Rosetta Resources Operating, Lp v. Kevin Martin, Jamie Martin, and Ashley Lusk

Supreme Court of Texas

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No. 20-0898

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Rosetta Resources Operating, LP,

Petitioner,

v.

Kevin Martin, Jamie Martin, and Ashley Lusk,

Respondents

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On Petition for Review from the

Court of Appeals for the Thirteenth District of Texas

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Argued February 2, 2022

JUSTICE BUSBY delivered the opinion of the Court.

Justice Huddle and Justice Young did not participate in the

decision.

In this oil and gas case, the parties dispute the meaning and

application of an express covenant to protect against drainage. The

covenant appears in a unique and mistake-ridden lease addendum,

which expressly limits the location of wells that may trigger the lessee’s

obligation to protect against drainage but does not directly address the

location of wells that may cause drainage. The lessor plaintiffs argue

that the covenant’s language allows for separate triggering and draining

wells, and that the lessee breached the covenant by failing to protect

against drainage from a non-triggering well. The lessee defendant

responds that it is only obligated to protect against drainage from the

limited class of triggering wells.

We conclude that the addendum is ambiguous because both

interpretations of this poorly drafted covenant are reasonable. We also

reject the lessee’s res judicata defense, but we conclude that the court of

appeals improperly reversed the trial court’s take-nothing summary

judgment on the lessors’ tort and statutory claims, which they did not

challenge on appeal. We therefore reverse the court of appeals’

judgment, reinstate the trial court’s summary judgment in part as to the

lessors’ tort and statutory claims, and remand for further proceedings

on their claim for breach of the lease.

BACKGROUND

The lessors are respondents Kevin Martin, Jamie Martin, and

Ashley Lusk (the Martins), who own land in Live Oak County. They

entered into mineral lease agreements with Mesquite Development in

2001 and 2006. The leases contain two key provisions related to

drainage. Paragraph 5 of the 2001 agreement provided:

In the event a well or wells producing oil or gas in paying

quantities should be brought in on adjacent land and

within 330 feet of and draining the leased premises, or land

pooled therewith, Lessee agrees to drill such offset well or

wells as a reasonably prudent operator would drill under

the same or similar circumstances. Lessee may at any time

execute and deliver to Lessor or place of record a release or

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releases covering any portion or portions of the above

described premises and thereby surrender this lease as to

such portion or portions and be relieved of all obligations

as to the acreage surrendered.

In 2006, the parties agreed to various amendments and extensions

including Addendum 18, which altered the terms of Paragraph 5 and is

at issue here. The unique, customized language of Addendum 18

includes several typographical and grammatical errors and lacks helpful

punctuation. We have inserted bold numbers and letters into its text

(using brackets) to help organize its content and facilitate our analysis.

Addendum 18 provides:

Notwithstanding anything contained herein to the

contrary, it is further agreed that [(1)(a)] in the event a

well is drilled on or in a unit containing part of this acreage

or is drilled on acreage adjoining this Lease, [(b)] the

Lessor [read “Lessee”], or its agent(s) shall protect the

Lessee’s [read “Lessor’s”1] undrilled acreage from drainage

and [(2)] in the opinions of reasonable and prudent

operations [read “operators”2], [(a)] drainage is occurring

on the un-drilled acreage, even though the draining well is

located over three hundred-thirty (330) feet from the

un-drilled acreage, [(b)] the Lessee shall spud an offset

well on said un-drilled acreage or on a unit containing said

acreage within twelve (12) months from the date the

drainage began or release the acreage which is un-drilled

or is not a part of a unit which is held by production.

1 Both parties agree that “lessor” and “lessee” should be switched due to

a scrivener’s error.

2 Rosetta argues that “operations” should read “operators” and claims

that the Martins have never argued otherwise.

3

Mesquite assigned its rights as lessee to petitioner Rosetta

Resources Operating, LP, in 2007. Shortly thereafter, Newfield

Exploration Co. and Dynamic Production, Inc. (collectively Newfield)

joined with Rosetta to create the Martin Unit, which contained portions

of the Martin Lease (the Martin Pooled Acreage) and property from

unrelated leases. The southern portion of the Martin Lease acreage was

not included in the unit. Rosetta assigned a percentage of its royalty

interest in the Martin Pooled Acreage to Newfield but retained its entire

interest in the non-unitized acreage to the south.

In 2008, Newfield drilled a well on the Martin Pooled Acreage (the

Martin Well). In 2009, Newfield created a separate unit (the Simmons

Unit) that does not adjoin the Martin Lease and drilled a well on that

acreage (the Simmons Well).

In 2014, the Martins sued Rosetta and Newfield for breach of

Addendum 18, alleging that the addendum obligated the lessees to

protect the undrilled lease acreage south of the Martin Unit from

drainage caused by the Simmons Well. The Martins also brought claims

for common-law fraud, negligence, conversion, mineral trespass, breach

of fiduciary duty, and violation of the Theft Liability Act. The lessees

responded that the Simmons Well had not triggered their obligation to

protect the undrilled acreage from drainage because it was not drilled

on property adjoining the Martin Lease.

