Baxsto, LLC v. ROXO Energy Company, LLC ROXO Energy, LLC REC Minerals, LLC ROXO FW, LLC And Vortus Investment Advisors, LLC ( 2023 )

Opinion filed April 20, 2023
In The
Eleventh Court of Appeals
__________
No. 11-21-00183-CV
__________
BAXSTO, LLC, Appellant
V.
ROXO ENERGY COMPANY, LLC; ROXO ENERGY, LLC; REC
MINERALS, LLC; ROXO FW, LLC; AND VORTUS
INVESTMENT ADVISORS, LLC, Appellees
On Appeal from the 118th District Court
Howard County, Texas
Trial Court Cause No. 53632
OPINION
This appeal concerns alleged fraudulent conduct in the lease and subsequent
sale of mineral interests located in Howard and Borden Counties. Appellant, Baxsto,
LLC, the owner of the mineral interests at the time that the agreements to be
discussed below were executed, filed suit against Appellees, Roxo Energy
Company, LLC; Roxo Energy, LLC1; Roxo FW, LLC (Roxo FW); Vortus
Investment Advisors, LLC (Vortus); and REC Minerals, LLC (REC), alleging that,
based on representations made by Appellees, it was defrauded and induced to “lock
itself” into a lease and then later sell its mineral interests to Appellees for a lower,
reduced price. After extensive discovery, Appellees filed combined no-evidence
and traditional motions for summary judgment in which they challenged the fraud
claims that Baxsto asserted against them. The trial court granted the motions and
rendered a take-nothing judgment against Baxsto.
In six issues, Baxsto contends that the trial court erred when it granted
Appellees’ motions. For the reasons detailed below, we reverse and remand.
I. Factual Background
Baxsto is solely owned by Ashley Stout. Cole Stout, Ashley’s husband,
managed the day-to-day operations and acted as an agent of Baxsto during the
relevant time period. Prior to the transactions that are the focus of this appeal, Baxsto
owned undivided mineral interests in Howard and Borden Counties.
Todd Fitzgerald, Chief Executive Officer of Roxo, contacted Baxsto through
intermediaries for the purpose of discussing Roxo’s leasing and potentially buying
Baxsto’s mineral interests. At the time, Vortus considered investing in Roxo to
advance the objective of gaining operational control of mineral interests in the area.
According to the summary judgment record, in October 2016, Baxsto and
Roxo began negotiating a lease and the potential sale of Baxsto’s mineral interests
1
Before the trial court signed its summary judgment order, Baxsto nonsuited without prejudice the
claims it had asserted against Roxo Energy, LLC, except for its claim for breach of the most favored nation
clause. Baxsto has not raised any issues on appeal that relate to its claim for breach of the most favored
nation clause. However, for ease of reference in this appeal, we will refer to Roxo Energy Company, LLC
and Roxo Energy, LLC, collectively, as Roxo.
2
in Howard and Borden Counties. During a meeting between the parties sometime
that month, Fitzgerald made the following representations: (1) a lease would give
Roxo leverage over other mineral owners in the area; therefore, if Baxsto would
execute a lease quickly, Roxo would give Baxsto the most favorable deal of any
owner; (2) Roxo was not in the business of “flipping mineral interests,” but instead
intended to drill on and develop the acreage; and (3) Roxo planned to make its money
“at the bit.” Baxsto and Roxo signed a letter of intent on October 26, 2016; the letter
provided that these parties would execute an oil and gas lease within sixty days and
that they had agreed upon a lease bonus price of $5,000 per net mineral acre.
The parties executed the lease, an oil and gas lease memorandum, and a lease
purchase agreement in early November 2016. The lease purchase agreement
included (1) a provision that Roxo could record the lease after Roxo had tendered
the lease bonus payment to Baxsto and (2) an option period for Roxo to purchase the
lease. However, if Roxo elected not to exercise its option to purchase the lease, the
executed lease would then be returned to Baxsto. Roxo recorded the oil and gas
lease memorandum in Howard and Borden Counties on November 17, 2016, before
the deadline to exercise the lease purchase option expired and before it made any
lease bonus payment to Baxsto. Vortus was informed that the memorandum had
been recorded; Baxsto was not.
After the execution of the lease purchase agreement, Fitzgerald arranged a
meeting with representatives from Roxo, Baxsto, and Vortus. During this meeting,
Brian Crumley, a co-founder and agent of Vortus, represented to Cole that Vortus
only invested in companies that drilled acreage. Fitzgerald and Crumley also stated
that Roxo and Vortus were not in the business of leasing and flipping minerals to
other operators.
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As the deadline to exercise the lease purchase option approached, Roxo
requested an extension of the option period to complete the necessary title due
diligence. At that time, Vortus prepared a letter explaining that it was managing
assets of approximately $450 million and that it was considering the formation of a
partnership with Roxo to purchase ownership interests in the Permian Basin.
Fitzgerald sent this letter to Cole with the hope that it would increase Baxsto’s
confidence in Roxo’s request for an extension of the option period. Fitzgerald also
represented that Vortus had committed to investing $200–250 million to develop
Baxsto’s acreage.
By the end of December 2016, the parties had agreed to extend Roxo’s option
period to purchase the lease under an extension to the lease purchase agreement. As
a part of the extension, Roxo agreed to include a “most-favored nations clause.” This
clause provided that within six months of the date on which the lease was executed,
if Roxo paid a larger lease bonus per net mineral acre to any other lessor who owned
an undivided interest in the area covered by the lease, Roxo would then be obligated
to pay Baxsto the greater lease bonus amount.
As the deadline for this extension approached, Roxo requested a second
extension of the option period. Representatives from Roxo, Baxsto, and Vortus met
in Austin to discuss Roxo’s request. At this meeting, Fitzgerald and Crumley
assured Baxsto that Roxo had the necessary funds to close the deal and that it needed
the second extension, like it did the first one, so that it could complete title due
diligence. Fitzgerald and Crumley also stated that Roxo would be Vortus’s “crown
jewel.” Fitzgerald disclosed that Roxo was also negotiating with Navigator Oil &
Gas (Navigator), a mineral interest owner in the same acreage as Baxsto. Fitzgerald
stated that although Navigator had proposed an $11,000 lease bonus amount per net
mineral acre, Navigator would not be paid that amount. Fitzgerald and Crumley
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represented that Navigator would receive a lease bonus less than $11,000 and that
Roxo would force Navigator to participate before it paid them a lease bonus in excess
of $5,000.
At the end of January 2017, the parties executed a second extension to the
lease purchase agreement for the Howard County acreage. Because additional time
was needed to complete title due diligence related to the Borden County acreage, the
parties executed a second lease purchase agreement on February 15, 2017. This
second agreement pertained only to the Borden County acreage and extended the
time to complete all necessary due diligence to April 28, 2017. Later, on
February 24, 2017, Roxo made the lease bonus payment to Baxsto for the Howard
County acreage.
Shortly after Roxo made the lease bonus payment to Baxsto, Fitzgerald
advised Cole that Vortus had decided to reduce its capital commitment to develop
Baxsto’s acreage from $200–250 million to $70–75 million. Despite this, Fitzgerald
also told Cole that Roxo was still interested in purchasing Baxsto’s mineral interests
and he proposed a meeting to discuss the terms of a potential sale. Cole later
attended a meeting in Fort Worth with representatives from Baxsto, Roxo, and
Vortus. At this meeting, Fitzgerald explained that it had reduced its lease bonus
offer to Navigator from $4,000 to $3,500. Cole was told that because Roxo had
offered and intended to pay Navigator a lower lease bonus price, Roxo and Vortus
now placed a higher value and sales price for Baxsto’s acreage than it otherwise
would in the future. Based on these developments and representations, Cole
believed that Baxsto could sell its mineral interests for two to three times the lease
bonus amount per net mineral acre that was currently being paid for the area.
After this meeting, Baxsto began negotiating with Roxo for the sale of
Baxsto’s mineral interests. At the beginning of April 2017, the parties executed an
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option for Roxo to purchase Baxsto’s mineral interests in Borden and Howard
Counties no later than May 26, 2017, in exchange for a price of $15,126 per net
mineral acre. In late April, Baxsto agreed to extend the option to purchase the lease
for the Borden County acreage to May 26, 2017.
During the option period, Roxo requested a reduction in the purchase price by
$353,508 because of defects in Baxsto’s chain of title. The parties agreed to meet
in Fort Worth to discuss this request. At this meeting, Fitzgerald expressed his belief
that this offer was a “great deal” for Baxsto because Baxsto had received the highest
lease bonus amount ($5,000) and Navigator was currently being offered a lower
lease bonus amount, which indicated a lower valuation of the mineral interests going
forward.
On May 26, 2017, the parties closed on the sale of Baxsto’s mineral interests,
and Roxo transferred $5,666,602.50 to Baxsto. 2 After the sale was consummated,
Cole learned of certain actions taken and representations made by Roxo and Vortus
that he believed conflicted with the representations they had made to Baxsto during
the parties’ negotiations. As a result, Baxsto would later contend that the
representations were false and made with the intent to induce Baxsto to “lock itself”
into a lease and then later sell its mineral interests to Appellees at a price lower than
true market value.
Because of these alleged misrepresentations, Baxsto originally filed two
lawsuits that the trial court later consolidated. Although both lawsuits concerned the
same events and similar claims, the lawsuits did not have a complete commonality
of parties. In its original petitions, Baxsto asserted several direct and derivative fraud
2
Two amounts reduced the sales price: (a) a $2,268,937.50 lease bonus payment; and (b) a $353,508
offset, which is the amount that the parties agreed to after they executed the option contract.
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claims against the consolidated defendants (Appellees on appeal). Baxsto’s direct
fraud claims are:
• Common-law fraud against Roxo and Vortus;
• Fraudulent inducement against Roxo and Vortus;
• Statutory fraud against Roxo and Vortus; and
• Fraud by non-disclosure against Roxo and Vortus.
Baxsto’s derivative fraud claims are:
• Beneficiaries of fraud and statutory fraud against Roxo, REC, and
Roxo FW;
• Civil conspiracy against Vortus, REC, and Roxo FW;
• Constructive trust against Vortus, REC, and Roxo FW; and
• Joint enterprise against Vortus and Roxo FW.
