United States Court of Appeals,

Fifth Circuit.

No. 93-7194.

Horace NORMAN, et al., Plaintiffs-Appellants,

v.

APACHE CORPORATION, Defendant-Appellee.

April 29, 1994.

Appeal from the United States District Court for the Southern District of Texas.

Before POLITZ, Chief Judge, KING and DAVIS, Circuit Judges.

KING, Circuit Judge:

The working interest owners of oil and gas leases in Brazoria County, Texas, brought suit

against Apache Corporation, with whomthey had contracted to operate these leases, claiming breach

of contract and breach of fiduciary duty. The district court entered summary judgment for Apache

Corporation, and the working interest owners appeal. We affirm in part and reverse in part the

judgment of the district court.

I. BACKGROUND

A. Factual Background

In 1976, owners of interests in oil and gas leases in Brazoria County, Texas, entered into a

joint operating agreement with Dow Chemical Company (Dow) to conduct joint oil and gas

operations on those leases. Under the operating agreement, Dow was named the operator and was

given exclusive control of oil and gas operations. The parties who held interests in these leases

(collectively "the owners") were working interest owners.

In 1977, Dow drilled and successfully completed the Dwight and Sue Brothers No. 1 Well

(the Brothers well) on the Brazoria County leases. All of these leases contained clauses which

authorized the leased acreage, or parts thereof, to be pooled with other leased acreage. Acting

pursuant to this authorization, the owners entered into an agreement with working interest owners

of other leases to pool the leased acreage. These pooled leases were then unitized into two
production units, the Brothers Gas Unit and the Christian Gas Unit. Certain of these leases were

included within the boundaries of the Brothers Gas Unit, and under their own terms, they remained

in effect past the primary term so long as oil and gas was being produced on the unit. Further, some

of these leasesrequired that if production on the unit ceased, additional operations had to commence

within sixty days in order to keep the leases in effect; others provided for a ninety-day period.

Because the Brothers well was the only well on the Brothers Gas Unit, these leases were held only

by production fromthe Brothers well. Dow continued to operate both the Brothers Gas Unit and the

Christian Gas Unit.

In October 1982, Apache Corporation (Apache) succeeded Dow as the operator for the

production units, with all partiesstillsubject to the original1976 operating agreement. Thus, Apache

now had the exclusive right and responsibility to conduct oil and gas operations on the leasesfor each

unit. Apache also had the authority to bill the owners on a monthly basis for expenses incurred in

operating the properties and to charge the owners a monthly "administrative overhead charge" for

each well Apache operated during the month.

On or about July 13, 1990, Apache decided to cease production ofthe Brothers well. On July

18, 1990, Apache's district supervisor responsible for the Brothers well, Bryan Chambless, prepared

an internal "change ofstatusreport" for the well in which he reported that the well had last produced

on July 13 and that the reason production had been stopped was "well shut-in uneconomical to

produce." The next day, David Tirey, Apache's production engineer, sent an internal memorandum

concerning the Brothers well to Apache's managersfor drilling and production in the exploration and

land department. In this memo, he stated: "[T]he subject well was shut in July 16, 1990 and is not

expected to return to production. If any drilling opportunities are considered on this acreage, they

need to be expedited."

On September 18, 1990, Apache filed a notice of intention to plug and abandon the Brothers

well with the Texas Railroad Commission. In late December 1990, Linda Sebesta, a land assistant

for Apache, sent a letter to the owners, stating that the Brothers well "has become uneconomical to

produce" and recommended that the well be plugged and abandoned. The owners responded by
 

1The working interest owners who filed suit are Jack Norman; J.S. Norman; Wendell Klein; 

Jack Finkelstein, Trustee; Robert Lawe; Jim Finkelstein, C.S. DOH; Jack Finkelstein, Jr.; 

Stephred, Inc.; Diboll Oil Company Meridian Partners No. 5; Texas Commerce Bank, N.A.; and

Jack Finkelstein, Trustee, and Brazoria 475, a Joint Venture. 

requesting that Apache continue to operate the well, but then learned that Apache had ceased

operations on the well, that the sixty- or ninety-day periods for commencing additional operations

had since passed, and that the leases had been lost.

B. Procedural History

In September 1991, the owners1filed suit against Apache in state district court in Brazoria

County, Texas. They asserted that

[i]n July 1990 when Apache shut in the Brothers Well and abandoned efforts to produce it,

Apache knew that Plaintiffs believed that there was substantial hydrocarbon reserves to be

recovered from the Brothers Gas Unit. In July 1990 Apache knew that Plaintiffs wanted

Apache to continue to operate the Brothers Well in order to obtain revenues from current

operations and in order to hold the Brothers Unit leases. Nonetheless, Apache failed to

disclose to the Plaintiffs Apache's decision to abandon the Brothers Well. Instead, during the

period July-December 1990, Apache continued to sendmonthlybilling statementsto Plaintiffs

representing that Apache was continuing to operate the Brothers Well.

The owners alleged that Apache had breached its contractual and fiduciary duties under the joint

operating agreement to operate the Brothers well, to give them advance notice of its decision to

abandon theBrothers well, to take reasonable actionsto prevent the lapse ofthe Brothers Unit leases,

to notify them of the cessation of production from the Brothers well, and to refrain from falsely

representing to themthat it continued to operate the Brothers well after July 1990. They also alleged

that Apache's breach ofitsfiduciary duties was accompanied by its "knowing and wilful disregard for

the rights and interests" of the plaintiffs, thereby entitling them to punitive damages. Apache then

removed the case to federal district court on the basis of diversity jurisdiction.

During a scheduling conference conducted by the district court on April 2, 1992, the owners

requested leave of court to file an amended complaint. Their counsel offered to have the amended

complaint filed within thirty days, and the court orally granted their request for leave to amend with

the instruction that the amended complaint be filed as soon as possible.

The owners filed an amended complaint on September 15, 1992. On October 14, 1992,

Apache filed a motion forsummary judgment based on the owners' original complaint. In its motion,
Apache stated that the amended complaint was not properlybefore the court. Apache contended that

the amended complaint was not properly filed because the owners neither had sought leave of court

in writing, asrequired by the localrules, nor had sought Apache's consent. Apache thus asserted that

because the owners' original complaint was the only active pleading in the case, two new causes of

action set forth in the amended complaint—fraud and the recoveryof excessive operating costs—had

not been properly pleaded.

