1  

PLAINTIFF’S RESPONSE TO OIL AND GAS, INC. AND JOHN MOTION FOR NO-EVIDENCE SUMMARY JUDGMENT

TO THE HONORABLE JUDGE OF SAID COURT:

Plaintiff, J. asks the court to deny Defendant’s motion for final

summary judgment.

I. Introduction

1. Plaintiff, J. sued Defendants Oil & Gas, Inc. (“

and John (“ (collectively “Defendants”), for breach of contract and breach of

fiduciary duties on August 12, 2009.

2. Pursuant to an Agreed Scheduling Order, all dispositive motions were to have

been heard by oral hearing or submission no later than January 21, 2011.

3. On January 21, 2011, Defendant moved for a no-evidence summary judgment

based on the assertion that there is no evidence of essential elements of Plaintiff’s breach

of contract and breach of fiduciary duties causes of action. This motion is set for

submission on February 14, 2011.

4. This case is set for trial on February 21, 2011.

No. 2009-51481

J. § IN THE DISTRICT COURT Plaintiff § VS.

§ §

OF HARRIS COUNTY, TEXAS

OIL & GAS, INC., JOHN

RESOURCES, LLC, and PETROLEUM, INC.,

§ § § §

Defendants § 55TH JUDICIAL DISTRICT

  2  

II. Objections to the No-Evidence Motion

5. Plaintiff objects to the motion as not timely. Pursuant to the Scheduling Order

entered by this Court and agreed to by Defendants, the latest date on which a dispositive

motion could be filed was 21 days prior to January 21, 2011. Defendants filed their

motion after the deadline. Therefore, the motion should be denied.

6. Plaintiff further objects to the motion as conclusory and non-specific. The motion

is a bare-bones, conclusory assertion of no evidence. There is no analysis of the legal

theories actually pleaded by Plaintiff or of any specific defect in the proof. The motion

merely cites all the elements of all the causes of action and then asserts that there is no

evidence of anything. The motion even claims there is no evidence of the existence of an

agreement notwithstanding Defendant’s explicit testimony: “There was an agreement

between Oil and Gas and P&NG, Mr. that he would receive 17 and a

half percent in the prospect.” (Ex. B 51:16-18). Defendants’ conclusory assertion that

there is no evidence to support the entire claim is an improper motion under Rule 166a(i).

See Notes & Comments to TRCP 166a(i); Ortiz v. Collins, 203 S.W.3d 414, 425 (Tex.

App.—Houston [14th Dist] 2006, pet. denied); Specialty Retailers, Inc. v. Fuqua, 29

S.W.3d 140, 147 (Tex. App.—Houston [14th Dist.] 2000, pet. denied). When a no-

evidence motion is conclusory, the Court treats the motion as a traditional motion for

summary judgment on which the movant bears the burden. See Michael v. Dike, 41

S.W.3d 746, 751-52 (Tex. App.—Corpus Christi 2001, no pet.). Because the motion is

not supported by evidence, it must be denied.

  3  

III. Facts

7. Plaintiff, J. (“Gus”) who does business as P&NG Exploration, is a

geophysicist. Defendant John who does business though his wholly-owned Texas

corporation, Oil & Gas, Inc., is a geologist. and are both involved

in the oil and gas exploration business and have been friends, business associates, and

joint venture partners for more than two decades. ( Affidavit, Exhibit A, ¶ 2, 3).

8. The relationship of and began in the early to mid-1980s, when both

were employed at Horizon Exploration and began working closely together to generate

prospects. left Horizon in 1989 to work for Paramount, but the two kept in

touch. When was fired in 1991, he contacted who helped arrange a job

interview. In 1992, left Paramount, and called to propose that they team up

to generate oil and gas prospects. (Exhibit A; ¶ 3).

9. In 1993, and obtained financial backing from Ken English and

began working together to generate prospects. and moved into a small

office suite together in North Houston and split income and expenses 50/50. The

relationship with English ended in 1998, but and continued to work

together in the same office and on various projects, splitting joint expenses, until

February 2007. (Exhibit A; ¶ 4).

