By Brian Pullin, partner, Husch Blackwell LLP
A recent Texas case, Lyle v. Midway Solar, S.W. 3d, 2020 WL 7769632 (Tex. App. Ct., El Paso 83rd Dist. 2020), addressed a challenge that many solar developers wrestle with: how to handle mineral owners. A mineral owner has the right to use minerals found beneath a plot of land. The El Paso Court of Appeals clarified this complex issue and demonstrated the importance of properly addressing the minerals on a site prior to developing a solar project in certain areas of the United States.
Key takeaways for renewable energy developers
This is an important case that renewable energy developers can look to in assessing the minerals on a project site. First, the court actually acknowledged that Texas was a leader in energy and produced the largest share of oil and gas, but it also noted that public policy favors adding renewable energy sources into the state’s energy portfolio, which is a great development for renewable energy developers.
This case focuses on the conflict between the surface/solar owner and mineral owner/developer, which is always an issue especially for solar developers. The opinion does not address any fact-specific analysis that must be performed when applying the accommodation doctrine, but it 1) does help confirm that the accommodation doctrine does apply when the deed/contract does not address the uses of the surface, 2) sets when the application of the accommodation doctrine should be used, and 3) shows the importance of obtaining any agreements from the proper parties before filing them of record.
Basic facts of the case
The Lyles own a portion (27.5%) of the mineral estate in a 315-acre tract in Pecos County, Texas, where Midway Solar acquired a solar lease from Gary Drgac who owned 100% of the surface for the construction of a solar project on his land. The Lyles admittedly were not under any lease to develop the minerals, and they had no plans to develop. Further, they had not received any offers to lease their mineral interest. The solar lease acknowledged that Mr. Drgac did not own the mineral estate and the ownership of minerals in third parties constituted a title encumbrance. Midway amended the solar lease to designate an 80-acre tract at the north end of section 14, and a 17-acre tract on the south end as drill site tracts.
Midway pursued and ultimately acquired surface waivers from 20 individuals who owned a mineral interest on adjacent property, but some of those waivers purported to cover the 315-acre tract at issue. Midway amended some of the waivers and filed a “Disclaimer of Interest” of record in Pecos County, Texas, which disclaimed any interest that the waivers may have given Midway on the 315-acre tract. Midway did not acquire a surface waiver from the Lyles. Midway constructed the solar facility on 215 acres on the south half of section 14, which constitutes approximately 70% of the survey, avoiding the drill site tracts.
The Lyles sued Midway, Mr. Drgac and the mineral owners from the adjacent tract who signed the surface waivers discussed above. The Lyles claimed that: 1) they were entitled to a quiet title declaration in their mineral estate because the surface waiver agreements created a cloud on their title; 2) Midway and Mr. Drgac breached the 1948 deed, from which the Lyles derived their mineral ownership, by denying them reasonable access to their minerals by covering 70% of the property with solar facilities; and 3) all parties trespassed on the Lyles’ mineral estate by the solar lease and improperly executed surface waivers.
Midway and Mr. Drgac filed several summary judgment motions, which the trial court granted. These orders stated 1) that the “Disclaimer of Interest” filed in the Deed Records removed any purported cloud of title and required a certified copy of the court’s order to be filed in the county records, 2) that the accommodation doctrine applies to the interpretations of the 1948 deed, and 3) that Midway owed no duty to the Lyles to accommodate their right to use the surface because the Lyles had not developed their mineral estate and had no plans to do so. The Lyles filed an appeal arguing that the trial court erred in granting summary judgment.
Court of Appeals decision
- Trespass and breach of contract claims
- Application of the accommodation doctrine
The accommodation doctrine is well-settled law that “mineral and surface estates must exercise their respective rights with due regard for the other’s,” and has in general provided a “sound and workable basis” for resolving conflicts between ownership interests. See Coyote Lake Ranch, 498 S.W.3d at 61, 63 (citing, inter alia, Brown v. Lundell, 344 S.W.2d 863, 866 (Tex. 1961); Warren Petrol. Corp. v. Martin, 271 S.W.2d 410, 413 (Tex. 1954)).
The doctrine requires the mineral owner to accommodate an existing surface use and use an alternative method when: 1) the surface owner has an existing use; 2) the proposed use by the mineral owner completely precludes or substantially impairs the surface owner’s existing use; 3) the surface owner has no reasonable alternatives; and 4) the mineral owner has reasonable alternatives to develop the minerals. Regardless of these factors, the accommodation doctrine would not apply if the parties’ deed or contract determines the use of the surface by the parties.
In Lyle, the El Paso Court of Appeals agreed with Midway that the beginning point for the resolution on appeal was to determine whether the accommodation doctrine applied or whether it had been contracted out by the parties. For the below reasons, the Court of Appeals ruled that the accommodation doctrine did apply.
