David P. Desenberg, Flatmax Energy, L. P., Flatmax Oil & Gas, L.L.C., Keith H. Baker, Reagan Rich, and Big Reef Energy, L.L.C. v. Everest Resource Company C-5 Oil & Gas, Ltd

ACCEPTED
13-15-00011-cv
THIRTEENTH COURT OF APPEALS
CORPUS CHRISTI, TEXAS
2/6/2015 4:07:32 PM
DORIAN RAMIREZ
CLERK
No. 13-15-00011-CV
FILED IN
13th COURT OF APPEALS
CORPUS CHRISTI/EDINBURG, TEXAS
In the
2/6/2015 4:07:32 PM
THIRTEENTH COURT OF APPEALS DORIAN E. RAMIREZ
Clerk
Corpus Christi, Texas
David P. Desenberg, Flatmax Energy, L.P., Flatmax Oil &
Gas, L.L.C., Keith H. Baker, Reagan Rich, Big Reef Energy,
LLC
Appellants,
v.
Everest Resource Company, C-5 Oil & Gas, Ltd.,
Appellees
On interlocutory appeal from Cause No. 2014-DCV-5125-G, in
the 319th Judicial District Court of Nueces County, Texas
APPELLANTS’ BRIEF ON INTERLOCUTORY APPEAL OF
A TEMPORARY INJUNCTION
R. LAURENCE MACON
State Bar No. 12787500
ATTORNEY FOR APPELLANTS
DAVID P. DESENBERG, FLATMAX
ENERGY, L.P., FLATMAX OIL & GAS,
L.L.C., KEITH H. BAKER, REAGAN
RICH, BIG REEF ENERGY, LLC
February 6, 2015 Oral Argument Requested
Identity of Parties and Counsel
Appellants: Represented by:
David P. Desenberg, Flatmax Energy, R. Laurence Macon
L.P., Flatmax Oil & Gas, L.L.C., Keith Janie A. Shannon
H. Baker, Reagan Rich, Big Reef Dennis J. Windscheffel
Energy, LLC Akin Gump Strauss Hauer & Feld, LLP
300 Convent Street, Suite 1600
San Antonio, Texas 78205
Appellees: Represented by:
Everest Resource Company, C-5 Oil & Reagan W. Simpson
Gas, Ltd. Christian J. Yard
Yetter Coleman LLP
909 Fannin, Suite 3600
Houston, Texas 77010
Roger S. Braugh, Jr.
Jason P. Hoelscher
Brantley W. White
Craig M. Sico
Sico, White, Hoelscher, Harris &
Braugh LLP
802 N. Carancahua, Suite 900
Corpus Christi, Texas 78401
206174111 v5 i
TABLE OF CONTENTS
I. STATEMENT OF FACTS ........................................................................................ 1
A. Plaintiffs C-5 and Everest.............................................................................. 1
B. Everest’s Business is Limited to Oil and Gas Prospects Located
Along the Gulf Coast of Texas. ..................................................................... 1
C. Defendants. .................................................................................................... 2
D. Defendants Desenberg and Baker Join Everest and C-5; Plaintiffs
Were to Have Only Limited Use of Desenberg’s Data; Desenberg’s
Data Has Nothing to Do with the Alabama Prospect. ................................... 3
E. Desenberg’s and Baker’s Agreements with C-5 and Everest. ....................... 4
F. Plaintiffs Treat Defendants Desenberg, Baker, and Investors Poorly;
Desenberg and Baker Each Independently Decide to Leave Everest
Before Hearing About the Alabama Prospect. .............................................. 7
G. Defendants Desenberg and Baker Do Not Hear About the Potential
Alabama Prospect Until the Last Few Weeks of Their Employment
With Everest; and Do Not Use Any Everest Resources in Exploring
the Possibility of The Alabama Prospect. ...................................................... 8
H. Defendants Facilitate and Purchase a Right of Assignment to a 40%
Working Interest in the Alabama Prospect on Behalf of Investors
Who Were Bona Fide Purchasers And Who Had No Interest in
Doing Business With Everest. ..................................................................... 12
I. Contrary to Plaintiffs’ Claim, Defendants Did Not Take Any
Confidential Investor List or Improperly Download A Google Earth
File ............................................................................................................... 15
J. Defendants Have Received a Drilling Proposal And Are Required to
Act in Order to Develop And Preserve the Alabama Prospect.................... 16
II. SUMMARY OF THE ARGUMENT ..................................................................... 18
III. ARGUMENT AND AUTHORITIES ..................................................................... 19
A. Tex. R. Civ. P 681 and 683. ......................................................................... 19
1. The Injunction Is Void As It Violates Tex. R. Civ. P. 681 and 683. ...........22
2. Trial Court Also Abused Its Discretion in Granting Injunctive
Relief Relating to the Alabama Prospect As Appellees Failed To
Meet Required Elements Necessary For Injunctive Relief. .......................36
3. A Balancing of the Equities Necessitates That the Injunction be
Dissolved With Respect to the Alabama Prospect. ....................................38
4. The Temporary Injunction Must Be Dissolved As It Fails to
Preserve the Status Quo and Threatens the Entire Alabama
Prospect as Well as Recovery for Any Party. .............................................41
B. The Trial Court Abused Its Discretion by Setting a Low Bond. ................. 45
206174111 v5 ii
IV. PRAYER ................................................................................................................. 47
206174111 v5 iii
TABLE OF AUTHORITIES
Page(s)
CASES
Alliance Royalties, LLC v. Boothe,
313 S.W.3d 493 (Tex. App.—Dallas 2010, no pet.) ....................................30, 33
Am. Mfrs. Mut. Ins. Co. v. Schaefer,
124 S.W.3d 154 (Tex. 2003) ..............................................................................30
Amason v. Woodman,
498 S.W.2d 142 (Tex. 1973) ..............................................................................30
American Derringer Corp. v. Bond,
924 S.W.2d 773 (Tex. App.—Waco 1996, no writ).....................................33, 35
Auto Wax Co v. Byrd,
599 S.W.2d 110 (Tex. App.—Dallas 1980, no writ) ....................................33, 35
Ballenger v. Ballenger,
694 S.W.2d 72 (Tex. App.—Corpus Christi 1985, no writ.) .............................45
Barnstone v. Robinson,
678 S.W.2d 562 (Tex. App.—Houston [14th Dist.] 1984, writ dism’d) ............ 45
Bayoud v. Bayoud,
797 S.W.2d 304 (Tex. App.—Dallas 1990, writ denied) ...................................46
Biodynamics, Inv. v. Guest,
817 S.W.2d 128 (Tex. App.—Houston [14th Dist.] 1991, writ dism’d by
agrmt) ..................................................................................................................47
Boswell v. Farm Home Sav Ass’n,
894 S.W.2d 761 (Tex. App.—Forth Worth 1994, writ denied) .........................31
Butnaru v. Ford Motor Co.,
84 S.W.3d 198 (Tex. 2002).................................................................................41
DeSantis v. Wackenhut Corp.,
793 S.W.2d 679 (Tex. 1990) ..............................................................................46
206174111 v5 iv
Dev. Co., Inc. v. Gerfers,
487 S.W.2d 219 (Tex. Civ. App.—San Antonio 1972, writ ref’d n.r.e.) ........... 40
Edgewood Indep. Sch. Dist. v. Paiz,
856 S.W.2d 269 (Tex. App.—San Antonio 1993, no writ) ................................45
Elliot v. Lewis,
792 S.W.2d 853 (Tex. App. Dallas 1990, no writ) .............................................22
ERI Consulting Engineers, Inc. v. Swinnea,
318 S.W.3d 867 (Tex. 2010) ..............................................................................30
Ex parte Slavin,
412 S.W.2d 43 (Tex. 1967).................................................................................20
Fairfield v. Stonehenge Ass’n,
678 S.W.2d 608 (Tex. App.—Houston [14th Dist.] 1984, no writ) .............21, 29
Foxwood Homeowners Ass’n v. Ricles,
673 S.W.2d 376 (Tex. App.—Houston [1st Dist.] 1984, writ ref’d n.r.e.) ........ 41
Franklin Savs. Ass’n v. Reese,
756 S.W.2d 14 (Tex. App.—Austin 1988, no writ) ...........................................47
Gill v. Hudspeth County Conservation & Reclamation Dist. No. 1.,
88 S.W.2d 517 (Tex. Civ. App.—1935) .............................................................45
GTE Mobilnet of South Tex. Ltd. Part’p v. Cellular Max, Inc.,
123 S.W.3d 801 (Tex. App.—Beaumont, 2003, pet dism’d) .............................47
Hall v. Seal,
No. 04-09-00675-CV, 2011 WL 61631 (Tex. App.—San Antonio 2011,
pet. denied)..........................................................................................................41
Harbor Perfusion, Inc. v. Floyd,
45 S.W.3d 713 (Tex. App.—Corpus Christi 2001, no pet.) .........................21, 29
Hogue v. City of Bowie,
209 S.W.2d 807 (Tex. Civ. App.—Fort Worth 1948, writ ref’d n.r.e) ..............40
Holubec v. Brandenberger,
111 S.W.3d 32 (Tex. 2003)...............................................................21, 24, 25, 26
206174111 v5 v
In re Fluor Enterprises, Inc.,
2011 WL 2463004 (Tex. App.—Corpus Christi 2011, orig. proceeding) ......... 21
Interfirst Bank San Felipe, N.A. v. Paz Constr. Co.,
715 S.W.2d 640 (Tex. 1986) ..............................................................................20
Johnson v. Snell,
504 S.W.2d 397 (Tex. 1974) ..............................................................................40
Ladner v. Reliance Corp.,
293 S.W.2d 758 (Tex. 1965) .............................................................................28
Law Funder, LLC v. Law Offices of Doug Allison,
2014 WL 895512 (Tex. App.—Corpus Christi March 6, 2014, no pet.) ........... 34
Legacy Home Health Agency, Inc. v. Apex Primary Care, Inc.,
2013 WL 5305238 (Tex. App.—Corpus Christi 2013) ......................................34
Living Christ Church, Inc. v. Jones,
734 S.W.2d 417 (Tex. App.—Dallas 1987, writ denied) ...................................40
McCharen v. Bailey,
87 S.W.2d 284 (Tex. App.—Eastland 1935, no writ) ........................................28
NMTC Corp. v. Conarroe,
99 S.W.3d 865 (Tex. App.—Beaumont 2003, no pet.) ......................................41
NRG Exploration, Inc. v. Rauch,
671 S.W.2d 649 (Tex. App.—Austin 1984, writ ref’d n.r.e.) ............................31
Nueces County Drainage & Conservation Dist. v. Bevly,
519 S.W.2d 938 (Tex. Civ. App.—Corpus Christi 1975, ref. n.r.e.) ...........37, 40
PILF Invs. v. Arlitt,
940 S.W.2d 255 (Tex. App.—San Antonio 1997, no writ) ..........................22, 28
Qwest Commc’ns Corp. v. AT&T Corp.,
24 S.W.3d 334 (Tex. 2000).................................................................................19
Ratcliff v. Mahres,
122 S.W.2d 718 (Tex. Civ. App.—El Paso 1938, writ ref’d) ............................30
206174111 v5 vi
Reliant Hospital Partners, LLC. v. Cornerstone Healthcare Group Holding,
Inc.,
374 S.W.3d 488 (Tex. App.—Dallas 2012, no pet.) ...................................passim
San Antonio Bar Ass'n v. Guardian Abstract & Title Co.,
291 S.W.2d 697 (Tex. 1956) ..............................................................................20
State v. Southwestern Bell Tel. Co.,
526 S.W.2d 526 (Tex. 1975) ........................................................................41, 43
Storey v. Central Hide & Rendering Co.,
226 S.W.2d 615 (Tex. 1950) ..............................................................................37
Sun Oil Co. v. Whitaker,
424 S.W.2d 216 (Tex. 1968) ..............................................................................36
Swanson v. Grassedonio,
647 S.W.2d 716 (Tex. App.—Corpus Christi 1982, no writ) ............................31
Townplace Homeowners’ Assoc., Inc. v. McMahon,
594 S.W.2d 172 (Tex. Civ. App.—Houston [1st Dist.] 1980, writ ref’d
n.r.e.) ...................................................................................................................41
Walling v. Metcalfe,
863 S.W.2d 56 (Tex. 1993).................................................................................36
STATUTES
§ 51.014(a)(4) of the Texas Civil Practice & Remedies Code .................................ix
RULES
Tex. R. Civ. P. 63 .....................................................................................................21
Tex. R. Civ. P. 681 ............................................................................................passim
Tex. R. Civ. P. 683 ............................................................................................passim
Tex. R. Civ. P. 684 ...................................................................................................46
206174111 v5 vii
APPENDIX
TAB A: November 21, 2014 Order Granting Temporary Injunction
206174111 v5 viii
STATEMENT OF THE CASE 1
Nature of the Case: This is an interlocutory appeal of a temporary
injunction entered by a trial court. This interlocutory appeal is brought pursuant to
Section § 51.014(a)(4) of the Texas Civil Practice & Remedies Code.
