2012 CASE LAW UPDATE
FIDUCIARY LITIGATION
David B. West
COX SMITH MATTHEWS INCORPORATED
112 East Pecan│Suite 1800
San Antonio, Texas 78205
210.554.5500 tel. │ 210.226-8395
Oil and Gas – Executive Rights
Leslie v. Veterans Land Bd. of State
352 S.W.3d 479 (Tex. 2011) (p.1)
Bluegreen, a land developer acquired:
 4,100 acres of land;
 Sole right to execute oil, gas and mineral leases.
 Subdivided the property into 1200 lots (Mountain Lakes)
 Add restrictive covenants forbidding “commercial oil
drilling.”
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Oil and Gas – Executive Rights
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As the subdivision was being developed
The Barnett Shale was being developed
Surrounding area came under lease for oil and gas
production.
Minerals under Mountain Lakes land worth $610 million.
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Oil and Gas – Executive Rights
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Sellers and original land owners (who reserved mineral interests)
sued Mountain Lakes lot owners, Bluegreen, others:
 Bluegreen failed to develop the minerals
 Restrictive covenants limited mineral development
Trial court:
 Bluegreen, as owner of the executive right, breached its duty to
the holders of the mineral interests:
 Imposed restrictive covenants limiting oil and gas
development
 Failed to lease the minerals
 Failed to give notice of its filing of the restrictive covenants
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Oil and Gas – Executive Rights
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Eastland Court of Appeals reversed:
 Owner of the executive rights owes no duty until the right is
exercised by leasing the minerals
 Executive right holder’s duty is only to acquire for the mineral
interest owner every benefit it acquires for itself
Because Bluegreen never excised the executive right, it had no duty
to non-participating royalty owners .
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Oil and Gas – Executive Rights
Texas Supreme Court aff’d in part, rev’d in part:
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Manges v. Guerra, 673 S.W.2d 180 (Tex. 1984)
 Manges leased a large part of the minerals to himself for a
nominal bonus
 Holder of executive rights required to use utmost good faith
and fair dealing as to interests of the non-executive mineral
interest owners
 Holder of the executive rights had a duty to prevent drainage
of oil and gas
 Duty of the executive to the non-executive is fiduciary
 Manges had breached this duty
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Oil and Gas – Executive Rights
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Bluegreen:
 Unlike Manges, no self dealing
 Bluegreen did not acquire benefit for itself that it had not acquired for
the non-executive owners.
 “It may be that an executive cannot be liable to the non-executive for
failing to lease minerals when never requested to do so.”
 But, “Bluegreen did not simply refuse to lease the minerals in the 4,100
acres; it exercised its executive right to limit future leasing by imposing
restrictive covenants on the subdivision.”
 Bluegreen breached its duty to the non-executive mineral owners;
remedy was cancellation of restrictive covenants.
 Non-executives had no right to develop the mineral interests.
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Agency
Harding Co. et al v. Sendero Res., Inc., 365 S.W.3d 732, Tex. App.Texarkana, 2012, pet. filed) (p.3)
Harding contracted with Sendero to acquire oil and gas leases for
Harding—held in name of Sendero
Harding
Non-Compete
Star
Prospect—
Associates, LP
GP
Sendero
(Walters, Pres.)
Surles,
Independent
Geologist
Boney,
Landman
TWW Tyler, LP
(Walters, LP)
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Assoc. LP
“Walters”
(Assoc. LP)
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Agency
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Boney informed Harding that TWW Tyler had been assisting
Harding’s competitors, EOG Resources, Inc. and Devon Energy,
Inc., in acquiring leases.
Walters was accused of violating the non-compete agreement.
Harding stopped making payments on Sendero contract.
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Agency
Trial Court
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Sendero, Surles and Boney sued Harding for breach of contract.
Harding sued Sendero, TWW Tyler, Associated, LP, Walters for breach of
non-compete.
Trial Court granted Walters’ motions for summary judgment:
 Walters, Assoc. LP, TWW Tyler not parties to contract
 Awards damages to Sendero, Associates LP
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Agency
Court of Appeals
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Denied relief to Harding under the contract claims
Overlapping ownership interest common ownership does not permit a
court to disregard the corporate entities.
TWW Tyler and Associates, LP not liable to Harding because they
contracted with Sendero.
