Devon SFS Operating , Inc., and IMC Global, Inc. v. First Seismic Corporation, a Delaware Corporation

In The

Court of Appeals

For The

First District of Texas

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NO. 01-04-00077-CV

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DEVON SFS OPERATING, INC., AND IMC GLOBAL, INC., Appellants

V.

FIRST SEISMIC CORPORATION, Appellee

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On Appeal from the 80th District Court

Harris County, Texas

Trial Court Cause No. 2002-32651

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MEMORANDUM OPINION

          This declaratory judgment case resolved competing interpretations of an indemnity provision in a contract transferring ownership of seismic data. Appellee and plaintiff below, First Seismic Corporation (First Seismic), prevailed in the trial court on its claim for indemnity against appellants, Devon SFS Operating, Inc. (Devon) and IMC Global, Inc. (IMC). Trial was to the court, which filed findings of fact and conclusions of law. In four issues on appeal, Devon and IMC argue that the trial court erred in interpreting the indemnity provision and by permitting Seismic to recover attorney’s fees and expenses that Devon and IMC contend are either nonrecoverable or unreasonable. We affirm.  

Facts and Procedural Background

          In early 1980, Adobe Resources Corporation (Adobe), Freeport McMoran Oil & Gas Company (McMoran) and McKenzie Management, Inc. (McKenzie) entered into a joint venture agreement to develop seismic data, screen leads and prospects, acquire acreage on prospects, and drill test wells in the East Texas basin area. Adobe, McMoran, and McKenzie owned participating interests in the joint venture’s assets in proportions of 37.5 percent, 50 percent, and 12.5 percent, respectively. The venture agreement expired by its own terms on December 31, 1987. Devon is Adobe’s successor-in-interest and IMC is McMoran’s successor-in-interest. McKenzie’s successors-in-interest to its 12.5 percent interest are East Texas Seismic Data LLC (ETSD) and Capmac Eighty-Two Limited Partnership (Capmac).

A.      September 1990 Data Exchange: First Seismic and Adobe and McMoran

          Lance Moreland, former vice-president of First Seismic Corporation (First Seismic), explained at trial that his company’s offshore market concentration had ceased by 1990. By summer of that year, operations had become reduced to winding down the company’s existing business in that market, under the supervision of the company president, Rogers Beal. Simultaneously, Adobe and McMoran, which had shifted its market focus from the East Texas basin to developing an offshore market, proposed the following transaction: Adobe and McMoran would transfer their ownership of the joint venture’s “1,000 plus miles” of seismic data assets to First Seismic; in exchange, First Seismic would surrender its licenses to 5,000 miles of offshore seismic data to Adobe and McMoran. Under the terms of the proposed transfer, First Seismic would forego any right to sell further licenses pertaining to the data that it was transferring and would also absorb the costs of required reprocessing of the data before releasing it to Adobe and McMoran. Kenneth J. Huffman, McMoran’s vice-president for exploration, served as chief negotiator among the parties, and Moreland drafted the agreement that memorialized the negotiations.

          As negotiations for the transfer progressed, however, Adobe and McMoran proved “unable to communicate” with McKenzie about transferring its 12.5 percent interest in the joint venture. Hoffman ultimately represented that McKenzie had either abandoned the joint venture or was in bankruptcy and could not be located in order to transfer the 12.5% minority interest. At that point, Beal asked that Adobe and McMoran provide $50,000 to compensate First Seismic for that interest, which Adobe and McMoran could not convey because McKenzie retained it. In addition, although indemnity provisions were not initially contemplated as part of the transfer, First Seismic’s general counsel required that the parties’ final agreement include an indemnity provision in favor of First Seismic in the event of claims by the 12.5 percent ownership or by others claiming through them. In turn, Adobe and McMoran required indemnity provisions by First Seismic for the data that it was transferring.

          In September 1990, the parties executed their agreement for the mutual exchange of data. The agreement recites that (1) Adobe and McMoran, the “majority owners” of the seismic data, would transfer to First Seismic “all of [their] right, title, and interest” in the data, but that (2) McKenzie, “the minority owner,” would “retain a 12.5% interest in said data,” and that (3) McMoran would “compensate First Seismic $50,000 for said interest” on delivery of First Seismic’s Exxon data to McMoran. The agreement also includes an indemnity provision, paragraph 5, which reflects the parties’ reciprocal agreements to indemnify each other against claims related to the seismic data they had exchanged. Paragraph 5.B., on which First Seismic relies in this lawsuit, addresses Adobe’s and McMoran’s transfer of their combined 87.5 percent ownership and McKenzie’s retained 12.5 percent interest in the seismic data as follows:

McMoran and Adobe hereby indemnify and hold harmless FIRST SEISMIC from and against any and all claims, cost, expenses or causes of action that may be asserted by the referenced minority owners or other owners should they exist.

[Upper case in original.]

B.      Oklahoma Litigation against First Seismic and Seitel

          In 1997, McKenzie’s legal successors-in-interest, ETSD and Capmac, filed suit in the United States District Court for the Northern District of Oklahoma against Devon and IMC, Adobe’s and McMoran’s legal successors-in-interest, First Seismic, and Seitel, to which First Seismic had transferred its interest in 1994. ETSD and Capmac (collectively, the current minority interests) asserted claims for damages, including punitive damages, for conversion of their 12.5 percent proportionate interest and sought an accounting for proceeds from sales by the defendants that arose from that interest. The current minority owners initially sought more than $1.2 million in damages. In 1998, the federal district court rendered summary judgment in favor of Devon and IMC on the conversion claim, on the grounds that the 1990 agreement unequivocally granted Adobe and McMoran the right to transfer their proportionate interest in the joint venture, without consent of the former minority owner or successors to that owner, two years after the joint venture expired on its own terms in December 1987. Because the transfer occurred in 1990, there was no conversion. The United States Court of Appeals for the Tenth Circuit (the Tenth Circuit) affirmed. E. Tex. Seismic Data LLC v. Seitel Data, Inc., 201 F.3d 447 (10th Cir. 1999) (unpublished table disposition).

