Judge Bill Whitehill
Continuing our tour of early business court opinions, we turn to a dispute before the Dallas business court [First Division] between a midstream pipeline and upstream operators over a gas gathering agreement.
In Targa Northern Delaware, LLC v. Franklin Mountain Energy 2, LLC (n/k/a Coterra Energy Operating M LLC) and Franklin Mountain Energy, LLC (n/k/a Coterra Energy Operating F LLC) (Cause No. 24-BC 01B-0001; March 28, 2025), the parties entered into an agreement under which Franklin conveyed its interests in lands and wells to Targa for gathering and processing natural gas produced from those interests. Franklin agreed to the gas to Targa at designated points, but if Targa couldn’t take it all and Franklin had no uncured defaults, the excess would be released from the agreement and could be sold to other buyers. If the curtailment lasted longer than a specified period, Franklin was entitled to a permanent release of both committed gas volumes and “reasonably associated” committed gas interests (land and wells), as long as it gave written notice within specified periods and didn’t waive its release right for a specific curtailment. The agreement further stated that Franklin retained title to its property and that its release rights were the sole and exclusive remedies with respect to gas affected by a curtailment. According to Franklin, Targa was unable to accept full volumes of gas three times between 2022 and 2024, for which it asked for either a temporary or permanent release.
In September 2024 Targa sued Franklin in the business court, alleging that Franklin breached the agreement by failing to deliver committed gas. Targa sought actual damages, attorney’s fees, pre and post-judgment interest, court costs, and other relief. A few weeks later, Franklin sued Targa in New Mexico (where the wells are) seeking a declaration that Targa breached the agreement and that ownership of its committed interests had thereby reverted. Franklin also filed a plea to the jurisdiction in the business court. Franklin also answered the lawsuit, pleading general denial, denial of certain venue facts, and nine affirmative defenses.
In an opinion by Justice Whitehill, the court denied Franklin’s plea. Franklin argued that the business court lacked jurisdiction because the case involved a dispute over real property located exclusively in New Mexico. Targa countered that the agreement separately conveyed Franklin’s interest in gas in place, a real property interest, and gas produced, a personal property interest. Since this case concerned only the personal property, it belonged in the business court.
Judge Whitehill commenced by stating the fundamental principles that “Texas courts lack subject matter jurisdiction to adjudicate title to real property interests located outside of Texas,” but that “a Texas court can order persons within its jurisdiction to execute documents that [a]ffect title to property located in other states or countries.” The question became “(i) whether the court must first resolve an issue involving title to realty in another state before awarding the claimant’s requested relief or (ii) whether the effect on that realty is an incidental cosequence of granting that relief” (citations omitted). Observing that at “common law, native natural gas is real property that becomes personal property when produced” (citations omitted), Judge Whitehill pointed to § 2.107(a), Business & Commerce Code (UCC), which treats a contract for the sale of minerals as a contract for the sale of goods if the minerals are severed by the seller. In this case, the parties’ agreement required Franklin to sever and sell gas to Targa, as well as to deliver it at specified locations. Consequently, the agreement appeared to be a contract for the sale of goods, though Franklin contested that conclusion, characterizing the agreement as “one for the exchange of real property interests for services.”
Looking to a federal court decision, In re Sanchez Energy Corp., 631 B.R. 847 (Bankr. S.D. Tex. 2021), Judge Whitehill read the case as supporting Targa’s position because it held “that contracts granting convenants running with the land, which are non-rejectable real property interests, may also contain other executory promises of future performance that are not real property interests tht debtors may reject.” Here the separate agreement for the sale of Franklin’s severed gas resembled a covenant running with the land, not a conveyance of realty. The question then became who materially breached the agreement first: Franklin by not delivering committed gas, or Targa for refusing a release? In other words, the case was really about “the personal property Committed Gas and only collaterally and incidentally implicate[d] the real property Committed Gas Interests.” In that event, the business court had jurisdiction.
