Contract Disputes

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Co-author Chance Decker

What could go wrong when the well recovers two times its costs in nine months? Plenty, as we see in Dimock v. Sutherland Energy.

In a Seismic Exploration and Farmout Agreement, Dimock farmed out a 15-section area in Hardeman County, Texas, to Sutherland to drill the Hamrick #3.  Project payout was that point when revenues equaled two times Sutherland’s capital costs. The parties disagreed over whether payout occurred. The question was whether a $1 million seismic shoot after the well was drilled was a capital cost.

First, why do I care?

  • “Boilerplate” in contracts is there for a reason.
  • Should important terms be defined? This case suggests yes.
  • Grammar matters. An errant comma cost one of the parties money and time.
  • Defending a fiduciary duty claim will not be an enjoyable experience due to the high standard of behavior required of fiduciaries in Texas. Avoid fiduciary duties if you can. Seek them from the other guy if you can.

Continue Reading Farmout Agreement Worked Over by the Court

Co-author Chance Decker

The ruling from the Supreme Court of Texas in JP Morgan Chase Bank, N.A., et al v. Orca Assets, G.P., L.L.C. was foreseeable. Experienced energy professionals who pass on the opportunity to examine title for themselves are not sympathetic plaintiffs in a suit claiming reliance on oral statements of the lessor.

How did this happen?  Continue Reading Fraud Claim Rejected for Unreasonable Reliance

Co-author Chance Decker  

Proving once again that gratitude is the rarest of human emotions, a contract between a landman and his client was deemed unenforceable, leaving the landman with nothing, even though he actually secured oil and gas leases for the client (at least he said that he did). In Moore v. Bearkat Energy Partners, LLC, independent landman Moore signed a contract with the purported agent of Lane.  Lane would pay Moore “$600 per mineral acre for each and every lease [Lane] enter[ed] with [Moore’s] assistance.”  Moore said he helped Lane secure numerous leases, but Lane refused to pay. Continue Reading Landman Defeated by the Statute of Frauds

Email is the way we communicate these days. Whether  emails create a contract is important if you’re thinking nothing short of scribblings on a piece of old parchment could ever bind anybody or, to the contrary, your goal is to establish an enforceable agreement. Before hitting “send”, consider Bujnoch v. Copano.  Questions of fact precluded a summary judgment denying an agreement. A jury will decide the question.  Continue Reading Can Emails Establish an Easement in Texas?

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?