Atlantic Richfield Co. v. Long Trusts

• Court: Texas Court of Appeals
• Writing for the Court: Before CORNELIUS; GRANT
• Citation: Atlantic Richfield Co. v. Long Trusts, 860 S.W.2d 439 (Tex. App. 1993)
• Decision Date: 27 April 1993
• Docket Number: 6-92-120-CV,Nos. 6-92-025-C,s. 6-92-025-C
• Parties: 133 Oil & Gas Rep. 388, Util. L. Rep. P 26,339 ATLANTIC RICHFIELD COMPANY and B & A Pipe Line Company, Appellants, v. The LONG TRUSTS, Appellees. The LONG TRUSTS, Appellants, v. ATLANTIC RICHFIELD COMPANY and B & A Pipe Line Company, Appellees.

Page 439

860 S.W.2d 439

133 Oil & Gas Rep. 388, Util. L. Rep. P 26,339

ATLANTIC RICHFIELD COMPANY and B & A Pipe Line Company, Appellants, v. The LONG TRUSTS, Appellees.

The LONG TRUSTS, Appellants, v. ATLANTIC RICHFIELD COMPANY and B & A Pipe Line Company, Appellees.

Nos. 6-92-025-CV, 6-92-120-CV.

Court of Appeals of Texas Texarkana.

April 27, 1993.

Opinion Overruling Motion for

Rehearing June 15, 1993.

F. Franklin Honea, Payne & Vendig, Dallas, Mike A. Hatchell, Ramey & Flock, Tyler, for appellant.

Rex A. Nichols, Law Offices of Rex A. Nichols, P.C., Longview, Bryant Boren, Jr., Baker & Botts, Dallas, for appellees ARCO and B & A Pipe Line Co.

C. Clint Adams, Dallas, for appellee Enserch Corp.

Before CORNELIUS, C.J., and BLEIL and GRANT, JJ.

OPINION

GRANT, Justice.

The Long Trusts ¹ appeal from their judgment against Atlantic Richfield Company (ARCO) and B & A Pipe Line Company, contending that the jury should have awarded them $6,327,693 as proven by conclusive evidence. ARCO and B & A also appeal from the judgment, contending that the court erred in awarding The Long Trusts $1,000,000 in damages, interest on that amount, and attorney's fees. ARCO also appeals the failure of the jury to award it any money for drilling costs. ²

BACKGROUND

Henderson Clay Products (HCP)--ARCO's predecessor--and The Long Trusts drilled gas wells during the early 1980s. The wells became producers, and HCP created B & A Pipe Line Company as its wholly owned subsidiary to build and maintain the pipe line and facilities transporting the gas to purchasers. On May 10, 1982, HCP and B & A entered into a contract whereby HCP dedicated its gas to B & A at the "applicable maximum lawful price per MMBTU [One Million British Thermal Units] as provided by the Federal Energy Regulatory Commission." ³ On May 11, 1982, B & A entered into a ten-year contract with Lone Star Gas in which B & A dedicated its gas to Lone Star, to be purchased at the price that B & A had agreed to pay HCP. Lone Star also agreed to pay B & A an operations fee on all volumes of gas delivered by B & A at the point of delivery, in addition to the gas cost. ARCO purchased HCP and stands in its position for all purposes.

ARCO (as successor of HCP) was operating under joint operating agreements with The Long Trusts and other investors. Section VI.C of each agreement stated that:

In the event any party shall fail to make the arrangements necessary to take in kind or separately dispose of its proportionate share of the oil and gas produced from the Contract Area, Operator shall have the right, subject to the revocation at will by the party owning it, but not the obligation, to purchase such oil and gas or sell it to others at any time and from time to time, for the account of the non-taking party at the best price obtainable in the area for such production. Any such purchase or sale by Operator shall be subject always to the right of the owner of the production to exercise at any time its right to take in kind, or separately dispose of, its share of all oil and gas not previously delivered to a purchaser.

(Emphasis added.)

The Long Trusts contend that they were defrauded by ARCO because the phrase "best price obtainable in the area for such production" mandated that B & A keep in effect the right to receive the "maximum lawful price" for the gas delivered under the terms of the May 10, 1982, contract between HCP and B & A. They argue that subsequent amendments to the initial contract between ARCO and B & A and between B & A and Lone Star Gas defrauded them by lowering the gas price.

Those amendments were made as part of the settlement of a take-and-pay lawsuit between B & A and Lone Star Gas. The original contract between B & A and Lone Star was negotiated and signed at a time when natural gas prices were at their zenith. Very shortly thereafter, the prices began to drop drastically, ⁴ and Lone Star Gas failed to take the quantities of gas to which they had agreed under the contract or pay at the high price specified by the contract. B & A filed suit on the contract. The settlement of the suit provided that Lone Star Gas would agree to take substantially higher quantities of gas at a new, lower price. Even with the reduction in the purchase price, the price remained substantially above the going price for gas on the spot market.