The instant case primarily involves a dispute over rights to an assignment of
a 40% working interest in an oil & gas prospect located in the state of Alabama
(the “Alabama Prospect”). Plaintiffs sought and obtained a temporary injunction
enjoining Defendants from engaging in various activities, including transferring
any working interest to bona fide purchasers, as well as the merger of entities
otherwise required for contractual compliance and continued development of the
Alabama Prospect.
Appellants are appealing subsections (a)-(f) of Paragraph 35 of the
Temporary Injunction Order.
Course of Proceedings: The trial court conducted a temporary injunction
hearing intermittently over the course of November 19-21, 2014. At the
conclusion of the temporary injunction hearing, the Hon. David Stith 319th
1
Record cites used in this brief are as follows: App.–Appendix; CR–Clerk’s Record; RR–
Reporter’s Report; PX–Plaintiffs’ hearing exhibits; DX–Defendants’ hearing exhibit.
206174111 v5 ix
Judicial District Court of Nueces County, entered a temporary injunction against
Appellants on November 21, 2014. 2
Defendants thereafter requested and obtained a setting for a hearing to
modify and/or dissolve the temporary injunction. However, on the day of the
setting, the trial court informed the parties it would be unable to hear Defendants’
motion and request.3 In order to preserve Defendants’ rights, Defendants filed a
notice of appeal that same day as required under the Texas Rules of Appellate
Procedure.
Defendants thereafter were able to reset their prior request to modify and/or
dissolve the temporary injunction for December 29, 2014. At the hearing,
however, Plaintiffs objected to any request for the Court to modify the temporary
injunction, on the basis that the appellate court was the proper court to modify the
temporary injunction. The trial court agreed and otherwise denied Defendants’
additional request to dissolve the temporary injunction.4
2
CR 569; App. A. The temporary injunction order was signed by Judge Missy Medary per
Judge Stith’s request as Judge Stith was required to leave at the conclusion of the hearing in
order to attend a previously scheduled event.
3
The trial court referred the parties to a visiting judge. However, given the complexity of the
case, and the fact that the visiting judge would be unfamiliar with the case and issues,
Defendants elected to reset the hearing before Judge Stith.
4
Appellants are appealing the trial court’s original grant of the temporary injunction order and
also request that the appellate court review the trial court’s subsequent refusal to dissolve the
temporary injunction. See TRAP 29.6.
206174111 v5 x
ORAL ARGUMENT
The issues presented in this appeal have significant implications for the
rights and remedies available to the parties. Oral argument is warranted and will
assist the Court in resolving important questions to be decided.
ISSUES PRESENTED
(1) The trial court abused its discretion in entering a temporary
injunction because the temporary injunction order did not
comply with Tex. R. Civ. P. 683, in that the order lacked
requisite specificity, was overly broad, restrained parties not
before the court, and sought relief that was not specifically
plead for;
(2) The trial court abused its discretion in entering a temporary
injunction because the temporary injunction order does not
comply with Tex. R. Civ. P. 681;
(3) The trial court abused its discretion in entering a temporary
injunction relating to the Alabama Prospect that fails to
preserve the status quo;
(4) The trial court abused its discretion in entering the temporary
injunction relating to the Alabama Prospect because Appellees
failed to prove probable, imminent, and irreparable injury;
(5) The trial court abused its discretion in entering the temporary
injunction relating to the Alabama Prospect because a required
balancing of the equities weighs against an injunction due to the
catastrophic and irreparable injury that all parties will suffer as
a result of the temporary injunction; and
(6) The trial court abused its discretion in granting a low bond in
the amount of $10,000.
206174111 v5 xi
I. STATEMENT OF FACTS
A. Plaintiffs C-5 and Everest.
Plaintiff C-5 Oil & Gas, Ltd. (“C-5”) is an investment company that invests
in oil and gas properties.5 C-5 is the primary funder of Plaintiff Everest Resource
Company (“Everest”). 6 Everest, in turn, is a small, independent oil and gas
exploration and production company based in Corpus Christi, Texas. 7 Jimmy
Clark (“Clark”) is the President and CEO of Everest Resource Company. 8
Through Clark-Durham Operations LLC, Clark is also involved as a general
partner of C-5. 9 Clark and Tom Crain (“Crain”), who operates as Everest’s Chief
Operating Officer, make all the decisions and effectively run C-5 and Everest.10
B. Everest’s Business is Limited to Oil and Gas Prospects Located
Along the Gulf Coast of Texas.
Everest publicly advertises itself as a company that generates, buys, drills,
and operates oil and gas prospects primarily along the Gulf Coast of Texas. 11
5
See RR Vol. 7, PX—23 (C-5 Oil & Gas Partnership Agreement).
6
See RR Vol. 3 at pg. 48.
7
See RR Vol. 4 at pgs. 82-83; RR Vol. 7, DX-14 (Print Out from Plaintiff Everest’s Website).
8
See RR Vol. 4 at pgs. 50-51.
9
See id.
10
See RR Vol. 3 at pg. 43.
11
See RR Vol. 4 at pgs. 82-83; RR Vol. 7, DX-14 (Print Out from Plaintiff Everest’s Website).
206174111 v5 1
Everest’s current prospects are all located in Texas. 12 Everest has not done any oil
and gas operations outside the state of Texas for at least the last twenty years. 13
Everest as a business is incredibly risk averse, and centers on using other
people’s money for oil and gas prospects. 14 Everest’s philosophical business
model involves exploiting investors for up-front money. 15 Indeed, Everest publicly
advertises that the typical Everest deal is “Reimburse Everest for G&G costs,
turnkey well costs, Everest carry to Casing Point.” 16
C. Defendants.
Defendants Keith Baker (“Baker”) and Flatmax Energy, L.P. (“Flatmax”) are
limited partners in C-5. Flatmax Energy, L.P. is a company controlled by
Defendant David Desenberg (“Desenberg”). 17 Other Defendants to this appeal
include Defendant Flatmax L.L.C., which is a company operated by Desenberg;
Reagan Rich who is Desenberg’s stepson-in-law; and Defendant Big Reef Energy,
L.L.C. (“Big Reef”) which is a company managed by Defendants. 18
12
See RR Vol. 4 at pg. 83.
13
See id.
14
See RR Vol. 3 at pgs. 55-57; Vol. 4 at pgs. 83-84; RR Vol. 7, DX-14 (Print Out from Plaintiff
Everest’s Website).
15
Id.
16
See RR Vol. 4 at pgs. 83-84; RR Vol. 7, DX-14 (Print Out from Plaintiff Everest’s Website).
17
See RR Vol. 2 at pgs. 22, 25.
18
Defendant Big Reef Energy entered into various participation agreements with third-party
investors regarding the Alabama Prospect. See RR Vol. 7, DX 6-8 (Participation Agreements
between Big Reef Energy, LLC and third-party investors who are not before the Court). Big
Reef Energy owns 100% stock of Petrodome Alabama II, LLC, the entity which holds rights to
206174111 v5 2
D. Defendants Desenberg and Baker Join Everest and C-5; Plaintiffs
Were to Have Only Limited Use of Desenberg’s Data;
Desenberg’s Data Has Nothing to Do with the Alabama Prospect.
Defendants Baker and Desenberg have each been in the oil and gas business
for many years. 19 In 2012, Desenberg and Baker each explored potential business
dealings with Everest and C-5. Desenberg joined C-5 and Everest because of the
seismic data he had and because he was hoping to find a company that would
participate with him in developing prospects from that data. 20 Desenberg’s
database of seismic data dealt with a few counties in South Texas. 21 Desenberg’s
database did not have anything to do with the Alabama Prospect. 22 On paper, it
seemed like a good fit. Prior to Desenberg and Baker joining C-5 and Everest,
Everest had had limited success in the drilling business. In fact, Crain stated many
times that Everest had drilled 40 dry holes in a row. 23
While Desenberg was working with Everest and partnering with C-5, some
of his seismic data was made available for exploration benefit. 24 However,
the assignment of the 40% working interest. See RR Vol. 7, DX-5 (Renpetco Participation
Agreement); RR Vol. 7, DX-10 (stock purchase agreement).
19
See RR Vol. 4 at pg. 41.
20
See RR Vol. 3 at pg. 35.
21
See RR Vol. 3 at pg. 13.
22
See id.
23
See RR Vol. 3 at pg. 60.
24
See RR Vol. 3 at pg. 35.
206174111 v5 3
Desenberg did not have any intention of selling or contributing that data. 25
Moreover, it was only to be available for projects in which Desenberg had an
interest. 26 Desenberg repeatedly made clear to the people at C-5 and Everest and
even documented in writing that Flatmax owned the data. 27 Indeed, two days after
Desenberg and Baker left Everest, Desenberg informed Geotrace—a firm that was
reprocessing some of Desenberg’s data—that Flatmax was the rightful owner of
that data, and that the data needed to stay with Flatmax. 28 Crain and Clark who
were carbon copied on the e-mails did not voice any objection or otherwise claim
that Desenberg’s statements were inaccurate. 29 Indeed, at no time did either Clark
or Crain ever contact Desenberg to claim that Desenberg was wrong about
Flatmax’s ownership of the data. 30
E. Desenberg’s and Baker’s Agreements with C-5 and Everest.
In September 2012, Desenberg started employment with Everest without any
sort of agreement. 31 Therefore, on October 25, 2012, Desenberg and Baker signed
25
See id.
26
See id.
27
See RR Vol. 7, DX-2 (Email to Clark & Crain); RR Vol. 3 at pg. 38.
28
See RR Vol. 6, PX-9 (Email to Mr. Perry of Geotrace, with Copies to Clark, Crain & Baker);
RR Vol. 2 at pgs. 56-57.
29
Id.
30
See RR Vol. 3 at pgs. 38-40. In addition to allowing Everest to use his data, Mr. Desenberg
also put down $250,000 towards C-5. See id.. To date, Mr. Desenberg has received zero money
back for use of his data and being a partner in C-5. See id. at pg. 41.
31
See RR Vol. 2 at pg. 22.
