Court Opinion

ID: 2885392
Source: CourtListenerOpinion
Date Created: 2015-09-07 18:33:41.976365+00
Date Added: 2024-06-11T12:46:10.550703
License: Public Domain

NO. 07-99-0090-CV

                              IN THE COURT OF APPEALS

                       FOR THE SEVENTH DISTRICT OF TEXAS

                                         AT AMARILLO

                                          PANEL B

                                 NOVEMBER 7, 2001
                          ______________________________

                                  S & J INVESTMENTS,

                                                         Appellant

                                              v.

            AMERICAN STAR ENERGY AND MINERALS CORPORATION,

                                                Appellee
                        _________________________________

           FROM THE 84TH DISTRICT COURT OF HUTCHINSON COUNTY;

                  NO. 29,150; HON. WILLIAM D. SMITH, PRESIDING
                        _______________________________

Before BOYD, C.J., QUINN and JOHNSON, JJ.

       S & J Investments (S & J) appeals from a final judgment in favor of American Star

Energy and Minerals Corporation (American). Through eleven issues and numerous sub-

issues, S & J argues that the trial court erred in 1) granting American a partial summary

judgment concerning joint interest billing, 2) granting an instructed verdict on the issues of

fraud, willful misconduct, and gross negligence, and 3) entering judgment on the jury’s

answers concerning attorney’s fees and pre-judgment interest. For reasons stated below,

we reverse in part and affirm in part.
                                       Background

       This case concerns an oil and gas lease known as the “Bearkiller” lease. S & J

(owner of a non-operating working interest) is an original party to the lease while American

succeeded to the position of operator in 1987. As part of its duties, American billed each

non-operating working interest owner their proportionate share of the operating expenses.

The operating agreement also permitted the operator to assess upon the working interest

owners a specific overhead expense per producing well per month.

       Under the operating agreement, S & J agreed to pay its proportionate share of the

expenses within fifteen days from date of receipt. However, in August 1990, it ceased

paying its share of same. This resulted in American filing suit. S & J joined issue and

counterclaimed for breach of the operating agreement, negligence, gross negligence,

breached duty of good faith and fair dealing, usury, and fraud. Thereafter, American filed

a motion for partial summary judgment on various grounds. The trial court granted

American a partial summary judgment upon the allegations of breached duty of good faith

and usury. So too did it hold that S & J failed to comply with a provision of the operating

agreement requiring working interest owners to contest charges in writing within a certain

period of time. Lastly, it awarded American $34,241.32 as the amount of uncontested

expenses due and payable from S & J. The remaining counterclaims of S & J were

preserved for trial.

       After presentation of evidence to a jury at trial, the trial court granted American’s

motion for directed verdict on the issues of fraud, willful misconduct and gross negligence.

However, the question of whether a provision of the operating agreement allowed

American to charge compound interest was submitted to the jury, as was the question

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regarding the amount of attorney’s fee to be awarded to American. The jury answered yes

to the former and awarded American fees. Final judgment was then entered upon that

verdict.

                              Partial Summary Judgment

       Standard of Review

       The standard by which we review summary judgments is well-known and need not

be repeated. Instead, we simply refer the parties to Science Spectrum, Inc. v. Martinez,

941 S.W.2d 910 (Tex. 1997) and Nixon v. Mr. Property Management Co. Inc., 690 S.W.2d
546 (Tex. 1985) (involving the standard generally applicable to summary judgments).

       Application of Standard

       1.    Good Faith and Fair Dealing

       S & J argued that the trial court erred in granting summary judgment upon its claim

of breached duty of good faith and fair dealing. We disagree. Those party to an operating

agreement do not owe each other duties of good faith and fair dealing. Taylor v. GWR

Operating Co., 820 S.W.2d 908, 909 (Tex. App.--Houston [1st Dist.] 1991, writ denied);

Texstar N. Am., Inc. v. Ladd Petroleum Corp., 809 S.W.2d 672, 677-78 (Tex. App.--Corpus

Christi 1991, writ denied). Thus, the trial court did not err in holding, via summary

judgment, that American owed no such duty to S & J , and we overrule the point.

