Mark P. Hardwick, Individually and D/B/A Mark P. Hardwick Oil and Gas Properties and Mark P. Hardwick, LLC v. Smith Energy Company, on Its Own Behalf and on Behalf of Smith Energy Resource Oil, Ltd., a Texas Limited Partnership, and on Behalf of Smith Energy Partners I, Ltd., a Texas Limited Partnership

ACCEPTED

07-15-00083-CV

SEVENTH COURT OF APPEALS

AMARILLO, TEXAS

9/9/2015 5:05:30 PM

Vivian Long, Clerk

No. 07-15-00083-CV

IN THE SEVENTH COURT OF APPEALS FILED IN

7th COURT OF APPEALS

AMARILLO, TEXAS AMARILLO, TEXAS

9/9/2015 5:05:30 PM

MARK P. HARDWICK, INDIVIDUALLY AND D/B/A VIVIAN LONG

CLERK

MARK P. HARDWICK OIL AND GAS PROPERTIES AND

MARK P. HARDWICK, LLC,

Appellants,

v.

SMITH ENERGY COMPANY, ON ITS OWN BEHALF

AND ON BEHALF OF SMITH ENERGY RESOURCE OIL, LTD.,

A TEXAS LIMITED PARTNERSHIP, AND ON BEHALF OF SMITH

ENERGY PARTNERS I, LTD., A TEXAS LIMITED PARTNERSHIP,

Appellees.

On Appeal from the 121st District Court, Terry County, Texas

Trial Court Cause No. 19,490; The Honorable Rick Morris, Presiding

BRIEF OF APPELLANTS

BECK REDDEN LLP

David M. Gunn

State Bar No. 08621600

dgunn@beckredden.com

Chad Flores

State Bar No. 24059759

cflores@beckredden.com

Erin H. Huber

State Bar No. 24046118

ehuber@beckredden.com

1221 McKinney, Suite 4500

Houston, TX 77010-2010

(713) 951-3700

(713) 951-3720 (Fax)

COUNSEL FOR APPELLANTS

Oral Argument Requested

IDENTITY OF PARTIES AND COUNSEL

Appellants: Mark P. Hardwick, Individually and d/b/a

Mark P. Hardwick Oil and Gas Properties, and

Mark P. Hardwick, LLC

Counsel for Appellants: David M. Gunn

State Bar No. 08621600

dgunn@beckredden.com

Chad Flores

State Bar No. 24059759

cflores@beckredden.com

Erin H. Huber

State Bar No. 24046118

ehuber@beckredden.com

BECK REDDEN LLP

1221 McKinney, Suite 4500

Houston, TX 77010

(713) 951-3700

(713) 951-3720 (Fax)

1890.001/55701

Appellees: Smith Energy Company, on Its Own Behalf and on

Behalf of Smith Energy Resource Oil, Ltd., a Texas

Limited Partnership, and on Behalf of Smith Energy

Partners I, Ltd., a Texas Limited Partnership

Counsel for Appellees: Rusty Hardin

State Bar No. 08972800

rustyhardin@rustyhardin.com

Ryan K. Higgins

State Bar No. 24007362

rhiggins@rustyhardin.com

Jeremy Monthy

State Bar No. 24073240

jmonthy@rustyhardin.com

Lara Hollingsworth

State Bar 00796790

lhollingsworth@rustyhardin.com

Carolyn P. Courville

State Bar No. 24007042

ccourville@rustyhardin.com

RUSTY HARDIN & ASSOCIATES, LLP

1401 McKinney Street, Suite 2250

Houston, Texas 77010

(713) 652-9000

(713) 652-9800 (Fax)

Trial Court: Hon. Rick Morris

Judge, 121st District

1890.001/55701

ii

TABLE OF CONTENTS

Page

IDENTITY OF PARTIES AND COUNSEL .......................................................................... i

TABLE OF CONTENTS ................................................................................................ iii

INDEX OF AUTHORITIES............................................................................................ vii

STATEMENT OF THE CASE .........................................................................................xv

STATEMENT REGARDING ORAL ARGUMENT ........................................................... xvi

ISSUES PRESENTED ................................................................................................. xvii

INTRODUCTION ............................................................................................................1

STATEMENT OF FACTS.................................................................................................2

STANDARD OF REVIEW..............................................................................................11

SUMMARY OF THE ARGUMENT ..................................................................................12

ARGUMENT ...............................................................................................................13

I. THE CONTRACT AND THEFT THEORIES SHOULD BE REVERSED. ..........13

A. The Fusselman contract recovery should be reversed. .............13

1. The Fusselman part of the contract recovery

should be reversed and rendered, because

Hardwick did not breach any of the Fusselman

contracts, let alone all of them. .......................................14

2. The Fusselman part of the contract recovery

should be reversed and rendered, because no

overcharge damages resulted from any breach. .............17

3. Alternatively, the Fusselman contract recovery

should be reversed and remanded because of

charge error. ....................................................................18

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iii

B. The Bad Billy contract recovery should be reversed. ...............22

1. The contract (PX-85) is not ambiguous..........................22

2. The statute of frauds applies to the Bad Billy

claim................................................................................23

