IN THE SUPREME COURT OF
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No. 05-0466
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Coastal Oil & Gas Corp. and
Coastal Oil & Gas
v.
Garza Energy Trust et al., Respondents
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On Petition for Review from the
Court of Appeals for the Thirteenth District of
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Argued September 28, 2006
Justice Hecht delivered the opinion of
the Court, in which Justice Brister,
Justice Green, Judge Christopher,[1]
and Justice Pemberton[2]
joined, and in all but Part II-B of which Chief
Justice Jefferson, Justice
Justice Willett filed a concurring opinion.
Justice Johnson filed an opinion concurring in part and dissenting in part, in which Chief Justice Jefferson joined, and in Part I of which Justice Medina joined.
Justice O’Neill and Justice Wainwright took no part in the decision of the case.
The primary issue in this appeal is whether subsurface hydraulic fracturing of a natural gas well that extends into another’s property is a trespass for which the value of gas drained as a result may be recovered as damages. We hold that the rule of capture bars recovery of such damages. We also hold:
• mineral lessors with a reversionary interest have standing to bring an action for subsurface trespass causing actual injury;
• the measure of damages for breach of the implied covenant to protect against drainage is the value of the minerals lost because of the lessee’s failure to act with reasonable prudence, and there is no evidence of that value in this case;
• some evidence supported the jury’s finding of breach of the implied covenant to develop, and whether lessors’ repudiation of the lease was a defense was, on this record, a matter of law;
• some evidence supported the jury’s finding of bad faith pooling;
• admission into evidence of a memorandum containing a racial slur was reversible error; and
• the trial court did not abuse its discretion in refusing to
abate this case for two related cases.
We reverse the judgment of the court of appeals[3] and remand the case to the trial court for further proceedings.
I
Respondents,[4]
to whom we shall refer collectively as
Title disputes have roiled the area for years. Coastal interpleaded respondents in a 1978 action to resolve disagreements among them over their respective interests in Share 13. Those issues were resolved by an agreed judgment in 1982. Many Share 13 owners sued in 1988[6] and again in 1995[7] over their boundary with Share 15. That issue was not resolved until 1999.[8] The plaintiffs in those cases also claimed that their gas was being drained to wells on Share 15.
From 1978 to 1983, Coastal drilled three wells on Share 13, two of which were productive, the M. Salinas No. 1 and No. 2V, though the other, the B. Salinas No. 1 (“BS1” on the diagram), was not. In 1994, Coastal drilled the M. Salinas No. 3, and it was an exceptional producer. The No. 3 well was about 1,700 feet from Share 12. The closest well on Share 12 was the Pennzoil Fee No. 1 (“P1” on the diagram), but Coastal wanted one closer, so in 1996, Coastal drilled the Coastal Fee No. 1 in the northeast corner of Share 12, as close to Share 13 (and the M. Salinas No. 3) as Texas Railroad Commission’s statewide spacing Rule 37 permitted — 467 feet from the boundaries to the north and east.[9] That location was too close to the Pennzoil Fee No. 1,[10] and the Commission refused Coastal an exception because both wells would drain from Share 13. So Coastal shut in the Pennzoil Fee No. 1, a producing well, in order that it could operate the Coastal Fee No. 1 well near Share 13. In February 1997, Coastal drilled the Coastal Fee No. 2, also near Share 13.
In March,
The Vicksburg T is a “tight”
sandstone formation, relatively imporous and impermeable, from which natural
gas cannot be commercially produced without hydraulic fracturing stimulation,
or “fracing”, as the process is known in the industry. This is done by pumping
fluid down a well at high pressure so that it is forced out into the formation.
The pressure creates cracks in the rock that propagate along the azimuth of
natural fault lines in an elongated elliptical pattern in opposite directions
from the well. Behind the fluid comes a slurry containing small granules called
proppants — sand, ceramic beads, or bauxite are used — that lodge themselves in
the cracks, propping them open against the enormous subsurface pressure that
would force them shut as soon as the fluid was gone. The fluid is then drained,
leaving the cracks open for gas or oil to flow to the wellbore. Fracing in
effect increases the well’s exposure to the formation, allowing greater
production. First used commercially in 1949, fracing is now essential to
economic production of oil and gas and commonly used throughout
Engineers design a fracing operation for a particular well, selecting the injection pressure, volumes of material injected, and type of proppant to achieve a desired result based on data regarding the porosity, permeability, and modulus (elasticity) of the rock, and the pressure and other aspects of the reservoir. The design projects the length of the fractures from the well measured three ways: the hydraulic length, which is the distance the fracing fluid will travel, sometimes as far as 3,000 feet from the well; the propped length, which is the slightly shorter distance the proppant will reach; and the effective length, the still shorter distance within which the fracing operation will actually improve production. Estimates of these distances are dependent on available data and are at best imprecise. Clues about the direction in which fractures are likely to run horizontally from the well may be derived from seismic and other data, but virtually nothing can be done to control that direction; the fractures will follow Mother Nature’s fault lines in the formation. The vertical dimension of the fracing pattern is confined by barriers — in this case, shale — or other lithological changes above and below the reservoir.
For the Coastal Fee No. 1, the
fracing hydraulic length was designed to reach over 1,000 feet from the well.
All the wells on Share 12 and Share
13 were fraced. As measured by the amount of proppant injected into the well,
the fracing of the Coastal Fee No. 1 and No. 2 wells was, as Economides
testified, “massive”, much larger than any fracing operation on a well on Share
13. Several months after filing suit,
In 1997, Coastal formed an 80-acre
unit comprised of just under 73 acres in the southwest corner of Share 13 and a
little over seven acres in the southeast corner of Share 12. The unit included
the M. Salinas No. 2V and No. 4 wells but did not include a well on Share 12.
