Opinion

Dimock Operating Company, and Joe W. Dimock, D/B/A Dimock Petroleum v. Sutherland Energy Co., LLC

Court: Texas Supreme Court
Filed: Oct 19, 2015
Status: Published
Cited by: 0 cases
Authority: More cited than 3.1%

The opinion

ACCEPTED

07-15-00297-cv

SEVENTH COURT OF APPEALS

AMARILLO, TEXAS

10/19/2015 10:03:21 PM

Vivian Long, Clerk

No. 07-15-00297-CV

FILED IN

COURT OF APPEALS 7th COURT OF APPEALS

AMARILLO, TEXAS

SEVENTH DISTRICT OF TEXAS

10/19/2015 10:03:21 PM

________________________ VIVIAN LONG

CLERK

DIMOCK OPERATING COMPANY, and

JOE W. DIMOCK, D/BA DIMOCK PETROLEUM,

Appellants,

SUTHERLAND ENERGY CO., LLC

Appellee.

________________________

On appeal from Cause No. 11,098

46 District Court, Hardeman County, Texas

Hon. Dan Mike Bird, Judge Presiding

BRIEF OF APPELLANT

Respectfully submitted,

Lovell, Lovell, Newsom & Isern, L.L.P.

John H. Lovell, SBN 12609300

(john@lovell-law.net)

Barbara A. Bauernfeind, SBN 08190500

(barbara@lovell-law.net)

112 West 8th Avenue, Suite 1000

Amarillo, Texas 79101-2314

Telephone: (806) 373-1515

Facsimile: (806) 379-7176

ATTORNEYS FOR APPELLANT

ORAL ARGUMENT REQUESTED (TEX.R.APP.P. 39.1)

IDENTITY OF PARTIES AND COUNSEL

The following is a list of parties and counsel to the trial court’s judgment, as

required by Rule 38.1(a), of the Texas Rules of Appellate Procedure.

TRIAL JUDGE: Honorable Dan Mike Bird

46th Judicial District - Hardeman County

1700 Wilbarger Street, Room 34A

Vernon, Texas 76384

Telephone: (940) 552-7051

Facsimile: (940) 552-0305

APPELLANT (DEFENDANT): Dimock Operating Company, and Joe W.

Dimock, d/b/a Dimock Petroleum.

TRIAL COUNSEL: Lovell, Lovell, Newsom & Isern, L.L.P.

John H. Lovell, SBN 12609300

(john@lovell-law.net)

Barbara A. Bauernfeind, SBN 08190500

(barbara@lovell-law.net)

112 West 8th Avenue, Suite 1000

Amarillo, Texas 79101-2314

Telephone: (806) 373-1515

Facsimile: (806) 379-7176

Cornell D. Curtis, P.C.

Cornell Curtis, SBN 24007069

(vernonlaw@sbcglobal.net)

1716 Main Street

Vernon, Texas 76384

Telephone: (940) 552-9100

Facsimile: (940) 552-2655

APPELLATE COUNSEL: Lovell, Lovell, Newsom & Isern, L.L.P.

John H. Lovell, SBN 12609300

(john@lovell-law.net)

Barbara A. Bauernfeind, SBN 08190500

(barbara@lovell-law.net)

112 West 8th Avenue, Suite 1000

Amarillo, Texas 79101-2314

Telephone: (806) 373-1515

Facsimile: (806) 379-7176

Cornell D. Curtis, P.C.

Cornell Curtis, SBN 24007069

(vernonlaw@sbcglobal.net)

1716 Main Street

Vernon, Texas 76384

Telephone: (940) 552-9100

Facsimile: (940) 552-2655

APPELLEE (PLAINTIFF): Sutherland Energy Co., LLC

TRIAL COUNSEL: Malone Law Firm

Chris Lehman, SBN 24046286

(clehman@malonelawtx.com)

1901 Lamar Street

P.O. Box 953

Vernon, Texas 76385

Telephone: (940) 552-9946

Facsimile: (940) 552-9925

Walters, Balido & Crain, L.L.P.

Jerry L. Ewing, Jr., SBN 06755470

Nathan R. Cash, SBN 24072026

Meadow Park Tower, 15th Floor

10440 North Central Expressway

Dallas, Texas 75231

Telephone: (214) 749-4805

Facsimile: (214) 760-1670

iii

APPELLATE COUNSEL: Malone Law Firm

Chris Lehman, SBN 24046286

(clehman@malonelawtx.com)

1901 Lamar Street

P.O. Box 953

Vernon, Texas 76385

Telephone: (940) 552-9946

Facsimile: (940) 552-9925

Walters, Balido & Crain, L.L.P.

Jerry L. Ewing, Jr., SBN 06755470

Nathan R. Cash, SBN 24072026

Meadow Park Tower, 15th Floor

10440 North Central Expressway

Dallas, Texas 75231

Telephone: (214) 749-4805

Facsimile: (214) 760-1670

TABLE OF CONTENTS

IDENTITY OF PARTIES AND COUNSEL ........................................................... II

TABLE OF CONTENTS .......................................................................................... V

TABLE OF AUTHORITIES ................................................................................ VIII

STATEMENT OF THE CASE .................................................................................. 1

STATEMENT REGARDING ORAL ARGUMENT ............................................... 2

ISSUES PRESENTED...............................................................................................2

A. ISSUES AS TO JULY 7, 2015 TEMPORARY INJUNCTION ....................... 2

B. ISSUES AS TO JULY 9, 2015 ORDER............................................................ 6

STATEMENT OF FACTS ........................................................................................6

SUMMARY OF THE ARGUMENT ......................................................................22

ARGUMENT ...........................................................................................................23

A. Standard of Review ..........................................................................................23

B. Rules of Construction and Contract Interpretation ..........................................24

C. Sutherland “Interpretation” Not Consistent With Texas Law .........................26

D. After Trial Court Erroneously Authorized Unlimited Spending,

Injunction Now Authorizes Unlimited Time to Drill ....................................28

E. Trial Court Action Constitutes an Erroneous Pretrial Forfeiture of

Leasehold .......................................................................................................30

F. Contract Construction Harmonizing and Giving Effect to All

Provisions ......................................................................................................31

G. Limits on Project Costs Common in Operating Agreements...........................32

H. Partial Assignment of Oil, Gas and Mineral Lease Was Subject to

Parties’ November 20, 2012 Agreement including the

Operating Agreement.....................................................................................36

I. Trial Court Erroneously Rewrote Contract ......................................................37

J. Lack of Probable Right to Recover ..................................................................38

K. Mandatory Provisions Are Abuse of Discretion ..............................................39

L. Injunction Erroneously Compels Assignment Even If Well Is Not

Drilled and Completed Within Contract Deadline ........................................40

M. Lack of Imminent Harm ...................................................................................41

N. Injunction Erroneously Has No Provision Requiring Compliance

with Contract by Sutherland ..........................................................................41

O. Injunction Order Erroneously Provided Investment Assurance ......................42

P. Pending Suit and Lis Pendens Already Made Drilling Additional

Wells a Risk for Sutherland, and is Privileged, So There Is No

Imminent Harm..............................................................................................42

Q. Appellant Entitled to Maintain that Sutherland has Breached

Contract and to File Lis Pendens ...................................................................46

R. Destroyed Status Quo .......................................................................................47

S. Violated Statute of Frauds ................................................................................49

T. Violated Statute of Conveyances .....................................................................49

U. Erroneous Order of Specific Performance of Non-Existent

Contract..........................................................................................................50

V. Illegal Prior Restraint on Speech......................................................................51

W. Prior Breaches of Contract Bar Injunctive Relief ............................................53

X. Injunctive Relief Not Available to Party Guilty of Inequitable

Conduct, Laches, and Unclean Hands ...........................................................60

Y. No “Repudiation” by Dimock ..........................................................................60

Z. Injunction Improperly Restrains Right to Relief for Future

Breaches of Contract......................................................................................62

AA. Injunction Erroneously Granted Without Joinder of Necessary

Parties.............................................................................................................63

BB. Inadequate Bond ...............................................................................................63

CC. Error to Deny Dimock Injunctive Relief..........................................................65

CONCLUSION AND PRAYER .............................................................................66

CERTIFICATE OF COMPLIANCE .......................................................................68

CERTIFICATE OF SERVICE ................................................................................69

vii

TABLE OF AUTHORITIES

Federal Cases

Alexander v. U.S., 509 U.S. 544, 113 S.Ct. 2766 (1993) ........................................52

Ashcroft v. Mattis, 431 U.S. 171 (1977) ..................................................................39

Grace Holdings, L.P. v. Sunshine Mining and Refining, 901 F. Supp.

853 (D.Del.1995) ...........................................................................................42

Near v. Minnesota ex rel. Olson, 283 U.S. 697, 51 S.Ct. 625 (1930) .....................51

Organization for a Better Austin v. Keefe, 402 U.S. 415, 91 S.Ct. 1575

(1971) .............................................................................................................51

Texas Cases

Atkinson Gas Co. v. Albrecht, 878 S.W.2d 236 (Tex.App.-Corpus

Christi 1994, writ denied) ..............................................................................61

Atlantic Richfield Co. v. W.O. Hilton, 437 S.W.2d 347 (Tex.Civ.App.-

Tyler 1969, no writ) .................................................................................60, 61

Aurora Petroleum, Inc. v. Cholla Petroleum, Inc., 2011 WL 652843

(Tex. App.—Amarillo 2011, no pet.) ............................................................37

Beaumont Bank, NA v. Buller, 806 S.W.2d 223 (Tex. 1991) ..................................24

Blaschke v. Wiede, 649 S.W.2d 749 (Tex.App.—Texarkana 1983, writ

ref’d n.r.e.) ...............................................................................................40, 41

Borders v. KRLB, Inc., 727 S.W.2d 357 (Tex.App.-Amarillo 1987,

writ ref’d n.r.e.) ........................................................................................24, 25

Burrow v. Arce, 997 S.W.2d 229 (Tex. 1999) .........................................................58

Butnaru v. Ford Motor Co., 84 S.W.3d. 198 (Tex.2002) ........................................23

Casanova v. Falstaff Beer, Inc., 304 S.W.2d 207 (Tex.Civ.App.‒

Eastland, 1957, writ ref’d n.r.e.) ....................................................................53

viii

Computek Computer & Office Supply v. Walton, 156 S.W.3d 217

(Tex. App.–Dallas 2005, no pet.) ..................................................................51

Cone v. Fagadau Energy Corp., 68 S.W.3d 147 (Tex. App. – Eastland,

2001, pet. den.) ..................................................................................32, 33, 58

Cox v. Davison, 397 S.W.2d 200, 203 (Tex. 1965) .................................................32

Cross Timbers Oil Co. v. Exxon Corp., 22 S.W.3d 24 (Tex.App.-

Amarillo, 2000, no pet.).....................................................................25, 30, 35

Cundiff v. McLean & Miller, 8 S.W. 43 (Tex. 1888) ..............................................46

Eberts v. Businesspeople Pers., 620 S.W.2d 861 (Tex.Civ.App.-Dallas

1981, no writ)...........................................................................................50, 55

El Paso Dev. Co. v. Berryman, 729 S.W.2d 883 (Tex.App.-Corpus

Christi 1987, no writ).....................................................................................64

Emmer v. Petroleum Co., 668 S.W.2d 487 (Tex.App.-Amarillo 1984,

no writ)...........................................................................................................25

Griffin v. Rowden, 702 S.W.2d 692 (Tex.App.-Dallas 1986, writ ref’d

n.r.e.) ..............................................................................................................47

Guffey v. Utex Exploration Co., 376 S.W.2d 1 (Tex.Civ.App.-San

Antonio 1964, writ ref’d n.r.e.) .....................................................................50

Halbert v. Standley, 488 S.W.2d 887, 889 (Tex.Civ.App.-Waco 1972,

writ ref’d n.r.e.) ..............................................................................................53

Hammonds v. Hammonds, 313 S.W.2d 603 (Tex.1958) .........................................55

HECI Explor. Co. v. Neel, 982 S.W.2d 881 (Tex.1998) .........................................25

Hill v. Heritage Resources, Inc., 964 S.W.2d 89 (Tex. App. – El Paso,

1997, pet. den.) ..................................................................................27, 28, 33

IMCO Oil & Gas Co. v. Mitchell Energy Corp., 911 S.W.2d 916 (Tex.

App. – Fort Worth 1995, no writ)..................................................................35

King Ranch, Inc. v. Chapman, 118 S.W.3d 742 (Tex. 2003) ..................................60

Kropp v. Prather, 526 S.W.2d 283 (Tex.Civ.App.-Tyler 1975, writ

ref’d n.r.e.) .....................................................................................................47

Ladner v. Reliance Corp., 293 S.W.2d 758 (Tex. 1956) .........................................63

Landry’s Seafood Inn & Oyster Bar - Kemah, Inc. v. Wiggins, 919

S.W.2d 924 (Tex. App.–Houston [14th Dist.] 1996, no writ) ........................60

Langdon v. Progress Laundry Cleaning Co., 105 S.W.2d 346

(Tex.Civ.App.-Dallas 1937, writ ref’d) .........................................................53

LeFaucheur v. Williams, 807 S.W.2d 20 (Tex.App.—Austin 1991, no

writ)................................................................................................................40

Liles v. Thompson, 85 S.W.2d 784 (Tex. Civ.App.-El Paso 1935, writ

dismissed) ......................................................................................................64

Marketshare Telecom, LLC v. Ericson, Inc., 198 S.W.3d 908

(Tex.App.-Dallas 2006, no pet.) ........................................................23, 39, 52

Mattern v. Herzog, 367 S.W.2d 312 (Tex. 1963) ....................................................28

McCharen v. Bailey, 87 S.W.2d 284 (Tex. App. - Eastland 1935, no

writ)................................................................................................................63

Mengden v. Penisula Prod. Co., 544 S.W.2d 643 (Tex. 1976) ...............................32

Michelin North America, Inc. v. First Industrial NLF 12 JV, LLC,

2014 WL 586228 (Tex. App. – Houston (1st Dist.) 2014, no pet.

history) ...........................................................................................................29

Myers v. Gulf Coast Minerals Mgmt. Corp., 361 S.W.2d 193 (Tex.

1962) ..............................................................................................................25

Paint Rock Operating, LLC v. Chisholm Exploration, Inc., 339

S.W.3d 771 (Tex.App.—Eastland 2011, no pet.)....................................32, 34

Petro Pro, Ltd. v. Upland Resources, Inc., 279 S.W.3d 743 (Tex. App.

– Amarillo 2007, pet. den.) ......................................................................25, 36

Phillips Pet. Co. v. American Trading and Prod. Corp., 361 S.W.2d

942 (Tex. Civ. App. – El Paso, 1962, writ ref’d n.r.e.) .................................43

Phillips Petroleum Co. v. Gillman, 593 S.W.2d 152 (Tex.Civ.App.-

Amarillo 1980, writ ref’d n.r.e.) ....................................................................24

Phillips v. Latham, 523 S.W.2d 19 (Tex.Civ.App.-Dallas 1975, writ

ref’d n.r.e.) .....................................................................................................55

Pirmantgen v. Feminelli, 745 S.W.2d 576 (Tex.App.-Corpus Christi,

no writ)...........................................................................................................46

Questa Energy Corp. v. Vantage Point Energy, Inc., 887 S.W.2d 217

(Tex.App.-Amarillo 1994, writ denied) ........................................................24

Rhodia, Inc. v. Harris County, 470 S.W.2d 415 (Tex.Civ.App.-

Houston [1st Dist.] 1971, no writ) ..................................................................40

Ross v. McLelland, 281 S.W.2d 773 (Tex.Civ. App. - Fort Worth,

1955, writ ref’d n.r.e.)....................................................................................46

Royal Indem. Co. v. Marshall, 388 S.W.2d 176 (Tex.1965) ...................................38

Sakowitz, Inc. v. Steck, 669 S.W.2d 105 (Tex. 1984) ..............................................47

Schmidt v. Richardson, 420 S.W.3d 442 (Tex.App.-Dallas 2014, no

writ)................................................................................................................41

Shadow Dance Ranch Partnership v. Weiner, 2005 WL 3295664

(Tex. App. – San Antonio, 2005, no pet.) .....................................................27

Springer Ranch, Ltd. v. Jones, 421 S.W.3d 273 (Tex. App. – San

Antonio 2013, no pet.) ...................................................................................26

Sun Operating, Ltd. v. Holt, 984 S.W.2d 277 (Tex.App.-Amarillo

1998, pet. denied) ..........................................................................................24

T.O. Stanley Boot Co. v. Bank of El Paso, 847 S.W.2d 218

(Tex. 1992) ....................................................................................................37

Tanebaum Textile Co., Inc. v. Sidran, 423 S.W.2d 635 (Tex. Civ.

