Opinion issued March 5, 2013
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-11-00593-CV
———————————
STROUD PRODUCTION, L.L.C., PLANTATION PETROLEUM
CORPORATION, AND ROBERT A. STROUD, Appellants
V.
PATRICK E. HOSFORD, MORRIS L. ETHEREDGE, DAVID T.
THREINEN, AND NELSON E. WOODS, Appellees
On Appeal from the 405th District Court
Galveston County, Texas
Trial Court Cause No. 07CV1461
OPINION
Appellants, Stroud Production, L.L.C. (“Stroud Production”), Plantation
Petroleum Corporation (“Plantation”), and Robert A. Stroud (collectively, the
“Stroud defendants”), 1 challenge the trial court’s judgment, entered after a jury
trial, in favor of appellees, Patrick E. Hosford, Morris L. Etheredge, David T.
Threinen, and Nelson E. Woods, in appellees’ suit against the Stroud defendants
for breach of contract, “intentional termination” of overriding royalty interests,
conversion, tortious interference, and conspiracy. In twelve issues,2 the Stroud
defendants contend that appellees’ “intentional termination claim does not exist
under Texas law” and is not supported by legally- or factually-sufficient evidence;
there is no evidence to support the “only damages” awarded by the jury; appellees’
conversion claim is “barred by the economic loss doctrine and fails for lack of
evidence;” there is no evidence that Stroud Production tortiously interfered with
appellees’ contract with Plantation; appellees’ alter ego and conspiracy claims “are
barred” and are not supported by legally- or factually-sufficient evidence; the trial
court’s award of prejudgment interest is not supported by legally- or factually-
sufficient evidence; there is no evidence that Plantation breached its obligations to
appellees regarding payments owed for overriding royalties from January 2004; the
trial court’s award of attorney’s fees was “on the wrong cause of action” and the
1
The parties have listed ERG Resources, L.L.C. (“ERG”) as an appellant, but ERG
is not identified as a party in the trial court’s judgment, and there are no issues
pertaining to any judgment entered regarding ERG.
2
The Stroud defendants identify twenty issues in the section of their appellate brief
entitled “Issues Presented,” but the argument section of the brief does not track the
substance or order of the twenty issues presented. We address the Stroud
defendants’ issues as argued in their brief.
2
fees were “improperly segregated;” the jury’s alter ego findings conflict with its
tortious interference and conspiracy findings; the trial court’s judgment “suggests a
quadruple recovery of attorney’s fees;” and a new trial is required in light of
appellees’ “concealment of evidence” and the trial court’s various erroneous
evidentiary rulings.
We reverse and render in part, and we remand for a new trial on the issue of
attorney’s fees and a recalculation of prejudgment interest.
Background
In June 1978, the Houston Domestic Oil Company (“HDOC”) obtained from
two corporate lessors, Ruth M. Bowers and John B. Gordon, two oil and gas leases
(the “B&G leases”) on a 50-acre parcel of land located in the High Island area of
Galveston County, Texas. Hosford signed the leases in his capacity as president of
HDOC, and, pursuant to the terms of the B&G leases, the lessors, Bowers and
Gordon, each retained a 25% “royalty interest” and HDOC obtained a 75%
“working interest.” 3 The B&G leases had a primary term of one year, were to
3
We note generally that an oil and gas royalty is a share of the product or profit
from real property, reserved by the grantor of a mineral lease, in exchange for the
lessee’s right to mine or drill on land. BLACK’S LAW DICTIONARY 1445 (9th ed.
2009). “Royalty” is commonly defined as the landowner’s share of production,
free of expenses of production. Heritage Res., Inc. v. NationsBank, 939 S.W.2d
118, 121–22 (Tex. 1996). An oil and gas “working interest” consists of the right
to the mineral interest granted by an oil and gas lease, so called because the lessee
acquires the right to work on the leased property, search, develop, and produce oil
and gas, as well as the obligation to pay costs. BLACK’S LAW DICTIONARY at
1745.
3
remain in effect thereafter for so long as oil or gas was produced in commercial
quantities, and were to terminate if production ceased for 90 continuous days
without the commencement of “additional drilling or reworking operations.”
In September 1978, HDOC granted Hosford a 2% overriding royalty
interest 4 in any oil and gas produced from the leases. Shortly thereafter, HDOC
granted Etheredge a 2% overriding royalty interest and Threinen and Woods each a
one-half percent overriding royalty interest. Thus, appellees collectively obtained
from HDOC a 5% overriding royalty interest in production from the B&G leases.
HDOC drilled wells that produced oil in commercial quantities, and
appellees, according to their assignments, received payments for their overriding
royalty interests. Although ownership of the B&G leases subsequently changed
hands several times, appellees retained their overriding royalty interests and
continued to receive their payments for production until the end of December
2003, when Plantation acquired the leases.
In late 2002 and early 2003, Stroud, who held other lease interests, became
interested in acquiring the B&G leases because he had concluded that the Bowers
and Gordon properties were “capable of more production” and contained
4
An overriding royalty interest is a non-participating interest in a mineral lease.
Ridge Oil Co., Inc. v. Guinn Invs., Inc., 148 S.W.3d 143, 155 (Tex. 2004). An
owner of an overriding royalty “has no right and thus no ability to go onto the
underlying property and drill or otherwise take action to perpetuate a lease.” Id.
Rather, such an owner is dependent on the lessee to preserve the lease. Id.
4
“substantial” untapped reserves. Stroud Production, owned and managed solely by
Stroud, hired a landman to investigate the prospect. And Stroud learned that Union
Seaboard held the B&G leases, appellees possessed, collectively, their 5%
overriding royalty interest, and Bowers and Gordon (and their assigns) retained a
25% royalty interest. In August 2003, Stroud Production offered to purchase the
B&G leases from Union Seaboard for $58,000.
Plantation, a company of which Stroud was president and the sole employee,
bought the B&G leases on December 1, 2003 for $58,000. Stroud Production
became the operator of the leases, under which there was only one producing well
operating. Union Seaboard, the prior lessor, had been reporting the ongoing
production from the well to the Texas Railroad Commission. It is undisputed that
this well continued to produce oil in December 2003 and part of January 2004.
Although the Stroud defendants paid appellees their overriding royalty interests
from the well’s production in December 2004, they did not pay appellees for their
overriding royalty interests for the January 2004 oil production until April 2010,
shortly before the underlying trial. The Stroud defendants asserted that they did
not pay appellees for this month of production because of an oversight.
