Germany v. Denbury Onshore, LLC, No. 2007-CA-00283-SCT.

• Decision Date: 19 June 2008
• Docket Number: No. 2007-CA-00283-SCT.
• Citation: 984 So.2d 270
• Parties: Forrest GERMANY, a Mississippi Resident and E.B. Germany & Sons, a Texas Corporation v. DENBURY ONSHORE, LLC, Ajit Jhangiani, a Texas Resident, Rosewood Partners, L.L.C., a Mississippi Corporation and Pirvest, Inc., a Texas Corporation.
• Court: Mississippi Supreme Court

984 So.2d 270

Forrest GERMANY, a Mississippi Resident and E.B. Germany & Sons, a Texas Corporation v. DENBURY ONSHORE, LLC, Ajit Jhangiani, a Texas Resident, Rosewood Partners, L.L.C., a Mississippi Corporation and Pirvest, Inc., a Texas Corporation.

No. 2007-CA-00283-SCT.

Supreme Court of Mississippi.

June 19, 2008.

Wayne Dowdy, Andrea Ann Sanders, Magnolia, attorneys for appellants.

Troy Farrell Odom, William F. Blair, James Lawton Robertson, Elizabeth Ganzerla, Jackson, Charles "Chad" Baruch, Eliot Shavin, attorneys for appellees.

EN BANC.

DIAZ, Presiding Justice, for the Court.

STATEMENT OF THE CASE

¶ 1. The plaintiffs in this case entered into an agreement that gave them an option to purchase the right under another agreement to share in the acquisition of royalty interests in an oil and gas field. The plaintiffs claim that they did not exercise the option because the defendants prevented them from obtaining information essential to determining whether the right under the other agreement to share in the purchase of royalty interests was worth anything. Accordingly, the plaintiffs filed suit and asserted the following claims against several defendants, all but one of whom were parties to the agreement containing the option to purchase: breach of contract, intentional infliction of emotional distress, tortious interference with contract, bad faith, and conspiracy. The Circuit Court of Pike County granted summary judgment to the defendants on all claims asserted by the plaintiffs and dismissed the plaintiffs' complaint with prejudice. The plaintiffs appeal the trial court's dismissal of their complaint.

FACTS AND PROCEEDINGS BELOW

¶ 2. In 1993, Forrest Germany, President of E.B. Germany and Sons, a Texas corporation (Germany and Sons), began purchasing acreage in Pike County, Mississippi, on behalf of Germany and Sons that would eventually become part of an oil and gas field known as the McComb Field Unit (the McComb Field). Germany and Sons' interests in the McComb Field were passed through several corporations and ended up being assigned to Rosewood Partners, LLC (Rosewood) in 1997. Rosewood had been formed in March 1997, by Germany and Luther Henderson, the Chairman of Pirvest, Inc. Germany served as Rosewood's President and managed its daily affairs. Germany and Sons owned an approximately 4.4% interest in Rosewood, but that interest would increase to slightly more than 18% upon its repayment of certain debts to Rosewood. Henderson owned a majority interest in Rosewood which was held primarily by Pirvest.

¶ 3. Rosewood planned to employ tertiary oil recovery methods utilizing carbon dioxide at the McComb field. In order for tertiary recovery operations to be successful, a steady, uninterrupted supply of carbon dioxide is needed. Denbury Resources, Inc. (Denbury), owned the closest carbon dioxide pipeline to the McComb Field. A reservoir engineering report revealed that the McComb Field would produce 22.6 million barrels of oil. But an official at the company that produced the report told Germany that if Denbury operated the McComb Field, it would produce 30 million barrels of oil. Consequently, Rosewood contacted Denbury about purchasing Rosewood's interest in the McComb Field.

¶ 4. On April 12, 2002, officials from Denbury met with Germany and Henderson and began negotiating the purchase of Rosewood's interest in the McComb Field. After an intense bargaining process, Denbury and Rosewood were finally able to agree on terms for the purchase of the McComb Field. On July 11, 2002, Denbury and Rosewood entered into a "Purchase and Sale Agreement" (the Purchase Agreement), pursuant to which Denbury paid an initial purchase price of $2,500,000. Denbury was also obligated to pay Rosewood "in any future month in which the price of oil ... exceeds $22.00 per barrel ... the difference between the actual price per barrel received by [Denbury] and $22.00 per net barrel times fifteen percent (15%) or $0/75 per net barrel of oil sold, whichever is less." This additional consideration is referred to by the parties as "the Price Sliver." Additionally, the Purchase Agreement contained a "non-competition covenant" by which Rosewood agreed that "any party affiliated or related to" it, including Germany, would not "acquire, directly or indirectly, any mineral, leasehold, royalty or overriding royalty interest in the McComb Field Unit for a period of three (3) years from the date of closing."

