Carrizo Oil & Gas, Inc. v. Barrow-Shaver Resources Company
2017 Tex. App. LEXIS 821
| Tex. App. | 2017Background
- BSR (small operator) and COG (large public operator) negotiated a farmout for the Parkey Lease; executed March 30, 2011. BSR drilled and spent about $22M under the farmout.
- The executed consent-to-assignment clause read: "may not be assigned... without the express written consent of Carrizo" (no reasonableness/good-cause qualifier).
- Earlier drafts had included "which consent shall not be unreasonably withheld," but COG removed that language during negotiations; BSR objects to the deletion and claims oral assurances consent would be reasonable.
- BSR reached a $27.69M assignment deal with Raptor but COG demanded $5M payment for consent; BSR declined and Raptor withdrew.
- Trial: court excluded evidence of negotiations/drafts under the parol evidence rule, allowed BSR industry-custom expert testimony, jury found for BSR on breach, fraud, and tortious interference; judgment awarded ~$27.69M plus interest/fees.
- On appeal, COG argued the consent clause, informed by drafts/negotiations, unambiguously allowed it to withhold consent for any reason; appellate majority reversed and rendered take-nothing judgment for COG.
Issues
| Issue | Plaintiff's Argument (BSR) | Defendant's Argument (COG) | Held |
|---|---|---|---|
| 1. Construction of consent clause / breach of contract | Clause is silent as to standard; industry custom implies consent must be reasonable; jury should decide breach | Deletion of "reasonable" in negotiations shows parties intended unqualified consent; clause unambiguous as allowing arbitrary withholding — court should decide as matter of law | Majority: clause not silent when informed by negotiations/drafts; construed as unqualified right to refuse consent; no evidence of breach; judgment rendered for COG |
| 2. Admissibility of negotiation drafts (parol evidence) | Surrounding circumstances and custom justify admitting evidence to show intended meaning or to add a term where silent | Prior drafts and negotiations are admissible to show parties intended to remove reasonableness qualifier | Majority: trial court abused discretion excluding drafts; they made clause unambiguous that COG could withhold consent arbitrarily; evidence should have been considered by court in construction |
| 3. Fraud based on oral assurances | Laufer orally assured BSR consent would not be unreasonably withheld; fraud claim supported by reliance | Oral promise contradicted by the written agreement; written contract vitiates reliance on conflicting oral statements | Held: oral promise contradicted by unambiguous written term; justifiable reliance element fails; fraud judgment reversed |
| 4. Tortious interference with contract | COG’s conduct caused Raptor to withdraw and tortiously interfered | COG was justified by contractual right to withhold consent; justification is a defense | Held: contractual absolute right to withhold consent is justification; tortious interference claim fails |
Key Cases Cited
- Exxon Corp. v. Emerald Oil & Gas Co., 348 S.W.3d 194 (Tex. 2011) (legal-sufficiency standard and burden when attacking jury findings)
- Grohman v. Kahlig, 318 S.W.3d 882 (Tex. 2010) (unambiguous contract language is construed as a matter of law)
- Houston Expl. Co. v. Wellington Underwriting Agencies, Ltd., 352 S.W.3d 462 (Tex. 2011) (parol evidence may inform rather than contradict contract text)
- Kachina Pipeline Co. v. Lillis, 471 S.W.3d 445 (Tex. 2015) (surrounding circumstances can render contract capable of only one meaning)
- Energen Res. MAQ, Inc. v. Dalbosco, 23 S.W.3d 551 (Tex. App.—Houston [1st Dist.] 2000) (custom and usage admissible to supplement contract silent on a matter)
- Brookshire Bros., Ltd. v. Aldridge, 438 S.W.3d 9 (Tex. 2014) (abuse of discretion standard for evidentiary rulings)