973 F.3d 367
5th Cir.2020Background
- A 1927 deed conveyed to the grantee a “royalty interest of three‑eighths … together with an equivalent reversionary interest” in minerals under specified lands that were then under an oil-and-gas lease.
- The deed states the conveyed interest is "a three‑eighths part of the royalty provided by said lease," later refers to "three‑eighths of one‑eighth," and disclaims any right to rentals, bonuses, or control over leasing or development; it also appoints the original grantor as the grantee’s "agent" for leasing/development.
- Five Star claims successor status to the grantee and sought a declaratory judgment that it owns a floating royalty (a proportionate share of whatever royalty is reserved in any lease).
- Defendants countered that the deed created a fixed/floating overriding royalty — a non‑mineral, fixed fraction of gross production — and later pointed to a chain‑conveyance labeled “ROYALTY ONLY.”
- The district court granted Five Star summary judgment; the Fifth Circuit affirmed but clarified that Five Star’s interest is a mineral‑estate royalty right to receive a proportionate share of royalties (not executive/development rights).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Nature of the conveyed royalty: mineral‑estate royalty vs fixed gross‑production royalty | Deed conveys a fractional royalty tied to the mineral estate (a share of lease royalties) — a floating royalty | Deed grants a fixed non‑participatory royalty (a set fraction of gross production) | The deed conveys a mineral‑estate royalty: a right to receive a proportionate share of royalties, not a fixed gross‑production royalty |
| Whether the deed conveyed executive/development rights | Five Star argued the "agent" clause meant grantee kept executive rights, exercised by grantor as agent | Defendants asserted the deed reserved executive rights to the grantor (no executive right to grantee) | The court held the executive/development rights were reserved to the grantor; the "agent" language imposes a fiduciary/agency‑like duty but does not transfer executive rights to the grantee |
| Meaning of the double fraction ("three‑eighths" vs "three‑eighths of one‑eighth") | The double fraction references the share of the lease royalty (the "one‑eighth" is a metonym for lease royalty), so grantee gets three‑eighths of the royalty reserved in leases | The double fraction should be read mathematically to create a fixed fraction of production | The court reads the deed holistically: the double fraction means three‑eighths of the applicable lease royalty (a proportionate mineral royalty), consistent with surrounding clauses and precedent |
| Impact of later chain‑conveyance language (“ROYALTY ONLY”) and post‑judgment quitclaim | Five Star: subsequent documents do not alter the 1927 deed’s nature; quitclaim irrelevant | Defendants: later instruments and quitclaim show different intent/character of the interest | The court treated the chain of title as showing ownership of a royalty interest but held the 1927 deed governs character; post‑judgment quitclaim not controlling; judgment for Five Star affirmed with clarification about rights retained |
Key Cases Cited
- French v. Chevron U.S.A. Inc., 896 S.W.2d 795 (Tex. 1995) (distinguishes mineral‑estate royalty from non‑participatory fixed royalty and explains a royalty‑only mineral interest)
- Delta Drilling Co. v. Simmons, 338 S.W.2d 143 (Tex. 1960) (describes non‑participatory/overriding royalties as fixed shares of gross production)
- Garrett v. Dils Co., 299 S.W.2d 904 (Tex. 1957) (construed double‑fraction language as conveying a share of lease royalty under future leases)
- Hysaw v. Dawkins, 483 S.W.3d 1 (Tex. 2016) (four‑corners, harmonizing approach to deed construction; cautions against mechanical rules)
- KCM Fin. LLC v. Bradshaw, 457 S.W.3d 70 (Tex. 2015) (recognizes fiduciary duties owed by executive rights holder to non‑participating royalty owner)
- Luckel v. White, 819 S.W.2d 459 (Tex. 1991) (deed construction is a question of law guided by intent within four corners)
- Watkins v. Slaughter, 189 S.W.2d 699 (Tex. 1945) (explains industry meaning of "royalty")