Court Opinion

ID: 4692798
Source: CourtListenerOpinion
Date Created: 2021-06-04 08:16:35.167985+00
Date Added: 2024-06-11T08:05:18.204077
License: Public Domain

IN THE
                         TENTH COURT OF APPEALS

                                No. 10-19-00066-CV

APACHE CORPORATION,
                                                           Appellant
v.

BETTY ELLINGTON HILL,
DAVID SCOTT HILL,
THOMAS CRAIG HILL, AND
PEGGY ELLINGTON SORENSEN,
                                                           Appellees

                          From the 361st District Court
                              Brazos County, Texas
                        Trial Court No. 16-002668-CV-361

                          MEMORANDUM OPINION

      Appellant Apache Corporation (Apache) appeals the trial court’s judgment

awarding Appellees Betty Ellington Hill, David Scott Hill, Thomas Craig Hill, and Peggy

Ellington Sorenson (collectively the Hills) $207,620.00 in damages for breach of contract

and attorneys’ fees and costs. We will affirm.
                                             Issues

       Apache presents the following issues:

       1.      Whether the trial court erred in rendering judgment for Plaintiffs on
               their breach of contract claim, when:

               a.      the contractual language expressly and unambiguously
                       entitled Apache to release the leases and “thereupon be
                       relieved of all obligations thereafter arising with respect to the
                       interest so released”; and

               b.      Apache undisputedly exercised its right to release the leases,
                       which extinguished Plaintiffs’ option to extend them.

       2.      Whether the trial court erred by awarding attorneys’ fees and costs,
               when Plaintiffs had no valid claims that would support any award
               of attorneys’ fees or costs and, in any case, Plaintiffs failed to
               properly segregate their fees between claims for which fees were and
               were not recoverable.

In their brief, the Hills assert the following reply issues:

       Reply Issue 1. The trial court did not err in rendering judgment for
       Plaintiffs because the relevant provisions conflict and the leases establish
       how to resolve such conflicts. Even if the provisions are not in conflict, the
       trial court’s judgment is supported by reconciliation.

       Reply Issue 2. The trial court did not err in awarding attorneys’ fees to the
       prevailing parties on claims for which fees are recoverable.

                                          Background

       The pertinent background facts are undisputed. The Hills entered into identical

“paid up” oil and gas leases with BRW Land Services (BRW) in relation to 207.62 acres of

Apache Corp. v. Hill                                                                        Page 2
land in Brazos County.1          The leases consist of two parts—the printed form and a

typewritten addendum that notes that it is “[a]ttached to and made a part of” each lease.

        The leases originally provided for a primary term of two years, ending November

1, 2014. In May 2014, the Hills entered into amendments to the leases with PetroEdge

Energy III LLC (PetroEdge), successor in interest to BRW. The amendments extended the

primary term by eighteen months, such that the primary term for each lease was set to

expire on May 1, 2016. PetroEdge subsequently assigned the leases to Apache.

        The leases contain the following provisions relevant to this appeal:

        9.     Release of Lease. Lessee may, at any time and from time to time,
        deliver to lessor or file of record a written release of this lease as to a full or
        undivided interest in all or any portion of the area covered by this lease or
        any depths or zones thereunder, and shall thereupon be relieved of all
        obligations thereafter arising with respect to the interest so released. If
        Lessee releases less than all of the interest or area covered hereby, Lessee’s
        obligation to pay or tender shut-in royalties shall be proportionately
        reduced in accordance with the net acreage interest retained hereunder.

        14.    It is expressly understood and agreed that the following typewritten
        agreements and provisions shall supersede and govern the provisions in
        the printed form of this lease whenever such printed form is in conflict
        herewith and shall inure to the benefit of and be binding upon the parties
        hereto and their respective heirs, devises, legal representatives, successors
        and assigns.

        29.   Upon expiration of this lease with respect to any portion of the leased
        premises, Lessee shall, [sic] execute, record in the office of the County Clerk
        and deliver to Lessor a copy of the written release of this lease describing
        that part of the leased premises with respect to which this lease has
        terminated.

        41.   At Lessor’s sole option, at the end of the primary term, if this lease is
        not being held in accordance with its terms and provisions, then Lessee
1
  A “paid up” lease remains in effect during the specified primary term, with no further payments to the
lessor unless and until oil and gas is produced. ConocoPhillips Co. v. Koopmann, 547 S.W.3d 858, 874 (Tex.
2018).

Apache Corp. v. Hill                                                                               Page 3
        shall lease the entire leased premises for an additional one (1) year term for
        an additional consideration of one thousand dollars ($1,000) per net mineral
        acre. Lessor may make its election to lease the leased premises to Lessee for
        an additional year within three (3) months after the end of the primary term
        by providing written notice of such decision to Lessee.

        Exercising its option under Paragraph 9, Apache filed Releases of the Leases on

April 28, 2016 in the Brazos County Clerk’s real property records. On May 2, 2016, the

Hills provided written notification to Apache that they were exercising their option under

Paragraph 41 to require Apache to lease the 207.62 acres for an additional one-year period

at $1,000.00 per acre. Apache declined to pay the additional amounts.

