Texas companies with mineral interests in other states need to be aware that Texas law may not govern a disagreement concerning those holdings. Depending on the essence of the disagreement between parties, a Texas court may lack jurisdiction to rule on the matter.
Courts have limitations on the types of matters they have legal authority to resolve. When a contract does not specify a selected jurisdiction, companies may need legal advice from qualified attorneys such as those at MehaffeyWeber to understand which laws apply and how the appropriate court may interpret them.
What Is Necessary to Establish Jurisdiction for Texas Courts
To have the authority to render a valid legal judgment, a court must have jurisdiction over both the subject matter of the case and the persons bringing the lawsuit. It is a well-established law that courts in Texas have no jurisdiction to determine ownership rights to real property located in other states. However, if a court has jurisdiction over the parties to the dispute, it can enforce a contractual obligation that indirectly involves property in another state.
Texas courts will look at the following four factors to determine if subject matter jurisdiction is lacking because the dispute involves ownership of real property in other states:
- The nature of the suit
- The injury complained of
- The relief sought
- Any other relevant evidence
Texas has a long-arm statute giving it personal jurisdiction over non-resident individuals or companies doing business in Texas. Whether a Texas court can decide a matter involving real estate in another state depends on the extent to which title and possession issues are involved in the dispute.
Mineral Interests Are Property Rights
The ownership rights to naturally occurring elements or compounds found beneath the surface of the earth are called mineral rights. Mineral rights can be bought, sold, leased, or inherited, just like other forms of real property. Thus, a Texas company in dispute over a contract involving mineral rights in Kentucky may find Texas courts unable to resolve the issues if they involve ownership of the mineral rights.
How Texas Courts Will Determine if Jurisdiction Exists to Decide a Dispute Concerning Mineral Interests in Another State
In a recent Texas Court of Appeals case (Bauer and Braxton Minerals II vs. Braxton Minerals III), the Second Appellate District Court attempted to clarify the analysis that should be done to determine if ownership issues are at the heart of a contract dispute regarding out of state mineral rights. The court determined they were and ruled that the case must be dismissed as a matter of law for lack of subject matter jurisdiction.
In the underlying lawsuit, Braxton 3 sued Braxton 2 in a Texas district court for breaching an agreement to transfer mineral interests located in West Virginia. Among other relief sought, Braxton 3 asked the court to declare Braxton 3 the owner of the foreign mineral interests and to order that title be transferred to Braxton 3.
The trial court ruled in favor of Braxton 3, which prompted Braxton 2 to appeal, raising several issues, including the question of subject matter jurisdiction. Because the appellate court agreed with Braxton 2 on the issue of subject matter jurisdiction, the remaining issues were not addressed.
In arriving at its conclusion, the appellate court first acknowledged that a Texas court had no jurisdiction to adjudicate ownership issues regarding mineral interests in other states. Then, the court looked at other supporting case law that said regardless of how a claim is presented, if the basis for recovery involves deciding ownership of foreign real property interests, a Texas court has no subject matter jurisdiction.
However, the court did leave open the possibility of finding subject matter jurisdiction in cases where ownership of foreign real property interests is only incidental or collateral to the basis for recovery but offered no guidance as to when those limited exceptions might apply.
What Texas Companies With Foreign Mineral Interests Can Do to Have Ownership Disputes Handled by Texas Courts
One way Texas businesses with out-of-state mineral interests might be able to have Texas law apply to disputes regarding ownership issues is to include a choice of law provision in their contracts that specifies Texas law will apply. Texas recognizes the ‘party autonomy rule,’ which allows parties to a contract to agree to what state’s laws will govern any disputes. Choice of law provisions are generally enforceable but can be ruled unenforceable if certain necessary connections to a chosen jurisdiction are missing.
A choice of law provision can be unenforceable if the state whose laws are selected:
- Has no substantial relationship to the parties or the transaction, and there is no other reasonable basis for the choice of law
OR
- Application of the chosen state’s laws would be contrary to a fundamental policy of the state’s laws that would otherwise apply, and that state has a materially greater interest in determining the disputed issues
Determining a state’s relationship to the parties or the transaction involves identifying where the parties reside, where the contract was negotiated and/or executed, where the property is located, or where the services are to be performed. With the end goal in mind, companies can take steps during contract negotiation and formation to ensure any choice of law provisions is enforceable in the event of disputes.
Good Business Planning Can Avoid Unpleasant Legal Surprises
It’s not unusual for businesses in Texas to have dealings in other states. As much as possible, business contracts covering commercial transactions need to anticipate the potential for disputes and include provisions that protect the rights of a business. They should also include language intended to minimize the prospect of litigation.
At MehaffyWeber, our business transaction attorneys help businesses with all types of commercial transactions, including leases, mergers and acquisitions, and asset purchase and sale. Although we advise clients on how to structure transactions to achieve the greatest benefit and prepare contracts with the intent of facilitating a dispute-free business exchange, we are experienced trial lawyers recognized in Texas for our litigation capabilities and results.
Contact us to discuss the legal considerations for your Texas company possessing mineral rights in other states today.