10. Between 1998 and 2007, and worked sometimes independently on

their own projects and sometimes together on joint venture projects. Some of the joint

venture projects had third-party financial backers; and some were financed solely by

and During the ten years, and worked on dozens of joint

  4  

venture projects together, almost all of which were done on a handshake basis. (Exhibit

A; ¶ 5).

11. All of the joint venture projects involved generating a “prospect” for sale. In each

case and would identify an area likely to contain oil or gas and would

acquire seismic data (either directly or through a third-party backer). and

would agree to their relative percentage of ownership in the project. Usually, ownership

was split 50/50 as between the two of them, but at times the two partners agreed to

different percentages. would contribute the geological work and mapping.

would contribute the geophysical work and create models. The partners would acquire

the minerals rights to the acreage involved in the prospect and would create a

presentation to offer the prospect for sale. Each partner would contribute his respective

percentage of the costs and necessary capital. If the prospect was sold, the acquiring

company would pay and a cash price, which included cash consideration

for three components: (1) the minerals interests, (2) the geological and geophysical

work, and (3) the use of the seismic. and would also receive overriding

royalty interests, and sometimes working interests, in the event that production was

established. and would split the cash consideration and the royalties

according to their respective percentage ownership interests in the joint venture projects.

(Exhibit A; ¶ 6).

12. In 2003, entered into an agreement with Boone who had acquired the

rights to a large seismic survey in Wharton County. and agreed that

would give access to the seismic data to generate prospects and that and

would share any prospects that were successfully produced or sold on a 50/50 basis.

  5  

was not a party to this agreement. (Exhibit A; ¶ 7; Exhibit B-1). However, in

April 2006, proposed to to jointly pursue in a project to sell a certain

prospect that had identified from the data, which would be called the

Gum Prospect. (Exhibit A; ¶ 8). Because owned 50% of the prospect, the

agreement between and dealt only with 50% of the prospect. There

was no agreement between and Initially, offered, and

accepted, a 15% ownership interest in the prospect (or 30% of 50%). Shortly

thereafter, offered an additional 5%, and agreed. later

demanded the 5% back, refused, and the two compromised on a 17.5%

ownership interest in the prospect for Id.

13. There was no written agreement between and regarding the

Gum Prospect and no explicit negotiation over any terms other than the percentage

ownership interest. The agreement between and to joint venture the

Gum prospect was made on the basis of their long-standing relationship of trust and

confidence and with the mutual understanding of what an ownership interest in a prospect

means. (Exhibit A; ¶ 9). contributed his geophysical services and assisted in

creating the sales materials and presentation and in marketing the prospect. also

contributed 17.5% of the capital necessary to acquire the minerals interests and to pay for

the expenses necessary to generate the prospect. (Id.)

14. In July 2006, the prospect was ready to market, and circulated an email

discussing the terms under which the Gum Prospect would be offered. These terms

clearly included a seismic component, which would be a cash charge for the use 20

square miles of the seismic data at $12,000 per square mile, or a total of $240,000.

  6  

(Exhibit A; ¶ 10; Exhibit B-7). Ultimately, the sales brochure that was circulated to

prospective purchasers listed the seismic component at $5,000 per square mile, or

$100,000—together with consideration of $453,750 for the land and $70,000 for the

geological and geophysical. It was clearly understood between and that

ownership interest included a 17.5% ownership interest in all aspects of the

prospect, including the seismic component. (Id.; Exhibit B-15)

15. One company that indicated serious interest in the Gum Prospect was

Resources, Inc. Only was involved in discussions with and relied on

to protect his interests in conducting those negotiations. (Exhibit A; ¶ 11). In

October 2006, informed that, in the course of negotiating the purchase of

the Gum Prospect, had learned might be interested in acquiring the

entire seismic survey and that there was, therefore, an opportunity to make a much larger

deal with (Id.) requested assistance in determining what the

seismic survey was worth, and contacted an acquaintance at Seitel and

determined that Seitel was offering the same seismic data for $17,500 per square mile.

(Exhibit B-19). The opportunity to sell the seismic clearly arose out of the Gum

Prospect, and initially understood that he would participate in that opportunity.

(Id.)

