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At a Glance:
Title:
Bonn Operating Company v. Devon Energy Production Company, LP
Date:
August 29, 2008
Citation:
4:06–CV–734–Y
Status:
Unpublished Opinion

Bonn Operating Company v. Devon Energy Production Company, LP

United States District Court, N.D. Texas, Fort Worth Division.

BONN OPERATING COMPANY

v.

DEVON ENERGY PRODUCTION COMPANY, LP

Civil Action No. 4:06–CV–734–Y

|

Signed 08/29/2008

Attorneys & Firms

S. Gary Werley, Law Office of S. Gary Werley, Fort Worth Club Bldg, Fort Worth, TX, for Bonn Operating Company.

Stephen A. Madsen, Caroline C. Harrison, J. Frank Kinsel, Jr., Cantey Hanger LLP, John R. Thompson, III, Kelly Hart & Hallman, Fort Worth, TX, for Devon Energy Production Company, LP.

ORDER GRANTING MOTION TO STRIKE AND DENYING MOTION FOR SUMMARY JUDGMENT

TERRY R. MEANS, UNITED STATES DISTRICT JUDGE

*1 This case arises out of a contract dispute covering eight oil and gas wells located in Wyoming. Plaintiff Bonn Operating Company (“Bonn”) is a non-operating working-interest owner in the wells, and defendant Devon Energy Production Company, LP (“Devon Energy”), is the operator of the wells. Bonn contends that Devon Energy drilled certain wells without consent, charged Bonn costs and penalties it was not entitled to, and failed to credit revenue to Bonn as soon as Devon Energy was reimbursed its allowable charges. Bonn has filed a motion (doc. #10) for summary judgment on its claims and damages and Devon Energy has filed a motion (doc. #16) to strike nearly all of Bonn’s evidence submitted in support of its summary-judgment motion. After review, the Court concludes that the motion to strike should be GRANTED and that the summary-judgment motion should be DENIED.

I. Background

The parties agree that the “Form 610 Model Form Operating Agreement—1956” (“the JOA”) of March 25, 1971, which was executed by the parties’ predecessors in interest, governs this case. Under that agreement, Devon Energy operates the unit area (which is defined by the JOA) and Bonn is a non-operating working-interest owner. The JOA provides that a party to the agreement desiring to drill a well must provide the other parties with written notice that includes location, depth, and estimated cost of the operation. Upon receipt of the notice, the other parties to the JOA have thirty days in which to elect whether they will participate in the operation. One becomes a “non-consenting party” by either making that election or by failing to make any election within the thirty days. The cost and risk of drilling and conducting the operations are borne by the consenting parties. While the non-consenting parties do not bear such costs and risks, they are subject to a penalty, payable out of the proceeds of production, should the well produce. Under this contractual penalty, the consenting parties are entitled to the non-consenting parties’ share of any of the production from the wells until its proceeds equal the total of 100% of each non-consenting party’s share of certain costs (such as the normal cost to operate the well) and 300% of that portion of other costs and expenses (such as the costs to drill and complete the well before it becomes operational and producing).

It is undisputed that Devon Energy gave Bonn the required notices of its intent to drill the eight wells under the JOA and that Bonn, on each occasion, elected to withhold its consent. Each notice contained several enclosures, including an authorization for expenditure detailing the estimated costs for drilling and operation. One of the notices pertained to the well drilled on land described as Marquiss Federal 15W–12, which had already been completed. The notice informed Bonn that the well had been drilled, was completed, and was producing. It also informed Bonn of the costs associated with the drilling. Notwithstanding this knowledge, Bonn still elected to withhold consent.

II. Discussion

*2 At the outset, the Court notes that Bonn’s summary-judgment motion is severely deficient. Most of Bonn’s evidence is conclusory, unauthenticated, and contains numerous spreadsheets lacking attestation and any explanation as to what the numbers on those sheets mean.

The affidavit of Bonn’s cofounder and managing partner, Aaron Cawley, contains inadmissible hearsay and conclusory statements. For example, Cawley states that for the Marquiss Federal 15W–14 and Fuller Ranch 25W–4 wells, Devon Energy charged a number of expenses that “were not incurred in good faith, if incurred at all ....” (Pl.’s App. at 9.) Cawley offers no evidence to support that conclusory statement.

Finally, Bonn is not even clear as to which charges it is claiming reimbursement. Bonn’s pleadings are self contradictory: the original complaint alleges damages exceed $465,000; Cawley in his deposition said damages were $390,000; and the last paragraph in Bonn’s summary-judgment motion asks the Court to enter an award in the amount of $647,066.13, in addition to interest while its brief asks for the same sum, which is represented to include interest. For these reasons, and the reasons stated in Devon Energy’s motion to strike, the Court GRANTS the motion to strike.

It is indisputable that summary judgment is appropriate only when the record establishes “that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” FED. R. CIV. P. 56(c). The moving party has the initial burden of demonstrating that there is no genuine issue as to any material fact and that he is entitled to judgment as a matter of law. See Celotex Corp v. Catrett, 477 U.S. 317, 323 (1986). Only when that burden has been met must the non-moving party come forth with evidence showing there is a genuine issue for trial. Arbaugh v. Y&H Corp., 380 F.3d 219, 222 (5th Cir. 2004) (citing Celotex, 477 U.S. at 324); see also FED. R. CIV. P. 56(e). Because the Court has struck nearly all of Bonn’s evidence in support of its summary-judgment motion, Bonn has failed to meet its burden of showing that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. In fact, Bonn’s own evidence and the testimony of its principals establish that there are genuine issues at least as to the amount of damages it is entitled to, assuming Devon Energy’s liability, and that Bonn, therefore, is not entitled to judgment as a matter of law.

