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Energy & the Law

Seismic Map is at the Center of Trade Secret Case

Posted in Litigation

Co-author Brooke Sizer

The ”tradition” of stealing a prospect generator’s maps – and getting caught at it – is alive and well. Lamont et al v. Vaquillas Energy Lopeno Ltd et al is the second recent Texas case on theft of trade secrets and, like the first, resulted in a large judgment against the alleged thieves.

The Players

Ricochet, owned by Hamblin and Lamont, entered into Prospect Generation Agreements with Vaquillas and JOB.

In September 2004, Ricochet’s geologist Maier identified the Lopeno Prospect beneath two contiguous tracts — Worley and El Milagro. Maier created a seismic map of the prospect that became known among the parties as the “Treasure Map”. Vaquillas and JOB agreed to participate as working-interest owners. Ricochet obtained a lease over the Worley property but not El Milagro because it was in litigation over a previous lease. The meetings among Ricochet, Vaquillas and JOB were considered by everyone to be confidential, and the seismic information was to be kept secret.

In August 2006, Lamont notified Hamblin that he wished to separate from Ricochet. In February 2007, agreements dividing Ricochet’s oil and gas prospects and a separating Lamont from Ricochet were signed, and Lamont tendered his resignation as director, officer and chief operating officer, all retroactive to December 31, 2006. Lamont signed a Joint Operating Agreement for the Lopeno Prospect as a 29% working-interest owner. Thereafter Maier sent Lamont a copy of the Treasure Map without requiring him to sign a confidentiality agreement.  The parties drilled the Worley well.

In January 2007 Lamont met Carranco and in February provided Carranco with seismic maps of four different prospects, including Lopeno. In February, Lamont received a copy of the Worley well log and he and Carranco immediately began efforts to lease the El Milagro property under the name of Montecristo. In March, Lamont informed Ricochet that Crazy Horse, a company of Carranco’s, had purchased 10% of Lamont’s 29% working-interest.

Lamont and Carranco, using Montecristo, were successful in leasing the El Milagro property by outbidding Ricochet. They paid a bonus of over $1 million. During the next six months, L.O.G. drilled a well on El Milagro and depleted the Lopeno Prospect reservoir, thereby depriving Vaquillas of the ability to produce from the Worley.

The Incriminating Evidence

Lamont and Carranco did not conduct any independent research of the gas reservoir. It was only after viewing the seismic data and the well log that Lamont and Carranco sought to lease the El Milagro property. Also, in order to secure a bank loan to pay the lease bonus, Lamont submitted a letter containing information that was drawn directly from the seismic data and Treasure Map. Lamont and Carranco claimed the well-log led them to pursue the El Milagro property; however, the log only provided information regarding the Worley well, and Lamont and Carranco began drilling the El Milagro without attempting to obtain any seismic data on that property.

The Questions for the Court

Did the Treasure Map lose its trade secret status in light of Ricochet’s failure to require confidentiality agreements and by showing the map to potential investors? Lamont claims that he owed no duty to Ricochet after the effective date of his resignation.

No. The map did not lose its status as a trade secret. In Texas, employees are forbidden from using trade secrets acquired during employment, and this obligation survives termination. Furthermore, disclosure of a trade secret is not destroyed by limited communication and furtherance of the owner’s economic interests, such as showing protected items to prospective buyers or customers.

Were Lamont and Carranco liable for using a trade secret if the trade secret was discovered by “improper means”?

Yes. Obtaining knowledge of a trade secret without spending time and resources to discover it independently is improper unless the secret is voluntarily disclosed or reasonable precautions to ensure its secrecy are not taken.