App. – Dallas 1967, writ ref’d n.r.e.) ............................................................28

Texas Independent Exploration, Ltd. v. Peoples Energy Petroleum-

Texas, L.P., 2009 WL 2767037 (Tex. App. – San Antonio,

2009, no. pet.) ................................................................................................36

Texstar North America, Inc. v. Ladd Petroleum Corp., 809 S.W. 672

(Tex. App. – Corpus Christi 1991, writ den.)................................................32

Tri-Star Petroleum Co. v. Tipperary Corp., 101 S.W.3d 583

(Tex.App.-El Paso, 2003, pet. denied) ..........................................................48

Valance Operating Co. v. Dorsett, 164 S.W.3d 656 (Tex. 2005)

(concurring opinion) ......................................................................................33

Walling v. Metcalfe, 863 S.W.2d 56 (Tex.1993) ...............................................23, 24

Webb v. Glenbrook Owners Ass’n., Inc., 298 S.W.3d 374 (Tex.App.-

Dallas 2009, no pet.) ......................................................................................24

Texas Rules and Statutes

TEX. BUS. & COM. CODE §26.01(b)(4) ....................................................... 49, 50

TEX. BUS. & COM. CODE §26.01(b)(6) ....................................................... 49, 50

TEX. PROP. CODE §5.002 .....................................................................................50

TEX. PROP. CODE §5.021 .....................................................................................50

TEX. PROP. CODE ANN. §12.007 (Vernon 1984) ...............................................47

TEX. R. APP. P. 38.1(e) ...............................................................................................2

Tex. R. App. P. 39.1(c) ..............................................................................................2

Tex. R. App. P. 39.1(d) ..............................................................................................2

Tex. R. Civ. P. 39 .....................................................................................................16

Tex. R. Civ. P. 682 ...................................................................................................23

Tex. R. Civ. P. 684 ............................................................................................ 23, 63

Tex. R. Civ. P. 76a(1) ..............................................................................................46

Secondary Authorities

The Chicago Manual of Style R. 5.57 (14th Ed. 1993) ..............................................9

xii

TO THE HONORABLE SEVENTH COURT OF APPEALS:

Appellants/Defendants, Dimock Operating Company, and Joe W. Dimock,

d/b/a Dimock Petroleum, will be referred to as “Dimock”. Appellee/Plaintiff,

Sutherland Energy Co., LLC will be referred to as “Sutherland”. This is an appeal

of an order granting a temporary injunction to Sutherland, and of an order denying

a temporary injunction to Dimock. CR 1590, 1599.

STATEMENT OF THE CASE

This suit arises from a disputed oil and gas farmout agreement, with an

incorporated operating agreement. CR 12-62. Dimock first sought injunctive

relief by Application for Temporary Injunction on August 1, 2014. CR 126.

Sutherland sought injunctive relief by Application for Temporary Injunction, and

then an Amended Application, filed on June 11, 2015 and June 29, 2015,

respectively. CR 1296, 1361. Dimock’s Application was initially set for hearing

for September 22, 2014, CR 167, but, at the hearing, the Trial Court deferred

action on such Application. RR 2:4, 62. The Trial Court granted a Partial

Summary Judgment in favor of Sutherland on October 21, 2014, based on its

erroneous legal interpretation of the farmout agreement, but that order was vacated

in December, 2014 and replaced by a December 19, 2014 order. CR 1268, 1282,

1285, 1286, 1613. Dimock filed a Motion for Permissive Appeal of the Partial

Summary Judgment, but the Trial Court denied the Motion. CR 1269, 1284. The

Trial Court finally heard Dimock’s Application for Temporary Injunction along

with Sutherland’s Amended Application for Temporary Injunction on July 2, 2015.

RR 3:7. At the hearing, the Trial Court granted Sutherland’s Amended

Application for Temporary Injunction and denied Dimock’s Application for

Temporary Injunction, signing the order granting an injunction on July 7, 2015.

RR 4:131, 140, CR 1590. The order denying Dimock’s Application for Temporary

Injunction was signed on July 9, 2015. CR 1599. A Writ of Injunction was issued

July 7, 2015, CR 1595, and Sutherland’s Bond was filed on July 7, 2015. CR

1593. Dimock filed his Notice of Appeal on July 21, 2015. CR 1609. The trial

court judge is Judge Dan Mike Bird, 46th Judicial District Court, Hardeman

County, Texas.

STATEMENT REGARDING ORAL ARGUMENT

The Court should grant oral argument because it will give the Court a more

complete understanding of the facts, will allow the Court to better analyze the legal

issues, and will significantly aid the Court in deciding this case. See TEX. R. APP.

P. 38.1(e), Tex. R. App. P. 39.1(c), and Tex. R. App. P. 39.1(d).

ISSUES PRESENTED

A. ISSUES AS TO JULY 7, 2015 TEMPORARY INJUNCTION

ISSUE NO. 1: The Trial Court erred in entering the Temporary

Injunction Order.

ISSUE NO. 2: The Trial Court erred because there is no evidence,

or insufficient evidence, of a cause of action

against Dimock for the injunctive relief sought.

ISSUE NO. 3: The Trial Court erred because there is no evidence,

or insufficient evidence, of the existence of a

wrongful act by Dimock.

ISSUE NO. 4: The Trial Court erred because there is no evidence,

or insufficient evidence, of imminent harm to

Sutherland.

ISSUE NO. 5: The Trial Court erred because there is no evidence,

or insufficient evidence, of irreparable injury to

Sutherland.

ISSUE NO. 6: The Trial Court erred because there is no evidence,

or insufficient evidence, of the absence of an

adequate remedy at law.

ISSUE NO. 7: The Trial Court erred because there is no pleading

by Sutherland of repudiation of the Seismic

Exploration and Farmout Agreement by Dimock.

ISSUE NO. 8: The Trial Court erred in finding repudiation

because there is no evidence, or insufficient

evidence, of repudiation of the Seismic

Exploration and Farmout Agreement.

ISSUE NO. 9: The Trial Court erred because there is no evidence,

or insufficient evidence, that Dimock has

interfered with drilling operations that are

underway, or has withheld any required

assignment of drilling unit acreage after Sutherland

has drilled and completed an additional well.

ISSUE NO. 10: The Trial Court erred because there is no evidence

Sutherland has drilled and completed an additional

well under the Agreement, or has requested an

assignment of acreage from Dimock after drilling

an additional well.

ISSUE NO. 11: The Trial Court erred because it destroyed the

status quo rather than preserving the status quo.

ISSUE NO. 12: The Trial Court erred because the trial court

rewrote the term of the Agreement.

ISSUE NO. 13: The Trial Court erred because the Temporary

Injunction Order violates the Statute of Frauds

and/or the Statute of Conveyances.

ISSUE NO. 14: The Trial Court erred because it failed to require

Sutherland to comply with the Agreement, and to

preserve Dimock’s remedies for breach of the

Agreement.

ISSUE NO. 15: The Trial Court erred because it commanded and

prohibited actions of Dimock after November 19,

2015 (the end of the 3 year term of the contract).

ISSUE NO. 16: The Trial Court erred because the Temporary

Injunction Order prevents Dimock from drilling

wells on its own leases after November 19, 2015,

and it prevents Dimock from stopping Sutherland

from drilling a new well or conducting new

operations on a Dimock leasehold after November

19, 2015.

ISSUE NO. 17: The Trial Court erred because it enjoins Dimock

from withholding a lease acreage assignment after

November 19, 2015 and/or from withholding a

lease acreage assignment as to a well drilled and

completed after November 19, 2015.

ISSUE NO. 18: The Trial Court erred because the Temporary

Injunction Order is an unconstitutional illegal prior

restraint on free speech and does not satisfy the

requirements of Davenport v. Garcia, 834 S.W.2d

4 (Tex.1992).

ISSUE NO. 19: The Trial Court erred because a party who has

breached a contract provision favorable to the

other party cannot secure by injunction the

enforcement of another contract provision

favorable to it.

ISSUE NO. 20: The Trial Court erred in entering the Temporary

Injunction Order after evidence was presented of

Sutherland breaching the Agreement by charging

its own lawsuit expenses to “operating expense” of

the Hamrick #3.

ISSUE NO. 21: The Trial Court erred in entering the Temporary

Injunction Order after evidence was presented of

Sutherland breaching the Agreement by spending

and charging to the Hamrick #3 $2.4 million on

land and seismic expenses, none of which was for

the Hamrick #3.

ISSUE NO. 22: The Trial Court erred because the Agreement is

ambiguous, and there are fact issues as to whether

land and seismic costs are limited to $25,000.00,

whether the land and seismic costs charged by

Sutherland were reasonable or necessary for the

Hamrick #3, and whether the Hamrick #3 paid out

in 2014.

ISSUE NO. 23: The Trial Court erred because Sutherland failed to

join and give notice to all parties whose rights are

affected by the writ of injunction.

ISSUE NO. 24: The Trial Court erred in ordering an inadequate

bond in the Temporary Injunction Order.

B. ISSUES AS TO JULY 9, 2015 ORDER

ISSUE NO. 25: The Trial Court erred in denying Dimock’s

Application for Temporary Injunction.

ISSUE NO. 26: The Trial Court erred because the requested

injunction would have preserved 51% of working

interest proceeds of the Hamrick #3 for the rightful

owner of the proceeds until final judgment.

ISSUE NO. 27: The Trial Court erred because, as a matter of law,

the Seismic Exploration and Farmout Agreement

does not authorize unlimited spending on land and

seismic costs to be charged to Dimock and/or

payout of the Hamrick #3.

ISSUE NO. 28: The Trial Court erred, as a matter of law, because

the Seismic Exploration and Farmout Agreement

limits expenditures for land and seismic costs to

$25,000.00 unless Dimock authorizes further

expenditures.

ISSUE NO. 29: The Trial Court erred because, as a matter of law,

the Hamrick #3 reached payout in March 2014.

STATEMENT OF FACTS

1. On November 20, 2012, Dimock and Sutherland executed a Seismic

Exploration and Farmout Agreement (“Agreement”), including Exhibit C, an

Operating Agreement (“Operating Agreement”). CR 12-62. Pursuant to Section

3.1, Sutherland was obligated to drill the Initial Earning Well. CR 13. The

Hamrick #3 was drilled and completed as a producing oil well in June, 2013. CR

70. On Nov. 11, 2013, Dimock executed a Partial Assignment of Oil, Gas, and

Mineral Lease to Sutherland including the Hamrick #3. CR 320.

2. In the Operating Agreement, the parties agreed in Article VI, D, as

follows:

Operator shall not undertake any single project reasonably estimated

to require an expenditure in excess of twenty-five thousand Dollars

($25,000.00) except in connection with the drilling, Sidetracking,

Reworking, Deepening, Completing, Recompleting, or Plugging Back

of a well that has been previously authorized by or pursuant to this

agreement, provided, however, that, in the case of explosion, fire,

flood or other sudden emergency, whether of the same or different

nature, Operator may take such steps and incur such expenses as in its

opinion are required to deal with the emergency to safeguard life and

property but Operator, as promptly as possible, shall report the

emergency to the other parties.

CR 36, emphasis added. Paragraph 2.1 of Exhibit A of the Agreement states that

“All operations conducted by Farmee regarding the Initial Earning Well, until such

time as “project payout” is reached … shall be at Farmee’s sole cost and risk.”

CR 17. Paragraph 6.1 of the Agreement states: “The Operating Agreement shall

apply to all Earned Wells”. CR 14, emphasis added.

3. Despite the $25,000 limit for any “project” that is not drilling, etc.,

beginning in 2014 Sutherland sent lease operating statements to Dimock showing

that Sutherland was charging leasehold acquisition costs for other property

(bonuses, etc.), charging seismic option costs for other property, and charging his

own and his employee time obtaining leases and seismic options on other property,

in sums far in excess of $25,000, to “land” costs and “seismic” costs of the

Hamrick #3, even though the Hamrick #3 had been completed in June, 2013. CR

229, 276-277, 324-325.

4. Land costs (in house, or for leasehold acquisitions) and seismic option

costs for other properties are not “drilling, Sidetracking, Reworking, Deepening,

Completing, Recompleting, or Plugging Back” expenses and are, therefore, subject

to the $25,000 limit on expenses for any project in Exhibit C. Sutherland has

admitted in Response to Request for Admissions that seismic costs and land costs

are not Sidetracking, Reworking, Deepening, Completing, Recompleting, or

Plugging Back costs. CR 343. In his Affidavit, Dimock, an operator, stated that

land and seismic costs are not drilling costs. CR 324. No evidence was presented

at any hearing that land and seismic costs are “drilling” costs.

5. Pursuant to Section 4.1 of the Agreement, “upon “project payout” of

the Initial Earning Well, Farmee shall deliver to Farmor possession and operations

of the Initial Earning Well and a fifty-one percent (51%) working interest, at

Farmor’s election, in the appropriate Earned Assignment defined in Paragraph 3.2

above.” CR 13.

6. Paragraph 4.2 of Exhibit A, the Agreement states:

Project Payout and Monthly Statements. Beginning within six (6) months of

completion of Initial Earning Well Farmee shall provide a monthly statement to

Farmor reflecting the “project payout” status.

(a) The Farmee’s capital cost is defined as cost incurred by Farmee for land and

seismic for the Hamrick Area 3D Shoot (a 15 square mile area defined in

Exhibit B), a fifty thousand dollar ($50,000) prospect fee, and cost for

drilling, testing, completing, and equipping, the Initial Earning Well 1.

(b) The Farmee’s revenue, which is the gross value of production as defined in

Paragraph 4.1 above, less (i) applicable production or severance taxes, and

any federal excise taxes; (ii) all royalties, overriding royalties, and other

payments out of production which, as of the effective date of this

Agreement, burden the interest assigned to Farmee; and, (iii) the cumulative

monthly operating cost of the well, including ad valorem taxes.

capital cost the Initial Earning Well will have reached “project payout”. At

that time, as stated in Paragraph 4.1 of this Agreement, the Farmee will

turnover operations of the Initial Earning Well and assign fifty-one percent

(51%) working interest, at Farmor’s election, in the Initial Earning Well and

drilling unit to the Farmor.

(d) Concurrent to the “project payout” in Paragraph 4.2(c) above the Farmee

will also assign the remaining forty-nine percent (49%) working interest to

one or more 501(c)(3) nonprofit organizations of its choice subject to the

Operating Agreement described in 6.1 of the Agreement.

CR 19-20, emphasis added.

7. Accordingly, when Sutherland’s cumulative revenue from the

Hamrick #3 (the “Initial Earning Well”) equaled two (2) times Sutherland’s capital

costs, the Hamrick #3 reached project payout. With its Application for Temporary

Injunction, Dimock presented to the trial court documents produced by Sutherland

demonstrating that the drilling and completion cost of the Hamrick No. 3 well was

One of the ambiguities in the Agreement is whether or not the phrase, “…, the Initial Earning

Well” was intended to qualify or describe all the items in that sentence (i.e., land and seismic

costs). In construing this sentence, this comma may, or may not, be determined by a jury to have

been intended as an “oxford comma.” The Chicago Manual of Style R. 5.57 (14th Ed. 1993).

$1,004,521. CR 142-146. After the initial well was spudded, the prospect fee

(referenced in Section 4.2 (a) of Exhibit A of the Agreement) of $50,000 was

refunded to Sutherland by Dimock on August 28, 2013. CR 326; CR 1533. Using

the $25,000 limit in Exhibit C, Para. VI (D) for any project that is not drilling, etc.,

when the Hamrick #3 gross working interest revenue (less the specified items in

Section 4.2(b) of Exhibit A, like taxes, royalties, and monthly operating expenses)

is two times $1,029,521, or $2,059,042, the Hamrick #3 reached “project payout”.

CR 13, 20.

8. Through March, 2014, the cumulative net working interest income of

the Hamrick #3 was $2,195,166.75, well in excess of the $2,059,042 amount for

project payout of the Hamrick #3. CR 140, 141. The March, 2014 Lease

Operating Statements (LOS), and Drilling and Completion Costs statements,

prepared by Sutherland, were attached as Exhibit A to Defendant’s Application for

Temporary Injunction. CR 126-146.

9. Dimock objected in writing to the land and seismic costs, and

demanded that no further capital costs for the initial earning well be incurred. CR

63-66, 327. By letter dated April 21, 2014, Dimock notified Sutherland that the

Hamrick #3 had reached project payout, as per the March LOS of the Hamrick #3,

and Dimock made the election, and demanded 2, that Sutherland deliver operations

and possession of the Hamrick #3, and assign a 51% working interest in the

Hamrick #3 and drilling unit to Dimock. CR 65.

10. Instead of complying with the Agreement, Sutherland refused to

assign the working interest to Dimock and the charities, refused to turnover

possession and operations, and has wrongfully converted all the post March, 2014

working interest proceeds of the Hamrick #3. Sutherland continued to incur land

costs (none of which were to acquire an oil or gas lease to drill the Initial Earning

Well, because Dimock already owned that leasehold), and huge seismic expenses

for a 15 square mile seismic shoot. See CR 488-1255, an Affidavit of Greggory D.

