Samson Lone Star Limited Partnership, N/K/A Samson Lone Star, L.L.C. v. Charles G. Hooks, III, Individually and as Independent of the Estate of Charles G. Hooks, Jr., as Trustee of the Scott Ira McKeever Trust and the David Wayne McKeever Trust, and on Behalf of Chas. G. Hooks & Son, a General Partnership , 2016 Tex. App. LEXIS 2661 ( 2016 )

Opinion issued March 15, 2016
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-09-00328-CV
———————————
SAMSON LONE STAR LIMITED PARTNERSHIP, N/K/A SAMSON LONE
STAR, L.L.C., Appellant/Cross-Appellee
V.
CHARLES G. HOOKS, III, INDIVIDUALLY AND AS INDEPENDENT
EXECUTOR OF THE ESTATE OF CHARLES G. HOOKS, JR., AS
TRUSTEE OF THE SCOTT IRA MCKEEVER TRUST AND THE DAVID
WAYNE MCKEEVER TRUST, AND ON BEHALF OF CHAS. G. HOOKS
& SON, A GENERAL PARTNERSHIP, MCKEEVER PARTNERSHIP,
LTD., AND CHARLES G. HOOKS III AND SUE ANN HOOKS, AS CO-
TRUSTEES UNDER THE WILL OF CHARLES G. HOOKS, SR.,
Appellees/Cross-Appellants
On Appeal from the 60th District Court
Jefferson County, Texas
Trial Court Case No. B173008B
OPINION
Samson Lone Star Limited Partnership, n/k/a Samson Lone Star, L.L.C.
(“Samson”), originally appealed the trial court’s final judgment in favor of
appellees, Charles G. Hooks, III, Individually and as Independent Executor of the
Estate of Charles G. Hooks, Jr., as Trustee of the Scott Ira McKeever Trust and the
David Wayne McKeever Trust, and on Behalf of Chas. G. Hooks & Son, a General
Partnership, McKeever Partnership, Ltd., and Charles G. Hooks III and Sue Ann
Hooks, as Co-Trustees Under the Will of Charles G. Hooks, Sr. (collectively,
“Hooks”). The judgment arose from an oil and gas case Hooks filed against
Samson with respect to three oil and gas leases, two in Hardin County, Texas and
one in Jefferson County. Hooks asserted multiple causes of action against Samson,
including breach of contract, fraud, fraudulent concealment, statutory fraud, and
negligent misrepresentation. The trial court granted summary judgment in favor of
Samson on Hooks’ claim that Samson breached certain offset obligations under the
leases, and it granted summary judgment in favor of Hooks on his claim that
Samson breached the “most favored nations” clause in the leases and breached the
leases related to the “unpooling” of Hooks’ two leases in Hardin County. The
issues of fraud and underpayment of royalties on “formation production” were
tried to a jury, which found in Hooks’ favor. The trial court’s final judgment
2
awarded Hooks more than $21 million in damages based on the summary
judgment rulings and the jury’s verdict.
On appeal, this Court reversed the judgment in favor of Hooks except for an
agreed ad valorem tax payment. See Samson Lone Star, Ltd. P’ship v. Hooks, 389
S.W.3d 409, 439 (Tex. App.—Houston [1st Dist.] 2012), aff’d in part and rev’d in
part, 457 S.W.3d 52 (Tex. 2015). The Texas Supreme Court reversed our holding
that the fraud claims and breach of offset obligations under the Hardin County
Leases were barred by limitations and our holding that Samson had not breached
the most-favored-nations clause. Hooks v. Samson Lone Star, Ltd. P’ship, 457
S.W.3d 52, 61, 63, 69 (Tex. 2015). It affirmed in part and reversed in part our
determination of the applicable post-judgment interest rate, and it affirmed our
holdings on the formation-production and unpooling claims. Id. at 65–66, 70. It
remanded the case to this Court for us to consider the factual sufficiency of the
jury’s fraud limitations findings, the legal and factual sufficiency of the jury’s
findings on Hooks’ fraud claims, the damages for Hooks’ claim that Samson
breached the most-favored-nations clause, and the merits of Hooks’ claim that
Samson breached its offset obligations under his leases in Hardin County.
On remand, Samson argues that: (1) & (2) the evidence was legally and
factually insufficient to support the jury’s verdict on Hooks’ common law and
statutory fraud claims; (3) the evidence was legally and factually insufficient to
3
support the damages awarded on Hooks’ fraud claims, which requires a remand
“for a reduction and recalculation of the fraud damages, including attendant
prejudgment and post-judgment interest issues”; (4) the evidence was factually
insufficient to support the jury’s finding on limitations for the fraud claim; and
(5) we must recalculate the damages owed to Hooks’ based on his most-favored-
nations claim, including the applicable rate of prejudgment interest.
In a single cross issue, Hooks challenges the trial court’s denial of its motion
for summary judgment on his claims that Samson breached certain offset
obligations with respect to the Hardin County Leases.
We reverse the trial court’s judgment and remand for a new trial, unless
Hooks accepts the remittitur we suggest below, in which case we will modify the
judgment and affirm as modified.
I. SAMSON’S APPEAL ON REMAND
Background
A. Hooks’ Fraud Claim Relating to the Jefferson County Lease
In 1999, Hooks entered into an oil and gas lease with Samson covering 640
acres Hooks owns in Jefferson County (the “Jefferson County Lease”). Hooks also
entered into two oil and gas leases with Samson covering tracts in Hardin
County—a 95-acre tract and a 10-acre tract (the “Hardin County Leases”). All
three leases, including the Jefferson County Lease, contained a section called
4
“Offset Obligations,” in which Samson covenanted to operate the leased premises
as a reasonably prudent operator would and to protect the leased premises from
drainage. The offset obligation provision specifically provided that if a gas well
were completed within 1,320 feet from the leased premises, then, within 90 days
from the date of the sale of first production from that well, Samson must take one
of three actions: (1) commence with due diligence operations for the actual drilling
of an offset well; (2) pay Hooks “compensatory royalties”—in addition to any
royalties currently due—in a sum equal to the royalties that would be payable
under the Lease on the production from the adjacent or nearby producing well as if
it had been producing on the leased premises; or (3) release the offset acreage. The
Jefferson County Lease did not provide for pooling.
The Lease also contained a provision providing for a “late charge” for
unpaid royalties:
All past due royalties (including any compensatory royalties payable
under [the offset obligations provision]) shall be subject to a Late
Charge based on the amount due and calculated at the maximum rate
allowed by law commencing on the day after the last day on which
such monthly royalty payment could have been timely made and for
each calendar month and/or fraction thereof from the date until paid,
plus attorney’s fees, court costs, and other costs in connection with the
collection of the unpaid amounts. Any Late Charge that may become
applicable shall be due and payable on the last day of each month
when this provision becomes applicable.
5
Hooks’ Leases contained a “most favored nations” clause providing that, under
certain circumstances, the royalties payable to Hooks must be elevated to match
the highest royalty payable to Samson’s other lessors.
In March 2000, a third-party surveyor created a plat for a proposed gas well,
the Black Stone Minerals No. 1 (“BSM 1 well”), on a tract adjacent to the
Jefferson County Lease. This plat showed that the surface drillsite was outside the
1,320-foot buffer zone around Hooks’ Jefferson County Lease that triggered
Samson’s offset obligations under the Lease. However, the well was a directional
well that slanted away from the surface drillsite, and the plat showed that Samson
planned for a bottom hole location 1,080 feet from Hooks’ Jefferson County Lease.
Samson filed the March 2000 plat with the Railroad Commission of Texas.
In April 2000, Samson began to drill the BSM 1 well. A directional survey,
completed in July 2000 and also filed with the Railroad Commission, showed that
the BSM 1 well bottomed 1,184 feet from Hooks’ Jefferson County Lease, within
the 1,320-foot buffer zone. Samson completed the BSM 1 well in August 2000,
and the first gas sales occurred in late October 2000.
Samson then began the process of reconfiguring the BSM 1 pooling unit. A
new plat, dated November 16, 2000, incorrectly placed the well’s bottom hole at
“±1400′ scaled” from the border of Hooks’ Jefferson County Lease. In December
2000, Samson filed a copy of this plat with the Railroad Commission as part of an
6
application to pool. As the supreme court pointed out, the plat was signed by
Samson’s landman, Glenn Lanoue, who certified that it was “a true and correct plat
based on the best of my knowledge.” See Hooks, 457 S.W.3d at 59–60.
At trial, Lanoue testified regarding the creation of that plat. He did not give
the surveyor the information from the directional survey showing the exact
location of the BSM 1 well bottom hole. Rather, he sent the surveyor information
indicating that the bottom hole of the BSM 1 well was “740 feet from the east line
and 290 feet from the south line,” which resulted in the notation on the plat that the
bottom hole was “±1400′ scaled” from the Jefferson County Lease. He testified at
trial that he created these notations himself. He further testified that he intended the
numbers to be “[a]s accurate as a land guy is using a ruler on a scaled piece of
paper that might not even be to scale.”
On February 15, 2001, Samson sent Hooks a letter offering to pool 50 acres
covered by the Jefferson County Lease into the re-designated BSM 1 pooling unit.
Attached to the letter was a copy of the plat of the reconfigured unit that Samson
had filed with the Railroad Commission in December 2000.
On February 20, 2001, before accepting Samson’s offer to pool—which
would require amendment of Hooks’ Jefferson County Lease to permit pooling—
Charles Hooks, a landowner and an attorney who had participated in a number of
oil and gas deals and who managed his family’s oil and gas interests, called
7
Lanoue and sought more information. Charles Hooks inquired about the BSM 1
well’s location and about how his property fit into the proposed pooling unit.
Lanoue told him that the well was about 1,500 feet away from the boundary line of
Hooks’ Jefferson County Lease.
Hooks requested a plat showing where his acreage would lie within the
proposed reconfigured BSM 1 unit. That same day, Lanoue sent Hooks the scaled
plat of the re-designated BSM 1 pooling unit that Samson had filed with the
Railroad Commission in December 2000. This plat did not use the exact location
of the BSM 1 well’s bottom hole as determined by the directional survey
completed in July 2000, but showed that it was “1,400′± FEL Unit,” or
approximately 1,400 feet from the eastern line of the BSM unit. The coordinates
for the bottom hole location placed the well outside the Jefferson County Lease’s
buffer zone.
Hooks testified that he understood the plat to show the bottom hole location
as falling outside the buffer zone for his lease, which he believed confirmed
Lanoue’s representation during their phone call that the bottom hole of the well fell
about 1,500 feet beyond the Jefferson County Lease line. Likewise, Paul Beale, a
geophysicist and vice-president for Samson, agreed that the plat Lanoue sent to
Hooks showed that the well fell outside the buffer zone. Brian Sullivan, one of
Samson’s own expert witnesses, examined the plat Samson had provided to Hooks
8
and testified that, assuming the accuracy of the notation that the bottom hole of the
BSM 1 well was “740 feet” from the east line of the unit, the plat showed that the
scaled distance between the BSM 1 bottom hole and Hooks’ lease was
approximately 1,480 feet. And Nedra Foster, Hooks’ survey expert, testified that
the plat was “fairly clear” that the bottom hole was “about, plus or minus, 1,400
feet” from Hooks’ lease line.
After making the pooling offer to Hooks, Lanoue executed the designation
of the BSM 1 pooling unit in February 2001 and recorded it in the county’s real
property records on March 7, 2001, showing Hooks as participating in the pool for
the BSM 1 unit. However, Hooks did not actually consent to pool the fifty acres
from his Jefferson County Lease into the BSM 1 unit until May 25, 2001, and he
conditioned his assent on a formal amendment to the Jefferson County Lease
which he was to prepare and submit to Samson. Hooks did not submit the formal
amendment, however, and the parties never executed such an amendment. Instead,
Hooks agreed to a division order setting out his percentage of the unit’s proceeds,
which stated that Samson would pay Hooks royalties based on a stated percentage
of his acreage in the unit to the entire acreage of the BSM 1 unit unless notified
otherwise in writing.
