Syrian-American Oil Corporation, S.A. v. Pecten Orient Company F/K/A Pecten Ash Sham F/K/A Pecten Syria Petroleum Company ( 2017 )

Opinion issued May 11, 2017
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-15-00424-CV
———————————
SYRIAN AMERICAN OIL CORPORATION, S.A., Appellant
V.
PECTEN ORIENT COMPANY F/K/A PECTEN ASH SHAM F/K/A
PECTEN SYRIA PETROLEUM COMPANY, Appellee
and
PECTEN ORIENT COMPANY F/K/A PECTEN ASH SHAM F/K/A
PECTEN SYRIA PETROLEUM COMPANY, Cross-Appellant
V.
SYRIAN AMERICAN OIL CORPORATION, S.A., Cross-Appellee
Appeal from the 190th District Court
Harris County, Texas
Trial Court Case No. 2007-67830
OPINION
This case arises out of a settlement agreement reached between a royalty
interest owner and an operator of Syrian oil and gas properties. In that settlement
agreement, the parties released each other from any and all claims against one
another, known or unknown, as of the time it was made.
Seventeen years later, the royalty owner brought this suit against the operator
for fraud, claiming that the operator had fraudulently induced the owner into the
settlement. The operator counterclaimed against the owner for breach of the
settlement agreement, seeking its attorney’s fees as damages for that breach.
A jury found that the owner should have discovered any fraud in 1989, as of
the date that the parties reached their settlement. As to the operator’s counterclaim
for breach of the settlement agreement, the jury found that the owner had breached
the settlement agreement by bringing this suit. But the jury also found that the
operator had fraudulently induced the owner into entering the settlement agreement,
and declined to award damages to the operator. The trial court entered a take-nothing
judgment against both parties’ claims.
In its appeal, Syrian-American Oil Corporation, N.A., the royalty owner,
challenges the evidentiary support for the jury’s limitations finding against its claim
for fraudulent inducement. SAMOCO contends that conclusive evidence establishes
that it did not discover any fraudulent inducement until 2006. It further contends
that it is entitled to judgment on its fraudulent inducement claim because sufficient
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evidence exists to support the jury’s finding of fraud. Finally, SAMOCO contends
that the trial court erred in granting partial summary judgment on part of an
additional claim for breach of contract based on post-settlement events.
In a cross-appeal, Pecten Orient Company, the operator, contends that the
evidence supports the jury’s finding that SAMOCO breached the settlement
agreement, but that no evidence supports the jury’s finding that Pecten fraudulently
induced SAMOCO into entering that agreement. Pecten further contends that it
proffered uncontroverted evidence of the attorney’s fees that it has expended in
defending this case and thus the jury’s verdict of $0 in damages for SAMOCO’s
breach of the settlement agreement is against the weight of the evidence.
In response to Pecten’s appeal, SAMOCO replies that Pecten’s counterclaim
for breach of the settlement agreement is time-barred and the evidence supports the
jury’s award of $0 in damages on Pecten’s counterclaim.
We conclude that the trial court properly rendered judgment against
SAMOCO’s claims as time-barred by the applicable statute of limitations. We
further conclude that the trial court properly granted the partial summary judgment
that is challenged on appeal. Finally, we conclude that Pecten’s counterclaim for
breach of the settlement agreement was not time-barred and is not excused by the
jury’s fraud finding, because the fraud the jury found was related to a pre-suit
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misrepresentation and not made in contemplation of the settlement of a claim
identified in a yet-to-be-filed lawsuit.
Having found that SAMOCO breached the settlement agreement, the jury’s
award of $0 in damages for attorney’s fees incurred in enforcing the agreement is
not supported by the attorney’s fee evidence, which was uncontroverted at trial. We
therefore affirm the judgment that SAMOCO take nothing and reverse and remand
Pecten’s claim for attorney’s fees for breach of the settlement agreement for a new
trial.
BACKGROUND
The parties have a decades-long history relating to oil and gas concessions
granted by the Syrian government for development of oil and gas fields located in
Syria.
A. Syria grants a service contract for exploration and production.
In 1977, SAMOCO’s predecessor-in-interest, the Syrian American Oil
Corporation, executed a service contract with the Syrian government. A service
contract is an agreement between an oil company and a foreign government in which
the foreign government confers the exclusive right to explore and produce oil
reserves in a specified geographic area. For a share of the production from these
government-owned reserves, the oil company agrees to bear the costs of exploration,
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development, and production. The 1977 service contract provided for a total
exploration period of eight years, and it expired in October 1985.
The contract specified that, if development led to a commercially producing
oil and gas well, a notice of a “Commercial Discovery” would convert the
exploration area capable of production into a “Development Lease Area.” Once a
DLA was established, the contractor had the exclusive right to produce oil and gas
from it for 25 years after production began, with the possibility of an additional
10-year extension.
The service contract also required the developer to select and relinquish
acreage within the area that had not become part of a DLA during the exploration
period: 25% of the acreage after four years of exploration and an additional 25%
after six years. These partial relinquishments were scheduled for 1981 and 1983. In
October 1985, at the end of the service contract’s eight-year term, SAMOCO was
required to relinquish any remaining portion of the original exploration area that had
not been converted to a DLA.
B. SAMOCO assigns its rights to Pecten but retains an interest.
Shortly after executing the service contract, SAMOCO assigned 60% of its
interest in the contract to the Coastal Oil and Gas Corporation. In August 1982,
SAMOCO and Coastal assigned their interests in the service contract to Pecten and
its affiliate, Syria Shell Petroleum Development B.V. The assignment agreement
5
provided in section 6 that SAMOCO and Coastal would retain a combined 6%
share—known as an overriding royalty interest—of Pecten and Shell Syria’s
combined 62% share of the value of the production: SAMOCO retained 4% and
Coastal retained 2%. The assignment agreement granted SAMOCO and Coastal the
right to monitor these section 6 payments.
In 1983, Pecten and Shell Syria relinquished 25% of the exploration area not
yet converted to a DLA, as required under the service contract.
C. Pecten makes agreements with the Syrian government to
continue exploration beyond the initial concession period
without notifying SAMOCO.
