my name is he and i represent north time eagle for gathering l c who is the sole remaining appellant in this case nor himes appeal hinges on fundamental principles of texas property law that governs thousands of agreements throughout the willing gas industry like so many other producers and midstream companies the parties in this case structured their agreements so that the covenants would run with the land under texas law and expressly agreed that the covenants would run with the land the district court and it run with the land if it's merely a contract between two parties yes in fact many types of covenants that run with the land arise in the contractual contests and then it becomes a legal question of whether they satisfy their perec was it for a covenant to run with don't need a successor to have it run with the land because all you have here are two parties you have a contract well usually the question of whether a covenant runs well at arises when there is a subsequent transfer in the debate at that point even sabean agrees that the covenants one with the land that means they can't be wiped away in bankruptcy and they endure any attempt to object to object to them and if have been for some reason were to transfer those interest in somebody else they also would endure and buy in any successor now as far as you know the contractual nature that sort of speaks to the question of factor in the real test for real covenants is whether they touch and concern the land now that texas supreme court has recognized at least two different tests but both sent share the same fundamental inquiry and that is whether the covenants affects the brain's property rights and the answer that question is yes if we look at the first of the westland to us and that's affect the nature quality or value of said means property interests independently of collateral circumstances or affected sabine's mode of enjoying those interests what we have here are sabine's interests in the form of oil and gas leases and the key component of an oil and gas lease is that it carries the inherent right to develop what's in what's under the ground it's that in the mineral estate and just to my earlier statement that once the oil or gas has been taken from the land it becomes personal to you right not real property if there were just an agreement if they were just dealing with severed mineral masking your basic principles of contract lord real estate law it's removed from the lab it becomes personal property not real estate right yes but it depends as far as this case goes the the the inquiry depends on when what the covenant actually does impact is on sabine's otherwise exclusive rights in its property and just last year the texas supreme court recognized that the the the right to develop which is inherent in an oil and gas lease also includes the pipelines to deliver it to a specified location which was on the track i think the originating point was on the tract i'm not exactly sure in in relation to the dedicated area we're just all within the where the actual gathering and additional easements pipelines were constructed for gathering and processing of the gas and condensate and then returning it that's right but the mere fact that it's not a temporary are enough on a permanent possession doesn't affect the characterization of these as covenants at touching concern that because they plainly burden how sabinus going to dispose of or use its property because it has no longer no longer has exclusive rights to possession and certainly it has burdened its otherwise exclusive right to transport or conduct operations to transport production however it might choose so under this first westland test the covenants affect both the nature of the beings interests no matter the circumstances and also house of being enjoys those interests nor times riots arise once the gas is extracted from the land isn't that correct that's correct they are triggered upon production right so you have no rights in what ever gas remains in the land if islam is not extracted correct it essentially it and those rights why dormant unless unless until production occurs that's correct and once the gas is extracted it becomes personal property not real property isn't that correct that's correct then help me i don't understand how it could run with the land well a good example that we've discussed in our brief is the implied covenant to market oil and gas obviously there is no oil and gas to market at all unless until production actually happens and yet so being doesn't dispute and certainly texas law makes clear that the implied covenant to market gas runs with the land so the fact that these companies are triggered only upon production doesn't isn't legally material to whether they run around with the land at the other instructive cases on the fifth circuit decision and right energy tech there there was a covenant to pay a transportation fee for using a gas pipeline and in fact the party was about to complain that they shouldn't run with a lamb because you know they could circumvent it altogether by sept simply choosing not to use that pipeline and yet that the circuit held that the possibility that these companies could expire by force of they have to spend a lot of money to build the facilities to do this right but that happens a lot when there's no contract running with the wind just take the chance that you're both going to destroy the contract why is why is this different in texas or elsewhere where you have to build these facilities maybe right next to the track like here but that happens a lot in business right where you take a chance built facilities and hope that the contract is executed but i think that's true in its general matter but the this industry has long relied on these dedication covenants and and the fact that they would endure any transfers or produce or bankruptcy in order to establish the infrastructure that's necessary to get gas to market and it's a good reason for that because they've hooked into these tests under the texas supreme court authority that show that as long as they come in and burdens they use or enjoyment of land a runs with the land on the other issue that that the banks the court address but that the district court and reaches whether there is an additional privity of a state requirement now even if texas sabine's interest to new york time in connection with the creation of the covenants but that's not the only way you can establish words on a pretty under the first restatement section five thirty four a you can also establish horizontal privity if there was a conveyance  property that's benefited by the covenants and that's what happened here as part of a single integrated transaction so being transfer of property to norheim that's benefited by the covenants and specifically a parcel an easement  where the gathering facilities were established and in any event the texas supreme court most recent decisions and it's been a while since the texas supreme court has even addressed privity at all specifically westland in would show that the texas supreme court is requiring vertical privity not horizontal privity in westland for example the court concluded that privity of a state exists in this case by virtue of an assignment of certain oil between the parties to the assignment or to the agreement but that ignores a few census later the actual holding and less line is that pretty existed based on the transfer of property which again is solely a vertical privity analysis and in what is very much along of state recording statutes and with which more time complied in this case by filing memoranda with the gathering gathering agreement in conclusion your time is long yes expired yes thank you and in conclusion do you want to say something and any of it you have two minutes for question and we think there's no reason in the world that the new york courts are incapable of applying texas law to the facts of this case it would seem sort of grew a texas law is the dispute seems to be in applying the facts to the but that's exactly right and that's why you know i mean i think it's telling here that there's not kind of a legal question that anybody suggesting be certified there's just a vague suggestion of these tools record i think that's the only question here that is a question that in theory is the type of question that could be certified the problem there is i mean the the texas