CHALKER ENERGY PARTNERS III, LLC, ET AL., PETITIONERS, V. LE NORMAN OPERATING LLC, RESPONDENT
No. 18-0352
IN THE SUPREME COURT OF TEXAS
February 28, 2020
Argued December 4, 2019
In Tеxas, a deal is, of course, a deal. An agreement as to many things can be oral, sealed by a handshake, even a $10.53 billion handshake.1 The common law has long recognized that an agreement can be expressed in multiple writings exchanged between the parties.2 Emails are such
writings.3 Email can be a convenient way to
I
Petitioners are 18 individuals and entities5 who own working interests they call the Kitty Stroker Assets, which we abbreviate simply to the Assets. The Assets, worth hundreds of millions of dollars, are in some 70 oil and gas leases in three Texas Panhandle counties. Petitioners agreed among themselves to develop and eventually sell the Assets; hence, we will refer to them as the Sellers. The Sellers completed their development in 2012 and designated one Seller, Chalker,6 to act
as their designated agent during the sale process. Chalker hired financial services firm Raymond James to conduct the sale.
Bidding procedures called for bidders to be given access to a virtual data room of information about the Assets after signing a Confidentiality Agreement. Bidders were given forms to use in making bids and a deadline of November 5, 2012, to submit them to Chalker, whiсh would in turn forward the bids to the Sellers. Each of the Sellers then had 24 hours to decide whether to sell their interests. A bidder could adjust the bid in response, and when the sale was finally approved by the Sellers, Chalker would negotiate a definitive purchase-and-sale agreement, or PSA. The Confidentiality Agreement provided in part:
No Obligation. The Parties hereto understand that unless and until a definitive agreement has been executed and delivered, no contract or agreement providing for a transaction between the Parties shall be deemed to exist and neither Party will be under any legal obligation of any kind whatsoever with respect to such transaction by virtue of this or any written or oral expression thereof, except, in the case of this Agreement, for the matters specially agreed to herein. For purposes of this Agreement, the term “definitive agreement” does not include an executed letter of intent or any other preliminary written agreement or offer, unless specifically so designated in writing and executed by both Parties.
The Raymond James employee shepherding the sale, Chris Simоn, emailed potential buyers announcing the sale of the Assets. Respondent LNO7 expressed interest, and Simon emailed its principal, David Le Norman, the Confidentiality Agreement, which Le Norman signed.
On November 5, the deadline under the bidding procedures, LNO emailed Simon its bid of $332 million for 100% of the Assets. The bid stated that it was made “subject to the execution of a mutually acceptable [PSA]” and included a form PSA. The other high bidder was Jones Energy, and Simon gave each four days to consider raising their bids. LNO increased its bid to $345 million. Chalker chose that bid to submit to the Sellers, but they refused to accept it. After negotiations back and forth, Le Norman emailed Chalker that LNO could no longer pursue the transaction, though he left open the possibility that a deal might still be reached in the future.
The Sellers then offered to sell 67% of the Assets. On November 19, Le Norman emailed Simon without reference to the bidding procedures. The subject line was “RE: Counter Proposal“, and the body of the email listed seven terms:
- $230 M for 67% of the 8/8ths RJ supplied database property set.
- Eff date same at 9.1.12.
- Execution of the PSA on or before 11.30.12, closing on or before 12.31.12.
- Non-compete for ALL owners for one year with two mile halo around any unit being sold.
- PSA similar to what we returned with the above caveats.
- Our interest is not subject to the development agreement.
- All parties staying in will execute JOA, it will be attached to the PSA.
The email added:
We will not be modifying or accepting any changes to the base deal described above and don‘t want to be jerked around anymore. We will give you till 5:00 pm CST tomorrow to accept. Best we can do and you hopefully understand I have recommended to my Board to pass if the timeline is not met or a counter proposal is sent. Good luck. Dave
On November 20, Chalker‘s Vice President of Land and Business Development, Bill Dukes, emailed the Sellers the terms in Le Norman‘s email and recommended that “we move forward with a sale of the Assets to Le Norman based on this offer“. Dukes included a ballot and noted that “the offer received from Le Norman has a deadline for response of today at 5:00 PM CST, so we ask for your [i]mmediate attention to this election notice and a response by no later than 4:00 PM today“.
