Court Opinion

ID: 6338648
Source: CourtListenerOpinion
Date Created: 2022-05-09 07:14:43.113312+00
Date Added: 2024-06-11T13:27:27.705037
License: Public Domain

Supreme Court of Texas
                            ══════════
                             No. 20-0898
                            ══════════

                  Rosetta Resources Operating, LP,
                               Petitioner,

                                    v.

          Kevin Martin, Jamie Martin, and Ashley Lusk,
                              Respondents

   ═══════════════════════════════════════
               On Petition for Review from the
     Court of Appeals for the Thirteenth District of Texas
   ═══════════════════════════════════════

                      Argued February 2, 2022

      JUSTICE BUSBY delivered the opinion of the Court.

       Justice Huddle and Justice Young did not participate in the
decision.

      In this oil and gas case, the parties dispute the meaning and
application of an express covenant to protect against drainage. The
covenant appears in a unique and mistake-ridden lease addendum,
which expressly limits the location of wells that may trigger the lessee’s
obligation to protect against drainage but does not directly address the
location of wells that may cause drainage. The lessor plaintiffs argue
that the covenant’s language allows for separate triggering and draining
wells, and that the lessee breached the covenant by failing to protect
against drainage from a non-triggering well.       The lessee defendant
responds that it is only obligated to protect against drainage from the
limited class of triggering wells.
      We conclude that the addendum is ambiguous because both
interpretations of this poorly drafted covenant are reasonable. We also
reject the lessee’s res judicata defense, but we conclude that the court of
appeals improperly reversed the trial court’s take-nothing summary
judgment on the lessors’ tort and statutory claims, which they did not
challenge on appeal.      We therefore reverse the court of appeals’
judgment, reinstate the trial court’s summary judgment in part as to the
lessors’ tort and statutory claims, and remand for further proceedings
on their claim for breach of the lease.

                              BACKGROUND

      The lessors are respondents Kevin Martin, Jamie Martin, and
Ashley Lusk (the Martins), who own land in Live Oak County. They
entered into mineral lease agreements with Mesquite Development in
2001 and 2006.      The leases contain two key provisions related to
drainage. Paragraph 5 of the 2001 agreement provided:

      In the event a well or wells producing oil or gas in paying
      quantities should be brought in on adjacent land and
      within 330 feet of and draining the leased premises, or land
      pooled therewith, Lessee agrees to drill such offset well or
      wells as a reasonably prudent operator would drill under
      the same or similar circumstances. Lessee may at any time
      execute and deliver to Lessor or place of record a release or

                                     2
       releases covering any portion or portions of the above
       described premises and thereby surrender this lease as to
       such portion or portions and be relieved of all obligations
       as to the acreage surrendered.

In 2006, the parties agreed to various amendments and extensions
including Addendum 18, which altered the terms of Paragraph 5 and is
at issue here.     The unique, customized language of Addendum 18
includes several typographical and grammatical errors and lacks helpful
punctuation. We have inserted bold numbers and letters into its text
(using brackets) to help organize its content and facilitate our analysis.
Addendum 18 provides:

       Notwithstanding anything contained herein to the
       contrary, it is further agreed that [(1)(a)] in the event a
       well is drilled on or in a unit containing part of this acreage
       or is drilled on acreage adjoining this Lease, [(b)] the
       Lessor [read “Lessee”], or its agent(s) shall protect the
       Lessee’s [read “Lessor’s”1] undrilled acreage from drainage
       and [(2)] in the opinions of reasonable and prudent
       operations [read “operators”2], [(a)] drainage is occurring
       on the un-drilled acreage, even though the draining well is
       located over three hundred-thirty (330) feet from the
       un-drilled acreage, [(b)] the Lessee shall spud an offset
       well on said un-drilled acreage or on a unit containing said
       acreage within twelve (12) months from the date the
       drainage began or release the acreage which is un-drilled
       or is not a part of a unit which is held by production.

       1 Both parties agree that “lessor” and “lessee” should be switched due to
a scrivener’s error.
       2 Rosetta argues that “operations” should read “operators” and claims
that the Martins have never argued otherwise.

                                       3
      Mesquite assigned its rights as lessee to petitioner Rosetta
Resources Operating, LP, in 2007.         Shortly thereafter, Newfield
Exploration Co. and Dynamic Production, Inc. (collectively Newfield)
joined with Rosetta to create the Martin Unit, which contained portions
of the Martin Lease (the Martin Pooled Acreage) and property from
unrelated leases. The southern portion of the Martin Lease acreage was
not included in the unit. Rosetta assigned a percentage of its royalty
interest in the Martin Pooled Acreage to Newfield but retained its entire
interest in the non-unitized acreage to the south.
      In 2008, Newfield drilled a well on the Martin Pooled Acreage (the
Martin Well). In 2009, Newfield created a separate unit (the Simmons
Unit) that does not adjoin the Martin Lease and drilled a well on that
acreage (the Simmons Well).
      In 2014, the Martins sued Rosetta and Newfield for breach of
Addendum 18, alleging that the addendum obligated the lessees to
protect the undrilled lease acreage south of the Martin Unit from
drainage caused by the Simmons Well. The Martins also brought claims
for common-law fraud, negligence, conversion, mineral trespass, breach
of fiduciary duty, and violation of the Theft Liability Act. The lessees
responded that the Simmons Well had not triggered their obligation to
protect the undrilled acreage from drainage because it was not drilled
on property adjoining the Martin Lease.
      The trial court granted summary judgment for Newfield and
severed the claims against it from those against Rosetta. Rosetta then
moved for its own summary judgment on all the Martins’ claims on
several grounds.