16. In the course of negotiating with structured the deal as two separate

transactions: a Lease Purchase and Participation Agreement relating to the Gum

Prospect and a separate Seismic License Agreement, which were executed within five

days of each other. (Exhibit B-20; Exhibit B-12; Exhibit A; ¶ 12). The purchase in the

Seismic License Agreement included the same 20 square miles of seismic that were part

  7  

of the Gum Prospect. (Id.) Because, as Boone testified, “They weren’t going

to pay for that data again. They weren’t going to pay for it twice…” (Exhibit C 12:4-10),

the seismic component was removed from the Gum Prospect. purchased the

seismic data for $8000 per square mile, or a total of approximately $1.2 million. (Exhibit

A; ¶ 12). However, while received his 17.5% of the consideration paid in the

Lease Purchase and Participation Agreement, he received nothing from the Seismic

License Agreement. and split the $1.2 million between themselves on a 50/50

basis. (Id. and Exhibit B-13).

17. was not told that he would not be participating in the opportunity to sell

the seismic data and that he would receive no compensation from the transfer of the

seismic component to a separate deal until after the deal had been agreed to with

never agreed to the loss of the seismic component without compensation.

(Exhibit A; ¶ 13).

IV. Argument & Authorities

18. This Court should deny Defendant’s motion for summary judgment because there

are genuine issues of material fact regarding each element of Plaintiff’s breach of

contract claim. Specifically, there is sufficient evidence of: a) the existence of an oral

contract between Mr. and Defendant and b) a breach of that oral agreement by

Defendant.

19. Additionally, there are genuine issues of material fact regarding each element of

Plaintiff’s breach of fiduciary duty claim. Specifically, there is sufficient evidence that a)

Plaintiff and the Defendants had a fiduciary relationship; b) Defendant breached his

  8  

fiduciary duties to Plaintiff; and c) Defendant’s breach resulted in an injury to Plaintiff or

a benefit to Defendant.

A. Summary Judgment Evidence

20. Plaintiff relies on the following summary judgment evidence, which is appended

to this response and is incorporated herein by reference.

Exhibit A. Affidavit of Plaintiff J.

Exhibit B. Deposition of Defendant John

Exhibit B-1 Peeler Ranch Exploration Agreement

Exhibit B-7 July 2006 Email

Exhibit B-12 Seismic License Agreement

Exhibit B-13 Seismic Sale Agreement

Exhibit B-15 Gum Prospect Brochure

Exhibit B-19 Seitel Email

Exhibit B-20 Lease Purchase Agreement

Exhibit C. Deposition of Defendant Boone

  9  

B. Breach of Contract

1. A Valid Oral Agreement Existed between Defendants and Mr.

21. Defendants’ claim of no evidence of an oral contract borders on bad faith.

Defendant testified: “There was an agreement between Oil and Gas and

P&NG, Mr. that he would receive a 17 and a half percent interest in the

prospect. Of course he had to pay his share of the -- all the costs, et cetera.” (

Deposition, Exhibit B 51:16-19). Defendants offered Plaintiff an ownership interest in the

Gum Prospect. Defendant accepted. Plaintiff and Defendant orally agreed that

Plaintiff would own 17.5% of the Gum Prospect. Plaintiff’s consideration was the

contribution of his geophysical services, his efforts and services in creating the

presentation materials and assistance in marketing the prospect, and his payment of

17.5% of the capital necessary to acquire the minerals interests and to generate and

market the prospect. ( Affidavit, Exhibit A, ¶ 9).

22. According to the testimony of the Defendant, an agreement existed, which

specified that Mr. would be entitled to 17.5% of all the proceeds of the sale of

the prospect. (Exhibit B, 51:20-24). Mr. was expected to participate in marketing

the prospect to prospective purchasers. (Exhibit B, 59:20-60:3). Finally, Mr.

testified that Mr. did in fact pay his 17.5% share of the costs associated with the

prospect (Exhibit B, 51:25-52:2) and did in fact market the prospect to purchasers

(Exhibit B, 60:2-5).

2. Defendants Breached their Oral Agreement with Mr.

23. The Gum Prospect in which Plaintiff had a 17.5% interest entitled Plaintiff

to 17.5% of the proceeds of the sale. The components of the prospect that would result in

  10  

cash being paid to Plaintiff included compensation for 20 square miles of seismic.

