Since its inception, the Texas Business Court (the “Court”) has faced recurring and complex questions of jurisdiction—issues that have quickly become central to its early jurisprudence. One area of contention is the extent of the Court’s authority when a case touches on out-of-state real property interests. When a lawsuit is filed against you in a state you believe has no authority to hear the case, a plea to the jurisdiction is one way to challenge the court’s jurisdiction. While it is well settled that Texas courts do not have subject matter jurisdiction over claims seeking to determine title to real property located in another state, a recent Texas Business Court decision highlights an important caveat. In Targa N. Del., LLC v. Franklin Mt. Energy 2, LLC, the Court ruled that if a claim involving out-of-state real property merely has an “incidental” consequence on that property, and title itself is not the central issue, a Texas court may still have jurisdiction.
The Jurisdictional Gambit That Could Reshape Energy Litigation
In this case, Targa Northern Delaware, LLC (“Targa”) sued Franklin Mountain Energy 2, LLC and Franklin Mountain Energy, LLC (together “FME”), alleging that FME materially breached a gas gathering, processing and purchase agreement (the “Agreement”) by failing to deliver Committed Gas to Targa.
Under the Agreement, FME agreed to sell and deliver produced gas, referred to as Committed Gas, and Targa agreed to purchase the gas. FME produced the Committed Gas (personal property) from its Committed Gas Interests (real property) located in New Mexico. Also under the Agreement, FME was entitled to receive from Targa a release of the Committed Gas and the reasonably associated Committed Gas Interests if Targa was unable to accept the deliveries.
After Targa filed suit in the Texas Business Court, FME filed a separate suit for declaratory relief in New Mexico to declare that Targa was no longer entitled to any interest in the gas and instead FME was now the rightful owner of the gas interests. FME then filed a plea to the jurisdiction in the Texas lawsuit, arguing the Texas court lacked subject matter jurisdiction because the lawsuit was ultimately about who owned the natural, unproduced gas still in the ground in New Mexico, i.e. real property. FME asserted that Targa was unable to accept FME’s delivery and had previously asked for a release of Targa’s interest in the affected gas. FME argued the Texas lawsuit involved real property interests and concerned a core dispute of whether Targa retained any interest in the gas, specifically the unproduced Committed Gas Interests.
Targa countered that the Texas Business Court did have jurisdiction because its claims focused on personal property by seeking damages for FME’s alleged failure to deliver severed or produced Committed Gas and that any effects on New Mexico real property interests were merely collateral to the actual dispute; therefore, the interest owner of the gas is immaterial.
Where Real Property Ends and Contract Rights Begin
Relying on Texas law, the Court recognized that native unproduced gas is real property that becomes personal property once it is severed or produced and that, the Court has no subject matter jurisdiction over claims to determine title to real property located outside of Texas. However, if the question of title is not the basis of a lawsuit or the measure of recovery in a lawsuit, the question of title is merely incidental, and the Court may assert jurisdiction.
The Texas Business Court found that because Targa’s sole cause of action sought to recover damages for FME’s alleged failure to deliver severed or produced Committed Gas under the Agreement, the seminal issue concerned personal property, not real property. Specifically, the issue was who materially breached the contract as to the severed Committed Gas.
Agreeing with Targa, the Court denied FME’s plea to the jurisdiction, holding that the Court has subject matter jurisdiction because “any effect that a favorable finding for Targa might have regarding New Mexico real property interests would be collateral and incidental to this Court’s judgement.”
The Precedent That Energy Companies Can't Ignore
What might this mean for future interstate energy dispute? This opinion is one of several examples of how the Texas Business Court is already shaping legal precedent in the oil and gas sector as these cases form a large part of the Court’s docket. As more oil and gas disputes land in the Texas Business Court, these early rulings will continue to define the court’s reach and the limits of jurisdictional challenges.
