• Update any factual information provided in support of an opinion concerning future production or that a court may view as intertwined with such an opinion.
In Allen v. Devon Energy Holdings (2012) Houston's 1st Court of Appeals addressed a negative opinion of future production, which was based on two facts: the lack of success drilling in the area so far and the absence of certain drilling technology essential for profitable production in the area.
The 1st Court reversed summary judgment in favor of the defendant where the former minority owner brought fraud claims against his former company when, two years after redeeming his interest, the company sold for 20 times the value calculated in the redemption agreement. Because both of these facts changed before the transaction at issue closed, the court found that the production opinion was supported by false statements of fact.
On Jan. 11, the Texas Supreme Court granted the petition for review and remanded the case pursuant to a settlement agreement. But the 1st Court did not withdraw its opinion, and the case is still instructive: Disclosing changed circumstances prior to a transaction may help a company avoid subsequent litigation.
• Including traditional disclaimers in transaction documents may help avoid or defeat fraud claims. To be effective, however, disclaimers of reliance and other such clauses must meet various tests prescribed by the Texas Supreme Court.
Although opinions and predictions generally will not lead to viable fraud claims, Texas case law teaches in-house counsel to advise company representatives to stick closely to objectively verifiable facts that are supported by materials disclosed during the course of the transaction. Otherwise, an opinion concerning future production may become the focus of post-closing litigation (valid or not) when a party becomes dissatisfied with the outcome of the deal.
William D. Wood is a partner in and Brian C. Boyle is a senior associate with Fulbright & Jaworski in Houston. Wood co-chairs the energy litigation practice group and Latin America practice group. Both litigators' practices focus on energy industry matters.
