Petrohawk Properties, L.P., and P-H Energy, L.L.C. v. Noel Diane Jones , 455 S.W.3d 753 ( 2015 )

In The
Court of Appeals
Sixth Appellate District of Texas at Texarkana
No. 06-14-00003-CV
PETROHAWK PROPERTIES, L.P.,
AND P-H ENERGY, L.L.C., Appellants
V.
NOEL DIANE JONES, ET AL., Appellees
On Appeal from the 71st District Court
Harrison County, Texas
Trial Court No. 11-0849
Before Morriss, C.J., Moseley and Carter,* JJ.
Opinion by Justice Moseley
___________________
*Jack Carter, Justice, Retired, Sitting by Assignment
OPINION
I. Background
In 2008, oil and gas companies descended on east Texas and Louisiana seeking to acquire
leases to exploit the Haynesville Shale formation, which they viewed as having enormous
potential. The atmosphere created by these companies was described as “unreal,” “a land rush,”
and comparable to a gold rush. David Deffenbaugh, Petrohawk Properties, L.P.’s, vice president
of land—midcontinent at the time, testified that in his thirty years in the industry, he had never
seen bonus prices and activity accelerate as quickly as it did during the Haynesville Shale
heyday.
To identify mineral interests that were available to lease, it was necessary to employ
landmen to conduct title searches in the local county clerks’ offices. In Harrison County, the
clerk’s office was overwhelmed with 80–100 landmen, causing the deputy clerks to limit the
time each landman could use the office computers. This made it almost impossible to finish the
title searches in a timely fashion.
During this time, Petrohawk 1 was in heated competition with other companies to acquire
acreage in the Haynesville Shale; because of the contests among the oil companies to acquire
leases, the lease bonuses 2 shot up from around $200.00 per acre to a high of $30,000.00 per acre.
Petrohawk engaged in an aggressive leasing program, seeking to gain leases as quickly as
possible in what its land manager, John Walsh, described as “a short . . . window of time.”
1
Appellants are collectively referred to as Petrohawk.
2
“Bonus” is a term applied to the consideration paid for a lease of the oil and gas mineral estate over and above the
royalty. State Nat’l Bank of Corpus Christi v. Morgan, 143 S.W.2d 757, 760 (Tex. 1940).
2
Petrohawk hired RWT Land Services (RWT) to identify mineral interests in the Haynesville
Shale formation available to lease; research the titles to the mineral interests; and identify any
title defects, liens, or other encumbrances associated with those interests. The landman in charge
of the project for RWT was Brent Chadwick. One way to acquire leases of substantial acreage in
the shortest period of time was to identify landowners having large quantities of mineral interests
in the Haynesville Shale stratum that were not subject to prior leases. RWT identified the
Appellees and their family members 3 (collectively, the Family) as owning substantial available
mineral interests. 4
Negotiations began in June 2008 between the Family and RWT, acting on behalf of
Petrohawk, for Petrohawk to lease the Family’s available mineral interests. As negotiations
progressed, Petrohawk’s executive vice president, Steve Herod, became directly involved in
finalizing the contract. The Family was willing to enter into a lease for an amount that was not
the highest price per acre being paid by some other oil companies so long as the lessee would
agree to lease every “open” mineral interest in the area (i.e., all of the minerals in which the
Haynesville Shale depth stratum was not subject to a prior lease) held by the Family. Petrohawk
and the Family entered into the “Agreement to Lease Oil and Gas Mineral Interests” (the
Agreement) on July 11, 2008.
3
There were twenty-four family ownership interests (including individuals, trusts, partnerships and estates). Only
twelve are Appellees in this case.
4
Appellees and their family members are descendants of either T.P. Smith or T.C. Lindsey, who were partners in a
Harrison County general store in the early 1900s called the “Smith & Lindsey” store. Local landowners trading at
the store at times traded interests in land, including mineral interests, in lieu of cash, resulting in the acquisition of
mineral rights by the Family in approximately 100 tracts scattered around Harrison County.
3
The Agreement provided that Petrohawk, within specified limitations, would lease all of
the Family’s unleased mineral interests situated east of Highway 59 in Harrison County, Texas
(including, but not limited to, an extensive list of properties attached as Exhibit A to the
contract), provided that the interests included rights in the Haynesville Shale stratum and, if
unleased, the Bossier Shale stratum. 5 The Agreement provided for the “Closing” of the sale of
the leasehold estates to take place on August 15, 2008, when the Family members, as applicable,
would “execute and deliver” to Petrohawk counterpart oil and gas leases for each separate tract
in a form to be agreed upon by the parties. It provided that Petrohawk would pay the Family
$23,500.00 per net mineral acre lease bonus for each net mineral acre that the Family delivered
free and clear of Title Defects. The term “title defects” was defined to mean any matter that
would cause the title to the properties to fail to qualify as “defensible title,” a term defined in the
contract as
title that: (i) is customarily accepted in oil and gas property purchase
transactions; (ii) that [sic] is free and clear from liens and encumbrances that
would reduce, impair or prevent Petrohawk from receiving payment from the
purchasers of production, and (iii) the title to the properties comprising the
Subject Interests includes all rights in the Haynesville Shale and rights owned by
Lessors in the Bossier Shale.[6]
5
Walsh testified that Petrohawk’s primary focus was acquiring rights in the Haynesville Shale and, secondarily, the
Bossier Shale. The Haynesville Shale lies beneath the Bossier Shale. The Bossier Shale lies beneath the Cotton
Valley formation and begins at its base. At times, the Bossier Shale has been considered part of the Cotton Valley
formation. Petrohawk, as well as other companies, owned leases with producing oil and/or gas wells (producing
leases) in the Cotton Valley and Bossier Shales. Since there are a number of formations that may contain oil and/or
gas, many of the producing leases in Harrison County, including leases of some of the Family’s mineral interests,
contain vertical Pugh clauses that would release the mineral interests beneath the deepest producing formation or, in
some instances, all interests more than 100 feet below the deepest perforation of the producing well. As a result,
some of the Family’s mineral interests in the upper Bossier Shale were held by producing wells in either the Cotton
Valley or Bossier Shale.
6
Hereafter, the mineral interests that meet the Agreement’s specifications of unleased mineral interests east of
Highway 59 in Harrison County without title defects (as defined in the Agreement) will be referred to as “qualifying
4
It also limited Petrohawk’s obligation to lease to not more than 8,500 net mineral acres. In
addition, the Agreement provided that Petrohawk would place $10,000,000.00 in escrow, which
was to be applied to the purchase price at the closing. If the Family was unable to deliver oil and
gas leases without title defects and having a net mineral acreage lease value that exceeded
$10,000,000.00, or if Petrohawk and the Family did not agree to a lease form, then Petrohawk
could terminate the Agreement without further liability, and the escrow would be returned to
Petrohawk. On the other hand, if the Family delivered conforming leases with sufficient acreage
and a lease value exceeding $10,000,000.00 and a lease form was agreed upon but Petrohawk
refused to close the transaction, the escrow would be forfeited to the Family as liquidated
damages.
Under the Agreement, the Family agreed to make their lease and title files, and any other
information or documents they possessed, available to Petrohawk. Petrohawk agreed to keep the
Family informed of the results of its title examination and give them the opportunity to cure any
title defects in the tracts that were discovered in the search. Petrohawk agreed to notify the
Family of any title defects not later than five days before closing. If the Family was unable to
cure the title defects before closing, then it was given thirty days to cure any remaining title
defects. At that time, the Family could execute additional leases covering those interests, and
Petrohawk would pay the same $23,500.00 per acre lease bonus as with the other tracts.
At the time the Agreement was signed, Petrohawk did not know precisely the gross
amount of the Family’s mineral interests that were going to be available to be leased. However,
mineral interests.”
5
it knew before the Agreement was signed that the Family had at least 4,800 mineral acres that
may be available to lease. Petrohawk’s Herod testified that his understanding was that
Petrohawk would be leasing all of the net mineral acres that the Family owned east of
Highway 59 in Harrison County that included the Haynesville Shale and that was unencumbered
by a previous lease.
After the Agreement was signed, RWT began conducting due diligence regarding titles
on behalf of Petrohawk, locating mineral interests owned by the Family covered by the
Agreement, determining the interest owned by each member of the Family, reporting its results
to Petrohawk, and preparing property descriptions (Exhibit A’s) for each lease. As the title
search work progressed, RWT’s Chadwick kept the Family informed of the results of the title
examination made by it on behalf of Petrohawk. Walsh testified that Petrohawk did not expect
the Family to—nor was the Family obligated to—conduct its own title examination. If the
Family had presented leases at the closing covering mineral interests that RWT and Petrohawk
had not previously determined to have defensible title, Petrohawk would have rejected those
leases. Herod testified that it is customary in the industry for companies like Petrohawk to verify
mineral ownership and to prepare the leases for execution, which is what it did in this instance.
He also testified that in accord with the Agreement, Petrohawk relied solely on its own title
examination and due diligence (as conducted for it by RWT) to determine whether there was
defensible title to the interests it was going to lease from the Family. The only leases of
qualifying mineral interests that Petrohawk would accept were ones that RWT selected and
Petrohawk approved.
6
As the August 15 closing date approached, it became apparent that RWT and Petrohawk
would not have the title work finished on all of the properties. In view of this obstacle,
Petrohawk requested an extension of the closing to August 27 to allow more time to complete
title work (at least on some of the mineral interests), with a second “clean up” closing on
September 17. The Family agreed to that extension. David Elkouri, Petrohawk’s general
counsel, sent an email on August 13 to other Petrohawk executives and RWT confirming this
agreement. On or about August 27, leases covering thirty tracts and containing approximately
2,200 mineral acres were executed by the Family and Petrohawk, and Petrohawk paid the Family
over $51,000,000.00, including some $31,000,000.00 going to Appellees. At the August 27
closing, Petrohawk and the Family agreed to release the $10,000,000.00 escrow deposit and
include it in the amount paid by Petrohawk.