In the summer of 1984, the parties drilled a well on the DLA known as the
Deir Ez Zor block. The successful well, known as the Thayyem well, resulted in a
series of “annexes” to the original service contract with the Syrian government. The
first annex, executed in 1984, extended Pecten’s exploration rights for a year beyond
the service contract’s 1985 original expiration date. After a nonsubstantive second
annex, Pecten procured a third annex, which extended the exploration period for an
additional year. These annexes did not change the fiscal terms of the original service
contract.
In October 1987, Pecten, Shell Syria, and the Syrian government entered into
a fourth annex. The fourth annex occurred after the government had obtained a
competitive bid from an unrelated third party to re-lease the fields. Like the previous
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three annexes, the fourth annex extended the exploration period. The fourth annex
also adopted financial terms different from the original service contract for both the
payment of royalties to the Syrian government and the production sharing between
the parties to the service contract. The fourth annex also granted conditional
exploration rights to a new area in Deir Ez Zor through October 25, 1988.
Pecten inserted language in two places in the fourth annex indicating that it
was independent from the original service contract:
The obligations and rights subject of this Annex shall be considered
independent from the Original Service Contract.
* * *
It is understood that the petroleum produced and saved from the New
Area and all the documents and records related to the execution of
Petroleum Operations under this Annex shall be treated independently
and separately from those under the Original Service Contract.
Pecten did not disclose to SAMOCO that it had entered into these annex
agreements with the Syrian government at the time they were executed.
The fourth annex became a major source of conflict between SAMOCO and
Pecten.
During 1986 and 1987, Pecten attempted to buy SAMOCO’s royalty interest,
but SAMOCO refused to sell. In May 1988, Pecten sent its corporate representative,
Gary Cameron, to meet with SAMOCO’s representative, Houssam Bahri, to make
another buyout proposal. During this meeting, SAMOCO learned that Pecten had
participated in the annexes to the original service contract. SAMOCO learned that
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Pecten’s position was that SAMOCO’s royalty interest applied to discoveries made
before October 1985—under the original service contract—and did not apply to
discoveries after that date was extended by the annexes.
D. SAMOCO sues Pecten for failing to pay royalties based on the
annex agreements, culminating in a settlement.
SAMOCO and Coastal sued Pecten and Shell Syria in Harris County on July
12, 1988 for a declaratory judgment and breach contract. In the lawsuit, SAMOCO
alleged that the annexes with the Syrian government entitled SAMOCO to royalty
payments under the original service contract. SAMOCO and Coastal alleged that
Shell Syria and Pecten had: (1) failed to disclose to SAMOCO that they had obtained
annexes to the service contract that extended the exploration period; (2) withheld
royalty payments due to SAMOCO and Coastal under the 1982 assignment and the
first, third, and fourth annex agreements, and (3) failed to provide the reports and
information required by the 1982 assignment agreement. SAMOCO’s original
petition stated SAMOCO’s understanding that Pecten took the position that Pecten
did not owe royalties to SAMOCO under the annexes, and further stated that
SAMOCO disagreed with Pecten’s position:
[Pecten and Shell Syria], for the first time, made the claim that
[SAMOCO and Coastal] were only entitled to Section 6 revenue on
Production Sharing Crude Oil attributable to those fields discovered
prior to October 25, 1985, the original termination date of the
exploration period specified in the SERVICE CONTRACT.
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SAMOCO identified that Pecten had extended the service contract by annex
or amendment and had “until recently, kept secret the existence of that Annex or
Amendment and have, through the date of filing this petition, refused and failed to
disclose the contents thereof to [SAMOCO and Coastal].” SAMOCO alleged that
“the SERVICE CONTRACT has been amended to extend the Exploration Period
for a number of years and allege that the termination date thereof is well in the
future.”
SAMOCO served Pecten with discovery requests. After Pecten had
interposed objections to those discovery requests, but before it had produced any
documents, the parties discussed settlement. In furtherance of those discussions,
Pecten produced copies of the first, third, and fourth annexes to SAMOCO and
Coastal.
The parties reached an accord and executed a settlement agreement on
September 15, 1989. The settlement agreement acknowledged that the parties’
dispute centered on whether the SAMOCO was entitled to payments based the
annexes to the agreement with the Syrian government, including the fourth annex:
WHEREAS, subsequent to entry of the Assignment Agreement by
the parties thereto, the following agreements regarding or referencing
the Service Contract were entered into among [the Syrian Government,
the Syrian Petroleum Company], Pecten, Shell, and Deminex Deutsche
Erdoversogungsgesellschit aft mbH or its affiliates:
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(a) Annex signed on December 4, 1984, and ratified by [the Syrian
Government] Law No. 1 on January 10, 1985 (“First Annex”);
(b) Second Annex signed on May 30, 1985, and ratified by [the
Syrian Government] Law No. 12 on August 12, 1985 (“Second
Annex”);
(c) Third Annex signed on August 4, 1986, and ratified by [the Syrian
Government] Law No. 33 on November 5, 1986 (“Third Annex”);
(d) Fourth Annex signed on October 24, 1987, and ratified by [Syrian
Government] Law No. 28 on October 28, 1987 (“Fourth Annex”);
WHEREAS, the First, Third, and Fourth Annexes provided for
further exploration periods by Pecten/Shell/Deminex within portions of
the geographical area within the Syrian Arab Republic originally
delineated in . . . the Service Contract (the “Deir Ex Zor Area”)
following the original exploration period expiration date of October 25,
1985 . . . .
The agreement restated the parties’ disagreement whether SAMOCO’s
interest in new exploratory wells terminated in 1988 and whether the annexes were
part of a single agreement under the service contract or were independent
agreements:
Pecten has advised Coastal/SAMOCO that the right of
Pecten/Shell/Deminex to commence new exploratory wells pursuant to
the Fourth Annex terminated on October 25, 1988, pursuant to the Third
Annex terminated on October 25, 1987, pursuant to the First Annex
terminated on October 25, 1986, and pursuant to the original Service
Contract terminated on October 25, 1985 . . . .
The settlement agreement declared that the these termination dates were not
intended “by any party as any concession as to whether the Service Contract, First
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Annex, Third Annex, and Fourth Annex constitute a single agreement or multiple
independent agreements.”
