## Facts

- The Lesleys owned a one-half non-participating mineral interest in Texas land but did not hold the executive right to lease that interest.
- A developer (ultimately Bluegreen Southwest One, L.P.) acquired the surface estate and the executive rights over the mineral estate.
- Bluegreen subdivided the land for residential development and recorded restrictive covenants limiting oil and gas operations within the subdivision to protect lot owners from drilling and production impacts.
- The Lesleys alleged the covenants substantially destroyed or severely reduced the value of their mineral interest by making development prohibited or uneconomic.
- The Lesleys sued Bluegreen, the Veterans Land Board (a lot purchaser), and others, asserting breach of the executive’s duty of utmost fair dealing and seeking equitable relief affecting deeds and the covenants.
- The trial court found Bluegreen breached the executive-duty and granted relief including deed reformation and remedies affecting the covenants.
- The court of appeals reversed, reasoning there could be no breach because Bluegreen had not executed an oil and gas lease and thus had not “exercised” the executive right.

## Issues

1. Whether an executive-rights holder can breach the duty of utmost fair dealing by recording restrictive covenants that substantially impair mineral development, even without executing a lease.
2. Whether the executive’s duty governs only leasing decisions or also other conduct that foreseeably and materially damages the non-executive’s mineral interest.
3. What remedies may be available when restrictive covenants imposed by the executive substantially impair the non-executive’s mineral interest.

## Decision

- The Supreme Court of Texas reversed the court of appeals’ “no exercise, no breach” approach.
- The Court held the executive’s duty of utmost fair dealing is not limited to the act of granting or refusing an oil and gas lease.
- The Court concluded that imposing restrictive covenants may constitute a breach when the executive engages in self-dealing that substantially diminishes or destroys the non-executive’s mineral interest.
- The Court reversed in part, affirmed in part, and remanded for further proceedings on remaining factual and remedial questions consistent with its clarified standard.

## Legal Principles

- The executive right is a component of the mineral estate, and its holder owes non-executive mineral owners a duty of “utmost fair dealing” and “due regard” for their interests.
- The duty prohibits self-dealing that unfairly diminishes or destroys the value of the non-executive’s mineral interest to advance the executive’s separate interests (including surface-development interests).
- A breach may arise from conduct other than signing or refusing to sign a lease when that conduct foreseeably and substantially impairs the non-executive’s ability to realize value from the minerals.
- Whether restrictive covenants substantially impair mineral value and what relief is appropriate are generally fact- and remedy-dependent matters for further proceedings.

## Conclusion

The Texas Supreme Court held that an executive-rights holder’s duty of utmost fair dealing can be breached by recording subdivision restrictive covenants that substantially impair non-executive mineral interests, even if the executive never executes an oil and gas lease, and remanded for determination of impairment and appropriate remedies.


Lesley v. Veterans Land Bd., 352 S.W.3d 479 (Tex. 2011)