Cleverock Energy Corp. v. Trepel

• Decision Date: 20 November 1979
• Docket Number: 78-1055,Nos. 78-1054,s. 78-1054
• Citation: 609 F.2d 1358
• Parties: CLEVEROCK ENERGY CORPORATION, Plaintiff-Appellee and Cross-Appellant, v. Martin TREPEL and Trepel Petroleum Corporation, Defendants-Appellants and Cross-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1358

609 F.2d 1358

CLEVEROCK ENERGY CORPORATION, Plaintiff-Appellee and Cross-Appellant, v. Martin TREPEL and Trepel Petroleum Corporation,

Defendants-Appellants and Cross-Appellees.

Nos. 78-1054, 78-1055.

United States Court of Appeals, Tenth Circuit.

Argued May 15, 1979.

Decided Nov. 20, 1979.

Jeffrey M. Proper of Leibsohn, Eaton, Gooding & Romley, Phoenix, Ariz. (Richard P. Holme of Davis, Graham & Stubbs, Denver, Colo., on brief), for defendants-appellants and cross-appellees.

Phillip C. Gans of Cogswell, Chilson, Dominick & Whitelaw, Denver, Colo., for plaintiff-appellee and cross-appellant.

Before BARRETT, McKAY and LOGAN, Circuit Judges.

McKAY, Circuit Judge.

DOVE CREEK PROJECT

In its first count CleveRock Energy Corporation (CleveRock), an oil and gas developer, sued for breach of a contract relating to an oil development project in Dolores County, Colorado (Dove Creek Agreement). The district court found in favor of CleveRock and entered judgment against defendant Trepel, an investor, for the amount due under the contract.

Fraud and Misrepresentation

By way of counterclaim, Trepel sought recission of the Dove Creek Agreement on the grounds of fraud and misrepresentation Trepel stresses particularly his view that intent to deceive is not a necessary element of a claim for recission on misrepresentation in Colorado. To the extent Trepel's claim is based on fraud theory, there is no dispute that CleveRock's honest belief and lack of intent to deceive renders Trepel's claim impotent under Colorado law. See McNeill v. Allen, 534 P.2d 813, 818 (Colo.App.1975); Stalos v. Booras, 34 Colo.App. 252, 528 P.2d 254, 256 (1974); Bemel Associates, Inc. v. Brown, 164 Colo. 414, 435 P.2d 407, 409 (1967); Morrison v. Goodspeed, 100 Colo. 470, 68 P.2d 458, 462 (1937). We need not reach the question whether scienter is necessary in a pure recission case because we are satisfied that the allegedly misrepresented and omitted information was either immaterial or opinion on which Trepel could not have legal reliance.

in inducing him to enter the agreement. The trial court found the absence of every element necessary to establish Trepel's claim. The court determined that (1) CleveRock's predictions about the viability of the project were not unreasonable; (2) the allegedly misrepresented and omitted information was either mere opinion or not material; (3) CleveRock had no intent to deceive and held an honest belief as to the truth of all statements; and (4) as an experienced oil and gas investor, Trepel could not have justifiably relied on any of the alleged misrepresentations or omissions. In addition, the court made a specific finding that Trepel was not entitled to recission because he sat on his rights. Trepel appeals each of these findings.

The standard for appellate review was reiterated in Joyce v. Davis, 539 F.2d 1262 (10th Cir. 1976):

Findings of the trial court will not be disturbed on appeal unless they are held to be clearly erroneous. . . . Appellate courts do not try factual issues de novo. . . . On appeal we must view the evidence and all reasonable inferences therefrom in the light most favorable to the prevailing party.

Id. at 1264.

In applying this standard, we consider, first, CleveRock's representations during contract negotiations that the probable drilling costs would be $61,000 for a dry hole and $85,000 for a commercial producer, and that there was a 90% Chance of success on the project. The district court made the following findings based on ample evidence in this record: (1) that CleveRock refused to put a ceiling on the total amount of drilling expenses and never assured Trepel that his share of the total expenses would be in the $43,000 range; (2) that both Cleveland, CleveRock's president, and Burnett, Trepel's advisor, informed Trepel of the strong possibility of cost overruns, and that drilling costs and expenses were rapidly rising; (3) that the source for the figures given Trepel, the AFE (authority for expenditures), was an estimate of costs without binding effect in the industry; and (4) that Trepel, an experienced and knowledgeable oil and gas investor, ¹ had in hand the same information utilized by CleveRock in evaluating the potential productivity of the well. Record, vol. 3, at 594-98. It is generally recognized that success and cost figures for oil and gas drilling ventures must, in the present state of the art, be estimates, opinions, and predictions of future exigencies, none of which is actionable in Colorado. See, e. g., United Fire & Casualty Co. v. Nissan Motor Corp., 164 Colo. 42, 433 P.2d 769, 771 (1967); Leece v. Griffin, 150 Colo. 132, 371 P.2d 264, 265 (1962); Bell Press, Inc. v. Phillips, 147 Colo. 461, 364 P.2d 398, 400 (1961); Slide Mines, Inc. v. Denver Equipment Co., 112 Colo. 285, 148 P.2d 1009, 1011 (1944). We can expect no Trepel argues, nonetheless, that opinions of Experts may constitute misrepresentation. We agree that an expert exception to the opinion rule has been found, but conclude that the facts of this case do not come within its parameters. We consider it significant, as do the sources Trepel cites, ³ that Trepel and his advisor, Burnett, were given all of the basic data upon which CleveRock made its projections, and that Trepel is experienced in the industry. Further, projections of success and cost in oil and gas exploration and drilling ventures are not broadly susceptible to uniform and reliable expert evaluation.

