Land Rush Leads to Double-Leasing and a Viable Fraud Claim

JPMorgan, as Trustee of the Red Crest Trust, signed a letter of intent for Orca Assets to lease oil and gas properties in the Eagle Ford Shale. Unfortunately, JPMorgan had leased those same properties to GeoSouthern Energy six months earlier. GeoSouthern recorded its lease three days after Orca signed the letter of intent with JPMorgan, but Orca did not conduct any forward-looking title searches after the letter of intent. Orca proceeded to sign the leases a month later and promptly recorded them. GeoSouthern then contacted JPMorgan about the duplicate leases, and the bank promptly offered to refund Orca’s $3.2 million lease payment. Instead, Orca sued for $400 million in lost profits. At a Rule 166 pretrial conference, the trial court dismissed all of Orca’s claims, ruling that the leases unambiguously disclaimed any warranties, and that Orca could not establish justifiable reliance as a matter of law. The Dallas Court of Appeals reversed in part, holding that the disclaimers in the leases foreclosed Orca’s breach of contract claim, but not fraud and negligent misrepresentation.

Under the express language of the contractual disclaimer, Orca was to be “without recourse” under the lease if title to the oil and gas interests failed. That was sufficient to negate contract liability for JPMorgan’s failure to convey good title, but not fraud and negligent misrepresentation. Noting that the leases did not also include any provisions disclaiming reliance on any extra-contractual representations, the Court held that Orca could proceed with claims based on an oral representation that the properties in question were “open” for lease. In the course of that holding, the Court analyzes a number of other recent fraudulent inducement cases, leaving the distinct impression that courts are going to continue drawing some pretty narrow distinctions in the wake of the Texas Supreme Court’s Italian Cowboy opinion.

Orca Assets, G.P., LLC v. JPMorgan Chase Bank, N.A., No. 05-13-01700-CV

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I Accept Your Offer and Ask for More

The appeal of an oil and gas dispute has led to a multi-million dollar swing in favor of the appellants. The district court had granted a $14 million summary judgment in favor of the seller of oil and gas interests located in New Mexico. The fact scenario is somewhat complex, but the essence seems to be that Three Rivers Operating Co. offered to sell its interests in five properties to MRC Permian Co. pursuant to a preferential purchase right provision in their joint operating agreement. MRC accepted that proposal, for a purchase price of just under $7 million, and further wrote that it was exercising a preferential right to purchase “one hundred percent (100%) of Three Rivers’ interest in the land comprising the Contract Area . . . .” Three Rivers responded to say that there were actually 10 properties for sale for approximately $14 million. MRC then wrote back that it was ready to move forward on Three Rivers’ original offer, but Three Rivers nevertheless concluded that MRC had agreed to buy all ten properties. On cross-motions for summary judgment, the district court entered judgment for Three Rivers, requiring MRC to specifically perform the $14 million deal. The Court of Appeals reversed and rendered judgment for MRC that there was only a $7 million contract for the original five properties.

Three Rivers argued that the initial $7 million offer had been made under a mistaken interpretation of the preferential purchase right clause, and that MRC did not accept that offer in any event because its acceptance letter was actually a counteroffer to buy all of Three Rivers’ interests covered by the JOA. The Court of Appeals disagreed, holding that MRC did not condition its acceptance of the $7 million offer on Three Rivers’ assent to sell any additional properties. So long as it is clear that the acceptance is positive and unequivocal, a contract is formed regardless of whether the offeree makes additional requests at the same time. And when Three Rivers offered to sell all 10 of its properties, that was not an acceptance of an offer by MRC to purchase “100%” of Three Rivers’ interests. MRC had not stated the essential terms of a contract, including purchase price, nor did MRC’s letter indicate any acceptance of a prior offer by MRC. Instead, Three Rivers’ $14 million offer letter was an independent offer of its own, and MRC did not accept it in the manner specified by Three Rivers. The Court of Appeals therefore reversed the trial court’s judgment, rendered judgment for MRC on the $7 million contract, and remanded for consideration of MRC’s costs and attorney fees.

MRC Permian Co. v. Three Rivers Operating Co., No. 05-14-00353-CV

Ambiguity

In this oil and gas case, a pair of working interest owners sued to recover alleged overcharges made by the operator to the joint account. The trial court found that the joint operating agreement was ambiguous and submitted the matter to a jury, which ruled in favor of the operator. The Court of Appeals affirmed. The contract provision at issue was from a pre-printed form, but included a typewritten addition at the end. The form language permitted the operator to allocate a portion of its overhead and charge it to the joint account, while the typewritten insert provided for flat-rate monthly charges. The working interest owners believed that the flat rate in the inserted language was all the operator could charge to the joint account, while the operator believed it could charge both its overhead and the per-well rate. The Court of Appeals held that the contract was ambiguous because both proffered interpretations were reasonable, and therefore affirmed the jury’s finding in favor of the operator’s interpretation.

MCS Minerals, Ltd. v. Plains Explor. & Prod. Co., No. 05-12-01309-CV