The Sellers voted to sell, and before Le Norman‘s deadline, Simon emailed him that the group was “on board to deliver 67% subject to a mutually аgreeable PSA. We were calling to discuss next steps and timing. Chalker et al will be turning a PSA tonight to respond to your last draft.”
Later that night, Dukes emailed the Sellers that Chalker had “notified Le Norman prior to the 5 00 PM deadline that we had the 67% interest committed to sell and are on board for moving forward with finalizing the PSA and the additional documents associated with the Transaction“. Dukes sent LNO a revised draft PSA and noted that his team was taking a few days off for Thanksgiving; he also advised the Sellers to monitor their email for any requests necessary to “complete the prеparation of agreements for the sale“. Various emails were exchanged referring to the sale. One of the Sellers congratulated one of LNO‘s private equity investors on “winning the bid“, and Jones Energy emailed one of the Sellers stating that it had “heard that we lost the deal again“.
Undeterred, Jones Energy presented Chalker with a new offer. On November 22, one of the Sellers informed Chalker that it preferred Jones Energy‘s offer to
LNO sued the Sellers for breach of contract, arguing that the Sellers breached the agreement that Simon аnd Le Norman reached through email on November 19 and 20 to sell a 67% interest in the Assets.8 The Sellers counterclaimed for breach of contract and sought sanctions, damages for LNO‘s alleged breach of the Confidentiality Agreement and Bid Documents, and declaratory relief that they did not breach any contract with LNO.9 Both parties moved for summary judgment. The trial court granted the Sellers’ motion, concluding that:
- the parties did not intend to be bound to any agreement;
- a PSA was a condition precedent to contract formation; and
- there was no meeting of the minds because the Confidentiality Agreement, bidding procedures, and the data room presentation preсluded a binding contract without an executed, delivered PSA.
The trial court entered a take-nothing judgment and dismissed all parties’ claims.
The First Court of Appeals reversed. It held that whether the alleged contract was subject to the bidding procedures and whether LNO and the Sellers intended to be bound by the terms set forth in the November 19–20 emails were fact issues precluding summary judgment.10 The court of
appeals affirmed the remainder of the trial court‘s judgment and remanded for further proceedings.11
We granted Chalker‘s petition for review.
II
Many of today‘s most sophisticated transactions are conducted, in part, through email. In response to this reality, parties often protect themselves through agreements stipulating the conditions upon which they will be bound.12
men of full age and competent understanding shall have the utmost liberty of contracting, and that their contracts when entered into freely and voluntarily shall be held sacred and shall be enforced by Courts of justice. Therefore, you have this paramount public policy to consider—that you are nоt lightly to interfere with this freedom of contract.15
Chalker and LNO agreed that “unless and until a definitive agreement has been executed and delivered, no contract or agreement providing for a transaction between the Parties shall be deemed to exist“. By including the No Obligation Clause in the Confidentiality Agreement, Chalker and LNO agreed that a definitive agreement was a condition precedent to contract formation.16 “A party seeking to recover under a contract bears the burden of proving that all conditions precedеnt have been satisfied.”17
Just this Term, we explained that “Texas courts regularly enforce conditions precedent to contract formation and reject legal claims that are artfully pleaded to skirt unambiguous contract language, especially when that language is the result of arm‘s-length negotiations between sophisticated business entities.”18
LNO argues not that the emails constituted a definitive agreement but that the emails raise a fact issue as to whether a definitive agreement existed. We disagree.
LNO points to Railroad Commission of Texas v. Gulf Enеrgy Exploration Corp., 482 S.W.3d 559 (Tex. 2016)19 and Foreca, S.A. v. GRD Development Co., 758 S.W.2d 744 (Tex. 1988)20 to argue that a fact issue on contract formation exists. In those cases, we held that the question of whether a contemplated formal document was a condition precedent to contract formation or a mere memorial of an already-enforceable contract was a fact
question of the parties’ intent.21 But neither involved a writing like the No Obligation Clause here. In Gulf Energy, we acknowledged that intent to be bound potentially could be decided as a matter of law.22 Though we held in Foreca that language stating that an agreement was “subjeсt to legal documentation” gave rise to a fact issue,23 language that no contract will
The facts here are more like those of WTG Gas Processing, L.P. v. ConocoPhillips Co., in which the Fourteenth Court of Appeals held that the parties’ prior agreement that no obligations would arise absent an executed and delivered PSA precluded a fact issue on contract formation. 309 S.W.3d 635, 645, 652 (Tex. App.—Houston [14th Dist.] 2010, pet. denied).24 There, ConocoPhillips engaged Morgan Stanley to conduct a sale of several natural gas processing plants and pipelines. The bidding procedures provided that a “Proposal will only be deemed to be accepted upon the execution and delivery by CоnocoPhillips of a [PSA(s)].”25 After submitting several rejected bids, WTG increased its bid. Morgan Stanley then called WTG and stated that
ConocoPhillips had decided to “go forward with” WTG and that the parties had a “deal“. But because there were issues with the draft PSA, Morgan Stanley indicated that ConocoPhillips would forward a revised PSA within the next few days. ConocoPhillips’ internal emails reflected its intent to sell the assets to WTG, but the parties never executed a PSA.
