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Texas Lone Star Petroleum Corp. v. Chesapeake Operating Inc

United States District Court, S.D. Texas, Corpus Christi Division

February 21, 2017

TEXAS LONE STAR PETROLEUM CORPORATION, et al, Plaintiffs,
v.
CHESAPEAKE OPERATING INC; nka CHESSAPEAKE OPERATING LLC, et al, Defendants.

          ORDER ON MOTION TO ALTER OR AMEND FINAL JUDGMENT

          NELVA GONZALES RAMOS UNITED STATES DISTRICT JUDGE

         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.

         DISCUSSION

         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 lacks clarity. 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' assignees.

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, ¶¶ ...


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