Morgan, CPA, with his spreadsheet of these unrelated costs [CR 488-489 is the

Affidavit; CR 491-498 is the spreadsheet outlining these unrelated costs]. The

unrelated “land costs” were $951,176.99, and the unrelated seismic costs were

$102,899.80, as of the time of the Affidavit was prepared. Following the Affidavit

and spreadsheet are copies presented to the trial court of the dozens of Sutherland-

obtained oil and gas leases, top leases, and seismic options, for itself only, of

nearby sections of land not leased by Dimock. CR 499-1255. Sutherland used the

working interest proceeds of the initial earning well to lease 9 other sections of

land for itself only and obtain seismic options as to such other land, and “charged”

At that point, the Christian charities were also entitled to receive an assignment of a 49%

working interest.

that “land cost” and “seismic cost” for additional earning wells to the Initial

Earning Well (Hamrick #3) to “extend” payout of the Hamrick #3 for over a year,

all in breach of the Agreement. The only seismic was shot in the summer of 2014,

approximately one year after the Hamrick #3 was drilled. RR 6:Def Exh. 4, P. 39.

11. Rod Sutherland, is the sole owner of Appellee, and admits that as of

July, 2015, Sutherland had spent $2.4 million for such land costs and seismic costs,

and has charged that amount to “payout” of the Hamrick #3. RR 5: Pl. Exh. 2; RR

4:83-84; RR 3: 41-42; CR 1471.

12. By its Original Answer and Counterclaim, Dimock alleged Breach of

Contract, sought Declaratory Judgment, alleged a suit for debt, and alleged Breach

of Fiduciary Duty. CR 69. Dimock filed its Application for Temporary Injunction

on August 1, 2014 (CR 126). Refusing to rule on Defendant’s 2014 request for

injunctive relief, the trial court entered an erroneous Partial Summary Judgment in

favor of Sutherland. CR 1268, 1285, 1286.

13. In its Responses to Request for Admissions, Sutherland admitted that

throught payments received in July, 2014, Sutherland had received a totoal amount

of $3,173,162.13 in working interest revenue from the Hamrick #3. CR 343.

14. As demonstrated in Sutherland’s own documents, the Hamrick #3

reached project payout in March 2014. In March, 2014, Dimock and the Christian

Charities were entitled to receive assignments. Dimock was then equitable owner

of 51% of the working interest in the Hamrick #3 and drilling unit, and the

Christian Charities 49%. And as of March, 2014, Sutherland had no legal right to

possess or use any of the working interest proceeds from the Hamrick #3, or to

charge any well operations fees to the Hamrick #3 payout. Instead, an additional

$2.4 million in land costs and seismic costs were charged by Sutherland to the

Initial Earning Well payout by the time of the July, 2015 injunction hearing, and

Sutherland retained an additional $2.4 million under Sutherland’s 2 x costs payout

theory.

15. In the trial court, Sutherland chose to totally ignore and/or disregard

the Operating Agreement that Sutherland admits it signed, and under which

Sutherland is operating the subject well. In its pleadings, Sutherland offered no

reading of the Operating Agreement “other operations” provision that would

authorize unlimited expenditures for “land costs” and “seismic costs” to be charged

to Dimock, and claimed the Agreement is not ambiguous. Sutherland obtained a

partial summary judgment without citing any legal authority in support of

Sutherland’s interpretation of the contract. Dimock’s responses (with all exhibits)

to Sutherland’s partial summary judgment motion are incorporated herein by

reference. CR 232, 368, 1256.

16. In addition to the ambiguities, there is a fact and/or legal issue

whether the $25,000 limit in Exhibit C applies to land costs and seismic costs,

which would preclude awarding injunctive relief in favor of Sutherland. Further,

given Dimock’s ambiguity pleading, there are fact issues about Hamrick #3

“payout”. CR 1348-1350. Both at the summary judgment hearing in September,

2014 and the injunction hearing in July, 2015, Sutherland had the burden of proof

as to its factual and legal claims.

17. In addition, in April, 2014, shortly after filing the lawsuit, Sutherland

began breaching the Agreement by charging to the initial well as “operating”

expenses, its own attorney’s fees and expenses and personal expenses incurred in

this lawsuit, including charging $800 per day for Rod Sutherland’s own time spent

on this lawsuit. RR 4:74-76; See also CR 1493, 1580-1587. See also CR 141, the

LOS Statement for April, 2014 when Sutherland began charging his lawsuit

expenses, his attorney’s $5000 retainer (CR 444), to “miscellaneous expense” on

the LOS. Sutherland has never cited in the trial court any authority to charge his

lawsuit expenses to operating expenses of the Hamrick #3. Sutherland admits that

every dollar he spends on these “capital costs” [all of which are for some potential

well other than the Initial Earning Well], the Initial Earning Well payout jumps by

two dollars; and, when he charges to “operating expense” his own company time,

expenses and attorney’s fees for this lawsuit, he is reducing the working interest

revenue of the initial earning well by another dollar, which also extends payout of

the Initial Earning Well. RR 4:84.

18. Sutherland’s continuing wrongful conduct irreparably harms Dimock,

the Christian Charities, and their property rights.

19. As a direct and proximate result of Sutherland’s wrongful actions,

Dimock has suffered, and has continued to suffer, imminent and on-going injury in

sums now in excess of $1,500,000, that is irreparable, and for which no adequate

remedy at law exists, without the protection of a temporary injunction to preserve

51% of the working interest proceeds until final trial of the case. Such injunctive

relief would have preserved the status quo, and preserved the disputed working

interest proceeds, but the trial court delayed until July, 2015 to rule on Plaintiff’s

Application for Temporary Injunction (filed in August, 2014) and then erroneously

denied it. CR 1599. Dimock also unsuccessfully sought a jury trial in 2015. CR

1291, 1295.

20. Dimock’s requested injunction would have prevented Sutherland from

using litigation to delay payment of well proceeds and using litigation as an excuse

to charge his attorney’s fees, and internal time spent on this lawsuit to “operating

expense” of the Hamrick #3, all delaying payout of the Hamrick #3.

21. As shown in Dimock’s (a) Application for Temporary Injunction, (b)

Answer and Counterclaim; and, in (c) Dimock’s pleadings and evidence

incorporated into its responses to Sutherland’s applications for injunctive relief,

Dimock has a cause of action against Sutherland for breach of contract and for

conversion, a probable right to the relief sought, and is incurring probable,

imminent, and irreparable injury in the interim, now in excess of $1,500,000.

22. In the alternative, Dimock requested that the trial court appoint a

receiver to protect the working interest owners and to take charge of and hold the

subject well, and working interest proceeds, subject to the final disposition of this

litigation. That request was denied when the Dimock’s temporary injunction

request was denied. CR 126, 1599.

23. Dimock’s well was depleted by Sutherland’s production of the subject

well with no revenue from that production being paid to Dimock or the Christian

Charities. Dimock’s and the Christian Charities’ damages for their real property

interests cannot be adequately measured by a certain pecuniary standard and

cannot be adequately compensated for in damages.

24. In the summer of 2015, about 4 months before the end of the three

year term of the Agreement, which ends on November 19, 2015, Appellee filed an

Application for Temporary Injunction. CR 1296.

25. Appellants specially excepted and objected to Plaintiff's Application

for Temporary Injunction because Appellee failed to join all indispensable

parties. Tex. R. Civ. P. 39. CR 1304. Sutherland has granted interests in the

Hamrick #3 and drilling unit to other parties, his employee Wade Tidmore,

and his wife’s relatives, Woody and Judy Thompson, and Joe and Vivian Revese.

CR 1457. Additionally, according to the testimony of Rod Sutherland, each of the

following are intended beneficiaries of the Agreement, because they are the

entities to whom the 49% working interest in the Hamrick #3 is to be conveyed on

project payout, namely, Focus on the Family (Jim Dobson), Insight for Living

(Chuck Swindell), Dallas Leadership Foundation, First United Methodist Church,

and National Christian Foundation. CR 1466-1467. None of these persons or

entities were joined, or given notice of the injunction hearing.

26. The term of the Agreement is stated in Section 9 of Exhibit A to the

Agreement, as follows:

The Agreement shall be in effect for three (3) years from

the effective date or until such time as: (i) Farmee's rights

to earn as assignment of interest have expired without

Farmee having earned as assignment; (ii) Farmee has earned

an assignment of interest and neither Farmee nor Farmor

have any further rights or obligations under the Agreement;

or (iii) this Agreement terminates pursuant to Paragraph 3.4

above as a consequence of Farmee's default. CR 22,

emphasis added.

27. The "term" of the Agreement is clearly defined. Under (ii), if an

Initial Well is drilled and completed as a producer, and an assignment of the

working interest in the acreage including the drilling unit around that Initial

Well is made, which occurred in this case, the Agreement as to any other acreage

of the Dimock leaseholds ends if Farmee does not drill and complete additional

producing well(s) within 3 years of November 20, 2012, because Farmee had no

contractual obligation to drill any other wells and had a limited option time (3

years from November 20, 2012) to drill additional well(s) on that other acreage, if

it chose to do so. CR 13 [Section 5.1 of the Agreement], 22.

28. As of the date of the injunction hearing and orders, Sutherland had

drilled no additional wells. 3 RR4:92, CR 1464. As Rod Sutherland admitted

at his deposition, S u t h e r l a n d had no obligation to drill any more wells and

only had an option to drill other wells during the term of the Agreement. CR

1463, 1464.

29. Contrary to the stated term of the Agreement, Sutherland requested

injunctive relief that the term of the Agreement be rewritten by the Court from 3

years to an indefinite period of years; i.e. "until Dimock’s allegations in this

lawsuit have been finally adjudicated and all applicable deadlines have expired.”

CR 1364. Dimock objected to the proposed injunction because it creates a new,

indefinite term of the Agreement, it does not preserve the status quo, it does not

enforce the term of the Agreement as written, and it rewrites the term of the

Agreement directly contrary to the express term agreed to by the parties. CR

1439.

30. When Rod Sutherland signed the Agreement, he knew that his

exclusive right to drill new wells ended on November 19, 2015. Nowhere in the

After the injunction was entered, Sutherland drilled three additional wells on the property.

Sutherland has already decided to plug one of the new wells.

Agreement is there a right of the Farmee to extend the term of Agreement, and

possibly earn a right to an Assignment of any additional acreage from the Dimock

leaseholds beyond November 19, 2015 (the end of the three year term) unless a

new well is drilled and completed as a producer in paying quantities during the

stated 3 year term. Because Sutherland failed to show it had a probable right to

recover on the claim asserted, or that it was entitled to rewrite the contract to

extend the term of the Agreement indefinitely, the Plaintiff’s Amended Application

for Temporary Injunction should h a v e b e e n denied.

31. In Paragraph 1.14 of the Amended Application for Temporary

Injunction, Sutherland further claimed “Dimock is deliberately obstructing

additional development of the Subject Leases and attempting to deprive Sutherland

of the right to timely drill additional wells.” CR 1363. Contrary to the assertion,

the evidence at the hearing showed Dimock had not stopped Sutherland from

drilling any well. RR 4: 97-99. Sutherland had not then drilled or completed any

additional well as a producer in paying quantities. Sutherland has made no request

for an assignment of any additional acreage from Dimock after drilling and

completing an additional well. Dimock had taken no action whatsoever to

“deliberately obstruct” any development. No gate had been locked. No one had

been physically restricted from any property. Id. The only “wrong” Dimock had

committed was to take a contractual position in a judicial proceeding, which

Sutherland did not like.

32. Sutherland, a start-up company owned solely by Rod Sutherland, has

done no internal suspense on behalf of Mr. Dimock or the Christian Charities from

any of the income from the Hamrick # 3 well, and doubts it has sufficient funds

available to pay Mr. Dimock or the Christian Charities back if the eventual legal

decision in this case is that payout occurred in March of 2014. CR 1472,

1511.

33. Dimock tried to have this matter adjudicated by permissive appeal of

the erroneous Partial Summary Judgment order to the Amarillo Court of Appeals,

but Sutherland opposed the motion for permissive appeal. CR 1269. The legal

issues at the heart of this dispute could have been resolved but for the opposition

of, and delays caused by, Sutherland and the trial court to resolve this case.

34. The delay in obtaining a final appellate decision about the proper

calculation of "project payout" is a dilemma of Sutherland’s own making. It is

Sutherland who objected to an interlocutory appeal of the trial court's ruling on the

parties' motions for summary judgment. CR 1273. It is Sutherland who obtained a

continuance of the trial setting. CR 1288, 1294.

35. The judicially extended option of Sutherland's right to drill wells

enjoins Dimock from drilling wells on his own leaseholds after November 19,

2015. Dimock did not contract to give up the right to drill a well on his own

leaseholds after November 19, 2015. The injunction directly and irreparably

damages Dimock because it prevents him from drilling wells on his own

leaseholds after November 19, 2015. And, what does Sutherland pay Dimock for

the privilege to extend the term of the exclusive option to drill additional wells?

Nothing, if this Court upholds the erroneous trial court injunction.

38. Dimock also incorporated into its Response to Amended Application

for Temporary Injunction [CR 1439], excerpts from the May 21, 2015 Deposition

of Rod Sutherland [CR 1452-1499]. Significant portions of such Sutherland

testimony are included as Exhibit J in the Appendix to this Brief. In summary, as

is evident from the noted portions of the deposition of Rod Sutherland, Sutherland

admits it has charged at least $2.4 million in claimed “land” and “seismic”

expenses to payout of the Hamrick #3, none of which was used to acquire acreage,

locate, or drill the Hamrick #3. Sutherland planned to continue the spending spree

indefinitely. In addition, Sutherland further delayed payout of the Hamrick #3 by

charging his own and his various employees’ time and expenses as to this lawsuit

(at salary rates for petroleum engineers, and landmen) to “miscellaneous” expenses

in the operating expenses for the Hamrick #3, which expenses are deducted from

well proceeds (to further delay payout of the Hamrick #3), all in breach of the

Agreement.

39. Since March 2014, when the Hamrick #3 paid out, Sutherland has

spent over $2 million more for nothing benefitting the subject well, and has put an

additional $2 million in his pocket. After doing all these admitted actions,

Sutherland obtained a trial court injunction to enjoin Dimock’s speech and conduct

after his option period had expired, possibly indefinitely, and continue the

unlimited spending spree with Hamrick #3 proceeds. The trial court erroneously

granted such injunction.

40. The trial court injunction destroyed the status quo. The status quo

was the right to drill additional wells as stated in the term of the Agreement.

41. The trial court’s order rewriting the term of the Agreement

indefinitely until this case is finally resolved, was an action it was not

authorized to do, and is an abuse of discretion. A court is to construe

contracts, not rewrite them. And, in this case, the party who drafted the contract

(See CR 1477) got the trial court to rewrite the term of his own farmout

agreement to favor the author, all to the detriment and irreparable damage of

Dimock.

SUMMARY OF THE ARGUMENT

The trial court erred in denying Dimock’s temporary injunction because it

would have preserved 51% of the working interest proceeds of the Hamrick #3

until a final legal determination of payout of the subject well could be made. And,

the trial court erred in entering the Temporary Injunction Order in favor of

Sutherland because it rewrote the term of the farmout agreement, enjoining

Dimock’s speech and conduct beyond the end of the contractually determined

option period effectively extending the time to drill and complete additional wells

beyond the stated term of the Agreement. The order prohibits Dimock from

drilling wells on its own leases after November 19, 2015. And, because the order

prohibits Dimock’s speech, it violates Dimock’s right to free speech under the

Texas Constitution.

ARGUMENT

A. Standard of Review

1. The trial court’s grant or denial of a temporary injunction is reviewed

on an abuse of discretion standard. Butnaru v. Ford Motor Co., 84 S.W.3d. 198,

204 (Tex.2002); Walling v. Metcalfe, 863 S.W.2d 56, 58 (Tex.1993). The Court is

to review de novo any determinations on questions of law that the trial court made

in support of an injunction order. Marketshare Telecom, LLC v. Ericson, Inc., 198

S.W.3d 908, 916 (Tex.App.-Dallas 2006, no pet.).

2. To obtain a temporary injunction, the applicant must plead and prove:

a) a cause of action against the defendants; b) a probable right to the relief sought;

and, c) a probable, imminent, and irreparable injury in the interim. Id; Walling,

863 S.W.2d at 57; Tex. R. Civ. P. 682, 684.

3. A trial court's clear failure to analyze and apply the law correctly

constitutes an abuse of discretion. Webb v. Glenbrook Owners Ass’n., Inc., 298

S.W.3d 374, 380 (Tex.App.-Dallas 2009, no pet.). Further, sufficiency of the

evidence is a relevant factor in determining whether the trial court had sufficient

evidence to exercise its discretion in the manner it did. Beaumont Bank,

NA v. Buller, 806 S.W.2d 223, 226 (Tex. 1991).

