Texas Lone Star Petroleum Corporation v. Chesapeake Operating Inc et al
ORDER granting in part and denying in part 95 Motion to Alter Judgment.(Signed by Judge Nelva Gonzales Ramos) Parties notified.(mserpa, 2)
United States District Court
Southern District of Texas
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
CORPUS CHRISTI DIVISION
TEXAS LONE STAR PETROLEUM
CORPORATION, et al,
CHESAPEAKE OPERATING INC; nka
CHESSAPEAKE OPERATING LLC, et al,
February 21, 2017
David J. Bradley, Clerk
§ CIVIL ACTION NO. 2:14-CV-331
ORDER ON MOTION TO ALTER OR AMEND FINAL JUDGMENT
Before the Court is Plaintiffs, Texas Lone Star Petroleum Corporation (TLSPC) and
Jeffrey Cobbs’ (Cobbs’), Motion to Alter or Amend Final Judgment (D.E. 95). In that motion,
they seek four corrections to the Court’s final judgment, issued January 3, 2017. Defendants
Chesapeake Exploration, LLC and Chesapeake Operating, LLC filed a response, opposing
each of the four requested corrections. D.E. 96. The parties then exchanged additional
briefing. D.E. 97, 98. After due consideration and for the reasons set out herein, the motion is
GRANTED IN PART and DENIED IN PART.
1. Offset of Underpayments Extinguishing Defendants’ Damages
Plaintiffs argue that the parties’ Joint Pretrial Order includes as an admission of fact,
“That as of February 14, 2016, Chesapeake has applied approximately $101,399.42 in
production runs due on Cobbs’ overrides to the amount that Chesapeake claims it has overpaid
Jeff Cobbs.” D.E. 62, p.15, ¶ 19. As Defendants point out, the Court previously denied any
claim to an offset of underpayments against the recovery of overpayments because Plaintiffs
had not expressly pled the claim or requested that relief.
Upon reconsideration, the Court finds that the admission, stated in the past tense, is
articulated in such a way as to make a pleading for that recovery superfluous. See Nat G.
Harrison Overseas Corp. v. Am. Tug Titan, 516 F.2d 89, 96 (5th Cir.), modified on other
grounds, 520 F.2d 1104 (5th Cir. 1975) (en banc); Gibbs v. Randolph, 250 F.2d 41, 43 (5th
Cir. 1957) (stipulations and admissions render pleading amendments unnecessary as no
evidence need be offered to prove the matter). Cobbs’ right of offset, as implied in the
admission of fact, was stipulated and exceeds the amount of the relevant overpayment claim.
The Court GRANTS IN PART the motion (D.E. 95) and will amend the judgment to eliminate
Defendants’ recovery of $37,864.14 from Cobbs.
2. Judgment Supported by Pleadings
Plaintiffs contend that they are entitled to a take-nothing judgment because Defendants
sought recovery of overpayments made to Plaintiffs only to the extent that those overpayments
represented overriding royalties owed to third parties, Northwest Energy and Jerry House.
Plaintiffs claim that there is no such money owed to Northwest Energy or Jerry House because
Defendants voluntarily paid them prior to trial for their previously underpaid interests. Such
voluntary payments, Plaintiffs assert, cannot support a claim for damages against an overpaid
overriding royalty interest owner.
Plaintiffs are correct with respect to the common law governing improperly paid
overriding royalty interests and the Court previously so held. D.E. 84 (citing Gavenda v.
Strata Energy, Inc., 705 S.W.2d 690, 692 (Tex. 1986); Frymire Eng'g Co. ex rel. Liberty Mut.
Ins. Co. v. Jomar Int'l, Ltd., 259 S.W.3d 140, 142 (Tex. 2008)). However, the judgment here is
based upon the enforcement of the division orders as contracts.
D.E. 84, pp. 15-20.
Consequently, the damages question is only a matter of quantifying how much Plaintiffs were
overpaid during the time the parties treated the division orders as being in effect. The reason
they were overpaid is immaterial—unless Defendants’ pleadings and the joint pretrial order
limited their recovery.
Plaintiffs contend that Defendants did, in fact, limit their request to only the amounts
that should have been paid to Northwest Energy and Jerry House. The record in this regard
In their Second Amended Counterclaim (D.E. 53), Defendants described
overpayments made due to mistakes made by their analysts in calculating Plaintiffs’ interest, as
well as failing to properly account for interests assigned to Northwest Energy and Jerry House.
In conclusion, they prayed for “damages equal to the amount Chesapeake Exploration and
Chesapeake Operating have overpaid Plaintiffs . . . .” D.E. 53, p. 6. In their proposed
conclusions of law, Defendants requested recovery of all overpayments without differentiation.
D.E. 60, ¶¶ 14, 16, 17. Plaintiffs did not object to those proposals.
In the Joint Pretrial Order, the contentions of the parties include the following language:
Defendants’ counterclaim is for overpayments of overriding royalty
made to Plaintiffs. The Defendants contend that the overpayments
result from the fact that Plaintiffs made assignments of portions of
their overriding royalty interest but did not notify Defendants of
these assignments, which resulted in Defendants paying Plaintiffs
amounts that should have been paid to third parties. Defendants
have paid these third parties and seek to be reimbursed for the
amounts paid to Plaintiffs that should have been paid to Plaintiffs’
D.E. 62, p. 6. Plaintiffs’ response to that contention includes the global representation that
“any overpayment based on the division order . . . is unenforceable as a contract as no
consideration exists to support it.” D.E. 62, p. 7. Contested issues of fact included whether the
division orders provided for refund of “any overpayments.” D.E. 62, p. 19, ¶¶ 9, 10. Yet a
contested issue of law was whether Plaintiffs were required under the division orders to repay
funds that should have been paid to other overriding royalty interest owners. Id. at 26.
