The Texas Supreme Court recently released its anticipated opinion in Eagle Oil & Gas Co. v. TRO-X, L.P., 18-0983, 2021 WL 1045723, at *1 (Tex. Mar. 19, 2021) (“Eagle II”).  The Eagle II case is the second case that arose between TRO-X, L.P. (“TRO-X”) and Eagle Oil & Gas Co. (“Eagle”) regarding their agreement to jointly acquire and sell oil and gas leases.  In the first, Eagle Oil & Gas Co. v. TRO-X, L.P., 416 S.W.3d 137, 149 (Tex. App.—Eastland 2013, pet. denied) (“Eagle I”), TRO-X alleged that Eagle deprived TRO-X of its right to acquire certain mineral interests upon the sale of several leases in violation of their agreement.  TRO-X lost that suit on appeal when the court of appeals found that TRO-X held equitable title to those interests and thus was not deprived of them.  In Eagle II, TRO-X alleged that Eagle failed to pay TRO-X its share of income generated from production on the equitable interests.  In response, Eagle asserted several affirmative defenses—res judicata (claim preclusion), the statute of limitations, and waiver—in a motion for summary judgment.  The trial court granted the motion, the court of appeals reversed, and the Supreme Court affirmed the court of appeals, finding that Eagle did not conclusively establish any of its affirmative defenses.

I. Factual and Procedural Background

TRO-X and Eagle entered into an agreement to buy and sell certain leases, sharing the cash and mineral interest proceeds derived from such sales (the “Agreement”).  Several years later, Eagle purchased several leases and sold them to Chesapeake Exploration, LLC (“Chesapeake”), reserving an overriding royalty interest and a back-in working interest (the “Interests”).  TRO-X argued, in Eagle I, that Eagle breached the Agreement by failing to distribute to TRO-X its share of the proceeds derived from the Chesapeake sales and by preventing TRO-X from acquiring its share of the Interests.  TRO-X sought money damages to remedy the alleged breach, not transfer of title of a share of the Interests.

Eagle I proceeded to trial, and the jury found in pertinent part that Eagle failed to comply with the Agreement in several ways, including by preventing TRO-X from acquiring its proportionate share of the Interests.  The jury awarded TRO-X $7,680,000 in damages.  When the suit went to trial, the leases subject to the Chesapeake sale had not generated any royalty income.

On appeal, Eagle argued that the evidence was legally insufficient to support the jury’s finding that Eagle prevented TRO-X from acquiring its share of the Interests because TRO-X “had always held equitable title to” a share of the Interests.  Eagle explained that it could not prevent TRO-X from acquiring its proportionate share of the Interests when TRO-X always owned, and still does own, an equitable share of the Interests.  The court of appeals agreed, rendering judgment that TRO-X take nothing on its contract claims.  The Supreme Court denied TRO-X’s petition for review.

Shortly after the court of appeal’s judgment, TRO-X filed Eagle II in Dallas, TX, seeking a declaratory judgment and asserting a breach of contract claim premised on its “equitable title” to the Interests and Eagle’s alleged failure to remit to TRO-X any of the production income derived from those Interests.  Eagle filed a motion for summary judgment, arguing that TRO-X’s claims were barred as a matter of law by several affirmative defenses—res judicata, statute of limitations, and waiver.  The trial court granted the motion, and the court of appeals reversed.  The Supreme Court affirmed the decision of the court of appeals, holding that Eagle was not entitled to summary judgment on its various affirmative defenses.

II. Analysis and Holding

A. Res Judicata

The parties agreed that the first two elements of res judicata were met, but they parted ways on the third—whether TRO-X’s claims could have been raised in Eagle I.  The Supreme Court found that Eagle failed to conclusively show that TRO-X’s claims could have been raised in Eagle I, and thus, res judicata did not bar TRO-X’s claims.

 The Supreme Court explained that Eagle I concerned TRO-X’s right to acquire its share of the Interests, but Eagle II involved TRO-X’s right to receive production income from the “equitable interests” that had not yet been generated when Eagle I went to trial.  The alleged breaches in the two suits were premised on different conduct occurring at different times.   In Eagle I, TRO-X alleged that Eagle had deprived TRO-X of its share of the Interests.  Conversely, in Eagle II, TRO-X sought to recover the income generated from its share of the Interests after the Eagle I trial.  Because no income was generated until after the Eagle I trial, TRO-X could not have asserted in Eagle I that it was harmed due to the deprivation of due income (i.e. the claim was not yet ripe).  Consequently, Eagle failed to conclusively establish that TRO‑X’s claims could have been brought in Eagle I.  The Court thus found that Eagle was not entitled to summary judgment on res judicata grounds.

B. Statute of Limitations

Eagle argued that TRO-X’s claims accrued when Eagle did not assign TRO-X legal title to its share of the Interests after the Chesapeake sale because that was when TRO-X was injured.  Eagle explained that the subsequent withholding of production income was not the legal injury, but was instead simply a form of the damages resulting from the prior injury.

The Supreme Court disagreed, explaining that TRO-X “always held equitable title” to its share of the Interests (i.e., Eagle never deprived TRO-X of its share of the Interests).  And if TRO-X was not deprived of its share of the Interests, as Eagle successfully asserted in the Eagle I appeal, then Eagle breached no duty and TRO-X suffered no legal injury.  Consequently, the Court found that the injury could not have occurred until there was production income to withhold, after the Eagle I trial.  Because Eagle failed to establish conclusively when TRO-X’s claims accrued, the court rejected its assertion that limitations summarily barred TRO-X’s claims.

C. Waiver

Finally, Eagle asserted that waiver conclusively barred TRO-X’s claims.  Eagle relied primarily on an “Election of Remedies” letter sent during the Eagle I litigation, in which TRO-X’s counsel stated that TRO-X intended to seek monetary damages, so “assignments of any interests related to this litigation will not be accepted.”  According to Eagle, this statement amounted to an intentional relinquishment of any right to recover benefits stemming from the Interests.

The Texas Supreme Court again disagreed, explaining that TRO-X based its claims in Eagle I on the premise that it had been deprived of the interests entirely, and it sought the monetary value of those interests as a remedy rather than an assignment.  The above-referenced statement was made in the context of litigating those claims, which ultimately concluded with the court of appeals’ agreeing with Eagle that TRO-X had not been deprived of its equitable title to the interests.  Considered in context, the statement did not establish unequivocally that TRO-X intended to relinquish all rights stemming from its equitable interests.  Rather, TRO-X’s statements in both suits were consistent with its “ultimate goal” of being made whole.  Thus, the Court held that Eagle did not conclusively establish its waiver defense.

Key Takeaway

Understanding and demonstrating when the legal injury occurred is critical in proving both res judicata and the statute of limitations defenses.  To establish the res judicata defense, a defendant must demonstrate that the legal injury occurred before the decision was made in the first case (i.e., the claim was ripe).  Similarly, to establish the date of accrual for purposes of proving the statute of limitations defense, a defendant must demonstrate that the legal injury occurred more than a certain number of years in the past.  Here, Eagle argued that TRO-X was injured, if at all, when Eagle made the sale to the third party without transferring a share of the Interests to TRO-X.  This assertion was flawed because the court of appeals in Eagle I held that TRO-X always held and an equitable share of the Interests, and was thus never deprived of its share of the Interests.  Eagle’s res judicata and statute of limitations defenses were both premised on this flawed understanding of when the legal injury occurred.  Consequently, both defenses failed.

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