Escondido Resources II, LLC v. Justapor Ranch, L.C.

Opinion

ACCEPTED 04-14-00905-CV FOURTH COURT OF APPEALS SAN ANTONIO, TEXAS 10/26/2015 12:26:32 PM KEITH HOTTLE NO. 04-14-00905-CV CLERK

*** FILED IN IN THE COURT OF APPEALS 4th COURT OF APPEALS SAN ANTONIO, TEXAS FOURTH DISTRICT OF TEXAS 10/26/2015 12:26:32 PM SAN ANTONIO, TEXAS KEITH E. HOTTLE Clerk ***

ESCONDIDO RESOURCES II, LLC,

Appellant

V.

JUSTAPOR RANCH COMPANY, L.C.,

Appellee

***

APPELLEE’S RESPONSE TO APPELLANT’S REPLY BRIEF

Jose M. “Joe” Rubio, Jr. Timothy Patton State Bar No. 17362100 State Bar No. 15633800 JOE RUBIO LAW FIRM TIMOTHY PATTON, P.C. 1000 Washington Street, Suite 4 14546 Brook Hollow Blvd. #279 Laredo, Texas 78040 San Antonio, Texas 78232 Phone: 956-712-2223 Phone: 210-832-0070

Patton G. Lochridge State Bar No. 12458500 Carlos R. Soltero State Bar No. 00791702 J. Derrick Price State Bar No. 24041726 MCGINNIS LOCHRIDGE & KILGORE, L.L.P. 600 Congress Avenue, Suite 2100 Austin, Texas 78701 Phone: 512-495-6044 Attorneys for Appellees

ORAL ARGUMENT REQUESTED TABLE OF CONTENTS

Page

Table of Contents i

Index of Authorities iii

I. Escondido’s Interpretation of XIV’s Opening Phrase Is Clearly 1 Incorrect

II. All Royalty Payment Deadlines Are Meaningful Under Justapor’s 3 Construction

III. Escondido Mischaracterizes Justapor’s Response to Its 4 Nonpayment vs. Underpayment Argument

IV. Escondido Impermissibly Construes the Lease By Looking at the 5 Harm Caused by Its Breach and Then Working Backward to Its Construction

V. Escondido’s “$1 Underpayment” Argument Illustrates Both Its 7 Flawed Working-Backward Approach to Lease Construction and to Oil and Gas Title Ownership

VI. The Record Conclusively Establishes That Escondido Never 9 Made a Single True-Up Payment to Correct Its Underpayments in 2011, 2012 and 2013

VII. Escondido’s HSC Argument Misses the Dispositive Point 10

VIII. The Unchallenged Summary Judgment Conclusively Establishes 11 that Escondido’s Defenses to Lease Termination, Based on Jones’ Conduct, Are Meritless

IX. Escondido Waived Its Appellate Waiver/Estoppel Arguments 12

X. Escondido’s Curious Approach to “Witness Testimony” and the 14 Proof on Its Intentional Underpayments XI. A Few Words About Justapor’s Supposed Record “Confusion” 17 Are Warranted

Prayer 18

Certificate of Service 19

Certificate of Compliance 20

ii INDEX OF AUTHORITIES Page

Coastal Oil & Gas Corp. v. Roberts, 8 28 S.W.3d 759 (Tex. App.-Corpus Christi 2000, pet. granted, judgm’t vacated w.r.m.)

