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Stephens v. Three Finger Black Shale Partnership

Court of Appeals of Texas, Eleventh District

June 28, 2019

KERWIN STEPHENS; THUNDERBIRD OIL & GAS, LLC; THUNDERBIRD RESOURCES, LLC; THUNDERBIRD LAND SERVICES, LLC; STEPHENS & MYERS, LLP; AND CHESTER CARROLL, Appellants
v.
THREE FINGER BLACK SHALE PARTNERSHIP; TREK RESOURCES, INC.; TIBURON LAND & CATTLE, L.P.; L.W. HUNT RESOURCES, LLC; AND RICHARD RAUGHTON, Appellees and L.W. HUNT RESOURCES, LLC AND RICHARD RAUGHTON, INDIVIDUALLY AND AS SUCCESSOR IN INTEREST OF ARAPAHO ENERGY, LLC, Cross-Appellants
v.
KERWIN STEPHENS; THUNDERBIRD OIL & GAS, LLC; THUNDERBIRD RESOURCES, LLC; THUNDERBIRD LAND SERVICES, LLC; STEPHENS & MYERS, LLP; AND CHESTER CARROLL, Cross-Appellees

          On Appeal from the 32nd District Court Fisher County, Texas Trial Court Cause No. DC-2013-0016

          Panel consists of: Bailey, C.J., Willson, J., and Wright, S.C.J. [3]

          JIM R. WRIGHT SENIOR CHIEF JUSTICE

         On December 31, 2018, we issued our original opinion and judgment in this appeal. We now withdraw that opinion and judgment. There are several reasons behind the withdrawal of the opinion and judgment. First, after we had issued our original opinion in this case, and while motions for rehearing were pending, the Texas Supreme Court decided Agar Corp. v. Electro Circuits Int'l, LLC, No. 17-0630, 2019 WL 1495211 (Tex. April 5, 2019). As a result of the holding in that case, on our own motion, we find it necessary to withdraw our prior opinion and judgment and substitute a new opinion and judgment in which we analyze Intervenors' civil conspiracy claims in accordance with Agar. Furthermore, our Agar-informed holding on the Intervenors' civil conspiracy claims requires us to consider two additional matters pointed out by Kerwin Stephens and Stephens & Myers, LLP in their motion for rehearing: agency (course and scope) and the affirmative defense of release. We have, in this substituted opinion, considered those matters but overrule those portions of the motion for rehearing. Additionally, Stephens and Stephens & Myers, in their motion for rehearing, ask us to reconsider that portion of our original opinion that pertains to the disgorgement judgment against Stephens & Myers. We grant that portion of the motion for rehearing. All other portions of Stephens and Stephens & Myers' motion for rehearing are overruled. Tiburon Land & Cattle, L.P.; Trek Resources, Inc.; and the Three Finger Black Shale Partnership have also filed a motion for rehearing. We overrule that motion.

         We withdraw our opinion and judgment of December 31, 2018, and the following is now the opinion of the court. We reverse and render in part, affirm in part, and remand in part.

         OPINION

         This appeal is a continuation of the saga of a controversy that surrounds a speculative project to buy oil and gas leases in Fisher County and to subsequently sell, or flip, them at a profit. Chester Carroll; Kerwin Stephens; Thunderbird Oil & Gas, LLC; Thunderbird Resources, LLC; Thunderbird Land Services, LLC; and Stephens & Myers, LLP appeal from an adverse judgment entered against them after a jury trial. The jury found against them on discrete theories and in various amounts as to each Appellant in most of the questions that the trial court submitted to the jury; the total amount of the jury's award exceeded $96 million. The trial court subsequently entered a judgment in the approximate amount of $50 million. Part of the money judgment was in favor of Three Finger Black Shale Partnership, some in favor of L.W. Hunt Resources, LLC, and a portion in favor of Richard Raughton. We reverse and render in part, affirm in part, and remand the cause.

         This case finds its genesis in 2011 when Raughton discovered that there were indications of significant interest in oil and gas properties in Fisher County. This interest corresponded to geological studies that Raughton had conducted. Raughton holds a degree in geology with a concentration in engineering. The record contains evidence that Raughton and his son, Dustin, had performed geological studies of the shale formation that became the target of the oil and gas project that is the basis of this lawsuit.