After a pre-trial hearing on October 27, 1992, the magistrate ordered that the amended

complaint be stricken. In reviewing the tape recording of the scheduling conference at which the

owners had requested and orally received leave to amend their complaint, the magistrate found that

counsel for the owners had stated that he anticipated the possibility of needing to file an amended

complaint and that if an amended complaint were needed, he would file it within thirty days. The

magistrate determined that although the owners had been given, in open court, leave to amend their

complaint, the amendment—ultimately filed more than five months after leave was granted and

approximately thirty days before the discovery deadline—was untimely. The owners then

simultaneously filed a motion for reconsideration and a motion for leave to amend their complaint.

On November 16, 1992, the district court denied Apache's motion for summary judgment.

In its order denying Apache's motion, the district court recognized that the owners had set forth

various causes of action, including the two new causes of action set forth in the amended complaint.

The court also stated that it was "perturbed" that Apache had addressed only those causes of action

set forth in the original complaint in its motion for summary judgment and that thus "the issuesin this

case are so ill-suited for summary judgment as to raise serious questions in the Court's mind as to

whether this motion was filed for the sole purpose of harassing the plaintiffs."

Apache then filed a motion for rehearing and for clarification on November 20, 1992. In its

motion, Apache explained that the owners' original complaint concerned only claims predicated on

breach of contract and breach of fiduciary duty and that the additional causes of action referenced by

the court were contained in their amended complaint, which had been stricken by the magistrate.

The case remained on the district court's "trailing docket" from November 1992 through
February 1993, awaiting trial assignment on short notice. On March 11, 1993, the district court sua

sponte reconsidered its previous denial of Apache's motion for summary judgment and granted the

motion. The court indicated that its first order concerning Apache's summary judgment motion had

been based upon "the Court's inadvertent reference to the causes of action set out in the Amended

Complaint." The court also clarified that its ruling granting summary judgment for Apache was based

exclusively on allegations contained in the owners' original complaint and "specifically affirm[ed] the

Magistrate-Judge's Order in allrespects," which included the striking ofthe amended complaint. The

owners then filed a timely notice of appeal.

II. STANDARD OF REVIEW

The decision to grant or deny a motion to amend pleadings is entrusted to the sound

discretion of the district court. Avator Exploration, Inc. v. Chevron, U.S.A., 933 F.2d 314, 320 (5th

Cir.1991). We thus review a district court's denial of a motion to amend pleadings for an abuse of

that discretion. Id.

 We review de novo a district court's dismissal of a claim on the pleadings. Guidry v. Bank

of LaPlace, 954 F.2d 278, 281 (5th Cir.1992); Walker v. South Cent. Bell Tel. Co., 904 F.2d 275,

276 (5thCir.1990). In so doing, we " "accept the complaint's well-pleaded factual allegations as true.'

" Shushany v. Allwaste, Inc., 992 F.2d 517, 520 (5th Cir.1993); Guidry, 954 F.2d at 281.

We review the granting ofsummary judgment de novo, applying the same criteria used by the

district court in the first instance. That is, we review the evidence and inferences to be drawn

therefrom in the light most favorable to the non-moving party. Federal Deposit Ins. Corp. v.

Dawson, 4 F.3d 1303, 1306 (5th Cir.1993); Fraire v. City of Arlington, 957 F.2d 1268, 1273 (5th

Cir.), cert. denied, --- U.S. ----, 113 S.Ct. 462, 121 L.Ed.2d 371 (1992). Summary judgment is

proper "ifthe pleadings, depositions, answersto interrogatories, and admissions on file, together with

the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving

party is entitled to judgment as a matter of law." FED.R.CIV.P. 56(c).

III. DISCUSSION

A. Motion to Amend Complaint
The owners first contend that the district court erred in not addressing their motions for

reconsideration and for leave to amend their complaint, which had been simultaneously filed after the

magistrate had stricken their amended complaint on grounds that it had not been timely filed. They

argue that although the decision to grant leave to amend is normally left to the sound discretion of

the trial court, in this case the district court did not even attempt to exercise its discretion but instead

simply declined to act on their motion. They also suggest that if the district court did implicitly deny

their motion to amend, the court abused its discretion because it did not identify the reasons for its

decision. Nonetheless, we find the owners' arguments to be without merit.

The denial of a motion by the district court, although not formally expressed, may be implied

by the entry of a final judgment or of an order inconsistent with the granting of the relief sought by

the motion. Addington v. Farmer's Elevator Mut. Ins. Co., 650 F.2d 663, 666 (5th Cir.), cert.

denied, 454 U.S. 1098, 102 S.Ct. 672, 70 L.Ed.2d 640 (1981). In its order of dismissal in which it

granted Apache's motion for summary judgment, the district court implicitly denied the owners'

motion for leave to amend in the instant case. Specifically, the district court stated:

The Plaintiffsfiled with this Court a motion to reconsider the Magistrate-Judge's Order, upon

which the Court took no action. Nevertheless, in light of the Court's decision today, the court

now sees fit to specifically affirm the Magistrate-Judge's Order in all respects. Furthermore,

the parties should not infer that the Court in any way ratified the Plaintiffs' Amended

Complaint or overruled the Magistrate-Judge's Order through the Court's inadvertent

reference to the causes of action set out in the Amended Complaint in this Court'sfirst Order

concerning the Defendant's Motion for Summary Judgment.

The district court's granting Apache's motion for summary judgment and dismissing the owners' suit

is thus so inconsistent with the owners' motion to amend as to implicitly deny the motion. Further,

by affirming the magistrate's order in all respects, the district court implicitly denied the owners'

motion to amend their complaint for the reason stated in the magistrate's order, i.e., the amended

complaint was not timely filed. The owners do not dispute that although the district court orally

granted their motion for leave to amend, that leave extended only for a limited period of time and

their amended complaint was not filed within those limits. Hence, we cannot say that the district

court abused its discretion in implicitly denying the owners' motion for leave t o amend their

complaint.
B. Claim of Fraud

The owners also contend that the district court erred in holding that their original complaint

did not allege sufficient facts to support a claim of fraud. They argue that this holding is

fundamentallyinconsistent with the district court's acknowledgement that the owners had alleged that

Apache made misrepresentations to the owners concerning Apache's own conduct. Specifically, the

owners contend that because their petitionalleges(1) that Apache stopped production oftheBrothers

well in July 1990, (2) that Apache sent monthly billing statements to the owners through December

1990, (3) that these billing statements amounted to misrepresentations that Apache was continuing

to operate the Brothers well, and (4) that Apache's conduct caused them injury, their petition states

with factual particularity the circumstances constituting fraud. However, we disagree.

