the Strickland Group, Inc. v. Pathfinder Exploration, LLC and Jerry Wilson ( 2013 )

COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 02-12-00187-CV
THE STRICKLAND GROUP, INC. APPELLANT
V.
PATHFINDER EXPLORATION, LLC APPELLEES
AND JERRY WILSON
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FROM THE 348TH DISTRICT COURT OF TARRANT COUNTY
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MEMORANDUM OPINION 1
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This appeal concerns disputes related to the financing of an oil and gas
drilling project in Arkansas. In two issues that each contain multiple arguments
within them, appellant The Strickland Group, Inc. (Strickland) appeals the trial
court’s take-nothing judgment in favor of appellees Pathfinder Exploration, LLC
(Pathfinder) and Jerry Wilson. We affirm.
1
See Tex. R. App. P. 47.4.
Background Facts
Strickland performs consulting services across the world, including
reservoir engineering consulting and litigation support. In 2005, Strickland also
wanted to become involved in the management and ownership of oil and gas
properties. Pathfinder, among other business activities, puts together oil and gas
projects and manages them from raising capital for operations to drilling and
production.
Strickland’s vice-president, Dwayne Purvis, who is a registered petroleum
engineer, first spoke with Wilson, who is Pathfinder’s managing member and sole
stockholder, by telephone in August 2005. 2 According to Purvis, he and Wilson
spoke about shale projects that Pathfinder was working on and on which
Pathfinder needed significant capital funding (for drilling, leasing, and
operations), including the Fayetteville Shale. Wilson told Purvis that Pathfinder
was already part of a joint venture relating to the Fayetteville Shale and that
Pathfinder needed money to fund its share of that joint venture. 3 Purvis told
2
Wilson, Purvis, and Richard Strickland, Ph.D. (Dr. Strickland) had a
mutual acquaintance who referred Strickland to Pathfinder. Dr. Strickland,
whose doctorate degree is in petroleum engineering, formed Strickland in 2001
and is its CEO. Strickland is a privately held corporation that has four
stockholders, including Dr. Strickland and Purvis.
3
Pathfinder had previously obtained mineral leases in Arkansas and had
entered into a joint venture with Shell Western Exploration and Production,
Incorporated concerning those leases. Through the joint venture, Pathfinder
agreed to manage the effort to acquire more leases.
2
Wilson that Strickland, which has helped a number of companies raise capital
(including financing for oil and gas projects), was a consulting company.
At the end of Purvis and Wilson’s first conversation, Wilson told Purvis that
he would send a confidentiality agreement to Purvis. Purvis believed that the
agreement would be used to protect the confidentiality of information that they
had discussed and would continue to discuss in the future. The agreement,
which Purvis and Wilson signed in September 2005, stated that Strickland would
keep any data disclosed by Pathfinder confidential (with some exceptions) and
would not use the data except to evaluate the terms of a potential transaction
between Strickland and Pathfinder. The agreement also stated,
[Pathfinder] reserves the right . . . to (i) decline to provide any
Confidential Information to [Strickland]; (ii) discontinue or terminate
continued disclosure of Confidential Information after commencing
disclosure; (iii) conduct negotiations relating to a potential
Transaction with [Strickland]; (iv) reject any and all proposals made
by [Strickland] with regard to any potential Transaction; and
(v) terminate discussions and negotiations regarding a potential
Transaction with [Strickland] without notice and for any reason. The
parties acknowledge that no Transaction between [Pathfinder] and
[Strickland] shall exist unless and until a definitive agreement has
been executed and delivered by each party.
After Purvis signed the confidentiality agreement, Wilson showed Purvis
Pathfinder’s production data, maps, and geologic data. In September 2005,
Purvis, Wilson, and Dr. Strickland communicated about Pathfinder’s need to
raise capital and about various financing companies that could potentially support
Pathfinder’s operations. Purvis, under authority from the confidentiality
agreement, used information that he had received from Pathfinder to prepare
3
presentations that he could make to financing companies so that those
companies could decide whether they would finance Pathfinder’s operations.
Strickland required the financing companies to sign confidentiality agreements on
behalf of Pathfinder before receiving a presentation, which included a binder
containing an “Executive Summary” that had been prepared by Strickland and
approved by Pathfinder. The Executive Summary contained information supplied
by Pathfinder and by Strickland.
According to Purvis, before Strickland made presentations to potential
funding sources, Strickland entered into a verbal agreement with Pathfinder. At
trial, in describing his understanding of that agreement, Purvis testified,
[W]e would try to find financing for [Wilson’s] projects. We would do
it on a sweat-equity basis. If we’re successful and we’re able to
bring financing, then we [would] earn a 50/50 interest of whatever is
earned from the financing company, and then we would go forward
in the project as co-managers with him. That was . . . the skeleton.
....
. . . If we didn’t succeed, we got nothing. I was . . . content
that I would take a risk on my ability to do the engineering and the
worthiness of the projects that -- because he -- we had made this
deal, I would put my time in, my company’s time, to go try to find
financing.
....
. . . [I]f we failed, . . . then we would get . . . nothing out of it.
According to Purvis, although he had offered for Wilson to simply pay
Strickland a consulting fee on a time and expenses basis for Strickland’s work in
finding a financing source for Pathfinder’s operations, Wilson suggested the split
4
of revenue to Strickland that Pathfinder would make from the Fayetteville Shale
project and was pleased with the agreement that had been made. 4 Although
Purvis took notes of some conversations related to Strickland’s business with
Pathfinder, he did not take notes of his conversation with Wilson about the
alleged verbal agreement that they had made. At trial, Wilson testified that
before Pathfinder reached a written agreement with Strickland, those parties had
an “understanding” to equally share Pathfinder’s interest with Strickland if
Strickland connected Pathfinder to a financing company that agreed to specific
financing terms.
Purvis testified that after he reached the verbal agreement with Wilson, 5
Strickland eventually contacted several potential financing companies and made
presentations to five of them, including Constellation Energy (Constellation), on
behalf of both Strickland and Pathfinder. 6 Strickland distributed the Executive
Summary to Constellation near the end of October 2005 and met with
Constellation around that time after Purvis had asked Constellation to sign a
confidentiality agreement. When Purvis first met with Constellation’s officials, he
4
Dr. Strickland testified that before 2005, Strickland had only helped
companies raise capital for oil and gas projects on an hourly fee basis.
5
Purvis testified that the oral agreement with Wilson was not put into
writing because it would have been “impractical” to do so without knowing what
the terms of the financing were going to be.
6
Strickland made presentations to two companies in Fort Worth and to
three companies in Houston, four of which expressed no interest in financing
Pathfinder’s operations. Some other companies declined interest in financing
Pathfinder’s operations without receiving a full presentation from Strickland.
5
told them that Strickland did not own an equity interest in the Fayetteville Shale
project but hoped to earn one.
The Executive Summary proposed the payment of monthly management
fees from a financing company to Pathfinder and Strickland, and it stated in part,
“The management team of Pathfinder will include personnel of Pathfinder and of
The Strickland Group, as well as external consultants.” According to Purvis,
Strickland’s employees spent “about 450 man-hours” conducting geologic and
engineering analyses for use in the Executive Summary and making
presentations to financing companies concerning the Fayetteville Shale.
Strickland’s presentation to Constellation lasted a “number of hours.”
Dr. Strickland believed that Constellation would eventually agree to fund
Pathfinder’s project and spoke with Wilson about Pathfinder’s assigning an
interest in the project to Strickland; at the time, Dr. Strickland understood that
Pathfinder owned almost 5,000 acres in the Fayetteville Shale. According to Dr.
