Endrex Exploration Co. v. Pampell, Bankruptcy No. 386-30999-M-11
| Decision Date | 10 March 1989 |
| Docket Number | Bankruptcy No. 386-30999-M-11,Civ. A. No. CA3-88-1178-D. |
| Citation | 97 BR 316 |
| Parties | ENDREX EXPLORATION CO., et al., Plaintiffs-counterdefendants-appellants-cross-appellees, v. Alfred E. PAMPELL, et al., Defendants-counterplaintiffs-appellees-cross-appellants. |
| Court | U.S. District Court — Northern District of Texas |
Joyce W. Lindauer, Judith K. Zehner, and Ernest E. Specks of Johnson, Bromberg & Leeds, Dallas, Tex., for plaintiff, Endrex Exploration Co.
Frank Finn, W.D. Neary, and Wade L. McClure of Thompson & Knight, Dallas, Tex., for plaintiffs, Halliburton Co. and Otis Engineering Corp.
Kenneth Stohner, Jr. and Andrea L. Nation of Jackson & Walker, Dallas, Tex., for plaintiff, Official Unsecured Creditors' Committee.
Thomas Kirkendall of Maddox, Perrin & Kirkendall, Houston, Tex., for defendants-appellees.
Following a bench trial, several parties appeal the adverse portions of a final judgment entered by the bankruptcy court. Finding that certain of the bankruptcy court's extensive findings of fact are insufficient to permit appellate review, the court vacates the judgment and remands the case to the bankruptcy court for further proceedings.
Appellants, Endrex Exploration Company ("Endrex"), Halliburton Company ("Halliburton"), Otis Engineering Corporation ("Otis"), and The Official Unsecured Creditors' Committee ("Committee"), appeal a final judgment of the bankruptcy court. Appellees-cross-appellants, A.E. Pampell ("Pampell"), Pampell Interests, Inc. ("Pampell Interests"), Zeal Energy Corporation ("Zeal"), and County Management, Inc. ("CMI") (collectively the "Pampell Entities"), cross-appeal.1 The judgment was entered following a seven-day bench trial of consolidated adversary proceedings from the United States Bankruptcy Courts for the Northern and Southern Districts of Texas in the Endrex chapter 11 case and two actions removed from Texas state court in the CMI chapter 11 case.
Endrex sued CMI for breach of an oil and gas farmout agreement and the amendments thereto, Pampell for tortious interference with contractual relationships, and the Pampell Entities on theories of statutory and common law fraud, economic duress and undue influence, and unjust enrichment. Endrex sought damages, specific performance, and a declaratory judgment.
Halliburton and Otis sued Endrex to recover on open accounts, including an account owed to Padre Tubular, Inc. ("Padre"), which Padre assigned to Halliburton, and on certain promissory notes that Endrex executed to Halliburton. Halliburton and Otis sued the Pampell Entities for the debts of Endrex, on the theory that the Pampell Entities should be treated as a principal in the drilling of certain oil and gas wells, and on the basis of unjust enrichment. Halliburton and Otis also sought to foreclose upon certain mechanics and materialman's liens and deeds of trust and sought equitable subordination of any claims of the Pampell Entities.
The Pampell Entities sued Endrex for breach of the farmout agreement and the amendments thereto and conversion of the working interest proceeds from certain oil and gas wells. They sued Halliburton on the theory that Halliburton was liable for Endrex' debts as a principal or general partner of Endrex. The Pampell Entities alleged fraud on the part of Endrex, Clyde Brannan ("Brannan"), Bill Healy ("Healy"), Don Pyles ("Pyles"), and Harold Duncan ("Duncan"); they alleged tortious interference, breach of fiduciary duty, prima facie tort, and conversion against Endrex, Brannan, Healy, Pyles, and Duncan. The Pampell Entities sought equitable subordination of Halliburton's claims against Endrex. Against Duncan, alone, the Pampell Entities sued for insufficient title opinions. They sued Endrex, Brannan, Healy, and Pyles for breach of good faith, and alleged that Endrex, Brannan, Healy, Pyles, and— in certain instances—Duncan, were guilty of conspiracy.
The Committee asserted against the Pampell Entities the same claims asserted by Endrex and Halliburton against the Pampell Entities.