         In addition to his degree in geology, Raughton also attended medical school and practiced medicine until medical problems prevented him from continuing that practice. During the time that Raughton practiced medicine, he participated financially and otherwise in oil and gas deals, including some deals with Carroll. When he closed his medical practice, Raughton began to focus on oil and gas related business opportunities. One of the subjects of that focus was the Fisher County project that is the subject of this lawsuit.

         Raughton contacted his friend Lowry Hunt and asked Hunt to participate with him in a project to profit from the Fisher County oil play. Raughton and Hunt are somewhat related; Dustin is married to Hunt's daughter, Kellye.

         Raughton, Hunt, Dustin, and Kellye were the original participants in the project. Later, Raughton asked Carroll to join the theretofore family group. Hunt also knew Carroll, and he and Carroll had invested in wells together. Stephens, an attorney, was also invited to participate in the project. Stephens had performed various legal services for Raughton and some of his entities in other matters, and they had also done deals together, including some in the Barnett Shale oil play. Stephens had also represented one of Hunt's entities. Additionally, the record contains testimony that Raughton and Hunt asked Stephens to join the group because he had legal expertise and could perform title work.

         Raughton, Hunt, Carroll, and Stephens, with an eye toward ultimately flipping Fisher County oil and gas leases for a profit, each pledged to invest $125, 000 (the record contains testimony that Raughton put up Carroll's share for him). They continued to acquire oil and gas leases and options for oil and gas leases in Fisher County. These parties did not enter into a written agreement; they operated on a "handshake."

         By October 2011, Raughton, Carroll, Hunt, and Stephens needed additional money to continue the project. As a source of additional funding, Carroll recruited Tom Taylor, an oil-and-gas investor.

         In a letter agreement dated October 7, 2011, known as the "Alpine Letter Agreement," Raughton, Carroll, Hunt, Stephens, and Taylor set out the terms under which they or their entities would proceed with the Fisher County project. Those named in the Alpine Letter Agreement as members of the "Alpine Group" (and those who signed for those members) were (1) Alpine Petroleum (by Carroll); (2) Thunderbird Oil & Gas, LLC (by its sole member, Stephens); (3) Arapaho Energy, LLC (by its manager, Raughton); and (4) L.W. Hunt Resources, LLC (by its manager, Hunt). Paradigm Petroleum Corporation, acting by its president, Taylor, was also a party to the Alpine Letter Agreement, but was not a member of the "Alpine Group." Paradigm and the members of the Alpine Group "accepted and agreed to" the terms of the October 7 Alpine Letter Agreement at least by October 18, 2011. Thunderbird Oil was the only Stephens entity that was a party to the Alpine Letter Agreement.

         The Alpine Letter Agreement contained a provision that Paradigm was to contribute $4, 500, 000 to the project and that the Alpine Group was to contribute, collectively, $500, 000. Paradigm's contribution was not to become due until after the Alpine Group had contributed its share for lease and option acquisitions and related expenses. The Alpine Group agreed to transfer to Paradigm all the oil and gas leases and options "that it holds" as described in exhibits to the Alpine Letter Agreement. Future leases and options were to be taken in Paradigm's name. Decisions as to future leases and options, the scope of the project, and the terms of any future leases and options were at Paradigm's sole discretion and direction.

         The Alpine Letter Agreement contained provisions for the division of the proceeds from sales. After payout, proceeds from sales of oil and gas leases were to be paid 82% to Paradigm and 18% to the "Alpine Group." Although Thunderbird Land was not a named party to the Alpine Letter Agreement, the named parties specified that Thunderbird Land, Stephens's wholly owned landman entity, was to provide landman services for the project and that it would "charge its normal customary rates" for those services.

         The Alpine Letter Agreement contained the following provision:

It is not intended and it is agreed that the parties have not entered into and do not enter into any partnership, joint venture or agency relationship. None of the parties owe a fiduciary duty or obligation to the other and the relationship shall be considered as a normal customary commercial relationship with the ownership interest of the parties in and to the properties the subject of this letter agreement as provided herein.