After Hooks agreed to be included in the BSM 1 unit, Samson sent royalty
checks to Hooks for his unit interest continuing through the time of trial, and
9
Hooks cashed those checks. However, the royalty checks did not include
compensatory royalties calculated under the terms of the offset provision in the
Jefferson County Lease for a well drilled within the 1,320-foot buffer zone. Hooks
asserts that the amount of royalty under the pooling agreement was approximately
one-fourteenth of what he would have received under his contractual right to
compensatory royalties.
After Hooks agreed to pool fifty acres of his Jefferson County Lease into the
BSM 1 unit, Samson drilled a second well, the Joyce DuJay No. 1 well (“DuJay 1
well”), within the 1,320-foot buffer zone of Hooks’ Jefferson County Lease. That
well was completed in January 2002 and was made part of another pooling unit,
the DuJay 1 unit, in which Hooks also participated and from which he received
royalties. This well was offset by the BSM 1 unit. Hooks testified that no one at
Samson made any fraudulent statements to him specifically regarding the DuJay 1
unit. However, Hooks’ damages expert, Charles Graham, testified that Samson’s
fraud in procuring Hooks’ agreement to pool his lease into the BSM 1 unit led
Hooks to believe that the offset obligations as to the DuJay 1 well were met by the
BSM 1 well.
B. Procedural History
In the fall of 2006, Charles Hooks attended a seminar for oil and gas
attorneys and met another attorney who was representing some third-party lessors
10
in a lawsuit against Samson based on complaints of pooling issues unrelated to the
BSM 1 well. On November 16, 2006, Hooks joined that lawsuit, but his claims
were later severed into this separate cause of action. Hooks originally asserted
causes of action for breach of contract and common law and statutory negligence.
After obtaining discovery that revealed the misleading nature of the information he
received from Samson prior to consenting to pool a portion of his Jefferson County
Lease into the BSM 1 unit, Hooks amended his suit in May 2007 to add his fraud
claims.
The trial court rendered partial summary judgment on some of Hooks’
claims. Relevant to our consideration of this case on remand, the trial court
rendered summary judgment in Hooks’ favor on his claim that Samson breached
the most-favored-nations clause.
Hooks presented expert testimony and documents supporting his claim for
damages, including evidence of what the compensatory royalties would have been
for both the BSM 1 and DuJay 1 wells had he not been fraudulently induced into
pooling rather than enforcing the offset obligations in the Jefferson County Lease.
The expert evidence demonstrated that the unpaid compensatory royalties for
production from the BSM 1 well totaled $3,553,200.15; the unpaid compensatory
royalties for production from the DuJay 1 well totaled $3,112,015.22; the unpaid
11
royalty on “formation production”1 from the BSM 1 well totaled $504,368.64; the
unpaid royalty on formation production from the DuJay 1 well totaled
$426,550.01; the amounts due under the Lease’s late charge provision totaled
$12,995,832.05; and the credit to Samson for royalties it had already paid under
the fraudulent pooling agreement totaled $510,328.01.
Regarding the jury charge, Samson objected to a portion of the charge on
fraud. It specifically objected to the inclusion of the statement, “You are instructed
that when a party makes a representation and later acquires new information which
makes the representation untrue or misleading, the party must disclose such
information to anyone whom he knows to be still acting on the basis of the original
statement.” However, it did not object to the remainder of the fraud question
setting out the elements of fraud, defining “misrepresentation” as meaning “a false
statement of fact,” and providing an instruction that fraud can also occur when a
party fails to disclose a material fact under certain circumstances. The trial court
overruled Samson’s objection.
1
Formation Production is the calculation of the total amount of natural gas taken
from a gas reservoir in whatever form it arrives at the surface, whether in the form
of gas or in the form of liquid condensate. Formation production calculations
allow the Railroad Commission to track the amount of gas coming out of the
ground to avoid overproduction. Samson Lone Star, Ltd. P’ship, 389 S.W.3d 409,
436 (Tex. App.—Houston [1st Dist.] 2012), aff’d in part and rev’d in part, 457
S.W.3d 52 (Tex. 2015).
12
Samson also objected to the instruction on damages. It argued that allowing
the jury to consider “lost income to the Hooks that was a natural, probable, and
foreseeable consequence of Samson’s fraud” was not the proper measure of
damages. It argued that the “[p]roper measure of damages in a fraud case is what
you gave up versus what you received.” Samson asserted that the alleged fraud
induced Hooks to give up “his right to sue Samson in February of 2001 for breach
of contract, which means the measure of damages is what was the value of that
breach of contract lawsuit that he gave up in February versus what he actually
ended up receiving.” Hooks argued that the instruction properly addressed
proximate cause for consequential damages. The trial court denied Samson’s
objection.
Hooks and Samson agreed to certain stipulations that were entered into the
trial court’s record. Regarding damages, the parties stipulated to the amount of
damages for “[u]npaid royalty on production through May 2008, plus late charges
as of August 1, 2008,” for the various wells and units both including and not
including Hooks’ claims for royalties based on formation production. They
stipulated to $212,825.25 in lost royalties and $218,625.46 in late charges for the
DuJay 1 well and unit. The parties also entered into a stipulation regarding
attorney’s fees.
13
The jury found that Samson committed fraud against Hooks. It further found
that the sum of money that would fairly and reasonably compensate Hooks for the
damages proximately caused by such fraud was $20,081,638.07. Finally, the jury
found that Hooks, in the exercise of reasonable diligence, should have discovered
Samson’s fraud by “Hooks’ Birthday April 2007.”2
Pursuant to the jury’s findings, the trial court’s summary judgment ruling on
Hooks’ claim for breach of the most-favored-nations clause, and the stipulations of
the parties, the trial court rendered judgment in favor of Hooks, awarding
$20,081,638.07 for damages proximately caused by fraud, $848,854.01 as damages
for breach of the most-favored-nations clause, and damages related to ad valorem
taxes in the amount of $52,257.22.3 The trial court also awarded Hooks attorney’s
fees consistent with the parties’ stipulation on that issue, and it awarded expert
witness fees, costs for copies of depositions, pre-judgment interest, and post-
judgment interest at a rate of 18% compounded annually.
Fraud
Samson challenges the sufficiency of the evidence of the jury’s findings
relating to Hooks’ fraud claims.
2
Hooks’ birthday is not in April, but this is what the jury answered.
3
The trial court also awarded Hooks $766,626.85 as damages for his “unpooling”
claim related to yet another well, the Black Stone Minerals A-1 well. We reversed
this portion of the trial court’s judgment, and the supreme court affirmed our
judgment on this issue.
14
A. Standard of Review
In reviewing a legal sufficiency challenge to the evidence, we view the
evidence in the light most favorable to the finding, crediting favorable evidence if
a reasonable factfinder could, and disregarding contrary evidence unless a
reasonable factfinder could not. City of Keller v. Wilson, 168 S.W.3d 802, 827
(Tex. 2005). A party bringing a legal sufficiency challenge to a finding on which it
did not have the burden of proof must demonstrate that there is no evidence to
support the adverse finding. See Exxon Corp. v. Emerald Oil & Gas Co., 348
S.W.3d 194, 215 (Tex. 2011). We may not sustain a legal sufficiency or no-
evidence point unless the record demonstrates that: (1) there is a complete absence
of evidence of a vital fact; (2) the court is barred by the rules of law or of evidence
from giving weight to the only evidence offered to prove a vital fact; (3) the
evidence to prove a vital fact is no more than a scintilla; or (4) the evidence
established conclusively the opposite of the vital fact. City of Keller, 168 S.W.3d at
810. The factfinder is the sole judge of the witnesses’ credibility and the weight to
give their testimony. Id. at 819.
In reviewing the factual sufficiency of the evidence, we are required to
examine all of the evidence, and we will set aside the judgment only if it is so
contrary to the overwhelming weight of the evidence as to be clearly wrong and
unjust. Cain v. Bain, 709 S.W.2d 175, 176 (Tex. 1986). Unlike a legal-sufficiency
15
review, a factual-sufficiency review requires that we review the evidence in a
neutral light. Id.; Nelson v. Najm, 127 S.W.3d 170, 174 (Tex. App.—Houston [1st
Dist.] 2003, pet. denied). The factfinder may choose to “believe one witness and
disbelieve others” and “may resolve inconsistencies in the testimony of any
witness.” McGalliard v. Kuhlmann, 722 S.W.2d 694, 697 (Tex. 1986); see also
City of Keller, 168 S.W.3d at 819–21.
B. Statute of Limitations for Fraud
Samson challenges the factual sufficiency of the evidence supporting the
jury’s finding that, exercising reasonable diligence, Hooks could not have
discovered his fraud claim until April 2007. The supreme court determined that the
question of when Hooks could have discovered Samson’s fraud was properly a
question of fact for the jury and that the evidence was legally sufficient to support
the jury’s finding that Hooks could not have discovered Samson’s fraud until April
2007. See Hooks, 457 S.W.3d at 61. It remanded the issue for us to consider the
factual sufficiency of the evidence supporting the jury’s finding. See id. Samson
now argues that Hooks’ testimony stated only when he discovered the claim and
that he did not testify as to “why, in the exercise of reasonable diligence (as an
experienced oil and gas attorney and mineral owner), he could not have discovered
his claim earlier.”
16
As a general rule, a cause of action accrues and the limitations period begins
to run when facts come into existence that authorize a party to seek a judicial
remedy. Exxon Corp., 348 S.W.3d at 202. Generally, the limitations period for a
fraud claim is four years. TEX. CIV. PRAC. & REM. CODE ANN. § 16.004 (Vernon
2002). However, under certain circumstances, limitations will not begin to run
until the plaintiff “knew or should have known of facts that in the exercise of
reasonable diligence would have led to the discovery of the wrongful act.” Exxon
Corp., 348 S.W.3d at 216; see also Hooks, 457 S.W.3d at 56–57 (discussing
discovery rule in relation to this case). Here, the supreme court held that “[b]ecause
‘fraud vitiates whatever it touches,’ limitations does not start to run until the fraud
is discovered or the exercise of reasonable diligence would discover it.” Hooks,
457 S.W.3d at 57 (quoting Borderlon v. Peck, 661 S.W.2d 907, 909 (Tex. 1983)
and citing BP Am. Prod. Co. v. Marshall, 342 S.W.3d 59, 69 (Tex. 2011)).
The supreme court further held “that when the defendant’s fraudulent
misrepresentations extend to the Railroad Commission record itself, earlier
inconsistent filings cannot be used to establish, as a matter of law, that reasonable
diligence was not exercised. Under these circumstances, reasonable diligence
remains a fact question.” Hooks, 457 S.W.3d at 61. The supreme court went on to
state that “[t]he factfinder, no doubt, may consider [Hooks’] failure to examine
older records when determining whether reasonable diligence was exercised, but
17
their availability is not enough to establish that reasonable diligence was not
exercised as a matter of law.” Id. Accordingly, because the supreme court
remanded for us to consider the factual sufficiency of the evidence supporting the
jury’s finding, we are required to examine all of the evidence in a neutral light, and
we will set aside the jury’s verdict only if it is so contrary to the overwhelming
weight of the evidence as to be clearly wrong and unjust. See Cain, 709 S.W.2d at
176.