On January 13, 2004, Stroud Production’s landman obtained copies of the
assignments of appellees’ overriding royalty interests, and he advised Stroud
Production that none of appellees’ assignments contained “renewals and
5
extensions” clauses. The evidence reveals that “renewals and extensions” clauses
may be used to protect overriding royalty interests by ensuring that such interests
apply to any leases that qualify as renewals or extensions of prior leases. Stroud
admitted that it was “probably a mistake” on his part not to have included a
renewals-and-extensions clause in the instrument assigning him his overriding
royalty interest, but he had not anticipated a need for such a clause and did not
realize that his interest would be subsequently “wash[ed] out” by a lessee. On
January 20, 2004, a few days after Stroud Production received notice that appellees
did not have renewals and extensions clauses in their assignments, a “polished rod”
on the only producing well operating under the leases broke, and production
ceased. Stroud’s lawyer advised him that he had no obligation to pay the
overriding royalty interest owners once the well had ceased production.
In his testimony, Stroud agreed that he was the “decision maker” for both
Stroud Production and Plantation. And he knew that after the only remaining
producing well operating under the B&G leases ceased production, the Stroud
defendants had 90 days to commence work under the leases or they would
terminate. Stroud explained that he did not order repairs to the well because of the
expenses, but also because he had already offered interests in the property to other
investors, albeit under other leases, which are discussed in more detail below.
Although Stroud acknowledged that the necessary repairs for the broken well
6
“weren’t out of the normal,” none of the Stroud defendants conducted repairs or
undertook “additional drilling or reworking operations” during the 90-day period
after the well had ceased production. Because nothing was done during the 90-day
period, the B&G leases terminated on April 20, 2004. Stroud admitted that he
intentionally returned the well to production in June 2004 only after the B&G
leases had terminated, new leases had been obtained, and the 90-day continuous-
operations period had passed. He also admitted that he “did not want any
overriding royalty interest on the new leases” and appellees’ overriding royalty
interests had been “washed out.”
Stroud further testified that even before Plantation had acquired the B&G
leases from Union Seaboard and before the polished rod on the producing well had
broken, he had been interested in obtaining new leases on the same land because he
had concerns about the validity and scope of the B&G leases. On February 19,
2004, less than one month after the polished rod on the well had broken and during
the 90-day continuous-operations period, Plantation entered into a new lease with
Bowers. The new lease applied to the same 50-acre parcel of land covered by the
old lease and provided the same royalty structure, but it included other terms that
differed from the original B&G lease, such as a different primary term. And the
new lease was not burdened by the overriding royalty interests held by appellees
7
under the old B&G lease. Plantation also executed a new lease with Gordon. 5 We,
as do the parties, refer to these new leases collectively as the “McNeil leases.”
The Stroud defendants continued to evaluate the potential production of the
well during the 90-day continuous-operations period under the B&G leases.
Shortly after the 90-day period expired, Stroud, on April 29, 2004, made a
presentation to a group of potential investors, representing that Stroud intended to
repair the broken well and conduct additional work. Concluding that the B&G
leases had expired, Stroud repaired the broken well in May 2004 at a cost of
approximately $7,500, and resumed production from the well shortly thereafter
under the McNeil leases. The Stroud defendants also conducted other new work
pursuant to the McNeil leases. Because the McNeil leases were no longer subject
to the overriding royalty interests, Plantation’s net revenue interest totaled 75%.
The McNeil leases were subsequently assigned to Stroud Production and, in 2007,
Stroud Production sold the McNeil leases to ERG for approximately $2.5 million,
and production from the leases continued. 6
5
In their briefing, the Stroud defendants assert that in May 2004, after the B&G
leases expired, Plantation obtained a new lease from the Gordon interest. There is
no record citation to this new lease, but the parties appear to agree that the Stroud
defendants acquired new leases from both Bowers and Gordon or their successors
and assigns.
6
The parties, in their briefing, generally agree, or at least do not dispute, that
production continued on the parcel of land previously covered by the B&G leases.
8
Following the presentation of evidence, the trial court granted a directed
verdict in favor of the Stroud defendants on appellees’ claims for “breach of duty
of good faith and fair dealing,” fraudulent concealment, and “breach of implied
covenant to develop.” The remaining claims were submitted to the jury, which
found that Plantation failed to comply with an agreement to pay appellees
overriding royalties from the B&G leases for January 2004; Plantation
“intentionally terminate[d] the [B&G] Leases to destroy [appellees’] rights to their
overriding royalty interests”; Plantation converted appellees’ “proceeds from their
overriding royalty interests” in the B&G Leases; Stroud Production intentionally
interfered with appellees’ rights to receive their overriding royalties under the
B&G Leases; Stroud was responsible for the conduct of both Plantation and Stroud
Production; Stroud Production and Stroud were part of a conspiracy with
Plantation and acted with an “intent to deprive [appellees] of the proceeds from
their overriding royalty interests;” and Stroud and Stroud Production conspired to
damage appellees. In a single damages question pertaining to all of the above
causes of action, the trial court asked the jury to calculate an amount that would
reasonably compensate appellees for damages caused by the Stroud defendants.
The trial court instructed the jury to consider “only” the “unpaid overriding
royalties from the [B&G] Leases” and asked it to calculate such damages for three
time periods: (1) January 1, 2004 to January 20, 2004 (before production on the
9
B&G leases ceased), (2) January 21, 2004 to January 1, 2007, and (3) January 1,
2007 to present. The jury awarded damages to appellees for each of the identified
time periods. The damages awarded by the jury for the time period January 1,
2004 to January 20, 2004 represented the amount to which appellees were entitled
to recover for their overriding royalty interest in the B&G leases prior to the well
ceasing production on January 20, 2004. The parties appear to agree that the
damages awarded by the jury for the other two time periods generally reflect the
amounts that appellees would have received if they had retained their overriding
royalty interests in the production that occurred under the McNeil leases.
In its final judgment, the trial court ordered that Hosford and Etheredge each
recover from the Stroud defendants actual damages of $196,150, 7 plus pre-
judgment interest in the amount of $32,043.75, and Threinen and Woods each
recover from the Stroud defendants actual damages of $49,037.50, plus pre-
judgment interest in the amount of $8,010.94. The trial court also awarded
appellees attorney’s fees of $359,479.10, which included appellate attorney’s fees.
Breach of Contract
In their eighth issue, the Stroud defendants argue that the evidence is legally
insufficient to support the jury’s breach-of-contract finding pertaining to the
7
The actual damages awarded by the trial court in its judgment appear to include
the amount found by the jury to have been owed for outstanding royalties from
January 2004.
10
payment of overriding royalties for production that occurred under the B&G leases
during January 2004 because appellees were “issued checks in April 2010 for all
January 2004 production and stock tank oil.” In regard to the timing of the
payments, the Stroud defendants assert that the “jury was not asked to determine
when payments were made” and “no time period for payment was specified” in the
question submitted to the jury.
