Opinions Released August 11, 2016

In this weekly blog, the Law Offices of Brandy Wingate Voss, PLLC will summarize recent decisions from the Thirteenth Court of Appeals and provide links to decisions on the court’s website.

Arcturus Corp. v. Espada Operating, LLC, No. 13-13-00713-CV (Mem. Opinion by Justice Perkes; Panel Members: Chief Justice Valdez and Justice Benavides)

In this appeal, Arcturus attempted to challenge the legal and factual sufficiency of the trial court’s findings, which rejected almost all of its nine causes of action.

In 2009, Arcturus Corporation, Espada Operating, LLC, and Bengal Energy, LP entered a joint operating agreement (“JOA”) to explore and develop an oil and gas lease. The lease had been acquired by Rodney Rolston, who used two companies—Texas Oil Leasing Company and ITEXCO Inc.—to provide it to the group for exploration and development.

Three months after signing the JOA, in December 2009, Espada sent Arcturus a cash call for $744,504.50 to fund the drilling of a test well. Arcturus asked for more time to provide the money. By letter on January 19, 2010 Rolston—on behalf of Bengal—agreed to extend the time if Arcturus would may an initial payment of $150,000 by January 20—i.e., the next day. However, Bengal stated that if Arcturus failed to pay the remaining amount by February 15, the $150,000 would be forfeited as liquidated damages. Arcturus paid $100,000 on January 20, followed by $50,000 on January 21. Arcturus never paid the remaining $594,504.50.

Bengal and Espada terminated Arcturus’ interest in April 2010 and kept the $150,000 as liquidated damages. Arcturus sued Bengal, Espada, the presidents of the two companies, Rodney Rolston, Texas Oil Leasing Co., and ITEXCO alleging nine different causes of action.

At a bench trial on the merits, the trial court held that the January 19 letter from Espada was a valid forbearance agreement. Arcturus accepted the terms of the agreement by sending $150,000 to Bengal soon after receiving the letter. Arcturus then benefitted from the agreement, receiving more time to pay the cash call. However, the $150,000 was held not to be a commercially reasonable amount of liquidated damages. The court thus ordered Bengal and Espada to return $75,000 of the sum to Arcturus. All other defendants were held not liable for any of the alleged offenses. Arcturus was further ordered to pay $10,000 in attorney’s fees to Rolston for his expenses fending off Arcturus’ declaratory judgment action.

Arcturus appealed, challenging the legal and factual sufficiency of the evidence. In particular, Arcturus’ appeal hinged on the trial court’s finding that the January 19 letter was a valid forbearance agreement, and that the $150,000 were intended to be liquidated damages.

Held: The court of appeals affirmed the trial court’s judgment, holding that all findings were supported by legally and factually sufficient evidence.

Forbearance Agreement

First, Arcturus challenged the legal and factual sufficiency of the trial court’s finding that there was a valid forbearance agreement. Arcturus asserted that it did not accept the agreement, Rolston/Bengal’s promise was illusory, the agreement was barred by the statute of frauds, and the agreement was parol evidence.

The court of appeals rejected each of these arguments in turn. First, the court held that Arcturus’ failure to strictly comply with the terms of the January 19 letter agreement—namely, its failure to pay $150,000 on January 20—did not negate acceptance. As the offeror, Bengal could and did waive the requirement of strict compliance by accepting Arcturus’ late payment and extending the company’s time to produce the full cash call.

Second, Bengal’s promise to extend the time for payment was not illusory. Although Arcturus questioned whether the well would have been built at all—even if the company had have produced the cash call—such a hypothetical did not change the binding nature of the forbearance agreement.

Nor was the forbearance agreement barred by the statute of frauds. Although the sale of an interest in an oil and gas lease must be signed and in writing, an extension to such a contract can be made orally. Since the forbearance letter merely extended Arcturus’ time to comply with the terms of the written contract, it did not need to be in writing to bind the parties.

