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In Texas Royalty Suits, Must All Neighboring Property Owners Be Joined?

Collecting royalties from oil and gas production is one of the ways that a Texas landowner can generate revenue from their real estate.  Texas property owners who own their minerals can sign an oil and gas lease so that oil and gas can be produced from the land, in exchange for regular monetary payments, or royalties. However, oil and gas reservoirs are not often confined to just a single individual’s property, but instead  often stretch across multiple surface boundaries. When disputes arise over royalty payments, there is a sometimes an issue as to whether a lawsuit can be brought by just one individual landowner, or if neighboring owners who are also collecting royalties from the same oil and gas producer must necessarily be a part of the lawsuit as well. The Texas Supreme Court considered this very issue in the case of Crawford v. XTO Energy which was been appealed from the Amarillo Court of Appeals.

Why Must All Necessary Parties Be Joined in a Lawsuit?

The problem with not joining all necessary parties to a lawsuit is that a defendant could be exposed to conflicting judgements. For instance, if landowner A sues oil and gas producer X, and there is a specific outcome, and later adjacent landowner B sues oil and gas producer X, but there is a different second outcome, and the two outcomes may be inconsistent. Failure to join all necessary parties in a lawsuit can also be judicially wasteful since the court has to revisit the same issues in more than one case.

Are The Neighbors A Necessary Party in The Crawford Case?

In this case, Crawford owns a strip of land in Arlington, Texas. Mr. Crawford ratified his mother’s previous oil and gas lease with XTO, but XTO decided that under the strip and gore doctrine, his mother’s conveyance of the property surrounding this piece of land to adjoining land owners conveyed the mineral rights as well.  As a result, XTO paid royalties on Crawford’s property to his neighbors. Under the strip and gore doctrine, when landowners who convey land that has an adjoining narrow strip of land that is rendered useless by the conveyance, the narrow strip is conveyed as well. The way to avoid application of this legal principle is to include plain and specific language in the deed that the landowner intends to retain rights to the narrow strip of adjoining land. Mr. Crawford sued XTO to recover what he believed were his royalties.

XTO contended that Crawford was required to join the 44 adjacent property owners in his suit against XTO, because they are the ones receiving the royalty payments, and a court ruling to the contrary would impact the royalties that the neighbors are receiving, i.e., the neighbors would be affected by the outcome of the Crawford case and thus should be a party to the case. Crawford, on the other hand, argues that the neighbors should not be joined as a necessary party because they never made a claim to the mineral rights for Crawford’s tract of land.

The Texas Supreme Court. decided that Crawford was not required to join the adjacent property owners. The Court states: “…nothing in the record indicates whether the adjacent landowners are even aware that a portion of the royalties XTO has been sending them is attributable to the Crawford tract, much less that they have “demanded” or “asserted” a right to that portion. We decline to hold that the adjacent landowners have claimed an interest in the Crawford-tract minerals merely because XTO has been sending them royalties to which they never claimed entitlement. In sum, Rule 39 does not require joinder of persons who potentially could claim an interest in the subject of the action; it requires joinder, in certain circumstances, of persons who actually claim such an interest.” (emphasis added).

The Court’s decision in this case is reasonable and practical. For one thing, the cost to the plaintiff to serve 44 other defendants would be enormous. In addition, the cost of the litigation itself, with that many parties and their attorneys involved, would be huge. As the Court points out, it’s not as if XTO is without a remedy to protect against inconsistent lawsuits by adjacent property owners. XTO could have used an interpleader suit to bring all parties into court. In addition, XTO could have joined the adjacent property owners, had they chosen to do so. What the Court would not allow XTO to do is require that the plaintiff join all the adjacent property owners as a condition of his lawsuit.

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