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Dominion Oklahoma Texas Exploration & Production, Inc. v. Faulconer Energy Corporation
Citation: Not availableDocket: 13-09-00186-CV
Court: Court of Appeals of Texas; August 31, 2010; Texas; State Appellate Court
Original Court Document: View Document
The case involves a judgment from the 389th District Court of Hidalgo County, Texas, where Dominion Oklahoma Texas Exploration and Production, Inc. (Dominion) was ordered to pay $2,167,342.33 to Faulconer Energy Joint Venture 1988, Faulconer Energy Corporation, and Vernon E. Faulconer, Inc. (collectively referred to as Faulconer). Dominion raised three main issues on appeal: 1. The trial court incorrectly awarded amounts paid by Bituminous Insurance Company, which was not a party to the case. 2. The trial court wrongly determined that Dominion agreed to indemnify Faulconer for its own negligence, arguing that the indemnity provisions did not meet Texas fair notice requirements. 3. The trial court erred in concluding there was no agreement between Faulconer and Dominion to settle the Ayala litigation, asserting that essential terms of a joint settlement were agreed upon. Faulconer countered with a cross-issue, claiming the trial court miscalculated prejudgment interest by using the lawsuit's filing date instead of a prior notice of claim date from a settled case. The case stemmed from an assignment of mineral interests and related indemnity agreements, with Dominion alleging Faulconer breached a settlement agreement concerning the Ayala litigation, which involved damages from leaking pipelines. Faulconer sought indemnity from Dominion based on agreements from a 1993 purchase and sale deal. The indemnity agreements' enforceability was a focal point of the appeal. A significant aspect of the background includes a prior $100 million verdict against another oil company in a similar case and Faulconer's concerns regarding potential liabilities from the Ayala litigation. The appellate court affirmed the trial court's judgment. In November 2005, Dominion and Faulconer held a meeting to discuss a potential joint settlement of the Ayala litigation, with conflicting testimonies regarding Faulconer's insistence on including Fina in any settlement. Dominion witnesses claimed Faulconer did not request indemnification against Fina claims prior to settling, while Faulconer's witnesses asserted that settlement was contingent on Fina's inclusion. Mediation in December 2005 failed, and both parties learned no release from Fina would be provided. In January 2006, attorney Joe Luce negotiated a $12 million settlement on behalf of Dominion. Disputes arose again over whether Fina's claims were addressed in communications between Luce and Faulconer’s counsel. Ultimately, Faulconer refused to settle without a release from Fina, prompting Dominion to proceed with settling the Ayala claims independently and ceasing to fund Faulconer's defense. Faulconer later settled for $1.5 million. On May 19, 2006, Dominion filed suit against Faulconer for declaratory relief regarding its duty to defend and indemnify Faulconer, along with breach of contract claims. Faulconer counterclaimed for indemnity related to the Ayala litigation costs. The court ruled in favor of Faulconer on January 13, 2009, awarding $2,167,342.33, which included litigation costs and the settlement amount, along with prejudgment interest. An appeal followed. In terms of appellate review, the trial court's factual findings are treated similarly to jury verdicts, with the evidence evaluated for legal and factual sufficiency. Such findings are binding unless established otherwise or unsupported by evidence, particularly when a complete reporter's record exists. Attacks on the sufficiency of evidence for findings of fact must target specific findings instead of the overall judgment. A finding is legally sufficient if reasonable individuals could reach the same verdict. Legal sufficiency challenges can only be upheld under specific conditions: absence of evidence for a vital fact, legal restrictions on evidence weight, evidence being merely a scintilla, or evidence conclusively opposing a vital fact. In legal sufficiency evaluations, supporting evidence is credited if reasonable jurors could accept it, while contrary evidence is disregarded unless it could not be reasonably dismissed. The trial court, as the fact-finder, assesses witness credibility and testimony weight, and appellate courts do not substitute their judgment for that of the trier of fact. For factual sufficiency reviews, all evidence is weighed, and a verdict may be overturned if deemed manifestly unjust, even if some evidence supports it. Challenges to conclusions of law for factual sufficiency are not permitted, but conclusions can be reviewed for correctness against the facts. A conclusion of law is upheld if supported by any legal theory from the evidence, and such conclusions are reviewed de novo, reversible only if erroneous as a matter of law. In the subrogation issue, Dominion claims the trial court wrongly awarded Faulconer damages paid by Bituminous, which Faulconer did not incur. The court found Faulconer incurred $1.5 million in settling a lawsuit, with Bituminous contributing $389,239.89 for defense costs and $500,000 towards the settlement. Dominion argues Faulconer can only recover if Bituminous assigned its subrogation rights, while Faulconer contends an insured can pursue a subrogated claim without the insurer as a party. Dominion contends that the case should be reversed