BOB McCOY, Justice.
In four issues, Appellant Betty Lou Bradshaw appeals the trial court's summary judgments for Appellees Steadfast Financial, L.L.C. (Steadfast); Range Resources Corporation and Range Production I, L.P. (collectively, Range); R.J. Sikes, R. Crist Vial, Roger and Kathy Sikes, Greg and Pam Louvier, Christy Rome, and Dacota Investment Holdings, L.L.P. a/k/a Dacota Investment Holdings, L.P. (collectively, the Royalty Holders); Peter G. Bennis; and Ronny D. Korb. We affirm in part and reverse and remand in part.
In a prior appeal involving these parties, we stated the following:
Range Res. Corp. v. Bradshaw (Bradshaw I), 266 S.W.3d 490, 491-92 (Tex.App.-Fort Worth 2008, pet. denied) (op. on reh'g) (footnotes omitted). The trial court agreed with Bradshaw, holding that the royalty interest reserved in the 1960 Deeds was a "fraction of royalty" interest, and we affirmed. Id.
In April 2010, Bradshaw filed her first amended petition, renewing her argument that Steadfast, as the executive rights holder, breached its duty to her in the manner in which it negotiated and structured its April 27, 2006 transactions with Range by engaging in self-dealing, obtaining an excessively large bonus payment and above-fair-market-value price for the tract's surface by structuring the lease to substantially reduce the lease royalty reserved to one-eighth. Bradshaw alleged that because of Steadfast's perfidy, she had received one-sixteenth less of the royalty that she should have received, to her detriment, and that Range had conspired with Steadfast.
Bradshaw pleaded for a constructive trust on the royalty interest assigned by Steadfast to Bennis and the Royalty Holders, along with the portion of the royalty conveyed by Bennis to Korb; disgorgement by Steadfast; actual damages against Steadfast and Range as jointly and severally liable for Steadfast's breach of duty; exemplary damages from Steadfast and Range; reformation of the lease; and a decree setting aside and canceling Steadfast's transfers and conveyances of its royalty interest as fraudulent. In her second amended petition, Bradshaw sought to impose a constructive trust on the accrued royalties and future payments of royalties to the NPRIs deeded by Steadfast and clarified that she also sought to set aside the transfer from Bennis to Korb as fraudulent.
On June 3, 2010, the trial court granted Bennis's no-evidence motion for summary
In its final judgment, the trial court stated that it considered the following motions: Range's motion for summary judgment; Steadfast's third motion for summary judgment; the Royalty Holders' third motion for summary judgment; Bennis's second motion for summary judgment; Korb's second traditional and no-evidence motion for summary judgment; and Bradshaw's motion for reconsideration. It granted all but Bradshaw's motion. After acknowledging that it had already signed orders granting Bennis's, Korb's, Steadfast's, and the Royalty Holders' motions, the trial court found that all of Bradshaw's causes of action against these parties had been previously dismissed by summary judgment and ordered that Bradshaw take nothing from any of the appellees. This appeal followed.
Bradshaw argues that the trial court erred by granting summary judgment for Steadfast, Range, the Royalty Holders, Bennis, and Korb.
We review a summary judgment de novo. Travelers Ins. Co. v. Joachim, 315 S.W.3d 860, 862 (Tex.2010). We consider the evidence presented in the light most favorable to the nonmovant, crediting evidence favorable to the nonmovant if reasonable jurors could, and disregarding evidence contrary to the nonmovant unless reasonable jurors could not. Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex.2009). We indulge every reasonable inference and resolve any doubts in the nonmovant's favor. 20801, Inc. v. Parker, 249 S.W.3d 392, 399 (Tex.2008). A defendant who conclusively negates at least one essential element of a cause of action is entitled to summary judgment on that claim. Frost Nat'l Bank v. Fernandez, 315 S.W.3d 494, 508 (Tex.2010); see Tex.R. Civ. P. 166a(b), (c).
In its second motion for summary judgment, Steadfast argued that Bradshaw could not complain of breach of a duty to her because the lease providing for a one-eighth royalty was specifically authorized by the language of the deed reservation and that Bradshaw's complaint was barred by estoppel by deed. To its motion, Steadfast attached the first request for admissions from it and the Royalty Holders to Bradshaw, which contained as an attachment the 1960 Deeds; Bradshaw's responses to the first request for admissions agreeing that her NPRI claim was under the 1960 Deeds; and an affidavit from R.J. Sikes with a copy of the April 2006 contract of sale with Range.
In his affidavit, R.J. Sikes stated that he was Steadfast's managing member during all relevant time periods, that on April 27, 2006, Steadfast closed on the real estate transaction with Wise Assets No. 2, Inc. regarding the property at issue, and that Steadfast also closed with Range on the
The April 2006 contract showed that Steadfast had sold the property for $8,976,600 in cash, that Steadfast had contracted with Gary Humphreys for an assignment of the contract that would allow the sale to go through, and that Steadfast had agreed to lease all minerals for a $7,505 per acre lease bonus and a 1/8 royalty.
In her response to Steadfast's motion, Bradshaw argued that Steadfast could have obtained a 1/4 royalty but instead reserved only a 1/8 royalty in exchange for the higher bonus payment it received, thereby breaching its duty to her. Bradshaw attached to her response portions of Bennis's deposition, in which he explained how he and Humphreys became involved by contracting to purchase the land at issue from Wise Asset No. 2 and how he presented or spoke about the land to EXCO, Chesapeake Energy, EnCana, Peak Energy, XTO, Devon Energy, Burlington Resources, and Quicksilver. Bennis said that Chesapeake made what he thought was a serious offer and that lease rates at the time ranged from 1/8 to 1/4. Bennis also said that Steadfast had been willing to offer a $200,000 bonus and a 1/4 royalty rate on the NPRI that he and Humphreys had planned to retain at the property's sale, based on an April 12, 2006 email from David Shipman to Humphreys, but he said that the actual lease Steadfast signed had been for a 1/8 royalty.
