McAlpin v. Sanchez

858 S.W.2d 501, 1993 WL 262145
CourtCourt of Appeals of Texas
DecidedJune 30, 1993
Docket13-91-026-CV
StatusPublished
Cited by14 cases

This text of 858 S.W.2d 501 (McAlpin v. Sanchez) is published on Counsel Stack Legal Research, covering Court of Appeals of Texas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
McAlpin v. Sanchez, 858 S.W.2d 501, 1993 WL 262145 (Tex. Ct. App. 1993).

Opinion

OPINION

DORSEY, Justice.

This case involves the imposition of a constructive trust on two oil and gas leases for the benefit of the prospective investors in those leases. The jury found that appellant G.T. McAlpin breached his fiduciary duty and his duty of good faith and fair dealing to one of those investors, Malcolm McGregor, when he acquired the two leases, ostensibly for the benefit of all of the investors, yet kept them for himself. By ten points of error, the McAlpins contend that the trial court erred by establishing a constructive trust in favor of not only McGregor but all of the investors, and by excluding the testimony of an expert witness, by disregarding the jury’s finding of estoppel, and by awarding the investors their attorney’s fees. By two cross-points, the investors contend that the trial court improperly disregarded the jury’s finding that McAlpin was liable for the expenses they incurred by drilling a dry well. The judgment of the trial court is modified, and, as modified, is affirmed.

FACTS

In early 1984, G.T. McAlpin contacted Malcolm McGregor, with whom he’d done business in the past, and informed him that a friend, Mrs. Post, held an unleased 195.5 acre tract of land situated very near a known producing oil well. McAlpin invited McGregor to invest in that tract with him. McGregor, a geologist, investigated that tract and the area around it and, optimistic that it was a producing field, agreed to lease the property with McAlpin. The two men formed an oral partnership agreement, covering the development of the entire area tested by McGregor, that area being The Woods Cemetery Field. In order to develop the Field, however, and achieve the goal of the partnership, it was necessary to soli *504 cit investors to contribute the capital to finance buying the leases and drilling wells.

The men orally agreed to at least eight partnership terms: 1) this would be a 50/50 partnership; 2) McAlpin would be the land man, acquiring the leases for the partnership, while McGregor would do all else, including securing investors, operating the leases, and the like; 3) they would divide their lease costs; 4) they would sell 75% of their interest in the leases to non-partner investors; 5) McAlpin and McGregor would split the remaining 25% of that working interest; 6) the two men would divide a 3⅛% overriding royalty interest in the leases acquired by the partnership; 7) they would split the profits from the sale of the 75% working interest; and 8) the first well would be drilled to casing point with no expense incurred by McAlpin and McGre-gor.

The men entered into this partnership in February, 1984, with McAlpin, the land-man, acquiring the 195.5 acre tract from Mrs. Post, called the “Post lease,” for the partnership. McGregor, the geologist, secured investors to finance the drilling on the property, many of whom had dealt with him in the past. These investors purchased a combined 75% of the leasehold interests. McGregor formed a letter agreement with each of the investors, explaining each investor’s duties with regard to drilling and development of that particular lease. This agreement expressly stated that it would not create a partnership or joint venture between the participants and that it reflected the entire agreement between the parties. If a drilled well became a commercial producer, at that time a Joint Operating Agreement would become controlling. It, too, expressly discounted any formation of a partnership between the participants, and provided for each investor’s percentage interest in the expense and production of the commercial well on the designated lease, as well as further operations on that particular lease. McAlpin and McGregor were each 14.5% working interest owners under the Joint Operating Agreement, with the remaining investors holding pro rata shares of the balance.

McAlpin, the landman, soon leased two more tracts for the partnership, the Hoe-gemeyer and Wilems leases. When they were acquired by the partnership, pursuant to the partnership agreement, McAlpin and McGregor retained 25% of the leases while selling 75% to the investors. The leases were then included under the Joint Operating Agreement. 1

The investors drilled a well on the 195.5 acre Post lease in August 1984, resulting in a dry hole. They then drilled Hoegemeyer # 1 in December, 1984, a flowing well, Hoe-gemeyer # 2 (March, 1985), a dry hole, and then Hoegemeyer #3 (August, 1988), a commercially flowing well that invoked the rights and duties of the parties under the Joint Operating Agreement. The rights and duties assumed by the parties under the various agreements with regard to the Hoegemeyer #3 are at issue here.

