Face Challenges Confidently

686 Spellman v Love, 534 S.W.3d 685 (Tex. App.—Corpus Christi 2017, pet. denied)

Tuesday, August 7th, 2018

Richard F. Brown

The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.

Spellman v Love, 534 S.W.3d 685 (Tex. App.—Corpus Christi 2017, pet. denied) held that there could be no recovery for money had and received when the owner of a term non-participating royalty failed to establish that the non-participating royalty was still in force and effect. Simplified, Spellman conveyed 253 acres to Kenneth (who was then married to Janet), reserving a term non-participating royalty interest to Spellman. Kenneth and Janet got divorced, resulting in Janet having a non-executive mineral interest. Kenneth owned the rest of the minerals and all of the executive rights. Kenneth leased to Matador. Matador was drilling the first of four successful wells, when Spellman’s term non-participating royalty interest terminated, because there was then no producing well on the land. The royalty stream from the property was approximately $20 million. The parties aligned as successors-in-interest to Spellman, Kenneth and Janet. Spellman asserted multiple claims (breach of fiduciary duty, constructive fraud, and negligence) against Kenneth related to Kenneth’s alleged wrongful delays in drilling and producing. There were multiple amended petitions, but the definition used therein for “Defendants” included only the Kenneth defendants. There were no claims against Janet, except the equitable claims of money had and received, unjust enrichment, and constructive trust. Spellman settled with the Kenneth defendants and non-suited the claims against them.

The equitable claims were the only claims asserted against Janet in the Second Amended Petition when summary judgment was granted for Janet. The Order of Nonsuit as to the Kenneth defendants preserved whatever claims had been or could be asserted against Janet. Nevertheless, the subsequent amended petitions did not include Janet in “Defendants,” and thus there were no other claims against Janet.

In essence, Spellman claimed Janet knew what Kenneth was up to, but she nevertheless accepted the royalty payments. The court affirmed summary judgment for Janet. Here, the record conclusively showed that Spellman’s non-participating royalty interest expired. “A cause of action for money had and received is not based on wrongdoing but instead, looks only to the justice of the case and inquires whether the defendant has received money which rightfully belongs to another. The record conclusively showed Spellman no longer held an ownership interest. Unjust enrichment is not an independent cause of action, but applies the principle of restitution when the receiving party has no right to the benefit. Here, Janet did have the right to the royalties. Although not discussed, apparently the same reasoning applied to the claim for a constructive trust.

The significance of the case is the holding that there can be no equitable claim on the proceeds of a non-participating royalty interest, if the non-participating royalty interest is shown to have terminated.