Capitol Wireless, LP and Eyesight Management, LLC v. XTO Energy, Inc. ( 2014 )

COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 02-12-00351-CV
CAPITOL WIRELESS, LP AND APPELLANTS
EYESIGHT MANAGEMENT, LLC
V.
XTO ENERGY, INC. APPELLEE
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FROM THE 236TH DISTRICT COURT OF TARRANT COUNTY
TRIAL COURT NO. 236-252199-11
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MEMORANDUM OPINION1
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I. INTRODUCTION
Appellants Capitol Wireless, LP and Eyesight Management, LLC appeal
from a summary judgment granted in favor of Appellee XTO Energy, Inc. on its
claim for breach of contract. We will affirm.2
1
See Tex. R. App. P. 47.4.
2
This cause was assigned for writing to the author on January 31, 2014.
II. BACKGROUND
XTO pooled oil and gas leases that it owns in McKenzie County, North
Dakota, with oil and gas leases that Capitol Wireless owns in McKenzie County
to form a 1,280-acre drilling unit. According to XTO, it owns a 56.89585%
working interest in the drilling unit, Capitol Wireless owns a 12.5% working
interest in the unit, and a number of other individuals or entities own lesser
working interests in the unit.
On December 2, 2009, Jacob Higgins, an XTO landman, sent a letter to
Capitol Wireless and the other working-interest owners stating that XTO, as
operator, proposed to drill, complete, and equip a single, horizontal well—called
the Edward 21X-28 (the test well)—on the leased land in McKenzie County to
test the Bakken formation. The letter provided details about the test well, stated
that a “proposed Joint Operating Agreement will be forthcoming,” and gave
Capitol Wireless thirty days from receipt of the letter “to make a participation
election,” which included the following two options:
___ ELECT TO PARTICIPATE in the proposed drilling and
completion of the Edward 21X-28 limited to the working
interest of the undersigned party.
___ ELECT TO NOT PARTICIPATE in the proposed drilling and
completion of the Edward 21X-28 as to the working interest of
the undersigned party, subject to risk penalty as provided by
North Dakota law.
Along with the letter, Higgins included a list of the working-interest owners and
their respective working interests; a detailed drilling cost estimate for the
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anticipated drilling and completion costs; an authorization for expenditure (AFE)
in the total amount of $5,334,000; a drilling plan; and a well location plat.3
Three weeks later, on December 23, 2009, Capitol Wireless agreed to
participate in XTO’s drilling and completion of the test well, limited to its working
interest: Capitol Wireless (by Eyesight Management, Capitol Wireless’s general
partner) placed an “X” in the space next to the “ELECT TO PARTICIPATE”
option in the letter; it completed the spaces provided for “Name,” “Title,”
“Signature,” “Date,” and “Company” in the letter; it completed the “Non Operator
Approval” box on the AFE; and it initialed and dated each document that Higgins
had sent it. David Shanks, Eyesight Management’s manager, faxed the signed
documents to Higgins on December 23, 2009, and sent Higgins an email the next
day that stated in part,
This email is to confirm the election of Capitol Wireless LP to
participate in the proposed drilling and completion of the Edward
21X-28 well . . . .
Please contact me at your convenience regarding next steps on the
participation.
According to Higgins, Shanks also called him and confirmed Capitol Wireless’s
election to participate in the test well.
3
Like XTO, we will collectively refer to all of the documents that XTO sent
to Capitol Wireless on December 2, 2009, as the Participation Agreement. See
Fort Worth ISD v. City of Fort Worth, 22 S.W.3d 831, 840 (Tex. 2000) (reasoning
that courts may construe instruments pertaining to the same transaction as if
they were part of a single, unified instrument).