Appellees later filed combined traditional and no-evidence motions for
summary judgment as to all causes of action asserted by Baxsto, which the trial court
granted. This appeal followed.
II. Evidentiary Challenges Raised by Appellees
Before we consider Baxsto’s summary judgment evidence, we must address
Appellees’ challenge and objections to Cole’s affidavit, which the trial court
overruled. On appeal, Appellees re-urge the argument that they made in the trial
court that Cole’s affidavit is a “sham” because it contains conclusory and
contradictory statements and, thus, cannot constitute competent summary judgment
evidence.
A. Standard of Review – Evidentiary Rulings
Although we review a trial court’s grant of summary judgment de novo, a trial
court’s decision to admit or exclude summary judgment evidence is reviewed for an
abuse of discretion. Lujan v. Navistar, Inc., 555 S.W.3d 79, 84 (Tex. 2018) (citing
Starwood Mgmt., LLC v. Swaim, 530 S.W.3d 673, 678 (Tex. 2017)). This standard
7
applies when, as in this case, the “sham affidavit” doctrine is raised. Lujan, 555
S.W.3d at 84–85. An abuse of discretion exists only when the trial court’s decision
is made without reference to any guiding rules or principles. U-Haul Int’l,
Inc. v. Waldrip, 380 S.W.3d 118, 132 (Tex. 2012). We must uphold the trial
court’s evidentiary rulings if there is a legitimate basis for its rulings. Owens-
Corning Fiberglass Corp. v. Malone, 972 S.W.2d 35, 43 (Tex. 1998).
B. Sham Affidavit Doctrine
Generally, deposition testimony does not trump or control over an affidavit in
determining whether a motion for summary judgment should be granted. Randall v.
Dallas Power & Light Co., 752 S.W.2d 4, 5 (Tex. 1988). Thus, when conflicting
inferences may be drawn from deposition testimony and an affidavit that is later
executed by the same person and filed in a summary judgment proceeding, a fact
issue is presented that will preclude summary judgment. Id.; Pando v. Sw.
Convenience Stores, L.L.C., 242 S.W.3d 76, 79 (Tex. App.—Eastland 2007, no pet.).
However, when (1) a person executes an affidavit after he is deposed and (2) there
is a clear contradiction between his deposition testimony and statements in his
subsequent affidavit on (3) a material point (4) without explanation, the “sham
affidavit” doctrine may apply. If so, the contradictory statements in the affidavit
may be disregarded. Lujan, 555 S.W.3d at 88; Pando, 242 S.W.3d at 79 (citing Del
Mar College Dist. v. Vela, 218 S.W.3d 856, 862 n.6 (Tex. App.—Corpus Christi–
Edinburg 2007, no pet.)).
The statements in Cole’s affidavit are the primary source of Baxsto’s
summary judgment evidence regarding the representations that it contends
Appellees made during the parties’ negotiations. Thus, if it is determined to be a
sham, Cole’s affidavit, or possibly certain excerpts, should be disregarded because
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“such an affidavit merely creates a sham issue and cannot be used to avoid summary
judgment.” Pando, 242 S.W.3d at 79.
The deposition testimony that Appellees contend is contradictory was given
by Cole in July 2017 in a case that involves others who are not parties to this appeal.
During his deposition, Cole discussed the transactions that occurred between Roxo
and Baxsto. Cole testified that he proposed the $5,000 lease bonus amount to Roxo,
which he thought was “outrageous” at the time; however, Roxo accepted it. Cole
stated that was how he “knew they were real” and why he agreed to meet with Roxo
to discuss the potential leasing of Baxsto’s mineral interests. Cole also explained
that there were outstanding nonparticipating royalty interests (NPRIs) that burdened
Baxsto’s royalty interests in the acreage. Because of these NPRIs, Cole opined that
“it doesn’t make a lot of sense necessarily to own this acreage” and “it made more
sense to us to let them own it from that perspective.”
In his affidavit, Cole noted that the sale of Baxsto’s mineral interests occurred
at the end of May 2017 and that he did not become aware that all of Fitzgerald’s
representations were false until “a few months later.” Contrary to Appellees’
assertion, Cole, in his affidavit, does not directly contradict any of the statements
that he made during his July 2017 deposition. Appellees argue that Cole’s affidavit
should not be considered because the representations made by Fitzgerald, of which
Baxsto now complains, are not mentioned in Cole’s first deposition. However, as
asserted by Baxsto, when Cole was deposed in July 2017, he had not yet discovered
that Fitzgerald’s representations were false, as Baxsto now believes. Further, the
source of Cole’s alleged contradictory statements is a deposition that was taken in a
different lawsuit—where the focus of his testimony pertained to the parties’ disputes
that were raised in that lawsuit. When Cole was deposed in the case before us, he
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directly commented on, but did not contradict, the statements that he made in his
affidavit.
When we consider Cole’s deposition testimony and his affidavit in the light
most favorable to Baxsto, we cannot say that a clear contradiction on a material point
exists. Therefore, the sham affidavit doctrine does not apply to or preclude
Cole’s affidavit, and the trial court did not abuse its discretion when it overruled
Appellees’ objections on this basis. As we move on to consider Baxsto’s issues on
appeal, we include this evidence in our review.
III. Standard of Review – Summary Judgment
We review a trial court’s grant of summary judgment de novo. Merriman v.
XTO Energy, Inc., 407 S.W.3d 244, 248 (Tex. 2013). When the trial court does not
specify the grounds for its ruling, as is the circumstance here, a summary judgment
must be affirmed if any of the grounds on which summary judgment was sought are
meritorious. Id.To defeat a no-evidence motion, the nonmovant must produce at least a
scintilla of evidence raising a genuine issue of material fact as to the challenged
elements. KMS Retail Rowlett, LP v. City of Rowlett, 593 S.W.3d 175, 181 (Tex.
2019); King Ranch, Inc. v. Chapman, 118 S.W.3d 742, 751 (Tex. 2003); see TEX. R.
CIV. P. 166a(i). A no-evidence challenge will be sustained when
(a) there is a complete absence of evidence of a vital fact, (b) the court
is barred by rules of law or of evidence from giving weight to the only
evidence offered to prove a vital fact, (c) the evidence offered to prove
a vital fact is no more than a mere scintilla, or (d) the evidence
conclusively establishes the opposite of the vital fact.
Merriman, 407 S.W.3d at 248 (quoting King Ranch, 118 S.W.3d at 751).
A party moving for a traditional summary judgment bears the burden of
proving that there is no genuine issue of material fact and that it is entitled to
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judgment as a matter of law. TEX. R. CIV. P. 166a(c); Nassar v. Liberty Mut.
Fire Ins. Co., 508 S.W.3d 254, 257 (Tex. 2017). For a trial court to grant a
defendant’s traditional motion, the defendant must conclusively negate at least one
essential element of the cause of action being asserted by the plaintiff or conclusively
establish each element of a defense or affirmative defense. Sci. Spectrum, Inc. v.
Martinez, 941 S.W.2d 910, 911 (Tex. 1997); City of Houston v. Clear Creek Basin
Auth., 589 S.W.2d 671, 678 (Tex. 1979). “Evidence is conclusive only if reasonable
people could not differ in their conclusions. . . .” City of Keller v. Wilson, 168
S.W.3d 802, 816 (Tex. 2005). If the movant initially establishes a right to summary
judgment on the issues expressly presented in the motion, then the burden shifts to
the nonmovant to present to the trial court any issues or evidence that would preclude
summary judgment. See City of Houston, 589 S.W.2d at 678–79.
In reviewing either a traditional or a no-evidence summary judgment, we take
as true all evidence favorable to the nonmovant, and we indulge every reasonable
inference and resolve any doubts in the nonmovant’s favor. KMS Retail, 593 S.W.3d
at 181; Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211, 215 (Tex.
2003). We credit evidence favorable to the nonmovant if reasonable jurors could do
so, and we disregard contrary evidence unless reasonable jurors could not. Samson
Expl., LLC v. T.S. Reed Props., Inc., 521 S.W.3d 766, 774 (Tex. 2017); Goodyear
Tire & Rubber Co. v. Mayes, 236 S.W.3d 754, 756 (Tex. 2007).
Ordinarily, when a party moves for summary judgment on both no-evidence
and traditional grounds, we address the no-evidence grounds first. See Merriman,
407 S.W.3d at 248 (“if the non-movant fails to produce legally sufficient evidence
to meet [its] burden as to the no-evidence motion, there is no need to analyze whether
the movant[s] satisfied [their] burden under the traditional motion”); Ford Motor
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Co. v. Ridgway, 135 S.W.3d 598, 600 (Tex. 2004). The reason for this is to avoid
redundancy.
IV. Claims Raised by Baxsto
The parties’ disputes focus primarily on what representations were allegedly
made by Appellees to Baxsto about the following: (1) the lease bonus amounts—
which according to Baxsto would significantly affect the value of its mineral
interests for purposes of selling the interests to Appellees—that Appellees would
pay to Baxsto and all other mineral owners in the area; (2) the capital improvements
that Appellees intended to commit to develop the acreage and the interests that they
acquired from Baxsto; (3) whether Appellees intended to “flip” the interests they
acquired from Baxsto rather than drilling on the acreage and developing the acquired
interests; and (4) whether Appellees promised not to record the lease that the parties
had executed until after Appellees had paid the negotiated lease bonus to Baxsto.
In its pleadings in the trial court, Baxsto alleged several direct fraud causes of
action against Appellees, namely, common-law fraud, fraudulent inducement, fraud
by nondisclosure, and statutory fraud under Section 27.01 of the Texas Business and
Commerce Code. See TEX. BUS. & COM. CODE ANN. § 27.01(a)(1) (West 2023).
Common-law fraud requires (1) a material misrepresentation; (2) which was
false; (3) which was either known to be false when made or was asserted without
knowledge of its truth; (4) which was intended to be acted upon by the other party;
(5) which the other party relied upon; and (6) which caused injury to the other party.
Zorrilla v. Aypco Constr. II, LLC, 469 S.W.3d 143, 153 (Tex. 2015) (citing Formosa
Plastics Corp. USA v. Presidio Eng’rs & Contractors, Inc., 960 S.W.2d 41, 47 (Tex.
