Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Click here for the full text of this decision FACTS:The Newton Corp. bid $300 at an industry auction, and got a quitclaim deed of Geodyne’s interest in an offshore mineral lease. Six months later, Newton was informed that the lease had expired and the operator wanted reimbursement for the costs of plugging and abandoning the well. Finding a violation of 581-33(A)(2) of the Texas Securities Act (TSA), the jurors and judges below rescinded the auction sale and assessed abandonment costs against Geodyne. HOLDING:The court reverses in part the court of appeals’ judgment and renders judgment that Newton take nothing on its TSA claim against Geodyne. The court remands the case to the trial court to render judgment in an amount to be determined for Geodyne on its indemnification claim and for further proceedings consistent with this opinion. The misrepresentation Newton alleged here had nothing to do with the plugging costs that (except for attorney’s fees) made up most of the judgment. Newton’s president, Pete Spiros, admitted knowing that interest owners must pay their share of plugging costs whenever a well stops producing, and that all wells eventually do. Instead, the only misrepresentation Newton pleaded or tried to prove was that Geodyne represented it was selling a 10 percent interest in a valid lease. Newton bases its claim on an auction catalog and an accompanying well-data-profile sheet identifying the property as “ST 87-S 1″ and showing “GWI .10000000.” It is undisputed there were no other communications or representations Newton made no inquiries of Geodyne, and no one from Geodyne attended the auction. The court of appeals found Geodyne misrepresented that it was selling a 10 percent working interest in a valid lease, when in fact the lease had expired. For four reasons, the court disagrees. First, a 10 percent interest is exactly what Newton got. Just because Newton got a 10 percent interest in liabilities rather than assets, that does not make the catalog listing a misrepresentation. Second, as purchaser of a quitclaim deed, Newton cannot claim the deed itself was a misrepresentation that the lease was valid. Third, the terms of the auction itself prevent any claim that Geodyne represented the lease was valid. The auction here was not open to the general public. To gain access, Newton’s president had to warrant that he had substantial experience and investments in the oil and gas business, and signed a two-page “Buyer’s Terms and Conditions of the Sale.” Fourth, Newton admitted reviewing well files for the property showing virtually no production for January through June 1997. A different question might be presented if there were evidence that Geodyne knew this lease had lapsed, or knew of an undisclosed and unexpected potential liability but induced Newton to bid anyway by representing just the opposite. But the jury found neither fraud nor fraudulent inducement here. As nothing in the Assignment or the auction documents represented that the lease had not expired, the court holds that Geodyne’s sale by quitclaim deed did not violate the TSA. OPINION:Brister, J., delivered the court’s opinion.

Want to continue reading?
Become a Free ALM Digital Reader.

Benefits of a Digital Membership:

  • Free access to 1 article* every 30 days
  • Access to the entire ALM network of websites
  • Unlimited access to the ALM suite of newsletters
  • Build custom alerts on any search topic of your choosing
  • Search by a wide range of topics

*May exclude premium content
Already have an account?


ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.