C. There is no theft, and even if there were, the statute of

limitations would still bar almost all of the theft recovery. ......26

1. The statute of limitations bars recovery. ........................27

2. Breach of a contract should not be theft. ........................29

II. THE TORT THEORIES SHOULD BE REVERSED. ......................................30

A. There is no breach of fiduciary duty. ........................................30

1. There is no joint venture, as the parties carefully

disclaimed any joint venture in writing. .........................31

2. There is no agency, because the parties disclaimed

it. .....................................................................................33

3. The contracts have legal effect. ......................................34

B. There is no fraud. ......................................................................37

1. The fraudulent inducement aspect of the claim

fails because it lacks legally and factually

sufficient evidence. .........................................................38

2. The rest of the fraud claim is flawed. .............................40

III. THE ADDITIONAL REMEDIES—$5 MILLION IN FORFEITURE, $3.5

MILLION IN FEES, $750,000 IN INTEREST ON THE FORFEITURE,

AND PARTIAL RESCISSION—ARE IMPROPER. .......................................42

A. The $5 million forfeiture award is improper. ...........................42

1. There is no underlying tort to support forfeiture. ...........42

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iv

2. Even if forfeiture were available—so that

Hardwick had to “return” his “compensation”—the

working interests never came from Smith and were

not compensation. ...........................................................43

3. The forfeiture award rests on inaccurate factual

findings. ..........................................................................44

4. The forfeiture amount is too large. .................................45

5. The forfeiture cannot be saved as restitution and

rescission for fraud. ........................................................46

B. The attorney’s fees should be reduced or eliminated. ..............48

1. A reversal of the underlying damages will require

either a rendition or remand on attorney’s fees. .............48

2. Smith failed to segregate fees between recoverable

and non-recoverable claims. ...........................................49

3. There is no evidence that the hours worked by

Smith’s lawyers were necessary. ....................................53

C. The judgment wrongly stacks remedies: Smith cannot

have both the $5 million in disgorgement and the $3.5

million in fees............................................................................56

D. The rescission remedy is improper. ..........................................58

E. Interest on forfeiture. ................................................................58

IV. LLC Should Recover Fees Because It Prevailed on the Theft

Claim. ..................................................................................................59

A. The Theft Liability Act alters the American Rule by

making fees mandatory for a person who “prevails.”...............59

B. Under this Court’s reasoning in Dean Foods, the

prevailing party on Smith’s theft claim against LLC is

not Smith, but LLC. ..................................................................59

C. LLC should recover fees. ..........................................................61

1890.001/55701

v

PRAYER FOR RELIEF ..................................................................................................63

CERTIFICATE OF SERVICE ..........................................................................................65

CERTIFICATE OF COMPLIANCE ..................................................................................66

APPENDIX

Jury Verdict (2 CR 2948-92) .................................................................. TAB A

Judgment (2 CR 3600-11) ...................................................................... TAB B

North Mound Lake Participation Agreement (DX 1346) ...................... TAB C

North Mound Lake Operating Agreement (DX 1347) ........................... TAB D

North Mound Lake letter (DX 1345) (incorrectly dated as

January 17, 2008 instead of July) ............................................................TAB E

Big Bump Participation Agreement & Operating

Agreement (DX 1354) ............................................................................. TAB F

On Point GEA (DX 1351) ...................................................................... TAB G

Muy Caliente GEA (DX 1356) ............................................................... TAB H

Amended North On Point Extension & O’Donnell GEA

(DX 1350) ................................................................................................. TAB I

Bad Billy Agreement (Amended) (PX 85) .............................................. TAB J

1890.001/55701

vi

INDEX OF AUTHORITIES

CASES Page(s)

A.G. Edwards & Sons Inc. v. Beyer,

235 S.W.3d 704 (Tex. 2007) .............................................................................. 52

Air Routing Int’l Corp. (Canada)

v. Britannia Airways, Ltd.,

150 S.W.3d 682 (Tex. App.—Houston

[14th Dist.] 2004, no pet.) ................................................................................... 59

In re Bank One, N.A.,

216 S.W.3d 825 (Tex. 2007) .............................................................................. 37

Bank One, Tex., N.A. v. Stewart,

967 S.W.2d 419 (Tex. App.—Houston

[14th Dist.] 1998, pet. denied) ............................................................................ 39

Barker v. Eckman,

213 S.W.3d 306 (Tex. 2006) .............................................................................. 49

Bay Colony, Ltd. v. Trendmaker, Inc.,

121 F.3d 998 (5th Cir. 1997) .............................................................................. 39

Bed, Bath & Beyond, Inc. v. Urista,

211 S.W.3d 753 (Tex. 2006) .............................................................................. 20

Bokor v. State,

114 S.W.3d 558 (Tex. App.—

Fort Worth 2002, no pet.) ................................................................................... 29

Bowden v. Phillips Petroleum Co.,

247 S.W.3d 690 (Tex. 2008) .............................................................................. 11

Boyce Iron Works, Inc. v. Sw. Bell Tel. Co.,

747 S.W.2d 785 (Tex. 1988) ........................................................................56, 57

Bradford v. Vento,

48 S.W.3d 749 (Tex. 2001)................................................................................. 41

1890.001/55701

vii

Brainard v. Trinity Universal Ins. Co.,

216 S.W.3d 809 (Tex. 2006) .............................................................................. 58

Bryant v. Vaughn,

33 S.W.2d 729 (Tex. 1930)................................................................................. 48

Burns v. Bishop,

48 S.W.3d 459 (Tex. App.—Houston

[14th Dist.] 2001, no pet.) ................................................................................... 28

