Face Challenges Confidently

464 Lamont v. Vaquillas Energy Lopeno Ltd.

Tuesday, September 1st, 2015

Richard F. Brown

The following is not a legal opinion.  You should consult your attorney if the case may be of significance to you.
Lamont v. Vaquillas Energy Lopeno Ltd., LLP, 421 S.W.3d 198 (Tex. App.—San Antonio 2013, pet. filed) held that the improper use of a seismic map obtained by proper means was a misappropriation of a trade secret and that damages would be measured by lost profits.  Thomas Lamont (“Lamont”) was a principal of Ricochet Energy, Inc. (“Ricochet”).  In 2004, Ricochet entered into prospect generation agreements (“PGAs”) with Vaquillas Energy Lopeno Ltd., LLP, et al. (“Vaquillas”), to generate oil and gas prospects and to give Vaquillas a right of first refusal for exploration and development.  The PGAs vested Vaquillas with a proprietary interest in all acquired and generated seismic data and interpretations of data.  Under the PGAs, Ricochet identified the Lopeno Prospect gas reservoir and prepared a seismic map, commonly referred to by the parties as the “Treasure Map,” that identified drilling hot spots across the reservoir.  The reservoir was approximately 161 acres in size, had an estimated value between $40 million and $60 million, and was located beneath two contiguous tracts—the Worley tract and the El Milagro tract.  Vaquillas and Ricochet took working-interest ownership stakes in the prospect, but because the El Milagro tract was involved in litigation, Ricochet elected to lease only the Worley tract for development.  In early 2007, Ricochet was drilling the first well on the Worley tract as close as legally possible to the lease line with the El Milagro tract.
At approximately the same time, Lamont separated from Ricochet.  As part of the separation agreement, Ricochet emailed the Treasure Map to Lamont, so Lamont could determine if he, individually, wanted to participate in the prospect, which he did.  Lamont showed the Treasure Map to Carranco, who in turn purchased an ownership stake from Lamont.  Lamont and Carranco then quickly created a joint venture called Montecristo Energy, II (“Montecristo”) to compete against Ricochet and Vaquillas in leasing the El Milagro tract for development.  Lamont concealed his participation in Montecristo.  Montecristo out-bid Ricochet and acquired a lease on the El Milagro tract for $1,000,000.  Six months after the joint venture commenced drilling on the El Milagro tract, the Lopeno Prospect was depleted, and Ricochet and Vaquillas were prevented from withdrawing the gas produced by Montecristo.  The jury concluded that Lamont and his associates misappropriated the Treasure Map, which was a trade secret, and awarded Vaquillas $4.9 million in damages for lost profits.
In Texas, the elements of a claim for misappropriation of a trade secret are “‘(1) the trade secret existed; (2) the trade secret was acquired through breach of a confidential relationship or was discovered by improper means; (3) the defendant used the trade secret without authorization; and (4)[the plaintiff] suffered damages as a result.’”  It was uncontroverted that the Treasure Map was, initially, a trade secret.  On appeal, Lamont and the other defendants challenged only the first two elements—that the Treasure Map lost its trade secret status and that the Treasure Map was not discovered by improper means.
Lamont contended that the Treasure Map lost its trade secret protection because Ricochet (1) showed the Treasure Map to potential investors, (2) did not require confidentiality agreements with its employees, and (3) Ricochet voluntarily disclosed the Treasure Map to Lamont, after his separation from Ricochet.  In response, the court first cited the well-established Texas common law which forbids “employees ‘from using trade secret information acquired during the employment relationship in a manner adverse to [their] employer, and this obligation survives the termination of employment.’”  Ricochet allowed Lamont and others to review the Treasure Map as a potential investor in the Lopeno Prospect on the Worley tract, but no one gave Lamont or any of the other potential investors permission to use the Treasure Map to compete against their interests in the Lopeno Prospect by leasing the El Milagro tract to drain the entire Lopeno reservoir.  Limited communication in furtherance of the owner’s economic interests by showing the protected item to prospective investors, buyers, customers, or licensees does not destroy trade secret protection.  The evidence was sufficient to establish that the trade secret was, in fact, secret.
The second argument Lamont made was that there was no misappropriation of a trade secret because the Treasure Map was not obtained through improper means.  Ricochet provided it to him.  Lamont also argued that he and the other defendants did not rely on the map to determine that the El Milagro tract was prospective for gas production, but instead relied upon the Worley No. 1 log (from Ricochet’s well on the Worley tract), obtained through proper means, at approximately the same time Lamont acquired the Treasure Map.
The court stated that, “‘[t]he acquisition of a trade secret can be improper even if the means of acquisition are not independently wrongful,’” and, “[t]he mere fact that knowledge of a trade secret may be acquired through lawful means . . . does not preclude protection as a trade secret from those who secure that knowledge through improper means . . . .”  Lamont may have properly acquired the map, but Lamont’s intentions for the use of the map are determinative.
In considering whether Lamont’s intentions for the use of the map were proper, the court relied heavily on the analysis used by the Tyler Court of Appeals in Southwestern Energy Prod. Co. v Berry-Helfand.  The Southwestern Energy analysis was fact-specific and involves Helfand, an oil and gas prospector, who collected extensive data on six hundred oil wells, and used the data to draft confidential materials outlining ten distinct sweet spots for production.  Helfand shared this data with Southwestern under confidentiality agreements.  Later, Southwestern drilled and produced oil on Helfand’s sweet spots, but argued that their in-house study only coincidentally led to drilling in Helfand’s sweet spots.  The jury disagreed, and the Southwestern Energy court looked at Southwestern’s failure to have ever drilled in the area prior to reviewing Helfand’s work, its zealous pursuit of opportunities after such review, and that Southwestern’s wells consistently overlapped with Helfand’s sweet spots, to conclude that a jury could reasonably come to conclusion that Southwestern improperly used Helfand’s confidential data to the detriment of Helfand.
In this case, Lamont obtained confidential materials properly, but then used the materials improperly.  Lamont’s review of the map was proper solely for the purpose of deciding whether to invest in the Worley wells; it was not proper for drilling wells on the El Milagro tract in competition with Ricochet’s wells.  The court dismissed Lamont’s argument that it solely relied on the Worley No. 1 log in its decision to drill on the El Milagro tract, because the Worley log only provided information on the Worley tract, not the El Milagro tract.  The court was persuaded that a jury could reasonably determine that Lamont used the map to the detriment of Ricochet, because of the timing of the actions by the defendants and because it was very unlikely that anyone would have spent the large sums to acquire and drill the El Milagro tract  without the seismic data provided by the disclosure of the Treasure Map.
This case and the Southwestern Energy case are very similar in the fact pattern of immediate development in the precise locations identified by the disclosed seismic data.  Both stand for the principle that trade secrets acquired by proper means may not be used for an improper purpose.  They also suggest that a non-competition agreement may be unnecessary to protect the disclosing party under a confidentiality agreement or one who is making a disclosure of a trade secret.  The test will be whether the actions taken fall “below the accepted standards of commercial morality and reasonable conduct.”