grizzle's leasehold interest, bolstered by Ramsey's admissions and pleadings that acknowledged Grizzle's lease, allowing Grizzle to assert his rights in the action despite Optimal's lack of admission. The trial effectively treated the case as a declaratory judgment action, which does not require proof of title in the traditional sense.

Ramsey and Optimal request the Court to determine the evidence is factually insufficient to uphold the jury's verdict regarding the operations issue of the lease. They bear the burden to prove that Grizzle did not maintain operations on the Hancock well for ninety consecutive days, as established in relevant case law. When reviewing factual sufficiency challenges, the Court must evaluate all evidence, not just that favoring the verdict, and can only overturn a finding if it is clearly wrong or unjust. 

The 1999 lease stipulates it remains effective for one year and continues as long as operations occur without a cessation exceeding ninety days. The lease defines "operations" to include various activities related to oil, gas, and mineral production. The jury found that Grizzle did not fail to commence operations within ninety days after the well stopped producing. 

Ramsey contends operations were not conducted for over ninety consecutive days during several periods. The Court must identify which specific time periods are relevant. Ramsey's counterclaim alleges production ceased on December 27, 2004, for more than ninety days, while Optimal's claim states Grizzle's lease expired due to lack of continuous operation but presents no amendments or specific exceptions. On appeal, Ramsey and Optimal reference periods in 2003 and 2006 for which they claim operations were not continuous, but Grizzle counters that these periods lack supporting pleadings and that Ramsey had repudiated the lease before 2006, relieving Grizzle of further obligations.

Ramsey and Optimal argue that Grizzle cannot utilize the affirmative defense of repudiation because it was not specifically pleaded. Repudiation is classified as an affirmative defense that must be raised in pleadings, as established by case law. Grizzle initiated a lawsuit against Ramsey, who counterclaimed that the lease had terminated due to nonproduction. Despite the issue being raised in court, Grizzle did not amend his pleadings regarding repudiation, and his request for a jury finding on that issue was denied without objection. Ramsey alleged that production ceased around December 27, 2004, for over ninety consecutive days, but the phrasing allows for the possibility of a much longer cessation period. Optimal's broad pleading suggested the Grizzle lease expired due to lack of continuous operation without specifying a time frame, thus permitting evidence from any relevant period. The trial court properly submitted the jury issue without limiting it to a specific time frame. 

Regarding the definition of "operations," Texas law specifies that mere preparatory actions, such as obtaining drilling permits, do not qualify as operations unless they are aimed at actual production. The primary concern was the credibility of the evidence regarding Grizzle's activity at the well site. Although records indicated some oil production in July 2003, Ramsey and Optimal contested the validity of this evidence, arguing it was a corrected and delayed report, and noted that the lack of electricity indicated no production could occur. In terms of the 2006 period, they disputed claims of significant repairs made by Grizzle, arguing such claims were inadequately substantiated. 

For the timeframe of May 1, 2003, to September 30, 2003, Grizzle highlighted that he did not own the well in May 2003, with RRC records showing no oil production in May and June, and conflicting data for July.

Ramsey presents evidence indicating that no electricity was used at the well during July, August, and September 2003, apart from a $27.00 surcharge, suggesting oil production was impossible at that time. However, conflicting records exist, including one showing zero electricity usage for February 2005 while another indicates 1,335 kilowatt hours were consumed. Evidence of production includes a late report claiming seventy-three barrels produced in July 2003, a record of water removal from the tank on July 31, 2003, and a report of oil purchased that month. Contradictory records from pumper Dale Glass state that the well was inactive on June 30, 2003, and remained unrepaired in July, with no pumping charges recorded. A letter from August 2003 to Eastex Crude requesting a suspension of payment until the well was operational further questions the accuracy of the July production report. Glass also testified that Grizzle regularly filed inaccurate reports. The Ramseys and Optimal argue that the minimal operations, like draining water, do not demonstrate sufficient activity to indicate production, likening it to insufficient operations found in Hall v. McWilliams. They assert that the oil purchased in July was likely produced earlier and emphasize that both electricity usage and pumper records support their claim of no production in July 2003. The jury could reasonably conclude there was some evidence of production during this time.

