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Freeman v. Harleton Oil & Gas, Inc.

Court of Appeals of Texas, Sixth District, Texarkana

July 7, 2017

WAYNE E. FREEMAN; FREEMAN RESOURCES, LTD.; FRM GP, LLC; FRANK M. BUFKIN, III; BUFFCO PRODUCTION, INC.; TWIN RESOURCES, LLC; AND CHESAPEAKE LOUISIANA, L.P., Appellants
v.
HARLETON OIL & GAS, INC., Appellee

          Date Submitted: May 17, 2017

         On Appeal from the 71st District Court Harrison County, Texas Trial Court No. 12-0517

          Before Morriss, C.J., Moseley and Burgess, JJ.

          OPINION

          BAILEY C. MOSELEY JUSTICE.

         "In 2008, oil and gas companies descended on east Texas . . . seeking to acquire leases to exploit the Haynesville Shale formation, which they viewed as having enormous potential."[1]During this frenzied period, Chesapeake Louisiana, L.P. (Chesapeake), entered into a letter agreement with Buffco Production, Inc. (Buffco), and Twin Resources, L.L.C. (Twin), to purchase three-year term assignments in all of Buffco's and Twin's "right, title and interest in and to the lands described" in the agreement, which comprised at least 14, 378 acres in four counties. The total purchase price for this transaction was $232, 146, 680.00, and included in the transaction were Buffco's and Twin's interests in mineral leases in a 680-acre oil and gas property located in Harrison County called the Geisler Gas Unit No. 1 (Geisler Unit).[2]

         Pursuant to terms of the letter agreement, Chesapeake agreed to conduct "Title Due Diligence." It also agreed to make the same offer it had made to Buffco and Twin "to any non-operat[i ng] working interest owners . . . subject to Chesapeake's due diligence." Chesapeake's due diligence mistakenly concluded that Buffco and Twin owned a 50% operating working interest in the deep rights in the Geisler Unit and that Freeman Resources, Ltd., owned the other 50% non-operating working interest. In exchange for assignments to "all of Assignor's right, title and interest in and to the oil, gas and mineral leasehold" in the Geisler Unit, Chesapeake paid $13, 600, 000.00 each to Buffco/Twin and Freeman Resources, Ltd. Critically, Chesapeake's due diligence failed to uncover the fact that Harleton Oil & Gas, Inc., actually owned a 50% non-operating working interest to the deep rights in the Geisler Unit.

         When Harleton discovered the existence of the deal between Chesapeake and Buffco/Twin, Harleton sought to recover as a third-party beneficiary of that contract. Chesapeake, which believed it had contracted to purchase 100% of the deep rights interests in the Geisler Unit, sued to recover "overpayments" made under the contract.[3] After all parties filed motions for summary judgment, the trial court entered judgment which, among other things, (1) found that Harleton was a third-party beneficiary to the letter agreement, (2) granted Harleton specific performance of the letter agreement against Chesapeake, (3) concluded that Harleton had demonstrated its entitlement to unjust enrichment claims against Buffco, Twin, and their President, Frank M. Bufkin, III (collectively the Buffco Defendants), and Wayne E, Freeman, Freeman Resources, Ltd., and FRMGP, LLC (collectively the Freeman Defendants), as a matter of law, (4) imposed a constructive trust against the Buffco and Freeman Defendants, (5) ordered the Buffco and Freeman Defendants constructive trustees of a total of $6, 800, 000.00 previously paid by Chesapeake under the letter agreement, and (6) ordered the Buffco and Freeman Defendants to pay Chesapeake's specific performance consideration to Harleton out of the funds held in the constructive trust.

         All parties have appealed from the trial court's judgment. On appeal, the Buffco Defendants argue that the trial court erred (1) in entering judgment against Bufkin personally; (2) in failing to hold that Harleton's unjust enrichment claims against Buffco were barred by the two-year statute of limitations; (3) in concluding that Chesapeake overpaid; (4) in failing to enforce the letter agreement as written, (a) by ignoring the risk allocation and payment provisions, (b) in concluding that Chesapeake overpaid the Buffco Defendants, (c) in finding that any such overpayment belonged to Harleton, and (d) in undoing and restructuring a completed transaction; (5) in imposing a constructive trust on the proceeds realized from the deal by the Buffco Defendants based on the unjust enrichment claim by Harleton because (a) parties cannot recover on unjust enrichment when there is a contract, (b) the Buffco Defendants owed no duty to Harleton with regard to the deal with Chesapeake, (c) the Buffco Defendants made no misrepresentation to Harleton, and (d) the Buffco Defendants received no benefit from Harleton at Harleton's detriment; (6) in ordering the Buffco Defendants to specifically perform in the absence of any pleading against them that would entitle Harleton to specific performance against them; and (7) in determining that Harleton could enforce the letter agreement against the Buffco Defendants as a third-party beneficiary of the letter agreement.

