Fordoche Inc v. Texaco Expl & Prodn ( 2006 )

United States Court of Appeals
Fifth Circuit
F I L E D
August 31, 2006
REVISED SEPTEMBER 20, 2006
Charles R. Fulbruge III
Clerk
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
No. 05-30857
______________________
FORDOCHE INC., ET AL,
Plaintiffs-Appellants
versus
TEXACO INC; ET AL,
Defendants
TEXACO EXPLORATION AND PRODUCTION, INC.
Defendant-Appellee
___________________________________________________
Appeal from the United States District Court for
the Middle District of Louisiana
___________________________________________________
Before KING, BARKSDALE, and DENNIS, Circuit Judges.
DENNIS, Circuit Judge:
1
This case deals with the performance of
obligations under right of first refusal (ROFR)
clauses, also termed “preferential rights” clauses,
in four joint operating agreements (JOAs) to which
defendant-appellee Texaco Exploration and Production,
Inc. (“TEPI”) and plaintiffs-appellants, Fordoche,
Inc. and Ronnie and Rebecca Theriot (“Fordoche
group”) were parties. Each of the ROFR clauses
required that any party to the JOA, before selling
any of its mineral interest described in the JOA to
a third party, must first offer the same interest to
the other parties to the JOA on the same terms as
that of the contemplated sale to the third party.
TEPI planned to sell its mineral leases affected by
the four JOAs to a third-party, EnerVest Energy,
L.P., as part of a $78+ million package sale
including additional mineral leases in several areas
of the state. Before doing so, TEPI sent the
Fordoche group letters notifying them of its planned
2
package sale and calling on them to exercise their
preferential rights for a price of $2+ million within
30 days. The Fordoche group expressed interest but
questioned whether TEPI’s letters amounted to a good
faith offer to sell them, for a fairly allocated
amount, the identical type and quantity of property
rights that TEPI planned to sell to EnerVest. The
Fordoche group contends that despite its requests for
information, it never received satisfactory answers
to its questions. TEPI, on the other hand, takes the
position that the letters it sent the Fordoche group
fulfilled its obligations to the Fordoche group and
that the group did not request additional data or
explanation. It is undisputed that the Fordoche group
did not exercise or waive its preferential rights as
TEPI demanded in its letters, or in any other way;
and that some seven months after the Fordoche group
received the letters TEPI sold all of its interests
affected by the four JOAs to EnerVest in the package
3
sale as planned. The Fordoche group brought this
suit, claiming that they had been damaged by TEPI’s
failure to comply in good faith with the ROFR
clauses.
The ultimate question in this appeal is whether,
based on the record before us, TEPI performed its
obligations in good faith as required by the ROFR
clauses and, therefore, is entitled to summary
judgment dismissing the Fordoche group’s claims. We
conclude that TEPI has failed to carry its burden of
showing that there is no genuine issue as to any
material fact or that it is entitled to a judgment as
a matter of law.
Favoring the non-moving parties in the resolution
of genuine issues as to material facts and in drawing
reasonable inferences, the evidence presented for and
against summary judgment is reasonably susceptible to
the following interpretation:
(1) TEPI breached its obligations under the ROFR
4
clauses found within the JOAs because:
(a) Under the August 29, 1962 JOA, the
Fordoche group had a preferential right to
purchase from TEPI, “its interest, in whole
or in part, in the properties affected by
this agreement” that TEPI sold to EnerVest.
Thus, the 1962 JOA’s ROFR affected TEPI’s
entire working interest under that JOA.
Accordingly, when TEPI sold that working
interest to EnerVest after offering to sell
the Fordoche Group only a lesser interest,
viz., TEPI’s share of the unitized
substances, it breached that ROFR.
Alternatively, TEPI breached that RFOR by
effectively transferring to EnerVest the
right to control and use the tangible
facilities and the surface rights necessary
to their use after specifically excluding
them from the property it offered to sell to
5
the Fordoche group;
(b) TEPI failed to perform its obligations
under the ROFRs because it transferred
property affected by the Fordoche’s
preferential rights without ever making an
offer to sell any certain or definite thing
or property interest to the Fordoche group;
(c)TEPI breached the ROFRs by selling the
property affected by the Fordoche group’s
preferential rights to EnerVest for a lesser
price than TEPI asked in its offer to the
Fordoche group.
