In a case stemming from a 1999 tax foreclosure sale involving hundreds of Reeves County mineral interests, the Texas Supreme Court has allowed an El Paso Court of Appeals decision in favor of the successors of the owner of a foreclosed royalty interest.
Ridgefield Permian, LLC and Albert Jeffryes Griffiths, as Trustee of the Albert Jeffryes Griffiths Trust v. Diamondback E&P LLC and Magnolia, LLC (No. 08-19-00156-CV) boiled down to an argument about who held superior title to a one-fourteenth mineral estate in a tract located in Reeves County. Several members of the Jeffryes/Griffiths family held fractional interests in the surface and minerals, which they leased to a producer in 1975. In 1998 two of the lessors owed a small amount of tax debt on the royalties received under the lease. Reeves County taxing districts initiated a tax suit against them and several hundred royalty owners to collect the unpaid taxes (a one-eighth royalty on a one-twenty-first mineral interest, by the way). The district court entered a judgment in favor of the taxing units and issued an order of sale to the sheriff. In 1999 the sheriff sold certain foreclosed interests, including those owned by the Jeffryes/Griffiths lessors.
In 2008, Albert Griffiths granted whatever interest he still owned to the Griffiths Trust. At the same time, the tax-sale purchaser conveyed the interest it purchased at the tax sale to Magnolia. In 2012, the well on the subject property stopped producing and the lease terminated. In 2015 Magnolia executed a new lease covering the property with Finley Resources, which was subsequently assigned to Diamondback. Getting wind of all this, the Griffiths Trust executed its own lease with Ridgefield. Ridgefield and the Trust then sued Magnolia and Diamondback to quiet title. In competing motions for summary judgment, the trial court ruled in favor of Magnolia and Diamondback. Ridgefuld and the Trust appealed.
The court of appeals reversed and rendered. The primary issue before the court was the scope of the tax foreclosure: did the sheriff’s deed convey both the royalty interest and the contingent interest (the possibility of reverter if the lease was terminated)? After an extensive analysis of the creation of mineral estates and the reversionary interest retained by a mineral lessor, the court concluded that the tax sale only covered the property that was actually taxable and upon which delinquent taxes were owed, that is, the royalty interest. Magnolia argued that the lessor’s contingent interest was also conveyed since it constituted “real property” and that the Article VIII, Section 1, Texas Constitution, subjects all real property to taxation. Citing a 1923 precedent, Richey v. Moor, 249 S.W. 172 (Tex. 1923), however, SCOTX held that that a property tax lien only attached to the tract or parcel of land for the taxes assessed against that interest, not the taxpayer’s property in general. Here the exhibit lists and the sheriff’s deed reflect that only the Griffiths’ royalty interests were subject to foreclosure, not the possibility of reverter. Once the lease was terminated, Magnolia’s interest disappeared and the Griffiths’ once again had fee simple ownership of their share of the mineral estate.
In addition to illustrating how incredibly fractionated mineral interests can be in Texas, this case demonstrates that even tiny fractional interests are worth fighting for—in this instance, all the way to SCOTX. The El Paso Court of Appeals referred to this case as one of several that have emanated from the same foreclosure sale, one of which involved a collateral attack on the 1999 tax judgment alleging due process violations. In Mitchell v. Map Resources, Inc., 615 S.W.3d 212 (Tex. App.—El Paso, pet. granted), the court affirmed a summary judgment in favor of the successor in interest of the tax sale purchaser. The court found that the taxing authorities made diligent efforts to personally serve the tax debtor before posting service. Earlier this year, SCOTX granted review, so stay tuned for more news from Reeves County.