         The Freeman Defendants' appeal argues that (1) Harleton's unjust enrichment theory was barred by the statute of limitations, (2) Harleton cannot recover under an unjust enrichment theory due to the existence of a contract, (3) the Freeman Defendants were not overpaid because Chesapeake waived any title defects and was required to pay the full purchase price in accord with contractual terms, (4) the Freeman Defendants did not benefit by fraud, duress, or undue advantage, and Harleton failed to submit any evidence showing otherwise, and (5) Chesapeake had actual notice of Harleton's interest before the transaction.

         Chesapeake's appeal from the trial court's judgment challenges only the trial court's decision to allow the Freeman Defendants to retain $408, 000.00 for a 3% interest in the Geisler Unit held by Freeman Capital, Ltd. (Capital). By cross-appeal, Harleton argues that Chesapeake was liable for its attorney fees.

         We resolve this appeal by making the following rulings, which are dispositive of all issues brought on appeal: (1) imposition of a constructive trust on the monies received by the Buffco and Freeman Defendants for the sums received by them from Chesapeake was improper because Harleton's unjust enrichment claims were barred by the statute of limitations, (2) Chesapeake cannot recover sums from Freeman for any overpayment under the letter agreement, (3) Harleton is not entitled to recover attorney fees from Chesapeake for breach of a contract because it (being neither a primary party to the contract nor a third-party beneficiary of the contract) has no standing to enforce the letter agreement as a contract, and (4) because Harleton was neither a primary party to the contract nor a third-party beneficiary of it, the trial court was without subject-matter jurisdiction to address any breach of contract claim Harleton held against Chesapeake.[4]

         Accordingly, as set forth in detail below, we reverse the trial court's judgment and render judgment that Harleton take nothing on all of its claims. In all other respects, we affirm the trial court's judgment.

         I. Factual Background and Procedural History

         This appeal derives from a complex factual and procedural history, which we discuss to provide context to the parties' arguments.

         A. The Basis of Harleton's Breach of Contract Claims Against the Buffco and Freeman Defendants

         1. Bufkin, Buffco, Wayne, and Harleton Agree to Jointly Develop an AMI

         Bufkin and Wayne E. Freeman (Wayne) had been doing business together since the 1980s. At one point, Buffco owned 100% of the working interest in the Geisler Unit leases. On February 5, 1997, it assigned 50% working interest to Wayne.

         In developing the Geisler Unit leases, Buffco and Wayne decided to enter into a partnership with Harleton, an oil and gas exploration and production company. Following negotiations, Harleton entered into a letter agreement with Bufkin, as President of Buffco, on February 21, 2003, to combine their separately-owned interests into an area of mutual interest (AMI), that "[would] last until October 31, 2005."[5] This letter agreement, which Wayne also signed, is called the co-development agreement.[6]

         Pursuant to this letter agreement, Buffco would operate all wells completed below the base of the Pettit Formation in the Geisler Unit, and Harleton would operate all wells in that unit which were shallower than the Pettit formation. After Harleton had completed two wells, Buffco and Freeman Resources were to assign half of their working interests (25% each) to Harleton, giving a total 50% working interest in the Geisler Unit leases to Harleton; in return, Harleton was to assign 50% working interest in certain other specified leases (the Harris leases) to Bufkin and Freeman Resources. It further clarified: "the leasehold in each unit shall remain 50% owned by [Harleton] and 50% owned by Buffco."

         Bufkin described the relationship with Harleton as a partnership, stating, "[T]he terms are I would operate and we would try to go after oil and gas property together that was marginal, and not beat each -- you know, not -- and always try, you know, to go after properties that we think that had value."

