Jeanes v. Henderson

• Decision Date: 27 March 1985
• Docket Number: No. C-3130,C-3130
• Citation: 688 S.W.2d 100
• Parties: Jack K. JEANES et al, Petitioners, v. Cliff C. HENDERSON et al, Respondents.
• Court: Texas Supreme Court

Page 100

688 S.W.2d 100

Jack K. JEANES et al, Petitioners, v. Cliff C. HENDERSON et al, Respondents.

No. C-3130.

Supreme Court of Texas.

March 27, 1985.

Rehearing Denied May 1, 1985.

C. Wesley Jeanes, Richardson, for petitioners.

Jones, Day, Reavis & Pogue, David J. White, Payne & Vendig, Lee D. Vendig and P. Talmage Boston, Dallas, for respondents.

RAY, Justice.

This is an appeal from a lawsuit seeking declaratory relief and damages in conjunction with an oil and gas contract. At issue is the applicability of the doctrines of res judicata and collateral estoppel. The trial court rendered summary judgment for defendants, Cliff C. Henderson, Robert B. Stallworth, Jr. and their respective companies, on the grounds that this suit is barred and litigation of the issues is precluded by the res judicata and collateral estoppel effects of a prior federal court judgment involving the same contract. In an unpublished opinion, Tex.R.Civ.P. 452, the court of appeals affirmed the judgment of the trial court. We affirm in part the judgment of the court of appeals, and we reverse and remand in part.

This cause is the result of a lawsuit filed by Omajeanne Lokey Mitchell against all the parties to this appeal and others to determine her royalty rights under certain oil and gas leases. After Mitchell took a nonsuit, this cause continued from a cross-action by Jack K. Jeanes and J.K.J. Corporation (Jeanes) against Cliff Henderson and Cliff C. Henderson, Ltd., Inc. (Henderson) and Robert B. Stallworth, Jr. and Stallworth Oil and Gas, Inc. (Stallworth). Presently, Jeanes seeks: (1) a declaratory judgment that the three options to a 1971 Investment Contract are binding on Henderson; (2) a declaratory judgment that these options are covenants running with the land and thus, are binding on Stallworth; and (3) damages against Stallworth for tortious interference with the 1971 Investment Contract and a subsequent Jeanes-Henderson oral development agreement, and for malicious interference with a prospective Jeanes-Henderson business relationship.

In 1971, Henderson and his company, Marilon Minerals, Inc. (Marilon), were producing gas in Parker and Hood Counties on the "Lokey-Cartwright" oil and gas leases pursuant to a farm-out agreement. When the purchaser of their gas offered to pay a higher price for the gas in exchange for the drilling of five additional wells on the leases, Henderson and Marilon agreed to drill these wells. Henderson and Marilon solicited Jeanes to help finance this project and in December 1971, these parties entered into an investment contract. Under this 1971 Investment Contract, Jeanes paid Henderson and Marilon $45,000 in exchange for a 3/8ths working interest in both the wells and the 320 acres surrounding each well. This 1971 Investment Contract also included three options which are the center of the declaratory judgment portion of this lawsuit. ¹

Shortly thereafter, Henderson and Marilon drilled the wells, obtained production and assigned a 3/8ths working interest to Jeanes. In fact, these wells continue to produce today and Jeanes still receives the proceeds from his working interest. In July 1980, Henderson and Marilon conveyed and warranted 77 1/2 percent of their working interest in the undeveloped portions of the Lokey-Cartwright leases to Stallworth. Jeanes responded in September 1981 by filing suit against Henderson and Marilon in the federal court for the Northern District of Texas contending that the sale to Stallworth interfered with his rights under the 1971 Investment Contract. Since no diversity of citizenship existed between the parties, Jeanes obtained federal question jurisdiction in the federal court by alleging that this sale violated section 10(b) of the Securities and Exchange Act of 1934, 15 U.S.C. § 78j(b) (1981) and Rule 10b-5, 17 C.F.R. § 10b-5 (1981). In addition to the federal claim, Jeanes asserted five state-related claims arising out of the July 1980 transaction: (1) a violation of the Texas Securities Laws under Tex.Rev.Civ.Stat.Ann. article 581-33 (Vernon 1985); (2) common law fraud and statutory fraud under Tex.Bus & Comm.Code Ann. § 27.01 (Vernon 1968 and Vernon Supp.1985); (3) slander of title; (4) breach of fiduciary duty; and (5) breach of contract and warranty.

The district court, exercising pendent jurisdiction ² over the state-related claims, adjudicated the entire action brought by Jeanes. That court directed verdicts against Jeanes on the alleged securities laws violations as well as the first four of Jeanes' state-related claims. Only the breach of contract and warranty claim survived the directed verdicts and that claim was decided against Jeanes based on jury findings. Accordingly, the federal district court rendered a take-nothing judgment against Jeanes and on appeal, the Fifth Circuit affirmed. Jeanes v. Henderson, 703 F.2d 855 (5th Cir.1983).