Bradshaw attached the assignments by Humphreys of his interest in the contract
In his deposition, Bennis described the April 17, 2006 meeting that included R.J. Sikes and several others:
Bennis said that he and Humphreys were in agreement and resolved everything in the stipulation agreement, in which, on April 18, 2006, Steadfast agreed to convey an undivided NPRI of 1.5625% to Bennis, and in an election pursuant to the stipulation and amendment to the contract, Bennis agreed to accept $337,500 from Steadfast in addition to his royalty. In an April 18, 2006 email, Bennis told a third party, "Bottom line is that Range Resources is buying the whole deal land and taking a lease.... I was hoping for the Chesapeake deal but [Humphreys] screwed up a perfectly great opportunity for us all."
R.J. Sikes signed for Steadfast on April 27, 2006, issuing to Bennis his royalty deed for a 1.5625% NPRI after Bennis and Humphreys assigned all of their interests under the land sale contract to Steadfast. Bennis testified that he did not know from whom the portion of royalty that he received had been taken but that no one at the April 17, 2006 meeting had seemed willing to give up some of his share. Bennis later conveyed to Korb 1/8 of 1% of his NPRI. Steadfast conveyed 2.028125% of its royalty interest to R.J. Sikes, 1.659375% to R. Crist Vial, 0.55% to Roger and Kathy Sikes, 0.25% to Greg and Pam Louvier, 0.10% to Christy Rome, and 0.10% to Dacota Investment Holdings, LP. Bradshaw's evidence also showed that Vial sent R.J. Sikes an undated letter acknowledging "if no lease, then no bonus of $250,000.00 in hand. (Note: None of which goes to Bradshaw)."
Bradshaw argued that in light of the evidence set out above, particularly offers of a 1/4 royalty before the April 27, 2006 transaction, Steadfast's offer to Humphreys, the other oil and gas leases in Hood County in 2006 at various times after the April 27 transaction, and the 2005 offer from Chief Oil & Gas, there was a genuine issue of material fact as to whether Steadfast breached its duty to her because it could have obtained a 1/4 royalty.
Bradshaw also claimed that with regard to the Royalty Holders, review of the April 27, 2006 transactions revealed that the transactions were inextricably intertwined and conditioned upon each other and that all of the royalty interests assigned, beginning with Bennis's, came directly from the 1/16 (1/2 of overall 1/8) lease royalty reserved by Steadfast to itself in its agreement with Range. Bradshaw contended that Steadfast had breached its duty to her and that she was therefore entitled to a greater share of whatever royalty should have been reserved, which would cut into what Steadfast could reserve to itself and then transfer to Bennis and the Royalty Holders.
In part of her first issue, Bradshaw argues that the trial court erred by granting summary judgment for Steadfast when Steadfast, as the executive rights holder, owed a fiduciary duty or duty of utmost good faith to her as an NPRI owner, and she contends that the summary judgment evidence raises a genuine issue of material fact with regard to whether Steadfast breached this duty and that the affirmative defense of estoppel by deed does not apply because her position is not inconsistent with any grant in the deeds. Relying on National Plan Administrators, Inc. v. National Health Insurance Co., 235 S.W.3d 695 (Tex.2007), Steadfast responds that the parties to the 1960 Deeds limited the existence and extent of any duties owed under the common law by specifying that any lease "shall provide for Royalty of not less than one-eighth," that it fulfilled this duty, that it owed Bradshaw nothing more, and that Bradshaw's complaint is barred by the affirmative defense of estoppel by deed.
We will begin our analysis with a review of National Plan Administrators. In that case, the supreme court addressed whether an insurance company was owed a general fiduciary duty by the entity with which it had contracted at arm's length to perform third-party administrator duties for its cancer insurance policies. See id. at 697-98. NPA, the administrator, argued that it did not have a general fiduciary duty to the insurer under the insurance code's specific provisions, the insurance code's general structure, or the parties' agreement and that the specific fiduciary duties that it owed the insurer were limited by their agreement. Id. at 699-700.
The court reviewed the general law pertaining to fiduciary duties, stating that the
After reviewing the insurance code, the court held that neither the code nor its structure created a general fiduciary duty applicable to third-party administrators. Id. at 701. The court then considered the parties' detailed agreement, which specified that NPA was an independent contractor whose activities in administering and marketing insurance products were not exclusive to the insurer, before declining to impose a general fiduciary duty on NPA "when the parties expressly agreed that [the administrator] could take actions that would be in violation of such a duty." Id. at 703 (reiterating that the contract arose from an arm's-length business transaction, that the insurer was experienced in negotiating agreements in the insurance industry and was represented by experienced employees and counsel when it entered the agreement, and that the parties agreed that NPA would act as the insurer's agent only for specific purposes).
This insurance administrator case is not on-point when compared to the extensive body of law specifically addressing the executive right holder's duty to nonexecutives. See, e.g., Manges v. Guerra, 673 S.W.2d 180, 181, 183 (Tex.1984) (op. on reh'g) (stating that the duty of utmost good faith owed by an executive has been settled since 1937). Therefore, we will trace the development of this particular body of law in order to determine what duty, if any, the executive rights holder owes to an NPRI owner.
We begin our review with Schlittler v. Smith, 128 Tex. 628, 101 S.W.2d 543 (1937), a deed construction case in which the commission of appeals determined that the reservation at issue was an NPRI before observing that as to the relationship between the executive rights holder and the nonexecutive, "self-interest on the part of the grantee may be trusted to protect the grantor as to the amount of royalty reserved. Of course, there should be the utmost fair dealing on the part of the grantee in this regard." Id. at 544-45 (emphasis added). The supreme court adopted the opinion. Id. at 545.
The "utmost fair dealing" language entered the mineral interest lexicon in Schlittler, but the basis for the duty of utmost fair dealing was unclear. In 1959, we concluded that the executive rights holder's duty to an NPRI owner arose from an implied covenant. See Eternal Cemetery Corp. v. Tammen, 324 S.W.2d 562, 564-65 (Tex.Civ.App.-Fort Worth 1959, writ ref'd n.r.e.); see also Kimsey v. Fore, 593 S.W.2d 107, 111 (Tex.Civ.App.-Beaumont 1979, writ ref'd n.r.e.); Portwood v. Buckalew, 521 S.W.2d 904, 911 (Tex.Civ.App.-Tyler 1975, writ ref'd n.r.e.).