         2. The Right of First Refusal is Created by a Co-Development Agreement and a Joint Operating Agreement (JOA)

         The co-development agreement stated, "There will be a Right of First Refusal [the ROFR] regarding third party sales." This particular clause is the basis of Harleton's complaints against the Buffco and Freeman Defendants. The co-development agreement attached a JOA and specified that it would "govern the operation and development for these units."

         The 2003 JOA stated,

Should any party desire to sell all or any part of its interests under this agreement, or its rights and interest in the Contract Area, it shall promptly give written notice to the other parties, with full information concerning its proposed sale, which shall include the name and address of the prospective purchaser . . ., the purchase price, and all other terms of the offer. The other parties shall then have an optional prior right . . . to purchase on the same terms and conditions.

         The terms of the JOA provided that the co-development agreement would remain in full force and effect "[s]o long as any of the oil and gas leases subject to [the] agreement remain[ed] or [were] continued in force as to any part of the Contract Area, whether by any production, extension, renewal or otherwise." As of December 9, 2014, Harleton "continue[d] to operate the [shallow] Pettit formation Geisler [Unit] #1 . . . ." The JOA was signed by Bruce Wooldridge, on behalf of Harleton as operator, Wayne, individually, and Bufkin, individually.[7]

         3. Harleton Acquires a 50% Working Interest in the Geisler Unit

         Pursuant to the terms of the co-development agreement, Bufkin and Wayne executed an assignment, effective March 1, 2003, of "50% of ASSIGNORS' right, title and interest in and to the entire estates created by the oil, gas and mineral leases" and "50% of all of Assignors' right, title and interest in . . . operating agreements" to Harleton. The assignment was signed by Bufkin and Wayne individually, and was acknowledged by Buffco employee Kenneth Faires.[8] As a result of this assignment, Harleton acquired a 50% working interest in the Geisler Unit.

         On January 14, 2004, Wayne executed an assignment of 3% of his interests in the Geisler Unit to Capital. In 2006, Bufkin assigned to Twin all of his working interest in oil and gas leases in Harrison County, including those which made up the Geisler Unit. On September 18, 2008, Wayne executed an assignment (which became effective March 1, 2008) of his remaining 22% interest in the Geisler Unit to Freeman Resources.

         B. Uncontested Facts about the Geisler Unit

         1. Ownership

         The actual ownership of the deep rights to the Geisler Unit prior to Chesapeake's involvement is wholly undisputed. Harleton owned a 50% non-operating working interest, Capital owned a 3% non-operating working interest, Twin owned a 25% operating working interest, and Freeman Resources owned a 22% non-operating working interest. The various assignments proving the actual ownership of the Geisler Unit by all four entities was duly recorded in county records prior to Chesapeake's involvement.

         2. Chesapeake Enters into Negotiations for the Deep Rights Covered in the Geisler Unit

         In 2008, Chesapeake spoke to Bufkin about purchasing deep rights in the Geisler Unit. Bufkin retained the Shore Freeman Law Firm to represent Buffco and Twin in connection with the Chesapeake transaction. Matthew Wolcott, an attorney previously employed by Shore Freeman, assisted in drafting an agreement to memorialize the proposed sale, the content of which is described below.

         Chesapeake drafted a letter agreement with Buffco and Twin dated July 31, 2008 (Letter Agreement). The Letter Agreement, which was on Chesapeake letterhead and addressed to Bufkin, proposed three-year term assignments of the deep rights to oil and gas properties (including the Geisler Unit) that were to be conveyed in three separate closings. In the Letter Agreement, Chesapeake submitted a cash offer of $232, 146, 680.00 for "all of Seller's right, title[, ] and interest in and to the lands described" in the agreement, which was said to be comprised of at least 14, 378 acres in four counties. This letter contained wording to which we refer as the non-op offer clause, stating: "Chesapeake also agrees to make this offer to any non-operat[ing] working interest owners in the Properties ("Non-Ops") under the same terms and net acre price as stated in this offer." The offer contained in the Letter Agreement was subject to Chesapeake's due diligence . . . and the following terms and conditions:

1. The Leases to be conveyed by Seller to Chesapeake under the term assignments shall include approximately 10, 683.58 net acres in the Counties of Harrison, Panola, and Shelby, and Seller's net revenue interest for each Lease in these counties shall be no less than seventy-five percent (75%). . . .
14. The Leases are, or will be delivered at closing, free and clear of any mortgages, liens or other encumbrances.
15. The three Closings shall occur at a mutually agreed location as follows:
• for the Properties described in Exhibit A-1, on or before August 29, 2008;
• for the Properties described in Exhibit A-2, on or before September 18, 2008; and
• for the Properties described in Exhibit A-3, on or before October 8, 2008 (the "Final Closing").
17. Chesapeake shall not attempt to obtain, and shall not direct any of its agents, partners, contractors, brokers, or affiliates to attempt to obtain, any mineral rights in any unit operated by Seller for a period of 90 days after the Final Closing.