Rule 9(b) of the FederalRules of Civil Procedure requiresthat in all averments of fraud, "the

circumstances constituting fraud or mistake shall be stated with particularity." Although the

defendant's state of mind may be averred generally, Rule 9(b) requires the plaintiff to allege "the

existence of facts and circumstances sufficient to warrant the pleaded conclusion that fraud ha[s]

occurred" or face dismissal of his claim. Haber Oil Co. v. Swinehart (In re Haber Oil Co.), 12 F.3d

426, 439 (5th Cir.1994) (internal quotation and citation omitted). Allegations of fraud must thus

meet "a higher, or more strict,standard than the basic notice pleading required byRule 8." Shushany,

992 F.2d at 521. This standard is derived from concerns that unsubstantiated charges of fraud can

irreparably damage a defendant'sreputation. Guidry, 954 F.2d at 288. Further, Rule 9(b) is designed

"to preclude litigants from filing baseless complaints and then attempting to discover unknown

wrongs." Shushany, 992 F.2d at 521 (internal quotation and citation omitted). To state a cause of

action for fraud under Texas law, a plaintiff must allege sufficient facts to show that (1) a material

representation was made; (2) the representation was false; (3) the speaker made the representation

knowing it was false or made it recklessly without any knowledge of its truth and as a positive

assertion; (4) the speaker made the representation with the intention that it should be relied upon by

the party; (5) the party acted in reliance upon the misrepresentation; and (6) the party thereby

suffered injury. See Haber Oil, 12 F.3d at 437 (5th Cir.1994) (citing DeSantis v. Wackenhut Corp.,
793 S.W.2d 670, 688 (Tex.1990)).

The owners concede that the allegations in their original petition are "inartful," but contend

that their failure to use the term "fraud" in their original petition should not preclude their being able

to recover under that legal theory. They assert that "a complaint is sufficient if the plaintiff is entitled

to relief under any legal theory," citing this court's decision in Thompson v. Allstate Ins. Co., 476

F.2d 746 (5th Cir.1973), for that proposition. The owners' reliance on Thompson, however, is

without merit. In Thompson, we reversed the district court's dismissalofthe plaintiff'sstate law claim

for intentional interference with another's business under Federal Rule of Civil Procedure 12(b)(6).

Id. at 750. Nonetheless, our decision was premised on the fact that the plaintiff had given "fair

notice" of what his claim was under Federal Rule of Civil Procedure 8, which requires only "a short

and plain statement of the claim that will give the defendant fair notice of what the plaintiff's claim

is and the grounds on which it rests." Id. at 749 (internal quotation and citation omitted). Thus, in

Thompson we did not deal with the requirements of Rule 9(b), which mandate that to state a claim

for fraud the plaintiff must set forth sufficient facts in the complaint to warrant the conclusion that

fraud has occurred, as we do here. Although we recognize that Rules 8 and 9(b) are to be

harmonized, Rule 8 has never been read to eviscerate Rule 9(b)'s requirement that an averment of

fraud must be stated with particularity.

The owners have failed to allege sufficient facts to state with particularity the circumstances

constituting fraud as required by Rule 9(b). The district court thus correctly determined that the

plaintiffs failed to state a claim for fraud against Apache in their original complaint.

C. Fiduciary Duty

The owners also contend that the district court erred in granting Apache summary judgment

on their breach of fiduciary duty claims, finding that the ownersfailed to provide any evidence which

cast doubt on Apache's claim that no fiduciary duty existed between the parties. They assert that

summary judgment evidence created an issue of material fact as to whether Apache, as the operator

of oil and gas operations on leasesin which they held an interest, had a fiduciary relationship with the

owners. Nonetheless, we disagree.
 The owners correctly state that under Texas law, the determination of whether a fiduciary

relationship exists between the partiesis a question of fact for the jury. Schiller v. Elick, 240 S.W.2d

997, 999 (Tex.1951). However, that the determination of whether a fiduciary relationship exists is

a fact question did not abolish the owners' burden to come forward with specific facts demonstrating

that there is a genuine issue of material fact for trial after Apache moved for summary judgment and

offered evidence that no fiduciary relationship existed. Under Federal Rule of Civil Procedure 56(c),

the party moving for summary judgment bearsthe initial burden of "informing the district court ofthe

basis for its motion, and identifying those portions of [the record] which it believes demonstrate the

absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct.

2548, 2553, 91 L.Ed.2d 265 (1986). Once this burden is met, the burden shifts to the non-moving

party to establish the existence of a genuine issue for trial. Matsushita Elec. Indus. Co. v. Zenith

Radio, 475 U.S. 574, 585-87, 106 S.Ct. 1348, 1355-56, 89 L.Ed.2d 538 (1986); Leonard v. Dixie

Well Serv. & Supply Inc., 828 F.2d 291, 294 (5th Cir.1987). The burden on the non-moving party

is to "do more than simply show that there is some metaphysical doubt as to the material facts."

Matsushita, 475 U.S. at 586, 106 S.Ct. at 1355-56.

Apache moved for summary judgment on the owners' breach of fiduciary duty claims on

grounds that neither the joint operating agreement itself nor the circumstances surrounding the

relationship between the owners and Apache demonstrated the existence of a fiduciary duty between

the parties. Apache argued that a letter agreement dated February 10, 1976, which became part of

the joint operating agreement, clearlystated that the agreement did not constitute or create a fiduciary

relationship of any kind or character between the parties. Hence, Apache contended that the parties'

own agreement expressly negated the existence of a fiduciaryrelationship between them. The district

court agreed.

