Opinion ID: 151845
Heading Depth: 2
Heading Rank: 4

Heading: The Resulting Lawsuit

Text: In 2000, Barnes sued Dominion and Moose O&G in Lavaca County, Texas district court to recover damages to real property, breach of contract for failure to pay royalties, fraudulent inducement, and negligent misrepresentation. Tawes and the other Moose Assignees were originally brought into the suit as third-party defendants. Under her original contract with Dominion, Barnes was owed a 17.916% royalty. No party, including Tawes, disputes that Barnes was owed a royalty proportional to her land's contribution to the pooled unit, or 9.675%. The remaining 8.241% (17.916-9.675) was disputed between the parties. In February of 2002, Tawes and Marlin Data Research, Inc. (MDR) [2] acquired Moose O&G's working interest in the Baker Lease and the Baker-Barnes Nos. 1 & 2 wells at a foreclosure sale. The following chart displays the working interest ownership of the wells at issue: ------------------------------------------------------------------------- Tawes MDR ------------------------------------------------------------------------- Baker-Barnes Wells: Well 1 Well 2 Well 1 Well 2 ------------------------------------------------------------------------- Before Feb. 13, 2002: 12.5% 13.1146% 0% 0% ------------------------------------------------------------------------- After Feb. 13, 2002: 40.901324% 41.023051% 10.451376% 10.258449% ------------------------------------------------------------------------- In March of 2002, payout of the proceeds received from the sale of production from the Baker-Barnes Nos. 1 & 2 wells was suspended and such proceeds began to be held in suspense pursuant to court order. The production payments are held in two accounts: one for the benefit of the working interests, including Tawes, based on their respective interests in the wells, and another for the benefit of all the royalty owners. In April of 2002, Moose O&G filed in the bankruptcy court a voluntary bankruptcy petition under Chapter 7 of Title 11 of the United States Code. In August, notice of removal was filed, removing the Barnes' state-court action to the bankruptcy court below as part of the Moose O&G bankruptcy proceeding. In September of 2003, the parties notified the bankruptcy court that a settlement had been reached among Barnes, Dominion, and the Moose Assignees, but not Tawes or MDR. Under the terms of the settlement, Barnes would receive $356,124.96. Barnes agreed to ratify her royalty to the undisputed 9.675% in all the wells in the pooled unit and release her claims against the parties to the settlement agreement. Dominion agreed to release its third-party claims against the Moose Assignee signatories to the settlement agreement. The bankruptcy court issued a Final Case Management Order directing all non-settling parties to file amended pleadings and a stipulation of facts and law. Barnes amended her complaint to allege that Tawes and MDR were responsible for royalties due from Baker-Barnes Nos. 1 and 2 wells that accrued prior to February 2002. In October 2004, the bankruptcy court approved the settlement. In August of 2006, the bankruptcy court found Tawes, but not MDR, liable to Barnes for unpaid royalties on the Barnes Nos. 1 and No. 2 wells that accrued from the date of first production to February 2002. Specifically, the bankruptcy court relied on the above-noted Royalty Provision of the JOA stating that Consenting Parties shall be responsible for all royalty applicable to the non-Consenting Party's share of production. However, the bankruptcy court found no evidence that Barnes was owed 17.916% royalty. Instead, the bankruptcy court held that Barnes was owed royalty proportional to her land's contribution to the pooled unit, or 9.675%the undisputed royalty amount. The bankruptcy court held that Barnes' damages, $291,846, should not be offset by her settlement with Dominion and the other Moose Assignees because the evidence does not establish which portion of the settlement, if any, was payment of the pre-February 2002 royalties, as opposed to post-February 2002 royalties or damages for her claims of fraudulent inducement and negligent misrepresentation. [3] Finally, the bankruptcy court rejected Barnes' claim for attorneys fees. Tawes appealed the bankruptcy court's decision to the United States District Court for the Southern District of Texas. Barnes cross appealed the bankruptcy court's decision on attorneys fees. The district court affirmed the bankruptcy court's holding as to liability, but reversed its decision on attorneys fees and remanded it for factual development. The district court compared MCI Telecommunications Corp. v. Texas Utilities Electric Co., 995 S.W.2d 647 (Tex.1999), with Stine v. Stewart, 80 S.W.3d 586 (Tex.2002), and held that Barnes was a third-party beneficiary of the WIUA and JOA. Interpreting the contract under Texas law, the district court held that the contract did not preclude recovery against Barnes. Finally, it held that the Non-Consenting Parties had bargained for the consenting parties to be fully liable for all royalties due by a Non-Consenting Party.