The evidence at trial showed that the public records themselves were
inconsistent. Samson originally filed the March 2000 plat with the Railroad
Commission showing the proposed location of the BSM 1 well. It showed that
Samson planned for a bottom hole location 1,080 feet from Hooks’ Jefferson
County Lease. Samson also filed a directional survey, completed in July 2000,
showing that the BSM 1 well bottomed 1,184 feet from Hooks’ Jefferson County
Lease, within the 1,320-foot buffer zone. However, Samson subsequently filed a
new plat, dated November 16, 2000, that incorrectly placed the well’s bottom hole
at “±1400′ scaled” from the border of Hooks’ Jefferson County Lease. This is the
same plat that Samson sent to Hooks to procure his consent to pool a portion of his
lease into the BSM 1 unit.
Although Hooks did not testify explicitly regarding why he did not discover
the fraud claim earlier, he did testify that he inquired with Samson, by speaking
18
with Glenn Lanoue, about the exact location of the well and his Lease’s location
within the BSM 1 pooling unit because he wanted to know whether the well drilled
close to his lease line might trigger the offset obligations. He also testified that he
requested a plat to confirm Lanoue’s representation that the well’s bottom hole was
located 1,500 feet from his Lease. The information that Samson gave him did not
convey the exact location of the well’s bottom hole as established by the
directional survey, but instead identified the location of the well’s bottom hole as
“±1400′ scaled” from the border of Hooks’ Jefferson County Lease. Hooks
testified that he understood this notation to confirm Lanoue’s representation over
the phone that the well fell outside the buffer zone for his Jefferson County Lease,
and he relied upon those representations. Although some experts acknowledged
that the “±” notion implied that there could be as much as a 100-foot margin on the
measurements, others—including Beale, Samson’s vice president, and Foster,
Hooks’ survey expert—testified that the plat showed that the well’s bottom hole
fell outside the buffer zone, consistent with Hooks’ own interpretation.
Hooks testified that he was an attorney and had extensive experience with
the oil and gas industry. He further testified that he did not become aware of larger
problems with his lease until he attended the oil and gas conference in Fall 2006
and learned of litigation pending against Samson. During the course of litigation,
Samson produced documents through discovery that revealed the actual location of
19
the BSM 1 well’s bottom hole and Samson’s use of misleading plats to obtain his
consent to pool.
In light of this conflicting evidence, the jury had the discretion to resolve the
conflicts by determining that Hooks had exercised reasonable diligence in
requesting information from Samson and that the existence of relevant information
buried within conflicting public records did not sufficiently put him on notice of
his fraud claims prior to April 2007. See Exxon Corp., 348 S.W.3d at 216; see also
Hooks, 457 S.W.3d at 56–57.
We overrule Samson’s challenge to the factual sufficiency of the evidence
supporting the jury’s finding that Hooks, in the exercise of reasonable diligence,
would not have necessarily discovered his fraud claim prior to April 2007.
C. Fraud Claims
Samson challenges the legal and factual sufficiency of Hooks’ common-law
and statutory fraud claims.
To prevail on a fraud claim, the plaintiff must prove that the defendant
(1) made a material misrepresentation, (2) knew the representation was false or
made it recklessly without any knowledge of its truth, (3) intended that the plaintiff
would act upon the representation or intended to induce the plaintiff’s reliance on
the representation, and that (4) the plaintiff justifiably relied upon the
representation and thereby suffered injury. Exxon Corp., 348 S.W.3d at 217. To
20
prove fraudulent inducement, these same elements of fraud must be established as
they relate to a contract. Coastal Bank SSB v. Chase Bank of Tex., N.A., 135
S.W.3d 840, 843 (Tex. App.—Houston [1st Dist.] 2004, no pet.).
1. Material Misrepresentation
First, Samson argues that the evidence was insufficient to show that it made
an actionable misrepresentation. Samson argues that “[t]he plat was marked
‘scaled,’ meaning it was inexact and the distance upon which [Hooks] testified he
relied said ‘1400′± Scaled.’” It asserts that this notation was “too indefinite to form
the basis of a misrepresentation when someone is attempting to determine whether
a well is 1320 feet from a lease line.”
A material representation is one which “a reasonable person would attach
importance to and would be induced to act on . . . in determining his choice of
actions in the transaction in question.” Italian Cowboy Partners, Ltd. v. Prudential
Ins. Co. of Am., 341 S.W.3d 323, 337 (Tex. 2011) (quoting Smith v. KNC Optical,
Inc., 296 S.W.3d 807, 812 (Tex. App.—Dallas 2009, no pet.)). However, “[v]ague
representations cannot constitute a material representation actionable under our
laws.” Cadle Co. v. Davis, No. 04-09-00763-CV, 2010 WL 5545389, at *8 (Tex.
App.—San Antonio Dec. 29, 2010, pet. denied) (mem. op.) (citing In re Media
Arts Grp., Inc., 116 S.W.3d 900, 910 (Tex. App.—Houston [14th Dist.] 2003, orig.
proceeding [man. denied]) (statement “don’t worry about it” was too vague to
21
constitute material misrepresentation in claim of fraudulent inducement); Bank
One, Tex., N.A. v. Little, 978 S.W.2d 272, 280 (Tex. App.—Fort Worth 1998, pet.
denied) (imprecise or vague representation constitutes mere opinion and is not
actionable misrepresentation under DTPA); Hedley Feedlot, Inc., v. Weatherly
Trust, 855 S.W.2d 826, 839 (Tex. App.—Amarillo 1993, writ denied) (imprecise
statement not actionable misrepresentation under DTPA)).
Hooks testified that, before agreeing to pool a portion of his lease into the
BSM 1 unit, he contacted Lanoue to inquire about the BMS 1 well’s location and
about how his property fit into the unit. During their phone conversation, Lanoue
represented that the BSM 1 well was located 1,500 feet from the boundary of
Hooks’ lease. Lanoue subsequently sent Hooks a copy of the plat that Samson had
filed with the Railroad Commission in December 2000 to confirm his
representation regarding the well’s location. This plat did not use the exact location
of the BSM 1 well’s bottom hole as determined by the directional survey
completed in July 2000, but instead showed that it was “1,400′± FEL Unit,” or
approximately 1400 feet from the eastern line of the BSM unit. The coordinates for
the bottom hole location placed the well outside the Jefferson County Lease’s
1,320-foot buffer zone. Hooks testified that he understood the plat sent to him by
Lanoue to show that the bottom hole’s location fell outside the buffer zone for his
lease, which he believed confirmed Lanoue’s representation during their phone call
22
that the bottom hole of the well fell about 1,500 feet beyond the Jefferson County
Lease line.
Although Lanoue’s representation over the phone and the notations on the
plat regarding the location of the well were not precise, neither were they such
vague or imprecise representations that they cannot constitute a material
representation for fraud purposes. See Cadle Co., 2010 WL 5545389, at *8; In re
Media Arts Group, Inc., 116 S.W.3d at 910. This is especially true here, where the
exact location of the well was highly relevant to Hooks’ decision regarding pooling
and both parties were aware of the circumstances that made the location of the
well’s bottom hole material, such that Samson should have known that Hooks
would rely on its information. In representing the location of the BSM 1 well’s
bottom hole, Samson—as the party with superior access to the relevant
information—provided an answer to Hooks’ inquiry’s regarding the location of the
well and his lease’s location within the proposed pooling unit by supplying
inaccurate or imprecise information even though it had a survey showing the exact
location of the well’s bottom hole. Hooks testified that he relied on the answer to
this inquiry when he agreed to pool fifty acres of his Jefferson County Lease into
the BSM 1 unit at Samson’s request. See Italian Cowboy, 341 S.W.3d at 337
(stating that material representation is one which “a reasonable person would
attach importance to and would be induced to act on”).
23
We conclude that the record contains legally sufficient evidence of an
actionable, material misrepresentation. See Italian Cowboy, 341 S.W.3d at 337;
City of Keller, 168 S.W.3d at 827.
Samson points out that witnesses acknowledged that there could be as much
as a 100 foot “tolerance.” However, other witnesses, including Hooks—an attorney
with extensive experience managing oil and gas deals—Hooks’ survey expert,
Foster, and Beale, Samson’s vice-president, testified that the plat demonstrated that
the BSM 1 well was located outside the buffer zone. The jury was the exclusive
judge of the credibility of these witnesses and the weight to be given to their
testimony, and it was entitled to “believe one witness and disbelieve others” and
“resolve conflicts” in the evidence. See City of Keller, 168 S.W.3d at 819–21;
McGalliard, 722 S.W.2d at 697. Thus, we conclude that the evidence was likewise
factually sufficient to demonstrate the existence of a material misrepresentation.
2. Intent to Induce Reliance
Samson also argues that there is no evidence it had any intent to defraud
Hooks when it supplied the plat. In Texas’s fraud jurisprudence, courts considering
the intent element focus on the defendant’s knowledge and intent to induce
reliance. Ernst & Young, L.L.P. v. Pac. Mut. Life Ins. Co., 51 S.W.3d 573, 578
(Tex. 2001). A defendant who acts with knowledge that a result will follow is
considered to intend the result. Id. at 579. A party’s intent is determined at the time
24
that it makes the complained-of representation; however, intent may be inferred
from the party’s acts made after the representation. Aquaplex Inc. v. Rancho La
Valencia, Inc., 297 S.W.3d 768, 775 (Tex. 2009). “[I]ntent to defraud is not usually
susceptible to direct proof.” Id. at 774–75. Thus, intent to defraud, or intent to
induce reliance, most often must be proven by circumstantial evidence. Spoljaric v.
Percival Tours, Inc., 708 S.W.2d 432, 435 (Tex. 1986). “Intent is a fact question
uniquely within the realm of the trier of fact because it so depends upon the
credibility of the witnesses and the weight to be given to their testimony.” Id. at
434.
In response to Samson’s request that he pool a portion of his Jefferson
County Lease into the BSM 1 unit, Hooks made inquiries regarding the location of
the BSM 1 well and his Lease’s location within the unit. At the time of this
inquiry, Samson had already received the results of the directional survey showing
the exact location of the BSM 1 well’s bottom hole to be 1,184 feet from Hooks’
Jefferson County Lease, within the buffer zone. And it had filed a plate with this
information with the Railroad Commission. Nevertheless, Lanoue told Hooks over
the phone that the well was 1,500 feet away from his lease line, which was outside
the buffer zone, and Samson sent Hooks a plat showing that the well’s bottom hole
was “1400′±” from Hooks’ lease line, which was likewise outside the buffer zone.
After making the pooling offer to Hooks, but before Hooks agreed to pool, Lanoue
25
executed the designation of the BSM 1 pooling unit in February 2001 and recorded
it in the county’s real property records on March 7, 2001, showing Hooks as
participating in the pool for the BSM 1 unit.
The timing of these actions—that Samson used an inaccurate and misleading
plat when it already knew the exact location of the bottom hole in addressing
Hooks’ inquiries related to pooling a portion of lease and that Samson filed
documents with the Railroad Commission indicating that Hooks was part of the
pooling unit before he consented to the pooling—is circumstantial evidence of
Samson’s intent to induce Hooks’ reliance on its representations in agreeing to
pool. See Aquaplex Inc., 297 S.W.3d at 775; Spoljaric, 708 S.W.2d at 435. The
record indicates that, at the time it misrepresented the location of the BSM 1 well’s
bottom hole, Samson knew that it had drilled the well within the Jefferson County
Lease’s buffer zone, thereby triggering the offset obligations under the terms of the
Lease. Rather than meet its obligations, Samson sought Hooks’ consent to pool. In
the course of obtaining Hooks’ consent, it used an inaccurate plat. The payments
that Samson made to Hooks under the pooling agreement were considerably less
than the payments that would have been due under the compensatory royalty
provision in the Jefferson County Lease’s offset obligations.
Samson points to Lanoue’s testimony that he thought Hooks wanted the plat
to see where his lease was located within the unit, and the plat accurately
26
represented that information. Hooks himself admitted that he might not have told
Samson why he cared about the locations of the BSM 1 well. However, the jury
considered all of the testimony and evidence presented, as recounted above, and
this evidence is not so overwhelming as to render the jury’s findings clearly wrong
and unjust. See Cain, 709 S.W.2d at 176.
