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House Bill 4218 |
House Author: Craddick |
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Effective: Vetoed |
Senate Sponsor: Hughes |
House Bill 4218 amends the Property Code to authorize a person to bring a cause of action for a bad faith washout of the person's overriding royalty interest in an oil and gas lease. The bill authorizes an owner of an overriding royalty interest who prevails in such an action to recover actual damages, court costs and attorney's fees, and the enforcement of a constructive trust on the oil and gas lease or mineral estate acquired to accomplish the washout of the overriding royalty interest.
Governor's Reason for Veto: "Texas prizes the freedom of parties to enter into private contracts and to have their bargains enforced. House Bill 4218 would contravene these principles, representing a remarkable intrusion by the State into the contractual relationship between overriding royalty interest‑holders and oil‑and‑gas lessees. The Legislature sought to address a "wash out" of an interest‑holder, where a lessee allows the lease to terminate—which extinguishes the royalty interest under some contracts—and then acquires a new lease on the same property. But those are contractual rights the parties bargained for, and the interest‑holder could have given something up in exchange for protection from a wash out. The answer is not to trample every such contract in Texas and provide an extra‑contractual cause of action against the lessee, paired with an award of fees for the lawyers who will surely seek out these claims. Instead of enriching lawyers through costly litigation on the back end, as House Bill 4218 would do, Texas law should encourage the parties to negotiate wash out protections in advance."