Strickland, Wilson declined to make the assignment because funding had not
been completed at that point. Dr. Strickland became uneasy about Wilson’s
reaction and emotion while saying that Pathfinder would not yet assign its
interest to Strickland; Dr. Strickland began to worry that Wilson would not ever
give up Pathfinder’s interest. Dr. Strickland still believed, however, that Wilson’s
response showed that when funding was completed, Strickland and Pathfinder
would sign all necessary documents to complete their transaction.
6
In early November 2005, Constellation informed Strickland that it was
interested in continuing to discuss the possibility of funding Pathfinder’s
operations. On the request of Dr. Strickland, Purvis called Wilson to suggest that
they enter into a written agreement regarding their own business relationship
before continuing discussions with Constellation. Thus, Wilson’s attorney drafted
a Letter of Understanding (LOU), which Purvis received in the middle of
November 2005. Purvis proposed changes to the LOU to “be more accurate” to
his understanding of the verbal agreement, but Pathfinder’s attorney refused the
changes. The signed LOU, which Purvis has acknowledged that Strickland was
bound by, stated in part,
This letter sets forth the intentions of [Strickland] and
[Pathfinder] to negotiate and execute a definitive agreement with
respect to efforts by Strickland to acquire financing for Pathfinder in
connection with the Arkansas Fayetteville Shale Project (the
“Project”).
1. Pathfinder owns an undivided 25% working interest[7] in
approximately 4,700 net mineral acres in certain lands in . . .
Arkansas. Pathfinder intends to acquire additional interests in lands
within [Arkansas] . . . .
2. Strickland will attempt to identify one or more potential
financing sources which will assume 100% of the financial
obligations related to Pathfinder’s working interest positions in the
Project. Strickland and Pathfinder anticipate that any financing
arrangement reached with a financing source would result in the
financing source assuming 100% of the costs related to Pathfinder’s
working interest, and Pathfinder retaining a carried working
interest. . . .
7
A “working interest” is an interest in mineral leases that bears costs and
revenue.
7
3. In the event that Pathfinder reaches a written agreement
with a financing source which was first identified by Strickland (the
“Strickland Financing Source”) for financing the costs of Pathfinder’s
working interest in certain drilling units within the Project, Pathfinder
and Strickland intend to negotiate and execute an agreement . . . by
which Strickland will receive compensation for its services in
connection with identifying the Strickland Financing Source. The
agreement will include the following general terms:
(a) Strickland and Pathfinder will share equally the carried
working interest retained by Pathfinder as a result of Pathfinder’s
agreement with the Strickland Financing Source, limited, however, to
the carried working interest retained by Pathfinder . . . .
....
(c) Pathfinder and Strickland will receive management fees in
accordance with the agreement between Pathfinder and the
Strickland Financing Source.
4. Strickland will bear its own expenses related to the
identification of potential financing sources as described herein.
The parties intend that the foregoing will serve as a basis for
entering into the Compensation Agreement described herein, which
agreement shall contain such other or expanded terms and
conditions as are appropriate to the financing transaction.
Notwithstanding anything herein to the contrary, this Letter of
Understanding does not constitute an agreement between the
parties but is meant to express the intentions of the parties and their
basic understandings so that further negotiations may take place for
the creation of a formal agreement. [Emphasis added.]
By the time Wilson signed the LOU, Strickland had already made several
presentations to potential financing sources. Purvis initially testified on direct
examination that before Wilson delivered the LOU, Wilson had not stated that
Pathfinder would want to maintain a carried working interest but had only
required Strickland to find a financing source that would cover all of Pathfinder’s
costs. Later, Purvis said that Wilson had declared that he expected a carried
8
working interest but that Wilson had agreed to split “whatever the benefit” came
from Pathfinder’s agreement with a financing source. Purvis described the
LOU’s statement that Strickland and Pathfinder would share equally a “carried
working interest” as a “deficiency of the letter” because it was “perfectly clear in
multiple conversations” with Wilson that the companies would share in “anything
that was retained.” Also, Purvis testified that in 2005, he was concerned about
the language in the LOU stating that it did not constitute an agreement, but he
acknowledged that he believed the parties would subsequently enter into a “full-
length, complete, lawyer-worked-up” contract if Strickland found a financing
source for Pathfinder. Dr. Strickland also became concerned about some
language in the LOU when he received it a week after Wilson signed it.
Nonetheless, Purvis and Dr. Strickland testified that after receiving the LOU, they
still believed that Strickland had a deal with Pathfinder to be partners in the
Fayetteville Shale project, that they would share revenue generated from that
project, and that Strickland would share in managing the project and be paid
management fees related to that project.
Wilson opined at trial that the LOU was not a definitive agreement but was
an “agreement to move forward under certain terms and conditions.” He also
stated that the terms of the LOU providing that Pathfinder needed a financing
source that would assume all financial obligations and allow Pathfinder to retain a
carried working interest were important to him.
9
After Purvis received the LOU, representatives from Constellation met with
Wilson, other representatives from Pathfinder, and Purvis. According to Purvis,
in December 2005, at a hearing in which Pathfinder produced evidence to the
Arkansas Oil and Gas Commission, Constellation brought a term sheet to Wilson
that contained a financing offer and some basic terms of the offer. 8 The term
sheet stated that Constellation would contribute all of the capital required for the
further acquisition of acreage and the development of the project. Purvis testified
that Wilson showed him the term sheet and that Wilson expressed concerns
about some terms of Constellation’s offer.
According to Wilson, during December 2005, he talked with a
representative from Constellation about Constellation’s willingness to pay all
capital costs for the Fayetteville Shale project, but the representative expressed
concern about granting Pathfinder a carried working interest and about paying
management fees to Strickland. Wilson testified that he notified Strickland in
December 2005 that it had not brought a financing source that met the terms of
the LOU.
Purvis sent Wilson an e-mail on December 15, 2005, suggesting some
ways that Wilson could negotiate changes to the terms that Constellation was
offering; Wilson testified that he never saw the e-mail, and according to Purvis,
Wilson never responded to the e-mail. Meanwhile, in early January 2006,
8
The trial court admitted the term sheet as an exhibit. Wilson testified that
he received the term sheet on a later date and that Purvis never saw it.
10
Constellation began its “due diligence process” with Pathfinder, including
background checks, credit checks, and an accounting review, with a goal of
completing a deal. Later that month, a man working on behalf of Constellation
contacted Purvis for some information about the Fayetteville Shale, which
concerned Purvis based on his belief, and Wilson’s alleged representation, that
Pathfinder and Constellation had not made an agreement. Purvis testified that
Wilson never told him that Pathfinder and Constellation were making a deal and
repeatedly denied that a deal was being agreed to. 9 Although Purvis testified
that he had “two bits of data [he] didn’t quite know how to reconcile,” he “believed
[Wilson] was telling . . . the truth, and [he] let it lie.”
In February 2006, Purvis called Wilson and left a message because Purvis
believed that Strickland had found another company that was interested in
financing the Fayetteville Shale project. According to Purvis, Wilson never
returned the call. In the same month, Wilson paid Strickland $21,050.52 for
some of the services that Strickland had performed on Pathfinder’s behalf. Two
months later, Pathfinder entered into a financing agreement with Constellation
9
Wilson conceded that he never advised Strickland about Pathfinder’s deal
with Constellation. He testified, however, that he did not recall having
conversations with Purvis about whether Pathfinder had entered into an
agreement with Constellation or receiving telephone calls inquiring about the
agreement. Wilson conceded that he received an e-mail inquiring about
Pathfinder’s negotiations with Constellation but did not respond to the e-mail.
