Gurley v. Lindsley

• Decision Date: 02 June 1972
• Docket Number: No. 71-1683.,71-1683.
• Citation: 459 F.2d 268
• Parties: John W. GURLEY et al., Plaintiffs-Appellees-Cross Appellants, v. Herbert P. LINDSLEY et al., Defendants-Appellants-Cross Appellees. John W. GURLEY et al., Third Party Plaintiffs-Appellants, v. CITIES SERVICE OIL COMPANY, Third Party Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

459 F.2d 268 (1972)

John W. GURLEY et al., Plaintiffs-Appellees-Cross Appellants, v. Herbert P. LINDSLEY et al., Defendants-Appellants-Cross Appellees.

John W. GURLEY et al., Third Party Plaintiffs-Appellants, v. CITIES SERVICE OIL COMPANY, Third Party Defendant-Appellee.

No. 71-1683.

United States Court of Appeals, Fifth Circuit.

April 21, 1972.

Rehearing Denied June 2, 1972.

COPYRIGHT MATERIAL OMITTED

Emmet A. Blaes, Wichita, Kan., Cecil Kuhne, Lubbock, Tex., Jochems, Sargent & Blaes, Wichita, Kan., William R. Moss, Crenshaw, Dupree & Milam, Lubbock, Tex., for defendants-appellants-cross appellees.

John E. Vickers, Ralph Brock, Brock, Waters & Galey, Lubbock, Tex., for plaintiffs-appellees.

Cecil C. Cammack, George K. Gilbert, Tulsa, Okl., for Cities Service.

Before BELL, AINSWORTH and GODBOLD, Circuit Judges.

GODBOLD, Circuit Judge:

Plaintiffs in this case claimed an interest in two tracts of Texas land, called Mound Lake and Rich Lake, and a share of past royalties from oil production under a lease covering Mound Lake. In a nonjury trial the District Court found for the plaintiffs. We affirm on what appear to be the major issues and remand for necessary additional proceedings.

The litigation springs from a consent judgment entered in 1948 between the respective predecessors in interest of the plaintiffs and of the defendants. In that year A. L. Gurley was plaintiff and H. K. Lindsley defendant in a suit in the United States District Court for the Northern District of Texas. Gurley asserted rights against Lindsley's title to Mound Lake (fee simple title to an undivided two-thirds interest) and Rich Lake (absolute fee simple title). Lindsley asserted a debt owed to him by Gurley in the amount of $35,000. The controversy was settled by a consent judgment the pertinent parts of which are set out in the margin.¹ The key portions may be summarized as follows. Gurley agreed that Lindsley was the fee simple owner of an undivided two-thirds interest in Mound Lake and an absolute fee simple in Rich Lake. Lindsley agreed that Gurley was not obligated to pay the $35,000 debt in any manner except out of future income, sales or royalties accruing from the two tracts. Half of the income and profits from sales of the tracts² would be credited against the debt, and taxes and other expenses added to the debt in like proportions. Lindsley was given the power to sell and to make mineral and pasturage leases. Interest was to be added to the unpaid balance of the debt at 5% per annum.³ If and when the debt, plus interest and appropriate charges, was liquidated by Gurley's share of the proceeds deriving from the two tracts, Gurley was thereafter to receive half of the income directly and pay to Lindsley his proportionate share of taxes and expenses. Up to that time Lindsley was to keep all income and pay all expenses. Lindsley agreed to provide semiannual statements of account, listing the income, outlays, and the status of the total debt.

The judgment also provided that it bound transferees of Lindsley who received a mineral interest, unless that interest was in fee simple. In addition, the judgment contained a boilerplate provision that its obligations were binding upon heirs, executors, administrators, devisees, legatees and assigns of the parties.

Commencing shortly after the entry of judgment, Lindsley began sending to Gurley the periodic accountings as required. In 1951 Lindsley died. His estate was administered in Kansas, and one of his sons, Herbert P. Lindsley, assumed management of the land. The forwarding of statements of account to Gurley, however, never commenced again. Gurley then died in 1952. Around three years after his father's death Herbert P. Lindsley found among his father's papers copies of the semiannual statements of accounts which his father had been sending to Gurley. In 1954 correspondence was exchanged between Gurley's wife and her lawyers and Herbert P. Lindsley and his lawyers. The Gurleys urged the Lindsleys not to sell the land since its potential for oil production was favorable. The Lindsleys retained possession and did not sell.

