Martin v. Phillips Petroleum Co.

• Decision Date: 11 February 1970
• Docket Number: No. 268,268
• Parties: Robert H. MARTIN, Appellant, v. PHILLIPS PETROLEUM COMPANY et al., Appellees. (14th Dist.)
• Court: Texas Court of Appeals

Page 429

455 S.W.2d 429

Robert H. MARTIN, Appellant, v. PHILLIPS PETROLEUM COMPANY et al., Appellees.

No. 268.

Court of Civil Appeals of Texas Houston (14th Dist.).

Feb. 11, 1970.

Rehearing Denied March 11, 1970.

Ben H. Schleider, Jr., Earl O. Latimer, II, Houston, for appellant.

Leroy Jeffers, Ross N. Sterling, Houston, for appellees.

BARRON, Justice.

This is an appeal by the plaintiff, Robert H. Martin, from an adverse judgment in favor of defendants rendered by the District Court of Harris County on December 10, 1968, after that court had withdrawn the case from the jury. Due to the relative complexity of the history of this litigation the facts will be stated in some detail.

In 1960, George H. Jett, an independent oil operator and drilling contractor, obtained an option exerciseable until January 26, 1961, whereby he could acquire a gas producing plant and gas gathering system in eastern Louisiana and Mississippi. This property will be referred to as the Locust Ridge properties. The price of these assets was set at $1,800,000. Jett also owned separate and apart from the Locust Ridge properties certain gas reserves. His goal was to obtain financing for the option, sell the combined assets and retain a net profit interest in the combined assets for himself. Pursuant to this end he began a search for $2,000,000 in financing and a market for his shut-in gas in the area.

An open search for financing continued through the summer of 1960, which included talks with and proposals to several parties. Although Robert H. Martin first heard of the Jett proposal in August, 1960, he showed no interest in it until November, 1960. On November 22, 1960, Martin and two associates received a letter from Anderson, an associate of Jett, setting forth the terms upon which Martin's group would be given an option until January 1, 1961 to purchase the Locust Ridge properties.

In late November, 1960, Martin was in New York on business not relevant to this case. At that time he met Horace Bailey, a vice-president of Chemical Bank New York Trust Company. During the course of a conversation concerning gas properties Martin mentioned that he had an option to purchase the Locust Ridge property. Bailey told Martin that the bank had control of Texas San Juan Corporation as the result of a loan default and that there was still a large tax loss carry-forward available to the bank through Texas San Juan Corporation. Texas San Juan was indebted to the bank. The next week as a result of the possibility of Martin's acquiring financing from the bank to exercise his option with Jett, and the bank using its tax advantage in San Juan, one of Martin's associates, John Weiler, delivered to Bailey reports concerning the Locust Ridge properties. These were the reports supplied by Jett to Martin and were the same ones Jett had shown to other parties who had shown an interest in the Locust Ridge properties.

In Houston, about mid-December, Bailey and Dr. Judson Anderson of the bank, discussed various possibilities of the Locust Ridge properties with Martin, including the possibility of Martin eventually acquiring a 50% Interest in the project. It was agreed that more current information concerning the plant, pipe lines and gas reserves would be necessary before the bank could consider a loan of $2,000,000 to Texas San Juan, which was to be the vehicle for acquisition of the Locust Ridge properties. Eddie Ogier, a reservoir engineer and consultant, was asked by Martin to supply more current studies made by Ogier of the Lucust Ridge area. Current gas plant and pipe line studies were also obtained by Martin. In order to gain more time for study of the transaction and the acquisition of financing, Martin obtained from Jett on December 30, 1960, an exclusive written suboption on the Locust Ridge properties until January 10, 1961. In return Martin agreed to expand the gas processing plant if Jett was able to supply additional gas reserves. Jett later orally extended this option until January 16, 1961 and still later orally granted a non-exclusive option until January 25, 1961.

In the first week of January, 1961, Martin and Bailey continued to discuss the whole matter. The reports of Ogier and the plant reports were reviewed. The bank was concerned with the necessity of adequate gas reserves, markets for the gas, and an efficient operator of the plant. Martin had never been a plant operator and had had no experience as such. Due to these considerations the bank hired Burt DeLaat & Associates, Inc. of Houston to make further studies on the properties, which studies were to be furnished by January 16, 1961.

