© 2012 The Texas Lawbook.
By Janet Elliott
Staff Writer for The Texas Lawbook
For a small oil and gas company like Dallas-based Longview Energy, the chance to obtain a lease in the red-hot Eagle Ford Shale was an opportunity that doesn’t come along every day.
So it was a huge disappointment on Jan. 28, 2010 when a promising lease of 46,000 acres was rejected by two of the company’s directors, representatives of The Huff Energy Fund, a New Jersey private equity company that owns 39 percent of Longview.
What Longview did not know is that three days earlier the very same land had been secured by a portfolio group that was 99 percent owned by the equity fund.
That discovery would come later in a search of courthouse records. When the letter of intent was found between the portfolio group and Longview’s broker, it was a “you’ve got to be kidding me” moment, said Longview’s lawyer Craig Florence.
“It’s sort of like if you take one girl to the prom and leave with another, there’s going to be trouble,” said Florence, a partner in Gardere Wynne Sewell.
This month, a South Texas judge awarded Longview Energy the rights to approximately 46,000 leasehold acres in the Eagle Ford Shale, valued at more than $500 million. It is one of the largest judgments ever involving the Eagle Ford play.
The judgment follows a Zavala County jury’s finding that Longview Energy directors Bill Huff and Rick D’Angelo used The Huff Energy Fund portfolio company Riley-Huff Energy Group to breach their fiduciary duty in order to covertly secure the acres that were being explored by Longview Energy.
State District Judge Amado Abascal ordered Riley-Huff to transfer title to Longview within 30 days. Additionally, Huff, D-Angelo, The Huff Energy Fund and its portfolio company must pay Longview Energy $95.5 million for past production minus cost of the lease, plus an estimated $5 million per month in production proceeds earned since the June 2 jury verdict.
Longview was represented by Florence and Randy Gordon, Dallas partners in Gardere Wynne Sewell, along with Mikal Watts and Frank Guerra of San Antonio’s Watts Guerra Craft.
Florence said the directors, who remain on Longview’s board, should have disclosed their interest or resigned from the board.
“It really is about corporate fidelity,” he said. “It’s not a complicated concept to get your arms around. What the judge has done is simply restore to Longview what should have been Longview’s in the first place.”
The defendants were represented by Dean Fleming, senior counsel in the San Antonio office of Fulbright & Jaworski.
Bryan Bloom, in-house counsel for The Huff Companies, said that they “intend to vigorously appeal and look forward to having an independent and learned appellate court review the case and correctly apply the law.”
“The jury’s verdict valued property and production revenues at $162 million and also found that the cost of acquisition and development was $151.5 million,” said Bloom. “Thus, any judgment should not be in excess of $10.5 million. This can be ascertained from a simple reading of the jury verdict form.
Bloom said the evidence “shows that Riley-Huff Energy Group was leasing acreage in the Eagle Ford before Longview ever even discussed the Eagle Ford and that the idea of investing in the Eagle Ford was brought to Longview by Huff and D’Angelo, not vice versa. ” He added that “Longview management never satisfied the due diligence requirements for investing in the Eagle Ford, and never recommended leasing any specific Eagle Ford acreage to the Longview Board.”
“The trial court’s judgment is simply not reflected by the jury verdict, the facts of the case, or the law,” he said. “Given the history of judgments in South Texas, it is not altogether unexpected.”
The saga began in 2006 when Huff Energy bought a 39 percent stake in Longview, and named Huff and D’Angelo to serve on Longview’s board. According to court records, the two encouraged Longview Energy to explore the Eagle Ford, which was just beginning to become an active location for shale drilling.
Florence said that major oil companies were buying up much of the property and Longview Energy, which was drilling in Oklahoma and California, was excited to find a broker with available leases.
“Everybody at Longview was enthusiastic about this and it ended up that they were right,” Florence said.
© 2012 The Texas Lawbook. Content of The Texas Lawbook is controlled and protected by specific licensing agreements with our subscribers and under federal copyright laws. Any distribution of this content without the consent of The Texas Lawbook is prohibited.