RSM Production Corporation, A Texas Corporation v. Vintage Petroleum, Inc., A Delaware Corporation, and Devon Energy Corporation, A Delaware Corporation, Successor to Santa Fe Energy Resources, Inc.--Appeal from 334th District Court of Harris County

Reversed and Remanded and Memorandum Opinion filed October 23, 2008

Reversed and Remanded and Memorandum Opinion filed October 23, 2008.

In The

Fourteenth Court of Appeals

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NO. 14-07-00563-CV

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RSM PRODUCTION CORPORATION, A TEXAS CORPORATION, Appellant

V.

VINTAGE PETROLEUM, INC., A DELAWARE CORPORATION, AND DEVON ENERGY CORPORATION, A DELAWARE CORPORATION, SUCCESSOR TO SANTA FE ENERGY RESOURCES, INC., Appellees

On Appeal from the 334th District Court

Harris County, Texas

Trial Court Cause No. 2005-71156

M E M O R A N D U M O P I N I O N

In this breach-of-contract case, appellant RSM Production Corporation, a Texas -corporation (ARSM@), appeals a take-nothing summary judgment in favor of appellees, Vintage Petroleum, Inc., a Delaware corporation (AVintage@), and Devon Energy Corporation, a Delaware corporation, successor to Santa Fe Energy Resources, Inc. (ADevon@ and ASanta Fe,@ respectively). Concluding a genuine issue of material fact exists regarding whether Vintage and Devon=s predecessor, Santa Fe, intended to be bound by an agreement with RSM absent the signature of a third entity, Premier Consolidated Oilfields, PLC (APremier@), we reverse and remand.[1]

I. Factual And Procedural Background

RSM had an agreement with the government of Grenada giving RSM the exclusive right to obtain an exploration license to conduct drilling operations on approximately 4.75 million acres offshore of Grenada. In March 1998, RSM negotiated an Initial Grenada Inter Company Agreement (AAgreement@) with Vintage, Santa Fe, and Premier.[2] The Agreement contained the following opening recital: ATHIS AGREEMENT is made this ___ day of March, 1998, by, between and among Vintage Petroleum, Inc. . . . , Premier Oil Plc . . . , Santa Fe Energy Resources, Inc. . . . , and RSM Production Corporation . . . .@ Under the Agreement, RSM was required to assign to each of the three other parties an interest in the exploration license RSM would obtain from Grenada.

The Agreement contained several provisions specifying the parties= respective rights and obligations and the stages through which the operation was to proceed. First, the Agreement acknowledged Vintage=s, Santa Fe=s, and Premier=s wish to acquire undivided interests in the exploration license RSM was to obtain from the government of Grenada:

While recognizing the existence of this force majeure condition [in existence while there is any adverse claim regarding Grenada=s ownership of the petroleum rights in any portion of the area covered by the License and uncertainty regarding maritime boundaries among Grenada, Venezuela, and Trinidad and Tobago] and the uncertainty surrounding its resolution, Vintage, Premier and Santa Fe wish to acquire undivided interests in the License at this time, and RSM wishes to assign such interests, retaining a 30% carried working interest until payout in each development license and a 4% overriding royalty interest on all production from the area covered by the License, and an additional 42% working interest in the License. RSM anticipates that it will later assign the retained 42% working interest to a larger, more experienced oil company (the ABell Cow@). By this instrument, the parties set forth their binding contractual agreement concerning such assignments, retained RSM interests, and other matters.

Second, under the Agreement, after the 42% working interest had been assigned to the ABell Cow,@ the parties were to Apromptly negotiate and unanimously agree upon an operating agreement to be effective upon issuance of the exploration license . . . .@

Third, A[s]ubject to the receipt of all necessary approvals by the Government of Grenada and the parties= execution of the operating agreement,@ RSM was required promptly to Aassign an undivided 9-a% interest to each of Vintage, Premier and Santa Fe, reserving and retaining the remaining 72% interest.@

Fourth, the Agreement established who would bear the expense of activities, including exploration work, done before the exploration license was issued by the government of Grenada:

Activities Before License Issuance. The parties anticipate that the primary activities prior to exploration license issuance will be negotiations by the Government of Grenada (with assistance from RSM) in respect of its maritime boundaries, although there may be some reprocessing of existing seismic data or other technical studies during this time period and even, if allowed by the Government of Grenada, some new exploration work. All expenses during this period shall be borne solely by Bell Cow, Vintage, Premier and Santa Fe . . . . The parties agree that as of the date of this agreement, the only costs and expenses that have been incurred so far in connection with the contemplated transactions amount to a total of $ ___, all of which have been initially paid by RSM subject to reimbursement as described above.

