Vol 51-2 State Casenote

State Casenote

Lyle v. Midway Solar, L.L.C., 08-19-00216-CV, 2020 WL 7769632 (Tex. App.—El Paso Dec. 30, 2020, pet. filed)

Introduction

On December 30, 2020, the Eighth Court of Appeals in, El Paso, Texas, affirmed in part, reversed in part, and remanded a district court’s decision granting Midway Solar, L.L.C. and Gary Drgac’s motions for partial summary judgment.[1] Because the mineral estate owners had no plans to develop the estate, the court ruled that the breach of contract ach and trespass claims were not ripe for review.[2] Additionally, it determined that certain waiver agreements clouded these owners’ title.[3]

Background

The Lyles owned a portion of an undeveloped mineral estate located on a 315-acre land tract (Section 14).[4] Their ownership derived from a 1948 deed, in which the tract’s owners transferred surface ownership to a third party while reserving the mineral interest to themselves.[5] The Lyles had never leased their interest to a developer and had no plans to develop the mineral estate themselves.[6] When the case was heard, Gary Drgac owned Section 14’s surface rights and had no interest in the mineral estate.[7] In October 2015, Drgac entered into a lease with Midway Solar, L.L.C., allowing it to build a solar energy facility on a portion of Section 14 and other adjoining tracts of land in which he had an ownership interest.[8] Midway later obtained waiver agreements from the mineral interest owners in the adjoining tracts.[9] These waivers relinquished the owners’ rights to use the leased areas’ surface for mineral exploration, and while some agreements purported that the owner had mineral rights in Section 14, no owner actually did.[10] Midway subsequently corrected this error and attached a “Disclaimer of Interest” to all of the waivers.[11]

After the solar facility’s construction, the Lyles sued Midway, Drgac, and the surface waiver signers, alleging breach of contract and trespass, and seeking a declaration quieting title in their mineral estate.[12] They sought damages for the trespass and breach of contract claims for the diminished value of their mineral estate as well as an injunction to remove the facility portions that were encroaching on their mineral interest and easement rights.[13] The trial court granted Midway and Drgac’s partial summary judgment motions as to the quiet title, breach of contract, and trespass claims.[14] The Lyles appealed.

The Trespass and Breach of Contract Claims

The court’s analysis started with the question of whether the accommodation doctrine applied.[15] The court explained that the accommodation doctrine was meant to balance mineral estate owners’ and surface estate owners’ rights when the estates have been severed by conveyance.[16] Quoting the Texas Supreme Court, it stated that the doctrine “holds that the ‘mineral and surface estates must exercise their respective rights with due regard for the other’s,’ and has in general provided a ‘sound and workable basis’ for resolving conflicts between ownership interests.”[17] However, the court also made clear that because Texas public policy favors freedom of contract, the accommodation doctrine will not apply to cases in which the express deed or contract terms determines the parties’ rights.[18] Taking both the interests of balancing respective owners’ rights and freedom of contract into account, the court articulated that “when the parties’ deed or contract is silent or unclear on the parties’ respective rights, or when there is substantial disagreement regarding the parties’ intent in the terms used in a deed, the accommodation doctrine will be applied.”[19]

The Lyles argued that the accommodation doctrine should not apply, pointing to a deed provision they claimed expressly described the parties’ rights.[20] The provision provided that “[g]rantors further reserve unto themselves . . . the right to such use of the surface estate . . . as may be usual, necessary or convenient in the use and enjoyment of the oil, gas, and general mineral estate . . . .”[21] Conceding that courts have found the terms “necessary” and “convenient” too imprecise to prevent the accommodation doctrine’s application, the Lyles argued that the word “usual” expressed the grantor’s intent to reserve the right to use vertical drilling—the usual drilling method at the time the deed was signed.[22] The court rejected this argument. First, it pointed out that the deed did not use the term “usual” in the specific context of drilling methods. Second, it noted that the deed did not make clear whether the term was intended to apply to the methods of extracting minerals at the time it was signed (1948) as those methods might evolve over time.[23] Because of this, the court reasoned that there was “room for substantial disagreement as to what the grantors meant in using that term.”[24]