Tammen involved placement of a cemetery, which would have, at the time, prevented mineral exploration and production. 324 S.W.2d at 564. We stated that this would render worthless any mineral interest
Jones's 1948 NPRI article recognized the potential legal underpinnings after Schlittler for the executive's duty, noting,
26 Tex. L.Rev. at 573-74.
In Portwood, over a decade after Tammen, the Tyler court based its fiduciary duty finding on an implied covenant, as well as on the parties' circumstances, which involved a cotenancy among family members. 521 S.W.2d at 911 ("[T]here is an implied covenant arising from the partition deed that the appellant would use the utmost fair dealing in executing oil and gas leases so as to protect the interest of the appellee's children.").
Four years later, the Beaumont court in Kimsey relied in part on Portwood. 593 S.W.2d at 111. In Kimsey, a jury found that the executive rights holder, aided and abetted by others (including the lessees), failed to use utmost good faith and fair dealing and effectively caused the loss of the NPRI owners' rights under the term royalty deed when the evidence showed, among other things, that the executive had initially declined to lease until the outstanding term royalty terminated and that once he signed a lease, he gave the operators instructions not to drill until the month after the outstanding term royalty expired. Id. at 108-09. The jury had been instructed that "the duty to use utmost fair dealing and diligence in the exercise of the exclusive-leasing privilege arises out of a contractual relationship with the plaintiffs under implied covenants
After the trial court granted to the defendants a judgment notwithstanding the verdict, the NPRI owners appealed, and the Beaumont court reviewed the then-existing case law, including Portwood, before stating, "We are satisfied that the test of utmost fair dealing is an implied covenant arising from the royalty deed which is imposed upon the owners of the executive right to lease." Id. at 111. The court reasoned that it was necessary to imply such a covenant "in order to give effect to and effectuate the purpose of the contract as a whole," and that the record in the case was "a concrete illustration of the absolute necessity of such an implied covenant." Id. at 112. Therefore, at least until the supreme court's 1984 opinion in Manges, the legal theory for the duty of utmost fair dealing by the executive rights holder was based on an implied covenant to protect the NPRI owner's interest.
The supreme court took an intermediate step on the way from an implied covenant to a duty based on the parties' relationship thirty years after Schlittler, when it elaborated upon the type of relationship that exists between an NPRI owner and the executive rights holder in Andretta v. West, 415 S.W.2d 638 (Tex.1967). In Andretta, West conveyed an undivided 1/4 NPRI to Andretta's predecessor in 1942, after he had executed a lease on his property but before he amended the lease in 1944 to provide for a substitute royalty payment in lieu of the actual royalty covered by the lease. Id. at 639-41. Andretta did not learn of the amendment or payments to West until around 1957. Id. at 639. The court found that as to West and Andretta, there was both privity of contract and a confidential relationship between the parties necessary to hold West accountable for the 1/4 of compensatory royalty payments to which Andretta was entitled, reasoning as follows:
Id. at 641 (emphasis added). That is, based on the terms of the deed and the existence of the lease at the time the NPRI was granted to him, Andretta was entitled to share in the compensatory royalty payments made to West, the executive rights holder. Id.; see also HECI Exploration Co. v. Neel, 982 S.W.2d 881, 888 (Tex.1998) (stating that in Andretta, the court held that a fiduciary relationship existed between the executive rights owner and NPRI owners in Andretta's position because the former had the power to make and amend the lease, thereby affecting the latter's rights). And a year before the court handed down Manges, Justice Spears noted in a concurring opinion that Texas courts have read a duty of good faith and fair dealing into many types of contractually based transactions, with the common thread being that there is a special relationship between the parties arising either from the element of
In Manges, the supreme court's quixotic, groundbreaking 1984 case, the Guerra family sued Manges both for failing to exercise diligence in leasing the minerals to third persons and for leasing a portion of the minerals to himself at terms unfair to the Guerras.
Id. at 183-84 (emphasis added). The court held that Manges's conduct amounted to a
After Manges, the Texas intermediate appellate courts focused to varying degrees on the relationship between the parties and the terms of the deed reservations. See Hlavinka v. Hancock, 116 S.W.3d 412 (Tex.App.-Corpus Christi 2003, pet. denied), disapproved of by Lesley v. Veterans Land Bd. of the State of Tex., 352 S.W.3d 479, 491 & n. 78, 492 (Tex.2011); Luecke v. Wallace, 951 S.W.2d 267 (Tex. App.-Austin 1997, no writ); Dearing, Inc. v. Spiller, 824 S.W.2d 728 (Tex.App.-Fort Worth 1992, writ denied); Mims v. Beall, 810 S.W.2d 876 (Tex.App.-Texarkana 1991, no writ); Hawkins v. Twin Montana, Inc., 810 S.W.2d 441 (Tex.App.-Fort Worth 1991, no writ) (op. on reh'g); Pickens v. Hope, 764 S.W.2d 256 (Tex.App.-San Antonio 1988, writ denied); Comanche Land & Cattle Co. v. Adams, 688 S.W.2d 914 (Tex. App.-Eastland 1985, no writ). Comanche, Pickens, and Mims have provided the framework for the law as it has evolved in the intermediate courts, so we begin our analysis with these cases.
The Eastland court cited to Manges in Comanche when addressing whether the executive rights owner had violated a duty to the term NPRI owner. 688 S.W.2d at 915-16. The NPRI owner had reserved a 1/2 term royalty interest when he conveyed his land to Comanche. Id. at 915. When Comanche subsequently entered into a mining agreement that provided for no royalty — defeating the NPRI owner's rights — the court held that even though the mining agreement was not a "lease," this did not relieve Comanche of its duty of utmost good faith when the evidence showed that before the mining agreement was signed, Comanche had notice of the royalty reservation and could have entered into an oil and gas lease containing a royalty provision. Id. at 915-16.