4. A temporary injunction’s purpose is to preserve the status quo

pending a trial on the merits. Walling v. Metcalfe, 863 S.W.2d 56, 57 (Tex.1993).

B. Rules of Construction and Contract Interpretation

5. When a dispute involves the interpretation of oil and gas contracts,

and the contract is not ambiguous [which is what Sutherland contends], this

Honorable Court applies “settled rules of law”, including the following:

The first mandates that construing an unambiguous contract involves a

question of law. Borders v. KRLB, Inc., 727 S.W.2d 357, 359 (Tex.App.-

Amarillo 1987, writ ref’d n.r.e.). Thus, we need not defer to any

interpretation afforded by the trial court. Second, when interpreting an

instrument, we strive to give effect to its parties’ intent. Id. Furthermore,

that intent is garnered from the language of the contract, which language is

considered in its entirety. Id. That is, we peruse the complete document to

understand, harmonize, and effectuate all its provisions. Questa Energy

Corp. v. Vantage Point Energy, Inc., 887 S.W.2d 217, 221 (Tex.App.-

Amarillo 1994, writ denied). So too must we afford the words contained in

the agreement their plain, ordinary, and generally accepted meaning, unless

the instrument requires otherwise. Sun Operating, Ltd. v. Holt, 984 S.W.2d

277, 285 (Tex.App.-Amarillo 1998, pet. denied); Phillips Petroleum Co. v.

Gillman, 593 S.W.2d 152, 154 (Tex.Civ.App.-Amarillo 1980, writ ref’d

n.r.e.).

Finally, in applying the foregoing rules we may not rewrite the agreement to

mean something it did not. Borders v. KRLB, Inc., 727 S.W.2d at 359.

Simply put, we cannot change the contract merely because we or one of the

parties comes to dislike its provisions or thinks that something else is needed

in it. HECI Explor. Co. v. Neel, 982 S.W.2d 881, 888-89 (Tex.1998). This

is so because parties to the contract are considered masters of their own

choices. They are entitled to select what terms and provisions to include in a

contract before executing it. And, in so choosing, each is entitled to rely

upon the words selected to demarcate their respective obligations and rights.

In short, the parties strike the deal they choose to strike and, thus, voluntarily

bind themselves in the manner they choose. And, that is why parties are

bound by their agreement as written. Emmer v. Petroleum Co., 668 S.W.2d

487, 490 (Tex.App.-Amarillo 1984, no writ). For a court to change the

parties’ agreement merely because the Court did not like the agreement, or

because one of the parties subsequently found it distasteful, would be to

undermine not only the sanctity afforded the contract but also the

expectations of those who created and relied upon it.”

Cross Timbers Oil Co. v. Exxon Corp., 22 S.W.3d 24, 26-27 (Tex.App.-Amarillo,

2000, no pet.), emphasis added.

8. The court is to “analyze the entire instrument to understand and

harmonize all parts of the instrument so as to give effect to all of its provisions.”

Petro Pro, Ltd. v. Upland Resources, Inc., 279 S.W.3d 743, 748 (Tex. App. –

Amarillo 2007, pet. den.). “No single provision taken alone will be given

controlling effect; rather, all the provisions must be considered with reference to

the whole instrument.” Myers v. Gulf Coast Minerals Mgmt. Corp., 361 S.W.2d

193, 196 (Tex. 1962).

C. Sutherland “Interpretation” Not Consistent With Texas Law

9. Sutherland’s “interpretation” that he can run up unlimited sums in land

and seismic costs on lands other than Section 168 [where the Hamrick No. 3 well

is located], and thereby forever delay payout of the Hamrick No. 3 well, is not

consistent with the Operating Agreement to which Sutherland agreed on November

20, 2012. Sutherland’s interpretation renders meaningless the operating agreement

limitation on expenses for a non-drilling, etc. project. Sutherland’s interpretation

also does not “avoid when possible and proper a construction which is

unreasonable, inequitable, and oppressive.” Springer Ranch, Ltd. v. Jones, 421

S.W.3d 273, 280 (Tex. App. – San Antonio 2013, no pet.), emphasis added. The

way to construe the subject contract which harmonizes and gives effect to all the

provisions so that none is rendered meaningless, and which avoids an

unreasonable, inequitable, and oppressive construction, was for the court to enforce

the $25,000 limit on land costs and seismic costs. In Springer Ranch, the court

referred to a case wherein a party’s construction of a partnership agreement “taken

to its logical conclusion, would allow [the party] to ignore [partnership] dissolution

notices indefinitely and continue to demand capital until [the other party’s]

ownership interest is eliminated . . . thus produc[ing] an unjust, unreasonable, and

oppressive result.” Springer Ranch, 421 S.W.3d at 288, citing Shadow Dance

Ranch Partnership v. Weiner, 2005 WL 3295664, at P. 4 (Tex. App. – San

Antonio, 2005, no pet.). Sutherland’s “unlimited” land and seismic costs

interpretation, taken to its logical conclusion, has allowed Sutherland to: 1) ignore

the dollar limitation on such expenses in the Operating Agreement indefinitely and

charge over $2.4 million in land and seismic costs, 2) keep an additional $5

million of Hamrick #3 revenue, and 3) effectively eliminate Dimock and the non-

profit entities’ ownership interest in the subject 160 acre drilling unit. Dimock and

the Christian Charities have not benefitted from the land or seismic spending spree.

So, under Sutherland’s interpretation, he obtained all the rights he obtained in this

contract without any consideration retained by Dimock. No reasonable person

would assign all his interest in existing oil and gas leases on 3 sections of land for a

payment he immediately has to return, with no realistic chance to ever regain any

interest in the oil and gas leaseholds.

10. Sutherland tries to ignore that express contractual non-drilling, etc.

cost limitation, and, instead, inserted “all” or “unlimited” in front of “capital

costs”, or in front of “costs incurred by Farmee for land and seismic”. But, the

contract does not say all or unlimited “capital costs”, or all or unlimited “land and

seismic costs”. “Basic to the purpose of the [joint operating agreement] is … what

proportional obligations and interests are borne by the respective working interest

owners ….” Hill v. Heritage Resources, Inc., 964 S.W.2d 89, 113 (Tex. App. – El

Paso, 1997, pet. den.). Dimock had, and has, nothing to gain from Sutherland

spending Hamrick No. 3 well proceeds on lands or seismic as to lands outside of

the preexisting Dimock leases. The trial court should have recognized that

Sutherland “has failed to present sufficient evidence of a meeting of the minds of

all parties...sufficient to “authorize it” to charge Dimock “unlimited” sums on land

or seismic costs on other lands. Hill at 115. That was especially true when the

Court was faced with an ambiguity pleading by Dimock.

D. After Trial Court Erroneously Authorized Unlimited Spending,

Injunction Now Authorizes Unlimited Time to Drill

11. First, the trial court erroneously authorized unlimited spending on land

and seismic costs for unrelated wells to be charged to the Hamrick #3 payout.

Then, in the subject Temporary Injunction Order, the trial court further gutted

Dimock’s legal rights by ordering an indefinite term to the farmout agreement.

Courts do not imply indefinite terms, or unlimited amounts, into terms used in a

contract. A construction of a contract wherein a definite term is enforced is

favored over an interpretation which includes the implication of an indefinite or

unlimited term. Tanebaum Textile Co., Inc. v. Sidran, 423 S.W.2d 635, 637 (Tex.

Civ. App. – Dallas 1967, writ ref’d n.r.e.). In this case, Sutherland argued and the

trial court erroneously found that an unlimited amount can be spent by Sutherland

on land costs and seismic costs. The idea that a court will not imply an unlimited

term into a contract is also seen in court construction of option contracts and will

provisions. Mattern v. Herzog, 367 S.W.2d 312, 219 (Tex. 1963). Unlimited

terms are not implied because doing so will “destroy the validity of the option

provision”. Id. In this case, implying and/or finding that an unlimited amount of

land costs and seismic costs can be incurred effectively has destroyed Dimock’s

vested right of reverter as to the Hamrick #3 and leasehold. Then, by an injunction

order “creating” an indefinite term for the drilling option in the farmout agreement,

the trial court expanded the destruction of Dimock’s legal and property rights to

the remainder of its leaseholds by expanding Sutherland’s option to drill and

complete additional earning wells, and restrained Dimock’s right to drill on his

own leases, beyond the stated three year term.

12. The trial court erred when it ignored the express three year term of the

Agreement, and created an indefinite term of the Agreement. “Absurd,

inequitable, or oppressive interpretations are to be eschewed unless they prove

unavoidable.” Michelin North America, Inc. v. First Industrial NLF 12 JV, LLC,

2014 WL 586228, at P. 3 (Tex. App. – Houston (1st Dist.) 2014, no pet. history).

The trial court’s interpretation of the Agreement is absurd, inequitable, and

oppressive. There is no evidence, or legally insufficient evidence, that Sutherland

was entitled to a determination that the term of the Agreement is for an indefinite

period of years “until the allegations in this lawsuit are finally resolved.” The trial

court erroneously found a probable right to such absurd injunctive relief.

13. In granting Sutherland’s Amended Application for Temporary

Injunction, the trial court erroneously changed the written “term” of the subject

Agreement just because Sutherland has now found that “term” distasteful. It

should not be forgotten that Sutherland drafted the Agreement with the subject

“term” in it. CR 1477. By rewriting the “term” of the Agreement, the trial court

did exactly what it was not supposed to do, it took an action to favor one party that

did “undermine not only the sanctity afforded the contract but also the expectations

of those who created and relied upon it”. Cross Timbers, 22 S.W.3d at 27,

emphasis added.

E. Trial Court Action Constitutes an Erroneous Pretrial Forfeiture of

Leasehold

15. “Courts will not [construe a contract to] declare a forfeiture unless

they are compelled to do so by language which can be construed in no other way.”

Reilly v. Rangers Management, Inc., 727 S.W.2d 527, 530 (Tex. 1987). In Reilly,

a managing partner tried to dilute limited partners’ ownership shares by passing

“amendments” to the partnership agreement. The court recognized that the

managing partner’s interpretation of the contract would work “a practical

forfeiture” to the limited partners’ interest. The trial court’s legal “interpretation”

of the Agreement in this case works a practical forfeiture of Dimock’s property

rights. At the least, there is a fact issue and legal issue whether land costs and

seismic costs are expenses subject to the $25,000 limit agreed to by the parties. At

the least, there is a fact issue and a legal issue before any ruling should find the

term of the drilling option, and the inability of Dimock to drill upon his own leases,

extends beyond November 19, 2015 (the end of the three year stated term). Before

Dimock’s property rights are, effectively, forfeited, a jury trial on the merits, as

demanded, should be conducted.

F. Contract Construction Harmonizing and Giving Effect to All Provisions

16. When all the contract interpretation rules cited above are applied to

the Agreement with its attached, and immediately effective, Operating Agreement,

the obligations of the parties are evident, and the limitations on Sutherland to incur

costs chargeable to Dimock and to payout of the “initial earning well”, are evident.

Sutherland could charge up to $25,000 of “land costs” and “seismic costs” to the

initial well payout. And, assuming no breach of contract by Sutherland, Sutherland

had the exclusive option to drill and complete additional wells as producers in

paying quantities during an express 3 year term, but not afterwards.

17. After applying the appropriate contract interpretation rules, the trial

court should have also determined that the Hamrick #3 reached payout in March of

2014, as pleaded by Dimock. When a court is making a farmout “payout”

determination, the court is to review the subject contract and the subject well(s)

production proceeds and relevant costs to determine the date when the farmor’s

reversionary interest takes effect. Mengden v. Penisula Prod. Co., 544 S.W.2d

643, 648 (Tex. 1976).

G. Limits on Project Costs Common in Operating Agreements

18. An oil and gas operating agreement can prohibit undertaking certain

operations unless consent of non-operators is obtained. Texstar North America,

Inc. v. Ladd Petroleum Corp., 809 S.W. 672 (Tex. App. – Corpus Christi 1991,

writ den.). In other cases, the operation can proceed, but, due to a dollar limit on

the type of operation or project, no amounts for that operation or project above the

specified limit can be charged to non-operators. Cone v. Fagadau Energy Corp.,

68 S.W.3d 147 (Tex. App. – Eastland, 2001, pet. den.); Paint Rock Operating, LLC

v. Chisholm Exploration, Inc., 339 S.W.3d 771 (Tex.App.—Eastland 2011, no

pet.).

19. Texas courts have not ordered recoupment from well proceeds for

other costs the drilling party might like to incur or charge against well production.

Cox v. Davison, 397 S.W.2d 200, 203 (Tex. 1965). An “obligation” of another

party to “pay” or “incur” an “expense” and to deduct it from oil or gas well

production proceeds is not implied under Texas law. Id. The operator must prove

that he is entitled to “charge” such specific expense under the terms of the

Operating Agreement, or else such “expense” is not chargeable to the other party.

Id.

20. The A.A.P.L. Form 610 Model Form Operating Agreement, which was

used in this case, is a standard oil and gas agreement. Hill v. Heritage Resources

Inc., 964 S.W.2d 89 (Tex. Civ. App. – El Paso 1997, no writ). It sets forth a

procedure for the parties to decide whether or not to pay for “other operations”, or

“projects” above a specified limit. Valance Operating Co. v. Dorsett, 164 S.W.3d

656, 666 (Tex. 2005) (concurring opinion). An operator may breach an operating

agreement by improperly assessing charges above the specified limit to a non-

operator. Cone v. Fagadau Energy Corp., 68 S.W.3d 147 (Tex. Civ. App. –

Eastland 2002, pet. den.).

21. In Cone, the court found the $15,000 contract limitation on “other

projects” was “a limitation on the non-operator’s exposure to liability for expenses

incurred by the operator.” Cone, 68 S.W.3d at 157. In objecting to the excess

expenses, the non-operator “is attempting to obtain the benefit of his bargain as

provided by the operating agreement.” Id. at 161. If the limit is not enforced, the

non-operator may never receive the benefit of his bargain. Id. Such is the case here

where Sutherland continues to extravagantly incur seismic and land expenses

(already in excess of $2,400,000) for other properties and other, undrilled, wells,

and claims he can take all the Hamrick #3 production proceeds to pay for those

expenses, take an additional equal amount for himself, (under the 2x payout

formula) from well proceeds, and forever delay payout of the initial earning well.

22. In Paint Rock Operating, LLC v. Chisholm Exploration, Inc., 339

S.W.3d 771, 775-776 (Tex. App. – Eastland 2011, no. pet.), the Court held the

operator was not entitled to be charged or reimbursed for the excess cost of the

non-drilling, etc. operation. Id., see also footnote 3 on 777. The limitation on

expenditures for non-drilling, etc. projects makes sense when viewed from the

perspective of the non-operator. As to expenses from which he may, someday,

benefit, like drilling expenses, Dimock’s right to a reassignment of the lease is

delayed until two times such unlimited expense is recouped from working interest

proceeds. But, as to “other expenditures”, like buying oil and gas leases in only

Sutherland’s name (an alleged “land cost”) and from which Dimock receives no

benefit now or in the future, the amount of those “expenditures” is limited to

$25,000, so that the “expenditures” for such other “projects” do not, in effect,

render his right of reverter worthless.

23. The limitation on expenditures for non-drilling, etc. projects is also

consistent with the fact the parties did not agree to an area of mutual interest.

There is no benefit to Dimock of Sutherland leasing 9 other sections of land for

himself.

24. The Operating Agreement, is dated November 20, 2012, the same date

as the Agreement. It expressly says (contrary to the trial court ruling) “this

agreement shall be effective as of the 20th day of November 2012.” CR 45. When

the parties sign such an operating agreement, it is binding between whichever

parties sign the agreement and is effective on the day therein indicated. IMCO Oil

& Gas Co. v. Mitchell Energy Corp., 911 S.W.2d 916, 920 (Tex. App. – Fort

Worth 1995, no writ).

25. Reinforcing such an integration of the Agreement that limits

Sutherland to recouping up to $25,000 of non-drilling, etc. costs, is the contract

provision that states “The Operating Agreement shall apply to all Earned Wells.”

CR 14.

26. The operating agreement has a limited payment obligation as to non-

drilling, etc. “projects”. A limited payment obligation is to be enforced by a court.

American Manufacturers Mutual Ins. Co. v. Schaefer, 124 S.W.3d 154, 157

(Tex.2003) (the payment obligation of the insuror was limited and it did not owe

its insureds for diminished market value of their repaired vehicles). If the court

disregards a payment obligation provision, it renders such provision meaningless.

Id. at 159. The court’s ruling disregards the limited payment obligation signatory

non-operator Dimock undertook. The subject limited payment obligation

expressly itemizes the projects for which unlimited sums can be spent (drilling,

etc.). The “itemization is telling for it provides evidence as to what was intended

by the parties when the contracts were drawn.” Cross Timbers Oil Co., 22 S.W.3d

at 27, emphasis added.