1998)); Nelson v. McCall Motors, Inc., 630 S.W.3d 141, 147 (Tex. App.—Eastland
2020, no pet.).
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Fraudulent inducement is a distinct category of common-law fraud that shares
the same elements but involves a promise of future performance with no intention
of performing at the time it was made. Zorrilla, 469 S.W.3d at 153.
Fraud by nondisclosure occurs when a party owes a duty to disclose
information. Bradford v. Vento, 48 S.W.3d 749, 755 (Tex. 2001). This type of fraud
is shown when (1) the defendant deliberately concealed or failed to disclose material
facts known to it; (2) the defendant had a duty to disclose such facts to the plaintiff;
(3) the defendant knew that the plaintiff was ignorant of the undisclosed facts and
did not have an equal opportunity to discover them; (4) the defendant intended to
induce the plaintiff to act or refrain from acting based on the nondisclosure; and
(5) the plaintiff relied on the nondisclosure, which resulted in injury. Bombardier
Aerospace Corp. v. SPEP Aircraft Holdings, LLC, 572 S.W.3d 213, 219–20 (Tex.
2019).
The proof that is required to establish statutory fraud is similar to that which
is necessary to prove a claim for common-law fraud; the difference is that this type
of fraud is unique to real estate transactions. To recover under this theory, the
claimant must establish that (1) a transaction involving real estate or stock was
involved; (2) the defendant made a false representation of a past or existing material
fact or made a promise to perform an act with the intention of not fulfilling it; (3) the
false representation or promise was made by the defendant for the purpose of
inducing the plaintiff to enter into a contract; and (4) the plaintiff entered into the
contract in reliance on the false representation or promise. Nelson, 630 S.W.3d at
147 (citing BUS. & COM. § 27.01(a)); see also Collective Asset Partners LLC v.
Schaumburg, 432 S.W.3d 435, 443 (Tex. App.—Dallas 2014, pet. denied).
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V. Analysis
In six issues, Baxsto contends that the trial court erred when it granted
Appellees’ motions for summary judgment because: (1) more than a scintilla of
evidence exists as to Appellees’ no-evidence challenges to the elements of Baxsto’s
fraud claims; (2) Appellees failed to (a) establish that all fraudulent representations
were “directly contradicted” by the pertinent language in the parties’ contracts and
(b) conclusively negate the element of justifiable reliance; (3) Baxsto has standing
to assert its fraud claims; (4) Baxsto’s fraud claims are not barred by the economic
loss rule; (5) Baxsto’s fraud claims are not barred by the statute of frauds; and
(6) Baxsto’s summary judgment evidence raises fact issues as to Appellees’ no-
evidence challenges to certain elements of Baxsto’s derivative fraud claims.
A. No-Evidence Summary Judgment
In their no-evidence grounds, Appellees contended that there was no
evidence of “the knowledge of falsity, intent to induce, and duty to disclose
elements” of Baxsto’s fraud claims. The first argument advanced by Baxsto is
that the trial court erred if it granted Appellees’ motions for summary judgment
based on no-evidence grounds, because Baxsto’s summary judgment evidence
raised genuine issues of material fact as to each of the three fraud elements that
Appellees challenged—(1) knowledge of falsity, (2) intent to induce, and (3) duty to
disclose. Knowledge of falsity and intent to induce are required elements for each
of Baxsto’s fraud claims. The duty to disclose is only pertinent to Baxsto’s fraud by
nondisclosure claim. We review the summary judgment evidence for each element
in turn.
1. Knowledge of Falsity
A statement is not fraudulent unless the speaker either knew it was false when
made or made it recklessly without knowledge of its truth. Johnson & Higgins of
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Tex., Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507, 526 (Tex. 1998); Prudential
Ins. Co. v. Jefferson Assocs., 896 S.W.2d 156, 163 (Tex. 1995). Proof that a
defendant made a statement with knowledge of its falsity or recklessly without
knowledge of its truth may be proved by direct or circumstantial evidence. Johnson
& Higgins of Tex., Inc., 962 S.W.2d at 526; see also Spoljaric v. Percival Tours,
Inc., 708 S.W.2d 432, 435 (Tex. 1986).
Generally, knowledge is a question for the factfinder’s determination.
Therefore, because intent to defraud can be established by circumstantial evidence
alone, Baxsto contends that a jury should determine whether Appellees knew that
the representations they made to Baxsto were false. See Spoljaric, 708 S.W.2d at
435. Baxsto argues that there is conflicting summary judgment evidence, albeit at
least some or a scintilla of evidence, that defeats Appellees’ no-evidence challenge
to the “knowledge” element of Baxsto’s fraud claims, and which shows that
Appellees induced Baxsto to lease and later sell its mineral interests to Appellees at
a lower, reduced price.
Baxsto asserts that four categories of representations are central to and
indicative of Appellees’ larger fraudulent plan to deceive Baxsto into ultimately
selling its mineral interests at a “reduced” price. These representations include
(1) the true value of the bonus payments to be paid to Navigator, (2) Roxo’s intent
to drill and develop the interests it acquired from Baxsto under the lease, (3) Vortus’s
capital improvement funding commitment, and (4) a promise by Roxo that the lease
would not be recorded until after the lease bonus was paid to Baxsto. Baxsto argues
that Appellees have not denied that the representations they made to Baxsto were
false. Nevertheless, Appellees contend that there is no evidence that they knew the
representations were false or that the representations were false when they were
made.
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First, the record shows that Fitzgerald, as a representative of Roxo, and
Crumley, as a representative of Vortus, repeatedly represented to Baxsto that Roxo
would never pay, nor would Vortus permit them to pay, a lease bonus of more than
$5,000 to any other mineral owner in the area and, specifically, that they would not
pay Navigator a lease bonus of more than $5,000. These representations were made
to Baxsto throughout the parties’ ongoing negotiations, which ultimately resulted in
the parties executing the original lease agreement and subsequent sales contract.
According to the summary judgment evidence, Fitzgerald made the last of
these representations to Baxsto after Roxo had already agreed to pay Navigator a
lease bonus that was twice the amount that Roxo had promised to Baxsto. Roxo and
Baxsto met in May 2017. In his affidavit, Cole states that during this meeting
Fitzgerald represented that Roxo would never agree to pay Navigator a lease bonus
that exceeded $5,000. However, by no later than May 10, 2017, Roxo had offered
Navigator a lease bonus payment of $8,000 per net mineral acre. Vortus also was
aware that this offer had been made to Navigator. Just over a week later, on May 18,
2017, Roxo and Navigator agreed that Roxo would pay Navigator a lease bonus of
$10,000 per net mineral acre.
Appellees argue that (1) the parties’ negotiations had been finalized as of
April 7, 2017, when the option to purchase the lease agreement was signed and
(2) there is no evidence Roxo knew that false representations were made to Baxsto
while the parties’ negotiations were active. However, the record shows that Roxo
initiated a counteroffer at some point after April 7, 2017, and that the parties later
agreed to a lower purchase price based on this counteroffer. Thus, the parties’
negotiations were revived by Roxo and continued after April 7, 2017. Further, the
sale of Baxsto’s mineral interests did not close until May 25, 2017, when Roxo paid
the reduced purchase price.
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Construing the summary judgment evidence in the light most favorable to
Baxsto, we conclude that there is at least a scintilla of evidence that Appellees knew
that their representations regarding the lease bonus amounts were false at the time
they were made.
Second, Fitzgerald and Crumley made various representations and assurances
regarding Appellees’ intention to drill on and develop the mineral interests that they
acquired from Baxsto, including that: (1) Roxo intended to generate income by
drilling on Baxsto’s acreage, not by flipping the lease; (2) Roxo and Vortus were not
in the business of leasing and flipping mineral interests to other operators; (3) Vortus
only invested in companies that drilled; and (4) Roxo and Vortus would begin
drilling operations by the end of the third, potentially fourth, quarter of 2017.
The summary judgment evidence shows that (1) Roxo never drilled a well on
Baxsto’s acreage or any other land as an operator; and (2) Roxo sold the leasehold
interests it acquired from Baxsto to a third party in 2018. Baxsto also identified a
Roxo drilling schedule that Baxsto contends establishes that Roxo did not plan to
drill more than the minimum number of wells that were necessary to hold the lease
and that its first drilling operation was planned for 2019. However, this drilling
schedule is not relevant to understanding Roxo’s knowledge of falsity at the time the
representations were made to Baxsto. This drilling schedule does not include any
reference to the leasehold interest associated with Baxsto’s mineral interests. Nor is
there any indication as to when this schedule was created. It only displays Roxo’s
drilling schedule for 2019 but is silent as to any drilling schedule for 2017 and 2018.
As such, this drilling schedule sheds no light on Roxo’s knowledge of falsity at the
time the representations were made by Appellees.
Further, that Roxo never drilled on and subsequently sold the leasehold, while
circumstantial and having occurred after the representations were made, is some
17
evidence that Roxo knew its statements were false at the time the representations
were made. See Aquaplex, Inc. v. Rancho La Valencia, Inc., 297 S.W.3d 768, 775
(Tex. 2009) (“[A] party’s intent is determined at the time the party made the
representation, [but] it may be inferred from the party’s subsequent acts after the
representation is made. (alterations in original) (quoting Spoljaric, 708 S.W.2d at
434)).
Construing the summary judgment evidence in the light most favorable to
Baxsto, we conclude that there is at least a scintilla of evidence as to whether Roxo
knew that Appellees’ representations regarding Roxo’s intent to drill and not flip the
mineral interests acquired from Baxsto were false at the time they were made.
Third, Fitzgerald and Crumley represented to Cole that Vortus had committed
$200–250 million to develop Baxsto’s acreage with Roxo. Baxsto argues that
Fitzgerald and Crumley knew this representation was false at the time it was made
because, according, in part, to documents that the parties submitted in camera and
agreed are confidential and subject to a protective order, (1) Crumley testified that
the amount of Vortus’s capital commitment was memorialized in Roxo’s LLC
agreement and had not been altered, (2) Fitzgerald testified that Vortus’s capital
commitment was included in the LLC agreement, and (3) the LLC agreement shows
that the funding commitment amount was not $200–250 million as represented.
Further, Appellees, within days of exercising the option to lease Baxsto’s land,
represented that the capital commitment to develop the acreage had been reduced.