The trial court granted summary judgment for Newfield and

severed the claims against it from those against Rosetta. Rosetta then

moved for its own summary judgment on all the Martins’ claims on

several grounds.

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On appeal from Newfield’s summary judgment, the Martins

argued—for the first time—that the Martin Well had triggered

Addendum 18’s covenant to protect against drainage, and that this

obligation encompassed any drainage from the Simmons Well. Martin

v. Newfield Expl. Co., No. 13-17-00104-CV, 2018 WL 1633574, at *3

(Tex. App.—Corpus Christi–Edinburg Apr. 5, 2018, pet. denied) (mem.

op.). Rejecting that position as waived, the court of appeals affirmed,

agreeing with Newfield that the Simmons Well did not trigger

Addendum 18. Id.

After the Newfield appeal, the trial court returned to Rosetta’s

motion for summary judgment, inviting the Martins to submit

additional briefing and to move for summary judgment regarding the

effect of the Martin Well. The Martins filed a second amended petition

and a motion for partial summary judgment, asserting that Rosetta’s

obligation to protect against drainage—including that caused by the

Simmons Well—was triggered by the Martin Well. The trial court

granted Rosetta’s motion for summary judgment on all the Martins’

claims and denied the Martins’ motion.

The court of appeals reversed and remanded, instructing the trial

court to grant partial summary judgment for the Martins. ___ S.W.3d

___, 2020 WL 5887566, at *6 (Tex. App.—Corpus Christi–Edinburg Oct.

1, 2020). Construing Addendum 18, the court concluded that the Martin

Well triggered both a general duty to protect against drainage and a

specific obligation to spud an offset well or release the undrilled acreage

if, “in the opinions of reasonable and prudent operations, drainage is

occurring on the un-drilled acreage.” Id. at *5. The court of appeals also

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concluded that the record showed drainage was indisputably occurring.

Id. Additionally, because Rosetta and Newfield owned different

interests and Rosetta’s interests were not at issue during Newfield’s

summary judgment proceedings, the court of appeals rejected Rosetta’s

res judicata defense. Id.

Rosetta petitions for review, arguing that (1) Addendum 18

cannot be construed to allow separate triggering and draining wells,

(2) the Martins’ argument that the Martin Well triggered Addendum 18

is barred by res judicata, (3) the court of appeals erroneously concluded

that drainage was not in dispute, and (4) the court erroneously reversed

Rosetta’s summary judgment as to all the Martins’ claims when the

Martins’ appeal addressed only their claim for breach of contract. In

response, the Martins argue that (1) the plain language of Addendum

18 allows for separate triggering and draining wells, (2) the court of

appeals correctly concluded that the elements of res judicata were not

met, (3) the summary judgment record includes production reports that

establish drainage, and (4) in the alternative, Addendum 18 is

ambiguous.

ANALYSIS

I. Addendum 18 is ambiguous regarding whether the Martin

Well triggered Rosetta’s obligation to protect against

drainage from the Simmons Well.

A. Standard of review and applicable law

We review summary judgments de novo. Scripps NP Operating,

LLC v. Carter, 573 S.W.3d 781, 790 (Tex. 2019). To prevail on a motion

for traditional summary judgment, the movant must show that no

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material fact issues exist and that it is entitled to judgment as a matter

of law. TEX. R. CIV. P. 166a(c). “When both parties move for summary

judgment and the trial court grants one motion and denies the other, . . .

we review both sides’ summary judgment evidence and render the

judgment the trial court should have rendered.” S. Crushed Concrete,

LLC v. City of Houston, 398 S.W.3d 676, 678 (Tex. 2013).

Mineral leases are contracts, so their meaning is determined

using general principles of contract construction. Endeavor Energy Res.,

L.P. v. Energen Res. Corp., 615 S.W.3d 144, 147–48 (Tex. 2020). The

goal of contract construction is to ascertain the parties’ intent as

expressed in the language of the agreement. Id. at 148.

Whether a mineral lease is ambiguous is a question of law. R & P

Enters. v. LaGuarta, Gavrel & Kirk, Inc., 596 S.W.2d 517, 518 (Tex.

1980). An ambiguity exists when a contract’s “meaning is uncertain and

doubtful or it is reasonably susceptible to more than one interpretation.”

In re Davenport, 522 S.W.3d 452, 457 (Tex. 2017) (orig. proceeding). If

there is “more than one reasonable interpretation” of the contractual

language, then a fact issue arises regarding the parties’ intent.

Columbia Gas Transmission Corp. v. New Ulm Gas, Ltd., 940 S.W.2d

587, 589 (Tex. 1996). Parties’ conflicting interpretations cannot alone

create an ambiguity. Apache Deepwater, LLC v. McDaniel Partners,

Ltd., 485 S.W.3d 900, 904 (Tex. 2016). Even if parties agree that a

contract is unambiguous and argue that the unambiguous language

merely creates different results, we may independently conclude that

the contract is ambiguous as a matter of law. URI, Inc. v. Kleberg

County, 543 S.W.3d 755, 763 (Tex. 2018). “When a contract contains an

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ambiguity, the granting of a motion for summary judgment is improper

because the interpretation of the instrument becomes a fact issue.”

