Jimmie Luecke and Tex-Lee Drilling & Development Company, Inc. v. Carolyn Kay Wallace

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

NO. 03-96-00436-CV

Jimmie Luecke and Tex-Lee Drilling & Development Company, Inc., Appellants

v.

Carolyn Kay Wallace, Appellee

FROM THE DISTRICT COURT OF LEE COUNTY, 21ST JUDICIAL DISTRICT

NO. 10,344, HONORABLE HAROLD R. TOWSLEE, JUDGE PRESIDING

Appellants Jimmie Luecke and Tex-Lee Drilling & Development Company, Inc. challenge

a trial-court judgment declaring that Carolyn Kay Wallace, appellee, has an interest in the oil and gas

royalties and bonuses to a certain 303.055-acre tract of land (the "303-acre tract") owned by Luecke.

We will affirm the trial court's judgment.

THE CONTROVERSY

In 1984, Carolyn Wallace (formerly Durrenberger) and John Durrenberger were divorced.

As part of their property settlement agreement, Wallace executed a deed (the "1984 deed") conveying her

interest in a 303-acre tract of land to Durrenberger. In this deed, however, Wallace reserved (1) an

"undivided one-half (½) non-participating interest in any and all oil, gas and mineral royalties reserved by"

Durrenberger, his heirs, and assigns; and (2) "an undivided one-half interest in any bonus money exceeding

$50.00 per acre received by" Durrenberger, his heirs, and assigns. This reservation forms the basis of this

dispute.

In 1988, Durrenberger conveyed his interest in the 303 acres to appellant Jimmie Luecke.

The deed from Durrenberger to Luecke (the "1988 deed") was expressly made subject to Wallace's

reservation.

Early in 1992, Luecke negotiated an agreement to lease the 303-acre tract to Union Pacific

Resources Company (Union Pacific). Originally, Luecke proposed to lease the 303 acres directly to Union

Pacific in exchange for a 1/5th royalty and a $150 per acre bonus. In performing a title search, however,

Union Pacific discovered Wallace's interest and, in a letter dated April 28, 1992, informed Luecke that,

with respect to Wallace's interest, he must provide Union Pacific with "evidence of payment of ½ of excess

bonus money above $50.00 per acre and a Ratification and Rental Division Order setting forth the interest

division."

Two days after receiving this letter, Luecke and Union Pacific closed the lease agreement;

however, at Luecke's request, the structure of the transaction was changed. First, Luecke leased the 303-acre tract to appellant Tex-Lee Drilling & Development Company (Tex-Lee) for a 1/8th royalty and "less

than $50.00 per acre" bonus. (1) Luecke was the president and sole owner of Tex-Lee. Tex-Lee then sold

its lease to Union Pacific for the $150.00 per acre bonus and an overriding 1/5th royalty. (2) According to

a representative of Union Pacific, at the closing of the lease agreement, Luecke orally represented that he

had contacted Wallace and she was "on board" with the lease of the 303 acres.

Wallace was not, however, "on board" with Luecke's lease. Indeed, according to

Wallace, at the time of the closing, she had not been contacted about the lease. Only after the closing did

Luecke send representatives to contact Wallace. Initially, Luecke attempted to purchase Wallace's interest

in the 303-acre tract; then, when Wallace refused to sell, he unsuccessfully tried to get Wallace to sign a

stipulation of her interest in the 303 acres.

On the day after the closing, Union Pacific paid Tex-Lee a $150 per acre bonus for the

303-acre tract. (3) Five days later, Tex-Lee paid Luecke this same amount. Luecke did not, however, pay

or attempt to pay Wallace anything.

Wallace brought this lawsuit for declaratory judgment of the parties' rights and duties and

for Luecke's breach of duty to Wallace. Wallace alleged that, in the deed by which she transferred the 303

acres to Durrenberger, she reserved (1) a ½ nonparticipating royalty interest and (2) ½ of all bonuses in

excess of $50. She contends Luecke knew of this reservation and intentionally structured the lease to avoid

paying her the royalties and bonus payments she was due. Further, Wallace alleged that Luecke, as owner

of the executive rights to the 303-acre tract, owed her a duty of "utmost good faith and fair dealing." (4) She

argues that Luecke breached this duty when he leased the tract to Tex-Lee for a bonus and royalty that

were below market value.