In the 1948 deed, the grantor reserved “the right to such use of the surface estate in the lands above described as may be usual, necessary, or convenient in the use and enjoyment of the oil, gas, and general mineral estate.” The Lyles argued this language, specifically the use of the “usual,” expressed the intent to reserve the right to use vertical drilling, which was the typical method of development at the time of the 1948 deed. The Lyles argued that eliminating 70% of the surface from possible development would be a violation of the deed and the vertical drilling rights reserved by the mineral owner.
The Court of Appeals disagreed. First, the court stated the use of the term “usual” did not expressly reserve any specific drilling method, but rather was used in a general sense to give the grantors the right to “‘use’ the surface in the ‘usual’ manner in the ‘use and enjoyment’ of the reserved mineral estate.” The Lyles also argued that the “elimination of liability provision” in the deed was intended to resolve how the parties intended the surface to be used. This provision limited the liability of the grantors for any damage or injury to the surface caused by grantor’s use or resulting from the rights reserved in connection with the mineral estate. The court disagreed with the Lyles because this clause only applies if the mineral owners damaged the surface and was not a limit on the surface owner’s rights to use the surface.
- Does the mineral owner have to develop or plan to develop the minerals to have a claim?
Once the court determined that the accommodation doctrine applied, it then looked at whether Midway must accommodate the Lyles’ potential use of the property before the Lyles actually are or potentially are using the property. It was undisputed that the Lyles did not actively seek to develop their minerals and at the time of the case had no plans to do so. The Lyles argued that they suffered damage because they were unable to pursue mineral development as the result of the solar farm being constructed on 70% of the surface. The court disagreed with the Lyles and stated that the court must look at what is logical in addition to the law. Pursuant to its solar lease, Midway already had the right to use the surface. In the alternative, the Lyles had the right to the surface, but only as to their mineral estate, which they were not developing. The court ruled that if the Lyles are not seeking to develop their minerals, Midway owes no duty to them regarding the surface usage because there is nothing to accommodate.
The court stated that it applied the accommodation doctrine to come to this conclusion. However, even if the court erred in applying the accommodation doctrine, which is unlikely, the court would reach the same conclusion under the Lyles’ other pleaded claims. First, under the trespass claim, both parties have a right to the surface as discussed above. Thus, Midway has not encroached on the surface rights until the Lyles actually seek to exercise their mineral rights. The second claim was a breach of contract claim. In the 1948 deed, the Lyles contracted for the right to access the property for the purpose of mineral development. However, they have never actually asked to enter the property for this purpose. Therefore, until they actually seek to develop their minerals, the court ruled that any claim for trespass or breach of contract is premature.
- The quiet title claim
For this claim, the Lyles argued that the surface waiver agreements that Midway obtained from mineral owners that owned on adjacent tracts and did not own on the subject property created a cloud on their title because the agreements purported to waive the right to the surface on section 14 for mineral development when the grantors did not have such a right. The Lyles argued the agreements were invalid and sought a judgment declaring the surface waivers to be invalid and void and ordering their removal from the public records. Midway argued that the waivers do not create a cloud on title and, even if they did, the “Disclaimer of Interests” and the trial court’s order stating that the “Disclaimer of Interest” removed any cloud corrected any cloud on title.
The appeals court agreed in part with the Lyles that some of the invalid surface waiver agreements created a cloud on title that had not been corrected, which entitled the Lyles to a declaration quieting their title. The Court of Appeals broke the agreements into categories. The issues arose in two of those categories, which were the “Agreements that claim mineral rights in lands covered by the leases” and “Agreements that claim rights in the ‘drill site reservations.’” In this first category, the court stated these agreements on their face claim a mineral interest in section 14 when they had none because they reference the solar lease which covers section 14, in addition to other land. In the second category, the agreements purport to cover sections 71, 77 and 14, and Midway did not clarify that the mineral owner did not own an interest in section 14. While Midway did re-file these agreements and crossed out section 14, this correction did not meet the requirements of the Texas Property Code for filing correction instruments.
The Court of Appeals went on to state that even though Midway filed a “Disclaimer of Interest,” the surface waiver agreements did not purport to give Midway any right to develop minerals in section 14. Rather the mineral owners who signed the waivers actually were the ones claiming an interest in section 14. Further, the court disagreed with Midway that the trial court’s order cleared any cloud on title. The court stated that the order did not clear any confusion caused by the agreements and referred to another document that was not part of the deed records. Therefore, a reasonable researcher would not be able to locate the amended petition to determine the allegations being asserted.
The deadline to seek review from the Texas Supreme Court has not yet passed, so there could be further petitions filed, but this case is a great development and adds to the long history of accommodation doctrine cases in Texas. This case exemplifies the focus the renewable energy developer must have on the minerals. By properly addressing mineral development and locations up front and obtaining agreements or purchasing the minerals from the proper parties that have an interest in the land, a developer can usually avoid this type of litigation, and a solar developer and mineral owner can both have the necessary access to the surface.
Brian Pullin is an Austin-based partner with the law firm Husch Blackwell LLP and is a member of the firm’s Energy & Natural Resources industry team.