In 1959 an oil and gas lease was executed by Herbert P. Lindsley and his brother Robert on the Mound Lake property. The Gurleys learned of the lease and entered into a written agreement, which was filed of record, authorizing the lessee to pay royalties to the Lindsleys until such time as the lessee was notified by the Gurleys that the debt had been paid, after which royalties were to be payable directly to the Gurleys. The Gurleys did not notify the Lindsleys of this agreement, and they never gave notice to the lessee to pay royalties directly to them. Drilling commenced in 1962, and paying production began shortly thereafter. The District Court found that plaintiffs were aware that oil was being produced but that in the absence of any statements of accounts from the Lindsleys, plaintiffs believed the income had not been sufficient to discharge the debt and the interest, and the District Court also found that plaintiffs' demand for a statement on May 6, 1969, came within a reasonable time after they knew or had reason to believe that the income was sufficient. The statement was received in August 1969. In it interest at 5% per annum was compounded semiannually on the Gurley debt. Half of total taxes and expenses were added to the debt each year, plus a $750 semiannual fiduciary fee for Herbert P. Lindsley's services. Applied against these charges and the debt was one-half of the Lindsleys' income. Under this calculation and debt and expenses were discharged as of July 1, 1968. Apparently no agreement could be reached on this accounting, and in December 1969 the successors in interest of Gurley filed this suit in the Northern District of Texas. In their complaint the plaintiffs acknowledged the substantial correctness of the figures for income, taxes, and expenses shown in the 1969 statement. They opposed the semiannual compounding of interest and the charging of a fiduciary's fee, and plaintiffs, on the basis that the defendants were derelict fiduciaries,⁴ claimed interest at 10% per annum.

After his death, the estate of H. K. Lindsley vested in his sons, Herbert P. Lindsley and Robert K. Lindsley. Robert K. Lindsley has since died, with his estate going to his wife, Jeanne C. Lindsley, who was appointed his executrix in both California and Kansas. Subsequently she died, and the estates of Robert K. and Jeanne C. have gone, or will go, to their sons, Robert Clarke Lindsley and Herbert K. Lindsley II. Robert Clarke Lindsley is executor of the estate of his mother, by appointment in both California and Kansas, and administrator de bonis non of the estate of his father, also by appointments in California and Kansas. The defendants, all served with process under the Texas long-arm statute,⁵ were Herbert P. Lindsley, individually and as executor of Herbert K. Lindsley; Herbert K. Lindsley II, individually; and Robert Clarke Lindsley, individually and as executor of the estate of his mother (Jeanne C.) and administrator of the estate of his father (Robert K.). Shortly before suit was filed Cities Service Oil Company, the lease operator, received notice of the Gurleys' claim, stopped paying royalties, and began accruing them on its books. It was joined in the case as a third party defendant-stakeholder.

The District Court found in favor of plaintiffs and rendered a joint judgment against Herbert K. Lindsley, individually, and Robert Clarke Lindsley, as administrator of the estate of Robert K. Lindsley and as executor of the estate of Jeanne C. Lindsley.⁶ The court held that in receiving the income from the property those defendants held liable and their predecessors in interest "became fiduciaries with the duty and obligation to account to and to . . . pay any amounts due and owing to the Plaintiffs by virtue of the judgment," and that on proper application of the funds the Gurley debt was discharged in 1966. The court awarded to the plaintiffs the Gurley portion of past royalties in excess of the debt and interest, and vested in them title to oil, gas and mineral rights in the proportions provided by the judgment. The Lindsleys have appealed. They renew objections timely made below that Robert Clarke Lindsley, as executor and administrator, was not subject to suit in Texas; that the court lacked personal jurisdiction over any of the defendants;⁷ and that the Gurleys' claim is time-barred and violates the rule against perpetuities. They also contend that the 1948 judgment created only a contractual obligation personal to H K. Lindsley, which terminated with his death, could be enforced only by filing of claims against his estate (which were not filed), and does not bind his successors in interest. The Gurleys have cross appealed on the ground that the District Court erred in holding that the 1948 judgment provided for compound instead of simple interest on the undischarged debt balance and in denying 10% interest against the fiduciaries.

1. The obligations created by the judgment.

We affirm the District Court's conclusion that "in receiving the income from the property in question the Defendants, and their predecessors in interest, became fiduciaries with the duty and obligation to account to and promptly pay any amounts due and owing to the Plaintiffs by virtue of the 1948 judgment." In addition, we hold that although the 1948 judgment states that H. K. Lindsley was to be the "absolute owner in fee simple," the land and the income were impressed with a trust in favor of Gurley and his successors, so that Lindsley held a fee in the land and Gurley and his successors a beneficial interest.

Our conclusion could be based solely on the accounting submitted in 1969 by Herbert P. Lindsley through counsel for all defendants. Counsel's accompanying letter refers to it as "Mr. Lindsley's accounting" and discusses the basis on which compensation for "fiduciary...