## Facts

- The Carters owned the surface estate of a Frio County ranch and 50% of the mineral estate; the Hindes family owned the other 50% mineral interest.
- In 2002, the Carters conveyed the surface estate to Texas Outfitters Limited, LLC, and also conveyed (1) a 4.16% mineral interest and (2) the executive right to lease the Carters’ remaining 45.84% non-executive mineral interest.
- Texas Outfitters’ owner intended to live on the ranch and operate a commercial hunting business and testified the executive right was important to controlling future development.
- The Hindes family leased its 50% mineral interest to El Paso Exploration & Production Company for a $1,750-per-acre bonus and a 25% royalty.
- El Paso offered Texas Outfitters substantially the same lease terms for the remaining 50% mineral interest, which included Texas Outfitters’ 4.16% interest and the Carters’ 45.84% non-executive interest.
- The Carters wanted to accept El Paso’s offer; Texas Outfitters refused to lease.
- Evidence indicated Texas Outfitters refused to protect its surface use and hunting operation and to hold out for a higher bonus, despite knowing the Carters wanted to lease.
- After El Paso obtained the Hindes lease, the trial court found the field of future lessees diminished, making refusal to lease a risky holdout that burdened the Carters’ larger interest.

## Issues

1. Whether an executive-right holder breaches the duty of utmost good faith and fair dealing by refusing to execute a commercially reasonable lease desired by the non-executive owners to benefit the executive’s own surface and small mineral interests.
2. Whether legally sufficient evidence supported causation and damages measured by the non-executives’ lost lease bonus.

## Decision

- The Supreme Court of Texas affirmed the judgment for the Carters.
- The Court held legally sufficient evidence supported the finding that Texas Outfitters breached the executive’s duty by self-dealing that unfairly diminished the value of the Carters’ non-executive mineral interest.
- The Court upheld damages equal to the lease bonus the Carters would have received had the El Paso lease been executed.

## Legal Principles

- The executive right to lease is a property right coupled with a duty of utmost good faith and fair dealing owed to non-executive mineral/royalty owners.
- The executive may not engage in self-dealing that unfairly diminishes the value of the non-executive interest; the duty can be breached by acts or omissions, including refusal to lease.
- Refusal to lease is not automatically wrongful; the inquiry is fact-specific and focuses on whether the executive unreasonably withheld a fair lease to advantage the executive at the non-executive’s expense.
- A firm lease offer on market terms, corroborated by a comparable executed lease on the same property, can support non-speculative damages for the non-executive’s lost bonus.

## Conclusion

The court held that an executive-right holder violates its duty when it refuses a fair, market-value lease that the non-executive owners wish to accept in order to protect the executive’s separate surface-related interests and thereby deprives the non-executives of concrete economic value; the proper remedy on these facts included the lost bonus.


Texas Outfitters Ltd., LLC v. Nicholson, 572 S.W.3d 647 (Tex. 2019)