Under the settlement agreement’s terms, Pecten and Shell Syria agreed to pay
SAMOCO and Coastal more than $2 million. The parties further agreed that
SAMOCO and Coastal would retain a 6% overriding royalty interest in the Deir Ez
Zor fields developed during the original service contract term, the first annex, and
the third annex, but not the fourth annex. The settlement agreement expressly
provided that SAMOCO would have no overriding royalty interest in production
under the fourth annex or any other future production unless it was part of existing
DLAs established by the service contract and the first and third annexes, or allocated
to a reservoir that is common to, overlaps with, intrudes from, or protrudes into one
of those areas:
Except as may be applicable pursuant to [the common reservoir
allocation provision] Coastal/SAMOCO shall not be entitled to any
Section Six Payments pursuant to the Assignment Agreement or this
Settlement Agreement with respect to (a) Fourth Annex Production
Sharing Crude Oil or (b) any Crude Oil produced by Pecten/Shell from
areas other than Development Lease Areas now or hereafter established
pursuant to Article III(d) of the Service Contract with respect to the
Service Contract Fields, First Annex Fields or the Third Annex Fields.
In exchange for the cash settlement and the continuation of payments under
the DLAs established by the service contract, the first and third annexes, and
reservoirs determined to be common to those areas, SAMOCO waived any and all
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claims for “any other payments made or due prior to the effective date of [the]
Settlement Agreement.” SAMOCO also agreed to release Pecten from “any and all
claims . . . known or unknown, asserted or not asserted, as of the date of execution
of this Settlement Agreement, that arise in connection with, or with respect to,
Sections 6 and/or 12 of the Assignment Agreement.”
The settlement agreement contained a merger clause: “This Settlement
Agreement constitutes the entire understanding between the parties relating to the
subject-matter hereof and supersedes all other negotiations and agreements, whether
written or oral, among the parties concerning such subject-matter.”
From 1989 until 2006, Pecten and Shell Syria paid SAMOCO’s monthly
overriding royalty payments pursuant to the settlement agreement.
Meanwhile, in 2003, a seventh annex to the service contract was executed by
the Syrian government, the Syrian Petroleum Company, Shell Syria, Petro-Canada
Deir Ez Zor GmbH, and Petro-Canada Ash Sham GmbH. Known as the “deep and
lateral agreement,” this annex permitted the contracting parties to “explore deep
hydrocarbons” that had not been previously developed in DLA areas under the
service contract, the fourth annex, and another contract, known as the Ash Sham
contract.
In June 2006, Pecten offered to buy out SAMOCO’s royalty interest for $4.1
million. A Shell Syria representative approached SAMOCO representative
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Houssam Bahri with the offer. To assist in evaluating the offer, Bahri hired Michael
Foley, a former Pecten employee who had worked in Pecten’s contracts department
in Syria. Upon reviewing the terms of the 1989 settlement agreement, Foley
expressed surprise that it had conferred no overriding royalty interest relating to the
fourth annex. Foley viewed the fourth annex as an extension of the original service
contract, and in his opinion, Pecten had also viewed it that way, despite its insertion
of language in the fourth annex that the fourth annex was an agreement independent
from the original service contract. In Foley’s view, SAMOCO was entitled to an
overriding royalty interest in any production under the fourth annex.
E. SAMOCO sues Pecten for fraudulently inducing the settlement
agreement.
Based on the conversations that it had with Foley, SAMOCO sued Pecten and
Shell Syria on November 7, 2007. SAMOCO alleged claims for breach of contract,
fraud, and breach of implied covenant of good faith and fair dealing causes of action.
Pertinent to this appeal, SAMOCO’s suit alleged that:
 Pecten had fraudulently induced SAMOCO to enter into the 1989
Settlement Agreement because it had misrepresented SAMOCO’s right
to royalties under the fourth annex; and
 SAMOCO was entitled to royalties on deep and lateral production
under the 1989 settlement agreement and the 2003 Deep and Lateral
Annex.
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More than four years into the litigation, Pecten counterclaimed for breach of
contract against SAMOCO, contending that SAMOCO’s claims against it breached
the 1989 settlement agreement.
Pecten moved for summary judgment. The trial court granted partial summary
judgment with respect to SAMOCO’s deep and lateral claims. The case then
proceeded to trial on SAMOCO’s fraudulent inducement claim and Pecten’s breach
of contract counterclaim.
On the fraud claim, the trial court asked the jury: “Did Pecten fraudulently
induce SAMOCO Panama to enter into the 1989 Settlement Agreement?” The trial
court instructed the jury as to the standard pattern jury charge elements of fraud and
then asked the jury to answer “Yes” or “No” for three subparts. The jury answered
“Yes” only as to subpart (b):
b. Pecten’s inclusion of language in the Fourth Annex stating that:
(i) “The obligations and rights subject of this Annex shall be
considered independent from the Original Service Contract;” and
(ii) “It is understood that the petroleum produced and saved from the
New Area and all the documents and records related to the execution
of Petroleum Operations under this Annex shall be treated
independently and separately from those under the Original Service
Contract.”
ANSWER: Yes.
Thus, the jury found that Pecten had fraudulently induced SAMOCO into
entering into the September 1989 settlement agreement by including language in the
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October 1987 fourth annex to reflect that the annex was an independent agreement
with the Syrian government rather than an extension of the original service contract.
It found that $179,362.18 in actual damages were proximately caused by the fraud,
and it awarded punitive damages.
The jury also found, however, that SAMOCO, in the exercise of reasonable
diligence, should have discovered by September 15, 1989—the same day that the
Settlement Agreement was executed—that Pecten’s inclusion of language in the
Fourth Annex had induced the fraud. It further found that SAMOCO had
“unreasonably delay[ed] in asserting its claim based on inclusion of language in the
Fourth Annex” and that Pecten had “made a good faith change of its position to its
detriment in reliance upon the delay.”
With respect to Pecten’s breach of contract claim, the jury found that
SAMOCO had failed to comply with the 1982 settlement agreement, but it awarded
Pecten $0 damages for “[t]he attorney’s fees, expenses and costs incurred by Pecten
in defending against claims by SAMOCO Panama that are subject to release in the
1989 Settlement Agreement.”
Both parties moved to disregard those jury findings against their respective
claims and for judgment on the findings supporting their claims. The trial court
rendered judgment on the verdict, ordering that each party take nothing and bear its
own costs.
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SAMOCO’S APPEAL
I. Limitations
The jury found that SAMOCO discovered, or should have discovered, its
claim for fraudulent inducement in 1989. SAMOCO contends that the evidence does
not support this finding, because the evidence conclusively establishes that
SAMOCO had no reason to discover the fraud before June 2006, when Foley first
shared his opinion that SAMOCO was entitled to receive royalty payments under
the fourth annex. It further relies on the jury’s fraudulent inducement finding to
contend that the jury’s discovery rule finding must be disregarded.
