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McDougal v. Sabine River Land Co.

Court of Appeals of Arkansas, Division I

April 29, 2015

FREDDY MCDOUGAL and LINDA MCDOUGAL, APPELLANTS
v.
SABINE RIVER LAND COMPANY, a Texas corporation and XTO ENERGY, INC., a Texas corporation, APPELLEES

Page 360

APPEAL FROM THE INDEPENDENCE COUNTY CIRCUIT COURT. No. CV-2011-127-4. HONORABLE TIM WEAVER, JUDGE.

Randall W. Henley, for appellants.

Millar Jiles, LLP, by: G. Michael Millar; and Hardin, Jesson & Terry, PLC, by: Robert M. Honea, for appellees.

LARRY D. VAUGHT, Judge. HOOFMAN and BROWN, JJ., agree.

OPINION

Page 361

LARRY D. VAUGHT, Judge

Appellants Linda and Freddy McDougal appeal from the order entered by the Independence County Circuit Court granting the motions to dismiss filed by appellees Sabine River Land Company (SRLC) and XTO Energy, Inc. (XTO). We affirm.

In May 2013, the McDougals filed a complaint for declaratory relief against SRLC and XTO. In the complaint, the McDougals alleged that on or about January 11, 2005, they and SRLC entered into an oil and gas lease (first lease) of their real property located in Independence County. The McDougals' complaint stated that they originally believed that the lease had a five-year term, although it actually had a ten-year term. The complaint further alleged that SRLC advised the McDougals that the first lease was invalid after it discovered that a third party, Ruby McDougal, owned a life estate in the property. On or about March 29, 2005, Ruby McDougal conveyed her interest to the McDougals, and on March 30, 2005, the McDougals signed a second oil and gas lease (second lease) provided to them by SRLC. The second lease had a five-year term. A year later, on or about March 31, 2006, SRLC assigned its interest in the first lease to XTO, and XTO recorded the assignment on April 6, 2006.

The McDougals' complaint alleged that in 2010, when they believed the second lease was near expiration, they contacted XTO to inquire whether it planned to renew the lease. At that time XTO informed the McDougals that it had been assigned the first lease, that the first lease was valid, and that it had a ten-year term. In response, the McDougals, relying on the validity of the second lease, filed the complaint for declaratory judgment, requesting that the circuit court determine which lease was valid.

On August 22, 2011, XTO filed a motion for summary judgment arguing that as a matter of law it was the bona fide purchaser because (1) it had no notice or knowledge of the second lease at the time it purchased the first lease from SRLC, and (2) its assignment of the first lease was recorded first. XTO also filed a counterclaim on August 22, 2011, alleging that the McDougals breached their warranty to defend title and seeking monetary damages for that breach. XTO further requested declaratory relief, declaring it to be relieved of all obligations to explore or develop the leased premises, entitling it to suspend all royalties or other payments to the McDougals until the matter was resolved, and to an automatic extension of the lease for a period equal to the duration of the litigation.

On August 29, 2011, the McDougals filed an amended complaint for declaratory judgment and, in the alternative, a complaint for breach of contract against SRLC. The new breach-of-contract allegation was that SRLC knowingly assigned the first lease to XTO when it (SRLC) knew the lease was invalid. Both SRLC and XTO moved to dismiss the McDougals' amended complaint, arguing that it was

Page 362

barred by the five-year statute of limitations set forth in Arkansas Code Annotated section ...


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