Kilgore Exploration, Inc. v. Apache Corporation ( 2015 )

FILED IN
st
1 COURT OF APPEALS
HOUSTON, TX
March 9, 2015
NO. 01-13-00347-CV CHRISTOPHER A. PRINE,
CLERK
IN THE COURT OF APPEALS FOR THE
FIRST DISTRICT OF TEXAS
KILGORE EXPLORATION INC.,
Appellant.
v.
APACHE CORPORATION,
Appellee.
Appeal From Cause No. 2010-20264
In the 333rd Judicial District Court of Harris County, Texas
APPELLANT’S MOTION
FOR EN BANC RECONSIDERATION
DOYLE, RESTREPO, HARVIN
& ROBBINS, L.L.P.
Kathleen Cynthia Pickett
State Bar No. 15980500
cpickett@drhrlaw.com
N. Kimberly Hoesl
State Bar No. 24040540
khoesl@drhrlaw.com
440 Louisiana Street, Suite 2300
Houston, Texas 77002
(713) 228-5100 (Tel.)
(713) 228-6138 (Fax)
Attorneys for Appellant,
Kilgore Exploration Inc.
March 9, 2015
Pursuant to Texas Rule of Appellate Procedure 49.7, Appellant Kilgore
Exploration, Inc. (“Kilgore”) files this Motion for En Banc Reconsideration, and
respectfully requests that this Court correct its judgment issued February 5, 2015
(Exhibit 1), in which it affirmed the trial court’s entry of judgment for Appellee
Apache Corporation (“Apache”), and would show the following:
1. Kilgore filed this appeal after the trial court erred in denying Kilgore’s
motion for judgment notwithstanding the verdict despite the fact that (1) the trial
court granted judgment on a contract claim which Apache never pleaded and (2)
Apache waived its sole cause of action by failing to obtain jury findings on any
element of it.
2. As to the first argument, Apache brought the underlying suit for
Kilgore’s alleged failure to pay certain “JIBs,” but the only contract at issue, the
Participation Agreement, did not contain any obligation to pay “JIBs.” (CR 821-
30). A judgment must be supported by both the pleadings and the evidence. See
TEX. R. CIV. P. 301. Apache never amended its pleading to assert a cause of action
for failure to pay amounts due under the Participation Agreement, the only
agreement at issue. (CR 1650-51).
3. The second argument is similarly based on a clear disconnect between
the pleadings and the trial. It was Apache’s burden, as plaintiff, to obtain a finding
on each element of its breach of contract cause of action. See Ford Motor Co. v.
2
Ledesma, 242 S.W.3d 32, 44 (Tex. 2007) (“There can be no question that it was
[the plaintiff’s] burden to obtain affirmative answers to jury questions as to the
necessary elements of his cause of action.”). But here, there was no finding as to
those elements, especially the first element, the existence of a valid agreement.
See Crowder v. Scheirman, 186 S.W.3d 116, 118 (Tex. App.—Houston [1st Dist.]
2005, no pet.) (listing elements of a contract claim). Specifically, Kilgore disputed
the very existence of any agreement that would obligate it to pay the disputed
charges. (CR 1042-51, at 1048-49) (CR 58-244, at 64-65, 70) (CR 991-96). In
fact, Kilgore’s argument throughout the litigation that there was never an
agreement, or a meeting of the minds, to pay the disputed charges was never
controverted. See e.g., Hallmark v. Hand, 885 S.W.2d 471, 477 (Tex. App.—El
Paso 1994, writ denied) (affirming jury’s verdict that no valid contract existed
when evidence confirmed that defendant never intended to bind himself to the
terms of the proposal).
4. Thus, Kilgore raised a question of contract formation. The issue of
whether an agreement was formed, i.e., whether there was a meeting of the minds,
is an issue of fact for the jury to decide. See Parker Drilling Co. v. Romfor Supply
Co., 316 S.W.3d 68, 72 (Tex. App.—Houston [14th Dist.] 2010, pet. denied);
Franco v. Ysleta Indep. Sch. Dist., 346 S.W.3d 605, 608 (Tex. App.—El Paso
2009, no pet.) (“When the ‘meeting of the minds’ element is contested, it is a
3
question for the fact finder.”); Advantage Physical Therapy, Inc. v. Cruse, 165
S.W.3d 21, 24 (Tex. App.—Houston [14th Dist.] 2005, no pet.) (“Whether the
parties reached an agreement is a question of fact.”); Live Oak Ins. Agency v.
Shoemake, 115 S.W.3d 215, 218 (Tex. App.—Corpus Christi 2003, no pet.)
(“where the existence of the agreement is disputed, the question of whether an
agreement was reached by the parties is generally a question of fact”). The trial
court did not rule on this fact issues, and Apache failed to submit this fact issue to
the jury. Apache thereby waived it. See, e.g., Southwestern Bell Tel. Co. v.
DeLanney, 809 S.W.2d 493, 495 (Tex. 1991); Kittyhawk Landing Apartments III v.
Anglin Constr. Co., 737 S.W.2d 90, 93-94 (Tex. App.—Houston [14th Dist.] 1987,
writ ref’d n.r.e.).