          Following a February 5, 2002 remand from the Tenth Circuit on the existing minority owners’ claim for accounting, First Seismic amended its pleadings to assert a limitations bar and equitable defenses that included waiver, estoppel, ratification lâches, and abandonment. In addition, First Seismic also conducted an extensive inquiry into whether the current minority owners actually owned the 12.5 percent McKenzie interest and pursued a summary judgment on that issue, but did not prevail. Trial was set for December 2002 before a different district-court judge on an expedited discovery schedule complicated by a lack of supporting First Seismic records, due to First Seismic’s having ceased business operations in 1994. First Seismic’s defense in the accounting case focused on close scrutiny of each of the 120 transactions to which the current minority owners asserted a right to share First Seismic’s proceeds, with a view of reducing that total.

          The accounting case was tried to the federal district court, jury, which filed findings of fact and conclusions of law. The court ruled that the present minority owners had standing to sue, as McKenzie’s successors-in-interest, and identified 33 transactions for which the minority owners were entitled to a 12.5 percent share in First Seismic’s proceeds. The court further ruled that, on acquiring its 87.5 percent interest in the seismic data through the September 1990 transfer with Adobe and McMoran, First Seismic became a cotenant with the minority owners. The court rejected, however, Adobe’s and McMoran’s claim that, because First Seismic did not notify the cotenant minority owners of either the September 1990 transfer or its own transfer of the data to Seitel, the cotenancy terminated on either of those events. Finally, and after rejecting the current minority owners’ claims to a share of proceeds for several licensing transactions, the federal district court ruled that First Seismic owed its cotenants, the current minority owners, 12.5 percent of its proceeds, for a total of $193,973.49, derived from $831,899.00 of license proceeds. The total owed included $9,681 allocated as costs.

C.      This Litigation

          First Seismic demanded and was refused indemnity pursuant to paragraph 5.B. of the September 1990 agreement from Adobe’s and McMoran’s successors-in-interest, Devon and IMC, and then filed this lawsuit. Devon and IMC responded by filing a combined answer, special exceptions, and plea-in-abatement, but obtained no ruling on the latter two. Devon and IMC moved for summary judgment, to which First Seismic filed a response and its own cross-motion for summary judgment, and both sides filed supplemental responses to the corresponding motions. The trial court set the case for trial without ruling on either motion. Neither side requested a jury trial.

          In response to notices of deposition by First Seismic, Devon and IMC filed a formal, pretrial stipulation with the trial court. This stipulation includes recitals that (1) they were the legal successors-in-interest of Adobe and McMoran, respectively, (2) they were unable to locate representatives of either company, but (3) if they were to designate representatives to respond to the matters identified in First Seismic’s notices of deposition, which included inquiries concerning negotiations for the 1990 agreement and the parties’ intent in including certain provisions in the agreement, those representatives would answer “I don’t know.”

          First Seismic’s three witnesses at the bench trial were Moreland, who testified concerning the seismic data industry and licensing, in particular, and the two counsel who represented First Seismic in Oklahoma and in this litigation, who testified on the issue of attorney’s fees. Devon and IMC presented only one witness, an attorney, who testified as an expert to challenge the reasonableness of the attorney’s fees and expenses that First Seismic claimed. The trial court signed a final judgment on October 16, 2003.

          The trial court’s final judgment declares that the indemnity provision of the 1990 agreement required Devon and IMC to indemnify First Seismic for the $203,654.66 judgment and costs awarded against First Seismic in the Oklahoma litigation. The judgment also awarded interest on that judgment, $237,387.68 in attorney’s fees and $34,081.94 in costs incurred in that lawsuit, $109,017 in attorney’s fees incurred in this lawsuit, prejudgment interest on the award of attorney’s fees and costs awarded by the Oklahoma judgment, postjudgment interest on the attorney’s fees and costs awarded in this lawsuit, and conditional attorney’s fees for this and any subsequent appeal to the Supreme Court of Texas. The trial court’s second amended findings of fact and conclusions of law resulted from the respective parties’ proposing and challenging earlier versions. After the trial court signed and filed second amended findings and conclusions, Devon and IMC superseded the judgment and perfected their appeal.

Devon’s and IMC’s Duty to Indemnify First Seismic

          In their first issue, Devon and IMC contend that the trial court erred in construing the indemnity provisions of paragraph 5.B. of the 1990 agreement to include the current minority owners’ demand for an accounting. We construe this issue as challenging paragraph one of the trial court’s judgment and conclusions of law one through eleven, and any supporting findings, either expressly stated or implied, of the trial court’s second amended findings and conclusions. Through these conclusions, the trial court construed the indemnity provision as encompassing the claims of ETSD and Capmac in the Oklahoma lawsuit, in part because First Seismic, Adobe and McMoran “specifically negotiated” the provision and “intended that it cover all claims asserted by any owner of the East Texas Data, including but not limited to, a claim for an accounting for 12.5% of all amounts attributable to sales and licenses of said data.”

A.      Standards of Review

          Devon’s and IMC’s issue requires that we apply a confluence of standards of review. We invoke those that govern interpretation of contracts, those that govern challenges to the sufficiency of the evidence, as well as those that govern the trial court’s exercise of its discretion.