(2) TEPI breached its duty to act in good faith
with respect to its performance of its
obligations under each of the ROFRs by:
(a) substantially increasing the price in its
offer to the Fordoche group between March 1,
2000, and April 26, 2000 with the intention
of discouraging the Fordoche group’s exercise
6
of their preferential rights; and
(b) making misrepresentations to the Fordoche
group regarding its ownership interest in
certain tangible and intangible property
associated with the production units, as well
as misrepresentations regarding the
productivity of certain wells.
Facts
Defendant TEPI and plaintiffs, the Fordoche
group, along with many others not parties to this
suit, separately owned mineral leases that gave them
working interests1 in respect to four different
production units in the Fordoche Field in Point
Coupee Parish, Louisiana. The purpose of these
production units was to allow working interest owners
to extract certain types of minerals from designated
1
A working interest is defined as, “The rights to the
mineral interest granted by an oil-and-gas lease, so called
because the lessee acquires the right to work on the leased
property to search, develop, and produce oil and gas, as well as
the obligation to pay all costs. -- Also termed leasehold
interest; operating interest.” Black’s Law Dictionary, (8th ed.
2004).
7
sands underlying particular tracts of land. Because
no party contends otherwise, we infer that each
mineral lease involved in this case is a standard
contract whereby the lessee has the right to: (1)
explore for and extract oil, gas, or other minerals;
(2) make reasonably necessary use of the surface of
the lands affected for those purposes; and (3) assign
or transfer those rights to other persons.
TEPI, the Fordoche group, and the non-party lease
owners were parties to four different joint operating
agreements (JOAs)formed by them or their predecessors
for the purpose of producing minerals from the four
unitized sands. The function of a JOA is to spell
out each party's rights and duties with respect to
drilling, development, operations and accounting in
connection with each production unit. The following
provides the dates of execution of each JOA and the
property affected by each JOA:
(1) August 29, 1962 JOA is for the Pressure
8
Maintenance Unit “K” and Upper Dearing Sands and
covers the Commingling Facility No. 8 and the
following wells:
* J.O. Long Well #2-D
* J.O. Long Well #5-D
* J.O. Long Well No. 8
* L.E. Carpenter Well #1-D
* Clark Heirs Well #2
(2) May 1, 1969 JOA is for the Long RA SU A and
covers the following wells:
* Price U1 Well #1
* Price J.O. Long Well #9-D
* U2 Well #1 & 1 Alt.
* Long RA SU A#2-A
(3) December 1, 1969 JOA is for the “L” Sand Unit
and covers the following well:
* Fairchild-Chauvin U1 Well #1
(4) November 14, 1995 8000 RA SUA Operating
Agreement covers and affects the following wells:
9
* J.O. Long Well #7-D
* J.O. Long Well #11
* Clark Heirs Well #1
* Clark Heirs Well #3
* Fairchild-Chauvin Well U2-1 Alt.
* B.W. Dreyfus Well #1-A
* Mrs. Rap Price Well #1
* Clark Duckworth U2 #1
All four JOAs at issue have common features
regarding the “operator.” First, each JOA details
the selection process of an operator in addition to
explaining the power of this position. Under the
JOAs, the operator is designated as TEPI. Further,
the JOAs provide that the operator, while under the
ultimate direction and control of the directives of
the JOA, is nevertheless authorized to manage and
supervise the day-to-day operations of the production
unit. Second, each JOA provides a replacement
process available to the owners of a majority of the
10
combined working interests upon a vacancy in the
position; said majority is empowered to elect another
owner as TEPI’s successor. Third, the JOAs authorize
the operator to develop and operate the Unit Area for
the production of Unitized Substances for the joint
account of the parties. Finally, each JOA provides
that the property and equipment acquired by the
operator or the parties for the purpose of exploring
for and producing minerals within each respective
unit shall become the property of the parties of each
JOA as co-owners in indivision.2
The ROFR clauses in the four JOAs are similar
except for one major difference. The August 29, 1962
JOA provides that the ROFR applies to the sale by a
party of “its interest, in whole or in part, in the
properties affected by this agreement.” By contrast,
the other three JOAs provide that the ROFR will
extend to the sale of any part of a party’s specified
2
See La. Civ. Code art. 797 et seq.