Coker v. Coker, 650 S.W.2d 391, 394 (Tex. 1983); see also J.M. Davidson,

Inc. v. Webster, 128 S.W.3d 223, 229 (Tex. 2003).

To determine whether a lease is ambiguous, we must consider its

language as a whole in light of well-settled construction principles.

Piranha Partners v. Neuhoff, 596 S.W.3d 740, 743 (Tex. 2020) (citing

URI, 543 S.W.3d at 763). These principles include giving the language

its plain, ordinary, generally accepted meaning, URI, 543 S.W.3d at 764,

considering the context in which words are used, id., avoiding

constructions that render provisions meaningless, Coker, 650 S.W.2d at

393, and construing contract provisions together so as to give effect to

the whole, Citizens Nat’l Bank in Abilene v. Tex. & P. Ry. Co., 150 S.W.2d

1003, 1006 (Tex. 1941). We also avoid constructions of contract language

that would lead to absurd results. Hemyari v. Stephens, 355 S.W.3d 623,

626 (Tex. 2011) (per curiam). Extrinsic evidence cannot be used to

create ambiguity within a contract, but it may be admitted if the court

determines that the contract is ambiguous. Cmty. Health Sys. Pro.

Servs. Corp. v. Hansen, 525 S.W.3d 671, 681 (Tex. 2017).

The Martins’ claims for breach of contract rely largely on the plain

language of the lease. The lease provision at issue, Addendum 18, is an

express covenant to protect against drainage.3 When oil and gas leases

3 The Martins have also alleged that Rosetta breached an implied

covenant to protect against drainage, but the parties’ briefing in this Court

does not separately address this allegation. Because we are remanding for

further proceedings on the Martins’ claim for breach of contract, the parties

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do not expressly address drainage, a covenant to protect against both

local and field-wide drainage is implied. Amoco Prod. Co. v. Alexander,

622 S.W.2d 563, 567–68 (Tex. 1981). Parties often supersede this

implied covenant with contractual language that imposes certain

obligations on the lessee. See Bowden v. Phillips Petroleum Co., 247

S.W.3d 690, 701 (Tex. 2008); 8 PATRICK H. MARTIN & BRUCE M. KRAMER,

WILLIAMS & MEYERS OIL AND GAS LAW: MANUAL OF TERMS 683 (2020).

Such obligations commonly include the drilling of an offset well, the

payment of offset royalties, or the release of acreage. See 8 MANUAL OF

TERMS at 684–85. Breach of a covenant gives rise to liability for

damages. See Rogers v. Ricane Enters., Inc., 772 S.W.2d 76, 79 (Tex.

1989).

Though Addendum 18 is an express covenant to protect against

drainage, it incorporates the “reasonable and prudent operat[or]”

standard of care (RPO standard), which also applies to the implied

covenant to protect against drainage.4 A plaintiff must show two

elements to establish breach of an implied covenant: “proof (1) of

substantial drainage from the lessor’s field, and (2) that a reasonably

prudent operator would have acted to prevent the drainage.” Kerr–

McGee Corp. v. Helton, 133 S.W.3d 245, 253 (Tex. 2004), abrogated on

other grounds by Coastal Oil & Gas Corp. v. Garza Energy Tr., 268

are free to litigate the alleged implied covenant on remand if there is still a

dispute regarding whether such a covenant exists or was breached.

See Amoco, 622 S.W.2d at 567–68 (explaining that “the standard of

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care in testing the performance of implied covenants by lessees is that of a

reasonably prudent operator under the same or similar facts and

circumstances”).

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S.W.3d 1 (Tex. 2008). A reasonably prudent operator would not act to

prevent drainage unless there was a reasonable expectation of profit.

Clifton v. Koontz, 325 S.W.2d 684, 695–96 (Tex. 1959).

Parties are free to draft novel contractual terms that produce

results some may consider odd; a court’s duty is to give effect to the

parties’ intent as expressed in the contract’s language. Burlington Res.

Oil & Gas Co. LP v. Tex. Crude Energy, LLC, 573 S.W.3d 198, 211 (Tex.

2019). From our review of available sources, it appears that

Addendum 18 is an outlier among express covenants to protect against

drainage. As the court of appeals noted, not only are the addendum’s

provisions unique, they “suffe[r] from both a lack of accuracy and a lack

of clarity,” including typographical and grammatical errors. 2020 WL

5887566, at *3. As a result, we caution that our construction of

Addendum 18 in this opinion may not provide useful guidance for

determining how covenants to protect against drainage typically

function.

B. Though Addendum 18 lacks a coherent structure

and helpful punctuation, many of its substantive

provisions are unambiguous.

The parties offer competing interpretations of Addendum 18, and

we focus on its language to determine the reasonableness of those

interpretations. See Columbia Gas, 940 S.W.2d at 589. To frame our

discussion of the disputed terms, we begin by setting out the

unambiguous portions of Addendum 18. When holding that a portion of

a contract is ambiguous, an appellate court should explain as much of

the contract’s unambiguous meaning as possible regarding the disputed

issue, which will assist the parties and trial court in framing the

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remaining questions for the jury to resolve on remand. Cf. J.M.