In conducting a legal-sufficiency review of the evidence, we must consider
all of the evidence in the light most favorable to the verdict and indulge every
reasonable inference that would support it. City of Keller v. Wilson, 168 S.W.3d
802, 822 (Tex. 2005). We will sustain a legal-sufficiency or “no evidence”
challenge if the record shows one of the following: (1) a complete absence of
evidence of a vital fact, (2) rules of law or evidence bar the court from giving
weight to the only evidence offered to prove a vital fact, (3) the evidence offered to
prove a vital fact is no more than a scintilla, or (4) the evidence establishes
conclusively the opposite of the vital fact. Id. at 810. In conducting a legal-
sufficiency review, a “court must consider evidence in the light most favorable to
the verdict, and indulge every reasonable inference that would support it.” Id. at
822. The term “inference” means,
In the law of evidence, a truth or proposition drawn from another
which is supposed or admitted to be true. A process of reasoning by
which a fact or proposition sought to be established is deduced as a
11
logical consequence from other facts, or a state of facts, already
proved. . . .
Marshall Field Stores, Inc. v. Gardiner, 859 S.W.2d 391, 400 (Tex. App.—
Houston [1st Dist.] 1993, writ dism’d w.o.j.) (citing BLACK'S LAW DICTIONARY
700 (5th ed. 1979)). For a jury to infer a fact, “it must be able to deduce that fact
as a logical consequence from other proven facts.” Id.
If there is more than a scintilla of evidence to support the challenged finding,
we must uphold it. Formosa Plastics Corp. USA v. Presidio Eng’rs &
Contractors, Inc., 960 S.W.2d 41, 48 (Tex. 1998). “‘[W]hen the evidence offered
to prove a vital fact is so weak as to do no more than create a mere surmise or
suspicion of its existence, the evidence is no more than a scintilla and, in legal
effect, is no evidence.’” Ford Motor Co. v. Ridgway, 135 S.W.3d 598, 601 (Tex.
2004) (quoting Kindred v. Con/Chem, Inc., 650 S.W.2d 61, 63 (Tex. 1983)). If the
evidence at trial would enable reasonable and fair-minded people to differ in their
conclusions, then jurors must be allowed to do so. City of Keller, 168 S.W.3d at
822; see also King Ranch, Inc. v. Chapman, 118 S.W.3d 742, 751 (Tex. 2003). “A
reviewing court cannot substitute its judgment for that of the trier-of-fact, so long
as the evidence falls within this zone of reasonable disagreement.” City of Keller,
168 S.W.3d at 822.
The trial court asked the jury whether Plantation “fail[ed] to comply with the
agreement to pay [appellees] their overriding royalties on production from the
12
[B&G] Leases for January 2004.” The jury answered “yes” and then awarded
Hosford and Etheredge $150 and Threinen and Woods $37.50 for damages
incurred from January 1, 2004 until January 20, 2004. And the trial court included
these amounts in the actual damages that it awarded to appellees in its judgment.
It is undisputed that appellees did not receive these payments, which were
due and owing, until April 2010, shortly before trial. During trial, Hosford
complained about the lateness of these payments, noting that he had not received
any interest. The jury’s breach-of-contract finding is supported by evidence that
Plantation failed to timely make the payments. See TEX. NAT. RES. CODE ANN. §
91.402 (a) (Vernon 2011) (providing, “If the lease or other agreement does not
specify the time for payment, subsequent proceeds must be paid no later than: (1)
60 days after the end of the calendar month in which subsequent oil production is
sold; or (2) 90 days after the end of the calendar month in which subsequent gas
production is sold”); id. § 91.403 (Vernon 2011) (providing for the payment of
interest on late payments). Although the Stroud defendants presented evidence
that Plantation’s failure to timely make the payments was the result of a “mistake,”
the jury could have reasonably inferred that, by making contractually required
payments over six years after they were due, Plantation breached its contract to pay
the overriding royalties to appellees. Accordingly, we hold that the evidence is
legally sufficient to support the jury’s finding that Plantation failed to comply with
13
its contractual obligation to pay appellees their overriding royalties on production
from the B&G leases for January 2004 and the trial court did not err in entering
judgment in appellees’ favor on this claim.
We overrule the Stroud defendants’ eighth issue.8
Duty Owed to Overriding Royalty Interests
In their first issue, the Stroud defendants argue that the trial court erred in
entering judgment in favor of appellees on their claim for “intentional termination”
of their overriding royalty interests because the claim does not exist under Texas
law, Plantation had no contractual obligation to perpetuate the B&G leases for the
benefit of appellees, Plantation owed no fiduciary duty and had no special
relationship with appellees, there are no “public policy reasons for the creation of a
new fiduciary duty” owed to appellees, and “the retroactive application of a
fiduciary obligation” in this case “would be inequitable given Plantation’s reliance
on settled Texas law.” The Stroud defendants further argue that the evidence is
legally and factually insufficient to support the jury’s finding that Plantation
intentionally terminated the B&G leases to destroy appellees’ right to their
8
The Stroud defendants’ eighth issue presents a challenge to the liability finding on
the breach-of-contact claim. During trial, appellees conceded that the Stroud
defendants, shortly before trial, had paid the outstanding royalties for January
2004. The trial court’s judgment reflects that it included the principal amounts
awarded by the jury for the January 2004 royalties in its award of actual damages,
even though those amounts had already been paid. The Stroud defendants raise
this matter in their second issue, which we address below.
14
overriding royalty interests because the B&G leases expired “according to their
terms” and not as a result of an intentional act committed by Plantation. Finally,
the Stroud defendants argue that the trial court erred in submitting the “intentional
termination” question to the jury because the question “lacked sufficient
instructions to provide a standard to guide the jury in assessing the conduct of
Plantation.”
The record contains evidence supporting the jury’s finding that the Stroud
defendants “intentionally terminated” the B&G leases to “destroy” appellees’
overriding royalty interests in the B&G leases. 9 There is no evidence that any
Stroud defendant committed any deliberate act in connection with the breaking of
the rod on the producing well that was operating under the B&G leases. However,
there is sufficient evidence to support an implied finding that, after the well ceased
9
The parties expend considerable effort in arguing whether the record contains any
evidence from which the jury could have reasonably inferred that the Stroud
defendants “sabotaged” the producing well operating under the B&G leases.
However, even accepting that there is no evidence of sabotage, there is ample
evidence that Plantation, along with the other Stroud defendants, intentionally
sought to terminate the B&G leases.