11
interest in “unitized substances.”3
In 1999, TEPI decided to offer for sale to
selected prospects its entire working interests in 16
oil and gas fields in Louisiana for the highest lump
sum bid in a global transaction called the “Gulf
Coast Package.” The Gulf Coast Package included,
among others, the Fordoche Field. TEPI solicited
bids on the Gulf Coast Package, and EnerVest was the
successful bidder with an offer of approximately
$78.7 million. Of the $78.7 million paid to TEPI,
EnerVest initially allocated $1,998,811 as the value
of the property subject to the Fordoche group’s
preferential rights and advised TEPI of that
allocated price. As part of the sale, EnerVest also
agreed to indemnify TEPI in the event of incurred
liability as a result of the ROFR clauses.
On March 1, 2000, TEPI, in writing, offered
3
Unitized substances, under the JOAs, are defined as, “all
gas and condensate in and which may be produced and saved” for
the sands underlying the unit area referenced by the JOA.
12
appellants the opportunity to purchase, at EnerVest’s
allocated price ($1,998,811), TEPI’s undefined
interests in the property. Mr. Ronnie J. Theriot,
one of the plaintiffs, responded with questions
regarding the property offered to them and why and
how the price had been determined as the “allocated”
price. TEPI sent subsequent offer letters to the
appellants on April 26, 2000, purporting to clarify
the property interests offered and stating an
allocated price of $2,014,861.4 On May 22, 2000, the
appellants again responded with an inquiry regarding
how TEPI arrived at the allocated value, and whether
the value reflected the price that EnerVest was
offering to pay for the specified assets. The
Fordoches requested an additional thirty days to
4
TEPI sent separate, identical letters to Fordoche, Inc.
and the Theriots. The letters essentially explain that most, but
not all, of Fordoche Field is covered by the Fordoches’
preferential rights. Upon researching the various JOAs, TEPI
realized that additional preferential rights were applicable, and
therefore, TEPI adjusted the previous allocated value. The
letter then lists the assets under each JOA that were subject to
preferential rights and gives an allocated value for each JOA.
The total of those allocated value equals $2,014,861.
13
adequately research the matter in order to determine
whether to exercise or waive their preferential
rights. TEPI sold its interest in the Fordoche Field
to EnerVest on December 22, 2000, seven months after
the appellants’ request.
Standard of Review
This Court reviews the district court’s grant of
summary judgment de novo, applying the same standard
as the district court.5 Summary judgment is
appropriate “if the pleadings, depositions, answers
to interrogatories, and admissions on file, together
with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the
moving party is entitled to a judgment as a matter of
law.”6 A fact is material only when it might affect
the outcome of the suit under the governing law, and
5
Gowesky v. Singing River Hospital Systems, 321 F.3d 503,
507 (5th Cir. 2003).
6
Fed. R. Civ. P. 56(c); see also Celotex Corp. v. Catrett,
477 U.S. 317, 322-23 (1986).
14
a fact is genuinely in dispute only if a reasonable
jury could return a verdict for the nonmoving party.7
The evidence should be viewed in the light most
favorable to the non-movant.8 If the moving party
meets the initial burden of showing there is no
genuine issue of material fact, the burden shifts to
the nonmoving party to produce evidence or designate
specific facts showing the existence of a genuine
issue for trial.”9
Analysis10
A. TEPI’s Breach of the Right of First Refusal
The right of parties to contract for a “right of
first refusal” has been recognized by Louisiana
7
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
8
Duckett v. City of Cedar Park, Texas, 950 F.2d 272, 276
(5th Cir. 1992).
9
Allen v. Rapides Parish Sch. Bd., 204 F.3d 619, 621 (5th
Cir. 2000).
10
The federal courts are empowered by 28 U.S.C. § 1332 to
hear this suit as the parties to it are diverse and the amount in
controversy exceeds $75,000. Under the holding of Erie Railroad
Co. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817 (1938) and Klaxon Co.
v. Stentor Electric Mfg. Co., Inc., 313 U.S. 487, 61 S. Ct. 1020
(1941), we must apply Louisiana’s obligations and mineral law.
