Freeman v. Harleton Oil & Gas, Inc., 06-16-00034-CV
| Decision Date | 07 July 2017 |
| Docket Number | No. 06-16-00034-CV,06-16-00034-CV |
| Citation | 528 S.W.3d 708 |
| Parties | Wayne E. FREEMAN ; Freeman Resources, Ltd.; FRM GP, LLC; Frank M. Bufkin, III; Buffco Production, Inc.; Twin Resources, LLC; and Chesapeake Louisiana, L.P., Appellants v. HARLETON OIL & GAS, INC., Appellee |
| Court | Texas Court of Appeals |
John H. Boswell, Boswell & Hallmark, PC, Gene F. Creely, II, Creely Law Firm PLLC, Houston, John R. Mercy, Mercy, Carter, Tidwell, LLP, Texarkana, for Frank M. Bufkin, III; Buffco Productions, Inc.; Twin Resources, LLC.
Barton Cox, Richard S. Krumholz, Norton Rose Fulbright US, LLP, Dallas, Troy A. Hornsby, Miller, James, Miller & Hornsby, LLP, Texarkana, for Wayne E. Freeman; Freeman Resources, Ltd.; FRM GP, LLC.
Brian K. Tully, Jesse R. Pierce, Pierce & O'Neill, LLP, Houston, Collin M. Maloney, Ireland, Carroll & Kelley, PC, Tyler, for Chesapeake Louisiana, LP.
Gregory D. Smith, Smith Legal PLLC, Brent Howard, Howard & Davis, PC, Nolan D. Smith, Ramey & Flock, PC, Tyler, for Appellee.
Before Morriss, C.J., Moseley and Burgess, JJ.
"In 2008, oil and gas companies descended on east Texas ... seeking to acquire leases to exploit the Haynesville Shale formation, which they viewed as having enormous potential."1 During this frenzied period, Chesapeake Louisiana, L.P. (Chesapeake), entered into a letter agreement with Buffco Production, Inc. (Buffco), and Twin Resources, L.L.C. (Twin), to purchase three-year term assignments in all of Buffco's and Twin's "right, title and interest in and to the lands described" in the agreement, which comprised at least 14,378 acres in four counties. The total purchase price for this transaction was $232,146,680.00, and included in the transaction were Buffco's and Twin's interests in mineral leases in a 680-acre oil and gas property located in Harrison County called the Geisler Gas Unit No. 1 (Geisler Unit).2
Pursuant to terms of the letter agreement, Chesapeake agreed to conduct "Title Due Diligence." It also agreed to make the same offer it had made to Buffco and Twin "to any non-operat[ing] working interest owners ... subject to Chesapeake's due diligence." Chesapeake's due diligence mistakenly concluded that Buffco and Twin owned a 50% operating working interest in the deep rights in the Geisler Unit and that Freeman Resources, Ltd., owned the other 50% non-operating working interest. In exchange for assignments to "all of Assignor's right, title and interest in and to the oil, gas and mineral leasehold" in the Geisler Unit, Chesapeake paid $13,600,000.00 each to Buffco/Twin and Freeman Resources, Ltd. Critically, Chesapeake's due diligence failed to uncover the fact that Harleton Oil & Gas, Inc., actually owned a 50% non-operating working interest to the deep rights in the Geisler Unit.
When Harleton discovered the existence of the deal between Chesapeake and Buffco/Twin, Harleton sought to recover as a third-party beneficiary of that contract. Chesapeake, which believed it had contracted to purchase 100% of the deep rights interests in the Geisler Unit, sued to recover "overpayments" made under the contract.3 After all parties filed motions for summary judgment, the trial court entered judgment which, among other things, (1) found that Harleton was a third-party beneficiary to the letter agreement, (2) granted Harleton specific performance of the letter agreement against Chesapeake, (3) concluded that Harleton had demonstrated its entitlement to unjust enrichment claims against Buffco, Twin, and their President, Frank M. Bufkin, III (collectively the Buffco Defendants), and Wayne E, Freeman, Freeman Resources, Ltd., and FRMGP, LLC (collectively the Freeman Defendants), as a matter of law, (4) imposed a constructive trust against the Buffco and Freeman Defendants, (5) ordered the Buffco and Freeman Defendants constructive trustees of a total of $6,800,000.00 previously paid by Chesapeake under the letter agreement, and (6) ordered the Buffco and Freeman Defendants to pay Chesapeake's specific performance consideration to Harleton out of the funds held in the constructive trust.
