Texas Supreme Court Hears Oral Arguments in Oil Royalty Dispute

Austin, TX (Law Firm Newswire) December 16, 2014 – On October 15, the Texas Supreme Court heard oral arguments in an oil and gas royalty dispute.

In the case, Steadfast Financial LLC v. Bradshaw, the owner of an executive right was sued by the owner of a nonparticipating royalty interest. The owner of the interest claimed that the owner of the right did not obtain a high enough royalty interest in a new lease. At issue is whether the executive-rights owner had a duty to secure the going royalty rate.

“A central issue in this case is the extent of the duty held to non-participating royalty owners by an executive-rights owner,” said Gregory D. Jordan, an Austin oil and gas attorney with the Law Offices of Gregory D. Jordan. “Numerous cases have dealt with the duties of executive rights owners to non-executive mineral owners,” noted Jordan, “But this case should bring some clarity to whether a deed can modify the duties owed to non-participating royalty interest owners.”

The dispute is between Steadfast Financial (a group of royalty owners) and landowner Betty Lou Bradshaw. Bradshaw held a nonparticipating royalty interest in 1,773 acres in Hood County. Her parents reserved the royalty interest in two 1960 deeds, then bequeathed the interest to Bradshaw.

In 2006, Steadfast became the owner of the surface and mineral estates in close to 2,000 acres, much of it overlapping the land in which Bradsaw held a royalty interest. According to court documents, Steadfast sold the surface estate to another party, and Bradshaw was paid for one-sixteenth of all minerals. However, Bradshaw filed suit in 2007, claiming that Steadfast should have negotiated a higher royalty payment.

Additional issues in the case include whether contractual modification of Steadfast’s duties is possible, and whether the imposition of a constructive trust on the other royalty owners’ interests is proper, after they received those interests from Steadfast. Also at issue is whether a fraudulent transfer claim can be maintained by Bradshaw for the interests transferred to others by Steadfast, and whether another party can be held liable through a derivative liability theory, such as conspiracy.