David Wilstein, and Leonard Wilstein, Individually and as Trustee v. Dernick Resources, Inc.

Opinion issued December 31, 2009

In The

Court of Appeals

For The

First District of Texas

NO. 01-07-00491-CV

DERNICK RESOURCES, INC., Appellant

V.

DAVID WILSTEIN AND LEONARD WILSTEIN INDIVIDUALLY AND AS

TRUSTEE, Appellees

* * *

DAVID WILSTEIN AND LEONARD WILSTEIN INDIVIDUALLY AND AS

TRUSTEE, Appellants

V.

DERNICK RESOURCES, INC., Appellee

On Appeal from the 164th District Court

Harris County, Texas

Trial Court Cause No. 2002-31310

O P I N I O N

Appellants David and Leonard Wilstein (the “Wilsteins”) were joint venturers

with Dernick Resources, Inc. (“Dernick”) under Joint Venture Agreements (JVA’s)

for a Nebraska gas field (the McCourt Field) and a Kansas oil and gas field (the

Bradshaw Field). The Wilsteins appeal the portion of the trial court’s judgment

holding that the statute of limitations bars them from asserting claims against Dernick

for (1) breach of a contractual right to be notified in writing of the opportunity to

participate in acquiring the remaining portion of the working interest in the McCourt

Field and (2) Dernick’s sale of the Wilsteins’ interest in the Bradshaw Field without

notice to the Wilsteins.

In a cross-appeal against the Wilsteins, Dernick appeals the portion of the trial

court’s judgment awarding damages to the Wilsteins on their claims for fraud and/or

breach of fiduciary duty for loss sustained by the Wilsteins as a result of a volumetric

production payment (VPP)

placed on the McCourt Field by Dernick that sold the

production from the field for a five-year period in exchange for a loan of cash to

purchase the remaining potion of the working interest. In four issues, Dernick argues

that (1) legally insufficient evidence supports the award of damages in favor of the

Wilsteins; (2) the trial court erred in holding that Dernick owed a fiduciary duty to the

Wilsteins; (3) the Wilsteins’ fraud non-disclosure recovery must be set aside because

Dernick owed no duty of disclosure to the Wilsteins; and (4) the trial court erred in

refusing to find that the Wilsteins’ claims for loss due to the VPP were barred by

limitations.

We reverse and remand for further proceedings consistent with this opinion.

I. Background

A. The McCourt Field Joint Venture

Harry Dernick was the founder of Dernick, an oil and gas exploration and

production company, and a venturer with the Wilsteins in interests in oil and gas

properties. Due to Harry Dernick’s failing health, Stephen Dernick, Harry’s son, took

over the operation of Dernick.

On August 30, 1991, the Wilsteins and Dernick entered into a joint venture

agreement (“the JVA”) whereby the Wilsteins agreed to advance money to Dernick

to acquire working interests in oil and gas properties in Nebraska known as the

McCourt Field and to conduct drilling and production operations on the leases (“the

McCourt Field JVA”). Under the terms of the JVA, the Wilsteins and Dernick

together owned 25% of the McCourt Field as tenants in common. The Wilsteins each

owned a 5% undivided working interest

in the field, for a total interest of 10%, and

Dernick owned a 15% working interest as tenants in common. The remaining 75%

working interest in the field was owned by Snyder Oil Corporation (Snyder).

Each of the venturers had a proportionate undivided interest in the leases

acquired and each was required to contribute his proportionate share of all costs in

accordance with his percentage interest. Dernick undertook to pay and discharge out

of the capital of the Venture all costs and expenses incurred in the acquisition and

maintenance of the interest in the field and in drilling and completing wells, laying any

pipelines, and constructing wells. The costs and expenses were then charged to the

venturers in accordance with their percentages.

The JVA gave Dernick the full right and authority to negotiate for the

acquisition of additional interests as the nominee of the venture and to execute all

documents, including operating agreements, purchase and sale agreements, and other

appropriate documents that it, in its discretion, deemed necessary or appropriate. The

JVA also made Dernick the agent and attorney in fact for the venturers. Although the

JVA expressly provided that the interest was owned by Dernick and the Wilsteins as

tenants in common and the relationship of the venturers and Dernick was that of co-owners, title to the interest of the venturers was maintained in the name of Dernick,

as nominee of the venture. Dernick was also given the right to enter a JOA on behalf

of the venture and to act as operator.

The JVA provided that if a venturer encumbered, transferred, or otherwise

disposed of his interest in the McCourt Field, the disposition must cover either (1) “the

entire interest of the venturer” in the field or (2) “an equal undivided interest” in the

field. The JVA further provided that if the interest of any venturer became “subject

to any . . . production payment or other charge over and above the Initial Lease

Burdens . . . such Venturer shall assume and alone bear all obligations with respect

thereto and shall account for them to the owners thereof out of his share of the

working-interest production from the [McCourt Field] properties” and that all such

lease burdens “shall be subordinate to this Agreement and to any applicable Operating

Agreement.” All encumbrances and other dispositions made by any venturer were

expressly made subject to the JVA, any applicable operating agreement, and any other

agreement entered into pursuant to the JVA.

Snyder and Dernick executed the McCourt Field JOA on November 1, 1991.

Snyder became the operator, and Dernick, as nominee and agent of the joint venture,

was a non-operator, as were the Wilsteins, through Dernick. The JOA provided, in

relevant part, that, if any party desired to sell all or part of its interest in the McCourt

Field, “it shall promptly give written notice to the other parties, with full information

concerning its proposed sale, which shall include the name and address of the

prospective purchaser (who must be ready, willing and able to purchase), the purchase

price, and all other terms of the offer.” The other parties then had “an optional prior

right,” for fifteen days after receipt of the notice to purchase “on the same terms and

conditions the interest which the other party proposes to sell.” If the optional right

were exercised, the JOA provided that “the purchasing parties shall share the

purchased interests in the proportions that the interest of each bears to the total interest

of all purchasing parties.”

B. The Purchase of Snyder’s Interest in the McCourt Field: The

Volumetric Production Payment

In 1996, Snyder decided to sell its 75% interest in the McCourt Field, and it

honored the preferential right to purchase clause in the 1991 JOA by giving Dernick

written notice of the right to purchase Snyder’s interest for $3,056,000 in cash. Both

the McCourt Field JVA and the 1991 JOA required written notice of the terms and

conditions of the proposed sale to the other venturers when a party to the JOA desired

to sell all of its interest in the McCourt Field. The JOA also provided that notice be

given to all parties of any such offer “in writing by mail or telegram, postage or

charges prepaid, or by telex or telecopier and addressed to the parties to whom the

notice is given at the addresses listed on Exhibit ‘A’.” The notice was deemed given

only when received by the party to whom the notice was directed, and the time for

response ran from the date the originating notice was received. The McCourt Field

JVA similarly provided that “all notices required or permitted to be given hereunder

shall be personally delivered to the party to whom such notice is addressed” or mailed

to the party by certified mail.

