TOP TEN THINGS LANDMEN DO TO IRRITATE THEIR LAWYERS

TOP TEN THINGS LANDMEN DO TO IRRITATE THEIR LAWYERS By John C. Heymann This article was adapted from a presentation by John C. Heymann for the TexasBar CLE’s 22nd annual Advanced Oil, Gas and Energy Resources Law Course. Heymann notes that the presentation was originally intended with a “tongue and cheek” tone. In the same tone, he adds that “although it took me several weeks to think of ten things that landmen do to irritate lawyers, it only took me ten minutes to think of a 1,000 things that lawyers do to irritate landmen.” Heymann is a managing partner of Upton, Mickits, Hardwick & Heymann, LLP in Corpus Christi, Texas. He specializes in oil, gas and energy (wind) law and is board certified in oil, gas and mineral law by the Texas Board of Legal Specialization of the State Bar of Texas. 1. TOO MUCH INFORMATION There is a fine line between what landmen do and the practice of law. As we all know, landmen who are not licensed to practice law, cannot practice law. However, because of the nature of their business, in order to be competent, they must be familiar with real property law in the areas where they work. The bylaws of the American Association of Professional Landmen in Article II - entitled “Definitions” Section 1, Subparagraph C, defines landwork as, among other things, “the actual performance or supervision of any one or more of the following functions: determining ownership and minerals through the research of public and private records”. Item 1 in the Standards of Practice for the American Association of Professional Landmen provides as follows: “In justice to those who place their interests in his care, a land professional shall be informed regarding laws, proposed legislation, governmental regulations, public policies, and current market conditions in his area of represented expertise, in order to be in a position to advise his employer or client properly.” Finally, participation in the voluntary certification program requires substantial education and work experience in various areas, including the determination of ownership and minerals through research of public records. I tell you this in order to lay the predicate for what you should expect from a landman‟s runsheet. Based on the above, landmen are certainly qualified and charged with the duty to review the documents which they place in a runsheet to see how and if they affect the title you are examining. However, in many instances, they just don‟t do that and it‟s really irritating. Often is the time that you receive a rather large runsheet with a gillion documents which, upon closer examination, you realize contains many documents that don‟t really affect your tract. Admittedly, they may somehow involve a Grantor or Grantee in your chain of title, but not the tract that you are examining. Many times this is the result of a landman just being too busy to plat the metes and bounds of some archaic or ancient property description. Or, he fears that he may accidentally omit a pertinent document. After all he doesn‟t have to read all these docs, he just has to list them in the runsheet. Is this a substantive problem? Arguably, no. However, you as the title examiner will then be faced with the daunting task of trying to locate the property described in documents which may or may not affect your title and for which you have insufficient maps to accomplish the task. For example if you are examining a small tract in the San Salvador del Tulle Grant, which covers approximately 315,391 acres in Brooks, Hidalgo, Kenedy and Willacy Counties, and you are looking at early documents of much larger tracts which have a beginning point at one of the Grant‟s corners, you‟re probably not going to have a map large enough to find your tract. This requires you to stop what you‟re doing, call your client, explain the situation, or hope that something in the subsequent title resolves your question about the location of this particular tract. As mentioned above, additional problems arise from the landman who includes instruments in a runsheet merely because they somehow involve a Grantor or Grantee in your chain of title. If you are running obscure names in certain counties, this is not a problem. However, if you are running the King Ranch and Exxon in Kenedy County, you could end up with a giant runsheet with numerous documents that in no way affect anything that you are examining. If you discover this early in your examination, you come to the irritating realization that you are going to spend much of your time in the ensuing examination culling documents which don‟t affect your title, which should have been culled by the landman. The resulting examination will take much longer and cost much more than it should. And, your client will be likewise irritated. 