In Texas, a handshake can be enough to seal a deal, but an email can easily fall short, the Texas Supreme Court said last week.
Striving to “begin to bring certainty” to a developing area of contract law involving terms negotiated via email, the court ruled that an email exchange between prospective buyers and sellers of $230 million in oil and gas leases fell short of an enforceable agreement as a matter of law.
It was the second case in February where the court found that emails had failed to constitute a contract. The earlier case involved a series of emails between an energy company and landowners over pricing and other terms of a pipeline construction easement.
The lease dispute dates to 2012 when Chalker Energy Partners III wanted to sell working interests in 70 leases in three Texas Panhandle counties. Bidders were given access to a virtual data room of information after signing a confidentiality agreement. When a sale was approved under the bidding procedures, Chalker said it would negotiate a definitive purchase-and-sale agreement, or PSA.
Le Norman Operating was competing against another buyer, Jones Energy, to gain 100 percent of the assets. The sellers refused to accept that offer but decided to seek bids for 67 percent of their assets.
Le Norman made an offer of $230 million, which was recommended to the 18 individuals and entities that owned the assets. After they voted to sell, an employee of the financial services firm handling the sale emailed principal David Le Norman that the sellers were “on board to deliver 67% subject to a mutually agreeable PSA.”
Various other emails were exchanged, including one from a seller congratulating a Le Norman private equity investor on “winning the bid.” Jones Energy emailed one of the sellers stating that it had “heard that we lost the deal again.”
Jones Energy, however, was not deterred and made a new offer. Within days the sellers changed horses and elected to sell to Jones Energy.
Le Norman sued Chalker for breach of contract. The sellers counterclaimed and sought damages for Le Norman’s alleged breach of the confidentiality agreement and bid documents. The trial court granted the sellers’ motion, concluding that the PSA was needed for contract formation. It entered a take-nothing judgment and dismissed all claims.
Houston’s First Court of Appeals reversed in 2017. It held that the emails were fact issues precluding summary judgment.
Chief Justice Nathan Hecht, writing for a unanimous court, nodded to the similarity of the fact scenario to the “$10.53 billion handshake” at issue in the famous Texas v. Pennzoil case. While that case involved a verbal deal, sealed by a handshake, the common law recognizes that multiple writings exchanged between parties also can be enforceable, Hecht said.
Email, however, is a distinct form of writing, the court said.
“Email can be a convenient way to reach agreement, but it is also a distinctly conversational, informal medium. Hitting send may be deliberate; it may be hasty,” Hecht said. “And so in this brave new world, or at least this braver new world, we must decide whether an email exchange reflected the meeting of minds required for a contract, given the nature of the transaction and the parties’ expressed contemplations.”
Le Norman argued that the emails raised a fact issue as to whether a definitive agreement existed. The court disagreed, saying that the emails were more akin to a preliminary agreement and that the parties intended for a more formalized agreement, like a PSA, to satisfy the definitive-agreement requirement.
“Indeed, there were still key agreements to be negotiated between Chalker and [Le Norman] before a definitive agreement would exist,” said Hecht. “The parties had yet to agree upon an escrow agreement, a noncompete agreement, or a joint operating agreement.”
Le Norman also argued that the sellers impliedly waived their right to a definitive agreement through their conduct. Again, the court disagreed.
“Chalker and Le Norman’s continued references to execution of a PSA suggest that the parties did not intend to deviate from the bidding procedures and wanted to make clear that a definitive agreement such as a PSA was, in fact, still required for the sale to be consummated,” the court said.
Chalker was represented by Kendyl Hanks and Dale Wainwright of Greenberg Traurig, as well as Womble Bond Dickinson partner Tony Guerino. Le Norman was represented by Jesse Pierce of Pierce & O’Neill.
Read the opinion in Chalker Energy Partners III v. Le Norman Operating.