          1.       Interpretation of Indemnity Agreement

          Indemnity agreements are strictly construed, pursuant to the same, well-settled principles that control interpretation of contracts, to give effect to the parties’ intent as expressed in the agreement. See Ideal Lease Serv., Inc. v. Amoco Prod. Co., 662 S.W.2d 951, 953 (Tex. 1984). These principles dictate that courts construe contracts as a matter of law, and that their rulings are subject to de novo review. See J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 229 (Tex. 2003) (applying rule in arbitration-agreement context) (citing Coker v. Coker, 650 S.W.2d 391, 394 (Tex. 1983); C.M. Asfahl Agency v. Tensor, Inc., 135 S.W.3d 768, 780 (Tex. App.—Houston [1st Dist.] 2004, no pet.) (interpreting asset-purchase agreement); Tesero Petroleum Corp. v. Nabors Drilling USA, Inc., 106 S.W.3d 118, 125 (Tex. App.—Houston [1st Dist.] 2002, pet. denied) (interpreting indemnity agreement).

          In construing a written contract, the court’s primary concern is to ascertain the true intent of the parties, as expressed in the instrument. J.M. Davidson, Inc., 128 S.W.3d at 229; see C.M. Asfahl Agency, 135 S.W.3d at 780. Accordingly, the court must examine and consider the entire writing in an effort to harmonize and give effect to all provisions so that none is rendered meaningless. J.M. Davidson, Inc., 128 S.W.3d at 229. The court may not consider any single provision, taken in isolation, as controlling, but must consider all provisions in context of the entire instrument. Id.

          If considering all provisions enables the court to construe the contract as giving a “definite or certain legal meaning,” the contract is not ambiguous; it may be construed as a matter of law and enforced as written. See id.; Stewart Title Guar. Co. v. Aiello, 941 S.W.2d 68, 73–74 (Tex. 1997). If applying the principles of construction results in two or more reasonable interpretations, the contract is ambiguous as a matter of law and presents a factual dispute concerning the intent of the parties. J.M. Davidson, Inc., 128 S.W.3d at 229. Because ambiguity in a contract is a question of law, the trial court may conclude that an agreement is ambiguous without the parties’ having asserted that argument. See id. at 229, 231 (citing Sage Street Assoc. v. North Dale Constr. Co., 863 S.W.2d 438, 444–45 (Tex. 1993)).

          2.       Legal and Factual Sufficiency Evidentiary Challenges

          When, as here, a trial court files findings of fact and conclusions of law in support of its judgment, we review both under well-settled principles. Findings of fact in a case tried to the trial court have the same force and effect as a jury’s verdict on questions and are reviewable for legal and factual sufficiency. Anderson v. City of Seven Points, 806 S.W.2d 791, 794 (Tex. 1991); Min v. Avila, 991 S.W.2d 495, 500 (Tex. App.—Houston [1st Dist.] 1999, no pet.). The trial court’s conclusions of law are reviewable de novo. McDermott v. Cronin, 31 S.W.3d 617, 623 (Tex. App.—Houston [1st Dist.] 2000, no pet.). Because the appellate record here contains a complete reporter’s record of the trial, the trial court’s findings of fact are not conclusive, but are subject to the same, well-settled standards that govern legal and factual sufficiency challenges to jury findings. Comm’n of Contracts of the Gen. Executive Comm. of the Petroleum Workers Union v. Arriba, Ltd., 882 S.W.2d 576, 582 (Tex. App.—Houston [1st Dist.] 1994, no writ); In the Interest of M.J.Z., 874 S.W.2d 724, 728 (Tex. App.—Houston [1st Dist.] 1994, no writ).

          For this Court to sustain a challenge by Devon and IMC to the legal sufficiency of the evidence to support findings on which First Seismic, as plaintiff, had the burden of proof at trial, Devon and IMC must show that no evidence supports the trial court’s implied factual resolution of the parties’ intent in including both the $50,000 consideration provision and the indemnity provision in the September 1990 agreement. See Croucher v. Croucher, 660 S.W.2d 55, 58 (Tex. 1983) (stating burden on appeal for party challenging legal sufficiency of evidence to sustain finding on which party did not have burden of proof).

          In City of Keller v. Wilson. 168 S.W.3d 802 (Tex. 2005), the supreme court concluded that “[t]he final test for legal sufficiency must always be whether the evidence at trial would enable reasonable and fair-minded people to reach the verdict under review. . . . [L]egal-sufficiency review in the proper light must credit favorable evidence if reasonable jurors could, and disregard contrary evidence unless reasonable jurors could not.” Id. at 827. The court further held that an appellate court “cannot substitute its judgment for that of the trier-of-fact, so long as the evidence falls within its zone of reasonable disagreement.” Id. at 822. Although the court must “consider evidence in the light most favorable to the judgment, and indulge every reasonable inference that would support it . . .[,] if the evidence allows of only one inference, neither jurors nor the reviewing court may disregard it.” Id.

