Murphy Farrell Development, LLLP v. Sourant

272 P.3d 355, 229 Ariz. 124, 628 Ariz. Adv. Rep. 27, 2012 Ariz. App. LEXIS 17
CourtCourt of Appeals of Arizona
DecidedFebruary 16, 2012
DocketNo. 1 CA-CV 10-0635
StatusPublished
Cited by49 cases

This text of 272 P.3d 355 (Murphy Farrell Development, LLLP v. Sourant) is published on Counsel Stack Legal Research, covering Court of Appeals of Arizona primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Murphy Farrell Development, LLLP v. Sourant, 272 P.3d 355, 229 Ariz. 124, 628 Ariz. Adv. Rep. 27, 2012 Ariz. App. LEXIS 17 (Ark. Ct. App. 2012).

Opinion

TIMMER, Judge.

¶ 1 This appeal and cross-appeal present several issues concerning the availability of equitable relief to remedy appellee Clay Sourant’s breaches of agreements with appellant Murphy Farrell Development, LLLP, and the trial court’s discretion to deny Sour-ant an award of attorney’s fees under the terms of these agreements. For the reasons that follow, we affirm in part, reverse in part, and remand with instructions for additional proceedings.

BACKGROUND

¶ 2 John Murphy (“Murphy”) and his wife are co-trustees of the Murphy Family Trust, which serves as the general partner in both Murphy Farrell Development, LLLP (“Murphy Farrell”) and Little Horse Ranch, LLLP (“Little Horse”). Little Horse, in turn, operates OX Ranch, a “cow-calf’ business, which is located north of Congress, Arizona. OX Ranch is comprised of land owned by Murphy Farrell, Little Horse, and their limited partners, and government-owned land on which Little Horse leases grazing rights.

¶ 3 Sometime in the late 1990s, Murphy realized OX Ranch could support more than a cattle business. He formed Rock Resources, Inc. (“Rock Resources”) to harvest decorative rocks and boulders1 from OX Ranch and sell them to urban landscapers; Rock Resources paid Murphy Farrell royalties for harvested boulders. Rock Resources employed Clay Sourant who, among other things, was responsible for locating areas within or near OX Ranch with accessible, marketable boulders. Sourant left employment with Rock Resources in the late 1990s to strike out on his own in the decorative boulder business.

¶ 4 Santa Fe Pacific Railroad (“Santa Fe”) owns mineral rights to state-owned land within and near OX Ranch. In January [127]*1272000, Santa Fe quit-claimed to Sourant rights to harvest boulders located within forty feet of the surface of its land (the “Mineral Land”). Sourant believed he had acquired rights to about 320 acres, paying $500/aere for a total of $160,000, but the legal description in the quit claim deed described approximately 240 acres, omitting an eighty-acre area (the “Omitted Parcel”). The State granted Sourant an access lease to the Mineral Land and thirty additional acres. Santa Fe then entered negotiations to grant Sour-ant the right to extract, crush, and remove granite from this additional acreage (the “Quarry Property”).

¶ 5 Approximately four months later, in May 2000, Sourant, Murphy Farrell, and Rock Resources entered a written agreement (the “May Agreement”) wherein, among other things, Sourant granted Murphy Farrell (1) the exclusive right to harvest boulders from the Mineral Land in exchange for royalty payments, (2) a right of first refusal in the Quarry Property, which the Agreement stated would be located on thirty acres, and (3) an option to participate equally with Sourant in harvesting boulders from 400 additional state-owned acres upon Sourant’s successful completion of negotiations with Santa Fe for the surface mineral rights.2 The parties also agreed that when Murphy Farrell had paid $961,182.97 in royalties, Sourant would transfer title to any remaining boulders on the Mineral Land to Murphy Farrell. The May Agreement set forth the same legal description for the 240 acres used in Santa Fe’s quit claim deed and then inaccurately recited that the Mineral Land “totalled] 320.00 acres more or less.”