Finally, the court of appeals noted that the parol evidence rule does not apply to agreements made after a written contract, nor does it prohibit oral modifications. Thus the parol evidence rule did not prohibit the forbearance letter from modifying the parties’ prior written agreement. The court overruled all of Arcturus’ challenges to the sufficiency of the evidence supporting the forbearance agreement.

Liquidated Damages & Pre-Judgment Interest

Arcturus next challenged the trial court’s rewriting of the liquidated damages provision, arguing that the provision was entirely unenforceable as a penalty. To prove that the damages were a penalty, Arcturus had the burden to show that the amount of liquidated damages was disproportionate to the amount of actual damages. However, there was no evidence of the amount of actual damages. Furthermore, the court of appeals quoted its sister courts for the rule that calculating liquidated damages as a percentage of the total price is generally acceptable. Thus, the liquidated damages provision was not an unenforceable penalty.

Furthermore, the trial court had the discretion to deny Arcturus’ request for the prejudgment interest accruing on the $75,000 in liquidated damages returned to Arcturus as commercially unreasonable. When no statute addresses prejudgment interest, it is left to the trial court’s judgment.

Tort Claims

Arcturus also challenged the trial court’s failure to hold the defendants liable for breach of fiduciary duty, conversion, civil theft, promissory estoppel, civil conspiracy, and aiding and abetting, claiming such findings were legally and factually insufficient.

Yet, with respect to Arcturus’ claims for fiduciary duty, conversion, and civil theft, each hinged the idea that the defendants exercised wrongful dominion or control over Arcturus’ $150,000. Since the court of appeals already affirmed the trial court’s finding that Arcturus’ $150,000 was contractual liquidated damages and thus the defendants had rightful authority over the money, the claims for breach of fiduciary duty, conversion, and civil theft failed.

Regarding Arcturus’ promissory estoppel claim, the key issue was simply a matter of he-said-she-said. Arcturus claimed that Rolston—representing Espada—promised to return the $150,000 if it did not drill the well. However, Rolston testified that he made no such promise, and that the forbearance letter accurately reflected his conversations with Arcturus. The trial court, as the trier of fact, had the discretion to believe Rolston over Arcturus. Thus, Arcturus’ claim for promissory estoppel failed.

Finally, the court of appeals emphasized that civil conspiracy and aiding and abetting are “dependent claims . . . premised on an underlying tort.” Since Arcturus failed to prove any of its tort claims, these dependent claims failed as well.

Attorney’s Fees

Lastly, Arcturus challenged the trial court’s decision to award Rolston $10,000 in attorney’s fees. Arcturus claimed that Rolston was not a prevailing party eligible for attorney’s fees, nor was the award reasonable and necessary. However, Rolston prevailed against Arcturus’ declaratory judgment action and was thus a “prevailing party” eligible for attorney’s fees.

Rolston’s attorney, however, did not break down the specific tasks he performed in preparation for litigation. Arcturus pointed to the Texas Supreme Court’s decision in El Apple I, Ltd. v. Olivas, claiming that detailed evidence and records were necessary. In El Apple—an employment discrimination case—the Texas Supreme Court overturned an award of attorney’s fees because there were no records or bills to support the attorney’s testimony. The Court held that the lodestar method requires documentary evidence showing the attorney’s specific tasks, the amount of time per task, who performed the task, and the applicable rate. 

The court of appeals distinguished El Apple, stating that the calculation of attorney’s fees is different for employment discrimination cases. Generally, Texas has never required documentary evidence to substantiate a claim for attorney’s fees. Here, Rolston’s attorney testified regarding his rate, the services provided, the amount of time spent on the declaratory judgment, and the reasonableness of his fees. The evidence was sufficient to uphold the award of attorney’s fees.

As to the trial court’s denial of its own requested attorney’s fees however, Arcturus failed to adequately brief the issue. Arcturus’ brief contained only three sentences on the issue and a single case citation. The challenge was thus waived.

Having addressed and rejected every challenge raised by Arcturus, the court of appeals affirmed the trial court’s judgment.

Read the Full Opinion Here