© 2015 The Texas Lawbook.
By Natalie Posgate
FORT WORTH (Feb. 2) – Fort Worth-based Moncrief Oil International Inc. made a surprise courtroom announcement Monday a month into its trial against a giant Russian energy company: it dismissed its $1.37 billion trade secrets claim due to fatal holes in its case.
Lawyers for Moncrief told Tarrant County District Judge Melody Wilkinson over the weekend that they wanted to dismiss its claims against OAO Gazprom, which is the world’s largest extractor of natural gas and has annual revenues exceeding $350 billion. The judge informed the jury of six women and six men Monday morning that the case was over.
Moncrief’s decision ends its decade-long legal battle with Gazprom that was litigated in the U.S. and Germany. The Fort Worth company claimed that Gazprom illegally cut it out of a lucrative natural gas joint venture and stole Moncrief trade secrets.
But Moncrief’s case collapsed last week when Gazprom’s lawyer, Van Beckwith, discovered what he says was strong evidence that Moncrief’s former chief financial officer had fabricated a key document in the company’s trade secrets claim and then lied about it under oath.
“This really is a vindication of our clients. Our clients did nothing wrong here at all,” said Beckwith, who is a partner at Baker Botts.
Former Moncrief CFO David Manconchy told jurors under oath last Wednesday that a Microsoft Excel spreadsheet was created in 2004 that presented an economic analysis that allegedly proved that Gazprom had misappropriated Moncrief trade secrets.
Beckwith and Washington, D.C. partner Mike Calhoon, who co-led the Baker Botts trial team, spotted a footnote in the document labeled “Figure 11, Revision 6, December, 2004.” The footnote provided statistical support for the figures used in the document.
The Baker Botts team solved the mystery: Figure 11 was actually taken from an article published by Professor Michelle Michot Foss, the chief energy economist of the Bureau of Economic Geology at The University of Texas at Austin.
But Foss’s article was published in June 2012 – not in 2004. Beckwith said Foss’s 2004 numbers were completely different from 2012 and that the numbers didn’t exist until she created them in 2012.
“If he had taken off ‘Figure 11,’ it would have been a lot harder to find,” Calhoon said.
Marshall Searcy, the lead attorney for Moncrief, said he thought the outcome occurred because an employee misfiled a document, which flawed the record. He said Moncrief’s legal team “had no idea” about what really was going on before the fact.
“An employee made a tragic mistake,” said Searcy, a partner at Kelly, Hart & Hallman in Fort Worth. “We absolutely still believe in the merits of the case, but we have more respect for the process.”
Moncrief’s president, Richard Moncrief, was in the courtroom during the announcement, but declined to comment on the outcome.
Calhoon said that younger partners and associates from the Baker Botts legal team stayed up all night Wednesday to compile a 376-page motion for sanctions against Moncrief. The team also reached out to Foss the same night, who confirmed their suspicions. Then, Foss signed her supporting brief Thursday.
A hearing was scheduled for this Wednesday to discuss the motion for sanctions, but once those documents were in the record, Moncrief decided over the weekend to dismiss its case, Beckwith said.
The judge dismissed the case with prejudice. Had the case continued, Moncrief faced the possibility of recovering about $4 billion in actual and punitive damages.
The Joint Venture
In its second amended petition, Moncrief claimed it entered a series of written agreements with a subsidiary of Gazprom in 1997, which granted Moncrief an “exclusive” and “direct” ownership interest in Russia’s Yuzhno-Russkoye Field, nicknamed the Y-R Field.
The deal went on standby due to corrupt Gazprom management, but picked back up after Vladimir Putin was elected into office in 2000 and appointed new leadership at the heavily state-owned Gazprom, the petition says.
Moncrief said it “again confirmed its commitment to bring more than $1 billion in financing” to the Y-R Field project in return for a separate joint venture with Houston-based Occidental Petroleum Company to bring some of Russia’s natural gas to the U.S. market.
During this time, Moncrief claimed it disclosed “confidential trade secret information” to Gazprom that would demonstrate the leverage Moncrief had over other companies. Moncrief alleged that Gazprom agreed to not misappropriate the information, the complaint says.