¶ 5. Denbury and Rosewood also entered into a "Letter Agreement" that was made part of the Purchase Agreement. Under the Letter Agreement, the parties "agreed to purchase and share various royalty and overriding royalty interests within the McComb Field Unit," subject to certain conditions. The agreement granted Denbury the "preferential and exclusive right to purchase the first one percent (1.00%) interest in either overriding royalty and or [sic] royalty interest or any combination thereof." Once Denbury acquired a one-percent interest, it would "share [with Rosewood] all future purchases and expenses fifty percent (50.00%) each until Rosewood has accumulated a one percent (1.00%) interest." The Letter Agreement further provided that "Denbury [would] make a reasonable attempt to purchase said royalty interests ..., but [would] not be held responsible and or [sic] liable if it [wa]s unable to purchase or d[id] not purchase any additional overriding interests or royalty interests." The agreement also stated that it would terminate three years from the date it was entered into or when Rosewood had been assigned a one-percent interest, whichever occurred first.

¶ 6. On September 22, 2002, Henderson sustained severe injuries in a car accident. He died a week later. Ajit Jhangiani, a Pirvest officer and member of Rosewood, was appointed executor of Henderson's estate; he also became President of Pirvest following Henderson's death. Jhangiani began questioning Germany's decisionmaking as Rosewood's President in late 2003. In October 2004, Germany learned from Henderson's son-in-law, Gregg Gapp, that Jhangiani had been negotiating on behalf of Rosewood with Denbury to sell it Rosewood's rights under the Price Sliver and the Letter Agreement. Germany claims that he called Dean Edzards, Senior Landman for Denbury, and told him that Denbury should not negotiate with Jhangiani because he had no authority to act on Rosewood's behalf. According to Germany, Edzards became "irrate [sic] ... and stat[ed] that he was dealing with [Jhangiani] on purchases of the Price Sliver and Letter Agreement, and that neither transaction was any of my business."

¶ 7. Germany filed a lawsuit on behalf of himself, his wife, and Germany and Sons in the Circuit Court of Pike County on October 27, 2004, against Jhangiani, individually and as the executor of Henderson's estate, and Rosewood.¹ In the complaint Germany asserted that he had entered into an agreement with Henderson before his death that provided that, after the sale of Rosewood's interest in the McComb field, (1) Germany and his wife "would be deeded a house owned by Rosewood in Brookhaven, Mississippi"; (2) "certain debt carried on the books of Rosewood in the name of ... Germany and/or Germany and Sons would be forgiven"; and (3) "Germany would be either assigned Germany and Sons' share of the price sliver and override, or ... would be paid in cash for the value of those interests."² Germany claimed that Jhangiani had knowledge of this agreement but refused to honor it as the executor of Henderson's estate. Accordingly, Germany asserted claims of breach of contract, tortious interference with contract, bad faith and intentional infliction of emotional distress against the defendants.

¶ 8. On October 29, Germany's attorney, Charles Sartain, sent the attorney representing the Henderson Estate, Jay Anthis, a letter that documented the fact that Anthis had told Sartain that Jhangiani "ha[d] been offered close to $300,000 for Rosewood's rights in its July 11, 2002 letter agreement with Denbury Resources." Sartain sought additional information about the offer and inquired about whether Jhangiani had been trying to sell the Price Sliver. Further, he claimed that Jhangiani had been withholding information from Germany and that Germany believed that Jhangiani's "actions [were] for the purpose of stripping his and E.G. Germany and Sons' rights in Rosewood."

¶ 9. On October 30, Jhangiani sent a notice that he, as President of Pirvest, was calling a special meeting of the members of Rosewood to "consider the disposition of the house situated in Brookhaven, Mississippi and a resolution of the debt of E.B. Germany and Sons, Inc. and Mr. Forrest Germany to [Rosewood]." According to Germany, "the notice process, [sic] involved irregularities that resulted in ... Jhangiani being the only [member] present at the [special] meeting"; consequently, Jhangiani was able to "use[] his majority vote to collect [Germany's] debt to Rosewood, and to sell the Brookhaven house."

¶ 10. Jhangiani subsequently agreed to settle Germany's breach-of-contract suit. The parties entered into and signed a "Settlement Agreement and General Release" (the Settlement Agreement) on December 22, 2004. Pursuant to the Settlement Agreement, the Brookhaven property was deeded and transferred to Germany and Sons; all debts and obligations of Germany and Germany and Sons to Rosewood, Pirvest and Henderson's estate were forgiven; and Germany was granted an option to purchase Rosewood's interest in the Letter Agreement for $125,000 which would expire ninety days from the execution of the Settlement Agreement. The provision granting the ninety-day option states in pertinent part: "Immediately upon being asked by Denbury, Jhangiani will acknowledge Forrest Germany's right to assignment of Rosewood's interests in the Letter Agreement upon payment of the $125,000 as set out above, an [sic] will authorize Germany to discuss the Letter...