More cautiously, in Pickens, the San Antonio court also addressed the duty owed by an executive rights holder to an NPRI owner, noting that "some kind of duty" is owed by the executive but that "there may be a variance concerning the standard to which the executive will be held in the exercise of his executive right." 764 S.W.2d at 257-58, 263-64. In Pickens, Hope's parents had reserved a term royalty providing for "an undivided 1/4 of the usual 1/8 royalty" when they conveyed the land to Pickens. Id. at 258-59. Pickens did not execute a lease until after Hope's royalty term had expired, after he had refused some offers to lease,
On appeal, the parties disputed whether the standard of duty owed to the NPRI owner should be measured by a fiduciary duty arising from the parties' relationship under Manges or by the breach of an implied covenant arising out of the deed as held by the courts prior to Manges, and whether the standard to be imposed should be (1) fiduciary, (2) good faith and utmost fair dealing, or (3) ordinary care and good faith. Id. at 258. The trial court had refused to give a fiduciary duty instruction and instead instructed the jury that the executive rights owner owed to the NPRI owner "the same degree of diligence and discretion in exercising the [executive] rights ... as would be expected of the average land owner" motivated to take affirmative steps to seek or cooperate in leasing or development due to self-interest. Id. at 264, 267. The trial court instructed the jury that "[i]n the exercise of the executive rights, the holder thereof has a duty to use utmost good faith and fair dealing as to the interest of the non-participating royalty owner," and it defined "utmost fair dealing" as
Id.
In concluding that Pickens did not owe Hope a "fiduciary" duty under Manges, the appellate court distinguished Manges on the basis of cotenancy and Manges's self-dealing. Id. at 266. It distinguished Comanche based on that case's specific NPRI reservation (a one-half royalty interest on all royalties that might be paid during the term of the reserved interest), as compared to the stated fractional NPRI reserved by Hope's parents. Id. at 267-68. The court reasoned that whereas in Comanche, the executive could control the amount of production accruing to the royalty owner and so was in a position to manage and manipulate the share of production to which the non-executive would be entitled and could, by other provisions in the lease, obtain benefits that were not obtained by the non-executive, none of those possibilities existed as to Hope. Id. at 267. Hope's parents had reserved a stated fraction (1/32) as royalty, and "[i]n the event of production, Hope would receive a 1/64th free royalty, no more and no less, and this irrespective of who manages the lease or upon what terms were contained in a lease." Id.
The court stated,
Id. (citation omitted). The court concluded that as to Pickens, the proper standard was that of an ordinary, prudent landowner; that matters of cash bonus, primary term, delay rentals, and special provisions were matters of trading; and that
Id. at 268-69;
Finally, in Mims, the Texarkana court relied on the terms of the deed to determine what level of duty was owed to the NPRI holder. 810 S.W.2d at 879. The Bealls reserved an undivided 1/4 NPRI when they sold their land to John Mims. Id. at 878. The specific interest reserved was for "1/4 of whatever royalty is obtained and no less than 1/8." Id. at 879.
John's son Angus leased the minerals from John for a 1/8 royalty without cash bonus and then assigned the lease to Henderson Clay Products, Inc. in return for a 1/16 overriding royalty on the leasehold estate. Id. at 878. There was no negotiation between Angus and his father for the amount of the royalty, and John's testimony "indicate[d] that there was no arm's length transaction because he was willing to give it to his son if his son could get something out of it." Id. at 880. The Bealls sued, complaining that the 1/8 royalty was unreasonably low, constituting a breach of duty, and that Angus's overriding royalty interest was proof of the breach. Id. at 878. The jury found a breach of the duty of good faith and utmost fair dealing and awarded actual and exemplary damages for the Bealls, and the trial court entered judgment on the verdict and imposed a constructive trust on 1/4 of the 1/16 overriding royalty obtained by Angus through assignment of the lease. Id. at 878, 879.
The Texarkana court summarized the evolution of the law from Schlittler (setting out the duty of utmost good faith and fair dealing) and Manges (equating the utmost good faith standard with a fiduciary obligation) to Pickens (stating no duty to manage NPRI when a fractional royalty is
Id. at 879 (emphasis added) (citations omitted) (footnotes omitted).
The court concluded that evidence of John and Angus's conduct showed self-dealing and conspiracy to violate the fiduciary duty. Id. at 881-82. The court noted that when a lessee maintains an arm's length position in the transaction, he does not owe a fiduciary duty or duty of utmost good faith to the NPRI owner, but if he agrees with the executive "to an arrangement made for the purpose of excluding or minimizing the benefits of an outstanding or non-participating interest owner, the lessee can be held liable to the injured third party." Id. at 880-81. So while Angus, as a lessee, did not owe a fiduciary duty to the Bealls, he could be held liable to them as "a lessee who induce[d] or participate[d] in the executive's breach." Id. at 880. The court upheld the trial court's judgment after reforming the total amount of actual damages. Id. at 882.
From these three cases, two new schools of thought began to emerge — one relying on the existence of cotenancy to support the existence of a fiduciary duty and the other resting primarily on the terms of the reservation itself and the exercise of the executive right. Under both theories, self-dealing appeared essential to find a breach of whatever duty was owed, and "fiduciary" did not necessarily mean fiduciary in the traditional agent-principal sense.
In Hlavinka, a 2003 Corpus Christi case, Hancock and the other appellees, who were nonexecutive cotenant mineral interest owners, sued Hlavinka, a cotenant mineral owner and owner of the executive rights and the surface, for breach of fiduciary duty. 116 S.W.3d at 415. The basis for their suit was that when Hlavinka was approached about leasing, he held out for more because nearby properties were receiving both higher bonuses and higher royalty interests. Id. at 415-16. The court held that although Hlavinka owed Hancock and the other appellees a duty to acquire every benefit for them as he would acquire for himself, there was no breach here because there was no self-dealing, unlike in Manges, and Hlavinka did not
Id. at 417 n. 3.
We addressed the issue, first in Hawkins in 1991 and then in Dearing in 1992, ultimately concluding that whether the parties were cotenants was irrelevant. Instead, we focused on the terms of the NPRI reservation to define the duty owed by the executive rights holder.
In Hawkins, the appellees, royalty owners, sought appointment of a receiver to enter into an oil and gas lease. 810 S.W.2d at 443, 445. After the appellees filed suit, but before the trial court could appoint a receiver, the appellant (who owned the surface, the executive right, and the right to receive all bonus and delay rentals) executed a lease with L.F. Jones Company. Id. The appellees argued that the appellant's executing this lease amounted to a breach of fiduciary duty because the appellant had executed it after refusing a better lease offer by Twin Montana.
