Texas Tools for Recovering Assets on Behalf of Defrauded Investors

Financial Record Requests/Subpoenas:

In my experience, the financial record request is one of the most powerful tools for finding assets on behalf of defrauded investors. Section 30.007 of the Texas Civil Practice and Remedies Code provides that these requests are governed by Section 59.006 of the Texas Finance Code. In Texas Finance Code Section 59.006, you can find many rules regarding how the process works, but the key feature of this statute, in my opinion, is the burden placement. The statute places the burden on the party resisting discovery to obtain relief from the Court. That typically means filing a motion, drafting an affidavit, setting it for hearing, filing notice of hearing, dealing with scheduling conflicts, waiting through a long docket call, arguing the motion, possibly offering testimony, and finally obtaining a ruling. That is a lot of work. Consequently, the party resisting the discovery rarely puts up as much of a fight as they will when they are simply resisting discovery responses.

Resisting traditional discovery, like a Request for Production under Tex. R. Civ. P. 196, is much easier. For the most part, your attorney will simply pick one of the innumerable form objections that exist, write it down, state what is being produced and what is not being produced, and send it to opposing counsel. Then, the burden is on opposing counsel to file a Motion to Compel Discovery Responses, set it for hearing, deal with scheduling conflicts, wait through a long docket call, argue the motion, and obtain an order. Then, once the order has been obtained, there is the inevitable subsequent battle over the scope of the order. Again, the burden is on the one wanting the discovery to prosecute this. The bank, however, does not have a dog in the fight, so to speak, so the bank will typically produce more or less exactly what the bank has been asked to produce without raising countless objections and necessitating potentially expensive and time-consuming pre-trial hearings over the matter.

I am planning on adding more sections to this post in the future. Reading an article on these tools can be helpful, but using them to achieve your goals takes some finesse.

Disclaimer: This blog is for informational purposes only. Do not rely on any part of this blog as legal advice. Instead, seek out the advice of a licensed attorney.

Applying the Rule of Capture to Residential Subdivions in the DFW Area

Applying current Texas Oil and Gas Law to micro-tract owners in urban areas ripe for horizontal drilling is often like attempting to put a square peg into a round hole. The Law was written with vertical drills and large and small, but not micro-sized, rural tracts in mind. Inside large metropolitan areas where tracts often consist of a mere tenth of an acre, application of current law may result in a taking of private property even if only in small amounts.

With modern horizontal drilling and hydraulic fracturing techniques for natural gas extraction, a single pad site located in an urban area can be used to drill ten or more lateral wells miles beneath the surface each extending for thousands of feet in different directions. In the Barnett Shale, in an area like Fort Worth, Texas, hundreds of houses often lie on top of the surface of the drilling area.

The Texas Supreme Court held in Coastal Oil and Gas Corp. v. Garza[1] that ­subsurface fracking of unleased property does not constitute trespass and further than no compensation for taken minerals must be given when four conditions exist. Each of these conditions serves to ensure that the property rights of the unleased landowner are adequately protected.

In urban areas, often only one of the four conditions exists, and even then, the last remaining condition likely only offers partial protection. This partial protection may result in a taking of property.

The four conditions are as follows: (1) if the unleased landowner can drill his own well, then his only remedy for drainage is to do so (this is the basic Rule of Capture), (2) if the landowner leased and his lessee negligently fails to drill an offset well, then the landowner can sue the lessee for damages, (3) the Railroad Commission can regulate production to prevent drainage, and (4) if none of the other remedies are available, then the aggrieved landowner can use the Mineral Interest Pooling Act (“MIPA”) to force pool her interest. For the urban landowner on less than an acre with a house taking up much of the surface area, drilling an offset well is both legally and practically impossible, which cancels out the first two conditions. The third condition offers no relief because regardless of how production is regulated, the unleased landowner will be subjected to uncompensated drainage. The fourth condition does potentially offer relief, but even if the micro-tract urban landowner can clear all of MIPA’s hurdles, relief is almost certainly not available as of the date that drainage began.

The Supreme Court of the United States has held that even slight physical occupation of property is a taking “to the extent of the occupation.”[2] Consequently, MIPA cases involving unleased urban micro-tract owners subject to Rule 37 spacing exceptions could result in a confiscation claim for (a) drainage occurring between the time that drainage began and entry of the Railroad Commission’s interim escrow order, or (b) for drainage that goes uncompensated due to inadequate protection under Texas’s anachronistic forced-pooling act.

In the current environment where the rights of unleased, urban, micro-tract owners are unclear, offers are generally made to lease and sometimes to participate as a working interest owner. Often, however, no significant competitive market exists once an operator has filed a courthouse unit, and been designated as operator of the urban unit. Offers are sometimes made with take-or-leave-it, adhesion-basis terms possibly because the urban, micro-tract landowners are thought to lack the sophistication and leverage to bargain for their rights, unlike their rural, small-tract counterparts who have grown savvy over many decades of rural development.

[1] Coastal Oil & Gas Corp. v. Garza Energy Trust, 268 S.W.3d 1 (2008).

[2] Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419, 434–35 (1982).

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Disclaimer: This blog is for informational purposes only. Do not rely on any part of this blog as legal advice. Instead, seek out the advice of a licensed attorney.