Schwartz v. Prairie Producing Co.

OPINION SAM BASS, Justice. This appeal is from an instructed verdict construing oil, gas, and mineral leases. We reverse and remand for a new trial. Appellants, the Schwartzes, own mineral interests in two tracts of land on which they executed eight leases that were assigned to appellee, Prairie Producing Company, Inc. Prairie pooled the tracts into two separate gas units that include three producing gas wells. Each well produces sour gas, which is gas that contains hydrogen sulfide. Prairie contracted with Cities Service Company for delivery of sour gas at the wellhead. Cities Service transported the sour gas to its processing facility, where sulphur was recovered from the hydrogen sulfide gas. Cities Service kept 15 to 20 percent of the sulphur produced, and returned the remaining sulphur to Prairie. Prairie sold the sulphur to third parties. Prairie tendered to the Schwartzes one dollar per long ton of sulphur extracted from the gas, the royalty provided in the lease for sulphur. However, the Schwartzes refused the payments and sued, claiming that under the gas clause of the lease, they were entitled to recover their percentage interest in one-fourth of Prairie’s net proceeds from the sales of sulphur recovered from the hydrogen sulfide gas. Prairie claimed that it had correctly paid royalties under the sulphur royalty clause. The parties disagree on which royalty provision applies. The Schwartzes contend that they are entitled to royalties on hydrogen sulfide gas under subsection 3(b)(1), the gas clause, because hydrogen sulfide is a gas that was sold to Cities Service. Prairie claims that subsection 3(c), the sulphur clause, applies because it was sulphur mined and marketed that was sold to Cities Service and to third parties. In the first proceeding in the trial court, the court granted summary judgment for Prairie. This Court reversed the summary judgment and remanded the case to the trial court. Schwartz v. Prairie Producing Co., 727 S.W.2d 289 (Tex.App.—Houston [1st Dist.] 1987, writ ref'd n.r.e.). In that case, each of the three members of the panel wrote separate opinions. The “majority” opinion, written by Justice Cohen, held that the leases require payment under the gas clause, and the trial court erred by holding payment should be made under the sulphur clause. Id. at 292. Thus, he reversed and remanded the cause to the district court. Id. at 293. Justice Dunn concurred only in the judgment. She found the language of the leases to be ambiguous, and was unwilling to deny either side a trial. “I cannot declare with confidence, based on this record, that there is no disputed issue of fact and that one side or the other is entitled to judgment as a matter of law.” Schwartz, 727 S.W.2d at 293. Finally, Justice Bass dissented. He found that sulphur extracted from hydrogen sulfide gas should be paid under the sulphur clause of the lease. Schwartz, 727 S.W.2d at 293. He, therefore, would have affirmed the summary judgment of the trial court. Id. On remand, the trial court held a jury trial on the merits. After both parties rested their cases, the court granted Prairie’s motion for instructed verdict. The court rendered judgment that the Schwartzes take nothing on their claims for additional royalties. In their first and second points of error, the Schwartzes contend that the trial court erred in granting Prairie’s motion for instructed verdict and in sustaining one of Prairie’s special exceptions to the Schwartzes’ petition, because the Schwartzes were entitled to payment under [631] the gas clause based upon the doctrine of the law of the case. The law of the case is a principle under which determination of law questions will generally be held to govern a case throughout all the subsequent stages, including a retrial and subsequent appeal. Trevino v. Turcotte, 564 S.W.2d 682, 685 (Tex.1978). The Schwartzes assert that this doctrine should be applied because the same issue before this Court today was decided in the previous appeal: whether the gas clause or the sulphur clause applies to payments for hydrogen sulfide gas. However, a majority of this Court did not decide which of the two clauses applies. Justice Cohen was of the opinion that the gas clause applied. Justice Bass decided that the sulphur clause applied. Justice Dunn, while concurring in the result, found the issue was a question of fact that this Court should not decide. With all due respect to Justice Cohen, we hold that concurrence in the result is not sufficient to make the determination of the law by only one judge the law of the case. The first and second points of error are overruled. In the third point of error, the Schwartzes assert that the trial court erred in granting an instructed verdict because the leases unambiguously provide that hydrogen sulfide gas is compensable under the gas clause. Alternatively, in