With regard to the application of Manges, we stated:
Id. at 445-46 (emphasis added). Further, we held that although the appellant executed a lease with a 1/8 royalty, the deed containing the NPRI grant stated that any lease executed "shall always provide for a royalty of at least 1/8," and that "[c]ircumstances may require more than the minimum provided, to be acting in good faith." Id. at 446.
In Dearing, the Haag family conveyed a 600-acre tract to Dearing in 1943 but reserved an undivided 1/2 interest in minerals, granted the executive right to Dearing, and provided that the royalty reserved was "no ... less than the usual one eighth (1/8) royalty." 824 S.W.2d at 730. In 1944, Dearing entered into an oil and gas lease providing for a 1/8 royalty; this lease did not expire until the early 1980s. Id. Dearing then received several offers to lease the property, including an offer for a 1/4 royalty and bonus payments of $100/acre. Id. at 731. Dearing ultimately leased to a company related to himself for a 1/8 royalty and no bonuses. Id.
Spiller, the Haags' successor in interest, sued for breach of the duty of utmost good faith, cancellation of the lease, termination of Dearing's executive leasing rights over Spiller's mineral interests, and for an accounting of the profits made under the lease. Id. at 730-31. The jury found breach of the duty of utmost good faith and found that the lease was an act of self-dealing and that Dearing and the related company conspired to deprive Spiller of benefits he would have received in a lease to a disinterested party. Id. at 731. It assessed $300,000 in exemplary damages against each defendant. Id. The trial court's judgment on the verdict provided for cancellation of the lease, cancellation of Dearing's executive rights over Spiller's mineral interest, and establishment of Spiller as cotenant with Dearing with respect to the production on the premises, as well as an accounting. Id.
We held that the Manges standard of "utmost good faith" applied and observed that although Dearing claimed that the "facts in Manges v. Guerra are thousands of miles or light years removed from the facts of the instant case," it would be difficult to determine how a fact situation could actually be more analogous to the first cause of action in Manges. Id. at 732. We did not rely on the cotenancy factor but rather on the limitation on the executive right in the language of the reservations in both Manges and Dearing that no lease could be entered into that provided for less than a 1/8 royalty. Id. When "at least two parties made offers substantially better than the lease entered into by Dearing," the trial court properly entered judgment on the jury's verdict that Dearing had breached his duty of utmost good faith by entering into a lease with an "inside" party. Id. Our reasoning was as follows:
Id. at 732-33.
We also analogized to Comanche before stating that the fact that the NPRI owners were cotenants in Manges did not create the fiduciary relationship in the absence of an agreement or contract providing such — instead, "the significant relationship which gives rise to the fiduciary duty is the exercise of the executive rights over the non-participating interest." Id. at 733. "The fact that Dearing was co-tenant with the plaintiffs is irrelevant to a determination of the duty owed by an executive. If Dearing owned no interest in the land, and only owned the executive rights on the property, this duty would still be imposed." Id.; see also Mafrige v. United States, 893 F.Supp. 691, 703 (S.D.Tex.1995) (citing Dearing, Mims, and Comanche for the proposition that the lower Texas courts since Manges have found a fiduciary obligation whenever the amounts due on the NPRI are linked to the royalty negotiated by the holder of the executive interest instead of a fixed fractional amount in the deed), aff'd, 189 F.3d 466 (5th Cir.1999), cert. denied, 529 U.S. 1053, 120 S.Ct. 1554, 146 L.Ed.2d 460 (2000); Joshua M. Morse III and Jaimie A. Ross, New Remedies for Executive Duty Breaches: The Courts Should Throw J.R. Ewing Out of the Oil Patch, 40 Ala. L.Rev. 187, 199 (1988) ("Where executives have power to increase their bonuses, surface damage payments, or other interests by decreasing the royalty interest, they have the power to diminish significantly the value of nonparticipating royalty interests." (footnote omitted)).
In an article we also referenced in Bradshaw I, see 266 S.W.3d at 493, Phillip E. Norvell made a similar observation after referencing Dearing, Mims, Pickens, and Comanche, concluding that the amount of the executive's control over the lease benefits is determinative as to whether the Manges fiduciary standard applies and that it applies to a mineral owner with the executive right when a fraction of nonparticipating royalty is involved, in contrast to the "utmost fair dealing" standard, which would apply to a fractional NPRI. Phillip E. Norvell, Pitfalls in Developing Lands Burdened by Non-Participating Royalty: Calculating the Royalty Share and Coexisting with the Duty owed to the Non-Participating
Id. at 972-73 (emphasis added) (footnotes omitted) (noting that the evolution of the standard of care imposed on the executive right holder "has not been uniform or without controversy").
The presence or absence of evidence of self-dealing by the executive rights holder plays a role under both the cotenancy and terms-of-the-deed theories. One of the most clear cut examples of self-dealing is a 1997 Austin case, Luecke v. Wallace. In Luecke, Wallace reserved an undivided 1/2 NPRI and an undivided 1/2 interest in any bonus money exceeding $50 per acre when she conveyed the rest of her interest in a 303-acre tract to Luecke's predecessor. 951 S.W.2d at 270. Luecke's deed was made expressly subject to Wallace's reservation. Id. at 271.
Luecke initially negotiated an agreement to lease the tract after Union Pacific offered him a 1/5 royalty and $150/acre bonus. Id. When Union Pacific found Wallace's reservation during a title search, it told Luecke that he had to provide Union Pacific with evidence of payment of 1/2 of excess bonus money above $50 per acre and a ratification and rental division order setting forth the interest division. Id. Instead, Luecke leased the tract to Tex-Lee, a company that he was the president and sole owner of, for 1/8 royalty and less than $50 per acre bonus. Id. Tex-Lee then sold its lease to Union Pacific for the $150-acre bonus and an overriding 1/5 royalty. Id. Although Luecke orally represented to Union Pacific that Wallace was "on board" with the lease, Wallace did not know anything about it. Id.