15
courts for some time.11 In 1993, the jurisprudence
was codified by the Louisiana Legislature in
Louisiana Civil Code articles 2625 and 2626. Article
2625 provides:
A party may agree that he will not sell
a certain thing without first offering it
to a certain person. The right given to
the latter in such a case is a right of
first refusal that may be enforced by
specific performance.
Article 2626 provides:
The grantor of a right of first refusal
may not sell to another person unless he
has offered to sell the thing to the
holder of a right on the same terms, or
on those specified when the right was
granted if the parties have so agreed.
It is apparent that the driving intent of the
four JOAs was to provide appellants with a right of
first refusal. What is at issue regarding the breach
of the ROFRs is as follows:
11
Ebrecht v. Pontchatoula Farm Bureau Assoc., Inc., 498
So. 2d 55 (La. App. 1st Cir. 1986); Crawford v. Deshotels, 359
So. 2d 118 (La. 1978); Price v. Town of Ruston, 171 La. 985, 132
So. 653 (La. 1931).
16
(1) the “thing” that is the subject of the
ROFR under Article 2625;
(2) whether TEPI clearly and unambiguously
described the property offered to
appellants in its March 1, and April 26, 2000
offer letters;
(3) whether TEPI offered the same “thing” to
appellants, the holder of the right, on the
same terms, before selling to Ener Vest
1. The “Thing” Subject to the ROFR
According to Article 1983, “Contracts have the
effect of law for the parties....” Therefore, to
determine the “thing” upon which the right of first
refusal was granted, we must turn to the language in
each of the four JOAs.
A. The 1962 JOA
The 1962 JOA provides:
Before the sale to a third party by any
Operating Party of its interest, in whole or
in part, in the properties affected by this
agreement, the other Operating Parties shall
17
be given the refusal thereof at the best
price offered in good faith by a third party,
and such other Operating Parties shall have
the preferred right to purchase at the price
stated, which right shall be exercised within
thirty (30) days after receipt of written
notice of the offer made by a third party....
It is self-evident that the 1962 JOA extends
appellants’ ROFR to TEPI’s entire working interest in
its mineral leases subject to that JOA. The text of
that agreement provides, “before the sale to a third
party...of its interest...in the properties affected
by this agreement.” (Emphasis added).
TEPI violated the August 29, 1962 JOA by failing
to offer the entirety of its interest in the property
affected by the JOA to the Fordoche group, yet
thereafter selling the entirety to a third-party
buyer, EnerVest. The April 26, 2000 offer letter
states,
The following facilities are either owned
entirely by TEPI, or if jointly owned, not
subject to any preferential right to purchase.
These facilities will be conveyed to EnerVest.
Additionally, none of the rights of way, pipeline
18
rights of way and surface leases listed on
Schedule B to the Agreement are subject to the
preferential right to purchase. As your
preferential right to purchase does not include
all facilities or any rights of way, should you
elect to exercise your preferential right to
purchase, you will need to enter into a
production handling agreement with EnerVest.
Thereafter, TEPI lists eleven tangible properties
that are excluded from the appellants’ ROFR.
This April 26, 2000 letter indicates that TEPI
was offering to sell the Fordoche group something
less than TEPI’s entire working interest under the
1962 JOA. In fact, the district court in its reasons
for summary judgment and TEPI in its brief in this
court assert that the ROFR in the 1962 JOA only
grants to each party the preferential right to
purchase a departing party’s interest in the unitized
substances. However, the 1962 JOA clearly and
unambiguously provides to the contrary The ROFR
extends to all of each party’s property interests
affected by the JOA; that plainly includes each
party’s undivided interest in the tangible and
19
intangible assets acquired and employed for the
operation of the production unit, as well each
party’s rights as a mineral lessee or owner of
another mineral interest. The ROFR is certainly not
limited to each party’s interest in the unitized
substances according to a plain reading of the 1962
JOA.
The April 26, 2000 letter illustrates that TEPI
offered to appellants an opportunity to exercise
preferential rights on only some of TEPI’s interests
in the properties affected by the August 29, 1962
JOA. In contrast, TEPI offered and sold to EnerVest
the entirety of its interest. This differentiation
directly contravenes the JOA which requires that,
“...Before the sale to a third party by any Operating
Party of its interest, in whole or in part, in the
properties affected by this agreement, the other
Operating Parties shall be given the refusal thereof
at the best price offered in good faith by a third
20
party.” (Emphasis added).
