not be withheld beyond the time limits set out in the Natural Resources Code.” 23 Even in the chance that a payee does have a cause of action under this new legislation, it is required to first give the payor written notice of nonpayment by mail before pursuing judicial action.24 Upon receipt, the payor then has thirty days to either pay the overdue proceeds or respond with the reasonable cause for such nonpayment. 25 Broadening the Safe Harbor Provision Section 91.402 also includes the “safe harbor” provision, which permits payors to withhold payment “if there is a dispute concerning title that would affect distribution of payments,” but payors must establish two facts: “(1) that a ‘dispute concerning title’ existed during the time it withheld production payments and (2) that dispute ‘ would affect distribution of payments.’” 26 On May 19, 2023, the Freeport-McMoRan Oil & Gas LLC v. 1776 Energy Partners, LLC opinion came down in which the SCOT adopted a very broad interpretation of what a “title dispute” includes within the Texas Suspense Statute. The court reversed a 2021 court of appeals (COA) decision finding that a constructive trust in a related suit does not fall within that category. In the opinion, the SCOT rejected the COA’s pro-payee argument that the phrase “would affect” requires a “current effect” on payment distribution, and instead, held that “would affect” simply requires “an expected future effect.” 27 Accordingly, the COA incorrectly held that the payor owed the payee interest on the suspended payments solely because the dispute does not “currently” affect payment distribution. 28 Thus, the SCOT clarified that (2)’s only necessary condition required to permit the payor “to withhold the payments without interest” is that “the dispute concerning the title was, at that time, at least expected or likely to influence or alter the distribution of the payments” owed to the payee. 29 This broadens the safe harbor provision’s power in the sense that meeting the invalid “current affect” requirement has a higher threshold in comparison to the lower threshold the valid “would affect” requirement has. Another portion of the safe harbor
provision permits a payor to withhold payments if there is a “ reasonable doubt” that the payee had “clear title to the interest in the proceeds of production.” 30 The SCOT additionally rejected this COA’s holding that “issues of reasonableness must be resolved by a factfinder as a question of fact rather than by a court as a matter of law.” 31 While the COA reasoned their holding by stating that “the determination as to whether something is reasonable is often an issue of fact that should be adjudicated by the factfinder because it requires comparison to surrounding circumstances,” the SCOT pointed out that “[r]easonableness has always entailed an objective inquiry.” 32 The SCOT went on to enforce its own precedent that:
While questions of reasonableness must be submitted to a factfinder when a genuine disagreement about the facts prevents the law from generating an objective answer, . . . no case citing that proposition can be understood to say that a factfinder must resolve all issues touching on reasonableness. Rather, the legal standard for reasonableness remains objective even if the “controlling facts” are in doubt.
Thus, reasonableness may present a question of law “when from the facts in evidence but one rational inference can be drawn.” 33 Applying that holding to the case at hand, the SCOT found the payee’s contention that the 23). Katy Wehmeyer & Jordan Stevens, Withholding Royalty Payments After ConocoPhillips Co. v. Koopmann, 52 Tex. Tech L. Rev. 439, 481 (2020); Bennett, supra note 18. 24). Tex. Nat. Res. Code Ann. § 91.404 (Vernon). 25). Id. at (b). 26). § 91.402(b)(1)(A). 27). Freeport-McMoRan Oil & Gas LLC v. 1776 Energy Partners, LLC, 22-0095, 2023 WL 3556695, at *4 (Tex. May 19, 2023) (emphasis added). 28). Id. 29). Id. (emphasis added). 30). Id. at *5 (emphasis added). 31). Id. 32). Id. (emphasis added) (internal quotation marks omitted). 33). Id.
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N at i onal A ssociation of D i v i s i on O rder A nalys t s
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