        The Hills then brought suit seeking a declaratory judgment with respect to the

parties’ rights under the leases and asserting that Apache had breached the leases. Both

parties filed motions for summary judgment, arguing that the leases were unambiguous

and should be construed as a matter of law. The trial court denied both motions for

summary judgment, and the case proceeded to a bench trial. The trial court found that

Apache’s option to release the leases under Paragraph 9 was in conflict with the Hills’

option to extend the leases under Paragraph 41 and that, pursuant to Paragraph 14 of the

leases, Paragraph 41 controlled in the event of a conflict.2 The trial court ruled in the

Hills’ favor with respect to its claim that Apache had breached the leases by failing to pay

the Hills $1,000.00 per acre because the Hills had exercised their option to extend the

leases. 3 The trial court specifically concluded that the leases were not ambiguous.

2
 Although listed as a finding of fact, the trial court’s finding of a conflict is more properly construed as a
conclusion of law.

3
 The Hills additionally claimed that Apache breached the leases by failing to construct a drilling pad prior
to the end of the primary term and that Apache owed an additional $339.00 per acre, as set out in the 2014

Apache Corp. v. Hill                                                                                   Page 4
                                             Discussion

       A. Standard of Review. “If a case proceeds to a bench trial and the trial court

enters findings of fact and conclusions of law, appellate courts defer to the trial court’s

findings of fact—so long as they are supported by the record—and review[ ] conclusions

of law de novo.” Sw. Elec. Power Co. v. Lynch, 595 S.W.3d 678, 683 (Tex. 2020). The trial

court's findings of fact have the same weight as a jury's verdict. Catalina v. Blasdel, 881

S.W.2d 295, 297 (Tex. 1994). The parties do not dispute the trial court’s factual findings

in this case, but rather the conclusions of law drawn from those facts.

       Conclusions of law are upheld if the judgment can be sustained on any legal theory

the evidence supports. See Stable Energy, L.P. v. Newberry, 999 S.W.2d 538, 547 (Tex.

App.—Austin 1999, pet. denied). Incorrect conclusions of law do not require reversal if

the controlling findings of fact support a correct legal theory. Zaragoza v. Jessen, 511

S.W.3d 816, 821 (Tex. App.—El Paso 2016, no pet.). We will reverse the judgment of the

trial court only if the conclusions are erroneous as a matter of law. Anderton v. Green, 555

S.W.3d 361, 371 (Tex. App.—Dallas 2018, no pet).

       B. Breach of Contract. In its first issue, Apache asserts that the trial court erred in

its interpretation of the leases and in its finding that Apache breached the lease

agreements. As previously noted, the trial court specifically found that the leases are not

ambiguous. Both parties concede that the leases are not ambiguous, and we agree.

amendment. The trial court found that the Hills waived this option, and the Hills have not appealed this
issue.

Apache Corp. v. Hill                                                                             Page 5
       “Mineral leases are contracts and as such are interpreted using the same rules that

are applied in interpreting other types of contracts.” TRO-X, L.P. v. Anadarko Petroleum

Corp., 548 S.W.3d 458, 462 (Tex. 2018).

        “Construing an unambiguous lease is a question of law for the Court.
       Accordingly, we review lease-construction questions de novo.” Anadarko
       Petroleum Corp. v. Thompson, 94 S.W.3d 550, 554 (Tex. 2002) (citing Luckel v.
       White, 819 S.W.2d 459, 461 (Tex. 1991); El Paso Nat. Gas Co. v. Minco Oil &
       Gas, Inc., 8 S.W.3d 309, 312 (Tex. 1999)). When construing an unambiguous
       lease, “our primary duty is to ascertain the parties' intent as expressed
       within the lease's four corners.” Id. (citing Luckel, 819 S.W.2d at 461;
       Yzaguirre v. KCS Res., Inc., 53 S.W.3d 368, 372–73 (Tex. 2001)). We give the
       lease's language its plain meaning unless doing so would clearly defeat the
       parties' intent. Id. (citing Fox v. Thoreson, 398 S.W.2d 88, 92 (Tex. 1966)). We
       examine the entire lease, attempting to harmonize all of its parts, even if
       different parts appear contradictory or inconsistent, presuming that the
       parties to the lease intended every clause to have some effect. Id. (citing
       Luckel, 819 S.W.2d at 462; Heritage Res., Inc. v. NationsBank, 939 S.W.2d 118,
       121 (Tex. 1996)).

BP Am. Prod. Co. v. Red Deer Res., LLC, 526 S.W.3d 389, 393–94 (Tex. 2017) (footnote

omitted).

       When construing an unambiguous contract, the parties’ intent prevails over

arbitrary rules. Wenske v. Ealy, 521 S.W.3d 791, 794 (Tex. 2017). The appellate court

disregards “mechanical rules of construction, such as giving priority to certain clauses

over others, or requiring the use of so-called ‘magic words.’” Id. We may not “rewrite

the parties’ contract or add to or subtract from its language.” Fischer v. CTMI, L.L.C., 479

S.W.3d 231, 242 (Tex. 2016).