206174111 v5 4
a C-5 Partnership Agreement and as well employment agreements. 32 The C-5
Partnership Agreement and the Employment Agreements were drafted by an
attorney for Everest.33 The understanding of the parties was that the Defendants
would be free to pursue other oil and gas interests.34 This intention of the parties
was memorialized in the C-5 Partnership Agreement (to which Flatmax and
Defendant Baker were signatories). Specifically, Section 5.5 of that agreement
states, in relevant part, that “all partners may pursue other business and interests
without regard to the partnership.”35
As a result of Desenberg bringing data to the venture, Desenberg’s
employment agreement with Everest contained a unique provision which was
meant to allow Everest to potentially pursue prospects using Desenberg’s data
within three counties in South Texas. 36 This intention was memorialized in Section
7 of Mr. Desenberg’s Agreement which provides in relevant part:
32
See RR Vol. 6, PX-1 (Desenberg Employment Agreement); RR Vol. 6, PX-2 (Baker
Employment Agreement); RR Vol. 6, PX-23 (C-5 Partnership Agreement).
33
See RR Vol. 3 at pg. 60.
34
See RR Vol. 3 at pgs. 41-42, 49.
35
See RR Vol. 7, PX-23 (C-5 Partnership Agreement at § 5.5). See RR Vol. 3 at pgs. 41-42, 49.
Pursuant to that express grant, Defendant Flatmax entered into a Letter of Intent Agreement to
purchase the Petrodome Key Largo Prospect. See RR Vol. 6, PX-14 (Draft LOI addressed to
Flatmax).
36
See RR Vol 2 at pg. 50. There is no similar Section 7 provision in Baker’s employment
agreement with Everest, nor is there any restriction on Baker’s work after leaving Everest. See
RR Vol. 4 at pg. 43. Other Everest employees, including Clark, did not have the same agreement
as Desenberg. See id. at pg. 81.
206174111 v5 5
Set forth in the Attached Exhibit A is a schedule of seismic and associated
data rights currently owned or controlled by Flatmax and its affiliates (the
“Retained Seismic”). Attached as Exhibit B is a map showing the area
covered by the Retained Seismic (the “Covered Area”). Unless otherwise
subsequently agreed, and notwithstanding Employee’s confidentiality
obligations set forth above, Flatmax and its affiliates will retain all
ownership of the Retained Seismic and all opportunity rights to pursue
prospects within the Covered Area before and after termination of the Terms
of the Employment, subject to the following:
(2) Otherwise, during the Term of Employment, Desenberg, Flatmax and
their affiliates agree to pursue prospects within the Covered Area jointly
with the Company on a mutually agreed basis, and to pursue prospects
outside the Covered Area exclusively for the account of the Company and/or
C-5. (emphasis added)
Subsection 2 did not create a worldwide prohibition to compete as Plaintiffs
claim, but rather only restricted the ability of Defendant Flatmax and its affiliates
to pursue opportunity rights within the Covered Areas (which consists of
Desenberg’s data within three counties of Texas) and outside of the Covered Areas
(which consists of the remaining area of the three counties in Texas). 37 This was
discussed as part of the negotiations several times and was the understanding of the
parties. 38 In other words, inside the three counties within the Covered Area,
Desenberg earned a mutually agreed special interest amount, whereas outside the
Covered Area, Desenberg did not earn any additional mutually agreed to interest.39
37
See RR Vol 2 at pg. 50.
38
See id.
39
See See RR Vol. 6, PX-1 (Desenberg Employment Agreement) at pg. 6. Mutually agreed basis
was not defined in the Agreement but was agreed by all parties on many occasions to be
206174111 v5 6
Any ambiguity in the agreement was due the fact that Plaintiffs failed to attach the
referenced exhibits to the Agreement. 40
The Key Largo Prospect which is located in Alabama, however, has nothing
to do with Mr. Desenberg’s data (which is limited to three counties in South Texas)
and therefore was beyond the purview of the restriction set forth in Subsection
(2).41
F. Plaintiffs Treat Defendants Desenberg, Baker, and Investors
Poorly; Desenberg and Baker Each Independently Decide to
Leave Everest Before Hearing About the Alabama Prospect.
Desenberg and Baker each made an independent decision to leave Everest,
and did not solicit each other to leave. 42 Moreover, both made the decision to
leave months before they ever heard about the Alabama Prospect. 43
In June 2014, Baker had made the decision to leave Everest because Everest
lacked the ability to evolve and meet the current challenges in the oil and gas
industry. 44
compensation to Desenberg of either a 1 % overriding royalty interest or a 2 % carried working
interest to sales on any prospect drilled on the Flatmax 3-D Data Sets. See CR at pg. 1139.
40
No exhibits were attached to the original Desenberg Employment Agreement. See RR Vol. 2
at pg. 34. Rather, Desenberg’s employment agreement with Everest lacks a list of the Flatmax 3-
D Shoots and it lacked the map identifying the covered and non-covered areas. See id.
41
See RR Vol. 3 at pg. 13.
42
See RR Vol. 3 at pg. 50.
43
See RR Vol. 3 at pgs. 50-51.
44
See RR Vol. 4 at pgs. 41-43.
206174111 v5 7
Desenberg decided to finally leave Everest at the end of July 2014 specifically
after Crain engaged in a bullying tirade after attempting to steal Desenberg’s
interest in producing properties.45
In addition to Desenberg and Baker, Everest treated investors and other C-5
partners exceptionally poorly. 46 Reports to investors and partners were irregular,
horrendous and incomplete. 47 C-5 was also poorly managed and in financial
difficulties. Despite initially raising millions of dollars including Desenberg’s
$250,000, C-5 partners inexplicably had requests for cash calls beginning in or
around October 2013, only one year after the initial funding of C-5.48
G. Defendants Desenberg and Baker Do Not Hear About the
Potential Alabama Prospect Until the Last Few Weeks of Their
Employment With Everest; and Do Not Use Any Everest
Resources in Exploring the Possibility of The Alabama Prospect.
Desenberg first learned about the potential for the Alabama Prospect on or
about August 6, 2014, less than a month before his resignation. 49 Desenberg was
contacted by a friend who invited him to look at some information concerning a
prospect in Alabama. 50 It was not clear that Defendants could even purchase the
45
See RR Vol. 3 at pgs. 48-49. Desenberg was also concerned about the state of C-5 and
investors he had introduced to Plaintiffs. See id.
46
See RR Vol. 3 at pgs. 44-45.
47
See id.
48
See RR Vol 2 at pg. 56; RR Vol. 3 at pgs. 48-49.
49
See RR Vol 2 at pg. 64; Vol. 3 at pgs. 50-51.
50
See RR Vol. 2 at pgs. 64-66.
206174111 v5 8
prospect at that time as another party was involved in negotiations with Petrodome
and had already been evaluating the prospect. 51 Somewhere around August 15,
2014, Baker, Rich, and Desenberg sat down and began looking at the possibility of
participating in the prospect. Defendant Rich was the primary individual
negotiating the deal, with Defendant Desenberg only participating peripherally. 52
On August 29, 2014, the last business day before Defendants Desenberg and
Baker’s resignations, a letter of intent was signed between Flatmax and
Petrodome. 53 At no time prior to August 29, 2014, did any Defendant have any
contractual right of any kind to the Alabama Prospect. 54
The Alabama Prospect was a highly risky investment, and required a tight
closing with a lot of money needing to be raised quickly. 55 A $500,000 non-
refundable deposit was requested and paid by Desenberg and Rich’s company on
the last Friday of August 2014. 56 Defendants barely had enough money to fund
deal. In fact, Desenberg had to borrow some of the $450,000 he personally funded
for the Petrodome stock purchase.57
51
See RR Vol. 3 at pg. 51.
52
See RR Vol. 2 at pg. 78.
53
See RR Vol. 3 at pgs. 52-53.
54
See id.
55
See RR Vol. 2 at pgs. 70, 103-104.
56
See RR Vol. 2 at pgs. 79, 103-104; Vol. 3 at pg. 57.
57
See RR Vol. 2 at pg. 100.
206174111 v5 9
Desenberg and Baker resigned from Everest the following Tuesday, on
September 3, 2014. 58 The Key Largo acquisition closed on October 1, 2014,
approximately one month later. 59 The total acquisition price for the 40% working
interest was $7.5 million, 60 which was funded entirely by Defendants’ friends,
61
family, and through a personal loan to Desenberg. These investors paid $9
million dollars for a 35% interest in the Prospect.62
Defendants retained a 4% working interest, with a 1% working interest
going to Don Snow, who had served as a consultant on the project. 63 The
difference in what was raised above the acquisition price was earmarked to go back
in the ground through such things as leasing, drilling, and seismic. 64
The investors signed participation agreements with Big Reef Energy, LLC,
65
which owns 100% of the stock of Alabama Petrodome II, LLC Petrodome
Alabama II, LLC, in turn, owns the rights to the assignment of a 40% working
58
See RR Vol. 4 at pg. 33.
59
See RR Vol. 2 at pg. 88.
60
See id.
61
See RR Vol. 2 at pgs. 89, 95-96, 98-99, 100.
62
See id.
63
See RR Vol. 2 at pgs. 68, 97.
64
See RR Vol. 2 at pgs. 97-98. Defendants are currently incurring various expenses, such as
office space, seismic, and leasing that are necessary in order to keep development of the Project
going. See RR Vol. 3 at pg. 33.
65
See RR Vol. 3 at pgs. 7-8, 94-97.
206174111 v5 10
interest in the Alabama Prospect.66 Prior to the temporary injunction, Petrodome
Alabama II, LLC was slated to be merged into Big Reef Energy, LLC. 67 That
merger, however, has currently been enjoined by the Court.
From August 6, 2014—the date Desenberg first heard about the potential
opportunity to the time they resigned, Defendants did not use Everest resources in
68
pursing the Key Largo Prospect. During that time, Desenberg and Baker
continued to work full time for Everest and did not use any company resources in
connection with the Key Largo Prospect, except perhaps for an occasional email or
a call on a personal cel phone.69
At no time during their employment with Everest did Desenberg or Baker
engaged in any activity that would have materially interfered with the performance
of their obligations to the Everest. 70 They worked on the Petrodome Project
typically at nights and on the weekends. 71 Nor did Desenberg or Baker take any
confidential information or trade secrets of any kind from Everest. 72
Desenberg and Baker’s departure from Everest was otherwise cordial.
Indeed, after Desenberg and Baker announced that they were leaving Everest,
66
See id.
67
See RR Vol. 3 at pgs. 98-99.
68
See RR Vol. 3 at pgs. 51, 61; Vol. 4 at pg. 39.
69
See RR Vol. 3 at pgs. 51, 60-61; Vol. 4 at pgs. 38-39.
70
See id.
71
See id.
72
See id.
206174111 v5 11
Crain came into Desenberg’s office.73 Crain stated that he would love to continue
working with Desenberg and Baker, and offered to do land work on the side for
them. 74
H. Defendants Facilitate and Purchase a Right of Assignment to a
40% Working Interest in the Alabama Prospect on Behalf of
Investors Who Were Bona Fide Purchasers And Who Had No
Interest in Doing Business With Everest.
Neither C-5 nor Everest had the financial resources to acquire the Alabama
Prospect. In fact, Everest didn’t have the resources to acquire any prospect, let
alone the $7.5 million dollar 40% working interest in the Alabama Prospect. Prior
to the Alabama Prospect, Defendants Desenberg and Baker had presented two
potential prospects to Everest, both of which Everest declined to fund. 75 Indeed,
Everest didn’t even have money to keep operations going. By October 2013,
Everest’s Crain began stressing the need for cash calls in order to sustain continued
operations.76 By August 2014, the very month that the Petrodome letter of intent
was signed, Everest’s funding had all but dried up. Specifically, on August 27,
2014—two days before the Alabama letter of intent was signed—Everest held a
partner’s meeting in which Crain and Ron Polansky, C-5 Chief Financial Offer,
73
See RR Vol. 3 at pg. 53.