The bankruptcy court rejected Endrex' principal claims, finding that Endrex had not entered into an April 1985 amended farmout agreement as a result of duress, and concluding the agreement was valid and enforceable. The court further determined that Endrex was indebted to CMI in the amount of $1.3 million for cash bonuses and $217,000 for location costs and survey fees on certain oil and gas wells ("the Package 4 wells") and that the indebtedness must be paid before Endrex could earn any interest in the wells. The court also held that, upon payment of the cash bonuses, reimbursables, and all costs of drilling and completing the Package 4 wells, Endrex was entitled to receive correction assignments and unit designations for the wells. The court held that CMI was likewise obligated to deliver seismic information to Endrex.
Appellants assert four grounds of error on appeal. They contend: the totality of the circumstances show that Endrex entered certain addenda to the original farmout agreement, as well as the amended farmout agreement, under duress; the bankruptcy court erred in not awarding damages in connection with a finding of fraud; Endrex is entitled to correction assignments and seismic information; and the bankruptcy court erred when it excluded the testimony of a Halliburton witness. Appellees assert five grounds of error by way of cross-appeal. They argue that: Endrex converted the proceeds of production attributable to the Package 4 wells; the bankruptcy court erred in concluding that Endrex could earn the working interest in the Package 4 wells after December 1, 1986; the bankruptcy court erred in finding that Pampell did not possess a claim against Endrex for unpaid cash bonuses covering the other wells; the bankruptcy court erred in requiring the Pampell Entities to deliver seismic information to Endrex; and the bankruptcy court erred in finding that Endrex suffered severe financial difficulties as a result of the actions of the Pampell Entities.
The following recitation of the facts incorporates those to which the parties have stipulated and the findings of fact filed by the bankruptcy court.
Endrex entered into an oil and gas farmout agreement (the "original farmout agreement") with CMI on October 26, 1983. The agreement obligated Endrex to drill and complete, at its sole risk, cost, and expense, certain wells (the "Package 1-3 wells") in Fayette County, Texas. Endrex was required to drill ten wells on or before the anniversary date of the farmout agreement. CMI and Pampell Interests owned the leasehold interests on which the wells were to be drilled. Endrex arranged financing from First City Energy Finance Company ("First City") to drill the wells. First City acquired a first lien on the Package 1-3 wells upon drilling and completion.
Endrex commenced drilling the wells in January 1984. It completed the first 22 wells during the period March through July 1984. All the wells were capable of producing in paying quantities, but one well was abandoned back to CMI.
Pursuant to the original farmout agreement, Endrex was to earn 100% of the working interest in the wells and a 75% net revenue interest before payout. Endrex earned its interest in acreage owned by CMI, and thus obtained the right to receive assignments of such acreage, upon the drilling and completing of wells shown capable of producing oil and gas in paying quantities. CMI failed to deliver 14 of the 22 assignments on the 22 wells drilled and completed by Endrex.
Endrex was to pay CMI a pre-spud fee of $10,000 per well, as well as a 30% back-in interest after payout. Upon completion of the first ten wells, Endrex paid CMI the sum of $100,000. At Endrex' request, Pampell and CMI provided certain services to Endrex in connection with the drilling program on the Package 1-3 wells. These services included site selection and preparation, surveying, and geophysical work. Upon request, CMI was required to deliver to Endrex seismic information relating to the farmout area. Pampell was paid in full for these services.
In May 1984, CMI and Endrex entered into the first memorandum of amendment to the original farmout agreement and second addendum to the agreement. The first amendment provided a specific designation of ten obligation wells in the farmout area, along with certain lease protection wells. The second amendment imposed an additional $27,500 per location fee to the $10,000 per well fee to which the parties had previously agreed. The second addendum also provided for a fee of $50,000 per location for wells located on new leases and a total of $100,000 per well for two other locations. The second addendum also increased CMI's back-in working interest, after payout, from 30% (per the original farmout) to 33 1/3%. The addendum also denominated two additional ten-well packages as Packages 2 and 3. All changes in the second addendum were made retroactive to the first ten-well package drilled. Endrex drilled 14 wells pursuant to the original farmout agreement, for a total of 22 Package 1-3 wells.
In June 1984, CMI, Pampell Interests, and Endrex entered into a third addendum to the original farmout agreement. This addendum amended the second and third ten-well schedules.
In August 1984, the three parties signed a fourth addendum. This agreement provided that CMI would deliver to Endrex assignments of the assigned unit estates for 14 wells drilled by Endrex for which assignments had not previously been made. In the fourth addendum, Endrex agreed to pay CMI all amounts provided for in the original farmout agreement and its amendments with respect to the drilling of the 22 wells.
By August 1984, Endrex had drilled all 22 wells and it requested the remaining assignments from CMI. After Endrex and CMI executed the fourth addendum, CMI delivered the remaining 14 assignments and unit designations to Endrex. Endrex reserved all...
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