We note that a party may, of course, intentionally and lawfully terminate a
contract in accord with the contract’s terms. The Stroud defendants themselves
asserted that, rather than continuing under the B&G leases, they sought to acquire
new leases, necessarily giving rise to an inference that they sought to terminate the
B&G leases. In regard to whether Plantation sought to destroy appellees’
overriding royalty interests, Stroud himself testified that he did not want appellees’
overriding royalty interests burdening the McNeil leases. As explained above, the
jury could have reasonably inferred from Stroud’s own testimony that Plantation
terminated the B&G leases, at least in part, to divest appellees of their interests.
15
production, the Stroud defendants elected not to repair the well so that the B&G
leases would expire, appellees’ overriding royalty interests would be extinguished,
and the Stroud defendants would benefit financially by resuming production under
new leases that were not burdened by appellees’ interests. Appellees also
presented evidence that, both before and after the well had ceased production, the
Stroud defendants were seeking to acquire new leases on the same property that
had been subject to the B&G leases; the Stroud defendants chose not to repair the
well even though such repairs could have been completed at reasonable cost
compared to what the Stroud defendants had already spent on the B&G leases; the
Stroud defendants chose not to repair the well during the 90-day continuous-
operations period even though they were convinced that the property held
“substantial” untapped reserves; the Stroud defendants were making plans to
market interests in the new leases during the 90-day continuous-operations period;
and shortly, after the B&G leases expired, the Stroud defendants repaired the well
and production resumed under the new McNeil leases unburdened by appellees’
overriding royalty interests. In sum, the record contains evidence that the Stroud
defendants intentionally terminated the B&G leases to, at least in part, terminate
appellees’ interests.
However, whether the Stroud defendants’ conduct is actionable under Texas
law is a separate matter. In determining the existence and scope of what duty, if
16
any, Plantation, as the lessee under the B&G leases, owed to appellees, the holders
of overriding royalty interests in production from the B&G leases, we first consider
the Texas Supreme Court opinions in Sunac Petroleum Corp. v. Parkes, 416
S.W.2d 798 (Tex. 1967), and Ridge Oil Co. v. Guinn Investments, Inc., 148 S.W.3d
143 (Tex. 2004).
In Sunac, Parkes sold and assigned to a third party a mineral lease that was
later transferred to Sunac. 416 S.W.2d 799–800. Parkes reserved an overriding
royalty interest in production from this lease and “any extension or renewal,” but
the assignment of this lease to Sunac also included a surrender clause, relieving
Sunac of any obligation to continue the lease. Id. When the lessor questioned the
validity of the lease held by Sunac, Sunac procured a new lease on the same land,
but with different terms, and Sunac stopped paying the overriding royalties owed
to Parkes under the original lease. Id. at 800. Parkes contended that his overriding
royalty interest applied under the new lease. Id. After considering the language of
the leases, the Texas Supreme Court concluded that the original lease had
terminated and the new lease, which was executed on “substantially different
terms,” was not a renewal or extension. Id. at 802–03.
The supreme court acknowledged that courts in other jurisdictions had, on
certain facts, recognized the existence of a “constructive trust” in favor of an
overriding royalty interest holder on the basis of “specific language in the
17
assignment” or a “close relationship between the parties.” Id. at 803. For
example, the court explained that other courts had relied upon “relationships of
trust and confidence” in concluding that a new lease constituted a “renewal or
extension” of an original. Id. And the court noted that other courts had offered
protection to overriding royalty interest holders in a “washout transaction,” which
“generally involve[ed] some bad faith on the part of the lessee” and arose when a
new lease was taken before the expiration of the original and the original lease was
“simply permit[ted] . . . to expire.” Id. at 804 (citing Oldland v. Gray, 179 F.2d
408 (10th Cir. 1950)).
Turning to the facts before it, the Texas Supreme Court noted that, other
than the renewals and extensions clause in the instrument granting the overriding
royalty interest, there was no evidence of a relationship of trust or confidence
between Parkes and Sunac. Id. Sunac had obtained the new lease “to protect its
interest” only after the lessor had raised concerns about the prior lease. Id. The
court recognized that renewals and extensions clauses had been cited by other
courts as creating a “fiduciary relation,” but it construed the renewals and
extensions clause in the overriding royalty instrument together with the surrender
clause in the lease and concluded that the surrender clause relieved Sunac from any
“duty to perpetuate the lease, and thus the overriding royalty.” Id. The court
explained that, “[n]ormally, when an oil and gas lease terminates, the overriding
18
royalty created in an assignment of the lease is likewise extinguished” and,
“generally, . . . the assignment of an oil and gas lease reserving an overriding
royalty in the assignor does not usually create any confidential or fiduciary
relationship between the assignor and his assignee.” Id. Because no evidence
supported the existence of a “confidential or fiduciary relationship” and the
provisions of the leases and assignment were “controlling,” the court held that the
overriding royalty interest expired with the original lease and no constructive trust
was warranted. Id. at 805.
In Ridge Oil, two lessees, Ridge and Guinn, obtained working interests in
adjoining tracts of land under a single base lease. 148 S.W.3d at 147–48. The
only two producing wells on the entire lease, which were sustaining the lease, were
located on the Ridge tract. Id. Ridge devised a plan to terminate the entire base
lease and obtain new leases on both tracts by shutting off the electricity to the two
producing wells for 90 days. Id. at 148. After Ridge effectuated his plan and
obtained new leases, Guinn sued Ridge for tortious interference and recognition of
a constructive trust, contending, in part, that Ridge could not lawfully “washout”
his interest. Id. at 148–49, 153. Guinn asserted that a lessee could not lawfully
surrender or terminate a lease “to destroy the rights of another partial assignee of
the lessee’s interest.” Id. at 155. The Texas Supreme Court denied Guinn’s
request to impose liability for this conduct, stating
19
Even if such a rule of law might be appropriate in the context of
overriding royalty interests when the underlying lease does not
contain an express release provision, a question we do not address,
there is a material distinction between an overriding royalty interest
and that of a lessee. An overriding royalty interest is a non-
participating interest. A royalty owner has no right and thus no ability
to go onto the underlying property and drill or otherwise take action to
perpetuate a lease. An overriding royalty interest owner is wholly
dependent on the lessee to keep a lease alive. That is not true of a
lessee. A lessee in Guinn’s position could continue a lease in effect
by drilling a well and obtaining production, or continuing operations
until production is obtained, under lease provisions like those in the
1937 lease.
Id. (emphasis added).