H. Partial Assignment of Oil, Gas and Mineral Lease Was Subject to

Parties’ November 20, 2012 Agreement including the Operating

Agreement

27. The Partial Assignment of Oil, Gas and Mineral Lease from Dimock

to Sutherland for the Hamrick #3 [CR 320], stated in the granting clause, and in the

“subject to” conditions, that the Partial Assignment was made subject to the terms

and conditions of the prior Agreement between the parties. When such “subject

to” language is inserted in an assignment, the limitations in the various provisions

of the referenced documents are “inserted” into the assignment. Texas

Independent Exploration, Ltd. v. Peoples Energy Petroleum-Texas, L.P., 2009 WL

2767037, at p. 4 (Tex. App. – San Antonio, 2009, no. pet.). “The phrase “subject

to” is a limitation of grant, defining the nature, extent, and character of the estate

conveyed.” Petro Pro, Ltd. v. Upland Res., Inc., 279 S.W.3d 743, 750 (Tex. App.

– Amarillo 2007, pet. den.).

28. Further, the Agreement states: “Except as may be otherwise provided

in this [Agreement], Farmee [Sutherland] shall be bound by any written and

appropriately executed agreement which affects the subject leases at the time of

assignment [of any leasehold interest] to [Sutherland].” CR 14 (Parag. 8.1). The

Operating Agreement applies to the Agreement and to the November, 2013 Partial

Oil and Gas Lease Assignment to Sutherland of the interest in the Hamrick #3 and

drilling unit. Sutherland’s determinable fee is subject to the terms of the parties’

Operating Agreement.

I. Trial Court Erroneously Rewrote Contract

29. To be enforceable, the parties must agree to the material terms of a

contract. T.O. Stanley Boot Co. v. Bank of El Paso, 847 S.W.2d 218 (Tex. 1992);

Aurora Petroleum, Inc. v. Cholla Petroleum, Inc., 2011 WL 652843 at *2 (Tex.

App.—Amarillo 2011, no pet.) When that “agreement” never occurs, the contract

is not binding on the parties. Aurora, 2011 WL 652843 at *2. In this case, there is

no “obligation” to drill any additional wells, only a stated 3 year option to drill

such wells.

30. In Aurora, a farmout agreement was held unenforceable as a matter of

law when a material term was not agreed. Id. The time within which to drill was

found to be material, if not pivotal, to the “existence of the accord” and was more

than an “incidental detail.” Aurora, 2011 WL 652843 at *2. The “contract”

rewritten by the trial judge in the injunction order in this case is, as a matter of law,

unenforceable because Dimock did not agree to such material and pivotal term,

authorizing the drilling of additional wells on a Dimock leasehold beyond

November 19, 2015. In Aurora, this Honorable Court also noted: “we may not

rewrite the agreement of the parties.” Id. at *3, Footnote 2. The trial court

erroneously rewrote the term of the subject farmout agreement, and that is an abuse

of discretion.

31. An important item not to be overlooked in the Agreement is the

“Whereas” sentence. The “Whereas” sentence states as follows:

Whereas, Farmor and Farmee desire to enter into an agreement

pursuant to which Farmee shall have the right to earn certain of

Farmor’s rights under the oil and gas leases described below, subject

to all terms, reservations and conditions set forth herein. CR 12,

emphasis added.

The expressed primary purpose was to enter into a farmout agreement under which

Sutherland might earn the right to an assignment of part of Dimock’s oil and gas

leases subject to the terms, reservations and conditions stated.

32. A trial court is not authorized to “rewrite the parties’ contract nor add

to its language.” American Manufacturers Mutual Ins. Co. v. Schaefer, 124

S.W.3d 154, 162 (Tex.2003); Royal Indem. Co. v. Marshall, 388 S.W.2d 176, 181

(Tex.1965). “Courts cannot make new contracts between the parties, but must

enforce the contracts as written.” Royal Indem., 388 S.W.2d at 181.

J. Lack of Probable Right to Recover

33. To have a probable right to recover, a party must plead and present

proof to support at least one valid legal theory. Marketshare, 198 S.W.3d at 922.

If that “theory” is breach of contract, the applicant must show: (1) the existence of

a valid contract; (2) the Plaintiff’s performance or tendered performance, (3) the

Defendant’s breach of the contract; and, (4) damages as a result of the breach. Id.

at 923. Sutherland presented no evidence, or insufficient evidence, of each of

these elements of a breach of contract. Sutherland had then drilled no additional

well. Dimock had not failed to make an assignment of a lease, nor refused to do

so. Sutherland had never performed, nor tendered performance of, any of its

obligations as to an additional well, a condition precedent to any right to an

assignment of any additional acreage. Dimock had breached no duty as to any

additional well; as that situation had not then arisen. Sutherland “jumped the gun”

when it filed the Application for Temporary Injunction.

As this court is well aware, courts generally refuse to declare rights between

parties based on future, hypothetical, or speculative facts. A court is to adjudicate

present rights upon established facts, not hypothetical facts. Ashcroft v. Mattis,

431 U.S. 171, 172 (1977), emphasis added.

K. Mandatory Provisions Are Abuse of Discretion

34. The subject injunction prohibits Dimock from communicating with

anyone other than Sutherland about Sutherland lacking authority to drill additional

wells. It prohibits Dimock from “physically interfering” “with any drilling

operations or other activities” on Dimock’s own leases indefinitely. It commands

Dimock to sign lease assignments to Sutherland indefinitely, and the wording of

those to-be-prepared documents is unknown. The issuance of a temporary

mandatory injunction is proper only if a mandatory order is necessary to prevent

irreparable injury or extreme hardship. LeFaucheur v. Williams, 807 S.W.2d 20,

22 (Tex.App.—Austin 1991, no writ). A mandatory injunction should be denied

absent a clear and compelling presentation of extreme necessity or hardship.

Rhodia, Inc. v. Harris County, 470 S.W.2d 415, 419 (Tex.Civ.App.-Houston [1st

Dist.] 1971, no writ). Sutherland failed to present evidence, and/or presented

insufficient evidence, of “extreme necessity or hardship”. Sutherland had not

spudded an additional well or presented an assignment when the trial court entered

such mandatory injunction.

L. Injunction Erroneously Compels Assignment Even If Well Is Not

Drilled and Completed Within Contract Deadline

35. The injunction order compels Dimock to give Sutherland an

assignment of leasehold acreage even if a well is drilled after November 19, 2015

(the end of the 3 year term). The injunction is an order to “specifically perform” a

contract which Dimock did not sign. In Blaschke v. Wiede, 649 S.W.2d 749

(Tex.App.—Texarkana 1983, writ ref’d n.r.e.), the parties signed a one year lease

with an option to buy property. After the one year expired, the court found the

holdover tenant’s one year option to buy had expired and the tenant had no cause

of action to compel the property owner to sell the property after the one year term.

Id. In this case, the order allows Sutherland to holdover indefinitely and drill

wells indefinitely, and compel Dimock to assign leasehold acreage indefinitely

beyond November 19, 2015, the end of the contract term. Like the holdover

tenant in Blaschke, Sutherland has no cause of action for an unlimited option to

acquire more leasehold acreage from Dimock, no cause of action to prohibit

Dimock from drilling on his own leases after November 19, 2015, and no right to

specific performance against Dimock as to any well drilled and completed on a

Dimock leasehold after November 19, 2015.

M. Lack of Imminent Harm

36. It is an abuse of discretion to grant a temporary injunction based upon

alleged “imminent harm” arising from “the mere existence of unexercised

contractual rights.” Schmidt v. Richardson, 420 S.W.3d 442, 446, 447 (Tex.App.-

Dallas 2014, no writ). Numerous contractual prerequisites to Sutherland being

entitled to an assignment of any additional acreage have not been met, but the trial

court erroneously found “imminent harm”. As the Dallas Court of Appeals found

in Schmidt, the trial court abused its discretion when it granted Sutherland a

temporary injunction.

N. Injunction Erroneously Has No Provision Requiring Compliance with

Contract by Sutherland

37. Another glaring problem with the trial court injunction is it wrongly

authorizes Sutherland to drill wells indefinitely whether or not Sutherland

performs the contract provisions as agreed. Rewriting the term of the contract

coupled with ordering the other party to, unconditionally, take certain actions,

effectively guts Sutherland’s obligations to comply with the contract. Under the

erroneous order, Dimock cannot stop performing and assigning its leasehold

acreage even in the face of blatant contract breaches by Sutherland.

O. Injunction Order Erroneously Provided Investment Assurance

38. Why did the trial court take such drastic action in the temporary

injunction order? Because Sutherland was “afraid” that if he drills another well,

Dimock may not sign a lease assignment. RR 3:57. A trial court cannot and

should not make that investment decision for Sutherland. When a party asks a

court for investment advice, the court should decline to provide it. Grace

Holdings, L.P. v. Sunshine Mining and Refining, 901 F. Supp. 853, 863

(D.Del.1995).

P. Pending Suit and Lis Pendens Already Made Drilling Additional Wells

a Risk for Sutherland, and is Privileged, So There Is No Imminent

Harm

39. The only alleged “imminent harm” Sutherland presented at the

hearing was a letter exchange between counsel for the opposing parties. First,

Sutherland’s lawyer wrote a letter (and demanded a response) asking if Dimock

contested Sutherland’s right to drill additional wells. RR 5: Pl. Exh. 7. In response

to Appellee’s invitation and command to respond, Appellant’s counsel sent a letter

to Appellee’s counsel dated June 3, 2015 (which is consistent with Appellant’s

pleadings) wherein he stated his opinion that the Hamrick #3 paid out in the spring

of 2014, that Sutherland has breached the Agreement by retaining the Hamrick #3

and all its working interest proceeds, and stated that Sutherland drills additional

wells on Dimock’s leases at its own risk. RR 5: Pl. Exh. 8. The June, 2015

correspondence exchange between counsel revealed no “imminent” harm.

40. Any well that Sutherland drills on a Dimock leasehold after the lis

pendens was filed is, as a matter of law, subject to all legal claims of Dimock in

this lawsuit. That is decades-old Texas law, not a new revelation in June, 2015.

Further, even with the injunction improperly authorizing indefinite term drilling of

wells, under Texas law, Sutherland would drill any new well at the risk of losing it

if Dimock ultimately prevails in this lawsuit. See Phillips Pet. Co. v. American

Trading and Prod. Corp., 361 S.W.2d 942 (Tex. Civ. App. – El Paso, 1962, writ

ref’d n.r.e.). Such well would be drilled while the temporary injunction order is

being appealed, during pending litigation over whether the underlying contract has

been breached, and while a lis pendens is on file.

41. The trial court erroneously granted the Temporary Injunction Order

even after Sutherland conceded at the hearing that the June, 2015 letter of Attorney

Lovell did not matter. Rod Sutherland, the sole member of Appellee (See RR

3:100), admitted he wanted his lawyer to write the letter that led to Attorney

Lovell’s June response. RR 4: 72. He further admitted he did not like the Lovell

response, so he wanted an injunction. Id. He admitted there is a filed lis pendens

by Dimock as to the subject suit and acreage. RR 3: 66, 67. He admitted that

anyone acquiring an interest while a lis pendens is on file, takes that interest

subject to the outcome of the lawsuit. RR 3: 69-70. He further admitted that if the

lis pendens refers to the 15 sections at issue [which the amended lis pendens does],

then the Lovell letter in July 2015 would not matter. Id. Later, Rod Sutherland

admitted the filed Amended Notice of Lis Pendens listed all 15 sections at issue.

RR 4:78. The “harm” posed by the privileged Lovell letter is a red herring.

42. The Notice of Lis Pendens in this lawsuit was filed and recorded on

July 31, 2014. RR 4:77; RR 6: Def. Exh. 1. The amended Notice of Lis Pendens,

including all 15 sections at issue, was filed on September 19, 2014. RR 4:77-78;

RR 6: Def. Exh. 2. The UCC Financing Statement was filed with the Texas

Secretary of State on July 28, 2014. RR 6: Def. Exh. 3; RR 4:92.

43. Sutherland also tried to claim its “investors” might be scared off by

the Lovell letter (which, of course, was only sent to Sutherland’s lawyer). The

only “investors” who allegedly have refused to invest in Sutherland’s additional

wells are Wade Tidmore, and Judy Thompson. RR 4:89. According to Rod

Sutherland, Woody and Judy Thompson, Joe and Vivian Revesz, and Wade

Tidmore and his wife are working interest owners, through Sutherland, in the

Hamrick #3. Sutherland only has a separate Operating Agreement with them. RR

6: Def. Exh. 4, P. 22-23. Judy Thompson is Rod Sutherland’s wife’s cousin. RR

6: Def. Exh. 4, P. 25. Vivian Revesz is Rod Sutherland’s wife’s niece. Id. Wade

Tidmore is an employee of Sutherland whose time spent on this lawsuit is being

erroneously billed to “operating expense” of the Hamrick #3 (CR 1583), so as to

delay the payout. Wade Tidmore helped Sutherland draft the subject Agreement.

RR6:Def. Exh. 4, P. 104. Just because Rod Sutherland’s relatives and employees,

are not enamored with the idea of giving Rod Sutherland money to drill a new well

on a Dimock leasehold, is not “imminent harm” caused by any wrongful act of

Dimock.

44. The trial judge also had before him the Defendant’s Second Amended

Answer and Counterclaim. RR 4:113-114; CR 1336. As is apparent from that

pleading (beginning at CR 1336), Dimock was alleging Sutherland was in breach

of the Agreement, that Sutherland was converting Dimock’s and the Christian

Charities’ working interest proceeds, and Dimock sought to foreclose its lien under

the Operating Agreement. CR 1345. Dimock’s claims against Sutherland have

been of record since Dimock filed its Original Answer and Counterclaim on June

13, 2014. CR 12. Attorney Lovell’s privileged comments as to Dimock’s legal

position in July 2015 were neither new nor novel.

45. The bottom line is Sutherland wanted an injunction specifically

“because [Rod Sutherland] didn’t like the content of the Lovell letter that

Sutherland requested”. RR 4:72. A party’s unhappiness that the opposing party

disagrees with his legal interpretation of a contract, and that the opposing party

asserts a contrary legal position which includes the consequences of his breach of a

contract, is not a legal basis for a temporary injunction. “There is no power in

courts to make one person speak only well of another.” Pirmantgen v. Feminelli,

745 S.W.2d 576, 578 (Tex.App.-Corpus Christi, no writ). Dimock’s counsel’s

opinion letter re-iterating Dimock’s pleadings does not threaten Sutherland with

any imminent danger, and may not be the subject of a temporary injunction. Id. at

578-579. Court records, including all Dimock’s pleadings “are presumed to be

open to the general public.” Tex. R. Civ. P. 76a(1).

46. Further, the uncertainties caused by the continuation of this lawsuit,

and the delay in obtaining a final appellate decision about the proper determination

of “payout” of the Hamrick #3, is an uncertainty of Sutherland’s own making. It

is Sutherland who objected to an interlocutory appeal. It is Sutherland who

obtained a continuance of the trial setting.

Q. Appellant Entitled to Maintain that Sutherland has Breached Contract

and to File Lis Pendens

47. When a party has breached a contract, the other party is entitled to

treat the contract as rescinded. Halbert v. Standley, 488 S.W.2d 887, 889

(Tex.Civ.App.-Waco 1973, writ ref’d n.r.e.); Cundiff v. McLean & Miller, 8 S.W.

43 (Tex. 1888); Ross v. McLelland, 281 S.W.2d 773 (Tex.Civ. App. - Fort Worth,

1955, writ ref’d n.r.e.). Dimock’s attorney’s letter expressing an opinion

consistent with the above line of cases is neither improper, nor a basis for a

temporary injunction.

48. Good faith litigants are assured access to the judicial system.

Sakowitz, Inc. v. Steck, 669 S.W.2d 105, 107 (Tex. 1984). Whether or not Dimock

prevails on its claims, Dimock is entitled to maintain its legal position until this

case is resolved through the court system. Id.

49. Further, Dimock is privileged to file a notice of lis pendens. TEX.

PROP. CODE ANN. §12.007 (Vernon 1984). The filing of a notice of lis pendens

is part of a “judicial proceeding.” Kropp v. Prather, 526 S.W.2d 283, 287

(Tex.Civ.App.-Tyler 1975, writ ref’d n.r.e.). Further, any communications, oral or

written, uttered or published in the due course of any judicial proceeding is

absolutely privileged. Id. at 286; See also Griffin v. Rowden, 702 S.W.2d 692, 694

(Tex.App.-Dallas 1986, writ ref’d n.r.e.). All Dimock has done by filing a lis

pendens, and Dimock’s counsel sending a letter to Sutherland’s counsel (which

Sutherland’s counsel requested) indicating his opinions are all communications in

a judicial proceeding that are privileged as a matter of law. None of such acts are

“wrongful” conduct on which to base the granting of a temporary injunction.