                                   4
      On appeal from Newfield’s summary judgment, the Martins
argued—for the first time—that the Martin Well had triggered
Addendum 18’s covenant to protect against drainage, and that this
obligation encompassed any drainage from the Simmons Well. Martin
v. Newfield Expl. Co., No. 13-17-00104-CV, 2018 WL 1633574, at *3
(Tex. App.—Corpus Christi–Edinburg Apr. 5, 2018, pet. denied) (mem.
op.). Rejecting that position as waived, the court of appeals affirmed,
agreeing with Newfield that the Simmons Well did not trigger
Addendum 18. Id.
      After the Newfield appeal, the trial court returned to Rosetta’s
motion for summary judgment, inviting the Martins to submit
additional briefing and to move for summary judgment regarding the
effect of the Martin Well. The Martins filed a second amended petition
and a motion for partial summary judgment, asserting that Rosetta’s
obligation to protect against drainage—including that caused by the
Simmons Well—was triggered by the Martin Well.            The trial court
granted Rosetta’s motion for summary judgment on all the Martins’
claims and denied the Martins’ motion.
      The court of appeals reversed and remanded, instructing the trial
court to grant partial summary judgment for the Martins. ___ S.W.3d
___, 2020 WL 5887566, at *6 (Tex. App.—Corpus Christi–Edinburg Oct.
1, 2020). Construing Addendum 18, the court concluded that the Martin
Well triggered both a general duty to protect against drainage and a
specific obligation to spud an offset well or release the undrilled acreage
if, “in the opinions of reasonable and prudent operations, drainage is
occurring on the un-drilled acreage.” Id. at *5. The court of appeals also

                                    5
concluded that the record showed drainage was indisputably occurring.
Id.   Additionally, because Rosetta and Newfield owned different
interests and Rosetta’s interests were not at issue during Newfield’s
summary judgment proceedings, the court of appeals rejected Rosetta’s
res judicata defense. Id.
      Rosetta petitions for review, arguing that (1) Addendum 18
cannot be construed to allow separate triggering and draining wells,
(2) the Martins’ argument that the Martin Well triggered Addendum 18
is barred by res judicata, (3) the court of appeals erroneously concluded
that drainage was not in dispute, and (4) the court erroneously reversed
Rosetta’s summary judgment as to all the Martins’ claims when the
Martins’ appeal addressed only their claim for breach of contract. In
response, the Martins argue that (1) the plain language of Addendum
18 allows for separate triggering and draining wells, (2) the court of
appeals correctly concluded that the elements of res judicata were not
met, (3) the summary judgment record includes production reports that
establish drainage, and (4) in the alternative, Addendum 18 is
ambiguous.

                               ANALYSIS

I.    Addendum 18 is ambiguous regarding whether the Martin
      Well triggered Rosetta’s obligation to protect against
      drainage from the Simmons Well.

      A.     Standard of review and applicable law

      We review summary judgments de novo. Scripps NP Operating,
LLC v. Carter, 573 S.W.3d 781, 790 (Tex. 2019). To prevail on a motion
for traditional summary judgment, the movant must show that no

                                   6
material fact issues exist and that it is entitled to judgment as a matter
of law. TEX. R. CIV. P. 166a(c). “When both parties move for summary
judgment and the trial court grants one motion and denies the other, . . .
we review both sides’ summary judgment evidence and render the
judgment the trial court should have rendered.” S. Crushed Concrete,
LLC v. City of Houston, 398 S.W.3d 676, 678 (Tex. 2013).
      Mineral leases are contracts, so their meaning is determined
using general principles of contract construction. Endeavor Energy Res.,
L.P. v. Energen Res. Corp., 615 S.W.3d 144, 147–48 (Tex. 2020). The
goal of contract construction is to ascertain the parties’ intent as
expressed in the language of the agreement. Id. at 148.
      Whether a mineral lease is ambiguous is a question of law. R & P
Enters. v. LaGuarta, Gavrel & Kirk, Inc., 596 S.W.2d 517, 518 (Tex.
1980). An ambiguity exists when a contract’s “meaning is uncertain and
doubtful or it is reasonably susceptible to more than one interpretation.”
In re Davenport, 522 S.W.3d 452, 457 (Tex. 2017) (orig. proceeding). If
there is “more than one reasonable interpretation” of the contractual
language, then a fact issue arises regarding the parties’ intent.
Columbia Gas Transmission Corp. v. New Ulm Gas, Ltd., 940 S.W.2d
587, 589 (Tex. 1996). Parties’ conflicting interpretations cannot alone
create an ambiguity. Apache Deepwater, LLC v. McDaniel Partners,
Ltd., 485 S.W.3d 900, 904 (Tex. 2016). Even if parties agree that a
contract is unambiguous and argue that the unambiguous language
merely creates different results, we may independently conclude that
the contract is ambiguous as a matter of law. URI, Inc. v. Kleberg
County, 543 S.W.3d 755, 763 (Tex. 2018). “When a contract contains an

