Huff Energy Fund, L.P. v. Longview Energy Co.

Decision Date25 November 2015
Docket NumberNo. 04–12–00630–CV,04–12–00630–CV
Citation482 S.W.3d 184
Parties The Huff Energy Fund, L.P., WRH Energy Partners, L.L.C., William R. "Bill" Huff, Rick D'Angelo, Ed Dartley, Bryan Bloom, and Riley-Huff Energy Group, LLC, Appellants v. Longview Energy Company, Appellee
CourtTexas Court of Appeals

Dean V. Fleming, Michael W. O'Donnell, Fulbright & Jaworski L.L.P., Sharon E. Callaway, Crofts & Callaway, P.C., Ricardo R. Reyna, Brock Person Guerra Reyna, P.C., Jeffrey Webb, San Antonio, TX, Thomas R. Phillips, Matthew C. Wood, Baker Botts, L.L.P., Pamela Stanton Baron, Attorney at Law, Austin, TX, Daryl L. Moore, Daryl L. Moore, P.C., Houston, TX, for Appellants.

Mikal C. Watts, Francisco Guerra IV, Edward W. Allred, Watts Guerra & Craft, L.L.P., Brian P. Berryman, Watts Law Firm, L.L.P., San Antonio, TX, Craig B. Florence, Stacy R. Obenhaus, Rachel Kingrey, Randy D. Gordon, Gardere, Wynne, Sewell, L.L.P., Dallas, TX, Claudio Heredia, Rolando M. Jasso, Knickerbrocker, Heredia, Jasso & Stewart, P.C., Eagle Pass, TX, for Appellee.

Sitting en banc: Sandee Bryan Marion, Chief Justice, Karen Angelini, Justice, Marialyn Barnard, Justice, Rebeca C. Martinez, Justice, Patricia O. Alvarez, Justice, Luz Elena D. Chapa, Justice, Jason Pulliam, Justice

OPINION

Opinion by: Sandee Bryan Marion, Chief Justice

In the underlying lawsuit, appellee, Longview Energy Company ("Longview"), sued two of its directors and others for, among other claims, breach of fiduciary duty by taking a corporate opportunity that belonged to Longview. Following a jury trial, several liability questions were submitted to the jury. The two liability questions addressed in this opinion asked whether either of the directors (1) failed to comply with his fiduciary duty to Longview by taking a corporate opportunity and (2) failed to comply with his fiduciary duty of loyalty by improperly engaging in competition with Longview. The jury answered affirmatively to both questions, as well as affirmatively to other questions that held all the defendants liable. The trial court awarded Longview $95.5 million in monetary disgorgement and imposed a constructive trust on a variety of assets owned by one of the defendants. On appeal, appellants, the defendants below, all raise—in addition to other issues—legal sufficiency challenges to the evidence in support of the liability findings. Because we conclude the evidence is legally insufficient to support the jury's finding on the corporate opportunity question and because we conclude Longview did not plead a competition cause of action, we reverse and render a take-nothing judgment in favor of appellants.

BACKGROUND

The defendants below and appellants here are two of Longview's directors, William R. "Bill" Huff and Rick D'Angelo. The other defendants/appellants are The Huff Energy Fund, L.P. ("HEF"), WRH Energy Partners, L.L.C., and Riley–Huff Energy Group, LLC ("Riley–Huff Energy").1 At the center of this dispute are leases in the Eagle Ford shale, an oil and gas formation encompassing thirteen million acres in South Texas.

Longview is an oil and gas company. In 2006, HEF purchased stock in Longview, which entitled HEF to appoint Bill Huff and Rick D'Angelo to Longview's board of directors. Bill Huff is the head of HEF and Rick D'Angelo evaluated potential energy investments for HEF. Sometime in 2009, HEF and Bobby Riley formed Riley–Huff Energy. In mid–2009, HEF encouraged its portfolio companies, including Longview, to explore investment opportunities in the Eagle Ford.

On September 10, 2009, representatives of both HEF and Longview met in New Jersey to discuss investment strategies for Longview, including the Eagle Ford shale. According to Longview, it was at this meeting that Bill Huff agreed to fund any investment "that Rick Pearce likes." Pearce is Longview's chief operating officer and senior petroleum engineer. Over the next several months Longview's management investigated opportunities in the Eagle Ford shale. Longview commissioned an Eagle Ford shale study from consulting geologist/geophysicist Mark Lober. At the time, Lober had been consulting with Pat Gooden, an Eagle Ford land broker, on another deal. Gooden, in turn, had been working with another Eagle Ford land broker, Tamara Ford, who operated under the name Wyldfire Energy. Longview's management later met with Gooden and Ford to discuss Eagle Ford leases. At Longview's first meeting with the land brokers on December 2, 2009, neither Gooden nor Ford presented any specific leases to Longview. Instead, Ford drew circles on a map of various counties to indicate general areas where acreage/leases were available.