         Taylor found investors who agreed to provide a portion of the $4, 500, 000 contribution that his company, Paradigm, had agreed to furnish under the terms of the Alpine Letter Agreement. The investors that Taylor recruited signed what they entitled "Participation Agreement." The title to that document reads as follows:

         PARTICIPATION AGREEMENT

         THREE FINGER/BLACK SHALE PROSPECT FISHER COUNTY, TEXAS

         Between Paradigm Petroleum Corporation and Partners Dated October 18, 2011

         In the Participation Agreement, the investors referred to themselves in some places as "Parties" and at other places as "Partners." The term "Parties," as defined in the agreement, referred to "Paradigm and Partners." Those persons or entities that were designated in the agreement as "Partners" were the "Parties" that signed the agreement as "Partners." Paradigm was a "Party," not a "Partner," as evidenced by (1) language such as, "Should any Partner and/or Paradigm acquire . . .," and (2) the inclusion of Taylor's name in the signature blocks of the Participation Agreement as president of Paradigm, not as "Partner." Michael E. Montgomery, as president of Trek Resources, Inc.; Collin Clark, for Tiburon Land and Cattle; and Will Lett were among those whose names appeared in the signature blocks in the October 18 Participation Agreement as "Partners." There were eight named "Partners" to the Participation Agreement, including Tiburon, Trek, and Lett. Ultimately, Tiburon and Trek pleaded that the Participation Agreement resulted in the creation of a partnership known as Three Finger Black Shale Partnership. They pleaded that they represented not only their own interests, but also Three Finger's interest.

         By the terms of the Participation Agreement, Paradigm was to contribute $1, 000, 000; each of the additional parties agreed to contribute $500, 000 each. The Participation Agreement contained other terms by which the signatories defined the relationship among the parties to the agreement. Among those other terms was a provision that Paradigm was to receive a 20% interest before payout and a 36% interest after payout; each of the other parties was entitled to a 10% interest before payout and an 8% interest after payout. Each of the parties was also entitled to its percentage interest in any overriding royalties that were reserved in sales of the leases.

         Through two additional documents, various changes were made to the Participation Agreement. One such change involved the amendment of the Participation Agreement. Another of the changes came in an addendum to the Participation Agreement made necessary by the need for additional cash for the project. Both the original Participation Agreement and the amended one had effective dates of October 18, 2011.

         Paradigm, one of Taylor's companies, was listed as a "Party," but not a "Partner," in the original Participation Agreement. In both the amended Participation Agreement and in the addendum, Lazy T Royalty Management, LTD, another of Taylor's companies, was substituted for Paradigm. Furthermore, Paradigm's status was reduced to one of "agent for the Parties." The Alpine Group, although not listed as a party in the original Participation Agreement, appeared as a "Party" in the amended Participation Agreement and in the addendum to the Participation Agreement. Although the basic nature of the relationship-except for the changes relative to Lazy T and Paradigm-was not altered by the terms of either the amended Participation Agreement or the addendum to the Participation Agreement, the composition of the participants changed; the number of participants and the percentages of participation remained the same.

         The record reveals that the Alpine Group did not make a $500, 000 contribution in addition to the one provided for in the Alpine Letter Agreement; neither does the record show that Carroll or Alpine Petroleum made any additional contributions. The evidence also shows that Paradigm's commitment was never fully funded.

         In January 2012, Devon Energy Production Company, L.P. agreed, as evidenced by a purchase and sale agreement executed by Devon and Paradigm, to buy 25, 000 net mineral acres of oil and gas leases for $900 per acre. The Devon agreement was to be effective as of January 27, 2012, and the agreement included an "option" provision whereby Devon agreed that it would not take oil and gas leases from Fisher County mineral owners directly. In return, Devon was given the right to purchase additional Fisher County acreage that Paradigm and associates might acquire in the future.

         Although the Participation Agreement and subsequent amendments proposed that 25, 000 net mineral acres were involved in the project, Devon's initial purchase comprised leases on 30, 000 net mineral acres, rather than 25, 000 net mineral acres as initially discussed. As a part of the Devon transaction, Devon was to make a down payment of $2, 500, 000. Devon was to pay the balance of the $22, 500, 000 purchase price (subject to adjustment for title defects) upon delivery of an assignment of the leases from Paradigm and Carroll to Devon.

         Although Devon had purchased 30, 000 net mineral acres, Devon personnel told Taylor that Devon wanted more acreage. The record reflects that Taylor told Stephens that his group of investors was not interested in taking the project any further. Taylor said, however, that he was interested.