Burrow v. Arce,

997 S.W.2d 229 (Tex. 1999) ..................................................................11, 45, 54

Cadle Co. v. Henderson,

982 S.W.2d 543 (Tex. App.—San Antonio

1998, no pet.) ...................................................................................................... 28

City of Amarillo v. Glick,

991 S.W.2d 14 (Tex. App.—Amarillo

1997, pet. denied)................................................................................................ 60

City of Keller v. Wilson,

168 S.W.3d 802 (Tex. 2005) .............................................................................. 11

City of Laredo v. Montano,

414 S.W.3d 731 (Tex. 2013) (per curiam) ......................................................... 54

Columbia Rio Grande Healthcare, L.P. v. Hawley,

284 S.W.3d 851 (Tex. 2009) .............................................................................. 21

Cooper v. Green Tree Servicing LLC,

2015 WL 799255 (N.D. Tex. Feb. 25, 2015) ..................................................... 27

Costley v. State Farm Fire & Cas. Co.,

894 S.W.2d 380 (Tex. App.—Amarillo

1994, writ denied) ...................................................................................47, 48, 58

Crown Life Ins. Co. v. Casteel,

22 S.W.3d 378 (Tex. 2000)...........................................................................18, 20

1890.001/55701

viii

Dean Foods Co. v. Anderson,

178 S.W.3d 449 (Tex. App.—Amarillo

2005, pet. denied)................................................................................................ 60

Dryzer v. Bundren,

2014 WL 1856849 (Tex. App.—Amarillo

June 16, 2014, pet. denied) ................................................................................. 48

El Apple I, Ltd. v. Olivas,

370 S.W.3d 757 (Tex. 2012) .............................................................................. 53

Ensil Int’l Corp. v. Lear Siegler Servs., Inc.,

2011 WL 2473067 (Tex. App.—San Antonio

June 22, 2011, no pet.) ........................................................................................ 39

Fairfield Ins. Co. v. Stephens Martin Paving, LP,

246 S.W.3d 653 (Tex. 2008) .............................................................................. 35

Figueroa v. Davis,

318 S.W.3d 53 (Tex. App.—Houston

[1st Dist.] 2010, no pet.) ..................................................................................... 11

Foreca, S.A. v. GRD Dev. Co., Inc.,

758 S.W.2d 744 (Tex. 1988) .............................................................................. 35

Gates v. Asher,

154 Tex. 538, 280 S.W.2d 247 (1955) ............................................................... 24

Goose Creek Consol. I.S.D.

v. Jarrar’s Plumbing, Inc.,

74 S.W.3d 486 (Tex. App.—Texarkana

2002, pet. denied)................................................................................................ 28

Grant Thornton LLP v. Suntrust Bank,

133 S.W.3d 342 (Tex. App.—Dallas

2004, pet. denied)................................................................................................ 41

Greer v. Greer,

144 Tex. 528, 191 S.W.2d 848 (1946) ............................................................... 24

1890.001/55701

ix

Gregory v. Porter & Hedges, LLP,

398 S.W.3d 881 (Tex. App.—Houston

[14th Dist.] 2013, pet. denied) ............................................................................ 42

Guenther v. Amer-Tex Const. Co.,

534 S.W.2d 396 (Tex. Civ. App.—Austin

1976, no writ) ...................................................................................................... 25

Gulf States Utils. Co. v. Low,

79 S.W.3d 561 (Tex. 2002)................................................................................. 48

Gym-N-I Playgrounds, Inc. v. Snider,

220 S.W.3d 905 (Tex. 2007) .............................................................................. 35

Haase v. Glazner,

62 S.W.3d 795 (Tex. 2001)................................................................................. 34

Hann v. State,

771 S.W.2d 731 (Tex. App.—Fort Worth

1989, no pet.) ...................................................................................................... 29

In re Hardwick,

426 S.W.3d 151 (Tex. App.—Houston

[1st Dist.] 2012, orig. proceeding) .................................................................xiv, 8

Harris County v. Smith,

96 S.W.3d 230 (Tex. 2002)...........................................................................20, 21

Heir of Barrow v. Champion Paper & Fibre Co.,

327 S.W.2d 338 (Tex. Civ. App.—

Beaumont 1959, writ ref’d n.r.e.) ....................................................................... 25

Hoffart v. Wiggins,

2010 WL 816915 (E.D. Tex. Jan. 30, 2010),

adopted & rejected in part, 2010 WL 816863

(E.D. Tex. Mar. 3, 2010), rev’d in part on other

grounds, 406 Fed. Appx. 834 (5th Cir. 2010) .................................................... 27

Houchins v. Scheltz,

590 S.W.2d 745 (Tex. Civ. App.—Houston

[14th Dist.] 1979, no writ) .................................................................................. 28

1890.001/55701

x

Howard v. Sony BMG Music Entm’t,

2007 WL 2537865 (S.D. Tex. Aug. 31, 2007),

aff’d, 293 Fed. Appx. 350 (5th Cir. 2008) .......................................................... 27

IKON Office Solutions, Inc. v. Eifert,

125 S.W.3d 113 (Tex. App.—Houston

[14th Dist.] 2003, pet. denied) ............................................................................ 39

Ingram v. Deere,

288 S.W.3d 886 (Tex. 2009) .............................................................................. 35

Ins. Co. of N. Am. v. Morris,

981 S.W.2d 667 (Tex. 1998) .............................................................................. 41

J&J Sports Prods., Inc. v. JWJ Mgmt., Inc.,

324 S.W.3d 823 (Tex. App.—Fort Worth

2010, no pet.) ...................................................................................................... 27