R. Destroyed Status Quo

50. “The status quo is defined as the last, actual, peaceable, non-contested

status that preceded the controversy.” Tri-Star Petroleum Co. v. Tipperary Corp.,

101 S.W.3d 583, 588 (Tex.App.-El Paso, 2003, pet. denied). The term of the

option to drill additional wells under the Agreement is 3 years from November 20,

2012. The subject temporary injunction destroys that status quo. Under the

temporary injunction, Sutherland can drill additional wells on Dimock leaseholds

until further order of the court, and Dimock is enjoined from drilling on his own

leases after November 19, 2015. The trial is not set until February 2016, over two

months after the end of the 3 year contract term. Who knows if Sutherland will

obtain another continuance?

51. Besides being a direct violation of the Agreement to authorize

Sutherland to drill after November 19, 2015, the temporary injunction restrains

Dimock from drilling on his own leases after November 19, 2015, another

violation of the status quo.

52. The Temporary Injunction Order also destroys the status quo because

it also authorizes Sutherland to drill additional wells on the “subject leases and any

lands pooled therewith” for the same indefinite term into the future. CR 1597.

The right to drill wells indefinitely into the future is not just on Dimock’s

leaseholds, but also on any lands that Sutherland in the future might decide to pool

with any part of a Dimock leasehold.

S. Violated Statute of Frauds

53. By eliminating the 3 year stated term of the Agreement, the trial court

abused its discretion and created a “contract” which violates the Statute of Frauds.

Such a “rewrite” violates the Statute of Frauds. No agreement which is not to be

performed within one year is enforceable against a party unless that agreement is in

writing and signed by the parties. TEX. BUS. & COM. CODE §26.01(b)(6).

Further, the new, unsigned, “agreement” created by the trial court is a court-

created, unenforceable, contract for the sale of real estate, an oil and gas leasehold,

which also violates the Statute of Frauds. TEX. BUS. & COM. CODE

§26.01(b)(4). Under the order, Sutherland could drill a well in January 2016 (after

the 3 year signed contract term) and claim he is entitled to an assignment of

acreage from Dimock’s oil and gas leasehold. If the appeal in this case extends

into 2017 and Sutherland is still drilling new wells on a Dimock leasehold,

Sutherland could claim he is entitled to a leasehold assignment in 2017 and compel

Dimock to provide an assignment. Dimock signed no such agreement, and it is

enforceable under the Statute of Frauds.

T. Violated Statute of Conveyances

54. For the same reasons outlined above as to the Statute of Frauds, the

temporary injunction order also violates the Statute of Conveyances because it is

not signed by Dimock or any authorized agent of Dimock. TEX. PROP. CODE

§5.021. A conveyance of real property must be in writing and signed by the

conveyor or his agent authorized in writing. Id. Judge Bird is not an authorized

agent of Dimock. When an instrument purports to convey an interest in real estate,

but fails to comply with the statute of conveyances, the instrument is unenforceable

to convey the property or interest. TEX. PROP. CODE §5.002. The “contract”

created by the injunction order that purports to authorize and compel the

conveyance of an interest in Dimock’s oil and gas leasehold beyond November 19,

2015, is an abuse of discretion and is void. TEX. BUS. & COM. CODE

§26.01(b)(4) and §26.01(b)(6) [Statute of Frauds]; TEX. PROP. CODE §5.021

[Statute of Conveyances]; Guffey v. Utex Exploration Co., 376 S.W.2d 1, 4-5

(Tex.Civ.App.-San Antonio 1964, writ ref’d n.r.e.).

U. Erroneous Order of Specific Performance of Non-Existent Contract

55. The Temporary Injunction Order is also an erroneous order of specific

performance. It compels Dimock to assign leasehold acreage for a well drilled

after November 19, 2015. “[A]n injunction has the effect of a decree of specific

performance.” Eberts v. Businesspeople Pers., 620 S.W.2d 861, 864

(Tex.Civ.App.-Dallas 1981, no writ).

56. Further, the Temporary Injunction Order is erroneous because it

precludes Dimock from lawful activities that are a proper exercise of its rights.

Computek Computer & Office Supply v. Walton, 156 S.W.3d 217, 220-21 (Tex.

App.–Dallas 2005, no pet.). Dimock is expressly precluded from stopping

Sutherland from drilling new wells after November 19, 2015, or drilling his own,

both lawful activities of Dimock that would be a proper exercise of its legal rights

under the Agreement.

V. Illegal Prior Restraint on Speech

57. The temporary injunction enjoins Defendants from “Communicating

to investors, lenders, partners, mineral owners, surface owners, working

interest owners, employees, contractors, service providers, purchasers of

production, and other third parties not involved in the litigation that Plaintiff

is a trespasser or lacks the authority to drill and produce additional wells on

the Subject Leases, or on acreage pooled therewith.” CR 1591, emphasis

added.

58. The injunction is an illegal prior restraint on speech. Near v.

Minnesota ex rel. Olson, 283 U.S. 697, 51 S.Ct. 625 (1930); Organization for a

Better Austin v. Keefe, 402 U.S. 415, 91 S.Ct. 1575 (1971). Further, such

injunction violates Art. 1, Sec. 8, of the Texas Constitution, which provides:

“Every person shall be at liberty to speak, write or publish his opinions on any

subject, being responsible for the abuse of that privilege; no law shall ever be

passed curtailing the liberty of speech or of the press.” The subject order

erroneously prohibits Dimock from communicating about this lawsuit and his

contentions in the lawsuit.

59. A “judicial order that forbids certain communications before they

occur constitutes a prior restraint.” Alexander v. U.S., 509 U.S. 544, 550, 113 S.Ct.

2766 (1993); Marketshare Telecom, LLC v. Ericson, Inc., 198 S.W.3d 908, 917

(Tex.App.-Dallas 2006, no pet.). Prior restraints on speech are presumptively

unconstitutional. Davenport v. Garcia, 834 S.W.2d 4, 10 (Tex.1992). The trial

court in this case failed to meet the requirements of Davenport before it issued the

subject injunction. There is nothing in the record that the parties discussed or

presented evidence concerning whether the injunction was the least restrictive

means to prevent the alleged harm. Marketshare, 198 S.W.3d at 917; Davenport,

834 S.W.2d at 10. The subject injunction gag order does not satisfy the

requirements of Davenport.

60. Communications by a litigant as to its beliefs and its position in a

lawsuit, which are not false or misleading, cannot constitutionally be enjoined.

Marketshare, 198 S.W.3d at 920. A prior restraint of a party’s statement of

position in a lawsuit, does not justify imposition of a gag order by temporary

injunction. Id.

W. Prior Breaches of Contract Bar Injunctive Relief

61. A party who breaches a contract provision favorable to the other party

cannot secure, by injunction, the enforcement of another contract provision

favorable to it. Langdon v. Progress Laundry Cleaning Co., 105 S.W.2d 346, 347

(Tex.Civ.App.-Dallas 1937, writ ref’d); Chapman Air Conditioning v. Franks, 732

S.W.2d 737, 740 (Tex.Civ.App.-Dallas 1987, no writ) The burden is on

Sutherland to establish contract compliance before injunctive relief can be

considered. Halbert v. Standley, 488 S.W.2d 887, 889 (Tex.Civ.App.-Waco 1972,

writ ref’d n.r.e.); citing Casanova v. Falstaff Beer, Inc., 304 S.W.2d 207

(Tex.Civ.App.‒Eastland, 1957, writ ref’d n.r.e.).

62. Dimock has pleaded and presented proof, as outlined in this Brief, that

Sutherland has breached the Agreement. Therefore, injunctive relief for

Sutherland should have been denied.

63. The evidence shows Sutherland has violated the subject Agreement by

charging over $2 million in unrelated “seismic” costs, and “land” costs to the

Hamrick #3. The most recent “Hamrick Prospect Payout Estimation” [created by

Sutherland] shows Sutherland’s claimed “cumulative expenditures” of

$3,439,371.00. RR 5: P1. Exh. 2. That figure includes the erroneously charged

$2.4 million in land and seismic costs for wells other than the Hamrick #3. See

also RR 5: P1. Exh. 3. Sutherland admits none of the “seismic cost” was used to

locate the Hamrick #3. No seismic was even shot before that well was drilled and

completed. RR 4:87; RR 6:Def Exh. 4, P. 38. Sutherland admits none of the “land

cost” was used for pooling, drilling, or locating the Hamrick #3. RR 4:87. None of

the seismic cost or land cost charged by Sutherland was a cost of “the Initial

Earning Well” as required by the Agreement to be chargeable to such well. CR 19.

64. Further, the evidence shows Sutherland is charging his and his

employee’s own time as “land” expenses, labeled as “company labor” to the

Hamrick#3 well and its payout. RR 5: P1. Exh. 3. It is time Sutherland and his

employees, allegedly spent getting leases on other land. RR3:45-46; RR4:87,90;

RR6:Def. Exh. 4, P. 51-52. The Agreement does not authorize those in-house

expenses be charged to the Hamrick #3 or its payout.

65. Further, Sutherland admits it is charging all of its attorney’s fees in

this lawsuit to “operating expenses” of the Hamrick #3. RR 4:74-75. Sutherland

has charged to “operating expenses” of the Hamrick #3 “this entire lawsuit

basically.” RR 4:76. Also, Sutherland admitted he is billing out his time spent on

the lawsuit at $800 per hour, and employee Wade Tidmore’s time at $400 per hour,

to the Hamrick #3 “operating expense”. Id. Sutherland admits that every dollar he

spends on this lawsuit he is reducing the revenue of the Hamrick #3 by one dollar

in the payout calculation. RR 4:84. Sutherland cavalierly believes it has total

“discretion on expenditures” it attributes to the Hamrick #3 payout. RR 4:85-86.

Through the end of May, 2015, Sutherland, had charged approximately

$103,000.00 in lawsuit expenses and Sutherland employee time and expenses

regarding the lawsuit to the initial earning well payout calculation. RR 4:88. No

authority was presented to the trial court to justify such charges. Sutherland’s

external and internal litigation expenses are being charged as part of the

“miscellaneous” expense line item under well “operating expense.” RR5: P1. Exh.

4-6; RR6:Def. Exh. 4, P. 89-90. In months when that line item exceeds $80.00,

litigation expenses are being charged as “operating expense” and delaying the

Hamrick #3 payout. Id. Examples of such improper charges are in Exhibits 94-99,

101 to Sutherland’s deposition [“litigation” expense charge]. CR 1580-1585,

1587; RR6:Def. Exh. 94-99, 101. Showing how Sutherland decided (on a salary

plus benefits basis) to charge his time, and his employees’ time shown in Exh. 100

to Sutherland’s deposition. CR 1586.

66. Expenses of litigation are not recoverable from an adverse party

unless expressly provided by statute or contract. Eberts v. Businesspeople Pers.,

620 S.W.2d 861, 864 (Tex.Civ.App.-Dallas 1981, no writ); Hammonds v.

Hammonds, 313 S.W.2d 603, 605 (Tex.1958). “This rule applies to a litigant’s

loss of time.” Eberts, 620 S.W.2d at 863; Phillips v. Latham, 523 S.W.2d 19, 27

(Tex.Civ.App.-Dallas 1975, writ ref’d n.r.e.). There is no contract provision that

authorizes Sutherland’s charging of external or internal litigation costs to the

Hamrick #3 payout.

67. The “effect” of Sutherland’s above-cited breaches of contract are in

evidence. Sutherland admitted the Hamrick #3 working interest well revenue

exceeded the cost to drill and complete the well by early November, 2013.

RR6:Def. Exh. 4, P. 141-142. He also admitted that two times payout would have

been reached by April 2014, if Sutherland had not spend money on something else.

Id; See also Exh. 77 to Sutherland’s Deposition, CR 1546; RR6:Def. Exh. 77. In

creating “payout statements” beginning in early 2014, Sutherland improperly

coached his employees how to attribute their “time” to the “Hamrick Prospect” and

then charge it such well. Exhs. 80, 84, 85, 86 to Sutherland’s deposition, CR 1549,

1553, 1554, 1555. Rod Sutherland displayed his attitude when he said “in essence

half the money we spend is being paid for by Mr. Dimock and the other half is

being paid by some Christian charity.” Exh. 87 to Sutherland’s deposition, CR

1556. He further referred to it as “good return on the money we spend.” Id. He

expressly sanctioned the unlimited spending spree with Hamrick #3 proceeds and

delighted in pocketing another dollar for every dollar he spent.

68. Further, Sutherland admits it has duty to act in good faith as to

Dimock (CR 1474), but proceeded to spend Dimock’s and the Christian Charities’

money and endlessly delay payout of the Hamrick #3. The nature of the needed

limited seismic represented by Sutherland to Dimock leading up to the 2012

Agreement is reflected in an email of Rod Sutherland which is Exh. 40 to

Sutherland’s Deposition (CR 1501), which Deposition was attached to Defendants’

Response to Plaintiff’s Amended Application for Temporary Injunction (CR

1439). Limited seismic was represented as being needed to “determine an

optimum location” for the Roy Hamrick #1 replacement well, which turned out to

be the Hamrick #3. See also, Exhibits 41 and 42 to Sutherland’s deposition, CR

1503, CR 1505. Dimock’s position is that seismic and land costs were included in

the initial earning well payout in case Sutherland had to pay some land or seismic

costs for that initial earning well. RR 5:Pl. Exh. 11, P. 202. The evidence shows

no such land expenses or seismic expenses were even needed for such Initial

Earning Well. Sutherland’s unending spending spree for unrelated land and

seismic costs is breach of the duty to act in good faith under the Operating

Agreement and is also a breach of Sutherland’s fiduciary duties to Dimock as to

the Hamrick #3 proceeds.

69. Sutherland violated Article VI, D, of the Operating Agreement by

charging to the subject well, and Dimock, sums in excess of $25,000 (in fact, over

$2.4 million) for a project that was not drilling, sidetracking, reworking,

deepening, completing, recompleting, or plugging back of the Hamrick #3, the

Initial Earning Well.

70. Further, Sutherland has violated Section 2.1 of Exhibit A to the

Agreement, that “all operations conducted by Farmee regarding the Initial Earning

Well, until such time as “project payout” is reached . . shall be at Farmee’s sole

cost and risk.” CR 17. Sutherland has not borne the cost and risk of his land

acquisitions outside the Dimock leasehold, and the cost and risk of his seismic

expenses. Dimock and the charities have been erroneously charged all those

expenses and have received zero benefit from them.

71. There is a fact issue every month of 2014 and 2015 whether

Sutherland breached the Agreement with Dimock by charges which exceed the

$25,000 limit on non-drilling, etc. expenses or projects. Cone v. Fagadau Energy

Corp., 68 S.W.3d 147 (Tex. App. – Eastland 2001, pet. den.).

72. There is a fact issue each month, beginning in April 2014, whether

Sutherland breached the Agreement by charging and/or recouping from the

working interest proceeds of the Hamrick #3, Sutherland’s legal expenses and

costs in this lawsuit, including “internal” lawsuit expenses and external legal

expenses.

73. There is also a fact issue as to Hamrick #3 payout. An expert’s

opinion testimony can defeat a summary judgment claim as a matter of law.

Burrow v. Arce, 997 S.W.2d 229, 235 (Tex. 1999). Dimock attached to its

summary judgment response, the Affidavit of Gregg Morgan, a CPA. CR 333. As

was stated in Mr. Morgan’s report, he reviewed the evidence in this case and he is

of the opinion that the Hamrick #3 reached payout in March, 2014. Further, the

Affidavit of Joe W. Dimock, raises fact issues as to breach of contract and breach

of fiduciary duty by Sutherland. His Affidavit, which was attached to his summary

judgment response, was later incorporated into Dimock’s injunction response. CR

324. As shown in that Affidavit, the intent was for the Agreement and Operating

Agreement to constitute a single agreement. Part of the agreement was the parties

agreed to a $25,000 non-drilling, etc. project limit. Further, Dimock, who is an oil

and gas lease operator, confirmed that “land costs” and “seismic costs” are not

costs that are “drilling, Sidetracking, Reworking, Deepening, Completing,

Recompleting or Plugging Back” costs as those terms are used in the oil and gas

industry. Further, Dimock expressed his opinion that payout of the Hamrick No. 3

well occurred in March, 2014. Such evidence raises fact issues which should have

precluded the trial court from granting the erroneous partial summary judgment to

Sutherland, and from granting the subject erroneous injunction when fact issues

were present as to breach of contract.

74. No evidence was ever presented by Sutherland that land expenses or

seismic expenses are Adrilling@ expenses. Sutherland admitted in Response to

Requests for Admission that land expenses and seismic expenses are not any of the

other 6 categories of expenses not subject to the $25,000 project limit. Therefore,

the subject disputed expenses (in sums already in excess of $2.4 million), are either

judicially admitted not to be, or not proven to be, the types of expenses that are not

subject to the $25,000 limit. All such charges in excess of the $25,000 limit are

evidence of a breach of contract by Sutherland, and a breach of Sutherland’s

fiduciary duty to Dimock as to Hamrick #3 proceeds.