Considering Samson’s knowledge and the circumstantial evidence of its
intent to induce reliance, we conclude that the evidence was legally and factually
sufficient to demonstrate intent. See Ernst & Young, L.L.P., 51 S.W.3d at 578; see
also City of Keller, 168 S.W.3d at 827.
3. Justifiable Reliance
Samson argues that Hooks ignored the “±” part of the plat and “could not
justifiably have relied on such an indefinite measurement when he was looking for
a precise answer to his supposed question—a question he never even posed to
Samson.”
Fraud also requires that the plaintiff show actual and justifiable reliance.
Grant Thornton LLP v. Prospect High Income Fund, 314 S.W.3d 913, 923 (Tex.
2010). “In measuring justifiability, we must inquire whether, ‘given a fraud
plaintiff’s individual characteristics, abilities, and appreciation of facts and
circumstances at or before the time of the alleged fraud[,] it is extremely unlikely
that there is actual reliance on the plaintiff’s part.’” Id. (quoting Haralson v. E.F.
27
Hutton Grp., Inc., 919 F.2d 1014, 1026 (5th Cir. 1990)). Reliance is not justified if
there are “red flags” indicating such reliance is unwarranted. Id. The plaintiff must
prove that based on the alleged misrepresentation, he either took an action or failed
to take an action, which caused him harm. O & B Farms, Inc. v. Black, 300 S.W.3d
418, 421 (Tex. App.—Houston [14th Dist.] 2009, pet. denied); see also Van
Marcontell v. Jacoby, 260 S.W.3d 686, 691 (Tex. App.—Dallas 2008, no pet.) (“A
plaintiff establishes reliance by showing the defendant’s acts and representations
induced him to either act or refrain from acting, to his detriment.”). The issue of
justifiable reliance is generally a question of fact.4 See Prize Energy Res., L.P. v.
Cliff Hoskins, Inc., 345 S.W.3d 537, 584 (Tex. App.—San Antonio 2011, no pet.);
1001 McKinney Ltd. v. Credit Suisse First Bos. Mortg. Capital, 192 S.W.3d 20, 30
(Tex. App.—Houston [14th Dist.] 2005, pet. denied).
4
The issue of justifiable reliance may become a question of law when the
undisputed or conclusively proven facts demonstrate circumstances under which
reliance cannot be justified—such as when the party had actual knowledge of the
representation’s falsity or the representation directly contradicts the express terms
of a written agreement. See, e.g., JSC Neftegas-Impex v. Citibank, N.A., 365
S.W.3d 387, 407–09 (Tex. App.—Houston [1st Dist.] 2011, pet. denied) (op. on
reh’g) (reliance on representation not justified, as matter of law, when party had
actual knowledge of representation’s falsity); DeClaire v. G & B McIntosh Family
Ltd. P’ship, 260 S.W.3d 34, 47 (Tex. App.—Houston [1st Dist.] 2008, no pet.)
(“[R]eliance upon an oral representation that is directly contradicted by the
express, unambiguous terms of a written agreement between the parties is not
justified as a matter of law.”). However, the circumstances here raise a question of
fact. Just as the question of what constituted reasonable diligence in discovering
the fraud was a fact issue to be determined by the jury, see Hooks, 457 S.W.3d at
60, so too is the question of whether Hooks was justified in relying on Samson’s
verbal and written representations where there was some contradicting information
available in the public record.
28
Hooks is an attorney with considerable experience managing oil and gas
interests. He testified that he inquired about the exact location of the well and of
his Lease within the BSM 1 pooling unit because it was important to him to know
whether the well was within the buffer zone of his Jefferson County Lease.
Hooks—like Samson itself—was aware of the offset obligations in the Jefferson
County Lease that could be triggered by drilling close to his Lease line. He
testified that he would not have consented to pool if he had known that the bottom
hole of the well actually fell within the buffer zone. Furthermore, other witnesses,
including Beale and Foster, testified that it was reasonable to interpret the plat
relied upon by Hooks—the same plat Samson had filed with the Railroad
Commission—as showing that the well fell outside the buffer zone.
Thus, there was sufficient evidence to support the jury’s determination that,
given his individual characteristics, abilities, and appreciation of facts and
circumstances here, Hooks justifiably relied upon Samson’s representations
regarding the location of the well. See Grant Thornton LLP, 314 S.W.3d at 923.
The facts that the plat included notations that the distances were “scaled” and
included a “±” marking—indications that it might not be exact—are not sufficient
to undermine the evidence supporting the jury’s finding of Hooks’ justifiable
reliance. See id. Samson’s verbal and written representations about the location of
the BSM 1 well’s bottom hole were made in response to Hooks’ inquiry about the
29
exact nature of the BSM 1 pooling unit that Samson sought to create. Samson had
also filed the same plat in the Railroad Commission records, thus extending its
misrepresentation into the public record. Hooks testified that he agreed to pool
based on Samson’s misrepresentations regarding the well’s bottom hole location
and that he would not have consented to the pooling if he had known that the well
fell within the buffer zone of his Jefferson County Lease, thereby triggering the
offset obligations. The evidence also established that his reliance on Samson’s
misrepresentation caused him harm, because the royalties he received as part of the
BSM 1 unit were much lower than the compensatory royalties he was entitled to
under the terms of his Lease. See O & B Farms, Inc., 300 S.W.3d at 421.
Samson argues that it did not know Hooks was relying on the plat in the way
he testified—as evidence of the location of the BSM 1 well’s bottom hole.
However, as discussed above, both Hooks and Samson were aware of the offset
obligations in the Jefferson County Lease, and Hooks testified regarding his
reasons for seeking additional information before agreeing to pool. Because the
record supports the jury’s conclusion that Samson’s misrepresentation was material
to the transaction and made with the intent to induce his reliance upon it, Samson’s
specific knowledge of the reasons for Hooks’ inquiry is irrelevant. See Exxon
Corp., 348 S.W.3d at 217 (setting out elements of fraud); Italian Cowboy Partners,
30
Ltd., 341 S.W.3d at 337 (holding that material representation is one which “a
reasonable person would attach importance to and would be induced to act on”).
Samson also argues that Hooks did not continue to rely on the plat after
consenting to the unit and that he had an equal opportunity to discover the truth
through “multiple public records.” However, intent to induce reliance and
justifiable reliance are determined at the time of the alleged fraud. See Grant
Thornton LLP, 314 S.W.3d at 923 (“In measuring justifiability, we must inquire
whether, ‘given a fraud plaintiff’s individual characteristics, abilities, and
appreciation of facts and circumstances at or before the time of the alleged fraud[,]
it is extremely unlikely that there is actual reliance on the plaintiff’s part.’”)
(emphasis added, brackets in original); Aquaplex Inc., 297 S.W.3d at 775 (holding
that party’s intent is determined at time that it makes complained-of
representation).
Furthermore, the public records themselves were inconsistent. As discussed
above, Samson originally filed the March 2000 plat with the Railroad Commission.
This plat showed the proposed locations of the BSM 1 well, indicating that the
surface drillsite was outside the 1,320-foot buffer zone, but the bottom hole
location was planned to fall 1,080 feet from Hooks’ Jefferson County Lease.
Samson also filed a directional survey, completed in July 2000, showing that the
BSM 1 well bottomed 1,184 feet from Hooks’ Jefferson County Lease, within the
31
1,320-foot buffer zone. Samson subsequently reconfigured the BSM 1 pooling unit
and filed a new plat, dated November 16, 2000, that incorrectly placed the well’s
bottom hole at “±1400′ scaled” from the border of Hooks’ Jefferson County Lease.
This is the same plat that Samson sent to Hooks to procure his consent to pool a
portion of his lease into the BSM 1 unit. In light of this conflicting evidence, the
jury had the discretion to resolve the conflicts by determining that the public
records did not provide Hooks with an equal opportunity to discover the location of
the well’s bottom hole.
We overrule Samson’s challenges to the legal and factual sufficiency of the
evidence supporting the jury’s findings on Hooks’ common-law fraud claim.5
5
Samson argues that it had no duty to disclose the location of the well’s bottom
hole, as a matter of law, and that there was no evidence that is breached such a
duty. The existence of a duty to disclose is relevant when a failure to disclose is
the basis of a fraud cause of action. See Bradford v. Vento, 48 S.W.3d 749, 755
(Tex. 2001) (holding that in absence of duty to disclose, failure to disclose
generally cannot serve as evidence of fraud). Here, however, Hooks’ fraud claim
is based on Samson’s affirmative misrepresentation. Thus we need not determine
whether Samson had a duty to disclose.
Samson also complains that the trial court erred in submitting a failure to
disclose instruction to the jury in the question on fraud, but it did not object to the
portion of the jury charge instructing the jury that fraud could be based on a failure
to disclose. It objected only to the inclusion of the legally correct statement that a
party who has already made a representation must also disclose newly acquired
information that makes the previous representation untrue or misleading. See, e.g.,
Ginn v. NCI Bldg. Sys., Inc., 472 S.W.3d 802, 836 (Tex. App.—Houston [1st
Dist.] 2015, no pet.) (stating that duty to disclose may arise when one party makes
representation, which gives rise to duty to disclose new information that party is
aware makes earlier representation misleading or untrue) (citing Solutioneers
Consulting, Ltd. v. Gulf Greyhound Partners, Ltd., 237 S.W.3d 379, 385 (Tex.
App.—Houston [14th Dist.] 2007, no pet.)). Thus, this argument is unavailing.
32
D. Fraud Damages
Samson challenges the legal and factual sufficiency of Hooks’ fraud
damages evidence.6
The jury determined that $20,081,638.01 “would fairly and reasonably
compensate [Hooks] for [his] damages, if any, that were proximately caused by”
Samson’s fraud. The charge instructed the jury to consider the “[l]ost income to
[Hooks] that was the natural, probable, and foreseeable consequence of Samson’s
fraud.”
The amount awarded by the jury corresponds to the amount of compensatory
royalties, including royalty due on formation production and the associated late
charges, due under the terms of the Jefferson County Lease for production from the
BSM 1 and DuJay 1 wells. Samson argues that there is insufficient evidence
supporting the jury’s damages award. Hooks argues that “[u]pon remittitur for the
amount not permitted under the Texas Supreme Court opinion, the damages award
is factually and legally sound.”
1. Proper Measure of Damages
Samson argues that because Hooks “chose to pursue an incorrect measure of
damages, there is no evidence of damages” and “[t]he damages testimony is based
6
Samson also argues that the evidence supporting Hooks’ statutory fraud claims
was legally and factually insufficient. Because the jury’s findings regarding
Hooks’ common-law fraud claim sufficiently support the jury’s findings of
damages, we need not address these arguments.
33
on a flawed methodology.” Samson argues that, in seeking “lost profits,” Hooks
“proved only the same damages they would have presented for the breach of oil
and gas lease claim they previously lost on summary judgment” and the lost profits
are not properly part of an out-of-pocket damages calculation. Samson further
complains that Hooks’ attempt to categorize his damages as consequential
damages is unavailing, as he did not plead for such damages and is not entitled to
them. Thus, we first consider the proper measure of damages.
A party may recover actual damages on a successful fraud claim, and, “[a]t
common law, actual damages are either ‘direct’ or ‘consequential.’” Baylor Univ.
v. Sonnichsen, 221 S.W.3d 632, 636 (Tex. 2007) (quoting Arthur Andersen & Co.
v. Perry Equip. Corp., 945 S.W.2d 812, 816 (Tex. 1997)). Generally, “Texas
recognizes two measures of direct damages for common-law fraud: the out-of-
pocket measure and the benefit-of-the bargain measure.” Zorrilla v. Aypco Constr.
II, LLC, 469 S.W.3d 143, 153 (Tex. 2015) (quoting Formosa Plastics Corp. USA v.