                                    7
ambiguity, the granting of a motion for summary judgment is improper
because the interpretation of the instrument becomes a fact issue.”
Coker v. Coker, 650 S.W.2d 391, 394 (Tex. 1983); see also J.M. Davidson,
Inc. v. Webster, 128 S.W.3d 223, 229 (Tex. 2003).
      To determine whether a lease is ambiguous, we must consider its
language as a whole in light of well-settled construction principles.
Piranha Partners v. Neuhoff, 596 S.W.3d 740, 743 (Tex. 2020) (citing
URI, 543 S.W.3d at 763). These principles include giving the language
its plain, ordinary, generally accepted meaning, URI, 543 S.W.3d at 764,
considering the context in which words are used, id., avoiding
constructions that render provisions meaningless, Coker, 650 S.W.2d at
393, and construing contract provisions together so as to give effect to
the whole, Citizens Nat’l Bank in Abilene v. Tex. & P. Ry. Co., 150 S.W.2d
1003, 1006 (Tex. 1941). We also avoid constructions of contract language
that would lead to absurd results. Hemyari v. Stephens, 355 S.W.3d 623,
626 (Tex. 2011) (per curiam). Extrinsic evidence cannot be used to
create ambiguity within a contract, but it may be admitted if the court
determines that the contract is ambiguous. Cmty. Health Sys. Pro.
Servs. Corp. v. Hansen, 525 S.W.3d 671, 681 (Tex. 2017).
      The Martins’ claims for breach of contract rely largely on the plain
language of the lease. The lease provision at issue, Addendum 18, is an
express covenant to protect against drainage.3 When oil and gas leases

      3  The Martins have also alleged that Rosetta breached an implied
covenant to protect against drainage, but the parties’ briefing in this Court
does not separately address this allegation. Because we are remanding for
further proceedings on the Martins’ claim for breach of contract, the parties

                                     8
do not expressly address drainage, a covenant to protect against both
local and field-wide drainage is implied. Amoco Prod. Co. v. Alexander,
622 S.W.2d 563, 567–68 (Tex. 1981).           Parties often supersede this
implied covenant with contractual language that imposes certain
obligations on the lessee. See Bowden v. Phillips Petroleum Co., 247
S.W.3d 690, 701 (Tex. 2008); 8 PATRICK H. MARTIN & BRUCE M. KRAMER,
WILLIAMS & MEYERS OIL       AND   GAS LAW: MANUAL     OF   TERMS 683 (2020).
Such obligations commonly include the drilling of an offset well, the
payment of offset royalties, or the release of acreage. See 8 MANUAL OF
TERMS at 684–85.       Breach of a covenant gives rise to liability for
damages. See Rogers v. Ricane Enters., Inc., 772 S.W.2d 76, 79 (Tex.
1989).
         Though Addendum 18 is an express covenant to protect against
drainage, it incorporates the “reasonable and prudent operat[or]”
standard of care (RPO standard), which also applies to the implied
covenant to protect against drainage.4         A plaintiff must show two
elements to establish breach of an implied covenant: “proof (1) of
substantial drainage from the lessor’s field, and (2) that a reasonably
prudent operator would have acted to prevent the drainage.” Kerr–
McGee Corp. v. Helton, 133 S.W.3d 245, 253 (Tex. 2004), abrogated on
other grounds by Coastal Oil & Gas Corp. v. Garza Energy Tr., 268

are free to litigate the alleged implied covenant on remand if there is still a
dispute regarding whether such a covenant exists or was breached.
         See Amoco, 622 S.W.2d at 567–68 (explaining that “the standard of
         4

care in testing the performance of implied covenants by lessees is that of a
reasonably prudent operator under the same or similar facts and
circumstances”).

                                      9
S.W.3d 1 (Tex. 2008). A reasonably prudent operator would not act to
prevent drainage unless there was a reasonable expectation of profit.
Clifton v. Koontz, 325 S.W.2d 684, 695–96 (Tex. 1959).
         Parties are free to draft novel contractual terms that produce
results some may consider odd; a court’s duty is to give effect to the
parties’ intent as expressed in the contract’s language. Burlington Res.
Oil & Gas Co. LP v. Tex. Crude Energy, LLC, 573 S.W.3d 198, 211 (Tex.
2019).        From our review of available sources, it appears that
Addendum 18 is an outlier among express covenants to protect against
drainage. As the court of appeals noted, not only are the addendum’s
provisions unique, they “suffe[r] from both a lack of accuracy and a lack
of clarity,” including typographical and grammatical errors. 2020 WL
5887566, at *3.       As a result, we caution that our construction of
Addendum 18 in this opinion may not provide useful guidance for
determining how covenants to protect against drainage typically
function.

         B.     Though Addendum 18 lacks a coherent structure
                and helpful punctuation, many of its substantive
                provisions are unambiguous.

