In The 

Court of Appeals 

Seventh District of Texas at Amarillo

No. 07-17-00112-CV 

 

TOMMY YOWELL; GAIL YOWELL; HARRY GRAFF; EL TERCIO, LLC; AND 

CASUARINA INVESTMENTS, LLC (D/B/A LAR RESOURCES, LLC), 

APPELLANTS 

 

V. 

 

GRANITE OPERATING COMPANY AND APACHE CORPORATION, AND 

PAC PRODUCTION CO.; MESA OIL & GAS CORP.; AND CATTALO, LTD., 

APPELLEES 

 

AND 

 

GRANITE OPERATING COMPANY AND APACHE CORPORATION, APPELLANTS 

 

V. 

 

PEYTON ROYALTIES, L.P.; BAILEY PEYTON, INDIVIDUALLY AND AS TRUSTEE 

OF THE GEORGE BAILEY PEYTON, IV 2007 GRANTOR RETAINED ANNUITY 

TRUST NO. 1; AND PEYTON HOLDINGS CORP., APPELLEES 

 

On Appeal from the 31st District Court 

Wheeler County, Texas 

Trial Court No. 12,944, Honorable Steven R. Emmert, Presiding 

 

July 26, 2018 

 

OPINION 

 

Before CAMPBELL and PIRTLE and PARKER, JJ. 
2

This is a multi-party appeal in a multi-issue oil and gas case. The trial court 

determined that an “anti-washout” provision in a mineral assignment did not extend an 

overriding royalty interest to new leases. The court also determined that a stock purchase 

and sale agreement did not require the sellers (who owned the leases) to indemnify the 

buyers in litigation over the anti-washout provision. We affirm the judgment of the trial 

court.

Background

Tommy Yowell, Gail Yowell, Harry Graff, El Tericio, LLC, and Casuarina 

Investments, LLC (collectively, the “Yowell Group”), are successors-in-interest to an 

overriding royalty interest which was reserved by Aikman Oil Corp. when it assigned 

certain mineral leases to Jay Haber in 1986. Upland Resources, Inc., eventually acquired 

the Aikman leases, which covered three-fourths of a section in Wheeler County, Texas, 

subject to the reservation of the overriding royalty interest. In May of 2007, Amarillo 

Production Company (“APC”) obtained top leases covering the same minerals. Claiming 

that Upland’s leases had terminated due to cessation of production, APC filed suit against 

Upland in August of 2007.

APC and Upland settled the lawsuit two months later. As part of the settlement, 

Upland agreed to release its interest in the underlying leases. APC agreed to assign its 

top leases to Upland’s designee, although APC retained a five percent overriding royalty 

interest. Upland and APC also agreed to an apportionment of liability in the event the 

Yowell Group sued to enforce its overriding royalty interest. After releasing its interest in 

the underlying leases, Upland changed its name to Granite Operating Company
3

(“Granite”). APC assigned the top leases to Granite. Some years later, Granite assigned 

the top leases to Apache Corporation (“Apache”).

While the APC lawsuit was pending in 2007, Cordillera Energy Partners III, LLC, 

entered into a Stock Purchase and Sale Agreement to buy the stock of Upland from Bailey 

Peyton and the Peyton Trust. The agreement included an indemnification provision for 

Peyton and the Peyton Trust to indemnify Cordillera and Upland from certain “adverse 

consequences” arising from Upland’s litigation with APC. The sale closed in 2007, around 

the same time the APC lawsuit was settled.

In 2013, the Yowell Group filed this lawsuit to establish that the overriding royalty 

interest they owned in the underlying leases had attached to APC’s two top leases, and 

that the defendants wrongfully refused to pay them any proceeds on such interest. The 

named defendants were Granite and Apache, which owns Cordillera and the 2007 top 

leases (collectively “Granite/Apache”).

Granite/Apache, as third party plaintiffs, then sued PAC Production Co., Mesa Oil 

& Gas Corporation, and Cattalo, Ltd. (collectively, the “PAC Group”) and Peyton 

Royalties, L.P., Bailey Peyton, Individually and as Trustee of the George Bailey Peyton, 

IV 2007 Grantor Retained Annuity Trust No. 1, and Peyton Holdings Corporation 

(collectively, the “Peyton Group”), seeking indemnification. The PAC Group filed a 

counterclaim against Granite/Apache for suspended overriding royalties and filed a crossaction against the Yowell Group seeking a declaration that the overriding royalty interest 

had terminated.
4

The parties filed multiple summary judgment motions and cross motions. Relevant 

to this appeal are the following four motions granted by the trial court: (1) 

Granite/Apache’s motion for summary judgment on the Yowell Group’s override claim; (2) 

the PAC Group’s motion for summary judgment against the Yowell Group; (3) the PAC 

Group’s motion for summary judgment against Granite/Apache; and (4) the Peyton 

Group’s motions for summary judgment.

The Yowell Group and Granite/Apache both filed notices of appeal, which we will 

address in turn.

The Yowell Group’s Appeal

The Yowell Group raises two issues on appeal. It argues, first, that the overriding 

royalty interest attached to the top leases, and second, that Granite/Apache and the PAC 

Group did not present sufficient summary judgment evidence to defeat the vesting of the 

overriding royalty interest.

