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ETC Texas Pipeline, Ltd. v. Addison Exploration & Development, LLC

Court of Appeals of Texas, Eleventh District

August 22, 2019

ETC TEXAS PIPELINE, LTD.; OASIS PIPE LINE COMPANY; WESTEX ENERGY, LLC; AND ENERGY TRANSFER, LP F/K/A ENERGY TRANSFER PARTNERS, Appellants
v.
ADDISON EXPLORATION & DEVELOPMENT, LLC, Appellee

          On Appeal from the 441st District Court Midland County, Texas Trial Court Cause No. CV52986

          Panel consists of: Bailey, C.J., Stretcher, J., and Judge Trotter [7]

          OPINION

          KEITH STRETCHER JUSTICE

         Addison Exploration & Development, LLC sued ETC Texas Pipeline, Ltd., Oasis Pipe Line Company, and WesTex Energy, LLC, alleging that they had wrongfully deprived Addison of certain oil and gas interests.[1] Almost a year later, Addison filed an amended petition in which it asserted new claims against ETC, Oasis, and WesTex; added Energy Transfer, LP f/k/a Energy Transfer Partners as a defendant; and alleged that Energy Transfer was vicariously liable for the conduct of its officers, ETC, and WesTex. Appellants filed a motion to dismiss under the Texas Citizens Participation Act, Tex. Civ. Prac. & Rem. Code Ann. §§ 27.001- .011 (West 2015) (the TCPA) within sixty days after Energy Transfer was served with the amended petition. Following a hearing, the trial court denied the motion to dismiss.

         In their first three issues, Appellants contend that the trial court erred by denying the motion to dismiss because, based on the newly asserted vicarious liability claim, the motion was timely as to all claims against Appellants; the TCPA applies because Addison's claims are based on communications made while Appellants were exercising their right of free speech or right of association under the statute; and Addison failed to produce clear and specific evidence of a prima facie case for each element of its claims. In a fourth issue, Appellants assert that, even if Addison met its burden, the trial court was required to dismiss Addison's claims because Appellants proved their affirmative defenses by a preponderance of the evidence.

         We affirm the trial court's order denying the motion to dismiss as to Addison's breach of contract and fraud claims against ETC and remand those claims to the trial court for further proceedings. We reverse the trial court's order denying the motion to dismiss as to Addison's vicarious liability claim against Energy Transfer, breach of fiduciary duty claim against ETC, and knowing participation in breach of fiduciary duty claim against Oasis and WesTex and remand those claims to the trial court for entry of a judgment of dismissal and a determination of costs and fees to be awarded under the TCPA. See Civ. Prac. & Rem. § 27.009.

         Background Facts

         In 2012, Permian Basin Resources, LLC (PBR), an oil company owned by Ken Moore and Bill Crow, determined that new technologies could be used to extract oil and gas from the land under the City of Big Spring in Howard County, Texas. To capitalize on this opportunity, PBR needed an investor to provide the financial resources to obtain oil and gas leases in approximately 132 sections of generally contiguous land mostly located within the city limits of Big Spring (the Settles Prospect). PBR and Addison agreed that Addison, through its principal officer Karl Richter, would attempt to locate an investor.

         Richter's primary experience was in the midstream sector of the oil and gas industry. Before approaching investors about the Settles Prospect, Richter discussed with PBR the possibility of reserving the right for PBR and Addison to develop a midstream system to deliver and market the oil and gas produced from the Settles Prospect. PBR agreed to attempt to reserve the midstream rights for PBR and Addison.

         Energy Transfer is a large, publicly traded company with an extensive pipeline system and other midstream infrastructure in the area of the Settles Prospect. ETC is a subsidiary of Energy Transfer. Richter approached individuals he knew at Energy Transfer about the opportunity in the Settles Prospect.[2] Richter's proposal was referred to Marshall McCrea, III, the president and chief operating officer of both Energy Transfer and LG PL, LLC, the general partner of ETC. McCrea directed Brian Beebe, an officer of both Energy Transfer and LG PL, to meet with Richter to discuss the acquisition of oil and gas leases in the Settles Prospect. Addison asserts that, at a meeting in December 2012, Beebe agreed that PBR and Addison could acquire the midstream rights from the wellhead to central delivery points (CDPs), while Energy Transfer would have the midstream rights beyond the CDPs (the Beebe Agreement).

