constructive trust placed on its own interests “established its title to the production proceeds” to be the opposite of what is true. 34 It reasoned that upon “imposing a constructive trust, a court concludes the party should not be holding the property at all, which makes the party’s title anything but clear.” 35 When rightfully withheld, payees do not have a viable cause of action for breach of contract against payors unless, “for a dispute concerning the title, the contract requiring payments specifies otherwise.” 36 Alternatively, when erroneously withheld for any reason after thirty days of receipt of the payee’s notice, the payor is liable to the underpaid payee for the amount of payment the division order entitles it to plus interest. 37 In the first instance, the statute’s function is to protect the payor from the dangers of a clouded title. Meanwhile, in the second instance, the statute’s function is to protect the underpaid payee from a, more or less, opportunistic payor. A Shift Away from the Pro-Payor Trend? While Freeport-McMoRan reinforces the Texas Division Order and Suspense Statute’s strength, the Perdido Properties LLC on Behalf of Bremer v. Devon Energy Prod. Co., L.P. opinion, which came down just the day before, appears to undermine it. Although the case also upheld the precedent established in Gavenda , it steps away from Texas’ tradition of being pro-payor. Due to lack of Texas precedent concerning non-signatories of a division order suing payors that paid royalties to incorrect royalty owners, the COA heavily relied upon North Dakota precedent. 38 Meanwhile, North Dakota has a substantially weaker division order arrangement than Texas. In the situation involving a royalty owner who has not executed a division order with the payor, the North Dakota Supreme Court (NDSC) held that the payor’s reliance on the title opinion does not absolve it of double liability and the royalty owner can recover underpayment or total nonpayment from the payor. 39 In other words, North Dakota division orders are designed to provide the payor double liability protection from only those that are a signatory of the document
itself, while non-signatories face no legal barriers provided by such protection. Nonetheless, the NDSC holds that to be entitled to such protection from an underpaid signatory’s suit, the payor must have “detrimentally relied” on the division order by making underpayments according to the signed and executed, yet erroneous document. 40 Meanwhile, in suits brought by non-signatories, it is of absolutely no consequence that a payor detrimentally relied and may be exposed to double liability because it has “not relied to its detriment on any actions taken by the non-signatory” plaintiff. 41 Theoretically, the Texas COA possibly adopts North Dakota’s philosophy on the issue with the logic that by utilizing due diligence and the self-help provided to payors by the safe harbor provision, double liability to a non-signatory is something that can be easily avoided. After all, that is the purpose of the Suspense Statute: permitting payors to suspend royalty payments without interest, if there is any suspicion of a clouded title. Although the payors took a loss in Perdido , the Texas safeguards favoring payors prevented it from being worse than it could have been. For the payor’s protection, the statute of limitations bars all claims for royalty nonpayment that accrued prior to four years from the date that suit is filed by or on behalf of the royalty owner. 42 However, an even more pervasive caveat to the statute is crucial to note: “a cause of action accrues and the statute of limitation begins to run when facts come into existence that authorize a party to seek a judicial remedy.” 43 Therefore, such a cause of action accrues upon a wrongful act causing legal injury regardless of whether it goes undiscovered until thereafter, and regardless of whether the entirety of resulting damages have not yet occurred. 44 34). Id. at *6. 35). Id. (internal quotation marks omitted). 36). § 91.402(b-1) (Vernon). 37). Tex. Nat. Res. Code Ann. § 91.403 (Vernon). 38). Perdido Properties LLC on Behalf of Bremer, 669 S.W.3d 535, 551 (Tex. App. 2023).
39). Id. 40). Id. 41). Id.
42). Id. at 555. 43). Id. at 556. 44). Id.
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G rowth T hrough E ducat i on - A pr i l / M ay / J une 2024
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