The Texas Supreme Court recently decided Lesley v. Veterans Land Board, an important case regarding the duties of executive rights holders to owners of non-executive mineral interests. The case involves development in the highly productive Barnett Shale in North Texas. Bluegreen, a land developer, obtained 4,100 acres of land southwest of Fort Worth for a housing subdivision. The sellers retained their mineral interests in the property, but conveyed to Bluegreen the “executive rights,” referred to in the deed as “the full, complete and sole right to execute oil, gas and mineral leases” covering the property.
When Bluegreen developed the subdivision, it did not want to allow oil and gas development to take place in a residential development, so Bluegreen included restrictive covenants that prohibited commercial oil drilling operations. Later, almost all of the surrounding area came under lease for Barnett Shale development, and there was evidence that the Bluegreen subdivision held $610 million worth of minerals.
The mineral owners sued Bluegreen and owners of the lots in the subdivisions alleging that Bluegreen was breaching its duties as holder of the executive rights by prohibiting oil and gas development in the subdivision. In its opinion, the court examines in detail the history of the law regarding duties owed by executive right holders to the non-executive mineral owners. The court states that executive rights owners may breach their duties if they refuse to lease minerals, particularly if the refusal is seen as arbitrary or motivated by self-interest to the detriment of the non-executive. The court then concluded in its holding that Bluegreen breached its duty when it filed the restrictive covenant that forever prohibiting drilling in the subdivision and that the appropriate remedy was to cancel the restrictive covenant.
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