Because the instant suit isin federal court on the basis of diversity jurisdiction, we are bound

by principles enunciated in Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188

(1938), to apply Texas rules of contract construction to the joint operating agreement at issue. See

Brooks, Tarlton, Gilbert, Douglas & Kressler v. United States Fire Ins. Co., 832 F.2d 1358, 1364
(5th Cir.1987). The primary concern a court has in construing a contract is to ascertain and give

effect to the intent of the parties as expressed in the contract. Fuller v. Phillips Petroleum Co., 872

F.2d 655, 657 (5th Cir.1989) (citing Gracia v. RC Cola-7-Up Bottling Co., 667 S.W.2d 517, 520

(Tex.1984)). The objective intent of the parties controls, and absent an allegation of ambiguity in the

contract's language, the contract alone will generally be deemed to express the intent of the parties.

Id. (citing Phillips v. Inexco Oil Co., 540 S.W.2d 546, 548 (Tex.Civ.App.—Tyler, 1976, writ ref'd

n.r.e.)). Moreover, Texas courts have made it clear that

[i]n order for a court to read additional provisions into the contract, the implication must

clearly arise fromthe language used, or be indispensable to effectuate the intent ofthe parties.

It must appear that the implication was so clearly contemplated by the parties that they

deemed it unnecessary to express it.

See Kutka v. Temporaries, Inc., 568 F.Supp. 1527, 1535 (S.D.Tex.1983) (citing Danciger Oil &Ref.

Co. v. Powell, 154 S.W.2d 632 (Tex.1941)).

Paragraph 7 of the letter agreement that is part of the joint operating agreement at issue

states:

The obligations and liabilities of the parties hereto shall be several and not joint or collective,

and each party shall be responsible only for his or its obligationsin accordance with the terms

and conditions ofthis agreement. This agreement does not constitute or create a joint venture

or partnership, mineral or otherwise, or association, or agency or a fiduciary relationship of

any kind or character whereby any party hereto shall become liable for the acts and deeds of

any other party hereto....

The language of this paragraph itself belies Apache's argument that the contract to which the owners

and Apache are parties expressly negates the existence of any fiduciary relationship between them.

The full text of this paragraph addresses the relationship of Apache and the owners only insofar as

it concerns potential liabilities or obligations to third parties. See Johnston v. American Cometra,

Inc., 837 S.W.2d 711, 715-16 (Tex.App.—Austin 1992, writ denied) (citing a line of Texas cases

which hold that language in an operating agreement similar to that of paragraph 7 ofthe instant letter

agreementshield non-operatorsfromliabilityto third-partycreditorsfor the operator's debts). It does

not, however, address the type of relationship that exists between the owners and Apache in terms

of their duties or liability to one another.

Although the joint operating agreement at issue here does not expressly negate the existence
of a fiduciary relationship between the owners and Apache, its mere existence does not ensure that

such a relationship exists, as the owners suggest. Under Texas law, "evidence of a joint operating

arrangement to develop a particular lease [in and of itself] will not support a finding of a broader

relationship," such as a partnership or joint venture. Rankin v. Naftalis, 557 S.W.2d 940, 946

(Tex.1977); see 2 EUGENE KUNTZ, A TREATISE ON THE LAW OF OIL AND GAS 109 (1989) ("The

[Joint Operating Agreement] is not intended to create any relation between the operator and

nonoperators nor among nonoperatorsthat is beyond the contractualrelationship."); Gary B. Conine,

Property Provisions of the Operating Agreement—Interpretation, Validity, and Enforceability, 19

TEX.TECH L.REV. 1263, 1274-76 (1988) (explaining that under Texas law, a joint operating

agreement in and of itself does not necessarily create the joint venture or form of partnership

necessary to impose fiduciary duties on the parties). Thus, unless specifically set forth in the

operating agreement itself, a fiduciary relationship arises between an operator and working interest

owners not from the contractual joint operating agreement, but from a "special relationship" that

exists between them, e.g., a partnership, joint venture, or agency relationship. See, e.g., Crowder v.

Tri-C Resources, Inc., 821 S.W.2d 393, 399 (Tex.App.—Houston [1st Dist.] 1991, no writ)

(determining that the relationship between the non-operators and the operator pursuant to the joint

operating agreement between them did not give rise to the duty of good faith and fair dealing that

would arise in a partnership); Taylor v. GWR Operating Co., 820 S.W.2d 908, 911-12

(Tex.App.—Houston [1st Dist.] 1991, writ denied) (explaining that a joint operating agreement does

not necessarily imply a joint venture between the parties to the agreement); Hamilton v. Texas Oil

& Gas Corp., 648 S.W.2d 316, 320 (Tex.App.—El Paso 1982, writ ref'd n.r.e.) (confirming that a

joint operating agreement did not necessarily create either a joint venture or a mining partnership and

that thus parties to the agreement were not necessarily involved in a fiduciary relationship).

The owners do not argue that their relationship with Apache should be classified as a

partnership, a joint venture, or an agencyrelationship. They do, nonetheless, contend that the district

court erred in granting summary judgment on their fiduciary duty claims because they produced

evidence to create a genuine fact issue that "under the circumstances" of the instant case, a fiduciary
relationship between them and Apache had been created.

Texas courts have long recognized that certain informal relationships may give rise to a

fiduciary duty. See Crim Truck & Tractor v. Navistar Int'l Trans. Corp., 823 S.W.2d 591, 594

(Tex.1992); MacDonald v. Follett, 180 S.W.2d 334, 337-38 (Tex.1944). "Such informal fiduciary

relationships have also been termed "confidential relationships' and may arise "where one person

trustsin and relies upon another, whether the relation is a moral, social, domestic or merely personal

one.' " Navistar, 823 S.W.2d at 594 (quoting Fitz-Gerald v. Hull, 237 S.W.2d 256, 261 (Tex.1951)).

However, because not every relationship involving great trust and confidence should be deemed

fiduciary in nature, Texas law recognizes a "confidential" or fiduciary relationship to exist only in

cases " "in which influence has been acquired and abused, in which confidence has been reposed and

betrayed.' " Id. (quoting Texas Bank & Trust Co. v. Moore, 595 S.W.2d 502, 507 (Tex.1980)).

The owners offered the affidavit evidence ofJack Finkelstein, a working interest owner in the

instant case, to support their claim that a fiduciary relationship existed between them and Apache.