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Agency
Fiduciary claims under agency theory
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Fact question existed as to whether TWW Tyler and Associates, LP were
agents for Harding
 Operating under the control and direction of Harding?
 For the benefit of Harding?
Evidence TWW Tyler acquired leases in subject area in manner specified
by Harding
Harding paid Assoc. LP $2.1 million for lease bonuses
Alleged fiduciary duty could arise only under a formal agency relationship,
not an informal fiduciary relationship; no prior relationship of trust and
confidence existed.
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Agency
FIDUCIARY DUTIES
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Duty of loyalty—act solely for benefit of principal in matters connected to agency
Duty not to act on behalf of adverse party in transaction
Agent may take action, not otherwise wrongful, to prepare for competition following
termination of agency relationship.
Some evidence of breach—TWW Tyler, Assoc. LP acquired leases for Devon
Energy
No evidence that Sendero assisted TWW Tyler or Associates, LP in breaching their
fiduciaries to Harding
The fact all entities were owned by the same person did not constitute such evidence.
Harding not excused from performing the contract by the alleged breach of fiduciary
duty by TWW Tyler and Associates LP.
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Husband/Wife
Daniels v. Empty Eye, Inc., 368 S.W.3d 743 (Tex. App-Houston [14th
Dist.] 2012, pet. filed) (p. 7)
H/W each owned 50% of corporation
Corporation was GP for limited partnership; H/W are limited partners
Empty Eye, Inc.
GP
H-LP
W-LP
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Husband-Pres.
Wife-V. Pres.
Empty Eye & Assoc.
LP
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Husband/Wife
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LP bought land and obtained construction financing for
apartment complex
Entered into construction loan agreement with bank.
Husband and wife executed a personal guaranty of the
indebtedness.
Each guaranty could be rescinded if no funds had been
advanced.
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Husband/Wife
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Marital difficulties.
 LP’s debt to a different bank using credit cards with a 31%
interest rate
H rescinded personal guaranty
Bank rescinded the construction loan
Husband contacted contractors, informed them that he did not
authorize their work
Husband notified at lease one contractor that the construction loan
rescinded
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Husband/Wife
Trial Court
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Wife, LP and corporation sued Husband for breach of
fiduciary duty and breach of contract.
Trial Court:
 Husband had a relationship of trust and confidence
with the LP and corporation.
 Husband breached his fiduciary duty to the LP
($171,601 in damages).
 Husband breached his fiduciary to the corporation
($173,335 in damages).
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Husband/Wife
Court of Appeals
Contract claims:
 Evidence was legally insufficient to support a finding H breached
the LP Agreement.
 Nothing in agreement required husband to act as Limited
Partnership’s guarantor.
 Agreement with bank permitted him to rescind his guaranty
before funds advanced.
 Not liable for debts of partnership
 Corporation was liable for the LP’s debts, not husband.
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Husband/Wife
FIDUCIARY DUTY CLAIMS
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Husband had formal fiduciary relationships with “every other member of the Limited
Partnership.”
 Husband owed corporation a fiduciary duty because he was its president.
 Husband owed wife a fiduciary relationship in marriage.
 Husband participated in developing the Limited Partnership’s business plan.
 Wife trusted him as a business partner.
 Husband had a fiduciary relationship with the LP (officer of GP knowingly
participates in corporation’s breach of fiduciary duty to limited p’ship).
 Jury could find that confidential relationship existed as long as
 Trust not based solely on status as a limited partner or solely on
Limited Partnership’s ‘subjective trust and feelings;’ and
 Relationships predated the transactions involved in Project.
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Husband/Wife
DISSENT
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Limited partner owed no formal fiduciary duty to the limited
partnership.
LP, the corporation and wife are all separate legal persons.
Texas does not allow an informal fiduciary duty to be imposed on
one person based upon a “combination of relationships.”
Combination of relationships insufficient to support a jury finding that
a special trust relationship existed between Husband and LP.
Husband not an officer of the LP did not have a marital relationship
with the LP.
No Texas precedent in which a court has held that a limited partner
owed a limited partnership an informal fiduciary duty based upon a
relationship of trust and confidence.
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Attorneys
Camp Mystic, Inc. v. Eastland, __ S.W.3d ___, 2012 WL
2334604 (Tex. App.—San Antonio 2012, no pet.)(p. 14)
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Camp mystic, an exclusive camp for girls, was owned by the
Eastland family.