X. Injunctive Relief Not Available to Party Guilty of Inequitable Conduct,

Laches, and Unclean Hands

75. The evidence outlined in this Brief also shows Sutherland is guilty of

inequitable conduct, laches and unclean hands, which also precludes a grant of

injunctive relief. Landry’s Seafood Inn & Oyster Bar - Kemah, Inc. v. Wiggins, 919

S.W.2d 924, 927 (Tex. App.–Houston [14th Dist.] 1996, no writ).

Y. No “Repudiation” by Dimock

76. In the findings stated in the Temporary Injunction Order, the court

found that Dimock has repudiated the Agreement. CR 1596. Repudiation is a

question of fact. King Ranch, Inc. v. Chapman, 118 S.W.3d 742, 756 (Tex. 2003).

To establish repudiation, first a party has to plead repudiation, and then the party

has the “affirmative burden of establishing that they had actual notice of [the

repudiation] and that, in reliance thereon, operations were suspended…” Atlantic

Richfield Co. v. W.O. Hilton, 437 S.W.2d 347, 355 (Tex.Civ.App.-Tyler 1969, no

writ). In this case, Appellee has not pled repudiation, and there is, at the very least,

a fact issue whether there has been repudiation. Sutherland’s only presented

“proof” of unpleaded repudiation is the June, 2015 letter from Attorney Lovell

discussed in detail in Section ___ of this Brief. That letter merely expresses

counsel’s opinion that Sutherland has breached the parties’ contract and his client

will continue to pursue its lawful remedies for such breaches.

77. Repudiation requires evidence that “the lessor must have asserted a

clear, unequivocal challenge to the lessee’s title to, and interest in the lease.”

Atkinson Gas Co. v. Albrecht, 878 S.W.2d 236, 239 (Tex.App.-Corpus Christi

1994, writ denied). Texas courts have a narrow view of what constitutes

unequivocal notice of forfeiture or a positive challenge to lessee’s title to the lease,

refusing to find unequivocal notice in the recording of top-leases, the remittance of

letters stating opinions about the status of leases, or the act of shutting in a well.

Atkinson Gas, 878 S.W.2d at 239; Atlantic Richfield, 437 S.W.2d at 354-55.

78. In Atlantic Richfield, the court found that the statement by lessors’

attorney that the lessors were of the opinion that Atlantic did not have a lease was

not a repudiation. Id. at 353. The lessors were merely informing the lessee of their

subjective opinion regarding the status of lessee’s lease. The statements did not

repudiate the lease. Id.

79. The court went further to find that Atlantic Richfield’s continued

operations on the lease showed a lack of repudiation. Id. at 355. At the time of

the injunction hearing, Sutherland had continued operating the Hamrick #3, and

retaining its the working interest proceeds, for over a year after Dimock alleged

that Sutherland is in breach of the Agreement. There is no evidence, or insufficient

evidence, of repudiation of the Agreement by Dimock.

Z. Injunction Improperly Restrains Right to Relief for Future Breaches of

Contract

80. The temporary injunction order fails to provide for the possibility that

Sutherland may breach the agreement after the date of the injunction order, and

fails to protect Dimock’s legal right to seek redress in court for such breach,

including termination of the contract. B & A Pipeline Co. v. Dorney v. Enserch

Corporation, 904 F.2d 996, 1002 (5th Cir.1990). The trial court wholly failed to

consider that Dimock and Sutherland are still doing business and to protect

Dimock from future breaches of contract by Sutherland. Future breaches could

affect and/or eliminate any “option” of Sutherland to drill an additional well.

81. Further, the provisions compelling an assignment of acreage also

violate this legal principle. Sutherland could drill a well after November 19, 2015

or a well that does not produce in paying quantities and still demand a lease

assignment from Dimock (i.e. an assignment not available under the Agreement).

If Sutherland breaches the Agreement or the Operating Agreement after the date of

the order and before “final hearing and determination of this cause,” the order

compels Dimock to still assign his leasehold acreage to a breaching party. And,

who knows what language Sutherland might insert into such as-of-yet, non-existent

document? Such order is an abuse of discretion.

AA. Injunction Erroneously Granted Without Joinder of Necessary Parties

82. All parties whose rights will be directly affected by the writ of

injunction are to be included in any injunction proceeding. Ladner v. Reliance

Corp., 293 S.W.2d 758, 764-65 (Tex. 1956). All parties to a contract are to be

included in an injunction proceeding if the applicant is seeking to restrain

enforcement of a contract. McCharen v. Bailey, 87 S.W.2d 284-85 (Tex. App. -

Eastland 1935, no writ). Despite Dimock’s objection that Sutherland failed to join

or even notify necessary parties (CR 1304), the trial court erroneously granted a

Temporary Injunction without notification to the parties to whom Sutherland

contracted to assign a working interest in the Hamrick #3, and without notification

to the charities who own 49% of the working interest in the Hamrick #3 because

the subject well paid out in 2014.

BB. Inadequate Bond

83. The trial court erred in entering the Temporary Injunction Order with

a bond of only $15,000.00. RR 4:138. Dimock had requested that the bond be at

least $1,000,000.00. RR 4:136. The amount of the bond is subject to appellate

court review. Tex. R. Civ. P. 684. To protect the adverse party, the amount of the

bond must relate to the potential damages in the lawsuit. El Paso Dev. Co. v.

Berryman, 729 S.W.2d 883, 888-89 (Tex.App.-Corpus Christi 1987, no writ). At

the time of the July, 2015 injunction hearing, Sutherland had already withheld

from Dimock and the Christian Charities over $3,000,000.00 in working interest

revenue from the Hamrick #3, and the trial court was authorizing unlimited drilling

into the future (beyond the end of the stated term of the Agreement) on Dimock’s

oil and gas leaseholds, over the express objection of Dimock. Further, Dimock

showed Sutherland did not have assets to pay back the sums already withheld from

Dimock if the case is reversed on appeal, much less the additional sums owed as to

wells the trial court was “authorizing” Sutherland to drill into the indefinite future.

The subject order authorizes unlimited drilling, unlimited charging of expenses for

additional wells, and authorizes Sutherland to keep the working interest revenue

from such future wells. When a well is drilled by a trespasser who has notice of

the objection of the oil and gas leaseholder, the oil and gas leaseholder does not

owe the drilling and completion costs of such a well. Liles v. Thompson, 85

S.W.2d 784 (Tex. Civ.App.-El Paso 1935, writ dismissed). There is no legal basis

for Sutherland to recoup from Dimock any costs of new wells drilled on Dimock’s

leaseholds after November 19, 2015, or to retain any well revenue from such wells,

but the trial court erroneously authorized such extra-contractual drilling, without a

sufficient bond to repay Dimock when such erroneous injunction is reversed.

84. A $15,000.00 bond is wholly inadequate to compensate Dimock as to

new wells the court authorized Sutherland to drill outside the term of the

Agreement, and to compensate Dimock for the loss of the right to drill wells on his

own leases after November 19, 2015.

CC. Error to Deny Dimock Injunctive Relief

85. As shown by the evidence outlined in this Brief, the trial court erred

when it denied Dimock’s Application for Temporary Injunction. Such Injunction

would have upheld the Agreement of the parties, and preserved the status quo by

preventing Sutherland from obtaining and spending Dimock’s 51% and the

Christian Charities’ 49% working interest revenue of the Hamrick #3. Such

Injunction would have stopped Sutherland from charging Dimock for land and

seismic costs in excess of $25,000 (which are now $2.4 million and still climbing).

Dimock established that Sutherland, a start-up company, does not have the assets

to repay Dimock and the Christian Charities when Dimock prevails on appeal as to

the interpretation of the Agreement and as to Sutherland’s breaches of contract,

and Sutherland has made no attempt whatsoever to do an internal suspense of

Hamrick #3 revenue to repay Dimock, or the Christian Charities. Dimock

established breaches of contract by Sutherland on a monthly basis from April 2014

until the date of the injunction hearing in July 2015. Damages to Dimock in excess

of $1.5 million had already been caused by Sutherland, which has insufficient

assets to repay those damages. Further, as the evidence outlined above showed, if

a receiver had been appointed to operate the well, as was requested by Dimock in

its Application for Temporary Injunction, the improper charging of Sutherland’s

legal expenses and internal “lawsuit expenses” (already in excess of $100,000) to

“operating expenses” of the Hamrick #3 would be stopped.

CONCLUSION AND PRAYER

Dimock prays that, upon hearing, this Court reverse the Temporary

Injunction Order of July 7, 2015, reverse the July 9, 2015 Order denying Dimock’s

Application for Temporary Injunction and grant such injunction, and Dimock prays

that this Court find that, as a matter of law, the $25,000 limit in the Agreement

applies to land and seismic expenses, find that the Hamrick #3 paid out in March,

2014, and remand this cause for further proceedings consistent with such rulings.

Dimock prays for such other and further relief to which Dimock may be entitled.

DATED this 19th day of October, 2015.

Respectfully submitted,

Lovell, Lovell, Newsom & Isern, L.L.P.

John H. Lovell, SBN 12609300

(john@lovell-law.net)

Barbara A. Bauernfeind, SBN 08190500

(barbara@lovell-law.net)

112 West 8th Avenue, Suite 1000

Amarillo, Texas 79101-2314

Telephone: (806) 373-1515

Facsimile: (806) 379-7176

By: /s/ John H. Lovell

John H. Lovell

ATTORNEYS FOR DIMOCK

CERTIFICATE OF COMPLIANCE

1. This brief complies with the type-volume limitation of Tex. R. App. P. 9.4

because it contains 14,590 words as determined by the computer software’s

word-count function, excluding the parts of the brief exempted by Tex. R.

App. P. 9.4(i)(2)(B).

2. This brief complies with the typeface requirements of Tex. R. App. P. 9.4(e)

because it has been prepared in a proportionally spaced typeface using

Microsoft Word 2007 in 14 point Times New Roman font.

Dated: October 19, 2015.

/s/ John H. Lovell

John H. Lovell

CERTIFICATE OF SERVICE

I hereby certify that a true and correct copy of the foregoing document was

delivered, as certified below, this 19th day of October, 2015 to:

Cornell Curtis via email: vernonlaw@sbcglobal.net

CORNELL D. CURTIS, P.C.

1716 Main Street

Vernon, TX 76384

Jerry L. Ewing, Jr. via email: jerry.ewing@wbclawfirm.com

Nathan R. Cash via email: nathan.cash@wbclawfirm.com

WALTERS, BALIDO & CRAIN, L.L.P.

10440 North Central Expressway

Dallas, TX 75231

Chris Lehman Via email: clehman@malonelawtx.com

MALONE LAW FIRM

1901 Lamar Street

P. O. Box 953

Vernon, TX 76385

Stanley Watson Via email: srwatson1@att.net

307 Main Street

P. O. Box 506

Quanah, TX 79252-0506

Mr. Ryan S. Mindell Via email: ryan.mindell@texasattorneygeneral.gov

Texas Attorney General

P. O. Box 12548

Austin, TX 78701

/s/ John H. Lovell

John H. Lovell

No. 07-15-00297-CV

COURT OF APPEALS

SEVENTH DISTRICT OF TEXAS

________________________

DIMOCK OPERATING COMPANY, and

JOE W. DIMOCK, D/BA DIMOCK PETROLEUM,

Appellants,

SUTHERLAND ENERGY CO., LLC

Appellee.

________________________

On appeal from Cause No. 11,098

46 District Court, Hardeman County, Texas

Hon. Dan Mike Bird, Judge Presiding

APPENDIX TO BRIEF OF APPELLANT

A Temporary Injunction Order dated July 7, 2015 CR 1590-92

B Order Denying Defendant’s Application for CR 1599

Temporary Injunction dated July 9, 2015

C Seismic Exploration and Farmout Agreement dated CR 12-62

November 20, 2012 with Joint Operating Agreement

D Partial Summary Judgment dated December 19, CR 1286-87

2014

E Sutherland Lease Operating Statement for the CR 140, 141

Hamrick #3 well through March, 2014.

F Sutherland Authority for Expenditure of Drilling and CR 142-146

Completion Costs for the Hamrick #3 well

G Dimock letter demanding 51% working interest and CR 65-66

operations of the Hamrick #3 well dated April 21,

2014

H Sutherland “Hamrick Prospect Payout Estimation” as RR 5:PL EX.2

of the end of May, 2015.

I Sutherland “Hamrick Prospect Capital Costs” as of RR 5:PL EX.

the end of May, 2015. 3

J Excerpts of Rod Sutherland’s Deposition.

Respectfully submitted,

Lovell, Lovell, Newsom & Isern, L.L.P.

John H. Lovell, SBN 12609300

(john@lovell-law.net)

Barbara A. Bauernfeind, SBN 08190500

(barbara@lovell-law.net)

112 West 8th Avenue, Suite 1000

Amarillo, Texas 79101-2314

Telephone: (806) 373-1515

Facsimile: (806) 379-7176

By: /s/ John H. Lovell

John H. Lovell

ATTORNEYS FOR APPELLANTS

Cause No. 11098

Sutherland Energy Co., LLC, IN THE DISTRICT COURT

Plaintiff,

HARDE!v1AN COUNTY, TEXAS

Dimock Operating Company and

Joe W. Dimock d/b/a Dimock

Petroleum,

Defendants. 46th JUDICli\.L DISTRICT

Temporary Injunction Order

On July 2, 2015, the Court heard Plaintiffs Amended \pplication for Temporary

Injunction. Plaintiff and Defendants appeared in pero.on and or through their

attorneys and announced ready.

After considering the pleadings, Plaintiffs sworn amended applicatton for

injunctiYe relief, the evidence, and arguments of counsel, the Coun is of the opiruon

that the application should be GRANTED.

The Court FINDS that Defendants have repudiated the parties' respective rights

and obligations under the Seismic Exploration and Farmout Agreement regarding the

drilling of additional wells on the Subject Leases, or on acreage pooled therewith,

intending to harm Plaintiff and effectively depriving Plaintiff of the ability to drill such

additional wells before the expiration of the drilling deadline.

The Court FINDS that if Defendants were to interfere with drilling operations that

are underway or withhold the required assignment of drilling unit acreage after Plaintiff

has drilled and completed a well as a producer, the consequences would be disastrous

to Plaintiff and irreparably deprive it of ib benefit of the bargain under the \greement.

The Court FINDS that the harm to Plamuff is unminent, and that if Defendants

are not immediately enjoined as provided here1n. Plaintiffs ume for drilling additional

P \Gl 1 01 3

1590

wells on the Subject Leases, o.r on acreage pooled therew1th, will exptre before a full

trial can be held on the merits of the parties' claims.

The Court FINDS that if Defendants are not immediately enjoined as provided

herein, Plaintiff will be irreparably injured because the loss of the right and opportunity

to drill additional wells on the Subject Leases, or on acreage pooled therewid1, 1s

unique, irreplaceable, and cannot be measured by any certain pecuniary standard

IT IS THEREFORE ORDERED, ADJUDGED, AND DECREED that the clerk

of this Court issue a writ of injunction pending final hearing and deterrntnauon of this

cause enjoining Defendants and their officers, agents, servants, employees,

representatives, and those persons in active concert or parue1pauon wtth them who

receive actual notice of this Order from:

1. Communicating to investors, lenders, partners, mineral owners, surface owners,

working interest owners, employees, contractors, serv1ce prO\ tder'., purchasers

of production, and other third parties not invoh ed m the lmgauon that Plainuff

is a trespasser or lacks the authority to drill and produce add1uonal wells on d1e

Subject Leases, or on acreage pooled therew1th;

2. Physically interfermg with Plaintiff's drilling operauons or other activities on the

Subject Leases, or on acreage pooled therew1th;

3. Attempting to deny Plaintiff access to the SubJect Leasec-, or on acreage pooled

d1erew1th;

4. Withholding the act:eage assignment required b:. Secuon 5.4 of the Seismic

Exploration and Farmout Agreement in d1c event Plamuff completes an

additional well as a producer of oil or gas in paymg quanoue~

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1591

Pnor to the 1ssuance of the wnt of 1!1Junct1on, Plamuff shall file \Vith the clerk a

bond in the sum of $15,000 payable to Defendants, approved and conditioned as the

law requires.

It is further ordered that the cause be set for tnal on the merits with respect to the

ultimate relief sought in the 46th District Court of Hardeman County at 9:00a.m. on

February 8, 2016.

SIGNED on july 7, 2015.

P \G£ 3 01 3

1592

Cause No. 11098

Sutherland Energy Co., LLC,

IN THE DISTRICT COURT

Plaintiff,

Dimock Operating Company and HARDEI\1AN COUNTY, TEXAS

Joe W. Dimock d/b I a Dimock

Petroleum,

Defendants.