          Evidence may be legally insufficient because “‘(a) there is a complete absence of evidence of a vital fact, (b) the court is barred by rules of law or of evidence from giving weight to the only evidence offered to prove a vital fact, (c) the evidence offered to prove a vital fact is no more than a mere scintilla, or (d) the evidence conclusively establishes the opposite of the vital fact.’” See Volkswagen of Am., Inc. v. Ramirez, 159 S.W.3d 897, 903 (Tex. 2004) (quoting Merrell Dow Pharm., Inc. v. Havner, 953 S.W.2d 706, 711 (Tex. 1997) (in turn quoting Calvert, “No Evidence” and “Insufficient Evidence” Points of Error, 38 Tex. L. Rev. 361, 362–63 (1960)).           For this Court to sustain any challenge by Devon and IMC to the factual sufficiency of the evidence, Devon and IMC must show that insufficient evidence supports the trial court’s findings. See Lofton v. Texas Brine Corp, 720 S.W.2d 804, 805 (Tex. 1986); see also M.D. Anderson Hosp. & Tumor Inst. v. Felter, 837 S.W.2d 245, 247 (Tex. App.—Houston [1st Dist.] 1992, no writ) (holding that single standard applies to factual-sufficiency review, whether affirmative or negative finding challenged and irrespective of burden of proof at trial). In assessing the factual sufficiency of the evidence to support the trial court’s express or implied findings, we must weigh all the evidence, both supporting and conflicting with the finding, and may set the finding aside only if it is so contrary to the overwhelming weight of the evidence as to be clearly wrong and manifestly unjust. See Cain v. Bain, 709 S.W.2d 175, 176 (Tex. 1986); Arriba, 882 S.W.2d at 582; Felter, 837 S.W.2d at 247. In reviewing this challenge, we again examine the evidence to determine if some evidence supports the trial court’s finding, see Lofton, 720 S.W.2d at 805, and, if so, must then determine, in light of the entire record, whether the finding is so against the great weight and preponderance of the evidence that the finding is clearly wrong and manifestly unjust. Cain, 709 S.W.2d at 176; Felter, 837 S.W.2d at 247. In conducting our review, however, we must be mindful of the factfinder’s role as the sole determiner of credibility of the witnesses and the weight to give their testimony and may not substitute our opinion for the factfinder’s solely because we might have resolved the facts differently. Herbert v. Herbert, 754 S.W.2d 141, 144 (Tex. 1988); Felter, 837 S.W.2d at 247.

          3.       Discretionary Rulings

          A trial court abuses its discretion when it rules arbitrarily, unreasonably, without regard to guiding legal principles or without supporting evidence. See Bocquet v. Herring, 972 S.W.2d 19, 21 (Tex.1998); Dunn v. Dunn, 177 S.W.3d 393, 395 (Tex. App.—Houston [1st Dist.] 2005, pet. denied). The abuse-of-discretion standard has different applications in different circumstances. See Walker v. Packer 827 S.W.2d 833, 839 (Tex. 1992). Because a trial court has no discretion in determining what the law is, which law governs, or how to apply the law, we review these rulings de novo. See id. at 840. In contrast, when we review a trial court’s resolution of any facts that may underlie its discretionary rulings, we must defer to the trial court’s factual resolutions, as well as any credibility determinations that possibly affected those resolutions, and may not substitute our judgment for its judgment. See id. Although the legal and factual sufficiency of the evidence are not independent grounds for asserting error in determining whether the trial court abused its discretion, they are relevant factors to that inquiry. Dunn, 177 S.W.3d at 396 (citing Lindsey v. Lindsey, 965 S.W.2d 589, 592 (Tex. App.—El Paso 1998, no pet.)).
B.      Unambiguous Interpretation

           Each side of this controversy contends that the September 1990 agreement unambiguously precludes the interpretation proffered by the opposing side.

          Devon and IMC emphasize that paragraph 1.B. of the 1990 agreement, which acknowledges the $50,000 paid to “compensate” First Seismic for the 12.5 percent interest retained by McKenzie, is the only provision of that agreement that pertains specifically to the retained McKenzie interest. Because paragraph 1.B. refers specifically to McKenzie’s retained interest, Devon and IMC contend that paragraph 1.B. not only contrasts with, but also controls over, the language of the indemnity provisions of paragraph 5.B. Further emphasizing that paragraph 1.B. “compensate[s]” First Seismic for the McKenzie retained interest, Devon and IMC argue that taking those specific terms and considering with them paragraph 4.A., which recites that the parties exchanged “no additional monies or additional data” other than the $50,000 referred to in paragraph 1.B., and also with paragraph 6., which disclaims “all general and specific warranties,” compels the conclusion that the $50,000 consideration recited in paragraph 1.B. controls over the indemnity provisions of paragraph 5.B. Devon and IMC further assert that paragraph 1.B., which recites the $50,000 paid to First Seismic for the retained minority interest, controls to the exclusion of the indemnity provisions of paragraph 5.B., and that construing the 1990 agreement in its entirety compels an interpretation that the indemnity provision protected First Seismic solely against claims arising out of the 1990 transfer that First Seismic might assert against Adobe and McMoran.

          The arguments presented by Devon and IMC, however, ignore that paragraph 5.B. also refers, specifically, to “the referenced majority owner,” who is undisputedly McKenzie, “or other owners, should they exist.” We conclude that Devon’s and IMC’s proposed interpretation of the provisions of the 1990 agreement would render meaningless the indemnity provisions of paragraph 5.B., which broadly, inclusively, and without limitation or restriction, warrants not only (1) an indemnity in First Seismic’s favor, but also (2) to hold First Seismic harmless “for and against any and all claims, cost, expenses, or causes of action that may be asserted by [McKenzie] or other owners, should they exist.” (Emphasis added.) J.M. Davidson, Inc., 128 S.W.3d at 229. The broad, inclusive, unlimited, and unrestricted language of paragraph 5.B. is irreconcilable, as a matter of law, with the limited circumstances envisioned by Devon and IMC as triggering its applicability. Nothing in paragraph 5.B. itself, nor the remainder of the 1990 agreement, demands that we reject the broad grant of indemnity envisioned by paragraph 5.B. and the agreement as a whole.

          On construing the 1990 agreement de novo and as a matter of law and considering the parties’ varying interpretations, we conclude that First Seismic properly relied on the indemnity provisions of paragraph 5.B. of the 1990 agreement, which unambiguously applies and is triggered by the accounting claims, as well as the costs and the attorney’s fees, adjudicated in the Oklahoma litigation. Accordingly, the trial court properly ruled, in its first conclusion of law, that the claims by the current minority owners adjudicated in the Oklahoma litigation are “claims or causes of action asserted by the referenced minority owner or other owners of the East Texas Data that are within the scope and coverage of the Indemnity Provision.”