The trial court granted Wallace's two motions for partial summary judgment. In the first

partial summary judgment, the trial court declared that "Wallace is a non-participating royalty interest owner

in the [303-acre] tract . . . ." In the second partial summary judgment, the court found as a matter of law

that: (1) Luecke held Wallace's executive rights in the 303-acre tract when he executed the lease to Tex-Lee; (2) Luecke owed Wallace "a duty to obtain for her every benefit . . . Luecke obtained for himself or

his wholly owned and controlled Corporation, Tex-Lee"; (3) Wallace was entitled to "her share of the

additional royalty . . . over $50.00 per acre received by" Luecke and Tex-Lee; and (4) Wallace was

entitled to reasonable attorney's fees.

The court then held a trial on the merits to determine Wallace's damages and whether

Wallace was entitled to receive exemplary damages. After the trial, the court entered its final judgment,

awarding Wallace $15,153 in actual damages, $6,647 in prejudgment interest, $25,000 in exemplary

damages, and a total of $107,500 in attorney's fees. (5)

Luecke and Tex-Lee appeal, complaining that: (1) the trial court misconstrued the

reservation in the 1984 deed and, therefore, erred in granting Wallace's motions for partial summary

judgment; (2) the trial court denied Luecke and Tex-Lee due process of law by filing findings of fact

concerning issues of liability following the bench trial when the court had already determined liability as a

matter of law by partial summary judgment; (3) the trial court erred by awarding exemplary damages when

there was no evidence to support an award of exemplary damages. Luecke and Tex-Lee also challenge

the factual and legal sufficiency of the evidence supporting the amount of punitive damages awarded

Wallace. Finally they contend that the trial court's award of attorney's fees is excessive.

DISCUSSION

Summary Judgment

In their first two points of error, Luecke and Tex-Lee challenge the trial court's partial

summary judgments. We review the trial court's summary judgment de novo. In performing our review

we must determine whether Wallace met her burden of showing that no genuine issue of material fact exists

and that she is entitled to judgment as a matter of law. We will accept as true all evidence favorable to

Luecke and Tex-Lee, and indulge every reasonable inference and resolve every doubt in their favor. See

Nixon v. Mr. Property Management Co. , 690 S.W.2d 546, 548-49 (Tex. 1985). The partial summary

judgments construing Wallace's reservation in the 1984 deed are based on uncontroverted facts and

present only questions of law. We must, therefore, determine whether the trial court correctly concluded

that the reservation is unambiguous and reached a proper legal conclusion as to its content. See Myers v.

Gulf Coast Minerals Management Corp. , 361 S.W.2d 193, 196 (Tex. 1962); Asset Restructuring

Fund, L.P. v. Liberty Nat'l Bank , 886 S.W.2d 548, 550 (Tex. App.--Austin 1994, writ denied).

Reservation Unambiguous and Does Not Violate Rule Against Perpetuities.

Luecke and Tex-Lee contend the trial court erred in granting Wallace's partial summary

judgments because her reservation in the 1984 deed is either ambiguous or, in the alternative, void because

it violates the rule against perpetuities. In making their arguments, Luecke and Tex-Lee focus on what they

call "awkward language" in the reservation.

The language of the reservation reads as follows:

There is hereby reserved unto Grantor [Wallace], her heirs and assigns, an undivided one-half (½) non-participating interest in any and all oil, gas and mineral royalties reserved by

Grantee [Durrenberger], his heirs and assigns at any time in the future and which

may be payable to Grantee, his heirs and assigns under any future lease of the

property , and there is hereby reserved unto Grantor her heirs and assigns an undivided

one-half interest in any bonus money exceeding $50.00 per acre received by Grantee, his

heirs and assigns for the lease of the property.

(Emphasis added.)