THE DECLARATORY JUDGMENT ACTIONS

With respect to his requests for separate declaratory judgments against Henderson ³ and Stallworth, Jeanes argues that he is entitled to these judgments as a matter of law. Henderson and Stallworth both respond that res judicata bars and collateral estoppel precludes Jeanes from asserting these claims and litigating the accompanying issues. The effect of the prior federal court judgment on the present cause must be examined in terms of res judicata first, and then if necessary, collateral estoppel. While courts are prone to confuse these two doctrines and use them interchangeably, Bonniwell v. Beech Aircraft Corp., 663 S.W.2d 816, 818 (Tex.1984), it is important to distinguish the two and consider them separately because a ruling that res judicata bars these claims will eliminate our need to analyze collateral estoppel. Res judicata, or claim preclusion, involves the dual principles of merger and bar. On the one hand, if a plaintiff prevails in a lawsuit, his cause of action merges into the judgment and the cause of action dissolves. See Westinghouse Credit Corp. v. Kownslar, 496 S.W.2d 531, 532 (Tex.1973); Restatement (Second) of Judgments § 18 (1982). On the other hand, if the defendant wins the original suit, the plaintiff is barred from bringing another action on claims actually litigated and also on claims that could have been litigated in the original cause of action. See Texas Water Rights Comm'n v. Crow Iron Works, 582 S.W.2d 768, 771-72 (Tex.1979); Restatement (Second) of Judgments §§ 19, 24(2) (1982). Thus, res judicata prevents a plaintiff from "splitting" his cause of action and subsequently asserting claims that could have been litigated in the first instance.

Henderson and Stallworth argue that since Jeanes could have pursued the declaratory judgment claims in the federal court, this lawsuit constitutes a "splitting" of his overall cause of action and should be barred. Jeanes counters that the current lawsuit involves a different cause of action than the federal court litigation, so res judicata does not apply. See Griffin v. Holiday Inns of America, 496 S.W.2d 535, 538 (Tex.1973). Jeanes also argues that it would have been useless to seek declaratory relief in the original suit because it is state-related and there is no way to be certain that the federal court would have exercised its discretion to take pendent jurisdiction over this matter. We agree with Henderson and Stallworth.

Even though the original lawsuit involved both federal and state-related claims, the fact that it took place in federal court requires us to follow the federal law of res judicata. Commercial Box & Lumber Co. v. Uniroyal, Inc., 623 F.2d 371, 373 (5th Cir.1980); Restatement (Second) of Judgments § 87 (1982). When considering whether subsequent claims are based on the same cause of action as a prior lawsuit, the Fifth Circuit employs the "primary right" test. Kemp v. Birmingham News Co., 608 F.2d 1049, 1052 (5th Cir.1979). Under this test, "if the primary right and duty and the delict or wrong are the same in each action, the cause of action is the same." Hall v. Tower Land & Investment Co., 512 F.2d 481, 483 (5th Cir.1975). In these two suits, Jeanes first sought and now seeks to assert his rights under the 1971 Investment Contract in response to the 1980 transaction between Henderson and Stallworth. As Jeanes admits in a reply brief before this court: "[a]t best all that can be said is that Jeanes previously sued upon the wrong theory. Instead of suing Henderson for breach and damages, he should have sued Stallworth for title." Thus, only Jeanes' theory of recovery has changed and that does not give rise to a new cause of action. See Carr v. United States, 507 F.2d 191, 193 (5th Cir.1975); Reed v. Marketing Serv. Int'l Ltd., 540 F.Supp. 893, 898 (S.D.Tex.1982). Consequently, under the "primary right" test, it is clear that Jeanes' present suit for declaratory judgments involves the same cause of action as the federal court litigation.

Jeanes' argument that it would have been useless to seek declaratory relief during the original federal lawsuit concedes, and an examination of the record confirms, that he did not even attempt to assert these claims at that time. However, Jeanes could have amended his pleadings to include the declaratory relief he now seeks against Henderson and also he could have joined Stallworth and pleaded his current request for a declaratory judgment against him. The fact that Jeanes' declaratory judgment actions are based on Texas law presents this court with an unusual situation for considering res judicata. Here, we must ascertain the consequences of the subsequent assertion of omitted state-related claims from a federal court action. Section 25, comment (e) of the Restatement (Second) of Judgments (1982) instructs a state court to decide: (1) whether the federal court possessed jurisdiction over the omitted state claim, and if so, then (2) whether the federal court would clearly have declined the exercise of that jurisdiction as a matter of...