          Given its broad and inclusive language and the lack of the restrictions suggested by Devon and IMC, we discern no conflict between paragraph 5.B. and paragraph 1.B., which recites the $50,000 consideration paid to First Seismic by McMoran for the McKenzie minority interest, nor paragraph 6.’s disclaimers of additional “monies or additional data” conveyed as consideration for the 1990 agreement. In short, the indemnity provision of paragraph 5.B. that benefitted First Seismic, like the indemnity provision of paragraph 5.A., which benefitted Adobe and McMoran, formed part of the bargain to both sides of the transaction that resulted in their 1990 agreement to exchange their seismic data.   

C.      Ambiguity

          Even if the trial court concluded that the 1990 agreement is ambiguous, our holding would remain the same. The trial court’s findings do not expressly address the question of the parties’ intent in including, in the agreement, both an acknowledgment of payment of $50,000 to First Seismic as compensation for the 12.5 percent minority interest that McKenzie retained and, in addition, provisions for (1) indemnity for the risk that McKenzie or other claimants might assert claims and (2) disclaimers of warranties by any of the parties to the agreement. To the extent that the court may have conducted the trial to reconcile possibly perceived inconsistencies among these provisions, based on the circumstances surrounding negotiations for the 1990 agreement, the record also supports the trial court’s rulings when the record is viewed in that light.

          Moreland, First Seismic’s former vice-president and the only witness who testified at trial court concerning the parties’ negotiations, testified on this issue without objection. Moreland explained that, although the parties’ negotiations did not initially contemplate indemnity provisions, when Adobe and McMoran acknowledged their inability to locate the owners of the 12.5 percent interest, First Seismic required both the $50,000 payment, recited in paragraph 1.B., and the indemnity provision of paragraph 5.B. The $50,000 payment was included at the behest of First Seismic’s president, Rogers Beal, and the indemnity provision recommended by First Seismic’s general counsel, when it became apparent that McKenzie could not be located to transfer the 12.5 percent minority interest. Devon and IMC neither rebutted Moreland’s testimony on this issue nor offered testimony themselves on this issue.

          Moreover, the record reflects that Devon and IMC filed a stipulation in response to First Seismic’s pretrial discovery request to depose the corporate representatives of Adobe and McMoran to respond to inquiries that encompassed the “fact[s] and circumstances concerning negotiation and execution” of the 1990 agreement and the “intentions of the parties . . . including but not limited to the intentions with respect to the indemnity language” in paragraph 5.B. and “the consideration for” the agreement. In the stipulation, representatives of Devon and IMC stated that, if they were able to locate representatives of Adobe and McMoran, each representative would state, based on “matters known or reasonably available to the corporation,” that he “did not know.”

          The only evidence before the trial court on these inquiries, therefore, was the testimony of Moreland, First Seismic’s former vice-president, whose uncontroverted testimony unequivocally established, not only that there was no conflict between paragraph 1.B. and paragraph 5.B., but that First Seismic expressly required both provisions. As confirmed by Moreland’s uncontroverted testimony, First Seismic required both $50,000 in immediate compensation for the acknowledged 12.5 percent retained minority interest and an indemnity provision in the event of possible future claims that McKenzie’s known minority interest “or other owners should they exist” might assert.

          We conclude that the evidence before the trial court was legally sufficient to support the findings that support the trial court’s second conclusion of law, which states that the parties “specifically negotiated the Indemnity Provision and intended that it cover all claims asserted by any owner of the East Texas Data, including but not limited to, a claim for accounting for 12.4% of all amounts attributable to sales and licenses of said data.” See Croucher, 660 S.W.2d at 58; Arriba, 882 S.W.2d at 582. We further conclude that the evidence, which consisted of Moreland’s uncontroverted testimony, is factually sufficient to support the implicit and express findings supporting the trial court’s second conclusion of law. See Lofton, 720 S.W.2d at 805; Felter, 837 S.W.2d at 247.

          To any extent, therefore, that the trial court may have perceived an ambiguity in the 1990 agreement and may have conducted the trial on the merits to resolve that ambiguity, the trial court properly exercised its role as the factfinder in resolving that issue by crediting the only evidence presented on that issue and, based on that evidence, properly concluded, as a matter of law, that the 1990 agreement contemplated and covered the claim that Devon and McMoran indemnify First Seismic for the accounting claims adjudicated in favor of the current minority owners in the Oklahoma litigation.

D.      Dresser/Ethyl Rule Does Not Apply

          In their final challenge to the trial court’s interpretation of the September 1990 agreement, Devon and IMC contend that the agreement and, in particular, paragraph 5.B., its indemnity provision, of 1990 agreement, did not adequately provide “fair notice” to Adobe and McMoran that they had agreed, pursuant to paragraph 5.B., “to become insurers” of First Seismic against “the consequences of its own wrongful conduct.” Devon’s and IMC’s arguments evoke the “express negligence” rule, which they contend, applies “by analogy” to the 1990 agreement. We construe this argument as challenging the legal sufficiency of the evidence to support the trial court’s interpretation of the agreement, on the grounds that “the rules of law or evidence,” specifically, the express-negligence rule, precluded the trial court “from giving weight to the only evidence offered to prove a vital fact.” See Ramirez, 159 S.W.3d at 903 (citing Havner, 953 S.W.2d at 711).