Jacobs v. State,

230 S.W.3d 225 (Tex. App.—Houston

[14th Dist.] 2006, no pet.) ................................................................................... 29

Jeanbaptiste v. Wells Fargo Bank, N.A.,

No. 14-10671, at *4 (5th Cir. Nov. 7, 2014) ...................................................... 27

Johnson & Higgins of Tex., Inc. v. Kenneco Energy, Inc.,

962 S.W.2d 507 (Tex. 1998) .............................................................................. 58

Larson v. Cook Consultants, Inc.,

690 S.W.2d 567 (Tex. 1985) .............................................................................. 45

Long Trusts v. Griffin,

222 S.W.3d 412 (Tex. 2006) ........................................................................24, 26

Long v. Griffin,

442 S.W.3d 253 (Tex. 2014) (per curiam) ...................................................53, 54

Malik v. ConocoPhillips Co.,

2014 WL 3420775 (E.D. Tex. June 23, 2014) ................................................... 27

Matney v. Odom,

147 Tex. 26, 210 S.W.2d 980 (1948) ................................................................. 24

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xi

MBM Fin. Corp. v. Woodlands Operating Co., L.P.,

292 S.W.3d 660 (Tex. 2009) .............................................................................. 50

Morrow v. Shotwell,

477 S.W.2d 538 (Tex. 1972) .............................................................................. 24

In re Nalle Plastics Family Ltd. P’ship,

406 S.W.3d 168 (Tex. 2013) .............................................................................. 49

Nat’l Plan Adm’rs, Inc. v. Nat’l Health Ins. Co.,

235 S.W.3d 695 (Tex. 2007) .............................................................................. 35

Nat’l Prop. Holdings, L.P. v. Westergren,

453 S.W.3d 419 (Tex. 2015) .............................................................................. 11

Osterberg v. Peca,

12 S.W.3d 31 (Tex. 2000)................................................................................... 45

Peltier Enters., Inc. v. Hilton,

51 S.W.3d 616 (Tex. App.—Tyler

2000, pet. denied)................................................................................................ 41

In re Prudential Ins. Co. of Am.,

148 S.W.3d 124 (Tex. 2004) .............................................................................. 37

Quigley v. Bennett,

227 S.W.3d 51 (Tex. 2007)................................................................................. 23

Reyna v. First Nat’l Bank,

55 S.W.3d 58 (Tex. App.—Corpus Christi

2001, no pet.) ...................................................................................................... 39

Robbins v. Capozzi,

100 S.W.3d 18 (Tex. App.—Tyler

2002, no pet.) ...................................................................................................... 18

Rogers v. Ricane Enters., Inc.,

772 S.W.2d 76 (Tex. 1989)................................................................................. 43

Roper v. State,

917 S.W.2d 128 (Tex. App.—Fort Worth

1996, pet. ref’d)................................................................................................... 29

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xii

Sabine Inv. Co. of Tex., Inc. v. Stratton,

549 S.W.2d 247 (Tex. Civ. App.—

Beaumont 1977, no writ) .................................................................................... 25

Saden v. Smith,

415 S.W.3d 450 (Tex. App.—Houston

[1st Dist.] 2013, pet. denied)............................................................................... 57

Scott v. Ingle Bros. Pac., Inc.,

489 S.W.2d 554 (Tex. 1972) .............................................................................. 35

Sullivan v. Abraham,

2014 WL 5140289 (Tex. App.—Amarillo

Oct. 13, 2014, pet. filed) ..................................................................................... 55

Sw. Bell Tel. Co. v. Marketing on Hold Inc.,

308 S.W.3d 909 (Tex. 2010) .............................................................................. 28

T.O. Stanley Boot Co., Inc. v. Bank of El Paso,

847 S.W.2d 218 (Tex. 1992) ........................................................................22, 39

Thota v. Young,

366 S.W.3d 678 (Tex. 2012) .............................................................................. 11

Tony Gullo Motors I, L.P. v. Chapa,

212 S.W.3d 299 (Tex. 2006) ......................................................49, 50, 51, 53, 57

Travel Music of San Antonio, Inc. v. Douglas,

04-00-757-CV, 2002 WL 1058527 (Tex. App.—

San Antonio May 29, 2002, pet. denied) .............................................................. 1

U.S. Enters., Inc. v. Dauley,

535 S.W.2d 623 (Tex. 1976) .............................................................................. 25

Varner v. Cardenas,

218 S.W.3d 68 (Tex. 2007)................................................................................. 50

Wilson v. Fisher,

144 Tex. 53, 188 S.W.2d 150 (1945) ................................................................. 24

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xiii

STATUTES

TEX. BUS. ORGS. CODE

§ 152.002(a) ........................................................................................................ 33

§ 152.052(b)(4) ................................................................................................... 32

TEX. CIV. PRAC. & REM. CODE

§ 16.068............................................................................................................... 27

§§ 38.001(8), 134.005(b) ..............................................................................49, 53

§ 134.003 ............................................................................................................. 27

§ 134.005(b) ........................................................................................................ 59

RULES

TEX. R. CIV. P. 277 ................................................................................................... 20

OTHER AUTHORITIES

Calvert, “No Evidence” & “Insufficient Evidence”

Points of Error, 38 TEX. L. REV. 361 (1960)...................................................... 36

RESTATEMENT (THIRD) OF RESTITUTION &

UNJUST ENRICHMENT, Introductory Note (2011) ................................................ 47

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xiv

STATEMENT OF THE CASE

Nature of the case This dispute arises out of several oil and gas projects.