Davidson, Inc., 128 S.W.3d at 229 (“[W]e must examine and consider the

entire writing in an effort to harmonize and give effect to all the

provisions of the contract so that none will be rendered meaningless.”);

Columbia Gas, 940 S.W.2d at 589 (“Whether a contract is ambiguous is

a question of law that must be decided by examining the contract as a

whole in light of the circumstances present when the contract was

entered.”).

For ease of reference, we have broken down Addendum 18’s

language into four parts: the Trigger (1)(a), Obligation (1)(b), Standard

(2)(a), and Performance (2)(b) parts. Together, these parts

unambiguously impose an obligation on Rosetta that is triggered under

limited conditions and that uses an RPO standard to measure whether

and when Rosetta must take certain actions to perform that obligation.

1. Trigger – part (1)(a)

Part (1)(a) lists various events that provide an initial condition

for the covenant contained in parts (1)(b) and (2). Though the parties

disagree about whether part (1)(a) limits part (1)(b), a question we

address below, part (1)(a) at least defines a triggering event that marks

the beginning of Rosetta’s obligation: when a well is drilled in one of the

specified locations.

Typically, express covenants to protect against drainage are

triggered by drilling on adjoining or proximity-limited acreage. See 8

MANUAL OF TERMS at 683. But under this non-typical clause, three types

of wells may serve as a trigger: a well “on [leased] acreage,” a well drilled

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“in a unit containing” leased acreage (thus including acreage pooled with

leased acreage), or a well “on acreage adjoining” leased acreage.

Applying this language from part (1)(a) to undisputed facts in the

summary judgment record, we conclude that the Simmons Well does not

qualify as a triggering well because it is outside the lease and unit and

is not located on adjoining acreage. See Newfield, 2018 WL 1633574, at

*3–4. The Martin Well qualifies as a triggering well, however, because

it is located on leased acreage and in a unit containing part of the leased

acreage.

2. Obligation – part (1)(b)

Part (1)(b) contains the substance of Rosetta’s promise to the

Martins. This part explains what Rosetta is obligated to do: protect the

lease’s “un-drilled acreage” from drainage. Express covenants to protect

against drainage commonly obligate the lessee to protect the entire

lease, but Addendum 18 uniquely limits Rosetta’s responsibility to the

“un-drilled” portion of the Martin Lease, which the parties agree is the

non-pooled southern portion. This limitation may impact how a

reasonably prudent operator evaluates whether drainage is occurring.

Addendum 18 does not otherwise define “drainage,” and the parties

dispute whether “drainage” is limited by part (1)(a). We address these

issues below.

3. Standard – part (2)(a)

Compared to the broad “protect[ion]” Rosetta promised to provide

in part (1)(b), part (2) contains a more specific set of instructions for

when “drainage is occurring.” In particular, part (2)(a) selects a

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standard for measuring whether Rosetta must take action or risk

breach: the reasonably prudent operator standard. Together, parts

(2)(a) and (2)(b) provide that when a reasonably prudent operator would

conclude drainage is occurring, it must take certain actions within a

twelve-month period thereafter to avoid breaching the covenant.

As mentioned above, the common-law standard that governs an

implied covenant to protect against drainage involves two elements:

proof of substantial drainage and that a reasonably prudent operator

would expect it to be profitable to take action to prevent such drainage.

See Kerr–McGee, 133 S.W.3d at 253; Clifton, 325 S.W.2d at 695–96.

Addendum 18’s text indicates, however, that the parties did not adopt

the common-law standard in its entirety by referring to reasonable and

prudent operations.

Departing from the “substantial drainage” element of the

standard, part (2)(a) requires a lessee to act only if, “in the opinions of

reasonable and prudent operat[ors], drainage is occurring on the

un-drilled acreage.” (Emphasis added). Though “occurring” drainage

provides a lower threshold than “substantial drainage,” the addendum’s

use of “is occurring” signals that a reasonable opinion regarding actual

drainage is required, not a showing of deemed drainage (an approach

used in some express covenants). As to the second element of the

standard, which requires that an operator act to prevent such drainage

only if there is a reasonable expectation of profit, the parties do not

address whether the language of part (2) is consistent with this

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element.5 In other words, the parties have not offered any views on

whether the reference to a reasonably prudent operator requires

evidence that action would be profitable before Rosetta must take one of

the actions specified in part (2)(b). We likewise express no view on this

question, and the parties may address it on remand if it proves

necessary to do so.

4. Performance – part (2)(b)

Part (2)(b) provides the actions that Rosetta must take once a

reasonably prudent operator would form an opinion that drainage is

occurring. This part of the addendum addresses how Rosetta may avoid

breach: by spudding an offset well in the twelve months after drainage

occurs or releasing the undrilled acreage. Departing from the implied

covenant, which gives the lessee a variety of options to protect against

field-wide drainage,6 Addendum 18 gives Rosetta only two options.

