Court Opinion

ID: 2857540
Source: CourtListenerOpinion
Date Created: 2015-09-05 18:17:24.074433+00
Date Added: 2024-06-11T15:13:41.540626
License: Public Domain

IN THE COURT OF APPEALS, THIRD DISTRICT OF TEXAS,

AT AUSTIN

 

NO. 3-90-071-CV

STATE OF TEXAS,

	APPELLANT

vs.

LYNN D. DURHAM AND CLARENCE SCHARBAUER, JR.,
TRUSTEES UNDER THE WILL OF FRED TURNER, JR.
AND JULIETTE TURNER, DECEASED, ET AL.,

	APPELLEES

 

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 345TH JUDICIAL DISTRICT

NO. 438,554, HONORABLE PETE LOWRY, JUDGE PRESIDING

 

	The State sued the successors of a Relinquishment Act1
landowner and his colleagues for the profits obtained from an oil
and gas transaction which occurred more than half a century ago. 
The district court granted summary judgment against the State. 
We will affirm.

BACKGROUND
	This case involves the State's attempt to impose
fiduciary duties on the Relinquishment Act landowners who
represent it for the limited purpose of securing oil and gas
leases.  In 1934, Fred Turner, Jr. negotiated an oil and gas
lease on Relinquishment Act land in Pecos County.  The lease was
validated by a Travis County district court, and, pursuant to the
Act, Turner and the State shared the consideration paid by the
lessee.  (At that time, the bonus involved was the largest the
State had received in the subject field.)  Subsequently, Turner
acquired a larger interest in the mineral estate.  The State now
seeks a share of that mineral interest and of Turner's profits
for the past 56 years.
	We will briefly review the lease transaction, Turner's
subsequent acquisition, and the history of this lawsuit.

I.  The Lease Transaction
	The lease transaction began with a receivership
proceeding.  In November 1933, the State brought a trespass to
try title action against persons claiming an interest in a 3.97-acre tract (the Reid tract) of Relinquishment Act land in the
Yates field in Pecos County.  The State alleged that wells on
adjacent land were draining the tract.  Apparently because of a
title dispute, none of the claimants had drilled a well to offset
the drainage.  The State sought appointment of a receiver for the
tract and a determination of who owned the surface estate.  In
March 1934, the court appointed a receiver and ordered all of the
claimants to surrender possession to him.
	The receiver advertised for bids and lease proposals. 
One of the claimants, Fred Turner, Jr., submitted an oil and gas
lease between himself and A. Fasken (the Fasken lease).  The
Fasken lease provided for a $20,000 bonus, $2 per acre annual
rental, and a one-eighth royalty to be shared equally by the
State and Turner.  The Fasken lease further provided that any
party to the lease could assign his interest at any time.
	The court rendered judgment in State v. Reid on April
2, 1934.  The judgment had three significant aspects: (1) it
awarded Turner fee simple title to the Reid tract; (2) it
recognized that the Fasken lease was the most advantageous lease
proposal, then modified the lease to make it even more favorable
to the State and declared it valid; and (3) it dismissed the
receiver.
	Fasken later conveyed his working interest in the
eastern one-half of the Reid tract to M.D. Bryant, reserving for
himself a three-sixteenths overriding royalty and a $5,000
production payment.  Two wells were completed on the Reid tract,
both of which proved to be major producers in the Yates field.

II.  Turner's Subsequent Acquisition (the Midland Transactions)
	Immediately after the Fasken lease was validated, a
series of transactions occurred between Fasken, Turner, and
Midland Producing Company (Midland), an oil and gas developer
which was incorporated in late April 1934.  The State alleges
that Turner had planned all of these transactions before he
executed the Fasken lease.
	First, in May 1934, both Turner and Fasken conveyed
their interests in the Reid tract to Midland.  Fasken received
one-quarter of Midland's stock in return for his seven-eighths
working interest in the western half and three-sixteenths
overriding royalty in the eastern half.  Turner also received
one-quarter of Midland's stock, in return for his one-sixteenth
royalty in the entire tract and a ten-year management services
contract.  Second, in June 1934, Midland conveyed one-quarter of
its interest in the Reid tract to Turner and 23.75% to Fasken. 
(Midland made similar assignments to its other shareholders.)
	In 1937, Fasken conveyed his entire interest in the
Reid tract to Turner.  Thus, three years after judgment in State
v. Reid, Turner owned 48.75% of Midland's interest in the Reid
tract.