5. In its February 5, 2015 judgment, however, the Court did not address
the issue of contract formation at all. Instead, the opinion is grounded in the
language of contract construction even though that was not the argument on
appeal. Moreover, the judgment posits that because there was a valid agreement of
some sort between the parties, i.e., the Participation Agreement, Apache met its
burden of proving the first element for breach of contract. But that is not Texas
law, especially when the question of contract formation has been raised.
6. The mere existence of the Participation Agreement is not sufficient to
satisfy the first element of a contract claim. Apache had to prove that there was a
4
valid agreement containing the obligation it claimed had been breached. See
Villarreal v. Art Inst. of Houston, Inc., 20 S.W.3d 792, 797 (Tex. App.—Corpus
Christi 2000, no pet.) (“Thus, because she has not proven the existence of a valid
contract containing the terms upon which she bases her suit, the trial court was
correct in directing verdict against Villarreal on her breach of contract claims”).
The only agreement at issue, the Participation Agreement, did not contain that
obligation. Therefore, Apache failed to prove the existence of a contract obligating
Kilgore to pay these disputed charges, and it failed to obtain any finding to that
effect. Accordingly, it cannot prevail on its breach of contract claim.
7. There is no amount of construction that can create an agreement that
does not exist. Even Apache’s own witnesses admitted that the disputed charges
were not, and were never intended to be, part of the Final AFE which solely
defined Kilgore’s payment obligation. 1 (5 RR 20-23) (5 RR 53-54) (5 RR 63-64,
“We don’t ever include trouble costs or any weather-related costs in our AFE’s.”).
Because the evidence was uncontroverted that the Final AFE did not include the
disputed charges, Kilgore could not have breached the Participation Agreement in
connection with those charges:
1
The Participation Agreement contains an agreement that Kilgore would pay its proportionate
share of specifically-defined expenses. Those expenses were defined by the Final AFE. (CR
821-30, at 822) (“Execution of said preliminary AFE represents a binding obligation to
participate in the drilling of the Required Well on the basis of the Final AFE (as defined in
Section 3 below)”.) (emphasis added).
5
Because the contracts unambiguously do not impose an
obligation on Versado to compensate Apache for
“unaccounted-for” gas that was not sold at the plant
tailgate, contract damages for gas lost between the
wellhead and the tailgate are not recoverable. Apache’s
breach-of-contract claim fails as a matter of law.
Dynegy Midstream Serv. L.P. v. Apache Corp., 294 S.W.3d 164, 170 (Tex. 2009).
8. Apache sued Kilgore for breach of contract for failing to pay JIBs.
But Apache did not prove or obtain a finding that there was a contract obligating
the payment of JIBs. The trial court entered a final judgment that Kilgore breached
a contract by not paying the disputed charges. But Apache did not prove or obtain
a finding that there was a contract obligating Kilgore to pay those charges in the
first place.
9. Nonetheless, the two-justices panel 2 affirmed the final judgment,
holding that because Kilgore had agreed to pay one thing, it was somehow bound
to pay whatever additional charges Apache wanted, even when Apache admitted
that those charges were never part of the only valid agreement in the first place.
This is not Texas law. In reaching this strained conclusion, the panel completely
ignored the contract formation argument that was the primary basis of Kilgore’s
appeal. Therefore, Kilgore files this motion, praying that the entire Court
2
The third member of the panel did not participate in the February 5, 2015 judgment because his
term ended on December 31, 2014. Rather than appoint a third justice, the remaining two
justices issued the judgment.
6
reconsider Kilgore’s appeal en banc and reconsider the formation arguments
Kilgore raised in its original briefing.
Respectfully submitted,
DOYLE, RESTREPO, HARVIN
& ROBBINS, L.L.P.
By:_ /s/ N. Kimberly Hoesl__________
Kathleen Cynthia Pickett
State Bar No. 15980500
cpickett@drhrlaw.com
N. Kimberly Hoesl
State Bar No. 24040540
khoesl@drhrlaw.com
440 Louisiana St., Suite 2300
Houston, Texas 77002
(713) 228-5100 (telephone)
(713) 228-6138 (facsimile)
Attorneys for Appellant
Kilgore Exploration, Inc.
7
CERTIFICATE OF SERVICE
I hereby certify that a true copy of the foregoing Appellant’s Motion for En
Banc Reconsideration was delivered to all counsel of record by the method
indicated below on March 9, 2015.
Kenneth P. Held
SCHIFFER ODOM HICKS AND JOHNSON PLLC
700 Louisiana St., Suite 1200
Houston, Texas 77002
Phone: (713) 357-5150
Facsimile: (713) 357-5160
by X Electronic filing service
X Certified Mail, Return Receipt Requested
Christopher Barnes
Apache Corporation
2000 Post Oak Blvd., Suite 100
Houston, Texas 77056
Phone: (713) 296-6511
Facsimile: (713) 296-6481
by X Electronic filing service
X Certified Mail, Return Receipt Requested
Attorneys for Appellee Apache Corporation
/s/ N. Kimberly Hoesl
N. Kimberly Hoesl
8
CERTIFICATE OF COMPLIANCE
Pursuant to Texas Rule of Appellate Procedure 9.4(i)(3), I hereby certify that
this Appellant’s Motion for En Banc Reconsideration contains 1,294 words
(excluding the caption, identity of parties and counsel, statement regarding oral
argument, table of contents, table of authorities, statement of the case, statement of
issues presented, signature, certificates of compliance and service, and appendix).