A. The evidence supports the jury’s finding that Pecten’s
fraudulent inducement should have been discovered in 1989.
Longstanding precedent upholds application of the discovery rule to
determine whether a fraud cause of action is time-barred. Hooks v. Samson Lone
Star, Ltd. P’ship, 457 S.W.3d 52, 57 (Tex. 2015) (quoting Ruebeck v. Hunt, 176
S.W.2d 738, 739 (Tex. 1943)); Shell Oil Co. v. Ross, 356 S.W.3d 924, 928 (Tex.
2011). We turn to the rule’s application in this case.
The jury determined that SAMOCO, in the exercise of reasonable diligence,
should have discovered the fraud relating to the fourth annex by the date that it
executed the settlement agreement. This finding is supported by the recitals in the
settlement agreement that expressly acknowledge the parties’ disagreement about
whether the fourth annex constituted an independent agreement. SAMOCO did not
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make further inquiry beyond obtaining a copy of the fourth annex. In its allegations
in the 1988 lawsuit against Pecten, SAMOCO stated that Pecten had wrongly taken
the position that annexes to the service contract were independent agreements, and
had not alerted SAMOCO to any of the annexes or paid any royalties under them.
Although SAMOCO contends that the recitals in the fourth annex misrepresented
that the fourth annex was an independent agreement, SAMOCO was on notice of the
annex’s existence and of its potential claim to unpaid royalties under it by 1989. In
the 1988 lawsuit, SAMOCO alleged that Pecten had concealed that it owed
payments under the fourth annex. The settlement agreement recognizes the dispute
between the parties on this issue, disclaiming that either party had made “any
concession as to whether the Service Contract, First Annex, Third Annex, and Fourth
Annex constitute a single agreement or multiple independent agreements.” This
evidence supports the jury’s finding that SAMOCO did not exercise reasonable
diligence in discovering its claim that the fourth annex contained an actionable
misrepresentation. We hold that sufficient evidence supports the jury’s finding that
SAMOCO should have discovered fraud in connection with the execution of the
fourth annex by May 1989. See Hooks, 457 S.W.3d at 61 (holding that factfinder
could consider inconsistencies in available information when determining whether
reasonable diligence would have uncovered fraud); Ross, 356 S.W.3d at 929–30
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(applying reasonable diligence standard to determine whether discovery rule
extended statute of limitations for fraud claim).
B. The discovery rule finding does not conflict with the fraud
finding.
In finding that Pecten committed fraud, the jury found that SAMOCO had
justifiably relied on the fourth annex language that it was an independent agreement
in deciding to relinquish any claim that it had to payments related to the fourth annex.
SAMOCO complains that the jury’s discovery rule finding conflicts with this fraud
finding. SAMOCO observes that, when a tortfeasor knows that a representation is
false and made with the intent to defraud, liability is not excused because the
defrauded party who relied on the representation failed to discover the fraud. See
Isenhower v. Bell, 365 S.W.2d 354, 357 (Tex. 1963) (“When one has been induced
to enter into a contract by fraudulent representations, the person committing the
fraud cannot defeat a claim for damages based upon a plea that the party defrauded
might have discovered the truth by the exercise of proper care.”), quoted in Koral
Indus. v. Sec.-Conn. Life Ins. Co., 802 S.W.2d 650, 651 (Tex. 1990) (per curiam).
The cases upon which SAMOCO relies, however, do not address the reasonable
diligence standard, which a plaintiff must satisfy in order to delay the accrual of the
applicable statute of limitations.
The reasonable diligence standard applied in the limitations context is not the
same as the justifiable reliance standard incorporated as an element of actionable
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fraud. The Texas Supreme Court has recognized that reliance on a misrepresentation
may be justified if the party actually relies on the misrepresentation, even without
diligent inquiry into its veracity. See Koral, 802 S.W.2d at 651; Trenholm v. Ratcliff,
646 S.W.2d 927, 933 (Tex. 1983); see also RESTATEMENT (SECOND) OF TORTS
§ 545A cmt. b (1977) (“Justification is a matter of the qualities and characteristics
of the particular plaintiff, and the circumstances of the particular case, rather than of
application of a community standard to all cases.”); RESTATEMENT (SECOND) OF
CONTRACTS § 172 (1981) (“A recipient’s fault in not knowing or discovering the
facts before making the contract does not make his reliance unjustified unless it
amounts to a failure to act in good faith and in accordance with reasonable standards
of fair dealing.”).
Different policies, however, animate the discovery rule. As a carefully drawn
exception, the discovery rule balances the conflicting policy benefits of precluding
stale or spurious claims against the risks of precluding meritorious claims that fall
outside an arbitrarily set period. See S.V. v. R.V., 933 S.W.2d 1, 6 (Tex. 1996)
(quoting Robinson v. Weaver, 550 S.W.2d 18, 20 (Tex. 1977)). The discovery rule
exception to statutes of limitations is purposefully narrow. See Ross, 356 S.W.3d at
929; see also Via Net v. TIG Ins. Co., 211 S.W.3d 310, 313 (Tex. 2006) (explaining
that the court has “restricted the discovery rule to exceptional cases to avoid
defeating the purposes behind the limitations statutes”) (first citing S.V., 933 S.W.2d
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at 25; and then citing Computer Assocs. Int’l, Inc. v. Altai, 918 S.W.2d 453, 456,
457 (Tex. 1996)). It requires that a party exercise reasonable diligence in
discovering facts relating to its claims. Via Net, 211 S.W.3d at 314.
For a delayed accrual, SAMOCO is held to the objective duty of reasonable
diligence, and is entitled to tolling of the statute of limitations only until it knew or
should have known by exercising reasonable diligence of the facts giving rise to its
cause of action. See Barker v. Eckman, 213 S.W.3d 306, 311–12 (Tex. 2006);
Marshall, 342 S.W.3d at 67. The jury had before it sufficient evidence to conclude
that SAMOCO, by exercising reasonable diligence, could have discovered any fraud
relating the representations in the fourth annex by the time it executed the settlement
agreement.