on the grounds that Bituminous was a necessary party to the litigation, citing Thoreson v. Thompson as precedent. In Thompson, the court determined that a plaintiff's insurer was a necessary party and should have been joined in the lawsuit. However, in the present case, no plea in abatement was filed to join Bituminous, nor did Dominion assert that Bituminous was necessary to the case. The record indicates that Bituminous was aware of the lawsuit and believed its interests were being adequately represented by Faulconer, as evidenced by a December 2007 document indicating that Bituminous’s interests were being protected. Additionally, Dominion had prior knowledge of a $500,000 settlement check issued by Bituminous related to the Ayala claims, showing that all parties were cognizant of Bituminous's role. Unlike Thompson, both Bituminous and Faulconer operated under the assumption that their interests were safeguarded in the absence of Bituminous as a party. Dominion also references Trans-State Pavers, Inc. v. Haynes to argue that an insured cannot claim subrogation rights without notifying the opposing party and including the insurer in the lawsuit. However, in Haynes, the insurer was added post-judgment without prior notice to the defendants, which is not analogous to the current situation where Bituminous was aware of the litigation. Furthermore, Dominion's concern about Faulconer potentially receiving double recovery is addressed by the absence of any indication that Bituminous seeks compensation from Dominion. Finally, Dominion argues against considering Faulconer's notice regarding Bituminous since it was not formally introduced at trial, but the document was filed during the trial and included in the clerk's record. The trial court accepted a letter presented during the trial without a formal request, as it can take judicial notice of its own documents (Alford v. Johnston). The court's consideration of the letter was deemed appropriate. Dominion had prior notice that Bituminous contributed to a settlement, placing a duty on Dominion to protect Bituminous's interests or raise issues regarding the plaintiff's capacity to sue. Failure to do so precludes Dominion from claiming exposure to further litigation from Bituminous. Evidence indicated that Bituminous would not pursue a claim against Dominion, affirming that Bituminous's interests were adequately safeguarded in the lawsuit. Reversing the trial court's judgment would contradict Bituminous's agreement regarding its protection in the case. Dominion's challenge regarding indemnification claims centered on whether it agreed to indemnify Faulconer for its own negligence, arguing the indemnity clause lacked fair notice under Texas law. Faulconer contended that Dominion's actual knowledge of the provision negated the need for conspicuous language. The indemnity agreements were part of a 1993 purchase and sale agreement and assignment involving Faulconer and American, outlining that the buyer assumed obligations related to the seller's interests in the property. The sufficiency of these indemnity agreements is in question. Buyer assumes the obligations outlined in the attached Assignment and Bill of Sale (Exhibit "B") and agrees to indemnify and defend Seller and its affiliates against any claims or liabilities arising from these obligations. Buyer will also cover any judgments and associated costs, including attorney's fees, related to such claims. Conversely, Seller indemnifies Buyer and its affiliates against losses related to Seller's operation of the property prior to the Effective Date, also agreeing to defend against related claims and cover associated costs. The indemnity clause specifically states that Assignee will defend and hold Assignor harmless from claims related to personal injury, property damage, or environmental issues stemming from the use of the property, even if these claims arise from Assignor's negligence. However, this provision does not apply to claims made before the Effective Date. The trial court found that DOTEPI's predecessor intended to indemnify the Faulconer entities for their own negligence, as explicitly stated in the Purchase and Sale Agreement and the Assignment. The indemnity provisions are designed to be clear and noticeable to a reasonable person. It was also determined that all parties had actual knowledge of these provisions, including the requirement for DOTEPI's predecessor to indemnify the Faulconer entities for their negligence. The trial court concluded that the Purchase and Sale Agreement and the Assignment and Bill of Sale between Faulconer Energy Joint Venture 1988 and DOTEPI's predecessor impose an indemnity obligation on DOTEPI to cover the Faulconer entities' defense costs in the consolidated Ayala and Fina litigations. The court found these agreements meet the fair notice requirements of express negligence and conspicuousness. Even if these requirements were not met, the indemnity provisions remain enforceable due to the parties' actual knowledge of the terms. Dominion contends that the agreements must comply with express negligence and conspicuousness requirements; however, Faulconer argues that these requirements do not apply, asserting that actual knowledge negates the need for fair notice and that the agreements do not pertain to future negligence. The analysis indicates that a contract lacking fair notice is unenforceable. The express negligence doctrine necessitates clear intent within the agreement, while conspicuousness requires attention-grabbing language. If both