         Just before the initial Devon deal closed, Stephens, claiming that his deal with the Alpine Group was not fair, renegotiated the deal with the Alpine Group. Under the new deal, Stephens received a larger share of the profits from the sale of the oil and gas leases than initially agreed upon. Raughton and Hunt allege that they later learned that the reasons that Stephens gave them for needing a new agreement were false.

         By correspondence dated June 29, 2012, Taylor addressed a letter to "Partners." In addition to various accounting documents and other documents related to the project, the correspondence contained a "Termination of Participation Agreement," to be effective June 1, 2012. Basically, the agreement contained provisions to the effect that the project contemplated in the participation agreements was over, that everyone was satisfied with the project, and that everyone released everyone else from all claims. Tiburon, Trek, and Lett did not sign the termination agreement; all others did.

         The evidence shows that Taylor, Stephens, and Carroll, knowing that Devon was interested in acquiring leases of more mineral acreage, continued to buy Fisher County oil and gas leases, but they did so on their own, to the exclusion of the "Partners" in the amended Participation Agreement and, to some extent, Raughton and Hunt Resources. The record contains evidence that initially, at least, Taylor, Stephens, and Carroll used money from the initial sale to Devon-money that belonged to Plaintiffs-to fund the acquisition of the additional acreage. An exhibit in the record indicates that an additional 27, 700 gross acres had been identified as what was termed "Post Contract Acquired Leases." Devon ultimately bought a total of 43, 602.79 acres.

         At some point in time, it came to light that Taylor, Stephens, and Carroll had sold leases on more than the initial 30, 000 acres but that the proceeds of those sales were not shared with those involved in the participation agreements. When it did not receive satisfactory responses to its inquiries about the additional acreage, Tiburon filed this lawsuit.

         Tiburon was the only plaintiff named in the original petition. The named defendants were Thomas J. Taylor; Lazy T Royalty Management, LTD; Lazy T Royalty, LLC; Paradigm Petroleum Corporation; and the Alpine Group.

         In the second amended petition, Tiburon brought Trek into the lawsuit as an additional plaintiff. In this petition, the plaintiffs added Chester Carroll; Kerwin Stephens; Thunderbird Oil & Gas, LLC; and Thunderbird Resources, LLC as additional defendants.

         Raughton and Hunt Resources intervened in the lawsuit and added Thunderbird Land Services, LLC and Alpine Petroleum as defendants. Raughton and Hunt Resources asserted claims against the defendants for breach of fiduciary duty, fraud, and breach of contract. In an amended plea in intervention, Raughton and Hunt Resources added Sarah Kate Jones, as the independent executrix of the Estate of Thomas J. Taylor, deceased; they alleged that Taylor died on or about July 18, 2014. They also added Stephens & Myers, LLP; Snowmass Energy Partners Ltd.; and Gail Goebel Stephens.[1] Raughton and Hunt added allegations of violations of fiduciary duties that they claim were owed to them by Stephens and his law firm, Stephens & Myers, as their attorneys.

         Tiburon and Trek filed various amended petitions. Three Finger, the alleged partnership, was ultimately added as a plaintiff. The live petition upon which the trial began was denominated "Plaintiffs' Seventh Amended Petition."

         In the seventh amended petition, Tiburon, Trek, and Three Finger alleged that Three Finger was a partnership that was formed pursuant to the Participation Agreement. Because the plaintiffs ultimately elected to recover on claims due to Three Finger, rather than their individual claims, we will concentrate on the claims of Three Finger.

         The crux of one of the plaintiffs' complaints in this lawsuit is that Devon's down payment was used to show that Taylor, through his companies, had fully funded his contributions under the participation agreements and the addendum, when, in fact, he had not. The percentage interests shown in the amended Participation Agreement were based upon the percentage of contributions. Therefore, giving Taylor, or his entities, credit as though he had fully funded his contribution, when he had not, had the result of effectively reducing the percentages that the other parties to the Participation Agreement rightfully would have been entitled to if Taylor, or his entities, had not received credit for contributions never made.

         Three Finger maintains that Lazy T and Paradigm failed to fully fund their share of the required contributions and then concealed that failure and that, in doing so, they breached their fiduciary duties to Three Finger relative to the sale of the initial 30, 000 acres to Devon. Three Finger additionally contends that Carroll, Stephens, and the Thunderbird entities knowingly participated in that breach and additionally that they were a part of a conspiracy to bring it about. Three Finger also claims that Thunderbird Land wrongfully made charges to the initial project that were, in fact, attributable to subsequent deals from which the defendants wrongfully excluded Three Finger.