Although Dernick held title to the Wilsteins’ interest in the field and was the

nominee of the venture for making acquisitions on its behalf under the terms of the

McCourt Field JVA, Dernick did not give the Wilsteins written notice of the

opportunity to purchase Snyder’s interest and of the terms of the offer as required by

the McCourt Field JOA and JVA. Nor is there any evidence that Snyder directly

notified the Wilsteins of the opportunity. However, Harry Dernick testified, and the

trial court found, that he orally informed David Wilstein in October 1996 of the

opportunity to purchase Snyder’s interest and that Wilstein declined.

Dernick did not have enough funds to buy Snyder’s interest for $3,056,000 in

cash. Therefore, it considered other alternatives to obtain the capital to buy out

Snyder. On or about December 13, 1996, Dernick bought Snyder’s 75% interest in the

McCourt Field by executing a VPP agreement with the Resource Fund, L.P.I.

Under

the terms of the VPP agreement, Resource Fund advanced $3,200,000 to Dernick in

return for the sale of 90% of the gas production from all of the undivided working

interest in the McCourt Field to ResourceFund for a five-year period running from

February 1, 1997 to January 31, 2002. To secure the obligation to repay the cash

advance, ResourceFund took a mortgage on all the gas in the field and its above-ground facilities. After monthly production quotas were delivered to ResourceFund,

the remaining 10% of the oil and gas in the McCourt Field could be sold for a profit.

Dernick used the $3,200,000 advanced by Resource Fund to buy out Snyder.

To repay ResourceFund, Dernick committed 90% of its own, the Wilsteins’, and

Snyder’s gas production to ResourceFund for five years. In January 1997, following

the acquisition, Pathex Petroleum, Inc. (“Pathex”), a wholly-owned subsidiary and

alter ego of Dernick, became operator of the McCourt Field. Dernick did not inform

the Wilsteins that it had bought Snyder’s 75% interest in the McCourt Field and

financed the transaction by burdening the field with a VPP secured by a lien on all the

gas in the field and the above-ground facilities to purchase Snyder’s interest. It simply

began conveying 90% of the gas in the field to ResourceFund.

C. The Purchase of Burciaga’s Interest in Dernick and the Sale of

Dernick’s and the Wilsteins’ Interest in the Bradshaw Field Joint Venture

In 1995, Gil Burciaga invested cash in Dernick in exchange for one-third of

Dernick’s shares. Burciaga also served on the Board of Directors for Dernick

beginning in 1996. Burciaga separately owned Lakota Resources, Inc. (“Lakota”).

After Dernick entered into the VPP with ResourceFund in 1996 to buy Snyder’s

75% interest in the McCourt Field, Burciaga’s relationship with Dernick deteriorated.

To buy out Burciaga’s interest in Dernick, Dernick attempted to sell some of its assets,

including interest in a field known as the Sydney Field and the entire interest to which

Dernick held title in the Bradshaw Field in Kansas.

As in the McCourt Field, Dernick and the Wilsteins were joint venturers in the

Bradshaw Field. That venture was likewise formed to provide for the acquisition of

oil and gas leases and to conduct drilling operations for the venturers’ joint account.

Dernick owned a 25% undivided working interest in the Bradshaw Field joint venture;

each of the Wilsteins owned a 12½% undivided interest for a total interest of 25%; and

Natural Gas Clearinghouse owned the other 50%.

The Bradshaw Field JVA, executed in 1994, was very similar to the McCourt

Field JVA. Its capital was the undivided interest acquired in the leases and the funds

contributed by the venturers in connection with acquiring leasehold interests, drilling

wells, and conducting operations. Each venturer was required to contribute his

proportionate share of all costs in accordance with his percentage interest. The JVA

authorized Dernick to acquire interests in the leases and to make drilling commitments

with respect to them. It also gave Dernick the full right and authority to negotiate for

the acquisition or sale of interests as the nominee of the venture and to execute all

documents, including operating agreements, drilling commitments, purchase and sale

agreements, and other appropriate documents that Dernick, in its discretion, deemed

necessary or appropriate.

As under the McCourt Field JVA, the venturers had an undivided interest in the

leases and in all production of oil and gas, which they owned as tenants in common.

Also as under the McCourt Field JVA, Dernick had the option to maintain record title

to the interest of the venturers in the leases as the nominee of the venture, but the JVA

expressly provided that the interest was owned as tenants in common and that the

relationship of the venturers and Dernick was that of co-owners. All encumbrances,

transfers, and other dispositions made by any venturer were expressly made subject

to the JVA, any applicable operating agreement, and any other agreement entered into

pursuant to the JVA. Finally, and again like the McCourt Field JVA, the Bradshaw

Field JVA provided that “all notices required or permitted to be given hereunder shall

be personally delivered to the party to whom such notice is addressed” or mailed to

the party by certified mail.

On or about June 1, 1998, in order to obtain funds to buy Burciaga’s stock in

Dernick, Dernick sold all of its “right, title, and interest” in the Bradshaw Field under

a Purchase and Sale Agreement between itself and Bradshaw Energy, L.L.C. (the

Bradshaw Field PSA). Because the Bradshaw Field JVA conferred on all venturers

an undivided interest in the leases, and because Dernick was empowered to sell that

interest as the nominee of the Wilsteins and held title to the Wilsteins’ interest as their

nominee, as well as its own, the sale of all of Dernick’s “right, title, and interest” in

the Bradshaw Field necessarily included the sale of the Wilsteins’ interest in the field.

Dernick did not disclose to the Wilsteins its sale of their own and its interest in

the Bradshaw Field in writing in accordance with the terms of the Bradshaw Field

JVA. However, it did record the transaction in the Kansas land records on or about

June 28, 1998.

D. Dernick’s Sale to Lakota of a Working Interest in the McCourt Field

Although Dernick sold all of the interests to which it held title in the Bradshaw

Field, including the Wilsteins’ interest, in addition to selling its interest in the Sydney

Field, the funds generated from the sales were still not enough to buy out Burciaga’s

interest in Dernick. To acquire the rest of the capital needed to purchase Burciaga’s

stock in the company, Dernick entered into a Purchase and Sale Agreement (the

“McCourt Field PSA”) with Burciaga’s company, Lakota, on July 1, 1998. The

McCourt Field PSA granted Lakota a 19.360% “undivided interest” in Dernick’s

“rights, title and interest” in the McCourt Field, including its interest in the oil and gas

wells and the production therefrom. Lakota’s interest in the McCourt Field was

expressly made subject to the VPP agreement with which Dernick had burdened the

McCourt Field in order to obtain funds to buy out Snyder, and it was made subject to

Lakota’s proportionate share of balances and amounts of gas owing and due to

ResourceFund under the VPP agreement. There was, however, no joint venture

agreement between Lakota and Dernick.

