“Predecessors” Does Not Include Predecessors-in-Title, Says Court

Co-author Brittany Blakey

In Headington Royalty, Inc. v. Finley Resources, Inc., this release was included in an acreage swap agreement:

Headington waives, releases, acquits and discharges Petro Canyon and its affiliates and their respective... predecessors and representatives for any liabilities... related in any way to the Loving County Tract...”

The swap agreement did not explicitly mention Finley Resources, and Finley did not execute the agreement.

The question

Was “predecessors” limited to prior corporate forms of the released party and its affiliates, or did it include predecessors-in-title?  The court held that Finley was not a corporate predecessor of Petro Canyon or its affiliates and therefore was not a released party.

The circumstances

Petro Canyon obtained a top lease on a tract in Loving County. The minerals were horizontally severed. Finley operated two wells that produced from the shallow rights on the Arrington lease on the tract. Headington held the deep rights and was a successor to certain shallow rights.

After a demand by Petro Canyon that the lease likely terminated due to failure to produce in paying quantities, Finley quitclaimed its interest to Petro Canyon and transferred operatorship of the wells to Petro Canyon’s affiliate.

Headington asserted that a notice by Finley to Headington that it intended to P&A the wells prior to the quitclaim to Petro Canyon was late and breached the assignment through which Finley obtained its rights.

To resolve title issues, in an acreage swap Petro Canyon assigned Headington its interest in the top-lease and Headington assigned interests in other tracts to Petro Canyon. Headington then sued Finley for the alleged breach and sought damages caused be “premature and unnecessary termination” of its deep rights. Petro Canyon intervened and argued that the swap agreement’s release barred Headington’s claims in the underlying lawsuit, as Finley was Petro Canyon’s “predecessor”. The trial court agreed with Headington and granted judgment in its favor.

The appeal

The court of appeals limited its review to whether Finley was a released party because “predecessor” in the release included a “predecessor in title”. A release applies to a party that is either specifically identified in the release or described with such particularity that its identity or connection could not be in doubt. Because Finley was not explicitly named, the release would have had to describe Finley with sufficient particularity.

The court determined that “predecessors” applied to Petro Canyon’s string of entity-related groups, not the chain of title-related owners of the property. The court distinguished between “predecessor” and “predecessor-in-title” and refused to include the expanded term. Finley was a “spectator”, not a player, and the release did not extend to Headington’s claim against Finley.

The court found that Finley was not a third-party beneficiary of the release as a matter of law and that the trial court erred in granting declaratory judgment for Finley because Finley made no such request in its pleadings.

Dissent

The dissent made several arguments:

• The release should have been construed more broadly; the majority’s interpretation of “predecessors” failed to acknowledge the context of the circumstances surrounding the swap agreement.
• The court should have considered the agreement’s scope and content, and the evidence concerning the relationship between the parties specifically named in the release and the parties seeking protection of the release.
• Case law treats a predecessor-in-title to a mineral interest as a “predecessor.” In fact, Texas courts use the terms interchangeably. “Predecessors” included Finley because Finley held the mineral rights at issue prior to transferring them to Petro Canyon.
• The majority’s interpretation required adding the word “corporate” as qualifying “predecessors.”
• The release did not fail the “descriptive particularity” test.
• Finley was a third-party beneficiary of the swap agreement.

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