This is a computer-generated document created in Microsoft Word, using 14-point
typeface for all text, except for footnotes, which are in 12-point typeface. In
making this certificate of compliance, I am relying on the word count provided by
the software used to prepare this document.
/s/ N. Kimberly Hoesl
N. Kimberly Hoesl
9
EXHIBIT 1
Opinion issued February 5, 2015
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-13-00347-CV
———————————
KILGORE EXPLORATION, INC., Appellant
V.
APACHE CORPORATION, Appellee
On Appeal from the 333rd District Court
Harris County, Texas
Trial Court Case No. 2010-20264
MEMORANDUM OPINION
Appellant, Kilgore Exploration, Inc. (“Kilgore”), challenges the trial court’s
judgment, entered after a jury trial, in favor of appellee, Apache Corporation
(“Apache”), in Apache’s suit against Kilgore, and Kilgore’s counterclaim against
Apache, for breach of contract. In three issues, Kilgore contends that the trial court
erred in granting judgment for Apache, denying Kilgore’s motion for judgment
notwithstanding the verdict (“JNOV”), and not awarding Kilgore attorney’s fees.
We affirm.
Background
In 2008, Apache and Kilgore, who are engaged in the business of natural gas
exploration and production, entered into a “Participation Agreement” (the “PA”) to
govern initial exploration and any dry hole costs associated with the drilling of an
exploratory gas well (the “well”) in an offshore block in the Gulf of Mexico,
known as “Vermilion Block 141.” And the parties executed an “Offshore
Operating Agreement” (the “OOA”) to govern in the event the well yielded gas
and went into production.
Pursuant to the PA, the parties agreed as follows:
1. PROJECT CONSIDERATION
A. . . . [E]ach participant agrees to participate in and bear its
respective share of costs and expenses associated with the timely[1]
drilling of the Required Well, in the Before Prospect Payout
Percentages,[2] set out below, to the Objective Depth.
1
The PA required that drilling commence by December 31, 2008.
2
“Prospect Payout,” as defined in the PA, is “that point in time when the gross
proceeds from the sale of production from wells drilled by Participants” less
various expenses, fees, and royalties, equals the reasonable and actual cost of
drilling and associated expenses.
2
The Before Prospect Payout Percentages assessed eighty-five percent of the costs
and expenses to Apache and fifteen percent to Kilgore.
Section two of the PA required Kilgore, contemporaneously with the
execution of the PA, to deliver to Apache executed originals of the preliminary
Authority for Expenditure (the “Preliminary AFE”) for the well, which represented
an estimate of the costs. And execution of the preliminary AFE “represent[ed] a
binding obligation to participate in the drilling of [the well] on the basis of the
Final AFE.” Apache was to provide Kilgore, “[a]t least thirty . . . days prior to
commencement of drilling,” with a final Authority For Expenditure (the “Final
AFE”). In the Final AFE, Apache was to estimate the costs associated with
drilling the well, along with an advance billing for Kilgore’s share of the estimated
dry hole costs, as follows:
3. REQUIRED WELL FINAL AFE
At least thirty (30) days prior to commencement of operations
on the Required Well, [Apache] shall provide to [Kilgore] the [F]inal
AFE . . . to drill [the well] together with an advance billing for [its]
share of the estimated dry hole cost. [Kilgore] shall execute and
return the [F]inal AFE to [Apache] together with payment of [its]
respective share of the estimate dry hole cost within ten (10) days of
receipt of the Final AFE. . . .
The PA penalized any participant who, after executing the PA and
Preliminary AFE, defaulted on its obligation to participate in the well, failed to
3
timely reply to the Final AFE, or failed to pay the advance billing under section
three, as follows:
5. DEFAULT
A. Required Well: A Participant who defaults on its
obligation to participate in the [well] . . . [or] fails to reply to the Final
AFE within the allotted time or fails to pay the advance billing for
drilling costs in the timeframe provided for in Section 3 above . . .
shall automatically relinquish all right, title and interest in and to the
Leases . . . . Notwithstanding the above, the non-defaulting Participant
reserves all claims, rights or remedies which such non-defaulting
Participant may have either at law or equity as a result of a defaulting
Participant’s failure to comply with the terms of this Agreement.
B. Default Notice: If any non-operator Participant fails to
pay its share of an advance billing for an approved AFE, other than
the Final AFE, as provided for in the OOA, Operator shall provide
such Participant a default notice . . . .
And the parties further broadly agreed as follows:
15. MISCELLANEOUS
....