Appellees have neither briefed nor responded to this argument. We have
reviewed the summary judgment evidence in the light most favorable to Baxsto and
conclude that there is at least a scintilla of evidence that Roxo and Vortus knew their
representation that Vortus had committed a capital improvement amount of $200–
250 million to develop the interests acquired from Baxsto was false when made.
18
Finally, Fitzgerald promised Baxsto that Roxo would not record the lease or
lease memorandum until after the lease bonus was paid to Baxsto. The lease
purchase agreement also included a recording provision that allowed a recording of
the lease or lease memorandum only after Roxo had exercised the option to purchase
the lease when it paid the agreed-upon lease bonus. The summary judgment
evidence shows that (1) Fitzgerald signed the lease purchase agreement,
(2) Fitzgerald made a request for the lease to be recorded on November 11, 2016,
(3) the lease was recorded on November 17, 2016, and (4) the lease bonus was not
paid to Baxsto until February 24, 2017. As such, Baxsto argues that the timing of
the recording, so soon after the lease was signed and provided to Roxo, is, at a
minimum, circumstantial evidence of the falsity of this representation.
Again, Appellees neither briefed nor responded to this argument. Viewing
the summary judgment evidence in the light most favorable to Baxsto, we conclude
that the immediacy and timing with which Roxo recorded the lease memorandum
after it had executed the lease purchase agreement is at least a scintilla of evidence
that Roxo knew its representation regarding when the lease or lease memorandum
would be recorded was false when made.
We have reviewed the summary judgment evidence that pertains to the
knowledge-of-falsity element of Baxsto’s fraud claims. When we construe the
summary judgment evidence in the light most favorable to Baxsto, as we must, we
conclude that at least a scintilla of evidence that raises a genuine issue of material
fact exists regarding Roxo’s and Vortus’s knowledge of the falsity of their
representations at the time they were made.
2. Intent to Induce
When we consider the intent element of a fraud claim, we focus on the
defendant’s knowledge and intent to induce reliance. Ernst & Young, L.L.P. v. Pac.
19
Mut. Life Ins. Co., 51 S.W.3d 573, 578 (Tex. 2001). A defendant who acts with
knowledge that a particular result will follow is considered to have intended for such
a result to occur. Id. at 579. Thus, fraud’s intent element requires a degree of
certainty that goes beyond mere foreseeability. Id. at 579–80. The intent to defraud
is usually not susceptible to direct proof and, as such, most often must be proven by
circumstantial evidence. Aquaplex, Inc., 297 S.W.3d at 774–75; Spoljaric, 708
S.W.2d at 435. Moreover, “[i]ntent is a fact question uniquely within the realm of
the trier of fact because it so depends upon the credibility of the witnesses and the
weight to be given to their testimony.” Spoljaric, 708 S.W.2d at 434; Samson Lone
Star Ltd. P’ship v. Hooks, 497 S.W.3d 1, 15 (Tex. App.—Houston [1st Dist.] 2016,
pet. denied).
Appellees’ knowledge of the falsity of their representations is, without more,
some evidence of their intent to induce Baxsto. Further, the timing of Appellees’
representations—during meetings where Baxsto had expressed reservations about
agreeing to the lease option, extending the lease option, and the terms of the sale of
its mineral interests to Appellees, of which Appellees were attempting to persuade
Baxsto to agree—is, at a minimum, circumstantial evidence of Appellees’ intent to
induce Baxsto’s reliance on Appellees’ representations.
Baxsto further argues that the representations made by Appellees were part of
a larger plan to induce Baxsto to ultimately sell its mineral interests to Appellees at
a reduced price. The record shows that Appellees always had an interest in
purchasing Baxsto’s mineral interests, but Appellees believed that this was a “long
shot” and would require convincing Baxsto that it should sell. Appellees’ strategy
was to gain operational control in the area through the acquisition of other mineral
interests, and the acquisition of Baxsto’s mineral interests was an integral part of this
20
strategy. This evidence is consistent with Appellees’ intent to induce Baxsto to sell
its mineral interests at a reduced price.
As for the reduced price by which Baxsto argues that it was persuaded to sell
its mineral interests, Baxsto asserts that Appellees engaged in a two-step scheme:
(1) “lock” Baxsto into a lease with false promises of nonexistent funding and an
aggressive drilling plan that would generate royalties, and (2) then immediately after
locking Baxsto into the lease, make representations regarding a reduction of
available capital improvement funding that Vortus had committed to develop the
lease and a lower bonus price being offered to Navigator in order to induce Baxsto
to sell its mineral interests at a lower price.
In support of this, the summary judgment evidence shows that Appellees
represented that Vortus intended to contribute $200–250 million to support drilling
operations under the lease with Baxsto. According to Baxsto, Appellees knew that
Vortus never intended to commit such an amount. Soon after Baxsto agreed to the
lease terms, Appellees then represented that Vortus had “reduced” its funding
commitment to $70–75 million. Appellees had also consistently represented to
Baxsto that the lease bonus price being offered to Navigator was less than $5,000.
But at some point before the sale of Baxsto’s mineral interests was finalized,
Appellees offered Navigator a lease bonus price higher than $5,000 and ultimately
agreed to pay Navigator a lease bonus price of $10,000.
All the while, Appellees knew that Baxsto was using a metric to assess a value
to its mineral interests—based on a multiplier of 3.2 times the lease bonus price that
Baxsto understood was being paid to others in the area—and then formulating a sales
price based on this metric. Baxsto sought to obtain the highest lease bonus that could
be paid because the lease bonus amount would affect the sales price of its mineral
interests. Baxsto contends that, but for Appellees’ representations, it would have
21
adjusted its metric and, accordingly, the sales price of its mineral interests. Instead,
and in reliance on Appellees representations, Baxsto sold its mineral interests to
Roxo for less than half the price of what it would have sold them for had it not been
deceived. This is, at a minimum, a scintilla of evidence in support of Baxsto’s claim
of Appellees’ two-step scheme to induce Baxsto into selling its mineral interests at
a reduced, lower price.
We have reviewed the summary judgment evidence that addresses the intent-
to-induce element of Baxsto’s fraud claims. When we construe the evidence in the
light most favorable to Baxsto, we conclude that at least a scintilla of evidence that
raises a genuine issue of material fact exists regarding Appellees’ intent to induce
Baxsto’s reliance on the representations made by Appellees.
3. Duty to Disclose
The duty to disclose is an element of Baxsto’s fraud-by-nondisclosure claim.
A duty to disclose may arise in four circumstances: (1) when there is a confidential
or fiduciary relationship; (2) when one voluntarily discloses information, the whole
truth must be disclosed; (3) when one makes a representation, new information must
be disclosed when that new information makes the earlier representation misleading
or untrue; and (4) when one makes a partial disclosure and conveys a false
impression in doing so. Hoggett v. Brown, 971 S.W.2d 472, 487 (Tex. App.—
Houston [14th Dist.] 1997, pet. denied). Baxsto argues there is ample summary
judgment evidence that demonstrates circumstances that created a duty on behalf of
Appellees to disclose the whole truth, to disclose new information, or to correct a
false impression.
For instance, as to the alleged representations made by Appellees concerning
the Navigator lease bonus amount, Baxsto asserts that Appellees had a duty to
correct Fitzgerald’s representation that Appellees would never pay Navigator a lease
22
bonus of more than $5,000 per net mineral acre. Appellees contend that they did not
have a duty to correct this representation here because Baxsto had already obligated
to sell its mineral interests when Appellees agreed to pay Navigator a lease bonus
amount greater than $5,000. However, as discussed above, Appellees revived the
parties’ negotiations and engaged in further discussions with Baxsto after or near the
time that they had agreed with Navigator to pay it a much higher lease bonus amount.
This circumstance gave rise to a duty for Appellees to disclose the new
information—that Appellees were negotiating a higher lease bonus price with others
or that Appellees had already agreed to a higher lease bonus price—to correct their
previous lease bonus amount representation that was untrue.
Regarding the representations of Vortus’s capital improvement commitment
to develop the lease, Baxsto argues that Appellees had a duty to correct and clarify
that Vortus had never intended to commit more than $70–75 million to the Roxo
project. Instead, only after Baxsto was “locked” into the lease did Appellees advise
Baxsto that Vortus had “reduced” its capital funding commitment to $70–75 million.
Baxsto also contends that this statement, regarding Vortus’s reduction in capital
funding, failed to disclose the whole truth about Vortus’s involvement in Roxo’s
project because Roxo could request additional capital funding above $75 million, if
needed. This summary judgment evidence demonstrates that Appellees only made
a partial disclosure that conveyed a false impression concerning the reduction of
Vortus’s capital funding commitment and that no option existed to request additional
capital funding from Vortus.
Finally, as to the representation that Roxo would not record the lease and lease
memorandum until after Baxsto had received the lease bonus payment, Baxsto
argues that when Roxo recorded the lease memorandum prior to paying the lease
bonus, this gave rise to a duty to disclose that its previous statement about the
23
“timing” of recording the lease memorandum was untrue. Baxsto claims that if Roxo
had disclosed this circumstance, it would not have agreed to extend the lease option.
Conversely, Appellees contend that their recording of the lease memorandum was
only, if anything, a breach of the parties’ contract and that they did not have a duty
to self-report an alleged breach of contract. However, this circumstance cannot be
characterized as only a simple breach of contract.
The summary judgment record shows that Roxo requested two extensions to
execute the lease purchase agreement after it had already recorded the lease
memorandum. Here, the circumstances do not support the conclusion that Roxo did
not have the intent to perform its promise to record the lease or lease memorandum
in the manner as represented when it requested, and was granted, two extensions
because it had already, in fact, recorded the lease memorandum. As such, we find
this circumstance to be more akin to situations where a party induced another into
signing a contract with a promise that was never intended to be kept as opposed to
situations in which a party intended to perform but then later changed his mind. See
Susanoil, Inc. v. Cont’l Oil Co., 519 S.W.2d 230, 236 (Tex. App.—San Antonio
1975, writ ref’d n.r.e.) (“The gist of the fraud in cases involving promises made with
no intention to perform is not breach of the promise, but the fraudulent intent of the
promisor, the false representation of an existing intention to perform where such
intent is in fact non-existent, and the deception of the promisee by such false
promise.”).