74
See id.
75
See RR Vol. 3 at pgs. 57-58.
76
See RR Vol. 3 at pg. 48.
206174111 v5 12
begged Clark to use his sources and raise exploration capital for C-5. 77 Clark
absolutely refused to raise any exploration capital for C-5, at which point Everest
were effectively defunct.78
Nor was there any reason to believe that Everest could sell the Alabama
Prospect to Defendants’ investors. All of the investors in the Key Largo Prospect
had a relationship with at least one of the Defendants prior to Defendants working
for Everest, and simply were not interested in investing with Everest. 79 Nor was
Desenberg who took out a personal loan interest in order to complete the
Petrodome acquisition interested in further investments with Everest. 80
Apart from not having the financial wherewithal to complete the $7.5
million acquisition, Everest also did not have an interest in investing in or
otherwise acquiring a 40% working interest in the Alabama Prospect. First, the
Alabama Prospect was a non-operator deal, whereas Everest was typically the
operator in a deal. 81 Being the operator is critical to using other people’s money
which was Everest business philosophy. 82 Second, the Alabama Prospect required
77
See RR Vol. 3 at pg. 58.
78
See id. See also CR 1486-87 (showing cash balance of C-5 Oil & Gas at end of August 2014
of only $32,467.53, with total assets of less than $1.5 million); CR 1155, 1384 (now showing
total assets at end of August 2014 at only $767,238.49).
79
See RR Vol. 3 at pgs. 56, 58-60.
80
See RR Vol. 2 at pg. 100.
81
See RR Vol. 3 at pgs. 53-56; Vol. 4 at pg. 42.
82
See id.
206174111 v5 13
big, non-refundable cash up-front, whereas Everest would not fund anything up-
front that was not refundable. 83 Third, the Alabama Prospect required an absolute
immediate decision, and Everest was unable to make such decisions in short time
frames. 84 Lastly, Everest would not have been interested in the deal because the
Alabama Prospect had significant business risk and Everest was extremely
business risk adverse. 85
Tellingly, Plaintiffs were well aware of the Petrodome offering by
Defendants no later than September 4, 2014—the day after Desenberg and Baker
resigned from Everest. 86 Despite being keenly aware of the Alabama Prospect and
having Alabama Prospect offering documents in their possession, Plaintiffs failed
to contact Defendants to inquire further and otherwise showed no interest in
pursuing the Alabama Prospect—that is, prior to other investors taking on all the
risk and putting up all the money. It was not until a month and a half later after
first being informed of the offering, that Plaintiffs, without any warning or prior
notice, filed suit.87
83
See id.
84
See id.
85
See id.
86
See RR Vol. 4 at pg. 89.
87
See RR Vol. 4 at pg. 92.
206174111 v5 14
I. Contrary to Plaintiffs’ Claim, Defendants Did Not Take Any
Confidential Investor List or Improperly Download A Google
Earth File
Plaintiffs’ claim that Defendants took confidential customer lists and
improperly downloaded a Google Earth file is unsupported. The customer list that
Desenberg downloaded on September 4, 2014 was simply Desenberg’s personal
contact list from his Outlook. 88 Desenberg had been compiling this list of contacts
for many years, well before he started working at Everest. 89 These contacts
included, for example, Desenberg’s upholster, his mechanic, his acupuncturist,
family, and good friends. 90 Indeed, Clark—Everest’s CEO—admitted under cross
examination that the list really wasn’t confidential. 91 Defendant Baker did
download a Google Earth file, but only after obtaining permission to do so. 92
Defendant Baker had been accumulating well coordinates and locations files from
all the places he had worked over the years, including for example, Tunisia,
Louisiana, and Texas, and had been storing such information on his Google Earth
file. 93 So as not to lose his information, Defendant Baker exported a copy of this
88
See RR Vol. 2 at pg. 61.
89
See id.
90
See id.
91
See RR Vol. 4 at pgs. 78-79.
92
See RR Vol. 4 at pgs. 39-41. Defendants were invited back to the office a few days after their
resignation. See RR Vol. 4 at pg. 35.
93
See RR Vol. 4 at pgs. 35-36, 39-41.
206174111 v5 15
information into an export file. 94 While the file did some cursory information
regarding Everest, such information was not proprietary and was in fact publicly
available.95
J. Defendants Have Received a Drilling Proposal And Are Required
to Act in Order to Develop And Preserve the Alabama Prospect.
On Friday, November 14, 2014, just a few days before the temporary
injunction hearings, Defendants received a well proposal from Renpetco—the
operator of the Alabama Prospect. 96 Renpetco requested that the election be
returned within 10 days along with a check for 51.6% of the costs of the first well,
which represents the 40% working interest belonging to Defendants and their
investors, as well as a carry for other working interests.97
Renpetco’s well proposal triggered deadlines requiring Defendants to act
expeditiously. According to the Participating Agreement, failure to participate in a
proposed well and prospect within ten days of a well proposal will result in a
98
forfeiture of participation rights in that prospect. Moreover, consent to
participate in a proposed obligatory well, followed by a failure to pay for the well
94
See id.
95
See RR Vol. 4 at pgs. 35-36, 39-41. Mr. Baker did delete some seismic data off of Everest’s
computer, but only did so based on his understanding that such data contractually belonged to
Flatmax See RR Vol. 4 at pgs. 44-45. There is presently a dispute over ownership of this
seismic data. Defendants are amenable to depositing with the court a copy of the disputed data
until a resolution of ownership of the data. Moreover, Geotrace has a copy of this disputed data.
96
See RR Vol. 2 at pgs. 130-131; Vol. 3 at pg. 20; RR Vol. 7, DX-1 Renpetco Well Proposal).
97
See RR Vol. 7, DX-1 (Renpetco Well Proposal).
98
See RR Vol. 7, DX-5 (Renpetco Participation Agreement, Article 3 at pg. 8).
206174111 v5 16
in accordance with the terms of the agreement, will result in a loss of all rights and
obligations under the Participation Agreement. 99
In order to avoid forfeiture, Defendants have since elected to participate in
the drilling of the first well. However, the costs associated with drilling the first
well and subsequent wells remain outstanding. Paragraph 3(a) of Exhibit “C” of
the JOA, and Paragraph I of Article XV of the JOA, as found of page 17 of the
JOA, in turn, both require payment with 15 days after billing receipt. 100 That
deadline has now come and past.101 Defendants are arguably now in default of the
Participation Agreement and other agreements. 102
Unless Defendants are able to raise capital to fund the well proposal as well
as future wells, all parties’ ability to participate in the Prospect may be lost. The
projected cost of the first completed well is over $2.45 million. 103 The only way
that Defendants can pay for the well proposal as well as subsequent proposals is
through cash call to investors. However, investors must be assured of clear title
prior to investing additional capital towards the Alabama Prospect.
99
See RR Vol. 7, DX-5 (Article 3 provides in relevant part that “[i]f Renpetco or its successor
does not receive a written electron from any participant, within ten (10) business days of receipt
by the non-responding Participant of the Prospect JOA, the non-responding Participant shall be
deemed to have not participated in the Prospect JOA.”); RR Vol. 4 at pgs. 9-16, 22-24.
100
See RR Vol. 7, DX-5.
101
Desenberg testified that even if the TRO were dissolved it would be different to come up with
the required $700,000 in a week. See RR Vol. 3 at pg. 23.
102
See RR Vol. 7, DX-5.
103
See RR Vol. 7, DX-1. Defendants are responsible for funding 51.6% of the total well cost.
206174111 v5 17
II. SUMMARY OF THE ARGUMENT
Appellants are appealing subsections (a)-(f) of Paragraph 35 of the
Temporary Injunction Order, as such sections were improperly granted pursuant to
Tex. R. Civ. P. 681 and 683. Subsections (a) and (b) which deal with Defendants’
use of certain data should be declared void by the Court because such sections lack
requisite specificity, and are overly broad in restraining lawful conduct. Similarly,
subsection (c) which relates to restraining Defendants from communicating with
third-party Geotrace Technologies regarding Plaintiffs should be declared void by
the Court because it lacks requisite specificity, and is overly broad in restraining
lawful conduct.
Subsection (d) which enjoining Defendants from undertaking various actions
with respect to the Alabama Prospect, including performing a necessary merger
and transferring working interests to bona fide purchasers should be declared void
by the Court because it improperly affects rights of parties not joined to the lawsuit
or injunction hearing, grants relief beyond that which was requested by Appellees’
in the petition, grants relief where there is no irreparable harm, and is overly broad
in restraining lawful activity. Similarly, subsection (e) which enjoins Defendants
from undertaking various actions with respect to unidentified prospects should be
declared void by the Court because it lacks requisite specificity, is overly broad in
restraining lawful activity, and creates what is otherwise an impermissible non-
206174111 v5 18
compete provision. Lastly, Subsection (f) which enjoins Defendants from
transferring funds from the Alabama Prospect as well as other unidentified
Prospects, should be declared void by the Court because it lacks requisite
specificity, is overly broad in restraining lawful activity, and similar to Subsection
(e) creates an impermissible non-compete provision.
Appellants are also challenging subsection (d), which relates to the Alabama
Prospect, on the basis that Appellees failed to prove probable, imminent, and
irreparable injury; on the basis that the Court failed to consider the equities in the
case; and on the basis that the temporary injunction fails to preserve the status quo.
Appellants are also challenging the temporary injunction order on the basis
that the trial court abused its discretion in granting a low bond of $10,000 under
the circumstances, whereas Defendants and bona fide purchasers stand to
potentially lose millions of dollars in damage due to the temporary injunction.
III. ARGUMENT AND AUTHORITIES
A. Tex. R. Civ. P 681 and 683.
A trial court abuses it discretion by violating the requirements of Rule 683.
A temporary injunction that violates Rule 683 is subject to being declared void and
dissolved.104 The purpose of Rule 683 is to adequately inform a party of what he is
104
See Tex. R. Civ. P. 683; Qwest Commc’ns Corp. v. AT&T Corp., 24 S.W.3d 334, 337 (Tex.
2000) (requirements of Rule 683 are mandatory and must be strictly followed).
206174111 v5 19
enjoined from doing and the reasons why he is enjoined. 105 Under Rule 683, a
valid order for a temporary injunction must: (1) state the reasons for the
injunction's issuance by defining the injury and describing why it is irreparable; (2)
define the acts sought to be enjoined in clear, specific and unambiguous terms so
that such person will readily know exactly what duties or obligations are imposed
upon him; and (3) set the cause for trial on the merits and fix the amount of the
bond. 106
Furthermore, an injunction decree must be as definite, clear and precise as
possible and, when practicable, it should inform the person enjoined of the acts he
is restrained from doing, without calling for inferences or conclusions about which
persons might well differ and without leaving anything for further hearing. 107 The
decree must describe in reasonable detail and not by reference to the complaint or
other documents, the acts to the restrained. 108 The trial court must also state in its
order a “nexus” between the laundry list of probable injuries and finding that such
105
El Tacaso, Inc., 356 S.W.3d 740, 744 (Tex. App.—Dallas 2011, no pet.).
