Contract Disputes

Subscribe to Contract Disputes

Co-author Trenton Patterson*

We’re not saying you should do it, but there is a recipe for ridding oil and gas leases of pesky burdens: Enter into a new lease covering the same interest as the earlier lease and omit any reference to an intent that the later be subordinate to the earlier. You don’t even have to release the earlier lease. So says TRO-X, L.P. v. Anadarko Petroleum Corp.

You might remember a report on this case at the court of appeal, where we marveled at the skillful (or fortuitous, we’ll never know) way the Anadarko landman won the day via email. Continue Reading Texas Supreme Court Affirms Washout of a Back–in Interest

The question posed in our recent discussion of Devon Energy v. Apache Corporation was the meaning of “payor” under the Texas Division Order Statute. The answer, as far as it went, was that in a well drilled without a joint operating agreement the statute does not require the operator to pay lease royalties to mineral interest owners who have leased to a different working interest owner.

The questions raised by the answer

When are mineral owners who have leased to a non-participating working interest owner entitled to royalties under their lease … before or after payout? Arguably, the lessor (to the non-participating WI owner) is not entitled to lease royalties from the lessee of its cotenant (the operator) until after payout of the well.

Well then, what’s keeping the lease alive if it is past the primary term? Absent pooling, the answer could be “nothing”.

As promised, here is more on these questions in “Show Me the Money: Who is a Payor under the Texas Natural Resources Code?” prepared by my very knowledgeable Gray Reed colleagues Paul Yale, Chance Decker and Ethan Wood.

And a musical interlude about venue.

Co-author Sonya Reddy

Defendants accused of stealing trade secrets often claim that publicly available information can’t constitute a trade secret. Sometimes yes, but mineral ownership that can be determined from the public record only after lengthy, expensive, and labor-intensive research in the county courthouse can have trade-secret protection, according to Eagle Oil & Gas Co. v. Shale Exploration, LLC.

 It began like a routine exploration venture … Continue Reading Big Damages in a Texas Trade Secret Case

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.