the fourth point of error, they claim that, even if the leases are ambiguous, the evidence presented at trial raised a fact issue concerning which clause governs payment for hydrogen sulfide gas. The disputed provision of each lease is identical. It refers to the Schwartzes as “lessor” and to Prairie as “lessee” and provides: 3. As royalty, lessee covenants and agrees ... (b) To pay lessor on gas and casinghead gas produced from said land (1) when sold by lessee, of the amount realized by lessee, computed at the mouth of the well, or (2) when used by lessee off said land or in the manufacture of gasoline or other products, the market value, at the mouth of the well, of ¼ of such gas and casinghead gas; (c) To pay lessor on all other minerals mined and marketed or utilized by lessee from said land, one-tenth either in kind or value at the well or mine at lessee’s election, except that on sulphur mined and marketed the royalty shall be one dollar per long ton. In reviewing an instructed verdict, the appellate court must determine whether there is any evidence of probative force to raise fact issues on the material questions presented. Collora v. Navarro, 574 S.W.2d 65, 68 (Tex.1978). The court considers all of the evidence in a light most favorable to the party against whom the verdict was instructed, disregards all contrary evidence and inferences, and gives the losing the party the benefit of all reasonable inferences arising therefrom. Id. Every reasonable meaning deducible from the evidence is to be indulged in the non-movant’s favor. Trenholm v. Ratcliff, 646 S.W.2d 927, 931 (Tex.1983). If there is any conflicting evidence of probative value on any theory of recovery, an instructed verdict is improper, and the issue must go to the jury. White v. Southwestern Bell Tel. Co., 651 S.W.2d 260, 262 (Tex.1983). Prairie’s expert witnesses testified about the natures of hydrogen sulfide and sul-phur. Larry Minter, a geologist with experience in hard mineral production, stated that hydrogen sulfide is a colorless gas. Mike Brown, a senior land man and land manager, said sour gas, which contains hydrogen sulfide, is “gas” within the meaning of the leases in dispute and within the meaning of Tex.Nat.Res.Code Ann. § 86.-002 (Vernon 1978). Glenn Perry, a petroleum engineer, testified that sulphur does not exist at the wellhead except in trace quantities. All the sulphur that is recovered is obtained at the processing plant. He further stated that sulphur is contained in the hydrogen sulfide molecule. However, he admitted that “hydrogen sulfide” is not a synonym for “sulphur.” Prairie’s experts also testified to industry custom regarding the classification of a hydrogen sulfide gas well. Bill McCain, a petroleum engineer and gas processing expert, testified that a sour gas well can be [632] considered a “mine,” but he conceded that he had never called a sour gas well a mine in his professional career. He further admitted that a sour gas well is not a sul-phur mine. Mr. Minter testified that the sulphur Prairie sells is “sulphur mined and marketed,” so that it would fall under the sulphur provisions of the leases. However, he admitted that in the terminology of the industry, sulphur produced from hydrogen sulfide was considered “recovered sul-phur,” not “mined sulphur.” The Schwartzes put on Leonard Holland as their expert. He testified about gas processing agreements generally, and attempted to testify about industry custom concerning the sale of hydrogen sulfide gas. However, the court would not allow his industry custom testimony. In a bill of exception, Holland stated that this was the first time in his professional career that he had heard of a producer calling a gas well a sulphur mine, and attempting to pay one dollar per ton for sulphur. Clearly, there is evidence of probative force to raise a fact issue on the material question presented — that is, which lease clause applies. Further, the evidence does not resolve the ambiguity in the lease. As Justice Dunn wrote in her concurring opinion on the appeal from the summary judgment: “I am unwilling to deny either side a trial, based on this ambiguous language that has confounded three able federal judges, as well as three members of this panel, and that presents an important question of first impression in Texas.” Schwartz, 727 S.W.2d at 293; First Nat’l Bank v. Pursue Energy Corp., 784 F.2d 659 (5th Cir.1986) (“Pursue I”), vacated by, 799 F.2d 149 (5th Cir.1986) (“Pursue II”). We hold the pertinent provisions of the lease to be ambiguous under the evidence in this case. Thus, the third point of error is overruled. However, we sustain the fourth point of error and hold that the instructed verdict was improper where probative evidence supporting the Schwartzes’ arguments was adduced at trial. We reverse the trial court’s judgment and remand this cause for a new trial.