Had TEPI offered its entire working interest to
the appellants and had appellants purchased it, they
would have had the right, under the 1962 JOA, to
elect the successor operator to the vacancy left in
that position by the departure of TEPI, and thereby
to take control of the production unit subject to
that JOA.
B. The Other Three JOAs
The ROFR clauses in the remaining three JOAs
read,
Before the sale of, and their assignment by
any party of all or any part of its interest
in Unitized Substances, the other party or
parties shall be given the preferential right
of the refusal of the purchase of such
interest at the minimum sale price placed
thereon by the party offering such interest
for sale, and any one or more of the parties
desiring to purchase such interest shall have
the preferential right to purchase at said
price....
The parties agree that the unitized substances are
defined in each of the three JOAs as all oil, gas,
21
and other hydrocarbons in and which may be produced
and saved from the specific unit to which the JOAs
apply. In its offer letter, TEPI simply offered the
Appellants the opportunity to exercise their
preferential rights to the property covered in each
of the three similar JOAs for prices stated as
follows:
(a)Those covered in the May 1969 operating
agreement for $10.00;
(b)Those covered in the December 1969 operating
agreement for $10.00;
(c) Those covered in the November 1995
operating
agreement for $1,998,821.00.
TEPI’s letters stated that it would be necessary
for the Appellants to enter into a production
handling agreement with EnerVest if it exercised its
preferential rights because the tangible assets on
premises formerly used for that purpose under all
22
four JOAs were being conveyed in full ownership to
EnerVest.
TEPI argues that it was only required to offer to
the Appellants its interest in the unitized
substances, and that the tangible assets were not
subject to the Appellants’ right of first refusal.
It is true that this language of the three similar
JOAs presents a complication because, rather than
referring to the “properties affected by this
agreement,” these JOAs at first blush appear to
restrict the parties’ preferential rights to the
acquisition of percentages of interests in the
unitized substances. However, when the JOAs are
considered in their entirety, it does not necessarily
follow that TEPI’s argument presents the most
reasonable interpretation of the JOAs.
In any event, each of the three JOAs in which the
ROFR clause refers to “unitized substances” provides
in essence that each party participates in the
23
acquisition of ownership of any tangible property
associated with unit drilling and production
operations by the same percentage as it enjoys in the
minerals produced. For example, Article 3 of the
November 14, 1995 JOA, entitled “Percentage of
Interest," states:
302. The parties shall also own all wells
drilled hereunder, and the property and
equipment acquired hereunder, in the above
proportions, unless specifically provided
otherwise herein.
Thus, the parties not only own and participate in the
production of the minerals in the wells covered by
the JOAs; they also co-own the tangible exploration
and production equipment and property in those same
proportions. The JOAs merely authorize the
leaseholders, under specified circumstances, to
appoint or elect a successor operator to use those
tangible assets. The JOAs do not authorize anyone to
24
divest any party of its co-owned undivided interest
in the tangible assets or to convey that interest to
a third party or the operator. Accordingly, TEPI was
not authorized to sell the entirety of any tangible
asset on the premises covered by the JOAs because all
of the working interest owners held an indivisible
interest in those tangible assets.
Furthermore, as was the case with the August 29,
1962 JOA, each of the other three JOAs sets forth a
method by which a successor operator is to be chosen
by agreement of the parties to the JOA. As indicated
above, TEPI’s purported exclusion of the tangible
assets from its offer to the Fordoche group made
TEPI’s proposition to that group less attractive
than, and unequal to, its sale to EnerVest. This is
because the unqualified sale of the entire working
interest to EnerVest gave it effective ownership and
control of each JOA’s production unit; whereas,
TEPI’s ambiguous offer to the Fordoche group would
25
have allowed them to acquire with certainty only
additional shares of participation in the production
of the unitized substances.
2. The Failure to Specify the Property Being
Offered by TEPI in the April 26, 2000 Offer Letter
Despite our diligent efforts, we find no
documentation in the record showing that TEPI
unambiguously specified the particular property
interest being offered for sale to appellants.
Without such documentation, it is difficult to see
how we could determine that, as a matter of law, TEPI
complied with the contractual ROFRs in the JOAs.