Fifth, the Agreement provided, AUpon the execution of this agreement a Management Committee shall be formed to provide supervision, direction and approval of the activities conducted prior to the issuance of the exploration license.@ The Agreement further provided AEach of the parties shall appoint one representative to the Management Committee and one alternate representative.@

The Agreement also included a withdrawal provision. That provision stated in part, APrior to the execution of the Operating Agreement, any party may withdraw or otherwise terminate its participation in this agreement by paying to the Operator for the benefit of all remaining parties the amount of $50,000.@[3]

Finally, the Agreement concluded: AIN WITNESS WHEREOF, the parties have executed this instrument, with the intention of being contractually bound thereby, as of the date set forth above.@ The Agreement then included four signature blanksCone for ARSM Production Corporation, A Texas corporation@; one for AVintage Petroleum, Inc., A Delaware corporation@; one for APremier Consolidated Oilfields PLC, An English corporation@; and one for ASanta Fe Energy Resources Inc., A Texas [sic] corporation.@

On March 26, 1998, RSM=s president, Jack Grynberg, signed the Agreement and sent it to Vintage, Santa Fe, and Premier under a cover letter, in which he requested that each company=s representative execute and return a copy. Although Vintage and Santa Fe signed the Agreement after receiving it, Premier experienced financial difficulties and never signed the Agreement. Nothing in the Agreement conditions any party=s participation on the participation of Premier or any other party.

In the fall of 2002, Grynberg sent a letter to Vintage and Santa Fe (by then, Devon) concerning the Agreement and attaching information.[4] In response, on December 5, 2002, Vintage sent a letter to Grynberg advising him Athat Vintage has elected not to pursue the project . . . .@ and returned the information that RSM had provided for Vintage=s consideration. The same month, Santa Fe/Devon also informed RSM of its intention not to pursue the project and returned the same information to RSM.

The parties did not obtain a ABell Cow,@ execute an operating agreement, or form a management committee. RSM never assigned an interest in an exploration license to Vintage, Santa Fe/Devon, or a ABell Cow@, and had not charged the other parties with the expenses of activities occurring before issuance of an exploration license. By 2005, RSM had done seismic exploration, but no drilling, in connection with the project. As of 2006, Grynberg did not have a license for the project.

In November 2005, RSM filed suit against Vintage and Santa Fe /Devon alleging that Vintage and Santa Fe/Devon breached the Agreement by failing to pay a $50,000 withdrawal fee as required under the Agreement. Vintage and Santa Fe/Devon filed a joint motion for summary judgment on the sole ground that no valid contract existed between RSM, Vintage, and Santa Fe/Devon because one of the intended parties, Premier, did not sign the proposed agreement, and the language of the agreement and the parties= collective inaction conclusively demonstrated the parties did not intend to be bound by an agreement not signed by all parties. On June 6, 2007, the trial court granted Vintage and Santa Fe/Devon=s motion for summary judgment and dismissed RSM=s claims with prejudice.

II. Issues Presented

RSM raises two issues on appeal: (1) whether the Agreement was Aintended to become effective only upon the execution by all the parties for which signature blanks were provided@; and (2) whether it was Vintage=s and Santa Fe/Devon=s Aintention not to be bound by the Agreement that they signed unless all parties named in it also signed.@[5] These two issues essentially present a single challenge to the sole ground raised in Vintage and Santa Fe/Devon=s traditional motion for summary judgment C that no valid contract existed between RSM, Vintage, and Santa Fe/Devon because (1) Premier did not sign the proposed agreement, and (2) the language of the agreement and the parties= collective inaction conclusively demonstrated the parties did not intend to be bound by an agreement not signed by all parties.[6]

III. Summary Judgment Burden And Standard Of Review

To prevail on a motion for traditional summary judgment, the movant must show there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. See Tex. R. Civ. P. 166a(c); Sw. Elec. Power Co. v. Grant, 73 S.W.3d 211, 215 (Tex. 2002). A defendant is entitled to summary judgment if it conclusively negates an essential element of the plaintiff=s case or conclusively establishes all necessary elements of an affirmative defense. Cathey v. Booth, 900 S.W.2d 339, 341 (Tex. 1995). A party conclusively establishes a matter if reasonable people could not differ about the conclusion to be drawn from the evidence. See City of Keller v. Wilson, 168 S.W.3d 802, 816 (Tex. 2005).

