290 Headington Oil Co. v. White

 
Richard F. Brown
 
The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.
 
Headington Oil Co., L.P. v. White, 287 S.W.3d 204 (Tex. App.-Houston [14th Dist.] 2009, no pet.), held that interest was not payable on suspended royalties when the size of the royalty interest was disputed. There was some uncertainty as to the amount of the royalty interest owned collectively by Modesto White, Jr., Fortenberry and Evans (“Plaintiffs”) and Melovee White and Gielda White (collectively, the “Whites”). There was also uncertainty regarding the allocation of the combined royalty interest between Plaintiffs and the Whites. For eight years, and through Plaintiffs’ sixth amended petition, Plaintiffs claimed they owned a combined .053571 non-participating royalty interest. A few months before trial, Plaintiffs filed their seventh amended petition, claiming a .01577116 combined royalty interest. In response, Headington filed an interpleader with the trial court and stipulated to the smaller combined royalty interest claimed by Plaintiffs. Headington also paid the royalties attributable to Plaintiffs’ royalty interest into the court registry, pending a judgment resolving the claims between Plaintiffs and the Whites. The Whites failed to appear at trial, and the trial court awarded judgment to Plaintiffs on the combined royalty interest. The trial court also ordered Headington to pay interest on Plaintiffs’ royalties and to pay Plaintiffs’ attorney’s fees.
 
Under Tex. Nat. Res. Code Ann. section 91.403 (Vernon 2001), an operator must pay interest to the royalty owner when payments are not made within the time frame set by section 91.402(a). However, section 91.402(b) provides that payments may be withheld without interest beyond the time limits set out in subsection (a) when there is a dispute concerning title that would affect the distribution of payments. Plaintiffs contended there was never a dispute regarding their entitlement to royalties – merely a dispute as to the amount owed – and, therefore, the disagreement was not a “title dispute” within the meaning of the statute. The Houston Court of Appeals rejected Plaintiffs’ argument and held that “[t]he purpose of section 91.402 is to protect royalty owners from intentional payment delays, but to permit delays that result from legitimate title disputes.” The court held that because the disagreement affected the operator’s ability “to distribute royalty payments in accordance with section 91.402(a), it was a title dispute. Under section 91.402(b), this title dispute extinguished any liability for prejudgment interest.”
 
The significance of the case is the holding that a dispute as to the amount of royalty payable is a “title dispute” within the meaning of the statute, so that payment may be suspended without interest until the dispute is resolved.