(Exhibit A, ¶ 10). In a July 14, 2006 email, Mr. wrote up a list of proposed terms

for selling the Gum Creek Prospect, which included a $240,000 charge for use of

20 square miles of seismic on the prospect, at $12,000 per square mile. (Exhibit B-7,

Page 2). A sales brochure subsequently generated by Defendant lists the 3-D seismic

costs at $100,000, or $5,000 per square mile. (Exhibit B-15, Page 2). However, the

prospect was ultimately sold without any seismic component. (Exhibit B-20). Defendant

conceded that, in order to remove the seismic component from the deal, he was required

to obtain Mr. permission. (Exhibit B, 100:23-101:3 and 106:23-107:4).

Defendants did not obtain Plaintiff’s permission to remove the seismic component of the

prospect and sell it separately without compensation or consideration to Plaintiff. (Exhibit

A, ¶ 13). Thus, a genuine issue of material fact exists concerning whether Defendants

breached the oral agreement.

24. Finally, a genuine issue of material fact exists over whether Defendants caused

Mr. damages by breaching their oral contract. Plaintiff’s contractual expectation

was to receive 17.5% of the consideration paid for the 20 square miles of seismic data

pertaining to the Gum Prospect. (Exhibit A, ¶ 10). The seismic component was

offered at $5000 per square mile. This component was removed from the prospect and

sold separately as part of a larger seismic deal for $8000 per square mile. (Ex. A, ¶ 12).

  11  

C. Breach of Fiduciary Duty

1. A Fiduciary Duty Exists Between Plaintiff and Defendants by Virtue of their Relationship of Trust and Confidence

25. A fiduciary relationship existed between Mr. and Mr. by virtue of

their long-standing personal and professional relationship. A fiduciary duty can arise out

of an information relationship when, “one person trusts in and relies on another, whether

the relation is a moral, social, domestic, or purely personal one.” Schlumberger Tech.

Corp. v. Swanson, 959 S.W.2d 171, 176-77 (Tex. 1997) (citing Thigpen v. Locke, 363

S.W.2d 247, 253 (Tex.1962)); Fitz-Gerald v. Hull, 150 Tex. 39, 237 S.W.2d 256, 261

(1951). Courts will find fiduciary duties in the context of a particular business transaction

where the fiduciary or confidential relationship existed prior to, and apart from, the

agreement made the basis of the suit. Schlumberger, 959 S.W.2d at 176-77 (citing

Transport Ins. Co. v. Faircloth, 898 S.W.2d 269, 280 (Tex.1995)).

26. In the instant matter, and had a personal and business relationship

of more than 20 years. They entered into numerous joint venture projects together on the

basis of a handshake, rather than a negotiated agreement. (Exhibit A, ¶ 2; Exhibit B,

Pages 15-16). Defendant admits that Mr. and Mr. collaborated on oil and

gas prospects from 1993 through 2001 under contract with Ken Petroleum (Exhibit B,

22:13-15) and collaborated on other projects together from 2001 through 2007 (Exhibit

B, Pages 32-35); and that they shared office space from 1993 to 2007 (Exhibit B, 4:18-

21). Mr. and Mr. were friends, and Mr. trusted Mr. (Exhibit

A, ¶ 2). Mr. was relying on this relationship of trust and confidence in entering

into the Gum Prospect joint venture with Mr. Even Mr. conceded that

Mr. was his friend and believed that Mr. considered Mr. his friend

  12  

as well, (Exhibit B, 7:7-11), and that some level of trust was inherent in the relationship.

(Exhibit B, Page 7:15-21). The foregoing evidence raises a genuine issue of material fact

over whether Mr. and Mr. owed each other fiduciary duties arising out of

their relationship of trust and confidence.

2. A Fiduciary Duty Existed Between Plaintiff and Defendants by Virtue of their Participation in a Joint Venture or Limited Purpose Partnership

27. The Supreme Court of Texas has recognized that the relationship between joint

venturers for the development of a particular oil and gas lease is fiduciary in nature.

Rankin v. Naftalis, 557 S.W.2d 940, 944 (Tex. 1977). Fiduciary duties extend to all

dealings within the scope that relationship. Id. Joint venturers are held to fiduciary duties

of loyalty, good faith and honesty with respect to the particular enterprise or joint

concern. Fitz-Gerald v. Hull, 150 Tex. 39, 54, 237 S.W.2d 256, 264-265 (Tex. 1951).

