Opinion ID: 4575698
Heading Depth: 2
Heading Rank: 2

Heading: The 2007 Lease, lawsuit, and settlement

Text: In May 2007, Amarillo Production Company executed a top lease2 (2007 Lease) with the same mineral owner and covering the same property as the 1986 Lease. Just three months later, Amarillo Production sued Upland, alleging that Upland’s 1986 Lease terminated and Amarillo Production’s 2007 Lease went into effect. The parties resolved their dispute with a settlement agreement that (1) terminated Upland’s 1986 Lease, (2) initiated Amarillo Production’s 2007 Lease, (3) assigned Amarillo Production’s new leasehold interest to Upland, and (4) reserved ORRIs in the 2007 Lease for both Amarillo Production (3%) and Upland’s owner the Peyton Group (2%). The ORRIs in the 2007 Lease were subject to proportionate reduction if the Yowells successfully attached their ORRI to the 2007 Lease. C. The Peyton Group sells the lessee and grants an indemnity Before settling the Amarillo Production dispute, the Peyton Group was negotiating the sale of Upland’s assets to Cordillera Energy Partners III, LLC, which was itself later purchased by Apache Corporation. Cordillera, concerned about the then-pending litigation between Amarillo Production and Upland, required indemnity for itself and Upland because its purchase of Upland’s assets would bring with it all the potential liability associated with the 2007 Lease dispute. Cordillera and the Peyton Group executed a sales agreement in which the Peyton Group agreed to indemnify both Cordillera and Granite Operating Company—Upland’s new corporate identity. For clarity, we refer to Granite, Upland, and Apache collectively as “Granite.” 2 A top lease is “[a] lease granted on property already subject to an oil-and-gas lease. Generally, any rights granted by a top lease . . . are valid only if the existing lease ends.” Top Lease, BLACK’S LAW DICTIONARY (11th ed. 2019). 3 D. The lessee stops paying the Yowells overriding royalties Following these transactions and assignments, Granite owned Amarillo Production’s leasehold interest in the 2007 Lease, subject to a 5% ORRI reservation. Amarillo Production later conveyed its portion of the reserved ORRI to the PAC Group. As a result, the 2007 Lease was subject to the Peyton Group’s 2% ORRI and the PAC Group’s 3% ORRI. In light of this new ownership structure for the lease of the Wheeler County property, Granite refused to continue paying the Yowells overriding royalties pursuant to the 1986 Lease, despite the Yowells’ demands. Granite took the position that the 2007 Lease negated any obligation it had to pay the Yowells because their ORRI in the 1986 Lease did not continue to the 2007 Lease. E. History of this suit The Yowells sued Granite to vindicate their royalty interest, seeking a judicial declaration of ownership and recovery of payments owed. Granite sued the Peyton Group and the PAC Group, seeking indemnity from liability in the Yowells’ suit. The PAC Group filed a counterclaim against Granite—which had suspended ORRI payments under the 2007 Lease—as well as a cross-claim against the Yowells to recover attorneys’ fees and to declare the Yowells did not own an ORRI in the 2007 Lease. All parties filed motions for summary judgment, agreeing on a comprehensive stipulation of facts. The trial court denied the Yowells’ motion for partial summary judgment and request for declaratory relief, and granted Granite’s and the PAC Group’s motions for summary judgment, which were based on the Rule and other grounds. The trial court also granted summary judgment for the Peyton Group and the PAC Group, rejecting Granite’s indemnity claim. Following a bench 4 trial on the Peyton Group’s request for attorneys’ fees from Granite, the court awarded the Peyton Group $220,396. A divided court of appeals affirmed, disagreeing on whether the trial court erred in “dispos[ing] of this dispute, as a matter of law, based upon the rule against perpetuities and then dismiss[ing] consideration of the [reformation statute].” 557 S.W.3d 794, 810 (Tex. App.— Amarillo 2018) (Pirtle, J., dissenting). The majority held that the Yowells’ reserved ORRI violated the Rule, the assignment of the leasehold interest was not an inter vivos instrument subject to reformation under Property Code section 5.043, the statute of limitations would bar reformation regardless of section 5.043’s applicability, the Peyton Group was not required to indemnify Granite, and the evidence supported the attorneys’ fees awarded to the Peyton Group from Granite. Id. at 802–09. The Yowells petitioned for review of the adverse summary judgment on their claims. Granite filed a conditional cross-petition challenging the denial of its indemnity claim against the Peyton Group and the award of attorneys’ fees to the Peyton Group.