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Longview Energy Co. v. The Huff Energy Fund LP

Supreme Court of Texas

June 9, 2017

Longview Energy Company, Petitioner,
The Huff Energy Fund LP, WRH Energy Partners LLC, William R. "Bill" Huff, Rick D'Angelo and Riley-Huff Energy Group LLC, Respondents

          Argued February 9, 2017

         On Petition for Review from the Court of Appeals for the Fourth District of Texas

          Justice Guzman did not participate in the decision.



         This case involves the questions of whether two directors breached their fiduciary duties to a corporation, and if so, whether the evidence and jury findings support the remedies imposed by the trial court.

         Longview Energy Company sued two of its directors and entities associated with them after discovering one of the entities, Riley-Huff Energy Group LLC, purchased mineral leases in an area where Longview had been investigating the possibility of buying leases. The case was tried to a jury, which found that the directors breached their fiduciary duties to Longview in two ways: by usurping a corporate opportunity, and by competing with the corporation without disclosing the competition to Longview's Board of Directors. The jury also found that Riley-Huff acquired leases as a result of the breaches. The trial court rendered judgment awarding a constructive trust to Longview on most of the leases in question and related property. The judgment also required the disgorgement of money derived from past lease production revenues.

         The court of appeals reversed and rendered judgment for the defendants. It concluded that (1) the evidence was legally insufficient to support the jury's finding that the directors breached their fiduciary duties by usurping a corporate opportunity, and (2) the pleadings were not sufficient to support a claim for breach of fiduciary duty by undisclosed competition with the corporation.

         We affirm.

         I. Background

         Longview Energy Company is an oil and gas exploration and production company incorporated in Delaware and headquartered in Dallas. During the time relevant to this matter, Longview had investments in mineral operations in Arkansas, California, Louisiana, Mississippi, and Oklahoma. The Huff Energy Fund LP (HEF) is a Delaware limited partnership that invests in energy companies. In 2006, HEF purchased shares in Longview for $19 million, then purchased more shares for $20 million in 2007. Pursuant to the purchase agreement and its position as the major shareholder owning approximately 39% of Longview's shares, HEF had Bill Huff and Rick D'Angelo-HEF's Chief Executive Officer and lead investment evaluator, respectively-appointed to serve as two of Longview's nine-member board of directors.

         As drilling and mineral recovery technologies developed and became more efficient, certain types of mineral-containing formations became more valuable. The Eagle Ford Shale (the Eagle Ford) was one such formation. Many investors and companies became focused on South Texas, where the formation, estimated to encompass as many as thirteen million acres, was mainly located. HEF asked its portfolio companies, including Longview, to look into investment opportunities related to the Eagle Ford.

         During the summer of 2009, HEF began discussions with Bobby Riley about possible investment opportunities related to the Eagle Ford. In September 2009, Riley and HEF consummated a deal whereby they purchased some mineral leases in areas where production from the Eagle Ford was anticipated. In October 2009, HEF and Riley joined forces and created Riley-Huff Energy Group LLC (Riley-Huff). Riley-Huff continued investigating investments in Eagle Ford acreage pursuant to the interest both Riley and HEF had in the formation.

         Also in September 2009, HEF representatives, including both Huff and D'Angelo, met with Longview and encouraged it to consider investing in Eagle Ford acreage. Longview claims Huff stated that if it located an investment in Eagle Ford acreage that Rick Pearce-a senior petroleum engineer and Longview's Chief Operating Officer-liked, HEF would fund the investment.

         Following the September meeting, Longview focused a substantial part of its resources on investigating possible investments in Eagle Ford acreage. As part of that process, Longview hired geologist and geophysicist Mark Lober as a consultant. Lober identified and advised Longview of an oil "window" in Eagle Ford acreage that he believed would be productive (the Lober window). Longview also began working with lease brokers Tamara Ford and Pat Gooden to determine what Eagle Ford acreage might be available. In December 2009, Longview's management and Lober met with brokers Ford and Gooden, who generally described tracts available for lease, discussed lease terms, and gave Longview a map with circles noted on it locating general areas of available acreage called "blobs." The amount of acreage located within the blobs is described variously in the record as ranging from 235, 000 to 254, 000 acres. The brokers would not identify specific acreage or lease locations in order to protect their interests with regard to any future leasing transactions. D'Angelo requested that Longview mail copies of the brokers' map to him, which it did on December 23, 2009. During this time D'Angelo continued to express enthusiasm about the possibility of Longview investing in Eagle Ford acreage.

         Longview scheduled a board of directors' meeting for January 28, 2010, to review the materials its investigation had produced, and for its board to consider whether to invest in Eagle Ford acreage. Shortly before the meeting Longview provided materials to the board members, including a proposed investment and development strategy and economic projections. The proposal was to invest up to $40 million to lease 7, 000 acres in each of three different locations for a total of 21, 000 acres, drill one well per lease tract to prove up its mineral-producing capability, then sell packages of leases in the areas that produced. The proposal neither identified nor targeted any specific acreage or leases in the large blobs described by brokers Ford and Gooden. The proposal was to partner with another entity in acquiring the leases and drilling the wells. Longview was counting on the promise Huff made in September 2009 to fund its part of the project.

         After Longview presented its proposal at the January 28 board meeting, D'Angelo announced that HEF would not support an investment in Eagle Ford acreage. As a result, the board did not vote on whether to pursue the proposed strategy. After the meeting, a Longview representative informed Lober and Gooden that the board decided not to invest in Eagle Ford acreage. Gooden asked if Longview objected to his submitting lease acreage to other HEF portfolio companies, which Longview did not. At the next meeting of Longview's board on February 1, 2010, the possibility of using sources of funding other than HEF for investing in Eagle Ford acreage was discussed. The other possibilities included using internally generated cash flow and selling assets such as those Longview owned in Oklahoma. Longview claims that D'Angelo strongly objected to selling the Oklahoma assets. After minutes of the board meeting were circulated, D'Angelo emailed Longview, stating that he did not agree with the minutes. In the email D'Angelo explained that his opposition to selling the Oklahoma assets was due to the lack of a formal process for appraising the assets before offering them for sale.

         In light of D'Angelo's position and the board's concern about possible legal action by HEF if the proposal to sell assets and invest in Eagle Ford acreage proceeded, the Longview board did not pursue investing in the Eagle Ford.

         Longview later learned that HEF and Riley had formed Riley-Huff in October 2009 to locate and fund oil and gas investments, including investing in Eagle Ford acreage; that D'Angelo was a manager of Riley-Huff; and that HEF was a limited partner with a 99% ownership interest. Neither Huff nor D'Angelo had disclosed Riley-Huff's existence to Longview's board. Longview also learned that three days before its January 28 board meeting, Riley-Huff agreed to purchase Eagle Ford leases from Ford's company, Wyldfire, which was one of the lease brokers Longview consulted in developing the proposal it presented to its board. Riley-Huff eventually acquired mineral leases to approximately 50, 000 Eagle Ford acres, approximately 5, 200 of which were within the blobs on maps Longview's board had considered.

         In September 2011, Longview sued the parties involved in Riley-Huff's acquisition of Eagle Ford acreage leases (collectively, the Huff Defendants).[1] Longview alleged various causes of action, including fraud, breach of fiduciary duty, usurpation of corporate opportunity, tortious interference with ...

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