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Flowers v. Diamond Shamrock Corp. - 693 F.2d 1146 (5th Cir. 1982)

Rule:

Market value for royalty purposes cannot exceed the maximum price at which the gas produced from the lessor's wells may be sold under its particular categorization in the Natural Gas Policy Act, 15 U.S.C.S. § 3315

Facts:

Plaintiff lessors challenged the decision of the United States District Court for the Northern District of Texas, which set aside parts of favorable jury determinations that justified an award to them of increased royalties, finding accord and satisfaction along with preclusion of some of the additional royalty payments under the Natural Gas Policy Act, 15 U.S.C.S. § 3301 et seq. Plaintiff lessors sought additional royalties under it leases with defendant lessee. Plaintiffs contended that a landowner-lessor was entitled to royalty payment for gas sold off his premises based upon the market value at the time of sale after production, not upon the price established between the producer and the distributor under an earlier long term contract. The district court in a judgment notwithstanding the verdict found accord and satisfaction, that the Natural Gas Policy Act, 15 U.S.C.S. § 3301, prevented recovery of additional royalty payments, and that defendant was allowed deduction of severance taxes. Plaintiffs appealed.

Issue:

Were plaintiffs entitled to royalty payment for gas sold off their premises based upon the market value at the time of sale after production?

Answer:

No

Conclusion:

The court found no evidence that plaintiffs had or should have had knowledge that negotiation of checks would affect or settle a disagreement. Also, since the intrastate gas from plaintiffs' property was committed to an existing sales contract the lower contract price specified in § 3315 was the maximum lawful price at which it could be sold, and therefore constituted market value. Additionally, since no evidence was taken in the trial judge's post-verdict calculation, from jury determinations of market value of royalties, that issue was remanded.

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