In the meantime, Targa submitted a bid for multiple assets, including those bid on by WTG. Morgan Stanley advised WTG that ConocoPhillips wаs considering another offer, and ConocoPhillips and Targa executed a PSA over two months later. WTG sued ConocoPhillips for breach of contract based on the statements in the phone conversation. The court of appeals held that the bidding procedures provided that execution of a PSA was a condition precedent to contract formation; thus, because the parties did not execute a PSA, no contract was formed as a matter of law.26
Similar to the parties in WTG, Chalker and LNO agreed that a definitive agreement was a condition precedent to contract formation. The court of appeals distinguished WTG because the alleged contract in WTG was oral, while here the alleged contract is in writing.27 The distinction is unpersuasive. Although the emails are writings, they do not form a definitive agreement.
While the No Obligation Clause does not define definitive agreement, it does make clear that “the term ‘definitive agreement’ does not include an executed letter of intent or any other preliminary written agreement or offer, unless specifically so designated in writing and executed by both Parties.”
Black‘s Law Dictionary defines preliminary agreement as a “precontractual understanding in which two commercial
The emails here are more akin to a preliminary agreement than a definitive agreement to sell the Assets, and the parties’ dealings suggest that they intended that a more formalized document, like a PSA, would satisfy the definitive-agreement requirement.30 For example, both parties contemplated executing a PSA prior to finalizing the deal; in fact, they tried to negotiate a PSA several times and failed. Even Le Norman stated that a “PSA similar to what we returned” executed “on or before 11.30.12” was part of his “Counter Proposal“. And Simon‘s acceptance was made “subject to a mutually agreeable PSA.” Le Norman also referred to the proposals as a “base deal“, and the email made clear that the parties were to execute a PSA in the future.31 Further, no agreement was “executed and delivered” as required by the No Obligation Clause.
The court of appeals concluded that there is a fact issue as to whether the email chain satisfies the definitive-agrеement requirement because the emails set out the assets to be sold, the purchase price, a closing day, and “other key provisions.”32 The court of appeals also relied on an email containing spreadsheets that Chalker sent to a third party detailing the “interest being sold for each area” and stating that “each area delivers a 67% WI to the buyer“. In a $230 million deal, however, these emails and spreadsheets may leave much to the imagination. Indeed, there were still key agreements to be negotiated betweеn Chalker and LNO before a definitive agreement would exist. The parties had yet to agree upon an escrow agreement, a noncompete agreement, or a joint operating agreement.
The court of appeals also cites Le Norman‘s anticipation that a PSA would be executed “fairly immediately” and the fact that “Chalker . . . and at least one other Seller did not have any substantive objections to LNO‘s modifications to the form PSA.”33 But LNO and Chalker did not execute a PSA “fairly immediately” or at all. Moreover, LNO continued to modify the PSA and sent a redline on November 28, which suggests that there was still much to be negotiated between Chalker and LNO before finalizing a deal. LNO and the court of appeals emphasize Chalker‘s declaration that the group was “committed to sell“; one of the Seller‘s congratulatory messages to LNO; Chalker‘s reference to the Assets as “what is being sold to LNO“; and testimony from several Sellers that on November 20, 2012, they intended to sell the Assets to LNO.34 But these
congratulatory comments and one-off musings of several
If mere proposals that contemplate a later-executed PSA and the subsequent exchanging of unagreed-to drafts are sufficient to raise a fact question on the existence of a definitive agreement, No Obligation Clauses will be stripped of much of their meaning and utility. Even worse, these clauses would mislead parties operating under the assumption that they can freely engage in negotiations without binding themselves to proposals in an email exchange. By including the No Obligation Clause in the Confidentiality Agreement, the Sellers and LNO provided themselves with the freedom to negotiate without fear of being bound to a contract. The record here reflects that they were doing just that.
