Black Diamond Energy, Inc., a Delaware Corporation v. Encana Oil and Gas (Usa) Inc., a Delaware Corporation
326 P.3d 904
Wyo.2014Background
- BDE and Encana entered a 2006 farmout agreement (FOA) for development of the Crimson Unit; BDE was to drill/complete eight test wells, spend $12M, and prepay $1.4M; Encana was operator on the initial well and billed BDE for operator costs thereafter.
- By late 2007/2008 eight wells had been drilled and $12M spent, but four wells were not completed as producers until late 2008; disputes over unpaid invoices arose and Encana declared BDE in default and later terminated the FOA effective Sept. 30, 2008.
- Paragraph 16 of the FOA provided that if vesting occurred without meeting all minimum requirements, BDE could request assignment of 50% of Encana’s leasehold interest in test blocks where wells had been drilled (subject to Encana’s satisfaction that wells were completed).
- BDE sued in 2011 claiming it had earned assignments and sought rescission/repayment or an accounting; Encana counterclaimed, arguing BDE breached first and Encana properly refused to assign interests.
- At trial the jury found BDE breached the FOA but awarded Encana no damages. BDE appealed, challenging (A) a jury instruction about suspension of performance after a material breach, (B) the verdict form requiring identification of a single breaching party, (C) exclusion of BDE’s expert testimony/reports, and (D) exclusion of evidence about a separate well (Sleeping Giant) and surplus funds.
- The Wyoming Supreme Court affirmed: instruction and verdict form were consistent with Wyoming law and the factual issues left to the jury; the trial court properly excluded untimely expert disclosure and an unreliable/undisclosed third‑party report; Sleeping Giant funds (separate transaction) were inadmissible to impose new FOA duties.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Instruction on suspension of performance after material breach (Issue A) | BDE: Encana could not accept payments after the alleged breach and later refuse performance; law requires electing to terminate or continue performance. | Encana: Under Wyoming law, the party committing the first substantial breach cannot complain if the other then stops performing. | Court: Instruction correct and appropriate; no abuse of discretion. |
| Verdict form requiring identification of which party breached first (Issue B) | BDE: Form forced a single‑breacher result contrary to FOA language (para.16), which BDE says triggered assignments despite BDE’s payment defaults. | Encana: Jury must determine which party breached first; the FOA did not compel assignment if minimums (e.g., completed wells) weren’t met. | Court: Verdict form permissible; court left contract interpretation to jury and BDE had not obtained summary adjudication. |
| Exclusion of BDE’s expert (Wheeler) and Allen & Crouch report (Issue C) | BDE: Scheduling order required only identification in Sept.; reports were delayed partly because Encana delayed producing reserve data; exclusion was erroneous. | Encana: BDE failed to timely produce expert reports under scheduling order and Rule 26; prejudice justified exclusion; Allen report was double hearsay/unreliable as a business record. | Court: Exclusion proper under Rule 37 for untimely expert disclosure; Allen report excluded for lack of trustworthiness/foundation and as undisclosed expert opinion. |
| Exclusion of Sleeping Giant evidence (Issue D) | BDE: Encana held surplus funds from Sleeping Giant well and should have applied them to Crimson Unit shortfalls; refusal supports breach of implied covenant of good faith. | Encana: Sleeping Giant was a separate transaction outside the FOA; FOA contained no obligation to apply those funds. | Court: Exclusion proper; separate transaction cannot be used to create new FOA duties or implied‑covenant breach. |
Key Cases Cited
- Williams v. Collins Communications, Inc., 720 P.2d 880 (Wyo. 1986) (party committing first substantial breach cannot complain of other party’s subsequent nonperformance)
- Glenn v. Union Pacific R.R. Co., 262 P.3d 177 (Wyo. 2011) (abuse‑of‑discretion standard for jury instructions; review principles)
- Pina v. Christensen, 206 P.3d 1298 (Wyo. 2009) (legal sufficiency and prejudice standards for jury instruction errors)
- Winter v. Pleasant, 222 P.3d 828 (Wyo. 2010) (reiterating rule that first substantial breacher cannot claim later default by other party)
- Wilson v. Tyrrell, 246 P.3d 265 (Wyo. 2011) (trial court within discretion to exclude expert testimony as sanction for Rule 26 noncompliance)
- Roemmich v. Roemmich, 238 P.3d 89 (Wyo. 2010) (trial court discretion in managing discovery and sanctions)