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Energy & the Law

Back to the Bulgarian Bad Guy, So Say the Justices

Posted in Contract Disputes, Purchase and Sale Agreements

jackie robinsonMy blogging sensei Cordell Parvin says the title should always inform the reader of the content. Mea culpa on this one; I couldn’t resist the alliterations.

Some time back I reported on Carlton Energy Group et al v. Phillips et al.  See that entry for the facts and a Texas Supreme Court opinion. In this new opinion from the court of appeal, the trial court was vindicated and the rest of us learned more about determining fair market value and lost profits.

A brief history

The trial court awarded Carlton $31.16 million in actual damages after finding that Phillips and EurEnergy tortuously interfered with Carlton’s contract with CBM. The court of appeal reversed and rendered judgment for $66.5 million in actual damages. The Supreme Court suggested a remittitur to the $31.1 million, which Carlton accepted.

In this appeal Phillips reiterated without success that the evidence was factually insufficient and asked for remand to the trial court for a do-over. Lawyers: See the inside baseball analysis of legally and factually sufficient evidence.

Arriving at fair market value

Carlton’s damages focused on the fair market value of Carlton’s interest in the Bulgarian gas exploration project: What would a willing buyer pay a willing seller, neither acting under any compulsion?

FMV is generally determined by:

  • comparable market sales,
  • replacement costs less depreciation, or
  • capitalizing net income – that is, profits.

And lost profits 

The lost profits were not themselves sought as damages, but were used to determine the FMV of the project. The court had this to say about lost profits:

  • Profits can be recovered only when the amount is proved with reasonable certainty.
  • The reasonable certainty requirement is intended to be flexible enough to accommodate the myriad circumstances in which claims for lost profits arise.
  • It is impossible to announce with exact certainty any rule measuring profits, the loss for which the recovery may be had.
  • What constitutes reasonably certain evidence of lost profits is a fact-intensive determination.
  • At a minimum, opinions or estimates of lost profits must be based on objective facts, figures or data from which the amount of lost profits can be ascertained.
  • Uncertainty as to the fact of legal damages is fatal to recovery, but uncertainty as to the amount will not defeat recovery.

The damages were in great part determined by extrapolating from the Carlton/Philips agreement to the total value of the project. That the agreement was never consummated did not deprive it of evidentiary value. Having made an agreement for certain price, which determined the value, Phillips was pretty much stuck with that valuation.

Trial strategy and the suicide squeeze

An earlier post compared a defendant’s election not to offer his own damage evidence to the suicide squeeze. In this one – unlike Jackie Robinson – the defendant was out at the plate. Phillips presented no FMV evidence of his own, choosing rather to attack Carlton’s experts.

Gearing up, musically, for the World Series.

While we’re at it, … go ahead and squander just a teeny-bit more time and then back to work.