E. Dernick’s Repurchase of the VPP Burdening the McCourt Field and the

2000 Audit

On or about April 28, 2000, Dernick repurchased the VPP burdening the

McCourt Field from ResourceFund. It did not inform either the Wilsteins, its

cotenants and venture partners under the McCourt Field JVA and JOA, or Lakota, its

cotenant under the McCourt Field JOA, that it had repurchased the VPP, which had

been due to expire on January 31, 2002. After Dernick repurchased the VPP, paying

off the mortgage it had placed on the McCourt Field, it was able to sell at higher prices

the gas from the field that had formerly been committed to ResourceFund, but, as

operator of the field, it continued to charge the non-operating working interest

owners—Lakota and the Wilsteins—as if the VPP still burdened their interests. It did

not offer Lakota or the Wilsteins the opportunity to pay off their shares of the VPP and

to receive a higher price for their gas as well.

Between June and September, 2000, AMS Consultants conducted an audit of

the McCourt Field on behalf of Lakota and the Wilsteins. As a result of the audit,

which AMS provided to them on or about January 29, 2001, the Wilsteins discovered

that Dernick had obtained the funds to buy out Snyder’s working interest in the

McCourt Field in December 1996 by burdening the production in the field with the

VPP and that it had subsequently repurchased the VPP and sold the gas at a higher

price without giving them the benefit of the repurchase. Instead, Dernick had

continued to treat their interest as if it were still burdened with the VPP. The trial

court found that the Wilsteins discovered the existence of the VPP on or about January

29, 2001, when AMS provided them the results of the audit.

On June 20, 2002, Lakota filed suit against Dernick and Pathex, which had been

the operator of the field since January 1997 as Dernick’s subsidiary and assignee.

F. The Second Audit and the Wilsteins’ Assertion of Claims Against

Dernick

In the course of a second audit in 2002, the Wilsteins discovered Dernick’s June

1, 1998 sale of all of the interests in the Bradshaw Field to which Dernick held title,

including their own.

In October 2003, the Wilsteins joined the litigation commenced by Lakota

and

asserted claims against Dernick for breach of fiduciary duty and fraud in connection

with Dernick’s sale of their interest in the Bradshaw Field without notice, Dernick’s

acquisition of Snyder’s interest in the McCourt Field by burdening the field with the

VPP, and Dernick’s repurchase of the VPP and resale of the gas for its own benefit.

The Wilsteins claimed that they had not had notice of the sale of their working interest

in the Bradshaw Field, that they had not been given the opportunity to participate in

the acquisition of Snyder’s interest in the McCourt Field financed with the VPP, and

that they had not been notified of the repurchase of the VPP and offered the benefit

of the same bargain as Dernick.

In addition to denying the Wilsteins’ claims, Dernick filed affirmative defenses

claiming that their claims were barred by the statute of limitations. It claimed that the

Wilsteins had constructive notice of the sale of their interest in the Bradshaw Field on

June 1, 1998 because Dernick had recorded the sale in the Kansas land records on or

about June 28, 1998. Dernick also claimed that it had notified the Wilsteins of the

opportunity to purchase Snyder’s interest in the McCourt Field by Stephen Dernick’s

telephoning David Wilstein and asking whether the brothers were interested in the

acquisition in October 1996 and that the Wilsteins had elected not to participate in the

acquisition. Therefore, according to Dernick, the four-year statute of limitations ran

on both claims well before the Wilsteins filed their suit against Dernick in October,

2003.

G. The Bench Trial and the Court’s Findings of Fact and Conclusions of

Law

The trial court held a two-week bench trial, after which it filed findings of fact

and conclusions of law on October 13, 2005.

The court held that the Wilsteins had constructive notice of the sale of their

interest in the Bradshaw Field when Dernick recorded the sale in the Kansas land

records in June 1998, and therefore their claims with respect to the Bradshaw Field

were barred by limitations. The court made the following pertinent findings of fact:

41. On or about December 1994, Dernick and the Wilstein Brothers

entered into an Agreement to drill certain wells in the Bradshaw

Field (the Bradshaw Leases).

. . . .

44. Dernick sold all its interests in the Bradshaw Field and the

Bradshaw Leases on or about June 1, 1998, and recorded the

transaction in the deed records in Kansas on or about June 28,

1998.

The court also made the following pertinent conclusions of law with respect to the

Wilsteins’ Bradshaw Field claims:

7. The ownership of oil and gas in the ground is a real property

interest.

. . . .

15. The doctrine of constructive notice creates an irrebuttable

presumption of actual notice of certain matters. It is applied when

a person knows where to find the relevant information and had a

duty to find that information, but failed to seek it out.

16. Real property records may constitute constructive notice of the

information that one could gain by an examination of the public

records.

. . . .

18. The existence of public records may not always constitute

constructive notice, but it is sufficient to void a claim that such an

injury is inherently undiscoverable.

19. The filing of the Bradshaw transaction in the deed records in

Kansas is sufficient to start the running of the statute of limitations

on claims relating to that transaction.

. . . .

22. There is insufficient evidence to establish fraudulent concealment

by Dernick.

23. The statute of limitations on the Wilsteins’ claims regarding the

Bradshaw Field began to run on or about June 28, 1998.

With respect to Dernick’s purchase of Snyder’s interest in the McCourt Field

through the VPP financing transaction and its early repurchase of the VPP, the trial

court made the following pertinent findings of fact:

1. On or about November 21, 1991, certain parties, including David

Wilstein and Leonard Wilstein (sometimes, collectively, the

“Wilstein Brothers”) and Dernick Resources, Inc. (“Dernick”)

entered into an Agreement (“JVA”), effective as of on or about

August 30, 1991.

2. A signed copy of the JVA was not produced at trial; however, all

parties agree that the draft JVA admitted at trial contains the

operative terms of the JVA, and all parties agree to be bound by

the terms of the draft JVA.

3. The acreage involved in the JVA was the Niobrara Properties in

Nebraska (the Field).

4. The Wilstein Brothers forwarded money to Dernick to acquire

property in the Field (the “Initial Interest in the JVA Field”).

5. On or about November 1, 1991, Snyder Oil Corporation

(“Snyder”) and Dernick entered into an Agreement (“JOA”).

. . . .

13. In or around 1995, Gil Burciaga (“Burciaga”), president of Lakota

Resources, Inc. (“Lakota”), purchased a 1/3 interest in Dernick.

14. On or about October 2, 1996, Dernick received notice from Snyder

of an offer to buy Snyder’s Interest in the JOA Field and other

facilities (the 1996 Snyder Acquisition).

. . . .

17. On or about December 13, 1996, Snyder assigned the 1996 Snyder

Acquisition to Dernick.