         As far as the issues that control this appeal, Three Finger basically claims that Taylor, through Paradigm and Lazy T, breached fiduciary duties owed to Three Finger in connection with the calculation and distribution of the proceeds from the sale of leases on the initial 30, 000 acres. The miscalculation and distribution were tied to Taylor's entities' failure to fully fund their share in the participation and were also tied to erroneous charges made by Thunderbird Land.

         Three Finger claims that through creative, albeit dishonest, accounting, Taylor made it appear that he, through his entities, had funded his required contribution when he had not fully funded it. For instance, Three Finger says that the Devon down payment was, in part, shown as contributions that Taylor's entities were to have made under the participation agreements and the addendum. As we have said, Appellants argue that to give Taylor, or his entities, credit for contributions never made would effectively reduce the percentages that Three Finger rightfully would have been entitled to if Taylor, or his entities, had not received credit for contributions never made.

         Three Finger also claims that Stephens, Thunderbird Oil, Thunderbird Land, and Thunderbird Resources knowingly participated in those breaches related to Three Finger. Additionally, Three Finger claims that there was a conspiracy to accomplish those breaches. There are other claims, but, at this point, suffice it to say that Three Finger basically takes the position that one or more of the appellants, individually or collectively, had lied, cheated, and stolen from them and overtly, covertly, silently, and via creative accounting procedures had attempted to execute a cover-up of their ill-intentioned activities. The result of those activities, as well as overcharges by Thunderbird Land, was that Three Finger did not receive its rightful share of the profits from the sale of either the initial deal for 30, 000 acres or in connection with the sales of additional acreage.

         Taylor died while this case was pending in the trial court. Before the trial of this case commenced, Trek, Tiburon, Lett (although not a party to the lawsuit), Three Finger, Hunt Resources, and Raughton (individually and purportedly as Trustee of Arapaho Energy LLC) settled their claims against Taylor's estate and his entities for $4.4 million. The settlement agreement contains a statement that the effective date of the agreement was July 27, 2015.

         After rather extensive pretrial matters, this case went to trial before a jury on July 28, 2015, the day after the Taylor settlement. The clerk's record indicates that the clerk of the trial court filed the court's charge to the jury on August 19, 2015. At the conclusion of the three-week trial, the trial court gave the jury a 69-page jury charge that contained 54 questions, many of which contained multiple parts. Subsequently, the jury returned its verdict, and on March 30, 2016, the trial court entered its judgment.

         In its judgment, the trial court reduced the award of the jury and entered a final judgment of almost $50 million in favor of Three Finger and Intervenors, including actual damages and exemplary damages. The total of the exemplary damages, as found by the jury and as awarded by the trial court, were as follows: against Stephens in the amount of $10, 500, 000; against Thunderbird Land in the amount of $9, 500, 000; against Thunderbird Oil in the amount of $3, 000, 000; against Thunderbird Resources in the amount of $3, 000, 000; and against Carroll in the amount of $8, 000, 000, for a total in exemplary damages of $34, 000, 000. Obviously, the jury was not overly enamored with Appellants.

         In its final judgment, the trial court awarded Three Finger actual damages of $4, 560, 433 against Stephens, Thunderbird Oil, Thunderbird Land, and Thunderbird Resources, jointly and severally, specifically for, as stated by the trial court in its judgment, "injuries sustained because of [A] the contribution failures of entities affiliated with . . . Taylor and [B] Thunderbird Land's role in determining and charging expenses to the Project for the Initial 30, 000 Acres." The trial court did not specify how much of the actual damage award was for contribution failures and how much of the award represented actual damages suffered due to expense overcharges. Alternatively, the trial court awarded that identical sum of money in favor of Three Finger against Stephens, Thunderbird Oil, Thunderbird Land, and Thunderbird Resources under its equitable powers to award "disgorgement and restitution."

         Further, in connection with the damages awarded to Three Finger in that portion of its judgment related to the contribution failures of the Taylor entities and Thunderbird Land's role in determining and charging expenses to the project for the initial 30, 000 acres, the trial court awarded exemplary damages to Three Finger against Stephens, as found by the jury, in the amount of $2, 500, 000 and also awarded $1, 500, 000 in exemplary damages to Three Finger against Thunderbird Land, again, as found by the jury.