28. The elements of a joint venture are: 1) mutual right of control; 2) community of

interest; 3) agreements to share profits as principals; and 4) agreement to share losses,

costs and expenses. Brown v. Cole, 155 Tex. 624, 291 S.W.2d 704 (1956); Chandler v.

Herndon, 450 S.W.2d 703 (Tex.Civ.App.-Corpus Christi 1970, writ ref'd n. r. e.). Where

the elements are present, a joint venture or limited purpose partnership is created

regardless of whether the parties intended to create a partnership or called their

association a “partnership,” a “joint venture,” or some other name. See Business

Organizations Code § 152.051(b).

29. Plaintiff’s 17.5% ownership interest establishes a community of interest with

Defendants. Plaintiff also had a mutual right to control the generation and sale of the

prospect. (Exhibit A, ¶ 9). conceded that he did not have authority to change the

terms of sale for the Gum prospect without Mr. consent. (Exhibit B,

  13  

100:23-101:3 and 106:23-107:4). Plaintiff contributed 17.5% of the capital to the venture

and thus bore the risk of 17.5% of the losses if the prospect did not sell and would get

17.5% of the profits if it did sell. (Exhibit A, ¶ 9; Exhibit B 52:3-10). Thus, a genuine

issue of material fact exists over whether Mr. and Mr. participated in a

“joint venture” by developing and marketing the Gum prospect and consequently

owed one another fiduciary duties of good faith and loyalty.

3. Defendants breached their Fiduciary Duties to Plaintiff by Removing the Seismic Component from the Prospect and selling it in a Separate Transaction of which Plaintiff received no Interest

30. Because Defendants owed Plaintiff fiduciary duties, Plaintiff was entitled to

participate in all opportunities arising from the joint venture. International Bankers Life

Ins. Co. v. Holloway, 368 S.W.2d 567, 577 (Tex.1963); Bohatch v. Butler & Binion, 977

S.W.2d 543, 545 (Tex. 1998); Fitz-Gerald v. Hull, 150 Tex. 39, 237 S.W.2d 256, 264

(1951); Lifshutz v. Lifshutz, 199 S.W.3d 9, 18-19 (Tex. App.—San Antonio 2006, pet.

denied). The opportunity to make the large seismic sale arose out of the joint venture.

(Exhibit A, ¶ 11). The seismic sale opportunity involved the same data, and the value of

the Gum Prospect, and thus of Plaintiff’s interest in the project, had to be

diminished in order to do the separate seismic sale. (Exhibit A, ¶ 11; Exhibit C 12:4-10).

The Defendants injured Plaintiff interests to benefit themselves and did not offer Plaintiff

the option to participate in the opportunity. Therefore, Defendants breached their

fiduciary duties to Plaintiff and will have to account to Plaintiff for his loss and their

profits. Fitz-Gerald v. Hull, 150 Tex. 39, 54, 237 S.W.2d 256, 264-265 (Tex. 1951).

  14  

V. Conclusion

31. Therefore, for all the reasons stated above, Plaintiff respectfully requests this

Court to deny Defendants’ motion.

Respectfully Submitted, FRYAR LAW FIRM, P.C.

_______________________________ F. Eric Fryar Texas Bar No. 07495770 Avniel J. Adler Texas Bar No. 24071933 1001 Texas Ave., Suite 1400 Houston, Texas 77001-3194 Tel. (281) 715-6396 Fax (281) 715-6397 Email: eric@fryarlawfirm.com  ATTORNEY IN CHARGE FOR PLAINTIFF

CERTIFICATE OF SERVICE

I certify that a copy of the foregoing instrument was served on all parties and counsel of record pursuant to the Texas Rules of Civil Procedure as indicated below: [X] certified U.S. mail, return receipt requested on February 7, 2011. [X] email service on February 7, 2011 [ ] telephonic document transfer on February 7, 2011 before 5:00 p.m. [ ] personal delivery on February 7, 2011. [ ] courier receipted delivery by ____ on February 7, 2011

_______________________________ F. Eric Fryar