The supreme court held that Ridge owed no duty to Guinn to continue the
original lease and, thus, the original lease terminated by its own terms. Id. at 155–
57, 160–61(“Ridge owed no duty to Guinn to perpetuate the 1937 lease or to
procure its renewal or extension for Guinn.”). The court concluded that Guinn was
not entitled to a constructive trust under any new leases on the Guinn tract because
there was no “confidential relationship” between partial assignees of leasehold
interests under a single lease. Id. at 160. And it further concluded that there was
no basis for a tortious interference claim. Id. at 160-61.
The Texas Supreme Court’s opinions in Sunac and Ridge Oil indicate that
the existence and scope of any duty owed by a lessee to the holder of an overriding
royalty interest is an open question under Texas law. However, these opinions
20
direct us to carefully consider the language of controlling documents and the
circumstances and relationships of the parties to determine whether any such duty
is owed and, thus, whether any actionable wrong has been committed by a lessee
who seeks to “intentionally terminate” a lease so as to divest the holder of an
overriding royalty interest of his interest.
One Texas court has considered claims, similar to those presented here, that
were brought by an overriding royalty interest holder who claimed that his interest
had been washed out in “bad faith.” Sasser v. Dantex Oil & Gas, Inc., 906 S.W.2d
599, 601–02 (Tex. App.—San Antonio 1995, writ denied). In Sasser, which the
supreme court in Ridge Oil characterized as “instructive,” Sasser held an
overriding royalty interest under an original lease in which Dantex, the lessee, held
a 75% working interest. Id. at 601. Sasser’s overriding royalty interest did not
apply to renewals or extensions of the original lease, and the lease also permitted
Dantex unilaterally to surrender it at any time. Id. After Dantex and the mineral
owner subsequently entered into a new lease, Sasser argued that his overriding
royalty interest was not extinguished because there had been production in paying
quantities occurring under the original lease at the time that the new lease was
executed. Id. Sasser accused Dantex of wrongfully attempting to “eliminate or
‘washout’ [his] overriding royalty interest” in the original lease, “thereby
breaching its duty of good faith and fair dealing or other fiduciary-type duty.” Id.
21
The San Antonio Court of Appeals rejected imposing any such duty, holding that
the original lease had terminated when Dantex executed the new lease “with the
intent and understanding that” the original lease was released; and the court
explained that it was “not material” whether there was production in paying
quantities at the time. Id. at 603–04.
Sasser asserted that “‘evolving principles of Texas law’ mandate[d] the
conclusion that an oil and gas lessee owes an overriding royalty interest owner a
duty of good faith not to engage in intentional acts designed to eliminate or
‘washout’ the overriding royalty interest owner.” Id. at 605–06. The court
disagreed, noting first that the lease contained a surrender clause and Sasser’s
assignment, which created his overriding royalty interest, did not contain a
renewals and extensions clause. Id. at 606. Second, the court noted that there
were no facts to establish a confidential or fiduciary relationship. Id. at 606–07.
The court characterized Sasser’s bad-faith claims as being “circular”: Sasser
argued that a duty of good faith should be imposed because there was evidence of
bad faith. Id. at 607. And it explained that Dantex’s acts would have been in “bad
faith” only if its contractual right to surrender the original lease had been subject to
a duty to act in “good faith” and the “method by which a lease is terminated—so
long as it is contractually permitted—is a distinction without a difference.” Id. In
22
sum, the court held that Dantex did not owe Sasser a “duty of good faith and fair
dealing or any other fiduciary-type duty.” 10 Id.
Other Texas courts have similarly been reluctant to recognize any sort of
duty, fiduciary or otherwise, flowing from a lessee to the holder of an overriding
royalty interest. For example, in Exploration Company v. Vega Oil & Gas
Company, the holder of overriding royalty interests in original mineral leases
contended that new leases, which were obtained over one year after the old leases
had expired and which involved different terms and parties, constituted renewals
and extensions of the original leases. 843 S.W.2d 123, 124–25 (Tex. App.—
Houston [14th Dist.] 1992, writ denied). Our sister court held that the lessee had
established as a matter of law that the leasehold estate under the old leases had
expired as a result of non-production, and, thus, the overriding royalty interests in
the old leases had also expired. Id. at 125. The court noted that there was no
authority in Texas supporting the arguments of the overriding royalty interest
holders that the lessee owed them a fiduciary obligation or a constructive trust on
the new leases was warranted. Id. at 126. The court explained that the “mere
10
The court emphasized that the “contractual right to unilaterally terminate the
lease, coupled with the absence of any facts justifying the imposition of a
confidential or fiduciary relationship,” defeated Sasser’s arguments for the
imposition of some type of duty of good faith. Sasser v. Dantex Oil & Gas, Inc.,
906 S.W.2d 599, 607 (Tex. App.—San Antonio 1995, writ denied) (emphasis
added).
23
assignment of an oil and gas lease reserving an overriding royalty interest does not
in itself create a confidential or fiduciary relationship between the assignor and
assignee” and “[i]f such a relationship is created, it must be by the terms of the
assignment or by other acts of the parties.” Id. The court concluded that the
renewals and extensions clause, and a separate notice clause, did not impose a
fiduciary obligation on the lessee. Id. at 126–27. The court further concluded that
“merely because” the lease did not contain a surrender clause did not “mean that a
fiduciary relationship exist[ed].” Id. at 126. Because there was no evidence of
fraud, bad faith, or the existence of a fiduciary relationship, and because there was
“no Texas case law expressly support[ing] [the] imposition of a fiduciary
relationship or constructive trust” on the facts before it, the court held that no
overriding royalty interest applied to the new leases. Id. at 127.
In McCormick v. Krueger, the holders of overriding royalty interests in an
oil and gas lease contended that the owners of the working interest had “washed
out” their interests by allowing “the lease to expire;” they asserted that the holder
of a new lease, who had bought the leasehold equipment from the working interest
owners, was bound to honor their overriding royalty interests. 593 S.W.2d 729,
729 (Tex. Civ. App.—Houston [1st Dist.] 1979, writ ref’d n.r.e.). The overriding
royalty interest holders were protected by renewals and extensions clauses in their
assignments, but this Court noted that it was undisputed that the original leases had
24
expired at the time the new leaseholder had acquired the leasehold and equipment.
Id. at 731. We held that the new leaseholder was not obligated to honor the
overriding royalty interests. Id.
In Wagner v. Sheets & Walton Drilling Company, the court considered
whether an overriding royalty interest that burdened an original lease should be
“equitably impress[ed]” on a new lease covering the same land. 359 S.W.2d 543,
544–45 (Tex. Civ. App.—Eastland 1962, writ ref’d n.r.e.). The original lease
provided that it expired in the absence of production at the end of the primary term.