Despite grammatical problems, scrivener’s errors, and a dearth of

helpful punctuation, most of Addendum 18’s requirements are

unambiguous. The basic parts are there: Rosetta’s obligation in

5 Cf. Bell v. Chesapeake Energy Corp., No. 04-18-00129-CV, 2019 WL

1139584, at *10 (Tex. App.—San Antonio Mar. 13, 2019, pet. denied) (mem.

op.) (holding that because the “second element clearly refers back to the first,”

change to RPO drainage element—“deemed drainage” instead of “substantial

drainage”—“logically negate[d] the requirement of proving economic benefit”).

6 “The duties of a reasonably prudent operator to protect from field-wide

drainage may include (1) drilling replacement wells, (2) re-working existing

wells, (3) drilling additional wells, (4) seeking field-wide regulatory action,

(5) seeking Rule 37 exceptions from the Railroad Commission, (6) seeking

voluntary unitization, and (7) seeking other available administrative relief.”

Amoco, 622 S.W.2d at 568.

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part (1)(b) is triggered by a well drilled in one of the locations listed in

part (1)(a), and the standard that applies to Rosetta in part (2)(a)

informs whether it must take one of the specified actions in part (2)(b)

to avoid breach. As we discuss below, however, the relationship between

parts (1)(a) and (1)(b) is not clear.

C. Addendum 18 is ambiguous because there are two

reasonable interpretations regarding whether

“drainage” in part (1)(b) is limited by part (1)(a).

Having outlined how the unambiguous portions of Addendum 18

function, we come to the heart of the parties’ dispute: whether the

“drainage” that part (1)(b) obligates Rosetta to protect against is limited

to drainage from a well listed in part (1)(a). Rosetta and the Martins

offer different interpretations of how parts (1)(a) and (1)(b) relate, and

the prevailing interpretation will inform the outcome of the Martins’

claim that Rosetta breached Addendum 18. For example, if Rosetta’s

obligation to protect against drainage in part (1)(b) extends to wells not

listed in part (1)(a), and if the Martins can show that a reasonably

prudent operator would have concluded the Simmons Well was draining

the undrilled acreage and that Rosetta did not act as required by

part (2)(b) within twelve months thereafter, then Rosetta breached the

addendum. By contrast, if drainage in part (1)(b) may only come from a

triggering well listed in part (1)(a), then Rosetta did not breach the

addendum because it need not protect against alleged drainage from the

Simmons Well. We consider each interpretation in turn to determine

whether it is reasonable.

First, the Martins argue that “drainage” in part (1)(b) is not

limited by part (1)(a). Under this interpretation, a part (1)(a) event—

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the drilling of a qualifying well—would trigger Rosetta’s obligation but

not necessarily identify the source of the drainage. Thus, the drilling of

the Martin well—which falls under part (1)(a)—would trigger Rosetta’s

obligation to protect against drainage of the “un-drilled acreage,” and

that obligation includes drainage from the Simmons Well even though

it is not in a location listed in part (1)(a).

This interpretation is reasonable because neither part (1)(a) nor

part (1)(b) contains express language limiting Rosetta’s

drainage-protection obligation to a well in part (1)(a). Rather, the word

“drainage” in (1)(b) is used without direct modification.

If the original parties to the addendum had wanted to obligate the

lessee to protect only against drainage from wells identified in

part (1)(a), they could easily have done so. Parties commonly trigger the

obligation to drill an offset well by identifying the location of a draining

well, not merely a triggering well. See 4 PATRICK H. MARTIN & BRUCE

M. KRAMER, WILLIAMS & MEYERS OIL AND GAS LAW § 671.3 (2020). In

fact, Paragraph 5—the parties’ previous, and superseded, express

covenant—did just that. Paragraph 5 provided that “[i]n the event a

well or wells producing oil or gas in paying quantities should be brought

in on adjacent land and within 330 feet of and draining the leased

premises, or land pooled therewith, Lessee agrees to drill such offset well

or wells as a reasonably prudent operator would drill under the same or

similar circumstances.” (Emphasis added). Paragraph 5 thus expressly

requires that the triggering well be a draining well. The language of

Addendum 18 is different: it expressly negates the 330-foot limit,

expands where the triggering well can be located to include the leased

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premises and land pooled therewith, and deletes the requirements that

the triggering well produce in paying quantities and drain the leased

premises or land pooled therewith. It would be reasonable to conclude

that Addendum 18 should not be read to contain language from

Paragraph 5 that the parties agreed to change.

In addition, it would be reasonable to conclude that the parties

intended the drilling of a well under part (1)(a) to signal that the lessee’s

obligation had begun, but not necessarily that drainage was occurring.

Rosetta asks why “anyone in the Martins’ shoes”—i.e., desiring general

“protection from drainage to the south and southwest”—would

“condition that protection on whether an entirely separate, non-draining

well happened to have already been drilled elsewhere on their unit?”

Perhaps the parties chose this limitation because until a well is drilled

on the lease or unit, the lessee is more likely to be unaware of the threat

of drainage from wells not adjoining the lease. Once the lessee has a

well operating on the lease or unit, however, it is easier for it to notice

such drainage.