11
that contained different provisions than the conditions contained in the term
sheet. 10
Tracey Black, who has a degree in petroleum engineering and worked for
Constellation in 2005 and 2006, testified that he first met someone from
Pathfinder in late 2005 or early 2006 and that although he knew Purvis, “[Wilson]
and his team” played a larger role in Pathfinder’s presentation to Constellation.
Black recalled asking Purvis what Strickland’s relationship was with Pathfinder,
and he said that Purvis replied that Strickland did not have a formal relationship
with Pathfinder but was in the process of making one. Black testified that he
could not recall discussions within Constellation of Strickland having any
involvement in Constellation’s deal with Pathfinder on a go-forward basis, and he
testified, “[A]s far as the structuring of the deal went, [Strickland] did not play a
critical role.” Black also stated that he had assumed that Strickland was working
for Pathfinder on a fee basis and that
[Constellation] viewed [Wilson] as [its] partner in this deal . . . . And
the way we structured the management fee in there was to allow him
to do what he needed to do to make sure that the project was being
managed properly. We did not put a lot of constraints on him as to
how he wanted to do that. We were going to hold him responsible
for it and compensate him for that.
So, you know, if he had some plan to bring in [Strickland] or to
have them do a lot of work, that was not -- it was not something that
we focused on a whole lot or -- or were particularly concerned about.
10
Wilson testified that Constellation’s proposal in the term sheet, which
included a 25% return to Constellation on its capital costs, was “too rich.”
12
Wilson testified that Pathfinder’s final agreement with Constellation did not allow
Pathfinder to retain a carried working interest.
In October 2006, Purvis’s partner, Brad Nickle, began performing work on
behalf of Constellation on an unrelated matter. Through that relationship,
Strickland learned of Constellation’s agreement with Pathfinder. Purvis became
“furious.” He and Dr. Strickland testified that Strickland did not immediately sue
Pathfinder because Strickland was concerned about the impact that suing would
have on its other business relationships, including its relationship with
Constellation. Pathfinder eventually received distributions from producing wells
in the project and remitted portions of those distributions to Constellation, and
Pathfinder also received monthly management fees from Constellation, although
Wilson testified that the management fees did not cover Pathfinder’s costs.
In January 2009, Purvis learned that Constellation and Pathfinder had sold
most of their oil and gas interests in the Fayetteville Shale to XTO. 11 Strickland
later discovered that $150 million had been paid for the Fayetteville Shale project
and that Pathfinder had made approximately $4.5 million (or 3%) from the sale.
After learning of the sale to XTO, Strickland decided to sue appellees and to
seek half of Pathfinder’s revenue from the sale. 12
11
Pathfinder retained a small interest in some of the oil and gas properties
in the Fayetteville Shale.
12
Warren Cole, a certified public accountant, testified that he had reviewed
the LOU, the agreement between Constellation and Pathfinder, invoices for
management fees from Pathfinder to Constellation, records related to XTO’s
13
In April 2009, Strickland sued Pathfinder and Wilson, alleging that they had
breached the LOU by not sharing revenue related to Pathfinder’s alleged carried
working interest, that they had committed fraud by making false representations,
that they had breached a fiduciary duty allegedly created through a special
relationship with Strickland, 13 and that Strickland had provided valuable services
for which it was entitled to recover under a quantum meruit theory. Appellees
answered Strickland’s lawsuit through asserting a general denial, making verified
pleas that the written instruments upon which Strickland’s suit was founded were
without consideration and that the parties had not entered into a partnership, and
pleading several affirmative defenses.
Appellees sought summary judgment on Strickland’s breach of contract
claim, contending that the LOU was not a binding agreement and that the parties
had never entered into a formal, enforceable contract. Later, appellees moved
for summary judgment on Strickland’s claims for breach of a fiduciary relationship
and fraud. The trial court denied appellees’ motions for summary judgment.
Strickland later amended its petition to additionally allege that the parties had
purchase of Pathfinder’s interests in the Fayetteville Shale, and other records.
Based on this review, Cole testified that Pathfinder had received $5,888,222 in
gross total benefits as a result of obtaining financing from Constellation; thus,
Cole opined that Strickland, if sharing all benefits equally with Pathfinder, would
be entitled to $2,944,111.
13
Strickland alleged that appellees had “clandestinely enter[ed] into [a]
secret transaction with [Constellation] to their benefit.” At trial, Purvis opined that
Constellation “bore no liability” for Wilson’s alleged deceit.
14
entered into a joint venture and to assert a claim of fraud by nondisclosure,
contending that appellees had concealed their dealings with Constellation while
having a duty to disclose them.
After Strickland presented evidence and rested its case, appellees sought
a directed verdict on all of Strickland’s claims. The trial court granted the motion
only to the extent that it dismissed Strickland’s breach of contract, breach of
fiduciary duty, and quantum meruit claims against Wilson individually and
dismissed Strickland’s claim for exemplary damages. After appellees presented
evidence and rested, they again moved for a directed verdict, but the trial court
denied that motion.
During appellees’ presentation of evidence, Wilson recognized that
Strickland had first identified Constellation as a potential financing source. Also,
Wilson testified that if Strickland could have connected Pathfinder with a
financing source that met all of the requirements stated in the LOU, Pathfinder
“would have . . . honored the deal” by sharing Pathfinder’s carried working
interest. Wilson testified, however, that Strickland did not present a financing
source that allowed Pathfinder to retain a carried working interest or that paid all
of Pathfinder’s costs. Specifically, Wilson testified that Pathfinder contributed
money to the project in the form of lease costs, travel, mapping, and software.
Regarding Strickland, Wilson testified, “They brought Constellation to the table.
They did not fulfill the terms and conditions [of the LOU].”
15
After considering all the evidence and arguments presented by the parties,
the jury found, in answering the first two questions of the trial court’s charge, that
Strickland and Pathfinder had intended to bind themselves to an agreement that
if Strickland obtained financing for 100% of the financial obligations related to
Pathfinder’s oil and gas projects and if Pathfinder retained a carried working
interest in those projects, those parties would further negotiate and sign an
agreement to jointly manage the projects and would equally share in any revenue
generated by the projects. But in answering the third question, the jury found
that Strickland had not identified a financing source that had assumed 100% of
Pathfinder’s financial obligations or that allowed Pathfinder to retain a carried
working interest. Thus, the jury determined that Pathfinder had not breached its
agreement with Strickland.
The jury also found that neither Pathfinder nor Wilson had committed fraud
against Strickland and that Pathfinder and Strickland had not entered into a
partnership. In answering the twenty-second and twenty-third questions of the
charge, the jury found that Strickland had performed compensable work for
Pathfinder (therefore finding in favor of Strickland’s quantum meruit claim) and
assessed the value of that work at $16,700. All of the jury’s findings were
unanimous.
Appellees filed a motion for the trial court to enter a take-nothing judgment,
contending that the jury’s assessment of quantum meruit damages for Strickland
could not be legally supported because the jury had found that a contract
16
governed the parties’ transaction and because Strickland did not expect to be
paid by Pathfinder outside of the conditions expressed in the contract. Strickland
opposed appellees’ motion, but after hearing arguments from the parties, the trial
court granted it and entered a take-nothing judgment in appellees’ favor.
Strickland filed a motion for new trial, alleging that some of the jury’s findings
were unsupported by the evidence, that the trial court’s charge contained errors,
and that the trial court had erroneously excluded evidence. The trial court denied
Strickland’s motion for new trial by operation of law, 14 and Strickland brought this
appeal.