Standard of Review

The trial court granted both Granite/Apache’s traditional motion for summary 

judgment on the Yowell Group’s override claim, and the PAC Group’s motion for summary 

judgment, which included both traditional and no-evidence grounds, against the Yowell 

Group. The trial court denied the Yowell Group’s competing motion for partial summary 

judgment.

We review the trial court’s summary judgment de novo. Provident Life & Accident 

Ins. Co. v. Knott, 128 S.W.3d 211, 215 (Tex. 2003). In our review, we take as true all 
5

evidence favorable to the nonmovant, and we indulge every reasonable inference and 

resolve any doubts in the nonmovant’s favor. Sci. Spectrum, Inc. v. Martinez, 941 S.W.2d 

910, 911 (Tex. 1997). When, as here, both sides move for summary judgment and the 

trial court grants one motion and denies the other, we review both sides’ summary 

judgment evidence, determine all questions presented, and render the judgment that the 

trial court should have rendered. See Comm’rs Court of Titus Cty. v. Agan, 940 S.W.2d 

77, 81 (Tex. 1997). When a trial court’s order granting summary judgment does not 

specify the grounds relied on, we must affirm summary judgment if any of the summary 

judgment grounds are meritorious. Star-Telegram, Inc. v. Doe, 915 S.W.2d 471, 473 

(Tex. 1995).

A movant for traditional summary judgment is entitled to summary judgment only 

if it conclusively negates at least one element of each of the plaintiff’s causes of action, 

or conclusively establishes each element of an affirmative defense. Sci. Spectrum, Inc., 

941 S.W.2d at 911. A no-evidence summary judgment is reviewed under the same legal 

sufficiency standard as a directed verdict. King Ranch, Inc. v. Chapman, 118 S.W.3d 

742, 750 (Tex. 2000). The task of the appellate court is to determine whether the plaintiff 

has produced any evidence of probative force to raise fact issues on the material 

questions presented. The appellate court must consider all evidence in the light most 

favorable to the nonmovant; every reasonable inference must be indulged in favor of the 

nonmovant; and any doubts must be resolved in the nonmovant’s favor. See Qantel 

Business Sys., Inc. v. Custom Controls Co., 761 S.W.2d 302, 303–04 (Tex. 1988).
6

Discussion and Analysis

The Nature of the Overriding Royalty Interest

In Texas law, an overriding royalty interest is defined as an interest which is carved 

out of, and constitutes a part of, the working interest created by an oil and gas lease. 

EOG Res., Inc. v. Hanson Prod. Co., 94 S.W.3d 697, 701 (Tex. App.—San Antonio 2002, 

no pet.). It is the share of the oil and gas produced reserved in an assignment, partial 

assignment, or sublease of an oil and gas lease payable to the assignor by the assignee 

over and above the royalty reserved in the lease payable to the lessor. Id. In its 1986 

assignment, Aikman Oil reserved an overriding royalty interest “equal to the difference 

between twenty-one percent (21.0%) and the total of landowners’ royalties, overriding 

royalties, payments out of production and other lease burdens existing as of this 

date . . . of all oil, gas and other minerals that may be produced from Subject Leases.”

An overriding royalty interest “is necessarily derived from a particular oil and gas 

lease which constitutes the assignor’s mineral estate, and its validity is subject to the 

terms, conditions and existence of such a lease.” Gruss v. Cummins, 329 S.W.2d 496, 

501 (Tex. Civ. App.—El Paso 1959, writ ref’d n.r.e.). Generally, an overriding royalty 

interest created by assignment does not survive the termination of the assigned lease 

unless the instrument creating the interest provides an express provision to the contrary. 

See Fain & McGaha v. Biesel, 331 S.W.2d 346, 348 (Tex. Civ. App.—Fort Worth 1960, 

writ ref’d n.r.e.). Here, the Aikman assignment included a clause providing for the 

continuation of the overriding royalty interest, and the Yowell Group’s appeal turns on the 

construction of that provision.
7

The Anti-Washout Clause

Also known as an “evergreen” or “extension and renewal” clause, the “antiwashout” clause1 aims to impose an overriding royalty interest on any extension or 

renewal of the leases, or on any future lease of the minerals by Haber:

Should the Subject Leases or any one of the Subject Leases terminate and 

in the event Assignee obtains an extension, renewal or new lease or leases 

covering or affecting all or part of the mineral interest covered and affected 

by said lease or leases, then the overriding royalty interest reserved herein 

shall attach to said extension, renewal or new lease or leases; and an 

appropriate recordable instrument shall be executed to evidence Assignor’s 

overriding royalty interest therein. Further, any subsequent extension or 

renewal or new lease or leases shall contain a provision whereby such 

overriding royalty shall apply and attach to any such subsequent extensions 

or renewal of Subject Leases.

Under the language of the clause, three conditions must occur for the overriding royalty 

interest to attach to the top leases: (1) one or more of the subject leases terminates; (2) 

the assignee (Haber or his successor) obtains an extension, renewal, or new lease or 

leases; and (3) the extension, renewal, or new lease covers or affects all or part of the 

mineral interest covered and affected by the subject leases.

