672 S.W.3d 391
Tex.2023Background
- Ovintiv (operator) and 1776 Energy (non-operator) had joint-operating agreements requiring Ovintiv to distribute production proceeds to 1776.
- Longview sued 1776, and the trial court entered a judgment imposing a constructive trust on 1776’s Karnes County interests and ordering transfer of title to Longview; 1776 appealed and posted cash in lieu of a supersedeas bond.
- After the Longview judgment, Ovintiv withheld the production payments due to 1776 and accounted monthly for withheld amounts, relying on the Natural Resources Code safe-harbor that permits withholding “without interest” in certain title-dispute circumstances.
- Longview’s judgment was reversed on appeal and that reversal was affirmed by the Texas Supreme Court; Ovintiv paid the withheld funds to 1776 but did not pay interest.
- 1776 sued Ovintiv seeking the withheld funds with interest; after multiple summary-judgment motions the trial court held the statutory safe-harbor applied as a matter of law and dismissed 1776’s claims; the court of appeals reversed, and the Texas Supreme Court granted review.
Issues
| Issue | Plaintiff's Argument (1776) | Defendant's Argument (Ovintiv) | Held |
|---|---|---|---|
| Whether a “dispute concerning title that would affect distribution of payments” (§91.402(b)(1)(A)) existed | Longview Judgment left 1776 as legal (and equitable) titleholder or trustee entitled to receive payments; thus no dispute would affect distribution | The pending lawsuit and constructive-trust proceedings meant the dispute could (and would) affect who ultimately was entitled to payments, so withholding fit §91.402(b)(1)(A) | Court: The phrase “would affect” contemplates an expected future effect; the existing dispute would (as a matter of law) affect distribution, so safe-harbor applies |
| Whether Ovintiv had a “reasonable doubt” that 1776 had clear title (§91.402(b)(1)(B)(ii)) | Reasonableness is a fact question; Ovintiv’s conduct (e.g., continued billing) and record create a fact issue for a jury | Constructive-trust litigation objectively clouded 1776’s title; given undisputed facts, no reasonable-person standard precludes withholding | Court: Reasonableness is an objective standard and, on these undisputed facts, Ovintiv had a reasonable doubt as a matter of law; safe-harbor applies |
Key Cases Cited
- Crosstex N. Tex. Pipeline, L.P. v. Gardiner, 505 S.W.3d 580 (Tex. 2016) (reasonableness uses an objective standard)
- KCM Fin. LLC v. Bradshaw, 457 S.W.3d 70 (Tex. 2015) (describing constructive trust as an equitable, remedial device to prevent unjust enrichment)
- Meadows v. Bierschwale, 516 S.W.2d 125 (Tex. 1974) (constructive trust principles)
- Reliance Nat’l Indem. Co. v. Advanced Temps., Inc., 227 S.W.3d 46 (Tex. 2007) (when facts yield one rational inference, reasonableness may be decided as a matter of law)
- Lance v. Robinson, 543 S.W.3d 723 (Tex. 2018) (a claim against title can create a cloud on title)