We have reviewed the summary judgment evidence that pertains to the duty-
to-disclose element of Baxsto’s fraud-by-nondisclosure claim. When we construe
the evidence in the light most favorable to Baxsto, we conclude that at least a scintilla
of evidence that raises a genuine issue of material fact exists regarding whether the
24
circumstances surrounding the parties’ negotiations gave rise to a duty on behalf of
Appellees to disclose.
On this record, we have considered the summary judgment evidence and we
hold that at least a scintilla of evidence that raises a genuine issue of material fact
exists for each element of Baxsto’s fraud claims that Appellees identified in their
no-evidence challenges. As such, the trial court erred when it granted Appellees’
summary judgment motions, to the extent that the trial court’s grounds were based
on Appellees’ no-evidence challenges. Accordingly, we sustain Baxsto’s first issue
on appeal.
B. Traditional Summary Judgment
1. Justifiable Reliance
In its second issue, Baxsto contends that Appellees did not conclusively
negate the justifiable reliance element for each of Baxsto’s fraud claims because
Appellees failed to show that the misrepresentations and omissions were “directly
contradicted” by the terms of the parties’ contracts. Conversely, Appellees assert
that the written agreements that Baxsto signed negate the justifiable reliance element
as a matter of law.
Justifiable reliance is an element of each of Baxsto’s fraud claims. To prove
justifiable reliance, the plaintiff must show that: (1) it actually relied on the
defendant’s representation; and (2) such reliance was justifiable. JPMorgan Chase
Bank, N.A. v. Orca Assets G.P., L.L.C., 546 S.W.3d 648, 653 (Tex. 2018); Grant
Thornton LLP v. Prospect High Income Fund, 314 S.W.3d 913, 923 (Tex. 2010).
Justifiable reliance usually presents a question of fact. Orca Assets, 546 S.W.3d at
654. But this element can be negated as a matter of law when circumstances exist
under which reliance cannot be justified. Id.
25
“In determining whether justifiable reliance is negated as a matter of law,
courts ‘must consider the nature of the [parties’] relationship and the contract.’” Id.
(alteration in original) (quoting AKB Hendrick, LP v. Musgrave Enters., Inc., 380
S.W.3d 221, 232 (Tex. App.—Dallas 2012, no pet.)). “In an arm’s-length
transaction[,] the defrauded party must exercise ordinary care for the protection of
his own interests. . . . [A] failure to exercise reasonable diligence is not excused by
mere confidence in the honesty and integrity of the other party.” Id. (alterations in
original) (quoting Nat’l Prop. Holdings, L.P. v. Westergren, 453 S.W.3d 419, 425
(Tex. 2015) (per curiam)). As such, in a complex, “arm’s-length” transaction, a
party to the transaction should investigate representations that may be false. Id.When a party fails to exercise such diligence, it is “charged with knowledge of all
facts that would have been discovered by a reasonably prudent person similarly
situated.” Id. To this end, that party “cannot blindly rely on a representation by a
defendant where the plaintiff’s knowledge, experience, and background warrant
investigation into any representations before the plaintiff acts in reliance upon those
representations.” Id. (quoting Shafipour v. Rischon Dev. Corp., No. 11-13-00212-
CV, 2015 WL 3454219, at *8 (Tex. App.—Eastland May 29, 2015, pet. denied)
(mem. op.)).
a. Direct Contradiction
“[R]eliance upon an oral representation that is directly contradicted by the
express, unambiguous terms of a written agreement between the parties is not
justified as a matter of law.” Orca Assets, 546 S.W.3d at 658; see also Mercedes-
Benz USA, LLC v. Carduco, Inc., 583 S.W.3d 553, 559 (Tex. 2019). “[T]here is no
direct contradiction if a reasonable person can read the writing and still plausibly
claim to believe the earlier representation.” Orca Assets, 546 S.W.3d at 659.
26
“Courts have found direct contradiction even when the terminology appearing in the
representation and the writing are not exactly the same.” Id.
To negate the justifiable reliance element, Appellees must show that the
parties’ contract, and its terms, “directly contradicts” every representation upon
which Baxsto’s fraud claims are based. See id. Thus, the “direct contradiction” rule
only negates the justifiable reliance element when an express promise directly
contradicts the representation. However, for purposes of this rule, the contract and
the oral representation need not explicitly speak the same subject matter or precisely
the same terms. Orca Assets, 546 S.W.3d at 659. Here, Appellees argue just that—
that Baxsto could not, as a matter of law, have justifiably relied on Roxo’s and
Vortus’s representations because the oral statements made by them (the drilling
commitments, the lease bonus amounts to be paid, the capital improvement
obligations, and the promise to pay the lease bonus to Baxsto before recording the
lease) are directly contradicted by the specific terms of the parties’ lease and other
written agreements. We consider the oral representations and the corresponding
contractual terms, as identified by Appellees, below.
First, the oral representations that Appellees contend support their intent to
perform under the oil and gas lease include:
• Roxo would drill and develop Baxsto’s land.
• Roxo planned to make its money “at the bit.”
• Roxo and Vortus were not in the business of leasing and flipping
minerals to other operators.
• Vortus only invested in companies that drilled acreage.
• Vortus had committed $200–250 million specifically to Roxo’s
project and Roxo would drill until those funds were exhausted.
• Roxo would begin drilling operations by the end of the third—
potentially fourth—quarter of 2017.
27
Before we address the specific contractual provisions that are pertinent to the
“direct contradiction” argument, we note that Appellees assert that the terms of the
lease did not require that Roxo drill any wells on the lease it had acquired from
Baxsto because an oil and gas lease grants a right, not an obligation, to drill wells.
As such, Appellees argue that Roxo could elect not to drill any wells. Therefore,
any reliance by Baxsto based on Appellees’ representations of their intent to drill
was unjustifiable. However, a typical oil and gas lease is not merely an option
contract, but rather is a conveyance of title to the minerals. Nat. Gas Pipeline Co.
of Am. v. Pool, 124 S.W.3d 188, 192 (Tex. 2003) (“In a typical oil or gas lease, the
lessor is a grantor and grants a fee simple determinable interest to the lessee . . . [and]
the lessee/grantee acquires ownership of all the minerals in place . . . subject to the
possibility of reverter in the lessor/grantor.”); Richmond v. Wells, 395 S.W.3d 262,
266 (Tex. App.—Eastland 2012, no pet.). Further, the purpose of the lease, as
identified by the lease itself, is “exploring for, developing, producing and marketing
oil and gas.” We are not persuaded by Appellees’ argument regarding their
obligations under the lease.
Importantly, the claims that Baxsto is pursuing in this case are based on fraud,
not breach of contract. Thus, the issue before us does not require that we interpret
the lease and determine whether any development requirements exist and to what
extent those provisions are now enforceable. See Pool, 124 S.W.3d at 192. Instead,
the issue we must determine is whether Baxsto could have plausibly believed and
relied on Appellees’ representations regarding capital improvement funding for and
the intent to drill on the acreage, in light of the nature and purpose of the lease. See
Orca Assets, 546 S.W.3d at 654. Given the parties mutual interest in developing the
acreage under the lease, it is plausible that Baxsto could have believed Appellees’
representations.
28
Appellees further argue that the representations regarding capital
improvement funding and the intent to drill are directly contradicted by the lease
term and the Pugh clause in the lease. The lease term provides:
This lease, which is a ‘paid-up’ lease requiring no rentals, shall
be in force for a primary term of three (3) years from the date hereof,
and for as long thereafter as oil or gas or other substances covered
hereby are produced in paying quantities from the leased premises or
from lands pooled therewith or this lease is otherwise maintained in
effect pursuant to the provisions hereof.
The Pugh clause contains in relevant part:
At the expiration of the primary term, or upon the cessation of
“continuous drilling operations” (as hereinafter defined), whichever is
later, this lease shall terminate as to all lands covered herein not then
included in or otherwise allocated to a “production unit” (as hereinafter
defined) assigned to each well then producing on the leased premises
or lands pooled therewith. For purposes of this Paragraph, Lessee shall
be considered to be engaged in continuous drilling operations at the end
of the primary term if, within 180 days after the expiration of the
primary term, Lessee is engaged in the drilling or reworking of any well
on the leased premises and does not allow more than 180 days to elapse
between the completion or abandonment of one well on such land and
the commencement of another well thereon, until the leased premises
have been “fully developed” (as hereinafter defined). . . . The term
“fully developed”, as used herein, shall mean that point in time when
all the leased premises is included within a production unit or units.
The lease term and Pugh clause are silent as to any capital improvement
funding terms. These contractual provisions are also silent as to any production
requirements within the primary term of the lease. Appellees argue that the absence
of any capital improvement funding and production terms in the lease constitutes a
direct contradiction to any representation made by them regarding such funding and
production. However, the mere absence of a term or condition is not tantamount to
a direct contradiction. While a direct contradiction is not necessarily the antithesis
29
of an absent term, the contract must still express an unambiguous term that, when
read by a reasonable person, cannot be plausibly reconciled with an earlier
representation. Appellees’ representations communicated and expressed an
expectation regarding capital improvement funding and production efforts during
the primary lease term, although the parties’ lease is silent in that regard. Terms
concerning the circumstances under which the lease term can be extended do not
communicate or express an expectation as to the production to be completed during
the primary lease term. Thus, Baxsto could have plausibly believed and relied on
Appellees’ representations regarding capital improvement funding and the intent to
drill on the acreage, in light of the provisions in the parties’ lease. Based on this
record, we cannot conclude that the lease term and Pugh clause constitute direct
contradictions.
With regard to Appellees’ representation that Roxo was not in the business of
leasing and flipping minerals to other operators, Appellees contend that the
assignment provision in the lease directly contradicts this representation. The lease
contains a provision that allows “[t]he interest of either Lessor or Lessee hereunder
[to] be assigned, devised, or otherwise transferred in whole or in part, by area and/or
by depth or zone.” If this option were exercised, the Lessee would then be “relieved
of all obligations thereafter arising with respect to the transferred interest.” Baxsto
argues that it still could believe and rely on Appellees’ representation regarding its
intent not to flip the property it acquired from Baxsto because this was an option that
Appellees never intended to exercise. On the other hand, Appellees argue that
because the option could be exercised at any time, without Baxsto’s consent, this
directly contradicts their representation that they were not in the business of flipping
properties.