2. TOO LITTLE INFORMATION The TMI discussed in Item No. II above leads us to a related irritant. This arises from the landman who provides a runsheet with not enough or inaccurate information. Unlike runsheets which contain too much information, a runsheet which lacks sufficient information can get you into trouble. If you don‟t know that your runsheet is insufficient, you can‟t discern it from your title examination, and the runsheet was prepared by your client‟s landman and not your own, you‟re probably alright from a liability standpoint, as long as you include a caveat that you‟re relying on the runsheet at your client‟s request. In this situation I always have a Comment and Requirement which is similar to the following: COMMENT: “At your request, this Title Opinion is based in part, upon the runsheet prepared by your contract landman, ________. As you know, since we did not prepare the runsheet we can make no representation as to its sufficiency or accuracy.” REQUIREMENT: None. Advisory only. Whether this will suffice to insulate you from liability in the event of a title failure, I don‟t know. At least, it places your client on notice that you are not attesting to his landman‟s runsheet. Many runsheets are submitted without any qualification whatsoever. Consequently, you have no idea whether anything was intentionally omitted, such as subsequent assignments of “rights of way” or ancient “deeds of trust” and things of this nature. Sometimes your examination will reveal these inadequacies and sometimes they will not. Many times however, runsheets are submitted with more qualifications than a lawyer can dream up; and, that‟s alright as long as the client assumes the risk. Included in these “qualifications” are the documents or complete chains of title which are intentionally admitted. Many times, subsequent ownership of “rights of way” or deeds of trust and other lien documents which are so old as to be clearly unenforceable are intentionally omitted. I believe these declarations of runsheet “limitations” create a duty for a lawyer to explain to his client any potential title problems that may arise as a result. Consequently, through no fault of your own, you are forced to include title requirements which your clients feel are unnecessary but which create problems for them nevertheless. For example, in many instances I‟ve seen landmen omit all subsequent title history to previous oil and gas leases which appear to have expired or are beyond their primary terms. This can lead to a fatal assumption that a previous oil and gas lease may have expired, when, in fact, it has not. It‟s possible that a subsequent Assignee (one who is not in your chain of title because his assignment was intentionally omitted) may have placed a prior lease in some type of pooled unit and maintained it by production from an off lease well. If the landman doesn‟t know the names of all subsequent Assignees, he also won‟t pick up the subsequent unit designation because he didn‟t run the title forward in the name of the subsequent Assignee. If the runsheet was built on both an examination of the real property records and an abstract plant (which in most cases is unlikely), it is possible that he could have picked up the unit designation in the abstract plant if it was properly indexed in its abstract records. In any event, what seems like an innocuous omission can have catastrophic results. Regardless of whether it‟s your or the landman‟s fault, you and your client will both feel that you have let him down by allowing him to be exposed to the risk. This is just one of many examples which can arise from a “limited” runsheet that can cause you problems. Others stem from the typical property location problems described above in which a landman fails or has inadequate resources to plat metes and bounds descriptions of ancient tracts which may have included the property under examination, resulting in the omission of key title documents from his runsheet. In these instances when advising my clients of the various problems that arise from “limited” runsheets, I always tell them that I don‟t mind speaking at these seminars, I just don‟t what to be the topic of one of the articles. 3. MODIFYING DOCUMENTS AFTER EXECUTION This next irritant deals with landmen who modify documents after they‟ve been executed. This scenario, seemingly harmless enough, goes something like this. Your client‟s landman is in charge of curing title problems to a Lease they bought or Comments and Requirements in a Drilling Title Opinion, or something similar. In the process, and in light of what landmen do in the ordinary course of their business, they prepare a curative instrument. Say in this instance, it‟s a Ratification of an Oil and Gas Lease to satisfy a requirement in a Drilling Title Opinion. The best procedure is for you to prepare the curative document (because you know exactly what is needed) and send it to the landmen to obtain the necessary signatures. For some reason (either your client doesn‟t want to pay the fee or your infringing upon the landman‟s realm of responsibility) your client doesn‟t want you to do this. The next best procedure is for the landman to prepare the document and submit it to you for review and approval before execution (emphasis added) to ensure that it will actually satisfy the requirement. However, as most of you know, time and circumstances do not always allow for things to be done in a reasonable order. Sometimes, in the often break-neck pace of the oil business, for example, if your client has a drilling rig on location, the landman is charged with the duty to just “get it done”. So for purposes