18. On or about December 13, 1996, Dernick entered into a

Volumetric Production Payment (“VPP”) with ResourceFund,

effective February 1, 1997, which burdened up to 90% of the net

gas proceeds from the initial interest in the JVA Field plus the

1996 Snyder Acquisition (the total of these interests sometimes

called “1997 Interests”).

19. Notice was not given by Dernick to the Wilstein Brothers of the

encumbrance of the 1997 Interests by the VPP.

20. The preponderance of credible evidence establishes that the

Wilstein Brothers’ Interest in the initial interest in the [McCourt]

JVA Field (“Wilstein Initial Interest”) was burdened by the VPP.

21. None of the proceeds from the VPP was allocated to the Wilstein

Brothers or the Wilstein Initial Interest.

. . . .

30. Between on or about June 2000 and on or about September 4,

2000, AMS Consultants (“AMS”) audited [Dernick] and the 1997

Interests on behalf of David Wilstein and Lakota.

31. On or about April 28, 2000, Dernick repurchased the VPP.

32. Dernick gave no written notice to Lakota or the Wilstein Brothers

of the repurchase of the VPP.

33. Dernick continued to charge Lakota’s Interest with its share of the

VPP burden.

34. On or about January 29, 2001, AMS gave to Lakota and David

Wilstein the audit of the 1997 Interests, which, among other

things, gave them notice of the existence of the VPP.

35. The VPP expired on or about January 31, 2002.

With respect to the placing of the VPP on the McCourt Field and Dernick’s

repurchase of the VPP, the trial court made the following pertinent conclusions of law:

4. The terms of the [McCourt Field] JVA required Dernick to acquire

property and execute documents as the nominee of the venture, or

on its behalf, and to maintain record title as the nominee of the

venture.

5. The terms of the [McCourt Field] JVA required property acquired

thereunder, and all production of oil or gas therefrom, to be owned

as tenants in common by the venturers.

6. When title to property is taken in the name of someone other than

the person who advances the purchase price, a resulting trust is

created in favor of the payor.

. . . .

14. Dernick’s burdening the Initial Interest in the [McCourt] JVA

Field, including the Wilstein Initial Interest, was a breach of the

narrow fiduciary duties owed the Wilstein Brothers as the co-owners of the Initial Interest in the [McCourt] JVA Field.

. . . .

20. The filing of any records regarding the VPP transactions in

Nebraska and/or Texas is not sufficient to start the running of the

statute of limitations on claims against fiduciaries relating to those

transactions.

. . . .

25. The statute of limitations on Lakota’s and the Wilsteins’ claims

regarding the sale of the VPP to ResourceFund began to run on or

after January 29, 2001.

26. Dernick did not have an obligation to notify either Lakota or the

Wilstein Brothers of its election to repurchase the VPP from

ResourceFund.

The trial court also held that the Wilsteins’ claims that they were not allowed

to participate in the 1996 acquisition of Snyder’s interest in the McCourt Field were

barred by limitations. The court made the following additional pertinent finding of

fact with respect to the Snyder acquisition:

16. The preponderance of credible evidence establishes that, sometime

in or around October 1996, Stephen Dernick telephoned David

Wilstein and offered the Wilstein Brothers an opportunity to

participate in the 1996 Snyder Acquisition, which opportunity was

declined.

The court also made the following pertinent conclusion of law:

24. The statute of limitations on the Wilsteins’ claims regarding the

1996 Snyder Acquisition began to run on or about October 1996.

The trial court then conducted a month-long jury trial on the remaining issues.

H. The Jury Trial and the Trial Court’s Final Judgment

The jury trial began on May 10, 2006. On March 5, 2007, the trial court signed

a modified final judgment. In accordance with the jury’s findings, the trial court

awarded the Wilsteins $287,400 for losses sustained as a result of the McCourt Field

VPP, $13,226 for the difference between the amount that the Wilsteins received for

their share of gas produced from the McCourt Field and the amount that the Wilsteins

should have received, and $225,000 in attorney’s fees.

The trial court also ordered Dernick to pay David and Leonard Wilstein

$250,000 each in exemplary damages. Although the jury found in favor of the

Wilsteins on their conversion claim, the trial court granted Dernick’s motion to

disregard the jury’s finding.

II. The Wilsteins’ Appeal

The Wilsteins raise two issues on appeal. First, they argue that the trial court

erred in holding that a telephone call Stephen Dernick made to David Wilstein in

October 1996 regarding the opportunity to purchase Snyder’s interest in the McCourt

Field for $3,056,000 constituted notice of the opportunity to participate in the Snyder

Acquisition and that, therefore, the statute of limitations bars their claims with respect

to the acquisition. Second, they argue that the trial court erred in holding that

Dernick’s recording of the sale of the interests to which it held title in the Bradshaw

Field in the Kansas land records on June 28, 1998 constituted constructive notice of

the sale of their interest in that field and that, therefore, the statute of limitations bars

their claims with respect to the Bradshaw Field.

The Wilsteins contend that, as they were joint venturers with Dernick in both

the McCourt Field and the Bradshaw Field, Dernick owed them a fiduciary duty of

disclosure both with respect to the acquisition of Snyder’s interest in the McCourt

Field and with respect to the sale of their working interest in the Bradshaw Field.

They contend that because Dernick breached its duty in both cases, the fraudulent

concealment rule applies and tolls the running of the statute of limitations until their

discovery of the breaches, which followed the audits of the McCourt and Bradshaw

Fields that the Wilsteins sought. Therefore, the Wilsteins argue, their claims with

respect to the denial of the opportunity to participate in the acquisition of Snyder’s

interest in the McCourt Field and with respect to Dernick’s sale of their interest in the

Bradshaw Field are not barred by limitations.

A. Fiduciary Duty of Joint Venturer

The Wilsteins argue that the fraudulent concealment doctrine applies because

the McCourt Field and Bradshaw Field JVA’s imposed a fiduciary duty of disclosure

on Dernick, which Dernick breached in both cases. Therefore, limitations was tolled

until they discovered facts that put them on notice of Dernick’s breach of its duty.

Whether there is a fiduciary duty is a question of law for the court, not a fact

question for the jury. Taylor v. GWR Operating Co. , 820 S.W.2d 908, 911 (Tex.

App.—Houston [1st Dist.] 1991, writ denied). The facts that give rise to a fiduciary

duty are, however, questions for the fact finder. Id . Thus, when, as here, the

underlying facts are undisputed, the determination of the existence of a fiduciary duty

is a question of law. Meyer v. Cathey , 167 S.W.3d 327, 330 (Tex. 2005). Likewise,

when the facts are undisputed, the question of whether a fiduciary duty has been

breached is a question of law for the court. Fuqua v. Taylor , 683 S.W.2d 735, 738

(Tex. App.—Dallas 1984, writ ref’d n.r.e.).