Further support for the conclusion that the triggering and

draining wells need not be the same comes from the parties’ decision to

allow a triggering well to be “on . . . the leased acreage,” including the

non-unitized southern portion of the Martin Lease. A triggering well on

this “un-drilled acreage” could not drain itself, which suggests that the

parties contemplated the possibility of separate triggering and draining

wells.

Ultimately, under the Martins’ interpretation, the covenant

begins with the drilling of a well under part (1)(a) but is not breached

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until an RPO would conclude drainage is occurring under part (2)(a) and

the lessee fails to take action under part (2)(b).7 We conclude that such

an interpretation is reasonable.

Second, Rosetta argues that “drainage” must come from a well

identified in part (1)(a). Under this interpretation, a part (1)(a) event—

the drilling of a qualifying well—would both trigger Rosetta’s obligation

and identify the source of the drainage against which it must protect.

Here, Rosetta’s obligation to protect against drainage from the Simmons

Well would not have arisen because that well does not fall under

part (1)(a).

This interpretation is also reasonable because Addendum 18

could be read to suggest that part (1)(b) is restricted by both parts (1)(a)

and (2)(a). Because part (1)(a) is a conditional clause, the drilling of a

qualifying well must occur before part (1)(b), the main clause, goes into

effect. It would be reasonable to conclude that the conditional clause

informs the scope of the main clause, especially if it does not conflict

with subsequent limiting language. As Rosetta argues, part (1)(a)

7 If, on remand, the finder of fact agrees with the Martins’ interpretation

of Addendum 18, it may need to resolve additional fact issues regarding

parts (2)(a) and (2)(b). For example, as the record presently stands, the

Martins have not proven conclusively under part (2)(a) that a reasonably

prudent operator would have formed the opinion that drainage was occurring.

And under part (2)(b), the Martins have not proven conclusively that Rosetta

failed to drill such a well within twelve months thereafter. The record includes

production logs for the Martin Well showing a decrease after the Simmons Well

was drilled. But this evidence does not address other possible causes, or when

a reasonably prudent operator would have formed the opinion that drainage

was occurring.

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references only a single “event” and “well.” If part (1)(a) provides the

condition under which Rosetta must protect against drainage, then that

single event and well could reasonably be read to inform the scope of the

obligation.

Interpreting part (1)(a) to provide a list of possible draining wells

would not produce absurd results. It may seem counterintuitive, at first

glance, to mandate protection against drainage from wells drilled on

leased property, but parties may agree to prevent “internal drainage”

where some lease acreage is unitized with non-lease acreage. See 4

WILLIAMS & MEYERS § 669.16. Here, because Rosetta’s obligation is

limited to drainage of the “un-drilled acreage,” it would have been

reasonable for the parties to include wells located on leased acreage in

part (1)(a)—such as the Martin Well—because wells on the Martin Unit

may have paid a smaller royalty.

Additionally, Rosetta’s reading would not create conflict between

the sections of Addendum 18 that inform “drainage”—parts (1)(a) and

(2)(a). Part (2)(a) tells us that a draining well under Addendum 18 is

not defined by its distance from a particular area, as it was under the

original Paragraph 5. But that is not to say that part (2)(a) does away

with all proximity restrictions; the distance from which a reasonably

prudent operator would conclude drainage is occurring is necessarily

limited. And because part (1)(a)—under Rosetta’s reading—would

create a more restrictive limit on the location of draining wells, there is

no conflict between the two provisions. Ultimately, it would be

reasonable to conclude that the parties created a two-step system under

which part (1)(a) describes a limited class of draining wells and the RPO

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standard provides a second check before the lessee would need to act on

its obligation.8

Because we conclude that both interpretations are reasonable, a

fact issue exists and summary judgment for any party was improper on

the merits of the Martins’ claim that Rosetta breached Addendum 18.

II. Res judicata does not bar the Martins’ argument that

drilling the Martin Well triggered an obligation to prevent

drainage from the Simmons Well.

Rosetta argues that it is nonetheless entitled to summary

judgment on the Martins’ claim of breach because it conclusively proved

its affirmative defense of res judicata. In Rosetta’s view, the Martins’

argument that the Martin Well triggered Rosetta’s duty to protect

against drainage from the Simmons Well is barred because it could have

8 If, on remand, the finder of fact agrees with Rosetta about the

relationship between parts (1)(a) and (1)(b), then it may need to resolve a sub-

ambiguity: whether Addendum 18 contains two separate obligations. The

court of appeals construed Addendum 18 to contain two duties, one that

requires the lessee to protect against drainage and another that requires

spudding an offset well or releasing the acreage if an RPO concludes drainage

is occurring. Under this two-duty construction, the first duty—contained in

part (1)(b)—would obligate the lessee to protect against drainage only from

wells identified in part (1)(a) but would arguably give the lessee the full range

of options to protect against drainage under the implied covenant. By contrast,

the second duty—contained in part (2)—would apply to any well from which

an RPO would conclude drainage was occurring but would limit the lessee’s

options for compliance. This two-duty construction is not reasonable if part

(1)(a) serves the function that the Martins’ interpretation suggests. If the

Martins are correct that part (1)(a) does not necessarily limit the source of

drainage, then neither duty could be triggered without the other. But if

Rosetta is correct that part (1)(a) describes the source of drainage from which

it “shall protect” under part (1)(b), it may be necessary to determine whether

part (2) contains a duty apart from that contained in part (1).