The unit benefitted
At trial,
Regarding drainage,
The jury found:
• Coastal failed to reasonably develop Share 13 after 1993, causing Salinas $1.75 million damages for interest on lost royalties;
• Coastal breached its duty to pool
in good faith, causing
• Coastal’s fracing of the Coastal Fee No. 1 well trespassed on Share 13, causing substantial drainage, which a reasonably prudent operator would have prevented, and $1 million damages in lost royalties;
• Coastal acted with malice and
appropriated
•
The trial court
reduced the damages for bad-faith pooling from $1 million to $81,619 and the
damages for drainage from $1 million to $543,776, in each instance the maximum
amount supported by
The court of appeals reversed the
attorney fee award because it included fees for
II
We begin with
A
As a mineral lessor,
But courts have stated the rule too broadly. At common law, trespass included several actions directed to different kinds of wrongs.[20] Trespass quare clausum fregit was limited to physical invasions of plaintiff’s possessory interest in land;[21] trespass on the case was not[22] and provided an action for injury to a non-possessory interest, such as reversion.[23] Professors Prosser and Keeton explain:
Thus a landlord cannot sue for a mere trespass to land in the occupation of his tenant. He is not without legal remedy, in the form of an action on the case for the injury to the reversion; but in order to maintain it, he must show more than the trespass — namely, actual permanent harm to the property of such sort as to affect the value of his interest.[24]
B
Had Coastal caused something like proppants to be deposited on the surface of Share 13, it would be liable for trespass,[29] and from the ancient common law maxim that land ownership extends to the sky above and the earth’s center below, one might extrapolate that the same rule should apply two miles below the surface. But that maxim — cujus est solum ejus est usque ad coelum et ad inferos — “has no place in the modern world.”[30] Wheeling an airplane across the surface of one’s property without permission is a trespass; flying the plane through the airspace two miles above the property is not. Lord Coke, who pronounced the maxim, did not consider the possibility of airplanes.[31] But neither did he imagine oil wells. The law of trespass need no more be the same two miles below the surface than two miles above.
We have not previously decided whether subsurface fracing can give rise to an action for trespass. That issue, we held in Gregg v. Delhi-Taylor Oil Corp., is one for the courts to decide, not the Railroad Commission.[32] In 1961, when we decided Gregg, the Commission had never addressed the subject, and we specifically indicated no view on whether Commission rules could authorize secondary recovery operations that crossed property lines. The next Term, in Railroad Commission of Texas v. Manziel, we held that a salt water injection secondary recovery operation did not cause a trespass when the water migrated across property lines, but we relied heavily on the fact that the Commission had approved the operation.[33] Thirty years later, in Geo Viking, Inc. v. Tex-Lee Operating Company, we issued a per curiam opinion holding that fracing beneath another’s land was a trespass,[34] but on rehearing we withdrew the opinion and expressly did not decide the issue.[35]
We need not decide the broader issue
here. In this case, actionable trespass requires injury,[36]
and Salinas’s only claim of injury — that Coastal’s fracing operation made it
possible for gas to flow from beneath Share 13 to the Share 12 wells — is
precluded by the rule of capture. That rule gives a mineral rights owner title
to the oil and gas produced from a lawful well bottomed on the property, even
if the oil and gas flowed to the well from beneath another owner’s tract.[37]
The rule of capture is a cornerstone of the oil and gas industry and is
fundamental both to property rights and to state regulation.[38]
We are not persuaded by
First, the law already affords the owner who claims drainage full recourse. This is the justification for the rule of capture, and it applies regardless of whether the drainage is due to fracing. If the drained owner has no well, he can drill one to offset drainage from his property. If the minerals are leased and the lessee has not drilled a well, the owner can sue the lessee for violation of the implied covenant in the lease to protect against drainage.[42] If an offset well will not adequately protect against drainage, the owner (or his operator) may offer to pool, and if the offer is rejected, he may apply to the Railroad Commission for forced pooling.[43] The Commission may also regulate production to prevent drainage.[44] No one suggests that these various remedies provide inadequate protection against drainage.
Second, allowing recovery for the value of gas drained by hydraulic fracturing usurps to courts and juries the lawful and preferable authority of the Railroad Commission to regulate oil and gas production. Such recovery assumes that the gas belongs to the owner of the minerals in the drained property, contrary to the rule of capture. While a mineral rights owner has a real interest in oil and gas in place,[45] “this right does not extend to specific oil and gas beneath the property”;[46] ownership must be “considered in connection with the law of capture, which is recognized as a property right”[47] as well. The minerals owner is entitled, not to the molecules actually residing below the surface, but to “a fair chance to recover the oil and gas in or under his land, or their equivalents in kind.”[48] The rule of capture makes it possible for the Commission, through rules governing the spacing, density, and allowables of wells, to protect correlative rights of owners with interests in the same mineral deposits while securing “the state’s goals of preventing waste and conserving natural resources”.[49] But such rules do not allow confiscation; on the contrary, they operate to prevent confiscation.[50] Without the rule of capture, drainage would amount to a taking of a mineral owner’s property — the oil and gas below the surface of the property — thereby limiting the Commission’s power to regulate production to assure a fair recovery by each owner. The Commission has never found it necessary to regulate hydraulic fracturing, a point to which we will return below, but should it ever choose to do so, permitting fracturing that extended beyond property lines, however reasonable in terms of industry operation, would be met with the objection that the Commission had allowed the minerals in the drained property to be confiscated. While “‘all property is held subject to the valid exercise of the police power’ and thus not every regulation is a compensable taking, . . . some are.”[51] “Physical possession is, categorically, a taking for which compensation is constitutionally mandated”.[52] We need not hold here that without the rule of capture, all regulation of drainage would be confiscatory and thus beyond the Commission’s power. We observe only that the rule of capture leaves the Commission’s historical role unimpeded. “It is now well settled that the Railroad Commission is vested with the power and charged with the duty of regulating the production of oil and gas for the prevention of waste as well as for the protection of correlative rights.”[53] The Commission’s role should not be supplanted by the law of trespass.