         The parties offer competing interpretations of Addendum 18, and
we focus on its language to determine the reasonableness of those
interpretations. See Columbia Gas, 940 S.W.2d at 589. To frame our
discussion of the disputed terms, we begin by setting out the
unambiguous portions of Addendum 18. When holding that a portion of
a contract is ambiguous, an appellate court should explain as much of
the contract’s unambiguous meaning as possible regarding the disputed
issue, which will assist the parties and trial court in framing the

                                    10
remaining questions for the jury to resolve on remand.             Cf. J.M.
Davidson, Inc., 128 S.W.3d at 229 (“[W]e must examine and consider the
entire writing in an effort to harmonize and give effect to all the
provisions of the contract so that none will be rendered meaningless.”);
Columbia Gas, 940 S.W.2d at 589 (“Whether a contract is ambiguous is
a question of law that must be decided by examining the contract as a
whole in light of the circumstances present when the contract was
entered.”).
          For ease of reference, we have broken down Addendum 18’s
language into four parts: the Trigger (1)(a), Obligation (1)(b), Standard
(2)(a),    and    Performance   (2)(b)    parts.   Together,   these   parts
unambiguously impose an obligation on Rosetta that is triggered under
limited conditions and that uses an RPO standard to measure whether
and when Rosetta must take certain actions to perform that obligation.

                 1.    Trigger – part (1)(a)

          Part (1)(a) lists various events that provide an initial condition
for the covenant contained in parts (1)(b) and (2). Though the parties
disagree about whether part (1)(a) limits part (1)(b), a question we
address below, part (1)(a) at least defines a triggering event that marks
the beginning of Rosetta’s obligation: when a well is drilled in one of the
specified locations.
          Typically, express covenants to protect against drainage are
triggered by drilling on adjoining or proximity-limited acreage. See 8
MANUAL OF TERMS at 683. But under this non-typical clause, three types
of wells may serve as a trigger: a well “on [leased] acreage,” a well drilled

                                         11
“in a unit containing” leased acreage (thus including acreage pooled with
leased acreage), or a well “on acreage adjoining” leased acreage.
      Applying this language from part (1)(a) to undisputed facts in the
summary judgment record, we conclude that the Simmons Well does not
qualify as a triggering well because it is outside the lease and unit and
is not located on adjoining acreage. See Newfield, 2018 WL 1633574, at
*3–4. The Martin Well qualifies as a triggering well, however, because
it is located on leased acreage and in a unit containing part of the leased
acreage.

             2.     Obligation – part (1)(b)

      Part (1)(b) contains the substance of Rosetta’s promise to the
Martins. This part explains what Rosetta is obligated to do: protect the
lease’s “un-drilled acreage” from drainage. Express covenants to protect
against drainage commonly obligate the lessee to protect the entire
lease, but Addendum 18 uniquely limits Rosetta’s responsibility to the
“un-drilled” portion of the Martin Lease, which the parties agree is the
non-pooled southern portion.       This limitation may impact how a
reasonably prudent operator evaluates whether drainage is occurring.
Addendum 18 does not otherwise define “drainage,” and the parties
dispute whether “drainage” is limited by part (1)(a). We address these
issues below.

             3.     Standard – part (2)(a)

      Compared to the broad “protect[ion]” Rosetta promised to provide
in part (1)(b), part (2) contains a more specific set of instructions for
when “drainage is occurring.”       In particular, part (2)(a) selects a

                                    12
standard for measuring whether Rosetta must take action or risk
breach: the reasonably prudent operator standard.         Together, parts
(2)(a) and (2)(b) provide that when a reasonably prudent operator would
conclude drainage is occurring, it must take certain actions within a
twelve-month period thereafter to avoid breaching the covenant.
      As mentioned above, the common-law standard that governs an
implied covenant to protect against drainage involves two elements:
proof of substantial drainage and that a reasonably prudent operator
would expect it to be profitable to take action to prevent such drainage.
See Kerr–McGee, 133 S.W.3d at 253; Clifton, 325 S.W.2d at 695–96.
Addendum 18’s text indicates, however, that the parties did not adopt
the common-law standard in its entirety by referring to reasonable and
prudent operations.
      Departing from the “substantial drainage” element of the
standard, part (2)(a) requires a lessee to act only if, “in the opinions of
reasonable and prudent operat[ors], drainage is occurring on the
un-drilled acreage.” (Emphasis added). Though “occurring” drainage
provides a lower threshold than “substantial drainage,” the addendum’s
use of “is occurring” signals that a reasonable opinion regarding actual
drainage is required, not a showing of deemed drainage (an approach
used in some express covenants).         As to the second element of the
standard, which requires that an operator act to prevent such drainage
only if there is a reasonable expectation of profit, the parties do not
address whether the language of part (2) is consistent with this

                                    13
element.5 In other words, the parties have not offered any views on
whether the reference to a reasonably prudent operator requires
evidence that action would be profitable before Rosetta must take one of
the actions specified in part (2)(b). We likewise express no view on this
question, and the parties may address it on remand if it proves
necessary to do so.