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been raised against Newfield in the trial court, but the court of appeals

in Newfield held that it had not been preserved. We disagree for two

reasons: res judicata does not apply between separate actions created by

a trial-court severance, and Rosetta’s challenge is to a new argument

raised by the Martins, not a new claim.

The doctrine of res judicata, or claim preclusion, bars causes of

action that have already been fully adjudicated or that, with the use of

diligence, could have been brought in the prior suit. Eagle Oil & Gas

Co. v. TRO-X, L.P., 619 S.W.3d 699, 705 (Tex. 2021); Barr v. Resol. Tr.

Corp. ex rel. Sunbelt Fed. Sav., 837 S.W.2d 627, 628 (Tex. 1992). Res

judicata requires proof of three elements: “(1) a prior final judgment on

the merits by a court of competent jurisdiction; (2) identity of parties or

those in privity with them; and (3) a second action based on the same

claims as were raised or could have been raised in the first action.”

Amstadt v. U.S. Brass Corp., 919 S.W.2d 644, 652 (Tex. 1996); see also

18A CHARLES ALAN WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE

AND PROCEDURE § 4404 (2d ed. 2002) (“Res judicata applies as between

separate actions, not within the confines of a single action on trial or

appeal.”). Parties may be in privity if (1) they “control an action,”

(2) “their interests can be represented by a party to the action,” or

(3) they are “successors in interest.” Amstadt, 919 S.W.2d at 653.

Though the severance of Newfield’s summary judgment created a

second action, see Hall v. City of Austin, 450 S.W.2d 836, 837–38 (Tex.

1970), and the Martins’ attempt to raise the argument was unsuccessful

in Newfield, claim preclusion does not apply for two independent

reasons.

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First, this case began as a single action against both Rosetta and

Newfield, and the Martins’ claims against Rosetta were raised in that

action. We have recognized—as a “logical corollary” to the general

rule—that “the res judicata effects of an action cannot preclude

litigation of claims that a trial court explicitly separates or severs from

that action.” Van Dyke v. Boswell, O’Toole, Davis & Pickering, 697

S.W.2d 381, 384 (Tex. 1985) (holding that, where trial court granted

separate trials for intervention claim and malpractice counterclaim,

judgment in first action did not have a res judicata effect on second);

Morrison v. St. Anthony Hotel, 295 S.W.2d 246, 249 (Tex. App.—San

Antonio 1956, writ ref’d n.r.e.) (concluding that prior severed appeal was

not res judicata because third party was not part of appeal); see also Law

Offices of Robert D. Wilson v. Tex. Univest-Frisco, Ltd., 291 S.W.3d 110,

114 (Tex. App.—Dallas 2009, no pet.) (“The actions taken in the initial

suit had no effect on the new cause, which had been severed by the trial

court.”).

Indeed, the reasons why a severance was permissible here

confirm that the elements of res judicata are not met. One reason is that

Newfield and Rosetta are not in privity. Neither Rosetta nor Newfield

controlled the other, neither succeeded in interest from the other, and

neither held the same interests with respect to the Martin Lease or

Martin Unit. The Martins’ claims against each party were also

somewhat different, as Rosetta alone held a leasehold interest in the

non-unitized southern portion of the Martin Lease. In addition, Rosetta

was not a party to the Newfield appeal and the claims against it were

not fully adjudicated. See Morrison, 295 S.W.2d at 249.

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Second, and independently, Rosetta’s res judicata defense fails

because Rosetta does not seek to preclude the Martins’ claim, but rather

an issue the Martins have raised in support of that claim. Res judicata

applies to claims, not issues. The basic nature of the Martins’ claim that

Rosetta and Newfield breached Addendum 18 has not changed; the

Martins simply added a new argument (with the trial court’s

permission) regarding why Addendum 18 was triggered. See Barr, 837

S.W.2d at 628–29 (differentiating between issue and claim preclusion

and concluding that alleged failure to bring “all theories of liability in

one suit” constituted defense of claim preclusion).

For these reasons, Rosetta is not entitled to a take-nothing

judgment on the Martins’ claim of breach based on res judicata.

III. The court of appeals erred by reversing Rosetta’s

summary judgment as to the Martins’ tort and statutory

claims.

Finally, Rosetta argues that the court of appeals erroneously

reversed its entire summary judgment because the Martins failed to

challenge Rosetta’s independent grounds for granting summary

judgment on the Martins’ tort and statutory claims. We agree. Rosetta

sought summary judgment on the Martins’ tort claims under the

economic-loss rule and on their Theft Liability Act claim on the ground

that Rosetta did not benefit from the Simmons Well. The Martins did

not challenge either ground on appeal.

An appellate court may not reverse a trial court’s judgment

without properly assigned error. Cent. Educ. Agency v. Burke, 711

S.W.2d 7, 8 (Tex. 1986) (per curiam). When a trial court’s order granting

summary judgment does not specify the grounds on which its order is

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based, the appealing party must negate each ground upon which the

judgment could have been based. Malooly Bros. v. Napier, 461 S.W.2d

119, 120–21 (Tex. 1970); Jarvis v. Rocanville Corp., 298 S.W.3d 305, 313

(Tex. App.—Dallas 2009, pet. denied).