106
See Tex. R. Civ. P. 683; Interfirst Bank San Felipe, N.A. v. Paz Constr. Co., 715 S.W.2d 640,
641 (Tex. 1986); Ex parte Slavin, 412 S.W.2d 43, 44 (Tex. 1967); Reliant Hospital Partners,
LLC. v. Cornerstone Healthcare Group Holding, Inc., 374 S.W.3d 488, 495 (Tex. App.—Dallas
2012, no pet.).
107
See San Antonio Bar Ass'n v. Guardian Abstract & Title Co., 291 S.W.2d 697, 702 (Tex.
1956).
108
See Tex. R. Civ. P. 683; Reliant Hospital Partners, LLC. v. Cornerstone Healthcare Group
Holding, Inc., 374 S.W.3d at 495.
206174111 v5 20
probable injuries are irreparable. 109 “[A] trial court abuses its discretion by
entering an ‘overly-broad’ injunction which grants ‘more relief’ than a plaintiff is
entitled to by enjoining a defendant from conducting lawful activities or from
exercising legal rights.” 110 Moreover, injunctions must be narrowly drawn and
precise. 111 Where the injunctive relief granted exceeds the relief requested by the
applicant in the petition, the trial court exceeds its jurisdiction. 112
A temporary injunction is also void to the extent it runs afoul of the
requirements of Rule 681. Tex. R. Civ. P. 681 succinctly provides that “no
temporary injunction shall issue without notice to an adverse party.” Notice to
adverse party requires an opportunity to be heard as well the opportunity to present
109
Reliant Hospital Partners, LLC. v. Cornerstone Healthcare Group Holding, Inc., 374 S.W.3d
488, 497 (Tex. App.—Dallas 2012, no pet.).
110
See, e.g., Holubec v. Brandenberger, 111 S.W.3d 32, 39-40 (Tex. 2003).
111
See id.
112
See Harbor Perfusion, Inc. v. Floyd, 45 S.W.3d 713, 718 (Tex. App.—Corpus Christi 2001,
no pet.) (“[W]here the injunctive relief granted exceeds the relief requested by the application in
the petition, the trial court exceeds its jurisdiction.”). The request, both as to type of relief and
extent, must be specific. See Fairfield v. Stonehenge Ass’n, 678 S.W.2d 608, 610-11 (Tex.
App.—Houston [14th Dist.] 1984, no writ). The original petition which was the live pleading at
the start of the temporary injunction hearing did not contain or request the relief that Plaintiffs
obtained from the court. While Plaintiffs did file a separate application for temporary injunction,
the requested relief was not stated or requested in the petition. Arguably, the court was without
authority to enter the relief requested by Plaintiffs. Plaintiffs did not file an amended petition
containing requested relief for the temporary injunction until November 21, 2014— during the
middle of the temporary injunction hearing. Plaintiffs’ amended petition and joinder of C-5 as
Plaintiff was not properly before the Court. See Tex. R. Civ. P. 63; In re Fluor Enterprises, Inc.,
2011 WL 2463004, *4 (Tex. App.—Corpus Christi 2011, orig. proceeding) (holding that
amended petitions filed on the day of hearing for change of venue were untimely pursuant to
Tex. R. Civ. P. 63 and therefore they “were not before the trial court for its consideration.”). In
any event, the amended petition sought relief that was narrower than the relief granted by the
trial court.
206174111 v5 21
evidence above and beyond the mere opportunity to cross-examine the party’s
witnesses. 113
1. The Injunction Is Void As It Violates Tex. R. Civ. P. 681
and 683.
Several subsections of the Temporary Injunction which enjoin Defendants
and other non-parties from undertaking certain actions run afoul of these
mandatory requirements of Rules 681 and 683.
(1) Subsection (a) lacks requisite specificity and is overly
broad.
Under Subsection (a), Defendants David Desenberg, Flatmax Energy, L.P.,
Flatmax Oil & Gas, L.L.C., Keith H. Baker, Reagan Rich, and Big Reef Energy,
LLC (collectively “Defendants”), including their officers, agents, servants,
employees, and attorneys, and all persons, corporations and entities in active
concert or participation with them, from in any manner whatsoever are restrained
from:
(a) modifying, deleting, transferring, altering, viewing, showing, loading,
copying or otherwise using in any manner 3-D seismic data and 3-D
projects and associated data, information and derivatives thereof
(including, without limitation, raw data, processed data, culture used
with the data, interpretations of data, maps, lines, and horizons) that
was taken or deleted from Everest Resource Company offices,
113
See, e.g., Elliot v. Lewis, 792 S.W.2d 853, 855 (Tex. App. Dallas 1990, no writ), PILF Invs. v.
Arlitt, 940 S.W.2d 255, 259-60 (Tex. App.—San Antonio 1997, no writ). Not only were
Defendants ambushed with the joinder of C-5 during the middle of the hearing, but the amount
of time allotted to Plaintiffs as opposed to Defendants was grossly lopsided and lacking in
fundamental fairness. See, e.g., RR Vol. 4 at pg. 57.
206174111 v5 22
computers, files or file servers, or that was subject to Everest
Resource Company's right of ownership or control pursuant to the
Desenberg Employment Agreement, including any such data that
Desenberg or Flatmax Energy, L.P. obtained from Geotrace
Technologies or other vendors used by Everest Resource Company;
however, the Defendants are not barred from using the original, raw or
processed data, that Flatmax Energy contributed to Everest Resource
Company in such original form;
This subsection lacks the requisite specificity under Tex. R. Civ. P. 683 in
that it fails to define the acts sought to be enjoined in clear, specific, and
unambiguous terms so that a person will readily know exactly what duties or
obligations are imposed. Furthermore, the subsection improperly requires
reference to other documents. Specifically, the subsection seeks to enjoin
Defendants from “using in any manner” “3-D seismic data and 3-D products and
associated data, information and derivatives therefore (including, without
limitation, raw data, processed data, cultured used with the data, interpretations of
data, maps, lines, and horizons)…that was subject to the Everest Resource
Company’s right of ownership or control pursuant to the Desenberg Employment
Agreement.”114
114
See Reliant Hospital Partners, LLC. v. Cornerstone Healthcare Group Holding, Inc., 374
S.W.3d at 495 (“[R]ule of civil procedure 683 requires every order granting a temporary
injunction to state the reasons for its issuances, be specific in terms, and describe in reasonable
detail and not by reference to the complaint or other documents, the acts sought to be
restrained.”).
206174111 v5 23
The subsection is also overly broad in that restrains lawful activity and is not
narrowly tailored. 115 For example, the subsection could be read to prevent
Defendants from sharing this information with their attorneys and/or other
consultants in this litigation, or in otherwise reviewing this information in order to
defend against Plaintiffs’ allegations.
(2) Subsection (b) lacks requisite specificity, is overly broad,
and fails to show irreparable harm.
Under Subsection (b), Defendants and others are restrained from:
(b) modifying, deleting, transferring, altering, viewing, showing, loading,
copying or otherwise using in any manner Everest Resource Company
confidential business information and derivatives thereof (including,
without limitation, customer lists, vendor lists, investor lists, business
forms, well data, logs, maps, geologic information and Google Earth
files) that were taken or copied from Everest Resource Company
offices, computers, files or file servers, or that was subject to Everest
Resource Company's ownership or control pursuant to the Desenberg
and Baker Employment Agreements;
This subsection also lacks the requisite specificity under Tex. R. Civ. P. 683
in that it fails to define the acts sought to be enjoined in clear, specific and
unambiguous terms so that a person will readily know exactly what duties or
obligations are imposed. Furthermore, the subsection improperly requires
reference to other documents. Specifically, the subsection seeks to enjoin
Defendants from “using in any manner” “Everest Resource Company confidential
business information and derivatives thereof (including, without limitation,
115
See, e.g., Holubec v. Brandenberger, 111 S.W.3d 32, 39-40 (Tex. 2003)
206174111 v5 24
customer lists, vendor lists, investor lists, business forms, well data, logs, maps,
geologic information and Google Earth files)….that was subject to Everest
Resource Company’s ownership or control pursuant to the Desenberg and Baker
Employment Agreements.”116
The subsection is also overly broad in that restrains lawful activity and is not
narrowly tailored. 117 For example, the subsection could be read to prevent
Defendants from sharing this information with the attorneys or other consultants in
this litigation.
(3) Subsection (c) lacks requisite specificity, and is overly
broad.
Under Subsection (c), Defendants and others are restrained from:
(c) contacting Geotrace Technologies, whether by email, telephone or
otherwise, concerning Everest Resource Company's seismic data or
otherwise interfering in the contractual relationship between Everest
Resource Company and Geotrace Technologies;
This subsection also lacks the requisite specificity under Tex. R. Civ. P. 683
in that it fails to define the acts sought to be enjoined in clear, specific and
unambiguous terms so that a person will readily know exactly what duties or
obligations are imposed. Furthermore, the subsection improperly requires
116
See Reliant Hospital Partners, LLC. v. Cornerstone Healthcare Group Holding, Inc., 374
S.W.3d at 495 (“[R]ule of civil procedure 683 requires every order granting a temporary
injunction to state the reasons for its issuances, be specific in terms, and describe in reasonable
detail and not by reference to the complaint or other documents, the acts sought to be
restrained.”).
117
Holubec v. Brandenberger, 111 S.W.3d 32, 39-40 (Tex. 2003).
206174111 v5 25
reference to other documents. Specifically, the subsection seeks to enjoin
Defendants from contacting “Geotrace….concerning Everest Resource Company’s
seismic data” or “otherwise interfering in the contractual relationship between
Everest Resource Company and Geotrace Technologies.” 118
The subsection also is overly broad in that restrains lawful activity and is not
narrowly tailored. 119 For example, the subsection could be read to prevent
Defendants’ attorneys from serving third-party discovery on Geotrace. The
subsection could also be read to prevent Defendants from communicating with
Geotrace in order to defend the allegations made against Defendants in this case or
in order to protect for example, any data belonging to Defendants that has not been
reprocessed yet. 120 This subsection is also objectionable as the temporary
injunction order and the evidence fail to show why Plaintiffs would suffer
imminent, immediate, and irreparable harm unless Appellee’s were enjoined from
these actions. 121
118
See Reliant Hospital Partners, LLC. v. Cornerstone Healthcare Group Holding, Inc., 374
S.W.3d at 495 (“[R]ule of civil procedure 683 requires every order granting a temporary
injunction to state the reasons for its issuances, be specific in terms, and describe in reasonable
detail and not by reference to the complaint or other documents, the acts sought to be
restrained.”). “Everest Resource Company’s seismic data” is undefined, and the parties otherwise
dispute ownership of various seismic data.
119
See Holubec v. Brandenberger, 111 S.W.3d 32, 39-40 (Tex. 2003).
120
The temporary injunction is clear for example that Defendants have a right to access and use
of raw, original data, which is currently in the hands of GeoTrace. See CR 579.
121
The evidence actually shows no probable, imminent, or irreparable harm. Plaintiffs’ request
for temporary injunction is based on a series of emails involving the parties and Geotrace in early
206174111 v5 26
(4) Subsection (d) lacks requisite specificity, is overly broad,
and grants relief not specifically requested.
Under Subsection (d), Defendants and others are restrained from:
(d) further marketing, selling, offering for sale, transferring, assigning,
encumbering, burdening, or contracting to assign or sell any interest in
the Key Largo Prospect, including without limitation, transferring
ownership of Key Largo Prospect out of Petrodome Alabama II, LLC,
merging Petrodome Alabama II, LLC into Big Reef Energy L.L.C., or
taking like measures that would have the effect of transferring
ownership of the property, or further assigning or promising to assign
any mineral leasehold interest in the Key Largo Prospect; however, to
the extent contractually required to change the name of Petrodome
Alabama II, LLC, the defendants shall be permitted to do, so long as
the name change does not have the effect of transferring title to the
Key Largo Prospect into any named defendant that has already
contracted to sell any interest in the Key Largo Prospect;
This subsection is overbroad and void pursuant to R. Civ. P. 681 and 683.
