Sec. 53.074.  AUTHORITY AND DUTIES OF AGENT.  (a)  Prohibition Against Self-Dealing.  (1) The owner of the soil may not lease, either directly or indirectly, to himself or to a nominee, to any corporation or subsidiary in which he is a principal stockholder or to an employee of such a corporation or subsidiary, or to a partnership in which he is a partner or to an employee of such a partnership.  If the owner of the soil is a corporation or a partnership, then the owner of the soil may not lease, either directly or indirectly, to a principal stockholder of the corporation or to a partner of the partnership, or any employee of the corporation or partnership.  The owner of the soil may not lease, either directly or indirectly, to his fiduciary, including but not limited to a guardian, trustee, executor, administrator, receiver, or conservator.
(2)  Except as provided by this section, the owner of the soil may not lease, directly or indirectly, to a person related to him within and including the second degree of consanguinity or affinity, including a person related by adoption, or to a corporation or subsidiary in which that person is a principal stockholder, or to a partnership in which that person is a partner, or to an employee of such a corporation or subsidiary or partnership.
(3)  An owner of the soil who wishes to lease to a person, corporation, or partnership described in Subdivision (2) may request the approval of the board for authority to execute such a lease before its execution.  The owner of the soil requesting approval must also execute and file with the commissioner a sworn affidavit stating that the owner of the soil will not receive any benefit under a lease so approved by the board that will not be shared with the permanent school fund in the proportion prescribed by this subchapter.
(4)  If an owner of the soil makes any material misstatement of fact in connection with an application to the board or affidavit made pursuant to Subdivision (3), then any lease executed pursuant to the authority of the board shall be voidable at the election of the commissioner.  The election to void such a lease shall be cumulative of and in addition to all other remedies available to the commissioner or the state.
(b)  Fiduciary Duty of Agent.  An owner of the soil owes the state a fiduciary duty and a duty of utmost good faith.  An owner of the soil must fully disclose any facts affecting the state's interest and must act in the best interest of the state.  Any conflict of interest must be resolved by putting the interests of the state before the interests of the owner of the soil.  In addition to these specific statutory duties, the owner of the soil owes the state all the common-law duties of a holder of executive rights.
(c)  Consequences of a Breach of the Surface Owner's Fiduciary Duty or a Violation of the Prohibition Against Self-Dealing.  When the commissioner determines that an owner of the soil has breached any duty or obligation under this subchapter, the commissioner may request that the attorney general file an action or proceeding either to enforce the duties and obligations of the owner of the soil or to forfeit the then applicable agency rights of the surface owner.  Such an action or proceeding shall be filed in a district court in Travis County.
(d)  Leasing Procedure When Surface Owner's Agency Rights Have Been Forfeited.  When the surface owner's agency rights have been forfeited in accordance with Subsection (c) of this section, the minerals subject to lease under this subchapter can then be leased under the leasing procedure set out for the lease of oil and gas under Section 52.175 of this code.  The substantive provisions of Subchapter E of this chapter  and Subchapters D and E, Chapter 32, of this code  shall apply to the lease.
(e)  A penalty of 10 percent shall be imposed on any sums due the state because a surface owner breaches a fiduciary duty.  This penalty shall be applied only to amounts owed as a result of breaches occurring on and after the effective date of this section.  The imposition of this penalty will not limit the right of the state to obtain punitive damages, exemplary damages, or interest.  Any punitive damages or exemplary damages assessed by a court shall be offset by the 10 percent penalty imposed by this subsection.
Added by Acts 1987, 70th Leg., ch. 912, Sec. 5, eff. Aug. 31, 1987.  Amended by Acts 1993, 73rd Leg., ch. 897, Sec. 53, eff. Sept. 1, 1993;  Acts 1995, 74th Leg., ch. 937, Sec. 4, eff. Sept. 1, 1995.