Before and after the August 27 closing, Petrohawk instructed RWT to continue its work
identifying and verifying other mineral interests of the Family within the area set out in the
Agreement in preparation for the September closing. Chadwick communicated the results of
RWT’s title search to Petrohawk and identified the interests proposed to be carried over to the
September closing without any objection from Petrohawk. Members of the Family and Ned
Hartline (one of the attorneys representing them in the transaction) testified that Petrohawk and
Chadwick told them any properties not included in the closing of August 27 would be carried
over to the September closing for closing at that time. As with the first closing, difficulty in
verifying title caused the second closing to be postponed until October 9, with a third, final
closing to be conducted on November 6. Herod stayed in contact with RWT to keep abreast of
7
the number of additional mineral acres to be closed on October 9 and on November 6 and to
make sure that the Family agreed on the “acreage splits” among them. In late September,
Petrohawk asked that the October 9 closing be moved up to October 8. As late as October 6,
internal emails indicate that Petrohawk expected to close on the leases of the additional acreage.
RWT prepared a list of properties for the October 8 closing showing those interests in which the
Family had defensible title, totaling about 1,211 net mineral acres. RWT also prepared and
forwarded to the Family Exhibit A property descriptions to be attached to the leases to be
delivered at the October 8 closing. Then, on October 7, Petrohawk sent an email to the Family’s
attorney that stated, in part,
Due to the unprecedented uncertainty in the capital markets, we are not in a
position to close at this time. When we discussed the second closing we had no
idea we would be faced with these extraordinary circumstances. We hope your
clients understand and we would be happy to revisit this acreage when things get
back nearer to normal. It has been a pleasure working with you and your clients
and we look forward to an excellent relationship in the future.
The Family sought clarification from Petrohawk regarding when it would be able to close, but
without success. By the end of October, Petrohawk took the position that the Agreement was
closed on August 29 as to all acreage that had defensible title and that the Family had thirty days
from that date to cure any title defects, which they did not do. Therefore, according to
Petrohawk’s communication, it believed that it had no further obligations to the Family under the
Agreement. The undisputed testimony was that Petrohawk never notified the Family of any
purported title defects.
The Family filed suit alleging Petrohawk had breached the Agreement and seeking either
damages or specific performance. During the course of litigation, twelve family members settled
8
with Petrohawk, and Appellees proceeded to trial. At trial, the jury found, inter alia, that
Petrohawk breached the Agreement and awarded damages and attorney fees to the Appellees.
Appellees elected to accept the damages award, reserving their right to specific performance
should the damages be overturned, and a judgment was entered on the jury verdict for damages
totaling $12,389,089.05, attorney fees totaling $4,220,000.00, and post-judgment interest.
Subsequently, Appellees volunteered to remit $912,767.98, which was then ordered by the court.
On appeal, Petrohawk asserts error based on (1) its allegation that the statute of frauds
bars recovery under the changed agreement, (2) its claim of the legal insufficiency of evidence to
support the jury findings, including its findings of liability and damages, (3) its position that the
jury charge was in error, and (4) its claim that the award of attorney fees was in error. Since we
find that (1) the statute of frauds does not bar enforcement of the parties’ modification to the
Agreement, (2) there is sufficient evidence to support the jury’s liability and damages findings,
and (3) there was no harmful error in the jury instructions, we affirm those portions of the trial
court’s judgment. Because we are unable to perform a factual sufficiency analysis concerning
the attorney fees award, we reverse and remand the issue of attorney fees for a new trial.
II. Analysis
A. Statute of Frauds
1. Standard of Review
“Whether an agreement falls within the statute of frauds is a question of law.” Sterrett v.
Jacobs, 118 S.W.3d 877, 879 (Tex. App.—Texarkana 2003, pet. denied); Frost Nat’l Bank v.
Burge, 29 S.W.3d 580, 594 (Tex. App.—Houston [14th Dist.] 2000, no pet.). “A question of law
9
is subject to a de novo review.” Dixon v. Amoco Prod. Co., 150 S.W.3d 191, 194 (Tex. App.—
Tyler 2004, pet. denied).
The statute of frauds applies to oil and gas leases and contracts to acquire the same.
Noxon v. Cockburn, 147 S.W.2d 872 (Tex. Civ. App.—Galveston 1941, writ ref’d). When an
agreement is subject to the statute of frauds, it is not enforceable unless the “agreement, or a
memorandum of it, is (1) in writing; and (2) signed by the person to be charged with the promise
or agreement or by someone lawfully authorized to sign for him.” TEX. BUS. & COM. CODE
ANN. § 26.01(a) (West 2009). Further, the “statute of frauds requires that a memorandum of an
agreement . . . must be complete within itself in every material detail and contain all of the
essential elements of the agreement so that the contract can be ascertained from the writings
without resorting to oral testimony.” Sterrett, 118 S.W.3d at 879–80. Whether the writings are
sufficient to satisfy the statute of frauds is a question of law. See Bright & Co. v. Holbein Family
Mineral Trust, 995 S.W.2d 742 (Tex. App.—San Antonio 1999, pet. denied).
Generally, any modification to an agreement subject to the statute of frauds must also be
in writing. See Dracopoulas v. Rachal, 411 S.W.2d 719, 721 (Tex. 1967). However, when there
is an alleged modification to the original agreement, to satisfy the statute of frauds, the
“modification . . . need not restate all the essential terms of the original agreement.” BACM
2001-1 San Felipe Rd. Ltd. P’ship v. Trafalgar Holdings I, Ltd., 218 S.W.3d 137, 145–46 (Tex.
App.—Houston [14th Dist.] 2007, pet. denied). Since a modification only alters those terms of
the original agreement to which it refers, it leaves intact those unmentioned portions of the
original agreement that are not inconsistent with the modification. Id. at 146; see also
10
Boudreaux Civic Ass’n v. Cox, 882 S.W.2d 543, 547–48 (Tex. App.—Houston [1st Dist.] 1994,
no writ). Further, “‘[o]ne writing may be connected with another either expressly or by
necessary inference because of internal evidence of the subject matter and occasion, that is, that
they relate to the same transaction.’” Preston Exploration Co., L.P. v. GSF, L.L.C., 669 F.3d
518, 524 (5th Cir. 2012) (quoting Oliver v. Corzelius, 215 S.W.2d 231, 237 (Tex. Civ. App.—
El Paso 1948), rev’d on other grounds, 220 S.W.2d 632 (Tex. 1949)).
There are exceptions to the rule that any modification must be in writing to be
enforceable. If the modification to the agreement is not a material one, then an oral modification
may be enforceable. Under certain circumstances, an oral agreement to extend the time of
performance of a contract required to be in writing is enforceable, if the oral agreement is made
before the written contract expires. Dracopoulas, 411 S.W.2d at 722. “Moreover, such an
extension of time for performance may be implied as well as express . . . .” Triton Commercial
Props., Ltd. v. Norwest Bank Tex., N.A., 1 S.W.3d 814, 818 (Tex. App.—Corpus Christi 1999,
pet. denied). However, an oral extension of time to perform is enforceable only if it does not
materially alter the underlying written contract. Vendig v. Traylor, 604 S.W.2d 424, 427 (Tex.
Civ. App.—Dallas 1980, writ ref’d n.r.e.). When the extension of time changes other contractual
rights and duties, it materially affects the written contract and must itself be in writing. Id.; see
Dracopoulas, 411 S.W.2d at 722. In other words, “where the terms of the extension differ so
much as to make the modification an entirely new contract, the oral modification is
unenforceable under the Statute of Frauds.” Vendig, 604 S.W.2d at 427. But, when the
extension of time to perform “has no such collateral effects on other rights under the underlying
11
written contract, the exception applies to allow oral modification.” Triton Commercial Props.,
Ltd., 1 S.W.3d at 818. In considering whether there was an oral agreement to extend the time for
performance, the parties’ behavior may be considered as evidence of the agreement. Joiner v.
Elrod, 716 S.W.2d 606, 610 (Tex. App.—Corpus Christi 1986, no writ).
In order to determine whether a modification is material, we must determine the intent of
the parties as expressed in the underlying contract. See Dracopoulas, 411 S.W.2d at 722 (oral
extension of real estate listing contract for indefinite period materially affected other rights and
duties); Triton Commercial Props., Ltd., 1 S.W.3d at 818–19 (oral extension of time to execute
option in real estate contract had no collateral effect on other contractual rights). In construing a
written contract, our primary concern is to ascertain the intentions of the parties as expressed in
the instrument. Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 662 (Tex. 2005); Craig
Sessions, M.D., P.A. v. TH Healthcare, Ltd., 412 S.W.3d 738, 742 (Tex. App.—Texarkana 2013,
no pet.). A contract term is given its plain and ordinary meaning unless the instrument indicates
a different meaning is intended by the parties. Dynegy Midstream Servs., Ltd. P’ship v. Apache
Corp., 294 S.W.3d 164, 168 (Tex. 2009); Craig Sessions, M.D., P.A., 412 S.W.3d at 742. The
construction of an unambiguous contract is a question of law which we review de novo. Tawes
v. Barnes, 340 S.W.3d 419, 425 (Tex. 2011). When the contract is unambiguous, “the
instrument alone will be deemed to express the intention of the parties for it is objective, not
subjective, intent that controls. Generally the parties to an instrument intend every clause to
have some effect and in some measure to evidence their agreement.” City of Pinehurst v.
Spooner Addition Water Co., 432 S.W.2d 515, 518 (Tex. 1968) (citations omitted). “A contract
12
is not ambiguous simply because the parties disagree over its meaning.” 7 Apache Corp., 294
S.W.3d at 168. Rather, only when “‘its meaning is uncertain and doubtful or is reasonably
susceptible to more than one interpretation’” is a contract deemed ambiguous. Craig Sessions,
M.D., P.A., 412 S.W.3d at 743 (quoting Heritage Res., Inc. v. NationsBank, 939 S.W.2d 118,
121 (Tex. 1996)). Further, when construing a contract, a court is “to take the wording of the
instrument, consider the same in the light of the surrounding circumstances, and apply the
pertinent rules of construction thereto and thus settle the meaning of the contract.” City of
Pinehurst, 432 S.W.2d at 519.
2. The Extension/Second Closing Was Not a Material Alteration of the
Agreement
In this case, Appellees argued below and secured jury findings to the effect that
Appellees and Petrohawk had, before the original closing date, agreed to extend the closing to
August 27, 2008, and then, prior to August 27, agreed to conduct two closings, the second to be
held on September 17, 2008. 8 Petrohawk does not contest that the original closing was extended
from August 15 to August 27. While denying the existence of any agreement to conduct two
closings, Petrohawk argues that any such agreement was not enforceable because it was a
material alteration of the Agreement and, therefore, is unenforceable under the statute of frauds.