         The trial court also awarded Three Finger a judgment against Stephens, Thunderbird Land, and Carroll, jointly and severally, in the amount of $6, 584, 440 for damages that related to its exclusion from transactions over and above the initial 30, 000 acres. Alternatively, the trial court awarded that identical sum of money in favor of Three Finger against Stephens, Thunderbird Land, and Carroll under its equitable powers to award "disgorgement and restitution." Further, in connection with the damages awarded to Three Finger against Stephens, Thunderbird Land, and Carroll as related to the exclusion claim, the trial court awarded exemplary damages to Three Finger against each of those Appellants in the amount of $5, 000, 000, as found by the jury.

         The jury also found the amounts that should be paid to Tiburon and Trek, as individual entities, that resulted from damages caused by Appellants. However, the trial court did not enter a judgment for individual recovery because Tiburon and Trek-purported members of Three Finger-elected to recover damages that resulted from breach of fiduciary duties owed to Three Finger.

         In its judgment, the trial court awarded other relief for claims that pertained to Hunt Resources. It also entered a judgment for Raughton, individually. We reserve our review of the merits of those claims until later in this opinion.

         In his original brief, Stephens categorizes his issues on appeal under nine general headings. Each of those headings contains subcategories. In those subcategories, Stephens has alleged 49 reasons why the trial court's judgment is, as to various constituent parts, in error. In six issues on appeal, Thunderbird Resources offers 29 reasons to reverse the trial court. In eight issues on appeal, Thunderbird Land offers 47 reasons, and Thunderbird Oil & Gas, 39 reasons. In two issues on appeal, Stephens & Myers offers six reasons. Although the Thunderbird entities are Stephens's wholly-owned entities, because some of the claims are unique to a specific entity, Stephens and each Thunderbird entity have filed separate briefs. Additionally, as is provided for in this instance in Rule 9.7 of the Texas Rules of Appellate Procedure, each of them has also incorporated, at least in part, the other Stephens-related parties' briefs by reference. Tex.R.App.P. 9.7.

         Carroll has also filed a separate brief. In his brief, Carroll, under eight stated issues on appeal, offers 20 reasons to reverse the judgment of the trial court.

         Raughton, as a cross-appellant, in two issues, complains about the trial court's summary judgment in which it ruled that he did not have standing to recover damages to Arapaho, the entity through which he participated in the project. Again, we will discuss those issues later in this opinion.

         Because it implicates subject-matter jurisdiction, we must first resolve the issue raised by Stephens and the Stephens-related entities that Three Finger did not have standing to sue for any duties owed Paradigm and that Three Finger had no standing to recover any "distributions" awarded in connection with the sale of the initial 30, 000 acres Three Finger counters that Stephens and his entities have confused standing issues with capacity questions.

         Matters concerning subject-matter jurisdiction, such as standing, can be raised in a motion for summary judgment. See Bland Indep. Sch. Dist. v. Blue, 34 S.W.3d 547, 554 (Tex. 2000). A traditional motion for summary judgment can only be granted if the defendant establishes as a matter of law that the plaintiff lacks subject-matter jurisdiction. See Tex. R. Civ. P. 166a(c). In a plea to the jurisdiction as well as in a traditional motion for summary judgment, the defendant bears the burden of proving the trial court's lack of jurisdiction. See Nixon v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546, 548 (Tex. 1985) (holding "movant for summary judgment has the burden of showing that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law"). When pleadings affirmatively negate the existence of jurisdiction, a summary judgment based on jurisdictional grounds may be granted without allowing an opportunity to amend. Green Tree Servicing, LLC v. Woods, 388 S.W.3d 785, 793 (Tex. App.-Houston [1st Dist.] 2012, no pet.).