Gibson v. Turner, 1 294 S.W.2d 781 (Tex. 1956)

Hebisen v. Nassau Dev. Co., 2 754 S.W.2d 345 (Tex. App.- Houston [14th Dist.] 1988, writ denied)

Hitzelberger v. Samedan Oil Corp., 3, 8, 9 948 S.W.2d 497 (Tex. App.-Waco 1997, pet. denied)

Kirby Lake Dev., Ltd. v. Clear Lake City Water Auth., 3 320 S.W.3d 829 (Tex. 2010)

McConnell v. Southside Indep. Sch. Dist., 13, 14 858 S.W.2d 337 (Tex. 1993)

Natural Gas Clearinghouse v. Midgard Energy Co., 7 113 S.W.3d 400 (Tex. App.-Amarillo 2003, pet. denied)

Natural Gas Pipeline Co. v. Pool, 7, 8, 124 S.W.3d 188 (Tex. 2003) 9, 12

Range Res. Corp. v. Bradshaw, 1 266 S.W.3d 490 (Tex. App.-Fort Worth 2008, pet. denied)

Tex. R. Civ. P. 11 12

Tex. R. Civ. P. 91a 12

Tex. R. Civ. P. 166a(c) 13, 14

Tex. R. Civ. P. 166a(i) 12

iii I. Escondido’s Interpretation of XIV’s Opening Phrase Is Clearly Incorrect

After close to 100 pages of briefing, Escondido has finally discussed the

opening phrase of the ipso facto termination provision of the Lease – the phrase

establishing that the summary judgment on lease termination should be affirmed.

As previously discussed, ipso facto termination under XIV is triggered if

Escondido fails to pay royalties to Justapor “in the manner hereinabove provided.”

(Br.13-15, 34-35). Under any common sense reading, “the manner hereinabove

provided” necessarily refers to the two “hereinabove” provisions in the Lease that

define Escondido’s royalty payment obligations to Justapor: III(b), requiring

royalties to be paid based on the highest of the four price floors, and III(g),

requiring true-up payments by the March 1 deadline for royalties underpaid during

the preceding year. (Id.).

In response, Escondido essentially announces that any contract or lease that

uses the words, “herein” or “hereinabove,” is vague and ambiguous, citing one

commentator’s opinion that is unsupported by any case citations. (E.Rep.7, 12).

In reality, Texas courts have repeatedly concluded that contracts and leases,

including contractual provisions governing royalty and other payment obligations

that use “herein” or “hereinabove,” are clear, unequivocal and unambiguous as a

matter of law. See, e.g., Gibson v. Turner, 294 S.W.2d 781, 782-88 (Tex. 1956);

Range Res. Corp. v. Bradshaw, 266 S.W.3d 490, 494-96 (Tex. App.-Fort Worth 2008, pet. denied); Hebisen v. Nassau Dev. Co., 754 S.W.2d 345, 350 (Tex. App.-

Houston [14th Dist.] 1988, writ denied).

Next, Escondido creates a proximity test, claiming that because III(g)’s true-

up provision appears “eight pages” earlier in the Lease than XIV, it is

inconceivable that Escondido’s failure to timely true-up could result in Lease

termination. (E.Rep.7, 12). First, this argument is contrary to the just-cited cases

recognizing that when a contract refers to payment obligations as provided

“herein” or “hereinabove,” that contract unambiguously incorporates those

payment obligations whether they appear one page or twenty pages earlier in the

document. Second, Escondido’s arbitrary proximity test (stressing the 8 pages

between XIV and III(g)) becomes nonsensical when you consider that Escondido

has no problem at all with XIV’s ipso facto termination language applying to its

payment obligations in III(a) and (b) which appear 13 pages earlier in the Lease.

(E.Rep.15).

In effect, Escondido has rewritten XIV’s opening phrase to impermissibly

restrict its scope to state “Royalties payable to Lessor in the manner hereinabove

provided in Paragraph III(a), (b) but not in Paragraph III(g).” Escondido’s

interpretation also renders the opening phrase of XIV partially meaningless. XIV

refers to Escondido’s obligation to pay royalties to Justapor in “the manner

hereinabove provided,” and timely making true-up royalty payments under III(g) is

2 one of those “hereinabove provided” royalty payment obligations. Yet, Escondido

claims that the “hereinabove provided” language in XIV excludes III(g) and

includes only III(a) and (b).

Under the case law cited in Escondido’s brief, its effort to rewrite the Lease

– a rewrite rendering a crucial Lease provision partially meaningless and failing to

harmonize all of the Lease’s provisions – is improper and unreasonable.