Finkelstein attested that it was common and expected in the oil and gas business for an operator to

inform non-operators when a well holding acreage is taken off of production. Finkelstein also

attested to the fact that through December 1990 he received monthly billing statementsfrom Apache

showing that Apache was continuing to operate the Brothers well. Nonetheless, his attestation does

not provide sufficient facts to indicate that the owners and Apache had the type of "confidential"

relationship Texas law requires to impose a fiduciary duty on Apache to put the interests of the

working interest owners before its own.

Moreover, although the owners offered as evidence the operating agreement itself in that it

grants to Apache the exclusive right to conduct oil and gas operations on the Brothers Unit, such

evidence is unavailing. As we stated earlier, Texas law is clear that such an agreement does not of

itself give rise to a fiduciary duty between the operator and non-operating working interest owners.

See Rankin, 557 S.W.2d at 946; Hamilton, 648 S.W.2d at 321 (determining that evidence that the

non-operators were not contractually given the mutual right of control or management of the

enterprise was dispositive that no joint venture, and hence no fiduciaryrelationship, existed). Further,
the owners' evidence that Apache had exclusive control of oil and gas operations on theBrothers Unit

leases for almost eight years and had operated the well for many years preceding the cessation of

production in 1990 is equally unavailing. The fact that a relationship has been "a cordial one, of long

duration" is not evidence of a "confidential" relationship which imposesfiduciary duties under Texas

law. Navistar, 823 S.W.2d at 595 (citing Thigpen v. Locke, 363 S.W.2d 247, 253 (Tex.1962)).

The only other evidence the owners offered to show that an issue of material fact existed for

trial was the affidavit evidence of Roy W. Richard, Jr., one of the joint venturers in Brazoria 475, a

working interest owner in leasesin the Brothers Gas Unit. Richard attested that in late January 1989

he had drafted a letter to Rod Eaton, land manager for Apache, expressing concern over the costs of

the continued operations ofthe Brothers well and requesting that Apache stop operating theBrothers

well or provide an explanation of why it was necessary to continue its operati on. Attached to his

affidavit was the reply he received from David Tirey, a production manager for Apache, dated

February29, 1989. Tirey wrote that Apache did not plan on discontinuing operations on the Brothers

well at that time. Tirey also stated that

[a]t the present time, termination of operations on the Brothers well would not allow us to

keep the leasehold acreage. This would allow another operator to pick up the acreage, and

drill another well, which could drain reserves from our Christian Unit. We recently have

reduced our saltwater disposal costs on the lease, which should put the lease in a profitable

position.

Richard attested that Brazoria 475 did not investigate whether the leasehold acreage was being kept

because it believed that Apache was operating and intended to continue to operate the Brothers well

as Tirey'sletterindicated. Although Richard's attestation thus indicates that Brazoria 475 trusted that

Apache would continue to operate the Brothers well indefinitely, " "mere subjective trust alone is not

enough to transformarms-length dealing into a fiduciaryrelationship.' " Navistar, 823 S.W.2d at 595

(quoting Thigpen, 363 S.W.2d at 253).

Taking the summary judgment evidence produced as a whole, we cannot say that this

evidence co uld lead a rational trier of fact to find for the owners, the non-moving party. See

Matsushita, 475 U.S. at 587. We thus fail to see how the summary judgment evidence which the

owners produced cast any doubt on Apache's assertion that no fiduciary duty existed between the
parties. Accordingly, the district court did not err in granting summary judgment in favor of Apache

on the owners' fiduciary duty claims.

D. Breach of Contract

The owners further contend that the district court erred in granting Apache summary

judgment on their claims that Apache breached its contractual duties to notify the working interest

owners promptly when it shut in the Brothers well and to conduct itself as an reasonably prudent

operator under the circumstances. We deal with each of their claims in turn.

1. Failure to Notify

The owners expressly relied on the provisions of section 17 of the joint operating agreement

for their claim that Apache breached its contractual duty to themby failing to notify the owners when

Apache "shut in" the Brothers well. The owners contended that Apache's cessation of production

in mid-July 1990 constituted a "shut-in" of the Brothers well. Apache, however, argued that it did

not "shut in" the well, as contemplated in section 17, but instead had "abandoned" the well and that

thus section 16 of the joint operating agreement, which governed conduct related to the abandoning

of a well, was applicable.

Sections 16 and 17 of the joint operating agreement deal with abandoned wells and shut-in

wells, respectively. Section 17, entitled "Delay Rentals and Shut-in Gas Well Payments," provides:

Operator shall pay all delay rentals and shut-in well payments which may be required

under the terms of all leases covered by this agreement and submit evidence of each payment

to the other parties. Each party shall notify the other, in writing, at least thirty (30) days prior

to the date any rental payment is due, as to whether or not it elects to participate in the

payment thereof. In the event either party elects not to participate in a rental payment, and

the other party elects to participate therein, then the party desiring not to participate shall

promptly execute and deliver to the party desiring to participate in such rental payment an

assignment of such non-participating party's right, title and interest in and to such lease, or

leases, and such lease, or leases, shall no longer be subject to this agreement. The amount of

such payments, when made for the account of both parties, shall be charged by Operator to

the joint account of the parties. Operator shall not be liable to the other party in damages for

the loss of any lease or intereststherein if, through mistake or oversight, any rental or shut-in

well payment is not paid. There shall be no adjustment of interests of the parties in the

remaining portion of the Unit Area in the event of a failure to pay, or erroneous payment of

rental or shut-in well payments. If any party secures a new lease covering the terminated

interest, such acquisition shall be subject to the provisions of Section 23 of this agreement.

Operator shall promptly notify each party hereto of the date on which any gas well

located on the Unit Area is shut in and the reason therefor and the date on which said well

is restored to production. (emphasis added)
 

2Section 16 provides in pertinent part:

No well, other than any well which has been drilled or reworked pursuant

to Section 12 hereof for which the Consenting parties have not been fully

reimbursed as therein provided, which has been completed as a producer shall be

plugged and abandoned without the consent of all parties; provided, however, if

all parties do not agree to the abandonment of any well, those wishing to continue

its operation shall tender to each of the other parties its proportionate share of the

value of the well's salvable material and equipment ... less the estimated cost of

salvaging and the estimated cost of plugging and abandoning. Each abandoning

party shall then assign to the non-abandoning parties, without warranty, express or

implied, as to title or as to quantity, quality, or fitness for use of the equipment and

material, all of its interest in the well and its equipment, together with its interest in

the leasehold estate as to, but only as to, the interval or intervals of the formation

or formations then open to production.... 