Presidio Eng’rs & Contractors, Inc., 960 S.W.2d 41, 49 (Tex. 1998)). The former
“derive[s] from a restitutionary theory” while the latter “derive[s] from an
expectancy theory.” Id. (citing Sonnichsen, 221 S.W.3d at 636). Out-of-pocket
damages are measured by the difference between the value expended versus the
value received, thus allowing the injured party to recover based on the actual injury
suffered. Id. (citing Formosa Plastics, 960 S.W.2d at 49). Benefit-of-the-bargain
34
damages are measured by the difference between the value as represented and the
value received, allowing the injured party to recover profits that would have been
made had the bargain been performed as promised. Id.
Consequential damages are damages that result naturally but not necessarily
from the wrongful act. Sonnichsen, 221 S.W.3d at 636; Arthur Andersen & Co.,
945 S.W.2d at 816. Consequential damages are recoverable only if the
misrepresentation is a producing cause of the loss, i.e. if the losses are foreseeable
and directly traceable to and result from the misconduct. Arthur Andersen & Co.,
945 S.W.2d at 817; see Formosa Plastics, 960 S.W.2d at 49 n.1 (“When properly
pleaded and proved, consequential damages that are foreseeable and directly
traceable to the fraud and result from it might be recoverable.”). And, unlike direct
damages, consequential damages may include subsequent losses if those losses
were reasonably foreseeable and have the requisite nexus to the wrong. Arthur
Andersen & Co., 945 S.W.2d at 817.
Samson argues that the lost-income damages found by the jury, reflecting
the compensatory royalties and associated late charges, are a contract measure of
damages. However, the fact that Hooks’ loss was an economic loss related to the
subject matter of his contract with Samson does not prevent his recovery of tort
damages. See Formosa Plastics, 960 S.W.2d at 47 (holding that “tort damages are
not precluded simply because a fraudulent representation causes only an economic
35
loss”). The jury was asked to determine the amount of money that would
compensate Hooks for the damages proximately caused by Samson’s fraud and
was told to consider the “[l]ost income to [Hooks] that was the natural, probable,
and foreseeable consequence of Samson’s fraud.” This is a proper measure of
consequential damages, which are recoverable as fraud damages so long as Hooks
properly pleaded and proved them. See Formosa Plastics, 960 S.W.2d at 49 n.1;
Arthur Andersen & Co., 945 S.W.2d at 817.
Samson also argues that Hooks did not properly plead for consequential
damages. See Formosa Plastics, 960 S.W.2d at 49 n.1. However, as Hooks argues,
he pleaded for “damages for injuries that were the proximate result of Samson’s
fraud,” and he specifically pleaded that those damages were “equal to at least the
compensatory royalties [Hooks] would have been due under [his] Jefferson County
Lease in the absence of any purported pooling.” In his sixth amended petition—the
first petition including his fraud claim—Hooks alleged that he was “injured as a
direct, proximate, natural, and reasonable result of Samson’s false representations.”
He contended that Samson’s fraud vitiated the pooling agreement, and thus his
interests “were not pooled into the [BSM 1 well and unit,]” but he recognized that
“Samson contends otherwise.” Hooks alleged that “if Samson is correct that the
Hooks Interest[s] were pooled into [the BSM 1 well and unit], [he] [is] entitled to
damages equal to at least the difference between the value of that with which [he]
36
parted, and the value [he] actually received, as a result of Samson’s false
representations. Such damages would equal at least the compensatory royalties [he]
would have been due under [his] Jefferson County Lease in the absence of any
purposed pooling. . . .” Hooks maintained these claims throughout trial. Thus, the
pleadings adequately put Samson on notice of the damages being sought by Hooks.
See Horizon CMS Healthcare Corp. v. Auld, 34 S.W.3d 887, 897 (Tex. 2000)
(discussing fair notice rule).
Samson further argues that Hooks “could not seek compensatory damages”
unless he sought to set aside his consent to pool a portion of his Jefferson County
Lease into the BSM 1 unit. Samson cites Fortune Production Co. v. Conoco, Inc.,
52 S.W.3d 671 (Tex. 2000), to support its contention that Hooks “could stand on
the bargain and recover fraud damages, or [he] could seek rescission of the consent
to pool” but he “could not do both.” Fortune Production does not support
Samson’s argument. In that case, the supreme court stated that “there may be
circumstances under which a party who was induced to enter a contract by fraud
may ratify that contract in such a manner that a claim for damages is foreclosed,”
and it held that the evidence of ratification in that case was legally sufficient to
foreclose some portion of the plaintiffs’ claims for damages. Id. at 676. Here, by
contrast, Hooks did not ratify the BSM 1 pooling agreement. Instead, Hooks filed
his fraud claim upon learning of Samson’s misrepresentation, thus demonstrating
37
his intent to pursue fraud damages rather than to ratify or to rescind the
fraudulently induced agreement. See id. at 676–77.
2. Sufficiency of the Evidence of the Amount of Damages
We turn next to the legal and factual sufficiency of the evidence supporting
the jury’s award of fraud damages totaling $20,081,638.01. The evidence at trial
indicated that Samson’s drilling of the BSM 1 well triggered the offset obligations
in the Jefferson County Lease. Samson neither drilled an offset well nor released
Hooks’ lease within ninety days of first production from this well, which left only
the remedy of payment of compensatory royalties. See Hooks, 457 S.W.3d at 68
(addressing question of whether, “because the contract gave Samson alternatives
that were not recurring, Samson may prevent Hooks from suing based on the one
recurring obligation”). However, Samson never paid these compensatory royalties
because it fraudulently induced Hooks into pooling a portion of his Jefferson
County Lease into the BSM 1 unit and subsequently paid him the lower royalties
due under the terms of that deal.
Hooks testified that Samson did not make any fraudulent misrepresentations
to him specifically regarding the DuJay 1 well. However, he presented evidence
that Samson drilled the DuJay 1 well within the buffer zone of its Jefferson County
Lease, also triggering offset obligations under the terms of the lease. However,
Hooks’ damages expert, Charles Graham, testified that Samson’s fraud in
38
procuring Hooks’ agreement to pool his lease into the BSM 1 unit led Hooks to
believe that the offset obligations as to the DuJay 1 well were met by the BSM 1
well.
Hooks presented Graham’s testimony and other evidence of the amount of
the compensatory royalties and late charges he would have received under the
terms of the Lease. He also provided evidence of the amount of royalties Samson
paid under the fraudulently procured consent to pool. Graham testified that his
opinion was based on the language of Hooks’ Jefferson County Lease as applied to
Samson’s production and sales from the relevant wells. He stated that damages that
resulted from Samson’s misleading Hooks into agreeing to pool his Jefferson
County Lease into the BSM 1 unit included the compensatory royalties that would
have been due under the Lease’s offset obligations, which included $3,553,200.15
in unpaid compensatory royalties for production from the BSM 1 well and
$3,112,015.22 in unpaid compensatory royalties for production from the DuJay 1
well. He also testified that Samson’s fraud resulted in Hooks’ losing $930,918.65
in unpaid royalties for formation production and $12,995,832.05 in late charges for
unpaid royalties. Finally, Graham testified that Samson should be credited with
$510,328.01 for royalties that it paid pursuant to the fraudulently obtained pooling
agreement.
39
a. DuJay 1 well damages
Samson argues that “[e]ven if consequential damages were permitted, ‘lost
profits’ based on the DuJay 1 well are not recoverable.” Samson argues that Hooks
admitted he was not defrauded as to the DuJay 1 well but “[a]pproximately half” of
his claim fraud damages were attributable to that well. Furthermore, “to the extent
[Hooks sought] compensatory royalty damages for the DuJay 1 well,” there was no
evidence, or insufficient evidence, supporting that claim.
The evidence demonstrated that Samson completed the DuJay 1 well within
the buffer zone of Hooks’ Jefferson County Lease, which, like the BSM 1 well,
would have triggered the offset obligations. However, the DuJay 1 well was
“offset” by the BSM 1 well. Graham testified that, by fraudulently obtaining
Hooks’ consent to pool into the BSM 1 unit, Samson likewise prevented him from
seeking proper protection of his rights under the terms of the Lease with regard to
the DuJay 1 well. Thus, the evidence indicates that a separate misrepresentation as
to the DuJay 1 well was not required because Samson’s fraud as to the BSM 1 well
necessarily implicated Hooks’ rights as to the DuJay 1 well.
Samson argues that Hooks did not establish cause-in-fact and foreseeability
as to damages for the DuJay 1 well as required to recover consequential damages.
It argues that it drilled the DuJay 1 well after Hooks agreed to pool his lease into
the BSM 1 unit, and, thus, Hooks would have to prove that “Samson would have
40
drilled the DuJay 1 well (1) even if [Hooks] had not agreed to pool; (2) within
1320 feet of [Hooks’ tract]; and (3) [had] not released Hooks’ tract to address
offset issues.” We disagree that Hooks must prove that Samson would have drilled
the DuJay 1 well absent the fraudulently induced pooling agreement. Fraud vitiates
whatever it touches. See Hooks, 457 S.W.3d at 57 (quoting Borderlon, 661 S.W.2d
at 909). We have already upheld the jury’s determination that Samson obtained
Hooks’ consent to pool through fraud, and Hooks need not prove what Samson’s
conduct might have been if it had not committed fraud. And the evidence did
establish that Samson drilled the DuJay 1 well within 1,320 feet of Hooks’
Jefferson County Lease and that Samson did not release Hooks’ tract.
Thus, the evidence is legally and factually sufficient to support the award of
fraud damages based on the amount of compensatory royalties—totaling
$6,665,215.37 less a credit for the $510,328.01 in royalties Samson paid pursuant
to the fraudulently obtained pooling agreement—that would have been due to
Hooks on the BSM 1 and DuJay 1 wells. These amounts were likewise foreseeable
and directly traceable to and resulted from Samson’s misconduct. See Arthur
Andersen, 945 S.W.2d at 816–17; see Formosa Plastics, 960 S.W.2d at 49 n.1.
b. Contractual late charges as fraud damages
Samson also argues that two-thirds of the fraud damages—the amount
represented by the late charges due on unpaid royalties under the terms of Hooks’
41
Jefferson County Lease—“are not actual damages at all,” “are not proper out-of-
pocket damages,” and constitute an improper basis for calculating Hooks’ fraud
damages. Samson asserts that the “‘late charge’ damages are another way in which
[Hooks is] attempting to convert [his] barred contract case into fraud damages.”
We have already overruled Samson’s argument that Hooks was required to
prove out-of-pocket damages to recover for Samson’s fraud. Consequential
damages are a type of actual damages that are available in fraud cases. See
Sonnichsen, 221 S.W.3d at 636 (actual damages include both direct and
consequential damages; in fraud cases, out-of-pocket and benefit-of-the-bargain
are measures of direct damages while consequential damages result naturally but
not necessarily from wrongful act). We have also rejected Samson’s argument that
the lost-income damages found by the jury, reflecting the compensatory royalties
and associated late charges, are barred solely because they could also serve as a
measure of damages for breach of contract. The fact that Hooks’ loss was an
economic loss related to the subject matter of his contract with Samson does not
prevent his recovery of tort damages. See Formosa Plastics, 960 S.W.2d at 47
(holding that “tort damages are not precluded simply because a fraudulent
representation causes only an economic loss”).
We must then consider whether the amount of fraud damages attributable to
the late charges on the unpaid compensatory royalties that Hooks should have
42
received were, as the jury was asked to determine, “[l]ost income to the Hooks that
was the natural, probable, and foreseeable consequence of Samson’s fraud.”