         On January 9, 2013, PBR, Addison, and ETC signed a Confidentiality and Noncompete Agreement (the Confidentiality Agreement). PBR agreed to disclose its confidential and proprietary information pertaining to the Settles Prospect to ETC, and the parties agreed to engage in confidential negotiations regarding the purchase of oil and gas interests in the Settles Prospect. The Confidentiality Agreement required ETC to keep any data disclosed by PBR confidential. It also prohibited ETC from acquiring, either directly or indirectly, any oil and gas leases or other interests in the Settles Prospect for a period of eighteen months without the written consent of "PBR/Addison" and provided that any such interest acquired by ETC would, at "PBR/Addison's" option, "be deemed to be held in trust" by ETC for the benefit of "PBR/Addison."

         PBR and Addison signed a Fee for Services Agreement effective January 17, 2013 (the FFS Agreement). In the FFS Agreement, Addison identified ETC and another company as potential funding sources for the Settles Prospect. The FFS Agreement provided that, if: (1) PBR proceeded with a funding entity identified by Addison, (2) PBR and that entity successfully acquired oil and gas leases in the Settles Prospect, and (3) the leases were sold to a third-party operator, then PBR would pay Addison 1.5% of the cash it received for the leases and 1.5% of any undivided, carried, and/or working interest PBR retained in the leases. The FFS Agreement also provided that PBR would convey to Addison one-half of any midstream rights retained by PBR "to the extent that those rights could be reasonably negotiated for and reserved through a sale" of the oil and gas leases in the Settles Prospect.

         Energy Transfer formed WesTex, a wholly owned subsidiary, to acquire the oil and gas leases in the Settles Prospect.[3] On March 7, 2013, PBR and WesTex signed a Joint Acquisition and Development Agreement (the JADA), pursuant to which WesTex agreed to contribute $15, 000, 000 for the acquisition of oil and gas leases in the Settles Prospect. PBR and WesTex agreed that, on the sale of the oil and gas leases to a third-party operator, WesTex would be repaid the money it contributed and that PBR and WesTex would split any profits. The JADA provided that, with respect to oil and gas produced from the Settles Prospect, WesTex would retain the right to provide transportation, processing, marketing, and other services downstream of the CDPs. Although PBR attempted to negotiate the retention of the right to collect and transport oil and gas from the wellhead to the CDPs, the JADA was silent as to those rights.

         Pursuant to the JADA, PBR and WesTex began acquiring oil and gas leases in the Settles Prospect. Addison, however, never gave written consent for the acquisitions.

         In December 2013 or January 2014, PBR told Addison that a "critical mass" of leases had been acquired and that PBR and WesTex intended to sell the leases to a third-party operator. PBR instructed Addison to begin putting together the wellhead-to-CDPs midstream plan. Richter met with potential partners to develop this plan, but was subsequently told by PBR that WesTex demanded that Addison "cease and desist" all attempts to organize the midstream plan.

         PBR and WesTex sold the oil and gas leases to Rock Oil Holdings, LLC on September 26, 2014. The Purchase and Sale Agreement with Rock Oil (the PSA) gave WesTex the option to purchase or gather, transport, and/or process for a fee all natural gas and natural gas liquids from the Settles Prospect until December 31, 2025, and all crude oil and condensate from the Settles Prospect until December 31, 2020. PBR and WesTex also retained overriding royalty interests (ORRIs) on the leases it sold to Rock Oil. The ORRIs were later assigned to Oasis, an affiliate of Energy Transfer, and Castle Rock Royalty, LLC, an entity owned by Moore and Crow. Although WesTex subsequently assigned to Richter the wellhead-to-CDP rights for the Settles Prospect leases that WesTex owned, Addison contends that these rights were less valuable than the rights that it had been promised.

         Addison sued ETC, Oasis, and WesTex. In a second amended petition filed on June 26, 2017, [4] Addison asserted claims against ETC for breach of the Confidentiality Agreement, breach of the Beebe Agreement, and fraud; against ETC and WesTex for tortious interference with the FFS Agreement; and against ETC, WesTex, and Oasis for unjust enrichment.