First, this section improperly purports the affects the rights and interest of
numerous non-parties who were never given notice of the temporary injunction as
well as an opportunity to be heard. 122 These numerous non-parties include
Petrodome Alabama II, LLC, third-party investors, Renpetco (the operator of the
September 2014—more than two before the temporary injunction hearing. Crain and Clark were
carbon copied on the e-mails shortly after Desenberg and Baker left in early September 2014, in
which Desenberg asserted that Flatmax owned the data that was in Geotrace’s possession. See
RR Vol. 6, PX-9. Neither Crain or Clark voiced any objection or otherwise challenged
Desenberg’s statement as inaccurate in the email exchanges. Nor did Crain or Clark ever
subsequently challenge Flatmax’s ownership of the data until filing suit. See RR Vol. 3 at pgs.
39-40. There is no reason to believe that Defendants must be enjoined to prevent probably,
imminent, and irreparable harm.
122
See RR Vol. 5 at pg. 18.
206174111 v5 27
Prospect), and other working-party groups. 123 The contractual rights of obligations
of these parties are directly and negatively affected by the Court’s injunction.124
None of these companies or individuals is a party to the action or temporary
injunction hearing and thus the temporary injunction is therefore overbroad and
void. See Tex. R. Civ. P. 681 (“no temporary injunction shall be issued without
notice to the adverse party.); Down Time-South Texas, LLC, 2014 WL 1464320, *6
(Tex. App.—Corpus Christi 2014, no pet.) (not designated for publication)
(affirming trial court’s decision to deny temporary injunction where petitioner
failed to designate all necessary parties); PILF Invs. v. Arlitt, 940 S.W.2d 255, 259-
60 (Tex. App.—San Antonio 1997, no writ) (notice on a motion for injunctive
relief is inadequate to the extent a non-movant party, who is ultimately enjoined, is
not served with notice of the hearing). See also Ladner v. Reliance Corp., 293
S.W.2d 758, 764-65 (Tex. 1965) (A defendant whose rights will be directly
affected by the writ qualifies as an indispensable party.). 125 The subsection is
further overbroad and void under Rule 683, because it could potentially be read to
enjoin Appellants from lawfully acquiring either on behalf of themselves or
123
See CR-580, Temporary Injunction Order at pg. 12 (“transferring ownership of the Key Largo
Prospect out of Petrodome Alabama II, LLC, merging Petrodome Alabama II, LLC into Big Reef
Energy, L.L.C.”).
124
See RR Vol. 7, DX-5-9.
125
See also McCharen v. Bailey, 87 S.W.2d 284, 285 (Tex. App.—Eastland 1935, no writ)
(citations omitted) (“To a proceeding in equity it is necessary to join as parties all persons whose
interests are directly or indirectly involved in the controversy.”).
206174111 v5 28
investors the remaining 60% working interest in the Alabama Prospect, or some
portion thereof.
These subsection is further overbroad and void under Rule 683 because it
grants Appellees’ relief that was not requested in their petition, namely this
subsection enjoins the previously contemplated merger of Petrodome Alabama II,
LLC into Big Reef. Neither Appellees’ original petition or amended petition
specifically request this relief.126 A trial court abuses its discretion by entering an
‘overly-broad’ injunction which grants ‘more relief’ than a plaintiff is entitled to by
enjoining a defendant from conducting lawful activities or from exercising legal
rights. 127
This subsection is void under Rule 683 because the order and evidence fails
to explain why Appellees would be irreparably and imminently harmed if
Appellants were not restrained for thereafter assigning out the remaining 35%
working interest to the investors who paid millions of dollar for that assignment.
Nor can Appellees. Plaintiffs have no claim to the investors’ respective 35%
working interest under either law or equity. Plaintiffs would never be entitled to
recovery of the 35% interest, as the remedy for breach of fiduciary is fee forfeiture
126
See CR 560 (Plaintiffs’ Amended Petition at pg. 97).
127
See Harbor Perfusion, Inc. v. Floyd, 45 S.W.3d 713, (Tex. App.—Corpus Christi 2001, no
pet.) (“[W]here the injunctive relief granted exceeds the relief requested by the application in the
petition, the trial court exceeds its jurisdiction.” The request, both as to type of relief and extent,
must be specific. See Fairfield v. Stonehenge Ass’n, 678 S.W.2d 608, 610-11 (Tex. App.—
Houston [14th Dist.] 1984, no writ).
206174111 v5 29
and/or profit disgorgement. 128 Instead, the maximum forfeiture or disgorgement in
this case is the 4% retained interest that Defendants retained during the process of
selling the remaining working interest. Cf. Alliance Royalties, LLC v. Boothe, 313
S.W.3d 493, 496 (Tex. App.—Dallas 2010, no pet.) (noting that there must be some
connection between the claims alleged and the acts sought to be enjoined and
reversing a temporary injunction that granted relief to which party was not entitled
to under the contract). 129
Moreover, even if Plaintiffs were entitled to this 35% working interest—
which they are not—the rights of the third-party investors who are bona fide
purchasers would trump any equitable rights that Plaintiffs might have to the 35%
working interest. Plaintiffs have not shown to the contrary. See, e.g., Ratcliff v.
Mahres, 122 S.W.2d 718, 723 (Tex. Civ. App.—El Paso 1938, writ ref’d) (a bona
fide purchaser will prevail over the holder of a prior equitable title). See also
Amason v. Woodman, 498 S.W.2d 142, 143-44 (Tex. 1973) (dissolving permanent
injunction after reciting rule that one who relies upon an equitable title as against a
subsequent owner assumes the burden of showing that the latter is not an innocent
128
See, e.g., ERI Consulting Engineers, Inc. v. Swinnea, 318 S.W.3d 867, 873 (Tex. 2010)
(“courts may fashion equitable remedies such as profit disgorgement and fee forfeiture to remedy
a breach of fiduciary duty.”).
129
Neither a party nor the court can “rewrite the parties’ contract [or] add to its language.” Am.
Mfrs. Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154, 162 (Tex. 2003).
206174111 v5 30
130
purchaser for value without notice). Appellees have hardly established
immediate, imminent, and irreparable harm with respect to enjoining the transfer of
the 35% working interest which properly belongs to the bona fide purchasers. Nor
have Appellees established irreparable, imminent, and irreparable harm with
respect to the merger of Petrodome Alabama II, LLC into Big Reef. For all these
reasons subsection (e) must be declared void and be dissolved to the extent it fails
to comply with Tex. R. Civ. P. 681 and 683.
(5) Subsection (e) lacks requisite specificity, is overly broad,
and grants relief not specifically requested.
Under Subsection (e), Defendants and others are restrained from:
(e) marketing, selling, offering for sale, transferring, assigning,
encumbering, burdening, or contracting to assign or sell any interest in
an oil, gas or mineral prospect (including without limitation, signing a
participation agreement, entering into a joint operating agreement, or
assigning or promising to assign any mineral leasehold interest
therein) that was discovered, purchased, encountered or worked on by
David Desenberg or Keith Baker during their employment at Everest
Resource Company;
This subsection lacks the requisite specificity under Tex. R. Civ. P. 683 in
that it fails to define the acts sought to be enjoined in clear, specific and
130
One who buys property in good faith for valuable consideration, without actual or
constructive knowledge of outstanding claims, is a bona fide purchaser and will prevail over the
holder of a prior equitable title. Boswell v. Farm Home Sav Ass’n, 894 S.W.2d 761, 766 (Tex.
App.—Forth Worth 1994, writ denied); NRG Exploration, Inc. v. Rauch, 671 S.W.2d 649, 653
(Tex. App.—Austin 1984, writ ref’d n.r.e.); Cf. Swanson v. Grassedonio, 647 S.W.2d 716 (Tex.
App.—Corpus Christi 1982, no writ) (affirming temporary injunction order enjoining foreclosure
where purchaser was a bona fide purchaser).
206174111 v5 31
unambiguous terms so that a person will readily know exactly what duties or
obligations are imposed. For example, the subsection seeks to enjoin Defendants
from numerous activities relating to “any…prospect” “that was discovered,
purchased, encountered or worked on by David Desenberg or Keith Baker during
their employment at Everest Resources Company.”131
The subsection is also overly broad, in that it restrains lawful activity and is
not narrowly tailored. Among other things, it prohibits Appellants from developing
prospects that they were aware of prior to joining Everest, but nevertheless worked
on while at Everest. For example, Defendant Desenberg brought to Everest the
Albrecht prospect, which he leased before ever coming to Everest. He presented
the prospect to Everest, but Everest never acted on it. 132 Similarly, Defendant
Baker identified a prospect in Colorado County based on data he had prior to
Everest, which Defendant Everest failed to act upon.133
More generally, the subsection is overly broad in that it restrains lawful
competition. Under Texas law, former employees can use general knowledge,
131
See Reliant Hospital Partners, LLC. v. Cornerstone Healthcare Group Holding, Inc., 374
S.W.3d at 495 (“[R]ule of civil procedure 683 requires every order granting a temporary
injunction to state the reasons for its issuances, be specific in terms, and describe in reasonable
detail and not by reference to the complaint or other documents, the acts sought to be
restrained.”).
132
See RR Vol. 1 at pg. 135; Vol. 3 at pg. 11.
133
See RR Vol. 1 at pgs. 136-137; Vol. 3 at pgs. 11-12.
206174111 v5 32
skills, and experience acquired in the employment relationship, even when
competing with their former employer. 134
The subsection is also overbroad is not limited to confidential or trade secret
information. In a case involving trade secrets or confidential information, Texas
courts require that injunctions be narrowly tailored to address the improper use of
confidential or proprietary information; temporary injunctions must not be framed
so broadly as to prohibit the enjoyment of lawful rights. 135 As written, the trial
court is improper creating and enforcing a non-compete when no such provision
exists under Defendant Desenberg and Defendant Baker’s employment agreement.
See Reliant Hosp. Partners, LLC v. Cornerstone Healthcare Group Holdings, Inc.,
374 S.W.3D at 502 (finding a similar prohibition void that was not specifically
limited to use of confidential information); Alliance Royalties, LLC v. Boothe, 313
S.W.3d 493, 497 (Tex. App.—Dallas 2010, no pet.) (reversing temporary
injunction where injunction granted relief that party was not entitled to under
contract).
134
See American Derringer Corp. v. Bond, 924 S.W.2d 773, 777 (Tex. App.—Waco 1996, no
writ); Auto Wax Co v. Byrd, 599 S.W.2d 110, 112 (Tex. App.—Dallas 1980, no writ).
135
Reliant Hosp. Partners, LLC v. Cornerstone Healthcare Group Holdings, Inc., 374 S.W.3d at
502.
206174111 v5 33
The temporary injunction also fails to explain why this restraint is necessary
in order to prevent probable, imminent, and irreparable harm to Appellees. 136 The
two prospects that Defendant Desenberg and Barker worked on while at Everest
were known to Defendants before joining Everest, and have already been rejected
as opportunities by Everest. Plaintiffs have certainly not established probable,
imminent, and irreparable harm with respect to subsection (e). 137
(6) Subsection (f) lacks requisite specificity, is overly broad,
and grants relief not specifically requested.