E. Liability: EXCEPT AS OTHERWISE PROVIDED,
THE PARTICIPANTS . . . SHALL SEVERALLY SHARE AND
ASSUME THEIR RESPECTIVE PRORATA SHARES,
ACCORDING TO THEIR BEFORE OR AFTER PROSPECT
PAYOUT PERCENTAGES, AS THE CASE MAY BE, OF ANY
AND ALL CLAIMS, LOSSES, AND EXPENSES (INCLUDING
WITHOUT LIMITATION ALL COSTS, DEMANDS, DAMAGES,
SUITS, JUDGMENTS, FINES, PENALTIES, LIABILITIES,
DEBTS, ATTORNEYS’ FEES, COSTS OF DEFENSE, AND
CAUSES OF ACTION OF WHATSOEVER NATURE OR
CHARACTER, WHETHER KNOWN OR UNKNOWN, AND
INCLUDING WITHOUT LIMITATION, CLAIMS, LOSSES AND
EXPENSES FOR PROPERTY DAMAGE . . .) DIRECTLY OR
INDIRECTLY ARISING OUT OF OR RELATED TO
OPERATOR’S . . . OPERATIONS . . . HEREUNDER,
4
REGARDLESS OF FAULT AND EXPRESSLY INCLUDING ANY
NEGLIGENCE, FAULT, OR STRICT LIABILITY . . . OF THE
OPERATOR, BUT EXPRESSLY EXCLUDING THE GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF THE
OPERATOR. . . .
Pursuant to the PA, Apache delivered to Kilgore a preliminary AFE, in
which it estimated the costs to drill the well, perform testing, and plug and abandon
it if dry, to be $2,811,785. In July 2008, Apache sent Kilgore a Final AFE and
advance billing for the estimated dry hole costs in the amount of $3,477,465, of
which Kilgore’s share was $521,620. It is undisputed that Kilgore executed the
AFEs and timely paid its share.
Apache then commenced operations and accepted delivery of a drilling rig,
the Ocean Crusader, pursuant to its contract with Diamond Offshore.3 The rig was
towed to Vermilion Block 141, off the coast of Louisiana, and put into place on
September 6, 2008. Two days later, Hurricane Ike forced the evacuation of the rig.
When crews returned to the rig on September 16, 2008, they discovered that the
hurricane had caused the rig to move eighty feet out of place and had buried the rig
mat as much as nine feet into the seabed. The rig was returned to operational
status, and drilling began on September 24, 2008. The well was dry, and it was
plugged and abandoned on October 3, 2008. Because the rig mat required
3
Diamond Offshore is not a party to this appeal.
5
extrication from the deep mud resulting from the hurricane, Apache was unable to
release the rig back to Diamond Offshore until October 20, 2008.
In November 2008, Apache demanded from Kilgore a fifteen percent portion
of the expenses incurred, including standby and additional day rates on the rig,
returning the rig to operational status after the storm, and freeing the rig mat from
the seabed after the well was plugged. These additional expenses to the joint
interest totaled $3,839,061, of which Apache sought $575,859 from Kilgore. In
December 2008, Kilgore paid Apache $91,559. When Kilgore later demanded
return of the $91,559 and refused to pay anything further, Apache filed the instant
lawsuit.
In its amended petition, Apache alleged that Kilgore “agreed to pay . . . [its]
share of the expenses related to drilling a well” and had failed to “pay a balance of
$444,237.43,” which represents Kilgore’s “share of the costs of drilling the well
and plugging and abandoning the well.”
Kilgore answered with a general denial, asserting numerous affirmative
defenses and counterclaiming for breach of contract. It alleged that Apache had
“failed to issue required AFEs,” “failed to provide adequate documentation of its
billing,” and charged Kilgore for expenses that were unauthorized and caused by
Apache’s “own grossly negligent conduct,” namely, taking possession of the
drilling rig in the face of Hurricane Ike. Kilgore further sought a judgment
6
declaring that its liability to Apache is “controlled entirely by the PA and . . .
limited to the amount it paid Apache under the Final AFE.” And Kilgore sought to
recoup its $91,559 “overpayment” to Apache.
The parties then executed a number of “Stipulations of Facts,” agreeing and
admitting as follows:
1. The Ocean Crusader Rig (the “Rig”) . . . was evacuated due to
Hurricane IKE from 9/08/08 through 9/16/08.
2. Charges billed by Apache to the joint interest while the Rig was
evacuated due to Hurricane IKE from 9/08/08 through 09/16/08
total $800,238.02 (“Catergory 1”). Category 1 costs are
identified on Exhibit A attached hereto and incorporated herein.
3. Apache returned to the Vermilion Block 141 . . . after Hurricane
IKE on 9/16/08 and worked to return the Rig to operational status
until 9/21/08. Apache charged the joint interest $833,834 for
these costs as identified in Exhibit B attached hereto and
incorporated herein . . . (“Category 2”).
4. The [well] was spud on 9/24/08.
5. The Rig was utilized by Apache to drill the Well.
6. The Well was plugged and abandoned as a dry hole on October 3,
2008.
7. Apache worked to free the Rig mat buried beneath the sea floor
from 10/04/08 through 10/20/08.