Specifically, Luecke and Tex-Lee contend that the clause emphasized above renders the

reservation ambiguous or void. First, they argue that this language makes Wallace's interest in the 303

acres contingent upon Durrenberger reserving some interest in the tract when he conveyed it to Luecke.

Because Durrenberger made no such reservation when he sold the 303 acres to Luecke, they contend that

Wallace has no further interest in the property. Wallace's interest is not, however, contingent upon a

reservation by Durrenberger. The reservation in the 1984 deed states that Wallace has a royalty interest

in any royalties reserved by Durrenberger, his heirs and assigns . The word "assigns" includes those

individuals who take property " either immediately or remotely from or under the assignor, whether by

conveyance , devise, descent, or act of law." Black's Law Dictionary 119 (6th ed. 1990) (emphasis

added). Because Durrenberger conveyed the 303-acre tract to Luecke, Luecke is an assign of

Durrenberger. Id ; see also Barstow v. State , 742 S.W.2d 495, 499-500 (Tex. App.--Austin 1987, writ

denied) (construing the word "assigns" to include those who take real property by grant); Neeley v.

Intercity Management Corp. , 623 S.W.2d 942, 951 (Tex. App.--Houston [1st Dist.] 1981, no writ)

("The word 'assign' is tantamount to the word 'grant', which is an operative word of conveyance.").

Although Tex-Lee did not acquire its interest in the 303-acre tract directly from Durrenberger, it did

acquire it through Luecke and therefore it is also an assign of Durrenberger. Id. Because Luecke and Tex-Lee are Durrenberger's assigns, by the plain language of the reservation, Wallace retained her royalty

interest even after Durrenberger sold the 303-acre tract without reserving any interest.

Next, Luecke and Tex-Lee argue the deed is ambiguous as to the type and amount of

interest reserved by Wallace. In order to ascertain Wallace's interest in the 303-acre tract, we look to the

plain language of the reservation to determine whether it is ambiguous or not. The 1984 deed states that

Wallace reserved an "interest in any and all oil, gas and mineral royalties . . . ." We believe this to be a

clear reservation of a royalty interest. Furthermore, the deed defines the amount of Wallace's royalty

interest as an "undivided one-half . . . interest in any . . . royalties reserved by Grantee [Durrenberger], his

heirs and assigns . . . ." The only reasonable interpretation of this language is that Wallace reserved an

interest in one-half of any royalties reserved by Durrenberger, his heirs, or assigns. We therefore hold that

the 1984 deed is unambiguous as to the type and amount of interest Wallace reserved. (6)

Finally, Luecke and Tex-Lee contend that the phrases "reserved . . . at any time in the

future" and "which may be payable . . . under any future lease of the property" cause Wallace's reservation

to violate the rule against perpetuities. They argue that, at best, the reservation is ambiguous as to when

the royalty interest vested.

A grantor may reserve interests in royalties, bonuses, and rentals. Schlittler v. Smith , 101

S.W.2d 543, 544 (Tex. 1937); see also Bagby v. Bredthauer , 627 S.W.2d 190 , 194 (Tex.

App.--Austin 1981, no writ). Royalty interests are regarded as incorporeal interests in real property.

Haile v. Holtzclaw , 414 S.W.2d 916, 923 (Tex. 1967). As such, a grantor may reserve a royalty interest

prior to any lease for oil and gas purposes. Watkins v. Slaughter , 189 S.W.2d 699, 700 (Tex. 1945);

Barker v. Levy , 507 S.W.2d 613, 617 (Tex. Civ. App--Houston [14th Dist.] 1974, writ ref'd n.r.e.)

("[T]here is no requirement in Texas law that a lease be in effect before a royalty interest can be created.").

Royalty interests, like all interests in real property, are subject to the rule against

perpetuities. See Peveto v. Starkey , 645 S.W.2d 770, 772 (Tex. 1982); Bagby , 627 S.W.2d at 194-95.

Thus, a royalty interest is not valid unless it must vest, if at all, not later than twenty-one years after some

life in being at the creation of the interest. Bagby , 627 S.W.2d at 194, 196-97.