Evidentiary Sufficiency
In the first part of its first issue, Strickland contends that the trial court’s
judgment is erroneous because the jury’s answers concerning the parties’
agreement are against the great weight and preponderance of the evidence and
are manifestly unjust. On appeal, Strickland appears to concede that appellees’
performance of any contractual agreement was conditioned upon Strickland
identifying a financing source that assumed 100% of the financial obligations
related to Pathfinder’s working interest position in the project. Strickland argues,
however, that contrary to the jury’s answer to question number three of the jury
14
See Tex. R. Civ. P. 329b(c).
17
charge, the evidence showed that Pathfinder’s financial obligations were fully
covered. 15
Strickland recognizes that its challenge is to the factual sufficiency of the
evidence supporting the jury’s answer to question number three. When
reviewing an assertion that the evidence is factually insufficient to support a
finding, we set aside the finding only if, after considering and weighing all of the
evidence in the record pertinent to that finding, we determine that the credible
evidence supporting the finding is so weak, or so contrary to the overwhelming
weight of all the evidence, that the answer should be set aside and a new trial
ordered. Pool v. Ford Motor Co., 715 S.W.2d 629, 635 (Tex. 1986) (op. on
reh’g); Cain v. Bain, 709 S.W.2d 175, 176 (Tex. 1986); Garza v. Alviar, 395
S.W.2d 821, 823 (Tex. 1965). When conducting a factual sufficiency review, we
may not merely substitute our judgment for that of the trier of fact. Golden Eagle
Archery, Inc. v. Jackson, 116 S.W.3d 757, 761 (Tex. 2003). The trier of fact is
the sole judge of the credibility of witnesses and the weight to be given to their
testimony. Id. Absent an objection to the jury charge, the sufficiency of the
15
Strickland does not challenge the language of question number one of
the charge or the jury’s answer to that question, in which the jury found that
Strickland and Pathfinder intended to “bind themselves to an agreement that if
Strickland obtained financing for 100% of the financial obligations related to
Pathfinder’s oil and gas projects, then they would further negotiate and sign an
agreement to jointly manage the projects and equally share in any revenue
generated by the projects.” [Emphasis added.]
18
evidence is reviewed in light of the charge submitted. W.L. Lindemann Operating
Co. v. Strange, 256 S.W.3d 766, 775 (Tex. App.—Fort Worth 2008, pet. denied).
Question number three of the jury charge asked whether Strickland had
identified a financing source that “signed a written agreement with Pathfinder” in
which the source “assumed 100% of Pathfinder’s financial obligations related to
Pathfinder’s working interest.” Strickland has not challenged the language of this
question at trial or on appeal; instead, it contends that the great weight of the
evidence shows that Constellation assumed all of Pathfinder’s financial
obligations related to Pathfinder’s working interest. But the jury heard several
witnesses testify that Pathfinder was responsible for certain costs associated with
its working interest and paid those costs, and more importantly, the written
agreement between Constellation and Pathfinder, which the trial court admitted,
establishes Pathfinder’s obligation to share in paying certain costs.
The joint development agreement that Pathfinder and Constellation
entered into in April 2006 stated, in section 4.1, that Pathfinder would convey to
Constellation 80% of Pathfinder’s interest in the leasehold interests owned by
Pathfinder on the date of the agreement. Although the joint development
agreement provided that Constellation would pay “Lease Bonus Obligations”
(which included, for example, bonus and acquisition costs, title costs, and travel
costs) that existed on the date of the agreement, it also contemplated that the
parties would seek to acquire more leases in various Arkansas counties. Section
5.4 stated, “All Lease Bonus Obligations incurred after the date of this Agreement
19
. . . shall be included in the determination of Lease and Capital Costs under
Section 8.1 of this Agreement and paid for from the Lease and Capital Reserve
Account.” [Emphasis added.] Section 8.1 stated that the parties agreed to
maintain a “Lease and Capital Reserve” of funds designated for, among other
costs, Lease Bonus Obligations. Article 8 of the agreement also stated,
The Lease and Capital Reserve Account shall be a segregated
account to be maintained as a trust account for the benefit of the
Parties as to their respective contributions to the account . . . .
Withdrawals from the account shall be made solely for the purpose
of paying Lease and Capital Costs agreed to by the Parties or as
otherwise provided in this [Article 8]. No less than monthly, the
Parties will jointly determine the Lease and Capital Costs, for the
succeeding 3 month period . . . .
. . . The Parties agree to deposit to the Lease and Capital
Reserve Account 100% of their respective net revenues (after
deduction of royalties, operating expenses[,] and severance taxes)
from the sale of oil and gas production from wells . . . directly to the
Lease and Capital Reserve Account. If at any time the Lease and
Capital Reserve equals or exceeds 115% of the Lease and Capital
Requirements determined for the subsequent 3 month period under
the provisions of Article 8.1, the Parties may withdraw any such
excess . . . in accordance with their respective interest . . . .
. . . All Lease and Capital Costs will be paid from the Lease
and Capital Reserve Account, provided that if the Lease and Capital
Reserve is not adequate to fund 100% of any Lease and Capital
Requirements, [Constellation] agrees to bear 100% of any such
shortfall. . . .
Appendix E to the joint development agreement, which Article 8 referred to,
displayed a sample calculation for the Lease and Capital Reserve Account and
showed that revenue from each party’s share of production would be used to pay
for capital costs.
20
As witnesses testified at trial, the effect of these provisions of the joint
operating agreement required a share of Pathfinder’s revenue from producing
wells to be allocated to pay for expenses of the project. Black, who worked on
Constellation’s deal with Pathfinder in 2005 and 2006, testified concerning the
provisions quoted above that both parties’ shares of revenue from the production
of oil and gas were placed into the reserve account “lockbox” from which future
investments were funded. Specifically, in responding to a question about
whether Pathfinder had operational costs in its agreement with Constellation,
Black testified,
As I recall, all costs related to the project were funded out of this
capital reserve. . . . So as soon as there was any money that was
coming in from producing wells, [Pathfinder] would have been
picking up some share of that because their revenue would have
been allocated to them.
Black also explained that once capital costs could be fully paid by revenue that
was received, Pathfinder was still obligated to pay a share of costs that was
proportionate to its interest in the wells. Thus, Black explicitly testified that
Constellation did not assume 100% of the financial obligations related to
Pathfinder’s working interest positions in the Fayetteville Shale project.
George Hite, who is a petroleum engineer, testified on behalf of appellees
that Pathfinder’s share of the money from the production of wells, instead of
being directly paid to Pathfinder, was placed together with Constellation’s share
of the money from production into the lockbox and could be used to pay for
capital expenses, although Constellation agreed to cover a shortfall of capital
21
expenses if the parties’ joint revenue from production did not cover them. Hite
explained that Pathfinder never received revenue from producing wells “in [its]
pocket” because “[w]hat [Pathfinder] made from their wells went into [the
lockbox].” Under Pathfinder’s agreement with Constellation, Hite described
Pathfinder as being in “an investment position.” Hite also noted that when XTO
purchased Pathfinder’s and Constellation’s interests, Pathfinder paid
Constellation a significant sum for Pathfinder’s share of costs.
Glenn Grizzle, Pathfinder’s accountant, repeatedly stated that Pathfinder
paid money ($882,000) to Constellation after the XTO sale for Pathfinder’s share
of expenses, including operating expenses, relating to the project. Grizzle also
stated that Pathfinder was required to pay some of its expenditures by the effect
of Constellation recouping all of its expenditures plus 15% of them before
Pathfinder received revenue. Grizzle referred to, and the record contains, an e-
mail from a representative at Constellation concerning “amounts to be funded
from [Pathfinder] to Constellation” at the closing of the XTO sale.