III.  This Lawsuit
	The State asserts that it had no notice of the Midland
transactions until the early 1960s, when a disgruntled former
employee of Turner, Andrew Knickerbocker, wrote the attorney
general with information regarding the State's "claim" against
Turner.  Knickerbocker sought a "bounty" in return.  A first
assistant attorney general reviewed the information and concluded
that there was "no basis under the law" for pursuing the alleged
cause of action.
	Twenty-five years later the State brought this suit
against the successors to the interests that Turner and the other
original shareholders had held in Midland, alleging that the
Midland group conspired to defraud the State of its share of
Turner's interest.  The State seeks $162 million in actual and
punitive damages, plus interest and attorney's fees.
	All of the defendants moved for summary judgment
against the State and the State moved for partial summary
judgment against all of the defendants.  The district court
granted the defendants' motions.  The State now appeals, arguing
that the trial court erred in granting summary judgment against
it and in denying it partial summary judgment.

THE CONTROVERSY
	The State's claim against all of the defendants hinges
on what duty Turner owed the State and whether Turner committed
fraud.  The crux of the State's complaint is that Turner received
benefits from the Reid tract that he did not share with the
State.  The State does not argue that Turner and Fasken could not
assign their interests.2  Rather, it complains that they assigned
their interests to a corporation in which Turner held stock.  The
State contends that Turner was obligated to share any interest he
ever acquired in the Reid tract's oil and gas, because he owed
the State a fiduciary duty.
	We conclude that Relinquishment Act landowners did not
owe the State a fiduciary duty in 1934.  We further conclude that
even if Relinquishment Act landowners did owe such a duty, Turner
was relieved of his obligation because his agency relationship
with the State had terminated before the Midland transactions.

DISCUSSION AND HOLDINGS
I.  Caveats
	We begin with two caveats.  First, a statement about
the evidence:  generally, in an appeal of a summary judgment, we
must accept as true the nonmovant's version of the facts to the
extent it is supported by the summary judgment evidence.  Nixon
v. Mr. Property Management Co., 690 S.W.2d 546 (Tex. 1985).  The
State alleges that Turner planned the Fasken lease and the
Midland transactions well before judgment in State v. Reid as a
means of obtaining profits from the Reid tract without sharing
them with the State.  We conclude that, even under the State's
version of the facts, the summary judgment should be sustained. 
Consequently, we will assume that the State's allegations are
true and dispense with a detailed analysis of the summary
judgment evidence.
	Second, our holdings have a limited scope.  This appeal
requires a determination of the duty a surface owner owed the
State in 1934.  Thus, we will be interpreting the Relinquishment
Act as it existed in 1934.  Since then, the legislature has
amended the Act to impose express duties on surface owners.  We
do not purport to interpret these amendments or to otherwise
define the duties a Relinquishment Act landowner owes the State
today.

II.  The Duties of a Relinquishment Act Landowner
	The first issue is what duty surface owners owed the
State in 1934.  The State contends that surface owners owed a
fiduciary duty.  We disagree.