But in 2005, Gazprom announced that it had decided to sign tentative deals with two large German energy companies instead of Moncrief to develop the Y-R field. Occidental pulled out of its JV with Moncrief in 2007.
Moncrief sued Gazprom the same year in Fort Worth’s federal court, which dismissed the case in 2007, according to the complaint. Moncrief also pursued litigation in Germany, but it lost the case in 2010.
It initiated litigation in state court in 2008.
Beckwith said Moncrief’s alleged confidential information was anything but a trade secret, since “many others in the industry,” such as Exxon, Conoco, Mobil and Marathon Oil, were also pitching the same information to Gazprom.
“It was a sales pitch that many others in the industry were also making to Gazprom, since it has the largest natural gas reserves in the world,” Beckwith said. “It was sort of a modern day gold rush that never happened because of the shale revolution.
“These guys tried to take a sales proposal and turn it into a trade secret.”
Though Moncrief had spent years in litigation against Gazprom, Beckwith and Calhoon said the current lawsuit was the first time Moncrief claimed Gazprom misappropriated its trade secrets. In the previous two cases, Moncrief focused its legal argument on breach of contract.
Neither Beckwith nor Calhoon got involved in the case until last fall – just around the time the infamous “Figure 11” document appeared in discovery.
The reason they even got the document, Beckwith said, was because the team filed a motion to compel, requesting for Judge Wilkinson to order Moncrief to better define its misappropriated trade secret.
In response, Moncrief produced the alleged 2004 document that included Figure 11.
Besides the Figure 11 document, Beckwith and Calhoon said they found other holes in Moncrief’s case through opposing testimony.
“With each witness, their case was sort of unraveling,” Calhoon said. “When you hear the story for the first time, it’s pretty good. But then you hear a totally different story from the next witness about what the plan was.”
By the end of it, the alleged joint venture plan, instead of being in Russia, “was somewhere else in Europe,” he added.
Potential Hurdles
The trial started on Jan. 5 and jury selection lasted for three days.
Beckwith and Calhoon said they had concerns during voir dire that they wouldn’t get a fair trial. Beckwith said out of the 150 potential jurors, around 65 people said that they felt biased against Russia, which currently has major political strains with the United States. A chunk of jurors also indicated that they would likely be biased in Moncrief’s favor, since the Moncrief family is extremely beloved in Fort Worth.
Richard Moncrief, who leads the company, is the grandson of William Allen “Monty” Moncrief, who was one of the successful original wildcatters for discovering oil.
“We were quite concerned [about whether] we could get our story out,” Beckwith said.
But at the end of questioning, Beckwith and Calhoon felt that they selected a good jury, despite the circumstances.
“We thought we had a decent jury – especially given all of the people who had said in the jury selection they either loved the family, or they hated Russians,” Calhoon said.
“We were very proud of them,” Beckwith added. “We think they were working very hard on trying to understand the complexities of the natural gas business.”
Beyond the “hometown jury” phenomenon, Gazprom’s legal team was also concerned about jurors finding merit in some of the legal issues.
If Moncrief’s case hadn’t fallen apart, Beckwith and Calhoon said the trial could have set “precedent Texas case law” for future legal issues involving trade secrets and tortious interference.
Especially the tortious interference claim, Calhoon added, because there were some severe allegations against Gazprom for significantly interfering with Moncrief’s relationship with Occidental.
“That very well could have been significant law established,” Calhoon said.
On the trade secret issue, if Moncrief had “somehow gotten what they wanted, that would have been hotly contested on appeal,” since the court of appeals would not have much guidance from previous cases on this particular issue, he added.
“It’s a very significant case – given the complexity of the issues, the length of the trial, the amount of damages, the hometown major of it,” Beckwith said.
The remainder of the Baker Botts legal team included Dallas partner Ryan Bangert and associates John Lawrence and Kristin Cope, Houston partners Michael Goldberg and Aaron Streett and Washington, D.C. associate Eddie LaCour.
Goldberg led the previous litigation in federal court and Germany.
In addition to Searcy, Moncrief’s legal team included partners Michael Anderson and Derek Anderson and associate Caleb Bulls, who are all based in Kelly Hart’s Fort Worth headquarters.
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