The projects made millions of dollars, but a dispute arose

about the contractual obligations between the parties.

The five participants consist of four West Texans and an

investor from Houston. The West Texans are (1) an

engineer, (2) a geologist, (3) a geophysicist, and (4) a

landman. The Houstonian is Lester Smith, who invested

in the projects through his company, Smith Energy.

This suit is between Smith and the landman (Hardwick).

Trial court Hon. Rick Morris, senior judge from 146th Jud. Dist. Ct.

of Bell Cty., sitting in 121st Jud. Dist. Ct. of Terry Cty.

Course of proceedings Smith sued the landman in Harris County. After a venue

mandamus, the case was transferred to West Texas. In re

Hardwick, 426 S.W.3d 151 (Tex. App.—Houston [1st

Dist.] 2012, orig. proceeding).

A jury trial took place in Terry County.

Trial court disposition A jury awarded Smith actual damages of $104,000.

The court increased Smith’s recovery by adding the

following awards:

 $5,004,231 in disgorgement

 about $3,500,000 in attorney’s fees

 about $750,000 in interest on the disgorgement

 Partial rescission of the multi-party contracts, i.e.,

“as to” Smith and Hardwick.

See Tab A (verdict); Tab B (judgment).

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xv

STATEMENT REGARDING ORAL ARGUMENT

Oral argument is appropriate for several reasons:

 The legal issues are numerous.

 The monetary stakes are substantial.

 The reporter’s record is about 31,000 pages long.

 The case involves many distinct contracts and legal documents.

The issues are not routine, and the Court would benefit from an opportunity to

discuss them in person with both sides.

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xvi

ISSUES PRESENTED

1. Breach of Fusselman contracts: (a) Does the evidence support the

findings of breach and resulting damages? (b) Is there charge error in the

definition of “Smith Energy”? (c) Is there charge error in the definition of

“Fusselman Prospect Agreements”?

2. Breach of Bad Billy contract: (a) Is the contract ambiguous?

(b) Does the property description satisfy the statute of frauds?

3. Theft: (a) Is there charge error in the definition of “Smith Energy,”

such that it includes claims that are untimely under the statute of limitations? (b) Is

this a case of bona fide contract dispute and thus not theft?

4. Fiduciary duty: (a) Does the evidence support the finding of breach

of fiduciary duty as to the Fusselman projects? (b) Does it support the finding of

breach of fiduciary duty as to Bad Billy? (c) Is there charge error?

5. Fraud: (a) Does the evidence support the finding of fraud? (b) Is

there charge error in the definition of “Smith Energy? (c) Is there charge error in

the inclusion of a duty to disclose?

6. The $5 million forfeiture award: (a) Should the forfeiture be reversed

for lack of an underlying tort? (b) Is it the return of compensation? (c) Is there

proof of the amounts in Questions 15a and 15b? (d) Is the forfeiture amount too

large? (e) Is forfeiture available here as a remedy for fraudulent inducement?

7. Attorney’s Fees: Does the evidence support the award of fees?

8. Election of remedies: May Smith recover forfeiture on top of fees?

9. Partial rescission: May Smith have rescission of the Fusselman

contracts “as between” only two of the parties?

10. Fees for Hardwick LLC: Should Hardwick LLC recover fees?

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xvii

INTRODUCTION

Smith Energy accused landman Mark Hardwick of charging too much and

not working enough. The jury agreed in part, disagreed in part, and found damages

of only $104,000.

But Smith had spent $3.5 million on lawyers and wanted a bigger recovery.

Smith asked the trial court to add another $5 million in “forfeiture,” which

effectively stripped Hardwick of his working interests in the oil and gas projects.

To justify that “forfeiture,” Smith argued that Hardwick’s working interests

were basically his salary as a landman. According to Smith, if Hardwick did not

want to keep laboring on the projects, he could not keep collecting his working

interest earnings as a paycheck. 4 RR 18-19, 21.

This appeal challenges that portrayal of the working interests as dead wrong.

Hardwick’s working interests in the oil and gas projects were not a salary, and he

did not get them from Smith. If some of Hardwick’s invoices to Smith for

landman services contained errors or overcharges, so be it; Hardwick will pay any

of the $104,000 in damages that Smith legitimately established. But those modest

damages cannot justify clawing away $5 million in real-property interests, and it

cannot justify stacking that $5 million in tort-based forfeiture on top of $3.5

million more in fees for prosecuting the contract case.

1890.001/55701

STATEMENT OF FACTS

This appeal revolves around a handful of written contracts and related

documents that were executed in 2008, 2009, and 2010. Tabs C-J. This statement

of facts will address the circumstances that preceded the contracts, their language,

and the 2011 disagreement about compliance with them.

Background: Chasing the Fusselman Pinchout

The Permian Basin is home to the Fusselman formation, a Silurian Age

dolomite at roughly 11,000 feet. 5 RR 260-62. The Fusselman “pinchout” runs for

hundreds of miles (6 RR 111) and offers good potential as an oil trap. 5 RR 264.