The elements of a breach of fiduciary duty claim are: (1) a fiduciary relationship

between the plaintiff and defendant, (2) a breach by the defendant of his fiduciary duty

to the plaintiff, and (3) an injury to the plaintiff or benefit to the defendant as a result

of the defendant’s breach. Jones v. Blume , 196 S.W.3d 440, 447 (Tex. App.—Dallas

2006, pet. denied) (citing Punts v. Wilson , 137 S.W.3d 889, 891 (Tex.

App.—Texarkana 2004, no pet.)). A fiduciary relationship imposes a duty on the

fiduciary to render full and fair disclosure of facts material to the relationship giving

rise to the duty. Willis v. Maverick , 760 S.W.2d 642 , 645 & n.2 (Tex. 1988).

Joint venturers for the development of a particular oil and gas lease have

fiduciary duties to each other arising from the relationship of joint ownership of the

mineral rights of the lease. Rankin v. Naftalis , 557 S.W.2d 940, 944 (Tex. 1977);

Fuqua , 683 S.W.2d at 738 . Likewise, if there is a joint venture between the operating

owner of an interest in oil and gas well drilling operations and the non-operating

interest owners, the operating owner owes a fiduciary duty to the non-operating

interest owners . Taylor , 820 S.W.2d at 909 , 911–12. In addition, “[a]n appointment

of an attorney-in-fact creates an agency relationship,” and an agency creates a

fiduciary relationship as a matter of law. Tyler v. State , 137 S.W.3d 261, 266 (Tex.

App.—Houston [1st Dist.] 2004, no pet.) (citing Matthews v. Sun Oil Co. , 425 S.W.2d

330, 337 (Tex. 1968), and Smith v. Lanier , 998 S.W.2d 324, 334 (Tex. App.—Austin

1999, pet. denied)). The scope of the fiduciary duties raised by a joint venture

relationship, however, does not extend beyond the development of the particular lease

and activities related to that development. Rankin , 557 S.W.2d at 944–45.

Here, Dernick and the Wilsteins were joint venture partners in both the McCourt

Field and the Bradshaw Field. In addition, Dernick was the operating owner of both

fields, and the Wilsteins were non-operating interest owners. And, Dernick was

appointed attorney-in-fact for the venturers in both JVAs. Therefore, we hold that

Dernick owed a fiduciary duty of full and fair disclosure to the Wilsteins with respect

to both joint ventures.

B. Limitations and Fraudulent Concealment

The Wilsteins brought claims of fraud and breach of fiduciary duty against

Dernick. Texas law prescribes a four-year statute of limitations for both. Tex. Civ.

Prac. & Rem. Code Ann. § 16.004(a) (Vernon 2002).

“As a general rule, a cause of action accrues and the statute of limitations begins

to run when facts come into existence that authorize a party to seek a judicial remedy.”

Provident Life & Accident Ins. Co. v. Knott , 128 S.W.3d 211, 221 (Tex. 2003). Thus,

“[a] defendant who seeks summary judgment on the basis of limitations must

conclusively prove when the plaintiff’s cause of action accrued.” Seureau v.

ExxonMobil Corp. , 274 S.W.3d 206, 226 (Tex. App.—Houston [14th Dist.] 2008, no

pet.). The date the cause of action accrues for purposes of limitations is a question of

law. Id. In most circumstances, “a cause of action accrues when a wrongful act causes

a legal injury, regardless of when the plaintiff learns of that injury or if all resulting

damages have yet to occur.” Id .; Moreno v. Sterling Drug, Inc ., 787 S.W.2d 348, 351

(Tex. 1990).

The fraudulent concealment doctrine, however, is an affirmative defense to

limitations that resembles equitable estoppel. Seureau , 274 S.W.3d at 228 . This

doctrine estops a defendant from relying on limitations if he was under a duty to make

a disclosure but fraudulently concealed the existence of a cause of action from the

party to whom it belonged. Id. The accrual of a cause of action is deferred in a

fraudulent concealment case until the plaintiff discovers or should have discovered the

deceitful conduct or facts giving rise to the cause of action. Earle v. Ratliff , 998

S.W.2d 882, 888 (Tex. 1999). The fraudulent concealment doctrine defers accrual

because “a person cannot be permitted to avoid liability for his actions by deceitfully

concealing wrongdoing until limitations has run.” S.V. v. R.V ., 933 S.W.2d 1, 6 (Tex.

1996). For the doctrine to apply, however, the plaintiff must prove the defendant:

(1) had actual knowledge of the wrong; (2) had a fixed purpose to conceal the wrong;

and (3) did conceal the wrong from the plaintiff. See Shah v. Moss , 67 S.W.3d 836,

841 (Tex. 2001). The fraudulent concealment doctrine does not bar limitations when

the plaintiff discovers the wrong or could have discovered it through the exercise of

reasonable diligence. Kerlin v. Sauceda , 263 S.W.3d 920, 925 (Tex. 2008).

A breach of a fiduciary duty of disclosure is tantamount to concealment for

limitations purposes. Id. at 645; see Seureau , 274 S.W.3d at 228 (including as

additional element of fraudulent concealment doctrine “a duty to disclose the wrong”).

Thus, the statute of limitations for a breach of fiduciary duty claim does not begin to

run until the claimant “knew or should have known of facts that in the exercise of

reasonable diligence would have led to the discovery of the wrongful act.” Little v.

Smith , 943 S.W.2d 414, 420 (Tex. 1997); see also Willis , 760 S.W.2d at 645 (accrual

of cause of action of person to whom duty is owed is postponed until he discovers, or

should discover, material facts in issue); Seureau , 274 S.W.3d at 228 (“The estoppel

effect of fraudulent concealment ends when a party learns of facts, conditions, or

circumstances that would cause a reasonably prudent person to make inquiry which,

if pursued, would lead to the discovery of the concealed cause of action.”). “When a

failure to notify is the basis for a cause of action, a plaintiff knows or should have

known of the failure to notify when it knows or should have known the facts about

which it was to be notified,” and the statute of limitations begins to run at that time.

HECI Exploration Co. v. Neel , 982 S.W.2d 881, 886 (Tex. 1998).

Because the Wilsteins and Dernick were joint venturers in both the McCourt

Field and the Bradshaw Field, the fraudulent concealment doctrine applies in both

cases. See Willis , 760 S.W.2d at 645 & n.2; Seureau , 274 S.W.3d at 228 . The

questions, therefore, for limitations purposes are whether Dernick breached its duty

of disclosure to the Wilsteins in both cases and, if so, when the Wilsteins learned of

facts, conditions, or circumstances that would cause a reasonably prudent person to

make inquiry that, if pursued, would lead to the discovery of the concealed cause of

action for the breach. See Seureau , 274 S.W.3d at 228 .

