Longview Energy Company v. the Huff Energy Fund Lp, Wrh Energy Partners LLC, William R. "Bill" Huff, Rick D'angelo and Riley-Huff Energy Group Llc
533 S.W.3d 866
| Tex. | 2017Background
- Longview Energy (Delaware corp., HQ Dallas) investigated purchasing Eagle Ford shale leases after HEF (major shareholder) encouraged portfolio companies to pursue opportunities; HEF placed Bill Huff and Rick D’Angelo on Longview’s board.
- Brokers provided Longview non-specific maps showing large "blobs" of available acreage (~235,000–254,000 acres); Longview proposed leasing 21,000 acres but did not identify specific tracts.
- HEF and Bobby Riley formed Riley-Huff and, without disclosing Riley-Huff to Longview’s board, acquired ~50,000 acres (about 5,200 acres inside the brokers’ blobs). D’Angelo was a Riley-Huff manager.
- Longview sued Huff, D’Angelo, Riley-Huff and others for fraud, breach of fiduciary duty (usurpation of corporate opportunity and undisclosed competition), and related claims.
- A jury found the directors breached fiduciary duties (usurpation and undisclosed competition) and that Riley-Huff obtained assets as a result; trial court imposed a constructive trust and awarded $95.5M.
- The court of appeals reversed, holding insufficient evidence supported the corporate-opportunity finding and that pleadings didn’t support an undisclosed-competition theory; the Supreme Court of Texas affirmed on different grounds (tracing and damages defects).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a constructive trust could be imposed on Riley‑Huff leases | Longview: fiduciary breaches produced Riley‑Huff’s acquisition of leases; constructive trust proper and tracing is satisfied or burden shifted after commingling | Huff: Longview failed to trace any specific leases to the breaches; no commingling; burden not met | Held: No — plaintiff failed to trace specific leases to breaches; constructive trust requires identifiable property and strict tracing; judgment imposing trust reversed |
| Whether the jury’s finding of usurpation / corporate opportunity was supported | Longview: directors pursued opportunities Longview was investigating; directors’ conduct usurped corporate opportunity | Huff: Longview never identified specific opportunities/leases; millions of acres remained; no reasonable expectancy in particular leases | Court assumed, for argument, evidence supported breaches but resolved case on tracing/damages; did not rest decision on insufficiency of usurpation finding |
| Whether pleadings and evidence supported claim for undisclosed competition | Longview: pleadings and evidence were sufficient under Delaware law to support an undisclosed-competition claim | Huff: pleadings insufficient; alternatively, even if claim viable, no tracing to specific leases | Court assumed claim viable and pleaded but found ultimate relief unavailable because tracing/damages failed |
| Whether the monetary award ($95.5M) was supported and properly measured | Longview: jury answers (market value, purchase price, past revenues) support award; trial court properly used jury findings | Huff: jury was never asked to find profits attributable to breaches; Question 8 only asked revenues (not net profit); Question 6 lacked lease‑by‑lease linkage | Held: No — disgorgement must be profit from breach; jury was not asked to find profits traceable to breaches and Question 8 measured gross revenues, so monetary award unsupported and judgment reversed |
Key Cases Cited
- Guth v. Loft, 5 A.2d 503 (Del. 1939) (constructive trust / disgorgement principles; fiduciary may not profit from disloyalty)
- Hogg v. Walker, 622 A.2d 648 (Del. 1993) (constructive trust requires identifiable property or proceeds traceable to specific property)
- McMahon v. New Castle Assocs., 532 A.2d 601 (Del. Ch.) (constructive trust requires identifiable asset or fund to which equitable title may be traced)
- Thorpe v. CERBCO, Inc., 676 A.2d 436 (Del. 1996) (disgorgement limited to fiduciary’s profit)
- KCM Fin. LLC v. Bradshaw, 457 S.W.3d 70 (Tex. 2015) (constructive trust demands tracing to definite property; equitable relief not a substitute for damages)
- Wilz v. Flournoy, 228 S.W.3d 674 (Tex. 2007) (tracing burden rules where commingled funds purchase identifiable property)
- ERI Consulting Eng'rs, Inc. v. Swinnea, 318 S.W.3d 867 (Tex. 2010) (disgorgement limited to ill‑gotten profits for fiduciary breaches)
- Burrow v. Arce, 997 S.W.2d 229 (Tex. 1999) (equitable relief like constructive trust is determined by the court; jury resolves disputed facts only)