Texas Supreme Court Decides KCM Financial v. Bradshaw


On March 6, 2015, the Texas Supreme Court issued its Opinion in the case of KCM Financial v. Bradshaw, (No. 13-0199, 2015 Tex. LEXIS 220, __ S.W.3d __). In its decision, the Court reaffirmed the longstanding principle that an executive rights holder owes a duty of utmost good faith and fair dealing to a non-executive and is prohibited from engaging in self-dealing in connection with the formation of a mineral-lease agreement. However, the Court also explained that the executive is not required to wholly subordinate its interests in favor of the non-executive, and that the executive has autonomy and considerable latitude in negotiating the terms of a mineral lease (just not unbridled discretion). Given the relative rights and interests at play, the Court declined to issue any bright line rules regarding the scope of the duty of utmost good faith and fair dealing. Rather, the Court stated that "in determining whether an executive has fulfilled its duty of utmost good faith and fair dealing in executing a mineral lease, the lease and the circumstances of its execution must be considered as a whole." The controlling inquiry is whether the executive engaged in acts of self-dealing that unfairly diminished the value of the non-executive interest.

Read more about this decision in our March 20 client alert, here.

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