Angela Staples
Van Dyke v. Navigator Group[1] concerns a dispute that has lasted a decade, as well as an issue that, for multiple decades, has plagued energy practitioners and fueled countless mineral ownership lawsuits: “the ‘double-fraction’ dilemma.” This use of two fractions is typically found in mineral conveyances drafted in the first half of the twentieth century. Here, the disputed deed, signed in 1924, contained a reservation which provided that “[i]t is understood and agreed that one-half of one-eighth of all minerals and mineral rights in said land are reserved in grantors […] and are not conveyed herein.”
Ninety years after this deed was signed, the successors of the assignee (the “White Group”) claimed for the first time that the deed reserved to the grantors, and thus to their successors, (the “Mulkey Group”), only one-sixteenth (1/16) of the mineral and mineral rights, rather than the one-half (1/2) that both groups appeared to understand for the previous ninety years. The White Group filed a trespass-to-try-title action in 2013 and argued “that the double fractions are merely an elementary arithmetic formula with no additional meaning, so that only a 1/16 interest was ever reserved.” One of the arguments the Mulkey Group asserted to support their contention that they owned 1/2 of the minerals and mineral rights was that double fractions were “a term of art common at the time the deed was drafted” and were not intended to be an arithmetic formula.
The argument that double-fractions should not be read as an arithmetic formula is supported by two separate, yet similar, theories: estate misconception and “the legacy of the 1/8 royalty.” The estate-misconception theory explains that there was a general misunderstanding at the time that, upon leasing their minerals, a lessor only owned a 1/8 interest in the mineral estate (“rather than the entire mineral estate in fee simple determinable with the possibility of reverter of the entire estate.”) Because of this misunderstanding, “lessors would refer to what they thought reflected their entire interest in the ‘mineral estate’ with a simple term they understood to convey the same message: ‘1/8.’” The theory of the legacy of the 1/8 royalty contends that mineral owners assumed that their royalty would always be 1/8, and therefore the term “1/8” should be seen as “a placeholder for future royalties generally.”
The trial court granted the White Group’s motion for partial summary judgment declaring “that the deed’s reservation of ‘one-half of one-eighth of all minerals and mineral rights’ unambiguously reserved only a 1/16 interest in the mineral estate.” The Mulkey Group appealed this decision to the Eastland Court of Appeals. In 2020, the Eastland Court affirmed the trial court’s decision.
The Eastland Court acknowledged that “the Texas Supreme Court has taken judicial notice that “the usual royalty provided in mineral leases [during that era] is one-eighth.” However, the Eastland Court determined that, because the reservation was clear and there were no contradictory fractions or terms in the deed, the estate misconception theory could not be used. Indeed, the Eastland Court pointed to the cases the Mulkey Group relied upon to support its holding against the Mulkey Group, finding that they each contained conflicting terms or fractions that had to be construed. Importantly, the Eastland Court also noted that the estate misconception theory was the assumption that after a mineral owner “executed an oil and gas lease, they retained only a one-eighth interest in the minerals.” The Eastland Court found that, since there was no oil and gas lease in effect at the time of the deed, “[t]he Mulkeys could not have been operating under the estate misconception theory.” The Mulkey Group appealed the Eastland Court’s decision to the Texas Supreme Court (the “Court”), who agreed with the Mulkey Group, reversing both the Eastland Court’s and trial court’s judgments, and remanding the case to the trial court for further proceedings.
In the hope of “substantially reducing the frequency of disputes about double fractions,” the Court concluded “that an accurate construction of the 1924 text requires us to accept that the equation “one-half of one-eighth” equals one-half of the mineral estate.”[2] In addition, the Court determined that “[e]ven if this were not so, nearly a century of the parties’ unbroken understandings and representations would require us to recognize that allocation of present-day ownership by applying the presumed-grant doctrine.”
The Court first concluded that “[a]ntiquated instruments that use 1/8 within a double fraction raise a presumption that 1/8 was used as a term of art to refer to the ‘mineral estate.’” The presumption is rebuttable if the instrument contains some provision that a double fraction was meant to be simply a double fraction (requiring the calculation of the formula). In coming to such a conclusion, the Court reasoned that, because “a text retains the same meaning today that it had when it was drafted [, … ] unaffected by the passage of time, linguistic developments, or the evolution of usage,” it must determine “what the ordinary usage of the textually undefined term ‘one-half of one-eighth’ actually was.” The Court took great pains to make clear that this determination did not involve the examination of extrinsic evidence, but instead was merely discerning “what a text would have meant to a disinterested audience” within “the four corners of the document” and was “a proper part of interpretation.”
The Court repeated “the now-familiar observation that, at the time the parties executed this deed, ‘1/8’ was widely used as a term of art to refer to the total mineral estate.” Two accepted theories as to why this was so, (although the Court rightly noted that “it matters less why the term was used in a particular way than that it was so widely used,”) were the estate misconception theory and the legacy of the 1/8 royalty. Both theories provide courts with an “objective indication of what parties meant by using 1/8 within a double fraction.” The Court reiterated its position in Hysaw v. Dawkins, saying “it would be odd to say ‘one-half of one-eighth’ rather than simply ‘one-sixteenth’ if all that was intended by ‘one-half of one- eighth’ was 1/16.” Based upon these theories, the Court held that they were required to “begin with a presumption that the mere use of such a double fraction was purposeful and their 1/8 reflects the entire mineral estate, not just 1/8 of it.” In doing so, the Court also found that the Eastland Court’s requirement of inconsistent provisions within the document or the existence of a mineral lease at the time of the conveyance before application of the estate misconception theory misapprehended the same.
While disputes over mineral interest ownership based upon the interpretation of the double-fraction are unlikely to disappear entirely, the Court undoubtedly provided a clear roadmap for how double-fractions in mineral deeds should be interpreted. The Court appeared reluctant to create such a map for many years; as a result, the Court’s holdings in Van Dyke are impactful and of greatly-appreciated guidance to oil, gas, and energy attorneys all over the State.
[1] Van Dyke, et al. v. Navigator Group, et al., 2023 WL 2053175 (Tex. 2023).
[2] Van Dyke, et al. v. Navigator Group, et al., 2023 WL 2053175, *1 (Tex. 2023).