Carrizo Oil & Gas, Inc. v. Barrow-Shaver Resources Company
12-15-00083-CV
| Tex. App. | Dec 22, 2015Background
- Carrizo (lessee) and Barrow-Shaver Resources (BSR) executed a written Farmout Agreement giving BSR rights to earn working interests by drilling; the agreement required BSR to obtain Carrizo’s express written consent to any assignment, but contained no clause that consent "shall not be unreasonably withheld."
- During negotiation parties deleted an earlier draft phrase that would have limited Carrizo’s consent to being not unreasonably withheld; BSR’s negotiators later testified they understood the deletion but claimed Carrizo’s landman orally promised future consents.
- BSR sold interests to outside investors (the “Exploration Partners”) and later contracted to sell the project to Raptor for ~$27.6M; under the PSA BSR’s net expected profit was only ~$1.358M — most proceeds were allocated to the Exploration Partners.
- BSR sought Carrizo’s consent to assign to Raptor; Carrizo refused based on its corporate decision and the Farmout’s unqualified consent clause. Raptor terminated the PSA.
- BSR sued for breach of contract, fraud, and tortious interference; the trial court excluded much of Carrizo’s parol evidence about deleted draft language, admitted expert testimony on industry custom, submitted custom-and-usage issues to the jury, and the jury awarded BSR ~$27.69M (full PSA purchase price) plus tort damages and attorneys’ fees.
- Carrizo appeals (brief) arguing the trial court erred: the Farmout unambiguously allowed withholding consent for any reason; the court wrongly implied or allowed the jury to imply a reasonableness covenant, improperly excluded negotiation evidence, admitted unreliable custom evidence, and the damages award improperly included third-party recovery and lacked support.
Issues
| Issue | Plaintiff's Argument (BSR) | Defendant's Argument (Carrizo) | Held (trial-court disposition / contested ruling) |
|---|---|---|---|
| 1. Construction of consent clause | Farmout is silent as to reasons for refusal; industry custom supplies a reasonableness limitation | The agreement is unambiguous: prior drafts show parties struck "not unreasonably withheld"; consent is "hard" (unqualified) | Trial court instructed jury that agreement was silent and permitted consideration of industry custom; jury found breach |
| 2. Implied covenant of reasonableness | If contract is silent, jury may imply covenant based on custom/usage | Implied covenants disfavored; parties expressly rejected the qualifier so no covenant should be implied as a matter of law | Trial court allowed jury to decide whether a not-unreasonably-withheld requirement should be read in |
| 3. Admissibility of negotiation/parol evidence | BSR argued parol evidence should not vary the writing; relied on agreement text and custom | Carrizo sought to admit prior drafts and testimony showing deletion of reasonableness language to prove parties’ intent; trial court excluded most such evidence | Trial court largely excluded negotiation evidence (admitted only in bill of exceptions) |
| 4. Admissibility & reliability of custom/usage expert | BSR offered expert Kramer to prove industry custom that consents must be reasonable | Carrizo argued Kramer lacked qualification, reliable foundation, and relevance; custom cannot override clear written terms | Trial court admitted Kramer’s testimony; Carrizo contends admission was error |
| 5. Damages measure and standing to recover full PSA price | BSR sought full PSA purchase price as its contract damages for lost sale | Carrizo argued damages should be limited to BSR’s actual loss (BSR’s net profit), the PSA proceeds principally belonged to third-party Exploration Partners, and BSR lacked proof of assignment/standing to recover their share | Jury awarded roughly full PSA price (~$27.69M) to BSR; Carrizo argues this award lacks evidentiary support and includes third-party recovery that BSR could not claim |
| 6. Tort claims (fraud, tortious interference) | BSR alleged oral promises and improper conduct supporting torts | Carrizo argued tort claims fail because written contract controls (no justifiable reliance) and Carrizo lawfully exercised its contractual right to refuse consent (justification privilege for interference) | Jury found fraud and intentional interference; Carrizo maintains these should have been dismissed as a matter of law |
| 7. Attorneys’ fees award procedure | BSR sought attorney’s fees supporting judgment | Carrizo objected to in camera consideration of unredacted fee bills not produced to Carrizo and lack of segregation of fees by claim | Trial court awarded ~$1.018M in fees based on in camera review; Carrizo asserts procedural error |
Key Cases Cited
- Dynegy Midstream Servs., L.P. v. Apache Corp., 294 S.W.3d 164 (Tex. 2009) (principles on contract interpretation and when to decide issues as a matter of law)
- Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323 (Tex. 2011) (use plain language to determine parties’ intent)
- HECI Exploration Co. v. Neel, 982 S.W.2d 881 (Tex. 1998) (courts disfavor implying covenants; courts cannot rewrite bargains)
- Sun Oil Co. v. Madeley, 626 S.W.2d 726 (Tex. 1981) (parol evidence rule limits evidence that would render an unambiguous contract ambiguous)
- Reynolds v. McCullough, 739 S.W.2d 424 (Tex. App.—San Antonio 1987) (a lessor may covenant that consent will not be unreasonably withheld, but absent such a promise no implied covenant exists)
- City of Keller v. Wilson, 168 S.W.3d 802 (Tex. 2005) (standards for legal and factual sufficiency review of evidence)
- Aquaplex, Inc. v. Rancho La Valencia, Inc., 297 S.W.3d 768 (Tex. 2009) (lost-profits proof requirements and damages principles)