30
In making this argument, Appellees rely on Barrow-Shaver Resources Co. v.
Carrizo Oil & Gas, Inc., 590 S.W.3d 471, 496–501 (Tex. 2019). 3 In this case, the
supreme court considered whether a mineral interest lessee’s reliance on statements
made by the lessor that consent would be provided for any future assignment under
the parties’ oil and gas lease was justifiable. Id. at 479. The court held that oral
statements that the lessor would work with the lessee on any assignment of the lease,
irrespective of consent, were directly contradicted by the assignment provision that
the parties specifically negotiated, and which required the lessor’s express written
consent prior to any assignment. Id. at 497–99. The court reasoned that “under the
contract [lessor] holds the keys to an assignment; under [lessor’s] representations,
however, the keys are firmly in [lessee’s] hands.” Id. at 499.
Here, Appellees’ oral statements did not shift the power as to who “held the
keys” for purposes of assigning the lease. Appellees contend that their oral
representations are only a representation that Roxo and Vortus would not flip the
lease. However, such a characterization misstates the evidence. The record shows
3
In Barrow-Shaver, the parties to the lease specifically negotiated a consent-to-assign provision.
590 S.W.3d at 475–76. During the parties’ negotiations, the lessor made representations that it would “work
with” the lessee on any future assignment and provide consent. Id. at 497. The lessor also insisted on
deleting language in the lease that consent “shall not be unreasonably withheld,” but retaining the final
consent-to-assign provision as requiring “the express written consent of [lessor].” Id. at 476. The court
likened these oral representations to: “Carrizo will not stand in the way of Barrow-Shaver assigning its
rights under the farmout agreement; rather, Barrow-Shaver will be able to assign whenever it desires and
to whomever it desires.” Id. at 499. But the contract provision gave Carrizo the right to prevent any
assignment. “In other words, under the contract Carrizo holds the keys to an assignment; under Laufer’s
representations, however, the keys are firmly in Barrow-Shaver’s hands.” Id. Notably, the court stated:
“Carrizo’s statements related directly to the consent requirement, essentially eliminating it from the
agreement and representing that Barrow-Shaver alone held the power to assign—a direct contradiction to
Barrow-Shaver only being able to assign with Carrizo’s express approval.” Id.
The parties’ negotiations in Barrow-Shaver and the case before us are distinguishable. In Barrow-
Shaver, the consent-to-assign provision was specifically negotiated between the two parties and the oral
representation was made during those negotiations. Here, there is no evidence that the assignment provision
was specifically negotiated or that these representations were made in connection with that provision.
Further, in Barrow-Shaver, the consent-to-assign provision prohibited any assignment without the express
written consent of Carrizo. Here, the assignment provision does not require the consent of the other party.
31
that Appellees represented that (1) “Roxo was not in the business of flipping
minerals but intended to lease a position and drill it” and (2) “Roxo and Vortus were
not in the business of leasing and flipping minerals to other operators.” These
statements are representations regarding the purpose of Roxo’s and Vortus’s
business operations, not a promise or expression of an intent to not exercise the
assignment provision. Further, there is no evidence, and neither party contends, that
these oral representations were made when the parties negotiated the terms of the
assignment provision because the assignment provision was never specifically
negotiated. As such, we conclude that the assignment provision in the lease is not a
direct contradiction to the oral representations made by Appellees. Baxsto could
have reasonably relied on these representations.
Second, Baxsto claims that it relied on Appellees’ oral representation that
Roxo would never pay, and Vortus would not allow Roxo to pay, more than a $5,000
lease bonus to either Navigator or any other undivided owner of the same acreage.
Appellees contend that the oral representations regarding the lease bonus are directly
contradicted by the “most favored nation” clause in the extension to the lease
purchase agreement. This clause states:
In the event Roxo exercises the Option, Roxo agrees that, within six
months of the date of the Lease, if Roxo pays a larger bonus per net
mineral acre to any other lessor owning an undivided interest in the
Land covered by the Lease, then Grantor will be entitled to the greater
bonus, which Roxo agrees to pay. The additional bonus will be payable
within five (5) business days of Roxo’s payment to the third party.
The parties agree that this clause expired on April 30, 2017. If anything, this clause
is some evidence of Baxsto’s reliance on an oral representation that Roxo would not
pay another mineral interest owner in the area a lease bonus greater than $5,000
32
because if Roxo did so before April 30, 2017, it would then be required to pay a
matching lease bonus to Baxsto.
As to any oral representations that were made after the expiration of the “most
favored nation” clause, this clause could not function as a direct contradiction.
Appellees have mischaracterized these oral representations as an alleged
commitment to extend the “most favored nation” clause for a period longer than six
months. However, that is not the oral representation that Baxsto has asserted against
Appellees in this case. The representation here is that Roxo assured Baxsto that
Roxo would not pay another mineral interest owner in the area a lease bonus that
exceeded $5,000. Further, Roxo continued making this representation throughout
the duration of the parties’ negotiations. The “most favored nation” clause could not
contradict the oral representations that were made by Appellees after the clause had
expired and during the stages of the parties’ negotiations for the sale of Baxsto’s
mineral interests because that provision is not included in the contract for sale and
the lease was not subsumed by the contract for sale. Thus, in determining the sales
price of Baxsto’s mineral interests, Baxsto could have reasonably relied on
Appellees’ representations that Roxo would not pay Navigator, or any other mineral
interest owner in the area, a lease bonus amount that exceeded $5,000.
Third, Baxsto claims that it relied on Appellees’ oral representation that Roxo
would not record the lease until after it had paid the lease bonus to Baxsto. Appellees
did not raise, in the trial court or on appeal, any argument as to Baxsto’s justifiable
reliance on this oral representation. Further, and as Baxsto points out, the lease
purchase agreement provides that Roxo would record the lease only after it had
tendered or delivered the lease bonus payment to Baxsto.
Notably, the direct contradictions that Appellees argue exist are all contained
in the lease and associated memorandum. The harm that Baxsto contends it
33
sustained is that, in reliance on Appellees’ representations, it sold its mineral
interests to Appellees for a lower, reduced amount; according to Baxsto, it would
not have done so had it known the truth. Here, Appellees have not identified any
provision from the contract for sale, the lease, the lease memorandum, or any other
written agreement, that directly contradict their oral representations. In fact, the
parties’ written agreements confirm, rather than contradict, Appellees’ oral
representations. Thus, Appellees have failed to meet their burden of identifying
direct contradictions in the parties’ contracts.
b. Red Flags
“[A] person may not justifiably rely on a misrepresentation if there are ‘red
flags’ indicating such reliance is unwarranted.” Orca Assets, 546 S.W.3d at 655
(quoting Grant Thornton, LLP v. Prospect High Income Fund, 314 S.W.3d 913, 923
(Tex. 2010)). “Red flags” typically consist of a series of events that warrant further
investigation. Id. (quoting Lewis v. Bank of Am. NA, 343 F.3d 540, 546 (5th Cir.
2003)). A “red flag” may also be a part of the justifiable reliance analysis. Nelson,
630 S.W.3d at 148. In our consideration of any “red flags” that may be present here,
we must “view the circumstances in their entirety while accounting for the parties’
relative levels of sophistication.” Orca Assets, 546 S.W.3d at 656.
According to Appellees, all parties to this transaction were represented by
sophisticated and knowledgeable oil and gas businessmen and negotiators.
Certainly, the parties would benefit from the lease or sale of Baxsto’s mineral
interests, even though their interests in doing so were adverse—Baxsto sought to sell
the subject mineral interests for the highest price, while Appellees sought to pay the
lowest price for these interests. Cole, who was the main player for Baxsto during
the parties’ negotiations, has an extensive history of working in the oil and gas
industry. He began negotiating oil and gas leases in 2014 and is familiar with the
34
different operators in the area and the standard terms of oil and gas leases. Ashley
Stout is a former landman and has owned and managed Baxsto since 2013.
Similarly, Fitzgerald also has an extensive history of working in the oil and gas
industry. He was the CFO of a different oil and gas company prior to being
employed by Roxo at the end of 2015. Crumley is a founder of Vortus, a private
equity firm that was created to generate long-term capital gains primarily through
investments in the mid-market upstream energy industry in North America.
Despite the parties’ disagreements, of which there are many, there is no
dispute here that the parties to this appeal are all sophisticated and knowledgeable
oil and gas business entities and that the parties’ contracts were negotiated at arm’s
length. However, Appellees have failed to identify any circumstances that arose
during the parties’ negotiations that would constitute a “red flag.”
First, Appellees argue that Baxsto’s status as a sophisticated party in an arm’s-
length transaction means that Baxsto could never justifiably rely on oral
representations that do not become part of the parties’ final agreement. However,
the sophistication of the parties, alone, is not a “red flag” that can negate justifiable
reliance, but rather is the lens through which we consider the impact of any “red
flags” that are present. See id. at 656 (noting that sophisticated business entities
participating in an arm’s-length transaction should be expected to recognize red flags
that others who are less experienced may not).
Second, Appellees argue that statements made by a party regarding drilling
plans and bonus amounts are “red flags.” Because these statements concern future
events or plans, Appellees assert that their reliability is inherently unverifiable.
However, many of the statements that Baxsto has identified do not concern future
events. Further, the statements that do concern future events—such as Roxo’s intent
to drill and develop the acreage or to generate its revenue “at the bit”—do not
35
directly contradict the lease. Instead, these statements align with the purpose
identified within the lease—“exploring for, developing, producing and marketing oil
and gas.” Therefore, while circumstances could change in the future and require that
Roxo act differently than originally expressed, it cannot be said that Baxsto “relied
blindly” on Appellees’ representations regarding future events.
We have considered the summary judgment evidence in the light most
favorable to Baxsto and we conclude that Appellees did not conclusively negate the
element of justifiable reliance. As such, the trial court erred when it granted
summary judgment in favor of Appellees, to the extent that the trial court’s grounds
were based on Appellees’ justifiable reliance challenge. Accordingly, we sustain
Baxsto’s second issue on appeal.