              4.      Performance – part (2)(b)

       Part (2)(b) provides the actions that Rosetta must take once a
reasonably prudent operator would form an opinion that drainage is
occurring. This part of the addendum addresses how Rosetta may avoid
breach: by spudding an offset well in the twelve months after drainage
occurs or releasing the undrilled acreage. Departing from the implied
covenant, which gives the lessee a variety of options to protect against
field-wide drainage,6 Addendum 18 gives Rosetta only two options.
       Despite grammatical problems, scrivener’s errors, and a dearth of
helpful punctuation, most of Addendum 18’s requirements are
unambiguous.       The basic parts are there: Rosetta’s obligation in

       5 Cf. Bell v. Chesapeake Energy Corp., No. 04-18-00129-CV, 2019 WL
1139584, at *10 (Tex. App.—San Antonio Mar. 13, 2019, pet. denied) (mem.
op.) (holding that because the “second element clearly refers back to the first,”
change to RPO drainage element—“deemed drainage” instead of “substantial
drainage”—“logically negate[d] the requirement of proving economic benefit”).
       6 “The duties of a reasonably prudent operator to protect from field-wide
drainage may include (1) drilling replacement wells, (2) re-working existing
wells, (3) drilling additional wells, (4) seeking field-wide regulatory action,
(5) seeking Rule 37 exceptions from the Railroad Commission, (6) seeking
voluntary unitization, and (7) seeking other available administrative relief.”
Amoco, 622 S.W.2d at 568.

                                       14
part (1)(b) is triggered by a well drilled in one of the locations listed in
part (1)(a), and the standard that applies to Rosetta in part (2)(a)
informs whether it must take one of the specified actions in part (2)(b)
to avoid breach. As we discuss below, however, the relationship between
parts (1)(a) and (1)(b) is not clear.

       C.     Addendum 18 is ambiguous because there are two
              reasonable interpretations regarding whether
              “drainage” in part (1)(b) is limited by part (1)(a).

       Having outlined how the unambiguous portions of Addendum 18
function, we come to the heart of the parties’ dispute: whether the
“drainage” that part (1)(b) obligates Rosetta to protect against is limited
to drainage from a well listed in part (1)(a). Rosetta and the Martins
offer different interpretations of how parts (1)(a) and (1)(b) relate, and
the prevailing interpretation will inform the outcome of the Martins’
claim that Rosetta breached Addendum 18. For example, if Rosetta’s
obligation to protect against drainage in part (1)(b) extends to wells not
listed in part (1)(a), and if the Martins can show that a reasonably
prudent operator would have concluded the Simmons Well was draining
the undrilled acreage and that Rosetta did not act as required by
part (2)(b) within twelve months thereafter, then Rosetta breached the
addendum. By contrast, if drainage in part (1)(b) may only come from a
triggering well listed in part (1)(a), then Rosetta did not breach the
addendum because it need not protect against alleged drainage from the
Simmons Well. We consider each interpretation in turn to determine
whether it is reasonable.
       First, the Martins argue that “drainage” in part (1)(b) is not
limited by part (1)(a). Under this interpretation, a part (1)(a) event—

                                        15
the drilling of a qualifying well—would trigger Rosetta’s obligation but
not necessarily identify the source of the drainage. Thus, the drilling of
the Martin well—which falls under part (1)(a)—would trigger Rosetta’s
obligation to protect against drainage of the “un-drilled acreage,” and
that obligation includes drainage from the Simmons Well even though
it is not in a location listed in part (1)(a).
       This interpretation is reasonable because neither part (1)(a) nor
part    (1)(b)    contains     express      language   limiting   Rosetta’s
drainage-protection obligation to a well in part (1)(a). Rather, the word
“drainage” in (1)(b) is used without direct modification.
       If the original parties to the addendum had wanted to obligate the
lessee to protect only against drainage from wells identified in
part (1)(a), they could easily have done so. Parties commonly trigger the
obligation to drill an offset well by identifying the location of a draining
well, not merely a triggering well. See 4 PATRICK H. MARTIN & BRUCE
M. KRAMER, WILLIAMS & MEYERS OIL AND GAS LAW § 671.3 (2020). In
fact, Paragraph 5—the parties’ previous, and superseded, express
covenant—did just that. Paragraph 5 provided that “[i]n the event a
well or wells producing oil or gas in paying quantities should be brought
in on adjacent land and within 330 feet of and draining the leased
premises, or land pooled therewith, Lessee agrees to drill such offset well
or wells as a reasonably prudent operator would drill under the same or
similar circumstances.” (Emphasis added). Paragraph 5 thus expressly
requires that the triggering well be a draining well. The language of
Addendum 18 is different: it expressly negates the 330-foot limit,
expands where the triggering well can be located to include the leased

                                       16
premises and land pooled therewith, and deletes the requirements that
the triggering well produce in paying quantities and drain the leased
premises or land pooled therewith. It would be reasonable to conclude
that Addendum 18 should not be read to contain language from
Paragraph 5 that the parties agreed to change.
         In addition, it would be reasonable to conclude that the parties
intended the drilling of a well under part (1)(a) to signal that the lessee’s
obligation had begun, but not necessarily that drainage was occurring.
Rosetta asks why “anyone in the Martins’ shoes”—i.e., desiring general
“protection from drainage to the south and southwest”—would
“condition that protection on whether an entirely separate, non-draining
well happened to have already been drilled elsewhere on their unit?”
Perhaps the parties chose this limitation because until a well is drilled
on the lease or unit, the lessee is more likely to be unaware of the threat
of drainage from wells not adjoining the lease. Once the lessee has a
well operating on the lease or unit, however, it is easier for it to notice
such drainage.
         Further support for the conclusion that the triggering and
draining wells need not be the same comes from the parties’ decision to
allow a triggering well to be “on . . . the leased acreage,” including the
non-unitized southern portion of the Martin Lease. A triggering well on
this “un-drilled acreage” could not drain itself, which suggests that the
parties contemplated the possibility of separate triggering and draining
wells.
         Ultimately, under the Martins’ interpretation, the covenant
begins with the drilling of a well under part (1)(a) but is not breached

