Castle Tx Prod. Ltd. Partn. v. Long Trusts, 12-01-00192-CV.

• Court: Court of Appeals of Texas
• Writing for the Court: Bill Bass
• Citation: 134 S.W.3d 267
• Parties: CASTLE TEXAS PRODUCTION LIMITED PARTNERSHIP, et al, Appellants/Cross-Appellees, v. The LONG TRUSTS, Appellees/Cross-Appellants.
• Docket Number: No. 12-01-00192-CV.,12-01-00192-CV.
• Decision Date: 31 July 2003

134 S.W.3d 267 CASTLE TEXAS PRODUCTION LIMITED PARTNERSHIP, et al, Appellants/Cross-Appellees,
v.
The LONG TRUSTS, Appellees/Cross-Appellants. No. 12-01-00192-CV. Court of Appeals of Texas, Tyler. July 31, 2003. Judgment following of Remittitur August 20, 2003. Rehearing Overruled August 25, 2003.

[134 S.W.3d 270]

Drew R. Heard, Robert B. Gilbreath, Jenkens & Gilchrist, P.C., Dallas, for appellant.

F. Franklin Honea, Winstead Sechrest & Minick, P.C., Dallas, Mike Hatchell, Hatchell PC, Tyler, Ron Adkison, Wellborn,

[134 S.W.3d 271]

Houston, Adkison, Mann, Sadler & Hill, L.L.P., Henderson, for appellee.

Panel consisted of WORTHEN, C.J., GRIFFITH, J., and BILL BASS, Retired Justice, Twelfth Court of Appeals, Tyler, sitting by assignment.

OPINION

BILL BASS, Justice (Retired).

Castle Texas Production Limited Partnership ("Castle"), Castle Texas Pipeline Limited Partnership ("Castle Pipeline"), CEC Gas Marketing Limited Partnership ("CEC"), and Castle Energy Corporation ("Castle Energy") (collectively the "Castle entities") appeal an adverse judgment awarding the Long Trusts actual and exemplary damages for conversion of the Long Trusts' natural gas, prejudgment interest, and attorneys' fees. The Castle entities present for our review twenty issues, including seven conditional issues, each of which includes several subissues. The Long Trusts, as Cross-Appellants, raise three issues. We conditionally affirm in part and reverse and remand in part.

BACKGROUND

In December 1992, Castle bought Atlantic Richfield's interest in several producing leases comprising six gas units in Rusk County, Texas. Castle also succeeded to Atlantic Richfield's position as operator under the joint operating agreements ("JOAs") governing the operation of the leases. Incorporated within each JOA as Exhibit "E" was a gas balancing agreement ("GBA") providing generally that a party or its purchaser unable to take its share of the gas produced should be credited with gas in storage equal to its share of the gas produced. When able to market its share, the underproduced party was entitled to take its share plus twenty-five percent of the overproduced parties' share of gas produced until it had recovered the gas in storage ("banked gas"). The GBA did not provide for the balancing of condensate production.

When Castle became the operator, the Long Trusts were not taking their share of the gas produced, and according to the agreement, their share was credited to them as banked gas. This continued so that by February 28, 1996, the Long Trusts had, according to their records, 663,824 mcf of banked gas. The GBAs called for the operator to "maintain a current account of the gas balance[s] between the parties and furnish all parties ... monthly statements showing the total quantity of gas produced, used in lease operations, vented or lost, and the total quantity of condensate recovered."

Shortly after Castle became the operator, it began sending out joint interest billings ("JIBs") for expenses incurred in operating the wells. The Long Trusts never paid any of the joint operating expenses reflected by the JIBs Castle sent them. During the period that the Long Trusts' share of gas production was being banked, Castle sold the Long Trusts' share of the condensate production, but accounted to the Long Trusts only sporadically. The Long Trusts insist that they were not paid for most of the condensate.

In February 1996, the Long Trusts sold at the wellheads their gas production from the gas units to Cherokee Gas Marketing, Inc. ("Cherokee") and notified Castle that they wanted to start taking their gas effective March 1, 1996. Castle responded that the Long Trusts needed to contract with Castle Pipeline to begin taking the gas. Castle Pipeline was a common carrier and owned the only pipeline connection to the wells. After several prolonged delays, Cherokee and Castle Pipeline arrived at a transportation agreement in January 1997. The parties disagree about the causes of

134 S.W.3d 272

the delay, but during that eleven-month period, the Long Trusts' share of production continued to be credited to it as banked gas. By January 31, 1997, the Long Trusts' banked gas amounted to 748,039 mcf, an increase of approximately 85,000 mcf during the eleven months.