	A.  Overview of the Relinquishment Act
	Passed in 1919, the Relinquishment Act applies to
permanent school fund lands.  The oil and gas underlying these
lands belong to the State.  The Act was an attempt to gain the
surface owners' cooperation in the development of the oil and
gas.  1919 Tex. Gen. Laws, ch. 81, § 1, at 249.  The Act
"constitutes the owner of the soil the [State's] agent . . . and
in consideration therefor, relinquishes and vests in the owner of
the soil an undivided fifteen-sixteenths of all oil and gas"
underlying the land.  Id.  (It is this emphasized language
regarding the landowner as "agent" that underlies the State's
claim.)
	Initially, it was thought that the Act conveyed
fifteen-sixteenths of the oil and gas to the surface owners while
reserving for the State a share of the delay rentals and an
undivided one-sixteenth of the oil and gas as a royalty.  Walker,
The Texas Relinquishment Act, 1 Inst. on Oil & Gas L. & Tax'n
245, 259 (1949).  Detractors complained that the Act was an
unconstitutional donation of assets of the permanent school fund. 
Id. at 259-260.
	The supreme court upheld the constitutionality of the
Act in Greene v. Robison, 8 S.W.2d 655 (Tex. 1928), concluding
that the Act did not donate the oil and gas to the surface
owners.  Id. at 658.  Rather, the court reasoned, the Act merely
made the surface owners the state's representatives for the
purpose of procuring oil and gas leases for Act land.  Id.  Under
the Act, the State and the surface owner share equally the
consideration paid for the lease, with the surface owner's share
being compensation for damage to his lands.  1919 Tex. Gen. Laws,
ch. 81, § 18; Greene, 8 S.W.2d at 660.

	B.  The State's Arguments
	The State insists that 1934 surface owners owed the
State a fiduciary duty because they were ordinary agents.  We
disagree.
	In an ordinary agency relationship, the agent owes the
principal a fiduciary duty.  Field Measurement Services, Inc. v.
Ives, 609 S.W.2d 615, 619 (Tex. App. 1980, writ ref'd n.r.e.). 
However, an agency relationship cannot be presumed: it must be
proved.  Buchoz v. Klein, 184 S.W.2d 271,, 271 (Tex. 1944).  For
an ordinary agency relationship to exist, the alleged principal
must have the right to control the means and details of the
alleged agent's work.  Johnson v. Owens, 629 S.W.2d 873, 875
(Tex. App. 1982, writ ref'd n.r.e.); First Nat'l Bank v. Bullock,
584 S.W.2d 548, 551-552 (Tex. Civ. App. 1979, writ ref'd n.r.e.). 
See also Marriott Bros. v. Gage, 717 F. Supp. 458, 460 (N.D. Tex.
1989).
	The State did not have any control over the surface
owner under the original version of the Act.  The State did not
select the surface owner to be its representative: the surface
owner acquired his status solely through ownership of Act land. 
1919 Tex. Gen. Laws, ch. 81, § 1, at 249.  See also Lewis v.
Oates, 195 S.W.2d 123, 133 (Tex. 1946).  The State could not
itself lease Act land: the surface owner had exclusive leasing
authority.  Standard v. Sadler, 383 S.W.2d 391 (Tex. 1964). 
Further, the State could not terminate the surface owner's
authority to lease the land, except under very limited
circumstances.  1919 Tex. Gen. Laws, ch. 81, § 4, at 250.  See
also State v. Standard, 414 S.W.2d 148, 153 (Tex. 1967). 
Therefore, the relationship between the surface owner and the
State was not one of ordinary agency.  Accordingly, we conclude
that the surface owner did not owe the State a fiduciary duty.
	Our conclusion is consistent with the Act's requirement
that landowners drill offset wells in the event of drainage from
neighboring tracts.  See 1919 Tex. Gen. Laws ch. 81, § 3, at p.
250; Norman v. Giles, 219 S.W.2d 678, 684 (Tex. 1949).  A
fiduciary duty encompasses a prohibition against self-dealing. 
That landowners could self-deal by drilling on their own lands
refutes the contention that they owed the State a fiduciary duty.
	The State advances two arguments in support of its
claim.  First, the State contends that the term "agent" in the
Act, as applied to surface owners, imposes a fiduciary duty. 
Second, the State asserts that the supreme court's decision in
State v. Standard, 414 S.W.2d 148 (Tex. 1967), mandates a
reversal of appellees' judgment.  Neither of these arguments is
compelling.

