Huffington v. Upchurch
| Citation | 532 S.W.2d 576 |
| Decision Date | 21 January 1976 |
| Docket Number | No. B--5342,B--5342 |
| Parties | Roy M. HUFFINGTON et al., Petitioners, v. Haden J. UPCHURCH, Respondent. |
| Court | Supreme Court of Texas |
Andrews, Kurth, Campbell & Jones, Alfred H. Ebert, Jr., V. Camp Cuthrell, III and Edith H. Jones, Baker & Botts, Frank
G. Harmon, Richard B. Miller and Richard A. Brooks, Houston, for petitioners.
Fred Parks, Houston, Sloan B. Blair, Howard G. Barker, Cantey, Hanger, Gooch, Cravens & Munn, Fort Worth, for respondent.
Haden J. Upchurch sued Roy Huffington, Inc. and Roy Huffington individually to impress a constructive trust upon the legal and beneficial interests in a partnership opportunity which Upchurch claimed was misappropriated for defendants' exclusive benefit. Haden Upchurch, Roy Huffington, R. E. Warren, and Paul Scott were partners in an oil and gas investment firm. On the basis of the jury's answers to special issues and the evidence, the trial court rendered judgment impressing a trust in favor of Upchurch to the extent of 14.285% Of the beneficial interest created or retained by defendants in a joint venture agreement for an Indonesian oil and gas venture. The court of civil appeals affirmed the judgment but modified it so that Upchurch's recovery was raised from 14.285% To 20%. The basis for the additional recovery was that Warren and Scott had, as a matter of law, abandoned their interests in the Indonesian venture and that Upchurch was also entitled to a pro rata share of their abandoned interests. A full statement of the facts is contained in the opinion of the court of civil appeals. 523 S.W.2d 44. We reverse that part of the judgment of the court of civil appeals which awarded Upchurch a part of the partnership interest of Warren and Scott, but we affirm the judgment of the court of civil appeals and that of the trial court which allowed Upchurch his own partnership interest in the Indonesian venture.
Roy Huffington was the sole owner of Huffington, Inc., a diversified corporation with interests in oil and gas, real estate and shrimping. Huffington, Inc. engaged in the oil and gas business by locating oil and gas projects and then financing investments in them with funds obtained from outside individual investors. If the venture was successful, Huffington, Inc. would pay the outside investor a large percentage of the profits and keep a small reversionary interest for itself. In 1963, Huffington, Inc. employed Haden Upchurch as a landman, R. E. Warren as chief geologist and Paul Scott as production engineer. Although Huffington was a trained geologist, he had also demonstrated considerable talent for finding the outside investors who were necessary to finance costly oil and gas ventures. Upchurch, Warren and Scott were all paid $1,500 per month, and as an additional incentive, they were given a percentage of certain interests retained by Huffington, Inc. in the oil and gas ventures.
In 1965 the Fifth Circuit decided the case of United States v. Frazell, 335 F.2d 487 (5th Cir. 1964), Cert. denied, 380 U.S. 961, 85 S.Ct. 1104, 14 L.Ed.2d 152 (1965), in which the court indicated that the full value of a reversionary interest received by an employee as compensation could be taxed in the year the interest vested. Huffington claims that the only reason a partnership was formed was to shelter Upchurch, Warren and Scott from the extra tax liability which the Frazell case threatened to impose. Upchurch disputes this contention and claims that the tax consequences only played a part in their decision to form the partnership. Whatever the motives may have been, the fact is that the partnership of Huffington Associates was formed in January, 1966, consisting of Huffington, Upchurch, Warren and Scott, and their rights and duties were controlled by the partnership agreement. Huffington, Inc. remained as an independent business entity. Upchurch, Warren and Scott continued to do the same jobs at the same salaries, and they received the same percentages of any reversionary interest as they had as employees of Huffington, Inc. Huffington was designated as the managing partner. The purpose of the partnership was explicitly stated in the partnership contract:
The purposes of the partnership shall be to acquire, own, develop and operate oil, gas and mineral leases, mineral interests and royalty interests, properties and prospects and to produce therefrom and treat, transport and market oil or gas, or both of them, or production derived therefrom.
Apparently the parties realized that there were some areas of business which Huffington would want to pursue independently of the partnership. Thus the agreement provided that the partners were 'free to conduct, in their individual capacities, or in association with others, Any other business transaction not directly related to the business of acquiring mineral leases and other mineral or royalty interests and the exploration for and production of oil, gas and other minerals.' (Emphasis added.) The full text of the partnership agreement is set out in an appendix to the opinion of the court of civil appeals.
In early 1968, and while the partnership agreement was operative, Huffington learned that Virginia International Company (VICO) had contacts with the Indonesian government concerning oil and gas matters. VICO's Vice President arranged several meetings in Indonesia for Huffington. During the time of these negotiations, Upchurch asked Huffington 'would we be in the Indonesian deal' and at that time, Huffington replied, 'Yes.' Upchurch offered to pay his share of the costs which up to that time only amounted to travel expenses. On August 8, 1968, a deal was made with the Indonesian government, and through a series of complicated business transactions Huffington eventually acquired for Huffington, Inc. a ten percent working interest and a one percent overriding royalty interest in a highly profitable Indonesian oil and gas project. At this point Huffington refused to recognize Upchurch's right to participate and Upchurch filed suit. Neither Warren nor Scott are parties to this suit.
It is undisputed that the Indonesian venture fell within the nature of the partnership business as defined by the written contract. However, it was defendants' contention that Upchurch failed to plead and prove the partnership's financial capability to take advantage of this particular venture.
In International Bankers Life Ins. Co. v. Holloway, 368 S.W.2d 567, 571 (Tex.1963), the principal officers of International Bankers Life sold some of their personal shares of stock in competition with a stock offered by Bankers Life. The defendants in that case claimed that 'there must be findings that plaintiff could or would have sold its new issue stock to purchasers of the stock of the defendants.' We rejected that notion and held See also Perlman v. Feldmann, 219 F.2d 173 (2d Cir. 1955); Irving Trust Co. v. Deutsch, 73 F.2d 121 (2d Cir. 1934); Comment, The Corporate Opportunity Doctrine, 18 Sw.L.J. 96 (1964). Although the Holloway case dealt with the fiduciary duties of corporate officers and directors, the above quoted principle of law is equally applicable to partnerships.
The defendants urge that Upchurch only made $1,500 per month and that Huffington Associates lacked the resources to finance this multimillion Indonesian project. This really misses the point. One of the talents which Roy Huffington was obligated to contribute to the partnership was his proven ability to find outside investors for the oil and gas ventures. Whether the venture was undertaken in the name of Roy...
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