         On March 15, 2018, Addison filed a fourth amended petition in which it named Energy Transfer as a defendant, dropped its claims for tortious interference and unjust enrichment, and added claims against ETC, Oasis, and WesTex based on breach of a fiduciary duty. Addison alleged causes of action against ETC for breach of the Confidentiality Agreement, breach of the Beebe Agreement, breach of fiduciary duty, and fraud and against Oasis and WesTex for knowing participation in ETC's breach of fiduciary duty. Addison did not assert any direct claims against Energy Transfer but alleged:

At the outset, Energy Transfer has been added as a party because it is liable for the acts of its officers named herein, who are also officers of WesTex and ETC and through them controlled these entities, and because Energy Transfer formed WesTex solely for the purpose of acquiring oil and gas leases in the Settles Prospect and intended to retain the midstream rights in those leases once the leases were sold.

         On May 7, 2018, Appellants filed a TCPA motion to dismiss all of Addison's claims against Appellants. Addison responded to the motion on May 24, 2018, the day of the scheduled hearing. The trial court denied the motion to dismiss.

         Analysis

         The TCPA protects citizens from retaliatory lawsuits meant to intimidate or silence them on matters of public concern. Dallas Morning News, Inc. v. Hall, No. 17-0637, 2019 WL 2063576, at *4 (Tex. May 10, 2019); In re Lipsky, 460 S.W.3d 579, 584 (Tex. 2015) (orig. proceeding). The stated purpose of the TCPA is to "encourage and safeguard the constitutional rights of persons to petition, speak freely, associate freely, and otherwise participate in government to the maximum extent permitted by law and, at the same time, protect the rights of a person to file meritorious lawsuits for demonstrable injury." Civ. Prac. & Rem. § 27.002; see also ExxonMobil Pipeline Co. v. Coleman, 512 S.W.3d 895, 898 (Tex. 2017) (per curiam). We construe the TCPA "liberally to effectuate its purpose and intent fully." Civ. Prac. & Rem. § 27.011(b); see also State ex rel. Best v. Harper, 562 S.W.3d 1, 11 (Tex. 2018).

         The TCPA provides a procedure to expedite the dismissal of a "legal action" that appears to stifle the defendant's exercise of the rights protected by the statute. Youngkin v. Hines, 546 S.W.3d 675, 679 (Tex. 2018); see also Civ. Prac. & Rem. §§ 27.003(a), .005(b). The movant bears the initial burden of showing by a preponderance of the evidence that the legal action is based on, related to, or in response to the movant's exercise of the right of free speech, the right of association, or the right to petition. Civ. Prac. & Rem. §§ 27.003(a), .005(b); see also S&S Emergency Training Sols., Inc. v. Elliott, 564 S.W.3d 843, 847 (Tex. 2018). If the movant makes this showing, the burden shifts to the nonmovant to establish by clear and specific evidence a prima facie case for each essential element of the claim in question. Civ. Prac. & Rem. § 27.005(c); Elliott, 564 S.W.3d at 847. Additionally, a trial court is required to dismiss a legal action if "the moving party establishes by a preponderance of the evidence each essential element of a valid defense to the nonmovant's claim." Civ. Prac. & Rem. § 27.005(d).

         We review de novo the trial court's denial of a TCPA motion to dismiss and the question of whether the parties satisfied their respective burdens as set out in the TCPA. Hall, 2019 WL 2063576, at *5. In conducting this review, we consider the pleadings and the supporting evidence in the light most favorable to the nonmovant. Robert B. James, DDS, Inc. v. Elkins, 553 S.W.3d 596, 603 (Tex. App.- San Antonio 2018, pet. denied); see also Civ. Prac. & Rem. § 27.006(a). The plaintiff's pleadings are generally "the best and all-sufficient evidence of the nature of the action." West v. Quintanilla, 573 S.W.3d 237, 242 n.8 (Tex. 2019) (quoting Hersh v. Tatum, 526 S.W.3d 462, 467 (Tex. 2017)).

         Timeliness of ...


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