Under Subsection (f), Defendants and others are restrained from:
(f) transferring, spending, moving, or distributing any funds, cash, or
cash equivalents that were obtained or derived from the purchase
and/or sale of the Key Largo Prospect and/or Petrodome Alabama II,
LLC, and/or any other oil, gas or mineral prospect that was
discovered, purchased, encountered or worked on by David
Desenberg or Keith Baker during their employment at Everest
Resource Company, except that certain "Leach Prospect" specifically
retained by Desenberg in the Desenberg Employment Agreement
EXCEPT THAT Defendants are permitted to make the following
expenditures—(1) normal and reasonable overhead operating
expenses of Big Reef Energy LLC (which shall be submitted weekly
to counsel for Plaintiffs for review); (2) the respective $150,000
136
A court’s order must explain the probable, imminent, and irreparable harm that will on behalf
a party absent the actions being enjoined. See Reliant Hosp. Partners, LLC v. Cornerstone
Healthcare Group Holdings, Inc., 374 S.W.3d at 497. See also Law Funder, LLC v. Law Offices
of Doug Allison, 2014 WL 895512, *6-8 (Tex. App.—Corpus Christi March 6, 2014, no pet.)
(Not designated for publication) (order which did not state or explain the reasons why irreparable
injury would result was void).
137
Mere fear and apprehension of the possibility of injury is insufficient for injunctive relief.
See, e.g., Legacy Home Health Agency, Inc. v. Apex Primary Care, Inc., 2013 WL 5305238, *2
(Tex. App.—Corpus Christi 2013) (not designated for publication) (citing Frey v. DeCordova
Benda Estates Owners Ass’n, 647 S.W.2d 246, 248 (Tex. 1983).
206174111 v5 34
salaries payable in equal bi-weekly installments to Reagan Rich and
Keith Baker; (iii) the drilling and completion expenses shown the in
AFE and cash notice shown in Defendants' Exhibit 1 at the temporary
injunction hearing; (iii) Petrodome Alabama II, LLC's proportionate
share of seismic data costs and leasehold acquisition costs for the Key
Largo Project area as may be invoiced or cash-called from time to
time; (iv) attorneys' fees only upon further order of this court after
submission of an application to the court with notice to Plaintiffs'
counsel and an opportunity to be heard.
This subsection lacks the requisite specificity under Tex. R. Civ. P. 683 in
that it fails to define the acts sought to be enjoined in clear, specific and
unambiguous terms so that a person will readily know exactly what duties or
obligations are imposed. For example, the subsection seeks to enjoin Defendants
from numerous activities relating to “any…prospect” “that was discovered,
purchased, encountered or worked on by David Desenberg or Keith Baker during
their employment at Everest Resources Company.”138
The subsection is also overly broad, in that it restrains lawful activity and is
not narrowly tailored. Former employees can use general knowledge, skills, and
experience acquired in the employment relationship, even when competing with
their former employer. 139 Moreover, this section is overly broad, as this section
138
See Reliant Hospital Partners, LLC. v. Cornerstone Healthcare Group Holding, Inc., 374
S.W.3d at 495 (Tex. App.—Dallas 2012, no pet.) (“[R]ule of civil procedure 683 requires every
order granting a temporary injunction to state the reasons for its issuances, be specific in terms,
and describe in reasonable detail and not by reference to the complaint or other documents, the
acts sought to be restrained.”).
139
See American Derringer Corp. v. Bond, 924 S.W.2d at 777; Auto Wax Co v. Byrd, 599 S.W.2d
at 112.
206174111 v5 35
prohibits Desenberg or Baker from pursuing prospects that they may have “worked
on,” but Appellees otherwise declined to pursue such as the Albrecht prospect.140
The temporary injunction also fails to explain why this restraint is necessary in
order to prevent immediate, imminent, and irreparable harm to Appellees. 141
2. Trial Court Also Abused Its Discretion in Granting
Injunctive Relief Relating to the Alabama Prospect As
Appellees Failed To Meet Required Elements Necessary For
Injunctive Relief.
A temporary injunction is an “extraordinary” remedy whose purpose is to
preserve the status quo of the litigation’s subject matter pending a trial on the
merits.142 To obtain a temporary injunction, the applicant must plead and prove
three specific elements: (1) a cause of action against the defendant; (2) a probable
right to the relief sought; and (3) a probable, imminent, and irreparable injury in
the interim. 143 In addition, when considering an application for injunctive relief,
the trial court must weigh the respective conveniences and hardships of the parties
and ultimately balance the equities. The court must consider injury that may result
140
See RR Vol. 1 at pg. 135-137; Vol. 3 at pgs. 11-12.
141
Similar to Subsection (e), this subsection in effect creates an impermissible non-compete
restriction on Defendants’ ability to do business, and therefore must be declared void.
142
Walling v. Metcalfe, 863 S.W.2d 56, 57 (Tex. 1993).
143
See Walling, 863 S.W.2d at 57; Sun Oil Co. v. Whitaker, 424 S.W.2d 216, 218 (Tex. 1968).
206174111 v5 36
to the defendant and to the public if the injunction is issued, as well as the injury to
the plaintiff if the relief is not granted.144
Subsection (d) must be dissolved as Plaintiffs failed to establish probable,
imminent, and irreparable harm. Rather, the evidence showed that Plaintiffs would
not suffer probable and irreparable harm, because Plaintiffs would not have been
able to facilitate and acquire the working interest in the Alabama Prospect in the
first place. As recounted in detail above, neither C-5 nor Everest had the financial
resources to acquire the out-of-state Alabama Prospect; nor was Desenberg or
Defendants’ investors interested in further investment with Everest. Moreover, the
evidence, as recounted above, further shows that apart from not having the
financial wherewithal to complete the acquisition, Everest also did not have an
interest in investing in or otherwise acquiring the Alabama Prospect. Indeed, the
evidence also shows that despite being aware of the Alabama Prospect, Everest
however, never contacted Defendants to inquire further and otherwise showed no
interest in pursuing the Alabama Prospect, prior to filing suit.
Second, even if Plaintiffs were somehow able and interested in acquiring the
Alabama Prospect, the only harm that Plaintiffs may ultimately have suffered is a
144
See Storey v. Central Hide & Rendering Co., 226 S.W.2d 615, 518-619 (Tex. 1950) (there
should be a balancing of the equities in order to determine whether an injunction should have
been issued); Nueces County Drainage & Conservation Dist. v. Bevly, 519 S.W.2d 938, 947-48
(Tex. Civ. App.—Corpus Christi 1975, ref. n.r.e.) (court should consider equities even though
irreparable injury and inadequate remedy at law are shown).
206174111 v5 37
loss of potential recovery of money damages relating to Defendants’ 4% retained
working interest or Defendants’ profit, and not the 40% working interest that is
presently enjoined.145
In any event, there is no immediate or imminent injury. Rights to the
working interest do not completely vest until the completion of the first well which
has yet to be drilled. Under the Participation Agreement, no participant is entitled
to an assignment of a real property interest in an obligatory well until it has paid all
costs and expenses associated with the well.146 In sum, Plaintiffs have failed to
make the required showing of probable, imminent, and irreparable harm in order
for a temporary injunction to be issued with respect to actions enjoined in
subsection (d).147
3. A Balancing of the Equities Necessitates That the Injunction
be Dissolved With Respect to the Alabama Prospect.
The equities in this case strongly weigh against the issuance of a temporary
injunction order with respect to the Alabama Prospect. Numerous innocent third-
parties who have put up millions of dollars into the Prospect and are relying upon
expeditious development of the Prospect are being irreparably harmed by the
145
Plaintiffs have improperly obtained injunctive relief restraining the transfer of legal title of
35% of the working interest to third-party investors. As detailed above, Plaintiffs have no claim
to the investors’ respective working interest.
146
See RR Vol. 7, DX-5 (Renpetco Participation Agreement).
147
In addition to transfer of working interests to bona fide purchasers, Plaintiffs have also failed
to establish immediate, imminent, and irreparable harm with respect to the merger of Petrodome
Alabama II, LLC into Big Reef Energy LLC.
206174111 v5 38
issuance of the temporary injunction. These include Renpetco, the prospect
operator—who receives a carry on the first well—as well as innocent third-party
investors who have put up millions of dollars in anticipation of being assigned their
proportionate working interest. The temporary injunction has effectively frustrated
their working interest—despite the fact that Plaintiffs, even if they prevailed on
their claims against Defendants, would not be entitled to recovery of the respective
working interest share of the investors.
In turn, the only two parties that are seeking a temporary injunction to block
the continued development of the Prospect are cash-strapped entities who were
never interested in the Prospect in the first place; who have yet to put a dime
towards the Prospect; and who knew about the Prospect the day after Defendants
Desenberg and Baker resigned, but elected to do nothing until Defendants had
already sold a 35% working interest in the Alabama Prospect to innocent investors
who are also bona fide purchasers.148
148
The weight given to Plaintiffs’ claims is further weakened by the fact that their claims rest
largely on a vague and ambiguous contract. To support specific performance, a contract must
have precise terms capable of enforcement. Living Christ Church, Inc. v. Jones, 734 S.W.2d 417,
420-21 (Tex. App.—Dallas 1987, writ denied); Guzman v. Acuna, 653 S.W.2d 315, 319 (Tex.
App.—San Antonio 1983, writ dis’d (holding that agreement was not subject to specific
performance because its essential terms were uncertain and ambiguous). Specific performance
will be decreed only if the essential terms of the contracts are expressed with reasonable
certainty.” Johnson v. Snell, 504 S.W.2d 397, 398 (Tex. 1974); Dev. Co., Inc. v. Gerfers, 487
S.W.2d 219, 222 (Tex. Civ. App.—San Antonio 1972, writ ref’d n.r.e.) (“Specific performance
will not be decreed unless the terms of the contract are so expressed that the court can determine
with reasonable certainty what is the duty of each party and the conditions of performance.”).
206174111 v5 39
Ironically and tellingly, it is in Plaintiffs’ interest to lift the temporary
injunction with respect to subsection (d). Specifically, the only way that any party
including Plaintiffs is able to recover is if the Prospect is properly and fully
developed. However, Plaintiffs’ temporary injunction order has effectively stalled
the development of the Prospect, and threatens to destroy the entire prospect as
well as the possibility of recovery by any party. A weighing of the equities requires
that the temporary injunction with respect to the Alabama Prospect be dissolved.
See Neuces County Drainage and Conversation Dist. v. Bevly, 519 S.W.2d at 949
(noting that interests of such a large number of people should not be subordinated
to the private interests of a single landowner); Hogue v. City of Bowie, 209 S.W.2d
807, 809 (Tex. Civ. App.—Fort Worth 1948, writ ref’d n.r.e) (“It seems to be the
settled law in this state that courts will deny equitable injunctive relief to the
complaining party, if by balancing the equities between him and the general public
more harm and inequities would follow to the many than to the complaining one, if
such relief be granted….”). 149
149
See also Foxwood Homeowners Ass’n v. Ricles, 673 S.W.2d 376, 379 (Tex. App.—Houston
[1st Dist.] 1984, writ ref’d n.r.e.) (complaining party must come to the court with clean hands
and must have acted promptly to enforce its rights). See also NMTC Corp. v. Conarroe, 99
S.W.3d 865, 869 (Tex. App.—Beaumont 2003, no pet.) (affirming trial court’s denial of
temporary injunction based on weighing of equities); Hall v. Seal, No. 04-09-00675-CV, 2011
WL 61631, at *3 (Tex. App.—San Antonio 2011, pet. denied) (“In balancing the equities, a trial
court may compare evidence of harm that could result to the defendant and the public by
granting the injunction with the evidence of harm to be sustained by the complainant if the court
denies the injunction.”); Townplace Homeowners’ Assoc., Inc. v. McMahon, 594 S.W.2d 172, 176
206174111 v5 40
4. The Temporary Injunction Must Be Dissolved As It Fails to
Preserve the Status Quo and Threatens the Entire Alabama
Prospect as Well as Recovery for Any Party.