parties have actual knowledge, the agreement can still be enforceable, with the burden of proof on the indemnification-seeking party. The trial court determines conspicuousness as a legal matter. In this case, the indemnity provision was prominently displayed within the agreements, fulfilling the express negligence and conspicuousness standards. The indemnity was clearly marked, and the related documents were properly referenced, leading to the conclusion that the trial court did not err in its findings. Indemnity provisions are standard in the oil and gas industry, as evidenced by testimony from Malcolm Johns, former counsel for Dominion, and Jean Crawley, vice-president for Faulconer. Both indicated that such provisions are typical and that it is customary for parties to read and understand contracts before signing. Initials on various parts of the agreements from both parties indicate that they were reviewed. The trial court could reasonably conclude that the parties, being experienced business professionals, had actual knowledge of the indemnity terms. Dominion contends that indemnity is only owed to Faulconer Energy Joint Venture 1988 (FEJV88). Testimony from Tom Markel, vice president and CFO of Vernon E. Faulconer, clarified that FEJV88 is a Texas partnership, with Faulconer Energy Corporation owning 80% and Vernon E. Faulconer, Inc. as the operating company. The indemnity obligations, as agreed by Dominion's predecessor, cover all forms of negligence and require indemnification for claims arising from these obligations. The trial court found that Faulconer Energy Corporation, Vernon E. Faulconer, Inc., and FEJV88 are affiliates, a finding unchallenged by Dominion on appeal, thus binding the appellate court. Dominion's assertion that there was no enforceable settlement agreement regarding the Ayala litigation was also addressed. Dominion argued that an agreement on essential terms had been reached, while Faulconer asserted that resolution of indemnity issues was necessary for settlement. Charles Murray, Faulconer's counsel, conveyed in a January 12, 2006 email to Dominion's negotiator, Joe Luce, that the authority for settlement was still in place, specifying the terms of the mediator's proposal. The trial court upheld that no enforceable agreement existed due to unresolved indemnity issues. Luce responded to an email regarding a settlement, indicating he would inform the sender of their decision. On January 17, 2006, counsel for Faulconer reaffirmed that any settlement must include Fina. Dominion asserts that the initial email correspondence from January 12, 2006, constituted a valid contract to settle. The trial court found that Faulconer offered to contribute to a settlement fund contingent upon receiving a release from Fina. However, there was conflicting testimony; Luce stated that indemnities owed to Fina were not discussed in December 2005 negotiations and only learned of Faulconer's agreement to indemnify Fina on February 2, 2006. He also noted that Fina was not mentioned at a November 2005 settlement meeting. Testimonies from Dominion's expert and Faulconer's attorneys supported the idea that Fina's inclusion was necessary for any settlement. Texas Rule of Civil Procedure 11 requires written agreements to include all essential terms to be enforceable. Dominion argued that the January 12, 2006, email constituted a binding agreement outlining essential terms, claiming that Faulconer insisted on Fina's inclusion only after the plaintiffs accepted the settlement. However, the email lacked specifics regarding what Faulconer would receive in return and did not mention releases, leading the trial court to determine that essential terms were not adequately documented, thus making the agreement unenforceable under Rule 11. In a cross-appeal, Faulconer argued the trial court erred by starting prejudgment interest in May 2006 instead of 180 days after its April 15, 1996, indemnity claim notice, while Dominion pointed out that this notice preceded a 1998 lawsuit that was subsequently settled and dismissed. Faulconer was awarded $2,167,342.33 by the trial court, which determined that prejudgment interest should commence on May 19, 2006, the date the lawsuit was filed. The court noted that in March 2006, DOTEPI notified Faulconer of its failure to continue providing a defense in the lawsuit. The review of the prejudgment interest award follows an abuse of discretion standard, where a trial court's decision is assessed against established legal principles. Prejudgment interest can be grounded in equity or statutory law, starting to accrue either 180 days after a defendant receives written notice of a claim or on the lawsuit's filing date, as per the Texas Finance Code. The purpose of prejudgment interest is to fully compensate the injured party for the time value of money owed, rather than to punish the defendant. Faulconer contended that it was entitled to prejudgment interest from earlier litigation with American, Dominion's predecessor, which settled in 1999. However, the court found that the notice of Faulconer's claim from 1996 could not be used for the current case's prejudgment interest calculation since it involved a different legal action. Evidence indicated Faulconer incurred $80,502.74 in defense costs related to a prior case, but it needed to file a new action to recover those fees due to the previous settlement. The court upheld the trial court's decision to award prejudgment interest based on the new lawsuit's filing date. The judgment of the trial court was affirmed.