Cole, the CPA called by Strickland, testified that Pathfinder paid expenses,
including “lease operating expenses and capital that Pathfinder owed” to
Constellation at the time of the sale. [Emphasis added.] Cole testified that
Pathfinder’s deal with Constellation was “100 percent financed by Constellation
until you got to the end, and then there was this true up at the end. Constellation
got reimbursed for their expenses. . . . The carry was no longer applicable at the
end of the day, and they settled up the accounts.” [Emphasis added.] An
22
agreement between Constellation and Pathfinder to terminate their joint
development agreement stated in part, “The parties agree that [Constellation] is
entitled to payment by Pathfinder of any outstanding amounts, including . . .
overhead and administrative expenses, lease and operating expenses, or any
other amounts paid by [Constellation] on behalf of Pathfinder . . . .” 16
Wilson testified unequivocally that Strickland did not identify a financing
source that paid all of Pathfinder’s costs. He explained that Constellation agreed
to cover a hundred percent of the costs “[o]n the shortfall” of funding on the
project that could not otherwise paid by the parties’ revenue from producing wells
that had been placed in the lockbox.
For these reasons, we conclude that factually sufficient evidence supports
the jury’s finding that Strickland did not identify a financing source that signed a
written agreement with Pathfinder in which the financing source assumed 100%
of Pathfinder’s financial obligations related to its working interest. See Pool, 715
S.W.2d at 635. We overrule that part of Strickland’s first issue. Because the
unchallenged language of question one of the jury charge required Strickland to
find a financing source that would pay 100% of Pathfinder’s obligations before
any contractual performance by Pathfinder became due, our holding above is
dispositive of Strickland’s breach of contract claim. Thus, we overrule other parts
of Strickland’s first issue in which it argues that the evidence is factually
16
Strickland recognizes in its brief that Pathfinder “reimbursed
Constellation for the financing . . . at the end of the Project.”
23
insufficient to show that Pathfinder did not retain a carried working interest (which
is germane to part of question number three of the jury charge) or that Pathfinder
failed to comply with its agreement with Strickland (which is germane to question
number four). See Tex. R. App. P. 47.1; City of Haltom City v. Aurell, 380
S.W.3d 839, 859 n.17 (Tex. App.—Fort Worth 2012, no pet.).
Next, Strickland contends that the evidence is factually insufficient to
support the jury’s negative answer to question number seven of the charge,
which asked whether Pathfinder or Wilson committed fraud against Strickland.
Strickland argues that appellees committed fraud because they entered into the
LOU with no intention of performing their obligations under it and because they
denied “the existence of an agreement with Constellation.”
A party commits fraud by (1) making a false, material misrepresentation
(2) that the party either knows to be false or asserts recklessly without knowledge
of its truth (3) with the intent that the misrepresentation be acted upon, (4) and
the person to whom the misrepresentation is made acts in reliance upon it
(5) and is injured as a result. Lindley v. McKnight, 349 S.W.3d 113, 128 (Tex.
App.—Fort Worth 2011, no pet.); W.L. Lindemann Operating Co., 256 S.W.3d at
776. Strickland first contends that appellees misrepresented that if Strickland
found a financing source for Pathfinder, Pathfinder and Strickland would
negotiate an agreement to share Pathfinder’s revenue from the Fayetteville
Shale project equally. Strickland contends that appellees’ representations were
“false because [they] failed to negotiate a compensation agreement with
24
[Strickland] after [Strickland] located a financing source,” and Strickland claims
that it was injured because it did not receive the compensation that it was
allegedly “entitled to” under the LOU. But as explained above, the jury heard
factually sufficient evidence that Strickland did not meet an obligation under the
LOU (identifying a financing source that assumed 100% of Pathfinder’s financial
obligations) as to trigger the performance of any obligations by Pathfinder under
that agreement.
Also, to the extent that Strickland argues that appellees never intended to
perform under LOU even if Strickland had fulfilled its obligations under that
agreement, Wilson testified that he had hoped that Strickland would find a
financing source that met the conditions of the LOU and that if Strickland had
done so, the parties “would have definitely entered into an understanding
agreement, sign[ed] the documents, honored the deal[,] and moved forward.”
Wilson also testified that he would have been willing to share a carried working
interest with Strickland if Strickland would have identified a proper financing
source. The jury, as the factfinder, was the sole judge of the credibility of
Wilson’s testimony that he intended to honor the LOU and was free to accept that
testimony. See Golden Eagle Archery, Inc., 116 S.W.3d at 761; Foley v. Parlier,
68 S.W.3d 870, 879 (Tex. App.—Fort Worth 2002, no pet.).
Finally, Strickland argues that appellees committed fraud by failing to
disclose Pathfinder’s agreement with Constellation. “Fraud by nondisclosure is a
subcategory of fraud.” Rice v. Metro. Life Ins. Co., 324 S.W.3d 660, 679 (Tex.
25
App.—Fort Worth 2010, no pet.). To establish fraud by nondisclosure, a plaintiff
must prove that (1) the defendant failed to disclose material facts to the plaintiff,
(2) the defendant had a duty to disclose those facts, (3) the defendant knew the
plaintiff was ignorant of the facts and the plaintiff did not have an equal
opportunity to discover the facts, (4) by failing to disclose the facts, the defendant
intended to induce the plaintiff to take some action or refrain from acting, (5) the
plaintiff relied on the defendant’s nondisclosure, and (6) the plaintiff was injured
as a result of acting without that knowledge. See Bus. Staffing, Inc. v. Jackson
Hot Oil Serv., 401 S.W.3d 224, 238 (Tex. App.—El Paso 2012, pet. denied);
Avery Pharms., Inc. v. Haynes & Boone, L.L.P., No. 02-07-00317-CV, 2009 WL
279334, at *10 (Tex. App.—Fort Worth Feb. 5, 2009, no pet.). The only injury
that Strickland identifies on appeal resulting from appellees’ alleged fraud by
nondisclosure, however, is that Strickland never “received the compensation [it
was] entitled to under the agreement.” We have concluded above that the
evidence is factually sufficient to support the jury’s finding that Strickland was not
entitled to compensation under the LOU. Thus, because Strickland’s fraud by
nondisclosure claim, as argued, is dependent on success in its breach of contract
claim, we must conclude that the evidence is factually sufficient to support the
jury’s rejection of Strickland’s fraud by nondisclosure claim. 17
17
Similarly, although Strickland contends that appellees affirmatively
misrepresented in January 2006 that “nothing was happening with Constellation,”
Strickland has not identified any injury resulting from the alleged
26
For all of these reasons, we conclude that the jury’s answers that neither
Pathfinder nor Wilson committed fraud or fraud by nondisclosure against
Strickland were based on factually sufficient evidence. See Pool, 715 S.W.2d at
635. We overrule that part of Strickland’s first issue.
In another part of its first issue, Strickland challenges the jury’s answer to
question number eleven of the charge, in which the jury found that Strickland and
Pathfinder did not enter into a partnership. As part of question number eleven,
the trial court instructed the jury that a partnership is an association of two or
more persons to carry on a business for profit and that factors indicating the
creation of a partnership include
(1) receipt or right to receive a share of profits of the business;
(2) expression of an intent to be partners in the business;
(3) participation or right to participate in the control of the
business;
(4) agreement to share or sharing:
a. losses of the business; or
b. liability for claims by third parties against the
business; and
(5) agreement to contribute or contributing money or property
to the business.[18]
misrepresentation other than not receiving compensation under the terms of the
LOU.
18
These are the factors for creation of partnership listed within the business
organizations code. See Tex. Bus. Orgs. Code Ann. § 152.052(a) (West 2012).