We review a trial court=s grant of a traditional summary judgment de novo. See Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211, 215 (Tex. 2003). In reviewing a summary judgment, we take as true all evidence favorable to the nonmovant, and we resolve all doubts and indulge every reasonable inference in the nonmovant=s favor. Grant, 73 S.W.3d at 215.

IV. Did The Summary Judgment Proof Conclusively Establish Vintage And Santa Fe/Devon Did Not Intend The Agreement To Bind Them Unless Premier Also Signed?

The question, then, is whether Vintage and Santa Fe/Devon=s summary judgment proof established their intent not to be bound by the Agreement unless Premier also signed. AWhile intent is usually a fact question, an issue which is normally a question of fact can be proved so conclusively by evidence that it becomes a matter of law.@ IMCO Oil & Gas v. Mitchell Energy Corp., 911 S.W.2d 916, 920 (Tex. App.CFort Worth 1995, no writ) (citing Dixon v. Sw. Bell Tel. Co., 607 S.W.2d 240, 242 (Tex. 1980)). To be entitled to summary judgment, it was incumbent on Vintage and Santa Fe/Devon to establish their intent as a matter of law. See id. The summary judgment proof they offered must establish the existence of the fact such that reasonable minds cannot differ on the conclusion to be drawn from the proof. See id. (citing Triton Oil & Gas Corp. v. Marine Contractors & Supply, Inc., 644 S.W.2d 443, 446 (Tex. 1982)).

In their summary judgment motion, Vintage and Santa Fe/Devon relied on the following summary judgment proof to establish they did not intend to be bound by the Agreement absent Premier=s signature: (1) provisions in the Agreement, including (a) the opening recital, which named Premier as one of the parties, (b) portions of the paragraph stating the desire of Vintage, Premier, and Santa Fe/Devon to acquire undivided interests in the Grenada exploration license, (c) portions of the paragraph conditionally requiring RSM to assign an undivided 9a % interest to Vintage, Premier, and Santa Fe/Devon, (d) portions of the paragraph requiring Athe parties@ to establish an operating agreement, (e) portions of the paragraph requiring Bell Cow, Vintage, Premier and Santa Fe/Devon to bear expenses incurred before issuance of the license, (f) portions of the paragraph providing for formation of the management committee and for A[e]ach of the parties@ to appoint representatives, (g) portions of the paragraph regarding RSM=s intention to find a ABell Cow@, (h) the merger clause, and (i) the concluding paragraph stating the intention of the Aparties@ to be bound and containing a signature line for each party, including Premier; (2) Grynberg=s cover letter to the representatives of Vintage, Premier, and Santa Fe/Devon, requesting they sign the Agreement and return one copy to him; (3) copies of the Agreement lacking Premier=s signature; and (4) Grynberg=s deposition testimony in which he indicated provisions of the Agreement had not been accomplished, including (a) formation of a management committee, (b) negotiation of an operating agreement, (c) enlistment of a ABell Cow@, (d) RSM=s charging its expenses to the parties, and (e) drilling, seismic work, technical studies, or other exploration before 2005.[7]

In response, RSM argued the following proof showed there were disputed material fact issues on the question of intent: (1) proof the Agreement was open to all interested parties; (2) proof Vintage and Santa Fe/Devon had not qualified their participation by any requirement that additional parties execute the Agreement, (3) proof Vintage and Santa Fe/Devon had signed the Agreement knowing of the uncertainty of Grenada=s issuance of the License, and (4) proof Vintage and Santa Fe/Devon allowed the co-venture to proceed for over four-and-a-half years before withdrawing.