Thus, thissection ofthe joint operating agreement places an express contractual duty on the operator

to notify promptly the working interest owners when a well is "shut in." Section 16, on the other

hand, entitled "Abandonment of Wells," imposes no contractual duty on the operator to notify the

working interest owners when it is abandoning a well, i.e., ceasing production permanently.2See

Fuller v. Phillips Petroleum Co., 872 F.2d 655, 658-59 (5th Cir.1989) (interpreting an identical

provision in another joint operating agreement as not imposing upon the operator—directly or by

implication—a duty to notify the working interest owners of its intent to plug and abandon the well

while the underlying leases of the owners were alive).

In granting Apache's mo tion for summary judgment on this claim, the district court first

determined that although "shut in" is a generic term used to refer to the closing of the valvesthrough

which oil and gas flow through a well, its legal meaning refers to the closing of valves "when

production at a well capable of producing in paying quantitiesistemporarily halted to repair or clean

the well, to allow reservoir pressure to build, or for lack of market." The district court further

reasoned that a "shut-in gas well clause," like section 17 in the instant joint operating agreement,

refersto a provision in the underlying lease agreement whereby a lessee is authorized to pay a shut-in

royalty to the lessor and thus keep a lease alive without actual production when and if a well has been

drilled which is capable of producing in paying quantities but which is for some reason temporarily

"shut in." Hence, the district court concluded that the term "shut in," as used in section 17,

specifically did not contemplate the permanent cessation of production.
We agree with the conclusion of the district court. We first emphasize that the express

language ofsection 17 itselfsupports the district court's conclusion. The section's mandatory notice

requirement is phrased in the conjunctive, thus requiring that the operator promptly notify each

working interest owner of three things: (1) the date on which any gas well located on the unit is shut

in, (2) the reason for the shut-in, and (3) the date on which the well is restored to production. Under

Texas law, terms used in a contract, if not ambiguous, are to be given their plain, ordinary and

generally accepted meaning unless the instrument itself shows that the terms have been used in a

technical or different sense. See Brooks, 832 F.2d at 1364 (citing Ramsay v. Maryland Am. Gen. Ins.

Co., 533 S.W.2d 344, 346 (Tex.1976)). In everyday usage, the term "restore" means "to bring back

into existence or use"; "to reestablish"; or "to bring back to an original condition." See American

Heritage Dictionary 1054 (1982). It is this third requirement of the notice provision, joined

conjunctively to the other two, that makes the entire notice provision ofsection 17 contemplative of

the temporary cessation of production.

Moreover, we have found no Fifth Circuit or Texas case even remotely indicating that the

term "shut in," as used in the instant joint operating agreement, refers to the permanent cessation of

production. In fact, quite the opposite is true. For example, in Duke v. Sun Oil Co., 320 F.2d 853

(5thCir.1963), this court reviewed the effect of a "shut-in royalty clause" in a Texas oil and gaslease.

The lease itself provided that the lessee could keep the lease alive if, after the expiration of the lease's

primary term, the well holding the lease continued to produce or the lessee timely paid shut-in

royalties to the lessor during the period in which the well was capped. Id. at 860. We determined

that the plain terms of the lease thus indicated that the lease could be kept alive by either actual or

"constructive" production, i.e., the payment of shut-in royalties. Id. In reaching this determination,

we reviewed the Texas Supreme Court's decision in Skelly Oil Co. v. Harris, 352 S.W.2d 950

(Tex.1962), in which the court discussed a lease's cessation of production clause—which provided

that once the primary term had expired, the lease would remain in effect so long as operations were

"prosecuted with no cessation of more than sixty (60) consecutive days"—as a means of maintaining

the lease during temporary periods of inactivity. Id. Accordingly, we viewed the shut-in clause in
question in the same light, i.e., as a clause which allows a lessee—upon the timely paying of shut-in

royalties—to maintain the lease when a well is temporarily shut in for various reasons but is capable

of actual production. Id. at 860-61.

Other Texas cases discuss shut-in royalty clauses, and thus the term "shut in" as it is used in

an oil and gas lease, in connection with the temporary cessation of production. See Mayers v.

Sanchez-O'Brien Minerals Corp., 670 S.W.2d 704, 709 (Tex.App.—San Antonio 1984, writ ref'd

n.r.e.) (determining that under the terms of the shut-in clause of the lease in question, "the shut-in

payment acts as constructive production if within the 60 days after the expiration of the shut-in

payment period actual oil, gas, or other mineral is produced"); cf. Kidd v. Hoggett, 331 S.W.2d 515,

519 (Tex.Civ.App.—San Antonio 1959, writ ref'd n.r.e.) (explaining that the payment of shut-in

royalties does not keep a lease alive if the well holding the lease was "shut in" but had never been

capable of actual production). Commentators have also indicated that the term "shut in" as used in

various clauses in an oil and gas lease refers to the temporary cessation of production because the

clauses in which this term is used have been designed to provide the lessee with a means of holding

the lease when the oil or gas from a producing well cannot be marketed or used for various reasons.

See, e.g., 3 KUNTZ, supra, at 2-28 (explaining that shut-in royalty clauses are designed to protect a

lease when a well must be shut in because the gas that is capable of being produced cannot be

marketed for various reasons, e.g., no market exists at that time or a temporary mechanical problem

has developed); HOWARD R. WILLIAMS & CHARLES J. MEYERS, OIL AND GAS LAW 350-61

(Abridged ed. 1993) (discussing the development of shut-in royalty clauses, which are designed to

provide a means of holding a lease beyond the expiration of the primary term when the product of

a producing well cannot be sold or used during the time of the shut-in).

