713 Armour Pipe Line Co. v. Sandel Energy, Inc., No. 14-16-00490-CV, 2018 WL 1546697 (Tex. App.—Houston [14th Dist.] Mar. 28, 2018, pet. filed)

Richard F. Brown

The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.

Armour Pipe Line Co. v. Sandel Energy, Inc., No. 14-16-00490-CV, 2018 WL 1546697 (Tex. App.—Houston [14th Dist.] Mar. 28, 2018, pet. filed) held that a foreign entity that forfeited its certificate of authority to do business in Texas under the Texas Tax Code did not forfeit its claim to payments for an overriding royalty interest. In 1999, Armour Pipe Line Company (“Armour”) assigned multiple oil and gas leases and wells to Sandel Energy, Inc. (“Sandel”), reserving an overriding royalty interest in 76 leases to Armour. In 2003, Armour’s certificate of authority to do business in Texas was forfeited under the Texas Tax Code. It was admitted that Armour’s certificate was reinstated in 2014. It was also admitted that Armour was not a domestic entity. However, Sandel contended that Armour’s claims and rights based on the overriding royalty were extinguished by operation of law under Texas Business Organizations Code Section 11.359(a) when the certificate was not reinstated within three years of its forfeiture in 2003. The royalties in dispute exceeded $1.5 million. The issue in the case was whether § 11.359(a) was applicable to a foreign entity.

The court analyzed the relevant provisions of the Texas Business Organizations Code and the predecessor Texas Business Corporations Act. The key language in § 11.359(a) of the Texas Business Organizations Code provided that: “an existing claim by or against a terminated filing entity is extinguished unless an action or proceeding is brought on the claim not later than the third anniversary of the date of termination of the entity.” This, and the other provisions analyzed, generally revolve around the limited survival of claims held by dissolved domestic corporations after the date of dissolution. After its statutory analysis, the court concluded that § 11.359(a) did not apply to a foreign entity.

The significance of the case is the holding that a foreign entity which forfeits its certificate to do business in Texas under the Tax Code does not lose its claim to payment for an overriding royalty interest in Texas.