27
With respect to the first factor, Strickland argues that the evidence
establishes that the “parties agreed to share the profits related to the [Fayetteville
Shale project] 50/50” and that the parties “agreed to work together in a sweat
equity deal where [Strickland] would receive equity . . . because of the work it
did.” In the part of the record that Strickland cites to support these claims,
however, Purvis expressed his understanding that “[i]f [Strickland was]
successful and [was] able to bring financing,” it would earn a “50/50 interest of
whatever [was] earned from the financing company.” 19 Purvis also recognized
that if Strickland did not bring financing to Pathfinder, it “got nothing” and
Pathfinder would “still own [its] interest in Arkansas.” Later in his testimony,
Purvis recognized that before delivering the LOU draft, Wilson had expressed his
desire to have all of Pathfinder’s financial obligations covered by the financing
company and that the LOU incorporated that understanding. Also, Purvis
testified that based on language in the LOU, he believed that “[a]ssuming that a
source that [Strickland] brought funded [Pathfinder’s] deal, then [Strickland and
Pathfinder] would create . . . long partnership agreements.” 20 Purvis recognized
that Strickland had agreed to “eat the expenses [it] incurred” if it was unable to
find a financing source for Pathfinder; he also stated, “If [Strickland] didn’t find
19
We will highlight Purvis’s testimony about his interactions with Wilson
because Purvis testified that Dr. Strickland “was not involved in the discussions
with [Wilson] about deal terms.”
20
As explained above, the LOU contemplated that the parties would enter
into another agreement if the terms of the LOU were satisfied.
28
financing, then no harm, no foul; everybody goes their own way and we’ve got a
70-plus-thousand-dollar swing, you know, swing at the ball.” [Emphasis added.]
Purvis recognized at trial that he did not ask for the LOU to specifically mention
anything about a partnership or joint venture between Strickland and Pathfinder
and that the LOU did not do so. Also, Purvis said that although he had formed
several partnerships and had used formal written agreements to do so, no written
partnership agreement existed between Strickland and Pathfinder. Based on all
of this evidence, we conclude that the jury could have reasonably found that
Strickland and Pathfinder had not agreed to share profits but had instead agreed
to enter into another agreement regarding the creation of a partnership and the
sharing of profits only upon Strickland’s fulfillment of certain conditions that it did
not, in fact, fulfill. Cf. Arnold v. Caprielian, 437 S.W.2d 620, 625 (Tex. Civ.
App.—Tyler 1969, writ ref’d n.r.e.) (stating that “[p]ersons who have entered into
a contract to become partners at some future time or on the happening of some
future contingency do not become partners until or unless the agreed time has
arrived or the contingency has happened”).
Next, regarding the second and third factors listed above, although
Strickland argues on appeal that the parties held themselves out as joint
managers of the Fayetteville Shale project to Constellation and that the parties
agreed to jointly manage the project, Purvis testified that he told Constellation
that Strickland “expect[ed] to earn” an interest in the project and that Wilson had
the authority to decide whether to make a deal with Constellation. Concerning
29
the fourth factor, Purvis testified that he did not recall ever explicitly discussing
with Wilson the possible sharing of losses from any proposed partnership that
they could enter into, but he testified that they had “discussed working together
as a team on the projects,” which, in Purvis’s belief, would normally include
sharing losses.
At one point, Dr. Strickland testified that he did not believe that Pathfinder
and Strickland had formed a partnership in the legal sense although he believed
that the parties were “headed” in that direction after Wilson signed the LOU.
Dr. Strickland testified that although Wilson once mentioned the concept of being
partners to him, Wilson never specifically said that there was an agreement to
share losses.
For all of these reasons, we hold that the evidence is factually sufficient to
support the jury’s finding that Strickland and Pathfinder did not create a
partnership. See Pool, 715 S.W.2d at 635. We overrule that part of Strickland’s
first issue.
In the last part of its first issue, Strickland asserts that the trial court erred
by entering a take-nothing judgment on its claim for quantum meruit despite the
jury’s award of $16,700 on that claim (in its answer to question twenty-three of
the jury charge) and that the evidence proved that the award should have been
higher than $16,700. Appellees contend that as a matter of law, Strickland is not
entitled to damages on a quantum meruit theory because, among other reasons,
the parties’ relationship was governed by a contract.
30
To recover in quantum meruit, a plaintiff must prove that it rendered
valuable services or furnished materials for the person sought to be charged; that
the services or materials were accepted, used, and enjoyed by the person sought
to be charged; and that the plaintiff reasonably notified the person sought to be
charged that the plaintiff was expecting to be paid by the person sought to be
charged. See KUV Partners, LLC v. Fares, No. 02-09-00246-CV, 2011 WL
944453, at *16 (Tex. App.—Fort Worth Mar. 17, 2011, pet. denied) (mem. op. on
reh’g) (citing Vortt Exploration Co. v. Chevron U.S.A., Inc., 787 S.W.2d 942, 944
(Tex. 1990)). As we have explained, quantum meruit “is an equitable remedy
which does not arise out of a contract but is independent of it. Generally, a party
may recover under quantum meruit only when no express contract covering the
services or materials furnished exists.” Residential Dynamics, LLC v. Loveless,
186 S.W.3d 192, 198 (Tex. App.—Fort Worth 2006, no pet.) (citation omitted);
see In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 740 (Tex. 2005) (orig.
proceeding); Fortune Prod. Co. v. Conoco, Inc., 52 S.W.3d 671, 684 (Tex. 2000)
(“[P]arties should be bound by their express agreements. When a valid
agreement already addresses the matter, recovery under an equitable theory is
generally inconsistent with the express agreement.”).
Appellees’ predicated their motion for the trial court to enter a take-nothing
judgment on the jury’s finding (in response to question number one of the
charge) that a contract existed concerning Strickland’s effort to find financing for
Pathfinder. In the motion, appellees noted that in Strickland’s second amended
31
petition, which was its live pleading at the time of the trial, it expressly based its
quantum meruit claim on preceding paragraphs in the pleading that concerned
the contractual agreement between the parties. In responding to the motion,
Strickland conceded that the jury had found that the parties intended to be bound
to an agreement of some kind but contended that the jury had not found that a
contract between the parties existed because it had found that Strickland did not
satisfy the conditions of the LOU. Strickland also contended that it had partially
performed a unilateral contract between the parties.
We agree with appellees that Strickland’s claim for quantum meruit
damages is precluded by the jury’s finding that a contractual agreement existed
and by the fact that Strickland explicitly seeks compensation for finding a
financing source, which was a service covered by the explicit terms of that
agreement—the LOU—and not covered by the possible future agreement
between the parties that the LOU contemplated. In its brief, Strickland contends
that its compensable services concern the time it spent in preparing and
presenting information about the Fayetteville Shale project to financing
companies, including the preparation of the Executive Summary. 21 In answering
“Yes” to the first question of the jury charge, the jury found that Strickland and
Pathfinder intended to bind themselves to an agreement that if Strickland
obtained financing for all of Pathfinder’s obligations in its oil and gas projects,
21
Likewise, in its closing argument, Strickland contended that the “services”
that were compensable related to bringing “Constellation to the table.”