C. First Issue: The Wilsteins’ Claims with Respect to the Snyder

Acquisition

In their first issue, the Wilsteins state that they had a contractual right under the

McCourt Field JVA to be notified in writing of the opportunity to participate in

acquiring Snyder’s interest in the McCourt Field. They contend that the trial court

erred in starting the running of the statute of limitations when Stephen Dernick

telephoned David Wilstein in October 1996 and offered the Wilsteins the opportunity

to participate in the purchase of Snyder’s 75% interest in the McCourt Field for

$3,056,000 in cash, of which the Wilsteins would owe $1.6 to $1.7 million. The

Wilsteins contend that the deal changed to require no up-front outlay of cash, that the

“change in material terms triggered a new obligation to notify the Wilsteins,” and that

this second notice did not occur. The Wilsteins argue that “ it was not until 2003 that

the Wilsteins learned of Dernick’s clandestine purchase” of Snyder’s interest in the

McCourt Field. Their counterclaim also asserted that they “were never made aware

of the need to make an inquiry as to whether Dernick had acquired additional interests

in the McCourt Field, and were never put on notice that these interests were acquired

by Dernick.” The Wilsteins contended they “did not know of and could not have

discovered Dernick’s non-compliance with the Joint Venture Agreement in the

exercise of ordinary diligence.” They contended that “Dernick acquired the Snyder

interest without offering the Wilsteins the opportunity to participate in this acquisition

as contractually required. Dernick breached its fiduciary and contractual duties to the

Wilsteins by unilaterally acquiring this interest without offering same to the

Wilsteins.” We agree with the Wilsteins.

We have held that Dernick owed the Wilsteins the fiduciary duties of a joint

venturer. See Rankin , 557 S.W.2d at 944 ; Fuqua , 683 S.W.2d at 738 . Thus, it owed

them a duty of full and fair disclosure of facts that, if known, would reveal the

existence of a cause of action. See Willis , 760 S.W.2d at 645 & n.2 (holding that

breach of duty of attorney to disclose facts material to representation is tantamount to

fraudulent concealment); Seureau , 274 S.W.3d at 228 (holding that fraudulent

concealment doctrine “estops a defendant from relying on the defense of limitations

if the defendant was under a duty to make a disclosure but fraudulently concealed the

existence of a cause of action from the party to whom it belongs”); see also

Courseview, Inc. v. Phillips Petroleum Co. , 312 S.W.2d 197, 206 (Tex. 1958)

(holding that grantor’s failure to discover fraud on part of oil company in obtaining

conveyance of purchase rights or fact that it had acquired mineral property in which

grantor had right of purchase was not due to want of diligence on part of grantor and

was not barred by limitations where oil company had contractual obligation to give

notice of purchases in designated area and grantor lacked knowledge of facts that

would have aroused suspicions).

The 1991 McCourt Field JOA provided:

Should any party desire to sell all or any part of its interests in the

Contract Area, it shall promptly give written notice to the other parties, with full

information concerning its proposed sale, which shall include the name and

address of the prospective purchaser (who must be ready, willing and able to

purchase) the purchase price, and all other terms of the offer. The other parties

shall then have an optional prior right, for a period of fifteen (15) business days

after receipt of the notice, to purchase on the same terms and conditions the

interest which the other party proposes to sell; and, if this optional right is

exercised, the purchasing parties shall share the purchased interests in the

proportions that the interest of each bears to the total interest of all purchasing

parties. . . .

Likewise, the McCourt Field JVA provided that “all notices required or permitted to

be given hereunder shall be personally delivered to the party to whom such notice is

addressed” or mailed to the party by certified mail. Both the JOA and the JVA thus

expressly required written notice of a party’s “desire to sell all or any part of its

interests in the Contract Area,” with “full information concerning its proposed sale”

so that they might exercise their right “to purchase on the same terms and conditions

the interest which the other party proposes to sell” in proportion to their interest in the

field.

Snyder notified Dernick of the proposed sale, and Dernick orally informed the

Wilsteins of Snyder’s desire to sell, but Dernick did not disclose, orally or in writing,

the opportunity to purchase Snyder’s interest by entering a VPP agreement with

Resource Fund. Dernick simply committed their gas, along with its own, to Resource

Fund in order to obtain cash to buy out Snyder. We hold, therefore, that Dernick

breached the notice requirements of the JOA and JVA and, in doing so, breached its

duty of full and fair disclosure to the Wilsteins. These actions gave rise to a concealed

cause of action against Dernick for breach of fiduciary duty. See Willis , 760 S.W.2d

at 645 & n.2; Seureau , 274 S.W.3d at 228 .

Our conclusion that Dernick’s actions gave rise to a concealed cause of action

for breach of its fiduciary duty of disclosure is not changed by Dernick’s argument in

its cross-appeal. Specifically, Dernick argues that “the evidence conclusively

established that no portion of the McCourt Field production applicable to the Wilsteins

was taken to satisfy the VPP” and that because only 90% of the gas production from

the McCourt Field was committed to the VPP and only 76% of the net production was

actually taken by ResourceFund, while the Wilsteins owned only 10% of the working

interest in the McCourt Field and 8.35% of the net production of the field, “the

Wilsteins cannot demonstrate that any gas production to which they were entitled was

diverted by the VPP.”

It is undisputed that Dernick financed the purchase of Snyder’s interest in the

McCourt Field by encumbering the field with a VPP that obligated Dernick to commit

90% of the gas produced from the field for five years to ResourceFund, beginning

February 1, 1997 and ending January 31, 2002, in exchange for $3,200,000 cash up

front to pay Snyder. The trial court found that the VPP burdened “up to 90% of the

net gas proceeds from the initial interest in the JVA Field plus the Snyder

Acquisition,” where the “initial interest” was the initial 25% undivided working

interest in the McCourt Field acquired by the joint venture in 1991 from Snyder, and

the total initial interests were those of Dernick, the Wilsteins, and Snyder, “sometimes

called the ‘1997 Interests.’” The court also found that “the preponderance of the

evidence established that “the Wilstein Brothers’ Interest in the initial interest in the

JVA Field (“Wilstein Initial Interest”) was burdened by the VPP.” Likewise, the court

found that “[n]one of the proceeds from the VPP was allocated to the Wilstein

Brothers or the Wilstein Initial Interests.” The trial court’s findings are supported by

the record.

The McCourt Field JVA provided that if the interest of any venturer became

“subject to any . . . production payment or other charge over and above the Initial

Lease Burdens,” such lease burden “shall be subordinate to this Agreement and to any

applicable Operating Agreement.” Thus, the VPP agreement was subject to the

provisions in the McCourt Field JVA and JOA.