3
After obtaining Capitol Wireless’s agreement to participate in the test well,
XTO drilled and completed the well as a producing well. According to Higgins’s
affidavit, Capitol Wireless’s 12.5% share of the joint interest billings for the test
well (after an offset) totaled $622,373.65. On December 15, 2010, XTO made a
written demand upon Capitol Wireless to pay its proportionate share of the costs
incurred by XTO in drilling and completing the test well, but Capitol Wireless did
not pay. XTO sued Capitol Wireless and Eyesight Management for breach of
contract, alleging that by agreeing to participate in XTO’s test well, limited to its
working interest, Appellants had entered into an enforceable agreement with
XTO to pay 12.5% of the estimated drilling and completion costs for the test well.
The trial court granted XTO summary judgment and later signed a final judgment
against Appellants jointly and severally, awarding XTO damages in the amount of
$622,373.65.
III. STANDARD OF REVIEW
We review a summary judgment de novo. Travelers Ins. Co. v. Joachim,
315 S.W.3d 860, 862 (Tex. 2010). We consider the evidence presented in the
light most favorable to the nonmovant, crediting evidence favorable to the
nonmovant if reasonable jurors could and disregarding evidence contrary to the
nonmovant unless reasonable jurors could not. Mann Frankfort Stein & Lipp
Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex. 2009). We indulge every
reasonable inference and resolve any doubts in the nonmovant’s favor. 20801,
Inc. v. Parker, 249 S.W.3d 392, 399 (Tex. 2008). A plaintiff is entitled to
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summary judgment on a cause of action if it conclusively proves all essential
elements of the claim. See Tex. R. Civ. P. 166a(a), (c); MMP, Ltd. v. Jones, 710
S.W.2d 59, 60 (Tex. 1986).
IV. BREACH OF CONTRACT
A. Material Terms and Definiteness
Appellants argue in their first issue that the trial court erred by granting
XTO summary judgment because the Participation Agreement is merely an
agreement to agree in the future that is indefinite and leaves material terms open
for future negotiation.
The elements of an enforceable contract are (1) an offer; (2) an
acceptance in strict compliance with the terms of the offer; (3) a meeting of the
minds; (4) a communication that each party consented to the terms of the
contract; (5) execution and delivery of the contract with an intent that it become
mutual and binding on both parties; and (6) consideration. G.D. Holdings, Inc. v.
H.D.H. Land & Timber, L.P., 407 S.W.3d 856, 861 (Tex. App.—Tyler 2013, no
pet.). For an enforceable contract to exist, the legal obligations and liabilities of
the parties must be sufficiently definite. Lamajak, Inc. v. Frazin, 230 S.W.3d 786,
793 (Tex. App.—Dallas 2007, no pet.). “The rules regarding indefiniteness of
material terms of a contract are based on the concept that a party cannot accept
an offer so as to form a contract unless the terms of that contract are reasonably
certain.” Fort Worth ISD, 22 S.W.3d at 846. Contract terms are reasonably
certain “if they provide a basis for determining the existence of a breach and for
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giving an appropriate remedy.” Restatement (Second) of Contracts § 33(2)
(1981). Thus, a contract is sufficiently definite if a court is able to determine the
respective legal obligations of the parties. T.O. Stanley Boot Co. v. Bank of
El Paso, 847 S.W.2d 218, 221 (Tex. 1992). Whether an agreement fails for
indefiniteness is a question of law to be determined by the court. Playoff Corp. v.
Blackwell, 300 S.W.3d 451, 455 (Tex. App.—Fort Worth 2009, pet. denied).
When XTO sent the Participation Agreement to Capitol Wireless, XTO, as
operator, extended an offer to Capitol Wireless to participate in the drilling and
completion of the test well, limited to its working interest, i.e., to pay its pro-rata
share, or 12.5%, of the estimated drilling and completion costs of the test well.
The underlying offer was clear and unambiguous—Capitol Wireless could either
participate and pay its share of the costs, or not participate and potentially be
subject to a risk penalty under North Dakota law. The Participation Agreement
also outlined data about the test well, including its location and depth; the
numerous costs associated with the test well; and each of the working-interest
owners and the amount of their respective working interests. By executing and
returning to Higgins both a copy of the letter and a copy of the AFE within thirty
days of receiving the documents, Capitol Wireless timely accepted XTO’s offer in
strict compliance with the terms of the Participation Agreement.