of this example, let‟s say that the landman prepares the ratification and obtains the signature(s) (hopefully before a Notary), and submits it to you for review and comment so that you can supplement your Drilling Opinion. In reviewing the Ratification, you notice that it has some seemingly innocuous defect. Maybe the capacity of the Grantor is not correctly stated. For example, the signatory party signed only in his capacity as an “executor” and not “individually and as executor”, so there is a question about whether you‟ve bound the signatory party in his individual capacity. Or possibly, the description is incorrect because of an omitted tract or lot in a subdivision, making the property description inadequate or incomplete. After your review, you call the landman and tell him that it needs to be corrected before it‟s recorded to take care of the shortcoming. He picks up the document and off he goes, to hopefully, have it re-executed or modified with the modification subsequently initialed by the signatory party. The landman later returns with the document in hand and the following story. “I wasn‟t able to get in touch with John Q. Public, the signatory party, because he left on vacation for parts unknown and will not be back until long after we need to commence our well.” “Since Mr. Public and I were “on the same page” with regard to the need for the document, and since I had it on a word processor, I merely modified the front page to correct the problems and swapped it out.” “No one will ever know the difference except you and me.” All of the above is seemingly harmless enough and probably happens more frequently than we are willing to admit. However, what‟s the problem? The problem is that the document is arguably now a forged instrument with the consequent civil and criminal ramifications. On the civil side of things, according to Lange and Leopold‟s Treatise “Land Titles and Title Examination” found in Section 663 of the Texas Practice Series, a forged instrument is void and is ineffective as though it never existed. The Treatise further provides that forged instruments are void ab initio and there is no possible ground for implication, supplementary consent, waiver, estoppel, or any other defense to supply an operative force to the document. Further, forged instruments are not entitled to recording and if they are recorded, they are wholly ineffective for any and all purposes. Consequently, it appears that a Ratification obtained in such a manner is wholly ineffective and your client may be drilling his well on a lease which covers far less interest than originally anticipated. And, that‟s the good news. There is a criminal side to this story which is the bad news. Under the Texas Penal Code, the landman has just committed forgery and under the law of “parties”, you may be criminally responsible for the conduct. Section 32.21 of the Texas Penal Code provides in pertinent part as follows: (1) “forge” means: (A) to alter, make, complete, execute, or authenticate any writing so that it purports to: (i) to be the act of another who did not authorize that act...” (Seems to apply doesn‟t it?) Subparagraph (d) provides as follows:“an offense under this section is a state jail felony if the writing is or purports to be a will, codicil, deed, deed of trust, mortgage, security instrument, security agreement, credit card, check or similar sight order for payment of money, contract, release, or other commercial instrument.” That‟s not good and it gets worse. The law of parties which is set forth under Section 7.02 of the Penal Code provides as follows: “(a) a person is criminally responsible for an offense committed by the conduct of another if: (2) acting with intent to promote or assist the commission of the offense, he solicits, encourages, directs, aids, or attempts to aid, the other person to commit the offense; or (3) having a legal duty to prevent commission of the offense and acting with the intent to promote or assist its commission, he fails to make a reasonable effort to prevent commission of the offense.” I guess the bottom line is that doing jail time for something that a landman did would really irritate the heck out of me. For those of you who are sceptical that this might be criminal conduct, I highly recommend that you read the recent case out of the Corpus Christi Court of Appeals, Coleman v. State,(131 sw3d 303) upholding the felony criminal conviction of a shareholder of a corporation relating to the corporation's failure to pay royalties to royalty owners. 