After Wallace sued Luecke for breach of fiduciary duty, the trial court granted Wallace's two motions for partial summary judgment, finding that she was an NPRI owner, that Luecke held the executive rights when he executed the lease, that Luecke owed Wallace a duty to obtain for her every benefit that he obtained for himself or his wholly owned corporation Tex-Lee, and that Wallace was entitled to her share of the additional royalty. Id. at 271-72. The trial court then held a trial on the merits to determine damages. Id. at 272.
In affirming the trial court's judgment, the Austin court relied on Manges to reason as follows:
Id. at 274-75; see also Shelton v. Exxon Corp., 719 F.Supp. 537, 544-45 (S.D.Tex. 1989) (noting that Texas cases finding breach of "fiduciary" duty in oil and gas law have involved disproportionate benefits or inappropriate consideration inuring to the executives under the terms of the contract or lease or as a result of its execution, including an element of unjust enrichment or self-dealing), aff'd in part, rev'd in part, 921 F.2d 595, 600 (5th Cir. 1991) (noting that the Texas Supreme Court has explained that the duties of the executive arise from the relationship itself and the inherent potential for abuse, particularly if the executive rights holder manipulates lease terms so that benefits usually shared by all mineral owners inure solely to the executive's benefit).
In 2003, the supreme court continued on its path of referring to the "fiduciary" duty owed by the executive in In re Bass, 113 S.W.3d 735 (Tex.2003) (orig. proceeding), even though the way the duty has been viewed and applied in oil and gas law has varied substantially from its application in other areas of law.
Id. at 743 (citations omitted).
The court distinguished Schlittler by stating that it had "involved a very narrow duty in which a grantee, after executing a mineral lease, owes a duty of the utmost fair dealing to protect the amount of the grantor's royalty. The [Schlittler] duty, therefore, arises in conjunction with the execution of a lease." Id. at 744. Because the relator in Bass had not yet executed a lease, the court held that no duty to protect the amount of the NPRI owners' royalty reservation had yet arisen. Id. The court went on to state that even if the relator had executed an oil and gas lease, the royalty reservation amount was explicitly stated in the deed, in contrast to Schlittler.
The court stated that Manges had extended the Schlittler duty by creating a fiduciary duty between executive and non-executive interest holders (which include NPRI holders) in mineral deeds for the executive to acquire every benefit for the non-executive that the executive would acquire for himself. Id. at 745, 101 S.W.2d 543. The court distinguished Bass from Manges, not on the cotenancy basis — although it acknowledged that Manges involved a dispute between mineral estate cotenants — but by pointing out that there was no evidence of self-dealing because no leasing to anyone had occurred yet. Id. "Because [relator] has not acquired any benefits for himself, through executing a lease, no duty has been breached." Id.; see also PYR Energy Corp. v. Samson Res. Co., 470 F.Supp.2d 709, 722 (E.D.Tex. 2007) ("The issue of the duty of the holder of such a right arises when the `executive' executes a lease that affects some other person's interest as well as the executive's.").
Most recently, the supreme court addressed the executive rights holder's duty in Lesley v. Veterans Land Board. of the State of Texas, 352 S.W.3d 479 (Tex.2011), another deed construction case. In Lesley, a land developer who owned part of the mineral estate and all of the executive right, imposed restrictive covenants limiting oil and gas development in a subdivision to protect lot owners from intrusive exploratory, drilling, and production activities. Id. at 481. The NPRI owners complained that the developer, as the executive, had breached his duty to them. Id.
The court restated that one of the case's principal issues was "the nature of the duty that the owner of the executive right owes to the non-executive interest owner, and whether that duty has been breached." Id. at 487. It noted that
After Bass but prior to Lesley, cases like Marrs & Smith Partnership v. D.K. Boyd Oil & Gas Co. relied on Hlavinka's footnote. See 223 S.W.3d 1, 14-15 (Tex.App.-El Paso 2005, pet. denied) (tracing the development of the law and citing Hlavinka for the proposition that "[c]ases interpreting Manges have concluded that when the executive and non-executive are co-tenants in the mineral estate and there is a relationship of trust and confidence between the parties, a fiduciary relationship exists between the executive and non-executive mineral interest owner"). However, we think that Bass and Lesley make it appear that the supreme court has chosen to follow a relationship theory based on the terms of the NPRI reservation and on the presence or absence of self-dealing. Therefore, after Lesley, our prior holdings in Hawkins and Dearing remain the proper course to follow with regard to the determination of a duty and the applicable standard. See also Friddle v. Fisher, 378 S.W.3d 475, 481-82 (Tex.App.-Texarkana 2012, pet. filed).
Based on our review of the development of this area of law, the level of duty owed by the executive rights holder depends on the amount of control placed in his or her hands by the terms of the NPRI reservation itself — i.e., whether a fraction of royalty or a fractional royalty is reserved. As we previously determined in Bradshaw I that Bradshaw's NPRI here is a fraction of royalty, see 266 S.W.3d at 496, Steadfast owed Bradshaw a "fiduciary" duty under the existing body of oil and gas law. And because Bradshaw presented some evidence that a 1/8 royalty was below market for Hood County at the time Steadfast leased the property to Range, that a higher royalty had originally been contemplated by Steadfast, and that the per acre bonus was higher than what was customary in Hood County at that time, a fact question remains as to whether Steadfast breached its duty by obtaining the minimum 1/8 royalty unless Steadfast's estoppel by deed argument prevails.
Estoppel by deed prevents a party from claiming a position inconsistent with a grant and precludes parties to a valid instrument from denying its full force and effect by binding them to the recitals, reservations, and exceptions in the deed. Angell v. Bailey, 225 S.W.3d 834, 841-42 (Tex.App.-El Paso 2007, no pet.). Here, however, estoppel by deed does not preclude Bradshaw from arguing that Steadfast breached its duty because Bradshaw is not attempting to invalidate a recital or reservation in the 1960 Deeds; instead, Bradshaw argues that Steadfast has breached a duty that arose from their relationship and that was owed to her when Steadfast obtained an oil and gas lease. See Manges, 673 S.W.2d at 183 ("The fiduciary duty arises from the relationship of the parties and not from contract."). Further, Bradshaw has not attempted to deny the 1960 Deeds' validity nor to deny that Steadfast has the exclusive executive right to lease the minerals. Rather, as discussed in Bradshaw I and above, the reservation in the deeds establishes a "floor for the royalty," and the duty arises from the relationship of the executive and NPRI owner. See Bradshaw I, 266 S.W.3d at 496; see also Lesley, 352 S.W.3d at 490-91; Manges, 673 S.W.2d at 183. Therefore, we conclude that estoppel by deed does not apply, and we sustain Bradshaw's first issue.
