493 BP Am. Prod. Co. v. Red Deer Res., LLC

Richard F. Brown

 
The following is not a legal opinion.  You should consult your attorney if the case may be of significance to you.
 
BP America Production Company v. Red Deer Resources, LLC  held that a top lessee’s judgment terminating the base lease could be superseded on appeal by posting a $25,000.00 bond.  Red Deer Resources, LLC (“Red Deer”) took multiple top leases (“Top Lease”) on 2,113 acres held and operated by BP America Production Company (“BP”) under a 1962 mineral lease producing from the Upper Morrow (“Base Lease”).  The lessors assigned to Red Deer the cause of action for lease termination as to the Base Lease.  Red Deer was successful in obtaining a judgment terminating the Base Lease, because the last producing well was not capable of producing in paying quantities, when it was shut in.  The judgment provided that the “right, title and interest of [BP] in the above-described real property” terminated and that the estate reverted to the top lessee, Red Deer.
 
BP moved to supersede execution of the judgment under Tex. R. App. P. 24 and offered security of $25,000 as a bond while BP’s appeal was pending.  The trial court conducted an evidentiary hearing on the bond.  BP relied upon rule 24.2(a)(2)(A), argued that the judgment was for recovery of an interest in real property, and therefore the minimum amount of security required under the rule was the value of rent or revenue to be derived from the Base Lease during appeal.   It was undisputed that under the status quo, no revenue or rent was being produced.   Red Deer presented evidence of a proposed fifteen-well development plan as to the Cleveland and Tonkawa formations and argued that Red Deer could incur millions of dollars in losses during the appeal because (a) the primary term of its Top Lease could lapse, (b) oil prices were forecasted to decline in the future, and (c) neighboring wells were draining the Cleveland formation.  The trial court sustained objections to the evidence on drainage and set the bond at $25,000.00.
 
The court noted the general rule that a party is entitled to supersede a judgment on appeal and that the standard of review under rule 24 is abuse of discretion.   To supersede a judgment for “an interest in property,” rule 24.2(a)(2)(A) requires that the judgment debtor post security of at least the amount of “rent or revenue” produced by the interest.  The court expressly declined to rule on the issues of whether Red Deer’s potential loss of its Top Lease and potential loss of revenue for conducting future drilling operations are interests protected by rule 24.  The court held that even if such interests are protected, the trial court did not abuse its discretion, because such risks could be too uncertain and speculative to require security to protect against such possible losses.   The evidence on drainage was rejected by the trial court and the appeals court deferred to the fact finder.   It was thus within the trial court’s discretion to limit its consideration to the rent and revenue threshold in rule 24.2(a)(2)(A) and set the bond at $25,000.
 
Red Deer also contended that rule 24.2(a)(3) was applicable.  In summary, that rule allows the judgment creditor to post the bond and take possession.   However, the Texas Supreme Court has held that rule 24.2(a)(3) may be applied only when the judgment does not involve “money, property or foreclosure.”   Having held that the trial court did not err by treating the judgment as one for recovery of property, the court found 24.2(a)(3) also did not apply, and thus denied Red Deer’s request to reverse the order permitting supersedeas.
 
Citing rule 24.4(c) for authority, Red Deer also asked the court to appoint a receiver to develop the property during the appeal.  The court held that rule 24.4(c) gives appeal courts the discretion to issue “temporary orders necessary to preserve the parties rights.”   Because appointing a receiver to develop an oil and gas lease is not a “temporary” action, the court denied Red Deer’s request.
 
This case provides some clarity as to the rights of the parties during the appeal of a lease termination case.  There probably is a right to supersede the judgment and the trial court will have discretion to set the supersedeas bond in an amount equal to at least the rent or revenue then being generated by the property.  Development pending an appeal should be sought in the trial court as a receivership or as other relief and is not likely to be available on appeal.