Caselaw Update

Caselaw Update: Van Dyke v. The Navigator Group

On February 17, 2023, the Texas Supreme Court issued its decision in Van Dyke v. The Navigator Group, ending roughly ten years of litigation stemming from a disputed mineral interest reservation involving double fractions and $44 million in accumulated royalties. This ruling has the potential to impact conveyances and leases taken as far back as the early 1900s.

The case turns on a 1924 deed from the Mulkeys to White and Tom, in which the Mulkeys conveyed their ranch with the following reservation language:

“It is understood and agreed that one-half (1/2) of one-eighth (1/8) of all minerals and mineral rights in said land are reserved in grantors, Geo. H. Mulkey and Frances E. Mulkey, and are not conveyed herein.”

Following the deed, both parties engaged in activities consistent with each side owning half of the total mineral interest, and the successors in interest carried on that understanding. However, a dispute arose in 2012, after Endeavor Energy drilled a well and paid both the Mulkeys (“Mulkey parties”) and the successors in interest to White and Tom (“White parties”) equal one-half shares. The White parties filed a trespass-to-try-title action, arguing that the 1924 deed reserved merely 1/16 of the minerals to the Mulkey parties, leaving the White parties with the remaining 15/16. Conversely, the Mulkey parties argued the interest reserved was 1/2 of the total mineral estate, and the “1/8” reference was a term of art under the estate misconception theory (a phenomenon in which “1/8” was commonly believed to mean the entire mineral estate, but forgotten over time); but even if the reservation was held to mean 1/16, the Mulkey parties claimed they were entitled to 1/2 by virtue of the long history of both parties acquiescing to each holding a 1/2 mineral interest.

The trial court sided with the White parties and held that the deed was unambiguous in reserving only a 1/16 interest for the Mulkey parties. This interpretation was affirmed by the Appellate Court, which further held that the estate misconception theory did not apply because “the deed did not contain any conflicting provisions requiring harmonization and the subject property was not burdened by an oil and gas lease at the time of conveyance.”  However, the Texas Supreme Court disagreed, overturning the lower court rulings and remanding the case to the trial court for further proceedings. The Court concluded that the interest reserved was 1/2 of the entire mineral estate, using “two distinct paths ̶ the construction of the original deed and the presumed-grant doctrine.” The Court commented that not all cases will require an analysis using each “path,” but addressed each for explanatory purposes.

The Court noted that analysis begins with textual interpretation, with a term given its ordinary meaning when the document in question was drafted, as referenced in Hysaw v. Dawkins. Thus, as put forth in Dwyer v. City of Brenham, in 1888 a person in Brenham, Texas would understand that contracting for “1,000 rabbits is actually an order for 1,200; [and] reference to a day could mean ten hours in context.” Parties’ intent should also only be gleaned from the document itself and not from extrinsic evidence. Relying on contemporary understandings can cause interpretation issues decades, or even centuries down the line, as this case clearly exhibits. Texas courts have grappled with these issues over time, and the Texas oil and gas industry has certainly not been spared from deciphering its own share of confusing instrument construction.

In the first half of the twentieth century, it was common for landowners to retain a 1/8 royalty interest when executing a lease with an oil and gas company. Overtime, that “1/8” phrase became synonymous with the mineral interest itself or as a proxy for the customary royalty of 1/8, thus becoming a term of art. The Court looked to the holding from Hysaw to solve this “double-fraction dilemma,” in which a will bequeathed to each child a “one-third of one-eighth royalty,” and the Court held that each child had in fact received a “floating one-third intertest in the royalty.” This conflict between contemporary terms of art and later interpretations created the estate-misconception theory, which “reflect[s] the prevalent (but mistaken) belief that, in entering into an oil-and-gas lease, a lessor retained only a 1/8 interest in the minerals rather than the entire mineral estate in fee simple determinable.”  In turn, for decades afterwards, many lessors referred to their entire interest in the mineral estate with the simple use of “1/8.”  While, as the Court noted, using “1/8” to mean the entire mineral estate is rebuttable, such a rebuttal can only be accomplished with evidence from the document itself suggesting basic multiplication be applied. The Court found that while “1/8” was a term of art in use at the time the deed was drafted to mean the entire mineral estate, there was nothing else in the deed to rebut this meaning, and held that the Mulkey grantors did in fact reserve a full 1/2 interest in the mineral estate.

The Court also noted that the court of appeals misapprehended how the estate-misconception theory is applied to instruments, such as the deed in this case. Instead of looking to whether the lack of inconsistencies in an instrument require harmonization, courts should first assume that the specific use of a double fraction was intentional (a rebuttable presumption) and if the document lacks anything that could rebut that presumption (inconsistencies) then the intended (historical) use of the double fraction stands. For instance, the instrument in this case included the use of a double fraction (“1/2 of 1/8”) and there was no evidence to rebut the presumption that the parties intended “1/2 of 1/8” to mean “1/2 of the mineral estate.” As for the land not being encumbered by a lease at the time of the deed, the Court stated that the theory’s “relevance has never depended on the considerations that the court of appeals identified.”

The Court then turned its analysis to the presumed-grant doctrine, which has been described as “a common law form of adverse possession.”  From Magee v. Paul, the Court noted three elements which must be satisfied for the presumed grant doctrine to prevail: “(1) a long-asserted and open claim, adverse to that of the apparent owner; (2) nonclaim by the apparent owner; and (3) acquiescence by the apparent owner in the adverse claim.” The Court stated that in the case at hand, a ninety-year history existed between the parties in which “conveyances, leases, ratifications, division orders, contract, probate inventories, and a myriad of other instruments” were recorded, thus providing notice of the interests owned by both parties. Furthermore, throughout this long history, both parties had stipulated multiple times to the 1/2-1/2 ownership of the mineral estate; and White, himself in a 1950s’ conveyance, recited that he only held an undivided 1/2 interest in the oil, gas, and other minerals on the ranch. Based on the foregoing, the Court held that the Mulkey parties conclusively established their ownership under the presumed grant doctrine.

The Van Dyke ruling is likely a landmark case in oil and gas title. Modern interpreters must now start with the presumption that “1/8” in a double fraction actually refers to the entire estate, absent textual evidence to the contrary, or any evidence which proves otherwise and satisfies the presumed-grant doctrine.  The ruling is likely to yield future disputes in application.

Kuiper Law Firm, PLLC specializes in oil and gas; if you have any questions about the information in this article, or how it applies to your operations, do not hesitate to contact us.