Third, determining the value of oil
and gas drained by hydraulic fracturing is the kind of issue the litigation
process is least equipped to handle. One difficulty is that the material facts
are hidden below miles of rock, making it difficult to ascertain what might
have happened. Such difficulty in proof is one of the justifications for the
rule of capture. But there is an even greater difficulty with litigating
recovery for drainage resulting from fracing, and it is that trial judges and
juries cannot take into account social policies, industry operations, and the
greater good which are all tremendously important in deciding whether fracing
should or should not be against the law.[54]
While this Court may consider such matters in fashioning the common law, we
should not alter the rule of capture on which an industry and its regulation
have relied for decades to create new and uncertain possibilities for liability
with no more evidence of necessity and appropriateness than this case presents.
Indeed, the evidence in this case counsels strongly against such a course. The
experts in this case agree on two important things. One is that hydraulic
fracturing is not optional; it is essential to the recovery of oil and gas in
many areas, including the Vicksburg T formation in this case. (This fact has
recently been brought to the public’s attention because of development in the
Barnett Shale in north
Fourth, the law of capture should not be changed to apply differently to hydraulic fracturing because no one in the industry appears to want or need the change. The Court has received amicus curiae briefs in this case from the Railroad Commission, the General Land Office, the American Royalty Council, the Texas Oil & Gas Association, the Texas Independent Producers & Royalty Owners Association, the Texas Alliance of Energy Producers, Harding Co., BJ Services Co., Halliburton Energy Services, Inc., Schlumberger Technology Corp., Chesapeake Energy Corp., Devon Energy Corp., Dominion Exploration & Production, Inc., EOG Resources, Inc., Oxy Usa Inc., Questar Exploration and Production Co., XTO Energy, Inc., and Chief Oil & Gas LLC. These briefs from every corner of the industry — regulators, landowners, royalty owners, operators, and hydraulic fracturing service providers — all oppose liability for hydraulic fracturing, almost always warning of adverse consequences in the direst language.[56] Though hydraulic fracturing has been commonplace in the oil and gas industry for over sixty years, neither the Legislature nor the Commission has ever seen fit to regulate it, though every other aspect of production has been thoroughly regulated. Into so settled a regime the common law need not thrust itself.
Accordingly, we hold that damages for drainage by hydraulic fracturing are precluded by the rule of capture. It should go without saying that the rule of capture cannot be used to shield misconduct that is illegal, malicious, reckless, or intended to harm another without commercial justification, should such a case ever arise. But that certainly did not occur in this case, and no instance of it has been cited to us.
III
We turn now to
A
Coastal had an implied obligation to act as a reasonably prudent operator to protect Share 13 from drainage, which could have been discharged by drilling offset wells to counter production on Share 12.[57] The jury found that Coastal failed to meet this obligation but was instructed to find as damages “[t]he value of the royalty on the gas drained from Share 13 by the subsurface trespass” by the Coastal No. 1 fracing operation, not the drainage a reasonably prudent operator should have prevented. The jury instruction assumes that a reasonably prudent operator on Share 13 should have prevented all drainage due to the fracing operation on the Coastal No. 1. Coastal complains that there is no evidence to support that assumption, that the jury should have been instructed to find as damages the value of the drainage that should have been prevented, and that there is no evidence of the amount of such drainage.
We have held that “[o]ne measure of damages” for breach of the implied covenant of protection is “the amount of royalties that the lessor would have received from the offset well on its lease.”[58] But this would overcompensate the lessee if production from the offset well exceeded the drainage.[59] Another measure of damages is the value of the royalty on the drained gas,[60] but this, too, would overcompensate the lessee if not all of the drainage could have been prevented, either because of the nature of the field, or the regulatory system, or for whatever reason.[61] The correct measure of damages for breach of the implied covenant of protection is the amount that will fully compensate, but not overcompensate, the lessor for the breach — that is, the value of the royalty lost to the lessor because of the lessee’s failure to act as a reasonably prudent operator.[62]
B
Coastal also had an implied
obligation to continue to develop Share 13 with reasonable diligence after the
M. Salinas No. 3 well was completed.[64]
For breach of the development
covenant, a lessee is entitled to recover “the full value of royalty lost to
him”.[65]
The parties agree that whether
Coastal also argues that there is no evidence to support the jury’s answer of $1.75 million. The components of the damages calculation — past and projected production rates, prices, and the time value of money — were all essentially undisputed at trial, and the result should have been a straightforward matter of mathematics, but the parties’ respective experts disagreed on how the calculation was to be made. It appears to us that Salinas’s expert’s calculations failed to credit Coastal with interest on past payments it made, but the record is not entirely clear, and we cannot conclude that Coastal conclusively established that Salinas was not damaged by a delay in development, or that Salinas offered no evidence of the amount of such damages.
Finally, Coastal contends that the
trial court erred in refusing to ask the jury whether by suing to invalidate
the leases,
The law is well-settled in Texas that “[l]essors who . . . wrongfully repudiate the lessees’ title by unqualified notice that the leases are forfeited or have terminated cannot complain if the latter suspend operations under the contract pending a determination of the controversy and will not be allowed to profit by their own wrong.” A lessor’s repudiation of a lease relieves the lessee “from any obligation to conduct any operations, drilling, re-working, or otherwise, on said land in order to maintain the lease in force pending the judicial determination of the controversy . . . over the validity of the lease.”[67]
But
Accordingly, we reject Coastal’s arguments regarding the development covenant, though for reasons that follow, we conclude that Coastal is entitled to a new trial.
C
The
Coastal formed the M. Salinas Gas
Unit to include the M. Salinas No. 2-V and No. 4 wells, thereby allowing the M.