Petrohawk argues that the written Agreement contemplates only one closing, one at which
Petrohawk would have the option of either accepting the leases executed and delivered by the
Family or forfeiting its $10,000,000.00 escrow deposit as liquidated damages. Since the escrow
7
Neither party in this case has contended that the Agreement is ambiguous.
8
The Family also secured a jury finding that the second closing was extended until October 9, 2008.
13
deposit was applied to the purchase of the leases at the August 27 closing, this “walk away”
option was not available in any subsequent closings. Petrohawk claims that a multiple closing
modification would have deprived it of the right to know “all” that it was asked to lease before
exercising this “walk away” option. This, according to Petrohawk, would have required it to
accept whatever leases the Family presented “sight unseen” and subjected Petrohawk to
“unlimited and indeterminate liability.”
In support of its argument that the second closing modification was material, Petrohawk
cites Dracopoulas, taking the position that it has “analogous facts.” However, Dracopoulas
involved the alleged oral modification of a real estate listing agreement in which the real estate
agent claimed that there was an oral agreement to extend the agreement for an indefinite period
of time. In examining the listing agreement, the Texas Supreme Court noted that an indefinite
extension of the contract would render the termination date indefinite. This, in turn, would have
substantially affected other rights and duties of the parties, including the duty to pay and the right
to receive a commission on a sale if the sale was made to a prospective purchaser whom the
agent had shown the property within ninety days after the termination date of the listing
agreement. An indefinite extension of the agreement would have destroyed the agent’s duty to
identify those persons and erased the seller’s protection from paying commissions on sales to
certain persons made more than ninety days after the termination date. Dracopoulas, 411
S.W.2d at 722. In the case under consideration here, although there was no indefinite extension
14
of the Agreement contemplated, 9 we still must examine the Agreement to determine whether
other rights and duties of the parties were materially affected.
In order to weigh Petrohawk’s assertions, we must examine the intent of the parties as
expressed in the Agreement and in light of the surrounding circumstances to determine what
affect, if any, a second closing would have on Petrohawk’s obligations. See, e.g., Dracopoulas,
411 S.W.2d at 722; Triton Commercial Props., Ltd., 1 S.W.3d at 818–19. As previously noted,
the Agreement contains specific limitations regarding the quality of the titles to the properties
Petrohawk would be obligated to lease. Under the Agreement, Petrohawk agreed to accept only
those leases covering mineral interests that (1) were owned by the Family, (2) were located east
of Highway 59 in Harrison County, (3) included interests in the Haynesville Shale and, if
unleased, the Bossier Shale, (4) possessed defensible title, and (5) in total, did not exceed a
maximum of 8,500 net mineral acres. Further, the Agreement indicates that Petrohawk would be
performing title examinations on the Family’s mineral interests, providing the Family the results
of the title examination, and notifying the Family, at least five days before closing, of any title
defects which Petrohawk alleged existed on the property. At trial, Herod acknowledged that it is
the custom in the industry for the oil and gas company to verify mineral ownership, identify title
defects, and prepare the leases for execution, and that Petrohawk did so in this case.
9
Petrohawk asserts as proof that the modification was for an indefinite extension that the Family expected it to
accept, sight unseen, the Family’s demand and tender, after suit had been filed, of leases covering thirty-four tracts,
fourteen of which Petrohawk claimed no one knew existed as of October 2008, citing the testimony of the Family’s
trial attorney, Harwell. However, an examination of Harwell’s testimony shows he clearly denied this contention.
The post-suit tender appears to be an attempt by the Family to show they were willing and able to perform, even at
that late date. Appellees did not contend at trial that the time for the second closing extended indefinitely. Further,
if the Family had tendered leases for tracts that would not be qualifying mineral acres under the Agreement,
Petrohawk would clearly have had no obligation to accept them.
15
Petrohawk’s Walsh testified that Petrohawk would not accept leases tendered by the Family
covering mineral interests that RWT (as the representative of Petrohawk) had not determined had
defensible title. Appellees neither made a claim at trial, nor do they claim on appeal, that the
second closing operated to change these obligations in any way. By performing its due
diligence, as contemplated by the Agreement, Petrohawk was in the position to determine what
mineral interests of the Family it was obligated to lease (irrespective of whether this was
achieved at one closing or at multiple closings). All parties testified at trial that delays in
performing this due diligence was the reason for the original extension from the original closing
date of August 15 to August 27. Testimony of the Family and RWT’s Chadwick, as well as
emails originating from Petrohawk officers, also attribute these delays in title examinations as
the reason for the proposed second, and possibly third, closing. Thus, under the Agreement,
Petrohawk’s lease obligations were neither unlimited, nor indeterminate, nor unseen. 10
Regarding the $10,000,000.00 escrow deposit, the Agreement provides,
Such Escrow Deposit shall be applied against the price specified in paragraph 3 at
the Closing. In the event: (i) Lessors are unable to deliver without Title Defects
oil and gas leases covering the Interests that have a net mineral acreage lease
value that exceeds $10,000,000.00; or (ii) Petrohawk and Lessors do not agree
upon the lease form for the leases to be executed pursuant to this Agreement by
the Lease Approval Date; Petrohawk may, at its option, terminate this Agreement
at any time on or before the Closing, without liability, and the Escrow Deposit
shall be returned to Petrohawk and neither party shall have any further obligation
to each other arising out of this Agreement. In the event that Lessors are able to
comply with and satisfy all of the conditions set forth in the preceding sentence
and Petrohawk refuses to close this transaction, the Escrow Deposit shall be
10
Of the twenty-eight tracts which the jury found that Petrohawk had refused to lease, twenty are listed on Exhibit A
to the Agreement, another six are possibly listed (with discrepancies as to number of acres), and two are not listed.
Of the eight possibly listed or not listed on Exhibit A, six are included on the list of tracts prepared for the second
closing.
16
forfeited to Lessors as liquidated damages, which liquidated damages shall be the
sole and exclusive remedy of Lessors against Petrohawk.
Petrohawk asks us to concentrate solely on the last half of the last sentence to find that a
second closing would necessarily deprive it of its “walk-away option” and, thus, its limitation of
damages. However, we must examine the entire Agreement and give effect to each provision so
that none is rendered meaningless. See Craig Sessions, M.D., P.A., 412 S.W.3d at 745. When
examining the Agreement, all of its provisions will be considered in light of the Agreement as a
whole and no single provision will be given controlling effect. See id.
The Agreement expresses the parties’ intent to lease all of the Family’s mineral interests
east of Highway 59 in Harrison County, subject to the restrictions previously noted. Petrohawk’s
Herod testified that this was his understanding from the beginning. It is undisputed that at the
time the Agreement was signed, neither Petrohawk nor the Family knew exactly how many
mineral acres the Family owned. Because of the substantial amount of lease bonus being
invested and the intense competition from other companies to lease the Family’s interests, the
Agreement reflects several clauses designed to protect both Petrohawk and the Family. In
addition to specific restrictions on what kind of mineral acres would qualify, the Agreement
limited the maximum amount Petrohawk was required to lease to 8,500 net mineral acres. On
the other end, if the Family did not own sufficient unleased net mineral acres to have a lease
value exceeding $10,000,000.00, Petrohawk could walk away without liability, and the escrow
deposit would be returned to it. Further, paragraph 7 of the Agreement protected Petrohawk by
prohibiting the Family from “seek[ing], solicit[ing], encourage[ing] or entertain[ing] any
proposals or offers from any third party with respect to the leasing” of the mineral interests that
17
were subject to the Agreement until the earlier of (i) the closing or (ii) abandonment of the
transaction.
By contrast, there are only two clauses that protected the Family and ensured it that
Petrohawk would either honor its agreement to lease all of the Family’s qualifying mineral
interests or forfeit its $10,000,000.00 escrow deposit. The first clause gave the parties a specific
date to approve a lease form, after which the Family, at its option, could terminate the
Agreement. It is undisputed that Petrohawk and the Family approved a lease form and the
Family did not exercise this option. The form of the lease was not a subject of controversy here.
The other clause is located in paragraph 6, which also contains Petrohawk’s walk-away
option and resulting limitation of damages. This clause contains a condition precedent that, if
met, requires Petrohawk to choose whether to go through with the Agreement or forfeit the
escrow. The clause states that if the Family is “able to comply with and satisfy all of the
conditions set forth in the preceding sentence and Petrohawk refuses to close this transaction, the
Escrow Deposit shall be forfeited to Lessors as liquidated damages . . . .” Thus, this clause not
only protected Petrohawk by limiting its damages if it decided to walk away, it compensated the
Family for removing their mineral interests from the market at a time when bonus prices were
skyrocketing. 11 Had Petrohawk simply decided to lease none of the Family’s property, the
$10,000,000.00 would have been paid to the Family for having given Petrohawk the exclusive
option during the term of the Agreement to purchase the leases. Although the conditions in the
preceding sentence are stated in the negative, they require the Family to deliver “without Title
11
Petrohawk’s land manager, Walsh, testified that in 2008, lease bonuses for the Haynesville Shale ran up from
$150.00 to a high of $30,000.00 per mineral acre and that this clause was “a safety net for both sides.”
18
Defects oil and gas leases covering the Interests that have a net mineral acreage lease value that
exceeds $10,000,000.00” and for Petrohawk and the Family to agree upon the lease form. It is
undisputed that as of August 27, both of these conditions were satisfied by the Family. The
evidence at trial also showed that both Petrohawk and the Family knew before August 27 that the
conditions would be fulfilled at the August 27 closing, but that there remained a significant
number of unleased mineral acres owned by the Family on which Petrohawk was still performing
its due diligence and which would be held over to a second closing. 12 Under these facts, an oral
agreement to hold a second closing on the additional qualifying mineral interests made before the
August 27 closing would have no effect on Petrohawk’s rights under this clause since it could
still refuse to close at the August 27 closing and forfeit the $10,000,000.00 as liquidated damages
or, alternatively, as the cost for obtaining the exclusive option to lease during the term of the
Agreement. Rather than do this, Petrohawk chose to fulfill its obligations under the Agreement
by accepting the leases tendered at the August 27 closing and applying the $10,000,000.00 to the
purchase price, as provided in the Agreement. Thus, it was not the modification that caused the
liquidated damages clause to become a nullity after the first closing, but rather, Petrohawk’s
partial performance of its obligations under the Agreement.
