2001 Trinity Fund, LLC v. Carrizo Oil & Gas, Inc.

• Decision Date: 28 December 2012
• Docket Number: NO. 14-10-00604-CV,14-10-00604-CV
• Court: Texas Court of Appeals
• Parties: 2001 TRINITY FUND, LLC, Appellant v. CARRIZO OIL & GAS, INC., Appellee

2001 TRINITY FUND, LLC, Appellant

v.CARRIZO OIL & GAS, INC., Appellee

NO. 14-10-00604-CV

State of Texas in the Fourteenth Court of Appeals

Dated: December 28, 2012

Motion for Rehearing Granted in Part and Denied in Part; Affirmed in Part and Reversed and Remanded in Part; Opinion and Concurring Opinions filed October 16, 2012 Withdrawn, and Substitute Opinion and Substitute Concurring Opinions filed December 28, 2012.

On Appeal from the 295th District Court

Harris County, Texas

Trial Court Cause No. 2008-05053

SUBSTITUTE OPINION¹

Two oil and gas companies, an operator and a non-operator, signed anagreement setting forth the terms and conditions of the non-operator's participation in certain wells being drilled or to be drilled on some of the operator's Barnett Shale drilling prospects. After that agreement terminated automatically, the two companies exchanged a series of emails. The jury found that the companies agreed in writing to continue under the terms of the terminated agreement without the automatic-termination provision and with a new provision under which the non-operator would receive a 1% rebate. The jury found that the non-operator's breach of this contract resulted in damages to the operator. The jury also answered liability and damage questions favorable to the operator on alternative claims for quantum meruit and promissory estoppel. The trial court rendered judgment in favor of the plaintiff based upon the breach-of-contract claim. We conclude the evidence is legally insufficient to support the jury's liability findings regarding all three claims. Based upon the form of the trial court's judgment, we are precluded from effectively rendering judgment or affirming the trial court's judgment as modified. Therefore, after affirming part of the trial court's judgment that is not challenged on appeal, we sever and reverse the remainder of the judgment and remand to the trial court for rendition of a new judgment in which the non-operator recovers a money judgment against the operator.

I. FACTUAL AND PROCEDURAL BACKGROUND

Appellee/plaintiff Carrizo Oil & Gas, Inc. had various leases in the Barnett Shale and was either drilling or planning to drill wells to keep certain of these leases from expiring. Appellant/defendant 2001 Trinity Fund, LLC was interested in participating in certain of Carrizo's Barnett Shale drilling prospects. Carrizo and Trinity entered into the "Barnett Shale Participation Agreement" on October 10, 2007 (hereinafter "Participation Agreement"). In pertinent part, the Participation Agreement provides as follows:

• Subject to the provisions of the Participation Agreement, Trinity has the potential to earn a portion of Carrizo's leasehold rights and interest in and to various leases described in the Participation Agreement. (article 1.5).

• Carrizo will drill and Trinity will commit to participate in nineteen wells specified in article 2.2 of the Participation Agreement ("Commitment Wells") before the expiration date of the relevant leases, so as to prevent the expiration of the leases. (article 2.1).

• Carrizo will provide the drilling rig for the two Commitment Wells on the Blair-Pickering Prospect. For the remaining wells, "Trinity shall provide the drilling rig with specifications approved in advance by Carrizo's Chief Operations Officer." "Carrizo reserves the right to utilize its own drilling rig for any wells drilled hereunder in the event that the drilling rig provided by Trinity does not meet with Carrizo's approval." (article 2.3).

All Commitment Wells drilled under the Participation Agreement will be on the cost basis specified in the Participation Agreement, in which a certain cost percentage is allocated to Trinity as to each prospect area in which the Commitment Wells are to be drilled. (article 2.8(a)).

• "[P]ayment by Trinity for its respective share of drilling and casing costs for [the] first well on the Blair-Pickering Prospect shall be received by Carrizo on or before October 19, 2007, or this Agreement shall automatically terminate." (article 2.8(b)).

• "If Trinity has complied with all requirements, conditions and obligations of this Agreement, then Trinity shall earn the following right, title and interest in the Leases with respect to each Earning Well in a Prospect Area: [interests specified]." (article 3.1(c)).

• Within thirty days after Trinity has earned its respective working interest in the leases attributable to a Commitment Well, Carrizo shall prepare, execute, and deliver to Trinity an assignment of that interest. (article 3.2).

• "Time is of the essence under this Agreement. Thus, all time limits shall be strictly construed and enforced." (article 7.3).

