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Rebellion Energy II, LLC v. Liberty Resources Powder River Operating, LLC

Court of Appeals of Texas, First District

November 5, 2019

REBELLION ENERGY II, LLC, Appellant
v.
LIBERTY RESOURCES POWDER RIVER OPERATING, LLC AND LIBERTY RESOURCES MANAGEMENT COMPANY, LLC, Appellees

          On Appeal from the 270th District Court Harris County, Texas Trial Court Case No. 2019-16000

          Panel consists of Justices Kelly, Hightower, and Countiss.

          MEMORANDUM OPINION

          RICHARD HIGHTOWER JUSTICE

         In this interlocutory appeal, appellant Rebellion Energy II, LLC, asserts that the trial court erred in denying its motion to compel arbitration. Because the parties' dispute is not within the scope of their narrow arbitration provision, the trial court did not err. We affirm.

         Background

         Rebellion sued Liberty Resources Powder River Operating, LLC (Liberty Resources) and Liberty Resources Management Company, LLC (Liberty Management) (collectively, Liberty) in Harris County district court, seeking to compel arbitration and alternatively asserting claims for breach of contract and declaratory judgment. Liberty counterclaimed, asserting claims for declaratory judgment, breach of contract, and indemnity.

         Rebellion moved to compel arbitration, and Liberty moved for summary judgment on its counterclaims. After a hearing in which the trial court denied the motion to compel arbitration, Rebellion brought this interlocutory appeal. We granted Rebellion's request to stay the litigation during the pendency of this appeal.

         The parties' dispute arises out of a June 2018 Purchase and Sale Agreement (PSA) in which Rebellion acquired from Liberty certain oil and gas assets in Wyoming, with a defined purchase price of $106 million that was subject to upward and downward adjustments based on several provisions in the PSA. The sale closed on August 2, 2018, and Rebellion assumed all of Liberty's obligations under Liberty's contracts relating to the assets, including a Gas Gathering and Processing Agreement (GGPA) between Liberty and Thunder Creek Gas Services, LLC that was assigned to Rebellion in the PSA.

         Under the GGPA, Thunder Creek, a third-party midstream services company, agreed to provide gathering and processing services in connection with the production of natural gas assets owned by Liberty (the Producer). The GGPA provided that, if Thunder Creek agreed to connect a new well to its gathering system and the Producer decided not to drill the well to the target depth or did not complete the well within 120 days of the notice, then the Producer would be obligated to reimburse Thunder Creek for all costs incurred in constructing facilities for that well.

         Rebellion alleges in its suit that, in 2017, Liberty provided Thunder Creek with notice for two new wells named Habanero and Nine Mile. Rebellion contends that Liberty later-but before execution of the PSA- made the decision not to complete the Habanero and Nine Mile wells and that Thunder Creek invoiced Liberty the amount of $749, 064.82 for its work on those wells.

         Liberty, on the other hand, contends in its counterclaim that, while it did provide Thunder Creek with notice for the two new wells in 2017, it notified Thunder Creek in January 2018 that it was delaying completion of the wells. Liberty then provided Thunder Creek with new notices of completion for the two wells on June 19, 2018, and August 7, 2018, respectively. Liberty then alleges that, after the PSA closed and Rebellion assumed the GGPA, Rebellion decided not to complete the Habanero and Nine Mile wells and notified Thunder Creek of its decision and that, as a result, on August 15, 2018, Thunder Creek sent Rebellion two invoices totaling $749, 064.82 for the costs for the Habanero and Nine Mile wells.

         When the PSA closed, Liberty and Rebellion jointly signed a Preliminary Settlement Statement that identified adjustments to the purchase price in accordance with Sections 3.3 and 3.4 of the PSA. On December 5, 2018, Liberty delivered a Final Settlement Statement to Rebellion that identified final adjustments to the purchase price in accordance with Sections 3.3 and 3.5 of the PSA. These adjustments included certain downward adjustments that the parties had previously agreed should be made to the purchase price under Section 3.3(b)(viii) of the PSA. The Thunder Creek invoices were not included in either the jointly executed Preliminary Settlement Statement or the Final Settlement Statement that Liberty delivered to Rebellion.

         On December 14, 2018, Rebellion sent Liberty a dispute notice that included the Thunder Creek invoices in Liberty's Final Settlement Statement and attached a copy of the invoices. Rebellion's insertion of the Thunder Creek invoices allocated the invoices to Liberty and resulted in a downward purchase-price adjustment. Rebellion asserted that its inclusion of the Thunder Creek invoices in its dispute notice was based on Section 3.3(b)(viii), which allows for a downward adjustment to the purchase price as "provided for elsewhere in this Agreement or otherwise agreed upon by Sellers and Buyer."

         After its invoices were not paid for several months, Thunder Creek sent demands for payment to both Rebellion and Liberty of the outstanding invoices. On February 11, 2019, Liberty sent Rebellion a written indemnification notice explaining that Rebellion was required to pay the Thunder Creek invoices under the PSA and that Liberty was entitled to indemnification under the PSA for Rebellion's failure to pay the Thunder ...


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