       2.    Waiver and Estoppel

       Next, S & J contended that American was prohibited from relying upon the provision

in the contract requiring S & J to present its complaints regarding the bills in writing to

American. The basis for the contention were the theories of waiver and estoppel. That is,

                                            3
it argued that American either waived or was estopped from relying on the provision. We

disagree and overrule the point.

       As to the matter of waiver, that ground was not asserted below in response to

American’s motion for summary judgment. S & J simply mentioned estoppel, and estoppel

is a legal theory distinct from waiver. Herschbach v. City of Corpus Christi, 883 S.W.2d
720, 736 (Tex. App. – Corpus Christi 1994, writ denied). So, since waiver was not

mentioned below, it cannot be used as a basis to secure reversal of the partial summary

judgment on appeal. TEX . R. CIV. PROC . 166a(c).

       As for estoppel, S & J simply mentions the theory in passing in its brief.

Furthermore, neither citation to legal authority nor explanation of the theory’s application

to the dispute at bar accompanied S & J’s allusion to the theory. Consequently, the issue

was inadequately briefed and, therefore, waived. TEX . R. APP. PROC . 38.1(h) (stating that

a brief must contain a clear and concise argument for the contentions made, with

appropriate citation to authority and the record); State Farm Lloyds, Inc. v. Williams, 960
S.W.2d 781, 789 (Tex. App.--Dallas 1997, no writ) (holding that the failure to cite legal

authority in support of an issue constitutes waiver of the issue).

       3.     Usury

       Next, S & J alleged that the trial court erred in granting it an unfavorable summary

judgment upon its claim of usury. We disagree and overrule the point.

       American allegedly committed usury because it charged interest in excess of 10%

per annum. As to the matter of interest, the operating agreement provided,

                                             4
       [e]ach Non-Operator shall pay its proportion of all bills within fifteen (15) days
       after receipt. If payment is not made within such time, the unpaid balance
       shall bear interest monthly at the rate of twelve percent per annum or the
       maximum contract rate permitted by the applicable usury laws in the state
       in which the Joint Property is located, whichever is the lesser . . . .

Since the maximum amount of interest a creditor could charge back in 1980 (when the

operating agreement was executed) was allegedly ten percent, American could never

charge more than ten percent, according to S & J. Furthermore, the case of Reagan v.

City Nat. Bank, 714 S.W.2d 425 (Tex. App.--Eastland 1985, writ ref’d. n.r.e.) was cited as

support for the contention. Admittedly, Reagan held that the usurious nature of a contract

is to be determined at the time of the contract’s inception. Id. at 428. Yet, unlike the

situation at bar, Reagan did not involve a contract specifying alternate means of calculating

the applicable interest rate. There, the parties selected a specific rate of interest, i.e.

19.5%. Here, however, the parties expressly agreed that the rate would be 12% per

annum or the maximum rate allowed by law, which ever was lower. Additionally, and

unlike the situation in Reagan, the agreement before us contemplated a succession of

debts arising over the life of the operating agreement, not one represented by a promissory

note as in Reagan. The same can be said of Hockley County Seed and Delinting, Inc. v.

Southwestern Inv. Co., 476 S.W.2d 38 (Tex. Civ. App.– Amarillo1971, writ ref’d. n.r.e.),

another case cited by S & J. As in Reagan, and unlike the circumstances at bar, in

Hockley County there existed only one indebtedness as opposed to a series created over

time. Furthermore, nothing was said by the Hockley County court about the alternate

means of calculating interest. So, given these distinctions in Reagan and Hockley County,

it can hardly be said that either stands for the proposition urged by S & J. That is, neither

                                               5
hold that when a series of debts are contemplated to arise over a period of time and the

parties agree that interest shall accrue upon each distinct debt at either a specified rate or

the maximum amount allowed by law, which ever is less, the rate applicable to the first

debt incurred is the rate applicable to each subsequent debt.