In its reply brief and at oral argument, Petrohawk asserted that two cases originally cited
in Appellees’ brief supported their contention that the modification agreement caused the
liquidated damages provision to become a nullity and, thus, amounted to a material modification
12
RWT landman Chadwick testified that before August 27, he had identified and notified Petrohawk officers of at
least twelve additional tracts totaling over 800 acres that were to be carried over to the second closing.
19
of the written contract. See Logue v. Seven-Hot Springs Corp., 926 F.2d 722 (8th Cir. 1991);
Mott v. Graves, No. 02A01-9410-CH-00244, 1995 WL 755926 (Tenn. Ct. App. Dec. 20, 1995)
(not designated for publication). 13 Logue involved an original agreement to purchase a forty-
acre tract. The purchase agreement contained a standard escrow deposit provision providing that
the escrow deposit ($5,000.00) would be liquidated damages paid to the seller if the buyer did
not perform and that it would be applied to the purchase price if he did perform. A later
amendment to the contract split the tract into three parcels and provided for three separate
closing dates. Logue, 926 F.2d at 723. The parties closed on the first parcel and applied the
escrow deposit to the purchase price. After closing on the second parcel, the buyer notified the
seller it would not close on the third parcel and tendered a check for $5,000.00 as “liquidated
damages.” Id. at 723–24. In holding that the purchaser was obligated for the full contract
amount, the Eighth Circuit Court of Appeals noted that once the escrow deposit was applied to
the purchase price of the first parcel, there was nothing left to be used as liquidated damages in
the future. The court pointed out that the division of the property, “coupled with buyer’s partial
performance in purchasing two of those parcels, nullified the liquidated damages clause of the
original agreement.” Id. at 724 (emphasis added). The Tennessee Court of Appeals in Mott also
held that up until buyer’s partial performance, the liquidated damages provision was still
available. As in this case, it was the partial performance of the buyer in Mott that nullified the
provision, not the modification of the contract. See Mott, 1995 WL 755926, at *3.
13
Neither of these cases provides precedent this Court must follow.
20
Petrohawk also argues that when a plaintiff asserts that the defendant’s prior breach of an
oral modification of an agreement subject to the statute of frauds excuses the plaintiff’s
performance under the agreement, then the modification is material and must be in writing, citing
SP Terrace, L.P. v. Meritage Homes of Texas, LLC, 334 S.W.3d 275, 283 (Tex. App.—Houston
[1st Dist.] 2010, no pet.); Walker v. Tafralian, 107 S.W.3d 665, 670 (Tex. App.—Fort Worth
2003, pet. denied); and King v. Texacally Joint Venture, 690 S.W.2d 618, 620 (Tex. App.—
Austin 1985, writ ref’d n.r.e.). In examining these cases, we note that this proposition was first
set forth in King by the Austin Court of Appeals, with no analysis or citation to any supporting
authority. King, 690 S.W.2d at 620. In that case, the proposition appears to be dictum and a
rebuke of the party refusing to honor its obligation, who was attempting to offensively use the
doctrine of excuse for nonperformance against an innocent party. Id. The Fort Worth court then
employs the proposition as if it were a rule of law, citing King, as does the Houston court, citing
both Walker and King. Neither of these later cases provides any analysis of how the subject
modifications would have changed the obligations and rights of the parties or substantially
altered the original agreements. SP Terrace, L.P., 334 S.W.3d at 283; Walker, 107 S.W.3d at
670. The materiality of an oral modification does not depend on the parties’ reliance on the
modification, but rather on whether it changes the obligations and rights of the parties or
substantially alters the original agreement. Dracopoulas, 411 S.W.2d at 722; Triton Commercial
Props., Ltd., 1 S.W.3d at 818; Vendig, 604 S.W.2d at 427. Therefore, we decline to follow our
sister courts of appeal on this issue.
21
We find that the oral modification to conduct multiple closings neither changed the
obligations and rights of the parties under the Agreement nor substantially altered the Agreement
itself. Therefore, the modification was not material, the modification was not required to be in
writing, and enforcement of the modification is not barred by the statute of frauds. We overrule
this point of error. 14
B. Evidentiary Sufficiency
1. Standard of Review
In determining legal sufficiency, the appellate court determines “whether the evidence at
trial would enable reasonable and fair-minded people to reach the verdict under review.” City of
Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005); Basley v. Adoni Holdings, LLC, 373 S.W.3d
577, 582 (Tex. App.—Texarkana 2012, no pet.). In looking at the evidence, we credit favorable
evidence if a reasonable jury could and disregard contrary evidence unless a reasonable jury
could not. City of Keller, 168 S.W.3d at 827. The evidence is legally insufficient if (1) there is a
complete absence of evidence of a vital fact; (2) the rules of law or of evidence bar the court
from giving weight to the only evidence offered to prove a vital fact; (3) there is no more than a
mere scintilla of evidence offered to prove a vital fact; or (4) the opposite of the vital fact is
conclusively established by the evidence. Jelinek v. Casas, 328 S.W.3d 526, 532 (Tex. 2010).
More than a scintilla of evidence exists when the evidence reaches a level enabling reasonable
and fair-minded people to differ in their conclusions. Merrell Dow Pharms., Inc. v. Havner, 953
S.W.2d 706, 711 (Tex. 1997). “Less than a scintilla of evidence exists when the evidence is ‘so
14
Since we find that the modification was not required to be in writing, we do not address Petrohawk’s argument that
there was not a sufficient writing to satisfy the statute of frauds.
22
weak as to do no more than create a mere surmise or suspicion’ of a fact.” King Ranch, Inc. v.
Chapman, 118 S.W.3d 742, 751 (Tex. 2003) (quoting Kindred v. Con/Chem, Inc., 650 S.W.2d
61, 63 (Tex. 1983)).
2. There is Sufficient Evidence to Support the Jury’s Answer to
Question 2.
Petrohawk asserts that there was legally insufficient evidence to support the jury’s
finding in favor of Appellees in regard to Question 2. Question 2 asks, “Prior to August 27,
2008[,] did Petrohawk and Plaintiffs agree to conduct two closings, the second closing to be on
September 17, 2008, for all of Plaintiffs’ Properties not leased at the August 27, 2008[,]
closing?” It also contains a definition of the term “Plaintiffs’ Properties” as “Plaintiffs’ unleased
mineral interests east of Highway 59 in Harrison County, Texas, including but not limited to
those certain properties listed on Exhibit ‘A’ attached to the July 11, 2008[,] contract, provided
that they include rights in the Haynesville Shale.”
Petrohawk correctly asserts that in considering the sufficiency of the evidence to support
the jury’s answers, we are limited by what the charge actually says. See Osterberg v. Peca, 12
S.W.3d 31, 55 (Tex. 2000). Question 2 asks prior to August 27, 2008, (1) did the Plaintiffs and
Petrohawk agree to conduct two closings, the second closing to be on September 17, 2009,
(2) for all of Plaintiffs’ Properties not leased at the August 27, 2008, closing. This question
essentially inquires whether there has been an agreement between the parties to modify the
Agreement. A modification only alters those terms of the original agreement to which it refers
and leaves intact those other provisions of the original agreement that are not inconsistent with it.
Trafalgar Holdings I, Ltd., 218 S.W.3d at 146. Terms not addressed in the modification may be
23
supplied by the original agreement. Id. Further, in considering whether there has been an oral
modification of the Agreement, the parties’ behavior may be considered as evidence of the
agreement. See Joiner, 716 S.W.2d at 610.
In Question 2, the trial court looked to the Agreement to supply the definition of the term
“Plaintiffs’ Properties.” The Agreement also provides the obligation of Petrohawk to lease all of
the Family’s qualifying mineral interests, and, by implication, that Petrohawk would lease the
remainder of Plaintiffs’ Properties. The parties all testified that the determination of qualifying
mineral interests was an ongoing process, and the reason that only part of the Family’s qualifying
mineral interests were closed on August 27 was that Petrohawk was still performing its due
diligence title research. As discussed above, before August 27, Petrohawk’s landman had
already identified at least 800 additional mineral acres that would be held over to the second
closing and continued to identify and verify title to and keep Petrohawk informed of additional
acreage as the second closing approached. In addition, as also noted above, Petrohawk’s Herod
testified that his understanding was that Petrohawk would lease all of the Family’s qualifying
mineral interests. Thus, there is sufficient evidence to support the second part of Question 2.
There is also evidence that both Petrohawk and Appellees agreed to a second closing on
September 17. First, there is an August 13, 2008, email from Petrohawk’s vice president and
general counsel, David Elkouri, to other Petrohawk officers. This email states that Elkouri has
talked with the Family’s attorney and that “[w]e have an agreement on all major points . . . . This
deal is going to close on the 27th on everything that we can verify title on. We will have a
second (clean up closing) on September 17th.” The email contains the typed signature block of
24
“David S. Elkouri, Executive Vice President, General Counsel & Secretary, Petrohawk Energy
Corporation.” There is no dispute that he sent the email. The email reflects an agreement to
have two closings, one August 27 and a second September 17. Ned Hartline, one of the Family’s
attorneys, confirmed that this email accurately reflected the parties’ agreement. In addition, each
of the Appellees who testified affirmed either that they agreed to the two closings or that Kim
Schrivener and Hartline had authority to agree on their behalf. Schrivener also testified that
Hartline had authority to agree to the extension and two closings and that the agreement to have
two closings as stated in Elkouri’s email was consistent with his authority.
Hartline confirmed that the statement regarding two closings was consistent with the
conduct of all the parties after August 13. Chadwick, Petrohawk’s contract landman, testified
that the instructions he received from Petrohawk and his communications with Petrohawk were
consistent with an agreement to hold two closings, the second to be on September 17. He
testified that Petrohawk instructed him to continue his work identifying and verifying other
mineral interests owned by the Family within the area set out in the Agreement in preparation for
the September closing. He communicated his results to Petrohawk, and his proposed interests
were to be carried over to the September closing without any objection from Petrohawk. His
spreadsheet of properties to be closed on August 27 also includes properties that he had
identified to be held over to the second closing, those containing over 800 net mineral acres.
Thus, there was sufficient evidence for a reasonable and fair-minded jury to answer
Question 2 in the affirmative. Although there was some testimony to the contrary, it was not
conclusively established. The credibility of the witnesses and the weight to be given their
25
testimony is the sole province of the jury, and an appellate court cannot impose its opinions to
the contrary. City of Keller, 168 S.W.3d at 819. We overrule this point of error.
