© 2017 The Texas Lawbook.
By Natalie Posgate
(July 12) – An appeals court in Texarkana late last week reversed a multimillion-dollar judgement that had favored Tyler-based Harleton Oil & Gas in a multifaceted ownership rights dispute originating from a 2008 Haynesville Shale deal that involved a Chesapeake Energy subsidiary and a group of other oil and gas companies.
A three-judge panel overturned Harleton’s previously-awarded $6.8 million chunk out of the $232 million deal because its unjust enrichment claims were barred by a two-year statute of limitations.
The panel also determined that Chesapeake waived its right to recover some $408,000 it claimed to have overpaid Wayne Freeman, one of the defendants, because it failed to identify any title defects during the due diligence period, as required in the contract.
Friday’s ruling is the latest development in a nearly decade-long legal battle that has shuffled through five state and federal trial and appellate courts and features multiple parties and a steady cross fire of claims and counterclaims.
“This is a case that had a very protracted route of getting here today,” said Beau Cox, a senior associate in Norton Rose Fulbright’s Dallas office and a co-lead attorney for Freeman in the litigation. “We’re thrilled for Wayne Freeman and the Freeman family to have finally gotten results here.”
The dispute dates back to July 2008, when Chesapeake Louisiana, LP agreed to purchase three-year leases of 14,378 acres in the East Texas region of the Haynesville shale from Buffco Production and Twin Resources for $232 million, according to the court’s 63-page opinion. Included in that transaction were Buffco/Twin’s operating interests in the Geisler Unit, a 680-acre oil and gas property in Harrison County.
Their agreement stated that Chesapeake would make the same offer to any non-operating interest owners in the Geisler Unit. It also stated Chesapeake was responsible for discovering any additional interest owners through its own due diligence.
Chesapeake’s due diligence process inaccurately concluded that Buffco/Twin owned a 50 percent operating working interest and Wayne Freeman’s company, Freeman Resources, owned the other 50 percent interest as a non-operating partner, the ruling says. In reality, Buffco/Twin owned only 25 percent, and the non-operating partners – Harleton, Freeman Resources and Capital (another unit of Freeman) – owned 50 percent, 22 percent and 3 percent, respectively.
When Harleton found out about the deal, it sued Buffco and Freeman in state court in 2009 to recover its share as a third-party beneficiary of that contract. At that time, Harleton only filed breach of contract and fraud claims, according to Friday’s ruling.
Meanwhile, Chesapeake, which believed it had purchased 100 percent of the interests in the Geisler Unit, sued to recover “overpayments” it had made under the contract. Harleton later abandoned its state court lawsuit in favor of joining Chesapeake’s federal lawsuit.
In the federal case, U.S. District Judge Rodney Gilstrap issued a summary judgment ruling – which was later vacated by the U.S. Court of Appeals for the Fifth Circuit – that included an unjust enrichment award against Freeman and Buffco – even though Harleton had not yet brought that claim.
The three-judge panel in Texarkana determined Harleton did not do so until March 2015, when Harleton submitted an amended petition in a new state case that ultimately led to Friday’s opinion. But that filing was four years after the February 2011 deadline the court determined Harleton had to file unjust enrichment claims – exactly two years after Harleton claimed it learned of the Chesapeake deal.
“Even applying the fair notice standard and liberally construing Harleton’s federal complaints, a claim for unjust enrichment cannot be read from them…. We must reverse the trial court’s judgment against the Buffco and Freeman defendants and render judgment that Harleton take nothing by its claims against them,” the opinion states.
A spokesman for Chesapeake declined to comment on the case. Lawyers for Harleton and the Buffco parties did not respond to requests for comment.
Norton Rose Fulbright got involved in the case through the trial team’s other lead lawyer, Richard Krumholz, who is a college friend of Mr. Freeman. Krumholz, a partner in Norton Rose Fulbright’s Dallas office, said he has served as Freeman’s company’s outside general counsel from time to time.
Krumholz commended Cox’s work on the case; he argued the appeal in Texarkana in May.
“During the course [of this case], Beau went through being a baby attorney to a much more seasoned trial lawyer,” Krumholz said. “He is one of our stars, so it was easy for me to give up the reigns. I couldn’t be happier for that decision and how good of a job he did arguing the appeal.”
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