On May 9, 2025, the Texas Supreme Court issued a per curiam opinion in Roxo Energy Co., LLC v. Baxsto, LLC, — S.W.3d —, No. 23-0564, 2025 WL 1349581 (Tex. May 9, 2025), in which it held that a lessee was entitled to judgment as a matter of law on a lessor's claims for fraud, fraudulent inducement, statutory fraud, and fraud by non-disclosure, all arising from the lessee's alleged oral representations that were inconsistent with the parties' written contracts.
In October 2016, Baxsto, LLC ("Baxsto"), which owned mineral interests in Howard and Borden Counties, Texas, entered into negotiations with the CEO of Roxo Energy Co., LLC ("Roxo"). Baxsto alleged that Roxo made the following representations during negotiations:
- If Baxsto quickly executed an oil and gas lease, Roxo would give Baxsto the best deal for all the owners in the area;
- Roxo was not in the business of flipping leases to new operators;
- Roxo would drill and develop the land.
Additionally, Roxo repeatedly indicated that it was interested in purchasing the minerals. Eventually, the parties executed a paid-up oil and gas lease, a lease memorandum, and lease purchase agreement. The agreements provided, in part, that Roxo could only record the lease after paying Baxsto a bonus of $5,000.00 per acre and that Roxo could purchase the lease within a certain period. Roxo received two extensions on its lease purchase option—the first of which included a "most favored nations" clause stating that if Roxo paid a larger bonus to another qualifying lessor within the next six months, Baxsto would receive the same amount from Roxo. Before the second extension, Roxo disclosed that it was negotiating with Navigator Oil and Gas ("Navigator"), another mineral owner in the same acreage. Roxo paid the bonus and acquired the lease after the second extension. Not long thereafter, on May 26, 2017, Baxsto sold its mineral interest to Roxo for $5,666,602.50.
Contrary to the alleged oral representations made during the initial negotiations, Roxo never drilled a well on Baxsto's acreage, sold the minerals to another operator, and paid Navigator a bonus of $11,000.00 per acre ($6,000.00 more per acre than what Baxsto received). Baxsto asserted claims for fraud, fraudulent inducement, statutory fraud, and fraud by non-disclosure, claiming that, during the negotiations, Roxo made false oral representations with the intent to induce Baxsto into an unproductive lease and then later sell its mineral interest for a price below market value. The trial court granted summary judgment for Roxo, and the court of appeals reversed. Roxo then appealed the decision to the Texas Supreme Court.
Baxsto's fraud claims all required proof that it justifiably relied on Roxo's representations. Justifiable reliance requires proof that (1) the plaintiff actually relied on the defendant's representation; and (2) such reliance was justifiable. Reliance on oral representations is not justifiable, however, when the oral representations are directly contradicted by the express and unambiguous terms of a written agreement between the parties.
The court of appeals held that the direct contradiction rule did not apply. It reasoned that the lease's most favored nations clause did not contradict Roxo's representation regarding bonus payments because its plain terms—mandating that Baxsto would receive a matching bonus payment if Roxo paid a larger bonus to any other mineral owners in the area—was actually some evidence that Baxsto did rely on Roxo's representation. To the extent that Roxo represented that it would not pay any mineral owners a bonus payment exceeding $5,000 after the most favored nations clause expired, the most favored nations clause could not have contradicted that representation because the clause had expired and was no longer applicable. Further, the court reasoned that the absence in the lease of an obligation to drill did not contradict Roxo's representation that it would drill and develop the land because the two promises could be plausibly reconciled. Baxsto could have plausibly believed that Roxo would choose to drill and develop the land given their mutual interest in developing acreage under the lease despite having no obligation to do so under the terms of the lease. The court also reasoned that the lease's assignment clause did not contradict Roxo's representation that it was not in the business of flipping leases because Roxo only represented that it was not "in the business"of flipping leases, which was only an expression regarding the purpose of Roxo's business operations and not an expression that Roxo would not exercise the lease's assignment provision. The court considered those facts to be distinct from the facts in a similar case, Barrow-Shaver Resources Co. v. Carrizo Oil & Gas, Inc., 590 S.W.3d 471, 498 (Tex. 2019), because, in that case, the lessor orally represented that it would work with the lessee on any assignment of the lease, regardless of consent, and the lease required the lessee to receive the lessor's written consent before assigning the lease. Finally, the court held that Roxo failed to show that Baxsto could not have justifiably relied on Roxo's oral representation that it would not record the lease until after it paid the lease bonus to Baxsto because Roxo failed to show any contradictory terms in the lease.
The Texas Supreme Court reversed this decision based on the direct contradiction rule. Concerning Roxo's representation that Baxsto would receive the best deal of all owners in the area, the Court viewed the absence of any terms in the lease (aside from the most favored nations clause) reflecting that representation as a red flag in itself that negated justifiable reliance. The Court characterized Baxsto as a sophisticated party with experience in the oil and gas industry, and such a party should have recognized that the absence of previously discussed terms from a written agreement meant that such terms were no longer a part of the deal. With regard to Roxo's representation that it would develop, rather than flip, the lease, the Court held that Baxsto could not have justifiably relied on Roxo's representation because the lease gave Roxo an unqualified right to assign, rather than develop, the lease. The Court, like the court of appeals, also relied on Barrow-Shaver, but, unlike the court of appeals, considered the facts to be analogous to the case at hand because "[j]ust as an unqualified contractual right to withhold consent contradicts a prior oral promise to give consent, an unqualified right to transfer a lease contradicts a prior oral promise not to do so." While the Court acknowledged that Roxo represented that it was "in the business" of developing rather than flipping leases, it reasoned that regardless of Roxo's representation of its business operations, Baxsto entered into a written agreement that allowed Roxo to no longer be "in the business" of developing rather than flipping leases. Finally, the Court held that Roxo did not commit fraud by nondisclosure by recording the lease prior to paying the lease bonus to Baxsto because fraud by nondisclosure requires proof that the defendant had a legal duty to disclose facts to the plaintiff, and Roxo—having no confidential or fiduciary relationship with Baxsto—owed no duty disclose that it had prematurely recorded the lease.
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