Exhibit A-2 to the Letter Agreement (which included the legal description of the Geisler Unit) contained bold lettering which maintained,

Seller does not represent that it owns the rights below the Cotton Valley formation in all of the lands and leases described below, and Chesapeake agrees that it will perform its own title due diligence subject to the provisions set forth in Exhibit B. Seller reserves the right to supplement this Exhibit in good faith with the intention of the parties being that Seller offer[s] to convey all rights below 100 feet beneath the base of the Cotton Valley formation in the counties listed below.

         Exhibit B to the Letter Agreement, labeled Title Due Diligence, stated,

Upon reasonable advance request from Chesapeake, Seller [will] make available to Chesapeake at Seller's offices . . . all existing Lease, title, contract, and legal files related to the Properties . . . .
. . . . Chesapeake will review title to the Properties prior to Closing and notify Seller in writing of any Title Defect it discovers as soon as reasonably practicable . . . . Chesapeake will be deemed to have conclusively waived any Title Defect about which it fails to notify Seller in writing within the applicable period . . . .

         The Letter Agreement was signed by Bufkin in his representative capacity as president of both Buffco and Twin on behalf of those entities.

         3. An Error in Due Diligence

         After the Letter Agreement was signed, Chesapeake contracted with Dwight Snell & Associates to perform the due diligence and title work associated with the agreement. Dwight Snell & Associates arranged for Don Parkins, an independent landman, to lead the team. Parkins and his team failed to uncover the true ownership interests in the Geisler Unit. Instead, they mistakenly believed that Buffco/Twin and Freeman Resources each owned a 50% working interest in the Geisler Unit.

         4. The Chesapeake Transaction Closes

         On September 18, 2008, Chesapeake received two assignments, one from Freeman Resources, and the other from Buffco and Twin (Chesapeake Assignments). Under the terms of each assignment, Buffco/Twin and Freeman Resources conveyed "all of Assignor's right, title and interest in and to the oil, gas and mineral leasehold" deep rights interests in the Geisler Unit, subject to certain reservations not affecting this dispute. The assignments further (1) provided that Chesapeake was "TO HAVE AND TO HOLD all and singular such Leases together with all rights, titles, interests, estates, remedies, powers and privileges . . . subject to . . . [t]he terms and conditions of the Letter Agreement, and (2) stated,

Assignor does hereby bind itself, its heirs, successors and assigns, to warrant and forever defend all and singular title to the Leases unto Assignee, Assignee's successors and assigns, against every person whomsoever lawfully claiming or to claim the same or any part thereof, by through or under Assignor, but not otherwise.[9] Assignor conveys the Leases free and clear of any outstanding mortgage, deed of trust, lien or encumbrance created by Assignor, but not otherwise.

         During the closing, Chesapeake paid $13, 600, 000.00 in connection with the Geisler Unit assignment to Shore Freeman, which distributed the funds to Buffco/Twin and Freeman Resources, with each receiving $6, 800, 000.00.

         Soon, it came to light that Chesapeake had only acquired 47% of the working interests in the Geisler Unit as a result of the Chesapeake Assignments. Harleton continued to own 50% of the working interest rights in the Geisler Unit, and Capital owned 3% of the working interests. This dispute ensued.

         C. Events Prior to, During, and After the September 18, 2008, Closing

         In addition to the uncontested facts, many contested facts were presented in the exhibits attached to the parties' motions for summary judgment.

         Bufkin testified that Chesapeake's interest in the Haynesville Shale was no secret and that Chesapeake approached him to express its interest in buying deep rights to many properties in which Buffco and Twin had interests. Bufkin testified that he hired Shore Freeman to negotiate and handle the Chesapeake transaction and relied on it for everything regarding the Chesapeake matter. Bufkin instructed Shore Freeman to "get Chesapeake happy with the title" and keep Freeman Resources and other non-ops in the loop.