Graham testified that, as a result of Samson’s fraud, it failed to pay all of the
royalties due to Hooks. He testified that this failure likewise deprived Hooks of
$12,995,832.05 in late charges that Samson would have incurred on the unpaid
compensatory royalties under the terms of the lease. The terms of the Lease itself,
which was likewise in evidence at trial, provided for the payment of the late
charges, and Graham testified that he calculated the amount due based on the terms
of the Lease. Samson could have foreseen that its fraud prevented Hooks from
seeking the compensatory royalties to which he was entitled and that its failure to
pay those amounts would invoke its obligation—duly agreed to in the Lease—to
pay late charges. Samson does not provide any argument or evidence contradicting
this testimony of Graham or otherwise argue that these late charges were not a
natural, probable, or foreseeable consequence of its wrongful act.
Samson also argues, in part, that “[w]ith a fraud claim, the aggrieved party
can seek prejudgment interest, not ‘late charges.’” However, Hooks did not seek
prejudgment interest and the final judgment did not award any prejudgment
interest. Rather, the trial court entered judgment based on the jury’s determination
that unpaid compensatory royalties and late charges were the actual, consequential
43
damages that flowed from Samson’s fraud. Thus, we need not address the question
of prejudgment interest.
The jury’s conclusion that the late charges, like the compensatory royalties,
were foreseeable and directly traceable to and resulted from Samson’s misconduct
is supported by legally and factually sufficient evidence. See Arthur Andersen, 945
S.W.2d at 816–17; see Formosa Plastics, 960 S.W.2d at 49 n.1.
c. Formation production damages & remittitur
Samson argues that we must reverse the award of fraud damages in part
based on the fact that the fraud damages originally awarded by the jury included
formation production damages. The supreme court affirmed our reversal of that
portion of the damages and rendered judgment that Hooks was not entitled to
formation production damages. See Hooks, 457 S.W.3d at 65.
The $20,081,638.07 awarded by the jury as fraud damages was based in part
on Hooks’ evidence that he was entitled to unpaid royalty on “formation
production” from the BSM 1 well totaling $504,368.64 and unpaid royalty on
formation production from the DuJay 1 well totaling $426,550.01. However, this
portion of Hooks’ evidence on fraud damages may no longer be considered to
support the jury’s award as a matter of law. See id. at 64–65 (holding that Hooks
was not entitled to royalty payments for formation production).
44
Hooks contends that this Court could suggest a remittitur that would reduce
the amount of fraud damages by $504,368.64 and $426,550.01, as the amounts
reflecting the damages based on formation production, and by $1,689,556.85 for
the late charges associated with those royalties. See TEX. R. APP. P. 46.3 (providing
that appellate court may suggest remittitur). If part of a damage verdict lacks
sufficient evidentiary support, the proper course is to suggest a remittitur of that
part of the verdict, giving the party prevailing in the trial court the option of
accepting the remittitur or having the case remanded for a new trial. See Akin,
Gump, Strauss, Hauer & Feld, L.L.P. v. Nat’l Dev. & Research Corp., 299 S.W.3d
106, 124 (Tex. 2009) (“[W]hen there is some evidence of damages, but not enough
to support the full amount, it is inappropriate to render judgment.”); Samuels v.
Nasir, 445 S.W.3d 886, 894 (Tex. App.––El Paso 2014, no pet.) (Rule 46.3 permits
Court to suggest remittitur when “appellant complains there is insufficient
evidence to support an award and the court of appeals agrees, but concludes there
is sufficient evidence to support a lesser award”).
As set out above, the record contains some evidence that fraud damages
existed, but it did not support the full amount awarded by the trial court. See ERI
Consulting Eng’rs, Inc. v. Swinnea, 318 S.W.3d 867, 877–78, 880 (Tex. 2010)
(holding that evidence was legally insufficient to support amount of lost profit
damages awarded by trial court, but that there was “legally sufficient evidence to
45
prove a lesser, ascertainable amount of lost profits with reasonable certainty,” and
remanding case to court of appeals to consider suggestion of remittitur); Aquaplex,
Inc., 297 S.W.3d at 777 (holding, in fraud case, that some evidence supported
award of fraud damages, but not at level awarded by trial court, and remanding to
court of appeals to determine whether to remand for new trial on damages or
suggest remittitur). However, the evidence does allow us to determine a lesser
award, namely, one that does not include the formation production damages
described in Graham’s testimony. We conclude that the part of the jury’s verdict
on fraud damages that was based on formation production damages now lacks
sufficient support, and we suggest a remittitur of $2,620,475.50 representing the
formation production damages and their associated late charges that are no longer
justified in this case.
Samson also argues that the post-judgment interest rate should be 5%. The
trial court granted Hooks post-judgment interest on all of the damages awarded in
the final judgment at a rate of 18%. In its original briefing, Samson challenged the
trial court’s post-judgment interest rate. This Court agreed and determined that a
5% interest rate applied to Hooks’ recovery for ad valorem taxes—the only award
that we left in place. See Samson Lone Star, Ltd. P’ship, 389 S.W.3d at 439. The
supreme court held, however, “[T]o the extent Hooks recovers for past due
royalties, he is entitled to an 18% interest rate. For other recoveries, the statutory
46
rate of 5% applies because Hooks has not directed us to any portion of the leases
providing otherwise.” Hooks, 457 S.W.3d at 69–70. Based on this language, we
conclude that Samson is correct that the 5% post-judgment interest rate applies to
Hooks’ award of damages for fraud. If Hooks agrees to the remittitur that we
suggest below, we will modify the judgment to reflect the remittitur and the proper
interest rate. If Hooks does not agree to the remittitur, we will remand the case for
a new trial on fraud and thus will not need to reform the judgment’s post-judgment
interest rate. See TEX. R. APP. P. 44.1(b) (“The court may not order a separate trial
solely on unliquidated damages if liability is contested.”).
Thus, we overrule Samson’s issues complaining of the jury’s fraud findings.
Regarding its complaints on damages, if Hooks agrees to the remittitur, we will
reform and affirm the judgment accordingly; however, if Hooks does not accept
the remittitur, we will reverse the judgment and remand for a new trial. See TEX. R.
APP. P. 46.3; Akin, Gump, Strauss, Hauer & Feld, L.L.P., 299 S.W.3d at 124.
Most Favored Nations Clause
Hooks asserted, in a motion for summary judgment, that Samson breached
the “most favored nations” clause contained in his Leases, which provided that,
under certain circumstances, the royalties payable to Hooks must be elevated to
match the highest royalty payable to Samson’s other lessors. The trial court granted
summary judgment in Hooks’ favor, holding that this clause was triggered by
47
royalty Samson paid under a pooling agreement to the State of Texas that was
higher than the royalty due to Hooks.
We originally determined that Hooks was not entitled to damages for his
claim that Samson breached the most-favored-nations clause. See Samson Lone
Star, Ltd. P’ship, 389 S.W.3d at 437. The supreme court reversed, holding that
Hooks was entitled to an increased royalty rate of 28.28896%. See Hooks, 457
S.W.3d at 63.
Samson argues that we must reverse and remand on this issue because “the
favored nations damages wrongly include formation production damages.”
However, the damages awarded in the trial court’s judgment were based on a
stipulation that set out most-favored-nations damages with and without amounts
for formation production. Specifically, Samson stipulated to $431,450.71 in
damages for breach of the most-favored-nations clause not including royalty for
formation production. Accordingly, we may modify the judgment to reflect the
amount of damages without formation production royalties based on the parties’
stipulation.
Regarding the post-judgment interest rate,7 the supreme court held that
Hooks is entitled to an 18% interest rate “to the extent [he] recovers for past due
7
Samson actually argues that the “prejudgment” interest rate was improper.
However, the trial court’s judgment did not award prejudgment interest, and the
supreme court’s opinion on this issue addressed the post-judgment interest rate.
48
royalties,” such as here, where the award constitutes higher royalties that Samson
owed Hooks but never paid. See id. at 69–70. Thus, Samson’s argument that
interest needs to be recalculated is unavailing. The 18% post-judgment interest rate
applies to the most-favored-nations damages.
We overrule Samson’s issues regarding the most-favored-nation damages.
II. HOOKS’ APPEAL ON REMAND
Background
A. Hooks’ Breach of Lease Claims for Hardin County Leases
Hooks’ cross-appeal concerns his claim that Samson breached its offset
obligations with regard to Hooks’ two Hardin County Leases. The Hardin County
Leases, like the Jefferson County Lease, contained an offset obligation provision.
That provision specifically stated that if a gas well were completed within 1,320
feet from the leased premises, then, within ninety days from the date of the sale of
first production from that well, Samson must take one of three actions:
(1) commence due diligence operations for drilling an offset well to protect against
drainage; (2) pay Hooks “compensatory royalties”—in addition to any royalties
currently due—in a sum equal to the royalties that would be payable under the
Lease on the production from the adjacent or nearby producing well as if it had
been producing on the leased premises; or (3) release the offset acreage.
See Hooks, 457 S.W.3d at 69–70. Thus, we construe this argument as a complaint
regarding the post-judgment interest rate.
49
Both Hardin County Leases also provided for pooling in terms that were
essentially the same with respect to the manner and methods of pooling. The leases
called for an instrument “identifying and describing the pooled acreage” and
stating that a “pooled unit shall become effective on the date such instrument or
instruments are so filed for record.” The pooling provision in each Lease also
stated that “[o]perations for drilling on or production of gas from any part of the
pooled unit . . . , regardless of whether such operations for drilling were
commenced or such production was secured before or after the date of this lease or
the date of the instrument designating the pooled unit, shall be considered as
operations for drilling on or production of gas from the Leased Premises” and that
“the entire acreage constituting such unit or units shall be treated for all purposes,
except the payment of royalties on production from the pooled unit, as if the same
were included in this Lease.” The parties stipulated at trial that Hooks had owned
his interests in the units at issue since the date of first production in each unit.
In February 2001, Samson completed the Black Stone Minerals A-1 well
(“BSM A-1 well”) in Hardin County. On March 21, 2001, Samson filed a Unit
Designation for a 704-acre unit called the Black Stone Minerals “A” No. 1 Gas
Unit (“BSM A-1 unit”), which unitized the lease where the BSM A-1 well was
located with Hooks’ two Hardin County Leases and other tracts, including leases
owned by the State. The designation reflected that it was effective as of first
50
production and included a list of the leases pooled, including Hooks’ Hardin
County Leases. The designation for the BSM A-1 unit included gas production at
all depths between 6,000 and 13,000 feet (including what Hooks refers to as the
deeper “Doyle formation” and what he refers to as the more shallow “EY-5
formation”), although the BSM A-1 well produced gas only from the shallow EY-5
formation.
In June 2001, the BSM A-1 well began producing. In December 2001,
Samson finished the DuJay 1 well, which produced from some of the same land
designated to the BSM A-1 unit but at a lower horizon than the BSM A-1 well. The
DuJay 1 well began producing in January 2002.
In February 2002, Samson amended the BSM A-1 unit designation. It
executed and recorded a designation for a new unit, the Joyce DuJay No. 1 Gas
Unit (“DuJay 1 unit”) that cited an effective date as of first production of the
DuJay 1 well, i.e., January 2002. The DuJay 1 unit designated a 571-acre unit with
a different name, different leases, different depths, and different boundaries from
the BSM A-1 unit.
Subsequently, Samson drilled another DuJay well (“DuJay A-1 well”) and
created a separate pooled unit for that well. The DuJay A-1 unit differed from the
DuJay 1 unit by depth limitation and acreage. The DuJay A-1 well began
producing on September 25, 2002, but Samson did not file the DuJay A-1 unit
51
designation until July 2003. Hooks’ Hardin County Leases were likewise pooled
into the designated DuJay A-1 unit.
However, the BSM 1 well and the BSM A-1 well both continued producing
in close proximity to the DuJay 1 and DuJay A-1 units—in fact, within 1,320 feet
of the borders of those units.