       Indeed, to adopt the proposition of S & J would be to run afoul of Reagan and

Hockley County. This is so because both Reagan and Hockley County can be read as

holding that usury is determined by testing the interest charged or levied against the

maximum allowed by statute at the time the debt was created. And, to the extent that the

debts upon which American sued at bar were created long after the operating agreement

was executed, the maximum interest rate allowed by statute when they were created (as

opposed to the time when the operating agreement was executed) would control,

according to Reagan and Hockley County. Finally, since the maximum rate, see TEX . REV.

CIV. STAT . ANN . 5069-1.04(b)(1) (Vernon 1987), repealed by Act of May 24, 1997, 75th

Leg., R.S., ch. 1008, § 6(a), 1997 Tex. Gen. Laws 3091, 3602 (now found at TEX . FIN .

CODE ANN . §303.305 (Vernon Supp. 2001)) (designating 18% as the maximum legal

interest rate) exceeded the 12% charged by American, the latter did not engage in usury.

       Nor can it be said that American committed usury when it effectively compounded

the 12% per annum mentioned in the operating agreement by charging interest on a

monthly basis. This is so because the parties agreed that interest was to be assessed on

a monthly basis. And, since the parties so agreed, American was entitled to compound the

interest due, according to Texon Energy Corp. v. Dow Chemical Co., 733 S.W.2d 328, 331

(Tex. App.--Houston [14th Dist.] 1987, writ ref’d n.r.e.). In Texon, the court was asked to

                                              6
decide whether a contractual provision identical to that at bar permitted the compounding

of interest on a monthly basis. The court held that it did. Id. at 331. So, given the holding

in Texon, we conclude that the compound interest levied at bar was not usurious.

       4.      Award of Allegedly Uncontroverted Charges

       Next, S & J asserts that the trial court erred in entering an interlocutory summary

judgment awarding American $34,241.31.1 The latter, as urged by American in its motion

for summary judgment, was allegedly composed of the uncontested lease operating

expenses due by S & J. According to American, the sum was derived by deducting the

expenses which S & J disputed from the entire amount of expenses American believed

were due it.

       In urging that the trial court erred in granting the summary judgment , S & J posited

various contentions. Only one need be addressed here. It concerns the failure of

American to attach to the affidavit of Carroll Beaman, president and sole-shareholder of

American, documents to which he alluded in his affidavit and on which he relied in

calculating the supposedly uncontested sum. Furthermore, these documents consisted

of excerpts from the deposition of Richard Stowers, a principal of S & J, and joint interest

billings. The former contain the “operating charges specifically identified [in the deposition

of S & J’s representative] . . . as being contested . . .,” alleged Beaman. And, because

they were not attached to the affidavit, the trial court was “unable to determine the basis

for Beaman’s conclusions,” concluded S & J. We agree.

       1
          This sum represented the damages awarded American in the final judgment as well, exclusive of
interest and attorney’s fees.

                                                  7
         Rule 166a(f) of the Texas Rules of Civil Procedure requires, among other things,

that an affiant attach to his affidavit “sworn or certified copies of all papers or parts thereof

referred to in [the] affidavit . . . .” Rodriquez v. Texas Farmers Ins. Co., 903 S.W.2d 499,

506 (Tex. App.--Amarillo 1995, writ denied). The failure to do so constitutes “a fatal defect

in the substance of the affidavit . . . .” Id. This is so because, at the very least, without the

documents the court or the opposing party may not be able to assess the accuracy of the

facts or opinions offered by the affiant. And, that the defect was not made known to the

trial court matters not for it may be raised on appeal for the first time. Id.