The rule relates only to the vesting of estates and interests and has no bearing on the

duration of the estate or the actual possession of it. . . . The rule is not applicable to

present or immediate interests, nor is it applicable to those future interests in land which

vest at their creation ."

Id. at 194 (citation omitted). Therefore, so long as Wallace's royalty interest was a present interest or a

future interest that vested upon execution of the 1984 deed, it does not violate the rule against perpetuities.

See id.

Luecke and Tex-Lee argue, however, that the clauses beginning "in the future" and "which

may be payable . . . under any future lease" prevents Wallace's royalty interest from vesting until

Durrenberger, his heirs, or assigns execute a lease in which they reserve for themselves a bonus and/or

royalty interest. We disagree.

By definition, a royalty interest is an interest in a share of the future product or profit from

an oil and gas lease. Griffith v. Taylor , 291 S.W.2d 673, 676 (Tex. 1956); Black's Law Dictionary

1330-31 (6th ed. 1990). Thus, neither oil and gas production nor the existence of an oil and gas lease are

necessary for a royalty interest to be a vested, present interest ( i.e. , a fee simple interest in royalties). All

that is necessary is for the royalty-interest owner to have a present right to a share of future production.

The language of the 1984 deed indicates that Wallace reserved such a right. She did not

reserve an executory interest or a fee simple determinable; (7) rather, she kept a fee simple absolute interest

in one-half of any future royalties reserved by Durrenberger, his heirs, or assigns. Wallace's royalty interest

is not contingent upon a future lease. The "future" language in the reservation merely defines the amount

of interest Wallace owns and reflects that Wallace cannot receive her share of royalties until a lease is

executed and oil, gas, or minerals are produced from the 303-acre tract. Appellants contend that Peveto

v. Starkey , 645 S.W.2d 770 (Tex. 1982), is controlling, and therefore, Wallace's reservation violates the

rule against perpetuities. Peveto is, however, distinguishable because the deed in Peveto contained a

clause stating "'this grant shall become effective only upon the expiration of [Peveto's] . . . Deed . . . .'"

Id. at 772 . By its plain language, the grant contained in that deed could not vest until an uncertain future

event took place. Wallace's reservation contained no such language. Furthermore, the Peveto grant

concerned the conveyance of a right of reverter in a royalty interest. As already noted, this case concerns

the reservation of a fee simple in a royalty interest. We hold that, under the unambiguous terms of the 1984

deed, Wallace's reservation vested immediately upon the deed's execution. It does not, therefore, violate

the rule against perpetuities.

Breach of Duty of Utmost Good Faith and Fair Dealing.

Luecke and Tex-Lee also argue that the trial court erred by granting partial summary

judgment that Luecke, as holder of the executive right to the 303-acre tract, breached a "duty of utmost

faith and fair dealing to Wallace." As noted above, the trial court's summary judgment declared that

Luecke owed Wallace "a duty to obtain for her every benefit [he] obtained for himself or [Tex-Lee]."

An executive owes nonparticipating royalty interest owners a duty of utmost good faith.

Manges v. Guerra , 673 S.W.2d 180, 183 (Tex. 1984). This duty is a fiduciary duty arising from the

relationship of the parties and not from contract. Id. The "duty requires the holder of the executive right

. . . to acquire for the non-executive every benefit that he exacts for himself." Id .

Luecke and Tex-Lee argue that, to establish a breach of this duty on summary judgment,

Wallace would have had to establish that she could have made a better deal than the one-eighth royalty

and the less than fifty dollar per acre bonus that Luecke received from Tex-Lee. We disagree. Wallace

only needed to establish that Luecke obtained benefits for himself that he did not obtain for Wallace. The

undisputed summary judgment evidence establishes the following: (1) Union Pacific offered to lease the

303-acre tract from Luecke for a one-fifth royalty and $150 per acre bonus; (2) Luekce restructured the

transaction so that Tex-Lee would receive the $150 per acre bonus and one-fifth royalty and Luecke

individually would only receive from Tex-Lee a one-eighth royalty and less than $50 per acre bonus; and

(3) Luecke received from Tex-Lee all of the bonus money Tex-Lee received from Union Pacific. Clearly,

the lease from Luecke to his captive corporation, Tex-Lee, was a sham transaction entered into for the sole

purpose of depriving Wallace of her full interest. This evidence establishes as a matter of law that Luekce,

as owner of the executive right, did not obtain for Wallace every benefit he obtained for himself.

