Face Challenges Confidently

369 Teon Mgmt., LLC v. Turquoise Bay Corp.

Monday, August 31st, 2015

Richard F. Brown

The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.
Teon Management, LLC v. Turquoise Bay Corporation, , No. 11-10-00050-CV, 2011 WL 1326325 (Tex. App.—Eastland Apr. 7, 2011, Opinion withdrawn on grant of rehearing, 2011 WL 5089797) held that a trespass to try title action is the proper means for determining lease validity, rather than a declaratory judgment action, where the case involves rival claims to the mineral estate and determination of title is ultimately at issue. The working interest owners under the base leases lost production on their troubled leasehold and selected Turquoise Bay Corporation (“TBC”) as the new operator to take over operations.  Production resumed.  Teon Management, LLC (“Teon”) obtained top leases covering the same wells.  The production purchasers suspended payment of revenue.
TBC sued Teon for a declaratory judgment that the base leases had not terminated and that TBC was the operator.  TBC was generally successful at trial and obtained favorable jury findings relating to the resumption of production on the leases. The trial court entered a declaratory judgment in TBC’s favor, holding that the leases covering three of the wells were valid, holding that TBC was not a trespasser as to those wells, and awarding TBC the suspended funds and its attorney’s fees. However, Teon had timely and continuously maintained that the case could not be tried as a declaratory judgment action, but rather only as a trespass to try title suit.
The court first determined that declaratory judgment was improper because title was in dispute. The determination in the trial court that TBC had valid leases, was the proper operator, and was entitled to the suspended proceeds were each title determinations because the case was “ultimately an evidentiary determination of whether [TBC’s] leases had expired.”
The court distinguished the case of Ridge Oil Co. v. Guinn Investments, Inc., which was a lease termination case that proceeded as an action for declaratory judgment.

Other courts have held that a party waives its right to insist upon a trespass to try title action when it fails to object.  . . .  The trial court does not lose jurisdiction if a title dispute is erroneously filed as a declaratory judgment action and may properly award declaratory relief and attorney’s fees if no objection is raised. Because Teon Management objected to proceeding as a declaratory judgment action and to the award of attorney’s fees, that situation is not present here.

After making the threshold determination that a trespass to try title action was required, the court held that the trial court did not abuse its discretion in failing to sustain Teon’s special exceptions because “the claims for declaratory relief can be characterized as claims for trespass to try title.” The court proceeded to analyze the case as a trespass to try title case.
TBC met its burden under a trespass to try title framework by proving a superior title and prior possession.  TBC had superior title because it was the successor in interest to the original leases and Teon testified that TBC had current majority ownership of the leases. TBC also had undisputed prior possession, which Teon failed to rebut.  A presumption of title based on prior possession is rebutted when the defendant has better title.  The court distinguished the case of Clements v. Corbin, where the pleading had admitted “record title” in the opposing parties, because TBC did not admit Teon had valid leases or held any title. At most, TBC admitted Teon had entered into leases with mineral owners who owned a reversionary interest, with no current right of possession. Thus, Teon failed to produce evidence of better title and rebut TBC’s presumption of title.
Finally, the court turned to Teon’s challenges to the sufficiency of the evidence supporting the jury’s finding that TBC timely commenced reworking operations. Following the doctrine of repudiation, the court excused TBC’s failure to timely commence reworking operations because it found that Teon repudiated the lease by obtaining new leases, demanding TBC vacate the premises, and sending correspondence to TBC stating that the lease had terminated. The court thus rendered a take-nothing judgment against TBC on its claim for attorney’s fees, but otherwise affirmed the trial court’s judgment.
The case is another example of the resurgence of trespass to try title as the only procedure for resolving title questions.  However, it also illustrates the court’s willingness to characterize claims for declaratory relief as trespass to try title claims, providing some leniency for trespass to try title’s stringent requirements.