Court Opinion

ID: 9482041
Source: CourtListenerOpinion
Date Created: 2023-08-05 08:38:38.242129+00
Date Added: 2024-06-11T17:48:43.818305
License: Public Domain

EDITH H. JONES, Circuit Judge,
concurring:
I join in the judgment rendered on the facts of this case for three reasons. First, we are not attempting to overrule the Diamond Shamrock case, whose outcome depended upon a standard production-type royalty clause. We could not do so; for it follows from our rule that one panel of the circuit may not overrule a prior panel that a later decision in conflict with the previous, controlling authority is not precedent. See Umphlet v. Connick, 815 F.2d 1061, 1063 (5th Cir.1987).
Second, this opinion recognizes that the question of lessors’ royalty entitlements to take-or-pay proceeds or settlements is initially resolved by construction of the particular lease under applicable state law. See 1 E. Smith & J. Weaver, Texas Law of Oil & Gas 209 et seq. (Supp.1991). Compare Killam Oil Co. v. Bruni, 806 S.W.2d 264 (Tex.App.-San Ant.1991, writ denied) (adopting Diamond Shamrock); State v. Pennzoil Co., 752 P.2d 975 (Wyo.1988) (adopting Diamond Shamrock). This case does not favor any general presumption that lessors must share in such proceeds, nor does its rationale pertain to other types of settlement clauses in the resolution of producer-pipeline take-or-pay disputes, such as contract price buy-down agreements; releases or reduction of minimum “take” quantities; or blanket settlements covering multiple leases and perhaps different lessors. In some jurisdictions, the implied covenant to market may support a lessor’s claim to share in take-or-pay settlements of various types, but there are *589substantial economic arguments against lessors’ receiving a simple pro rata share of such settlements. See, e.g., Herrmann, Royalty on Gas Contract Settlements: the Other Shoe Falls, 4 Texas Oil & Gas J. 61 (1990); Comment, Royalty on Take-or-Pay Payments and Related Consideration Accruing to Producers, 27 Hou.L.Rev. 105 (1990). Our ease does not reach such issues.
Third, the opinion states that if, pursuant to a make-up clause in the settlement, a pipeline later took gas at a higher market value than the one on which take-or-pay proceeds were based, the lessor entitled to share in such proceeds should receive two checks, one of which would reimburse for the differences between its original share and the higher market value. See n. 3, supra. I agree. The necessary corollary to this understanding should also be explicitly stated, however; if the market value falls from the time of the settlement to the time that sales are made up pursuant to the settlement, the lessor must be prepared to reimburse the producer or accept an offset to his royalty for that difference. Better yet; a court could tailor its judgment to protect the producer from the danger of over-paying take-or-pay settlement proceeds.