The trial court did not err in granting Wallace partial summary judgments because (1) it

properly construed the unambiguous reservation in the 1984 deed and (2) it correctly concluded that

Luecke breached the fiduciary duty he owed Wallace. Accordingly, we overrule Luecke and Tex-Lee's

first two points of error.

Due Process of Law

In their third and fourth points of error, Luecke and Tex-Lee contend that they were denied

due process of law because the trial court revisited issues of liability at trial after it had already determined

liability in its partial summary judgment. They argue that the two orders granting partial summary judgment

left only the amount of damages, amount of attorney's fees, and any entitlement to exemplary damages in

dispute. In reviewing the record of the trial, we find that these were indeed the only issues tried before the

court. Luecke and Tex-Lee point out, however, that the trial court's final judgment superceded and

replaced its previous partial summary judgments. They further note that the trial court then filed findings

of fact pertaining to issues of liability. They complain that the trial court, therefore, revisited issues of liability

at trial without giving them notice. Luecke and Tex-Lee contend that they were harmed by the trial court's

actions because appellate review of the trial court's liability findings should only be upon a summary

judgment standard of review rather than a sufficiency of the evidence review.

Luecke and Tex-Lee cite two supreme court cases to support their argument that the trial

court's findings of fact denied them due process and constituted reversible error. See Bi-Ed, Ltd. v.

Ramsey , 935 S.W.2d 122 (Tex. 1996); Elder Construction, Inc. v. City of Colleyville , 839 S.W.2d

91 (Tex. 1992). These cases are distinguishable. In these cases, each trial court entered a partial summary

judgment, held a jury trial to decide the remaining issues, and after the trial, rescinded the partial summary

judgment. Each jury then revisited the issues already decided on summary judgment and reached findings

contradictory to those on summary judgment. In this case, the trial was not before a jury and the trial

court's final judgment was consistent with the previous partial summary judgments. We hold that the trial

court did not revisit issues of liability at trial.

The trial court's final judgment is consistent with its orders granting partial summary

judgment. Although some of the trial court's findings of fact do address liability issues, Luecke and Tex-Lee were not denied due process of law. The trial court did not hear evidence pertaining to liability issues

during the trial on the merits. We regard those findings of fact that address Luecke and Tex-Lee's liability

as surplusage. We have already reviewed and denied their challenge to these liability issues under a

summary-judgment standard of review. (8) We overrule appellants' third and fourth points of error.

Exemplary Damages

In three points of error, Luecke and Tex-Lee challenge the trial court's $25,000 exemplary

damage award. Specifically, they contend both that there is no evidence to support an award of exemplary

damages and that there is factually insufficient evidence to support the amount of damages awarded.

Legal Sufficiency: Award of Exemplary Damages Appropriate.

In their fifth (9) and sixth points of error, Luecke and Tex-Lee contend there is no evidence

to support the trial court's award of exemplary damages. The holder of a nonparticipating royalty interest

may recover exemplary damages from the holder of the executive right for the breach of the duty of utmost

good faith. See Manges v. Guerra , 673 S.W.2d 180, 184 (Tex. 1984) (the breach of the duty of utmost

good faith is a breach of fiduciary duty; a beneficiary harmed by a breaching fiduciary may recover

exemplary damages). An award of exemplary damages for the executive's breach of that duty will be

upheld so long as the breach was intentional, malicious, fraudulent, or grossly negligent. See id. at 184-85 ;

cf. Transportation Ins. Co. v. Moriel , 879 S.W.2d 10, 17-18 (Tex. 1994) (to recover exemplary

damages in an insurance dispute, insured must establish bad faith and intentional, malicious, fraudulent, or

grossly negligent conduct).