         1. Lack of Communications with Non-Ops

         Daryl Stallings (Chesapeake's senior land negotiator and the person whose signature was appended to the Letter Agreement on its behalf) and George Denny, Chesapeake's manager of business development, were intimately involved in negotiating the Letter Agreement and the Chesapeake Assignments. Stallings testified that the negotiations were strictly with Bufkin, and both Stallings and Denny clarified that neither ever spoke with the Freeman Defendants or any other non-ops before entering into the Letter Agreement. Stallings and Denny did nothing to obtain a non-op agreement prior to the sale because they both said they believed paragraph 17 of the Letter Agreement prevented them from contacting the non-ops.

         According to Stallings, "[A]t each closing, [Bufkin] would bring certain parties that were his partners or working interest owners in the [Geisler Unit] to -- to make those available for the closing under the same offers that he got. That was our understanding." Stallings confirmed that "[i]f [non-ops] came to the closings with their property, they had the same offer as Buffco did."

         Wayne testified that he did not communicate with Bufkin about the Chesapeake transaction and said he first heard about it through Shore Freeman, where one of his sons, Vance Freeman, was a shareholder.[10] Wayne testified that he was never asked to provide documentation relating to title and that he had no communication with Bufkin, Chesapeake, Harleton, or Parkins in the months leading up to the closing. Wayne created Capital's 3% interest in the Geisler Unit, but testified that he did not speak to Brandon or Capital because it never occurred to him to do so.[11]Although Wayne knew of the actual ownership interest in the Geisler Unit, [12] he did not raise the issue at closing. Since he believed that diligence regarding title had been completed by Chesapeake, it did not occur to him to do so. Wayne indicated that he believed Chesapeake was purchasing whatever interest Freeman Resources had, and "[t]o [him], that was Chesapeake's obligation to figure out who owned what in that unit."[13] Wayne averred that he "never made any representations or warranties to Chesapeake regarding the percentage of working interest that [he] or any of [his] companies owned in any of the properties."

         2. Reliance on Bufkin and Shore Freeman

         According to Stallings, Bufkin "knew what he owned" and "misrepresented what he owned." Stallings said Chesapeake hired Dwight Snell & Associates because it was "trying to verify what was represented to [it] by Frank Bufkin." Stallings testified that Chesapeake knew of neither Harleton's nor Capital's interest in the Geisler Unit prior to the September 18 closing. Stallings stated, "We were relying on [the due diligence] and the representations of the agent for Buffco, which was the Shore Freeman law firm, who also confirmed that they owned 50 percent each, Freeman and Buffco."[14]

         The confirmation from Shore Freeman to which Stallings referred came in the form of a few emails. Parkins had initially mistakenly determined that a portion of the interests in the Geisler Unit were owned by PetroShore. In discussing the monies to be paid at closing, an August 25, 2008, email from Stallings to both Wolcott and Bufkin stated, "I am assuming this amount includes the Non-ops working interest owners. . . . Petro Shore et cetera." The email from Stallings showed that Shore Freeman "stated [it] would disburse to all from your Trust account for simplicity purposes." When Shore Freeman received notification that PetroShore might have an interest in the Geisler Unit, on September 9, 2008, Wolcott emailed Stallings, writing, "This shows that Petro Shore acquired 50% of the Geisler [Unit] GU in 1997. I haven't checked further but did not think that Petro Shore had anything in that unit, and I know they weren't around in '97. Is this a typo?"[15] Because it was discovered that PetroShore had no interest in the Geisler Unit, Parkins assumed Shore Freeman would correct further mishaps.

         Stallings also believed that Bufkin would correct "title failure[s]." Stallings testified that Chesapeake did not close on other properties owned by the Buffco Defendants because Bufkin called Chesapeake to report title issues, adding that he was not ready to close. Stallings testified, "[Bufkin] withheld many of those units because they had title problems." Stallings acknowledged that Chesapeake's failure to point out title defects conclusively waived the title defect. Yet, he characterized the failure to own title as a "title failure, " not a title defect, such as a mechanic's lien or other encumbrance. According to Stallings, if Chesapeake knew that Harleton had an interest in the Geisler Unit, he would have halted the transaction because of a title failure and would have instructed the sellers to work out title issues. Stallings confirmed that Chesapeake would have had no problem paying Harleton because Chesapeake "was obligated to offer through Frank Bufkin to Harleton their interest - the same offer we made to everyone else."

