North Shore Energy, L.L.C. v. John James Harkins
501 S.W.3d 598
Tex.2016Background
- In June 2009 the Harkins family granted North Shore an Option Agreement giving North Shore the exclusive option to lease parcels (each ≥160 acres) from two tracts described in Exhibit A; Tract 2 was recited as “Being 1,210.8224 acres … out of the 1673.69 acres … and being the same land described in [the Export Lease].”
- The Export Lease (referenced in Exhibit A) described a 1,273.54-acre parcel as “being all of the 1673.69 acre tract described … SAVE AND EXCEPT a 400.15 acre tract” (the Hamman tract), i.e., expressly excluding ~400 acres.
- North Shore paid $50/optioned acre totaling an amount that corresponds precisely to optioning 1,210.8224 acres (the sum of Tract 1 and Tract 2 as stated in Exhibit A), and later exercised an option to lease 169.9 acres that lay largely within the Hamman tract.
- Dynamic negotiated directly with the Harkins family and obtained a lease for the 400-acre Hamman tract (including the well North Shore had drilled); North Shore sued to quiet title and sought specific performance and damages for tortious interference and geophysical trespass.
- The trial court granted summary judgment for North Shore and a jury later found Dynamic liable for tortious interference; the court of appeals ultimately held the Option Agreement ambiguous and reversed the summary judgment; the Texas Supreme Court reviewed whether the Option Agreement is ambiguous and whether it included the 400-acre Hamman tract.
Issues
| Issue | Plaintiff's Argument (North Shore) | Defendant's Argument (Harkins/Dynamic) | Held |
|---|---|---|---|
| Whether the Option Agreement’s land description includes the 400.15-acre Hamman tract | The Option is a selection agreement: North Shore may select any 1,210.8224 acres out of the full 1,673.69-acre parent tract (so Hamman tract included) | The Option and referenced Export Lease together exclude the 400.15-acre Hamman tract (Export Lease says “SAVE AND EXCEPT”) | The court held the description unambiguous as a matter of law and excluded the 400-acre Hamman tract from the Option |
| Whether the Option Agreement is an enforceable selection agreement allowing choice of any 1,210.8224 acres from the larger tract | The Agreement is a valid selection agreement permitting North Shore to choose up to 1,210.8224 acres from the 1,673.69-acre parent tract | The Agreement’s cross-reference to the Export Lease limits the selectable acreage to the 1,210.8224-acre described parcel (which itself excludes the Hamman tract) | The court agreed selection-agreement doctrine exists but held here the text limits selection to the described 1,210.8224 acres (which excludes the 400-acre tract) |
| Whether the trial court’s summary judgment in favor of North Shore should stand | North Shore argued it paid for and therefore had rights to the Hamman tract and summary judgment removing Dynamic’s lease was proper | Harkins/Dynamic argued the Option excluded the Hamman tract and summary judgment was improper | The Supreme Court reversed the trial court’s summary judgment (agreeing with the court of appeals’ reversal) but on the ground the Option excluded the Hamman tract |
| Whether North Shore had standing to sue for geophysical trespass and whether tortious interference verdicts should stand | North Shore contended it had exclusive rights under the Option to exclude others from exploration and thus could sue for trespass and tortious interference | Harkins/Dynamic argued an option (not executed lease) does not convey possessory/exclusionary rights; Dynamic had permission from the Harkins family | The court held an unexercised option does not grant possessory/exclusionary rights; North Shore’s tortious-interference and breach claims based on the 400-acre tract fail; only the geophysical-trespass claim (limited) remained but North Shore lacked exclusive right to exclude under the Option |
Key Cases Cited
- J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223 (Tex. 2003) (contract-ambiguity is a question of law; construe to ascertain parties’ intent)
- Plains Exploration & Production Co. v. Torch Energy Advisors Inc., 473 S.W.3d 296 (Tex. 2015) (contracts construed from utilitarian standpoint; consider circumstances)
- Frost Nat’l Bank v. L & F Distributors, Ltd., 165 S.W.3d 310 (Tex. 2005) (contract ambiguous only if susceptible to more than one reasonable interpretation)
- DeWitt County Elec. Coop., Inc. v. Parks, 1 S.W.3d 96 (Tex. 1999) (parties’ differing interpretations alone do not create ambiguity)
- Columbia Gas Transmission Corp. v. New Ulm Gas, Ltd., 940 S.W.2d 587 (Tex. 1996) (ambiguity exists only if both interpretations are reasonable)
- Williams v. Ellison, 493 S.W.2d 734 (Tex. 1973) (selection/choice agreements are valid and enforceable)
- Stribling v. Millican DPC Partners, LP, 458 S.W.3d 17 (Tex. 2015) (acreage calls are least reliable; slight acreage discrepancies do not defeat description)
- Environmental Processing Sys., L.C. v. FPL Farming Ltd., 457 S.W.3d 414 (Tex. 2015) (trespass defined as unauthorized entry; property right to exclude protects exploration rights)
- Barnes v. Mathis, 353 S.W.3d 760 (Tex. 2011) (trespass may occur by causing something to enter another’s property)
- Knox v. Brown, 277 S.W. 91 (Tex. Comm’n App. 1925) (an option does not convey title or possession)
- Faucette v. Chantos, 322 S.W.3d 901 (Tex. App.—Houston [14th Dist.] 2010) (option creates a covenant to hold open but not a present possessory interest)