	1.  The Statute's Terminology
	The State places great emphasis on the use of the term
"agent" in the Act to describe the landowner.  The State notes
that the legislature is presumed to know how courts have interpreted
the words it uses.  See Koy v. Schneider, 221 S.W. 880, 889 (Tex.
1920).  Because ordinary agents owe their principals a fiduciary
duty, the State argues, the legislature must have intended, by
using "agent," to impose a fiduciary duty on Relinquishment Act
landowners.  We do not agree.
	Words in statutes are to be given their ordinary
meaning, unless, among other things, they are used as words of
art.  Tex. Gov't Code Ann. § 312.002 (1988).  Words must be
attributed their plain meaning unless a contrary intention is
apparent from the context.  Taylor v. Firemen's and Policemen's
Civil Service Comm'n, 616 S.W.2d 187, 189 (Tex. 1981); Bd. of
Land Comm'rs v. Weede, Dallam 361, 361 (Tex. 1840).  The context
of the Act does not indicate that the legislature intended to use
"agent" as a word of art.  The legislature did not authorize the
State to control the landowner.  In addition, it did not, at
least initially, expressly impose a fiduciary duty on surface
owners.  
	Further, the term "agent" is not always a word of art. 
If it were, the secretary of state would owe a fiduciary duty to
all persons for whom he must act as "agent" for service of
process under Tex. Civ. Prac. & Rem. Code Ann. § 17.044(a)
(1986).  Such a result is clearly incorrect.  Therefore, the mere
use of the term "agent" in the Act does not mandate the
imposition of a fiduciary duty on surface owners.  See 2A C.J.S.
Agency § 4 (1972) ("The term is . . . often used . . . in a more
restricted sense than that commonly given it, and where so used,
its significance must generally be determined by a study of the
context.").

	2.  The State v. Standard Case
	Next, the State relies heavily on the supreme court's
decision in State v. Standard, arguing that a 1934 surface owner
could never acquire a working interest in the leases he procured
for the State.  We disagree.
	The controversy in Standard centered around a contract
that was part of the oil and gas lease the surface owner
procured.  The contract gave the surface owner:  (1) an option to acquire a
share of the working interest; (2) an option for the job of
pumper in the event of successful drilling operations; and (3) a
right to receive $500.00 per drilling location as liquidated
damages to crops.
	Looking solely at the option to acquire the working
interest, the supreme court held that the lease was invalid. 
Standard, 414 S.W.2d at 153.  Significantly, the court couched
its analysis in terms of the requirements of the Act, not the
"duties" of the surface owner.  The court held that the surface
owner exceeded his authority because "the leasing power of the
surface owner is limited to the execution of an oil and gas lease
for bonus, rental and royalty considerations."  Id. at 153.  It
further held that the surface owner did not comply with the
statute when he included the working interest option in the lease
without sharing that consideration with the State.  Id.  Thus,
the factors mandating invalidation of the lease were the failure
to strictly comply with the Act's dictates and the failure to
share lease compensation with the State.
	These factors are not present in this case.  Turner
strictly complied with the Act, and shared all of the benefits he
received under the Fasken lease with the State.  Accordingly, we
reject the State's contention that Standard mandates a reversal
of this case.

	C.  Statutory Agency
	No Texas court has addressed the scope of the duty a
1934 Relinquishment Act landowner owed the State.  We conclude
that surface owners are special statutory agents who owe the
State only those duties expressly imposed by the Act.  The
supreme court has recognized only express duties and has rejected
every opportunity to imply a general fiduciary duty.  See, e.g.,
Greene, 8 S.W.2d 655 (surface owners owe the duty to obtain the
best consideration for an oil and gas lease, and to share that
consideration equally with the State).
	To the extent Turner procured the Fasken lease, he did
not breach any duties expressly imposed by the Act.  Turner
obtained the best consideration for the Fasken lease.  The State
v. Reid court determined that the Fasken lease was the most
advantageous proposal submitted to the receiver.  The State
itself boasted that the bonus it received under the Fasken lease
was the highest ever for the Yates field.  Moreover, all of the
other leases executed at the same time in the Yates field
provided for similar or less consideration.
	Turner shared with the State the consideration he
received pursuant to the terms of the Fasken lease.  Turner did
later acquire another interest in the oil and gas and did not
share the related compensation with the State.  However, Turner
did not acquire that interest under the terms of the Fasken
lease.  Rather, he received it in exchange for his royalty and a
ten year management services contract.  The royalty Turner
conveyed to Midland was cost-free, whereas the one Midland
conveyed to him was partially cost-bearing.  We hold that, as a
matter of law, Turner did not breach any of the surface owner's
duties by entering into the Midland transactions.

