Let’s suppose that someone (You? The other guy?) who operates wells in which others have an interest organizes the enterprise so that the owner of the leases, the owner of the overrides, the operator, several service companies, the employer of the workers, and on-an-on are all separate entities. Money is owed, liability is alleged, litigation ensues. Can a plaintiff, casting the net as far and wide as possible, lump all those entities together, treating them as one for liability purposes?  It depends on which side of the Sabine River you are on. (Perhaps you know the joke about what other the difference is.)

First, a definition:

A distinct corporate entity may be disregarded when a corporation is so organized and controlled as to make it merely an instrumentality or adjunct of another corporation. If one corporation is wholly under the control of another, the fact that it is a separate entity does not relieve the letter from liability.

A Louisiana court can consider at least 18 factors. See page 5 of the opinion for an illustrative but not exhaustive list.

The doctrine in Louisiana

GBB Properties v. Sterling Properties Inc. was a dispute over a real estate lease. The plaintiff claimed that the several defendants constituted a single business enterprise. The defendants argued that the theory was abolished by La. RS 12:1320. But according to the court that statute only relates to personal liability of individuals. The real question was whether the doctrine itself is a viable claim. The answer is yes, it does. Whether two or more entities comprise a single business enterprise is to be decided by the trier of fact. Whether the doctrine works for the plaintiff in this case will be decided after a trial.

What about Texas?

According to the Texas Supreme Court, the claim is no more. In Best SP Partners v. Gladstrong Investments USA Corp. the rationale in denying such a cause of action was that there is nothing abusive or unjust about corporations sharing names, offices, accounting, employees, services and finances. Different entities may coordinate their activities without joint liability.

Piercing the corporate veil?

Texas plaintiffs are not bereft of all theories of recovery, no matter how much our Supreme Court tamps them down. Best SP Partners confirmed that cause of action remains viable in Texas.

Saturday was Veterans Day

If you know one, thank him or her for doing their duty for us.  If its a WW II vet, do yourself a favor and do it soon. There aren’t many of them left. One, Captain C. Lenton Sartain, was my uncle. For him and his unit it was North Africa, Italy, D-Day, Operation Market Garden, Battle of the Bulge, all before his 24th birthday. Died this week at age 97. Knowing him and others like him, including my own father and maybe yours or your grandfather, it’s easy to understand why they are called the Greatest Generation.

Co-author Chance Decker

In the spirit of Halloween, Le Norman Operating v. Chalker Energy Partners III  is about a scary statute: The Texas Uniform Electronic Transactions Act, the UETA.

The Facts

A group of sellers led by Chalker went “by the book” in selling oil and gas assets in the panhandle. They set up a formal bidding process and hired Raymond James to advise. When LNO expressed interest, the parties signed a confidentiality agreement providing that Chalker would not be bound, “ … unless and until a definitive agreement has been executed and delivered[.]” Continue Reading Oil, Gas and the Electronic Transactions Act

Semco, LLC v. The Grand, LTD. is nominally about a $15 million liftboat construction contract and the legal issues one would expect after a long trial and a big verdict. This post is more about how to administer and perform a contract, especially one with a friend:

The lessons

  • Be Ronald Reagan: Trust but verify vague assurances.
  • Contract formalities have a purpose. Adhere to them.
  • “You snuck in that contract revision” = “I didn’t bother to read it”.
  • Didn’t warn of increased costs in writing? Why not?
  • “Money and friends are like oil and water.” Michael Corleone, Godfather Part III.
  • A disgruntled ex-employee is never good for your case.
  • Failure to sign an agreement to clarify increased costs = worse things to come.

Continue Reading Lessons from a Liftboat Contract

Like Les, except with an offense, Coach O congratulates the Tigers for subscribing to Energy and the Law

Lenders to Louisiana operators are likely to be reconsidering their business practices in light of Gloria’s Ranch v. Tauren et al.

A rather ordinary lease termination suit resulted in the lender Wells Fargo being solidarily liable with the lessees for $22.8 million in lost leasing opportunities, $242,000 in unpaid royalties, $484,000 in statutory damages, and almost $1 million in attorneys’ fees.

Here’s why: Continue Reading A New Day for Louisiana Oil and Gas Lenders?