Further, comparison of TEPI’s letters calling on the
Fordoche group to exercise or waive its preferential
rights with other evidence in the record only leads
to the discovery of additional disputed facts that
are material.
TEPI’s April 26, 2000 offer letter manifests its
intent to supplement and clarify its March 1, 2000
26
offer letter that TEPI had discovered was incomplete.
The caption of the April 26 letter refers to
“PRODUCING PROPERTY SALES/Preferential Right to
Purchase/Fordoche Field/ Point Coupee Parish,
Louisiana.” The body of the April 26, 2000 letter
merely does the following: (1) describes each of the
four JOAs; (2) lists the well names and numbers
subject to each JOA; (3) states the 30-day election
period to exercise the ROFR; and (4) lists the
allocated value12 of the unnamed property being
offered.
Further, the April 26, 2000 excludes the tangible
facilities from the offer made to the Fordoche group,
as follows:
[The following property is] either owned
entirely by TEPI, or if jointly owned, not
subject to preferential right to purchase.
These facilities will be conveyed to
EnerVest. Additionally none of the rights of
way, pipeline rights of way and surface
leases listed on Schedule B to the Agreement
are subject to the preferential right to
12
See offer letter, “Allocated value is $1,998,821.00.”
27
purchase. As your preferential right to
purchase does not include all facilities or
any rights-of-way, should you elect to
exercise your preferential right to purchase,
you will need to enter into a production
handling agreement with EnerVest.
The letter then lists tangible property to which the
aforementioned paragraph refers. This provision,
which itself is the subject of a genuine dispute
between the parties, describes property excluded from
the offer letter and does not help to clarify the
exact property interests offered for sale to the
Fordoche group.
The April 26, 2000 letter also refers to “an
extract of the Agreement” to be sent apparently under
separate cover, as follows:
With this clarification, we are re-offering
the preferential rights to purchase as set
out in this letter to you. Additionally we
are resending an extract of the Agreement for
your review as described below. Please
carefully review the Agreement and its
attachments to understand the rights and
obligations you would assume should you
exercise your preferential right to purchase.
These obligations include, but not limited
to: (1) your assumption of the plugging and
28
abandonment liabilities and obligations; (2)
your assumption of environmental obligations
as they are defined in the Agreement; (3) the
requirement to establish an escrow account;
and (4) the requirement to post a Performance
and Payment Bond. Should you exercise your
preferential right to purchase, you will be
required to close the transaction within
thirty (30) days of your election.
This “extract of the Agreement” has not been included
in the record.
The April 26, 2000 letter closes with a request
that each of the Fordoche group elect to exercise or
waive its preferential rights to purchase by signing
the bottom of the letter and marking on a check off
list. The check off forms are no more helpful than
the letter in describing the specific property
interest TEPI offered to sell the Fordoche group.
For example, the check off list for exercising
preferential rights simply provides:
[ ] hereby elects to exercise its
Preferential Right to Purchase the following
interests:
29
_____ 8000 RA SU A
_____ Operating Agreement, dated August 29,
1962 []Unit “K” and Upper Dearing Sands
_____ Long RA SU A
_____ L Sand Unit
This list identifies only the JOAs, the production
units, and sands from which minerals were being
produced.
In sum, we see nothing in the April 26, 2000
offer letter from TEPI to the Fordoche group that
unambiguously describes the legally recognized
property interest offered for sale, such as, for
example, “unitized substances,” “working
interests,”“leasehold interests,” or “mineral
leases.” Furthermore, the record is replete with
evidence that Ronnie J. Theriot, after receiving the
April 26, 2000 letters, was uncertain as to the
property interest offered for sale by TEPI. Mr.
Theriot communicated his concerns over the lack of
30
specific information in the letter via his counsel in
correspondence to TEPI. Mr. Theriot was particularly
concerned by how and by whom the “allocated value for
the interest” had been derived. As he explained in
his deposition, “I had no idea what was being
offered, what was being paid, what the terms or the
conditions were or anything.” Further, he stated,
“...I said, ‘What is it? What is it that’s being
offered? What is it that you’re offering to sell?
What is the price? What’s the terms? What’s the
conditions?...What is the offer? Show me the offer
and I’ll decide whether or not I want to match it.’”
