In re Longview Energy Company
No. 14-0175
Case Summary written by Ross Smith, Articles Editor.
CHIEF JUSTICE HECHT delivered the opinion of the Court.
Longview Energy Company is an exploration and production company that was pursuing prospects in the Texas Eagle Ford Shale. Huff Energy Fund owned 39% of Longview’s stock in 2009. Huff Energy also controlled two seats on Longview’s board of directors, which were occupied by William R Huff and Rick D’Angelo. Despite their relationship, Huff Energy created Riley-Huff Energy Group LLC to compete with Longview in the Eagle Ford. After discovering that Riley-Huff was acquiring some of Longview’s prospects in the Eagle Ford, Longview sued Riley-Huff along with four other defendants for breach of fiduciary duty.
A jury found that Riley-Huff breached its fiduciary duty by “wrongfully obtain[ing] assets in the Eagle Ford shale.” The defendants were ordered, along with other damages, to pay $95.5 million to Longview. The defendants posted a $25 million bond to prevent the enforcement of the judgment while an appeal was pending per Tex. Civ. Prac. & Rem. Code § 52.006. After Longview moved, the court required each of the five defendants, except for Riley-Huff, to post “the lesser of $25 million or 50% of [their] net worth.” Additionally, Huff was required to produce documents it created on a monthly basis that related to the Eagle Ford shale operations. Huff appealed both rulings.
The court of appeals reversed the trial court and only required the defendants to post a total of $25 million in bonds, but affirmed the post-judgment discovery order.
Issue: (1) Was the trial court’s award of damages punitive, so as not to require the defendants to post a security bond, or were the damages compensatory?
Tex. Civ. Prac. & Rem. Code § 52.006 requires a debtor to post security only for a trial court’s award of compensatory damages, interest, and costs, but limited to 50% of the judgment debtor’s net worth or $25 million, whichever is lesser. In this case, Longview was to receive all of Huff’s future production revenues in production from the Eagle Ford shale in addition to the $95.5 million. The Texas Supreme Court was uncertain of how the jury arrived at the additional $95.5 million, but it appeared to be revenues from production prior to the suit minus the acquisition costs of those assets. Because the damages were based on gross production, not net, they exceeded compensatory, which can only be limited to net gains.
However, Longview argued that the money judgement was awarded based on disgorgement, which is “an equitable forfeiture of benefits wrongfully obtained[.]” Because disgorgement is an equitable forfeiture it cannot be measured as damages. Therefore, the Texas Supreme Court held that disgorgement is compensatory in some sense, but the money awarded through it is not damages. As a result Huff was not required to post bond under Tex. Civ. Prac. & Rem. Code §52.006. However, Longview was also awarded costs of $66,645, which the defendants are required to post security for.
Issue: (2) Did the trial court abuse its discretion in requiring Huff to submit to post-judgment discovery of its documents relating to Eagle Ford shale operations?
Huff argued that Tex. R. App. P 24.1(e), which allows a court to issue “any order necessary to adequately protect the judgement creditor against loss or damage that the appeal might cause[,]” must be read in light of Texas Rule of Civil Procedure 621a that allows discovery only “for the purpose of obtaining information to aid in the enforcement” of a judgment. The Supreme Court of Texas held that 621a does not limit 24.1(e), but “to the contrary, Rule 621a permits discovery relevant to Rule 24 motions.” Therefore, the Texas Supreme Court held that because the trial court determined the discovery order was reasonable, they did not abuse their discretion.