                                     17
until an RPO would conclude drainage is occurring under part (2)(a) and
the lessee fails to take action under part (2)(b).7 We conclude that such
an interpretation is reasonable.
       Second, Rosetta argues that “drainage” must come from a well
identified in part (1)(a). Under this interpretation, a part (1)(a) event—
the drilling of a qualifying well—would both trigger Rosetta’s obligation
and identify the source of the drainage against which it must protect.
Here, Rosetta’s obligation to protect against drainage from the Simmons
Well would not have arisen because that well does not fall under
part (1)(a).
       This interpretation is also reasonable because Addendum 18
could be read to suggest that part (1)(b) is restricted by both parts (1)(a)
and (2)(a). Because part (1)(a) is a conditional clause, the drilling of a
qualifying well must occur before part (1)(b), the main clause, goes into
effect. It would be reasonable to conclude that the conditional clause
informs the scope of the main clause, especially if it does not conflict
with subsequent limiting language.           As Rosetta argues, part (1)(a)

       7 If, on remand, the finder of fact agrees with the Martins’ interpretation
of Addendum 18, it may need to resolve additional fact issues regarding
parts (2)(a) and (2)(b). For example, as the record presently stands, the
Martins have not proven conclusively under part (2)(a) that a reasonably
prudent operator would have formed the opinion that drainage was occurring.
And under part (2)(b), the Martins have not proven conclusively that Rosetta
failed to drill such a well within twelve months thereafter. The record includes
production logs for the Martin Well showing a decrease after the Simmons Well
was drilled. But this evidence does not address other possible causes, or when
a reasonably prudent operator would have formed the opinion that drainage
was occurring.

                                       18
references only a single “event” and “well.” If part (1)(a) provides the
condition under which Rosetta must protect against drainage, then that
single event and well could reasonably be read to inform the scope of the
obligation.
      Interpreting part (1)(a) to provide a list of possible draining wells
would not produce absurd results. It may seem counterintuitive, at first
glance, to mandate protection against drainage from wells drilled on
leased property, but parties may agree to prevent “internal drainage”
where some lease acreage is unitized with non-lease acreage. See 4
WILLIAMS & MEYERS § 669.16. Here, because Rosetta’s obligation is
limited to drainage of the “un-drilled acreage,” it would have been
reasonable for the parties to include wells located on leased acreage in
part (1)(a)—such as the Martin Well—because wells on the Martin Unit
may have paid a smaller royalty.
      Additionally, Rosetta’s reading would not create conflict between
the sections of Addendum 18 that inform “drainage”—parts (1)(a) and
(2)(a). Part (2)(a) tells us that a draining well under Addendum 18 is
not defined by its distance from a particular area, as it was under the
original Paragraph 5. But that is not to say that part (2)(a) does away
with all proximity restrictions; the distance from which a reasonably
prudent operator would conclude drainage is occurring is necessarily
limited.   And because part (1)(a)—under Rosetta’s reading—would
create a more restrictive limit on the location of draining wells, there is
no conflict between the two provisions.         Ultimately, it would be
reasonable to conclude that the parties created a two-step system under
which part (1)(a) describes a limited class of draining wells and the RPO

                                    19
standard provides a second check before the lessee would need to act on
its obligation.8
       Because we conclude that both interpretations are reasonable, a
fact issue exists and summary judgment for any party was improper on
the merits of the Martins’ claim that Rosetta breached Addendum 18.

II.    Res judicata does not bar the Martins’ argument that
       drilling the Martin Well triggered an obligation to prevent
       drainage from the Simmons Well.

       Rosetta argues that it is nonetheless entitled to summary
judgment on the Martins’ claim of breach because it conclusively proved
its affirmative defense of res judicata. In Rosetta’s view, the Martins’
argument that the Martin Well triggered Rosetta’s duty to protect
against drainage from the Simmons Well is barred because it could have

       8  If, on remand, the finder of fact agrees with Rosetta about the
relationship between parts (1)(a) and (1)(b), then it may need to resolve a sub-
ambiguity: whether Addendum 18 contains two separate obligations. The
court of appeals construed Addendum 18 to contain two duties, one that
requires the lessee to protect against drainage and another that requires
spudding an offset well or releasing the acreage if an RPO concludes drainage
is occurring. Under this two-duty construction, the first duty—contained in
part (1)(b)—would obligate the lessee to protect against drainage only from
wells identified in part (1)(a) but would arguably give the lessee the full range
of options to protect against drainage under the implied covenant. By contrast,
the second duty—contained in part (2)—would apply to any well from which
an RPO would conclude drainage was occurring but would limit the lessee’s
options for compliance. This two-duty construction is not reasonable if part
(1)(a) serves the function that the Martins’ interpretation suggests. If the
Martins are correct that part (1)(a) does not necessarily limit the source of
drainage, then neither duty could be triggered without the other. But if
Rosetta is correct that part (1)(a) describes the source of drainage from which
it “shall protect” under part (1)(b), it may be necessary to determine whether
part (2) contains a duty apart from that contained in part (1).