The McCourt Field JVA provided that Dernick and the Wilsteins had a

proportionate undivided interest in the leases acquired, that the interest was owned as

tenants in common, and that the relationship of the venturers and Dernick was that of

co-owners, although title to the interest of the venturers was maintained in the name

of Dernick as nominee of the venture. The JVA gave Dernick the right and authority

to negotiate for the acquisition of additional interests, such as Snyder’s 75% interest

in the McCourt Field, as the nominee of the venture and to execute all documents,

including operating agreements, purchase and sale agreements, and other appropriate

documents that it, in its discretion, deemed necessary or appropriate. The JVA made

Dernick the agent and attorney in fact for the venturers, including the Wilsteins. Thus

Dernick had the right to make acquisitions on behalf of the venture as its nominee and

to hold title to the properties acquired in its own name. But the VPP did not thereby

transfer ownership of the interests on whose behalf Dernick made acquisitions or

entered other agreements. Rather, the JVA imposed on Dernick a fiduciary duty to

disclose to his non-operating co-owners in the McCourt Field any and all negotiations

and acquisitions, which we have held it breached.

The JVA gave Dernick the right to burden the McCourt Field with a VPP

provided the VPP covered the “entire interest of the venturer” in the field, which the

ResourceFund VPP did not, or “an equal undivided interest” in the field, i.e., an equal

undivided interest of all the venturers—here, an equal undivided 90% interest. The

JVA further provided that if the interest of any venturer became “subject to any . . .

production payment or other charge over and above the Initial Lease Burdens . . . such

Venturer shall assume and alone bear all obligations with respect thereto and shall

account for them to the owners thereof out of his share of the working-interest

production from the [McCourt Field] properties.” Here, Dernick burdened the entire

undivided interest in the field with the VPP, and it did not bear the costs of the VPP

itself; it charged their proportionate costs to the Wilsteins.

Despite the foregoing provisions in the JVA, Dernick, in its capacity as nominee

of the undivided working interest in the McCourt Field that it represented and on

whose behalf it acted, and as holder of title for the entire working interest under the

terms of the JVA, represented in the VPP financing transaction documents that it was

the sole “owner of the undivided interests” in the McCourt Field. It then exercised the

powers given it by the JVA to be exercised on behalf of the undivided joint venture

interests to sell “a mineral right and interest in real property,” comprising 90% of the

gas production of the McCourt Field, to ResourceFund for a term of five years in

exchange for cash to buy out Snyder, and it granted ResourceFund a lien on 90% of

the production from the field to ensure payment.

The VPP financing transaction consisted of three documents, as is typical of

such a financing arrangement. See EOG Res., Inc. v. Dep’t of Revenue , 86 P.3d 1280 ,

1282–83 (Wyo. 2004). These were a purchase and sale agreement between Dernick

and ResourceFund dated December 13, 1996, in which Dernick represented that it was

“the owner of certain oil and gas leasehold interests in Cheyenne County, Nebraska”

(Closing Agreement), that it had sold a production payment interest in the leasehold

interests to ResourceFund, and that, “as full payment for the production payment,”

ResourceFund had paid Dernick $3,200,000. The statement that Dernick was the

owner of all of the leasehold interests conveyed was false. It held title to the

undivided leasehold interests of itself and the Wilsteins, as provided by the McCourt

Field JVA, but it was a co-owner of the undivided working interest as a tenant in

common with the Wilsteins.

Dernick, as “Seller,” also executed a “Conveyance of Production Payment,”

which conveyed to ResourceFund, as “Buyer,” “a mineral right and interest in real

property consisting of a production payment (the “Production Payment”) comprised

of and representing 90% of the natural gas and other hydrocarbons . . . in, under and

which may be produced, saved and sold from, or which accrue or are attributable to,

the Subject Interests” in the McCourt Field, effective February 1, 1997 and

terminating January 31, 2002. In making this conveyance, Dernick represented that

it was “ the owner of undivided interests in certain oil and gas leases . . . covering

certain lands located in Cheyenne County, Nebraska (such undivided interests. . .

being herein referred to as the “Subject Interests.)” (emphasis added). The undivided

interests, styled the “Subject Interests” in the Conveyance of Production Payment,

90% of whose production was sold to ResourceFund, were the same interests

referenced by the trial court in its finding of fact number 18 as “the 1997 interests,”

namely, the total undivided working interest in the McCourt Field covered by the

McCourt Field JVA, consisting of the interests of Dernick, the Wilsteins, and Snyder.

Dernick’s representation in the “Conveyance of Production Payment” that it was the

owner of the undivided working interest in the leasehold interests in the McCourt

Filed, like its representation of its ownership of the interests conveyed in the Closing

Agreement, was false.

Finally, Dernick executed a Production and Delivery Agreement between itself

and ResourceFund that governed the delivery of production payment gas to

ResourceFund, granted ResourceFund a lien and security interest in “all of Seller’s

interest in the Subject Interests,” and provided for the repurchase of the production

payment from ResourceFund at “[a]ny time after July 31, 1998” on terms set out in

paragraph 15 of the agreement. In other words, it granted ResourceFund a lien on

100% of the undivided interest in the McCourt Field.

Because the undivided working interest in the McCourt Field for which Dernick

held title and acted as nominee included not only its own undivided interest but the

undivided interest of its co-tenants—the Wilsteins—Dernick’s claim that it did not

include the Wilsteins’ “mineral right and interest in real property” in its conveyance

of 90% of the gas in the McCourt Field to ResourceFund in exchange for $3, 200,000

cash to buy Snyder’s interest in the field is contradicted by the conclusive evidence

of the VPP transaction. Therefore, Dernick’s argument that it did not commit the

Wilsteins’ gas to the VPP is without merit.

The trial court found that the Wilsteins did not have notice of the existence of

the VPP transaction until January 29, 2001, when AMS gave them the audit of their

interest in the McCourt Field. This finding is supported by the evidence. We

conclude that the Wilsteins exercised reasonable diligence to discover their cause of

action arising from the Snyder Acquisition by requesting the audit. See HECI , 982

S.W.2d at 886 (holding that when failure to notify forms basis of cause of action,

plaintiff knows or should have known of failure to notify when it knows or should

have known facts about which it was to be notified); Seureau , 274 S.W.3d at 228

(“The estoppel effect of fraudulent concealment ends when a party learns of facts,

conditions, or circumstances that would cause a reasonably prudent person to make

inquiry which, if pursued, would lead to the discovery of the concealed cause of

action.”). The Wilsteins filed their breach of fiduciary duty claims in 2003, well

within the four year statute of limitations for fraud and breach of fiduciary duty.

We hold that the Wilsteins’ claims with respect to the Snyder Acquisition were

not barred by the four-year statute of limitations.

We sustain the Wilsteins’ first issue on appeal.

D. Second Issue: The Wilsteins’ Claims with Respect to the Bradshaw

Field

In their second issue, the Wilsteins argue that the trial court erred in holding that

their claims against Dernick with respect to the Bradshaw Field were barred by

limitations. The Wilsteins argue that Dernick, their joint venturer under the Bradshaw

Field JVA, breached its fiduciary duty to them by selling their portion of the working

interest in the Bradshaw Field without disclosing the sale to them.