Accordingly, we hold that legally and factually sufficient evidence supports
the jury’s discovery rule finding and that the finding properly was applied to bar
SAMOCO’s fraudulent inducement claim. We therefore do not reach SAMOCO’s
challenges to the jury’s finding supporting laches or the disregard of jury’s damages
findings.
II. Summary Judgment on the Deep and Lateral Claim
SAMOCO next contends that the trial court erred in granting Pecten partial
summary judgment on SAMOCO’s claim for section 6 payments associated with the
deep and lateral annex. SAMOCO asserts that the terms of the 1982 assignment
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agreement and the settlement agreement entitle it to section 6 payments because the
deep and lateral annex covered reserves under the settlement agreement. Pecten
moved for summary judgment on this claim, contending that the evidence
conclusively established that the deep and lateral annex did not confer any payment
obligation to SAMOCO under either the 1982 assignment agreement or the
settlement agreement.
The 1982 assignment agreement obligated Pecten and Shell to (1) pay
SAMOCO $8 million, and (2) give SAMOCO an overriding royalty interest in
“Production Sharing Crude Oil” under the service contract. The 1989 settlement
agreement modified the parties’ agreement. It provided that the Syrian Syrian
government’s interpretation of the allocation of Production Sharing Crude Oil “shall
be determinative for the purposes of calculating the quantity of Section Six
Production Sharing Crude Oil” under the service contract.
Pecten provided both agreements as summary judgment evidence. Pecten also
provided the deposition testimony of its corporate representative, Gary Cameron, in
support of the summary judgment motion. Cameron testified that, following the
expiration of the fourth annex in 1988, the Syrian government determined that the
parties’ production rights to potential deep and lateral production had expired
because the parties had not provided proper notice of their intent to develop the deep
and lateral horizons in the development areas.
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Cameron’s testimony that any deep and lateral production right terminated is
uncontroverted. SAMOCO points to the provision of the settlement agreement
entitling it to royalties on all oil “which is produced by Pecten/Shell from anywhere
within the Development Lease Areas . . . (regardless of whether produced from
reservoirs located at, above or below depths of current or future wells within the
Development Lease Areas).” But this language must be read together with the 1982
assignment agreement, which provided for termination, and the settlement
agreement, which provided that the Syrian government determined the allocation
area. When the Syrian government terminated any production right Pecten may have
had in the deep and lateral reservoirs under the service contract, any derivative right
SAMOCO had to royalties on production from those reservoirs was likewise
terminated. This reading is consistent with Cameron’s undisputed testimony. Under
the parties’ settlement agreement, the Syrian government’s interpretation was
determinative.
SAMOCO’s response relies on an affidavit from Foley in which he declared
that, based on his experience, the deep and lateral annex “is simply an extension or
amendment to the Service Contract.” SAMOCO also proffered the affidavit of
Richard Harper, Jr., who testified to industry custom and reached the same
conclusion as Foley. The trial court sustained Pecten’s objection to Harper’s
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affidavit as rendering inadmissible legal conclusions.1 But even if it were admitted,
Harper’s affidavit, which contains statements regarding how operators generally
treat annexes as a matter of industry custom, does not address the impact of the 1989
settlement agreement on any right to production payments under the 1982
assignment agreement. The undisputed evidence demonstrates that, by
governmental decree, the development area specified in the service contract does not
include the reservoirs made the subject of the deep and lateral annex. Accordingly,
we hold that the trial court did not err in granting summary judgment on SAMOCO’s
claim for deep and lateral production payments.
Having rejected SAMOCO’s challenges to the trial court’s judgment against
its claims, we turn to Pecten’s cross-appeal, which challenges the trial court’s
judgment against Pecten’s claim for breach of the parties’ settlement agreement.
PECTEN’S CROSS-APPEAL
In its cross-appeal, Pecten contends that the jury’s zero damages finding on
its counterclaim for breach of the 1989 settlement agreement is against the great
weight and preponderance of the evidence. SAMOCO responds that Pecten’s
1
SAMOCO takes exception to the trial court’s evidentiary ruling, but it does
not explain how the ruling constitutes an abuse of discretion. See City of
Brownsville v. Alvarado, 897 S.W.2d 750, 753 (Tex. 1995) (“The admission
and exclusion of evidence is committed to the trial court’s sound discretion.”)
(citing Gee v. Liberty Mut. Fire Ins. Co., 765 S.W.2d 394, 396 (Tex. 1989)).
23
counterclaim for breach of contract is time-barred because Pecten did not amend its
pleadings to add its breach-of-contract counterclaim until more than four years after
SAMOCO filed its original petition. SAMOCO further responds that sufficient
evidence supports the jury’s $0 finding as damages for breach of the settlement
agreement. Finally, SAMOCO contends that the jury’s finding that Pecten
fraudulently induced the settlement agreement vitiates any breach of it by SAMOCO
and thus the jury’s finding that SAMOCO breached that agreement is legally infirm.
I. Pleadings and Limitations
SAMOCO contends that Pecten’s counterclaim for attorney’s fees is barred
by the statute of limitations as a matter of law because Pecten did not file its
counterclaim until more than four years after SAMOCO filed this lawsuit. Pecten
responds that its counterclaim relates back to its timely filed affirmative defense in
its first amended answer, in which it pleaded that SAMOCO’s claims were barred
by its “compromise and settlement with respect to the matters alleged.”
The parties advance dueling statutory provisions in support of their respective
positions. For its part, SAMOCO observes that section 16.069 of the Civil Practice
and Remedies Code requires counterclaims to be filed within 30 days after the
party’s answer to avoid a limitations bar:
(a) If a counterclaim or cross claim arises out of the same transaction or
occurrence that is the basis of an action, a party to the action may
file the counterclaim or cross claim even though as a separate action
24
it would be barred by limitations on the date that the party’s answer
is required.
(b) The counterclaim or cross claim must be filed not later than the 30th
day after the date on which the party’s answer is required.
TEX. CIV. PRAC. & REM. CODE ANN. § 16.069 (West 2015). Because Pecten did not
file a counterclaim within 30-day time period, SAMOCO argues, Pecten’s effort to
tack the counterclaim onto its settlement and release defense must fail. Section
16.069, however, applies to counterclaims that “would be barred by limitations on
the date the party’s answer is required.” Pecten’s counterclaim was not barred by
limitations on the date it answered the suit because it is the suit that forms the basis
for Pecten’s claim for breach of the settlement agreement. Because it was not a
claim barred by limitations on the date Pecten answered, but accrued only upon
SAMOCO’s filing of the suit, section 16.069 does not preclude Pecten’s
counterclaim.