         A party must have both standing to sue and capacity to sue. Austin Nursing Ctr., Inc. v. Lovato, 171 S.W.3d 845, 848 (Tex. 2005). Standing is a component of subject-matter jurisdiction, and a plaintiff must have standing to maintain a suit. Tex. Ass'n of Bus. v. Tex. Air Control Bd., 852 S.W.2d 440, 445-47 (Tex. 1993). We review standing issues de novo. Id. at 445. Parties may raise a standing issue for the first time on appeal; it cannot be waived. Lovato, 171 S.W.3d at 848. "A plaintiff has standing when it is personally aggrieved, regardless of whether it is acting with legal authority; a party has capacity when it has the legal authority to act, regardless of whether it has a justiciable interest in the controversy." Id. at 848-49 (quoting Nootsie, Ltd. v. Williamson Cty. Appraisal Dist., 925 S.W.2d 659, 661 (Tex. 1996)). The controversy between the parties must be real and one that will be determined by the "judicial declaration" sought. Lovato, 171 S.W.3d at 849 (quoting Nootsie, 925 S.W.2d at 662). When we review a standing issue for the first time on appeal, we are to construe the petition in favor of the party who files the petition. City of Laredo v. R. Vela Exxon, Inc., 966 S.W.2d 673, 679 (Tex. App.-San Antonio 1998, pet. denied).

         In Spurgeon, we referred to the following language from the Texas Supreme Court in Lovato:

The issue of standing focuses on whether a party has a sufficient relationship with the lawsuit so as to have a "justiciable interest" in its outcome, whereas the issue of capacity "is conceived of as a procedural issue dealing with the personal qualifications of a party to litigate." 6A Charles Alan Wright, Arthur R. Miller, and Mary Kay Kane, Wright, Miller & Kane, Federal Practice and Procedure: Civil 2d § 1559, at 441 (2d ed. 1990).

Spurgeon v. Coan & Elliott, 180 S.W.3d 593, 597 (Tex. App.-Eastland 2005, no pet.) (quoting Lovato, 171 S.W.3d at 848).

         The court in Nauslar said this about standing:

A person has standing if (1) he has sustained, or is immediately in danger of sustaining, some direct injury as a result of the wrongful act of which he complains; (2) he has a direct relationship between the alleged injury and claim sought to be adjudicated; (3) he has a personal stake in the controversy; (4) the challenged action has caused the plaintiff some injury in fact, either economic, recreational, environmental, or otherwise; or (5) he is an appropriate party to assert the public's interest in the matter, as well as his own.

Nauslar v. Coors Brewing Co., 170 S.W.3d 242, 249 (Tex. App.-Dallas 2005, no pet.).

         In the absence of a breach of some legal right belonging to a plaintiff, that plaintiff has no standing to litigate. Nauslar, 170 S.W.3d at 249. "Only the person whose primary legal right has been breached may seek redress for an injury." Hall v. Douglas, 380 S.W.3d 860, 873 (Tex. App.-Dallas 2012, no pet.).

         As opposed to standing, capacity involves the parties' legal authority to go into court to prosecute or defend a suit. El T. Mexican Rests., Inc. v. Bacon, 921 S.W.2d 247, 249-50 (Tex. App.-Houston [1st Dist.] 1995, writ denied). Capacity must be challenged by a verified pleading, or it is waived. Tex.R.Civ.P. 93; Spurgeon, 180 S.W.3d at 597.

         In Allied Chemical Co. v. DeHaven, 824 S.W.2d 257, 264 (Tex. App.- Houston [14th Dist.] 1992, no writ), the court held that one who was a partner at the time that a breach of contract and conspiracy occurred had standing to sue on behalf of the partnership involved there. Rule 28 of the Texas Rules of Civil Procedure provides: "Any partnership, unincorporated association, private corporation, or individual doing business under an assumed name may sue or be sued in its partnership, assumed or common name for the purpose of enforcing for or against it a substantive right, but on a motion by any party or on the court's own motion the true name may be substituted." Tex.R.Civ.P. 28.

         Tiburon and Trek alleged that they were partners in Three Finger. When we liberally construe the live petition, we conclude that Tiburon and Trek had standing to pursue the causes of action in the name of Three Finger. The right to pursue claims does not automatically equate to an ultimately successful pursuit. If we are incorrect that the issue is not one of standing but, rather, is one of capacity, then Appellants waived that issue when they failed to raise it in the trial court. In either event, these parties were properly before the court. We overrule Appellants' issues in which they challenge the matter of standing as it relates to Three Finger.

         The contrary is true with respect to Raughton's standing to assert claims for Arapaho's damages. In a partial summary judgment, the trial court ruled that Raughton could not recover for claims that belonged to Arapaho. In a cross-appeal, Raughton claims that the trial ...


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