Face Challenges Confidently

489 Fleet Oil & Gas, Ltd v. EOG Res., Inc.

Wednesday, September 2nd, 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.
 
Fleet Oil & Gas, Ltd. v. EOG Resources, Inc.,  held that the attorney’s fee provision under a 1989 MFOA attached as an exhibit to a participation agreement did not govern disputes under the participation agreement. Fleet Oil & Gas, Ltd. (“Fleet”) and EOG Resources, Inc. (“EOG”) entered into a Lease Acquisition and Participation Agreement (“Agreement”) with an attached AAPL 1989 Model Form Operating Agreement (“JOA”).  Fleet and EOG both held leases in the proposed Contract Area.  Under the Agreement, Fleet sold all of its leases to EOG in exchange for cash, a drilling commitment, and a 25% carried interest under the JOA.   If EOG failed to timely commence, Fleet’s carried interest escalated to 30%.   A dispute arose over whether EOG timely commenced (“Diligence Issue”).  A second dispute arose over whether EOG could deduct from Fleet’s revenues lease burdens other than royalty (“Working Interest Issue”).   The case was tried with Fleet as plaintiff, and Fleet lost on the Diligence Issue, won on the Working Interest Issue, and recovered approximately $265,000 in damages.  The trial court awarded EOG $333,400 in attorney’s fees and denied Fleet’s claim for attorney’s fees.   The issue on appeal was entitlement to attorney’s fees.
 
EOG’s pleadings at trial included a claim for declaratory relief on the Diligence Issue and for attorney’s fees “[p]ursuant to Chapters 37 and 38 of the Texas Civil Practice and Remedies Code and/or other applicable law . . . .”   EOG was successful in defending against Fleet’s breach of contract claim and EOG did obtain a declaratory judgment that it was diligent, which was worth $2,000,000 to EOG.   However, the court reversed and rendered on EOG’s attorney’s fees.   EOG could not recover under Chapter 37 (UDJA), because a declaratory judgment must do more than merely duplicate the issues litigated on a breach of contract claim.  Moreover, it is “intended as a means of determining the parties’ rights when a controversy has arisen but before a wrong has been committed.”   EOG could not recover under Chapter 38 (Contracts), because “Chapter 38 does not provide for the recovery of attorney’s fees by a party who only defends against a plaintiff’s . . . contract claim and presents no contract claim of its own.”   EOG recovered no damages or other equitable relief.
 
The AAPL 1989 Model Form Operating Agreement that was the basis for the JOA clearly provides in Article VII that if “any party is required to bring legal proceedings to enforce any obligation of a party hereunder, the prevailing party in such action shall be entitled to recover . . . a reasonable attorney’s fee . . . .”   The court refused to award attorney’s fees under this provision to EOG because EOG failed to plead for a contractual recovery.  EOG’s pleadings were limited to Chapters 37 and 38 and “other applicable law.”  The court held that the JOA contractual provision was not applicable law.   Moreover, EOG’s pleadings referenced the Agreement, but never mentioned the JOA.  Finally, the court concluded that the JOA provision applied only to disputes “hereunder” (i.e., the JOA), but this dispute was under the Agreement.
 
The court reversed and remanded on the denial of Fleet’s attorney’s fees.  Fleet was entitled to attorney’s fees under Chapter 38 for breach of contract on the Working Interest Issue.
 
The significance of the case is the holding that the attorney’s fee provision in the 1989 form JOA is only applicable to disputes arising under that agreement, and absent some additional language, it will not be read into any of the many industry contracts to which the JOA is commonly attached as an exhibit.