Instead, section 16.068 is the applicable relation-back provision. See TEX.
CIV. PRAC. & REM. CODE ANN. § 16.068 (West 2015). Section 16.068 provides that
later amendments, including pleadings “that change[] the grounds of liability or
defense” will relate back to an initial pleading, unless the pleading amendment is
“wholly based on a new, distinct or different” transaction or occurrence:
If a filed pleading relates to a cause of action, cross-action,
counterclaim or defense that is not subject to a plea of limitation when
the pleading is filed, a subsequent amendment . . . to the pleading that
changes the facts or grounds of liability or defense is not subject to a
25
plea of limitation unless the amendment or supplement is wholly based
on a new, distinct, or different transaction or occurrence.
Id.; see also Winston v. Am. Med. Int’l, Inc., 930 S.W.2d 945, 954 (Tex. App.—
Houston [1st Dist.] 1996, writ denied) (holding that, together with section 16.064,
section 16.068’s “clear purpose” is to “allow adding to a petition additional theories
of liability or defenses”).
Pecten asserted the affirmative defense of release within the statute of
limitations. Its added ground of liability, breach of the settlement agreement that
released it from liability, is a ground arising from the same “transaction or
occurrence” underlying Pecten’s affirmative defense of release. TEX. CIV. PRAC. &
REM. CODE § 16.068. Under section 16.068, Pecten’s counterclaim relates back to
its timely filed affirmative defense.
SAMOCO responds that section 16.068 should be limited to cases in which a
party has sought affirmative relief within the limitations period and that the assertion
of an affirmative defense is not enough to trigger its provisions. SAMOCO relies
on a case in which our sister court of appeals held that a counterclaim does not relate
back to a general denial. See Flukinger v. Straughan, 795 S.W.2d 779, 787 (Tex.
App.—Houston [14h Dist.] 1990, writ denied). Unlike a general denial, however,
the timely assertion of an affirmative defense will render a later counterclaim timely
if the counterclaim and the defense are based on the same occurrence. See
Markovsky v. Kirby Tower, L.P., No. 01–13–00516–CV, 2015 WL 8942528, *6
26
(Tex. App.—Houston [1st Dist.] 2015, no pet.) (mem. op.). In Markovsky, this court
held that Kirby Tower’s breach of contract and declaratory judgment counterclaims
related back to Kirby Tower’s prior pleading of anticipatory repudiation as an
affirmative defense. Id.
We follow Markovsky as a faithful interpretation of the statute. Section
16.068 expressly provides that a later filed “pleading” may relate back to a
“defense.” TEX. CIV. PRAC. & REM. CODE § 16.068. A defense is not a claim that is
subject to limitations. Thus, the statute expressly contemplates that a claim subject
to limitations can nonetheless relate back to a defense that is not itself an affirmative
claim for relief. We hold that Pecten’s counterclaim relates back to its defense under
section 16.068. See id.; Markovsky, 2015 WL 8942528 at *6.
III. Breach of Contract and Excuse for Failure to Perform
SAMOCO contends that its breach of the settlement agreement is excused by
the jury’s finding that Pecten fraudulently induced SAMOCO into entering into the
agreement. A fraudulent inducement finding can support both a cause of action
and an affirmative defense to enforcement of a contract. See Koral, 802 S.W.2d at
651; see also Martin v. Martin, 287 S.W.3d 260, 266 (Tex. App.—Dallas 2009, pet.
denied) (observing that “the statute of limitations does not apply to a fraud claim
pleaded defensively to defeat liability on an obligation induced by fraud”). Thus,
27
the jury finding provides a basis to excuse SAMOCO from complying with the
settlement agreement.
Pecten responds, however, that there is no evidence to support the jury’s
finding that misrepresentations relating to the 1987 fourth annex fraudulently
induced SAMOCO to enter the 1989 settlement agreement. The jury rejected the
other two possible fraud theories submitted for consideration. We therefore
determine whether sufficient evidence supports a finding that Pecten’s fraud excused
SAMOCO’s breach of the settlement agreement.
A. Standard of review
In analyzing the legal sufficiency of the evidence supporting a finding, we
review the record in a light favorable to the factual findings, crediting favorable
evidence if a reasonable factfinder could and disregarding contrary evidence unless
a reasonable factfinder could not. See City of Keller v. Wilson, 168 S.W.3d 802, 827
(Tex. 2005). Evidence is legally sufficient if it “‘rises to a level that would enable
reasonable and fair-minded people to differ in their conclusions.’” Ford Motor Co.
v. Ridgway, 135 S.W.3d 598, 601 (Tex. 2004) (quoting Merrell Dow Pharm., Inc. v.
Havner, 953 S.W.2d 706, 711 (Tex.1997)). We conclude that the evidence is legally
insufficient to support the finding only if (a) there is a complete absence of evidence
of a vital fact, (b) the court is barred by rules of law or evidence from giving weight
to the only evidence offered to prove a vital fact, (c) the evidence offered to prove a
28
vital fact is no more than a mere scintilla, or (d) the evidence conclusively establishes
the opposite of the vital fact. City of Keller, 168 S.W.3d at 810 (quoting Robert W.
Calvert, “No Evidence” and “Insufficient Evidence” Points of Error, 38 TEX. L.
REV. 361, 362–63 (1960)). The factfinder is the sole judge of the weight and
credibility of the evidence. Id. at 819. We assume that the factfinder decided those
questions in favor of the verdict if they reasonably could do so. See id. at 819–20.
The charge asked, “Did Pecten fraudulently induce [SAMOCO] to enter into
the 1989 Settlement Agreement?” After instructing the jury on the legal elements
of fraud, the charge identifies three sources of Pecten’s representations as possible
bases for finding fraud, asking the jury to answer “yes” or “no” for each of them.
The jury found just one source of representations fraudulently induced SAMOCO to
enter into the settlement agreement, that being
Pecten’s inclusion of language in the Fourth Annex stating that:
(i) “The obligations and rights subject of this Annex shall be considered
independent from the Original Service Contract;” and (ii) “It is
understood that the petroleum produced and saved from the New Area
and all the documents and records related to the execution of Petroleum
Operations under this Annex shall be treated independently and
separately from those under the Original Service Contract.”