3. There is Sufficient Evidence to Support the Jury’s Answer to Question 9
Petrohawk also asserts that there was legally insufficient evidence to support the jury’s
answer to Question 9. 15 Its insufficiency claim is premised on its claim that two instructions
under Question 9 were erroneous. Although Petrohawk made timely objections to the
instructions at trial, it offered no alternative instructions. Since it objected at trial, if the
instructions are erroneous, then whether there is legally sufficient evidence to support the jury’s
answer finding that Petrohawk failed to perform the July 11, 2008, contract must be judged not
by the charge that was given, but by the charge that should have been given. See St. Joseph
Hosp. v. Wolff, 94 S.W.3d 513, 530 (Tex. 2002).
15
Question 9 reads as follows:
Did Petrohawk fail to perform the July 11, 2008[,] contract by not leasing Plaintiffs’
unleased Haynesville shale mineral acreage in the following tracts? Please answer “Yes” or “No”
as to each tract listed below.
In answering this question, you shall consider the closing date of the July 11, 2008[,]
contract to be extended or waived, if and only if and to the extent that you have so found in your
answer to Questions 1, 2, 3, 4 or 5.
You are instructed that the sentence in paragraph 2 of the July 11, 2008[,] contract
reading: “At the Closing, the applicable Lessors will execute and deliver to Petrohawk, Oil and
Gas Leases leasing each separate tract” does not alter or limit the contract’s requirement in
paragraph 3 reading: “The Leases will include and the Lease Bonus will be paid on all of Lessors’
mineral interests under those properties in the Subject Area with Defensible Title.”
You are also instructed that the July 11, 2008[,] contract’s language in paragraph 3(iii)
reading: “the title to the properties comprising the Subject Interests includes all rights in the
Haynesville Shale and rights owned by Lessors in the Bossier Shale” does not require the Lessors
to own 100% of the gross Haynesville Shale mineral acreage on the tract.
(There then follows a chart listing thirty-two individual tracts identified by survey name, acreage, and RWT ID No.,
to which the jury could answer “Yes” or “No” for each tract.)
26
a. Standard of Review
A trial court is required to give “such instructions and definitions as shall be proper to
enable the jury to render a verdict.” TEX. R. CIV. P. 277. “An instruction is proper if it
(1) assists the jury, (2) accurately states the law, and (3) finds support in the pleadings and
evidence.” Columbia Rio Grande Healthcare, L.P. v. Hawley, 284 S.W.3d 851, 856 (Tex.
2009). Determining what jury instructions are necessary and proper is a matter within the trial
court’s discretion, and our review is to determine if there has been an abuse of that discretion.
Shupe v. Lingafelter, 192 S.W.3d 577, 579 (Tex. 2006) (per curiam). A judgment will not be
reversed for charge error unless the error was harmful because it probably caused the rendition of
an improper verdict or probably prevented the petitioner from properly presenting the case to the
appellate courts. TEX. R. APP. P. 61.1. Generally, if a charge error relates to a contested,
critical issue, it is considered harmful. Hawley, 284 S.W.3d at 856. The error is harmless,
however, “‘when the findings of the jury in answer to other issues are sufficient to support the
judgment.’” Shupe, 192 S.W.3d at 579 (quoting Boatland of Houston, Inc. v. Bailey, 609 S.W.2d
743, 750 (Tex. 1980)); see also City of Brownsville v. Alvarado, 897 S.W.2d 750, 752 (Tex.
1995) (“[A] jury question may be immaterial, and therefore its submission harmless, ‘when its
answer can be found elsewhere in the verdict or when its answer cannot alter the effect of the
verdict.’”).
The proper construction of the Agreement was contested in several pretrial motions. If
the trial court resolves a dispute over the construction of a provision of a contract according to
the rules of construction, it should include that interpretation when submitting the question on
27
failure to comply or perform the contract. See STATE BAR OF TEXAS, TEXAS PATTERN JURY
CHARGES—BUSINESS, CONSUMER, INSURANCE, EMPLOYMENT PJC 101.7 (2012). Although we
do not have the trial court’s specific rulings regarding its interpretation of the contract in the
appellate record, we assume that the instructions accompanying Question 9 are reflective of its
interpretation.
b. Any Error in the Trial Court’s Instruction Regarding the
Delivery of Leases was Harmless
At trial, Petrohawk objected to the following instruction given under Question 9:
You are instructed that the sentence in paragraph 2 of the July 11, 2008[,] contract
reading: “At the Closing, the applicable Lessors will execute and deliver to
Petrohawk, Oil and Gas Leases leasing each separate tract” does not alter or limit
the contract’s requirement in paragraph 3 reading: “The leases will include and
the Lease Bonus will be paid on all of Lessors’ mineral interests under those
properties in the Subject Area with defensible title.”
On appeal, Petrohawk contends that this (1) operated effectively as a directed verdict in
Appellees’ favor that they were not required to deliver leases at closing and that Petrohawk could
be held liable for leasing mineral interests that Petrohawk never knew about or for which
Appellees never delivered a lease and (2) improperly allowed the jury to find breach as well as
an excuse for Appellees’ failure to deliver leases.
We must first determine whether the trial court’s instruction correctly construes these
provisions of the Agreement. Our primary concern is to ascertain the intentions of the parties as
expressed in the instrument. Valence Operating Co., 164 S.W.3d at 662 ; Craig Sessions, M.D.,
P.A., 412 S.W.3d at 742. Contract terms are given “their plain and ordinary meaning unless the
instrument indicates a different meaning” is intended by the parties. Dynegy Midstream Servs.,
28
Ltd. P’ship v. Apache Corp., 294 S.W.3d 164, 168 (Tex. 2009) (citing Heritage Res., Inc. v.
NationsBank, 939 S.W.2d 118, 121 (Tex. 1996)); Craig Sessions, M.D., P.A., 412 S.W.3d at 742.
“Generally the parties to an instrument intend every clause to have some effect and in some
measure to evidence their agreement.” City of Pinehurst, 432 S.W.2d at 518. Further, when
construing a contract, the appellate court is “to take the wording of the instrument, consider the
same in the light of the surrounding circumstances, and apply the pertinent rules of construction
thereto and thus settle the meaning of the contract.” Id. at 519. In addition, although evidence of
custom and trade usage may not be used to contradict an express term, it is “admissible to
explain, supplement, or qualify a term or an agreement.” Craig Sessions, M.D., P.A., 412
S.W.3d at 745–46; see also Lynx Exploration & Prod. Co. v. 4-Sight Operating Co., 891 S.W.2d
785, 789 (Tex. App.—Texarkana 1995, writ denied) (“A valid usage or custom concerning the
subject matter of a contract may be imputed to the parties and incorporated into the contract by
implication.”).
In the Agreement, paragraph 2 provides that “[a]t the Closing, the applicable Lessors will
execute and deliver to Petrohawk, Oil and Gas Leases leasing each separate tract.” Paragraph 3
provides that these leases shall provide for a lease bonus of $23,500.00 for each net mineral acre
“that is delivered by Lessors to Lessee without Title Defects.” The same paragraph defines title
defects as “any matter that would cause the title to the properties to fail to qualify as ‘Defensible
Title.’” It then goes on to provide that the “Leases will include and the Lease Bonus will be paid
on all of Lessors’ mineral interests under those properties . . . with Defensible Title.” Petrohawk
concentrates its construction of the Agreement on these three clauses to conclude that its
29
obligation to pay the lease bonus was only triggered when the Family delivered leases without
title defects. However, that is not the end of our inquiry since there is another clause that
impacts the duties of the parties under the Agreement.
Paragraph 4 provides,
Petrohawk will keep Lessors informed as to the results of its title examination and
provide copies of same to the extent requested by Lessors and afford Lessors the
opportunity to cure Title Defects that may be discovered and disclosed.
Petrohawk shall notify Lessor of any Title Defects not later than five (5) days
before closing and if the Title Defects cannot be cured before closing, then Lessor
shall have thirty (30) days after closing to cure any remaining Title Defects.
(Emphasis added).
Petrohawk contends that paragraph 4 of the Agreement merely gave Petrohawk the right
(not the obligation) to perform title examinations. However, this clause requires Petrohawk to
keep Lessors informed of its results and notify Lessors of any title defect at least five days before
closing. Petrohawk’s construction would render this clause meaningless, since it is only by
performing title examinations that Petrohawk hoped to fulfill these obligations. Further,
Petrohawk’s interpretation is contradicted by the testimony of its officers. Herod testified that it
is customary in the industry for companies like Petrohawk to verify mineral ownership and to
prepare the leases for execution, which is what it did in this instance. He also testified that in
accord with the Agreement, Petrohawk relied solely on its own title examination and due
diligence to determine whether there was defensible title to the interests it was going to lease
from the Family. Walsh testified that the only leases of qualifying mineral interests that
30
Petrohawk would accept were ones that RWT had selected and Petrohawk had approved. 16
Herod’s testimony regarding the custom and usage in the industry is helpful to explain or
supplement the meaning of paragraph 4 and what the parties intended by it. Further, this
evidence is especially appropriate in this instance since the Agreement’s definition of defensible
title includes “title that: (i) is customarily accepted in oil and gas property purchase transactions
. . . .”
Since we assume the parties intended “every clause to have some effect and in some
measure to evidence their agreement,” see City of Pinehurst, 432 S.W.2d at 518, we reject the
construction urged by Petrohawk. Rather, in considering the Agreement in its entirety and the
surrounding circumstances, we find that a proper construction is that the parties intended that
Petrohawk would perform the title examinations, verify those mineral interests that were without
title defects, and keep the Family informed of its results so they could have the opportunity to
cure any title defects Petrohawk identified. At the very least, it contained an implied promise by
Petrohawk to perform the title examination and advise the Family of the mineral interests that
would be acceptable. “[I]f one party makes an express promise that cannot reasonably be
performed absent some type of performance by the other party, courts may imply a return
promise so the dealings of the parties can be construed to mean something rather than nothing at
all.” Mann Frankfort Stein & Lipp Advisors, Inc. v Fielding, 289 S.W.3d 844, 850 (Tex. 2009).
In construing the duties of Petrohawk under paragraph 4 with the other provisions, it
becomes apparent that since only leases for minerals that were without title defects would be
16
At oral argument, Petrohawk’s counsel candidly acknowledged its duty to examine and verify title before leases
could be prepared, executed, and delivered.