(E.Rep.14, 16; see Br.28-31). Because Escondido’s construction of the Lease is

unreasonable and Justapor’s construes the Lease in its entirety, harmonizes all of

its provisions and is reasonable, Escondido is not entitled to rely on cases

precluding lease termination or forfeiture in which the lessor (unlike Escondido)

proffered a reasonable construction. See Hitzelberger v. Samedan Oil Corp., 948

S.W.2d 497, 505-07 (Tex. App.-Waco 1997, pet. denied); see also Kirby Lake

Dev., Ltd. v. Clear Lake City Water Auth., 320 S.W.3d 829, 842 (Tex.

2010)(recognizing that construing contract to authorize forfeiture permissible

absent reasonable construction precluding forfeiture).

II. All Royalty Payment Deadlines Are Meaningful Under Justapor’s Construction

To be candid, Justapor’s counsel does not fully understand Escondido’s

argument that under Justapor’s construction either the annual true-up deadline or

the 60-day deadline is meaningless. (E.Rep.8, 13-14). In any event, both

3 deadlines are meaningful under Justapor’s construction, as well as being easily

understandable and fully reconcilable with ipso facto termination under XIV.

As explained in detail by Justapor’s owner, Jimmy Jones, who drafted these

provisions: (1) if the lessee fails to make any royalty payment by the 60-day

deadline, the Lease terminates on day 61; (2) if the lessee makes some payment by

the 60-day deadline but underpays the required royalty, then the lessee has not paid

royalties as required by the Lease; and then (3) if the lessee corrects the underpaid

royalties by the March 1 deadline, the Lease remains in effect, but if the lessee

does not, the Lease terminates. (Br.14-16, 34-35). Consequently, Justapor’s

construction reconciles and renders meaningful both the annual true-up deadline

and the 60-day deadline, as well as all other provisions of the Lease governing

Escondido’s royalty payment obligations. (Id.).

III. Escondido Mischaracterizes Justapor’s Response to Its Nonpayment vs. Underpayment Argument

Justapor is not arguing that the Lease makes no distinction between

nonpayment and underpayment. (E.Rep.17-19). As just discussed, the Lease

distinguishes between nonpayments violating the 60-day deadline and

underpayments violating the 60-day deadline.

Justapor is arguing that the Escondido-manufactured distinction, whereby

ipso facto termination under XIV applies only to its complete nonpayment of a

monthly royalty and not to its failure to correct underpayments through true-up 4 payments, is contrary to unambiguous Lease language. (Br.42-45). More

specifically and as just discussed, Escondido’s “distinction” ignores the opening

phrase of XIV requiring Escondido to true-up underpayments by the annual March

1 deadline or face ipso facto termination. (Id.).

IV. Escondido Impermissibly Construes the Lease By Looking at the Harm Caused by Its Breach and Then Working Backward to Its Construction

Escondido still hasn’t cited a single case to support its “disproportionate

result” defense which is based on comparing the alleged amount of Escondido’s

investment in the Lease to the harm to Justapor caused by Escondido’s breach and

the benefits received by Justapor before the breach occurred. No such case exists.

If a lessee breaches its contractual obligations under an oil and gas lease and

the lease unambiguously provides that such a breach results in lease termination,

Texas courts have uniformly recognized that the lease terminates under Texas law.

(Br.32-34, 47-48). Courts do not weigh the self-inflicted harm to the breaching

party against the damages caused to and benefits received by the innocent, non-

breaching party when deciding whether an unambiguous lease has terminated.

Courts enforce the lease as written. (Id.).

When construing contracts years if not decades after their execution, courts

do not retroactively determine the objective intentions of the parties at the time of

contracting to avoid an oppressive or harsh result (E.Rep.32) based on the

repercussions of a contract breach. To the contrary, courts construe contracts by 5 looking at the parties’ intentions as expressed in their contracts at the time of their

execution. (Br.28-29).