As determined above, Wallace established as a matter of law that Luecke breached the

duty of utmost good faith that he owed to her. After a trial to determine whether Wallace was entitled to

recover exemplary damages, the trial court found that Luecke's breach of this duty "was done knowingly

and willfully, with the intent to deprive Wallace of benefits Luecke knew, or had reason to know, Wallace

was entitled to share." (10) This finding that Luecke intentionally breached the duty of utmost good faith will

support an award of exemplary damages. See Manges , 673 S.W.2d at 184 ; see also Moriel , 879

S.W.2d at 17 . We must therefore determine whether this finding is supported by legally sufficient evidence.

In deciding this legal sufficiency point, we must consider only the evidence and inferences

tending to support the trial court's finding and disregard all evidence and inferences to the contrary.

Burroughs Wellcome Co. v. Crye , 907 S.W.2d 497, 499 (Tex. 1995); Best v. Ryan Auto Group, Inc. ,

786 S.W.2d 670, 671 (Tex. 1990). We will uphold the finding if more than a scintilla of evidence supports

it. Crye , 907 S.W.2d at 499 ; Seideneck v. Cal Bayreuther Assocs. , 451 S.W.2d 752, 755 (Tex. 1970);

In re King's Estate , 244 S.W.2d 660, 661 (Tex. 1951). The evidence supporting a finding amounts to

more than a scintilla if reasonable minds could differ in their conclusions. Crye , 907 S.W.2d at 499 ;

Moriel , 879 S.W.2d at 25 . See generally William Powers, Jr. & Jack Ratliff, Another Look at "No

Evidence" and "Insufficient Evidence," 69 Tex. L. Rev. 515 (1991); Michol O'Connor, Appealing

Jury Findings , 12 Hous. L. Rev. 65 (1974).

Luecke argues that the evidence established he had a good faith belief that Wallace had no

interest in the 303-acre tract and, therefore, there was no evidence to support the trial court's finding. After

reviewing the record, however, we find ample evidence to support a finding that Luecke knew of Wallace's

interest and intentionally sought to deprive her of that interest. As previously mentioned, there is evidence

that Luecke originally planned to lease the 303-acre tract directly to Union Pacific for a one-fifth royalty

and $150 per acre bonus. Union Pacific then notified Luecke of Wallace's reservation. Within two days

of receiving this notice, Luecke restructured the lease of the 303-acre tract. This restructuring deprived

Wallace of any bonus payments and minimized her share of royalty payments; at the same time, the

restructuring increased Luecke's share of bonus and royalty payments. Testimony in the record indicates

that Luecke falsely told Union Pacific's representatives that Wallace was "on board" with the lease of the

303-acre tract. Furthermore, there is evidence that, subsequent to his lease of the 303-acre tract, Luecke

attempted to buy Wallace's interest. When Wallace refused to sell, Luecke attempted to get Wallace to

sign a stipulation of interest. More than a scintilla of evidence supports the trial court's award of exemplary

damages. See Crye , 907 S.W.2d at 499 ; Moriel , 879 S.W.2d at 25 . The trial court could, therefore,

reasonably conclude that Luecke knew of Wallace's interest and intentionally sought to deprive her of it.

The trial court's award of exemplary damages is supported by legally sufficient evidence.

Factual Sufficiency: Amount of Exemplary Damages Reasonable.

In their seventh point of error, Luecke and Tex-Lee challenge the factual sufficiency of the

evidence supporting the trial court's exemplary damage award. To determine whether the trial court's

exemplary damage award is supported by factually sufficient evidence, we must consider and weigh all the

evidence and should set aside the award only if it is so contrary to the overwhelming weight of the evidence

as to be clearly wrong and unjust. See Cain v. Bain , 709 S.W.2d 175, 176 (Tex. 1986); In re King's

Estate , 244 S.W.2d at 661 ; see also Moriel , 879 S.W.2d at 30 ; Pool v. Ford Motor Co. , 715 S.W.2d

629, 635 (Tex. 1986). We should consider in our assessment the following ( Kraus ) factors:

(1) the nature of the wrong, (2) the character of the conduct involved, (3) the degree of

culpability of the wrongdoer, (4) the situation and sensibilities of the parties concerned, and

(5) the extent to which such conduct offends a public sense of justice and propriety.