Salinas No. 8 to be drilled in the most advantageous location, closer to the
No. 2-V than Commission Rule 37 would have permitted. Coastal was required to
include some acreage outside Share 13 in the Unit but was free to determine the
amount of that acreage and the size of the Unit. Coastal chose to make the Unit
80 acres in all, to include 7.357 acres from Share 12, and to include two wells
on Share 13 but none on Share 12. As a result, Coastal owed
Salinas argues that Coastal should
have included only one Share 12 acre in the Unit, providing him the same benefit
— the M. Salinas No. 8 well — but more royalties — on 79/80ths, or 98.75%, of
production. Coastal counters that it was not required to maximize the benefit
to
The jury also found damages of $1
million, which the trial court reduced to $81,619, the total
IV
We come finally to two procedural issues raised by Coastal.
A
Coastal contends that the trial
court abused its discretion by admitting in evidence a 1977 internal memo
regarding Share 13 title issues that referred to
Salinas offered the one-page memo to counter Coastal’s position that any delay in development between 1993 and 1997 was due to Coastal’s concerns that any further investment in the lease could be jeopardized by flaws in Salinas’s title, and that provisions in the Share 15 leases could make it difficult to recoup royalties paid to the wrong owners. Since 1988, Share 13 owners had been involved in litigation with the Share 15 owners over the boundary between the two tracts.[69] The dispute was not addressed in the 1977 memo; the memo instead dealt with uncertainties in determining the Share 13 owners’ respective interests in the property. Referring to a title opinion that had been prepared, the memo explained:
The complex problems encountered by [the title examiner]
result from the fact that possession of these lands began over 200 years ago
and the people in possession were mostly illiterate Mexicans and later
Mexican-Americans who had large families, many estate problems, heirship
problems and errors of all kinds involving surveys and resurveys, partitions
and attempted partitions.
Noting “the complete absence of base record title,” the title examiner had concluded that “it would be extremely difficult, in fact almost impossible, for third parties who were not grantees in the Share 13 Deed or claiming thereunder to prevail if they sued” Coastal. Thus, the memo recommended that Coastal “assume the calculated risk of drilling [a] well” on Share 13. If the well were a producer, the memo continued, Coastal could “file an interpleader suit and let the court decide which parties are entitled to royalties and the percentages.” That is exactly what Coastal did. When the M. Salinas No. 1 well was completed in 1978, Coastal filed an interpleader action, joining the various Share 13 owners. An agreed judgment resolving all issues was rendered in 1982.
But it did present a clear danger of unfair prejudice. The phrase, “illiterate Mexicans” could certainly be read as derogatory and not merely an unfortunate phrase included in describing the failure to maintain a clear record of title. The trial judge, Hon. Mario E. Ramirez, Jr., overruled Coastal’s objection with this peculiar caveat: “It doesn’t particularly inflame me.” One of the plaintiffs, Margarito Salinas, testified on direct examination by his lawyer to a different reaction:
Q. Let me hand you what’s been marked Plaintiff’s Exhibit 40 [the 1977 memo]. Do you recognize what that is?
A. Yes, I do.
Q. It has already been admitted into evidence, but when you saw that, how did you feel, Mr. Salinas?
A. I feel infuriated, insulted because my ancestors were — are insulted in this memo, and it makes me really, really mad.
* * *
Q. How did the rest of the family members feel when they heard or read that?
A. Well, the same way. They feel hurt. They feel infuriated.
Q. Do you feel this lawsuit was necessary?
A. Yes, I do.
Q. Why is that?
A. Because Coastal was taking advantage at every turn.
Q. Overall, what are your feelings about Coastal?
A. I feel
that Coastal has done a lot of wrong to us. They hurt us a lot and that’s about
it.
At that point
This questioning of one of the
plaintiffs had nothing to do with title problems and development delays. It had
only to do with prejudice. Nothing else in the record reflects that
One of Coastal’s lawyers, Jose E. Chapa, Jr., devoted his entire argument to the memo, stating in pertinent part:
I came up
here to talk to you about one thing. I came up here to talk to you about a
departmental memo that referred to the term “illiterate Mexican.” You heard Mr.
Salinas testify that he was offended by the term “illiterate Mexican.” I’m sure
some of you may have been offended by the term “illiterate Mexican.” I want to
tell you that I’m offended by the term “illiterate Mexican.” But I’m offended
maybe for different reasons than the Plaintiffs are.
I’m offended, number one, because it has no bearing. It has nothing to do with this lawsuit. And I’m offended because intelligent Plaintiffs’ attorneys would try to insult your intelligence. We all know that our ancestors, our pioneering ancestors, were people that were more about the land and not people of the letter. The reason this came about is because this term was used and this term was offensive, but way back then our people knew the land. Our people knew things that pertained to the land. Our people knew cattle. Our people knew the game and the wildlife. Our people knew farming. Our people knew ranching. Nobody cared to read or to write. That wasn’t an insult. That’s just the way it was. We survived. And how did we survive? We survived through knowing the land, through using the land. That’s how we were able to overcome.
The memo
about the illiterate Mexican really about collaterally. It came about
collaterally because a low level Coastal employee was ordered to do a title search.
And in doing this, he wrote this opinion, this 50-page title opinion. And in
this opinion he traced the land change back to even the King of Spain, back to
the sovereign. He traced it back probably 200 years ago. And 200 years ago,
ladies and gentlemen, I would almost guarantee you that 80 percent of the
gringos were illiterate. The landed gentry was illiterate. And that’s testified
through and proven through a lot of these deeds if you check at the courthouse
are marked with an “X”, la marca. Back then not knowing how to read or write
was not a thing of dishonor. Back then to place your mark on a piece of paper
was your bond. It meant that you were going to abide by what you said. It meant
that you were a man or a woman of honor. It meant that you were a person of the
land, that knew the land and knew courage and knew survival.
Why have the Plaintiffs introduced this memo? Why have they done this? They’ve done this because they have no case. They’ve done this because the facts are against them. The Plaintiffs don’t want you, ladies and gentlemen, to think about the facts. They just want you angry at us, angry at Coastal. They figure that if they can get you angry enough, then you are going to throw sound judgment out the window and that your decisions will be based on sentiment and not on reason. And we can’t let them do that. To do that would break every rule of fairness that we stand for in this county and in this country. The Plaintiffs don’t want an intelligent decision from you. The Plaintiffs just want you to punish us, to punish Coastal.