2. Defenses
In their traditional motion for summary judgment, Appellees asserted three
defenses and contended that: (1) the economic loss rule bars Baxsto’s recovery;
(2) the statute of frauds bars Baxsto’s fraud claims; and (3) Baxsto does not have
standing to assert its fraud claims. Appellees had the burden to establish each of
these defenses as a matter of law.
a. Economic Loss Rule
Whether or not Baxsto’s fraud claims are barred by the economic loss rule is
dependent on the source of Appellees’ duty to act. The economic loss rule governs
the recovery of economic losses in certain areas of the law. Sharyland Water Supply
Corp. v. City of Alton, 354 S.W.3d 407, 415 (Tex. 2011). This includes the general
proposition that when the economic loss is the only injury that is the subject of a
contract, the cause of action sounds in contract alone. SCS Builders, Inc. v. Searcy,
390 S.W.3d 534, 540 (Tex. App.—Eastland 2012, no pet.) (citing Sharyland, 354
S.W.3d at 417). In determining whether the action sounds only in contract, we
36
consider both the source of the defendant’s duty to act—whether it arose solely from
the contract or from some common-law duty—and the nature of the remedy sought
by the plaintiff. Sw. Bell Tel. Co. v. DeLanney, 809 S.W.2d 493, 494 (Tex. 1991).
Appellees argue that any duty imposed on them regarding the complained-of
representations in this case arises only under a contract theory. But Appellees have
conceded that the economic loss rule does not apply to or bar Baxsto’s fraudulent
inducement claim. See Formosa Plastics Corp. USA v. Presidio Eng’rs &
Contractors, Inc., 960 S.W.2d 41, 46 (Tex. 1998). In Formosa Plastics, the supreme
court “reject[ed] the application of DeLanney to preclude tort damages in fraud
cases.” Id. The court noted that “Texas law has long imposed a duty to abstain from
[fraudulently] inducing another to enter into a contract.” Id. The duty there arose
outside of the contract. Id. The court unequivocally held that tort damages are
recoverable for a fraudulent inducement claim irrespective of whether the fraudulent
representations are later subsumed into a contract or whether the plaintiff only
suffers an economic loss that is related to the subject matter of the contract. Id. at
47. This explains why Appellees have, understandably, conceded that Baxsto’s
fraudulent inducement claim is not barred and survives this appeal.
While the holding in Formosa Plastics is specific to fraudulent inducement,
the supreme court has since expressed that it did not intend for its holding in that
case to be limited in its application. In Sharyland, the court identifies fraud—
including common law fraud and statutory fraud—and fraudulent inducement as two
of the several tort causes of action for which the recovery of economic damages is
allowable absent physical injury or property damage. Sharyland, 354 S.W.3d at 418
(citing Trenholm v. Ratcliff, 646 S.W.2d 927, 933 (Tex. 1983) (upholding a jury’s
award of lost profits for a fraud claim)); see also BUS. & COM. § 27.01 (authorizing
actual damages for fraud in certain real estate or stock transactions); Formosa
37
Plastics, 960 S.W.2d at 47. The distinguishing factor in these cases appears to be
where the duty lies: is the duty independent of or does it arise from a contract?
Here, in evaluating Baxsto’s fraud claims, the duty arises independent of the
contract regardless of whether the damages that Baxsto seeks are solely for economic
losses. Thus, the duty to not commit fraud is an independent duty that is separate
and distinct from any duty to comply with a contract. Formosa Plastics, 960 S.W.3d
at 46; Peterson Grp., Inc. v. PLTQ Lotus Grp., L.P., 417 S.W.3d 46, 63 (Tex. App.—
Houston [1st Dist.] 2013, pet. denied). Baxsto’s claim for damages is that it sold its
mineral interests to Appellees for less than it would have if Baxsto had known and
been advised by Appellees of the true circumstances. Baxsto relies on the well-
recognized, independent duty that one must not make false statements to another to
induce a binding agreement. See Formosa Plastics, 960 S.W.2d at 47. Appellees
argue that they were not bound to act in accordance with their representations
because such representations are not contractual in nature. However, whether or not
the representations were tantamount to contractual agreements or were later
subsumed into a contract is not pertinent to Baxsto’s fraud claims because a separate
and distinct duty exists that Appellees must not commit fraud. See id. (“[T]ort
damages are recoverable for a fraudulent inducement claim irrespective of whether
the fraudulent representations are later subsumed in a contract.”).
An issue of material fact exists as to whether Baxto’s fraud claims are barred
by the economic loss rule. As such, the trial court erred when it granted summary
judgment in favor of Appellees, to the extent that the trial court’s grounds were based
on this defense. Accordingly, we sustain Baxsto’s third issue on appeal.
b. Statute of Frauds
The statute of frauds bars a fraud claim to the extent that the plaintiff seeks to
recover “benefit-of-the-bargain” damages that cannot otherwise be enforced under
38
the statute. Lam v. Phuong Nguyen, 335 S.W.3d 786, 790 (Tex. App.—Dallas 2011,
pet. denied); see also Haase v. Glazner, 62 S.W.3d 795, 799 (Tex. 2001). The
purpose of the statute of frauds is frustrated if the statute can be easily circumvented
by a party who relies on a fraud claim to essentially enforce a contract that the statute
deems to be unenforceable. Haase, 62 S.W.3d at 799. The statute of frauds does
not bar a claim for fraud to the extent that a party seeks to recover reliance or “out-
of-pocket” damages because such damages are not part of the benefit of the alleged
bargain between the parties. Lam, 335 S.W.3d at 790.
Baxsto argues that the statute of frauds would not bar its fraud claims because
(1) none of its fraud claims are based on an oral lease; (2) it is not seeking “benefit-
of-the-bargain” damages—it seeks damages only for being fraudulently induced into
selling its mineral interests at a reduced price; and (3) the representations upon which
it relied do not fall within any exception to Section 26.01 of the Business and
Commerce Code. See BUS. & COM. § 26.01 (the rule that pertains to statutory fraud
in a real estate transaction setting). Conversely, Appellees contend that their alleged
misrepresentations were only promises that relate to the development of the
leasehold estate, the payment of bonuses, and the assignability of the mineral
interests. Therefore, because these are alleged promises that relate to the lease of a
mineral interest, the promises, to be enforceable under the statute of frauds, must be
in writing. See id. § 26.01(b)(5).
In light of its pleadings, what is the measure of damages for which Baxsto
seeks a recovery in this case? Baxsto does not seek to recover damages because
Appellees failed to pay Baxsto the highest lease bonus, failed to develop the acreage
under the lease, or because of Appellees’ efforts to flip the lease. See Lam, 335
S.W.3d at 790–91 (fraud claims that seek “benefit-of-the-bargain” damages—the
difference between the value that was represented and the value actually received—
39
are barred by the statute of frauds to the extent the underlying claim fails to comply
with the statute.). Instead, the recovery that Baxsto seeks here is more akin to a
claim for “out-of-pocket” damages—damages for being induced by Appellees to
part with its mineral interests at a price that was lower than the mineral interests’
true value. See id. (fraud claims that seek “out-of-pocket” damages—the difference
between the value that was parted with and the value that was received—are not
barred by the statute of frauds). Baxsto calculated and assessed a lower valuation of
its mineral interests based on Appellees’ representations that were made during the
parties’ negotiations.
An issue of material fact exists as to whether the statute of frauds bars
Baxsto’s fraud claims. As such, the trial court erred when it granted summary
judgment in favor of Appellees, to the extent that the trial court’s grounds were based
on this defense. Accordingly, we sustain Baxsto’s fourth issue on appeal.
c. Standing
Appellees had the burden to establish, as matter of law, that Baxsto does not
have standing to assert its fraud claims. Roskey v. Tex. Health Facilities Comm’n,
639 S.W.2d 302, 303 (Tex. 1982). In their motions for summary judgment,
Appellees argued that Baxsto did not have standing to sue because Baxsto conveyed
its mineral interests including “all and singular the rights and appurtenances thereto
in any way belonging.” Appellees argued that because Baxsto did not possess any
current ownership interests in the minerals, Baxsto lacked standing to bring any
claims related to the lease.
Standing exists if the party bringing the lawsuit is personally aggrieved by the
alleged wrong. Nootsie, Ltd. v. Williamson Cnty. Appraisal Dist., 925 S.W.2d 659,
661 (Tex. 1996). Baxsto’s fraud claims are personal to it because it is the party to
whom the alleged misrepresentations were made and the party who sold the mineral
40
interests. Further, the language that Appellees refer to in the lease neither releases
the claims that Baxsto could assert nor acts as an assignment of Baxsto’s right to
assert such claims. As such, Appellees failed to meet their burden to establish
Baxsto’s lack of standing, and the trial court erred when it granted summary
judgment in Appellees’ favor, to the extent that the trial court’s grounds were based
on standing. Accordingly, we sustain Baxsto’s fifth issue on appeal.
C. Baxsto’s Derivative Fraud Claims
In addition to its direct fraud claims, Baxsto has asserted several derivative
fraud claims against Appellees including beneficiary of fraud, civil conspiracy,
constructive trust, and joint enterprise.
As an initial matter, Appellees argue that Baxsto’s derivative fraud claims
cannot survive summary judgment because Baxsto’s underlying, direct fraud claims
do not survive summary judgment. This would be true if the summary judgment
evidence supported the trial court’s grant of summary judgment in Appellees’ favor.
However, as discussed above, and as we have concluded, Appellees’ no-evidence
challenges fail. Moreover, Appellees have failed to meet their burden to prove that
there is no genuine issue of material fact concerning the element of justifiable
reliance and their defenses. Therefore, to the extent that Baxsto’s derivative fraud
claims are based upon the viability of its underlying fraud claims, and because
Baxsto’s direct fraud claims survive summary judgment, so do its derivative fraud
claims.
In their second motion for summary judgment, Appellees asserted no-
evidence challenges to the derivative fraud claims that Baxsto asserted against
Vortus, REC, and Roxo FW. However, Appellees did not challenge the beneficiary-
of-statutory-fraud claim that Baxsto asserted against Roxo. Therefore, we do not
address this claim as it relates to Roxo because we cannot affirm summary judgment
41
on a ground that is not raised in the motion. Stiles v. Resolution Tr. Corp., 867
S.W.2d 24, 26 (Tex. 1993).