Id. at 545. Moreover, the “continuation of the overriding royalty” in the original
lease “depended upon the continuation of the lease;” there was no provision
requiring that the lease be maintained beyond its primary term, and there were no
provisions in the assignments providing that the overriding royalties would be
continued in any new leases on the same property. Id. The lessee had permitted
the original lease to expire and had re-leased (almost all of) the same land, but the
court stated that the lessee had done “no more than that which [it] had the right to
do under the [original] lease and the assignments.” Id. at 545–46. Concluding
that the original lease had expired by its own terms and the new lease was not an
“extension” of the prior lease, the court explained,
True, it would have been greatly to the advantage of the holders of the
overriding royalty interest for the [original] lease to be perpetuated in
toto or that such overriding royalty be continued in effect as to all
lands covered by such lease in any new lease agreement. The holders
25
of the [original] lease, however, had no such obligation. There was no
fiduciary relationship between the parties which required the holders
of that lease to maintain it or the overriding royalty interest of
appellant in force as to all the land involved therein.
Id. at 546. Thus, the court held that there was no basis on which to impress the
new lease with the overriding royalty that burdened the original lease. Id.
In Fain & McGaha v. Biesel, the holder of overriding royalty interests
contended that their interests should be applied to the portion of the lease that had
been voluntarily surrendered and any new leaseholders obtaining a lease from the
mineral owners should have to take the lease “burdened by the same obligation.”
331 S.W.2d 346, 347–48 (Tex. Civ. App.—Fort Worth 1960, writ ref’d n.r.e.).
Noting that the original lease permitted the lessee to surrender the lease at any
time, the court explained,
[U]nless the instrument creating the overriding or royalty interest as
an estate in itself makes express provision to the contrary, the interest
continues or ceases with the leasehold estate out of which it is carved
and cannot survive termination by surrender or release of the
leasehold estate by the owners.
Id. at 348 (emphasis added).
Finally, we consider two cases from the Unites States Court of Appeals for
the Fifth Circuit. In Keese v. Continental Pipe Line Company, holders of
overriding royalty interests in an original lease that had been surrendered by the
lessee contended that their interests should be applied to a new lease. 235 F.2d
386, 387–80 (5th Cir. 1956). The court stated that “unless . . . the instrument
26
creating the overriding or royalty interest makes express provision to the contrary,
the interest continues or ceases with the leasehold estate out of which it is carved
and cannot survive termination by surrender or release of the leasehold estate by
the owners.” Id. at 388. In addressing the plaintiffs’ arguments that lessee had
surrendered the lease in bad faith, the court explained,
Assuming, without deciding, that the surrender to the mineral owners
by the holders of the leasehold estate could, under any state of facts,
operate to give the owners of the override an interest in oil produced
not under the lease from which the override was carved but under a
new one issued by the mineral owners to a different lessee, though in
the state of the authorities affirming the right of the lessee to do just
that, it is difficult to assume any state of facts which could do so, it is
quite clear that no such facts or circumstances are presented or
pointed to by plaintiffs.
Id. at 388 (emphasis added). The court concluded that the “remote assignees in the
leasehold chain of title[] were under no obligation to plaintiffs to drill or to
continue to hold on to the lease,” and the fact that the assignee “knew or might
have known that a good well could be brought in on the property, could not have
prevented them from surrendering the lease to the landowners for any reason or
for no reason at all.” Id. at 389 (emphasis added). The court explained that “[t]he
exercise by one man of a legal right cannot be a legal wrong to another” and
“whatever one has a right to do, another cannot have a right to complain.” 11 Id.
11
The court further stated,
27
(quoting Montgomery v. Phillips Petroleum Co., 49 S.W.2d 967, 971 (Tex. Civ.
App.—Amarillo 1932, writ ref’d)).
In In re GHR Energy Corp., the court considered an overriding royalty
agreement that included a renewals or extensions clause but also provided that
preservation of the lease was “solely at the will [of the lessee].” 972 F.2d 96, 99
(5th Cir. 1992). Even though production never ceased, the lessee terminated the
lease and entered into new leases, thereby extinguishing the overriding royalty
owner’s interest in the original lease. Id. The court held that the lessee “was free
to terminate the leasehold estate” and “cut off” the overriding royalties pursuant to
the lease’s surrender clause, despite the fact that gas production never ceased. Id.
at 100. However, on rehearing, the court noted, “We might well reach a different
result if the facts here had suggested that [the lessee] surrendered its interest in the
Ordinarily, an assignment of a lease where assignor retains an
overriding royalty interest without further provision does not create a
fiduciary relationship between the assignor and assignee.
....
The obligations of the payor or grantor of the oil payment, unless
otherwise modified, go no further than those contained in his
contract with the payee, and the rights and privileges of lessee under
the lease may be exercised without liability to the holder of the oil
payment. Thus, he may allow the lease to terminate under its terms
for nonpayment of delay rentals or by surrender of the lease or by
failure to drill.
Keese v. Cont’l Pipe Line Co., 235 F.2d 386, 388 (5th Cir. 1956) (citations
omitted).
28
lease to destroy the rights of the overriding royalty interest owner.” In re GHR
Energy Corp., 979 F.2d at 41 (emphasis added).
In sum, no Texas court has yet recognized that a lessee generally owes any
type of duty, whether it be an implied contractual covenant or a fiduciary-type
duty, to protect the interest of an overriding royalty interest holder so as to require
the lessee to make repairs to well equipment, perpetuate the lease, and ensure that
such overriding interests are not extinguished. As explained above, the Texas
Supreme Court’s opinions in Sunac and Ridge Oil Company, and the authority
from Texas courts of appeals, indicate that we must consider the language of
controlling documents and the circumstances and relationships of the parties to
determine whether the Stroud defendants have committed an actionable wrong
against appellees by allowing the B&G leases to expire with one of their intended
purposes being to extinguish appellees’ interests.
Here, other than the fact that appellees held overriding royalty interests in
the B&G leases, there is no evidence of any special relationship of trust and
confidence between appellees and Plantation. See Sunac, 416 S.W.2d at 804
(stating that “generally, . . . the assignment of an oil and gas lease reserving an
overriding royalty in the assignor does not usually create any confidential or
fiduciary relationship between the assignor and his assignee”). Appellees acquired
their overriding royalty interests in the B&G leases in the late 1970s. Plantation
29
did not acquire its working interest in the B&G leases until December 2003. And
appellees did not present any evidence upon which a court might find the existence
of a fiduciary or confidential relationship. See Exploration Co., 843 S.W.2d at
126–27 (“Other than the typical cases of fiduciary relationship, such as attorney-
client, partners, close family relationships, and joint adventurers, a fiduciary
relationship can arise if, over a long period of time, the parties have worked
together in the joint acquisition and development of property before entering the
agreement sought to be enforced.”).