46th JUDICIAL DISTRICT

Order Denying Defendants' Application for Temporary Injunction

On July 2, 2015, the Court heard Defendants' application for temporary injunction.

After considering the pleadings, Defendants' application for injunctive relief, the

evidence, and arguments of counsel, the Court is of the opinion that the application

should be DENIED.

lt \~,therefore, ORDERED, ADJUDGED AND DECREED that Defendants'

request for temporary injunctive relief is DENIED.

Signed Ju'f015.

~};d£if

Honorable Dan Mike Bird

PRESIDING JUDGE

1599

SEISMIC EXPLORATION AND FARMOUT AGREEMENT

This agreement is by and between Dimock Operating Company, including Joe W.

Dimock and also dba Dimock Petroleum, (Farmor) whose address is 4245 Kemp Blvd., Suite

518, Wichita Falls, TX 76308 and Sutherland Energy Co., LLC (Farmee) whose address is 500

Lamar Court, Irving, Texas 75038.

Whereas, Farmor and Farmee desire to enter into an agreement pursuant to which Farmee

shall have the right to earn certain of Farmor's rights under the oil and gas leases described

below, subject to all terms, reservations and conditions set forth herein. lbis Seismic

Exploration and Farmout Agreement ("Agreement") is between Farmor and Farmee and shall be

effective on the date it is executed by Farmee as provided in Section 9.

Now, therefore, in consideration of the mutual covenants and agreements herein

contained, Farmor and Farmee agree as follows:

I. LANDS AND LEASES.

1.1 Subject Leases. Farmor represents, but does not warrant title expressly or

impliedly, they are the owner of certain rights in and to the Oil and Gas Mineral Leases (Subject

Leases) described on Exhibit "B" attached hereto.

1.2 Exclusive Right to Explore and Lease. As of the Effective Date and until the termination

of this Agreement, Farmee shall have the sole, exclusive, absolute, and irrevocable right to lease

oil and gas interests in and under the Lands, and Farmor shall not grant, let, or lease (including

any renewals, extensions, amendments or modifications of Existing Leases) to any Person (other

than Farmee) the right to investigate, explore, prospect, or drill for or produce oil and/or gas or

conduct exploration, geologic operations and geophysical surveys on the Subject Leases (except

in accordance with the terms and conditions of existing Subject Leases) without Farmee's prior

written consent, which consent may be granted or withheld by Farmee in its sole discretion.

1.3 Reservations. Farmor expressly reserves and excepts from the terms of this Agreement

any and all rights and interests to and operations of existing well bores, disposal wells, and

surface equipment and personalty located in, on or under the Subject Leases (except as provided

in 10.2 of Exhibit A).

II. SEISMIC EXPLORATION.

2.1 Ouerations. Farmor grants to Farmee the sole, exclusive, and irrevocable right to conduct

Seismic Exploration Operations on, under, and in the Subject Leases during the term of this

Agreement, including any appropriate or necessary related rights of ingress and egress. In

conducting all operations under this Agreement, Farmee shall use its sole discretion to determine

the type, nature, timing, and extent of all Seismic Exploration Operations.

Farmee shall pay for damages, as appropriate, to the owner(s) of the surface on which the

Seismic Exploration Operations are being conducted,

2.2 Ownership and Disclosure of Generated Information. Farmor and Farmee shall each own

full rights and interests in the Generated Information (raw seismic data). Farmee shall provide

one (1) copy of the Generated Information to Farmor. Farmee shall retain possession and control

of the original copies of the Generated Information. For three (3) years from the effective date of

this Agreement and upon at least ten (10) days written notice, Farmor (including a

representative) may have reasonable access to examine and review the Generated Information at

Farmee's principal place of business or any other convenient place designated by Farmee.

From the effective date of this Agreement, both Farmor and Farmee acknowledge and agree that

the Generated Information, Evaluation Material and all derivatives therefrom (including, without

limitation, maps and other analyses), is and shall remain at all times secret, proprietary, and

confidential, and agree to disclose that information only in conformance with the confidentiality

provisions as stated in Paragraph 2.5 of Exhibit A, or as otherwise agreed by the parties in

writing.

III. DRILLING OBLIGATION.

3.1 Initial Earning Well. Farmee shall drill a well, (the "Initial Earning Well"), with the spud

date being within two hundred forty (240) days of the effective date of this agreement (Deadline

Date). The surface location of the well must be within two thousand (2000) feet of the Farmor's

Roy Hamrick No. 1 well surface location. In the absence of a condition or event of force

majeure, or termination of this Agreement prior to the Deadline Date, in accordance with the

terms and conditions of this Agreement, Farmee agrees to drill or cause to be drilled a well to a

depth of at least eight thousand seven hundred (8700) vertical feet from the surface of the ground

or sufficient to test the Chappel formation, whichever is less. If Farmee decides to sidetrack the

wellbore of the Initial Earning Well to adequately test the Chappel formation the sidetrack hole

will still be considered the Initial Earning Well for this Agreement. However, if mechanical

problems or impenetrable strata or other conditions in the hole make further drilling

impracticable, under generally accepted oil field practices, a substitute well may be drilled as

defmed in Paragraph 2.6 of Exhibit A. Completion operations for the Initial Earning Well must

commence within thirty (30) days after the drilling rig is moved off location.

3.2 Earned Assignment. As soon as practicable after Farmor is satisfied Farmee has

complied with all of its obligations under this Agreement with regard to the completion of the

Initial Earning Well as a producer of oil and/or gas in paying quantities, including the foregoing

specifications, Farmor shall deliver to Farmee an acreage assignment as described in Paragraph

3.3 of all Farmor's interest within the "drilling unit", as defmed in Paragraph 3.2 of Exhibit A,

formed for the Initial Earning Well, from the surface to a depth of three hundred (300) feet below

the deepest depth drilled in the Initial Earning Well, subject to Farmor reserving the back in

interest described in Paragraph 4.1 below. Such Assignment will be without warranty of any

kind including title, whether express or implied.

3.3 Acreage Assignment. If an acreage assignment is earned for the Initial Earning Well

under Paragraph 3.2 it shall be limited to the "drilling unit" as defined in Paragraph 3.2 in

Exhibit A.

IV. INITIAL RESERVED INTEREST.

4.1 Conversion. Upon "project payout" of the Initial Earning Well, as defined in Paragraph

4.2 of Exhibit A, Farmee shall deliver to Farmor operations of the Initial Earning Well and a

fifty-one percent (51%) working interest, at Farmor's election, in the appropriate Earned

Assignment defined in Paragraph 3 .2 above.

V. ADDITIONAL EARNING WELLS.

5.1 Farmee's Option. Farmee shall have the right, but not the obligation, to drill additional

wells (Additional Earning Well) on, or acreage pooled with, Subject Leases.

5.2 Vertical Wells. For any "vertical" Additional Earning Well drilled, Farmee shall carry

Farmor for a twenty-five percent (25%) working interest to production casing point. Farmor will

then have a casing point election as to whether to participate on a cost forward basis. Production

casing point shall mean such time as the well has been drilled, logged, evaluated and sufficient

tests have been run in order that a determination may be made to either set production casing or

to plug and abandon the well as a dry hole.

5.3 Horizontal Wells. For any "horizontal" Additional Earning Well drilled, Farmee shall

carry Farmor for a twelve and one half percent (12.5%) working interest through installation of

production facilities or, at Farmor's option, Farmee shall assign to Farmor a net revenue interest

of 8% as an overriding royalty interest (i.e. a net revenue interest of 8% of 8/8ths).

5.4 Additional Earned Assignment. As soon as practicable after Fannee has completed an

Additional Earning Well as a producer of oil and/or gas in paying quantities, Fannor shall deliver

to Farmee an acreage assignment of all Farmor's interest within the "drilling unit" formed for the

Additional Earning Well, from the surface to a depth of three hundred (300) feet below the

deepest true vertical depth drilled in the Additional Earning Well, subject to Farmor reserving

the carried interest described above. Such Assignment will be without warranty of any kind

including title, whether express or implied.

5.5 Acreage Assignment. If an acreage assignment is earned for an Additional Earning Well

under Paragraph 5.4 it shall be limited to the "drilling unit" as defmed in Paragraph 3.2 in

Exhibit A.

VI. OPERATING AGREEMENT.

6.1 Form. An AAPL Model Form 610-1989 Joint Operating Agreement is attached as

Exhibit C of this agreement and the parties shall execute such Operating Agreement or an exact

duplicate of same. The Operating Agreement shall apply to all Earned Wells. The Operating

Agreement shall be subject to this Agreement so that in the event of any conflict between the

Operating Agreement and this Agreement, this Agreement shall be the governing Agreement.

Vll. NOTICES AND WELL INFORMATION.

7.1 General. All well data, information and notices to be given to Fannor as provided in this

Agreement shall be given as follows:

Farmor: Mr. Joe W. Dimock Farmee: Mr. Rod Sutherland

Dimock Operating Co. Sutherland Energy Co., LLC

4245 Kemp Blvd., Suite 518 500 Lamar Court

Wichita Falls, TX 76308 Irving, TX 75038

(940) 761-1071 (469) 586-4393

Farmor or Farmee may change their address at any time by furnishing a written notice of change

of address to the other party.

VIII. AGREEMENTS AFFECTING FARMOUT LANDS.

8.1 Farmee Bound. Except as may be otherwise provided in this Agreement, Farmee shall be

bound by any written and appropriately executed agreement which affects the Subject Leases at

the time of assignment to Farmee.

8.2 Other Agreements. Subject to the disclaimer of liability contained in Section 8.1 above,

Farmor believes in good faith that the only other agreements affecting any interest to be assigned

to Farmee are the oil and gas leases described in Exhibit B and the following agreements:

None known other than those that may have been filed of record.

IX. EXECUTION.

9.1 Execution. Duplicate originals of this Agreement are being signed. This Agreement

shall be null and void at Farmor's option if one of the duplicate originals of this Agreement is not

signed by Farmee and returned to Farmor within ten (10) days after the date shown below

Farmor's signature.

FARMOR: Dimock Operating Co. FARMEE: Sutherland Energy Co., LLC

Joe W. Dimock dba

Dimock Petroleum

By: lJA.~

Rod A. Sutherland

Title: Individually and DBA Dimock Petroleum Title: President

And as President of Dimock Operating

Company

Date: 1/ W ~. J 0j rJ&/'k

ACKNOWLEDGMENT

STATE OF TEXAS

COUNTY OF l ,l) ~

This instrument was acknowledged before me on this __dL day of November, 2012 by

Joe W. Dimock in the capacities stated.

~;¥.~'~;.;~ SHIRAH SHARP

{-~-,o\

\:~~~1 My Commission Expires

Notary Public, State of Texas

~,,,&~,l" August 13, 2016

NOTARY PUBLIC, STATE OF TEXAS

ACKNOWLEDGMENT

STATE OF TEXAS

COUNTY OF DALLAS

This instrument was acknowledged before me on this ?..EJ day of November, 2012 by

Rod A. Sutherland in the capacity stated.

~%~ JENNIFER L NERIA

My Commission Expires

June 5. 2016

NOTARY PUBLIC, STATE OF TEXAS

EXHIBIT A

TO SEISMIC EXPLORATION AND FARMOUT AGREEMENT

GENERAL TERMS AND CONDITIONS

TABLE OF CONTENTS

Paragraph

1. Title and Access to Farmout Lands

1.1 Title Information

1.2 Other Information in Farmor's Possession

1.3 Access by Farmee and Farmor

2. Conduct of Operations

2.1 Cost and Risk

2.2 Performance Standards

2.3 Lease Obligations

2.4 Well Information

2.5 Confidentiality

2.6 Substitute Wells

3. Earned Assignment

3.1 Scope of Assignment

3.2 Drilling Unit

3.3 Pooling and Spacing

3.4 Default by Farmee

4. Initial Earning Well Reversionary Working Interest

4.1 Production Revenue

4.2 Project Payout and Monthly Statements

4.3 Audits

5. Liability and Insurance

5.1 Relationship of Parties

5.2 Farmee's Indemnity

5.3 Required Insurance Coverage

6. Assignments, Encumbrances and Restrictions

7. Reassignment Rights ofFarmor

7.1 Termination or Cancellation of Leases

7.2 Abandonment of Wells

8. Renewals and Extensions

9. Term of Seismic Exploration and Farmout Agreement

10. Miscellaneous

10.1 Electric Logs

10.2 Existing Tank Battery

10.3 Taxes

10.4 Income Tax Provisions

10.5 Furnishing Data

10.6 Severability

10.7 Force Majeure

10.8 Information Provided

10.9 Farmee's Experience

10.10 Disclaimer

GENERAL TERMS AND CONDITIONS

1. Titles and Access to Farmout Lands.

1.1 Title Information. Upon request by Farmee, Fannor shall make available to Farmee

copies of all title opinions, abstracts of title, and other title information in Fannor's possession

with respect to the Subject Leases. Providing such items shall not be construed as a warranty or

representation by Farmor of title or ownership. Any curative work or additional title

examination required by Fannee shall be conducted by Farmee at its sole cost and risk. On

request, Farmee shall provide Farmor with a copy of all curative work, title information, and title

opinions resulting from any additional title examinations conducted by Farmee.

1.2 Other Information in Fannor's Possession. Farmor agrees to provide to Farmee (at

Fannee's sole cost and expense) all information of the nature generally described as follows

which relates to the Subject Leases which the Farmor may have in its possession or control: oil

and gas leases, maps, plats, geological and geophysical information, well logs, and land records.

1.3 Access by Fannee and Farmor. To the extent Farmor can authorize it, Farmee and its

contractors and subcontractors shall be entitled to exercise all of Farmor's rights of ingress and

egress pertaining to the Subject Leases for the purpose of conducting operations. Fannor shall

advise Farmee of any unusual !imitations or restrictions on ingress or egress, known to Farmor,

and Fannee and its contractors and subcontractors shall comply with such limitations or

restrictions. During Farmee's operations Fannor and Farmor's representatives shall have access

at all times to the well-site, including the derrick floor, for the purpose of observation. All

information requested by Fannor concerning operations shall be promptly furnished by Fannee.

2. Conduct of Operations.

2.1 Cost and Risk. All operations conducted by Farmee regarding the Initial Earning Well,

until such time as "project payout" is reached (as defmed in Exhibit A, 4.2 (c)) shall be at

Fannee's sole cost and risk. All operations conducted by Fannee regarding Additional Earning

Wells up to production casing point for a vertical well and through installation of production

facilities for a horizontal well shall be at Fannee's sole cost and risk.

2.2 Performance Standards. Farmee's operations shall be conducted in a diligent and

workmanlike manner, and in accordance with applicable federal, state and local laws,

regulations, and orders. Whether or not the Initial Earning Well, and any other well drilled by

Farmee, is completed as a producer of oil and/or gas in order to earn an assignment, Fannee shall

use its best efforts, in accordance with good oil and gas practice, to complete the well as a

producer of oil and/or gas in paying quantities. If the well cannot reasonably be completed as a

producer of oil and/or gas, Farmee shall promptly plug the well and perform all necessary

surface restoration work.

2.3 Lease Obligations. Except as otherwise provided in the body of this Agreement, Fannee

shall at its sole cost, risk, and expense comply with all of the express and implied covenants and

other obligations of the oil and gas leases covering the Subject Leases, including the payment of

royalties, shut-in royalties, and delay rentals, and the cost of any renewals or extensions of the

leases.

2.4 Well Information. During Fannee's operations, Fannee shall promptly furnish Fannor

the following information pertaining to the Initial Earning Well and any other well drilled by

Fannee:

(a) Written notice of the time and date on which the well is spud.

(b) A daily drilling report for operations conducted during the immediately

preceding day.

(d) Reasonable advance notice of any production tests, pressure tests, cores, and

logs to be run in the well so that Fannor may witness the operations.

(e) Copies of all reports and other forms filed with any federal, state, or local

governmental authority concerning the well.

(f) A complete copy of any mud log and a complete copy of any electrical logs

run on the well.

(g) Copies of all fluid analyses and other reports or information obtained during

drilling and completion of the well.

(h) Any other information specifically required by Fannor as part of this Farmout

Agreement.

2.5 Confidentiality. The terms provided herein replace and supersede the previously

executed Confidentiality Agreement by and between Sutherland Energy Co., LLC and Dimock

Operating Company, including Joe W. Dimock personally and dba Dimock Petroleum, dated

July 3, 2012. Fannee agrees to treat any information provided by or on behalf ofFannor and any

derivative information prepared by or for Fannee based on the information in accordance with

the provisions of this Agreement and to take or abstain from taking certain other actions

hereinafter set forth.

a. The term "Evaluation Material" shall be deemed to include (i) Generated

Information as defmed in Paragraph 2.2 of this Agreement, (ii) any workover reports, well logs,

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