There is no dispute that the “Subject Leases” (i.e., the 1986 leases in which the 

Yowell Group’s overriding royalty interest was created) terminated. In 2007, APC filed a 

lawsuit against Upland claiming that the underlying leases had expired due to cessation 

of production. As part of the settlement of that lawsuit, Upland released its interest in the 

leases, thereby terminating them. Therefore, we first examine whether Granite/Apache, 

 

1 A “washout” is the “elimination of an overriding royalty or other share of the working interest by 

the surrender of a lease by a sublessee or assignee and subsequent reacquisition of a lease on the same 

land free of such interest.” WILLIAMS AND MEYERS, Manual of Oil and Gas Terms 1340 (8th ed. 1991).
8

as Haber’s successor, obtained an extension, renewal, or new lease. The parties agree 

that the top leases are not “extensions” of the underlying leases, and we concur. By 

definition an extension is a “continuation of the same contract for a specified period.” 

Extension, BLACK’S LAW DICT. (9th ed. 2009). The top leases did not continue or extend

the underlying leases.

Nor were the top leases renewals of the underlying leases. A renewal is the “recreation of a legal relationship or the replacement of an old contract with a new contract, 

as opposed to the mere extension of a previous relationship or contract.” Renewal, 

BLACK’S LAW DICT. (9th ed. 2009). The top leases here differ from the underlying leases 

in key respects. Not only did they contain numerous different terms (for example, the 

royalty clause, rental clause, and surface use and protection covenants differ) but, 

critically, they were executed by different parties: the top leases were acquired by APC

(not Aikman or a successor-in-interest to Aikman) in a separate transaction for which new 

consideration, in the amount of $251,999.99, was given. Moreover, APC’s acquisition of 

the top leases did not inure to Granite/Apache’s benefit, but was in fact adverse to the 

leasehold title owned by Granite/Apache. See, e.g., Victory Energy Corp. v. Oz Gas 

Corp., 461 S.W.3d 159, 175 (Tex. App.—El Paso 2014, pet. denied) (a top lease is a 

contingent proprietary interest in a mineral estate “whose existence is only triggered by 

the failure of the underlying original lease.”). Based on these considerations, we find that 

the top leases do not constitute “renewals” of the underlying leases. See Sunac Petro.

Corp. v. Parkes, 416 S.W.2d 798, 803 (Tex. 1967) (holding that new lease was not a 

renewal of original lease where new lease was executed under different circumstances, 
9

for new consideration, upon different terms, and over a year after the expiration of the old 

lease).

The 2007 APC top leases which Granite/Apache acquired were instruments 

separate from and independent of the underlying 1986 Aikman leases. We therefore

conclude that the top leases are “new leases.” The parties do not dispute that these 

leases cover or affect “all or part of the mineral interest covered and affected by the 

subject leases,” and we agree. Therefore, the three conditions necessary for the 

overriding royalty interest to attach to the top leases have occurred.

We turn next to the question of whether the anti-washout clause could “attach” to 

the new/top leases, establishing an enforceable overriding royalty interest in those leases. 

In their motions for summary judgment, which were granted by the trial court, both 

Granite/Apache and the PAC Group contended that the clause’s attempt to attach to new 

leases violates the rule against perpetuities (“the Rule”) and is therefore void.

The leading case on anti-washout provisions in Texas is Sunac Petro. Corp. v. 

Parkes, 416 S.W.2d 798 (Tex. 1967), in which the Texas Supreme Court examined the 

effect of a clause that aimed to prolong the life of an overriding royalty interest beyond 

the original lease. Id. at 800. However, in Sunac, the clause at issue addressed renewals 

or extensions of the underlying lease, and did not purport to extend to a new lease. Id. 

As far as we or the parties have determined, this issue, i.e., whether the “new lease” 

language in the anti-washout clause violates the Rule, is one of first impression for Texas 

courts.
10

The Rule Against Perpetuities

Perpetuities are prohibited by the Texas Constitution, which provides,

“Perpetuities . . . are contrary to the genius of free government, and shall never be 

allowed . . . .” TEX. CONST. art. I., § 26. Texas has adopted the common law version of 

the Rule to govern real property conveyances: “[N]o interest is valid unless it must vest, 

if at all, within twenty-one years after the death of some life or lives in being at the time of 

the conveyance.” BP Am. Prod. Co. v. Laddex, Ltd., 513 S.W.3d 476, 479 (Tex. 2017).

Granite/Apache and the PAC Group assert that the reservation of an overriding 

royalty interest in future hypothetical leases (here, “new leases” that are not extensions 

or renewals of existing leases) is not certain to vest within twenty-one years after the 

death of a life in being at the time of the assignment. We agree.

Under the Rule, a conveyance must be viewed as of the date the instrument is 

executed, and the interest is void if by any possible contingency the grant or devise could 

violate the Rule. Peveto v. Starkey, 645 S.W.2d 770, 772 (Tex. 1982). The Rule “does 

not apply to present interests or to future interests that vest at their creation.” Laddex, 

513 S.W.3d at 480. To determine whether the conveyance violates the Rule, we consider 

the language of the clause: “Should the Subject Leases or any one of the Subject Leases 

terminate and in the event Assignee obtains an extension, renewal or new lease or 

leases . . . then the overriding royalty interest reserved herein shall attach to said 

extension, renewal or new lease or leases.”