32
those parties would sign an agreement to share in revenue generated by the
projects. Purvis recognized during his testimony that the LOU required
Strickland to “eat both the loss of [its] consulting time . . . and eat the expenses
[it] incurred” if it could not find a funding source that met the requirements of the
LOU. And the LOU itself stated that Strickland would “bear its own expenses
related to the identification of potential financing sources.” Thus, we conclude
that because the jury found that the parties agreed to intend to bind themselves
to terms expressed in the LOU, because the LOU conditioned compensation to
Strickland on finding a financing source that assumed all of Pathfinder’s
obligations in the Fayetteville Shale project, because the LOU expressed that
Strickland would bear its own expenses, and because Strickland now seeks
compensation for its services in finding a financing company, Strickland’s
quantum meruit claim is precluded by the express agreement between the
parties. See Truly v. Austin, 744 S.W.2d 934, 936 (Tex. 1988) (“[A] plaintiff who
seeks to recover the reasonable value of services rendered or materials supplied
will be permitted to recover in quantum meruit only when there is no express
contract covering those services or materials.”) (emphasis added).
Strickland alternatively argues that it partially performed a unilateral
contract and may still therefore recover damages for quantum meruit. “Recovery
in quantum meruit is sometimes permitted when a plaintiff partially performs an
express contract that is unilateral in nature.” See id. at 937. But recovery under
a quantum meruit claim requires the plaintiff’s expectation of payment, and as
33
appellees argued in the trial court in replying to Strickland’s response to
appellees’ motion for the entry of a take-nothing judgment, the evidence shows
that Strickland did not expect to be paid for any partial, incomplete performance
of the LOU. See KUV Partners, LLC, 2011 WL 944453, at *16; see also Excess
Underwriters at Lloyd’s, London v. Frank’s Casing Crew & Rental Tools, Inc., 246
S.W.3d 42, 49 (Tex. 2008) (op. on reh’g); Fulgham v. Fischer, 349 S.W.3d 153,
159 (Tex. App.—Dallas 2011, no pet.); Smith v. Pulliam, Inc., 388 S.W.2d 329,
331 (Tex. Civ. App.—Fort Worth) (“Quantum meruit is founded upon the rule that
it is inequitable for a party to refuse to pay for the benefits he received or for work
performed for him with his knowledge and consent by someone who is
authorized to expect remuneration therefor.”) (emphasis added), writ ref’d n.r.e.,
394 S.W.2d 791 (Tex. 1965). At trial, Purvis characterized Strickland’s
agreement with Pathfinder as a “sweat-equity” arrangement in which Strickland
would be compensated only upon successfully finding a proper financing
company for Pathfinder, and Purvis stated that the agreement was structured in
that manner because Wilson did not want to pay Strickland “consulting dollars to
help him raise funding.” Purvis testified that he was “content” to “take a risk . . .
to go try to find financing.” He also recognized that it was Strickland’s duty under
the LOU to find a financing source that would assume all of Pathfinder’s financial
obligations for its working interest. 22 Thus, assuming that Strickland partially
22
Similarly, in its argument on appeal concerning quantum meruit,
Strickland states, “Pathfinder promised a benefit to [Strickland] . . . if [Strickland]
34
performed a unilateral agreement, we conclude that the trial court did not err by
entering a take-nothing judgment on appellees’ behalf because Strickland did not
expect to be compensated for such performance. Cf. Pantaze v. Iskander, No.
05-95-00984-CV, 1996 WL 640604, at *3 (Tex. App.—Dallas Oct. 29, 1996, no
writ) (not designated for publication) (holding that a plaintiff could not recover
under a quantum meruit claim when the plaintiff, an attorney, understood that he
was working on a contingency basis and therefore could not have expected
compensation on an hourly basis).
For all of these reasons, we conclude that the evidence is factually
sufficient to support the jury’s answers to the questions of the charge that
Strickland has challenged and that the trial court properly entered a take-nothing
judgment on Strickland’s quantum meruit claim. We overrule Strickland’s first
issue.
The Trial Court’s Exclusion of Evidence
In the first part of its second issue, Strickland contends that the trial court
abused its discretion by refusing to admit evidence that Strickland offered in
rebuttal after both parties had rested. A trial court’s rulings in admitting or
excluding evidence are reviewable under an abuse of discretion standard.
Richmond Condos. v. Skipworth Commercial Plumbing, Inc., 245 S.W.3d 646,
664 (Tex. App.—Fort Worth 2008, pet. denied) (op. on reh’g). “To determine
obtained financing for 100% of the financial obligations related to Pathfinder’s
projects.”
35
whether a trial court abused its discretion, we must decide whether the trial court
acted without reference to any guiding rules or principles; in other words, we
must decide whether the act was arbitrary or unreasonable.” Id. (citing Downer
v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241–42 (Tex. 1985), cert.
denied, 476 U.S. 1159 (1986)). Merely because a trial court may decide a matter
within its discretion in a different manner than an appellate court would in a
similar circumstance does not demonstrate that an abuse of discretion has
occurred. Id.
During appellees’ cross-examination of Purvis, their counsel asked him
about his decision to record a telephone conversation with Wilson in October
2006. At a bench conference immediately following a question related to the
recording, Strickland’s counsel represented that he had withdrawn exhibits
concerning the recording but would want to reoffer them because appellees were
opening the door to their admission. Later, during appellees’ direct examination
of Wilson, counsel asked him about the recorded call.
After both parties rested, Strickland attempted to recall Wilson as a rebuttal
witness, to play the recorded call, and to ask Wilson about it. Strickland
contended that appellees had opened the door to the admission of the recording.
Appellees objected to Strickland playing the tape or admitting a transcript of the
recording on the basis that Strickland should have offered that evidence during
its case-in-chief. The trial court sustained appellees’ objection.
36
Assuming that the trial court erred by sustaining appellees’ objection to
Strickland’s attempt to recall Wilson and to play the recording, we must
determine whether that error caused harm. To obtain reversal of a judgment
based upon an error in the trial court, the appellant must show that the error
probably caused rendition of an improper judgment or probably prevented the
appellant from properly presenting the case to this court. Tex. R. App. P.
44.1(a); Romero v. KPH Consolidation, Inc., 166 S.W.3d 212, 225 (Tex. 2005).
“The complaining party must usually show that the whole case turned on the
evidence at issue. The party need not show that a different judgment would
necessarily have been rendered, but only that the error probably resulted in an
improper judgment.” Hong v. Bennett, 209 S.W.3d 795, 804–05 (Tex. App.—Fort
Worth 2006, no pet.) (citation omitted); see also Bedford v. Moore, 166 S.W.3d
454, 465 (Tex. App.—Fort Worth 2005, no pet.) (stating that the exclusion of
evidence is “harmful only if the evidence is controlling on a material issue and is
not cumulative” and that a “successful challenge to an evidentiary ruling
generally requires showing that the judgment turned on the particular evidence in
dispute”).
Strickland does not particularly discuss harm or expressly address how the
overall presentation of its case or the jury’s resolution of the questions presented
in the charge turned on the trial court’s exclusion of rebuttal testimony from
Wilson about the recording. Instead, Strickland succinctly argues that the
evidence should have been admitted because it allegedly disproved Wilson’s
37
prior testimony that he had never lied to Purvis about Pathfinder’s agreement
with Constellation. We agree with appellees, however, that the evidence, even if
admitted, would not have likely accomplished that purpose.
The transcript from the recorded phone call, which the trial court excluded,
contains the following question and answer that Strickland relies on as proof that
Wilson allegedly lied:
[PURVIS]: . . . So you guys are funding [the Fayetteville
Shale project] internally?
[WILSON]: I’ve . . . pretty well got the funding with . . . the
groups that I put together to say let’s look at the Fayetteville, but
most of my stuff right now . . . is moving . . . back toward Oklahoma.
It is evident that in this exchange, Wilson did not claim that Pathfinder was
funding the Fayetteville Shale project internally or that Constellation was not
involved in the project; he stated only that the project was being funded by
groups that he put together. As appellees argue, it is clear that Strickland did not
participate in negotiating or structuring the ultimate, signed agreement between
Constellation and Pathfinder. Purvis testified that by the beginning of January
2006, he had been “cut out” of Pathfinder’s dealings with Constellation.