* * *
But I need to broach one other issue. Along with their lawyers, the Plaintiffs have been enriched in this case. “Nadie esta en la calle.” Nobody is on the street, not the lawyers, not the Plaintiffs. You’ve heard that testimony. And they already have some, and they want more, and to give them more would just not be fair.
I am proud
to be a Mexican American. I am proud to come from Mexican ancestry. I am proud
to come from illiterate Mexican ancestry. That ancestry settled this country.
That ancestry fought. That ancestry was courageous. And because of that
ancestry, I’m here and a lot of us are here today.
In response,
Coastal is offended.
First they are offended because of a memo that their own employees prepared,
and it wasn’t prepared way back then. It was prepared in 1977, not way back
then. Now, they are offended — and I’m trying to talk about what they said.
They already have some and now they are here wanting some more . . . .
* * *
Yeah, maybe
at one time we were people of the land. But, you know, some of these people got
educated. They learned how to read. They learned how to write. And the — you
know, the thing about that memo is that it shows the attitude, the attitude on
the part of the corporation. If you’ll notice, the corporation did not bring in
one person that received the memo, did not bring in the author of the memo to
tell us what he really meant. No, they rely on . . . some of the lawyers that
have nothing to do with this who are now coming in trying to explain something
for this $10-billion corporation that didn’t care enough to bring in the person
that actually wrote the memo or received the memo so they can tell you what
they really meant.
Why are they referring to a — 1977 to illiterate Mexicans? Why not just call them owners of the land, owners of the royalty interest? What was so special? Why? Because they were trying to posture themselves. They were then trying to put themselves in a position of, who are we going to help. And you look at those memos. Are we going to help Mr. Coates [the Share 15 owner]? Oops. Are we going to help Mr. Coates up here, or are we going to help the [Salinases].
The evidence and argument establish that the only significance of the 1977 memo in the trial of this case was its use of the phrase, “illiterate Mexicans” to unfairly prejudice Coastal.
Evidentiary rulings are committed to
the trial court’s sound, not boundless, discretion. Because the significant
danger of unfair prejudice presented by the memo substantially outweighed its
probative value, which was zero, the trial court abused its discretion in
admitting the memo in evidence.
B
Coastal also contends that this action, filed in 1997, should have been abated while an earlier action, filed in 1988, proceeded. The earlier action, to which we have previously referred, involved a dispute over the boundary between Share 13 and Share 15, as well as claims that Coastal, the operator on Share 15, was draining Share 13 in that direction and had failed to develop Share 13. Most but not all of the plaintiffs in both cases were the same, and some of the defendants, including Coastal, were the same. In sum: the boundary claim in the earlier case had nothing to do with this case, the drainage claims in the two cases were legally similar but factually distinct, the development claims were more closely related but not identical, and the parties overlapped but were not the same.
We have held that a later-filed suit must be abated “[w]hen there exists a complete identity of parties and controversies” between it and a earlier suit.[74] Otherwise, “[a]batement of a lawsuit due to the pendency of a prior suit is based on the principles of comity, convenience, and the necessity for an orderly procedure in the trial of contested issues”,[75] matters committed to the sound discretion of the trial court in the first instance.[76] Coastal has provided no basis for us to conclude that the trial court in this case abused its discretion.
* * * * *
We reverse the court of appeals’ judgment, render judgment that Salinas take nothing on his claims for trespass and breach of the implied covenant to protect against drainage, and remand the remainder of the case for a new trial.
__________
Nathan L. Hecht
Justice
Opinion delivered: August 29, 2008
[1] Hon. Tracy E. Christopher, Judge, 295th District Court, Harris County, Texas, sitting for Justice O’Neill by commission of Hon. Rick Perry, Governor of Texas, pursuant to Section 22.005 of the Texas Government Code.
[2]
Hon. Robert H. Pemberton, Justice, Court of Appeals for the Third District of
Texas at
[3] Mission
Resources, Inc. v. Garza Energy Trust, 166 S.W.3d 301 (
[4] Respondents are Hilda Salinas, Hilaria Salinas, Margarito Salinas, Maria Rosa Salinas, Vincente Saenz, Jr., Mercedes Salinas de Longoria, Miguel Angel Salinas, Maria Elva Delgado, Edwardo Saenz, Jr., Olivia Salinas Perez, Lydia Robbins, Aurelia Salinas Sendejo, Maria Matilde Salinas Guerrero, Luis Humberto Delgado, Marco Antonio Delgado, Ramon Garcia, Jesus Israel Muniz, Javier Lopez, Francisca Muniz Vasquez, Meliton Lopez, San Juanita Lopez Alaniz, Olga Betancourt Lopez, Myrna Betancourt Lopez, Sylvia Nora Betancourt Lopez, Norberto Lopez, Oscar Angel Lopez, Leticia Lopez, Ampora S. de Garza, Nellie S. Ibarra, Norma L. Torres, Esteban Saenz, Mary Elizabeth Saenz, Eloy Saenz, Hilaria Muniz Hernandez, and the beneficiaries of the Garza Energy Trust, dissolved December 31, 2004 — Juan Lino Garza, Sr., Romulo Garza, Guadalupe Garza, Jr., Aida Garza Lopez, Maria Rita Garza Carreles, Elma Garza Cantu, Eduardo Garza, Jose Carmen Garza, Jr., Carlos Garza, and Billy Salvador Robbins.
[5] Coastal is now El Paso Production Oil & Gas Company. Coastal Oil & Gas USA, L.P. is also a petitioner, but the parties have identified no difference in the interests of the two Coastal entities, and we refer to them collectively as “Coastal”.