All parties have appealed from the trial court's judgment. On appeal, the Buffco Defendants argue that the trial court erred (1) in entering judgment against Bufkin personally; (2) in failing to hold that Harleton's unjust enrichment claims against Buffco were barred by the two-year statute of limitations; (3) in concluding that Chesapeake overpaid; (4) in failing to enforce the letter agreement as written, (a) by ignoring the risk allocation and payment provisions, (b) in concluding that Chesapeake overpaid the Buffco Defendants, (c) in finding that any such overpayment belonged to Harleton, and (d) in undoing and restructuring a completed transaction; (5) in imposing a constructive trust on the proceeds realized from the deal by the Buffco Defendants based on the unjust enrichment claim by Harleton because (a) parties cannot recover on unjust enrichment when there is a contract, (b) the Buffco Defendants owed no duty to Harleton with regard to the deal with Chesapeake, (c) the Buffco Defendants made no misrepresentation to Harleton, and (d) the Buffco Defendants received no benefit from Harleton at Harleton's detriment; (6) in ordering the Buffco Defendants to specifically perform in the absence of any pleading against them that would entitle Harleton to specific performance against them; and (7) in determining that Harleton could enforce the letter agreement against the Buffco Defendants as a third-party beneficiary of the letter agreement.
The Freeman Defendants' appeal argues that (1) Harleton's unjust enrichment theory was barred by the statute of limitations, (2) Harleton cannot recover under an unjust enrichment theory due to the existence of a contract, (3) the Freeman Defendants were not overpaid because Chesapeake waived any title defects and was required to pay the full purchase price in accord with contractual terms, (4) the Freeman Defendants did not benefit by fraud, duress, or undue advantage, and Harleton failed to submit any evidence showing otherwise, and (5) Chesapeake had actual notice of Harleton's interest before the transaction.
Chesapeake's appeal from the trial court's judgment challenges only the trial court's decision to allow the Freeman Defendants to retain $408,000.00 for a 3% interest in the Geisler Unit held by Freeman Capital, Ltd. (Capital). By cross-appeal, Harleton argues that Chesapeake was liable for its attorney fees.
We resolve this appeal by making the following rulings, which are dispositive of all issues brought on appeal: (1) imposition of a constructive trust on the monies received by the Buffco and Freeman Defendants for the sums received by them from Chesapeake was improper because Harleton's unjust enrichment claims were barred by the statute of limitations, (2) Chesapeake cannot recover sums from Freeman for any overpayment under the letter agreement, (3) Harleton is not entitled to recover attorney fees from Chesapeake for breach of a contract because it (being neither a primary party to the contract nor a third-party beneficiary of the contract) has no standing to enforce the letter agreement as a contract, and (4) because Harleton was neither a primary party to the contract nor a third-party beneficiary of it, the trial court was without subject-matter jurisdiction to address any breach of contract claim Harleton held against Chesapeake.4
Accordingly, as set forth in detail below, we reverse the trial court's judgment and render judgment that Harleton take nothing on all of its claims. In all other respects, we affirm the trial court's judgment.
This appeal derives from a complex factual and procedural history, which we discuss to provide context to the parties' arguments.
Bufkin and Wayne E. Freeman (Wayne) had been doing business together since the 1980s. At one point, Buffco owned 100% of the working interest in the Geisler Unit leases. On February 5, 1997, it assigned 50% working interest to Wayne.
In developing the Geisler Unit leases, Buffco and Wayne decided to enter into a partnership with Harleton, an oil and gas exploration and production company. Following negotiations, Harleton entered into a letter agreement with Bufkin, as President of Buffco, on February 21, 2003, to combine their separately-owned interests into an area of mutual interest (AMI), that "[would] last until October 31, 2005."5 This letter agreement, which Wayne also signed, is called the co-development agreement.6
Pursuant to this letter agreement, Buffco would operate all wells completed below the base of the Pettit Formation in the Geisler Unit, and Harleton would operate all wells in that unit which were shallower than the Pettit formation. After Harleton had completed two wells, Buffco and Freeman Resources were to assign half of their working interests (25% each) to Harleton, giving a total 50% working interest in the Geisler Unit leases to Harleton; in return, Harleton was to assign 50% working interest in certain other specified leases (the Harris leases) to Bufkin and Freeman Resources. It further clarified: "the leasehold in each unit shall remain 50% owned by [Harleton] and 50% owned by Buffco."
Bufkin described the relationship with Harleton as a partnership, stating, "[T]he terms are I would operate and we would try to go after oil and gas property together that was marginal, and not beat each—you know, not—and always try, you know, to go after properties that we think that had value."
The co-development agreement stated, "There will be a Right of First Refusal [the ROFR]...
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