On December 17, 2009, Longview's management, Lober, and D'Angelo met to discuss Lober's geological findings, Longview's economic plans, development of the Eagle Ford acreage, and the land brokers. On December 21, 2009, Longview's management had its second meeting with the land brokers. New circles, or "blobs," were added to the maps, but no specific leases were identified. At about this same time, Ford was also meeting with Bill Riley. Throughout the remainder of December 2009 and into early January 2010, Longview's management and D'Angelo continued to discuss Lober's work and various maps.

Longview's management ultimately decided to present an investment proposal to its board of directors at the board's January 28, 2010 board meeting. In advance of this meeting, Bob Gershen, Longview's president and CEO, distributed reading materials to the directors. These materials included a proposed strategy for investing in the Eagle Ford and economic projections. At the board meeting, Rick Pearce presented Longview's plan to invest $40 million—to be acquired from Huff—to purchase 20,000 Eagle Ford acres. The maps shown to the board, acquired from Ford and Gooden, showed available acreage but not specific leases within the acreage. After the presentation, the board did not vote on the proposal because, according to Longview, D'Angelo said Huff would not support an investment in Eagle Ford trend acreage. During a subsequent investigation, Longview's management learned that three days before the January 28 board meeting, Riley–Huff Energy signed a contract with Wyldfire to purchase some of the same acreage Longview was considering buying through the same land brokers. This contract was not mentioned at the January 28 board meeting. After not receiving Huff's investment, and after considering other funding options and conducting additional board meetings on February 1 and February 5, 2010, Longview took no further action on its Eagle Ford investment plan. In the meantime, Riley–Huff Energy acquired approximately 44,698 Eagle Ford acres for its own use.

Longview sued raising a variety of claims: (1) breach of fiduciary duty/usurpation of corporate opportunity against Huff and D'Angelo; (2) fraud against all defendants; (3) tortious interference with prospective business relationships against all defendants; (4) misappropriation of trade secrets against all defendants; (5) aiding and abetting against all defendants; and (6) conspiracy against all defendants. Ultimately, only two liability questions were submitted to the jury: (1) did Huff and/or D'Angelo fail to comply with their fiduciary duty to Longview by taking a corporate opportunity; and (2) did Huff and/or D'Angelo fail to comply with their fiduciary duty of loyalty to Longview by engaging in competition with Longview without the informed approval of Longview's board.2 The jury answered "yes" to the questions. The trial court rendered judgment in favor of Longview, and awarded Longview a constructive trust of various assets owned by Riley–Huff Energy as well as a $95 million monetary award.

STANDARD OF REVIEW

Appellants, who did not have the burden of proof at trial, all raise legal sufficiency challenges to the evidence. "A party will prevail on its legal-sufficiency challenge of the evidence supporting an adverse finding on an issue for which the opposing party bears the burden of proof if there is a complete absence of evidence of a vital fact or if the evidence offered to prove a vital fact is no more than a scintilla." Waste Mgmt. of Texas, Inc. v. Texas Disposal Sys. Landfill, Inc., 434 S.W.3d 142, 156 (Tex.2014); see also City of Keller v. Wilson, 168 S.W.3d 802, 810 (Tex.2005). "More than a scintilla exists when the evidence as a whole rises to a level enabling reasonable and fair-minded people to have different conclusions." Waste Mgmt. of Texas, 434 S.W.3d at 156; Merrell Dow Pharms., Inc. v. Havner, 953 S.W.2d 706, 711 (Tex.1997). "However, if the evidence is so weak that it only creates a mere surmise or suspicion of its existence, it is regarded as no evidence." Waste Mgmt. of Texas, 434 S.W.3d at 156. In conducting a legal-sufficiency review, we consider the evidence in the light most favorable to the judgment, crediting evidence that a reasonable fact finder could have considered favorable and disregarding unfavorable evidence unless the reasonable fact finder could not. City of Keller, 168 S.W.3d at 807. We indulge every reasonable inference that supports the trial court's findings. Id. at 822. "The final test for legal sufficiency must always be whether the evidence at trial would enable reasonable and fair-minded people to reach the verdict under review." Id. at 827.

JURY QUESTION NUMBER ONE

The jury was first asked whether Bill Huff and Rick D'Angelo failed to comply with their "fiduciary duty to Longview Energy Company by taking a corporate opportunity." Specifically, the jury was asked as follows:

Did [Bill Huff and/or Rick D'Angelo] fail to comply with his fiduciary duty to Longview Energy Company by taking a corporate opportunity?
Because they are Longview Energy Company directors, Bill Huff and Rick D'Angelo owe fiduciary duties to Longview Energy Company with respect to corporate opportunities.
A Longview Energy Company director may not take a corporate opportunity for himself if:
(
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