On April 19, 1996, early in the delay in arriving at a transportation agreement, the Long Trusts¹ sued Castle alleging Castle's breach of the JOAs and conversion of the Long Trusts' share of the gas and gas condensate production. Castle denied the Long Trusts' claims and responded with a counterclaim for $149,407.94 in unpaid JIBs for the costs of lease operations. The Long Trusts later joined Castle Energy, Castle Pipeline, and CEC as defendants alleging that (1) those entities and Castle integrated their resources to achieve a common business purpose and thereby operated as a single business enterprise and that (2) Castle, Castle Pipeline, and CEC were alter egos of Castle Energy.

On June 27, 1996, Texas Utilities Mining Company ("TUMCO"), the owner of the surface minerals, obtained the agreement of the working interest owners to abandon and plug the Kangerga "A" No. 1 well in order that TUMCO could mine its lignite. TUMCO paid the working interest owners $300,000.00, out of which $53,811.90 was paid to the Long Trusts, an amount in proportion to their fractional working interest in the well. The agreement recited "this agreement is the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior agreements." The agreement did not mention the accumulated banked gas referable to that well. Under the GBA, the permanent cessation of production from a well mandated a complete balancing by a money settlement of the gas accounts referable to that well. When production ceased in the Kangerga "A" No.1, the Long Trusts had banked gas referable to the well. However, the balance was apparently maintained as a credit against future production from the other wells despite a contractual provision to the contrary.²

On February 1, 1997, Cherokee began taking the Long Trusts' share of production together with an additional twenty-five percent of production as a withdrawal of the Long Trusts' banked gas. Cherokee continued to sell the Long Trusts' gas until trial. On their own initiative, the Long Trusts suspended the sale of their banked gas from June 1998 until July 1, 2000. By September 30, 2000, shortly before the November trial, the Long Trusts had reduced their accumulated volume of banked gas to 489,598 mcf.

By trial, the Long Trusts had sold far more banked gas than was credited to them as banked gas during the March 1, 1996 to February 1, 1997 period that the Long Trusts claim Castle denied them the right to sell their gas. Moreover, it appears they sold it for a higher price per mcf than that obtainable during the eleven-month period in question.

After a jury trial, the trial court entered judgment against Castle, Castle Pipeline, CEC, and Castle Energy, jointly and severally, for $1,573,078.20 in actual damages for conversion of the Long Trusts' gas,

134 S.W.3d 273

$811,357.14 for prejudgment interest, $250,000.00 for exemplary damages against Castle, and an additional $250,000.00 for exemplary damages against Castle Energy. The judgment also ordered the Castle entities to pay the Long Trusts $598,458.63 as attorneys' fees through trial and additional attorneys' fees in the event of an unsuccessful appeal.

The judgment granted Castle recovery against the Long Trusts on the unpaid JIBs in the amount of $170,000.00, prejudgment interest of $73,998.90, attorneys' fees of $600,000.00 through trial, and additional attorneys' fees on appeal.

STANDARD OF REVIEW

Castle presents twenty issues with two to four subissues under each issue. Many challenge the legal or factual sufficiency of the evidence.

In considering a legal sufficiency or "no evidence" issue, the reviewing court considers only the evidence which tends to support the jury's findings and disregards all evidence and inferences to the contrary. Garza v. Alviar, 395 S.W.2d 821, 823 (Tex. 1965). If any probative evidence supports the jury's determination, it must be upheld. In re King's Estate, 150 Tex. 662, 244 S.W.2d 660, 661 (Tex.1951).

A factual sufficiency challenge to a finding on which the other party had the burden of proof requires the attacking party to demonstrate that there is insufficient evidence to support the adverse finding. Raw Hide Oil & Gas, Inc. v. Maxus Exploration Co., 766 S.W.2d 264, 276 (Tex. App.-Amarillo 1988, writ denied). In reviewing the challenge, the court of appeals must consider all of the evidence and set aside the verdict only if the evidence that supports the verdict is so weak as to be clearly wrong and unjust. Cain v. Bain, 709 S.W.2d 175, 176 (Tex.1986). When a party challenges a jury finding regarding an issue upon which it had the burden of proof, the party must demonstrate that the adverse finding is against the great weight and preponderance of the evidence. Dow Chemical Co. v. Francis, 46 S.W.3d 237, 242 (Tex.2001). The court of appeals must first examine the record to determine if there is some evidence to support the finding. If so, then the court of appeals must determine, in the light of the entire record, whether the finding is so contrary to the overwhelming weight and preponderance of the evidence as to be clearly wrong and unjust. Id.

THE CONVERSION CLAIM

In its first issue, Castle insists that the JOAs and the attached GBAs specified the rights and obligations of the parties with respect to gas production and contained express provisions governing the facts of this case. Castle argues that the Long Trusts cannot maintain a claim for conversion because the Long Trusts had to establish a breach of contract to prevail and because the Long Trusts' only injury, if any, was the economic loss to the subject of the contract. In support of its...