We now address whether at least a scintilla of evidence raising a genuine issue
of material fact exists as to Baxsto’s other derivative fraud claims and the no-
evidence challenges to these claims that Appellees have raised.
1. Beneficiaries of Fraud
First, Appellees asserted that there is no evidence that (1) REC and Roxo FW
were beneficiaries of fraud and (2) Vortus, REC, and Roxo FW were beneficiaries
of statutory fraud. “Texas case law has held that each party to a fraudulent scheme
is responsible for the acts of the other participants [that are] done in furtherance of
the scheme and [may be] liable for fraud.” In re Arthur Andersen LLP, 121 S.W.3d
471, 481 (Tex. App.—Houston [14th Dist.] 2003, no pet.); see also Robertson v.
ADJ P’ship, Ltd., 204 S.W.3d 484, 494 (Tex. App.—Beaumont 2006, pet. denied).
“A party may be held liable for fraud because he participated in the transaction and
reaped the benefits.” Robertson, 204 S.W.3d at 494. Specifically, Appellees
asserted that there is no evidence that (1) Vortus, REC, and Roxo FW committed
fraud, had knowledge or procurement of any fraud, or that fraud was committed with
their authority or consent, (2) Roxo FW benefited from the fraud, and (3) Vortus and
Roxo FW benefited from the statutory fraud.
As discussed above, Vortus, through Crumley acting as its agent, made
representations during the parties’ negotiations that Baxsto contends were fraudulent
based on its direct fraud claims. Because we have concluded that the trial court erred
when it granted summary judgment in favor of Appellees as to these claims, we need
not address whether beneficiary liability applies to Vortus at this time. See TEX. R.
APP. P. 47.1.
42
The summary judgment evidence shows that REC and Roxo FW participated
in the parties’ transactions. REC is a company that Roxo created in September 2017
to hold mineral interests. In 2017, REC was controlled by a management committee
composed of Fitzgerald, Crumley, and Jeff Miller. Similarly, Roxo FW is a Vortus
entity. Vortus, through Roxo FW, made a capital commitment to Roxo for funding.
We have considered this summary judgment evidence, in addition to other evidence
that the parties have submitted in camera pursuant to a confidentiality and protective
order that further details the ownership structure of the Vortus and Roxo entities and
the mineral interests held by them, and we conclude that there is at least a scintilla
of evidence that raises a genuine issue of material fact regarding REC and Roxo
FW’s participation in these transactions.
Further, as to whether Roxo FW benefited from the alleged fraud, the
summary judgment evidence supports an inference that Roxo FW benefited from an
increase in the value of its equity after the leasehold interest was sold.4 Like above,
this summary judgment evidence was produced in camera pursuant to the parties’
confidentiality and protective order and includes information concerning the
ownership structure of the Vortus and Roxo entities and the mineral interests held
by them. We have considered this summary judgment evidence in the light most
favorable to Baxsto and we conclude that there is a at least scintilla of evidence that
4
Appellees argue that the evidence identified by Baxsto pertains only to REC or Vortus and that
Roxo FW’s ownership interest is no evidence that Roxo FW directly benefited from the alleged fraud. This
evidence primarily refers to actions taken by REC because REC was the entity that held the mineral interests
that were leased. However, evidence submitted in camera pursuant to the parties’ confidentiality and
protective order details the ownership structure of these entities and shows that while REC was the actor
that held and sold the mineral interests, Roxo FW possessed an ownership interest in the minerals and
realized an increase in the value of its ownership interest as a result of the sale. Thus, the evidence supports
the inference that Roxo FW benefited because of these actions. See Corpus Christi Area Teachers Credit
Union v. Hernandez, 814 S.W.2d 195, 198 (Tex. App.—San Antonio 1991, no writ) (“It is also well settled
in Texas, that ‘[i]nferences may be drawn from actual facts proved.’” (alteration in original) (quoting
Beazley v. McEver, 238 S.W. 949, 952 (Tex. App.—Dallas 1922, no writ))).
43
raises a genuine issue of material fact regarding whether Roxo FW received a
benefit.
2. Civil Conspiracy
Appellees raised a no-evidence challenge to all elements of the civil
conspiracy claim that Baxsto asserted against Vortus, REC, and Roxo FW. To prove
a claim for civil conspiracy, one must show: (1) a combination of two or more
persons; (2) the persons seek to accomplish an object or course of action; (3) the
persons reach a meeting of the minds on the object or course of action; (4) one or
more unlawful, overt acts are taken in pursuance of the object or course of action;
and (5) damages occur as a proximate result. First United Pentecostal Church of
Beaumont v. Parker, 514 S.W.3d 214, 222 (Tex. 2017). Civil conspiracy requires
that an underlying tort caused the claimant’s damages. Agar Corp., Inc. v. Electro
Circuits Int’l, LLC, 580 S.W.3d 136, 142 (Tex. 2019).
The summary judgment evidence shows that Crumley, as a representative of
Vortus, REC, and Roxo FW, and Fitzgerald, as a representative of Roxo and REC,
sought to lease and otherwise obtain mineral interests in the area for the purpose of
gaining (1) operational control in the acreage and (2) ownership of mineral interests
owned by Baxsto and others. While pursuing this course of action, Crumley and
Fitzgerald made representations that Baxsto has alleged were fraudulent, namely,
that Appellees’ actions resulted in Baxsto selling its mineral interests for “half of
what their value would have been absent the fraud.” As we have discussed above,
the fraudulent nature of these representations raises at least a genuine issue of
material fact. We have reviewed the summary judgment evidence in the light most
favorable to Baxsto and we conclude that there is at least a scintilla of evidence that
raises a genuine issue of material fact that Vortus, REC, and Roxo FW participated
in a civil conspiracy as alleged.
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3. Constructive Trust
Generally, three elements are required to impose a constructive trust:
(1) breach of a special trust or fiduciary relationship or actual or constructive fraud;
(2) unjust enrichment of the wrongdoer; and (3) an identifiable res that can be traced
to the original party. KCM Fin. LLC v. Bradshaw, 457 S.W.3d 70, 87 (Tex. 2015).
In their no-evidence challenge, Appellees asserted that there is no evidence
regarding the first two elements stated above.
Baxsto asserts, on appeal, that it seeks to impose a constructive trust based
only on its fraud claims, and that the summary judgment evidence amply supports
its claims. The imposition of a constructive trust is a remedy for fraud, not an
alternative cause of action. Kinsel v. Lindsey, 526 S.W.3d 411, 425 (Tex. 2017). As
we have said, Baxsto’s summary judgment evidence supports the arguments it has
raised that (1) it sold its mineral interests for half of its potential value due to
Appellees’ alleged fraudulent conduct and (2) Appellees sold the leasehold interest
to a third party in 2018 and realized a profit. We have reviewed the summary
judgment evidence in the light most favorable to Baxsto and we conclude that there
is at least a scintilla of evidence that raises a genuine issue of material fact regarding
the two elements of Baxsto’s constructive trust claim that Appellees challenged.
4. Joint Enterprise
Finally, Baxsto asserts, alternatively, that to the extent Vortus and Roxo FW
were not directly liable to Baxsto, they were vicariously liable under the theory of
joint enterprise. Joint enterprise is not an independent tort claim; rather, it is a claim
for vicarious liability for an underlying tort. Tex. Dep’t of Transp. v. Able, 35
S.W.3d 608, 613 (Tex. 2000). A joint enterprise makes each party responsible for
the conduct of others when there is “(1) an agreement, express or implied, among
the members of the group; (2) a common purpose to be carried out by the group;
45
(3) a community of pecuniary interest in that purpose, among the members; and
(4) an equal right to a voice in the direction of the enterprise, which gives an equal
right of control.” Id.; see also Motloch v. Albuquerque Tortilla Co., 454 S.W.3d 30,
35 (Tex. App.—Eastland 2014, no pet.).
Appellees asserted no-evidence challenges to the third and fourth elements of
Baxsto’s joint enterprise claim. In response to the third element challenge, Baxsto
submitted summary judgment evidence that Vortus and Roxo FW were capital
partners for the lease and conveyance of Baxsto’s mineral interests. Further, the
lease and conveyance were significant aspects of Appellees’ strategy of gaining
operational control in the area. We conclude that there is at least a scintilla of
evidence that raises a genuine issue of material of fact regarding whether Vortus and
Roxo FW were engaged in a community of pecuniary interest in the purpose of the
joint enterprise, i.e., the pursuit of Baxsto’s mineral interests. See Able, 35 S.W.3d
at 614 (finding a pecuniary interest in a common purpose where the project involved
substantial sums of money, a sharing of resources in order to make better use of this
money, and the potential for an economic gain).
In response to Appellees’ fourth element challenge, Baxsto submitted
summary judgment evidence that Vortus represented the interest of Roxo FW during
Appellees’ ongoing negotiations with Baxsto. Roxo and Vortus specifically created
REC to receive and hold Baxsto’s mineral interests after the sale. Thereafter, REC
was jointly controlled by a management committee that included Fitzgerald, who
was an agent of the Roxo entities, and Crumley, who was an agent of the Vortus
entities. We conclude that at least a scintilla of evidence that raises a genuine issue
of material fact exists as to whether Vortus and Roxo FW had an equal right and
voice in the direction, control, and management of the enterprise. See Able, 35
S.W.3d at 616 (“even though Metro employees carried out the procedures of the
46
Transitway Management Team, TxDOT had an equal right to control what those
procedures were and how they were to be carried out”).
Because at least a scintilla of summary judgment evidence for each of the
challenged elements of Baxsto’s derivative fraud claims exists, genuine issues of
material fact remain. As such, the trial court erred when it granted summary
judgment in favor of Appellees on these claims, to the extent that the trial
court’s grounds were based on Appellees’ challenges to Baxsto’s derivative fraud
claims. Accordingly, we sustain Baxsto’s sixth issue on appeal.
VI. This Court’s Ruling
We reverse the trial court’s judgment and remand this cause to the trial court
for further proceedings consistent with this opinion.
W. STACY TROTTER
JUSTICE
April 20, 2023
Panel consists of: Bailey, C.J.,
Trotter, J., and Wright, S.C.J.5
Williams, J., not participating.
5
Jim R. Wright, Senior Chief Justice (Retired), Court of Appeals, Eleventh District of Texas at
Eastland, sitting by assignment.
47