Face Challenges Confidently

032 Peko Oil U.S.A. v. Evans

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.
Peko Oil USA v. Evans, 800 S.W.2d 572 (Tex. App.–Dallas 1990, writ den.), is another case in which the unsuccessful promoter of a deal sought to recover in quantum meruit against one of the parties to whom he showed the deal. Sunbelt Oil showed the “Sunbelt Program” to Peko Oil. The Sunbelt Program included a number of Texaco wells. Peko Oil declined the deal as too large and too risky. Later Peko Oil participated in the “Texaco Program,” which was a smaller version of the Sunbelt Program. Sunbelt Oil testified that it never expected a fee or commission, but it wanted the exclusive right to market the gas. The jury gave Sunbelt Oil $900,000.
Held: reversed and rendered. The expectation of a future business advantage or opportunity cannot form the basis of a cause of action in quantum meruit. Recovery must be based on conferral of a benefit in anticipation that reimbursement will directly result.
We recently reported on Vortt Exploration Company. Inc. v. Chevron U.S.A.. Inc., 787 S.W.2d 942 (Tex. 1990) [PPROA Pipeline October ’90 Vol. 61, No. 8] in which the Texas Supreme Court awarded the disappointed promoter $200,000 for the use of information which cost $20,000 to acquire. Vortt and Chevron held leases on the same tract, but the allocation of interests as between them was uncertain. Vortt showed Chevron its prospect information and tried to get Chevron to stipulate as to the interests owned. Chevron refused and drilled a well. Vortt suggests that parties involved in negotiating joint ventures need to be aware that even the unilateral unrequested disclosure of confidential information may be compensable, if that information is eventually used.
The elements of quantum meruit which Sunbelt was required to prove (as explained in Vortt) were: (1) Sunbelt furnished something of value (2) to Peko (3) which Peko used (4) under such circumstances as reasonably notified Peko that Sunbelt, in furnishing the services, was expected to be paid by Peko. The Peko case is the first case to address Vortt in the context of the oil and gas business and to attempt to limit its impact. The Peko court first held that there was simply no evidence that Sunbelt gave Peko any notice that Sunbelt expected to be paid for the information. Sunbelt’s own testimony was that it expected to get the right to exclusively market the gas, yet at trial Sunbelt sought and recovered cash compensation. It is very difficult to see how the Peko court could reach this result and distinguish the facts from the Vortt case.
The second basis of the court’s holding in Peko is more interesting. It concludes that the Texas Supreme Court has not addressed whether an expectation of a future business advantage or opportunity can form a basis for a quantum meruit claim. Peko then cites the law from many other jurisdictions that mere expectation of a future contract cannot be the basis of recovery and adopts that conclusion as the law in Texas. The Peko court recognizes that in the business world services or information may be frequently given in the hope that some future contract will result. The disappointment of that hope does not result in legal liability.
Writ in the Peko case was denied by the Texas Supreme Court. Because the granting or denial of the writ (appeal) is discretionary, one cannot yet be sure that the second basis of the holding in the Peko case will finally be the law in Texas. It is the law for now, and given the many other jurisdictions expressing the same view, it seems likely to remain the law.
Vortt and Peko are hard to distinguish and there will probably be many more cases to follow. The only way to protect yourself is to be very clear from the start of any negotiations as to what is free, what is not, what is confidential, and what is not. Although cumbersome, and sometimes impracticable, this clarity protects and is for the benefit of both parties. It is far easier to agree in the beginning, when both parties are still interest in dealing, than at the end, when one party is already out of the deal.