Face Challenges Confidently

024 Vortt Exploration Co., Inc. v. Chevron U.S.A., 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 some significance to you.
In Vortt Exploration Company. Inc. v. Chevron U.S.A. Inc., 787 S.W.2d 942 (Tex. 1990), Chevron and Vortt both owned mineral rights in a tract of land. They negotiated for over five years regarding a joint operating agreement. Both parties admitted that no deal was struck because the amount of Vortt’s mineral interest was uncertain, and neither side would accede to the demands of the other pertaining to provisions to be included in the operating agreement. Chevron offered to participate on the basis of ownership reflected by a title opinion. Vortt steadfastly refused to sign a joint operating agreement which provided that each party bore the risk of failure of title of any of its leases. Instead, Vortt insisted that a certain percentage of interest be assigned absolutely to each party in the operating agreement.
In 1983 Chevron commenced drilling on the tract which resulted in a producing well. Chevron then brought suit against Vortt seeking a declaratory judgment that Vortt’s leases were invalid. Vortt counterclaimed asserting the validity of its leases and, in the alternative, seeking recovery for the value of seismic services, graphs and maps provided by Vortt during the negotiations. There was no claim that the seismic and other data was obtained by fraud or misrepresentation The trial court specifically held that Vortt’s leases were no good and that Vortt did not own any interest in the minerals or the well.
On the claim for recovery as to the value of the services provided, it was held: (1) Vortt provided seismic services and information to Chevron in belief that they would jointly develop the related property, and but for such belief would not have provided such information; and (2) Chevron was reasonably notified that Vortt, by performing such services in assistance to Chevron, expected to join in a mutually satisfactory agreement for the joint production of oil and gas from the subject property. Based on these findings, Chevron was ordered to pay damages of $178,750 to Vortt on its claim seeking recovery under the theory of quantum meruit (value received) for seismic services, graphs and maps given by Vortt to Chevron during the negotiations. This information had cost Vortt roughly $18,000. The court stated that the damages were reflective of Chevron’s unjust enrichment as a result of using the information provided by Vortt in contemplation of reaching a mutually acceptable joint operating agreement.
The significance of this case is that seismic, land, geology and engineering data is often passed among prospective parties to an operating agreement before the agreement is signed. Under Vortt, if one party utilizes information that is passed to it by another party during negotiation of, and in anticipation of, a possible operating agreement, the party receiving the information or services may be required to compensate the providing party, if any benefits are obtained by utilizing the information or services. Chevron never asked to see the seismic; it was volunteered by Vortt. Vortt never really expected “payment” for the data, but only favorable consideration of the proposed operating agreement. Nevertheless, the court held that the expected “payment” did not have to be in the form of cash, and Vortt was entitled to be compensated. There is no explanation in the opinion as to how the “compensation” was calculated by the court, and there is a recital in dictum that quantum meruit recovery may be allowed when the original payment sought was an interest in land. This suggests that the judgment could have awarded an interest in the well itself. The dissent said:

Was ever fainter hope more richly rewarded? For not refusing to look at Vortt’s information, Chevron must pay ten times its cost. The Court’s ruling today should be a tremendous encouragement to benefaction. A frustrated negotiator should never overlook this tactic in attempting to induce agreement. The recipient of such charity, however, should beware.