         Here, the Stowers’ deposition excerpts which Beaman mentioned in his affidavit

formed the basis of his opinion regarding the uncontested charges allegedly due. Yet,

neither the excerpts nor the deposition itself were attached to the motion.2 See E.B. Smith

Co. v. U.S. Fidelity and Guar. Co., 850 S.W.2d 621, 624 (Tex. App. – Corpus Christi 1993,

writ denied) (holding that the deposition or deposition excerpts must be provided to the trial

court for consideration at time summary judgment motion is presented). Nor does the

appellate record before us reveal that the deposition was ever filed of record. Similarly

omitted from the affidavit were express references to where in the deposition these

supposedly disputed charges appeared.3 Under these circumstances, American failed to

comply with Rule 166a(f) by omitting to attach a verified copy of the deposition excerpts

         2
           Also omitted were verified copies of the “joint interest billings” which Beaman also re ferred to in his
affidavit and which supposedly fo rm the basis of its entire claim .

         3
          Discovery products not on file with the clerk m ay be used as summ ary judgment evidence if copies
of the material, appendices containing the evidence, or a notice containing specific references to the discove ry
or specific references to other instruments are filed and served on all parties together with a statement of
intent to use the spec ified discovery as sum m ary judgm ent proof. T EX . R. C IV . P R O C . 166a(d). The ap pellate
record also fails to disclose that American complied with this rule when it purported to use deposition exc erpts
to calculate the uncontested expenses allegedly due.

                                                          8
to its affidavit.      Without them, “there [is] no way to determine which portion of the

document[] the [interested witness] relied upon in expressing his opinion.” Natural Gas

Clearinghouse v. Midgard Energy Co., 23 S.W.3d 372, 379 (Tex. App.--Amarillo 1999, pet.

denied). Consequently, the affidavit is fatally defective, and the testimony regarding the

undisputed sums allegedly due from S & J fails to establish, as a matter of law, that

American was entitled to $32,241.31 from S & J.4

                                             Directed Verdict

        Fraud

        S & J alleged that American defrauded it because it charged S & J for expenses on

wells which were not operating between 1990 and 1998. The trial court directed a verdict

against S & J on the claim. S & J contended that this was error because there existed

some evidence creating a question of fact upon each element of the claim. We disagree.

        Assuming arguendo that the bills sent by American were false, S & J never paid

them. Having failed to pay them, it can hardly be said that it suffered damage or injury.

And, presence of damage or injury is elemental to a claim of fraud. Eagle Properties .Ltd.

v. Scharbauer, 807 S.W.2d 714, 723 (Tex. 1990).

        Moreover, if presentation of those allegedly false bills constituted the supposed

material misrepresentations, as S & J posited, then its failure to pay same also illustrates

that it did not rely on the misrepresentations to its detriment. See id. (holding that reliance

upon the misrepresentation is also an element of fraud). Simply put, it cannot be said that

        4
          To the extent American suggests that Stowers confirmed at trial that the uncontested charges
equaled the amount Beaman m entioned in his summ ary judgment affidavit, we find that this does not cure
the defe ct. W hether sum m ary judgm ent was prop erly issued dep ends up on the sum m ary judgment evidence
presented to the c ourt a t the tim e it was con sidering the sum m ary judgm ent m otion. See Sta te Farm Fire &
Ca s. Co. v. G riffin, 888 S.W .2d 150, 153 (T ex. A pp. – Housto n [1 st Dist.] 1994, no writ).

                                                       9
one relied on a misrepresentation when he has not responded to or acted upon it.

Consequently, the trial court did not err in granting American a directed verdict on the

claim.

         Intentional Misconduct and Gross Negligence

         Next, S & J contends that the trial court erred in directing a verdict on its claims of

intentional misconduct and gross negligence.             Both theories were invoked by the

complainant pursuant to a provision in the operating agreement insulating American from

claims involving actions other than those considered intentional misconduct or grossly

negligent. According to S & J, American engaged in such misconduct and negligence by

failing to close or shut-in wells that were not operating and by charging investors expenses

related to those very same wells.

         In granting American an instructed verdict upon the allegations, the court recited

several grounds for its decision. That is, it concluded that American was entitled to the

verdict because S & J presented no evidence of gross negligence or of damage arising

from the purported intentional misconduct and gross negligence. Given that the court’s

decision was based on several grounds, logic dictates that to secure reversal, S & J was

obligated to attack each ground and illustrate why none were a legitimate basis for an

instructed verdict. This it failed to do in its brief.