Thus, we determine whether the evidence supports a finding that the language in the
fourth annex were misrepresentations intended to induce, and did induce, SAMOCO
into settling with Pecten.
29
B. The fourth annex pre-suit recitals do not excuse breach of the
settlement agreement because they did not induce the
settlement.
SAMOCO was not a party to the fourth annex, which Pecten executed in
October 1987—eight months before SAMOCO’s 1988 lawsuit. The parties entered
into the settlement agreement in May 1989. Before and after executing the fourth
annex, Pecten approached SAMOCO with offers to buy out SAMOCO’s royalty
interest. The evidence at trial showed that Pecten inserted the language into the
fourth annex to deter SAMOCO from claiming that its interest extended to the fourth
annex and to induce SAMOCO into accepting Pecten’s buyout offer.
Pecten argues that the misrepresentations in the fourth annex cannot present a
basis for fraudulent inducement to settle the lawsuit, both because the lawsuit did
not exist when the fourth annex was made and because SAMOCO was not a party
to fourth annex. Pecten points out that the settlement agreement expressly recited
that neither party conceded the position that the fourth annex, or any of the annexes,
were independent agreements. Pecten notes that SAMOCO seeks to impose open-
ended liability based on the fourth annex even though SAMOCO was not a party to
the fourth annex. Pecten relies on the Texas Supreme Court’s decision in Ernst &
Young, L.L.P. v. Pacific Mutual Life Insurance Co., 51 S.W.3d 573 (Tex. 2001), to
support its contentions.
30
In Ernst & Young, the Texas Supreme Court confirmed that Texas law is
consistent with the principle, set forth in section 531 of the Restatement (Second) of
Torts, that “a person who makes a misrepresentation is liable to the person or class
of persons the maker intends or ‘has reason to expect’ will act in reliance upon the
misrepresentation.” Id. at 578 (quoting RESTATEMENT (SECOND) OF TORTS § 531
(1977)). In the context of third parties who seek to rely on the misrepresentation,
this standard of intent “requires a degree of certainty that goes beyond mere
foreseeability.” Id. at 579–80. “[T]he alleged fraudfeasor must ‘have information
that would lead a reasonable man to conclude that there is an especial likelihood that
it will reach those persons and will influence their conduct.’” Id. at 580 (quoting
RESTATEMENT (SECOND) OF TORTS § 531 cmt. d).
Section 531’s similar-transaction requirement, the Texas Supreme Court
continued, also circumscribes the reason-to-expect standard. Id. “Though the
transaction sued upon need not be identical to that the defendant contemplates, it
must have the same essential character: ‘It may differ in matters of detail or extent,
unless these differences are so great as to amount to a change in the essential
character of the transaction.’” (quoting RESTATEMENT (SECOND) OF TORTS § 531
cmt. g).
SAMOCO was not a party to the fourth annex, but the jury reasonably could
have concluded that Pecten, who was seeking to buyout SAMOCO’s interest at the
31
time, had “reason to expect” that SAMOCO, even though it was not a party to the
fourth annex, might rely on the statements in the fourth annex that the annex was an
independent agreement. SAMOCO introduced evidence that Pecten had reason to
expect that the statements in the fourth annex would reach SAMOCO and would
influence its conduct in connection with Pecten’s offer to purchase SAMOCO’s
interest. See id.
The same is not true for SAMOCO’s settlement of its later lawsuit against
Pecten, in which SAMOCO directly asserted claims for the applicability of the
annexes and nonpayment of royalties under its own agreement with Pecten. The
settlement of the lawsuit is not the same in essential character of a contemplated
buyout. See id. Rather, the settlement was made in the context of a legal dispute
over the whether the annexes, including the fourth annex, were independent
contracts. The settlement agreement expressly disavowed “any concession as to
whether the Service Contract, First Annex, Third Annex, and Fourth Annex
constitute a single agreement or multiple independent agreements.” Both the timing
of the fourth annex representations—before any lawsuit had been filed—and the
character of the later settlement—in which both parties bargained for release of the
claims made in the lawsuit, including a claim that the fourth annex was not an
independent contract—are differences “so great as to amount to a change in the
essential character of the transaction” contemplated at the time the representations
32
were made, negating third-party reliance in that context. See Ernst & Young, 51
S.W.3d at 580. Because we conclude no evidence supports an inference that the
misrepresentations in the fourth annex were made in contemplation of settlement of
a third-party lawsuit that did not exist and for release of claims for which SAMOCO
took a directly contrary position, we reject SAMOCO’s contention that Pecten’s
fraud in connection with statements in the fourth annex excuses SAMOCO’s breach
of the settlement agreement found by the jury.
III. Damages
A. Admission of attorney’s fee evidence
At the outset, SAMOCO challenges the trial court’s ruling Pecten’s attorney’s
fees evidence as an abuse of discretion. Pecten designated its lead trial attorney as
its attorney’s fee expert, but it did not identify the amount of fees sought or produce
the billing records to support a fee award until the Friday before the Monday the
case was called for trial. The trial court allowed the evidence.
When a party has not timely made, amended, or supplemented a discovery
response, it may not introduce into evidence the material or information that was not
timely disclosed unless the trial court finds that there was good cause for the failure
to timely make the discovery response or the failure to timely make the discovery
response will not unfairly surprise or unfairly prejudice the other parties. TEX. R.
CIV. P. 193.6(a). A disclosure is presumed to be untimely if it was made less than
33
30 days before trial. Id. 193.5(b). The party seeking to introduce the evidence has
the burden of establishing good cause or the lack of unfair surprise or prejudice. Id.
193.6(b). The trial court has broad discretion to determine whether the party has
met this burden. See Dyer v. Cotton, 333 S.W.3d 703, 717 (Tex. App.—Houston
[1st Dist.] 2010, no pet.); Dolenz v. State Bar of Tex., 72 S.W.3d 385, 387 (Tex.
App.—Dallas 2001, no pet.).
Courts have held that a trial court does not abuse its discretion in admitting
testimony by an untimely designated attorney’s fees expert when, as here, the party’s
pleadings contained a request for attorney’s fees well before trial. See, e.g., Rhey v.