Range filed a motion for summary judgment against Bradshaw in July 2010. In its motion, Range argued that Bradshaw's sole claim against it was that it had conspired with Steadfast to commit a tort and that since the trial court had determined that Steadfast had not committed a tort as a matter of law, Range could not be liable for conspiracy to commit a tort or for aiding or abetting the commission of a tort.
Range further argued that even if the trial court had not previously determined that Steadfast had not committed any tort, summary judgment would still be appropriate because Range had an absolute legal right to enter into arm's-length negotiations and contract with Steadfast for the oil and gas lease at issue. It also complained that because it had no duty to Bradshaw, her claims for conspiracy and aiding and abetting were negated as a matter of law and were also precluded by the defenses of privilege and justification.
Range attached to its motion the exhibits that were attached to Steadfast's second motion for summary judgment,
In her response to Range's motion, Bradshaw conceded that unless Steadfast had breached a duty to her, Range would not be liable to her for aiding and abetting or conspiracy. But she argued that because Steadfast owed her a duty that it had breached, her claims against Range
In her second issue, Bradshaw contends that the trial court erred by granting summary judgment for Range on her conspiracy and aiding and abetting claims against Range. Specifically, she complains that (1) Range's summary judgment motion was based primarily on the trial court's ruling that Steadfast did not breach any duty to her; (2) Range failed to meet its summary judgment burden of conclusively negating an essential element of her claims; (3) the affirmative defenses of justification and privilege do not apply to her claims; and (4) Range did not offer any summary judgment evidence to support these affirmative defenses.
Range responds that the trial court properly rendered summary judgment on Bradshaw's claims against it because: (1) Steadfast did not commit an underlying tort; (2) Range had an absolute right to enter into arm's length negotiations to advance its own financial, legal, and business interests; (3) the uncontroverted summary judgment evidence negated elements of Bradshaw's conspiracy claim; and (4) Range was privileged and justified in exercising its legal rights in negotiating the transaction with Steadfast.
Because we have concluded above that Steadfast, in fact, owed Bradshaw a duty and that a fact issue remains with regard to whether Steadfast breached this duty, we sustain the first portion of Bradshaw's second issue. Further, because the underlying tort — Steadfast's alleged breach of duty — is the basis for Bradshaw's civil conspiracy and aiding and abetting claims against Range, we sustain the second portion of Bradshaw's second issue. See Tilton v. Marshall, 925 S.W.2d 672, 681 (Tex. 1996) (op. on reh'g) (stating that civil conspiracy is a derivative claim of an underlying tort for which the plaintiff "seeks to hold at least one of the named defendants liable"); Anderton v. Cawley, 378 S.W.3d 38, 54 (Tex.App.-Dallas 2012, no pet.) (concluding that when the trial court erred by granting summary judgment on breach of fiduciary duty, it also erred by granting summary judgment on the derivative claim for aiding and abetting breach of fiduciary duty); see also Mims, 810 S.W.2d at 880-81 (stating that a lessee can be held liable to the NPRI owner if the lessee induces or participates in the executive's breach or agrees with the executive to an arrangement made to exclude or minimize the NPRI owner's benefits).
And while a defendant is entitled to summary judgment on an affirmative defense if the defendant conclusively proves all the elements of the affirmative defense, to accomplish this, as pointed out by Bradshaw, the defendant-movant must present summary judgment evidence that conclusively establishes each element of the affirmative defense, which Range has not done.
Three days prior to the filing of Bradshaw's first amended petition, the Royalty Holders filed their second motion for summary judgment, opposing the imposition of a constructive trust and arguing that the undisputed summary judgment evidence showed that Bradshaw had no interest in the identifiable res — their shares of the royalty interest — and that Bradshaw could not establish unjust enrichment. These parties supplemented their motion after Bradshaw filed her second amended petition to add a request for summary judgment on Bradshaw's "recently concocted claim for imposition of a constructive trust on the accrued royalties payment made and to be made in the future as a result of [the Royalty Holders'] ownership of a fractional royalty interest," and they filed their third motion for summary judgment in July 2010 to address Bradshaw's claims under the Uniform Fraudulent Transfers Act (UFTA).
In their third motion, the Royalty Holders argued that the trial court's ruling on Steadfast's second motion for summary judgment conclusively established that Steadfast did not have a "debtor" relationship with Bradshaw at the time of the transfers of the fractional royalty interests to the Royalty Holders, conclusively negating Bradshaw's UFTA claims. They also argued that there was no evidence to support Bradshaw's claim that the transfers to them by Steadfast were "fraudulent" under business and commerce code sections 24.005(a), 24.005(b), or 24.006.
Bennis filed a no-evidence motion for summary judgment nine days after Bradshaw filed her first amended petition, stating that he and Humphreys had owned the right to purchase the Mitchell Ranch from Wise Asset, which they had assigned to Steadfast for a cash payment and a fixed NPRI of 1.5625% not tied to the lease between Steadfast and Range, before Steadfast sold the surface rights to, and entered into the oil and gas lease with, Range. Because he never owed Bradshaw a fiduciary duty, Bennis argued that there could be no breach that would support a constructive trust against him and that there was no evidence of his unjust enrichment. He also argued that there was no evidence that he had committed fraud against her.
Bennis filed a traditional and second no-evidence motion for summary judgment in July 2010 on Bradshaw's UFTA claim, but Bradshaw has abandoned this claim against Bennis on appeal.
Korb filed a motion for traditional and no-evidence summary judgment against Bradshaw on her constructive trust claim with regard to her breach of fiduciary duty and fraud arguments, arguing that as a matter of law, he owed Bradshaw no fiduciary duty, did not commit actual fraud, and had not been unjustly enriched and that there was no identifiable res to impose a constructive trust upon. Korb also argued that there was no evidence to support imposition of a constructive trust.