The trick was finding it. People had chased the Fusselman for years. 6 RR

21; 7 RR 241; see 6 RR 136 (“Forever”). Locating the Fusselman pinchout proved

devilishly hard, and many efforts ended in failure. 7 RR 241. But failures have

educational value. Just as Edison made many unsuccessful light bulbs before

inventing one that functioned, the data from each bad Fusselman well helped

provide a body of knowledge that eventually paid off. Hence the old euphemism

about a bad well—“scientific success and economic failure.” See 6 RR 12.

Appellant Mark Hardwick knew about the Fusselman because of his father.

4 RR 58; 5 RR 122-23; 6 RR 21. Hardwick is a landman. He was working in

West Texas, along with his friends Steve Blaylock (a geophysicist) and Jerry Elger

(a geologist). 4 RR 58-61. Blaylock said that after a number of bad wells, they

1890.001/55701

2

thought that they had learned enough to pursue the Fusselman with some accuracy:

“Working with Jerry Elger and Mark [Hardwick], we put together some seismic

data in an area … where I had pretty good 3D seismic.” 5 RR 265. “I just started

going through, studying all the wells that I had. And I got through with a given

area where I remember I had 22 wells in that given area and I went back through

and finally worked out a method that I could apply and I think I would have been

right in predicting the presence of or the absence of Fusselman on 20 of the wells.

I convinced myself that I could, anyway, and so I kind of got excited.” 5 RR 266.

They kept honing their methods. The three of them persuaded a client in

Wichita Falls to invest in more drilling, but the client’s engineer insisted on

changing their preferred drill site, and the well was a dry hole. 5 RR 267. Again,

however, they learned from the experience.

Mark had previously met Lester Smith, a Houston investor in the oil and gas

business. 4 RR 73. Perhaps Mr. Smith might be interested in investing? Mark

Hardwick, Blaylock, and Elger decided to approach Mr. Smith. 6 RR 108-09, 134-

36. But they also included their friend Joey Hardin, who had a prior relationship

with Mr. Smith. 4 RR 91.

They offered Mr. Smith a standard “third for a quarter” arrangement, in

which an investor agrees to pay one-third of acquisition, seismic, and drilling costs

in exchange for a quarter of the working interest. 5 RR 126-27; 6 RR 10, 18; see 6

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3

RR 200 (“It’s very common”); 9 RR 13 (“a third for a quarter is a very basic and

historic oil and gas transaction”). Mr. Smith invested to the max. 7 RR 242.

Instead of a third, he took three thirds, agreeing to pay all of those costs for 75% of

the working interest. Id. He did so through his company, Smith Energy.

The Fusselman Contracts

The four West Texans—Joey Hardin, Steve Blaylock, Jerry Elger, and Mark

Hardwick—and Mr. Smith did several Fusselman projects. Although litigation

often erupts after deals gone bad, these were “deals gone good” in the sense that

everybody made money. See 4 RR 21 (“hugely successful”). Each Fusselman

project has a name:

PROSPECT NAME CONTRACT

North Mound Lake Participation Agreement

Tab C (DX-1346)(May 1, 2008)

Big Bump Participation Agreement

Tab F (DX-1354)(Oct. 19, 2009)

On Point Geophysical Exploration Agreement

Tab G (DX-1351)(Jan. 2, 2010)

Muy Caliente Geophysical Exploration Agreement

Tab H (DX-1356)(Jan. 15, 2010)

North On Point Extension Geophysical Exploration Agreement

(DX-1298)(Dec. 1, 2010)

An amended version is at Tab I (DX-

1350)(June 15, 2011)

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The basic idea was this. The five parties would split the working interest,

75% for Smith and 25% for the four West Texans. Smith would “carry” the others

on the first few wells (but not all wells) by paying certain costs (but not all costs) –

specifically, lease acquisition costs, seismic costs, and drilling costs – until the

casing point. The details are unnecessary to develop here.

The first contract is a 2008 agreement (DX-1346) between Smith Energy

and Joey Hardin’s company RAW Oil & Gas, with RAW then writing a side letter

to each of the three other West Texans to address each man’s 6.25% share. See

DX-1345. RAW would buy the leases and parcel out working interest shares to

Smith, Hardwick, and the others. The later Fusselman contracts are all multilateral

deals between Smith and all the West Texans. DX-1298, 1351, 1354, 1356.

These contracts have two significant features:

1. They do not classify anybody’s share of the working interest as

salary or compensation for services;

2. They do not create a joint venture.

In fact, they flatly repudiate joint venture: “It is not the intention of the parties to

create, nor shall this agreement be construed as creating, a mining or other

partnership, joint venture, agency relationship or association, or to render the

parties liable as partners, co-venturers, or principals.” DX-1347 art. VII. Several

even underline the phrase “No Partnership.” DX-1298, 1351, 1356 (§ 6.3).

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The Bad Billy Contract

In addition to the Fusselman contracts, there is a very different contract

called the Bad Billy agreement (Tab J, PX-85). It involves Smith and Hardwick

but not the other three West Texans, who thought the Bad Billy play unattractive.

6 RR 112-13; 7 RR 277-78. They were right. The wells were awful, and Bad

Billy might as well have been named “Horrible Billy.” 4 RR 192, 235; 5 RR 231.