less of a sophisticated investor experienced in the industry. ²

Trepel argues that even if CleveRock's success and cost estimates are not actionable, he should be able to rescind on the basis of certain omissions. CleveRock allegedly should have advised Trepel that the use of a larger rig would increase per day drilling costs above prior estimates, that commencing to drill one month deeper into the heart of winter than originally planned (January 31 rather than December 31) might increase costs, and that the east boundary line of the well site might become a problem should unanticipated technical difficulties be encountered. In short, it is argued that CleveRock should have made additional estimates of how certain unknowns would affect his original imprecise estimates. ⁴ The trial court specifically held that the drilling expense was not material to the overall transaction ⁵ and that, indeed, CleveRock, in good faith, constantly kept Trepel abreast of the progress of the drilling operation including cost overruns. The court found from the totality of the evidence that the late drilling "was acquiesced in by Trepel and he agreed to the use of the more expensive rig." Record, vol. 3, at 596. These findings are not clearly erroneous.

Fiduciary Duty

Trepel also charges as error the district court's exclusion from trial of a breach of fiduciary duty issue which the court perceived to be beyond the scope of the pretrial order. We agree that the pretrial order in this case is less specific than it might properly have been; however, the order is developed in sufficient detail to warrant the court's exclusion of this issue as a matter beyond its scope. This is particularly true where, as here, the party objecting to the narrower construction of the order failed to take timely advantage of an opportunity to enlarge upon the general terms used in the order.

This court is acutely aware of the evils of the inflexible application of a pretrial order. See Case v. Abrams, 352 F.2d 193, 195 (10th In this case the Second Pre-Trial Order was filed on August 19, 1976, nearly a year after suit was first brought. The defendant laid out his claims as follows:

Cir. 1965); Century Refining Co. v. Hall, 316 F.2d 15, 19-20 (10th Cir. 1963). These evils are aggravated when the pretrial order is unrefined. We recently held that a coarse pretrial order could not be narrowly applied to exclude one of three subtheories fairly encompassed within its general terms. Trujillo v. Uniroyal Corp., 608 F.2d 815 (10th Cir. 1979). However, we should not lose sight of the important policies behind the pretrial order mechanism I. e., the narrowing of issues to facilitate an efficient trial and to avoid surprise. See Crist v. Goody, 31 Colo.App. 496, 507 P.2d 478, 480 (1972).

(a) First Counterclaim. The Defendant Trepel contends that the Plaintiff is liable . . . as a result of the Plaintiff's breach of Exh. A (the Agreement). The breaches complained of are set forth in paragraph VI.A.2 of this Second Pre-Trial Order. . . .

(b) Second Counterclaim. The Defendant Trepel contends that he is entitled to (recission) . . . as a result of certain alleged misrepresentations made by Plaintiff . . . . The misrepresentations are set forth in paragraph VI.A.3 of this Second Pre-Trial Order. . . .

Record, vol. 2, at 250. In setting forth the specific breaches later in the order, in paragraph VI.A.2, Trepel included the following:

(a) failing to commence redrilling the Dove Creek Well before the December 31, 1974 deadline imposed by Exh. A;

(b) failing to furnish the Defendant Trepel with all of the notices, reports and information required under . . . Exh. A;

(c) incurring expenses in excess of authorized amounts.

Record, vol. 2, at 252. Later in the order, Trepel listed under the same heading "Contested Issues of Fact" another general reference to breach:

6. Whether the Plaintiff breached any duties implied by law which he owed to Trepel in connection with Exh. A.

Record, vol. 2, at 254. This general phraseology appearing later in the order must be viewed in light of the specific lists given in paragraph VI.A.2. In addition, to avoid injustice, the trial court gave the parties a stated period in which they could file a "statement detailing with specificity each ground of alleged breach, misrepresentation, waiver and estoppel asserted." Record, vol. 2, at 255. Nearly three months after this period had lapsed, and nearly a year after the pretrial order was...