4. ENGAGE IN DECEIT This irritant refers to problems which arise when a landman realizes that he has some kind of defect in his lease or it has possibly terminated as a result of some failure on his part, either to pay delay rentals and/or shut-in gas royalties, or commence workover operations in a timely manner. To further complicate matters, his Lessor is not aware of the problem and he has a drilling rig coming that he has to either take or release. And finally, his boss doesn‟t know anything about this. Basically he‟s got some really valuable body part in the wringer and he needs you to help him extract it. As part of the title curative, he wants you to require some type of surreptitious curative instrument which will ratify/revive his lease so that he can get his well drilled. And, the kicker is that he does not want to reveal this problem to the Lessor. The ethics issues notwithstanding, and in tort lawyers‟ parlance, he‟s asking you to help him procure a ratification of the lease through misrepresentation or fraud. That‟s never a good thing. As we all know, there are numerous legitimate ways to obtain ratifications of leases or other instruments and revivors of terminated leases. However, the universal element required in both of those instances is “intent”. The revivor or ratifying party must intend the act and in order to have intent, it‟s generally necessary that the ratifying or reviving party have full knowledge of all relevant facts. Consequently, if your client wants to obtain a ratification/revivor of his expired lease through some sort of deception, that ratification/revivor is not likely to stand up to a subsequent challenge when the Lessor claims that had he had full knowledge of all relevant facts, he would‟ve never executed the document. Obviously, your advice to the landman has to be “no, I can‟t do that” in order to get a valid ratification or revivor of your lease, you need to come clean, reveal your problem to the Lessor, and obtain your ratification and/or new lease in the appropriate manner. To do otherwise would violate the duty you owe to your client. In light of the Corpus Christi Court's holding in Coleman v. State described above, I also submit to you that this behavior may be a criminal offense under Section 32.46 of the Texas Penal Code entitled "Securing Execution of Document by Deception". Depending on the value of the property involved this could be a first degree felony resulting in serious jail time. 5. MAKE UNREASONABLE DEMANDS This irritant deals with landmen who want something from you in less than a reasonable amount of time. There are innumerable reasons for this. For example, maybe they were late in getting abstracts or a runsheet for title work they are requesting. Or, maybe they‟re locked out of a location and need a TRO against a recalcitrant landowner. However, the most common reason in my humble opinion - is the feeling on the part of a client that the less time he gives you to do the work, the less he‟ll be charged for the work. This attitude always invokes my rule which is, when presented with an impossible task to be done in an unreasonable amount of time, requiring work on weekends or cancelling vacations with the wife and kids, I double my rates. And, why shouldn‟t I? My plumber does. I don‟t think it is unreasonable for me to want to make almost as much money as my plumber. The scenario goes something like this. You‟re sitting in your office, fat, dumb and happy (in my case, skinny, dumb and happy), gazing out over a tranquil bay contemplating the weekend or your vacation which starts tomorrow. Your mind has drifted off to warm, gentle, breezes wafting across a deserted beach with cool, fruity drinks with little umbrellas when the call comes. It‟s from the land section of your largest client, and they need something, and they need it right now. It doesn‟t matter what it is, it could be title work for a well they intend to spud on Monday (which they‟ve known about for months), or a TRO to get them on location to save $20,000.00 a day in standby time for the rig. You know you have no choice, you have to do it or your client will call somebody else, who will make their associate do it. You remember that you still have those two kids in college. So, if it was your vacation that you were about to leave on, you know you are going to have to call your soon to be ex wife and tell her that you‟re going to have to skip the vacation. Your mind, after briefly drifting away to thoughts of divorce lawyers, is recalled to the conversation you are having with the landman. He continues “I‟m sending you everything you‟ll need by overnight courier. It should be in your office by 10:30 in the morning. If you need me you can reach me at my condo in Aspen, however I don‟t think my cell phone works on the mountain, so you‟ll have to call me after 7:00 pm Texas time.” If that doesn‟t irritate you, you‟ve chosen the right profession. In all seriousness, when you are asked to do something in an unreasonable amount of time, you have to ask yourself, is it worth the risk. I recently received a request on a Friday afternoon to prepare a Title Opinion for a well which was already drilling from a landman who didn‟t even have a runsheet. Since the courthouse was a hundred miles from my office, there was no way I could even look at the records before Monday for a well that was projected to TD by Tuesday. I convinced myself that there was nothing I could tell this client which would make him rig down and move off location, and give me time to examine the title. I figured it just wasn‟t worth the risk to try to do anything in that time frame, so I told him to finish his well, and if he made a well, that I would examine title and let him know if he owned it. Another particularly irritating thing that some landmen do is make substantially more money than I do - and they do it in their sleep. There is not really anything that can be