[6] Juan
Lino Garza, et al. v. Elizabeth H. Coates Maddux, et al., Cause No.
C-035-88-G (370th
[7] Amelia
Garza de Salinas, et al. v. Elizabeth H. Coates Maddux, et al., Cause No.
C-6239-95-B (93rd
[8] Garza v. Maddux, 988 S.W.2d 280 (Tex. App.–Corpus Christi 1999, pet. denied) (affirming summary judgment in the Juan Lino Garza suit).
[9] 16 Tex. Admin. Code § 3.37(a)(1) (2007) (Tex. R.R. Comm’n, Statewide Spacing Rule) (“No well for oil, gas, or geothermal resource shall hereafter be drilled nearer than 1,200 feet to any well completed in or drilling to the same horizon on the same tract or farm, and no well shall be drilled nearer than 467 feet to any property line, lease line, or subdivision line; provided the commission, in order to prevent waste or to prevent the confiscation of property, may grant exceptions to permit drilling within shorter distances than prescribed in this paragraph when the commission shall determine that such exceptions are necessary either to prevent waste or to prevent the confiscation of property.”).
[10]
[11] The well is on the corner of a square, the opposite sides of which are the lease lines. The shortest distance between the well and Share 13 is 467 feet. The longest distance is the length of the diagonal, 660 feet.
[12] See Rule 37, supra note 9 .
[13] See Tex. R. Evid. 403 (“Although relevant, evidence may be excluded if its probative value is substantially outweighed by the danger of unfair prejudice . . . .”).
[14]
166 S.W.3d 301, 330 (
[15]
[16]
See DaimlerChrysler Corp. v. Inman, 252 S.W.3d 299, 304 (
[17] Cf. Steel Co. v. Citizens for a Better Environment, 523 U.S. 83, 94 (1998) (“Without jurisdiction the court cannot proceed at all in any cause.”); Sinochem Int’l Co. v. Malaysia Int’l Shipping Corp., ___ U.S. ___, ___, 127 S. Ct. 1184, 1191 (2007) (“[Steel Co.] clarified that a federal court generally may not rule on the merits of a case without first determining that it has jurisdiction over the category of claim in suit (subject-matter jurisdiction) and the parties (personal jurisdiction).”).
[18]
Natural Gas Pipeline Co. of Am. v. Pool, 124 S.W.3d 188, 194 (
[19]
E.g., Pentagon Enters. v. Sw. Bell Tel. Co., 540 S.W.2d 477, 478
(Tex. Civ. App.–Houston [14th Dist.] 1976, writ ref’d n.r.e.); see McMillan
v. Dooley, 144 S.W.3d 159, 188 (Tex. App.–Eastland 2004, pet. denied); Lighthouse
Church of Cloverleaf v. Tex. Bank, 889 S.W.2d 595, 598 n.3 (Tex.
App.–Houston [14th Dist.] 1994, writ denied); Maranatha Temple, Inc. v.
Enter. Prods.
[20] 1 Fowler V. Harper, Fleming James, Jr., & Oscar S. Gray, Harper, James and Gray on Torts § 1.3, at 7 (3d ed. 2006) (“‘Trespass’ was really a ‘family of writs’ that summoned the defendant to show why (‘ostensurus quare’) he had done certain wrongs.”).
[21] Id. § 1.3, at 8; Slye v. Guerdrum, 29 App. D.C. 550 (1907) (“It is, of course, axiomatic that at common law the gist of the action of trespass quare clausum fregit is injury to the possession, and that, generally speaking, the plaintiff must show actual or constructive possession at the time of the trespass.”).
[22] Harper, supra note 20, § 1.3, at 9-10.
[23]
See Alexander v. Letson, 7 So. 2d 33 (
[24] W. Page Keeton, Dan B. Dobbs, Robert E. Keeton & David G. Owen, Prosser and Keeton on the Law of Torts § 13, at 78 (5th ed. 1984) (footnotes omitted); see Harper, supra note 20, § 1.2, at 5; see also Gulf, Colo. & Santa Fe Ry. v. Settegast, 15 S.W. 228, 230 (Tex. 1891) (“The rule is well settled that the landlord may sue for and recover for damages to his reversionary interest; that is, he may bring an action for any permanent injury to the property.”); see generally Restatement (First) of Property §§ 211 (“The owner of a future interest, in order to obtain any relief as against an act or omission to act of a third person, must establish that the conduct of such third person (a) is such conduct as would have been sufficient to entitle the owner of complete property in the affected thing, to some relief; and (b) causes either harm or reasonable apprehension of harm to such owner of a future interest in view of the character of the act or omission to act and of the substantiality of his future interest.”), and 214 (“When conduct of a third person satisfies the requirements stated in § 211 and consists of acts or omissions to act affecting land, then (a) the owner of a future interest which consists of complete property in such land except for one or more prior estates for life is entitled to recover a judgment against the third person for the damages caused to the owner of the future interest by the conduct of such third person; and is entitled to the proceeds of such judgment . . . .”).
[25]
See also HECI Exploration Co. v. Neel, 982 S.W.2d 881, 890 (
[26]
DaimlerChrysler Corp. v. Inman, 252 S.W.3d 299, 304-305 (
[27] See Harper, supra note 20, §§ 1.2, at 5 (“The distinction between the landlord’s action, for damage to the reversion, and the tenant’s action, for trespass, retains significance in modern times, despite the abolition of the distinction between the forms of action. Under contemporary rules of pleading, of course, neither the landlord’s nor the tenant’s action should be dismissed simply because it appears to have been brought in the wrong form. The older rule is important, however, since it affected the measure of damages recoverable in a way that still prevails.”), and 1.3, at 11 (“Under the formulary system of the common law a plaintiff’s suit could proceed in only one form of action; if the wrong form were chosen, plaintiff lost the case even if facts were shown that would entitle recovery in another form. . . . The hardships bred by the rigidity of this system finally led to the great procedural reforms of the mid-nineteenth century, which, among other things, abolished the distinctions between the old forms of action and provided for a single civil action in which the parties should be given their remedies (or defenses) according to the facts pleaded and proved under whatever legal theory the court found appropriate.”).
