Face Challenges Confidently

551 Longview Energy Company, 464 S.W.3d 353 (Tex. 2015)

Tuesday, December 6th, 2016

Richard F. Brown

The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.

Longview Energy Company, 464 S.W.3d 353 (Tex. 2015) (Value of oil and gas prospect for supersedeas bond) analyzed the appropriate amount of a supersedeas bond when the judgment imposes a constructive trust on an oil and gas prospect. Longview Energy Company (“Longview”) was pursuing the acquisition of 46,000 acres in the Eagle Ford Shale which Huff Energy Fund, L.P., et al., (“Huff”) obtained. Huff was a minority shareholder in Longview and there were overlapping directors and principals. Longview sought disgorgement of Huff’s unjust enrichment, but did not seek damages. Longview also did not request jury findings on damages, because it thought the assets were undervalued. The jury found a breach of fiduciary duty. The trial court judgment awarded Longview a constructive trust over the prospect and future production revenues net of royalties and production taxes. Separately, the judgment awarded the same future net production revenues covered by the constructive trust “and an additional $95,500,000” with no explanation for the monetary award. An earlier (withdrawn) judgment “described the $95.5 million as being ‘based on the jury’s finding regarding the value of past-production revenues derived from the [Eagle Ford Shale assets, $120 million]’ but without credit for either the $127 million development costs found by the jury or the other production expenses.” The Huff multiple defendants jointly posted a $25 million bond as security to supersede enforcement of the judgment, Longview persuaded the trial court to increase the bond to $25 million for each defendant, and all parties petitioned the Supreme Court for relief by mandamus as to the amount of the supersedeas bond.

The amount of a supersedeas bond is governed by Chapter 52.006 of the Civil Practice and Remedies Code which is tracked by Rule 24.2 of the Rules of Appellate Procedure. The bond “must equal the sum of compensatory damages awarded in the judgment, interest for the estimated duration of the appeal, and costs awarded in the judgment.” The issue in the case was whether the $95.5 million was “compensatory damages.”

“If the trial court did not calculate the $95.5 million the way the [trial] court first explained [in the withdrawn judgment], then the number seems to have been pulled from thin air. Longview offers no explanation for what the figure represents.” Longview argued that the judgment was not punitive and therefore it must be compensatory. The Court reasoned that the judgment could be punitive because it awarded gross past production revenues less asset acquisition costs, which presumably made the defendants liable for an amount in excess of net gains. Regardless, disgorgement is not “damages.” The Court had previously construed Rule 24.2 in the context of attorney fees and held that attorney fees are not compensatory damages for purposes of calculating a supersedeas bond. The Court there analyzed the recovery of attorney fees as “compensatory in that they help make a claimant whole, but they are not, and have never been, damages.” The Court had previously held that equitable forfeiture “is not mainly compensatory . . . nor is it mainly punitive” and “cannot . . . be measured by . . . actual damages.” “Disgorgement is compensatory in the same sense attorney fees, interest, and costs are, but it is not damages.” Therefore, in this case, the only amount for which security must be given is costs, which were $66,645.

Another issue in the case was the trial court’s post-judgment order that Huff produce monthly to Longview, during the appeal, all of the documents affecting the prospect, which was affirmed.

The significance of the case is the stark contrast in the amount required for a supersedeas bond in a damages case compared to a disgorgement or constructive trust case, particularly when the dispute involves an oil and gas prospect.