8. Charges billed by Apache to the joint interest while working to
free the Rig mat buried beneath the ocean floor from 10/04/08
through 10/20/08 total $2,204,988.97 (“Category 3”). Category 3
costs are identified on Exhibit A attached hereto and incorporated
herein.
9. Total Hurricane IKE related charges for Category 1 through
Category 3 billed by Apache to the joint interest, and which are
the basis of its claims in this case, are $3,839,061. Kilgore’s
fifteen percent allocation of this amount is $575,859. These
7
charges are summarized on Table 1 attached hereto and
incorporated herein.
10. Apache and Kilgore stipulate and agree that these stipulations of
fact are binding on the parties for all evidentiary purposes and
that none of these costs must be proved at trial.
Kilgore then filed a summary-judgment motion challenging Apache’s
breach-of-contract claim. Kilgore asserted that the PA, and not the OOA,
governed the parties’ dispute, “the only ‘estimated’ cost in the Final AFE [was] the
cost of plugging the well,” the “Final AFE” constituted “the ‘final’ amount to be
paid for the Required Well,” Apache’s expenses attributable to Hurricane Ike were
unrelated to the cost of plugging the well, “[n]either the PA nor the AFE addressed
such costs,” and “Apache has no evidence of any agreement with Kilgore to pay
such costs.”
Apache responded, asserting that the Final AFE clause upon which Kilgore
relies “unambiguously states” that the Final AFE is for “‘estimated’ dry hole
costs,” “the term ‘Final AFE’ simply means that the Final AFE was the last pre-
drilling AFE issued to Kilgore, not that it capped Kilgore’s liability for additional
costs,” and “the AFE itself is entitled, ‘Drilling AFE Estimate of Costs and
Authorization for Expenditures.’” Apache further asserted that “No one would
prepare an AFE with estimated costs of a hurricane, since a hurricane could not
have been predicted at the time of preparation of the AFE.” The trial court did not
rule on Kilgore’s summary-judgment motion.
8
Apache then moved for a “Rule 166[4] Pre-Trial Ruling Construing
Unambiguous Contract Provisions,” seeking “pre-trial rulings on matters of law to
aid in the disposition of the case.” It agreed that the PA “is the governing
document,” and it asserted that the PA’s terms are “unambiguous” and should be
construed as a matter of law. Specifically, section one of the PA “makes it clear”
that Kilgore is “obligated to pay 15% of the costs of a dry hole,” and section three
of the PA and the Final AFE “clearly state” that the Final AFE is an “estimate” of
the dry hole costs. Apache sought a ruling that it was not required to seek
supplemental authorization for the storm-related expenditures and Kilgore’s share
was “not capped at the Final AFE amount.” Kilgore responded, asserting that the
PA is ambiguous with respect to the term “Final AFE.” Apache replied, asserting
that section three makes clear that the Final AFE is an estimate and section fifteen
“reinforces that the parties share all expenses.”
The trial court granted Apache’s motion “in its entirety,” ruling that the PA
“governs each party’s payment for its share of the costs of drilling the Required
Well,” “does not cap Kilgore’s share of costs to drill the Required Well [at]
Kilgore’s share of the Final AFE,” and Apache was not required to provide
supplemental AFEs regarding the storm-related costs. The trial court noted that the
case would be tried to a jury and it would instruct the jury accordingly. The parties
4
See TEX. R. CIV. P. 166.
9
then executed a stipulation regarding the damages calculation to be applied at trial,
including an offset for Kilgore’s prior payment of $91,559.
At trial, Brian Ayers, a vice president of geoscience at Kilgore, testified that
Kilgore “agreed to do what the [PA] says,” but did not expect to be billed after the
Final AFE. Frank Legros, a senior drilling engineering advisor at Apache, testified
that weather-related costs are not included in AFEs because there is no way to
predict and quantify such costs. And he noted that the Final AFE in this case was
prepared and executed in July 2008, two months before Hurricane Ike. And Kirk
Kuykendall, a senior land advisor at Apache, testified that Apache advised Kilgore
in the drilling reports furnished each day about the costs being incurred. The
parties also presented extensive testimony on the issue of Apache’s gross
negligence in taking delivery of the rig days before Hurricane Ike.
Kilgore then moved for a directed verdict on Apache’s breach-of-contract
claim, asserting that there is no evidence that (1) either the PA or the Final AFE
included the charges for which Apache was seeking payment or (2) other charges
could be assessed after the Final AFE. The trial court denied the motion, stating
that the Final AFE was “not the final tally of any and all sums that could ever be
due.” Apache argued that because it was undisputed that Kilgore had not paid
those charges, the only matter to be submitted to the jury was whether Apache had
been grossly negligent in taking delivery of the rig.
10
Kilgore submitted proposed jury questions on the issues of whether it had
agreed in the PA to pay fifteen percent of the stipulated Hurricane-Ike related
charges and had failed to comply with the PA; whether any such failure to comply
was excused by a prior breach by Apache; and whether Apache had breached the
PA. The trial court rejected Kilgore’s proposed questions and submitted only a
question on the issue of whether Apache was grossly negligent in taking delivery
of the rig. And the jury found that Apache was not grossly negligent in taking
delivery of the rig.