The record supports RSM=s argument.[8] In Grynberg=s March 26, 1998 letter requesting the representatives of Vintage, Premier, and Santa Fe/Devon to sign, Grynberg referred to telling AConoco to >lump it,=@ suggesting there had been prior negotiations with that company, and the other parties knew about those negotiations. The Agreement itself contains the parties= acknowledgment of the uncertainty surrounding resolution of the License issue with Grenada, but contains no language conditioning Vintage=s or Santa Fe/Devon=s participation on Premier=s participation. According to Grynberg=s deposition testimony, although it was the initial intention that all three parties sign, it was not a requirement. Finally, Vintage and Santa Fe/Devon apparently waited until December, 2002Cover four years after Grynberg=s March 26, 1998 letter requesting Premier=s signatureCto inform Grynberg they were not proceeding with the project.

In IMCO, the Fort Worth Court of Appeals affirmed a summary judgment against IMCO, a plaintiff who was challenging the validity of a contract to which it was not a party. IMCO, 911 S.W.2d at 917B18, 921.[9] The Fort Worth court rejected IMCO=s argument Athat the mere existence of multiple party signature lines and the reference to all of the >parties= indicate[d] a requirement that the document will not become effective until signed by all the parties for whom signature lines are provided.@ Id. at 920. Finding no Texas authority involving multiple-party signature blanks, the Fort Worth court observed,

We believe the appropriate rule to apply was thoroughly discussed in Skinner v. Haugseth, 426 So. 2d 1127 (Fla. Dist. Ct. App. 1983), where the court analyzed the views in several jurisdictions and held that a contract not signed by all of the parties will be valid unless the nature or the wording of the contract indicates a condition precedent is intended. Id. at 1131.

Id.[10]

The Skinner court, nevertheless, acknowledged authority to the contrary, i.e., indicating that an instrument, executed by only some of the parties among whom it purports to be made, is not binding on those who have executed it. Skinner v. Haugseth, 426 So. 2d 1127, 1129 (Fla. Dist. Ct. App. 1983). One circumstance supporting such cases exists when A>the parties executing the instrument would have a remedy by way of indemnity or contribution against the other parties named, which remedy is lost by the failure of such other parties to execute the instrument.=@ Id. (quoting 17 C.J.S. Contracts ' 62 (1963)); see 17 C.J.S. ' 75 (1999). Vintage and Santa Fe/Devon do not argue the contract in the present case provides for indemnification by, or a right of contribution from, Premier.

To support the argument they are not bound by the Agreement, Vintage and Santa Fe/Devon rely on Simmons & Simmons Construction Co. v. Rea, 286 S.W.2d 415 (Tex. 1955) and Scaife v. Associated Air Center, Inc., 100 F.3d 406 (5th Cir. 1996). In both cases, the appellate courts concluded there was no binding written contract. See Simmons, 286 S.W.2d at 418B19; Scaife, 100 F.3d at 411. Those cases, however, are distinguishable from the present case because in each the plaintiff was suing a non-signing party. See Simmons, 286 S.W.2d at 416 (jury trial involving signatory plaintiff suing non-signatory defendant); Scaife, 100 F.3d at 407B08 (summary judgment involving non-signatory plaintiff suing non-signatory defendant). Neither case presented the issue of whether the signature of a third entity, not a party to the suit, was a condition precedent to the parties= agreement to be bound. We conclude the summary judgment proof did not conclusively establish Vintage=s and Santa Fe/Devon=s intention not to be bound unless Premier also signed the contract.[11] Accordingly, we sustain RSM=s two issues.

Having sustained RSM=s two issues, we reverse the summary judgment and remand for further proceedings.

/s/ Charles W. Seymore

Justice

Judgment rendered and Memorandum Opinion filed October 23, 2008.

Panel consists of Justices Yates, Seymore, and Boyce.

[1] Because the dispositive issue is clearly settled in law, we issue this memorandum opinion. Tex. R. App. P. 47.4.

[2] Premier is not a party to the lawsuit.

[3] The Agreement specified that RSM was to be Adesignated the Operator during the first two years of the exploration license, with a provision that a new operator shall be elected at the end of the first two years by the parties holding at least a 55% interest in the License.@

[4] From this point on, in the opinion, we refer to Devon as ASanta Fe/Devon@ to reflect the relation between the original and successor entities.

[5] RSM also refers to, but does not challenge, the trial court=s handwritten notation on the judgment indicating it sustained Vintage and Santa Fe/Devon=s objections to Grynberg=s affidavit in support of RSM=s response to the motion for summary judgment.

[6] Vintage and Santa Fe/Devon state that their summary judgment motion was a traditional, rather than a no-evidence, motion.