Appellants argue that the Participation Agreement does not contain
material terms setting out what, if any, expenses Capitol Wireless is responsible
for paying and what expenses XTO may charge. The drilling cost estimate
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actually does just that—it identifies twenty-three different intangible drilling costs,
fourteen different intangible completion costs, five different tangible drilling costs,
and ten different tangible completion costs, and each individual category of
anticipated costs contains a code and a description of the expense.
Appellants argue that the Participation Agreement is unenforceable
because it does not state when payments must be made to XTO, but it is well
established that when an agreement does not specify a time for performance, a
reasonable time for performance is implied in the contract. Allegiance Hillview,
L.P. v. Range Tex. Prod., LLC, 347 S.W.3d 855, 869 (Tex. App.—Fort Worth
2011, no pet.). Thus, the law implies that Capitol Wireless had to pay XTO its
share of the costs within a reasonable time.
Appellants also argue that the Participation Agreement is indefinite as to its
percentage interest in the test well, and therefore unenforceable, because the
percentages were expressly acknowledged to be subject to future agreement in
division orders.4 However, as XTO explains, the “subject to” language merely
indicates that the working interest percentages were based on an initial title
opinion and that they could be adjusted, if necessary, once the title opinion was
updated. Capitol Wireless’s working-interest figure is reasonably certain. Cf.
Nabors Drilling USA, LP v. Carpenter, 198 S.W.3d 240, 248–49 (Tex. App.—San
4
The document identifying the working interest owners states, “***Based on
initial title opinion ‒ subject to final division order title opinion[.]”
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Antonio 2006, no pet.) (holding that arbitration agreement was enforceable even
though it allowed employer to amend agreement).
Appellants complain that the Participation Agreement is unenforceable
because it does not set out how expenses are to be accounted for and disclosed.
When an essential term is left open for future negotiation, there is no binding
contract. T.O. Stanley Boot Co., 847 S.W.2d at 221. One appellate court has
defined “essential terms” as those terms that the parties would reasonably regard
as vitally important elements of their bargain. Gen. Metal Fabricating Corp. v.
Stergiou, No. 01-11-00460-CV, 2014 WL 2363027, at *4 (Tex. App.—Houston
[1st Dist.] May 29, 2014, no pet.).
Capitol Wireless did not challenge any aspect of the many invoices that
XTO included in its summary judgment evidence, including the method by which
the figures were calculated or the figures themselves, nor do Appellants direct us
to any authority reasoning that essential terms of an agreement to drill and
complete a test well, like the Participation Agreement in this case, necessarily
include how expenses are to be accounted. The Participation Agreement
contains terms setting forth the total estimated costs for drilling and completing
the test well and the percentage of those costs that the working-interest owners
are responsible for paying, thus permitting a working-interest owner like Capitol
Wireless to calculate its estimated share of the total AFE costs. With a working
interest of 12.5%, Capitol Wireless’s total estimated cost was $666,750. As it
turns out, Capitol Wireless’s share of the actual costs (pre-setoff) ended up being
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$673,123.91, only a little over $6,000 more than the estimated costs.
Considering all of this, we cannot conclude that the Participation Agreement is
unenforceable for not containing an accounting term.5 See Stergiou, 2014 WL
2363027, at *4; Crisp Analytical Lab, L.L.C., v. Jakalam Props., Ltd., 422 S.W.3d
85, 89–90 (Tex. App.—Dallas 2014, pet. denied) (stating that essential terms of a
contract may include time for performance, price to be paid, work to be done,
service to be rendered, or property to be transferred and holding that determining
reasonableness of expenses was not an essential term of contract).
Appellants contend that the Participation Agreement left material terms
open for future negotiation because it states that a “proposed Joint Operating
Agreement will be forthcoming,” and there is no evidence of a joint operating
agreement setting forth the respective responsibilities of the parties. Whether or
not a joint operating agreement is often used in these circumstances, and despite
the “forthcoming” language, the Participation Agreement contains all of the
material terms and is sufficiently definite to constitute a binding contract to drill
and complete the test well. We overrule Appellants’ first issue.