The purpose of a temporary injunction is to preserve the status quo of the
litigation’s subject matter pending trial on the merits. Butnaru v. Ford Motor Co.,
84 S.W.3d 198, 204 (Tex. 2002). Status quo is defined as the “last, actual,
peaceful, non-contested status that preceded the pending controversy.” 150 The
status quo in this case is the continued preservation and development of the
Alabama Prospect.
The Court’s temporary order not only fails to preserve the status quo, but it
threatens to destroy the very asset from which any and all claims are to be paid.
Undoubtedly, it is everyone’s best interest for the Alabama Prospect to be
preserved and fully developed.
By denying the merger of Petrodome Alabama II, LLC into Big Reef
Energy, LLC, the Court has effectually split future funding from liability and
ownership in violation of contractual requirements with the operator and other
working interest holders. The effect is that Petrodome is arguably now in default
of the Participation Agreement, and the entire Prospect is at risk. Specifically,
(Tex. Civ. App.—Houston [1st Dist.] 1980, writ ref’d n.r.e.) (upholding denial of injunctive relief
where balance of equities showed that, if granted, defendants would suffer significant monetary
harm and that, if denied, plaintiffs would likely suffer only minor harm).
150
State v. Southwestern Bell Tel. Co., 526 S.W.2d 526, 528 (Tex. 1975).
206174111 v5 41
under the Participation Agreement, ownership of participation rights, and debts and
liabilities for these participation rights, cannot be separated, as the court has
done.151
Moreover, Seismic and 3-D rights are owned by Renpetco II, LLC. 152 As a
mere licensee of this data, Petrodome cannot transfer these licensee rights to a
third-party, except in certain limited circumstances, and with prior written
permission of Renpetco.153 Failure to pay current and ongoing seismic expenses
will result in the loss of all rights and obligations under the Participation
Agreement with respect to these rights, except those rights associated with
previously drilled Prospects, and wells within those prospects that are in good
standing. 154 A court ordered change of the seismic license will result in a loss of
seismic rights. 155 Moreover, to be in good standing to exercise its Participation
rights, Petrodome, is required to maintain a financially solvent condition. 156 In
other words, by denying the merger, the trial court’s temporary injunction order
151
See, e.g., RR Vol. 7, DX-5 (Participation Agreement) at pg. 9, Article 9 (“Debts or liabilities
may not be assigned if they have been segregated from their associated Assets…).
152
See RR Vol 7, DX-2, Exhibit B (“Seismic License Agreement”).
153
See id. at Section 12.
154
See id. at Section 7.
155
See, e.g. id. at Sections 12, 16.
156
See RR Vol. 7, DX-2 (Renpetco Participation Agreement) at Pg. 2. In “Good Standing” is
“being a financially solvent condition and conducting its business consistent with its normal
practices and maintaining the Projects and AMI without liens or breaches of this contract.”)
(emphasis added). The “Good Standing” Requirement is found throughout the Participation
Agreement. See, e.g., Articles 2, 5.
206174111 v5 42
effectively prevents Defendants from complying with the contractual requirements
of the Participation Agreement and from proceeding to develop the Prospect. 157
In addition to creating a state of perpetual noncompliance and default, the
Court’s temporary injunction has also effectively killed future funding of wells and
further development of the prospect. By mandating that the interests stay in
Petrodome Alabama instead of being allowed to be consolidated within Big Reef,
the Court is giving license to the Defendants to potentially work mineral interests
that they do not have clear title to. Even worse, the Court would be actively
allowing them to solicit new funds from investors that they know may have
ownership title problems. Issuing cash calls to investors and asking them to
contribute to this potentially would open Defendant to claims of fraud by their
investors. Investors must be assured clear title in order to fund further cash calls.
No investor would and should be willing to contribute additional funds to a project
when they cannot be assured of clear title.
Funding difficulties will arise when the investors see these cash calls and
question how their interest will be secured. The only way for Big Reef to protect
itself is to decline to participate until the lawsuits are all settled. This will lead to
one prospect after another not being drilled to the detriment of all investors, all
Defendants, and all Plaintiffs if they are ultimately successful in this suit. If Big
157
See id.
206174111 v5 43
Reef chooses not to participate in the first well, then it loses that identified
prospect. Without continued funding of the wells and the project, the 40% working
interest in the Alabama Project that innocents investors have paid millions for, will
be lost, along with any potential recovery for any party.
That lost is real and immediate. The Participation Agreements provide that
failure to participate in a proposed well and prospect within ten (10) days of a well
proposal will result in a forfeiture of participation rights in that prospect. 158
Paragraph 3(a) of Exhibit “C” of the JOA, and Paragraph I of Article XV of the
JOA, 159 both require payment with 15 days after billing receipt. 160 That deadline
has now come and past.
The consequences are potentially disastrous for all parties, including
Plaintiffs. Under the Participation Agreement, consent to participate in a proposed
obligatory well, followed by a failure to pay for the well in accordance with the
terms of the agreement, will result in a loss of all rights and obligations under the
Participation Agreement.
In sum, without the merger of Petrodome Alabama II, LLC into Big Reef
occurring, and the subsequent assignment of working interest to investors—who
158
See RR Vol. 4 at pgs. 11-13; RR Vol. 7, DX-1 (Renpetco Well Proposal); RR Vol. 7, DX-5
(Renpetco Participation Agreement) at Art. 3.
159
See RR Vol 7, DX-1 at pg. 17.
160
See RR Vol. 7, DX-1.
206174111 v5 44
paid millions of dollars for such interests—the development of the Alabama
Prospect is terminally stalled, and potentially at risk of complete collapse.
Certainly, if Defendants forfeited the rights to assignment of the 40% working
interest, it would be a substantial economic detriment to Defendants, their partners,
and other working interest holders. Under those circumstances, Plaintiffs would
gain nothing and everyone else involved would lose everything invested in and
anticipated from a successful project. Even the Plaintiffs would lose any
opportunity to collect the monetary damages they seek in their petition.
Accordingly, the temporary injunction must be dissolved as it falls to preserve and
in fact changes the status quo. 161
B. The Trial Court Abused Its Discretion by Setting a Low Bond.
The trial court also abused its discretion in setting a bond of $10,000 given
the fact that Defendants, bona fide purchasers, and other third parties stand to lose
potentially millions of dollars. The trial court is required to set a bond when it
grants a temporary injunction. Tex. R. Civ. P. 683, 684. The applicant must post
the bond, and it is payable to the adverse party if the temporary injunction is
161
See, e.g., Ballenger v. Ballenger, 694 S.W.2d 72, 79 (Tex. App.—Corpus Christi 1985, no
writ.) (finding that trial court erred in granting injunction which disturbed the status quo);
Edgewood Indep. Sch. Dist. v. Paiz, 856 S.W.2d 269, 271 (Tex. App.—San Antonio 1993, no
writ) (a trial court exceeds it authority if it enters a temporary injunction order that changes the
status quo); Barnstone v. Robinson, 678 S.W.2d 562, 563 (Tex. App.—Houston [14th Dist.]
1984, writ dism’d) (same); Gill v. Hudspeth County Conservation & Reclamation Dist. No. 1., 88
S.W.2d 517, 519 (Tex. Civ. App.—1935) (reversing temporary injunction where temporary
injunction did not preserve the status quo, but in truth changed the same).
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dissolved at trial. See id. The purpose of a bond is to provide protection to the
enjoined party for any possible damages occurring as a result of the injunction.
See DeSantis v. Wackenhut Corp., 793 S.W.2d 679, 686 (Tex. 1990); Bayoud v.
Bayoud, 797 S.W.2d 304, 312 (Tex. App.—Dallas 1990, writ denied).
In order to protect the interests of Defendants and their investors, a bond of
at least $9 million dollars should have been required—the purchase price of the
right to an assignment of a 40% working interest in the Alabama Prospect and
necessary working capital. Without that purchase and those investors there is no
Alabama Project. There is no participation in the first well or the money to fund
the first well. Plaintiffs cannot and should not be able to claim a corporate
opportunity without having to put up that amount.
Moreover, Plaintiffs’ temporary injunction has effectively halted the
development of the Prospect, and now threatens to kills the Prospect altogether.
Defendants and investors stand to lose not only the $7.5 million used to purchase
the Prospect, but potentially millions of dollars in revenue and profit that could
potentially flow from the Prospect. Appellees are in essence enjoying a free ride,
and are betting on other people’s money.
Should the Project prove unfruitful, Appellees will quickly disavow any
claimed corporate opportunity. Defendants and the investors will be unable to
recover from these financially defunct entities.
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A bond of $10,000 is clearly insufficient and should be reversed, given that
Defendants and innocent third-party stand to lose $7.5 million in actual damages,
in addition to potentially millions more in lost profits and revenues due to delay or
loss of the Project altogether. Where, as here, the evidence shows that the potential
damages to be suffered exceed the amount of the bond, the bond is insufficient.
See GTE Mobilnet of South Tex. Ltd. Part’p v. Cellular Max, Inc., 123 S.W.3d 801,
804 (Tex. App.—Beaumont, 2003, pet dism’d) (reversing trial court’s bond of
$1,000 finding bond insufficient to cover potential damages for wrongful
injunction); Biodynamics, Inv. v. Guest, 817 S.W.2d 128, 131 (Tex. App.—Houston
[14th Dist.] 1991, writ dism’d by agrmt); Franklin Savs. Ass’n v. Reese, 756
S.W.2d 14, 16 (Tex. App.—Austin 1988, no writ) (trial court abused its discretion
in setting $10,000 bond in case enjoining the sale of property; trial court should
have taken into account value of property enjoined along with potential losses
resulting from inability to develop property during the term of the injunction).
IV. PRAYER
The trial court abused its discretion when it entered the temporary
injunction. Therefore, Appellants respectfully asks the Court to reverse the trial
court’s November 21, 2014 Order, modify and/or dissolve subsections (a)-(f) of the
temporary injunction, and grant Appellants any and all other relief to which they
are entitled or that the Court deems just and proper.
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__________________________________
LAURENCE MACON
Texas Bar No. 12787500
lmacon@akingump.com
JANIE A. SHANNON
Texas Bar No. 00797416
jshannon@akingump.com
DENNIS WINDSCHEFFEL
Texas Bar No. 24047127
dwindscheffel@akingump.com
AKIN GUMP STRAUSS HAUER & FELD
LLP
300 Convent Street, Suite 1600
San Antonio, TX 78205
Tel: (210) 281-7000
Facsimile: (210) 224-2035
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CERTIFICATE OF SERVICE
I certify that a true and correct copy of the foregoing document was served
by email, certified mail-return receipt requested, and/or facsimile on February 6,
2015 to the following:
Reagan W. Simpson
Christian J. Yard
Yetter Coleman LLP
909 Fannin, Suite 3600
Houston, Texas 77010
Roger S. Braugh, Jr.
Jason P. Hoelscher
Brantley W. White
Craig M. Sico
Sico, White, Hoelscher, Harris & Braugh LLP
802 N. Carancahua, Suite 900
Corpus Christi, Texas 78401
Attorneys for Appellees
______________________________
R. LAURENCE MACON
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CERTIFICATE OF COMPLIANCE WITH RULE 9.4(I)
The undersigned hereby certifies that, based on the word count of the
computer program used to prepare this document, the document contains 14,515
words.
______________________________
R. LAURENCE MACON
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