In the joint operating agreement at issue, section 17 as a whole is entitled "DelayRentals and

Shut-In Gas Well Payments." Because the section itself is set forth to deal with the logistics of

shut-in royalty payments, which—as we just discussed—are a meansfor a lessee to hold a lease after

the primary term has expired when production is temporarily halted, so too must the term "shut in"

as used within that section refer to a temporary cessation of production.
Consequently, because we find section 17 to contemplate only a temporary cessation of

production, the owners can defeat Apache's motion for summary judgment if they have produced

evidence to create a genuine fact question on whether the cessation of production which occurred

in the instant case could have been deemed "temporary." The uncontroverted facts, however, clearly

indicate that Apache fullyintended to halt production completely and irrevocably at the Brothers well

in mid-July 1990. The interoffice memo from David Tirey states that the Brothers well was shut in

and "not expected to return to production." The deposition testimony of Donald E. Harris indicates

that Apache never co nsidered making any shut-in well payments with respect to the leases on the

Brothers Unit after it ceased producing the Brothers well in mid-July 1990. Moreover, summary

judgment evidence shows that Apache not only filed a notice with the Texas Railroad Commission

of itsintention to plug and abandon the Brothers well but also received bidsfrom several contractors

for plugging operations and sought the owners' consent to plug and abandon the well.

The owners provided the district court with no evidence that a temporary cessation was ever

in contemplation when Apache halted production at the Brothers well. Because the owners did not

meet their burden under Celotex and Matsushita, we can not conclude as a matter of law that the

owners are able to rely on section 17 to allege that Apache breached the joint operating agreement

by failing to give them notice of the cessation of production from the Brothers well.

Moreover, because the summary judgment evidence indicates that all production on the

Brothers well was permanently stopped as of mid-July 1990 and that Apache intended to abandon

the well, section 16 of the joint operating agreement governs Apache's duties with respect to giving

notice to the owners. As this court has already determined, section 16 of the joint operating

agreement does not mandate that an operator give working interest owners notice of an impending

lease termination because of the operator's intent to plug and abandon the well. Fuller, 872 F.2d at

659. The district court, therefore, did not err in granting Apache summary judgment on this issue.

2. Failure to Act as a Reasonably Prudent Operator

The owners also contend that the district court erred in granting summary judgment for

Apache on the owners' claim that Apache breached the joint operating agreement by failing to
conduct itself as would a prudent operator under the circumstances. Specifically, the owners asserted

that Apache had breached its duty as a prudent operator by failing to take reasonable stepsto prevent

the loss of the lease on the Brothers Unit and bymisrepresenting that it was continuing to operate the

Brothers well by sending monthly billing statements through December 1990.

The ownersreferred to section 5 ofthe joint operating agreement asthe basisfor their claims.

Section 5 specifically states that Apache

shall be the Operator of the Unit Area, and shall conduct and direct and have full control of

all operations on the Unit Area as permitted and required by, and wit hin the limits of, this

agreement. It shall conduct all such operations in a good and workmanlike manner, but it

shall have no liability as Operator to the other parties for losses sustained, or liabilities

incurred, except such as may result from gross negligence or from breach of the provisions

of this agreement.

Texas courts have determined that in the context of a joint operating agreement, the requirement that

Apache conduct all operations—as permitted by, required by, and within the limits of the

agreement—in "a good and workmanlike manner" means that Apache has a duty to perform such

operations "as a reasonably prudent person engaged in drilling oil wells," i.e., as a reasonably prudent

operator. Johnston, 837 S.W.2d at 716; cf. Westbrook v. Watts, 268 S.W.2d 694, 697-98

(Tex.Civ.App.—Waco 1954, writ ref'd n.r.e.) (interpreting "good and workmanlike manner," in the

context of a drilling contract, to mean "as a reasonably prudent person engaged in drilling oil wells");

Ernest E. Smith, Duties and Obligations Owed by an Operator to Nonoperators, Investors, and

Other Interest Owners, 32 ROCKY MTN.MIN.L.INST. 12-1, 12-20 (1986) ("The reasonable prudent

operator standard, which governsthe lessee's conduct under the typical oil and gaslease, is normally

assumed to govern the operator's conduct under the operating agreement also.").

Apache argued, and the district court agreed, that the "good and workmanlike manner"

provision contained within section 5, which requires an operator to perform as a reasonably prudent

operator, simply sets forth the standard to be applied to Apache's performance of the operations

expressly required by the joint operating agreement and does not create any independent duties. The

district court thus noted that because the owners had not demonstrated the existence of some

obligation required under the joint operating agreement that Apache had failed to perform, Apache

was entitled to summary judgment on the owners' claim for breach of contract under section 5 of the
agreement.

The owners contend nonetheless that the district court erred in reaching this conclusion

because in Johnston a Texas appeals court had already rejected the position taken by Apache and the

district court. The Johnston court considered the claims of the working interest owners that the

operator had failed to assert take-or-pay claims against a third-party product purchaser. 837 S.W.2d

at 715. The operator argued that under the joint operating agreement, it had no express contractual

duty to assert those claims. Id. Nonetheless, the court rejected the operator's argument. It

concluded that because the joint operating agreement required the operator to performits contractual

duties "in a good and workmanlike manner," i.e., as would a reasonably prudent operator, the

operator owed the working interest owners a duty to perform as a reasonably prudent operator in

deciding whether to assert a take-or-pay claim against a third-party purchaser on behalf of the

owners. Id. at 716.

We thusrecognize that the Johnston court determined that under Texas law, the scope of an

operator's duty is not necessarilylimited to only those affirmative obligations expressly detailed in the

joint operating agreement. We agree with the district court that section 5 of the joint operating

agreement requires that Apache conduct itself in "a good and workmanlike manner," i.e., as would

a reasonably prudent operator under the circumstances, with respect to operations required or

permitted bythe joint operating agreement. Nonetheless, we cannot determine as a matter of law that

Apache did not breach its duty to conduct itself as a reasonably prudent operator under the specific

circumstances of this case.

The owners have alleged that Apache failed to conduct itself as a reasonably prudent operator

by ceasing operation on the Brothers well after Apache had advised the owners by letter in February

1989 that termination of operations on the well "would not allow [Apache] to keep the leasehold

acreage" and "would allow another operator to pick up the acreage, ... [possibly draining] reserves

from[the] Christian Unit." The owners thus contend that after having given them the assurances that

operations would continue on the Brothers well to hold the leases, Apache undertook upon itself—as

"permitted" by the joint operating agreement—the duty to continue operations on the well or to take
reasonable action to prevent the loss of the Brothers Unit leases and that Apache breached this duty.

