Texas Outfitters Limited, LLC v. Nicholson

Dora Jo Carter owned the surface estate of a Texas ranch. Dora Jo and her children, Carolyn Nicholson and William Carter, Jr. (collectively with Dora Jo, the Carters) (plaintiffs), owned a 50-percent interest in the mineral estate underlying the ranch. The Hindeses owned the other 50-percent mineral interest. In 2002, the Carters sold the surface estate to Texas Outfitters Limited, LLC (Texas Outfitters) (defendant). The Carters also sold Texas Outfitters a 4.16-percent mineral interest and the executive right to lease the Carters’ remaining 45.84-percent mineral interest. Texas Outfitters’ owner, Frank Fackovec (defendant), used the ranch for a hunting business. The Hindeses subsequently leased their 50-percent mineral interest to El Paso Oil Exploration & Production Company (El Paso) for a $1,750-per-acre bonus and 25-percent royalty. El Paso made the same offer to Texas Outfitters for the other 50-percent mineral interest. The Carters wanted to accept the offer, but Fackovec rejected it because he believed the bonus was too low. The Carters sued Texas Outfitters and Fackovec, asserting that by rejecting the offer, Texas Outfitters had breached the duty of utmost good faith and fair dealing that Texas Outfitters owed as the holder of the executive rights to the mineral estate. At trial, Dora Jo testified that Fackovec had told her that he planned not to lease the minerals because of his hunting business on the ranch. The trial court found that Fackovec had gambled with Texas Outfitters’ interest and the Carters’ much larger interest by holding out for a higher bonus, even though Fackovec knew that the Carters wanted to take El Paso’s offer and that the pool of potential future lessees was smaller because the Hindeses had already leased their interest to El Paso. The court also found that rejecting the offer protected and benefited Texas Outfitters’ surface interest in the ranch to the Carters’ detriment. The court awarded the Carters the amount that they would have received in bonuses had Texas Outfitters accepted El Paso’s lease offer. Texas Outfitters appealed.