Noble Energy Inc. v. ConocoPhillips Company, a 6-to-3 Texas Supreme Court decision, is a reminder of two things:

  • How parties to a property transaction describe what’s being acquired and what’s being left behind can have grave consequences. The purchaser can acquire specific obligations associated with purchased assets, excluding all others not mentioned. Or, he can acquire all obligations, disclaiming none, including those not even mentioned and those he doesn’t even know about. Here, the difference cost Noble $63 million.
  •  When given a choice, the Texas Supreme Court is likely to resolve a dispute by relying on the words in a contract rather than notions of equity.

Continue Reading Texas Supreme Court Dabbles in Bankruptcy Law

Co-author Chance Decker

We recently discussed Freeman v. Harleton. The opinion shows the transaction as a bunco job. Here’s more:

  • Bufkin and Wayne Freeman have done business together since the 1980s. They had a co-development agreement with Harleton.
  • Long-standing agreements among the three of them made it clear that Harleton owned 50 percent of the Geisler Unit.
  • Chesapeake never talked to the Freeman defendants, who were not parties to the letter agreement for the sale.
  • Chesapeake didn’t contract non-ops because Chesapeake believed the letter agreement prevented them from doing so.
  • Bufkin would bring non-ops to each closing, and they would receive offers to sell on the same terms as Buffco.
  • Wayne Freeman, who attended his closing, knew Harleton’s ownership interest in the unit but did not raise the issue because, ”It did not occur to him to do so.” He said “[I]t was Chesapeake’s obligation to figure out who owned what” in the unit.
  • As a non-op and non-signatory Freeman never made representations or warranties.
  • To Chesapeake it became obvious that Bufkin had known when he closed that the ownership in the Geisler Unit was different than what he said it was.
  • The due-diligence landman’s work was entirely from Buffco/Twin files. He didn’t check the county records because he was told by Bufkin and team that his title determination was correct.
  • The landman came to believe that Buffco removed materials from files that would have revealed Harleton’s interest in the deep rights.
  • See the opinion for federal Judge Gilstrap’s view of the defendants’ activities. it was adopted by the state court trial judge.

Continue Reading An Oil Patch Morality Play – Part 2

Co-author Chance Decker

Enterprise Products Partners, L.P. et al v. Energy Transfer Partners, L.P. et al reversed one of the largest jury verdicts in Texas history.  You will like this decision if:

  • You believe a party has the right to rely on the sanctity of a written contract.
  • You believe that it is proper for a court to be guided by “law and equity”.

You will not like it if:

  • You favor “partnership by ambush”, as one of Enterprise’s lawyers put it.
  • You regret that pesky pleading rules and required jury findings take the “Wild West” out of jury trials.

Continue Reading Pipeline Partnership Verdict Reversed

Co-author Chance Decker

You are selling properties. The buyer thinks you own the deep rights but you know your long-time partner owns them. You attend the closing. You don’t tell the buyer that he’s got the ownership wrong. You are protected by a contract. Do you fess up? What if it means $6.8 million?

In Freeman, et al v. Harleton Oil & Gas Chesapeake agreed to buy three-year term assignments of Buffco’s and Twin Eagle Resources’ interest in 14,000 acres in East Texas for $232 million. Continue Reading An Oil Patch Morality Play – Part 1

There’s no better place in the oil patch to play the blame game than 10,000 feet of leaky wellbore.

What went wrong?

In Justiss v. Oil Country Tubular Corporation, Justiss, a drilling contractor, entered into an IADC model turnkey drilling contract for a well in Beauregard Parish. The contract specified 12,500 feet of intermediate casing to be LTC pipe with buttress threads. The contract depth was 15,000 feet. Justiss purchased the casing from OCTC.

The operation was star-crossed. Justiss discovered a hole in the surface casing, which it repaired by cementing the casing in place. This made it impossible to remove the intermediate casing string when things got bad. Beginning at 3,500 feet the casing wouldn’t maintain adequate pressure and Justiss performed 13 squeeze jobs in an effort to remedy the problem. These and other efforts to fix the leaks lasted five weeks and cost millions of dollars.  At 13,596 feet the casing would not maintain pressure and, for fear of losing well control, the operation was terminated.

Read this if you sell a product or a service Continue Reading Blame Game Fails Louisiana Casing Vendor