Redic, 408 S.W.3d 440, 459 (Tex. App.—El Paso 2013, no pet.) (holding that trial
court did not abuse its discretion in admitting testimony from late-designated
attorney’s fees expert where plaintiff requested attorney’s fees in petition filed five
months before trial); Beard Fam. P’ship v. Comm’l Indem. Ins. Co., 116 S.W.3d
839, 850 (Tex. App.—Austin 2003, no pet.) (holding that trial court did not abuse
its discretion in admitting testimony from untimely designated attorney’s fees expert
where party requested attorney’s fees in initial petition). SAMOCO had notice that
the damages Pecten sought were the attorney’s fees that Pecten had incurred through
the litigation.
When SAMOCO objected to the proffered attorney’s fee testimony, the trial
court ordered Pecten’s witness to make himself available for deposition so that
34
SAMOCO could discover facts necessary to defend against the fee claim.
SAMOCO did not seek a continuance of trial. Under these circumstances, we hold
that the trial court did not abuse its discretion in admitting the attorney’s fee evidence
supporting Pecten’s counterclaim. See, e.g., Wigfall v. Tex. Dep’t of Crim. Justice,
137 S.W.3d 268, 274 (Tex. App.—Houston [1st Dist.] 2004, no pet.) (holding that
trial court did not abuse its discretion in not excluding late-designated expert witness
where party who sought exclusion did not request continuance or complain that
delay left him unable to conduct his own discovery).
B. Factual sufficiency of attorney’s fee evidence
Pecten’s evidence in support of the damages element of its breach of contract
claim consisted of the attorney’s fees that Pecten incurred in defending itself against
SAMOCO’s claims. When an underlying suit concerns a claim for attorney’s fees
as an element of damages, those fees are recoverable as compensatory damages. In
re Nalle Plastics Fam. Ltd. P’ship, 406 S.W.3d 168, 175 (Tex. 2013). Pecten
proffered two witnesses in support of its claim for fees, its corporate representative
and its trial attorney.
Pecten’s corporate representative, Gary Cameron, testified that Pecton was
impacted by the lawsuit in this case by an amount of $3.5 million, including
attorney’s fees, expert fees, and costs:
Q: Has Pecten been impacted by the SAMOCO Panama lawsuit in this
case?
35
A. Yes, sir.
Q: In what way?
A. $3.5 million.
Q. How much?
A. $3.5 million plus.
Q. And that represents what?
A. That represents a combination of the experts’ costs to support the
defense, as well as legal fees and costs of Norton Rose to defend this
case.
Pecten’s trial attorney, William Wood, testified about the fees that his firm charged
for its services in this case. Wood testified that Shell Oil Company paid these fees,
but those payments were “charge[d] out” to Pecten. The trial court admitted detailed
invoices reflecting attorney’s fees incurred in defending the case. The invoices are
directed to Pecten Orient Company and Shell Oil Company.
Wood testified that the invoices billed to Pecten at the time of trial totaled
$3,069,864.75 in attorney’s fees. The summary of legal fees and invoices admitted
into evidence at trial show an additional $170,453.79 incurred as costs. Wood further
testified that Pecten would incur an additional $300,000 in attorney’s fees and
$30,000 in costs that had not been invoiced.
Pecten contends that the jury’s zero verdict is against the great weight and
preponderance of the evidence because the testimony regarding fees was
uncontroverted. SAMOCO responds that Pecten’s evidence regarding attorney’s
fees was not “free from contradiction,” because Wood acknowledged that Shell Oil
36
Company was listed as an addressee on the invoices and paid them. SAMOCO did
not proffer controverting evidence, nor does it substantively challenge the attorney’s
fee evidence on appeal.
SAMOCO’s argument ignores that the invoices list Pecten as an addressee
and that Wood testified that the fees were charged to Pecten. Cameron’s testimony
further established that Pecten paid the fees. No witness testified to the contrary.
Rather, all of the evidence at trial was that Pecten was the entity responsible for
paying the fees incurred in this suit. “The jury is the sole judge of the credibility of
witnesses and the weight to be given to their testimony.” Golden Eagle Archery,
Inc. v. Jackson, 116 S.W.3d 757, 761 (Tex. 2003). Jurors may disregard
uncontroverted and unimpeached testimony, but they “cannot ignore undisputed
testimony that is clear, positive, direct, otherwise credible, free from contradictions
and inconsistencies, and could have been readily controverted.” City of Keller, 168
S.W.3d at 820.
While the jury could have rejected some amount of the attorney’s fees that
Pecten incurred as unreasonable or unnecessary, its rejection of any amount is
against the weight of the evidence. “[W]here the evidence of an injury is
uncontroverted, the fact finder may determine the extent of injury and the
appropriate amount of damages to be awarded based on the facts, but it may not
ignore uncontroverted evidence by completely denying recovery.” Schwartz v.
37
Pinnacle Commc’ns, 944 S.W.2d 427, 436 (Tex. App.—Houston [14th Dist.] 1997,
no writ) (emphasis omitted). The testimony and documentary evidence regarding
fees in this case was undisputed, clear, and direct; the record contained no conflicting
testimony. See City of Keller, 168 S.W.3d at 820. That evidence established that
Pecten incurred some amount of attorney’s fees as damages for breach of the
settlement agreement. Thus, while the jury could have determined that a portion of
the fees that Pecten sought were not reasonable or necessary, we hold that its
determination that none should be awarded is against the great weight and
preponderance of the evidence. See id. We therefore reverse the trial court’s
judgment on Pecten’s counterclaim for breach of contract and remand that claim for
a new trial. See TEX. R. APP. P. 44.1(b) (“The court may not order a separate trial
solely on unliquidated damages if liability is contested.”).
CONCLUSION
We hold that the trial court properly entered judgment against SAMOCO’s
claims for fraud based on the jury’s findings and the applicable statute of limitations.
We further hold that the trial court properly granted summary judgment on
SAMOCO’s claim for breach of contract in connection with the deep and lateral
agreement. We further hold that SAMOCO’s breach of the settlement agreement,
as found by the jury, is not excused by the jury’s other finding that Pecten
fraudulently induced SAMOCO into entering the settlement agreement and is not
38
barred by limitations. Finally, we hold that the jury’s finding that Pecten sustained
nothing in damages as a result SAMOCO’s breach of the settlement agreement is
not supported by the uncontroverted evidence. Accordingly, we affirm the
judgment of the trial court that SAMOCO take nothing on its claims and reverse and
remand Pecten’s claim for breach of the settlement agreement for a new trial.
Jane Bland
Justice
Panel consists of Justices Bland, Massengale, and Lloyd.
39