Alamo Nat'l Bank v. Kraus , 616 S.W.2d 908, 910 (Tex. 1981).

Having already reviewed the evidence supporting the trial court's exemplary damage award,

we must now consider the evidence supporting Luecke's contention that he, in good faith, believed Wallace

had no interest in the 303-acre tract and, therefore, did not intend to deprive Wallace of her interest. The

record contains a title opinion prepared by Jake Jacobson, an agent of Union Pacific. The title opinion calls

Wallace's reservation "ambiguous" and indicates that Wallace may have no royalty interest in the 303-acre

tract. Luecke contends that he relied on this opinion and, in good faith, believed Wallace had no interest

in the tract. (11) Luecke also relies on information contained in an ex parte letter that he wrote to the trial court

judge as evidence that he believed Wallace had no interest in the tract. In the letter Luecke mentions the

names of several individuals who told him that "Wallace's interest, if any, had terminated." (12) Considering

all of the evidence, we cannot say the trial court's finding that Luecke knew of Wallace's interest was so

contrary to the overwhelming weight of the evidence as to be clearly wrong and unjust.

We must now analyze all of the evidence in light of the Kraus factors to determine whether

the trial court's award of $25,000 in exemplary damages is reasonable. The evidence establishes that, for

his own personal gain, Luecke intentionally breached his fiduciary duty to Wallace. It further establishes that

he knew that his actions would deprive Wallace of her bonus interest and substantially reduce the amount

of royalties she would receive from production on the 303-acre tract.

Wallace, as a nonparticipating royalty interest owner, had no right to participate in the

execution of any lease of the 303-acre tract. She was, therefore, dependent upon Luecke, the holder of

the executive right, to procure a fair lease of that tract. It is because of this relationship that Luecke owed

Wallace a fiduciary duty "to acquire for Wallace every benefit that he exact[ed] for himself." Manges , 673

S.W.2d at 183 . Instead of fulfilling his fiduciary obligation to Wallace, Luecke leased the property to Tex-Lee, his wholly owned corporation, for a small bonus and royalty. One day later, Tex-Lee leased the same

property for a significantly larger bonus and royalty. Luecke, as the sole owner of Tex-Lee, received the

benefit of this second transaction; but Wallace did not. We believe that this is the type of intentional self-dealing that punitive damages are meant to punish and deter. In light of the Kraus factors and the trial

court's award of $15,153 in actual damages, we hold that the trial court's $25,000 exemplary damage

award is supported by the evidence; indeed, the evidence would have supported even higher exemplary

damages.

Having determined that the evidence is legally and factually sufficient to support the trial

court's $25,000 exemplary damage award, we overrule appellants' fifth, sixth, and seventh points of error.

Attorney's Fees

In their eighth point of error, Luecke and Tex-Lee contend that the trial court's award of

attorney's fees is excessive. The trial court awarded Wallace $52,500 in attorney's fees for the trial of this

case. It further awarded her up to $55,000 in attorney's fees in the event of successive appeals.

An award of attorney's fees rests in the sound discretion of the trial court, and its judgment

will not be reversed absent a clear showing that it abused its discretion. City of Austin v. Janowski , 825

S.W.2d 786, 788 (Tex. App.--Austin 1992, no writ). A trial court abuses its discretion only when it acts

in an unreasonable and arbitrary manner, or when it acts without reference to any guiding principles.

Beaumont Bank, N.A. v. Buller , 806 S.W.2d 223, 226 (Tex. 1991); Downer v. Aquamarine Operators,

Inc. 701 S.W.2d 238, 241-42 (Tex. 1985).

There is evidence in the record that Wallace's attorneys were hired on an hourly basis.

Wallace's trial attorney testified as to the amount of time that he and other attorneys spent working on the

case, the hourly rates charged by those attorneys, and the reasonableness of the time spent and rate charged.