[28] See Keeton, supra note 24, § 13, at 75 (“The common law action of trespass could be maintained without proof of any actual damage. . . . The plaintiff recovered nominal damages where no substantial damage was shown . . . . On the other hand, the action on the case required proof of actual damage, and could not be maintained without it.”); Harper, supra note 20, § 1.2, at 5 (“The distinction between the landlord’s action, for damage to the reversion, and the tenant’s action, for trespass, retains significance in modern times, despite the abolition of the distinction between forms of action. Under contemporary rules of pleading, of course, neither the landlord’s nor the tenant’s action should be dismissed simply because it appears to have been brought in the wrong form. The older rule is important, however, since it affected the measure of damages recoverable in a way that still prevails.”).
[29] Glade v. Dietert, 295 S.W.2d 642, 645 (Tex. 1956) (“To constitute a trespass entry upon another’s land need not be in person, but may be made by causing or permitting a thing to cross the boundary of the premises.”) (internal quotes omitted).
[30]
[31] See also Harper, supra note 20, § 1.5, at 20 (“The maxim must be taken in the light of the actual decisions in which it found expression, and these all dealt with invasions of the airspace, close to the ground, that interfered with actual or potential use and occupation of the land (as by structures, trees, etc.).”).
[32]
344 S.W.2d 411, 415 (
[33]
361 S.W.2d 560, 568-569 (
We conclude that if, in the valid exercise of its authority to prevent waste, protect correlative rights, or in the exercise of other powers within its jurisdiction, the Commission authorizes secondary recovery projects, a trespass does not occur when the injected, secondary recovery forces move across lease lines, and the operations are not subject to an injunction on that basis. The technical rules of trespass have no place in the consideration of the validity of the orders of the Commission.
[34]
1992
[35]
839 S.W.2d 797, 798 (
[36]
See Lyle v. Waddle, 188 S.W.2d 770, 773 (
[37] Halbouty v. R.R. Comm’n., 357 S.W.2d 364, 374 (Tex. 1962); Eliff v. Texon Drilling Co., 210 S.W.2d 558, 561 (Tex. 1948); Corzelius v. Harrell, 186 S.W.2d 961, 964 (Tex. 1945); Brown v. Humble Oil & Ref. Co., 83 S.W.2d 935, 940 (Tex. 1935); Stephens County v. Mid-Kansas Oil & Gas Co., 254 S.W. 290, 292 (Tex. 1923); see also Houston & Tex. Cent. Ry. Co. v. East, 81 S.W. 279, 280 (1904).
[38] See also 1 Ernest E. Smith & Jacqueline Lang Weaver, Texas Law of Oil and Gas § 1.1(A) (2d ed. 1998) (“The rule of capture may be the most important single doctrine of oil and gas law.”).
[39]
In applying the rule of capture, the court of appeals drew a natural/unnatural
distinction in Peterson v. Grayce Oil Co., 37 S.W.2d 367, 370-374 (Tex.
Civ. App.–Fort Worth 1931), aff’d, 98 S.W.2d 781 (Tex. 1936), holding
that drainage resulting from the use of vacuum pumps did not fall within the
rule of capture because it did not “occur[] solely through the operation of
natural agencies in a normal manner, as distinguished from artificial means
applied to stimulate such a flow.” But the distinction is either meaningless or
circular because all extraction of oil and gas is by artificial means. In Railroad
Commission v. Manziel, 361 S.W.2d 560, 568-569 (
[40]
Hasting Oil Co. v. Tex. Co., 234 S.W.2d 389, 398 (
[41]
[42]
Amoco Prod. Co. v. Alexander, 622 S.W.2d 563, 568 (
[43]
Tex. Nat. Res. Code §§
102.001-.112. See Railroad Comm’n v. Pend Oreille Oil & Gas Co.,
817 S.W.2d 36 (
[44]
Benz-Stoddard v. Aluminum Co. of Am., 368 S.W.2d 94 (
[45]
Brown v. Humble Oil & Ref. Co., 83 S.W.2d 935, 940 (
[46]
Seagull Energy E & P, Inc. v. R.R. Comm’n., 226 S.W.3d 383, 388-389
(
[47]
Texaco, Inc. v. R.R. Comm’n, 583 S.W.2d 307, 310 (
[48]
Gulf Land Co. v. Atl. Ref. Co., 131 S.W.2d 73, 80 (
[49] Seagull Energy, 226 S.W.3d at 389.
[50]
[51] Seagull Energy, 226 S.W.3d at 389; accord Sheffield Dev. Co. v. City of Glenn Heights, 140 S.W.3d 660, 670 (Tex. 2004) (quoting City of College Station v. Turtle Rock Corp., 680 S.W.2d 802, 804 (Tex. 1984)).
[52] Sheffield Development Co., 140 S.W.3d at 669-670 (Tex. 2004); accord Tahoe-Sierra Pres. Council, Inc. v. Tahoe Reg’l Planning Agency, 535 U.S. 302, 322 (2002) (“When the government physically takes possession of an interest in property for some public purpose, it has a categorical duty to compensate the former owner . . . .”).
[53] Texaco, Inc. v. R.R. Comm’n, 583 S.W.2d 307, 310 (Tex. 1979); see Amarillo Oil Co. v. Energy-Agri Prods., Inc., 794 S.W.2d 20, 26 (Tex. 1990) (“[T]he Commission would obviously have jurisdiction over the use of techniques to enhance production and protect correlative rights.”); Tex. Nat. Res. Code § 86.081(a) (“For the protection of public and private interests, the commission, on written complaint by an affected party or on its own initiative and after notice and an opportunity for a hearing, shall prorate and regulate the daily gas well production from a common reservoir if the commission finds that action to be necessary to: (1) prevent waste; or (2) adjust the correlative rights and opportunities of each owner of gas in a common reservoir to produce and use or sell the gas as permitted in this chapter.”); id. § 85.202(a)(4) (“The rules and orders of the commission shall include rules and orders: . . . to require wells to be drilled and operated in a manner that will prevent injury to adjoining property . . . .”).
