693 Le Norman Operating LLC v. Chalker Energy Partners III, LLC, No. 01-15-01099-CV, 2017 WL 4366265 (Tex. App.—Houston [1st Dist.] October 3, 2017, no pet. h.)
Wednesday, August 22nd, 2018
The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.
Le Norman Operating LLC v. Chalker Energy Partners III, LLC, No. 01-15-01099-CV, 2017 WL 4366265 (Tex. App.—Houston [1st Dist.] October 3, 2017, no pet. h.) Rule 53.7(f) motion granted (Apr. 18, 2018) held that an exchange of e-mails created a fact question as to whether the parties had a meeting of the minds and intended to be bound as expressed in the e-mails to the essential terms of a sale of approximately $300 million of oil and gas leases. Numerous individuals and entities (“Sellers”) owned working interests in various oil and gas leases in the Texas Panhandle (“Assets”). Sellers engaged Chalker Energy Partners (“Chalker Energy”) to function as Sellers’ agent and engaged Raymond James to conduct the sale of the Assets. Raymond James sent an e-mail to potential buyers announcing the sale of the Assets. Le Norman Operating LLC (“LNO”) received this e-mail and engaged in the bidding process by signing a Confidentiality Agreement with Chalker Energy in order to view the documents in the Data Room, and LNO attended the Data Room Presentation. The Data Room Presentation and two Confidential Bid Instruction Letters (collectively, the “Bid Documents”) outlined and governed the bid process. The procedures as outlined included the typical provision that Sellers were not bound until a definitive PSA was executed.
On November 5, 2012, LNO submitted a bid via e-mail offering $322 million for 100% of the Assets. The bid stated that it was made “subject to the execution of a mutually acceptable Purchase and Sale Agreement (‘PSA’) between the parties for the sale of the Assets.” The e-mail included a redlined copy of Sellers’ form PSA showing LNO’s proposed minor revisions. LNO and Sellers representing 82% of the Assets continued negotiating without success, and on November 14, 2012, LNO informed Chalker Energy that it would no longer pursue the transaction.
Sellers then proposed to sell 67% of the Assets for a smaller sum, and on November 19, 2012, LNO sent an e-mail to Raymond James proposing seven specific new deal terms as a counter proposal to the Sellers new offer. LNO’s e-mail did not make any reference to the bid procedure and gave Sellers until 5:00 p.m. the following day to accept the new deal terms. Chalker Energy submitted the bid to Sellers and Sellers returned their written ballots indicating that they elected to sell the Assets to LNO. On November 20, 2012, Raymond James responded to LNO’s November 19 e-mail and stated “[w]e have a group on board to deliver 67% subject to a mutually agreeable PSA.” The parties worked towards finalizing the PSA but did not finalize or execute a PSA.
On November 22, 2012, Sellers received a new offer from Jones Energy, and Sellers promptly sold the Assets to Jones. LNO sued Sellers for breach of contract. Sellers won on summary judgment. The principal issue on appeal was whether the record contained some evidence that a contract was formed between LNO and Sellers when Raymond James responded, though e-mail, to LNO’s counter proposal on November 20, 2012.
Parties enter into a binding contract when the following elements exist: “(1) an offer, (2) an acceptance in strict compliance with the terms of the offer, (3) a meeting of the minds, (4) each party’s consent to the terms, and (5) execution and delivery of the contract with the intent that it be mutual and binding.” Parties may form a binding contract when they “agree on some terms sufficient to create a contract, leaving other provisions for later negotiation.” However, “[t]he parties must have a meeting of the minds and must communicate consent to the essential terms of the alleged agreement” in order to form a binding contract.
Sellers argued that any contract entered into between LNO and Sellers was subject to the Bid Documents and the Confidentiality Agreement and that there was no binding contract in the absence of an executed PSA. LNO argued that there was a fact question as to whether the alleged contract set out in the November 19-20 e-mails was not subject to the Bid Documents, the Confidentiality Agreement, or the bid process rules.
The court noted that unlike LNO’s earlier bids, the November 19 offer did not follow the requirements in the Bid Documents and “did not state that it was made in accordance with the bid procedures.” Furthermore, the court found that the “plain language of the Confidentiality Agreement [did] not preclude, as a matter of law, the existence of a valid, binding contract in the absence of an executed PSA.”
Sellers argued that “‘the undisputed evidence conclusively established no meeting of the minds or intent to be bound’ and that the record conclusively established that no PSA existed between them and LNO.” LNO responded by arguing that “the finalization and formal execution of the PSA [was] not necessary for the parties to have had a meeting of the minds and to have formed the intent to be bound to the terms of the sale.” LNO contended that “it raised a fact question as to whether the parties intended to be bound by the terms set out in the November 19-20 e-mails and as to whether the November 19-20 e-mails and written elections were sufficiently definite, certain, and clear as to the essential terms of the sale as to constitute an enforceable contract, precluding summary judgment on this ground.”
The court agreed with LNO and concluded that the November 19-20 e-mails, the e-mail from Chalker Energy to Sellers informing them that Chalker Energy notified LNO that Sellers were willing to move forward, deposition testimony of one Seller’s intent to sell his interest in the Assets to LNO, and an e-mail from one Seller congratulating one of LNO’s private equity investors on the sale demonstrated at “least some evidence that the parties agreed and had a meeting of the minds on the essential terms of the sale sufficient to create a contract, even if they left other provisions for later negotiation, and that both parties communicated consent to those essential terms.”
Furthermore, the Texas Supreme Court has reiterated that “the determination of whether a ‘contemplated formal document’ was a condition precedent to the formation of a contract or ‘merely a memorial of an already enforceable contract’ depended on the intent of the parties, which is usually a question for the trier of fact.” Thus, the court held that the trial court erred in granting the Sellers’ motion for summary judgment because there was a dispute as to the parties’ intent to be bound to the terms of the November 19-20 e-mails in the absence of an executed PSA.
Given the common practices today of rapid, short text and e-mail exchanges coupled with electronic execution, this case highlights the risk that even very large transactions may become a binding contract, unless all communications are carefully limited to non-binding negotiations.