In its motion for summary judgment, Apache addressed only the owners' claim that it had

failed to give them notice of the cessation of production on the Brothers well in terms of its expressly

detailed duties under sections 16 and 17 of the joint operating agreement, contending that the "good

and workmanlike manner" requirement of section 5 was inapplicable to Apache's conduct at issue

because Apache was not required to give notice of the cessation of production under either of these

sections. Apache did not, however, address the owners' claim that it failed to perform as a reasonably

prudent operator under the circumstances of having given the owners assurances that it intended to

continue to operate the Brothers well to hold the leases in effect.

The party moving for summary judgment must demonstrate the absence of fact issues by

identifying portions of the pleadings, discovery, and affidavits which support its position. Celotex,

477 U.S. at 323, 106 S.Ct. at 2552-53. If the movant fails to meet this initial burden, the non-moving

party has no burden to produce evidence, even if the non-moving party bears the burden of proof at

trial. Russ v. International Paper Co., 943 F.2d 589, 592 (5th Cir.1991).

Apache has not met its initial burden under Celotex. Thus, whether Apache took upon itself

the duty to continue to operate the Brothers well or to take reasonable action to prevent the loss of

the Brothers Unit leases and, ifso, whether Apache breached its duty by failing to act as a reasonably

prudent operator under these circumstances are genuine fact issues. We therefore conclude that

summary judgment was inappropriate.

Apache also failed to meet its initial burden under Celotex with respect to the owners' claim

that Apache misrepresented to the owners that it continued to operate the Brothers well by sending

the ownersmonthlybilling statementsfromJulythroughNovember 1990. Although the district court

determined that Apache's sending these billing statements indicated that Apache did not, as a matter

of law, misrepresent the production status of the Brothers well, the district court reached this

conclusion by relying on facts for which there is no support in the record, e.g., that these monthly

statements provided the owners with revenue and expense information from the well and that they

clearly indicated that from mid-July 1990 onward the Brothers well generated little or no income.
 

3We note that the owners produced summary judgment evidence that Apache admitted that it

had charged the owners administrative overhead for the Brothers well based on the producing

well rate computed under the operating agreement in these billings. Apache also admitted,

however, that these billings were eventually corrected and reversed. 

None of these monthly statements or a factual description of the contents therein is evidenced in the

record. Further, although in its motion for summary judgment Apache characterized these billing

statements as being "similar" to those sent by the operator to the working interest owners in Fuller,

which put the working interest owners on notice that the well was decreasing in production, there is

no evidence in the record to support this assertion.3

Additionally, even though Apache argued that it was not released from continuing

responsibilities for the well until the well was plugged and hence that it continued to serve as the

operator of the well, it offered no evidence of any "operations" conducted on the well during that

time. In fact, as we have already pointed out, evidence was introduced to suggest just the opposite.

We thus conclude that there exists a genuine issue of material fact of whether Apache

misrepresented to the owners that it was continuing to produce the Brothers well from July through

November 1990. Accordingly, the district court erred in granting summary judgment to Apache on

the owners' misrepresentation claim.

IV. CONCLUSION

For the foregoing reasons, we AFFIRM the district court's denial of the owners' motion to

amend their complaint and the court's dismissal of the owners' claim of fraud on the pleadings. We

AFFIRM in part and REVERSE in part the district court's grant of summary judgment in favor of

Apache and REMAND for further proceedings consistent with this opinion. Each party is to bear

its own costs.

W. EUGENE DAVIS, Circuit Judge, concurring in part, dissenting in part:

I concur in the thorough majority opinion except for its treatment of one issue. I disagree

with the majority's conclusion that a rational jury could find that Apache agreed (or led plaintiffs to

believe that it had agreed) to continue production of the Brothers well or notify plaintiffs of itsintent

to abandon the well. The majority's conclusion is predicated solely on an exchange of correspondence
between one of the plaintiffs and Apache.

The purpose of Roy Richard's January 25, 1989 letter to Apache was to persuade Apache to

discontinue operating the Brothers well. After detailing the well's income and expenses, Mr. Richard

stated: "our group feels it is simply not feasible from a financial standpoint to continue operating the

Brotherswell. We are formally requesting that operations, production, and the incurring of additional

expenses on the Brothers well cease immediately." Mr. Richard then requested a reply to the letter

and an explanation of any reasons Apache might have for not terminating operations.

Less than a month later, Apache advised Mr. Richard that Apache "does not plan on

discontinuing operations on the subject well at this time." David Tirey, on behalf of Apache, gave

two reasonsfor declining to terminate operations. First, he advised Mr. Richard that: "At the present

time, termination of operations on the Brothers well would not allow us to keep the leasehold

acreage. This would allow another operator to pick up the acreage, and drill another well which

would drain reservesfromour Christian unit." Second, he observed that: "We recently have reduced

our saltwater disposal costs on the lease, which should put the lease in a profitable position." Mr.

Tirey closed the letter by stating: "If you have other questions, please do not hesitate to call."

Plaintiffs made no further contact with Apache.

The majority apparently concludes that a factfinder could conclude from Apache's letter that

Apache agreed to maintain production on the Brothers well or notify plaintiffs if it decided to

terminate production. I fail to see how this correspondence can raise such an inference.

Apache did not undertake to do anything. It declined Mr. Richard's request to terminate

production. If plaintiffs, after they received Apache's February 20 response, wanted Apache to

continue production to maintain the leases despite the losses they were suffering on the operation of

the wells, the ball was in plaintiffs's court; it was up to them to retract thei r earlier request that

Apache terminate production. But plaintiffs did not respond to Apache's February 20 letter. In the

absence of a response, Apache was entitled to assume that Mr. Richard's request for termination of

production of the Brothers well was still outstanding.

A plain reading ofthe summary judgment evidence failsto disclose an assumption by Apache
of an obligation to notify plaintiffs of their intent to terminate production. I would therefore affirm

the district court's summary judgment in favor of Apache on plaintiff's claim that Apache breached

its obligation to perform in a good and workmanlike manner by failing to notify plaintiffs of its intent

to terminate production at the Brothers well.