The Bad Billy agreement is a 3-party deal among Smith, Mark Hardwick,

and Mark’s brother Paul. PX-85. Unlike the Fusselman contracts, it involves

overriding royalty interests, not working interests. Id. Unlike the Fusselman

contracts, it refers to the overrides as compensation. Id.

It says that Smith wants leases in the Bad Billy area and that Smith will

compensate Paul for geology work with a 1.5% override in any leases acquired.

Id. Smith will assign Mark a 1% override “in consideration” of Mark overseeing

the lease acquisition. Id. Smith will pay Mark all his expenses and—somewhat

more controversially—“a day-work brokerage fee.” Id. The contract has a 3-year

term, starting Dec. 17, 2010. Id.

What about a land description? Where is the “Bad Billy Area”? The area

exists somewhere in “Terry, Yoakum, Hockley, Lubbock & Lynn Counties.”

PX-85. But the contract does not give a metes and bounds description. It says

only that the “Bad Billy Area” is depicted on an Exhibit A:

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The AMI’s black boundary line wanders randomly through the five counties, with

no details about location, so the statute of frauds is an issue.

Smith and Hardwick fall out in August 2011

The Fusselman wells made money. 5 RR 295; 8 RR 12, 55. Acquisition,

seismic, and (some) drilling costs were paid by Smith on the few carried wells.

The other costs – e.g., operating expenses, ad valorem taxes, and royalties – were

undisputedly paid on all the wells by Hardwick and the other working interest

owners from day one, in accordance with their percentages as working interest

owners. 5 RR 203; DX-488, 489, 1357; see also CR 3122 (“from the beginning”).

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This success had two side effects. First, the work approached the town of

O’Donnell. 5 RR 165. So the last Fusselman contract is called “North On Point

Extension / O’Donnell.” Given the proximity to a populated area, Hardwick

formed a business entity, just as Joey Hardin had formed RAW Oil and Gas and

Jerry Elger had formed Elger Exploration, Inc. 5 RR 205. He formed Mark P.

Hardwick LLC. Id. It holds a number of his working interests. 5 RR 205-06.

Second, the land work grew exponentially. Hardwick had his hands full. 10

RR 98-103. He and Lester Smith found themselves at odds over what the contracts

mean and over how intense the land work actually was. PX-39.

The conflict boiled over in August 2011. Hardwick and Smith parted ways

as to Hardwick doing further land work. PX-33, 36. They differed sharply over

whether Hardwick quit or was fired (5 RR 5, 86; 8 RR 34-43), but that

disagreement does not matter to the appeal. What matters is that their relationship

soured to the point that Smith sued Hardwick and his LLC.

This litigation

Smith filed this suit in Harris County. CR 6. The case soon moved because

venue was held mandatory in West Texas. In re Hardwick, 426 S.W.3d 151 (Tex.

App.—Houston [1st Dist.] 2012, orig. proceeding). By the time of the verdict in

Terry County, Smith was on its eighth amended petition (CR 2895) and had spent

$3.5 million in attorney’s fees. See Question 24.

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The live petition seeks actual damages, exemplary damages, attorney’s fees,

and interest. CR 2926-28. It also asks for “forfeiture of all compensation paid,”

including “all assigned mineral interests and overriding royalty interests.”

CR 2927. The forfeiture claim may deserve mention because it underpins the trial

court’s award of $5 million.

The forfeiture claim grows out of Smith’s position that the parties created

joint ventures, which involved fiduciary duties. CR 2902. Based on those alleged

fiduciary duties, Smith sought forfeiture of Hardwick’s Fusselman working

interests. CR 2919. In essence, Smith approaches the case as though Hardwick

were an attorney and Smith a client, with Hardwick’s Fusselman working interests

being a “fee” that came from the client and thus can be returned to the client in the

event of a clear and serious breach of fiduciary duty. CR 3162-65.

Hardwick disputed all this. He noted that the working interests never came

from Smith in the first place, that they were not a fee to be forfeited, and that there

was no joint venture or fiduciary duties in any event. CR 3007-50, 3088-102.

The contract claims are straightforward. Smith alleged breach of the

Fusselman contracts and the Bad Billy contract. CR 2919-21. For damages, Smith

alleged two distinct classes of damages: (1) overcharges, and (2) the cost of hiring

replacement landmen to finish Hardwick’s purported responsibilities.

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The overcharge damage allegations are just what they sound like; they

accuse Hardwick of inflating his invoices with time that he did not work and with

expenses that he should not have included.

The replacement landman allegations accuse Hardwick of quitting too soon.

Smith argued that the Fusselman contracts required him to do Fusselman land

work and to keep doing it for as many years or decades that there is still Fusselman

activity going on. Smith further asserted that Hardwick breached the Bad Billy

contract by quitting before the end of the 3-year term, resulting in excess cost when

Smith had to hire new landmen.

The court ruled several of the Fusselman contracts ambiguous with regard to

whether Hardwick promised to keep doing land work as long as the Fusselman

projects are alive. 11 RR 276. The court ruled the Bad Billy contract ambiguous

as to whether Hardwick promised to cap his daily rate at $500. 11 RR 283.

The verdict

The jury found for Smith on all four theories: (1) contract, (2) fraud,

(3) fiduciary duty, and (4) theft. It found damages of $104,000, which consisted of

about $79,000 in overcharges, plus $25,000 in replacement landman costs for Bad

Billy work. The jury found about $3.5 million in fees for Smith’s trial fees, and

another $250,000 in fees for any appeal. See Question 24.

