win loseYou are negotiating to take a big oil and gas lease. The run sheets show you are dealing with an executive right owner on behalf of himself and his NPRI owner.  His proposed terms are odd: a lower-than-market royalty and a higher-than-market bonus. After reflecting, you get it: The terms aren’t odd; they are just better for him than the NPRI owner. Is he cheating his NPRI owner? If you suspect he is, must you come to the aid of the soon-to-be-shortchanged NPRI owner or else get sued along with the larcenous executive?

Don’t worry. Bradshaw v. KCM leaves virtually no chance that a lessee will be derivatively liable to an NPRI owner for an executive’s wrongdoing. We discussed the NPRI owner’s claims against the executive last week. The NPRI owner also sued Range Resources, the lessee who took the lease from the executive.

Bradshaw’s claim against Range was that KCM’s breach of its duty should be imputed to Range under civil conspiracy and aiding and abetting theories. Not so, said the court. Range and KCM were not affiliated with one another except as adverse parties in an arms-length transaction (to-wit, the oil and gas lease). There was no claim that Range owed an independent fiduciary duty to Ms. Bradshaw. This is obvious because the lessee’s interests are inherently adverse to both the executive and the NPRI.

There was no evidence that Range was complicit in KCM’s alleged underlying tort. In negotiations between the two, Range sought to extract the best deal it could on the most favorable terms. The mere fact that Range knew the estate was burdened with Bradshaw’s NPRI was insufficient to impute KCM’s liability, if any, to Range.

The court observed that if it were to validate Bradshaw’s theory of liability it would be difficult to conceive of a context in which a lessee would not owe a derivative fiduciary duty to the other side of the bargaining table.

Even if there were an imbalance in the lease terms that substantially favored Range, that would not be evidence that Range acted improperly. The court believed that in a broad sense almost any bargain for a commercial exchange might be considered benefiting one party at the expense of the other. (Ironically, the court cited a Wal-Mart case for this proposition.)

Simply put, said the court, a lessee is not be expected to consider an NPRI owner’s economic interests. That is the executive’s responsibility.

In the spirit of today’s musical interlude, the court has made negotiating easier on the lessee.