         On September 16, 2008, Stallings emailed Wolcott attaching the due diligence update and writing, "Here you go Matt. . . please check our numbers and let me know what you think . . . Don Parkins is available if you need him for questions." On September 17, 2008, Wolcott attached "an updated breakdown showing each individual [working interest] owners allocation" and a revised price allocation spreadsheet to Stallings and Bufkin indicating that Freeman Resources was to receive $6, 800, 000.00 for its interest in the Geisler Unit. Bufkin testified that he reviewed the allocations on the spreadsheet, but did not check them for accuracy. Denny testified, "[I]t's obvious that record title reflected differently [than] what Mr. Bufkin had said. If Mr. Bufkin had told him the truth, then there wouldn't have been a problem. [Parkins] could have gone back to the record and found the assignment."

         3. Harleton Claims that Chesapeake Knew of its Interest in the Geisler Unit

         Harleton, however, argued that Chesapeake knew of its interest in the Geisler Unit prior to its closing under the Letter Agreement and breached the Letter Agreement by failing to make an offer to Harleton. On July 28, 2008, Bruce Ogilvie, a contract landman for Harleton, received an email from Chesapeake's Land Negotiator, Steve McMillen, to see if Ogilvie knew of any available acreage in Panola and Shelby Counties. Copying Wooldridge, Ogilvie responded, "Harleton owns several units scattered around Panola & Harrison Cos. I think you would be interested in the . . . G[ei]sler GU (S. Harrison Co.)." In response, McMillen, copying everyone on the chain e-mail, asked Ogilvie to provide all "units, surveys & net acres NRI owned by Harelton [sic]" for deep rights, which Ogilvie agreed to do. According to Ogilvie, Chesapeake did not communicate any offer to buy Harleton's interest in the Geisler Unit at that time. The entire email chain (which also was sent to Chesapeake's landman in the Louisiana division, Jack Elliott) was forwarded to Denny on September 3, 2008, prior to the closing of the Letter Agreement. When presented with evidence that the email chain had been transmitted, Stallings testified that he believed that Elliott knew of Harleton's interest in the Geisler Unit, but that Elliott's and McMillen's knowledge about Harleton's interest was not relayed to him. He also testified that he was not otherwise aware whether Denny had actually read the email chain prior to the closing.

         4. The Mistake is Uncovered

         According to the Affidavit of Wooldridge (an owner of a 50% interest in Harleton and its President), Harleton discovered in November 2008 that Chesapeake had agreed to the non-ops offer clause in the Letter Agreement. Wooldridge learned of the sale and the Chesapeake Assignments and called a representative of Chesapeake, who advised him that they had purchased a 100% working interest in the Geisler Unit deep rights. "Ogilvie [also] talked to others at Chesapeake, including Daryl Stallings, who confirmed that Chesapeake had paid [Buffo/Twin and Freeman Resources] for the Harleton interests." Wooldridge had no further discussions with anyone representing Chesapeake and made no attempt at that time to compel Chesapeake to purchase Harleton's interest in the deep rights of the Geisler Unit.

         In his deposition, Parkins explained his mistake. He testified that he arrived at Buffco and was provided with the Buffco file on the Geisler Unit, which had nothing in it referencing Harleton at all. Parkins stated, "I was waiting on files from Ken Faires to retrieve them one day. I walked out into their lobby and I saw Ken pilfering the folders. So he wasn't going in there and just grabbing a folder and bringing it to me. He was going through the folders and giving me what he wanted." Parkins said he believed in hindsight that Faires had been removing documents from the files. To double-check his work, Parkins obtained division orders from Bufkin's office printed on July 23, 2008, to see what royalties and working interests were being paid out at the time. According to Parkins, the division orders listed the working interest owners as 50% Twin and 50% Freeman Resources. Parkins testified that the co-development agreement and assignments to Harleton in the Geisler Unit were not presented by the Bufkin Defendants because "they did not want [him] to see [them]."