III
LNO argues that if the No Obligation Clause created a condition precedent to contract formation, there is a fact issue as to whether the Sellers waived that condition through their conduct surrounding the November 19–20 emails. Chalker responds that the emails were part of оngoing negotiations subject to the bidding procedures and that any deviation from the bidding procedures did not indicate an intent to waive the definitive-agreement requirement in the Confidentiality Agreement. We hold that the negotiations were subject to the bidding procedures and the Confidentiality Agreement and that the parties did not waive their right to a definitive agreement.
LNO and Chalker‘s negotiations beginning November 19 remained subject to the bidding procedures and the Confidentiality Agreement. LNO and the court of appeals point to the fact that Le Norman‘s November 19 email was sent after the initial bid process concluded and LNO‘s statement after the bidding procedures ended that it could “no longer pursue the . . . transaction as altered by the Sellers” to support the existence of a fact issue on whether the emails were subject to the bidding procedures.36 However, the subject of Le Norman‘s November 19 email was “Counter Proposal“, which indicates that the negotiations were a continuation of their earlier attempts to negotiate a sale of the Assets. Further, by providing that thе Confidentiality Agreement would terminate after one year or on the date that the parties entered into a further written agreement covering the confidentiality of the Confidential Information, the parties made clear that the Confidentiality Agreement would govern negotiations for the sale of the Assets, even those occurring after the November 5, 2012 deadline. Chalker also protected itself in the Confidentiality Agreement by affirming its right to “conduct the process relating to a possible transaction in any manner it deems appropriate or change the procedure for conducting that process.” Because the bidding procedures and the Confidentiality Agreement applied to the November 19–20 negotiations, we next turn to whether the Sellers waived their right to a definitive agreement.
Waiver is “an intentional relinquishment of a known right or intentional conduct inconsistent with claiming that right.”37 While ordinarily a fact question, when the surrounding facts and
circumstances
LNO argues that the Sellers impliedly waived their right to a definitive agreement through their conduct. Thus, to raise a fact issue on waiver of that right, LNO must point to evidence of an intentional relinquishment of that right or intentional conduct inconsistent with claiming that right. LNO does neither.
LNO and the court of appeals cite various inconsistencies between the bidding procedures and the November 19–20 emails. For one, Le Norman‘s email deviated from the format required by the bidding рrocedures, requested a more expedited response from the Sellers than the 24 hours allotted by the bidding procedures, and did not state that it was made in accordance with the bidding procedures. The court of appeals also noted that the Sellers continued to negotiate with LNO despite this alleged deviation and did not object to LNO‘s deviation from the bidding procedures. LNO points to Chalker‘s statement that the group was “committed to sell” and argues that this commitment would have been impossible if it had been contingent on exeсuting a PSA.
As noted, waiver, while normally a fact issue, can be decided as a matter of law. Here, the parties stipulated that a definitive agreement, such as a PSA, was a condition precedent to contract formation. While the November 19–20 negotiations contained a different deadline and format than those contemplated by the bidding procedures, this is no evidence of an intentional relinquishment of the right to a definitive agreement secured by the No Obligation Clause. The fact that Le Norman‘s email was sent after the initial bid proсess concluded is not evidence of waiver. While Le Norman may not have stated in his email that the proposal was made in accordance with the bidding procedures, he maintained that execution of a PSA was part of the “base deal” described in his email. And Simon clarified in his November 20 email that the group was “on board . . . subject to a mutually agreeable PSA.” If anything, both Le Norman and the Sellers’ conduct was consistent with their right to a definitive agreement. Chalker and Le Norman‘s continued references to execution of a PSA suggest that the parties did not intend to deviate from the bidding procedures and wanted to make clear that a definitive agreement such as a PSA was, in fact, still required for the sale to be consummated. Thus, we hold that the Sellers did not waive their right to a definitive agreement as a matter of law.
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We hold that, as a matter of law, Chalker and LNO did not execute and deliver a definitive agreement as required by the Confidentiality Agreement.41 Accordingly,
Nathan L. Hecht
Chief Justice
Opinion delivered: February 28, 2020