III.  Termination of Turner's Status
	Appellees argue that, even if a 1934 surface owner did
owe the State a fiduciary duty, Turner's obligations were
terminated before execution of the Fasken lease.  We agree.  We
conclude that Turner's agency was terminated by the failure to
offset drainage from the tract, by the receivership, and by the
execution of the Fasken lease.

 A.  Failure to Offset Drainage
	First, Turner's alleged agency was terminated by the
failure to offset drainage from adjacent tracts.  A surface
owner's leasing authority terminates if the surface owner fails
to drill an offset well within 100 days of the discovery of oil
and gas on adjoining lands.  1919 Tex. Gen. Laws, ch. 81, § 3, at
p. 250.  Termination is automatic upon expiration of the 100-day
period.  Norman v. Giles, 219 S.W.2d 678, 684 (Tex. 1929).
	The State v. Reid court found that the Reid tract had
been subject to drainage for over five years before the
commencement of the case.  Consequently, Turner's authority to
act for the State and, therefore, his obligations to the State
were automatically terminated before the State filed its
petition, and so Turner did not owe any duties to the State that
he could have breached.

 B.  The Appointment of a Receiver
	Second, even if Turner's alleged agency had not been
terminated by the failure to offset drainage, it was terminated
by the receivership.  The State v. Reid court ordered all of the
Reid tract claimants to surrender possession of the land to the
receiver, who was charged with obtaining lease proposals.  Under
these circumstances, Turner was not and could not have been the
State's leasing agent.
	The State insists that the receivership was irrelevant,
noting that the Fasken lease calls Turner the State's "agent." 
This does not affect our analysis.  In determining the existence
of an agency relationship, we look at the substance of the
parties' arrangement, not the titles they use.  Daily Internat'l
Sales Corp. v. Eastman Whipstock, Inc., 662 S.W.2d 60, 63 (Tex.
App. 1983, no writ).

 C.  Execution of the Lease
	Finally, Turner's alleged agency was terminated by
execution of the Fasken lease.  A Relinquishment Act landowner
represents the State only for the limited purpose of procuring a
lease.  1919 Tex. Gen. Laws ch. 81, §§ 1-2, at p. 249-250.  Once
a lease is executed, the relationship ends.  See Scott v. Exxon
Corp., 763 S.W.2d 764, 767 (Tex. 1988); Colquitt v. Gulf
Production Co., 52 S.W.2d 235, 238 (Tex. 1931).  See also Note,
Texas Relinquishment Act--Benefits of Postleasing Transactions
are not Apportionable Between the State and the Surface Owner, 20
Tex. Tech L. Rev. 203, 217 (1989).  Thus, Turner was no longer
the State's representative after the Fasken lease was executed.

 D.  Turner's Right to Share in the Lease Consideration
	The State contends that Turner was not entitled to
share the lease proceeds if he was not the State's agent with
respect to the Fasken lease.  We disagree.  An owner of Act land
is entitled to a share of the consideration paid for a lease,
regardless of whether he procures it.  Norman v. Giles, 219
S.W.2d 678, 685 (Tex. 1949).  This is apparently because the
surface owner's share is compensation for damage to his land. 
See Greene, 8 S.W.2d at 600.  Moreover, the State v. Reid court
determined that Turner was entitled to share in the Fasken lease
proceeds.  Accordingly, the earlier judgment is res judicata as
to that issue.  This contention is overruled.