 Dick Eastland owned 38% of Camp Mystic, Inc.
 Brother, Stacy, an attorney, and other family members owned
the remaining interests.
Concerned about liability, Stacy advocated the reorganization of the
corporation.
Stacy drafted the reorganization documents and represented all
sides in the transaction.
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New CM
NFP
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Camp operations
Owned real estate
Dick
Family
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Attorneys
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Dick decided to expand the camp by creating a second camp on the
property
A neighbor heard the new camp would be near his property,
proposed giving the camp money to not put the camp on the
proposed site.
A dispute arose over how much of these proceeds should go to New
CM and how much would go to NFP.
Dispute caused Stacy to re-evaluate the amount New CM was
paying in rent to NFP.
Stacy determined that Dick was in default of the lease.
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Attorneys
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New CM and Dick filed suit to declare rights of the parties under the lease.
Stacy counterclaimed, alleging Dick
 Improperly used the Camp Mystic trademark, breached the lease and
breached his fiduciary duties to NFP.
 Was in conflict of interest because of his ownership and position in both
New CM and NFP.
New CM and Dick then countersued Stacy for
 professional negligence
 breach of fiduciary duty
 negligent misrepresentation.
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Attorneys
Claims against Stacy
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Stacy represented to Dick lease was renewed every year for an
additional five years if his lease terminated he would have five years
to vacate the premises
Lease did not include such a provision.
Stacy told Dick how to prepare and calculate the rent.
Stacy improperly represented all sides in negotiating and preparing
the lease and conveyance without disclosing or obtaining a waiver
of conflicts.
Stacy crafted reorganization in manner that put Dick in conflict of
interest.
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Attorneys
Procedure
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Stacy filed a traditional motion for summary judgment on the basis of
limitations.
Filed a no-evidence motion for summary judgment on the grounds
there was no evidence of the breach, causation, or damages
elements.
Trial Court granted both of Stacy’s motions and then severed New
CM and Dick’s claims against Stacy from the underlying case.
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Attorneys
Court of Appeals: reversed and remanded
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Attorney obligated to render full and fair disclosure of facts material to representation.
 Facts which might ordinarily require investigation likely may not excite suspicion
where a fiduciary relationship is involved.
 Breach of disclosure is tantamount to concealment
Statue of Limitation for legal malpractice does not begin to run until claimant
discovers or should have discovered facts establishing the elements.
 “A person to whom a fiduciary duty is owed is either unable to inquire into the
fiduciary’s actions or unaware of the need to do so.”
 Person to whom a fiduciary duty is owed is relieved of responsibility of diligent
inquiry into fiduciary’s conduct so long as the relationship exists.
New CM and Dick had no duty to read the Lease; could rely on Stacy’s
misrepresentations [regarding the five-year extension of the lease].
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Attorney’s fees to defend estate.
 Estate of Wilbur Waldo Lynch, __S.W.3d__(Tex. App.-San Antonio
2012)(No. 04-11-00731-CV) (October 17, 2012)
 (In suit to set aside will, beneficiaries not representatives of estate, so had
no duty to challenge executrix’ attorney’s fees at trial; no waiver)
Banking
 Aflatouni v. Select Portfolio Servicing, Inc. 2012 WL 5472172 (E.D. Tex.)
(Nov. 9, 2012)
 Ordinarily, no fiduciary duty in lender/lendee relationships; Texas does
not recognize a common law duty of good faith and fair dealings in
MR/ME relationship, absent special relationship.
 Accord Rhodes v. Wells Fargo Bank, N.A., 2012 WL 5363424 (N.D. Tex.)
October 31, 2012.
Officers and Directors
 Boyd v. Four Dominion Drive, LLC, 2012 WL 5199141 (Bkrtcy. W.D.
Tex.)(October 22, 2012)
 Officers and directors of insolvent corporation have fiduciary duty to deal
fairly with corporation’s creditors, including preservation of corporate assets.
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Disclaimer
This PowerPoint presentation is an educational tool that is general in nature
and for purposes of illustration only. The materials in this presentation are not
exhaustive, do not constitute legal advice and should not be considered a
substitute for consulting with legal counsel. Cox Smith Matthews Incorporated
has no obligation to update the information contained in this presentation.
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