31
acceptable, before the Family could execute and deliver leases without title defects, Petrohawk
must first perform a title examination and inform them of the mineral interests that would be
acceptable. Until Petrohawk performed its title examination and advised the Family of the
qualifying mineral interests, the Family could not “execute and deliver” qualifying leases.
“[W]hen it is clear that performance expressly promised by one party is such that it cannot be
accomplished until a second party has first performed, the law will deem the second party to
have impliedly promised to perform the necessary action.” Id. at 851. If Petrohawk failed to
perform its title examination or, having done it, failed to inform the Family of the qualifying
mineral interests, then the Family members would be unable to “execute and deliver” leases
covering minerals without title defects. It follows that Petrohawk cannot fail to perform these
duties, then hide behind the Family’s consequent failure to execute and deliver leases to avoid its
duty to pay the lease bonus on all the Family’s qualifying mineral interests.
The question then becomes whether the trial court’s instruction was erroneous under the
proper construction of the Agreement and, if it was erroneous, whether it was harmful. In its
instruction, the trial court appears to have attempted to convey the proper construction.
However, the instruction was incomplete. The jury should have been instructed that the
Agreement required Petrohawk to perform its title examination to determine the existence of
defensible title before Appellees had a duty to execute and deliver leases and that if Petrohawk
failed or refused to perform the title examination, or, having performed the title examination,
refused to lease qualifying mineral acres, then Appellees’ failure to execute and deliver leases
32
would not relieve Petrohawk of its obligation to pay the lease bonus on the qualifying mineral
interests. Thus, the instruction was erroneous.
The error was, however, harmless, since the jury’s findings on other issues sufficiently
support the judgment. Shupe, 192 S.W.3d at 579. The jury answered three questions in favor of
Appellees that when taken together, demonstrate that the instruction was harmless. First, the
jury found in answer to Question 6 that each Appellee was at all times ready, willing and able to
perform the Agreement. In addition, Question 7 asked the jury whether Petrohawk’s failure to
perform title examinations excused Appellees’ failure to execute and deliver additional leases, a
question which was answered in the affirmative. Finally, Question 8 asked if Appellees’ failure
to execute and deliver additional leases was excused because Petrohawk repudiated its
obligations under the Agreement, which was also answered in the affirmative. Both Questions 7
and 8 contained the following instruction:
In this regard, you are instructed that when performance expressly promised by
Plaintiffs is such that it cannot be accomplished until Petrohawk has first
performed, the law will deem Petrohawk to have impliedly promised to perform
the necessary action.
Petrohawk does not challenge the sufficiency of the evidence to support the jury’s answers to
Questions 6, 7, or 8. The same evidence that supports the jury’s answers to Questions 6, 7, and 8
would support an affirmative answer to Question 9 if it had included the instruction that should
have been given. See St. Joseph Hosp., 94 S.W.3d at 530. Therefore, we find that any error in
this instruction was harmless and that there is sufficient evidence that supports the jury’s answer
to Question 9 with the instruction that should have been given. We overrule this point of error.
33
c. There is no Error in the Instruction Regarding the
Percentage of the Haynesville Shale Ownership Rights
Petrohawk also objected to the following instruction given under Question 9:
You are also instructed that the July 11, 2008[,] contract’s language in
paragraph 3 (iii) reading: “the title to the properties comprising the Subject
Interests includes all rights in the Haynesville Shale and rights owned by Lessors
in the Bossier Shale” does not require the Lessors to own 100% of the gross
Haynesville Shale mineral acreage on a tract.
Once again, we must determine whether the instruction properly construes the
Agreement. Petrohawk concentrates on this single clause in the Agreement and contrasts “all
rights” with “rights owned by Lessors” to conclude that the parties must have intended that “all
rights” means that the Family was required to own 100 percent of the fee mineral estate in the
Haynesville Shale, whereas it could own only a partial mineral estate in the Bossier Shale.
However, this construction conflicts with other provisions in the Agreement that indicate the
parties intended Petrohawk to lease all of the Family’s mineral interests and would render these
provisions meaningless. 17 Rather, we examine the Agreement in its entirety since we presume
the parties “intend every clause to have some effect and in some measure to evidence their
agreement.” City of Pinehurst, 432 S.W.2d at 518. Further, we realize that the Agreement was
not created in a vacuum, so we consider the wording of the Agreement in the light of the
surrounding circumstances, then apply the relevant rules of construction to determine its
meaning. See id. at 519.
17
It also contradicts the testimony of Petrohawk’s Herod, who testified that the Agreement provided that Petrohawk
would lease all of the unleased net mineral acres that the Family owned east of Highway 59 in Harrison County that
included the Haynesville Shale.
34
First, we look to the Agreement itself. There are two clauses pertinent to this analysis.
The first, unnumbered paragraph provides,
This agreement to lease shall include all unleased mineral interests east of
Highway 59 in Harrison County, Texas, including but not limited to those certain
properties listed on the attached Exhibit “A” included within the Subject Area
(“Subject Interests”), provided that such Subject Interests include rights in the
Haynesville Shale. Lessors and [Petrohawk] desire to enter into oil and gas leases
covering the Subject Interests. The parties agree that the Subject Interests shall
include any and all unleased mineral interests owned by Lessors located 100’
below the base of the formation containing the deepest producing perforated
interval in any currently producing oil and/or gas well located on the properties
comprising the Subject Interests, or any lands unitized therewith, but at a
minimum must include the Haynesville Shale and, if unleased, the Bossier Shale
rights thereunder. It is specifically agreed to and understood that the oil and gas
leases covering the Subject Interests to be executed as contemplated herein shall
include all depths, subject to the lease provisions contemplated in paragraph 3
herein, as to those properties within the Subject Interests that are currently
unleased or not currently producing.
(Emphasis added). Paragraph 3 provides,
The Leases shall cover the unleased mineral interests of Lessors in the Subject
Area at a price of $23,500.00 per net mineral acre (“Lease Bonus”) for each net
mineral acre of the Subject Interests that is delivered by Lessors to Lessee without
Title Defects . . . a title defect (“Title Defects”) shall mean any matters that would
cause the title to the properties to fail to qualify as “Defensible Title”. [sic]
Defensible Title shall mean a title that: . . . (iii) the title to the properties
comprising the Subject Interests includes all rights in the Haynesville Shale and
rights owned by Lessors in the Bossier Shale. The Leases will include and the
Lease Bonus will be paid on all of Lessors’ mineral interests under those
properties in the Subject Area with Defensible Title.
(Emphasis added).
In order to determine the parties’ intention, we must construe these two paragraphs
together such that all of the provisions are given effect and none is rendered meaningless. Craig
Sessions, M.D., P.A., 412 S.W.3d at 745. Further, when we consider the circumstances prior to
35
and contemporaneously with the making of the Agreement, the meaning becomes clear, as does
the reason for the use of the differing phrases in paragraph 3(iii). It is undisputed that Petrohawk
and the Family were familiar with the oil and gas production in east Harrison County in 2008,
the effect that pre-existing oil or gas production may have on the availability of mineral rights to
be leased in certain strata, and the location of the relevant geological formations. There were
three geological formations or strata that were of concern: the Cotton Valley, the Bossier Shale,
and the Haynesville Shale. The Haynesville Shale is the deepest of these formations and is
situated beneath the Bossier Shale. The Bossier Shale lies at the base of the Cotton Valley and is
sometimes considered part of the Cotton Valley. Petrohawk had producing wells in the Cotton
Valley formation. Also, some of the Family’s mineral interests were held by oil or gas
production, at least as to the shallower depths, such as the Cotton Valley. Since there are a
number of formations that may contain oil and/or gas, many of the producing leases in Harrison
County (including leases of some of the Family’s mineral interests) contained vertical “Pugh”
clauses that would release the mineral interests beneath the deepest producing formation or, in
some instances, all interests more than 100 feet below the deepest perforation of the producing
well. As a result, for some tracts, the Family’s mineral interests in the upper Bossier Shale were
held by producing wells in either the Cotton Valley or Bossier Shale formations, while their
mineral interests in the lower Bossier Shale under those same tracts would not be held by
production under existing leases. While Petrohawk was primarily focused on leasing
Haynesville Shale mineral interests, it was secondarily interested in the Bossier Shale.
36
Looking back at the Agreement with this in mind, we see in the first paragraph that the
parties intended that Petrohawk would lease all of the Family’s unleased mineral interests in the
subject area as long as those interests included, at a minimum, the Haynesville Shale (its primary
focus), and those depths of the Bossier Shale that were unleased and not held by production (its
secondary focus). They recognized that some of the tracts would be held by producing wells that
contained vertical Pugh clauses so that not all depths of the Bossier Shale would be available to
lease. But they intended that whatever depths of the Bossier Shale were unleased and not held
by production would be included in the Agreement and would be leased by Petrohawk. At the
same time, the Agreement makes clear that the leases must include all the Family’s mineral
interests to all depths of the Haynesville Shale. The last sentence of the first paragraph
emphasizes that the oil and gas leases “shall include all depths, subject to the lease provisions
contemplated in paragraph 3 herein . . . that are currently unleased or not currently producing.”
Paragraph 3 (iii) then requires the leases to include “all rights in the Haynesville Shale and rights
owned by Lessors in the Bossier Shale.” In other words, the leases must include the rights to all
depths in the Haynesville Shale and the rights to all depths currently unleased or currently not
producing owned by the Lessors in the Bossier Shale. This interpretation gives effect to all of
the pertinent provisions of the Agreement and none is rendered meaningless. 18 Craig Sessions,
M.D., P.A., 412 S.W.3d at 745.
18
Although not relevant to our analysis because it reflects on the conduct of the parties, we note that if the
construction Petrohawk now advocates were in fact the initial understanding of the parties, then it would be
expected that Petrohawk would notify the Family of all title defects (which, according to Petrohawk, would include
tracts in which the Family owned less than 100 percent of the mineral acreage in the Haynesville Shale). The
evidence shows that Petrohawk never did this. To the contrary, out of the thirty tracts Petrohawk leased at the
August 27 closing, ten were tracts in which the Family owned less than 100 percent of the mineral acreage.
37
Since the Agreement required Petrohawk to lease all of the Family’s mineral interests
that included the Haynesville Shale and did not require the Family to own 100 percent of the
gross Haynesville Shale mineral acreage on any tract, we find no error in the trial court’s
instruction. Since Petrohawk’s legal insufficiency complaint was premised on this instruction
being erroneous, it has become moot. We overrule this point of error.