B. Procedural History
Before trial, Hooks and Samson filed cross-motions for summary judgment
on the issue of whether Samson breached the offset obligations in the Hardin
County Leases. Hooks argued that the plain language of the Leases and the
undisputed facts established as a matter of law that Samson was liable for the BSM
1 well’s encroachment on the DuJay 1 unit and for the BSM A-1 well’s
encroachment on the DuJay A-1 unit, triggering offset obligations under the terms
of the Leases and requiring payment of compensatory royalties.
The trial court granted Samson’s motion and denied Hooks’ motion on this
issue without stating its reasons.
Hooks filed a cross-appeal, claiming that the trial court erred in granting
Samson’s motion for summary judgment and denying his own. Hooks included in
this issue sub-issues regarding the correct interpretation of Samson’s offset
obligations and other provisions in the Jefferson County Lease and Hardin County
Leases and the statute of limitations. Samson contended that Hooks waived his
52
appeal of the summary judgments, and it argued that the trial court correctly
interpreted the Hardin County Leases with respect to the issues raised by Hooks on
cross-appeal and correctly rendered summary judgment. We originally affirmed
the trial court’s summary judgment on this issue, holding that Hooks’ claims were
barred by the statute of limitations. Samson Lone Star, Ltd. P’ship, 389 S.W.3d at
440. The Texas Supreme Court determined that Hooks had preserved this issue for
consideration on appeal, reversed our limitations holding, and remanded to this
Court for consideration of the merits of Hooks’ claim for breach of the offset
provisions and the proper construction of the entire-acreage clause. Hooks, 457
S.W.3d at 67, 69. It held that, assuming Samson breached, Hooks could be
“entitled to damages for royalties owed within four years of filing suit.” Id. at 68–
69.
Breach of Lease
Hooks argues that he conclusively established that Samson is liable for
compensatory royalties for production from the BSM 1 and BSM A-1 wells.
A. Standard of Review
A party moving for Rule 166a(c) summary judgment must conclusively
prove all of the elements of its cause of action as a matter of law. TEX. R. CIV. P.
166a(c); Holy Cross Church of God in Christ v. Wolf, 44 S.W.3d 562, 566 (Tex.
2001); Rhone-Poulenc, Inc. v. Steel, 997 S.W.2d 217, 222–23 (Tex. 1999). A
53
defendant moving for summary judgment on a cause of action asserted against it
must negate as a matter of law at least one element of the plaintiff’s theory of
recovery or plead and prove each element of an affirmative defense. Nelson v.
Chaney, 193 S.W.3d 161, 165 (Tex. App.—Houston [1st Dist.] 2006, no pet.).
“When both sides move for summary judgment and the trial court grants one
motion and denies the other, the reviewing court should review both sides’
summary judgment evidence and determine all questions presented.” FM Props.
Operating Co. v. City of Austin, 22 S.W.3d 868, 872 (Tex. 2000); accord
Gillebaard v. Bayview Acres Ass’n, 263 S.W.3d 342, 348 (Tex. App.—Houston
[1st Dist.] 2007, pet. denied). The reviewing court should render the judgment that
the trial court should have rendered. See Tex. Workers’ Comp. Comm’n v. Patient
Advocates of Tex., 136 S.W.3d 643, 648 (Tex. 2004); Comm’rs Court of Titus
Cnty. v. Agan, 940 S.W.2d 77, 81 (Tex. 1997); see also Gillebaard, 263 S.W.3d at
347–48. The propriety of summary judgment is a question of law. We therefore
review the trial court’s ruling to grant one party’s motion and deny the other using
the de novo standard. Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211,
215 (Tex. 2003).
“In construing contracts, we must ascertain and give effect to the parties’
intentions as expressed in the document.” Hooks, 457 S.W.3d at 63 (citing Lopez v.
Muñoz, Hockema & Reed, L.L.P., 22 S.W.3d 857, 861 (Tex. 2000)). We attempt to
54
harmonize all contractual provisions by “analyzing the provisions with reference to
the whole agreement.” Id. (citing Frost Nat’l Bank v. L & F Distribs., Ltd., 165
S.W.3d 310, 312 (Tex. 2005) (per curiam)). We “construe contracts from a
utilitarian standpoint bearing in mind the particular business activity sought to be
served,” and, when possible and proper, we avoid a “construction which is
unreasonable, inequitable, and oppressive.” Id. (citing Reilly v. Rangers Mgmt.,
Inc., 727 S.W.2d 527, 530 (Tex. 1987)). If, through the use of relevant rules of
construction, the contract can be given a definite meaning, we construe it as a
matter of law. Id. at 63–64.
B. Analysis
In his motion for summary judgment and on appeal, Hooks argues that a
portion of the pooling provision, which he refers to as the “entire acreage clause,”
applies here to mean that the Hardin County Leases “expressly and plainly include
pooled acreage as part of the acreage of the leases.” Hooks further argues that,
because the pooled acreage is part of the lease, any producing gas well completed
within the 1,320-foot buffer zone of the unit triggered the Leases’ offset
obligations. Hooks thus argues that both the BSM 1 and the BSM A-1 wells
produced gas from within 1,320 feet of the units into which its Hardin County
Leases had been pooled and that Samson did not release Hooks’ acreage, drill an
offset well to protect against drainage, or pay compensatory royalties as required
55
by the offset obligation provisions in the Hardin County Leases, thus breaching
those Leases.
Samson urges a narrower interpretation of the entire acreage clause and
asserts that the offset obligations are not triggered by wells within 1,320 feet of a
unit boundary but only by wells within 1,320 feet of an unpooled lease boundary.8
It relies on language in the offset obligation clauses that recognize a distinction
between the “leased premises” and “acreage pooled therewith.”
Our analysis of this issue requires that we construe the meaning and legal
effect of the pooling provision in the Hardin County Leases, which states, in
relevant part:
Lessee, at its option, is hereby given the right and power in its
discretion to pool or combine, as to any one or more formations, the
land covered by this Lease or any portion of said land, insofar only as
gas or gas condensate rights are concerned . . . , with other land, lease
or leases in the immediate vicinity thereof, except to the extent and in
the manner hereinafter stipulated. With respect to any such unit so
formed, Lessee shall execute in writing an instrument or instruments
identifying and describing the pooled acreage, and file same for
recording in the office of the County Clerk in Hardin County, Texas,
and the pooled unit shall become effective on the date such instrument
or instruments are so filed for record. . . .
Operations for drilling on or production of gas from any part of
the pooled unit which includes all or a portion of the Leased Premises,
8
Samson also argues that no offset obligations arose even if we apply Hooks’ lease
interpretation and that Hooks did not conclusively establish that it breached any
offset obligations that arose. Samson likewise contends that it met the offset
obligations by drilling offset wells. However, under our construction of the
Leases, the offset obligation in the Hardin County Leases was not triggered, and
we need not address this contention.
56
regardless of whether such operations for drilling were commenced or
such production was secured before or after the date of this lease or
the date of the instrument designating the pooled unit, shall be
considered as operations for drilling on or production of gas from the
Leased Premises, whether or not the well or wells be located on the
Leased Premises, and the entire acreage constituting such unit or units
shall be treated for all purposes, except the payment of royalties on
production from the pooled unit, as if the same were included in this
Lease. The above right and power to pool may be exercised at any
time and from time to time and before or after a well has been drilled,
or while a well is being drilled. Lessee may vacate any unit formed by
it hereunder. . . . The pooling for gas hereunder by Lessee shall also
pool and unitize all liquid gas, and the royalty interest payable to
Lessor thereon shall be computed the same as on gas. For the purpose
of computing the royalties to which owners of royalties shall be
entitled on production from each production unit, there shall be
allocated to the applicable separate tract acreage included in such
production unit a pro rata portion of the production produced from
such production unit. . . .
This pooling provision is substantially similar to pooling provisions that have been
used in gas leases in this State since at least the 1950s. See, e.g., Mengden v.
Peninsula Prod. Co., 544 S.W.2d 643, 644 (Tex. 1976); Skelly Oil Co. v. Harris,
352 S.W.2d 950, 954 (Tex. 1962); Tiller v. Fields, 301 S.W.2d 185, 187 (Tex. Civ.
App.—Texarkana 1957, no writ).
The primary legal consequence of such a pooling provision is settled in
Texas law as being “that production and operations anywhere on the pooled unit
are treated as if they have taken place on each tract within the unit.” Se. Pipe Line
Co. v. Tichacek, 997 S.W.2d 166, 170 (Tex. 1999) (citing Southland Royalty Co. v.
Humble Oil & Ref. Co., 249 S.W.2d 914, 916 (Tex. 1952)); Chesapeake Expl.,
57
L.L.C. v. Energen Res. Corp., 445 S.W.3d 878, 884 (Tex. App.—El Paso 2014, no
pet.). Other consequences of pooling under a provision such as the one at issue
here have likewise been “fully discussed” by the Texas Supreme Court. See
Mengden, 544 S.W.2d at 647 (construing pooling provision that is substantively
identical to provision at issue here and stating that “the other normal consequences
of pooling” were “fully discussed by this Court” in Southland Royalty Co.). In
Southland Royalty Co., the supreme court stated that the consequences of pooling
are that:
the life of the lease is extended as to all included tracts beyond the
primary term and for as long as oil, gas or other minerals are produced
from any one of the tracts included in the lease; the commencement of
a well on any one of the tracts operates to excuse the payment of delay
rentals on all included tracts for the period stated in the lease;
production from a well on any one of the tracts relieves the obligation
to pay delay rentals, during production, on all included tracts; the
lessee is relieved of the usual obligation of an implied covenant for
reasonable development of each tract separately; wells may be located
without reference to property lines; [and] the lessee is relieved of the
obligation to drill offset wells on other included tracts to prevent
drainage by a well on one or more of such tracts.
249 S.W.2d at 916.
Hooks urges that “[t]he ‘for all purposes’ language in the ‘entire acreage’
clause is all-encompassing and subject to only one limitation not at issue here” and
that the “broad language means that, once the leased acreage is pooled, all the
acreage in the pooled unit is treated as if it were part of the lease.” Specifically,
Hooks urges this Court to conclude that “once the lease is pooled, the 1,320 foot
58
protected zone [set out in the offset obligation provision of the Leases] is no longer
based on only the originally leased tract” and the “protected zone is measured from
the boundary of the unit into which the leased tract is pooled.”
Neither the language of Hooks’ Hardin County Leases nor the precedent of
Texas courts construing the effect of a pooling provision supports such an
interpretation. The language in the Hardin County Leases’ pooling provision—
including the sentence that Hooks refers to as the “entire acreage” clause—is
standard language. This language has been construed by Texas courts as serving to
effectuate an oil and gas lessee’s ability to pool leases for purposes of preventing
waste in the development of mineral leases by providing that “production and
operations anywhere on the pooled unit are treated as if they have taken place on
each tract within the unit.” See Key Operating & Equip., Inc. v. Hegar, 435 S.W.3d
794, 798 (Tex. 2014) (quoting Tichacek, 997 S.W.2d at 170); see also Mengden,
544 S.W.2d at 647 (stating that language in pooling paragraph in leases
substantially identical to Hooks’ Hardin County Leases’ provision details “the
other normal consequences of pooling” and “were fully discussed by this Court in
[Southland Royalty Co.]”); Southland Royalty Co., 249 S.W.2d at 916 (setting out
normal consequences of pooling).
No court has construed the decision to pool under this type of pooling
provision as extending terms specifically agreed to for the protection of an
59
individual lessor, like Hooks, to an entire pooled unit, and we decline to do so. We
observe that the offset obligation provision that Hooks argues Samson breached
provides:
Lessee covenants and agrees to operate the leased premises as a
reasonable and prudent operator would under the same or similar
circumstances and to protect each of the leased premises from
drainage by reason of any well drilled on adjacent or nearby lands.
