Eagle Oil & Gas Co. v. Tro-X, L.P.

• Decision Date: 19 March 2021
• Docket Number: No. 18-0983,18-0983
• Citation: 619 S.W.3d 699
• Parties: EAGLE OIL & GAS CO., Petitioner, v. TRO-X, L.P., Respondent
• Court: Texas Supreme Court

619 S.W.3d 699

EAGLE OIL & GAS CO., Petitioner,

v.TRO-X, L.P., Respondent

No. 18-0983

Supreme Court of Texas.

Argued December 1, 2020

OPINION DELIVERED: March 19, 2021

Samuel J. Stennis, Midland, William Clark Lea, Rachel Anne Ekery, Houston, Wallace B. Jefferson, Austin, Rick G. Strange, Robert B. Dubose, Melanie Plowman, Houston, for Respondent.

George Scott Christian, for Amicus Curiae.

Jennifer Alane Stagen, Nina Cortell, Dallas, Christopher Knight, Deborah G. Hankinson, Brett David Kutnick, Dallas, for Petitioner.

Justice Lehrmann delivered the opinion of the Court.

This is the second suit arising out of a joint effort by TRO-X, L.P. and Eagle Oil & Gas Co. to acquire and sell oil-and-gas leases. In the first, TRO-X alleged that Eagle deprived TRO-X of its right to acquire its share of certain mineral interests Eagle retained as part of a sale of the leases. TRO-X lost that suit on appeal when the court of appeals determined that TRO-X "always held" equitable title to those interests and thus had not been deprived of them. Eagle Oil & Gas Co. v. TRO-X, L.P. , 416 S.W.3d 137, 149 (Tex. App.—Eastland 2013, pet. denied) ( Eagle I ). TRO-X now alleges in the second suit that Eagle failed to remit to TRO-X its share of income generated from production on the interests that commenced after the conclusion of the trial in the first suit.

The issues presented are whether TRO-X's claims in the second suit are barred as a matter of law by res judicata, waiver, or the statute of limitations. The trial court granted summary judgment for Eagle, but the court of appeals reversed. We agree with the court of appeals that Eagle has not conclusively established the affirmative defenses that are the basis of its summary judgment motion. Accordingly, we affirm the court of appeals' judgment.

I. Background¹

TRO-X acquired geological information and findings for the purpose of oil-and-gas exploration in West Texas. In 2005, TRO-X and Eagle entered into two acreage acquisition agreements: the South Haley Agreement, which is not at issue in this case, and the New Prospects Agreement (the Agreement).² The Agreement stated that the parties would acquire oil-and-gas leasehold interests in Pecos and Reeves Counties. The interests would be acquired in Eagle's name on behalf of both Eagle and TRO-X, and Eagle would bear all acquisition costs (up to $3 million) during the first year. Eagle and TRO-X could choose to retain a percentage of unpromoted working interests in the prospects, and the remaining interests would be sold to third parties on a promoted basis.³ If those sales were profitable, they would yield "cash proceeds" consisting of cash payments received from the sales and "non-cash proceeds" consisting of overriding royalties, back-in working interests, and the like. The Agreement provided a formula for dividing the cash and non-cash proceeds between Eagle and TRO-X after they recovered their expenses.

The Agreement included a provision governing an "Area of Mutual Interest" (AMI). Under that provision, the parties could not purchase any interests in the AMI for one year; after that, if one of the parties purchased an interest in the AMI, it was required to notify the other party of the acquisition within five days. The other party then had ten days to notify the acquirer whether it would acquire its share of the interest and pay its share of the costs.

During the first year of the Agreement, Eagle purchased over $10 million in mineral leases covering 80,000 acres in the New Prospects. Pursuant to the Agreement, those interests were acquired in Eagle's name. In April 2007, Eagle sold to Eagle Oil & Gas Partners, LLC (Eagle Partners)—an entity Eagle invested in and managed—an undivided 50% working interest in approximately 32,000 acres in the New Prospects. A dispute arose between Eagle and TRO-X regarding the acreage Eagle purchased, the sale to Eagle Partners, and the applicability of the AMI provision.

In October 2007, TRO-X sued Eagle for breaches of contract and fiduciary duty and sought a declaratory judgment (the Midland suit). In 2008, while that suit was pending, Eagle and Eagle Partners sold a portion of the New Prospect leases to Chesapeake Exploration, LLC in two transactions (the Chesapeake sales), reserving an overriding royalty interest and back-in working interest (the Interests). The trial court, with approval of the parties, ordered an accounting for the purpose of determining the share of the sales' cash proceeds to which TRO-X was entitled. The auditor concluded that TRO-X's share was $1,064,789.45, minus any reimbursement owed to Eagle for certain expenses totaling $685,000.65.