          The “express negligence” rule, first enunciated in Ethyl Corp. v. Daniels Constr. Co., 725 S.W.2d 705, 707 (Tex. 1987), applies to “releases and indemnity clauses in which one party exculpates itself from its own future negligence.” Green Int’l, Inc. v. Solis, 951 S.W.2d 384, 387 (Tex. 1997) (emphasis added); see also Dresser Indus., Inc. v. Page Petroleum, Inc., 853 S.W.2d 505, 509–10 (Tex. 1993) (holding that lack of fair notice renders construction contract unenforceable as matter of law). As reaffirmed most recently in Solis, the supreme court has consistently limited application of the express negligence rule to negligence cases.

          The indemnity provisions of the 1990 agreement at issue here do not attempt to exculpate First Seismic from its own future negligence, but rather from claims or causes asserted by the acknowledged, existing 12.5 percent “minority owner or other owners, should they exist.” Despite the broad language of the provision, the agreement is limited to claims relating to, or the ownership of, the retained minority interest, like those here, for which First Seismic sought indemnity from Devon and IMC, rather than claims for negligence. Because the Ethyl rule does not apply on its face, the trial court did not err by not extending the rule to this case by analogy to preclude the trial court’s affording probative effect to the evidence First Seismic offered in support of its interpretation of the September 1990 agreement.

          We overrule Devon’s and IMC’s first issue.

Challenges to Award of Attorney’s Fees and Costs

          In their second, third, and fourth issues, Devon and IMC challenge the award of attorney’s fees and expenses to First Seismic for defending the Oklahoma litigation and the award of attorney’s fees for pursuing its indemnification claim in this litigation. Issues two and three pertain to the award of $237,387.68 in attorney’s fees and $34,081.94 in expenses incurred in the Oklahoma litigation. In issue two, Devon and IMC contend that the trial court’s award included fees and expenses that are not recoverable as a matter of law because they pertain to First Seismic’s defense of Seitel in the Oklahoma litigation. In issue three, Devon and IMC contend that a portion of the fees awarded were unreasonable as a matter of law. In issue four, which pertains to the award of $109,017 in attorney’s fees for pursuing the indemnity claim in this litigation, Devon and IMC challenge the award on the grounds that it includes fees that are not recoverable as a matter of law, either because they were unnecessary or relate to defense of Seitel.

A.      Standard of Review

          We review legal and factual sufficiency challenges stated in Devon’s and IMC’s second, third, and fourth issues in accordance with the sufficiency-of-the-evidence standards recited more fully in our analysis of Devon’s and IMC’s first issue. See Croucher, 660 S.W.2d at 58; Arriba, 882 S.W.2d at 582 (legal sufficiency); Lofton, 720 S.W.2d at 805; Felter, 837 S.W.2d at 247 (factual sufficiency).

B.      Principles Governing Attorney’s Fee Awards

          1.       Party Must Prevail.

          A party must establish a basis for recovery of attorney’s fees. See Martin v. Amerman, 133 S.W.3d 262, 263 (Tex. 2004) (holding that party could not assert trespass-to-try-title claim as claim for declaratory relief in order to recover attorney’s fees). Although the judgment here does not specify on what basis the trial court awarded attorney’s fees, it is undisputed, and the record reflects, that First Seismic sought recovery of fees pursuant to section 38.001(8) of the Civil Practice and Remedies Code, which authorizes recovery of reasonable attorney’s fees, in addition to the amount of damages and costs, when a party prevails in a suit on an oral or written contract. See Tex. Civ. Prac. & Rem. Code Ann. § 38.001(8) (Vernon 1987); Solis, 951 S.W.2d at 390 (holding that party must prevail and recover damages to be entitled to attorney’s fees under section 38.001(8)); Johns v. Ram-Forwarding, Inc., 29 S.W.3d 635, 637 (Tex. App.—Houston [1st Dist.] 2000, no pet.) (rejecting contention that parties’ boundary suit governed by Declaratory Judgments Act and holding that trespass-to-try-title statute controlled claims, which precluded recovery of attorney’s fees). Paragraph 5.B., the indemnity provision of the September 1990 agreement, the contract that First Seismic sought to enforce, both for defending the Oklahoma litigation and pursuing this litigation, authorizes recovery of all “costs” and “expenses.” Having prevailed on its breach of contract claim, by pursuing this indemnity action and recovering damages, section 38.001(8) entitled First Seismic to the attorney’s fees, expenses, and costs authorized by paragraph 5.B. of the September 1990 agreement.

          2.       Fees and Costs Must be Reasonable and Necessary.

          An attorney’s-fee claimant must also establish that the amount of fees incurred was both reasonable and necessary to the prosecution of the case, and the factfinder, in this case the trial court, must award fees in a specific dollar amount and not as a percentage of the judgment. Arthur Andersen & Co. v. Perry Equip. Corp., 945 S.W.2d 812, 819 (Tex. 1997) The reasonableness of fees and their necessity are questions of fact. Bocquet, 972 S.W.2d at 20.