He estimated that $52,500 would be a reasonable fee for the trial of the case. Wallace's attorney also gave

an estimate of reasonable attorney's fees should Luecke and Tex-Lee appeal this case. His estimate

matched the trial court's award of appellate attorney's fees. Luecke and Tex-Lee neither objected to nor

controverted this testimony. We cannot say that the trial court abused its discretion and, therefore, we

overrule appellants' eighth point of error.

CONCLUSION

Having found no error, we affirm the trial court's judgment.

Mack Kidd, Justice

Before Justices Powers, Jones and Kidd

Affirmed

Filed: August 28, 1997

Publish

1. In an affidavit dated the day before the closing, Luecke swore that the bonus he received from

Tex-Lee "was less than $50.00 per acre and therefore [was] not affected by [Wallace's] reservation." We

cannot tell from the lease what the actual bonus was; we will accept the "less than $50.00 per acre" amount

contained in Luecke and Tex-Lee's brief.

2. Under the terms of the sale, Tex-Lee would receive the 1/5th overriding royalty less any "existing

burdens." Thus, Luecke would receive a 1/8th royalty outright, and Tex-Lee, Luecke's wholly owned

corporation, would receive the remainder of the 1/5th royalty.

3. The lease between Union Pacific and Tex-Lee involved other tracts of land in addition to the 303

acres. In addition to the bonus paid for the 303-acre tract, Union Pacific paid a $150 per acre bonus for

these other tracts. Thus, Union Pacific paid Tex-Lee a total bonus of $177,583.50. Because the other

tracts are not part of this appeal, we will discuss only the 303 acres.

4. Wallace contends that, because Luecke leased the 303-acre tract to his solely owned company,

he was engaging in self-dealing and owed her a fiduciary duty.

5. The court's judgment awarded Wallace attorney's fees in the amount of $52,500 for the trial of

the case, $25,000 if the case is appealed to this Court, $15,000 if an application for writ of error is filed

with the Supreme Court of Texas, and $15,000 if a writ of error is accepted by the supreme court.

6. In the 1984 deed, Wallace also clearly reserved a one-half interest in all bonus payments in

excess of $50.

7. A fee simple determinable and the possibility of a reverter that accompanies it are both interests

that vest immediately upon their creation. Bagby , 627 S.W.2d at 196-97. Because there is no provision

in Wallace's reservation for the possibility of reverter, she does not have a fee simple determinable.

8. As noted above, Luecke and Tex-Lee were on notice that the trial would address damages,

attorneys fees, and entitlement to exemplary damages. Thus, findings of fact concerning these issues could

not violate their due process rights.

9. Appellants' fifth point of error contends that the trial court erred in "holding that the Moriel

standards for 'some evidence' to support punitive or exemplary damages do not apply" in this case. The

trial court made no such holding. Instead, the court made findings consistent with its award of exemplary

damages. We must, therefore, determine whether these findings are supported by legally sufficient

evidence.

10. Furthermore, the court found that "Luecke had subjective awareness of Wallace's interests and

entitlement, but acted with conscious indifference to Wallace's rights."

11. The title opinion was not completed until March of 1993, almost a year after Luecke and Tex-Lee entered into their lease of the 303-acre tract. The evidence indicates, however, that the title opinion

work may have been in existence at the time of the lease.

12. Luecke mentions John Durrenberger in the letter as being one of the individuals who told him

that Wallace had no interest in the 303-acre tract. At trial, Durrenberger testified that he never told Luecke

this.

mated that $52,500 would be a reasonable fee for the trial of the case. Wallace's attorney also gave

an estimate of reasonable attorney's fees should Luecke and Tex-Lee appeal this case. His estimate

matched the trial court's award of appellate attorney's fees. Luecke and Tex-Lee neither objected to nor

controverted this testimony. We cannot say that the trial court abused its discretion and, therefore, we

overrule appellants' eighth point of error.

CONCLUSION

Having found no error, we affirm the trial court's judgment.

Mack Kidd, Justice

Before Justices Powers, Jones and Kidd

Affirmed

Filed: August 28, 1997

Publish

1. In an affidavit dated the day before the closing, Luecke swore that the bonus he received from

Tex-Lee "was less than $50.00 per acre and therefore [was] not affected by [Wallace'