                                       20
been raised against Newfield in the trial court, but the court of appeals
in Newfield held that it had not been preserved. We disagree for two
reasons: res judicata does not apply between separate actions created by
a trial-court severance, and Rosetta’s challenge is to a new argument
raised by the Martins, not a new claim.
       The doctrine of res judicata, or claim preclusion, bars causes of
action that have already been fully adjudicated or that, with the use of
diligence, could have been brought in the prior suit. Eagle Oil & Gas
Co. v. TRO-X, L.P., 619 S.W.3d 699, 705 (Tex. 2021); Barr v. Resol. Tr.
Corp. ex rel. Sunbelt Fed. Sav., 837 S.W.2d 627, 628 (Tex. 1992). Res
judicata requires proof of three elements: “(1) a prior final judgment on
the merits by a court of competent jurisdiction; (2) identity of parties or
those in privity with them; and (3) a second action based on the same
claims as were raised or could have been raised in the first action.”
Amstadt v. U.S. Brass Corp., 919 S.W.2d 644, 652 (Tex. 1996); see also
18A CHARLES ALAN WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE
AND   PROCEDURE § 4404 (2d ed. 2002) (“Res judicata applies as between
separate actions, not within the confines of a single action on trial or
appeal.”).   Parties may be in privity if (1) they “control an action,”
(2) “their interests can be represented by a party to the action,” or
(3) they are “successors in interest.” Amstadt, 919 S.W.2d at 653.
       Though the severance of Newfield’s summary judgment created a
second action, see Hall v. City of Austin, 450 S.W.2d 836, 837–38 (Tex.
1970), and the Martins’ attempt to raise the argument was unsuccessful
in Newfield, claim preclusion does not apply for two independent
reasons.

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       First, this case began as a single action against both Rosetta and
Newfield, and the Martins’ claims against Rosetta were raised in that
action.     We have recognized—as a “logical corollary” to the general
rule—that “the res judicata effects of an action cannot preclude
litigation of claims that a trial court explicitly separates or severs from
that action.” Van Dyke v. Boswell, O’Toole, Davis & Pickering, 697
S.W.2d 381, 384 (Tex. 1985) (holding that, where trial court granted
separate trials for intervention claim and malpractice counterclaim,
judgment in first action did not have a res judicata effect on second);
Morrison v. St. Anthony Hotel, 295 S.W.2d 246, 249 (Tex. App.—San
Antonio 1956, writ ref’d n.r.e.) (concluding that prior severed appeal was
not res judicata because third party was not part of appeal); see also Law
Offices of Robert D. Wilson v. Tex. Univest-Frisco, Ltd., 291 S.W.3d 110,
114 (Tex. App.—Dallas 2009, no pet.) (“The actions taken in the initial
suit had no effect on the new cause, which had been severed by the trial
court.”).
       Indeed, the reasons why a severance was permissible here
confirm that the elements of res judicata are not met. One reason is that
Newfield and Rosetta are not in privity. Neither Rosetta nor Newfield
controlled the other, neither succeeded in interest from the other, and
neither held the same interests with respect to the Martin Lease or
Martin Unit.       The Martins’ claims against each party were also
somewhat different, as Rosetta alone held a leasehold interest in the
non-unitized southern portion of the Martin Lease. In addition, Rosetta
was not a party to the Newfield appeal and the claims against it were
not fully adjudicated. See Morrison, 295 S.W.2d at 249.

                                    22
       Second, and independently, Rosetta’s res judicata defense fails
because Rosetta does not seek to preclude the Martins’ claim, but rather
an issue the Martins have raised in support of that claim. Res judicata
applies to claims, not issues. The basic nature of the Martins’ claim that
Rosetta and Newfield breached Addendum 18 has not changed; the
Martins simply added a new argument (with the trial court’s
permission) regarding why Addendum 18 was triggered. See Barr, 837
S.W.2d at 628–29 (differentiating between issue and claim preclusion
and concluding that alleged failure to bring “all theories of liability in
one suit” constituted defense of claim preclusion).
       For these reasons, Rosetta is not entitled to a take-nothing
judgment on the Martins’ claim of breach based on res judicata.

III.   The court of appeals erred by reversing Rosetta’s
       summary judgment as to the Martins’ tort and statutory
       claims.

