2012 CASE LAW UPDATE FIDUCIARY LITIGATION
description
Transcript of 2012 CASE LAW UPDATE FIDUCIARY LITIGATION
2012 CASE LAW UPDATE FIDUCIARY LITIGATION
David B. WestCOX SMITH MATTHEWS INCORPORATED
112 East Pecan│Suite 1800
San Antonio, Texas 78205
210.554.5500 tel. │ 210.226-8395
Leslie v. Veterans Land Bd. of State352 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.”
© 2012, Cox Smith Matthews Incorporated
2
Oil and Gas – Executive Rights
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.
© 2012, Cox Smith Matthews Incorporated
3
Oil and Gas – Executive Rights
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
© 2012, Cox Smith Matthews Incorporated
4
Oil and Gas – Executive Rights
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 .
© 2012, Cox Smith Matthews Incorporated
5
Oil and Gas – Executive Rights
Texas Supreme Court aff’d in part, rev’d in part:
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
© 2012, Cox Smith Matthews Incorporated
6
Oil and Gas – Executive Rights
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.
© 2012, Cox Smith Matthews Incorporated
7
Oil and Gas – Executive Rights
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
© 2012, Cox Smith Matthews Incorporated
8
Agency
Harding
Sendero (Walters, Pres.)
TWW Tyler, LP(Walters, LP)
Surles, Independent
Geologist
Boney, Landman
Assoc. LP
“Walters”(Assoc. LP)
Non-Compete
Star Prospect—Associates, LP
GP
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.
© 2012, Cox Smith Matthews Incorporated
9
Agency
Trial Court
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
© 2012, Cox Smith Matthews Incorporated
10
Agency
Court of Appeals
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.
© 2012 Cox Smith Matthews Incorporated 11
Agency
Fiduciary claims under agency theory
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.
© 2012, Cox Smith Matthews Incorporated
12
Agency
FIDUCIARY DUTIES
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.
© 2012, Cox Smith Matthews Incorporated
13
Agency
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
© 2012, Cox Smith Matthews Incorporated
14
Husband/Wife
Empty Eye, Inc.Husband-Pres.
Wife-V. Pres.
Empty Eye & Assoc. LP
GP
H-LPW-LP
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.
© 2012, Cox Smith Matthews Incorporated
15
Husband/Wife
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
© 2012, Cox Smith Matthews Incorporated
16
Husband/Wife
Trial Court
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).
© 2012 Cox Smith Matthews Incorporated 17
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.
© 2012, Cox Smith Matthews Incorporated
18
Husband/Wife
FIDUCIARY DUTY CLAIMS
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.
© 2012, Cox Smith Matthews Incorporated
19
Husband/Wife
DISSENT
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.
© 2012, Cox Smith Matthews Incorporated
20
Husband/Wife
Camp Mystic, Inc. v. Eastland, __ S.W.3d ___, 2012 WL 2334604 (Tex. App.—San Antonio 2012, no pet.)(p. 14)
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. New CM Camp operations Dick NFP Owned real estate Family
© 2012, Cox Smith Matthews Incorporated
21
Attorneys
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.
© 2012, Cox Smith Matthews Incorporated
22
Attorneys
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.
© 2012, Cox Smith Matthews Incorporated
23
Attorneys
Claims against Stacy
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.
© 2012, Cox Smith Matthews Incorporated
24
Attorneys
Procedure
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.
© 2012, Cox Smith Matthews Incorporated
25
Attorneys
Court of Appeals: reversed and remanded
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].
© 2012, Cox Smith Matthews Incorporated
26
Attorneys
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.
© 2012 Cox Smith Matthews Incorporated 27
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.
© 2012 Cox Smith Matthews Incorporated 28