Carlton Energy Group, LLC v. Gene E. Phillips, Individually and D/B/A Phillips Oil Interests, LLC, Eurenergy Resources Corporation, Syntek West, Inc., and Cabeltel International Corporation
01-09-00997-CV
| Tex. App. | May 8, 2015Background
- CBM received a concession (2000) to explore coalbed methane in Bulgaria; it needed partner funding to drill one exploratory well (then two more) to retain the concession.
- Carlton agreed to fund up to $8 million (in tranches) for a 48% interest; Carlton obtained funding commitments from O’Dell, Assil, and Scholz to form a joint venture holding Carlton’s interest.
- Phillips (through EurEnergy) negotiated with CBM and obtained a contract giving EurEnergy 60% for $6.5 million after CBM declared Carlton in default; Carlton accepted a refund of $900,000 and lost the remaining interest.
- Carlton sued Phillips, EurEnergy and related entities for breach of contract and tortious interference; a jury awarded $66.5 million in actual damages and exemplary damages; trial court remitted actual damages to $31.16 million; the court of appeals reinstated $66.5 million.
- The Supreme Court of Texas addressed (1) liability for tortious interference and (2) whether the jury’s valuation (based partly on projected profits/gas-in-place and investor offers) was too speculative to support damages; it also considered alter-ego liability for corporate affiliates.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Liability for tortious interference with CBM–Carlton contract | Phillips induced CBM to terminate Carlton’s contract and thus is liable | Carlton had already defaulted and Phillips negotiated only after a lawful termination; no binding Carlton–Phillips agreement | Jury findings on compliance and a binding Carlton–Phillips agreement were supported; Phillips liable for tortious interference |
| Standard for damages when market value is based on projected profits | Carlton: market value can be shown by capitalization of projected profits and by buyer offers (Phillips’s $8.5M for 10%) | Phillips: projected profits are speculative; reasonable-certainty rule bars recovery based on such speculation | Reasonable-certainty rule applies to profit-based valuations, but when market participants value an income-producing asset, projections may be admissible; must reflect market’s view—rule limits speculative awards |
| Sufficiency of evidence for $66.5M valuation | Crichlow and Huddleston provided models (gas-in-ground, Vranino-area wells, extrapolation from Phillips’s offer) supporting high values | Projections were speculative, inconsistent with later data (2007 report), and other investor offers showed much lower values | Models based on raw volume/profit projections were too speculative to support $66.5M; an investor offer (Phillips’s) is some admissible evidence of market value; remittitur to $31.16M (trial court’s figure) was a reasonable reduction |
| Alter-ego liability of CabelTel and Syntek West for EurEnergy | Carlton: CabelTel and Syntek used EurEnergy to pursue Phillips’s interests; veil should be pierced | CabelTel/Syntek: Nevada statute confines alter-ego to shareholders/officers and makes determination a matter of law | Nevada law permits common-law alter-ego beyond §78.747; facts (control, shared management) supported alter-ego liability as matter of law; CabelTel and Syntek liable |
Key Cases Cited
- Tex. Instruments, Inc. v. Teletron Energy Mgmt., Inc., 877 S.W.2d 276 (Tex. 1994) (articulates reasonable-certainty requirement for lost-profits damages)
- Holt Atherton Indus., Inc. v. Heine, 835 S.W.2d 80 (Tex. 1992) (lost-profits proof must be based on objective facts or data)
- ERI Consulting Eng’rs, Inc. v. Swinnea, 318 S.W.3d 867 (Tex. 2010) (reversing on insufficient lost-profits evidence; fact-intensive inquiry)
- Sw. Battery Corp. v. Owen, 115 S.W.2d 1097 (Tex. 1938) (profits dependent on speculative conditions are not recoverable)
- Miga v. Jensen, 96 S.W.3d 207 (Tex. 2002) (lost profits are damages measured by reasonable certainty)
- Frank McCleary Cattle Co. v. Sewell, 317 P.2d 957 (Nev. 1957) (formulation of Nevada alter-ego doctrine: control, unity of interest, and injustice/fraud to ignore corporate separateness)