A synopsis of the complex transactions related to drilling the #3 is necessary. The 195.5 acre Post lease, acquired on February 28, 1984, and the Wilems lease, acquired in May, 1984, both had three year terms. McAlpin and McGregor mutually agreed to let those two leases lapse early in 1987 rather than renew them, as it appeared at the time that neither tract contained producible amounts of oil. Then in late 1987 or early 1988, the partnership began planning to drill Hoegemeyer #3. As a precautionary measure, the partnership first wanted to be able to drill offset wells to the # 3, if it was successful, to protect the investors from drainage. *505 McGregor, the geologist, therefore requested that McAlpin, the landman, re-lease two 40-acre tracts to the North of the #3. 2

McAlpin informed McGregor that Angela McAlpin, the landman’s wife, having never purchased an oil and gas lease before, had already purchased one of the 40 acre tracts from Mrs. Post. McGregor asked McAlpin to have his wife assign her 40-acre lease to McGregor for the benefit of the partnership and the investors, and to lease the other 40 acres from Mrs. Post himself, for the benefit of the partnership. McAlpin complied in May 1988, but, in the process, Mrs. McAlpin retained a substantial overriding royalty interest in her 40 acre lease. In addition, G.T. McAlpin gave drilling commitments on both tracts to his wife and to Mrs. Post, promising to drill a well on one of the two leases within 30 days of the date the Hoegemeyer # 3 was completed, if it was completed as a flowing well. McAl-pin did not inform McGregor of these drilling commitments, however. After being assigned the two 40 acre leases with no knowledge of the drilling commitments, McGregor assigned them to the joint account.

The Hoegemeyer # 3 well was drilled in August, 1988, and was completed on or shortly after the last day of the month. The well was a commercially producing well, emitting over 100 barrels of oil per day. Consequently, to further protect the investors and avoid drainage of the producing strata by third parties, McGregor requested that McAlpin lease an additional 40.5acre tract from Mrs. Post that was adjacent to the Hoegemeyer tract. 3 The men had since learned that a producing oil zone ran under this 40.5 acre tract. The men discussed the inevitability that Mrs. Post would request a drilling commitment on that lease because she was anxious to have a well drilled somewhere on her property. McAlpin negotiated this lease, agreeing to acquire not only the 40.5 acre tract but also a separate 25 acre tract. 4

Free access — add to your briefcase to read the full text and ask questions with AI

Related

Mark Palla v. Bio-One, Inc. Aydemir Arapoglu, and Transtrade, LLC
424 S.W.3d 722 (Court of Appeals of Texas, 2014)
National City Mortgage Co. v. Adams
310 S.W.3d 139 (Court of Appeals of Texas, 2010)
Lake v. Premier Transportation
246 S.W.3d 167 (Court of Appeals of Texas, 2008)
In Re Great Western Drilling, Ltd.
211 S.W.3d 828 (Court of Appeals of Texas, 2006)
AutoNation USA Corp. v. Leroy
105 S.W.3d 190 (Court of Appeals of Texas, 2003)
GXG, INC. v. Texacal Oil & Gas
977 S.W.2d 403 (Court of Appeals of Texas, 1998)
Lexington Insurance Co. v. W.M. Kellogg Co.
976 S.W.2d 807 (Court of Appeals of Texas, 1998)
L & F DISTRIBUTORS v. Cruz
941 S.W.2d 274 (Court of Appeals of Texas, 1997)

Cite This Page — Counsel Stack

Bluebook (online)
858 S.W.2d 501, 1993 WL 262145, Counsel Stack Legal Research, https://law.counselstack.com/opinion/mcalpin-v-sanchez-texapp-1993.