Face Challenges Confidently

406 Eastern Exp., L.P. v. XTO Energy, Inc.

Thursday, September 3rd, 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.
Eastern Exp., LP v. XTO Energy, Inc. Nos. 02–10–00395–CV, 02–10–00396–CV, 02–10–00397–CV, 2012 WL 1059080 (Tex. App. —Fort Worth  Mar. 29, 2012, pet. denied) (mem. op.), held that property owners who are members of an unincorporated property owners’ association, but who are not bound to accept the lease form and lease terms negotiated by the property owners’ association, have no remedy when the oil and gas company elects to stop leasing.  Southeast Arlington Communities of Texas (“SEACTX”), an unincorporated association of homeowners and businesses in the Arlington area, negotiated with XTO on behalf of its members to secure the best possible oil and gas lease terms.  Although a “Form Lease” was negotiated and agreed upon, each member retained the right to negotiate their own lease.  XTO leased from many SEACTX members on the basis of the proposed terms, but XTO ceased leasing after a dramatic drop in the price of natural gas.  Various members of SEACTX who had not leased to XTO (“Property Owners”) sought to compel XTO to lease on the basis of the Form Lease and agreed terms.
The court assumed arguendo that the Form Lease and agreement with SEACTX constituted a binding contract.  Accordingly, the issues were: (1) whether Property Owners had standing to enforce the contract or bring a promissory estoppel claim; (2) whether Property Owners were entitled to benefit-of-the-bargain damages on a negligent misrepresentation theory; and (3) whether Property Owners had standing to assert an antitrust claim.
Maddox v. Vantage Energy, LLC was a substantially similar and contemporaneous urban leasing case decided by the same court.  Most of the issues in Eastern Exp., LP were resolved exactly as resolved in Maddox.  Neither the agreement nor Form Lease between SEACTX and XTO expressly referenced Property Owners or otherwise evidenced an intent to include them as third party beneficiaries.  Accordingly, Property Owners lacked standing.  Additionally, the court held that Property Owners were not donee beneficiaries because the alleged agreement did not contemplate pure donation.  Moreover, Property Owners could not be considered creditor beneficiaries because the alleged agreement did not confer any contractual rights on Property Owners.  For similar reasons, the court rejected Property Owners’ promissory estoppel claim.
The court then addressed Property Owners’ negligent misrepresentation claim.  Property Owners claimed to be seeking reliance damages, but they measured their damages as the “difference between the value of the leases . . . offered by XTO before the offers were withdrawn and the value of the subsequent, inferior lease offers.”  The court pointed out that such a measure can only be characterized as benefit-of-the-bargain damages, which are not recoverable under a negligent misrepresentation theory.
Finally, the court addressed the Property Owners’ antitrust claim.  Without reaching the substance of the claim, the court held that Property Owners lacked standing to assert it.  The party asserting an antitrust claim “‘must be either a consumer of the alleged violator’s goods or services or a competitor of the alleged violator . . . .’”  Here, although Property Owners were potential lessors of their mineral rights, the court held that they simply could not be characterized as “consumers” or “competitors” of XTO.
This case is consistent with other urban leasing cases involving unincorporated property owner associations that negotiate form leases and lease terms for unidentified members who are not bound to lease on the form or on the terms negotiated.  Property owners who do not actually lease generally have no remedy when the oil and gas company elects not to lease.