After determining the accommodation doctrine applied, the court considered what it deemed to be the centerpiece of the dispute: the question of whether the Lyles must have been currently using or planning to use the surface of their estate for mineral development in order for their claim to be ripe for review.[25] The Lyle’s argued that because they had already suffered damages as a result of Midway’s solar facility construction—namely, a decrease in the mineral estate’s value—their claims were ripe for review.[26] In response, Midway claimed their facility’s interference with the mineral estate was only potential, and argued that until there is actual interference, the Lyles could not unilaterally dictate the surface’s use.[27]

The court ultimately decides that the question of whether Midway must accommodate the Lyles’ potential property use before they actually seek to use it is not directly addressed by prior case law.[28] Instead, the court suggests that “the answer to that question lies in a proposition of logic, as much as one of law.”[29] As the court formulated it, the Lyles had the surface-use right, but only as an adjunct to their mineral estate.[30] If they exercise this right to develop the minerals, then Midway must yield to the extent required by the accommodation doctrine.[31] If this right is not exercised, then there is nothing for Midway to accommodate.[32] Put more succinctly, “until the Lyles seek to develop their minerals, Midway owes no duty to the Lyles respecting the surface usage.”[33] The court implied that any other result would lead to damages that were too speculative, as the damages calculation based on a diminution of the mineral estate’s value could vary significantly depending on when the Lyles attempted to develop or market the estate.[34] While the court conceded that such a calculation may become necessary once the Lyles attempt to develop the estate, it stressed that “[t]here is simply no logic in allowing trespass damages today for a mineral estate that may never be developed.”[35]

Quiet Title Claims

The Lyles also argued that the surface waiver agreements Midway obtained from the adjacent-land-tracts mineral owners created a cloud on their title. They claimed that because the agreements purported to relinquish the right to use Section 14’s surface for mineral developments, they implied that they held such rights.[36] The Lyles thus sought a judgment declaring the waivers invalid and void.[37] In response, Midway argued that the waivers did not create a cloud on the Lyle’s title, and even if they did, Midway removed the cloud by correcting some of the waivers and adding a Disclaimer of Interest to all.[38]

In rendering its judgment, the court split the waiver agreements into three categories. In the first, the mineral owners stated that they owned a mineral interest in certain lands described by Midway’s leases; these leases covered Section 14.[39] Because the owners claimed an interest in Section 14 that they did not have—the invalidity of which could only be discerned by extraneous documents’ use—the court ruled that the agreements cast a cloud on the Lyles’ title.[40]

The second category consisted of agreements that stated the mineral owners “had interests under some portion of or all of” the lands described in the Midway leases.[41] Because an exhibit attached to the agreements expressly stated that the mineral owners had interests only in lands not including Section 14, the court ruled that these waivers did not constitute a cloud on the Lyles’ title.[42]

The third set of waivers was comprised of agreements essentially the same as those in the second category, except no exhibit clarifying the owners’ interests was attached.[43] Though Midway eventually altered these agreements by crossing out references to Section 14, the court found that these agreements still cloud the Lyles’ title because none of these alterations were done in accordance with the Property Code.[44]

According to the court, Midway’s filing of the Disclaimer of Interest did not prevent any of the agreements from clouding the Lyles’ title.[45] The Disclaimer only stated that the agreements did not grant Midway any mineral-estate-development rights under Section 14 because it was the mineral owners who purported to claim an interest in Section 14 rather than Midway.[46] The court concluded that the Disclaimer of Interest did not correct the problem.[47]

Conclusion

The appeals court concluded that the trial court did not err in granting summary judgment on the trespass and breach of contract claims, but that its dismissal should have been made without prejudice.[48] Additionally, the court determined that the trial court erred in granting summary judgment to Midway and Drgac on the Lyles’ claim for quiet title as it pertained to certain waiver agreements but did not err in granting the same as it pertained to others.[49]

Stacie M. Dowell is associate counsel for the Trinity River Authority of Texas and works on a wide variety of legal issues spanning contract, employment, business, property, and water law.

Samuel G. Dreggors is a third-year student at The University of Texas School of Law and Staff Editor of the Texas Environmental Law Journal.