done about this and there isn‟t any moral or substantive lesson to be learned from it. However, it is particularly irritating for me since, for ten years prior to my becoming a lawyer, I was a landman and had the opportunity to make money in my sleep. The only solution that I know for this irritant is to cut up my bar card and send it back the Supreme Court with a little love note about what they can do with it. My only hesitation is that to acquire my law license, I expended substantial sums of my family‟s money and asked them to sacrifice a great deal in the endeavor. I have a feeling if I broached this subject with my family, it might be difficult for me to cut up my bar card and send it back to the State Bar because I‟d likely need to employ the services of a proctologist to retrieve it. I‟m just not sure that sleeping at night is worth all of the trouble. 6. MAKE IMPOSSIBLE REQUESTS This irritant deals with the landman who comes to you and wants you to write an “iron clad” agreement which protects him because he‟s entering into some type of transaction with someone he doesn‟t trust. Maybe the prospective business partner has questionable ethics or has been broke, or is now broke, or knows nothing about the oil and gas business. For whatever reason, your client charges you with the duty to write an agreement, possibly a purchase and sale or well participation agreement that protects him for all eventualities. However (and there is always a “however”), he wants to keep the agreement as simple and as short as possible. Probably to save money on the fee. My initial response to this type of request is - “I can‟t do it, there are no such agreements.” It doesn‟t matter if your document is 100 single spaced legal pages in length, you can never anticipate all of the various problems which may arise. The bottom line is that anybody who has a $200 filing fee can file suit against you in State District Court in Texas; and, although, the lawsuit may be completely frivolous and filed in the wrong venue, it will take you thousands of dollars to answer it, transfer it, or get it dismissed, if you can. I hope it comes as no surprise to you that there are people in this business who regularly purchase production and/or drilling deals to see if they are profitable. If they are profitable, then everyone is happy and goes on about their business. However, if the properties are marginal or not profitable, then the purchaser sues the seller for fraud and/or violation of the various federal and state securities laws. Assuming that the transaction was on the up and up, fraud claims are generally difficult to prove. However, the very liberally construed securities laws are a different story. In the right circumstances they allow for recision. They essentially give a potential purchaser who is familiar with the workings of the various federal and state securities laws a “free look” at production. In this regard, I highly recommend anyone who is in the business of advising clients regarding the purchase and sale of oil and gas properties and/or drilling deals, to read a recent article published in the May/June 2004 edition of the “Landman” magazine written by Arthur J. Wright, entitled “Securities Liability in the Oil Patch - a Trap for the Unwary”. In the past year [2004] alone, I‟ve been involved in two separate transactions in which a disgruntled purchaser, in what I would describe as a “typical” oil and gas deal in South Texas filed claims for recision under the federal and state securities laws. This Article was originally written to be given as a talk at the State Bar of Texas Advanced Oil, Gas & Energy Resources Law Course in September of 2004. For the talk, I had prepared pithy little comments about each of the following. For those of you who were not there, and I know you weren‟t, I ran out of time because it was not until the moment that I stepped to the podium that I realized for the first time in my life that I needed glasses to read my notes. I didn‟t have any, what a disaster. How do I know that you weren‟t there, you ask? Easy! At 3:00 pm on Friday when I gave the talk there were only four people left in the audience, the previous speaker who politely stayed for mine, the moderator, Laura Burney who I guess was obliged to stay and two employees who I paid to attend. I have added a couple of comments to some of the following to explain. The balance should be self explanatory, if they are not you shouldn‟t be a lawyer. 7. USE TAPED OIL AND GAS LEASES “Taped” Oil and Gas Leases - “You know the ones that unfold like the dead sea scrolls.” This reference is to those leases that generally predate word processors in which a landman would tape all kinds of addenda to a Pound Printing Co. form to such a degree that the addenda supplanted the form. They were impossible to analyze because of the inherent conflicts between the form and the addenda and the use of that classic phrase: “Anything hereinabove to the contrary notwithstanding. . .” 