In order for the reserved interest to attach to a new lease, the underlying lease had 

to terminate. Therefore, the interest was contingent on the expiration of the existing 
11

mineral lease, which was of indefinite duration. In Laddex, the Texas Supreme Court 

explained that this contingency, the expiration or termination of an existing lease, may not 

occur within twenty-one years after the death of a life in being. Id. at 480-81. The Court 

held, consequently, that an interest in an oil and gas lease that is “contingent on 

expiration” of an existing oil and gas lease generally violates the Rule. Id. at 480.

In Peveto, the Court addressed a similar contingent conveyance when it 

considered the effect of the Rule on a deed which provided: “this grant shall become 

effective only upon the expiration of [Peveto’s] . . . Deed . . . .” Peveto, 645 S.W.2d at

772. The Court noted that those words “postpone the vesting of Starkey’s interest until 

some uncertain future date.” Id. Starkey’s springing executory interest could not vest 

until the prior interest terminated. Id. That prior interest, a determinable fee, could 

continue forever. Therefore, Starkey’s interest might not vest within the period of the 

Rule. The Court held that the deed violated the Rule. Id.

Like the interests in Laddex and Peveto, the Yowell Group’s reserved interest in 

prospective new leases was contingent on the expiration of the underlying lease. The 

underlying lease was a fee simple determinable lease which provided for a primary term 

of three years “and as long thereafter as either oil, gas, casinghead gas, condensate, or 

other minerals or any of them is produced from said land hereunder.” The lease was of 

indefinite duration, with the potential to continue beyond the perpetuities period.

In addition, the interest at issue here depended on the creation of a new lease: the 

interest would attach “in the event Assignee obtains an extension, renewal or new lease 

or leases,” which was an uncertain contingency. The time between the expiration of the 
12

underlying lease and the creation of a new lease to which the overriding royalty interest 

could purportedly attach is an indeterminate period which could exceed twenty-one years 

plus a life in being at the time of the assignment. “Executory interests have historically 

been subject to invalidation by the Rule when they were limited upon conditions precedent 

not certain [to] occur, if ever, and followed a prior estate not certain to end.” 

ConocoPhillips Co. v. Koopmann, 547 S.W.3d 858, 2018 Tex. LEXIS 247, at *23 (Tex.

2018). Therefore, we conclude the anti-washout clause’s purported creation of an 

overriding royalty interest in a new lease violates the Rule.

We are mindful of the Yowell Group’s claim that their overriding royalty interest 

was a vested interest as of 1986, when Aikman carved the interest out of the lease, 

making it valid under the Rule. We disagree with their argument. “Estates are vested 

when there is a person in being who would have immediate right to the possession of the 

lands upon the ceasing of the intermediate or precedent estate.” Thornton v. Zea, 55 

S.W. 798, 799 (Tex. Civ. App.—San Antonio 1900, writ ref’d). On the other hand, estates 

“are contingent [while] the person to whom, or the event upon which they are limited to 

take effect, remains uncertain.” Id. The overriding royalty interest Aikman carved out of 

the underlying lease at the time of his assignment was vested only to the extent that the 

interest he reserved was an interest in property he owned at the time of the conveyance. 

There could be no concurrent vesting of title in a new lease which was not then in 

existence and which might never come into existence. See Cities Serv. Oil Co. v. Sohio 

Petro. Co., 345 F.Supp. 28, 30–31 (W.D. Okla. 1972) (mem. op.).

We reiterate that an overriding royalty interest is necessarily derived from a 

particular oil and gas lease, and the lease defines the life and breadth of the estate. See 
13

Gruss, 329 S.W.2d at 501. The overriding royalty interest does not have a life of its own. 

“The overriding royalty interest is created out of the leasehold estate. Its duration cannot 

be greater than the leasehold estate, but can be shorter.” Bruce M. Kramer, Royalty 

Interest in the United States: Not Cut from the Same Cloth, 29 Tulsa L. J. 449, 457 (1994). 

The Yowell Group’s claim to an overriding royalty is appurtenant to and dependent on the 

leasehold from which it was carved; Aikman’s reservation could not be carved out of, or 

vested in, a new lease that did not exist at the time of the assignment.

When the underlying lease was terminated, the overriding royalty interest of the 

Yowell Group also expired, and was not preserved by the anti-washout clause’s attempt 

to secure rights in a new leasehold estate.

Reformation of the Clause

The Yowell Group has urged that, should we find a violation of the Rule, either this 

Court or the trial court on remand should reform the anti-washout clause so that it does 

not violate the Rule. The Legislature has called on courts to “reform or construe an 

interest in real or personal property that violates the [R]ule to effect the ascertainable 

general intent of the creator of the interest.” TEX. PROP. CODE ANN. § 5.043(a) (West 

2014). In their motions for summary judgment, Granite/Apache and the PAC Group 

raised different arguments, which we address in turn, as to why the remedy of reformation 

is not available to the Yowell Group.

