Energy Law

Location Matters in Purchasing Real Property

By Natalie Barletta

In Retamco Operating, Inc. v. Republic Drilling Co., the Texas Supreme Court holds that Republic Drilling, a California company, established minimum contacts with Texas by acting as the transferee of certain oil and gas interests. Retamco Operating sued Paradigm Oil in a Texas district court over unpaid oil and gas royalties. The trial court entered a $16 million default judgment against Paradigm. While the litigation was pending, however, Paradigm assigned to Republic certain oil and gas interests located in Texas. Retamco sued Republic for violating the Uniform Fraudulent Transfer Act (UFTA), arguing that the transfers from Paradigm were fraudulent and led to Paradigm's insolvency and subsequent inability to satisfy the judgment. Republic filed a special appearance, arguing that it was not subject to personal jurisdiction in Texas. The Supreme Court held that Republic established minimum contacts with Texas when it purposefully availed itself of the privileges of conducting business in Texas and because Republic's alleged liability arose from those contacts.

Specifically, the court reasoned that Republic knew that the real property it acquired was located in Texas and it purposefully took assignment of the property. Republic established a continuing relationship with the State of Texas by acquiring real property in the state, thus, if Republic sought to enforce its rights to the interests acquired, it would have to do so in Texas. Further, Republic reaped benefits from the property by selling some of the property and by receiving approximately $1.2 million in revenues.

Additionally, the court found that the oil and gas interests were assets for purposes of the UFTA. Without an asset, there can be no fraudulent transfer under the UFTA; therefore, the tort occurred at least in part in Texas because the asset is located in Texas, it was received from a Texas resident, and the transfer allegedly occurred to defraud a Texas resident. Finally, the court found that Texas courts have an interest in resolving controversies involving real property located within its borders and that California had little interest in resolving a Texas real property dispute. Thus, the fairness factors weighed heavily in favor of Retamco, and the exercise of jurisdiction '[did] not offend traditional notions of fair play and substantial justice.'
 

Full post as published by The Energy Law Blog on March 02, 2009 (boomark / email).