State v. Durham

¶1dissenting.

¶2I dissent. Because Turner’s status as the State’s leasing agent was terminated under the Relinquishment Act (Act), the judgment of the court of appeals was correct and should be affirmed. Further, I agree with JUSTICE HECHT’s conclusion that the State’s claims are barred by res judicata; the judgment of the court of appeals should be affirmed on that basis as well.

¶3The State initiated the Reid litigation in November 1933, primarily seeking appointment of a receiver to solicit bids for an oil and gas lease on the subject tract. A receiver was needed because Turner’s status as the State’s leasing agent1 was terminated by operation of law by his failure to timely drill an offset well on the property. Act of July 31, 1919, 36th Leg., 2d C.S., ch. 81, § 3-5, 1919 Tex.Gen.Laws 250. In response to the State's request, the district court appointed a receiver, granted him exclusive possession and control of the tract, and ordered him to solicit bids for a lease or drilling contract.

¶4During the course of those legal proceedings, Turner and Fasken submitted a proposed lease under the terms of which Fasken would obtain an oil and gas lease on the property in exchange for a $20,000 bonus and *71a ⅜ royalty to be shared equally by the State and Turner. After reforming the lease to make its terms even more advantageous to the State, the district court approved the Turner-Fasken lease, and rendered judgment incorporating the lease terms.

¶5The lease specifically permitted any party to assign his interest, and following a series of assignments and other transactions, Turner eventually acquired part of what became the extremely profitable working interest in the mineral estate. Although Turner’s dealings came to the Attorney General’s attention in the 1960s, the State took no legal action until it filed suit in 1988 seeking approximately $162 million in damages.

¶6The essence of the State’s claims is that the Turner-Fasken lease, although its terms were essentially dictated and approved by the district court in State v. Reid, was the product of a sham transaction and a breach of Turner’s fiduciary duty as the State’s leasing agent under the Act. The court of appeals affirmed summary judgment in favor of Turner’s successors in interest, holding that Turner’s status as the State’s leasing agent did not carry with it a general fiduciary duty to the State, and that even if it did, his agency status and any duty flowing from that status were terminated under the terms of the Act. I agree with the court of appeals’ resolution of this issue.

¶7Turner’s agency was terminated as a matter of law under the Act by his failure to offset drainage from the tract. The Act provides that a surface owner’s agency status is terminated if a well is not drilled within 100 days of the discovery of oil within 1,000 feet of the tract. Act of July 31,1919, 36th Leg., 2d C.S., ch. 81, § 3-5, 1919 Tex.Gen.Laws 250. We have held that under such circumstances the agency of the surface owner is automatically terminated, and any subsequent lease executed by the surface owner purporting to be in the capacity as the State’s leasing agent is “without effect.” Norman v. Giles, 148 Tex. 21, 219 S.W.2d 678, 684 (1949). Indeed, it was Turner’s failure to offset drainage that precipitated the Reid litigation and resulted in the appointment of a receiver. Once Turner’s agency was terminated, no legal impediment prevented him from acquiring an interest in excess of that afforded by the Act to the surface owner. And as soon as the agency was terminated and suit was filed, all power to convey rights to the oil and gas interests resided with the district court. The fact that Turner executed the lease under the court’s authority and with its approval cannot support the conclusion that Turner’s agency as a surface owner under the Act was somehow resurrected. Moreover, even if some question remained about Turner’s continued authority as the State’s leasing agent, the court’s appointment of a receiver superseded any authority that Turner might have retained to act on behalf of the State. See Kirby v. Dilworth & Marshall, 260 S.W. 152, 153 (Tex.Comm’n App.1924, judgm’t adopted); Alworth v. Morris, 19 S.W.2d 212, 214 (Tex.Civ.App.-Eastland 1929, no writ).

¶8The recital in the Reid judgment that the Turner-Fasken lease was executed by Turner “individually and as agent of the State,” has no legal significance in this context. The district court, through the receiver, assumed complete authority to decide to whom a lease would be granted and under what terms. The Reid judgment did not recognize that Turner’s agency status was valid and subsisting, but that Fasken’s lease was valid and subsisting.2 Nor is the absence of other *72affirmative language in the judgment concerning Turner’s legal relationship to the State determinative; the automatic termination of Turner’s agency status was one of the reasons the State sought to protect its interests by filing the Reid litigation in the first place.

¶9I would affirm the judgment of the court of appeals.