“Additionally, [he stated,] and contrary to the sworn
affidavit of Pam Bikum, I discussed these matters
with her and she could not explain exactly what was
being offered pursuant to the preferential rights.”
This evidence supports the assertion that Fordoche
group was not given specific information regarding
the property interests for sale.
31
Note, however, that there is a factual dispute as
to the truth or falsity of Mr. Theriot’s testimony.
His statements are directly refuted by the affidavit
of Ms. Pamela Bikum, Senior Land Representative for
Chevron TEPI North America Upstream Division,
Deepwater Land Department. She stated, in pertinent
parts, that the appellants “were offered the
opportunity to exercise their preferential rights,
and to thereby purchase, the Unitized Substances
subject to” the four JOAs; and that “[t]o the best of
my recollection, no one from Fordoche [neither Ronnie
Theriot nor Rebecca Theriot] ever called me to ask
any questions about the Offer Letters.” These
statements indicate factual disputes regarding the
clarification of the April 26, 2000 letters; their
existence makes summary judgment inappropriate, as
well.
Without an unambiguous written document in the
record showing that TEPI clearly described the
32
particular property interests for sale in its offer
to the Fordoche group, we cannot conclude as a matter
of law that TEPI complied with the ROFR clauses in
the JOAs. Although TEPI might be able to introduce
other evidence to overcome this deficiency at trial
or in further proceedings in the district court, the
vague, general offer letters it sent to the
plaintiffs do not give it a solid basis upon which to
build.
3.The Failure of TEPI to Offer the “Thing” to
Appellants on the Same Terms as It Sold to EnerVest
As mentioned above, though it is unclear exactly
what type of property interest TEPI offered
appellants the right to purchase, it is clear that it
was less than the entirety of its working interest in
Fordoche Field. Yet, TEPI offered and sold to
EnerVest its full interest in the same. As discussed
above, this constitutes a breach of the 1962 JOA.
Beyond this, however, it may be reasonably inferred
33
that TEPI breached all four JOAs by failing to offer
the same thing for the same price to both the
Fordoches and EnerVest. It is apparent that under
the basic principles of the ROFR, TEPI was obligated
to first offer to appellants the same thing it
offered to EnerVest at the same price.
TEPI sold EnerVest the entirety of its interest
in the Fordoche Field portion of the Gulf Coast
Package for $2,014,861. This exact price was quoted
by TEPI to appellants as the amount they must pay
for a property interest that was substantially less
valuable than the entirety of TEPI’s working
interest. TEPI’s offer of sale to the Fordoche group
excluded:
(1) tangible facilities purportedly owned by TEPI
exclusively or not subject to the preferential
right to purchase, i.e., equipment, structures,
and other tangible interests related to each
unit;
34
(2) rights of way; and
(3) pipeline rights of way.
Therefore, had appellants exercised their
preferential rights, they would have paid for those
limited rights the same amount EnerVest paid in
acquiring unqualified ownership of TEPI’s entire
working interest in the leases subject to the JOAs.
The CEO of EnerVest testified that ten to fifteen
percent of the price allocated to the four JOAs was
attributable to the tangible property associated with
the production units. That leaves only 85 to 90
percent of the allocated price attributable to the
interests offered to the appellants. Plaintiff
Ronnie J. Theriot, echoed this sentiment in his
deposition by stating that the tangible facilities
themselves are “worth millions of dollars.” Thus, it
is undeniable that EnerVest, in its purchase of
TEPI’s interest received what the Fordoche group was
offered (and then some) for a lesser price.
35
Conclusion
As a result of the numerous breaches by TEPI that
a reasonable trier of the facts could infer from this
record, we cannot affirm the grant of summary
judgment by the district court. Thus, the current
record reflects that TEPI may have breached the
August 29, 1962 JOA by excluding certain assets from
its offer to the Fordoche group; by not specifying
the property to which its April 26, 2000 offer letter
applied; and by selling to EnerVest the same thing
offered to the Fordoche group, but at a lower price.
B. TEPI’s Breach of the Obligation of Good Faith
Louisiana’s Civil Code specifically provides that
good faith is an additional requirement to every
obligation and contract. Article 1759, found in
“General Principles of Obligations,” provides, “Good
faith shall govern the conduct of the obligor and
obligee in whatever pertains to the obligation.”