4. There is Sufficient Evidence to Support the Jury’s Answers to
Questions 3 and 5
Petrohawk also asserts that there is insufficient evidence to support the jury’s affirmative
answers to Questions 3 and 5. Petrohawk does not state whether its sufficiency challenge is to
the legal sufficiency or the factual sufficiency to support the jury’s answers. Therefore, we will
treat it as a challenge to both. We have previously set forth the standard of review for a legal
insufficiency challenge. When reviewing a jury verdict for factual sufficiency of the evidence,
we consider and weigh all the evidence and only set aside the verdict “if it is so contrary to the
overwhelming weight of the evidence as to be clearly wrong and unjust.” Cain v. Bain, 709
S.W.2d 175, 176 (Tex. 1986) (per curiam). We find that there is sufficient evidence under both
standards to support the jury’s answers.
38
Question 3 asked whether the parties had agreed to extend the September 17, 2008,
closing date to October 9, 2008. Question 5 asked whether Petrohawk had waived Appellees’
compliance with the September 17, 2008, closing date. 19 As noted in SP Terrace, L.P.,
Waiver may result when: (1) a party assents to the other party’s continued
performance without objection to the delay; (2) a party states that it will not
require strict compliance with a deadline or acts such that the other party
reasonably believes strict compliance will not be required; or (3) a party insists on
performance by the other party even after breach of the agreement.
SP Terrace, L.P., 334 S.W.3d at 284; see also Puckett v. Hoover, 202 S.W.2d 209, 211–12 (Tex.
1947) (deadline to close purchase of mineral interest may be waived and evidence of waiver may
be shown by writing, by parole, or from the circumstances or course of dealing); KMI Cont’l
Offshore Prod. Co. v. ACF Petroleum Co., 746 S.W.2d 238, 243 (Tex. App.—Houston [1st
Dist.] 1987, writ denied) (“[A] waiver can occur if a party knowingly possessing the right acts in
such a manner that the party misleads the opposing party into believing that a waiver has
occurred.”).
The evidence showed that as with the first closing, difficulty in verifying title caused the
second closing to be postponed until October 9, with a third, final closing on November 6.
Schrivener testified that she sent a new schedule to Chadwick whereby she proposed the
September 17 closing be postponed until October 9. This schedule was also forwarded to
Petrohawk’s Elkouri and Herod. On September 10, Herod emailed Chadwick asking how he was
19
Question Number 5 states,
Did Petrohawk waive Plaintiffs’ compliance with the September 17, 2008[,] closing date
for the July 11, 2008[,] contract?
Waiver is an intentional surrender of a known right or intentional conduct inconsistent
with claiming the right.
39
“coming on the title DD [due diligence] on the next closing (October 9 I believe) . . . .” Herod
stayed in contact with RWT to keep abreast of the number of additional mineral acres to be
closed on October 9 and the third closing and to make sure the Family agreed on the “acreage
splits.” In late September, Herod asked the Family that the October 9 closing be moved up to
October 8 instead. As late as October 6, internal emails indicated Petrohawk’s expectation of
closing on the additional acreage. RWT prepared a list of properties for the October 8 closing,
showing those mineral interests in which the Family had Defensible Title, totaling about 1,211
net mineral acres. RWT also prepared and forwarded to the Family Exhibit A property
descriptions to be attached to the leases closing on October 8. Although Petrohawk characterizes
these emails as merely evidence of Petrohawk’s continued interest in leasing additional acreage,
it does not point to any evidence contrary to the jury’s answers. Therefore, this evidence would
support an inference by a reasonable jury either that Petrohawk had agreed to extend the
September 17 closing to October 9, or that Petrohawk, by its actions and representations, had
waived Appellees’ compliance with the September 17 closing.
Thus, the weight of the evidence clearly supports the jury’s answers finding that the
parties extended the September 17 closing date to October 9 and that Petrohawk waived
Appellees’ compliance with the September 17 closing date. We overrule this point of error. 20
20
Petrohawk also asserts that the jury’s answers to Questions 3 and 5 should be disregarded as immaterial.
However, its claim of immateriality is based on its arguments challenging Question 2. Since we have found
sufficient evidence to support the jury’s answer to Question 2, Questions 3 and 5 remain material and relevant to the
jury’s verdict. In addition, Petrohawk assails Question 5 as erroneous, arguing that waiver is a defensive theory that
“may not be used to create any contractual right or obligations,” citing Miksch v. Exxon Corp., 979 S.W.2d 700, 707
(Tex. App.—Houston [14th Dist.] 1998, pet. denied) (citing Hruska v. First State Bank of Deanville, 747 S.W.2d
783, 785 (Tex. 1988)). Petrohawk argues that since the Agreement only provides for a single closing, Appellees
cannot rely on waiver to “create” a right to multiple closings. By answering Question 2 in the affirmative, the jury
40
5. There is Legally Sufficient Evidence of Damages
Petrohawk next complains that the evidence of damages is legally insufficient because
Appellees failed to introduce evidence of the market value of the leases as of October 7, 2008.
Question 11 instructs the jury to only consider this measure of damage: “[a]s to each tract that
you answered ‘yes’ in Question 9, the difference between $23,500 per net mineral acre and the
market value of Plaintiffs’ leases on October 7, 2008.” The charge then defines “market value”
as “the amount that would be paid in cash by a willing buyer who desires to buy, but is not
required to buy, to a willing seller who desires to sell, but is under no compulsion to sell.” By its
answers, the jury impliedly found that the leases had no market value as of October 7, 2008.
Petrohawk claims that Appellees proffered no evidence of the market value of the leases as of
that date, attacking the credibility of Appellees’ experts and lay testimony. 21 Appellees’ primary
expert to testify about the damages issue was Curtis Horne, a professional landman with over
thirty years’ experience and extensive involvement in educating other landmen. Horne had also
been on the board of the American Association of Professional Landmen for almost ten years.
He testified that due to the financial crisis and the collapse in the price for natural gas, leasing
activity in East Texas for the Haynesville Shale stratum came to an abrupt halt in October 2008
and dried up almost overnight. He also testified that the lack of capital for such ventures brought
about a situation wherein the only new leasing of oil and gas minerals was due to commitments
found that the parties had agreed to a second closing. Therefore, the contractual right to a second closing was in
existence. Both Hruska and Misksch recognize that waiver is a defensive theory a party may use to preserve
existing rights. Hruska v. First State Bank of Deanville, 747 S.W.2d 783, 785 (Tex. 1988); Miksch, 979 S.W.2d at
707.
21
Petrohawk also attacked the trial court’s use of October 7, 2008, as the relevant date, but failed to preserve this
error by not raising this objection in the trial court.
41
made by the lessees before the crash of the financial markets or due to unit leasing. He further
testified that oil and gas minerals in the ground only have a lease value if there is a market for
leasing them. He opined that, since in October 2008 there was no market for them, Appellees’
leasehold estate in the minerals had no market value. Petrohawk attacks this testimony as being
based on an assumption that “is contrary to the undisputed evidence” that there were other
companies which were attempting to obtain leases of the Family’s mineral interests in October
2008. To bolster its argument, Petrohawk points to an email from Lelia Vaughan to other Family
members on October 27, 2008, in which she identified two companies that had indicated interest
in leasing their minerals and referenced “many, many” other requests.
When the assumption on which an expert’s opinion is based conflicts with undisputed
testimony, then the expert’s testimony lacks any probative value. City of Keller, 168 S.W.3d at
813; Burroughs Wellcome Co. v. Crye, 907 S.W.2d 497, 499–00 (Tex. 1995). However, if there
is conflicting evidence, this rule does not apply, and the expert’s opinion can be considered.
Marvelli v. Alston, 100 S.W.3d 460, 477–78 (Tex. App.—Fort Worth 2003, pet. denied).
Further,
Jurors are the sole judges of the credibility of the witnesses and the weight to give
their testimony. They may choose to believe one witness and disbelieve another.
Reviewing courts cannot impose their own opinions to the contrary.
Most credibility questions are implicit rather than explicit in a jury’s
verdict. Thus, reviewing courts must assume jurors decided all of them in favor
of the verdict if reasonable human beings could do so. Courts reviewing all the
evidence in a light favorable to the verdict thus assume that jurors credited
testimony favorable to the verdict and disbelieved testimony contrary to it.
City of Keller, 168 S.W.3d at 819 (citations omitted).
42
Here, there was conflicting evidence that could support Horne’s testimony. First,
although the existence of Lelia Vaughan’s email is not contested, the email does not mention
when she received the inquiries to which she made reference. 22 Further, an inquiry or request is
not precisely the same as an offer to lease. In addition, in explaining the email, Vaughan
testified that the “many requests” to which she referred was an overstatement and that the Family
did not discuss entering into leases with anyone but Petrohawk. Also, Fort Staggers, vice
president of the bank that was trustee of one of the Appellee interests, testified that there had
been no interest in leasing all of the tracts from October 2008 until trial. In addition,
Petrohawk’s Elkouri testified that “[t]he market had changed dramatically” and that “leasing had
basically come to a halt.” Finally, Horne had conversations with a number of landmen around
October 2008 who confirmed the lack of leasing activity in Harrison County.
When evidence is presented that there is no market for a mineral interest, it will support a
finding by a jury that there is no market value. See Lomax v. Henderson, 559 S.W.2d 466, 468
(Tex. App.—Waco 1977, writ ref’d n.r.e.) (testimony that nonproducing mineral estate had no
market value supported trial court’s finding of no damages). Although the evidence adduced at
trial may be conflicting, it would support Horne’s testimony that there was no market value for
the leases. Since there is more than a scintilla of evidence that supports the jury’s implied
22
In its reply brief, Petrohawk also points to Defendant’s Exhibit 275, an email from Ellen Miller which says she has
received inquiries on several tracts. However, only one of the tracts is involved in this case and, again, there is no
indication of when she received the inquiries.
43
finding of no market value, the evidence is legally sufficient to support the award of damages.