       Finally, Rosetta argues that the court of appeals erroneously
reversed its entire summary judgment because the Martins failed to
challenge Rosetta’s independent grounds for granting summary
judgment on the Martins’ tort and statutory claims. We agree. Rosetta
sought summary judgment on the Martins’ tort claims under the
economic-loss rule and on their Theft Liability Act claim on the ground
that Rosetta did not benefit from the Simmons Well. The Martins did
not challenge either ground on appeal.
       An appellate court may not reverse a trial court’s judgment
without properly assigned error.     Cent. Educ. Agency v. Burke, 711
S.W.2d 7, 8 (Tex. 1986) (per curiam). When a trial court’s order granting
summary judgment does not specify the grounds on which its order is

                                   23
based, the appealing party must negate each ground upon which the
judgment could have been based. Malooly Bros. v. Napier, 461 S.W.2d
119, 120–21 (Tex. 1970); Jarvis v. Rocanville Corp., 298 S.W.3d 305, 313
(Tex. App.—Dallas 2009, pet. denied).
      A party may negate each ground by raising separate issues “or
asserting a general issue that the trial court erred in granting summary
judgment and within that issue providing argument negating all
possible grounds upon which summary judgment could have been
granted.” Jarvis, 298 S.W.3d at 313; Tweedell v. Hochheim Prairie Farm
Mut. Ins. Ass’n, 1 S.W.3d 304, 309 (Tex. App.—Corpus Christi–Edinburg
1999, no pet.) (affirming trial court’s summary judgment on grounds not
challenged “(1) by a separate [issue] or (2) by argument and citation to
authority under” a broader issue).
      A general statement that “the trial court erred by granting [the
movant’s] motion for summary judgment” may be sufficient to allow
argument on all possible grounds that the summary judgment motion
was granted, Plexchem Int’l, Inc. v. Harris Cnty. Appraisal Dist., 922
S.W.2d 930, 931 (Tex. 1996) (per curiam), but if a party does not brief
those arguments to the court of appeals, the court of appeals cannot
properly reverse summary judgment on those grounds. Malooly Bros.,
461 S.W.2d at 121; see also TEX. R. APP. P. 38.1(i) (“The [appellant’s] brief
must contain a clear and concise argument for the contentions made,
with appropriate citations to authorities and to the record.”).
      Applying these principles here, we examine the Martins’ causes
of action, the grounds on which Rosetta moved for summary judgment,
and whether the Martins attacked each of those grounds in their

                                     24
court-of-appeals briefing. These sources show that the court of appeals
erroneously reversed Rosetta’s summary judgment as to the Martins’
tort and statutory claims.
      In their second amended petition, the Martins alleged a
breach-of-contract cause of action and several tort causes of action,
including common-law fraud, negligence, negligent misrepresentation,
conversion, mineral trespass, breach of fiduciary duty, and fraudulent
concealment. They also alleged a statutory claim for violation of the
Theft Liability Act.
      In its motion for summary judgment, Rosetta challenged all these
claims. On the tort claims, Rosetta first argued that each of the Martins’
tort claims were barred by the economic loss rule. Rosetta then argued,
in the alternative, that the Martins’ tort claims failed because no duty
existed in contract. Then, as to the Theft Liability Act claim and some
of the other claims, Rosetta argued that they failed as a matter of law
because it obtained no benefit from the Simmons Well, which was the
alleged draining well. Without identifying specific grounds, the trial
court granted summary judgment for Rosetta on all the Martins’ claims.
      We conclude that Rosetta’s economic-loss-rule and no-benefit
grounds    for   summary     judgment     were    independent     of   its
breach-of-contract grounds, and thus the Martins needed to challenge
those grounds separately in the court of appeals. To determine whether
a plaintiff’s tort claim sounds in contract under the economic loss rule,
we look at whether the loss is to “the subject of the contract.” LAN/STV
v. Martin K. Eby Constr. Co., 435 S.W.3d 234, 242 (Tex. 2014); see also
Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617, 618 (Tex. 1986). This

                                   25
is a separate inquiry from whether Rosetta can defeat the Martins’ claim
for breach of contract. Similarly, whether Rosetta benefited from the
Simmons Well is a separate inquiry.
       In their court-of-appeals briefing, the Martins’ substantive
arguments related only to Rosetta’s contractual obligations under
Addendum 18. There were no citations or authorities related to their
tort or statutory causes of action or to Rosetta’s economic-loss-rule
defense. At most, the Martins make broad statements challenging the
sufficiency of Rosetta’s summary judgment evidence, such as “Rosetta
did not show that they are entitled to a judgment as a matter of law.”
Such   a   statement     is   not   sufficient   to   challenge   Rosetta’s
economic-loss-rule ground for summary judgment on the tort claims or
its no-benefit ground for summary judgment on the Theft Liability Act
claim. See Jarvis, 298 S.W.3d at 313.
       Because the Martins did not challenge each independent ground
on which the trial court could have based its summary judgment on the
tort and statutory claims, the trial court’s take-nothing judgment on
those claims should stand. The court of appeals improperly reversed the
trial court’s judgment in its entirety.

                              CONCLUSION

       For these reasons, we hold that Addendum 18 is ambiguous
regarding whether the source of “drainage” in part (1)(b) is limited to
the well locations listed in part (1)(a). Therefore, a fact issue remains
on the Martins’ claim for breach of the lease, and summary judgment is
not proper for either party. We also hold that the Martins’ argument
that drilling the Martin Well triggered Rosetta’s obligation to prevent

                                    26
drainage from the Simmons Well is not barred by res judicata. But the
court of appeals erred by reversing the take-nothing summary judgment
as to the Martins’ tort and statutory claims. We therefore reverse the
court of appeals’ judgment, reinstate the trial court’s summary
judgment in part as to the Martins’ tort and statutory claims, and
remand for further proceedings on the Martins’ claim for breach of
contract.

                                      J. Brett Busby
                                      Justice

OPINION DELIVERED: May 6, 2022

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