Face Challenges Confidently

402 Maddox v. Vantage Energy, LLC

Thursday, September 3rd, 2015

Richard F. Brown

The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.
Maddox v. Vantage Energy, LLC, 361 S.W.3d 752 (Tex. App.—Fort Worth 2012, pet. denied) held that negotiations between a group of homeowners and a potential lessee did not give the individual homeowners in the area standing to sue as third party beneficiaries of a contract.  The Southwest Fort Worth Alliance (“SFWA”) was an unincorporated association formed by property owners in southwest Fort Worth for the purpose of negotiating the best possible lease terms for the largest possible group of lessors.  The negotiations between SFWA and Vantage Energy, LLC and The Caffey Group, LLC (“Vantage”) produced a uniform oil and gas lease that SFWA endorsed, and Vantage agreed “‘that it would give all un-leased mineral owners in SFWA the opportunity to accept the SFWA Deal.’”  The SFWA Deal did not obligate individual homeowners to accept the form lease, and homeowners retained the right to deal separately with their property as they desired.  Vantage executed thousands of form leases with homeowners in the area, but before all of the homeowners leased with Vantage, Vantage suspended its urban leasing activities for economic reasons.  Some of the unleased homeowners sought to compel Vantage to offer them the SFWA Deal, claiming breach of contract with standing as third-party beneficiaries.
In order overcome the Texas presumption against third-party beneficiary standing, the third party must establish that the contract sufficiently describes and clearly evidences an intent to directly benefit the third party.  The court held that even if the negotiations between Vantage and SFWA and the resulting form lease amounted to a contract, “no intent to directly benefit Appellants as third-party beneficiaries is clearly written or evidenced in such contract because Appellants are not indentified individually by name, by address, or by property description and are not sufficiently specifically identified as a group by membership in SFWA, by geographic location, or by any other discrete criteria.”  Simply owning an unleased mineral interest in the geographical area covered by SFWA did not sufficiently identify the homeowners to establish third party standing to support their breach of contract claim.
Further, Texas recognizes only two types of third-party beneficiaries: donee beneficiaries and creditor beneficiaries.  Even if the alleged contract sufficiently identified the unleased homeowners, the unleased homeowners were not donee beneficiaries (the lease would be in exchange for their mineral rights), nor were they creditor beneficiaries (Vantage owed the unleased homeowners no preexisting indebtedness or legal duty).
Urban lease plays have generated varying responses from small landowners attempting to increase their leverage in lease negotiations by forming a group of similarly situated landowners.  This association had no identifiable members.  A more tightly defined association might still fail because the members would be neither donee nor creditor beneficiaries.