THE LONG TRUSTS' APPEAL

The primary issue: By modifying its long-term contract with Lone Star so that Lone Star paid less for the gas purchased, did ARCO--through its wholly-owned subsidiary B & A--violate the portion of its joint operating agreements with The Long Trusts stating that if ARCO sold The Long Trusts' gas, it would do so "at the best price obtainable in the area for such production?" We find that it did not.

DETERMINATION

The Long Trusts focus on the portion of the previously quoted Article VI.C of the joint operating agreements stating that the operator could sell their gas but only for the "best price obtainable in the area for such production." To prevail, their argument must necessarily be that the best price available was the "maximum lawful price" that was contained in the original contract between B & A and Lone Star. They must also be able to show that they had some right to obtain that price under the agreements. Although The Long Trusts had benefited incidentally from the terms of that contract, they were not third-party beneficiaries of the contract, i.e., there was no showing that these contracts were entered into for the purpose of directly benefiting The Long Trusts. ARCO and B & A had committed its production to Lone Star over a ten-year period in order to obtain that premium price. On the other hand, The Long Trusts had a right to terminate ARCO's selling of its gas at any time. Neither B & A nor ARCO had any future obligations to The Long Trusts because, by the terms of the contract, these transactions could be terminated at any time by either party.

The phrase "best price obtainable in the area for such production" necessarily requires that the gas prices available be compared only to similarly uncommitted production and not to gas committed to a long-term sales contract. If The Long Trusts had wished to obtain a higher price over a longer period of time, it had the option of negotiating separately with any gas purchaser. The joint operating agreements did not require that ARCO sell gas on behalf of The Long Trusts or that The Long Trusts must allow ARCO to sell their gas. Rather, the agreements provided that ARCO or The Long Trusts could terminate the selling of the gas at any time. This agreement cannot be rewritten by judicial fiat to say that ARCO's option had abruptly become ARCO's duty. So long as ARCO continued to sell for The Long Trusts, The Long Trusts enjoyed the same benefits that ARCO had obtained for itself.

The Long Trusts could not prevent ARCO from renegotiating its contracts to sell its own gas and had no vested interest in these contracts. In claiming such an interest, The Long Trusts seek to enjoy all the benefits of contracts to which they were not parties and at the same time bear none of the obligations of the terms of the contracts. The Long Trusts could have entered into their own long-term contract at the best price they could obtain, and B & A would have been required to transport their gas at a reasonable transportation fee. The term "for such production" in the joint operating agreements meant the undedicated gas of The Long Trusts. The term applied to what could be obtained for such undedicated gas or what actually was obtained. The Long Trusts were not entitled to any damages as a result of B & A's amendments to its contracts with Lone Star or with ARCO.

The trial court did not err in refusing to award The Long Trusts damages of $6,327,693.

ARCO AND B & A'S APPEAL

The issues: ARCO and B & A appeal on the ground that the contract upon which the damages were based did not provide a basis for any recovery by The Long Trusts on the facts proven in this case. ARCO and B & A also contend that the trial court erred by failing to disregard certain jury answers because they were entitled to judgment as a matter of law, by failing to direct a verdict because there was no evidence on certain issues submitted to the jury, by submitting erroneous questions to the jury, by failing to submit a proximate cause question on the alleged conspiracy, by failing to hold that The Long Trusts cannot benefit because of their own breach, by permitting The Long Trusts' witnesses whose names were not furnished as requested in interrogatories to testify, and by failing to award ARCO attorney's fees in conjunction with its cross-action on drilling costs.

FAILING TO ACCOUNT

We first examine the determination that ARCO failed to account to The Long Trusts at the best prices obtainable in the area for such production by not accounting to them for their share of the production at the price set forth in the B & A amendment ⁵ for gas marketed from June 1, 1985, to January 31, 1991. This examination includes the contentions by ARCO and B & A that the trial court erred in failing to disregard certain jury answers and in failing to direct a verdict because there was no evidence on certain issues submitted to the jury. ARCO and B & A also urge that they are entitled to judgment on the evidence as a matter of law. Because they did not have the burden of proof on these issues, the correct standard for reviewing the evidence is to apply a no evidence standard. See Sterner v. Marathon Oil Co., 767 S.W.2d 686 (Tex.1989).

In reviewing no evidence points, the court considers only the evidence tending to support the finding, viewing it in the light most favorable to the finding, giving effect to all reasonable inferences therefrom, and disregarding all contrary and conflicting evidence. Glover v. Texas Gen. Indem. Co., 619 S.W.2d 400 (Tex.1981).

Nothing in the joint operating agreements prohibited ARCO...