       If the leases are interpreted as alleged by Apache, then Apache effectively released

any future liability on its part under the leases and the Hills’ subsequent exercise of the

option to extend the primary term was ineffective. If the leases are interpreted as alleged

Apache Corp. v. Hill                                                                      Page 6
by the Hills, then their exercise of the option in Paragraph 41 extended the term of the

lease for one year and overrode Apache’s release. The Hills’ interpretation can only be

warranted if the trial court was correct in determining that Paragraphs 9 and 41 are in

conflict. Provisions conflict when they are so inconsistent that they cannot subsist

together. See Allen Drilling Acquisition Co. v. Crimson Expl. Inc., 558 S.W.3d 761, 773 (Tex.

App.—Waco 2018, pet. denied). “We consider the entire agreement and, to the extent

possible, resolve any conflicts by harmonizing the agreement’s provisions, rather than by

applying arbitrary or mechanical default rules.” Piranha Partners v. Neuhoff, 596 S.W.3d

740, 743 (Tex. 2020).

       A de novo review of the contract terms reveals that Paragraphs 9 and 41 are so

inconsistent that they cannot subsist together. Apache’s right to release the leases is

mutually exclusive of the Hills’ right to extend the leases beyond the primary term.

Because the two provisions conflict, Paragraph 14 requires that Paragraph 41 supersede

the provisions of Paragraph 9.

       Additional support for the trial court’s conclusion that Apache breached the leases

is found in Paragraph 29. When Apache exercised its option under Paragraph 9, it

effectively ended the Primary Term of the leases. The Hills’ ability to exercise their option

to extend the lease another year under Paragraph 41 then became operative. Apache then

breached the leases by not paying the $1,000.00 per acre required by Paragraph 41.

       Finally, it is undisputed that Apache did not deliver a copy of the releases to the

Hills, in violation of Paragraph 29 and in further support of the trial court’s finding that

Apache breached the leases. Although not raised in the trial court, the appellate court

Apache Corp. v. Hill                                                                   Page 7
may uphold the trial court’s judgment on any ground supported by the record. Stable

Energy, 999 S.W.2d at 547. We overrule Apache’s first issue and sustain the Hills’ first

reply issue.

       C. Attorneys’ Fees. At the bench trial, the parties stipulated, and the trial court

found, that reasonable attorneys’ fees for the Hills’ attorneys were:

       a.      $70,000.00 for the filing and prosecution through trial of this case;

       b.      An additional $5,000.00 in the event of an appeal to a Court of
               Appeals;

       c.      An additional $2,500.00 in the event a petition for review is filed with
               the Supreme Court of Texas;

       d.      An additional $2,500.00 in the event petition for review is granted by
               the Supreme Court of Texas without oral argument;

       e.      An additional $5,000.00 in the event petition for review is granted by
               the Supreme Court with oral argument.

       Apache first argues that the Hills’ are not entitled to an award of attorneys’ fees or

costs because they raised no valid claim. As we have determined that Apache breached

the lease agreements, the Hills are entitled to an award of attorneys’ fees and costs.

       Apache next argues that the amount of the attorneys’ fees awarded was excessive

because the Hills’ failed to segregate the fees charged for the two breach of contract

claims. The determination of reasonable attorneys’ fees is a question for the trier of fact.

Stewart Title Guar. Co. v. Sterling, 822 S.W.2d 1, 12 (Tex. 1991) (abrogated on other grounds

by Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299 (Tex. 2006)); see also Astin

Redevelopment Grp., L.L.C. v. Citgo Petroleum Corp., No. 10-14-00023-CV, 2014 WL 7232573,

at *6 (Tex. App.—Waco Dec. 18, 2014, pet. dism’d w.o.j.) (mem. op.). Whether attorneys’

Apache Corp. v. Hill                                                                      Page 8
fees can be segregated is a question for the court. Flagship Hotel, Ltd. v. City of Galveston,

117 S.W.3d 552, 565 (Tex. App.—Texarkana 2003, pet. denied); see also Aetna Cas. & Sur.

v. Wild, 944 S.W.2d 37, 41 (Tex. App.—Amarillo 1997, writ denied). As the Hills did not

recover on a claim for which attorneys’ fees were not recoverable, they are entitled to the

entire amount awarded by the trial court. Flagship Hotel, 117 S.W.3d at 565 (no need to

segregate fees for declaratory judgment action that was inseparably intertwined with

breach of contract claims or for multiple theories of breach of contract). We overrule

Apache’s second issue and sustain the Hills’ second reply issue.

                                        Conclusion

       As we have overruled Apache’s issues, we affirm the judgment of the trial court.

       Appellees’ Motion for Expedited Submission is denied as moot as the case has

been set for submission.

                                                  MATT JOHNSON
                                                  Justice

Before Chief Justice Gray,
       Justice Neill, and
       Justice Johnson
Affirmed
Opinion delivered and filed May 28, 2021
[CV06]

Apache Corp. v. Hill                                                                    Page 9