During the week of January 9, 1961, Bailey and Martin continued to discuss the transaction, and Bailey felt that the negotiations were proceeding satisfactorily. Bailey told Martin that his recommendation as to a loan to Texas San Juan would be determined by January 16, 1961. Bailey also stated that Jett's contemplated one-eighth override would have to be subordinated until the loan was repaid and that the DeLaat report must be favorable. During this week Martin continued to negotiate with American National Insurance Company with Bailey's knowledge about American National making the bulk of the loan to San Juan.

On January 12, 1961, Bailey called Frank Stradley of Phillips Petroleum from whom the bank had sought business. The feasibility of the plan that Martin proposed was discussed with Stradley and also with a Phillips vice-president, G. W. McCullough, who was familiar with the Locust Ridge area. Phillips had attempted to buy the facilities in question in 1957 but was refused. Phillips had been offered the plant for $2,000,000 in early 1960 but had rejected the offer because it felt the price was too high at that time. Bailey, realizing that Martin was inexperienced as a plant operator and also realizing that Phillips could provide experienced plant operation and a product market, asked McCullough if Phillips would be interested in participating in the transaction. McCullough said Phillips would consider such participation only if Phillips could operate the plant, receive brokerage fees for the sale of the plant's products and receive 50% Residual interest after the loan was paid out. Phillips agreed to participate in a meeting concerning the transaction in Houston on January 16, 1961.

On January 13, 1961, Bailey informed Martin of his talk with Phillips on the 12th. He told Martin that the possibility of reaching an agreement on the bank's proposed loan would be better with Phillips participating. Martin did not want to include Phillips. Martin, without mentioning his action to Bailey, then attempted to get other financing from at least two sources for the transaction without success. On January 16, 1961, the bank met in Houston with plant officials, DeLaat, Phillips and others. After evaluating the entire project with all the information available, including DeLaat's report, the bank informed Martin that a loan from the bank would be feasible only if Phillips were included and if all other parties, including Martin, Jett and the bank, took a smaller interest. It was decided that the bank could offer a revised deal to Martin, with Phillips as operator and marketer of the products, and, due to the inadequate reserves, with everybody, including Texas San Juan, Martin, Jett and the bank, taking a smaller ultimate interest. Later that evening Martin, through Weiler, informed Bailey that he had other financing prospects and that he no longer sought financing or counsel with the bank. Consequently, the bank decided not to make the loan.

The Houston meeting ended with a failure of agreement with Martin. Jett, on January 18, 1961, did ask McCullough if Phillips would be interested in the Locust Ridge properties. McCullough replied that he would check the possibilities with the management. On January 23, 1961, Jett had his own option extended to buy the Locust Ridge properties. In late February, 1961, Phillips informed Jett that it was interested in discussing the matter. On March 9, 1961, Phillips, Jett, Texas San Juan and the bank entered into an agreement similar to the one originally discussed with Martin. During the previous two months Martin had been unable to obtain financing for the arrangement under his terms which would have given him 50% Interest in the operation. The record shows that the Locust Ridge properties were available to Martin through January 25, 1961 and until March 9, 1961 if the money had been forthcoming.

On February 7, 1962, Martin filed this suit against Chemical Bank New York Trust Company, Phillips Petroleum Company, Texas San Juan Oil Corporation, Tensas Gas Gathering Corporation, Gas Industries Management Corporation, Gasoline Plant Construction Corporation, and G. W. McCullough, a vice president of Phillips, all of whom were defendants. The suit also named as defendants Horace C. Bailey and Ben F. Zwick, both of whom were employees of the bank. These two defendants contested jurisdiction and were dismissed. Also the suit as originally filed included as defendants Bart LeLaat and his company, Bart DeLaat & Associates, Inc., as well as George H. Jett. Nonsuit was taken as to these defendants prior to introduction of testimony.

Prior to the above date, on December 29, 1961, Martin filed suit in the United States District Court for the Southern District of Texas at Houston against the same defendants for alleged violation of federal anti-trust statutes, the Sherman and Clayton Acts, 15 U.S.C.A. Sec. 1 et seq. The two petitions include substantially the same basic facts and complaints against these defendants and sought substantially the same damages, the damages sought being trebled in the federal action. The federal suit required some pleading pursuant to a federal anti-trust action which was not necessary in the state common law action. The defendants sought dismissal of the federal suit by reason of the then...