• "If Trinity has not complied with each and all of the provisions of thisAgreement, then (i) Carrizo shall be relieved of its obligations to make the assignment(s) specified herein and (ii) Trinity shall have no further rights to earn additional rights hereunder or to undertake additional operations hereunder." (article 7.3).

• Trinity's failure to pay Carrizo Trinity's respective share of drilling and casing costs for the first well on the Blair-Pickering Prospect on or before October 19, 2007, is a failure to comply with the Participation Agreement causing automatic termination of the agreement, but such a failure is not an active and material breach of the Participation Agreement. (article 9.5).

• "This instrument contains the final and entire agreement of [Carrizo and Trinity] with respect to the matters covered by this Agreement and supersedes all prior communications and agreements (written, oral or otherwise) in this regard." (article 9.11).

Trinity did not pay its respective share of the drilling and casing costs for the first well on the Blair-Pickering Prospect on or before October 19, 2007. Thus, under article 2.8(b), the Participation Agreement automatically terminated at the end of the day on October 19, 2007. Evidence at trial indicated that one of the reasons Trinity gave for not making this payment related to article 2.3 of the Participation Agreement. There was evidence that Trinity expected, under this article, to provide the rig for drilling of all the Commitment Wells to be drilled, except for the two Commitment Wells on the Blair-Pickering Prospect. But Trinity learned that Carrizo preferred to use its rigs to drill all of the Commitment Wells and that Carrizo planned to not approve any Trinity rig and to invoke its right under article 2.3 of the Participation Agreement to use Carrizo drilling rigs.

Between October 31, 2007, and January 2, 2008, David Friedman, on behalf of Carrizo, and Rob Arrowood, on behalf of Trinity, exchanged a series of emails that, according to Carrizo, constituted a written agreement by Carrizo and Trinity to continue under the terms of the Participation Agreement without a termination date associated with the non-payment of costs for the first well on the Blair-Pickering Prospect and with a new provision under which Trinity would receive a 1% rebate (hereinafter "Alleged Agreement"). Carrizo alleges that Trinity breached this Alleged Agreement by not paying Carrizo any amount for the costs of any of the Commitment Wells.

Carrizo and Trinity have entered into contracts regarding various matters other than the subject matter of the Participation Agreement. Carrizo and Trinity entered into a participation agreement regarding various oil and gas leases in Denton County, Texas ("Denton County Agreement"). On January 21, 2008, Arrowood sent a letter to Carrizo in a purported attempt to resolve various disputes that had developed between Trinity and Carrizo. These disputes were not resolved, and one week later Carrizo filed suit in the trial court below. Eventually, Carrizo asserted claims against Trinity for breach of contract, quantum meruit, and promissory estoppel. Carrizo also asserted breach-of-contract and declaratory-judgment claims against Trinity based upon the Denton County Agreement. Trinity filed counterclaims, seeking declaratory relief regarding both the Participation Agreement and the Denton County Agreement and seeking damages resulting from Carrizo's alleged breaches of the Denton County Agreement.

The trial court denied various summary-judgment motions, including Trinity's motion for summary judgment as to Carrizo's breach-of-contract and quantum-meruit claims relating to the subject matter of the Participation Agreement. The case proceeded to trial before a jury. The jury found that (1) Carrizo and Trinity agreed to the Alleged Agreement and that this agreement was in writing and signed; (2) Trinity failed to comply with the Alleged Agreement; (3) $10,894,000 would fairly and reasonably compensate Carrizo for its damages resulting from this failure to comply; (4) Carrizo rendered valuable services or furnished materials for Trinity, who knowingly accepted and used these services and materials, and Trinity should have known that Carrizo expected to be paid forthe work; (5) the reasonable value of these services and goods was $10,894,000; (6) Carrizo substantially relied to its detriment on Trinity's promise concerning the Barnett Shale Drilling Program and this reliance was foreseeable by Trinity; and (7) $10,894,000 would fairly and reasonably compensate Carrizo for its damages resulting from its reliance on Trinity's promise. The jury also made findings regarding Trinity's claims relating to the Denton County Agreement and regarding each party's reasonable and necessary attorney's fees.

Trinity asked the trial court to disregard the jury's findings as to Carrizo's claims against Trinity for money damages. Nonetheless, the trial court rendered judgment on the jury's verdict. The trial court concluded that Trinity was indebted to Carrizo in the amount of $12,070,549 ($10,894,000 plus prejudgment interest). The trial court rendered declaratory relief regarding the Denton County Agreement consistent with the jury's findings. Based upon the jury's findings,...