Kilgore then filed its motion for JNOV, arguing that because Apache had not
submitted any issues to the jury on its breach-of-contract claim, it therefore had
“waived its sole cause of action.” And it asserted that Apache’s claim was not
supported by the pleadings or the evidence.
The trial court denied Kilgore’s motion for JNOV, and it entered a judgment
that, “[b]ased on the jury’s findings, the evidence presented at trial, and the
stipulation between the parties as to the calculation of damages,” Apache recover
from Kilgore actual damages in the amount of $444,237 on its breach-of-contract
claim. And it ordered that Kilgore take nothing on its claims.
Pleadings
In its first issue, Kilgore argues that the trial court erred in denying its
motion for JNOV and granting judgment for Apache because the judgment is not
11
supported by the pleadings. Kilgore asserts that “Apache’s sole pleaded cause of
action was for breach of contract based on Kilgore’s alleged failure to pay certain
JIBs [joint interest billings]”; “[t]here is simply no procedure in the [PA] for the
issuance of additional billings nor any requirement for payment of such”; and the
trial court’s judgment is based on the PA, “which does not obligate Kilgore to pay
JIBS.”
A trial court’s judgment must “conform to the pleadings, the nature of the
case proved and the verdict, if any, and shall be so framed as to give the party all
the relief to which [it] may be entitled either in law or equity.” TEX. R. CIV. P.
301. A trial court may not grant relief on a theory of recovery not sufficiently
stated in the party’s pleadings or tried by consent. Stoner v. Thompson, 578
S.W.2d 679, 682–83 (Tex. 1979); Eun Bok Lee v. Ho Chang Lee, 411 S.W.3d 95,
106 (Tex. App.—Houston [1st Dist.] 2013, no pet.).
In its first amended petition, Apache alleges, in pertinent part, as follows:
IV. Claims for Relief
A. Breach of Agreement
10. . . . . Kilgore agreed to pay Apache for Kilgore’s
share of the expenses related to drilling a well on
the block. These expenses are known as joint
interest billings. Kilgore owes Apache joint
interest billings in the amount of $444,237.43 for
Kilgore’s share of the drilling of the well, which
have remained unpaid.
12
Apache asserts that “[f]rom the outset of this case, Kilgore has understood that
Apache’s claims were based on the [PA].” Apache notes that Kilgore, in its
summary-judgment motion, asserted, “Although Apache does not specify which
agreement, the PA is the only agreement that applies to the costs for which Apache
is suing.” Apache explains that the term “‘joint interest billings’ simply means
‘expenses’ incurred in a joint project; it is not a term of art or limited to the billings
under the OOA.” Indeed, the term “joint interest billing” is a “term commonly
used in the oil and gas industry to refer to a statement periodically submitted by the
operator to the working interest owners to obtain payment of their proportionate
share of a lease’s operating expenses.” C.K. Oil Props., Inc. v. Hrubetz Operating
Co., No. 11-99-00066-CV, 2002 WL 32344609, at *14 (Tex. App.—Eastland Apr.
25, 2002, no pet.) (not designated for publication).
Here, the PA provides, in its preliminary recitals and section one, that
Kilgore and Apache each “agree[d] to participate in and bear its respective share of
costs and expenses” associated with the drilling of the well and “drilling
operations.” And section fifteen provides that the parties broadly agreed to “share
and assume their respective prorata shares, . . . of any and all claims, losses, and
expenses (including without limitation all costs, demands, damages, suits,
judgments, fines, penalties, liabilities, debts, attorneys’ fees, costs of defense, and
causes of action of whatsoever nature or character, whether known or unknown,
13
and including without limitation, claims, losses and expenses for property
damage . . .) directly or indirectly arising out of or related to [Apache’s] . . .
operations . . . hereunder.” (Emphasis added.) The parties also stipulated that the
expenses at issue constitute “charges billed by Apache to the joint interest.”
(Emphasis added.)
Kilgore asserts that Apache “pleaded a cause of action for damages that
exist, if at all, only via the OOA,” which the parties agreed does not apply. It
asserts the PA itself “recognizes that any billing beyond the Final AFE would be
covered under the OOA” in the “Default Notice” provision at section 5, as follows:
If any non-operator Participant fails to pay its share of an advance
billing for an approved AFE, other than the Final AFE, as provided
for in the OOA, Operator shall provide such Participant a default
notice . . .
(Emphasis added.) Nothing in the emphasized language, however, restricts any
and all billings beyond the Final AFE to the OOA. The Final AFE itself states that
it is an “Estimate of Costs.”
We conclude that Apache’s pleading stated a breach-of-contract claim under
the PA. Accordingly, we hold that the trial court did not err in denying Kilgore’s
motion for JNOV and granting judgment for Apache on this point.
We overrule Kilgore’s first issue.
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Jury Issues
In its second issue, Kilgore argues that the trial court erred in granting
judgment for Apache because it “waived its sole pleaded cause of action by failing
to submit jury issues on any element of its breach of contract claim.”