Imagine the havoc and uncertainty in legal and contractual relationships that

would ensue if courts could summarily disregard legally enforceable agreements

whenever they found that enforcing an agreement (that had indisputably been

breached) would be inequitable because of a perceived “disproportionate” impact

on the contracting parties. Take this case. Escondido claims that the loss of its

alleged $31 million investment is disproportionate in light of the roughly $81,000

in unpaid royalties owed to Justapor. What if Escondido’s lost investment was $2

million or $1 million or $100,000, would a court still be entitled to disregard the

unambiguous Lease because it viewed the result as “disproportionate”? What

would be the impact on this “disproportionate result” analysis if Justapor’s lost

royalties were $500,000? What is the ratio or trigger point for determining when a

court is entitled to disregard an unambiguous contract under Escondido’s

“disproportionate result” test? And what is the appellate standard of review for

this novel “equitable” approach to disregarding legally enforceable arguments?

The answer to all of these questions is that Escondido’s “disproportionate

result” defense does not exist and none of the above hypotheticals are relevant to

determining the enforceability of an unambiguous contract. Courts do not

retroactively determine the enforceability of a contract by engaging in a highly

6 fact-specific, cost-benefit analysis focusing on the relative positions of the

contracting parties at the time of the contract breach occurring years after that

contract was signed. As one court stressed:

For a court to change the parties’ agreement merely because it did not like the contract, or because one of the parties subsequently found it distasteful, would be to undermine not only the sanctity afforded the instrument but also the expectations of those who created and relied upon it.

Natural Gas Clearinghouse v. Midgard Energy Co., 113 S.W.3d 400, 407 (Tex.

App.-Amarillo 2003, pet. denied)

V. Escondido’s “$1 Underpayment” Argument Illustrates Both Its Flawed Working-Backward Approach to Lease Construction and to Oil and Gas Title Ownership

According to Escondido: “Yet Justapor’s reading means that the lease would

terminate because of even a $1 underpayment that Escondido does not catch and

correct by March 1, even if Escondido does not learn about it until later. That

interpretation is unreasonable and inequitable.” (E.Rep.33).

Actually, Justapor’s interpretation is 100% consistent with Texas law.

An oil and gas lease is a fee simple determinable conveyance. Natural Gas

Pipeline Co. v. Pool, 124 S.W.3d 188, 192 (Tex. 2003). The lessee’s interest is

“determinable” because its interest terminates automatically and reverts to the

lessor upon the occurrence of an event, such as the absence of production in paying

quantities, or other terms or conditions that the lease specifies as causing lease

7 termination. Id. Indeed, several courts have held that a lessor’s failure to comply

with its royalty payment obligations violated a condition or special limitation in the

lease and resulted in the lease terminating. See Coastal Oil & Gas Corp. v.

Roberts, 28 S.W.3d 759, 763 (Tex. App.-Corpus Christi 2000, pet. granted,

judgm’t vacated w.r.m.); Hitzelberger, 948 S.W.2d at 503-04.

The amount by which the lessee fails to comply with a condition (whether

it’s $1, $100 or $81,000) has no effect on title because title reverts automatically to

the lessor on failure of the condition. It is a matter of the automatic reversion of

title to the lessor and not the quantitative amount of the breach by the lessee. See

Pool, 124 S.W.3d at 192.

For example, the lessor in Hitzelberger missed two royalty payments due to

a clerical error. Hitzelberger, 948 S.W.2d at 502 n.1. The court of appeals held

that the lease terminated as a matter of law emphasizing that “it is the lessee’s

responsibility to comply with [the] lease.” See id. at 505-10. (Br.33)(citing cases

where courts held that oil and gas leases terminated due to lessee’s $2.96

underpayment and late $50 payment).