In her response to Korb's and Bennis's motions for summary judgment, Bradshaw stated that her request for a constructive trust as to Korb's and Bennis's interests was based on the royalty amount set out in the Steadfast-Range lease, which affected the amount of the royalty proceeds that she, Korb, and Bennis were entitled to as NPRI holders based on Steadfast's breach of fiduciary duty, and that she otherwise claimed no right, title, or interest in the Bennis and Korb royalties. She also argued that she did not have to prove that Bennis and Korb owed her a fiduciary duty or perpetrated fraud on her in order to demonstrate a superior right to the proceeds and for the imposition of a constructive trust. Bradshaw attached thirty-seven exhibits to her response to Bennis and Korb's motions for summary judgment, including the email from Shipman to Humphreys, which was forwarded by Humphreys to Bennis, with regard to Steadfast's initial offer of a 25% royalty interest lease agreement as the "best alternative to avoid litigation regarding the Bradshaw interest," and an email from Bennis to Humphreys about whether there were other agreements with R.J. Sikes that resulted in the sale to Steadfast instead of to Chesapeake. She also attached part of Bennis's deposition, including his description of the April 17, 2006 meeting led by R.J. Sikes in which somehow Bennis received the interest now in controversy, which we have already set out above. Additional exhibits included the April 27, 2006 special warranty deed from Wise Asset #2 to Steadfast; the April 27, 2006 special warranty deed from Steadfast to Range; the April 27, 2006 memorandum of paid up oil and gas lease from Steadfast to Range; and the April 27, 2006 royalty deed from Steadfast to Bennis.
Bradshaw responded to the Royalty Holders' motions in her responses to Steadfast and acknowledged that the Royalty Holders, Bennis, and Korb would not be liable to her for fraudulent transfer if Steadfast had committed no breach of duty owed to her.
In her third issue, Bradshaw argues that the trial court erred by granting summary judgment on her claims against the Royalty Holders, Bennis, and Korb for the imposition of a constructive trust over the proceeds of the royalty interests possessed by them because: (1) this claim did not require her to show that Bennis or Korb breached a fiduciary duty to her or committed fraud against her; (2) the proceeds of the royalty interests held by the Royalty Holders, Bennis, and Korb are directly traceable to the royalty interest that Steadfast wrongfully deprived her of; (3) the Royalty Holders, Bennis, and Korb would be unjustly enriched if they were allowed to retain the proceeds of royalties that rightfully belong to her; and (4) she presented more than a scintilla of evidence to support each of the challenged elements of her constructive trust claim.
In her fourth issue, Bradshaw argues that the trial court erred by granting summary judgment on her fraudulent transfer claims against the Royalty Holders because they were based, in large part, on the trial court's ruling that Steadfast did not breach any duty to her and because
A constructive trust is an equitable remedy created by the courts to prevent unjust enrichment and may be imposed based on a fiduciary or confidential relationship or when there has been actual fraud. Swinehart v. Stubbeman, McRae, Sealy, Laughlin & Browder, Inc., 48 S.W.3d 865, 878 (Tex.App.-Houston [14th Dist.] 2001, pet. denied) (op. on reh'g). To establish a constructive trust, the proponent must prove (1) the breach of a special trust or fiduciary relationship or actual or constructive fraud; (2) the unjust enrichment of the wrongdoer; and (3) tracing to an identifiable res. Hubbard v. Shankle, 138 S.W.3d 474, 485 (Tex.App.-Fort Worth 2004, pet. denied).
In Friddle, one of the most recent cases to address the executive-NPRI "fiduciary" duty issue, the Texarkana court stated,
378 S.W.3d at 481 (citing Andretta, 415 S.W.2d at 641-42). In Mims, the same court stated that a constructive trust applies in cases of actual fraud as well as situations involving a breach of fiduciary duty. 810 S.W.2d at 881. And the supreme court has stated that the policy against unjust enrichment mandates that a third party not be allowed to retain property he receives as a beneficiary of another's fraud. Ginther v. Taub, 675 S.W.2d 724, 728 (Tex.1984) (noting that a constructive trust can be imposed on a knowing or unknowing beneficiary of fraud, even if he is not the actual wrongdoer); see also Pope v. Garrett, 147 Tex. 18, 211 S.W.2d 559, 562 (1948).
Under the UFTA, a "debtor" is "a person who is liable on a claim," and a "creditor" is a person "who has a claim." Tex. Bus. & Com.Code Ann. § 24.002(4), (6) (West 2009). A "claim," under the UFTA, is "a right to payment or property, whether or not the right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured." Id. § 24.002(3). The sections following section 24.002 establish when a transfer by a debtor is fraudulent as to a creditor, the types of relief available (including avoidance of the transfer and equitable remedies), and the affirmative defense of good faith. See id. §§ 24.005-.006, .008-.009 (West 2009).
Steadfast leased the property to Range for a 1/8 royalty and sizable leasing bonus instead of a 1/4 royalty, thereby, as argued by Bradshaw, breaching its fiduciary duty to her by leaving her with only a 1/16 royalty (1/2 of the 1/8 royalty) instead of a 1/8 royalty (1/2 of the 1/4 royalty). Bradshaw seeks the difference between the royalty she actually received and the royalty she would have received had no alleged breach occurred, potentially affecting the distribution of proceeds under the present royalty to the Royalty Holders via the NPRI transfers by Steadfast, and she seeks to set aside the transfers to the Royalty Holders, which she argues are fraudulent.
However, with regard to Bennis and Korb, because Bennis received his interest at the same time that Steadfast signed its agreements with Range, because there is no evidence that Bennis engaged in fraud or that Bradshaw would otherwise have an interest in the share that he — or by extension, Korb — received, and because Bradshaw has abandoned on appeal her UFTA claims against both of them, Bennis and Korb were entitled to summary judgment. Therefore, we overrule Bradshaw's third issue in part.
Having sustained Bradshaw's first, second, and fourth issues and having sustained part of her third issue, we reverse the trial court's orders granting summary judgment for Steadfast, Range, and the Royalty Holders and remand those claims to the trial court for further proceedings. Having overruled part of Bradshaw's third issue, we affirm the trial court's summary judgments for Bennis and Korb.
[Emphasis added.]
Lesley, 352 S.W.3d at 490 (footnotes omitted).
