HighMount Exploration & Production LLC, and Dominion Oklahoma Texas Exploration & Production, Inc. v. Harrison Interests, LTD., Dan J. Harrison III, and BFH Mining LTD.
2016 Tex. App. LEXIS 10921
| Tex. App. | 2016Background
- In 1990 Harrison parties reserved a 5% nonparticipating perpetual royalty and executed a royalty agreement governing payment terms for gas and liquids produced from specified "Subject Interests."
- Meridian (later Dominion) sold the minerals; HighMount succeeded as producer and operated the leases after 2007.
- Harrison audited HighMount and claimed underpayments: (1) royalties were not paid on gas used as fuel on the Subject Interests; (2) HighMount improperly deducted marketing costs (costs of DP6 compressors) from royalty payments.
- The Harrison Parties moved for traditional summary judgment on both claims; the trial court granted both motions, awarded damages, interest, and fees, and HighMount appealed.
- Key contract provisions: §4(e) requires owners to receive their royalty share of the "gross proceeds for gas used or utilized on or off the Subject Interests, such as gas used for fuel." §7(b) permits deduction of "Marketing Costs" but only for property installed downstream from a defined "central facility."
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether §4(e) requires producer to pay royalties on gas used as fuel on the Subject Interests | Harrison: §4(e)’s plain text grants owners their royalty share of gross proceeds for fuel gas on the Subject Interests | HighMount: No "gross proceeds" arise from fuel gas; cost‑sharing and context (§§4(c),(d)) show no royalties on fuel; calculation impractical | Court: Affirmed for Harrison — §4(e) unambiguous; gross proceeds include the economic benefit to producer from using fuel gas; calculation was feasible and damages undisputed |
| Whether producer may deduct DP6 compressor costs as Marketing Costs | Harrison: DP6 compressors are not "downstream from a central facility" as defined, so their costs cannot be deducted as Marketing Costs | HighMount: Compressors are downstream and qualify as Marketing Costs; submitted memo/diagram to create fact issue | Court: Affirmed for Harrison — Harrison’s authenticated affidavit proved compressors are not downstream; HighMount’s memorandum and diagram were un‑authenticated and legally conclusory, so insufficient to raise fact issue |
Key Cases Cited
- KCM Financial LLC v. Bradshaw, 457 S.W.3d 70 (Tex. 2015) (standard of review for summary judgment)
- M.D. Anderson Hosp. & Tumor Inst. v. Willrich, 28 S.W.3d 22 (Tex. 2000) (movant burden shifts when summary‑judgment evidence is sufficient)
- Mack Trucks, Inc. v. Tamez, 206 S.W.3d 572 (Tex. 2006) (summary‑judgment evidence viewed in light most favorable to nonmovant)
- Goodyear Tire & Rubber Co. v. Mayes, 236 S.W.3d 754 (Tex. 2007) (genuine fact issue standard)
- FM Props. Operating Co. v. City of Austin, 22 S.W.3d 868 (Tex. 2000) (affirm where any independent ground supports judgment)
- Kelley‑Coppedge, Inc. v. Highlands Ins. Co., 980 S.W.2d 462 (Tex. 1998) (contract interpretation focuses on parties’ intent)
- MCI Telecomms. Corp. v. Tex. Utils. Elec. Co., 995 S.W.2d 647 (Tex. 1999) (harmonize contract provisions)
- Heritage Res., Inc. v. NationsBank, 939 S.W.2d 118 (Tex. 1996) (court decides ambiguity as a matter of law)
- Am. Mfrs. Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154 (Tex. 2003) (construe unambiguous contracts as written)
- French v. Occidental Permian, Ltd., 440 S.W.3d 1 (Tex. 2014) (parties free to define royalty terms)
- Nafta Traders, Inc. v. Quinn, 339 S.W.3d 84 (Tex. 2011) (freedom of contract principle)
- Kachina Pipeline Co., Inc. v. Lillis, 471 S.W.3d 445 (Tex. 2015) (royalty entitlement under plain contract terms)
- Elizondo v. Krist, 415 S.W.3d 259 (Tex. 2013) (conclusory statements are incompetent to raise fact issues)
- In re Estate of Guerrero, 465 S.W.3d 693 (Tex. App.—Houston [14th Dist.] 2015) (complete failure to authenticate a document renders it incompetent in summary‑judgment context)
- Mansions in the Forest v. Montgomery County, 365 S.W.3d 314 (Tex. 2012) (authentication failure is a substantive defect)
- Kings River Trail Ass’n v. Pinehurst Trail Holdings, 447 S.W.3d 439 (Tex. App.—Houston [14th Dist.] 2014) (evidence must raise genuine fact issue to defeat summary judgment)