          Reasonableness is the determining factor for attorney’s fees, which are governed by rule 1.04 of the Rules of Professional Conduct: “A lawyer shall not enter into an arrangement for, charge, or collect an illegal fee or unconscionable fee . . .; a fee is unconscionable if a competent lawyer could not form a reasonable belief that the fee is reasonable.” See Tex. Disciplinary R. Prof’l Conduct 1.04(a), reprinted in Tex. Gov’t Code Ann., tit. 2, subtit. G app. A (Vernon 1998) [emphasis added]. In determining whether an award of attorney’s fees is reasonable and necessary, the trial court is guided by the factors stated in the Rules of Professional Conduct that govern attorney’s fees. Bocquet, 972 S.W.2d at 20; Arthur Andersen & Co., 945 S.W.2d at 818-19) (quoting Tex. Disciplinary R. Prof’l Conduct 1.04(b), reprinted in Tex. Gov’t Code Ann., tit. 2, subtit. G app. A); see C.M. Asfahl Agency, 135 S.W.3d at 802 (applying factors to claims of breach of contract). The “Andersen-Rule 104(b)” factors are as follows:

(1) the time and labor required, the novelty and difficulty of the questions involved, and the skill required to perform the legal service properly;

(2) the likelihood . . . that the acceptance of the particular employment will preclude other employment by the lawyer;

(3) the fee customarily charged in the locality for similar legal services;

(4) the amount involved and the results obtained;

(5) the time limitations imposed by the client or by the circumstances;

(6) the nature and length of the professional relationship with the client;

(7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and

(8) whether the fee is fixed or contingent on results obtained or uncertainty of collection before the legal services have been rendered.

Arthur Andersen, 945 S.W.2d at 818; Tex. Disciplinary R. Prof’l Conduct 1.04(b), reprinted in Tex. Gov’t Code Ann., tit. 2, subtit. G app. A; see C.M. Asfahl Agency, 135 S.W.3d at 802.

          3.       Nonrecoverable Fees Must be Segregated.

          A party seeking attorney’s fees has a duty to segregate nonrecoverable fees from recoverable fees and to segregate fees owed by different parties. See Aiello, 941 S.W.2d at 73; Stewart Title Guar. Co. v. Sterling, 822 S.W.2d 1, 11 (Tex.1991). Parties may segregate recoverable from nonrecoverable fees and expenses through estimated percentages of amounts attributable to each. See Flagship Hotel, Ltd. v. City of Galveston, 117 S.W.3d 552, 566 n.7 (Tex. App.—Texarkana 2003, pet. denied).

          An exception to the duty to segregate arises when the party incurs attorney’s fees in connection with claims that depend “upon the same set of facts or circumstances and thus are intertwined to the point of being inseparable,” in which case, “the party seeking attorney’s fees may recover the entire amount covering all claims.” Aiello, 941 S.W.2d at 73 (internal quotations omitted); see Sterling, 822 S.W.2d at 11; Panizo v. Young Men’s Christian Ass’n, 938 S.W.2d 163, 170 (Tex. App.—Houston [1st Dist.] 1996, no writ).

C.      Evidence before the Trial Court on Attorney’s Fees and Costs

          James McGraw and Scott Funk, of the Looper Reed & McGraw law firm (Looper Reed) represented First Seismic in both the Oklahoma litigation and the trial court. Both demonstrated their experience as seasoned oil and gas practitioners. It is undisputed that the Oklahoma litigation was protracted through two appeals to the Tenth Circuit, but then accelerated on remand to the federal district court, with resulting complications for discovery that had been deferred pending the appeals to avoid pursuing theories that could prove without merit as a result of the appeals.

          McGraw’s and Funk’s firm, Looper Reed, retained Lee McLain as counsel to present their evidence on attorney’s fees at trial. McGraw and Funk testified that it was necessary, in the Oklahoma litigation, to pursue both the defensive challenge to the standing of the current minority claimants and First Seismic’s equitable counterclaims. As first chair in the Oklahoma litigation, McGraw testified extensively to explain the strategies that resulted in First Seismic’s reducing the current minority owners’ claimed damages from over $1.2 million to less than $200,000. Funk clarified, through detailed charts and tables, the actual amounts that First Seismic sought to recover. Both McGraw and Funk testified in support of the reasonableness and necessity of the attorney’s fees and expenses First Seismic sought, and both described their efforts to minimize both fees and expenses by utilizing paralegals and other alternatives to counsel whenever possible. Both demonstrated that work on this case precluded their accepting other work. Moreover, questioning posed to both McGraw and Funk concerning attorney’s fees and expenses and their responses to those questions reflect concerted effort to demonstrate their compliance with the Andersen factors listed in rule 1.04(b) of the Disciplinary Rules of Professional Conduct.

          Devon and IMC presented Dick Watt as an expert witness to challenge the attorney’s fees and expenses requested by Looper Reed. Watt, however, was not able to suggest an alternative, specific calculation of either attorney’s fees or costs for the Oklahoma litigation. Watt initially challenged the wisdom and utility of pursuing, in the Oklahoma litigation, whether the current minority owners actually owned the McKenzie minority interest. Yet, he conceded, under cross-examination, that he lacked familiarity with Looper Reed’s billing records for the Oklahoma litigation and, moreover, ultimately yielded that establishing a party’s standing to sue is a “basic” issue in any lawsuit. Although it is undisputed that the current minority owners settled their claims against Seitel for only $30,000, Watt nonetheless suggested that the fees documented in the charts and summaries that Looper Reed offered to substantiate their fees and expenses be split, in equal proportions of 50 percent each, between representation of First Seismic and representation of Seitel.

          Watt ultimately conceded nonetheless that he “had no quarrel with the work” done in the Oklahoma litigation and acknowledged that he was familiar with the Looper Reed firm, whom he described as competent attorneys, who kept good time records and charged a reasonable hourly rate.

D.      Duty to Segregate Nonrecoverable Fees

          In their second issue and a portion of their fourth issue, Devon and IMC contend that the trial court erred by awarding attorney’s fees for both the Oklahoma litigation and this litigation that are attributable solely to defending Seitel. Devon and IMC argued in the trial court that First Seismic was not entitled to attorney’s fees and costs attributable to defending Seitel because Seitel was not a party to the September 1990 agreement and because any duties that First Seismic owed to Seitel derived from the 1994 transaction by which First Seismic transferred its ownership of the seismic data to Seitel.