Granite/Apache argues that reformation is not applicable in this case because 

Section 5.043 does not extend to a non-charitable, commercial instrument, such as the 

one at issue here. In response to Granite/Apache’s challenge to the applicability of 
14

Section 5.043, the Yowell Group avers that “TEX. PROP. CODE § 5.043 authorizes the 

Court to reform an instrument to satisfy the Rule, while giving effect to the general intent 

and specific directive of the parties to the Assignment” and “the Court’s ability to reform 

an instrument is a power inherent power [sic] of a court to which no limitations period is

assigned.”

We turn to the language of the statute to determine if it allows for reformation of 

the interest at issue. Section 5.043 “applies to legal and equitable interests, including 

noncharitable gifts and trusts, conveyed by an inter vivos instrument or a will that takes 

effect on or after September 1, 1969 . . . .” TEX. PROP. CODE ANN. § 5.043(d). The 

overriding royalty interest created in the assignment is certainly a legal or equitable 

interest. The interest was created by reservation in an instrument, “Assignment of Oil, 

Gas and Mineral Leases,” in which Aikman Oil Corp. was the assignor. An “inter vivos 

instrument” is one that is made during the lifetime of the grantor. See Inter vivos, BLACK’S 

LAW DICTIONARY (9th ed. 2009) (defining “inter vivos” as “[o]f or relating to property 

conveyed not by will or in contemplation of an imminent death, but during the conveyor’s 

lifetime” and providing Latin translation as “between the living”). As a corporate entity, 

Aikman Oil Corp. does not have a lifetime. Under the Texas Business Organizations 

Code, a corporation has a perpetual existence unless otherwise stated in the certificate 

of formation. In re ReadyOne Indus., Inc., 294 S.W.3d 764, 771 (Tex. App.—El Paso 

2009, orig. proceeding) (citing TEX. BUS. ORG. CODE ANN. § 3.005(a)(4) (West 2012)). 

Moreover, we note that the Yowell group has not cited, and we have not found, any case 

in which Section 5.043 was used to reform a commercial instrument such as this one. 
15

We therefore conclude that the assignment from Aikman is not an “inter vivos instrument” 

subject to reformation under of the statute.

In its motion for summary judgment on the Yowell Group’s request for reformation,

the PAC Group relied solely on limitations grounds. The PAC Group asserted that a 

reformation claim is subject to a four-year statute of limitation, citing Texas case law and 

the residual limitations period set forth in section 16.051 of the Texas Civil Practice and

Remedies Code. See TEX. CIV. PRAC. & REM. CODE ANN. § 16.051 (West 2015) (“Every 

action for which there is no express limitations period, except an action for the recovery 

of real property, must be brought not later than four years after the day the cause of action 

accrues.”).

Here, the Aikman assignment was executed in 1986. Upland’s release of the lease 

and the APC assignment were recorded in November of 2007, giving the Yowell Group 

constructive notice of potential causes of action. Members of the Yowell Group had actual

notice by at least July 3, 2008, that the original lease had been released. The Yowell 

Group did not file suit until September of 2013, almost six years after they had notice of 

their claims. More than another year passed before the Yowell Group amended its 

pleadings, in February of 2015, to request reformation.

The Yowell Group argues that no limitations period applies to reformation under 

section 5.043 of the Texas Property Code, because the statute “does not create a cause 

of action for reformation.” We are not persuaded by this argument. Even if we view 

section 5.043 as a “statutory instruction” rather than a cause of action, we are not 

compelled to deduce that there is no time limit in which to pursue the remedy of 
16

reformation. See Chorman v. McCormick, 172 S.W.3d 22, 24-25 (Tex. App.—Amarillo 

2005, no pet.) (“As a general rule, statutes of limitations apply to actions seeking equitable 

relief.”). Even if we were to assume the Aikman assignment was subject to reformation, 

we would decline to extend application of Section 5.043 under the facts of this case due 

to the Yowell Group’s delay in requesting such relief.

Therefore, we affirm the trial court’s summary judgment in favor of the PAC Group 

as to the Yowell Group’s claims.

Conclusion as to the Yowell Group’s Appeal

Because we conclude the trial court properly granted summary judgment on the 

grounds that the “new leases” provision violates the Rule, we need not address the other 

grounds raised by Granite/Apache and the PAC Group in their motions. See TEX. R. APP.

P. 47.1. Additionally, we have determined that the trial court properly granted summary 

judgment on the Yowell Group’s request for reformation. Therefore, we affirm the trial 

court’s judgment granting Granite/Apache’s motion for summary judgment on the Yowell 

Group’s override claims and granting the PAC Group’s second motion for summary 

judgment against the Yowell Group. We affirm the trial court’s judgment denying the 

Yowell Group’s first amended motion for partial summary judgment.

Granite/Apache’s Appeal

After the Yowell Group sued Granite/Apache, Granite/Apache brought third party 

claims against the Peyton Group and the PAC Group. Granite/Apache sued for money 

had and received, unjust enrichment, and a declaratory judgment. Granite/Apache also 
17

alleged the Peyton Group had breached its obligation to indemnify Granite/Apache and 

sought a declaration that the Peyton Group was obligated to indemnify them.