courts have said for a century that horizontal privity is a requirement of texas law and there's no case that says anything about backing away from that all they have are a couple of cases where the court didn't focus on horizontal privity in most of those because it was actually clearly satisfied on the facts of the case but in all events you know in the face of a century of precedent explicitly saying horizontal privity is the law of texas i don't think there's any basis of a broader grant of some of the property and your classic horizontal privity test case would be you know in the oil and gas context when i own a mineral estate and i convey to somebody else a lease to develop the estate but i reserve for myself the rights either to the produced oil or to royalties in it i've conveyed a property right along the way and reserve a royalty interest so you have a broader grant of property within the context of which there's problem is they need a conveyance of the property to which they want to attach the burden which is the mineral estate and the property that they're talking about the property for the gathering facility and the pipeline that's just different property that surface rights it's a different piece of is a completely separate piece of property from the surface estate it's severed and in the same way that under new york law you can sever the air rights above the property so even if it's all adjacent or it's above it or whatever it may be they're just two different parcels of property for are with respect to servicing personal property gas after it's been removed from the ground no rights of the gas they have no rights to the gas under the ground they don't the way this contract is structured you know they we don't have to produce any gas at all they may have rights to collect money if we don't deliver gas for them to service but they can't insist that we produce gas they don't have the rights to the gas until the sixth direct route and i think the second problem with it is i mean rooms i mean to be sure the parties contract to know where they thought they were covenanting to run with the land but that's just not the end of the test under texas law and the texas courts have held you know one of the cases that i think is is really analogous to this one actually is the clear lake water authority case that's a case where among other things the contract said on its face that it ran with the land and both the texas court of appeals and the texas supreme court concluded that that was neither a covenant that ran with  equitable servitude and the problem there was very much like the problem here that was a service contract it was a water facility next door it was adjacent to an apartment complex and they had built their water and sewer service treatment facility on the express reliance on a promise by the apartment building that they would use them as the exclusive provider of water and sewer services and said that that was a covenant that ran with the land and the texas courts said no you're mistaken that's not a covenant that runs of the land because that's just a service contract you have contracted in a way that you will only get your water and sewer services from this adjacent facility and this adjacent facility may well have relied on that in building its facility but you didn't contract in a way that impacts how the apartment complex can use its own real property the dictates what they can do on their real property or takes away any of their rights adds to that property but you can call it whatever you want but you have to look at what the contract actually provide exactly and it couldn't be clearer and i don't take your time to dispute as much as they like to point to the language of the contract that whether a contract says it touches that says it runs of the land is is just one of the elements i mean the texas courts have established a multi factor element test for whether something is runs with the land and one of the factors is does it say it but touching concern is a distinct factor and the courts always answer that question even when they are faced with contracts that say on their face that they run with the land so that just doesn't answer the ultimate question the ultimate question is you know setting aside privity they also need horizontal probity but for touching concern the question is  impact the rights with respect to the real property and it doesn't here because first of all there are only rights our respect are with respect to personal property the post extraction minerals and second of all you know even with respect to what they have mean it's not a property right that they have the right to service the gas and give it back to us and there's just nothing in texas law that says that if you have the rights to service someone else's property real or personal that that constitutes a property right of your own i mean they point to these cases that mention in the course of explaining what the right to develop is that part of it is the ability to transport what you're developing but those cases are just explaining that you know press in the course of marketing gas you're allowed to transport it none of those cases say anything like that if you hire someone to help you with the transportation of your gas from point a to point b you've somehow given them rights in the real property of the mineral estate from which you remove the gas i don't think that's because there's never been a transportation contract in the history of texas oil and gas law it's just because everyone understands that contracting with somebody to transport your gas from point a to point b is not a real property interest that runs with the land it's a service contribution said earlier council that should you fail to deliver certain amounts of gas you could be sued for breach of contract so that is the basis for the rejection in the bankruptcy court of this country to avoid that a lawsuit essential yes i mean the way the contract is structured it builds in a remedy an exclusive remedy if we don't provide gas we have to pay deficiency payments and the rejection was basically done because we would have been faced with the deficiency payments and they would have been and wouldn't have made economic sense for purposes of the estate sitting within bankruptcy now just to be clear you know i mean rejection of a contract is a breach of contract they get breach remedies the problem is they have to get in line as a creditor of the bankruptcy estate and you know that they want a hundred cents on the dollar instead of having to wait in line with everybody else as a creditor to collect on this but you know i think it's important to recognize that we're not here to say this wasn't a valid contract as between these parties and that but for the bankruptcy we wouldn't have needed to perform or had to face breach of contract problems if we didn't but we are where we are sabean ended up in bankruptcy and this was an executive order contract a classic service contract concerning personal not real property and we were entirely a couple of key points first there the the lower courts are laboring under this misconception that the touching concern tess requires some sort of conveyance of part of sabine's actual unproduced minerals that's point actually i think pages thirty to thirty one of the recognize that a conveyance is unnecessary to establish that a covenant touches and concerns a land so this notion that it's not accurate to think that covenants actually only impact personal property because what they actually do like the covenants in the american fining refining case is they burden the user disposition of gas and condensate that are inherent in and part of this so that is what that satisfies the first westland test for touching concern and second counsel mention the clearly just you know talking about a service contract for water and sewer services well the difference there is that it wasn't affecting the use or disposition of the land itself and here the un extract and minerals aren't are inherent in an interval part of the mineral state the right to develop is inherent in the mental state and that right is clearly affected and lessened by the covenants requiring the delivery of all production to nor times facilities if there are no further questions i'll give the remainder my time out to the court thank you thank you thank you both we will reserve decision