Prospect Energy Corp. v. Dallas Gas Partners, LP
761 F. Supp. 2d 579
S.D. Tex.2011Background
- DGP attempted to buy Gas Solutions for $32M; Prospect funded via a nondisclosed loan and paid DGP $2.5M+$3.295M deposit-related sums in exchange for a Release and Covenant Not to Sue (RCNS).
- DGP, Muse, Nelson, and Weiss signed the LLC Purchase Agreement containing the RCNS; five DGP limited partners signed a Consent and Agreement approving the transfer and RCNS.
- DGP later filed suit against Prospect; Prospect counterclaimed for breach of RCNS and sought damages, including attorneys’ fees.
- Galveston District Court granted Prospect summary judgment on the RCNS breach; Fifth Circuit affirmed; Final judgment stayed unresolved counterclaims.
- Prospect realigned parties in 2010; the case was realigned and proceeding in the Southern District of Texas; Prospect moved for partial summary judgment expanding liability to DGP LLC and individuals for RCNS breach as well as attorney’s fees.
- Court now grants Prospect partial summary judgment on RCNS breach against DGP LLC, Nelson, Weiss, and Muse; fees treated as actual damages under New York law; DGP LLC remains liable through its status as general partner.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Breach of RCNS attributable to individuals | Prospect | Muse/Nelson/Weiss not liable individually | Yes; individuals personally liable as signatories and because they ratified the RCNS |
| Whether fees are recoverable as actual damages | Fees may be recovered under Section 11(F) and Lubrizol/Artvale theories | New York American rule prohibits fee recovery absent contract expressly allowing it | Fees awarded as actual damages under law of the case |
| Whether DGP LLC can be held liable for RCNS breach | As general partner, DGP LLC bears liability | Only DGP as an entity was bound; veil/alter ego theories not needed | Yes; DGP LLC liable as general partner under Texas partnership law |
| Intent element in fraud claims against individuals | Evidence shows intent to breach RCNS | Defendants lacked actual knowledge of RCNS at signing | Genuine issues of material fact remain; fraud claims survive |
Key Cases Cited
- Lubrizol Corp. v. Exxon Corp., 957 F.2d 1302 (5th Cir.1992) (litigation costs may be recovered as damages for breach of a covenant not to sue)
- Artvale, Inc. v. Rugby Fabrics Corp., 363 F.2d 1002 (2d Cir.1966) (shield vs sword; damages for breach of covenant may be awarded)
- Arete Partners, L.P. v. Gunnerman, 594 F.3d 390 (5th Cir.2010) (intent may be inferred from subsequent acts in fraud/promissory contexts)
- Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432 (Tex.1986) (intent required for fraud-based claims; promises to perform may be actionable)
- DeClaire v. G & B McIntosh Family Ltd. Partnership, 260 S.W.3d 34 (Tex.App.-Houston 2008) (party is presumed to know contract terms; reading not required to bind)
- Pinebrook Properties Ltd. v. Brookhaven Lake Property Owners Assoc., 77 S.W.3d 487 (Tex.App.-Texarkana 2002) (general partner liability in limited partnerships)