With respect to the Marquiss Federal 15W-12 well, Bonn contends Devon Energy breached the JOA because it gave Bonn notice of its intent to drill as required by the JOA after it had already drilled. Bonn does not seem to contend that any of the charges associated with that operation were unreasonable or not permitted but, instead, contends it is entitled to have Devon Energy bear the entirety of those costs simply because they were incurred before Bonn received the notice.

As explained above, the purpose of the notice is to give other parties to the JOA the opportunity to decide to join in the costs and benefits of drilling. The non-consenting party does not bear any risks; if the well ends up dry, it has lost nothing. Only if the well produces does the non-consenting party bear a penalty.

*3 To be entitled to summary judgment on its breach-of-contract claim relating to the Marquiss Federal 15W–12 well, Bonn has the burden of showing that Devon Energy breached the JOA and that breach caused Bonn damages. See Southwell v. University of the Incarnate Word, 974 S.W.2d 351, 354–55 (Tex.App.—San Antonio [4th Dist.] 1998, pet. denied). Even assuming Devon Energy breached the JOA, it is undisputed that Bonn cannot prove damages and that Bonn waived the breach.

Bonn admitted in its deposition that it did not suffer any damages as a result of being notified after the drilling had been completed and the well was producing. Specifically, Bonn stated that had it been notified before the drilling commenced, it still would have withheld consent. When asked what harm Bonn suffered by not being noticed before drilling, Bonn responded, “None.” (Def.’s App. at 37.)

But more importantly, Bonn was placed in a superior position by virtue of Devon Energy’s alleged untimely notice. Regardless of whether the JOA requires it, normally notice is sent prior to drilling beginning, which is why it contains only an estimate of the costs. Based on the information contained in the notice, the noticed parties can decide whether they wish to consent and participate in the risk. Bonn did not have to make such a calcula-tion. The costs were known and the well was producing; there was no risk if Bonn had consented. Bonn admitted to as much in its deposition. (Id. at 42.) Despite this superior knowledge, Bonn still elected not to consent but now wants to disavow its election.

Finally, as Devon Energy establishes, any breach of the JOA by giving untimely notice was waived by Bonn. Waiver is an affirmative defense that Devon Energy has the burden of pleading and proving. See Fed. R. Civ. P. 8(c); Labrado v. County of El Paso, 132 S.W.3d 581, 594 (Tex.App.—El Paso [8th Dist.] 2004, no pet.). “Under Texas law, the elements of waiver are (1) an existing right, benefit, or advantage; (2) actual or constructive knowledge of its existence; and (3) actual intent to relinquish that right.” GP Plastics Corp. v. Interboro Packaging Corp., 108 Fed. Appx. 832, 836 (5th Cir. 2004). Waiver is only effective when the person waiving does so with full knowledge of the material facts. See Texas Workers’ Compensation Ins. Facility v. Personnel Servs., 895 S.W.2d 889, 894 (Tex.App.—Austin 1995, no writ).

Waiver is a question of intent that is ordinarily a question of fact for the trier of fact. See Frost Nat’l Bank v. Burge, 29 S.W.3d 580, 592 (Tex.App.—Houston [14th Dist.] 2000, no pet.). Here, however, there is no genuine issue of material fact as to Bonn’s waiver. It is undisputed that Devon Energy’s notice to Bonn fully informed Bonn that the well had been drilled, was completed, and was producing. The notice detailed the costs and its production. Bonn admits in its deposition that it was aware when it received the notice that the well had been drilled and was complete and producing. And Bonn does not dispute that on the notice it wrote that it does not consent and it returned the notice to Devon Energy. Thus, even assuming that Devon Energy breached the JOA by sending Bonn the notice after it had drilled, Bonn, with full knowledge, waived its right to claim Devon Energy’s breach of the JOA,

With respect to Bonn’s remaining claims in its brief, summary judgment is not appropriate because (aside from the fact that Bonn’s evidence has been stricken) most of its evidence is contained in undecipherable charts and is otherwise broad, vague, and conclusory. Bonn has failed to provide the Court with adequate evidence and explanation of that evidence to determine whether Devon Energy is in breach of the JOA and the extent, if any, to which it caused Bonn damages.1 And to the extent Bonn has, it is inconsistent. In its brief, for example, Bonn complains of operating expenses for thirty-six items associated with a well it claims was non-producing, but in the appendix cited in support of that contention, only thirty-four items are listed. (Pl.’s Br. at 7.)

*4 Moreover, Bonn testified that many of the arguments it made and much of the evidence it submitted in support of its summary-judgment motion were included not to recover from Devon Energy, but were included “just to get the flavor of this lawsuit” and “to get some things off my chest.” (Def.’s App. at 56.) The Court’s, and no doubt Devon Energy’s, frustration is that Bonn’s summary-judgment motion fails to clearly and concisely distinguish between the charges it contends are in breach of the JOA and the damages it contends it is entitled to and the charges it listed “just to get things off of its chest.” Thus, Bonn fails to meet its burden of establishing that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law.

III. Conclusion

For the foregoing reasons, Bonn’s motion for summary judgment is DENIED and Devon Energy’s motion to strike is GRANTED.

Footnotes

1

The Court is not alone in scratching its head over Bonn’s evidence. Devon Energy complains that it “is at a loss and cannot properly respond to Bonn’s motion for summary judgment.” (Def.’s Br. at 21.)

End of Document
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