Shaw Resources v. Pruitt, Gushee & Bachtell, 20050304-CA.

• Decision Date: 28 July 2006
• Docket Number: No. 20050304-CA.,20050304-CA.
• Citation: 142 P.3d 560,2006 UT App 313
• Court: Utah Court of Appeals
• Parties: SHAW RESOURCES LIMITED, L.L.C.; Scorpio Energy Resources, L.L.C.; and Comet Resources, L.L.C., Plaintiffs and Appellants, v. PRUITT, GUSHEE & BACHTELL, P.C.; Thomas W. Bachtell; A. John Davis III; Robert S. Thompson III; Wind River Resources Corporation; and John Does 1-10, Defendants and Appellees.

142 P.3d 560

2006 UT App 313

SHAW RESOURCES LIMITED, L.L.C.; Scorpio Energy Resources, L.L.C.; and Comet Resources, L.L.C., Plaintiffs and Appellants, v. PRUITT, GUSHEE & BACHTELL, P.C.; Thomas W. Bachtell; A. John Davis III; Robert S. Thompson III; Wind River Resources Corporation; and John Does 1-10, Defendants and Appellees.

No. 20050304-CA.

Court of Appeals of Utah.

July 28, 2006.

COPYRIGHT MATERIAL OMITTED

Rex E. Madsen, Rodney R. Parker, and Max D. Wheeler, Snow Christensen & Martineau, Salt Lake City, for Appellants.

George M. Haley, David R. Parkinson, Holme Roberts & Owen LLP, Scott A. Call, Thomas R. Karrenberg, and Stephen P. Horvat, Anderson & Karrenberg, Salt Lake City, for Appellees.

Before BENCH, P.J., GREENWOOD, Associate P.J., and BILLINGS, J.

OPINION

GREENWOOD, Associate Presiding Judge:

¶1 Plaintiffs Shaw Resources Limited, L.L.C., Scorpio Energy Resources, L.L.C., and Comet Resources, L.L.C. (collectively, Plaintiffs) appeal from a summary judgment dismissing the following nine claims with prejudice: (1) breach of fiduciary duty, (2) constructive trust, (3) aiding and abetting breach of fiduciary duty, (4) civil conspiracy, (5) breach of contract/covenant of good faith and fair dealing, (6) negligence in legal representation, (7) interference with prospective economic relations, (8) fraudulent nondisclosure, and (9) misappropriation of trade secrets.¹ Plaintiffs also appeal the trial court's rule 11 sanction dismissing Defendant Robert S. Thompson III.² We affirm.

BACKGROUND

¶2 This case involves oil and gas fields located in Uintah County on the Uintah and Ouray Reservation of the Ute Indian Tribe (the Tribe) in an area known as the Hill Creek Extension. A map of the area at issue is appended to this opinion. The Tribe owns the surface rights and a portion of the mineral rights in the Hill Creek Extension. The state and federal governments each own portions of the remaining mineral rights in the Hill Creek Extension.³

¶3 An area known as Flat Rock Field is located within the 400,000-acre Hill Creek Extension. (Flat Rock Field is designated as B on the appended map.) It consists of tribal surface rights and federal mineral rights. The disputed area, North Hill Creek, is located in the southeastern portion of the Hill Creek Extension, south of Flat Rock Field. (North Hill Creek is designated as C on the appended map.) The Tribe owns both surface and mineral rights in North Hill Creek. The Naval Oil Shale Reserve No. 2 (NOSR-2), consisting of 88,000 acres, lies partly within the Hill Creek Extension. (NOSR-2 is designated as A on the appended map.) Prior to 2001 the federal government owned the mineral rights therein, holding them in reserve for the Navy.

¶4 Dan Shaw formed and managed numerous entities to finance the exploration and development of oil and gas wells in Flat Rock Field, including Plaintiffs Shaw Resources Limited, L.L.C. (Shaw Resources) and Scorpio Energy Resources, L.L.C. (Scorpio). Dan Shaw also managed, with his brother, K.C. Shaw, Plaintiff Comet Resources, L.L.C. (Comet), which was primarily a gas and pipeline company created to transport gas. Plaintiffs had similar, but not identical ownership, and although they shared the same manager, they were separate legal entities. In the summer of 2003, John E. Dyer, of Miller Dyer & Company, replaced Dan Shaw as Plaintiffs' manager.

¶5 On May 12, 1995, Dan Shaw obtained federal and state mineral lease assignments for oil and gas development rights in Flat Rock Field. He retained the lease assignments exclusively in his name until July 29, 2002, when he assigned them to Shaw Resources. Prior to July 29, 2002, none of the Plaintiffs held record title to leases or development rights in Flat Rock Field.

¶6 Dan Shaw employed a geologist, David Allin, to identify new development opportunities. He also contracted with Larry Caldwell to act as the field operator in Flat Rock Field.

¶7 During the summer of 1999, Plaintiffs redrilled well 32-5A, which is located in Flat Rock Field, north of North Hill Creek. Plaintiffs assert that the drilling indicated that a potentially significant amount of gas could be located in and around Flat Rock Field.