TRO-X amended its petition in the Midland suit to incorporate allegations and claims related to the Chesapeake sales. In pertinent part, TRO-X alleged that Eagle breached the Agreement by failing to distribute to TRO-X its share of the proceeds derived from the Chesapeake sales and by preventing TRO-X from acquiring its share of the Interests. TRO-X also alleged that Eagle breached its fiduciary duty by failing to share with TRO-X the benefits obtained in the Chesapeake sales. The trial court granted summary judgment in Eagle's favor on the fiduciary-duty claim.

While the Midland suit was pending, TRO-X's counsel sent Eagle's counsel an "Election of Remedies Notice" stating that "TRO-X intends to seek monetary damages for [Eagle's] breaches.... Therefore, assignments of any interests related to this litigation will not be accepted." The record indicates that when the suit went to trial, the leases that were the subject of the Chesapeake sales had not generated any royalty income.

The Midland suit proceeded to trial on TRO-X's contract claims, and the jury found in pertinent part that Eagle failed to comply with the Agreement in several ways, including by "preventing TRO-X from acquiring its proportionate share of the overriding royalty interest and working interest back-in acquired in the sale to Chesapeake." The jury awarded TRO-X $7,680,000 in damages, representing TRO-X's lost profits.⁴

After trial, the trial court determined that TRO-X was entitled to $379,788.80 under the previous court-ordered accounting (after deducting TRO-X's share of expenses), and TRO-X elected to recover under the jury verdict rather than the accounting. The trial court rendered judgment on the jury's verdict.

The Eastland Court of Appeals reversed. Eagle I , 416 S.W.3d at 150. In the court of appeals, Eagle argued in part that the evidence was legally insufficient to support the jury's finding that Eagle prevented TRO-X from acquiring its share of the Interests because TRO-X "had always held equitable title to" those Interests. Id. at 148–49. Specifically, Eagle argued in its appellate brief:

Critically, as TRO-X acknowledged, [TRO-X] has always held "equitable title" to these non-cash proceeds—i.e. , the right "to have the legal title to real estate, or the fruits thereof, transferred to the owner of the right." Because TRO-X, in fact, has always owned a share of these sales proceeds as a matter of law, Eagle did not (and could not) "prevent[ ] TRO-X from acquiring its proportionate share of [non-cash proceeds] acquired in the sale to Chesapeake," as [the jury question] required TRO-X to prove.

(Internal citations omitted) (second and third alterations in original). The court of appeals agreed with Eagle's position, concluding: "Because TRO-X always held equitable title to [the Interests], Eagle Oil could not, as a matter of law, deprive TRO-X of them.... [T]he evidence [thus] conclusively establishes that Eagle Oil did not deprive TRO-X of the [I]nterests." Id. at 149. The court rendered judgment that TRO-X take nothing on its contract claims and that TRO-X recover $379,788.80 under the accounting the trial court had approved. Id. at 150.

TRO-X moved for rehearing, requesting in part that the court of appeals either modify its judgment to reflect that TRO-X was entitled to receive record title to its portion of the Interests held by Eagle or remand to the trial court for further proceedings on that issue. Eagle Oil & Gas Co. v. TRO-X, L.P. , 427 S.W.3d 580, 580 (Tex. App.—Eastland 2014, pet. denied). The court of appeals denied the motion, noting that "TRO-X did not seek record title of these interests [at trial] and that TRO-X's pleadings would not support such a judgment." Id.

TRO-X filed a petition for review in this Court, which we denied. We also denied TRO-X's motion for rehearing. On February 8, 2016, while the motion for rehearing was pending, TRO-X filed the present suit in Dallas but requested that it be abated pending the outcome of the proceedings in this Court, asserting that TRO-X would nonsuit the case if we awarded TRO-X legal title or reinstated the jury's damages award in the Midland suit. After we denied rehearing in the Midland suit, the parties proceeded with the present suit.

In its petition in this suit, TRO-X seeks a declaratory judgment and asserts claims for breach of contract and breach of fiduciary duty premised in pertinent part on its "equitable title" to the Interests retained in the Chesapeake sales, as recognized by the court of appeals in Eagle I , and Eagle's alleged failure to remit to TRO-X any of the benefits—i.e., production income—derived from those Interests. TRO-X brought additional claims that have been abandoned on appeal, and TRO-X has affirmatively stated that it seeks to preserve and pursue only (1) its claim for a declaratory judgment that it "is entitled to receive all post Midland trial benefits received by Eagle that derive from" the portion of the Interests to which TRO-X holds equitable title (which TRO-X refers to as its "equitable interests") and (2) its claims for breach of contract and breach of fiduciary duty premised on Eagle's failure to remit the income derived from TRO-X's equitable interests on or after February 8, 2012 (four years before this suit was filed).

Eagle filed a motion for summary judgment,...