Turning to the specific language of the controlling documents, the
assignments granting appellees their overriding royalty interests did not contain
any renewals or extensions clauses. Texas courts have recognized that these types
of clauses may provide some evidence of a fiduciary relationship or support a
constructive-trust remedy. See Sunac, 416 S.W.2d at 804 (“The language most
often pointed to by the courts as creating a fiduciary relation in this type of
situation provides that the overriding royalty will apply to any extensions or
renewals of the lease assigned.”). However, Texas courts have also held that, even
when this “phraseology” is present, a special or confidential relationship or duty
may still be lacking. See id. (construing renewals and extension clause and
surrender clause in lease together, and noting that lessee had no duty to continue
lease in force but rather could surrender the lease at any time without consent of
30
overriding royalty interest holders); Exploration Co., 843 S.W.2d at 124, 126
(declining to impose fiduciary duty on lessee despite fact that assignment
contained renewals and extensions clause and lease did not contain surrender
clause). Here, Hosford admitted that the failure to include renewals and extensions
language in his assignment was a “mistake.”
We recognize that the B&G leases do not contain express surrender clauses,
and many courts that have declined relief to holders of overriding royalty interests,
whether it be through a constructive trust or a claim based upon a fiduciary-type
duty, have placed significant weight upon the nonexistence of such surrender
clauses in leases and assignments. However, at least one court has stated that the
absence of a surrender clause, even when there is also a renewals and extensions
clause, does not result in the creation of a fiduciary relationship. See Exploration
Co., 843 S.W.2d at 124, 126. Based upon our review of Texas case law, we
cannot say that the absence of a surrender clause in this case indicates the existence
of some sort of special duty owed to appellees.
It is undisputed that the B&G leases terminated following 90 days of non-
production. After production ceased, and during the 90-day continuous-operation
period, the Stroud defendants obtained a new lease from Bowers. And they
subsequently obtained a new lease from Gordon. Although the royalty structure
remained the same, these new leases contained terms that materially differed from
31
the B&G leases. And, although there were no surrender clauses in the B&G leases,
appellees have not cited anything in the assignments of the overriding royalty
interests or the B&G leases that obligated the Stroud defendants to repair the
polished rod on the broken well or take other action to perpetuate the B&G leases.
Appellees have also not cited any contractual provision that would have precluded
the lessee and the lessors from entering into new leases. 12 Moreover, appellees
have not cited any case law suggesting that any sort of implied covenant in an oil
and gas lease supports their cause of action. Finally, we note that, at the end of
trial, appellees conceded that they had not developed any claim based upon an
implied duty to develop the B&G leases, and the trial court granted a directed
verdict on this claim. Appellees have not appealed that portion of the judgment.
We recognize that the Texas Supreme Court, in Ridge Oil, and the Fifth
Circuit, in In re GHR Energy Corp., have at least suggested the possibility that a
party that engages in conduct to intentionally wash-out an overriding royalty
interest may be subject to liability. However, based upon the evidence before us,
we cannot say the Stroud defendants committed an actionable wrong by
intentionally terminating the B&G leases to extinguish the overriding royalty
12
The trial court granted a directed verdict on appellees’ claims arising from an
alleged duty of good faith and fair dealing and a duty to develop the leasehold.
Appellees have not challenged those rulings. They have also not argued to this
Court that the Stroud defendants breached any sort of implied covenant or duty,
which flowed to them, to develop the leasehold estate.
32
interests and acquiring new leases with the lessors. See Keese, 235 F.2d at 388
(stating that “[t]he exercise by one man of a legal right cannot be a legal wrong to
another” and about “whatever one has a right to do, another cannot have a right to
complain”). Id. Because there is no evidence that the Stroud defendants violated
any express or implied contractual duty and there is no evidence of the existence of
a fiduciary or confidential relationship, we hold that the trial court erred in entering
judgment against the Stroud defendants based upon appellees’ claim that they
intentionally terminated the B&G leases to destroy appelles’ overriding royalty
interests.
We sustain the Stroud defendants’ first issue.
Conversion
In their third issue, the Stroud defendants argue that the trial court erred in
entering judgment in favor of appellees based upon their conversion claim because
this claim was “for contract damages,” is “barred by the economic loss doctrine,”
and is based upon a “general debt satisfied by the payment of money.” The Stroud
defendants further argue that appellees’ conversion claim is not supported by
sufficient evidence because appellees received all the royalties they were due and
had no interest in production from the McNeil leases.
The elements of a conversion claim are (1) the plaintiff owned or had
possession of the property or entitlement to possession; (2) the defendant
33
unlawfully and without authorization assumed and exercised control over the
property to the exclusion of, or inconsistent with, the plaintiff’s rights as an owner;
(3) the plaintiff demanded return of the property; and (4) the defendant refused to
return the property. Khorshid, Inc. v. Christian, 257 S.W.3d 748, 759 (Tex. App.—
Dallas 2008, no pet.).
The trial court asked the jury whether Plantation had converted appellees’
proceeds from their overriding royalty interests on the B&G leases. It instructed
the jury that Plantation could be liable for conversion if it exercised dominion or
control over the personal property of another without consent of the owner and to
the exclusion of the owner’s right of possession and use. As we have held above,
appellees were not legally entitled to recover overriding royalties after the
termination of the B&G leases. Accordingly, we hold that the trial court erred in
entering judgment in favor of appellees based upon their conversion claim for
“unpaid royalties” after the B&G leases had expired.
As to the question of payment for overriding royalties due from January
2004, we have held that the evidence is legally sufficient to support the jury’s
finding that Plantation failed to comply with its contended obligation to pay
appellees these royalties. Because we affirm the jury’s liability finding on
appellees’ breach-of-contract claim related to the January 2004 royalties, we need
34
not address whether liability for this portion of the judgment may also be sustained
upon a conversion theory.
We sustain the Stroud defendants’ third issue.
Tortious Interference
In their fourth issue, the Stroud defendants argue that the trial court erred in
entering judgment in favor of appellees based upon their tortious-interference
claim because Plantation “never objected to the actions of its agent Stroud
Production,” “the collapse” of the existing well on the B&G leases “cannot be
attributed to Stroud Production,” and there is no evidence that the Stroud
defendants “sabotaged” the well. The Stroud defendants assert that “although
Stroud Production did not repair the well after its collapse, tortious interference
requires a willful act.”