¶8 Conversely, both Allin and Caldwell testified in their depositions that they had not recommended pursuing North Hill Creek because they thought there was greater potential for development to the north. They also testified that they had not recommended gas and oil development activities on tribal land because of potential legal difficulties with the Tribe. Dan Shaw testified that, to his knowledge, neither he, nor any of the Plaintiff entities, attempted to acquire mineral lease rights on tribal property in North Hill Creek or elsewhere.

¶9 In a September 15, 1999 letter from Allin to Caldwell, Allin reported on the status of unleased federal mineral rights in Flat Rock Field and other nearby areas. He did not mention the status of unleased tribal mineral rights in the area. Allin wrote that he had enclosed a "highly confidential" map known as the "Dakota Structure Map" (the Dakota Map) of unleased federal lands in the area for the purpose of showing Caldwell the area's promising opportunities for development. At the end of the letter, Allin wrote that they would be talking "more about these issues and further research requested on mineral ownership in [Flat Rock Field]." The letter did not mention North Hill Creek or Tribe-owned mineral rights.

¶10 On the same date, Allin wrote to the Bureau of Land Management (BLM) regarding the same unleased federal mineral rights. In the letter, he also explained Plaintiffs' drilling activities in Flat Rock Field. He made no mention of North Hill Creek.

¶11 Dan Shaw hired Defendant Pruitt, Gushee & Bachtell, P.C. (the Law Firm) on April 5, 1999.⁴ Thomas W. Bachtell and A John Davis III were attorneys at the Law Firm. Initially, Dan Shaw retained the Law Firm, and specifically Davis, to represent Plaintiff Comet in a dispute with a party who claimed ownership of and rights-of-way to the Comet pipeline. The April 5, 1999 engagement letter confirmed the Law Firm's representation of Dan Shaw and Comet "and its related entities in ... matters related to the gas pipeline and facilities owned by Comet in Uintah County." Dan Shaw acknowledged in his deposition testimony that he did not engage the Law Firm to explore or develop oil and gas opportunities.

¶12 Defendant Wind River Resources Corporation (Wind River) was a company engaged in oil and gas exploration and development. Bachtell was a shareholder of Wind River during the time at issue. Davis acquired shares in Wind River in February 2000. Wind River's geologist, Marc Eckels, had explored oil and gas production possibilities in the Hill Creek Extension in November 1998. In February 1999, Wind River entered into an agreement with the Tribe to develop NOSR-2, which lies in the northwest section of the Hill Creek Extension, in anticipation of the Tribe one day owning the mineral rights there. During the summer of 1999, as part of Eckels's evaluation of NOSR-2, he evaluated other oil and gas fields in the area, including Flat Rock Field. Eckels obtained a news article from the Rocky Mountain Region Report, dated August 10, 1999, that documents the historical performance of well 32-5A, as well as Plaintiffs' intent to redrill it. He also assembled other public records, such as charts and logs documenting data about wells in the Flat Rock Field vicinity, including well 32-5A. The only information Eckels obtained from Plaintiffs was a map of Comet's pipeline that he submitted with an application for a Department of Energy (DOE) grant. Eckels requested the map from Davis, who obtained it from K.C. Shaw.

¶13 In October 1999, Eckels applied for a DOE grant to conduct a 3-D seismic survey of the North Hill Creek area. In November 1999, Eckels submitted an application to the Tribe to explore and develop Tribe-owned mineral rights in North Hill Creek. The Tribe agreed to allow him to conduct the seismic survey.

¶14 In February 2000, Wind River and Dan Shaw discussed the possibility of sharing the cost of a 3-D seismic survey for both Flat Rock Field and North Hill Creek and pursuing a joint venture to develop North Hill Creek. At this meeting, the Law Firm advised Dan Shaw that members of the Law Firm owned interests in and represented Wind River. The Law Firm sent Dan Shaw a conflict waiver letter seeking his consent and advising him to retain independent counsel. Dan Shaw signed the conflict waiver letter.

¶15 Dan Shaw retained the law firm of Jones Waldo Holbrook & McDonough, P.C. to represent him in negotiations with Wind River for sharing costs of the 3-D seismic survey and a possible joint venture. Dan Shaw and Wind River executed an interim agreement for the purpose of cooperating on the 3-D seismic survey and "negotiat[ing] in good faith" toward a joint venture. The parties agreed to share geological information for the survey. Ultimately, neither Dan Shaw nor Plaintiffs entered into a joint venture with Wind River.

¶16 In May 2000, Wind River entered into a formal agreement with the Tribe that granted Wind River oil and gas development rights in North Hill Creek.

¶17 Plaintiffs filed a complaint against Defendants on February 4, 2004, and an amended complaint on November 2, 2004. In addition to the Law Firm, attorneys Bachtell and Davis, and Wind River, Plaintiffs' complaint also named Robert S. Thompson III as a defendant. Thompson is an attorney who represented the Tribe at one time, and later joined the Law Firm. Plaintiffs sought disgorgement of the oil and gas interests acquired by Wind River, valued at approximately $200 million. The trial court granted a motion dismissing claims against Thompson as a rule 11 sanction. After discovery was completed, the trial court also granted Defendants' motion for summary judgment on all of Plaintiffs' other claims. The trial court cited the...