Similarly, Article 1983, found in “Effects of
36
Conventional Obligations,” provides, “...Contracts
must be performed in good faith.” Because Louisiana
law imposes a duty of good faith upon all parties,
explicit reference in a contract to such or lack
thereof is irrelevant.
Good faith is not defined in the Civil Code but
as explained by Professor Saul Litvinoff,
...as understood in modern law, good faith
binds the parties to a contract to cooperate
with each other in order to attain the mutual
end for which they entered into the
agreement. In that perspective, an obligee
who, without justification, prevents the
obligor’s performance, or conceals from the
obligor facts that, to the obligee’s
knowledge, would cause the obligor to fail to
perform, or even facts that would make the
latter’s performance exceedingly difficult,
thereby refuses the cooperation he owes the
obligor...13
Within the record, there are several implications
of TEPI’s bad faith, i.e., evidence that leads to the
inference that TEPI did not cooperate with the
Fordoche group to attain the mutual end for which
13
6 Saul Litvinoff, Louisiana Civil Law Treatise Part II,
§ 5.32 (2d ed. 2001).
37
they entered into the ROFRs. These implications can
be categorized in two ways: (a) with regard to the
price offered, both the source of it and its increase
between March 1, 2000 and April 26, 2000; and (b)
with regard to misrepresentations made by TEPI to the
appellants, including its claims of full ownership of
the surface rights and tangible property and also its
statements addressing the functionality of certain
wells. This conduct by TEPI inferentially breaches
the good faith obligation imposed by the Louisiana
Civil Code.
1. The Price
Appellants assert the source of the price for
which TEPI offered to sell them was simply EnerVest’s
extrapolation from the total package sale price. By
doing so, Fordoche asserts that TEPI falsely inflated
the price quoted to the Fordoche group, arguably
spurred by its motivations to discourage Fordoches’
acceptance of that offer. Furthermore, TEPI
38
increased the offer price from $1,998,811 on March 1,
2000, to $2,014,861 on April 26, 2000.
2. Misrepresentations
Appellants additionally argue that TEPI made
misrepresentations to them, which led to a sense of
distrust on their part. First, TEPI represented that
it was the sole owner of surface use rights, tangible
equipment, structures, and property formerly used
under the JOAs. This is evidenced by the April 26,
2000 offer letter in which TEPI specified that “[t]he
following facilities are either owned entirely by
TEPI, of if jointly owned, not subject to any
preferential right to purchase. These facilities
will be conveyed to EnerVest.” TEPI transferred
property over which it did not have full ownership to
EnerVest. Under the JOAs, certain property
associated with the production units was, in essence,
co-owned by all the parties to the JOA. Mr. Theriot
stated, “it [the offer letter] specifically says I do
39
not [have any ownership interest in any of the
facilities].” TEPI had no legal right to transfer
that property without the concurrence of the other
co-owners. Inferentially, by misrepresenting its
legal rights, TEPI acted in bad faith.
Second, TEPI’s offer letter indicated certain
wells were no longer functional when, in fact,
evidence in the record indicates that they were.
TEPI noted in the April 26, 2000 offer letter that
the wells in question, “have been depleted and
inactive for some time.” However, Mr. Theriot’s
affidavit provides, “[a]fter the sale, EnerVest, in
fact, operated several of these ‘depleted’ wells and
produced substantial oil and/or gas.”
Taken together, the conduct of TEPI regarding the
price of the property as well as the
misrepresentations it made to the Fordoche group lead
us to infer that there is a genuine dispute as to
whether TEPI violated its obligation of good faith.
40
Conclusion
The district court granted summary judgment
dismissing Fordoche group’s claims with prejudice.
But as explained, genuine issues for trial exist
regarding whether TEPI honored the requirements of
the four ROFRs in the JOAs at issue in this case. On
the present record, we cannot conclude as a matter of
law that TEPI performed its obligations in good faith
under the ROFR clauses in the JOAs. Accordingly, the
district court’s grant of summary judgment in favor
of TEPI is REVERSED and this case is REMANDED to the
district court for further proceedings not
inconsistent with this opinion.
REVERSED and REMANDED.
41