         Parkins did not check the county records, saying that he was told by Bufkin and Shore Freeman that his title determination was correct. When he uncovered the error and revealed Harleton's ownership interest to Bufkin in November 2008, Bufkin told Parkins that Buffco's assignment to Harleton must have been a mistake because the assignment was only supposed to be "for a single wellbore." When Parkins informed Bufkin of the nature of the assignment, Bufkin stated that he needed to correct the assignment to reflect a "wellbore-for-wellbore" transaction. Parkins asked Bufkin to address the problem.

         5. Bufkin Reaches out to Harleton in an Attempt to Correct the Mistake

         Bufkin testified that he was surprised by the news of Parkins' mistake. He claimed that he forgot about the assignments to Harleton, was unaware of Harleton's interest, believed that Buffco/Twin and Freeman Resources each had a 50% interest in the Geisler Unit at closing, and had counted on Chesapeake to properly conduct the due diligence which the terms of the contract mentioned. Bufkin had no communications with Chesapeake about the error. Instead, because Parkins was concerned about getting fired and asked Bufkin to help, Bufkin decided to call Harleton to engage in "shop talk about helping Harleton get paid."

         Wooldridge stated that after the Chesapeake Assignments were signed, Bufkin called Jerry Irwin (Harleton's other 50% owner and its Vice-President), telling Irwin that he (Bufkin) had an opportunity to sell Harleton's Geisler Unit deep rights. According to Irwin, "Bufkin indicated that he wanted a commission of some sort on the sale." Both Wooldridge and Bufkin testified that mention of Chesapeake never arose during the conversation. Bufkin testified, "[Eventually, ] we discussed the possibility of getting their Geisler interest in a sale." Based on Bufkin and Irwin's discussion, Harleton proposed a letter of intent on Harleton's letterhead dated December 11, 2008, (Harleton Proposal), containing proposed terms for the "Term Assignment of Oil and Gas Leases Geisler Gas Unit No. 1." The Harleton Proposal stated a purchase price of $15, 000.00 an acre and provided:

Assignee has offered and Assignor has agreed to execute a Term Assignment of Oil and Gas Leases . . . covering Assignor's leasehold and/or mineral interest in the Contract Lands. It is the intent herein to assign all of Assignor's leasehold interest below the base of the Cotton Valley Sand formation in the Contract Lands whether correctly described or not.
.... This letter and Assignment is subject to the confirmed sale of the Contract Lands between Buffco and Chesapeake Exploration, L.L.C. Should this sale fail to take place, this letter agreement shall be considered null and void with no further obligations to either party herein.

         On behalf of Harleton, Wooldridge signed the Harleton Proposal and delivered it to Bufkin at Buffco's company Christmas Party. Wooldridge and Ogilvie both stated that they met with Bufkin in January or February of 2009 to discuss the Harleton Proposal, but that Bufkin was not sure if he would sign it and "was not sure that he owed Harleton anything."

         According to Parkins, Bufkin, who was supposed to be resolving the matter, strung him along until February 2009, at which time Parkins called Chesapeake to admit his mistake. Parkins clarified that he never dealt with Wayne.

         6. Why the Harleton Proposal Failed

         Bufkin explained the reason for the $15, 000.00 per acre figure contained in the Harleton Proposal, saying that he believed that Chesapeake would pay and Harleton would accept $15, 000.00 per acre, representing that he was simply trying to facilitate a deal between them. Bufkin testified that he did not sign the Harleton Proposal because he was no longer going to purchase their interest in the Geisler Unit. He informed Harleton that the deal was a "no go" on January 23, 2009.

         Harleton had a different opinion as to the reason the Harleton Proposal failed. After it fell through, Ogilvie spoke with Wayne, who said that the Chesapeake transaction was "Frank Bufkin's deal." Harleton suggested that Bufkin made the $15, 000.00 per acre offer so that he could pocket the $5, 000.00 per acre difference between the Harleton Proposal and the amount that Chesapeake had already paid. According to Rodney Schultz (who identified himself as a petroleum engineer and Former Senior Reservoir Engineer for ConocoPhillips oil company and its project engineer charged with completing gas projects in Texas, including East Texas deep wells), "natural gas prices fell by over fifty percent" between July 2, 2008 and January 15, 2009.[16]By January 14, 2009, it appeared that the price to acquire interests in the Haynesville Shale had further plummeted to $2, 500.00 per acre.

         7.Harleton Argues Breach of ...


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