5
As a non-essential term, the parties could have addressed how expenses
are to be accounted for in a later negotiation. See Scott v. Ingle Bros. Pac., Inc.,
489 S.W.2d 554, 555 (Tex. 1972) (“[P]arties may agree upon some of the terms
of a contract, and understand them to be an agreement, and yet leave other
portions of an agreement to be made later.”). Indeed, the Participation
Agreement indicates that “[a] proposed Joint Operating Agreement will be
forthcoming.”
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B. Joint Operating Agreement
Directing us to Foreca, S.A. v. GRD Development Co., 758 S.W.2d 744(Tex. 1988), Appellants argue in their second issue that a fact issue exists
regarding whether there was a meeting of the minds on the essential terms of the
Participation Agreement because it states that a “proposed Joint Operating
Agreement will be forthcoming.” Relying on the same contractual language,
Appellants argue in their third issue that the Participation Agreement is
ambiguous as to whether it was intended to be a final and binding agreement.
In Foreca, GRD sought to purchase and Foreca sought to sell amusement
park rides. Id. at 744. Foreca’s president prepared a handwritten document that
set out the cost of six rides, the terms of payment, and delivery information. Id.
at 744–45. The document also contained the following provision: “SUBJECT TO
LEGAL DOCUMENTATION CONTRACT TO BE DRAFTED BY MR. DUNLAP
[Foreca’s Texas lawyer].” Id. GRD later ended the negotiations, and Foreca
sued GRD for breach of contract—specifically, the document that had been
prepared. Id. A jury found for Foreca and awarded it damages, but the court of
appeals reversed, concluding that a condition precedent to formation of a
contract—the “subject to legal documentation” language—had not been met. Id.
at 744. The supreme court reversed the court of appeals and affirmed the
judgment of the trial court, holding that it was a fact question whether the writing
was intended to be the final expression of the parties or merely part of
preliminary negotiations with no legal significance. Id. at 746.
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Foreca is inapposite because the Participation Agreement in this case
contains no language subjecting it to anything. The joint-operating-agreement
provision merely references another document, and it does not qualify the finality
or enforceability of the Participation Agreement in any way. See Hardman v.
Dault, 2 S.W.3d 378, 380‒81 (Tex. App.—San Antonio 1999, no pet.) (pointing to
lack of “subject to” language and holding that settlement agreement was binding
despite noncompliance with provision requiring final documents to be signed by a
certain date). For the same reason, the provision does not render the
Participation Agreement ambiguous. See Nat’l Union Fire Ins. Co. of Pittsburgh,
Pa. v. CBI Indus., Inc., 907 S.W.2d 517, 520 (Tex. 1995) (reasoning that if a
contract is worded in such a way that it can be given a definite or certain legal
meaning, then it is not ambiguous.). We overrule Appellants’ second and third
issues.
V. OBJECTIONS TO SUMMARY JUDGMENT EVIDENCE
Appellants argue in their fourth issue that the trial court abused its
discretion by denying their objections to XTO’s summary judgment evidence.
Appellants did not obtain an express ruling by the trial court on their objections.
Nonetheless, this court follows the line of authority that a trial court may implicitly
rule on a party’s objections to summary judgment evidence. Compare Frazier v.
Yu, 987 S.W.2d 607, 609‒10 (Tex. App.—Fort Worth 1999, pet. denied)
(observing that amended rule of appellate procedure 33.1 relaxes the former
requirement of an express ruling and codifies caselaw that recognized implied
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rulings), with Atl. Shippers of Tex., Inc. v. Jefferson Cnty., 363 S.W.3d 276, 284
(Tex. App.—Beaumont 2012, no pet. h.) (holding that a party must obtain an
express ruling on its objections to summary judgment evidence). However, to
preserve error in the trial court’s ruling, there must be something in the record
reflecting that the trial court ruled on the objections—merely granting or denying
the summary judgment is, in and of itself, insufficient. Aerobic Maint. & Serv.,
Inc. v. First United Bank & Trust Co., No. 02-08-00232-CV, 2009 WL 1425179, at
*5 (Tex. App.—Fort Worth May 21, 2009, no pet.) (mem. op.); see Trinh v.