Again, courts do not decide whether a lease has terminated based on the

monetary significance of the contract breach or the reason for the failed condition –

even though in this case, the record conclusively establishes that Escondido made

the conscious decision to deliberately underpay Justapor. (Br.19-25). Courts

8 decide whether the lease terminated by objectively determining whether an event

specified in the lease as causing lease termination did or did not occur. See Pool,

124 S.W.3d at 192.

Here, XIV provided: "In the event that such royalties are not paid and

become delinquent ... this lease shall terminate ipso facto on the date that such

royalties were due and not paid.” (CR278)(emphasis in Lease). This clear and

unequivocal language in XIV specifies the legal impact if Escondido breaches the

determinable fee condition in the Lease (Escondido’s obligation to pay royalties as

“hereinabove provided”): Ipso Facto Termination. The amount of Escondido’s

breach is irrelevant. Once Escondido violated its obligation to pay true-up

royalties as “hereinabove required” by the Lease, the Lease terminated and

automatically reverted to Justapor. See Hitzelberger, 948 S.W.2d at 505-09.

VI. The Record Conclusively Establishes That Escondido Never Made a Single True-Up Payment to Correct Its Underpayments in 2011, 2012 and 2013

Escondido’s claim, that it didn’t violate its obligation to make true-up

payments because it made “reconciliation payments,” mischaracterizes the record.

(E.Rep.21). The record conclusively establishes that Escondido never made a

single payment under III(g) to cure its underpayments in 2011-2013. (Br.20-21,

25). Indeed, Deupree testified unequivocally that Escondido never made any true-

up payments to correct those underpayments. (Id.; CR563-64, 584).

9 As also conclusively established by the record, these “reconciliation

payments” had nothing to do with Escondido’s underpayments in 2011-13. Those

payments were intended by Escondido to reconcile an increase in Justapor’s

royalty interest on one well, the Augusta-Kenton No. 5H well, and to reimburse

Justapor for overcharged taxes. (CR1376-77, 1401-02, 1411).

VII. Escondido’s HSC Argument Misses the Dispositive Point

Justapor’s initial brief demonstrated that Escondido’s Houston Ship Channel

(HSC) argument is contrary to a commonsense reading of the amendment and its

own Vice-President’s testimony, as well as being nonsensical. (Br.9-12, 36-39).

Let’s assume for the moment, though, that Escondido is correct and the HSC

amendment replaced the other pricing floors.

It is undisputed that Escondido never paid Justapor royalties based on the

HSC price. As its President readily conceded, Escondido made the conscious

decision to pay Justapor less than the HSC price and Escondido never made any

true-up payments to correct those deliberate underpayments to Justapor. (Br.19-

21)(quoting Deupree).

So ... even if Escondido has somehow correctly construed the scope of the

HSC amendment, the record conclusively establishes that Escondido still

underpaid Justapor because Escondido didn’t even pay Justapor as required by its

own construction of the amendment.

10 VIII. The Unchallenged Summary Judgment Conclusively Establishes that Escondido’s Defenses to Lease Termination, Based on Jones’ Conduct, Are Meritless

Escondido’s continued insistence that it can rely on defenses based on

Jimmy Jones’ conduct, despite the unchallenged summary judgment absolving him

of having breached any fiduciary obligations or having done anything

inappropriate, borders on frivolous.

Justapor sued Escondido alleging lease termination. In response to

Justapor’s lease termination claim, Escondido raised defenses alleging misconduct

by Jones. The trial court determined that those defenses were meritless as a matter

of law for multiple independent reasons. (Br.49-52). It is undisputed that

Escondido has not challenged the summary judgment disposing of those defenses

or, in any fashion, argued that the summary judgment is incorrect. Under this

record, all of Escondido’s defenses and accusations based on Jones’ conduct must

be considered meritless as a matter of law by this Court. (Id.).