The evidence at trial included details regarding overpayments based on both
Defendants’ clerical errors and the failure to acknowledge the interests of Northwest Energy
and Jerry House. At no time did Plaintiffs object to the proof that some of the overpayments
made pursuant to division orders included those based on clerical errors, which were in turn
included in Defendants’ damages calculation. In amended proposed findings of fact and
conclusions of law, Defendants claimed that TLSPC and Cobbs were overpaid because they
were paid on interests owned by third parties and because of mistakes. D.E. 81, p. 11, ¶¶ 30,
31, 32, 33, 35. Defendants clearly sought reimbursement of all “amounts mistakenly paid to
Plaintiffs in reliance on the division orders.” D.E. 81, p. 17.
Plaintiffs filed no objections to Defendants’ amended proposed findings of fact and
conclusions of law. Consequently, the Court issued its findings of fact and conclusions of law
on the basis of all amounts mistakenly paid pursuant to the division orders.
Plaintiffs’ complaint that Defendants’ damages should be limited by their pleadings or the joint
pretrial order are submitted to the Court now, for the first time.
The Court holds that Defendants pled for recovery of all payments paid pursuant to the
division orders that exceeded the amount properly due for Plaintiffs’ overriding royalty
interests, without limit related to amounts owed to third parties. Alternatively, the issue of the
recovery of damages paid as a result of clerical mistakes in addition to erroneous payment of
overriding royalties owed to third parties was tried by consent. Fed. R. Civ. P. 15(b)(2).
All of the amounts awarded to Defendants constitute contract damages payable under
the division order breach of contract theory. The Court DENIES IN PART the motion (D.E.
95) with respect to the challenge to Defendants’ recovery of damages as unsupported by the
3. Rights Not Governed by March 8, 2012 Assignment
Plaintiffs assert that they are entitled to an offset against Defendants’ recovery of
overpayments based upon the terms of a March 8, 2012 assignment. This argument is based on
their affirmative defense, which reads:
29. Counter-Defendants assert the defense of failure of
consideration as the Counter-Plaintiffs have breached the March 8,
2012, assignment by deducting post-production expenses against
the interest of the Counter-Defendants.
D.E. 55, p. 7. Defendants argue that this matter was determined against Plaintiffs in the
Court’s ruling on the motions for summary judgment. D.E. 56, 57; Minute Entry April 15,
2016. Defendants are correct.
At the summary judgment hearing, the Court held that the 2010 Partial Assignment
Agreement (PAA), insofar as it referred to “subject leases,” referred to the original leases listed
on the exhibit to the PAA. The “subject lease” term did not refer to renewal leases, also known
as the 2011 leases. Consequently, the Court held that the original, subject leases, referring to
payment at the mouth of the well, permitted the deduction of post-production expenses. The
Court granted Defendants summary judgment that they were entitled to deduct post-production
expenses from the overriding royalty payments to Plaintiffs.
Plaintiffs raised the March 8, 2012 assignment as a separate instrument negating
Defendants’ right to deduct post-production expenses in their summary judgment response
(D.E. 58, p. 2). The 2012 assignment was discussed at some length at the summary judgment
hearing. At that time, the Court observed that the March 8, 2012 assignment expressly states
that it is subject to the PAA.
Texas law governs this contract construction issue.
Under generally accepted principles of contract interpretation, all
writings that pertain to the same transaction will be considered
together, even if they were executed at different times and do not
expressly refer to one another. We have cautioned, however, that
this rule is simply a device for ascertaining and giving effect to the
intention of the parties and cannot be applied arbitrarily.
DeWitt Cty. Elec. Co-op., Inc. v. Parks, 1 S.W.3d 96, 102 (Tex. 1999) (footnotes omitted). In
DeWitt, the Supreme Court of Texas construed the documents according to their terms,
incorporating other documents and giving effect to terms that specify which provisions govern
in the event of conflict. Here, by making the PAA the dominant agreement, the parties
intended the terms of the PAA to govern over the conflicting terms of the later-executed
assignment. The Court DENIES IN PART Plaintiff’s motion to alter the judgment with
respect to Defendants’ deduction of post-production expenses.
4. Declaration of Cobbs’ Ownership Interest
Plaintiffs request that the Court grant declaratory relief with respect to its findings
regarding the overriding royalty interest owned by Cobbs in each of the Broken Arrow Ranch
Units. Defendants oppose the request, claiming that Plaintiffs did not plead for this type of
The ownership interest was stipulated in the joint pretrial order: “As of September 1,
2013, Jeff Cobbs held a .2376257 of eight eighths overriding royalty interest in Broken Arrow
Ranch Unit No. 2 and a .1366148 of eight eighths overriding royalty interest in Broken Arrow
Ranch Unit No. 5.
D.E. 62, p. 17, ¶ 33.
While the Court made findings of fact and
conclusions of law regarding the percentage interest Cobbs owned, those findings were not
expressed in the form of a decimal. D.E. 84, ¶¶ 35, 37.
The Court holds that declaration of the decimal ownership interest, as stipulated, is
appropriate pursuant to Defendant’s request for such declaratory relief, which was previously
granted, but in a different format. D.E. 84, ¶ 39. Accordingly, the Court GRANTS IN PART
the motion and will amend the judgment to declare Cobbs’ ownership interest in decimal form.
For the reasons set out above, the Court GRANTS IN PART and DENIES IN PART
Plaintiffs’ motion to alter or amend the judgment (D.E. 95). An amended judgment will be
ORDERED this 21st day of February, 2017.
NELVA GONZALES RAMOS
UNITED STATES DISTRICT JUDGE
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