Campero, 372 S.W.3d 741, 744‒45 (Tex. App.—El Paso 2012, no pet.). There is
nothing in the record here to indicate that the trial court ruled on Appellants’
objections. Consequently, Appellants failed to preserve for appellate review the
portions of this issue that implicate their non-substantive objections.6
As alluded to, substantive defects in summary judgment evidence may be
raised for the first time on appeal. See Wrenn v. G.A.T.X. Logistics, Inc., 73
S.W.3d 489, 498 (Tex. App.—Fort Worth 2002, no pet.). An affidavit that is
conclusory is substantively defective. Paragon Gen. Contractors, Inc. v. Larco
Constr., Inc., 227 S.W.3d 876, 883 (Tex. App.—Dallas 2007, no pet.). Appellants
objected that the following portions of Higgins’s affidavit were legally or factually
conclusory:
6
These include Appellants’ objections based on the best evidence rule.
See Lagou v. U.S. Bank Nat’l Ass’n, No. 01-13-00311-CV, 2013 WL 6415490, at
*4 (Tex. App.—Houston [1st Dist.] Dec. 5, 2013, no pet.) (mem. op.).
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(a) “In connection, I am responsible for pursuing the collection of
outstanding debts owed by [Capitol Wireless] for the drilling and
completion of the Edward 21X-28 well in McKenzie County, North Dakota.”
(b) “Capitol owns 12.5% of the working interest in the drilling unit.”
(c) “Specifically, on December 2, 2009, XTO extended a written offer to
Capitol to participate in the drilling and completion of the Edward 21X-28
well.”
(d) “On or about December 23, 2009, Capitol signed and returned the
participation letter to XTO acknowledging that it had decided to participate
in the proposed drilling and completion of the Edward 21X-28 well, limited
to its 12.5% working interest.”
(e) “Subsequently, after obtaining Capitol’s agreement to participate and
to bear its proportionate share of the drilling and completion costs, XTO
drilled and completed the Edward 21X-28 well as a producing well.”
(f) “Mr. Shanks made it clear to me that Capitol wanted to participate in
the drilling and completion of the Edward 21X-28 well as to its 12.5%
working interest.”
(g) “Mr. Shanks also confirmed Capitol’s election to participate by calling
me on the telephone.”
(h) “Attached hereto as Exhibit 3 is a true and correct copy of the Account
Summary for Capitol on the Edward 21X-28 well, which evidences the
amounts owed by Capitol and all credits applied to the account.”
(i) “Capitol’s 12.5% share of the joint interest billings for the Edward 21X-
28 well total $673,123.91.”
(j) “XTO setoff Capitol’s account and applied $50,750.26 in revenue owed
to Capitol to the outstanding balance.”
(k) “As of today, and after all offsets, credits and payments, $622,373.65
remains due and owing on Capitol’s account.”
Appellants’ objections to statements (a), (b), (c), (d), (e), (g), (h), (i), (j), and (k)
are substantiated by other unobjected-to summary judgment evidence and are
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therefore harmless, see Tex. R. App. P. 44.1(a)(1), and statement (f) is not
conclusory. We overrule Appellants’ fourth issue.
VI. EYESIGHT MANAGEMENT
Appellants argue in their fifth issue that the summary judgment should
have been denied as to Eyesight Management because summary judgment
should have been denied as to Capitol Wireless. Because summary judgment
was proper against Capitol Wireless, as we hold, summary judgment was also
proper against Eyesight Management, Capitol Wireless’s general partner. We
overrule Appellants’ fifth issue.
VII. CONCLUSION
Having overruled Appellants’ five issues, we affirm the trial court’s
judgment.
/s/ Bill Meier
BILL MEIER
JUSTICE
PANEL: GARDNER, MEIER, and GABRIEL, JJ.
GABRIEL, J., concurs without opinion.
DELIVERED: July 24, 2014
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