Appellees argue that Stroud Production “made decisions about the lease”
and interfered with its “contractual relationship” with Plantation by washing out
their overriding royalty interests. Appellees assert that the jury could have found
that the failure of the only well that was sustaining the B&G leases was not
“coincidental” and Stroud Production, as the operator, “willfully and intentionally
interfered with [their] overriding royalty interests.”
The trial court asked the jury whether Stroud Production had intentionally
interfered with appellees’ rights, if any, to receive overriding royalties under the
35
B&G leases. The jury found that it had. Again, as we have held above, appellees
were not legally entitled to recover overriding royalties once the B&G leases
terminated. At the time the B&G leases terminated, Plantation was the lessee.
Stroud admitted that he was the decision maker for both Stroud Production and
Plantation, but appellees have not cited any evidence that Stroud Production, as
operator, was actually the party that may legally be charged with allowing the
B&G leases to expire. In fact, appellees’ “intentional termination” claim was
brought against Plantation, not Stroud Production. Thus, even if such conduct was
actionable, and we have held that it was not, Plantation would be the liable party
for intentionally terminating the lease. Accordingly, we hold that the trial court
erred in entering judgment in favor of appellees based upon their tortious-
interference claim.
We sustain the Stroud defendants’ fourth issue.
Alter Ego
In their fifth issue, the Stroud defendants argue that appellees’ “alter ego
claims are barred because the trial court granted summary judgment on all fraud
claims.” In their tenth issue, the Stroud defendants argue that the jury’s alter ego
findings “fatally conflict” with the jury’s tortious-interference and conspiracy
findings because a party “cannot interfere with its own contract” and the jury’s
alter ego findings establish that “there are no separate entities capable of tortiously
36
interfering with Plantation’s contract or conspiring together to convert overriding
royalty interest payments.”
The trial court asked the jury whether Stroud was responsible for the
conduct of Plantation, and it instructed the jury that he was if he used Plantation
“for the purpose of perpetrating and did perpetrate an actual fraud on [appellees]
primarily for the direct personal benefit” of himself. The jury found that Stroud
was responsible for the conduct of Plantation. The trial court also asked the jury
whether Stroud was responsible for the conduct of Stroud Production, and it
instructed the jury that he was responsible if Stroud Production was organized as a
mere tool or business conduit of Stroud, there was such unity of purpose between
Stroud and Stroud Production that the separateness of Stroud Production ceased,
and holding only Stroud Production liable would result in injustice. The jury also
found that Stroud was responsible for the conduct of Stroud Production.
We have previously held that all underlying causes of action against Stroud
Production fail as a matter of law. Accordingly, there is no basis on which to hold
Stroud responsible for the conduct of Stroud Production. We have also previously
held that all underlying causes of action against Plantation, except for the breach-
of-contract claim pertaining to appellees’ overriding royalties on production from
the B&G leases for January 2004, fail a matter of law. In regard to the remaining
issues, having held that Plantation did not commit an actionable wrong under
37
Texas law by intentionally terminating the B&G leases to destroy appellees’
interests, we further hold that there is no basis upon which to sustain an alter ego
finding against Stroud individually. Accordingly, we need not address the Stroud
defendants’ fifth and tenth issues.
Conspiracy
In their sixth issue, the Stroud defendants argue that the trial court erred in
entering judgment in favor of appellees based on their conspiracy claims because
appellees “other causes of action fail.” We agree and hold that appellees’ are not
entitled to judgment against the Stroud defendants based upon a conspiracy claim.
We sustain the Stroud defendants’ sixth issue.
Prejudgment Interest
In their seventh issue, the Stroud defendants argue that the trial court erred
in awarding appellees prejudgment interest because appellees’ underlying causes
of action fail and, even if there is a valid claim, appellees “calculated interest using
the wrong date.” Specifically, the Stroud defendants complain that it was error to
use July 2005 as the date to begin to calculate prejudgment interest for each
appellee because a July 2005 demand letter, upon which the award of prejudgment
interest was based, referred only to Hosford individually and not the other
appellees.
38
We have concluded that the only claim upon which appellees are entitled to
recover is their breach-of-contract claim pertaining to Plantation’s failure to timely
pay their overriding royalties on production from the B&G leases for January
2004. Accordingly, we hold that the trial court erred in its award of prejudgment
interest to appellees. In light of the fact that we are reversing the overwhelming
majority of the damages awarded to appellees, we remand the case for a
recalculation of prejudgment interest.
We sustain the Stroud defendants’ seventh issue.
Attorney’s Fees
In their ninth issue, the Stroud defendants argue that the trial court erred in
awarding appellees their attorney’s fees because their claim for “intentional
termination” is not a claim based in contract and such a claim, if it existed, would
be a tort claim for which attorney’s fees are not recoverable. The Stroud
defendants further argue that the trial court erred in awarding appellees their
attorney’s fees because it applied “the wrong segregation-of-fees” standard and
that award is not “sufficiently definite.” In their eleventh issue, the Stroud
defendants argue that the trial court’s judgment is not “sufficiently definite because
it suggests a quadruple recovery of attorney’s fees.”
The trial court’s award of attorney’s fees includes fees related to appellees’
claim for “intentional termination.” “[I]f any attorney’s fees relate solely to a
39
claim for which such fees are unrecoverable, a claimant must segregate recoverable
from unrecoverable fees.” Tony Gullo Motors I, L.P. v. Chapa, 212 S .W.3d 299,
313 (Tex. 2006). Having held that the only claim on which appellees were entitled
to recover was their breach-of-contract claim, we further hold that the trial court
erred in its award of attorney’s fees to appellees, and we remand the issue of
attorney’s fees to the trial court for a new trial on the issue.
We sustain the Stroud defendants’ ninth and eleventh issues.
Evidentiary Issues
In their twelfth issue, the Stroud defendants argue that they are entitled to a
new trial because the trial court committed a number of errors in making various
evidentiary rulings. None of these issues concern the jury findings on appellees’
claim for breach of contract pertaining to their overriding royalties on production
from the B&G leases for January 2004. In light of our other holdings, which
require a remand of this case for a recalculation of prejudgment interest and a new
trial solely on the issue of attorney’s fees, we need not address the Stroud
defendants’ twelfth issue.
Conclusion
Having overruled the Stroud defendants’ eighth issue and sustained their
first issue, we need not address their second issue concerning damages.
40
We reverse and render judgment in favor of the Stroud defendants on all
claims brought by appellees except for their breach-of-contract claim pertaining to
their overriding royalties on production from the B&G leases for January 2004.
We remand for a new trial on the issue of attorney’s fees and a recalculation of
prejudgment interest.
Terry Jennings
Justice
Panel consists of Chief Justice Radack and Justices Jennings and Keyes
Justice Keyes dissenting.
41