8. USE COMPUTER-GENERATED “FORMS” Computer generated “forms” - “ I swear it is identical to the „Pound‟ form.” This refers to the landman who “duplicates” a “form” in appearance and allegedly, content. Because you know it can be manipulated with little effort, you have to read it word for word every time you see another iteration of it. 9. PRESSURE A NOTARY Asking my secretary to notarize a stranger‟s signature when she didn‟t see him sign the document. This one is not only self-explanatory, it is dangerous. 10. GETTING THEIR LAWYER SUED Unquestionably one of the most irritating things a landman, or anyone else for that matter, can do is to get you sued. Now you are probably saying to yourselves, if you get sued it‟s likely because of something you did or didn‟t do. And, to a great degree that‟s correct. However for those of us who practice oil and gas law in the Rio Grande Valley (affectionately referred to as the “Valley”) - to paraphrase the Houston Oilers‟ (remember them) coach, Bum Philips, there aren‟t but two types of lawyers; those who have been sued and those who are going to be sued. Surely some of you have heard women say that size doesn‟t matter and hopefully that‟s true, however, venue does. And those of you who don‟t believe it are just kidding yourselves. Juries in the Valley never let the law or the facts get in the way of a good verdict. That‟s why our E&O coverage is so expensive. So how does it happen? One day you are sitting in your office and in comes the call from your landman/client and it goes something like this. Client: “I just sold a chalk deal to some guys in the Valley. It‟s their first venture in to the „awl bidness‟ and I‟m going down to the Valley to explain to them how it works. I want you to come along to lend credence to the deal (which translates to „I want them to know I have enough cash to hire a lawyer for the day‟) and to answer any questions they may have about the legalities of the transaction.” Your gut feeling is no, I can‟t do that. It wouldn‟t be prudent. Hint: Always go with your gut. But alas, you remember those two boys in college consuming mass quantities of everything including but not limited to, money. So you relent and off you go to the Valley. You find yourself sitting in some conference room and things are going pretty well because you have not had to speak, when, out of the blue it happens. Here comes a question and it‟s not directed to that soon to become irritating landman, it‟s directed to you. Well, being the type A personality that most lawyers are, you begin to show off your knowledge of the subject when you suddenly realize that the lines delineating who you represent have become terribly blurred. Your lightening fast mind (the one which was honed changing addresses on punch cards at Pennzoil) races into action and you blurt out that classic and certainly soon to be forgotten line, “You guys really need to ask your own lawyer these questions. I represent Mr. Irritating Landman.” Well the meeting mercifully ends. The new oil men have been satisfied and they take your client‟s deal. In typical chalk well fashion the well is drilled for a mere $500,000.00 over the AFE, it is completed on Sunday, turned to sales at the rate of 1000 barrels per day on Monday, plugged on Tuesday, and you, your client (and anybody who happened to be driving by the office during your meeting in the Valley) are sued and served on Wednesday. You will subsequently find, much to your dismay (probably at your client‟s deposition), that he billed the Plaintiffs for your time at the meeting under the terms of their Joint Operating Agreement. Let‟s stop for a moment and take stock of your position. You gave legal advice to the Plaintiffs or at least answered their questions. They were billed (by your client) and presumably paid for your services. They forgot you told them that you represent Mr. Irritating Landman and that they should hire their own lawyer. You are in the Valley. Need I say more. What have we learned? If presented with this or a similar scenario you need to consider your options. Your first option of course is not to go. Your second option is to reconsider your first option. Your last option is to go. If you chose option No. 3, when the call comes in from the landman, you must tell him that you will go on one condition. That you are going to tell his prospective working interest owners that they need to hire their own lawyer. He will immediately say “oooh, that‟s bad, I don‟t want to run these guys off - chalk deals are hard to sell.” Then you say, “Not only that, I‟m going to tell them in writing and ask them to sign off on my representation letter.” Your client will then say, “ooooh, that‟s worse.” Assuming you chose option No. 3 and you get your “representation letter”, you need to laminate it and place it in a safe deposit box. You are going to need it for your defense. CONCLUSION When I started in this business, all you had to have to call yourself a landman was a business card which you could purchase from any stationer and people referred to you affectionately as a “leasehound”. I loved that term. Fortunately, the AAPL has made tremendous progress through its educational and voluntary certification programs to significantly raise the professionalism and knowledge of landmen from what it was when I started. Today, I find most landmen to be knowledgeable, well trained, ethical and a pleasure to work with. I wish I could say the same for some of the lawyers.