Dernick argues that the trial court correctly held that the Wilsteins’ claims with

respect to the Bradshaw Field were barred by limitations. Dernick contends, and the

trial court found, that the sale, which occurred on June 1, 1998, was recorded in the

Greeley County, Kansas land records on or about June 28, 1998. Therefore the

Wilsteins were on constructive notice of the sale of their interest in the Bradshaw

Field at that time, and the four-year statute of limitations ran before they filed their

claims in October, 2003.

The Wilsteins respond that they did not have actual notice of the Bradshaw sale

and that the recording statutes cannot impose constructive notice upon them. They

claim that after they purchased their interest in the Bradshaw Field in 1994 they were

not required to search for other conveyances of the property. They contend that they

are entitled to “their percentage of the sales price attributable to any properties

Dernick acquired subsequent to the creation of the Joint Venture, which the Wilsteins

should have been offered and allowed to participate in.” The Wilsteins contend that

“Dernick’s failure to properly account for the assets of the Joint Venture . . . and its

failure to disclose the sale of the properties, both constitute a breach of its fiduciary

duties, and a breach of the terms of the [Bradshaw Field JVA]. . . .” Again, we agree

with the Wilsteins.

Like the McCourt Field joint venture, the Bradshaw Field joint venture was

formed to provide for the acquisition of oil and gas leases, this time in Kansas, and the

conduct of drilling operations for the venturers’ joint account. Dernick owned a 25%

working interest in the Bradshaw Field joint venture, each of the Wilsteins owned a

12½% interest, for a total interest of 25%, and Natural Gas Clearinghouse owned the

other 50%. As in the McCourt Field joint venture, the Bradshaw Field venturers all

had an undivided interest in the leases and in all production of oil and gas, which they

owned as tenants in common, and the Bradshaw Field JVA gave Dernick the full right

and authority to negotiate for the acquisition or sale of interests as the nominee of the

venture and to execute all documents, including purchase and sale agreements, that

Dernick, in its discretion, deemed necessary or appropriate. Dernick also had the

option to maintain record title to the interest of the venturers in the leases as the

nominee of the venture, but the JVA expressly stated that the interest was owned as

tenants in common and that the relationship of the venturers and Dernick was that of

co-owners. Finally, the JVA provided that “all notices required or permitted to be

given hereunder shall be personally delivered to the party to whom such notice is

addressed” or mailed to the party by certified mail.

We hold that, just as with respect to the McCourt Field joint venture, Dernick

had a fiduciary duty as joint venturer and operator of the Bradshaw Field to notify the

Wilsteins of the sale of their interest in the Bradshaw Field, which it undertook as their

nominee, and to account to them for that interest. It is undisputed that it did neither.

Therefore, it breached its fiduciary duty. Its breach of its fiduciary duty of disclosure

was tantamount to fraudulent concealment for limitations purposes. See Willis , 760

S.W.2d at 645 (holding that breach of fiduciary duty of disclosure is tantamount to

concealment for limitations purposes).

Contrary to the trial court’s finding, the Wilsteins were not under any legal duty

to examine the deed records of Greely County, Kansas to ascertain whether Dernick

had breached its fiduciary duties or had breached the JVA agreement. In HECI , the

Texas Supreme Court discussed the relationship between the doctrine of constructive

notice, the discovery rule, and, tangentially, the fraudulent concealment rule. The

court rejected the defendant’s argument that the plaintiff had constructive notice of

public records kept by the Railroad Commission. See HECI , 982 S.W.2d at 886–87.

The court observed that the constructive notice doctrine applies only in limited

circumstances, including suits to try title and probate proceedings. See id . Thus,

while it recognized that certain public records kept by the Railroad Commission were

“a ready source of information, and a cause of action for failure to provide that same

information [was] not inherently undiscoverable,” it held that those records did not

provide constructive notice to the plaintiff as a matter of law. See id . at 887.

Moreover, the court stated that “if an operator fraudulently concealed information

from a lessee, decisions of this and other courts indicate that limitations may be

tolled.” Id . at 886 (citing S.V. , 933 S.W.2d at 6 , for decisions regarding fraudulent

concealment).

Similarly, in Ojeda de Toca v. Wise , the Texas Supreme Court addressed the

question of whether fraud and DTPA claims were barred as a matter of law because

the defendants’ alleged deception would have been discovered from an examination

of the county records. 748 S.W.2d 449, 450 (Tex. 1988). The court concluded that

recording statutes such as Texas Property Code section 13.002 serve a distinct

purpose: to protect a good faith purchaser “against the evils of secret grants and secret

liens.” Id . at 450–51 (quoting 66 Am. Jur. 2 d Records and Recording Laws § 48

(1973)); see also Boucher v. Wallis , 236 S.W.2d 519, 526 (Tex. Civ. App.—Eastland

1951, writ ref’d n.r.e.) (“The purpose of recording laws is to notify subsequent

purchasers of the rights such instruments intended to convey and not to give

protection to perpetrators of fraud.”) (emphasis added). As Ojeda de Toca notes, deed

records by statute afford notice of interests conveyed in real property to protect those

interests and subsequent grantees , not to protect perpetrators of fraud. 748 S.W.2d at

450–51. Here, the Wilsteins were not subsequent grantees or subsequent purchasers

but joint venturers with Dernick and co-owners of the property Dernick secretly sold

in breach of its fiduciary duties under the Bradshaw Field JVA. Therefore the filing

of the sale in the deed records did not constitute constructive notice to the Wilsteins.

See HECI , 982 S.W.2d at 887 .

We conclude that Dernick breached its fiduciary duty to the Wilsteins by failing

to disclose its sale of their interest in the Bradshaw Field and that the Wilsteins were

not put on constructive notice of the sale by the filing of the sale in the Kansas public

records. The trial court found that the Wilsteins discovered the sale of their interest

in the Bradshaw Field following the 2002 audit of that field. This finding is supported

by the evidence. Because the Wilsteins filed their Bradshaw Field claims in 2003,

their claims were not barred by the four-year statute of limitations for breach of

fiduciary duty and fraud.

We sustain the Wilsteins’ second issue on appeal.

III. Dernick’s Cross-Appeal Against the Wilsteins

In its first issue on cross-appeal, Dernick argues that legally insufficient

evidence supports the jury’s award of damages in favor of the Wilsteins for losses due

to the VPP. In its second and third issues, Dernick argues that the trial court erred in

holding that Dernick owed a fiduciary duty to the Wilsteins and in awarding them a

“fraud non-disclosure recovery.” In its fourth issue, Dernick argues that the trial court

erred in refusing to find the Wilsteins’ claims for losses attributable to the VPP barred

by limitations. Because our disposition of the Wilsteins’ appeal is dispositive of

Dernick’s issues, we do not address Dernick’s cross-appeal separately.

Conclusion

We reverse the judgment of the trial court on the Wilsteins’ claims and remand

the case for further proceedings consistent with this opinion.

Evelyn V. Keyes

Justice

Panel consists of Justices Keyes, Alcala, and Hanks.