A Long-Running Dispute Over an Acquisition Agreement is Returned to the Trial Court

Originally published by Charles Sartain.

Co-author Rusty Tucker

This is another chapter in the long-running dispute between Eagle Oil & Gas Co. and. TRO-X, L.P.  The litigation arises out of an agreement to acquire and sell oil and gas leases. Here, TRO-X alleges that Eagle failed to remit a share of revenues from production that commenced after the first suit between the parties ended.

Background

In 2005 TRO-X and Eagle entered into an acreage acquisition agreement for leases in Pecos and Reeves counties. The interests would be acquired in Eagle’s name for both parties. Each party could choose to retain a percentage of un-promoted working interests in the prospects, and the remaining interests would be sold to third parties. Profitable sales would yield either “cash proceeds” or “non-cash proceeds.” The agreement included an AMI.

Eagle purchased over $10 million in leasehold covering 80,000 acres in new prospects. In 2007 Eagle sold a 50% working interest in 32,000 acres in the new prospects to another Eagle entity and then sold interests to Chesapeake.

Procedural History

A 2007 suit by TRO-X was resolved in Eagle’s favor. In the current suit TRO-X claimed breaches of contract and fiduciary duty based on its “equitable title” to the interests retained in sales to Chesapeake and Eagle’s failure to remit to the benefits derived from those interests. Eagle moved for summary judgment on its affirmative defenses of res judicata, waiver, and limitations. The trial court granted Eagle’s motion and entered final judgment dismissing TRO-X’s claims. The court of appeals reversed and the Supreme Court agreed.  Eagle did not conclusively establish its affirmative defenses.

Res Judicata

This doctrine bars lawsuits that arise out of the same subject matter as a prior suit when the subject matter could have been litigated in the prior suit. The element at issue was whether TRO-X’s second suit was based on the same claims that were raised or could have been raised in the first suit.

The first suit concerned TRO-X’s right to acquire its share of the interests retained in the Chesapeake sales, and this case involved TRO-X’s alleged right to receive production income from those interests that had not yet been generated when the first suit went to trial. The court agreed with TRO-X that the alleged breaches in the two suits were premised on different conduct occurring at different times that resulted in different injuries. Eagle failed to establish that TRO-X’s claims in this suit either were brought or could have been brought in the first suit and was not entitled to summary judgment on res judicata grounds.

Statute of Limitations

The four-year limitations period for TRO-X’s claims began to run when a wrongful act caused a legal injury. To meet its burden to conclusively establish the accrual date, Eagle maintained that all of TRO-X’s claims accrued in 2008 when Eagle completed the Chesapeake transaction. But because TRO-X always held equitable title to its share of the interests, Eagle did not deprive TRO-X of those interests regardless of whether Eagle failed to assign them. Accordingly, Eagle had not yet breached its duty and TRO-X suffered no legal injury. The alleged breach and injury stemmed from Eagle’s failure to remit TRO-X’s share of production revenues, and neither the wrongdoing nor the injury could have occurred until there were revenues to withhold.

Waiver

Waiver occurs when a party intentionally relinquishes a known right or engages in conduct inconsistent with claiming that right. Eagle argued that a letter during the first suit stating that TRO-X intended to seek monetary damages and would not accept assignments of interests related to the litigation was an intentional relinquishment of its right to recover. TRO-X’s earlier suit was for damages rather than an assignment. Considered in context, those statements did not establish TRO-X’s intention to relinquish its rights stemming from the equitable title it still had.

Conclusion

It’s back to the trial court for further proceedings.

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