CONCLUSION
	We conclude that a 1934 Relinquishment Act landowner owed 
the State only those duties expressly set forth in the Act and not
a fiduciary duty.  Accordingly, Turner did not breach any duty that
a surface owner owed the State by entering into the Midland
transactions.
	Even if a 1934 surface owner did owe the State a
fiduciary duty, Turner did not owe that duty to the State at the
time of the Midland transactions because his representation had
terminated.  This termination resulted from the failure to offset
drainage, from the receivership, and from the execution of the
Fasken lease.
	All of the State's points of error are overruled.  The
summary judgment against the State and in favor of the defendants
is affirmed.

  
			Jimmy Carroll, Chief Justice
[Before Chief Justice Carroll, Justices Powers and Gammage; 
   Justice Gammage not participating]

Affirmed

Filed:  February 13, 1991

[Publish]

FOOTNOTES

1	The complex legislative history of the Relinquishment Act is as
follows: 1919 Tex. Gen. Laws, 2d C.S., ch. 81, at 249, amended
by 1921 Tex. Gen. Laws, 1st C.S., ch. 38, at 112, repealed by
Tex. Rev. Civ. Stat. sec. 2, at 2419 (1925), recodified as Tex.
Rev. Civ. Stat. sec. 1, arts. 5367-5379, at 1512 (1925), amended
by 1939 Tex. Gen. Laws, tit. Lands-Public, ch. 3, § 4-a, at 474,
amended by 1949 Tex. Gen. Laws, ch. 474, at 880, amended by 1949
Tex. Gen. Laws, ch. 559, at 1096, amended by 1975 Tex. Gen.
Laws, ch. 635, at 1938, repealed by Natural Resources Code, 1977
Tex. Gen. Laws, ch. 871, art. I, sec. 2(a)(1), at 2689,
recodified as Natural Resources Code, 1977 Tex. Gen. Laws, ch.
871, art. I, sec. 1, §§ 52.171-.185, at 2457, amended by 1979
Tex. Gen. Laws, ch. 384, at 860, amended by 1983 Tex. Gen. Laws,
ch. 81, § 21(k), at 405, amended by 1985 Tex. Gen. Laws, ch.
624, §§ 44-45, at 2319, amended by 1985 Tex. Gen. Laws, ch. 652,
at 2407, amended by 1985 Tex. Gen. Laws, ch. 923, § 18, at 3101,
amended by 1987 Tex. Gen. Laws, ch. 167, § 5.01(a)(31), at 1359,
amended by 1987 Tex. Gen. Laws, ch. 912, §§ 1-3, 6, at 3086,
amended by 1987 Tex. Gen. Laws, ch. 948, §§ 30-31, at 3176.  As
stated above, our interpretation in this cause is limited to the
version of the Act contained in articles 5367 to 5379 of the
Revised Statutes, prior to the 1939 amendment.

	The 1925 Revised Statutes are in an official two-volume
printing, which contains the complete text of the act that
adopted the 1925 Revised Statutes.  Due to the great length of
the act adopting the 1925 Revised Statutes and the act adopting
the 1925 Penal Code and Code of Criminal Procedure, the
legislature dictated that the 1925 Revised Statutes, Penal Code,
and Code of Criminal Procedure would not be printed as part of
the regular session laws in Texas General Laws.  1925 Tex. Gen.
Laws, ch. 104, at 282.  Similar action was taken by the
legislature in promulgating the revision of the criminal law in
1856, and in the revisions of both the civil and criminal law in
1879, 1895, and 1911.  Because these volumes are difficult to
locate, we will cite to the more accessible 1919 General Laws.

2	The Act expressly authorized assignment of the lessor's and
lessee's interests.  1919 Tex. Gen. Laws ch. 81, § 2, at p. 249. 
The State also admits that it would not have asserted any claim
if Fasken's interest had been assigned to anyone other than
Turner.

3	In 1985, the legislature amended the Act to impose specific
fiduciary duties on surface owners.  Tex. Nat. Res. Code Ann.
§§ 52.188-.189 (Supp. 1990).  The amendments do not apply
retroactively.  Scott v. Exxon Corp., 763 S.W.2d 764, 767 n.3
(Tex. 1988).