Therefore, we overrule this point of error. 23
6. Petrohawk Waived the Liquidated Damages Provision
Petrohawk also claims that damages should be limited to the $10,000,000.00 liquidated
damages provision in paragraph 6 of the Agreement. We have previously noted that the Family
fulfilled the conditions precedent at the August 27 closing, an event that required Petrohawk to
choose to either go forward with leasing all of the Family’s mineral interests fitting the
description in the contract or forfeit the $10,000,000.00 as liquidated damages. The liquidated
damages provision was a provision that protected Petrohawk in the event that it chose to not
lease any of the Family’s mineral interests. However, a party to a contract can waive provisions
that are to its benefit. Joiner, 716 S.W.2d at 610. Since Petrohawk chose to go forward with
leasing the Family’s mineral interests, it waived the liquidated damages provision.
C. Attorney Fees
1. Petrohawk Failed to Preserve its Section 38.001 Error
Section 38.001 of the Civil Practice and Remedies Code provides that for a claim based
on an oral or written contract, “[a] person may recover reasonable attorney’s fees from an
individual or corporation.” TEX. CIV. PRAC. & REM. CODE ANN. § 38.001(8) (West 2008).
Petrohawk asserts that since the Petrohawk parties are a limited partnership and a limited liability
company, attorney fees are not authorized to be awarded against them, citing Fleming &
Associates, L.L.P. v. Barton, 425 S.W.3d 560 (Tex. App.—Houston [14 Dist.] 2014, pet. filed).
23
Since we affirm the award of damages, we need not address Petrohawk’s complaints regarding specific
performance.
44
However, Petrohawk failed to preserve this claim of error in the trial court. To preserve a
complaint for appellate review, a party must present a timely request, objection, or motion to the
trial court that states the specific grounds for the desired ruling. TEX. R. APP. P. 33.1(a); see
State Dep’t of Highways & Pub. Transp. v. Payne, 838 S.W.2d 235, 241 (Tex. 1992); Holmes v.
Concord Homes, Ltd., 115 S.W.3d 310, 313 (Tex. App.—Texarkana 2003, no pet.). If a party
fails to follow this procedure, error is not preserved. Holmes, 115 S.W.3d at 313.
Although Petrohawk objected to the wording and absence of additional instructions at
the charge conference, it made no such objection based on the unavailability of attorney fees
under Section 38.001. Petrohawk claims that it preserved error in its motion for judgment
non obstante veridicto by objecting that Question 13 (the question dealing with attorney fees)
was immaterial. It reasons that since a complaint that attorney fees are not available under a
statute is an assertion of immateriality, it therefore presents the issue of whether it should be
submitted. Following that reasoning, Petrohawk maintains that an assertion of immateriality
suffices to preserve a complaint that attorney fees are not available under a statute, citing Arkoma
Basin Exploration Co. v. FMF Associates 1990-A, Ltd., 249 S.W.3d 380 (Tex. 2008); Holland v.
Wal-Mart Stores, Inc., 1 S.W.3d 91 (Tex. 1999) (per curiam); Southeastern Pipe Line Co. v.
Tichacek, 997 S.W.2d 166 (Tex. 1999); and Eun Bok Lee v. Ho Chang Lee, 411 S.W.3d 95 (Tex.
App.—Houston [1st Dist.] 2013, no pet.). 24 Holland held that since the issue of whether attorney
fees are available under a particular statute is a question of law, it can be raised for the first time
24
Only Holland is directly relevant to this case. In both Southeastern Pipe Line Co., and Eun Bok Lee, a proper
objection was made at the charge conference. Se. Pipe Line Co., 997 S.W.2d at 172–73; Eun Bok Lee, 411 S.W.3d
at 114–15. In Arkoma Basin Exploration Co., the court held that the assertion in a post-trial motion that “‘there is
no evidence . . . to support the jury’s answers’” to a jury question was sufficient to preserve an insufficiency of
evidence complaint on appeal. Arkoma Basin Exploration Co., 249 S.W.3d at 387.
45
in a post-trial motion. Holland, 1 S.W.3d at 93. However, at trial, Walmart specifically asserted
the unavailability of attorney fees under the subject statute. Id. In contrast, Petrohawk’s motion
for judgment notwithstanding the verdict asserted that the jury’s answer to Question 13 should be
disregarded for two reasons. First, since recovery under Section 38.001 is predicated on
prevailing on its breach of contract claim and since there was insufficient evidence to support the
jury’s findings and a judgment for breach of contract, then attorney fees were not recoverable.
Second, Petrohawk asserted that the exclusive remedy provision in paragraph 6 of the Agreement
barred recovery of attorney fees under Section 38.001. Subsequent to that and at the end of a
paragraph asserting that there is no evidence to support the jury’s findings of the amount of
attorney fees, Petrohawk averred, “Furthermore, the jury’s answers to Question Number 13 are
immaterial and also should be disregarded for that reason.” To preserve error, “an objection
must be clear enough to give the trial court an opportunity to correct it.” Arkoma Basin
Exploration Co., 249 S.W.3d at 387. There is nothing in Petrohawk’s objections to apprise the
trial court that Section 38.001 does not authorize attorney fees to be awarded against partnerships
and limited liability companies or that the immateriality objection is based on that premise.
Rather, a trial court seeing the immateriality objection would naturally relate it back to the two
prior objections. Therefore, Petrohawk failed to preserve its error by failing to state its objection
“with sufficient specificity to make the trial court aware of the complaint.” TEX. R. APP. P.
33.1(a)(1)(A).
46
2. Attorney Fees
Petrohawk also asserts that the jury’s attorney fee award was excessive and not supported
by factually sufficient evidence. The jury awarded Appellees fees of $3,500,000.00 through
trial, $360,000.00 for an appeal to the court of appeals, and $360,000.00 for oral argument and
completion of proceedings in the Texas Supreme Court. Petrohawk claims this award was
excessive on the basis that the amount awarded is more than four times the “lodestar” amount of
attorney fees. 25 See El Apple I, Ltd. v. Olivas, 370 S.W.3d 757, 759 (Tex. 2012).
a. Standard of Review
The determination of the amount of fees that are reasonable and necessary is a question
of fact for the jury. Bocquet v. Herring, 972 S.W.2d 19, 21 (Tex. 1998). Factors to be
considered in determining the amount of reasonable attorney fees include:
(1) the time and labor required, the novelty and difficulty of the questions
involved, and the skill required to perform the legal service properly;
(2) the likelihood . . . that the acceptance of employment precluded other
employment by the lawyer;
(3) the fee customarily charged in the locality for similar legal services;
(4) the amount involved and the results obtained;
(5) the time limitations imposed by the client or by the circumstances;
(6) the nature and length of the professional relationship with the client;
(7) the experience, reputation, and ability of the lawyer performing the
services; and
(8) whether the fee is fixed or contingent on results obtained or uncertainty of
collection before the legal services have been rendered.[26]
25
Appellees’ counsel testified that based on his standard rate and the hours worked, his fee through trial was
$800,000.00, with $200,000.00 in expenses, and estimated his fee, based on hours worked, at $600,000.00 through
the court of appeals and $600,000.00 through the Texas Supreme Court.
26
The jury was instructed to consider these factors in determining a reasonable fee.
47
Arthur Andersen & Co. v. Perry Equip. Corp., 945 S.W.2d 812, 818 (Tex. 1997); TEX.
DISCIPLINARY RULES PROF’L CONDUCT R. 1.04, reprinted in TEX. GOV’T CODE ANN., tit. 2,
subtit. G app. A (West 2005) (TEX. STATE BAR R., art. X, § 9). When reviewing a jury verdict
for factual sufficiency of the evidence, we consider and weigh all the evidence and only set aside
the verdict “if it is so contrary to the overwhelming weight of the evidence as to be clearly wrong
and unjust.” Cain, 709 S.W.2d at 176.
b. Remand is Required as a Result of the Post-Judgment
Remittitur
We do not reach the factual sufficiency question as it relates to the attorney fee award
because remand is required as a result of the remittitur ordered by the trial court and accepted by
Appellees. 27 Young v. Qualls, 223 S.W.3d 312, 314 (Tex. 2007) (per curiam); Barker v.
Eckman, 213 S.W.3d 306, 315 (Tex. 2006). Both Young and Barber involved remittiturs ordered
by a court of appeals that reduced damage awards by sixty-two percent and eighty-five percent,
respectively. Young, 223 S.W.3d at 313; Barker, 213 S.W.3d at 313. In this case, although the
remittitur was much smaller, it prevents us from performing a factual sufficiency analysis. When
conducting a factual sufficiency challenge, we review the evidence based on the jury charge
given. Barker, 213 S.W.3d at 313. As noted, the jury was instructed to use the Arthur Andersen
factors in determining a reasonable attorney fee. See Arthur Andersen, 945 S.W.2d at 818. One
of the factors was “‘the amount involved and the results obtained.’” See id. Faced with a similar
charge, the Texas Supreme Court in Barker held that a factual sufficiency determination was not
possible “unless the appellate court is reasonably certain that the jury was not significantly
27
The trial court ordered remittitur totaling $912,767.00 of the damages assessed, which the Family accepted.
48
influenced by the erroneous amount of damages it considered.” Barker, 213 S.W.3d at 314. In
this case, Appellees’ attorney, in giving his opinion about a reasonable attorney fee, testified that
“the heaviest factor that I would weigh would be a contingency fee factor. And our fee
agreement is that it’s 40 percent through appeal.” When asked about the other factors, he
testified about the risk involved in a contingency fee arrangement and stated, “[T]hat’s why I
weigh the contingent factor the heaviest, but it’s only -- it’s only one of those factors.” The
attorney fees awarded in this case were almost double the amount of the verified and anticipated
attorney fees and expenses based on an hourly fee times the amount of hours spent, and
calculates to an amount slightly over thirty-four percent of the damages awarded by the jury.
Under these facts, we cannot be reasonably certain that the jury was not significantly influenced
by the erroneous damages it awarded. 28 Therefore, a reversal and remand to the trial court for a
new trial on the issue of the reasonable amount of attorney fees is required. Id. at 314–15.
28
We note that the size of the remittitur, although small in comparison to the size of the overall award, is not small.
Accordingly, about thirty-four percent of the remitted sum would likewise still be a considerable amount of money.
49
III. Conclusion
We affirm that part of the trial court’s judgment awarding damages to Appellees for
Petrohawk’s breach of contract. We reverse the part of the trial court’s judgment as to attorney
fees and remand that part of the case to the trial court for further proceedings consistent with this
opinion.
Bailey C. Moseley
Justice
Date Submitted: November 10, 2014
Date Decided: January 14, 2015
50