[54]
Texaco, Inc., 583 S.W.2d at 310 (
[55]
E.g. Demand for Workers in the Barnett Shale on the Rise,
[56]
E.g. Brief of American Royalty Council as Amicus Supporting Petitioners
at 2 (“[W]hile the prevailing parties in the case below are royalty owners, the
long-term effect of the court of appeals’ decision is disastrous for royalty
owners throughout
[57]
Kerr-McGee Corp. v. Helton, 133 S.W.3d 245, 253 (
[58] Kerr-McGee, 133 S.W.3d at 253.
[59] See 5 Howard R. Williams & Charles J. Meyers, Oil & Gas Law § 825.2, at 167 (2007) (“The ‘amount-the-offset-well-would-produce’ formula gives the lessor his royalty on production from the offset well, even though the well would produce far more oil or gas than is being drained from the land. In short, there is no necessary correlation between the lessor’s loss due to drainage and a recovery based on the amount of production from an offset well.” (footnote omitted)).
[60] See Southeastern Pipe Line Co. v. Tichacek, 977 S.W.2d 393, 399 (Tex. App.–Corpus Christi 1998), aff’d in part and rev’d in part, 997 S.W.2d 166 (Tex. 1999) (“The measure of damages for breach of the drainage covenant is the royalty interest on the production lost by the producer’s failure to prevent drainage. Mandell v. Hamman Oil and Refining Co., 822 S.W.2d 153, 164 (Tex. App.–Houston [1st Dist.] 1991, writ denied); County Management, Inc. v. Butler, 650 S.W.2d 888, 890 (Tex. App.–Austin 1983, writ dism’d by agr.); Wes-Tex Land Co. v. Simmons, 566 S.W.2d 719, 721 (Tex. Civ. App.–Eastland 1978, writ ref’d n.r.e.).”).
[61] See Williams, supra note 59, § 825.2, at 166 (“The ‘amount-drained-away’ formula presupposes that the offset well would have prevented all drainage, which is not necessarily true. The location of the protection well, which may be determined by a regulatory agenda, will affect its efficacy in preventing drainage. Where it is determined that for physical reasons or by virtue of valid governmental order the offset well would not prevent all drainage, damage should be allowed only for the drainage that could have been prevented.” (footnote omitted)).
[62] See Mandell v. Hamman Oil & Ref. Co., 822 S.W.2d 153, 164 (Tex. App.–Houston [1st Dist.] 1991, writ denied) (“The measure of damages for breach of the drainage covenant was the royalty interest on the production lost by the producer’s failure to prevent drainage.”).
[63]
We have rejected the argument that a lessee should be held to a standard higher
than a reasonably prudent operator when, as in this case, he is also the
operator of the well that is draining the lessor’s property. Amoco Prod. Co.
v. Alexander, 622 S.W.2d 563, 569 (
[64] See W.T. Waggoner Estate v. Sigler Oil Co., 19 S.W.2d 27, 29 (Tex. 1929) (“Where a mining lease provided for oil or gas royalties, and failed to define the lessee’s duty as regards development after discovery of paying oil or gas, the law implied the obligation from the lessee to continue the development and production of oil or gas with reasonable diligence.”).
[65]
Texas Pac. Coal & Oil Co. v. Barker, 6 S.W.2d 1031, 1038 (
[66] Coastal’s argument in summation, in part, was this: “[T]he fact of the matter is gas prices have increased and that means more dollars are being paid for gas today than they were, and that means more royalty is being paid today than it was. . . . Let’s assume that the Plaintiffs took every single penny that they would have received had these wells been drilled earlier, every cent, and invested it, never spent it, never took it out of the bank, just invested it. . . . They’re still 90 some thousand dollars ahead based upon the payment they are receiving now than this assumed payment that they could have gotten had we drilled earlier.”
[67]
Ridge Oil Co. v. Guinn Invs., Inc., 148 S.W.3d 143, 157 (
[68]
Southeastern Pipe Line Co. v. Tichacek, 997 S.W.2d 166, 170 (
[69] Garza v. Maddux, 988 S.W.2d 280 (Tex. App.–Corpus Christi 1999, pet. denied) (noting that the dispute over the tract had become clear by 1982, and thus, even if the discovery rule applied, limitations would bar plaintiffs’ claim for deed reformation as a matter of law); see supra notes 6-8.
[70] The court of appeals refused to consider the prejudicial effect of this testimony because Coastal failed to object to it. 166 S.W.3d 301, 324. Although Coastal failed to object and preserve any complaint about this testimony, we may still consider the testimony in resolving Coastal’s argument regarding the relevance and prejudicial effect of the 1977 memo.
[71]
Scurlock Oil Co. v. Smithwick, 724 S.W.2d 1, 4 (
[72] See Tex. Civ. Prac. & Rem. Code § 41.008.
[73] See also Heddin v. Delhi Gas Pipeline Co., 522 S.W.2d 886, 889-890 (Tex. 1975) (holding in a condemnation case that admission of “highly inflammatory” photos of the carcasses of livestock and pets killed in a natural gas pipeline rupture near the landowners’ property “were not calculated to aid the jury in its understanding of the case” and “must be construed as an attempt to appeal to the prejudice and passion of the jury”, which “was reasonably calculated to cause and probably did cause the rendition of an improper judgment.”).
[74]
Dolenz v. Continental Nat’l Bank, 620 S.W.2d 572, 575 (
[75]
Wyatt v. Shaw Plumbing Co., 760 S.W.2d 245, 248 (
[76] Dolenz, 620 S.W.2d at 575.