Pathfinder signed its agreement with Constellation in April 2006 after negotiating
significant changes to terms of the agreement from what originally appeared in
the December 2005 term sheet that Purvis testified he saw. Purvis stated at trial
that Wilson “didn’t need [Purvis’s] help” to complete an agreement with
Constellation.
38
Thus, although the evidence shows that Strickland initially introduced
Pathfinder to Constellation, it does not prove that Wilson necessarily lied when
he told Purvis in October 2006 that the Fayetteville Shale project was being
funded by groups that Wilson put together. Furthermore, the jury had more direct
evidence, from Purvis’s testimony, that Wilson “repeatedly” lied. The exclusion of
evidence is generally not harmful when the excluded evidence is cumulative of
other evidence. See Gen. Motors Corp. v. Burry, 203 S.W.3d 514, 544–45 (Tex.
App.—Fort Worth 2006, pet. denied) (op. on reh’g).
Because Strickland only argues that the excluded evidence was relevant to
showing that Wilson lied, the evidence does not necessarily satisfy that purpose,
and Strickland does not argue that the exclusion of the evidence was otherwise
harmful, we conclude that the exclusion of the evidence did not likely lead to the
rendition of an improper judgment. See Tex. R. App. P. 44.1(a); Bedford, 166
S.W.3d at 465. We overrule the first part of Strickland’s second issue.
Alleged Jury Charge Errors
In the last part of its second issue, Strickland argues that question
numbers twelve and thirteen of the charge were erroneously submitted to the jury
because they were irrelevant to the contested issues and because they “likely
confused and misled the jury.” The eleventh question of the jury charge asked
the jury whether Strickland and Pathfinder had created a partnership, and the
jury responded that they had not done so. The charge instructed the jury to
answer questions twelve and thirteen only if it had answered “Yes” to question
39
eleven, so the jury did not answer questions twelve and thirteen, which asked
about the date that a partnership was formed and the date that it terminated, if
any. 23 Strickland contends that it did not have the burden to prove either date
and that the jury was “likely . . . confused by the lack of evidence” concerning the
dates. 24
Even if we were to agree with Strickland that the trial court’s submission of
questions twelve and thirteen to the jury was inappropriate, 25 the supreme court
has explained that submission of an improper jury question
can be harmless error if the jury’s answers to other questions render
the improper question immaterial. Boatland of Houston, Inc. v.
Bailey, 609 S.W.2d 743, 750 (Tex. 1980); Texas & New Orleans
R.R. Co. v. McGinnis, 130 Tex. 338, 109 S.W.2d 160, 163 (1937). A
jury question is considered immaterial when its answer can be found
elsewhere in the verdict or when its answer cannot alter the effect of
the verdict. Fleet v. Fleet, 711 S.W.2d 1, 2 (Tex. 1986); C. & R.
Transp., Inc. v. Campbell, 406 S.W.2d 191, 194 (Tex. 1966); Powers
v. Standard Accident Ins. Co., 144 Tex. 415, 191 S.W.2d 7, 9
(1945). Submission of an immaterial issue is not harmful error
unless the submission confused or misled the jury. Bailey, 609
23
During its closing argument, Strickland proposed that the partnership was
created on September 13, 2005 through a phone conversation and that it had
possibly never ended.
24
Similarly, in the trial court’s charge conference, Strickland objected to
question numbers twelve and thirteen, stating, “The date on which the
partnership was formed or terminated is irrelevant, not an issue in this case, and
it’s intended only to confuse the jury.” The trial court overruled this objection.
25
Appellees argue that questions twelve and thirteen were relevant
because they determined which law could apply to a partnership between
Strickland and Pathfinder. See Ingram v. Deere, 288 S.W.3d 886, 894 n.4 (Tex.
2009) (explaining that partnerships formed on or after January 1, 2006 are
governed by a different law than partnerships created before that date).
40
S.W.2d at 750; H.E. Butt Grocery Co. v. Johnson, 226 S.W.2d 501,
504 (Tex. Civ. App.—San Antonio 1949, writ ref’d n.r.e.). When
determining whether a particular question could have confused or
misled the jury, we “consider its probable effect on the minds of the
jury in the light of the charge as a whole.” Texas Employers Ins.
Ass’n v. McKay, 146 Tex. 569, 210 S.W.2d 147, 149 (1948) (citing
Russell v. Great Am. Indem. Co., 127 Tex. 458, 94 S.W.2d 409, 410
(1936)).
City of Brownsville v. Alvarado, 897 S.W.2d 750, 752 (Tex. 1995); see also
Crowson v. Bowen, 320 S.W.3d 486, 489 (Tex. App.—Fort Worth 2010, no pet.)
(“Submission of an immaterial issue is not harmful unless it confuses or misleads
the jury, which we determine by considering its probable effect on the jury in light
of the charge as a whole.”)
In City of Brownsville, a man had committed suicide in a city jail, and his
parents had sued the city for negligence. 897 S.W.2d at 751. The trial court
submitted a jury question about the city’s negligence and a question about the
decedent’s negligence or intentional conduct, and the plaintiffs argued that the
submission of the latter question was erroneous and harmful. Id. at 752. On
appeal, the city contended that because the jury had answered the first question
by finding that the city was not negligent, the submission of the second question
was harmless. Id. The supreme court agreed, stating,
Assuming without deciding that submission of Question 2 ([the
decedent’s] negligence) was improper, it was plainly immaterial in
light of the jury's “no” answer to Question 1 (the City’s negligence).
Once the jury found in answer to Question 1 that the City did not
proximately cause Ricardo’s death, the City was exonerated of
liability, and neither an affirmative nor a negative answer to Question
2 could have altered the verdict. Reading the charge as a whole, we
do not find that any of the questions submitted were ambiguous or
41
misleading. The cause of death and the fact of suicide were never
in doubt; the jury was simply asked to identify who was
responsible. . . . Under these circumstances, the submission of
Question 2 was not harmful error.
Id. at 752–53.
Similarly, we conclude that the submission of questions twelve and thirteen
was harmless in this case. The submission of those questions was immaterial
and was not likely to confuse the jury because the trial court instructed the jury to
answer each question carefully without considering the effect of the answer;
question eleven provided detailed instructions about the factors that show the
existence of a partnership, and those instructions did not condition such
existence on the discernment of a particular date of creation or termination; the
jury found in question eleven that a partnership did not exist, 26 question eleven
preceded questions twelve and thirteen; and the charge informed the jury to
answer questions twelve and thirteen only if they found that a partnership existed
in answering question eleven. See id.; see also Boatland of Houston, Inc. v.
Bailey, 609 S.W.2d 743, 750 (Tex. 1980) (holding that the potentially erroneous
submission of defensive theories was harmless error because the jury found for
the defendant on independent grounds and the complaining party failed to show
how it probably resulted in an improper verdict). Because we conclude that
Strickland did not suffer harm by the allegedly erroneous inclusion of questions
26
As explained above, the evidence is factually sufficient to support this
finding.
42
twelve and thirteen of the jury charge, we overrule the last part of its second
issue. See Tex. R. App. P. 47.1; City of Brownsville, 897 S.W.2d at 752–53.
Conclusion
Having overruled both of Strickland’s issues, we affirm the trial court’s
judgment.
WILLIAM BRIGHAM
JUSTICE
PANEL: GARDNER and WALKER, JJ.; WILLIAM BRIGHAM (Senior Justice,
Retired, Sitting by Assignment).
DELIVERED: September 5, 2013
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