Escondido contends that the unchallenged summary judgment “does not

extend to Justapor’s affirmative claim of lease termination on which it bears the

burden of proof.” (E.Rep.33-34)(Escondido’s emphasis). That contention

misplaces and misconstrues the burdens of proof imposed on the parties and

ignores the legal effect of the unchallenged summary judgment. To prove its

entitlement to lease termination, Justapor was required to establish that the Lease

11 provided that it would terminate on the occurrence of a specified event and that

this event occurred. See Pool, 124 S.W.3d at 192. Escondido’s personal attacks

on Jones are irrelevant to Justapor’s burden of proof on lease termination.

To the extent that Escondido raised personal attacks on Jones as defenses to

lease termination, Justapor sustained its summary judgment burden to establish that

those defenses are meritless as a matter of law. (Br.51-52). Escondido, not

Justapor, had the burden of proof to raise fact issues on its defenses involving

Jones’ conduct. It did not, and the trial court was required to grant summary

judgment in favor of Justapor on no-evidence grounds. See Tex. R. Civ. P.

166a(i). Escondido has not complained on appeal that the trial court erred by

concluding that Escondido failed to sustain its burden of proof.

Escondido’s final word on this issue is a grandiose reference to what “the

law is not required to tolerate.” (E.Rep.34). What the law should not tolerate is a

party making numerous slanderous (albeit privileged) accusations, losing by

summary judgment because its accusations are meritless and then acting on appeal

as if it had never lost the summary judgment.1

IX. Escondido Waived Its Appellate Waiver/Estoppel Arguments

Escondido readily acknowledges its failure to mention “waiver” or

“estoppel” by name in its summary judgment response. (E.Rep.28). Escondido 1 Escondido never joined Jones as a party personally in this suit nor has Escondido otherwise sued Jones. Of course, had Escondido done so, the company would have opened itself up to a counterclaim for damages by Jones. See Tex. R. Civ. P. 11; Tex. R. Civ. P. 91a.

12 nevertheless claims that it implicitly raised these affirmative defenses in its

response at CR951-53. (Id.). Those cited pages are not even part of Escondido’s

substantive defensive response to Justapor’s motion for summary judgment. They

appear in the “Background Facts” section of Escondido’s response discussing its

summary judgment evidence. (CR943-56). In the substantive “Argument and

Authorities” section, where Escondido expressly identified and argued numerous

defensive theories, the concepts of waiver and estoppel were never mentioned,

much less argued.

Rule 166a states: “Issues not expressly presented to the trial court by ... [the]

response shall not be considered on appeal as grounds for reversal.” Tex. R. Civ.

P. 166a(c). Consistent with Rule 166a(c)’s mandatory language, the supreme court

has emphasized: “issues a non-movant contends avoid the movant's entitlement to

summary judgment must be expressly presented by written answer to the motion or

by other written response to the motion and are not expressly presented by mere

reference to summary judgment evidence." McConnell v. Southside Indep. Sch.

Dist., 858 S.W.2d 337, 341 (Tex. 1993)(emphasis added). (Br.40-41)(citing cases).

As established by McConnell, Escondido’s “mere reference to summary

judgment evidence” in its response – a response that never mentioned, much less

argued, the defenses of waiver and estoppel – does not “expressly present” those

defenses as required by Rule 166a. Consequently, Escondido’s appellate

13 waiver/estoppel arguments cannot be considered as a ground for reversal and were

waived. (Br. 40-41).

The Fountains Int’l case cited by Escondido is not in point. (E.Rep.29). It

does not involve summary judgment practice where issues must be “expressly

presented” to be preserved for appellate review. See McConnell, 858 S.W.2d at

341; Tex. R. Civ. P. 166a(c). Rather, it involves the unrelated issue of the

sufficiency of a petition to state a claim for relief under fair notice standards.

Lastly, Escondido’s claim that Justapor did not respond on the merits to its

waiver/estoppel arguments, other than citing “its entire statement of facts,” is

incorrect. (E.Rep.29). Justapor specifically identified the two sections of its

Argument that addressed why those defenses are legally and factually meritless.

(Br.41 n.7).