From May 1, 2006, to November 30, 2006, production reports confirm no oil was produced from the Hancock well during this 210-day period, despite Grizzle's assertion of 'normal operations.' Grizzle sought lease ratification from the Ramseys on May 11, 2006, and scheduled a workover rig for April, which did not arrive until October, implying the well was inactive for several months. Brooks, in inconsistent testimony, confirmed that over $30,000 was spent on replacing casings and rods during the summer of 2006. The Ramseys and Optimal cite electrical records indicating no electricity usage from February 28 to June 29, 2006. While Grizzle acknowledged work on the well, he claimed it was not abandoned. Ultimately, the burden rested on Ramsey and Optimal to demonstrate a cessation of operations for ninety consecutive days.

Ramsey and Optimal bore the burden of proof to demonstrate that the evidence was insufficient to support the jury’s findings. They established that no oil was produced and no electricity was used until June 30, 2006. However, the jury credited testimonies from Brooks and Grizzle, which indicated that work was performed on the well during the summer, specifically replacing rods and pipes. The court emphasized that proving no oil production does not equate to proving that no operations occurred. Physical work done in good faith to prepare for oil production is sufficient to maintain the lease. To overturn the jury's verdict, it must be shown that the evidence overwhelmingly contradicted the jury's finding, which was not the case here.

Regarding attorney's fees, Grizzle was awarded $49,706.25, but the court found he was not entitled to this due to the nature of the suit being classified as a trespass to try title action, where such fees are not recoverable under Texas law. Ramsey and Optimal preserved their objection to the award based on this legal principle, and the court referenced several cases to support its decision to reverse the attorney's fee award.

Additionally, Ramsey and Optimal raised concerns about improper jury arguments made by Grizzle's attorneys, specifically regarding an objection related to the issue of repudiation. The court acknowledged the trial court's error in not sustaining this objection, as the topic of repudiation had not been presented to the jury and was therefore irrelevant.

The ruling examines whether an erroneous decision contributed to an improper judgment under Tex. R. App. P. 44.1(a). The appellants argued that after Optimal's intervention, a claim regarding repudiation was abandoned, despite earlier actions by Glass and Ramsey. An objection to this argument was overruled. The testimony of Glass, asserting the chain was intended to keep beekeepers out, was contested as an attempt to manipulate facts, but this was deemed irrelevant since repudiation was not presented to the jury. The ruling emphasizes that the mere possibility of harm is inadequate; the record must demonstrate that the jury's verdict likely considered improper matters over proper proceedings. The court found no evidence that the arguments raised likely led to an improper verdict, noting that other complaints from Ramsey and Optimal lacked timely objections. Jury arguments cited included local bias and personal anecdotes, but the court stated that unless such arguments are extraordinarily inflammatory, failure to object typically waives the right to appeal. Incidents considered “incurable” are rare, and the burden lies with the party claiming harm to show that the argument was so extreme that it influenced the verdict. After reviewing the entire record, the court found none of the arguments met this stringent standard, leading to the affirmation of the trial court’s judgment regarding the validity of Grizzle’s lease and the failure of Ramsey and Optimal to prove a cessation of operations. However, the court reversed the judgment regarding attorney’s fees, ruling that Grizzle is entitled to no fees.

A royalty interest is categorized as a nonpossessory interest and is not subject to resolution through trespass to try title, as established in Grasty v. Woods. The Texas Legislature amended Section 37.004 to permit declaratory judgment actions specifically for boundary disputes, thus overruling the previous stance from Martin regarding such disputes. However, Martin's ruling still applies to other title disputes and has been referenced by the Texas Supreme Court. A declaratory judgment action is permissible when determining the proper boundary line between adjacent properties. 

In a related case, Mr. Ramsey acknowledged the existence of a lease with Joe Grizzle in 2003-2004, but contended it terminated after ninety days, affirming Grizzle's rightful lease until that termination was claimed. The Texas Supreme Court has clarified definitions of "operations" within oil and gas leases through various cases, emphasizing continuous activities required under the lease terms.

Attorney’s fees in trespass to try title cases are limited to specific circumstances involving record title claims versus adverse possession claims when statutory conditions are met, which do not apply in the current situation.