A party may negate each ground by raising separate issues “or

asserting a general issue that the trial court erred in granting summary

judgment and within that issue providing argument negating all

possible grounds upon which summary judgment could have been

granted.” Jarvis, 298 S.W.3d at 313; Tweedell v. Hochheim Prairie Farm

Mut. Ins. Ass’n, 1 S.W.3d 304, 309 (Tex. App.—Corpus Christi–Edinburg

1999, no pet.) (affirming trial court’s summary judgment on grounds not

challenged “(1) by a separate [issue] or (2) by argument and citation to

authority under” a broader issue).

A general statement that “the trial court erred by granting [the

movant’s] motion for summary judgment” may be sufficient to allow

argument on all possible grounds that the summary judgment motion

was granted, Plexchem Int’l, Inc. v. Harris Cnty. Appraisal Dist., 922

S.W.2d 930, 931 (Tex. 1996) (per curiam), but if a party does not brief

those arguments to the court of appeals, the court of appeals cannot

properly reverse summary judgment on those grounds. Malooly Bros.,

461 S.W.2d at 121; see also TEX. R. APP. P. 38.1(i) (“The [appellant’s] brief

must contain a clear and concise argument for the contentions made,

with appropriate citations to authorities and to the record.”).

Applying these principles here, we examine the Martins’ causes

of action, the grounds on which Rosetta moved for summary judgment,

and whether the Martins attacked each of those grounds in their

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court-of-appeals briefing. These sources show that the court of appeals

erroneously reversed Rosetta’s summary judgment as to the Martins’

tort and statutory claims.

In their second amended petition, the Martins alleged a

breach-of-contract cause of action and several tort causes of action,

including common-law fraud, negligence, negligent misrepresentation,

conversion, mineral trespass, breach of fiduciary duty, and fraudulent

concealment. They also alleged a statutory claim for violation of the

Theft Liability Act.

In its motion for summary judgment, Rosetta challenged all these

claims. On the tort claims, Rosetta first argued that each of the Martins’

tort claims were barred by the economic loss rule. Rosetta then argued,

in the alternative, that the Martins’ tort claims failed because no duty

existed in contract. Then, as to the Theft Liability Act claim and some

of the other claims, Rosetta argued that they failed as a matter of law

because it obtained no benefit from the Simmons Well, which was the

alleged draining well. Without identifying specific grounds, the trial

court granted summary judgment for Rosetta on all the Martins’ claims.

We conclude that Rosetta’s economic-loss-rule and no-benefit

grounds for summary judgment were independent of its

breach-of-contract grounds, and thus the Martins needed to challenge

those grounds separately in the court of appeals. To determine whether

a plaintiff’s tort claim sounds in contract under the economic loss rule,

we look at whether the loss is to “the subject of the contract.” LAN/STV

v. Martin K. Eby Constr. Co., 435 S.W.3d 234, 242 (Tex. 2014); see also

Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617, 618 (Tex. 1986). This

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is a separate inquiry from whether Rosetta can defeat the Martins’ claim

for breach of contract. Similarly, whether Rosetta benefited from the

Simmons Well is a separate inquiry.

In their court-of-appeals briefing, the Martins’ substantive

arguments related only to Rosetta’s contractual obligations under

Addendum 18. There were no citations or authorities related to their

tort or statutory causes of action or to Rosetta’s economic-loss-rule

defense. At most, the Martins make broad statements challenging the

sufficiency of Rosetta’s summary judgment evidence, such as “Rosetta

did not show that they are entitled to a judgment as a matter of law.”

Such a statement is not sufficient to challenge Rosetta’s

economic-loss-rule ground for summary judgment on the tort claims or

its no-benefit ground for summary judgment on the Theft Liability Act

claim. See Jarvis, 298 S.W.3d at 313.

Because the Martins did not challenge each independent ground

on which the trial court could have based its summary judgment on the

tort and statutory claims, the trial court’s take-nothing judgment on

those claims should stand. The court of appeals improperly reversed the

trial court’s judgment in its entirety.

CONCLUSION

For these reasons, we hold that Addendum 18 is ambiguous

regarding whether the source of “drainage” in part (1)(b) is limited to

the well locations listed in part (1)(a). Therefore, a fact issue remains

on the Martins’ claim for breach of the lease, and summary judgment is

not proper for either party. We also hold that the Martins’ argument

that drilling the Martin Well triggered Rosetta’s obligation to prevent

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drainage from the Simmons Well is not barred by res judicata. But the

court of appeals erred by reversing the take-nothing summary judgment

as to the Martins’ tort and statutory claims. We therefore reverse the

court of appeals’ judgment, reinstate the trial court’s summary

judgment in part as to the Martins’ tort and statutory claims, and

remand for further proceedings on the Martins’ claim for breach of

contract.

J. Brett Busby

Justice

OPINION DELIVERED: May 6, 2022

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