X. Escondido’s Curious Approach to “Witness Testimony” and the Proof on Its Intentional Underpayments

Escondido has an exceedingly curious and decidedly one-sided view of

“witness testimony” regarding the Lease and proof on its “intentions” when

making royalty payments.

In its initial brief, Escondido went to great lengths to discuss what its

officers supposedly believed the Lease and the HSC amendment to mean.

Justapor, in its reply brief, pointed out that virtually everything that Escondido said

about its officers’ purported understandings about Escondido’s royalty payment 14 obligations and the events occurring after the Lease was signed was not just

contrary to their deposition testimony, but largely consisted of subjective beliefs

irrelevant to determining Escondido’s obligations under the unambiguous Lease.

Now, Escondido wonders why we are talking about “witness testimony”

about impact of the HSC amendment and other issues. (E.Rep.24). Well ... we are

talking about (and Justapor is quoting) testimony from President Deupree and

Vice-President Wrather because Escondido’s descriptions of significant events and

its characterization of Deupree and Wrather’s testimony in its initial brief was,

quite often, directly contrary to their deposition testimony.

More specifically, we are discussing/quoting Deupree and Wrather because

Escondido’s own officers’ testimony demonstrates that, among other things:

Escondido’s appellate argument about the HSC amendment is contrary to any

straightforward reading of that document as Wrather readily agreed; Escondido’s

appellate argument about Justapor interfering with gas sales is contrary to both

Wrather and Deupree’s testimony; Escondido’s appellate argument that it didn’t

underpay royalties to Justapor is contrary to Deupree’s testimony that Escondido

underpaid Justapor even under Escondido’s construction of the HSC amendment;

Escondido’s appellate argument that it made true-up payments to correct its

underpayments in 2011-13 is contrary to both Deupree and Wrather’s testimony …

and so on. (Br.10-12, 13, 20-25, 37-38).

15 Escondido also professes confusion about “why Justapor emphasizes

Escondido’s intent regarding the amount of royalty payments.” (E.Rep.21). But in

the very next sentence, Escondido announces “that it in fact paid the royalties it

believed the parties had agreed it would pay.” (Id.). So ... evidently, what an

Escondido officer believes about Escondido’s royalty obligations under the Lease

and its underlying intent when making royalty payments only matters if that

belief/intent supports Escondido’s appellate arguments but not if it demonstrates

that the summary judgment should be affirmed.

In truth, the uncontroverted proof on Escondido’s intentions – its knowing

and deliberate underpayment of royalties for years – directly supports the trial

court’s conclusion that Escondido was guilty of bad faith trespass as a matter of

law. Escondido was well aware of the consequences of violating its royalty

obligations under the Lease – ipso facto termination – but it deliberately underpaid

Justapor anyway, continued to enter Las Tinajas and refused to leave the ranch and

give up the Lease even after it was caught shorting Justapor. (Br.17-21, 24, 46).

Those are not the actions of a lessor with an “honest and reasonable belief” in its

right to continue to develop a tract of land. (Br.46-47, 55-59).

In its reply brief, Escondido announces that there is a “bona fide dispute”

regarding its right to the Lease. (E.Rep.36). Who was it at Escondido that

believed there was a bona fide dispute? This brings up the same question that

16 Justapor asked in its initial brief that Escondido has never answered: “Yet, its brief

announces ‘Escondido had a good-faith belief in the superiority of its title.’

(Br.68). Who is it exactly at Escondido that supposedly had this good faith belief?

It certainly wasn’t Deupree or Wrather as is conclusively demonstrated by their

deposition testimony and exhibits which, on appeal, Escondido treats as

nonexistent [and still treats as nonexistent in its reply brief].” (Br.59).

XI. A Few Words About Justapor’s Supposed Record “Confusion” Are Warranted

Escondido’s discussion of the Abington affidavit is borderline disingenuous.

Escondido acts as if this affidavit involved some inconsequential motion, like a

motion to compel discovery. (E.Rep.9). Actually, when Escondido filed

Abington’s testimony about its alleged investment in the Lease for the first time,

that affidavit supported Escondido’s motion for summary judgment – the motion

which is the basis for Escondido’s request for a reversal and rendition in this Court.

