Providing for Royalty Payments During Mineral Owner Disputes
When a natural gas and oil company learns of disputes to ownership of a royalty interest, the company will temporarily hold payments until the ownership issue is resolved. Once ownership is resolved, the correct royalty owner is paid in full.
The Texas Natural Resources Code has long provided a safe harbor for payments while these disputes are pending. However, a Texas Supreme Court case upset this reliance by noting that because the statute didn’t explicitly mention breach of contract claims, the statute needed “clear language from the Legislature” to confirm the intent to allow temporarily holding payment until the dispute is resolved.
Without this fix, what happens? Companies can either:
- Pay both parties, and try to recoup the double payment later from the party determined not entitled to payment; or,
- File an interpleader lawsuit against the claimants, which means depositing the funds to the court, thus removing the exposure. An interpleader is an equitable proceeding brought by a third person to have a court determine the ownership rights of rival claimants to the same royalties or property that is held by that third person.
Why should companies have to file an interpleader lawsuit in
response to a different lawsuit between two parties?
Why should royalty owners with non-complicated fixes have
to hire an attorney to get their money from the court?
- Re-institutes the safe harbor for this long-standing practice
- Saves royalty owners from the expense and inconvenience of interpleader lawsuits
- Does not interfere with any other breach of contract claim a mineral owner may bring