It is well-settled that “[a]ll independent grounds of recovery . . . not
conclusively established under the evidence and no element of which is submitted
or requested are waived.” TEX. R. CIV. P. 279. If the evidence conclusively
establishes the elements of a claim, it is established as a matter of law and may be
part of the judgment, “even if no jury question on the claim was submitted.” Bank
of Tex. v. VR Elec., Inc., 276 S.W.3d 671, 677 (Tex. App.—Houston [1st Dist.]
2008, pet. denied) (citing City of Keller v. Wilson, 168 S.W.3d 802, 814–15 (Tex.
2005) (noting “[j]urors are not free to reach a verdict contrary to [the] evidence”)).
The elements of a breach-of-contract claim are (1) the existence of a valid
contract; (2) performance or tendered performance by the plaintiff; (3) breach by
the defendant; and (4) damages as a result of breach. Id. In construing a written
contract, the primary concern is to ascertain and give effect to the parties’
intentions as expressed in the document. Frost Nat’l Bank v. L & F Distribs., Ltd.,
165 S.W.3d 310, 311–12 (Tex. 2005). We consider the entire writing and attempt
to harmonize and give effect to all the provisions of the contract by analyzing the
provisions with reference to the whole agreement. Id. at 312. No single provision
15
is given controlling effect. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 229
(Tex. 2003).
If, after the pertinent rules of construction are applied, the contract can be
given a definite or certain legal meaning, it is unambiguous, and we construe it as a
matter of law. Frost Nat’l Bank, 165 S.W.3d at 312. However, if the meaning of
the contract remains uncertain or is susceptible to more than one reasonable
interpretation, it is ambiguous. Nat’l Union Fire Ins. Co. v. CBI Indus., Inc., 907
S.W.2d 517, 520 (Tex. 1995); Coker v. Coker, 650 S.W.2d 391, 393–94 (Tex.
1983). Whether a contract is ambiguous is a question of law to be determined “by
looking at the contract as a whole in light of the circumstances present when the
contract was entered.” Coker, 650 S.W.2d at 394. A court may conclude that a
contract is ambiguous even in the absence of such a pleading by either party. Sage
St. Assocs. v. Northdale Constr. Co., 863 S.W.2d 438, 445 (Tex. 1993). A simple
lack of clarity or disagreement between parties does not render a term ambiguous.
See DeWitt County Elec. Coop., Inc. v. Parks, 1 S.W.3d 96, 100 (Tex. 1999).
Here, the parties do not dispute that the PA is a valid contract. See Bank of
Tex., 276 S.W.3d at 677. Rather, they dispute whether the terms of the PA require
Kilgore to pay fifteen percent of the storm-related expenses. The PA, in its
preliminary recitals and section one, provides that Apache and Kilgore agreed to
“conduct drilling operations of the [well] pursuant to the terms and conditions set
16
forth” and each would “participate in and bear its respective share of costs and
expenses associated with the timely drilling of the [well].” And the PA assesses
fifteen percent of the costs and expenses to Kilgore. Thus, Kilgore expressly
agreed to bear fifteen percent of the costs and expenses associated with the drilling
of the well and drilling operations. See Coker, 650 S.W.2d at 394 (“In
harmonizing . . . provisions, terms stated earlier in an agreement must be favored
over subsequent terms.”).
Pursuant to section three of the PA, the parties agreed that, “prior to
commencement of operations,” Apache was to provide Kilgore with a Final AFE
and “an advance billing for [Kilgore’s] share of the estimated dry hole cost.” In
interpreting a contract, we give common words their plain meaning unless the
context indicates the words were used in another sense. Lesikar v. Moon, 237
S.W.3d 361, 367 (Tex. App.—Houston [14th Dist.] 2007, pet. denied). An
“estimate” is “an approximate judgment” or “calculation.” OXFORD ENGLISH
DICTIONARY, 867 (Oxford Univ. Press, 6th ed., 2007). Thus, prior to drilling,
Apache provided Kilgore with an approximation of the costs to be incurred.
Nothing in the terms “advance” and “estimate” suggests that Apache intended to
waive any and all further expenses. See Frost Nat’l Bank, 165 S.W.3d at 312
(noting we construe contracts “from a utilitarian standpoint bearing in mind the
17
particular business activity sought to be served” and “will avoid when possible . . .
a construction which is unreasonable, inequitable, and oppressive”).
Finally, in section fifteen of the PA, the parties agreed that each would be
bear its respective share of “any and all . . . expenses (including without limitation
all costs . . . whether known or unknown . . .) directly or indirectly arising out of or
related to [Apache’s] . . . operations,” absent gross negligence by Apache.
(Emphasis added.) See id. at 311–12 (noting entire writing must be considered in
attempting to harmonize and give effect to all provisions of contract).