         To the extent that S & J addressed damages, it did so merely in relationship to gross

negligence. Nowhere under the points of error in question did it mention the damages it

supposedly suffered as a result of American’s supposed intentional misconduct. Moreover,

in discussing the subject of damages viz-a-viz gross negligence, it said nothing about what,

if anything, it suffered. Rather, mention was made of American “los[ing] $800,000 on the

                                                10
lease” and that “investors” in general had lost or forfeited their interest in the field to

American. Yet, nowhere did S & J argue or cite us to evidence illustrating that it was one

of the investors which lost their interest. Nor did it mention that it lost any sum of money

or that its property rights were somehow damaged.

         Simply put, to survive a directed verdict, S & J had to present some evidence that

it suffered injury because of American’s conduct. Arguing that others may have is not

enough. Hunt v. Bass, 664 S.W.2d 323, 324 (Tex. 1984) (holding that one lacks standing

to pursue redress for injury suffered by another). Consequently, we overrule the contention

that the trial court erred in directing a verdict in favor of American upon the claims of

intentional misconduct and gross negligence.

                                    Jury Award of Interest

         Next, S & J contends that the jury’s answer to question two of the charge was

incorrect and against the great weight of the evidence. We disagree and overrule the

point.

         Through question two, the jury was asked to interpret the following provision of the

operating agreement and to determine whether it allowed for the compounding of interest.

The provision stated:

         Each Non-operator shall pay its proportion of all bills within fifteen (15) days
         after receipt. If payment is not made within such time, the unpaid balance
         shall bear interest monthly at the rate of twelve percent per annum or the
         maximum contract rate permitted by the applicable usury laws in the state in
         which the Joint Property is located, whichever is the lesser . . . .

                                               11
The jury answered the question in the affirmative, and S & J attacks that determination.5

         As discussed above, the provision permits the compounding of interest on a monthly

basis. Texon Energy Corp. v. Dow Chemical Co., 733 S.W.2d at 331. Given Texon, the

jury’s answer to the issue was not wrong.

                                               Attorney’s Fees

         Lastly, S & J asserts that the award of attorneys fees must be reversed if we

conclude that the trial court erred in granting summary judgment upon American’s claim

for payment of the $32,241.32 debt allegedly due it. We agree and sustain the contention.

         The award of fees was dependant upon American succeeding upon its claim that

S & J failed to pay its debt as agreed by contract. See TEX . CIV. PRAC . & REM CODE ANN .

§38.001 et. seq. (Vernon Supp. 2001) (permitting the recovery of reasonable attorney’s

fees should the claimant prevail upon a claim of breached written or oral contract). Our

having concluded that the trial court erred in entering summary judgment in favor of

American upon its claim of debt, we hold that American could not be awarded attorney’s

fees at this time.

         Accordingly, we reverse that portion of the final judgment and interlocutory summary

judgment which awards American $32,241.32, pre and post judgment interest on that sum

         5
         The mean ing of an una m biguous con tract is a que stion o f law. Texas Utilities Elec. Co. v. City of
W aco, 919 S.W .2d 436, 439 (T ex. A pp. – W aco 199 5, writ de nied). Th us, the du ty to interp ret sa m e lies with
the court, no t a ju ry. Furthe rm ore, th e provision subm itted to th e ju ry for de term ination was, and is, not
ambiguous. Texon Energy Corp. v. Dow Chem ical Co., 733 S.W .2d 328 (T ex. A pp.--Ho usto n [14th Dist.]
1987, writ ref’d n.r.e.) (holding a like provision to be clear and unambiguous). So, it should not have been
tend ered to the ju ry for co nstru ction.

                                                         12
and attorney’s fees, affirm the judgment in all other respects, and remand the cause for

further proceedings.

                                                            Brian Quinn
                                                              Justice

Do not publish.

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