The trial court granted the Peyton Group’s motion for summary judgment, which 

included both traditional and no-evidence grounds, against Granite/Apache. The trial 

court also granted the PAC Group’s second amended motion for summary judgment 

against Granite/Apache. The trial court denied Granite/Apache’s competing motions for 

summary judgment.

In the second part of this case, Granite/Apache appeals the trial court’s judgment 

against them on their claims against the Peyton Group. Granite/Apache argues that the 

trial court erred in (1) rendering judgment that Granite/Apache take nothing on their 

breach of indemnification claim, and (2) ordering Granite/Apache to pay the Peyton Group 

$220,396 in attorneys’ fees.

Standard of Review

Because this second part of the appeal, like the first, involves competing motions 

for summary judgment, the de novo standard of review still applies, and we will not repeat 

it here. See Agan, 940 S.W.2d at 81.
18

Discussion and Analysis

The Indemnification Agreement

Granite/Apache alleged the Peyton Group breached the 2007 Stock Purchase and 

Sale Agreement (SPSA) by failing to indemnify them in the lawsuit brought by the Yowell 

Group in 2013. The Peyton Group’s motion for summary judgment on Granite/Apache’s 

claim asserted that there was no duty for the Peyton Group to indemnify Granite/Apache, 

or, alternatively, there was no evidence that the Peyton Group breached the SPSA.

The duty to indemnify is determined from the terms of the indemnity agreement. 

Ideal Lease Serv., Inc. v. Amoco Prod. Co., 662 S.W.2d 951, 953 (Tex. 1983). In 

construing the indemnity agreement, we must ascertain and give effect to the intentions 

of the parties as expressed in the instrument. Id. Those intentions are determined by 

applying the same rules of construction as are applied to other contracts. Id. Indemnity 

agreements are strictly construed in order to give effect to the parties’ intent. See Gulf 

Ins. Co. v. Burns Motors, Inc., 22 S.W.3d 417, 423 (Tex. 2000). We give terms in an 

indemnity agreement their plain, ordinary, and generally accepted meaning. Lehmann v. 

Har-Con Corp., 76 S.W.3d 555, 562 (Tex. App.—Houston [14th Dist.] 2002, no pet.). An 

indemnity agreement is unambiguous if it can be given a definite or certain legal meaning, 

and we will construe an unambiguous indemnity agreement as a matter of law. J.M. 

Davidson, Inc. v. Webster, 128 S.W.3d 223, 229 (Tex. 2003).

The SPSA, executed on September 12, 2007, provides that the Peyton Group will 

indemnify Granite/Apache:
19

from . . . any Adverse Consequence arising from or in connection with all 

pending or threatened claims or causes of action asserted against Upland 

in the litigation styled Amarillo Production Company v. Upland Resources, 

Inc.[,] Cause No. 12,021, in the 31st District Court in and for Wheeler 

County, Texas . . . .

The term “Adverse Consequence” was defined as “all actions, awards, suits, proceedings, 

hearings, investigations, charges, complaints, claims, demands, injunctions, judgments, 

orders, decrees, rulings, damages, dues, penalties, fines, costs, reasonable amounts 

paid in settlement, liabilities, obligations, taxes (including interest thereon), liens, losses, 

expenses, and fees, including court costs and reasonable attorneys’ fees and expenses.”

Granite/Apache and the Peyton Group agree there is no ambiguity in the 

indemnification clause, but they construe it quite differently. Granite/Apache contends 

that the Yowell Group’s lawsuit was the direct consequence of APC’s lease-termination 

claims and therefore triggered the duty to indemnify. The Peyton Group maintains that 

the Yowell Group’s claims do not arise from and are not connected to the “pending or 

threatened” claims asserted against Upland in the APC lawsuit, so the SPSA does not 

require indemnity in this case. Since mere disagreement over the interpretation of the 

clause does not make it ambiguous, we must determine which party’s interpretation is 

correct. See Sun Oil Co. v. Madeley, 626 S.W.2d 726, 727 (Tex. 1981).

The phrase “arising from” indicates a causal connection or relation. See Utica Nat’l 

Ins. Co. of Tex. v. Am. Indem. Co., 141 S.W.3d 198, 203 (Tex. 2004). It may also mean 

“originating from.” See Plains Expl. & Prod. Co. v. Torch Energy Advisors Inc., 473 

S.W.3d 296, 308 (Tex. 2015); Lancer Ins. Co. v. Garcia Holiday Tours, 345 S.W.3d 50, 

54 (Tex. 2011). But the indemnification provision at issue here requires more than a 
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general connection to the litigation. Here, the question is whether the claims brought by 

the Yowell Group in 2013 arise specifically from the “pending or threatened claims or 

causes of action asserted against Upland” in the 2007 litigation initiated by APC.