When, as here, after the pertinent rules of construction are applied, an
agreement can be given a definite or certain legal meaning, it is unambiguous, and
we construe it as a matter of law. See Frost Nat’l Bank, 165 S.W.3d at 312; see
also Coker, 650 S.W.2d at 394 (noting determination of whether contract is
ambiguous is question of law). We conclude that the PA is not ambiguous and
obligates Kilgore to pay its share of “any and all” costs and expenses associated
with the drilling of the well and drilling operations, including the storm-related
expenses. Because the evidence conclusively establishes this element, submission
of a jury question on this issue was not required. See City of Keller, 168 S.W.3d at
814–15; Bank of Tex., 276 S.W.3d at 677.
Also, determining whether a party has breached a contract is a question of
law for a trial court, rather than a question of fact for a jury, when the facts of the
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parties’ conduct are undisputed or conclusively established. Grohman v. Kahlig,
318 S.W.3d 882, 887 (Tex. 2010); May v. Ticor Title Ins., 422 S.W.3d 93, 100
(Tex. App.—Houston [14th Dist.] 2014, no pet.); Lafarge Corp. v. Wolff, Inc., 977
S.W.2d 181, 186 (Tex. App.—Austin 1998, pet. denied) (“Where the evidence is
undisputed regarding a party’s conduct under a contract, the judge alone must
determine whether it shows performance or breach of its contract obligation.”).
Here, it is undisputed that Kilgore did not tender payment under the PA for its
fifteen percent share of the storm-related expenses.
Further, the parties stipulated to the total expenses that Apache billed to “the
joint interest” and how damages were to be calculated at trial. The parties agreed
that the total amount incurred by the joint interest was $7,049,440, of which
$3,839,061 was for storm-related expenses. And the parties stipulated that
Kilgore’s share of the storm-related expenses was $575,859, as billed, less an
offset of $91,559 for its prior payment. “A stipulation serves as proof on an issue
that otherwise would be tried,” is “conclusive on the issue addressed,” and estops
the parties from claiming to the contrary. Houston Lighting & Power Co. v. City of
Wharton, 101 S.W.3d 633, 641 (Tex. App.—Houston [1st Dist.] 2003, pet.
denied).
Finally, although the parties disputed whether Apache performed under the
PA, in that Kilgore asserted that Apache was grossly negligent in taking possession
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of the drilling rig in the face of Hurricane Ike, the matter was tried to the jury, who
returned a verdict in favor of Apache. See Bank of Tex., 276 S.W.3d at 677. And
Kilgore does not challenge the jury’s gross-negligence finding.
Thus, Apache conclusively proved the elements of its breach-of-contract
claim, subject to whether it acted with gross negligence in its performance, which
the jury answered in favor of Apache. See id. There being no further factual
disputes, we hold that Apache was not required to submit questions on these
elements to the jury to support its breach-of-contract claim. See City of Keller, 168
S.W.3d at 814–15; Bank of Tex., 276 S.W.3d at 677.
We overrule Kilgore’s second issue.
Attorney’s Fees
In its third issue, Kilgore argues that the trial court erred in not awarding it
attorney’s fees because it “is the prevailing party and is entitled to recover its
attorneys’ fees under both the [PA] and under Section 37.009 of the Civil Practice
and Remedies Code.” See TEX. CIV. PRAC. & REM. CODE ANN. § 37.009 (Vernon
2008). Kilgore asserts that recovery of its $402,599.81 in attorneys’ fees and
expenses “would be equitable and just in this case.”
Having concluded above, however, that Apache did not, as Kilgore asserts,
waive its breach-of-contract claim, Kilgore did not prevail and is not entitled to
20
attorney’s fees. Thus, the trial court did not err in not awarding Kilgore attorneys’
fees under the PA.
In regard to section 37.009, a trial court, in a declaratory judgment action,
“may award costs and reasonable and necessary attorney’s fees as are equitable
and just.” Id. In its amended answer, Kilgore sought a judgment declaring that its
liability to Apache is “controlled entirely by the PA and [was] limited to the
amount it paid Apache under the Final AFE.” Kilgore asserts that “one of its
arguments in [its] motion for summary judgment was that the [PA] was the only
contract governing this dispute.” Kilgore further argues that because Apache
“conceded” in its motion that the PA controls Kilgore’s payment obligations to
Apache, Kilgore prevailed on this issue and is entitled to attorney’s fees.
The statute provides that a trial court “may award costs and reasonable
attorney’s fees as are equitable and just.” Id. (emphasis added). Thus, it was
within the trial court’s discretion as to whether to award attorney’s fees to Kilgore.
It is undisputed, however, that the trial court did not rule on Kilgore’s summary-
judgment motion. Moreover, in its response to Kilgore’s summary-judgment
motion, Apache itself quoted the PA in support of its argument. Thus, Kilgore has
not demonstrated that this was a contested issue. Accordingly, we hold that the
trial court acted within its discretion in not awarding Kilgore attorney’s fees on its
declaratory-judgment action. See id.
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We overrule Kilgore’s third issue.
Conclusion
We affirm the judgment of the trial court.
Terry Jennings
Justice
Panel consists of Justices Jennings and Higley. 5
5
The Honorable Jim Sharp, former Justice of this Court, was a member of the panel
and present for argument when this case was submitted. Because his term expired
on December 31, 2014, he did not participate in the decision of the case. See TEX.
R. APP. P. 41.1(b).
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