(CR798, 800, 890-91). The trial court sustained Justapor’s objections to that

affidavit, including Abington’s conclusory statement about Escondido’s

investment in the Lease – which appears in both affidavits. (CR1149, 1342, 1887).

As a practical matter, however, the critical point for appellate review is that

Abington’s testimony, whether successfully objected-to or not, is conclusory as are

all other materials cited by Escondido to support the amount of its alleged

investment in the Lease. (Br.54-55). There is simply no probative evidence in the 17 record on any dollar figure involving Escondido’s alleged investment – a critical

component of Escondido’s “equitable” arguments. (Br.47-48, 54-55).

Escondido’s brief initially claimed that it would later identify Justapor’s

other record citation “mistakes” (E.Rep.9). On the isolated occasions that

Escondido claims that Justapor mistakenly characterized testimony, Escondido is

incorrect. Justapor isn’t characterizing what an Escondido officer said; Justapor is

quoting him verbatim. (Compare Br.11 with E.Rep.26).

PRAYER

Justapor respectfully requests the Court to affirm the trial court’s judgment.

Respectfully submitted,

MCGINNIS LOCHRIDGE & KILGORE, L.L.P.

Patton G. Lochridge State Bar No. 12458500 plochridge@mcginnislaw.com Carlos R. Soltero State Bar No. 00791702 csoltero@mcginnislaw.com J. Derrick Price State Bar No. 24041726 dprice@mcginnislaw.com 600 Congress Avenue, Suite 2100 Austin, Texas 78701 Telephone No.: (512) 495-6044 Facsimile No.: (512) 505-6344

By: /s/ Patton G. Lochridge Patton G. Lochridge 18 Jose M. “Joe” Rubio, Jr. State Bar No. 17362100 joerubio@joerubiolawfirm.com JOE RUBIO LAW FIRM 1000 Washington Street, Suite 4 Laredo, Texas 78040 Telephone No.: (956) 712-2223

Timothy Patton State Bar No. 15633800 tpatton@tp-pc.com TIMOTHY PATTON, P.C. 14546 Brook Hollow Blvd. #279 San Antonio, Texas 78232 Telephone No.: (210) 832-0070 Facsimile No.: (210) 579-1665

By: /s/ Timothy Patton Timothy Patton

ATTORNEYS FOR APPELLEE

CERTIFICATE OF SERVICE

I hereby certify that on October 26, 2015, I electronically filed the foregoing Appellee’s Response to Appellant’s Reply Brief with the Clerk of the Court using the CM/ECF system which will send notification of such filing to the following:

Mr. James P. Keenan Ms. Kirsten Castañeda keenan@buckkeenan.com kcastaneda@adjtlaw.com Mr. J. Robin Lindley Alexander Dubose Jefferson & lindley@buckkeenan.com Townsend LLP Buck Keenan, LLP 4925 Greenville Avenue, Suite 510 700 Louisiana, Suite 5100 Dallas, Texas 75206 Houston, Texas 77002

19 Mr. Robert Dubose Mr. Wallace B. Jefferson rdubose@adjtlaw.com wjefferson@adjtlaw.com Alexander Dubose Jefferson & Ms. Rachel A. Ekery Townsend LLP rekery@adjtlaw.com 1844 Harvard Street Alexander Dubose Jefferson & Houston, Texas 77008 Townsend LLP 515 Congress Avenue, Suite 2350 Austin, Texas 78701

/s/ Timothy Patton Timothy Patton

CERTIFICATE OF COMPLIANCE

I hereby certify that this Appellee’s Response to Appellant’s Reply Brief was prepared using Microsoft Word 2010 (Microsoft Office Home and Business 2010) which indicated that the total word count (exclusive of items listed in Rule 9.4(i)(1) of the Texas Rules of Appellate Procedure) is 3,878 words.