The above covenant notwithstanding, in the event . . . a well
producing from a unit not comprised of acreage from the leased
premises which has been classified as “gas” . . . is completed on
adjacent or nearby lands not more than one thousand three hundred
and twenty feet (1,320′) from the leased premises . . ., Lessee
covenants to, within ninety days from the date production is first sold,
removed or otherwise marketed . . ., either to (1) commence with due
diligence operations for the actual drilling of an offset well on the
leased premises to the base of the formation from which the adjacent
or nearby producing well is producing, (2) pay compensatory
royalties . . ., or (3) . . . release by recordable instrument the offset
acreage. . . . Notwithstanding anything herein to the contrary, Lessee
shall have no obligations under this Article . . . in the event a
producing well on nearby or adjacent land is already offset by a well
on the leased premises or on acreage pooled therewith producing
from the same producing horizon from which production has been
secured from any well on nearby or adjacent lands.
(Emphasis added).
The language of the offset obligation expressly states that its purpose is to
protect Hooks’ Hardin County Leases from drainage. Nothing in the Leases’
pooling provision evinces a specific agreement to broaden the protection provided
60
by the offset obligation to include other leases not owned by Hooks. 9 See Hegar,
435 S.W.3d at 798 (identifying pooling provision substantially identical to Hooks’
and stating that primary legal consequence of pooling is that “production and
operations anywhere on the pooled unit are treated as if they have taken place on
each tract within the unit”) (quoting Tichacek, 997 S.W.2d at 170); Southland
Royalty Co., 249 S.W.2d at 916 (outlining legal consequences of pooling “in the
absence of express agreement to the contrary” as essentially providing that
production of oil or gas from wells located on any tract in pooled unit as
production from each and all other tracts included in unit). Rather, the offset
obligation provision specifically references the “leased premises”—referring to
Hooks’ tract of land—and makes a distinction between the leased premises and
larger pooled units in which those premises might be included.
Reading the relevant provisions with reference to the whole agreement and
construing the lease “from a utilitarian standpoint bearing in mind the particular
business activity sought to be served,” as we must, we determine that the “entire
acreage clause” included in the pooling provision was intended to effectuate and
set out the details of Samson’s pooling authority, not to extend the applicability of
9
We observe that Samson would still have an implied duty to protect the unit from
drainage, see Southeast Pipe Line Co. v. Tichacek, 997 S.W.2d 166, 170 (Tex.
1999), but Hooks is not asserting a claim for actual draining of his Hardin County
Leases. Rather, he is arguing that Samson breached the terms of his Hardin
County Leases.
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the offset obligations. See Hooks, 457 S.W.3d at 63 (providing rules of contract
construction); Mengden, 544 S.W.2d at 647 (stating that language in pooling
paragraph in leases, including language that Hooks relies on here, details “the other
normal consequences of pooling”).
Hooks argues that construing the pooling provision as providing that
production and operations anywhere on the pooled unit are treated as if they have
taken place on each tract within the unit “gives meaning only the first part of the
provision in which the ‘entire acreage’ clause appears” and renders useless the
portion of the pooling provision that states “and the entire unit acreage constituting
[the unit] shall be treated for all purposes . . . as if the same were included in this
Lease.” We disagree.
In Mengden, the Texas Supreme Court construed an essentially identical
pooling provision that also included a statement that:
[o]perations for drilling on or production of oil or gas from any part of
the pooled unit which includes all or a portion of the land covered by
this lease . . . shall be considered as operations for drilling on or
production of oil or gas from land covered by this lease [w]hether or
not the well or wells be located on the premises covered by this lease,
and the entire acreage constituting such unit or units . . . shall be
treated [f]or all purposes, except the payment of royalties on
production from the pooled unit, [a]s if the same were included in this
lease.
544 S.W.2d at 644. The supreme court stated that the pooling provision gave
Mengden, the operator’s assignee who formed the gas units, the authority to form
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the relevant gas units, thereby perpetuating the portions of the “B” lease included
in the relevant units even though the wells were located on the “A” lease portion of
the unit. Id. at 647. It further stated that the language in the pooling provision
“detailed” the “other normal consequences” of pooling. Id. We conclude, like the
court in Mengden, that, far from being rendered useless, the sentence relied upon
by Hooks is part of the pooling provision and is intended to detail the normal
consequences of pooling. Hooks has provided no argument or citation to authority
for why this Court should be the first to isolate that particular phrase from the
standard pooling language and give it the novel reading he suggests.
Hooks also argues that Skelly Oil Co. v. Harris and Tichacek, which we cite
in our analysis construing the pooling provision, support his construction. Again,
we disagree. In Skelly Oil, the lessors sued for termination of an oil and gas lease,
and the supreme court held that the lease was kept in force by production of a well
on land with which part of the leased premises was pooled. 352 S.W.2d at 950–51.
The lessees argued that the lease had terminated because “the well was not drilled
on the land described in the lease but on acreage pooled therewith,” and they
asserted that “the pooling clause declares that production from pooled acreage shall
be treated as if production is had from the lease but does not state in so many
words that drilling operations on pooled acreage shall have the same effect as
operations conducted on land described in the lease.” Id. at 953. The supreme court
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discussed a substantively similar pooling provision to the one at issue here and
stated:
The second sentence of Paragraph 4 states plainly and unequivocally
that except with respect to the payment of royalties on production, the
entire acreage pooled into a unit shall be treated for all purposes as if
it were included in the lease. Having excepted the matter of royalty
payments on production from this sweeping declaration, the parties
then dealt specifically with the legal consequences of production from
a pooled unit and the royalties which the lessor would be entitled to
receive therefrom. It seems clear to us that these provisions were not
intended to limit the scope and effect of the second sentence in the
paragraph as contended by respondents. From a consideration of the
entire lease, the terms of the 60-day clause, and the other provisions of
Paragraph 6, it is our opinion that drilling in progress at the end of the
primary term on pooled acreage has the same legal effect as similar
operations conducted on land described in the lease.
Id. at 954.
Thus, although, as Hooks argues, the supreme court “rejected an argument
that would restrict the scope of the entire acreage clause’s ‘all purpose’ language”
and referred to that language as “a sweeping declaration” that excepts only the
payment of royalties, the effect of the Skelly Oil court’s holding was consistent
with the legal consequences of pooling recognized in cases dating back at least to
Southland Royalty Co. That case held that the usual consequences of pooling were
to extend the life of the lease “as to all included tracts beyond the primary term and
for as long as oil, gas, or other minerals are produced from any one of the tracts
included in the lease” and to relieve the lessee “of the usual obligation of an
implied covenant for reasonable development of each tract separately” and “the
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obligation to drill off-set wells on other included tracts to prevent drainage by a
well on one or more of such tracts.” See Southland Royalty Co., 249 S.W.2d at
916. Nothing in Skelly Oil indicates an intention to depart from this traditional
application of the pooling provision as Hooks urges us to do here.
Likewise, in Tichacek, the supreme court recognized again that the “primary
legal consequence of pooling” is that production and operations anywhere on the
pooled unit are treated as if they have taken place on each tract or individual lease
within the unit. 997 S.W.2d at 170 (citing Southland Royalty Co., 249 S.W.2d at
916). It applied this legal construction to conclude that when a lessee pools in good
faith, it is relieved of the obligation to reasonably develop each tract separately or
to drill off-set wells on other tracts included in the unit to prevent drainage. Id. The
Tichacek court held, then, that because the jury in that case affirmed the validity of
the pooling, the plaintiffs had to segregate the claims between pre-pooling drainage
from the leases and post-pooling drainage from the unit. Id. at 170–71. Tichacek
did not stand for the proposition that a lessor like Hooks may sue the lessee for
breach of lease based on an expanded reading of the lessee’s obligation to drill
offset wells to protect an individual lease from drainage; it stated only that the
lessee has a duty to protect the unit from drainage. Thus, Tichacek addressed a
claim arising from drainage—a claim that Hooks does not assert here.
Furthermore, in Tichacek and more recent cases, the supreme court has interpreted
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pooling clauses more narrowly than in Skelly Oil, and it relied on the language
used by the parties in construing the relevant provisions. See id. at 170; see also
Tittizer v. Union Gas Corp., 171 S.W.3d 857, 861 (Tex. 2005) (same).
The court’s ultimate conclusion in Mengden is instructive here. The question
before the supreme court was whether the pooling of two leases extended a payout
provision and a partial reversion contained in a farmout agreement10 applicable to
only one of the pooled leases to the production from the entire unit. See Mengden,
544 S.W.2d at 644, 647–48. The court concluded that, because the leases were
properly pooled, “the total unit production and costs should be allocated to each
lease in proportion to the number of acres contributed therefrom to the respective
units” and it “found no provision in the farmout agreement or assignments to [the
defendant] which would prevent or alter the normal rights and effects of the
pooling provision of the leases.” Id. at 647. Specifically, the supreme court
reasoned that the farmout agreements applicable to the “A” and “B” leases
contained different method of calculating Mengden’s payout and the effective date
of Peninsula Production’s reversion interest in the leases and that the expenses on
10
A farmout agreement is “a ‘very common form of agreement . . . whereby the
owner of a lease not desirous of drilling at the time agrees to assign the lease, or
some portion of it . . . to another operator who is desirous of drilling the tract.’”
Mengden v. Peninsula Prod. Co., 544 S.W.2d 643, 645 n.1 (Tex. 1976) (quoting
Williams & Meyers, OIL & GAS LAW, MANUAL OF TERMS 167 (1971)).
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lease “B” “have amounted to considerably more than” the amounts that were
recoverable on lease “A.” Id. at 648. The supreme court concluded:
If the producing wells had been located on lease “B” portions of the
units, it is not likely that Peninsula would contend that the payout
provisions of farmout “B” should apply to the entire units. Neither
should the payout provisions of farmout “A” apply to the entire units.
We hold that payout provisions of both farmouts are applicable to the
unit wells in proportion to the acreage that each contributed to the
units.
Id.
Thus, the supreme court determined that, even though the legal consequence
of pooling the “A” and “B” leases was that the acreage of the entire unit was
considered part of each lease separately, that did not mean that provisions
contained in the conveyance documents governing the individual tracts applied
universally to the entire unit. Here, that means that the legal consequence of
pooling was that “the entire acreage” constituting the pooled unit should be treated
as if it were included in Hooks’ tract. It was not a legal consequence of pooling
that all of the individual protections—including the offset obligation provisions
designed to protect Hooks’ tract from drainage—applied to the entire unit.
Because, as a matter of law, we conclude that the drilling of wells within
1,320 feet of the pooling unit did not trigger the offset obligations in Hooks’
Hardin County Leases, we conclude that denial of Hooks’ motion for summary
judgment was proper. See TEX. R. CIV. P. 166a(c); Wolf, 44 S.W.3d at 566.
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We overrule Hooks’ cross-issue on appeal.
Conclusion
We conclude that the evidence is insufficient to support the trial court’s
award of $20,081,638.07 for fraud damages, but the evidence is sufficient to
support an award of $17,461,162.57 for fraud damages. We suggest a remittitur of
$2,620,475.50. If Hooks files in this Court such remittitur within twenty days after
the issuance of our opinion, we will modify the trial court’s judgment to delete
$766,626.85 in “unpooling” damages; delete $2,620,475.50 remitted in fraud
damages representing the formation production damages and their associated late
charges; modify the amount of most-favored-nations damages to $431,450.71,
consistent with the parties’ stipulation; and modify the post-judgment interest rate
to reflect an 18% rate for past due royalties (i.e., the most-favored-nations
damages) and a 5% interest rate for other recoveries and affirm as modified. If the
remittitur is not timely filed, then we will let stand our current judgment reversing
the trial court’s judgment and remanding the cause for a new trial.
Evelyn V. Keyes
Justice
Panel consists of Justices Keyes, Massengale, and Lloyd.
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