Highland Capital Management, L.P. v. Ryder Scott Co.
402 S.W.3d 719
Tex. App.2012Background
- Seven Seas pursued oil and gas development in the Guaduas Field in Colombia; Ryder Scott prepared reserve estimates used in Seven Seas’ SEC filings and debt offerings from 1997–2002.
- Reserve estimates ranged from 82.16 million barrels in 1997 to 34.88–47.99 million barrels 1999–2000, with corresponding discounted net values cited in 10-Ks.
- In 2001–2002, Ryder Scott issued new reserve reports showing a major downgrade (down to 16.3 million barrels), leading to Seven Seas’ financial distress and bankruptcy proceedings by unsecured creditors including appellants.
- Appellants, investors in Seven Seas’ Unsecured Bonds, sued Ryder Scott and Chesapeake Energy for Texas Securities Act violations (and common-law fraud/negligent misrepresentation) and related conspiracy/aiding-and-abetting theories.
- Trial court granted summary judgments in favor of Ryder Scott and Chesapeake Energy on several claims, sustaining objections and dismissing certain causes of action; the appellate court vacated some parts and remanded for further proceedings.
- This rehearing opinion addresses whether the TSA claims, the regulatory-evidence issue, and damages theories were properly resolved and whether certain aiding/abetting theories survive.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Aiders under TSA 33F(2) liability require general awareness | Appellants contend Chesapeake had general awareness of inflated reserves | Chesapeake denied awareness and relied on Ryder Scott reports | Chesapeake granted summary judgment on 33F(2) aider liability |
| Regulation S-X evidence admissibility and its effect on summary judgment | Regulation S-X not hearsay; exclusion affected judgment | Exclusion was proper | Exclusion probably caused an improper judgment; error sustained on issue challenging S-X exclusion |
| Damages proof for fraud and negligent misrepresentation under no-evidence standard | Value received at purchase shown by affidavits; damages proven | No competent evidence of value received; no damages shown | No genuine issue on value received; trial court affirmed on these damages claims |
| Whether Ryder Scott could be an aider to the seller and/or issuer under TSA 33F(2) before privity/solicitation theories | Brokers/sellers can be liable as “sellers” under Pinter-like reasoning; privity not required | Ryder Scott challenged as not proving brokers were sellers or that it aided primary violations | Ryder Scott failed to prove brokers were non-sellers; error in granting summary judgment on aiding a primary violation by 33A(2); remanded on this point |
| Aiding Seven Seas in 33C primary violation—material aid and scienter | Ryder Scott materially aided by inflating reserve estimates; scienter shown by recklessness | Materiality, scienter not shown; cautionary language and lack of direct knowledge | Summary judgment not proper on aiding 33C; issue remanded for further proceedings |
Key Cases Cited
- Sterling Trust Co. v. Adderley, 168 S.W.3d 835 (Tex. 2005) (clarified general awareness standard for aider liability under TSA 33F(2))
- Pinter v. Dahl, 486 U.S. 622 (S. Ct. 1988) (seller includes brokers who solicit a purchase; broader privity concept)
- Frank v. Bear, Stearns & Co., 11 S.W.3d 380 (Tex. App.—Houston [14th Dist.] 2000) (seller liability under TSA 33A(2) requires privity with the seller)
- Brown v. Cole, 155 Tex. 624, 291 S.W.2d 704 (Tex. 1956) (broad definition of 'seller' under former Cole framework (discussed as outdated))
- City of Keller v. Wilson, 168 S.W.3d 802 (Tex. 2005) (legal-sufficiency standard for summary judgments; view evidence in favored light)
- Rubinstein v. Collins, 20 F.3d 160 (3d Cir. 1994) (materiality and context of forward-looking statements in securities cases)