          Yet, the record reflects that, as soon as the trial court deemed these arguments persuasive, McGraw and Funk immediately revised, wherever necessary, both their testimony and the calculations in the charts and tables they offered into evidence. Thus, attorney’s fees and costs directly allocable to defense of Seitel were promptly identified, segregated and noted as nonrecoverable. The record further reflects that, as both McGraw and Funk testified and were presented with challenges that certain fees and costs described in their exhibits and testimony included nonrecoverable items, they responded by proportionately reducing the claimed amounts based on calculations that represented percentages of time allocable to defense of Seitel. Both McGraw and Funk excluded from these proportionate reductions, however, fees and costs that, in their opinions, First Seismic would have incurred in any event because they related not only to defense of Seitel, but also to defense of First Seismic.

          Devon and IMC further dispute McGraw’s and Funk’s detailed calculations and their sometimes slightly differing percentages of reduction for Seitel fees and expenses. But, calculations need not be disregarded solely because they are percentages or, alternatively, because McGraw’s and Funk’s percentages may have differed slightly. See Flagship Hotel, Ltd., 117 S.W.3d at 566 n.7. Devon and IMC also dispute the extensively detailed testimony and documentary evidence presented through McGraw and Funk, who not only testified based on their own experience in both the Oklahoma litigation and this litigation, but also spontaneously revised their calculations in response to objections that they included nonrecoverable Seitel fees and expenses.

          Yet, Devon’s and IMC’s sole counter to McGraw and Funk in the trial court was through their own expert, Watt. As we have noted, Watt conceded McGraw’s and Funk’s expertise and his own lack of familiarity with the records of the fees incurred in the Oklahoma litigation and ultimately yielded that he had “no quarrel” with those fees. Watt nevertheless offered the unsupported suggestion that an equal, 50 percent split was a more accurate calculation to segregate recoverable from nonrecoverable fees, simply because, in his opinion, that is the better practice when clients are represented jointly. Watts did not refute, in any respect, McGraw’s and Funk’s assertions that they retained certain fees and expenses because they were integral to defense of First Seismic and, therefore, could not be segregated. See Aiello, 941 S.W.2d at 73; Sterling, 822 S.W.2d at 11; Panizo, 938 S.W.2d at 170.

          Ample evidence demonstrates that the trial court awarded only properly recoverable attorney’s fees and costs in favor of First Seismic, and the evidence is, therefore, legally sufficient to support the trial court’s judgment. Furthermore, Devon’s and IMC’s contrary evidence does not so greatly preponderates against the propriety of the trial court’s awards of properly recoverable attorney’s fees and costs that the awards are clearly wrong and manifestly unjust. The evidence is, therefore, factually sufficient to support the trial court’s judgment.

          Accordingly, we overrule Devon’s and IMC’s second issue and the portion of their fourth issue in which they contend that the trial court awarded fees and costs attributable to defense of Seitel.

E.      “Reasonable” and “Necessary” Determinations

          In their third issue and in portions of their fourth issue, Devon and IMC contend that the trial court awarded attorney’s fees and costs that were either unreasonable or unnecessary.

          With respect to the Oklahoma litigation, Devon and IMC argue that the litigation was “simple” and therefore did not warrant the award of $237,387.68 in attorney’s fees and $34,081.94 in costs and expenses incurred in that litigation. Devon and IMC further contend that time spent by the Looper Reed firm pursuing claims on which First Seismic did not prevail should be disregarded as “unproductive.” They cite no authority that supports the latter contention, and we know of none. We construe these contentions broadly, as challenges to the sufficiency of the evidence to support the findings of reasonableness and necessity that underlie the trial court’s thirteenth and fourteenth conclusions of law, which awarded First Seismic “reasonable, necessary, and customary” attorney’s fees and “reasonable and necessary” costs incurred in defending the Oklahoma litigation.

          We conclude that the evidence is legally sufficient to support both the reasonableness and necessity of the trial court’s awards of attorney’s fees and costs incurred in the Oklahoma litigation because, as outlined in the summary above, McGraw and Funk repeatedly tracked the Andersen factors and established the diligence that resulted in their reducing the current minority owners’ claims from over $1.2 million in damages to less than $200,000. We further conclude, on reviewing the factual sufficiency of the evidence, that any controverting evidence offered by Devon’s and IMC’s expert does not so greatly preponderate against the trial court’s determinations of the reasonableness and necessity of the fees and costs awarded that the trial court’s awards of fees and costs incurred in the Oklahoma litigation are clearly wrong and manifestly unjust.

          We overrule Devon’s and IMC’s third issue.

          Concerning this litigation, a portion of Devon’s and IMC’s fourth issue contests the necessity of the attorney’s fees attributable to Looper Reed’s retaining Lee McLain, an independent counsel employed by their firm, to conduct the direct examination of McGraw and Funk on the issue of First Seismic’s entitlement to attorney’s fees and costs. In support of this contention, Devon and IMC suggest, for the first time on appeal, that McGraw and Funk might have readily conducted direct examination of each other. Also for the first time on appeal, Devon and IMC dispute the reasonableness and necessity of “hiring three lawyers to sit through” this litigation “when two were more than adequate.” Devon and IMC offered no evidence to contest McLain’s fees in the trial court. Their trial expert, moreover, offered no opinion that contested the reasonableness or the necessity of hiring McClain for this litigation. We therefore hold that the trial court did not err in awarding McLain’s fees.   

          We overrule the portion of Devon’s and IMC’s fourth issue in which they contend that the trial court awarded fees that were unreasonable or unnecessary.

Conclusion

          We affirm the judgment of the trial court.

     Elsa Alcala

     Justice

Panel consists of Chief Justice Radack and Justices Alcala and Bland.