Tommy Yowell, Gail Yowell, Harry Graff, El Terico, LLC, and Casuarina Investments, LLC v. Granite Operating Co. and Apache Corp.

Summary

The Texas Supreme Court considered whether an overriding royalty interest extending to future oil-and-gas leases violated the rule against perpetuities, whether Texas Property Code section 5.043 required reformation, whether an indemnity agreement covered the litigation, and whether appellate attorneys’ fees were supported by the evidence. The Court held that the overriding royalty interest in future leases was a property interest subject to the rule against perpetuities and required reformation if possible under section 5.043. It reversed and remanded in part on the royalty-interest issues and affirmed in part on indemnity and attorneys’ fees.

Holdings

1. An overriding royalty interest that extends to a future new lease covering the same property is a real property interest, even though its attachment to the future lease is contingent.
2. The Yowells' ORRI in future new leases violates the rule against perpetuities because it did not vest when created and was contingent on the termination of the 1986 lease, execution of a new lease by the mineral owner, and acquisition of that lease by a successor of the original lessee.
3. Section 5.043 requires courts to reform or construe, when possible, commercial instruments creating property interests that violate the rule against perpetuities, and the statutory reformation mandate is not subject to the residual four-year statute of limitations.
4. The Peyton Group was not required to indemnify Granite for the Yowells' suit because the indemnity agreement was limited to claims asserted against Granite in the separate Amarillo Production litigation.
5. The evidence sufficiently supported the award of contingent appellate attorneys' fees, and the Uniform Declaratory Judgments Act permits an award of fees for defending a contingent declaratory-judgment claim even without a merits judgment on that claim.

Questions Presented

1. Whether the reserved overriding royalty interest in future new leases is a property interest subject to the rule against perpetuities.
2. Whether the ORRI violates the rule against perpetuities because it was not vested at creation and was not certain to vest within the prescribed period.
3. Whether Texas Property Code section 5.043 requires courts to reform a commercial instrument creating a property interest that violates the rule against perpetuities and whether reformation is subject to a four-year limitations period.
4. Whether the indemnity agreement required the Peyton Group to indemnify Granite for the Yowells' suit.
5. Whether sufficient evidence supported the award of contingent appellate attorneys' fees and fees for defending a contingent declaratory-judgment claim.

Disposition

reversed_and_remanded