¶ 6 Two months after execution of the May Agreement, Sourant completed negotiations with Santa Fe and acquired quarry rights to ten acres within the legal description set forth in the Agreement rather than thirty acres, as stated in the May Agreement. He concurrently acquired quarrying rights from Santa Fe to fifty nearby acres outside the Quarry Property.

¶ 7 Rather than harvest boulders from the Mineral Property itself, Murphy Farrell agreed that Rock Resources would do so, keep the profits, and then pay Murphy Farrell a volume-based royalty. After Rock Resources ceased business in about January 2003, Murphy Farrell entered in a similar agreement with Rock Source, LLC (“Rock Source”), which had purchased Rock Resources’ assets and has no affiliation with Murphy Farrell. Rock Resources, and later Rock Source, harvested the Mineral Land and the Omitted Parcel and paid royalties to Murphy Farrell, which passed a portion of the royalties to Sourant pursuant to the May Agreement. Later, in Spring 2005, despite the right of first refusal granted to Murphy Farrell, Sourant offered to sell Rock Source a thirty percent interest in the Quarry Property.

¶ 8 In July 2000, Murphy Farrell and Sourant entered in a second agreement (the “July Agreement”), wherein Sourant agreed to assign his surface mineral rights to an additional 450 acres near OX Ranch to Murphy Farrell in exchange for a pre-payment of $290,000 in royalties owed under the May Agreement. Among other things, Sourant also agreed not to directly or indirectly compete with Rock Resources in the sale of decorative boulders or assist others to acquire rights to surface boulders on land located within twenty miles of the 450 acres for a period of five years. The Agreement stated that this non-compete provision could be enforced by either Rock Resources or Murphy Farrell. Despite this agreement, in Spring 2003, Sourant offered to help Rock Source purchase mineral rights from Santa Fe, although nothing came of the offer. In the waning days of the five-year period, May 2005, Sourant contacted Santa Fe’s mineral rights broker, Newmont Realty Company (“Newmont”), and offered to purchase surface mineral rights on approximately 600 unidentified acres located within the area subject to the covenant not to compete. Santa Fe did not accept the offer.

[128]*128¶ 9 In May 2006, ten months after expiration of the covenant not to compete, Santa Fe conveyed to Sourant surface mineral rights on approximately 850 acres (the “850 Acres”), which included the Omitted Parcel. Sourant paid $42,200 for the portion of the 850 Acres making up the Omitted Parcel.

¶ 10 After Murphy Farrell paid Sourant $961,182.97 in royalties pursuant to the May Agreement, Sourant transferred title to the mineral rights he possessed in the Mineral Land to Murphy Farrell in July 2006 via quit claim deed; Sourant did not transfer title to rights in the Omitted Parcel. Murphy Farrell recorded the deed in April 2008.

¶ 11 Eventually, the parties became embroiled in disagreements concerning Sour-ant’s performance under the May Agreement and the July Agreement, and Murphy Farrell filed this lawsuit initially seeking equitable and monetary relief. Prior to a bench trial, Murphy Farrell asked the court to enter findings of fact and conclusions of law pursuant to Rule 52(a), Arizona Rules of Civil Procedure (“Rule”). After a three-day trial, the court found that Sourant had breached the May Agreement by failing to afford Murphy Farrell its right of first refusal on the Quarry Property and breached the July Agreement by offering to assist Rock Source to acquire mineral rights in the area subject to the covenant not to compete and during the covenant period. The court further ruled that Murphy Farrell had not proven entitlement to a constructive trust due to the breaches and, because Murphy Farrell had dropped its request for monetary damages, Sourant was entitled to judgment in his favor. After the court denied the parties’ post-trial motions and entered judgment, this timely appeal and cross-appeal followed.

DISCUSSION

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Bluebook (online)
272 P.3d 355, 229 Ariz. 124, 628 Ariz. Adv. Rep. 27, 2012 Ariz. App. LEXIS 17, Counsel Stack Legal Research, https://law.counselstack.com/opinion/murphy-farrell-development-lllp-v-sourant-arizctapp-2012.