In its suit against Upland, APC alleged that Upland’s leases had terminated by 

their own terms. APC brought claims for trespass to try title, conversion, and debt, 

seeking to recover for the hydrocarbons Upland had produced after the leases’ 

termination. The Yowell Group’s overriding royalty interest in the underlying leases was

not at issue; indeed, had APC prevailed on its claims rather than settle them as it has, 

there would have been no question that the Yowell Group’s overriding royalty interest 

terminated along with the leases. In its lawsuit, the Yowell Group did not bring claims 

related to the status of the underlying leases or to Upland’s decision to settle the APC 

litigation. Rather, the Yowell Group sought to impose their overriding royalty interest on

APC’s top leases, which were in effect as a result of the settlement.

Certainly there is some connection between the 2007 litigation—the settlement of 

which resulted in Granite/Apache’s acquisition of APC’s top leases—and the lawsuit 

brought by the Yowell Group to “attach” their overriding royalty interest to those top 

leases. However, we must give effect to the limiting clause contained within the 

indemnification. The portion of the indemnity provision requiring that claims arise from 

“pending or threatened claims or causes of action asserted against Upland” narrows the 

scope of indemnification. Not only does a narrower reading reflect the words that the 

parties themselves chose, but it also coincides with the rule to strictly construe indemnity 

agreements in favor of the indemnitor. Safeco Ins. Co. of Am. v. Gaubert, 829 S.W.2d 
21

274, 281 (Tex. App.—Dallas 1992, writ denied); Webb v. Lawson-Avila Constr., Inc., 911 

S.W.2d 457, 461 (Tex. App.—San Antonio 1995, writ dism’d).

The limitation in the provision requires that, to be covered by the provision, a claim 

(or other adverse consequence) had to be attributable to the pending or threatened claims

against Upland. APC’s claims for trespass to try title, conversion, and debt all concerned 

the status of the underlying leases. And while those claims ultimately created conditions

that made the Yowell Group’s lawsuit possible, they had nothing to do with whether the 

Yowell Group’s overriding royalty interest could attach to different leases.

We find that the Yowell Group’s claims do not arise from the “pending or threatened 

claims or causes of action asserted against Upland in the litigation styled Amarillo 

Production Company v. Upland Resources, Inc.” Accordingly, we hold the trial court 

properly granted summary judgment on the Peyton Group’s claim that it did not have a 

duty to indemnify Granite/Apache and did not breach the SPSA by failing to do so. We 

overrule Granite/Apache’s first issue.

Attorneys’ Fees

In its second issue, Granite/Apache contends the trial court erred in ordering 

Granite/Apache to pay the Peyton Group’s trial and appellate attorneys’ fees.

After granting the Peyton Group’s motion for summary judgment, the trial court 

held a hearing on attorneys’ fees. It ultimately ordered Granite/Apache to pay the Peyton 

Group a total of $220,396 in attorneys’ fees. The award was comprised of $130,046.40 

for defending against Granite/Apache’s claim that the Peyton Group breached the 

indemnification agreement; $43,500 in contingent appellate attorneys’ fees for the same 
22

claim; and $46,849.60 for defending against Granite/Apache’s claim for a declaration of 

proportionate royalty reduction. Granite/Apache contends that each portion of the 

attorneys’ fees award was erroneous.

Granite/Apache first asserts that the Peyton Group is not entitled to the award of 

$130,046.40 for defending against the breach-of-indemnification-agreement claim 

because the Peyton Group is not entitled to prevail on that claim. We have already 

determined that the trial court properly entered judgment in favor of the Peyton Group on 

Granite/Apache’s claims; therefore, the trial court did not err in awarding these attorneys’ 

fees to the Peyton Group.

Granite/Apache next urges that, at a minimum, the Peyton Group is not entitled to 

recover the $43,500 contingent appellate attorneys’ fees award. The award for appellate 

attorneys’ fees was comprised of $22,000 if appealed to this Court and $7,500, $9,000, 

and $5,000 for petition for review, briefing, and oral argument, respectively, at the Texas 

Supreme Court. Granite/Apache claims that the Peyton Group’s evidence in support of 

this fee is legally insufficient.

It is “well-settled” that the trial court’s award of attorneys’ fees may include 

conditional appellate attorneys’ fees. C & K Invs. v. Fiesta Group, Inc., 248 S.W.3d 234, 

251 (Tex. App.—Houston [1st Dist.] 2007, no pet.). Under the traditional method of 

awarding attorneys’ fees, “[i]t has consistently been held that an attorney’s testimony 

about his experience, the total amount of fees, and the reasonableness of fees charged 

is sufficient to support an award.” Metroplex Mailing Servs., LLC v. RR Donnelley & Sons 

Co., 410 S.W.3d 889, 900 (Tex. App.—Dallas 2013, no pet.).
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Here, the court had evidence from the Peyton Group’s attorney, who testified 

concerning his experience handling this type of litigation and his familiarity with 

reasonable fees charged in the Texas Panhandle by attorneys of varying degrees of 

experience. He also provided testimony concerning each of the Arthur Andersen factors, 

his hourly rate, and the total hours spent on the case so far. See Arthur Andersen & Co. 

v. Perry Equip. Corp., 945 S.W.2d 812, 818 (Tex. 1997) (identifying factors that should 

be considered in determining reasonableness of a fee). Finally, he testified that, in his 

opinion, $22,000 would be a reasonable fee for handling the case through an appeal to 

this Court; $7,500 would be a reasonable fee for handling a petition for review to the 

Supreme Court; $9,000 would be a reasonable fee for briefing on the merits; and $5,000 

would be a reasonable fee for representation through oral argument and completion of 

proceedings in the Supreme Court.