[7] Vintage and Santa Fe/Devon characterize Grynberg as testifying no seismic work was done before 2005. Grynberg, however, testified the last seismic work was done in 2005.

[8] Although RSM relied on Grynberg=s affidavit in support, we refer only to those assertions for which there is other documentary support in the record.

[9] IMCO was a mineral rights case involving at least two operating agreements on the same tract and multiple preferential rights to purchase. See IMCO Oil & Gas v. Mitchell Energy Corp., 911 S.W.2d 916, 917B18 (Tex. App.CFort Worth 1995, no writ). In 1993, IMCO was attempting to purchase interests that had been the subject of an agreement between IMCO=s prospective seller, Westland Oil, and another party, Mitchell Energy, which had succeeded to rights governed by agreements among yet other parties. See id. at 918. IMCO=s purchase of the rights it sought was thwarted when MitchellCpursuant to a 1972 agreement signed by some but not all parties for whom there were signature blanksCexercised its preferential right to the property IMCO was trying to purchase. See id. IMCO was challenging the validity of the 1972 agreement. See id. at 920.

[10] The Skinner court also allowed that a party could Aprove by parol evidence that when he signed the contract he made it known to the other parties who now seek to sustain the contract that he only intended to be bound if all parties signed it.@ Skinner v. Haugseth, 426 So. 2d 1127, 1131 (Fla. Dist. Ct. App. 1983). The summary judgment proof in the present case contains no such evidence.

[11] In Turboff v. Gertner, Aron & Ledet Investments, this court considered the procedural mirror image of the present case. See 763 S.W.2d 827 (Tex. App.CHouston [14th Dist.] 1988, writ denied). Gertner, Aron, & Ledet (GAL) was suing the defendant, Turboff, to enforce a buy sell agreement that contained a signature line for a non party, First Texas, which was to consent to financing terms set forth in the agreement. See id. at 828. First Texas, however, had not signed the agreement. See id. GAL filed a motion for partial summary judgment, arguing that, as a matter of law, First Texas=s consent was not required to bind Turboff. See id. at 829. GAL prevailed in the trial court, and Turboff appealed. See id. at 828. In a split decision, this court reversed. Id. at 832. After listing eight pieces of summary judgment proof, the court reasoned:

The evidence outlined above indicates that the transaction was not consummated as proposed or intended and supports the reasonable inference that the consent of First Texas to the financing terms of the agreement was contemplated by the parties. We must indulge all reasonable inferences in favor of the non movant. This inference is sufficient to raise a fact question concerning whether the parties contemplated the consent of First Texas as a condition to enforceability of the agreement. Furthermore, in the face of this inference, the irrelevance of First Texas= [sic] signature cannot possibly be established as a matter of law. Therefore, the summary judgment evidence was insufficient to support the trial court=s order and the judgment was improper. For the same reason summary judgment for Turboff would have been equally improper.

Id. at 830 (emphasis added) (citations omitted). Thus, dictum in Turboff supports this court=s decision in the present case.

After remand and on appeal from a bench trial, the Corpus Christi court of appeals affirmed a judgment in favor of GAL. See Turboff v. Gertner, Aron & Ledet Invs., 840 S.W.2d 603, 612 (Tex. App.CCorpus Christi 1992, writ dism=d). The court extensively discussed language in the agreement that stated conveyance of the property was Asubject to@existing First Texas liensClanguage not mentioned in this court=s opinion. See id. at 606B08. The court observed that Asubject to@could reasonably be construed to mean something other than setting a condition precedent. Id. at 608. The court also referred to an unchallenged finding of fact:

In its findings of fact, the trial court determined that the parties intended to be bound irrespective of First Texas= [sic] consent. The Turboffs do not challenge the sufficiency of the evidence to support that finding. They merely raise the issue that any evidence regarding intention of the parties is irrelevant because the contract is facially unambiguous. The unchallenged finding is binding.

The Fourteenth Court of Appeals opinion is a sound one. The trial court attempted to follow it in the second trial by trying the issue of intent. No challenge is made to the findings.

Id. at 609 (citation omitted). Thus, the opinions of this court and the Corpus Christi court of appeals in Turboff support the conclusion that the summary judgment proof in the present case does not conclusively establish lack of intent to be bound absent Premier=s signature.