Granite/Apache argues that this evidence is “based on nothing more than the ipse 

dixit of the witness” and therefore legally insufficient. However, “[a]n attorney’s testimony 

about the reasonableness of his or her own fees is not like other expert witness testimony. 

Although rooted in the attorney’s experience and expertise, it also consists of the 

attorney’s personal knowledge about the underlying work and its particular value to the 

client.” Garcia v. Gomez, 319 S.W.3d 638, 641 (Tex. 2010) (noting that opposing counsel 

may effectively question the attorney regarding the reasonableness of his fee if the matter 

is truly in dispute). Granite/Apache did not cross-examine the witness regarding his 

estimates for attorneys’ fees on appeal, present any additional evidence on the issue of 

appellate attorneys’ fees, or otherwise contest his testimony on what a reasonable fee 

would be in the appeal of this case. “A trial court, sitting as finder of fact, may award 
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attorney’s fees as a matter of law based upon an interested witness’ testimony if it is 

accurate, clear, direct, and positive, and not contradicted by any other witness, other 

evidence, or attendant circumstances . . . .” French v. Moore, 169 S.W.3d 1, 15 (Tex. 

App.—Houston [1st Dist.] 2004, no pet.). We conclude there is sufficient evidence in the 

record to support the trial court’s award of $43,500.00 in conditional appellate attorneys’ 

fees.

In its final challenge to the attorneys’ fee award, Granite/Apache asserts that the 

trial court erred in awarding the Peyton Group $46,849.60 for contesting Granite/Apache’s 

request for declaratory judgment. Granite/Apache argues that, since the declaratory 

judgment claim was a contingent claim, advanced only “in the event” that the Yowell 

Group prevailed against Granite/Apache, the trial court should not have awarded 

attorneys’ fees because the contingency never arose. The Peyton Group responds that 

not all of Granite/Apache’s declaratory judgment claims were pleaded in the alternative, 

forcing the Peyton Group to defend itself against those non-contingent claims.

The trial court’s final judgment reflects that the sum of $46,849.60 in attorneys’ 

fees was awarded “in connection with the declaratory judgment asserted against [the 

Peyton Group] by Granite and Apache regarding the alleged liability for proportionate 

reduction.” The award was not for the declaratory judgment action based on the noncontingent claims regarding indemnity under the SPSA, but rather was for the declaratory 

judgment action seeking proportionate royalty reduction, which was pleaded as a 

contingent or alternative claim.
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In a declaratory judgment action, “reasonable and necessary attorney’s fees” may 

be awarded as are “equitable and just.” TEX. CIV. PRAC. & REM. CODE ANN. § 37.009 (West 

2015); Allstate Ins. Co. v. Hallman, 159 S.W.3d 640, 643 (Tex. 2005). A trial court’s 

decision to award attorneys’ fees—or not—under this statute is reviewed on appeal for 

an abuse of discretion. Ridge Oil Co. v. Guinn Invs., Inc., 148 S.W.3d 143, 163 (Tex. 

2004). When reviewing matters left to the trial court’s discretion, an appellate court may 

not substitute its judgment for that of the trial judge, and a trial judge does not abuse his 

discretion merely because he decides a discretionary matter differently than the appellate 

court would under similar circumstances. Baylor Univ. Med. Ctr. v. Rosa, 240 S.W.3d 

565, 569 (Tex. App.—Dallas 2007, pet. denied). The test for an abuse of discretion is 

whether the court acted without reference to any guiding rules and principles. Cire v. 

Cummings, 134 S.W.3d 835, 838–39 (Tex. 2004). The trial court’s ruling should be 

reversed only if it was arbitrary or unreasonable. Downer v. Aquamarine Operators, Inc., 

701 S.W.2d 238, 241–42 (Tex. 1985).

The plain language of the Uniform Declaratory Judgments Act authorizes a trial 

court to award attorneys’ fees in any proceeding under the Act. TEX. CIV. PRAC. & REM.

CODE ANN. § 37.009. The statute does not require a judgment on the merits of the dispute 

as a prerequisite to a fee award. See Castro v. McNabb, 319 S.W.3d 721, 735 (Tex. 

App.—El Paso 2009, no pet.). Under these circumstances, we conclude that 

Granite/Apache has not demonstrated that the trial court abused its discretion by 

awarding attorneys’ fees to the Peyton Group for its defense of Granite/Apache’s 

declaratory judgment action. We overrule Granite/Apache’s second issue.
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Conclusion as to Granite/Apache’s Appeal

We have determined that the trial court properly granted summary judgment on 

the Peyton Group’s motion for summary judgment against Granite/Apache and we have 

overruled Granite/Apache’s issues challenging the trial court’s award of attorneys’ fees.

Conclusion

We affirm the judgment of the trial court.

Judy C. Parker

 Justice

Pirtle, J., dissenting.