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The jury charge also asked about Hardwick’s working interests. The jury

found that Hardwick received $795,056 in working interest earnings after he

stopped the landman services and that his working interests had a market value of

$4,209,175 in the middle of 2013. See Question 15.

Smith obtained findings on four theories but did not elect a remedy. Instead,

Smith sought a judgment for all of them stacked on top of each other—actual

damages, rescission (despite damages), fees (under the contract and theft theories),

and forfeiture (under the tort theories). Specifically, Smith wanted forfeiture of the

$795,056 plus the $4,209,175 associated with the Fusselman working interests.

The trial court awarded all of the above.

STANDARD OF REVIEW

Jury findings are reviewed under the normal sufficiency standards. See City

of Keller v. Wilson, 168 S.W.3d 802 (Tex. 2005). Abuse of discretion review

applies to rulings on the charge and equitable relief. Thota v. Young, 366 S.W.3d

678, 687 (Tex. 2012); Burrow v. Arce, 997 S.W.2d 229, 245 (Tex. 1999). De novo

review applies to the other issues. See Nat’l Prop. Holdings, L.P. v. Westergren,

453 S.W.3d 419, 426 (Tex. 2015) (applicability of statute of frauds); Bowden v.

Phillips Petroleum Co., 247 S.W.3d 690, 705 (Tex. 2008) (ambiguity); Figueroa v.

Davis, 318 S.W.3d 53, 66 (Tex. App.—Houston [1st Dist.] 2010, no pet.)

(availability of prejudgment interest).

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SUMMARY OF THE ARGUMENT

The trial court failed to impose meaningful discipline on the plaintiffs’ case.

Smith sued on written contracts, but the court failed to enforce them as written.

Smith requested a charge that blurs all the Fusselman contracts together as one and

defines “Smith” too broadly, but the court submitted it nonetheless.

1. Contract & theft. The contract and theft theories are unsound. The

Fusselman contracts do not require Hardwick to do what Smith alleges, and the

remaining contract (“Bad Billy”) violates the statute of frauds. The theft theory is

either unproven or contaminated by inclusion of time-barred claims.

2. Tort. The tort theories have similar flaws. Smith alleged a fiduciary

duty from a joint venture, but the contracts repeatedly disavow joint venture and

fiduciary duties. The fraud theory contains layers of charge error.

3. Remedies. The trial court wrongly inflated the recovery by awarding

(a) $5 million in “forfeiture”, (b) $3.5 million in unproven attorney’s fees, (c) fees

stacked on top of forfeiture, (d) partial rescission of the agreements, and

(e) prejudgment interest on the non-compensatory “forfeiture.”

4. LLC. Mark P. Hardwick LLC has its own appeal on the issue of

attorney’s fees. The theft statute makes fees mandatory for a prevailing party.

Smith sued the LLC for theft but did not prevail against it. As a result, the statute

requires an award of fees to LLC.

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ARGUMENT

Smith won a verdict for $104,000 in damages. If the trial court had rendered

judgment for only that amount, this appeal might never have arisen. The court,

however, awarded Smith a judgment for about 90 times that amount. The

judgment stacks an oversized forfeiture award on top of an oversized fee award.

I. THE CONTRACT AND THEFT THEORIES SHOULD BE REVERSED.

Start with contract and theft. Those theories closely resemble each other,

except that contract damages were $104,000, whereas the theft damages were only

$79,428 because the jury charge restricted the theft damages to overcharge claims.

The jury charge combined all five Fusselman contracts into a single bundle,

even though the contracts vary in wording. This inappropriate fusion of the

agreements enabled Smith to gloss over weaknesses in his case, with the result that

the jury found Hardwick guilty of breaking promises that he kept—and of breaking

promises that he never even made.

A. The Fusselman contract recovery should be reversed.

There is legally and factually insufficient evidence that Hardwick breached

any of the Fusselman contracts, let alone all of them. Further, the contract damage

findings are unsupported. The jury found damages of $36,003 in overcharges. See

Question 5(1)(a). It found that those damages “resulted from” a failure to comply.

But there is legally and factually insufficient evidence of that.

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At a minimum, there is charge error. The charge collected several different

documents and defined them all as the “Fusselman Prospect Agreements.” The

first is the North Mound Lake agreement. Hardwick is not even a party to that one,

yet the jury found him in breach of the “Fusselman Prospect Agreements.” See

Question 3a. The definition is tainted by inclusion of North Mound Lake.

1. The Fusselman part of the contract recovery should be

reversed and rendered, because Hardwick did not breach

any of the Fusselman contracts, let alone all of them.

Hardwick did not breach the Fusselman contracts at all:

 He is not a party to the first contract (the North Mound Lake

Participation Agreement);

 He is a party to the second contract (Big Bump) but made no

promise to anybody about land work or its cost.

 He is a party to the other contracts, but the only relevant

promise is to participate “as may be requested from RAW,”

and all agree that he did everything RAW requested.

There is zero evidence that the Fusselman contracts were breached.

The first contract in the definition of Fusselman Prospect Agreements is the

North Mound Lake Participation Agreement (DX-1346). It runs between Smith,

RAW Oil & Gas, and RAW Energy. Hardwick cannot have breached a contract to

which he was not a party. That is especially true given that the contract requires

RAW—not Hardwick—to negotiate with landowners and to “conduct all title

investigations.” Id. § 6.

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The definition’s next items are the North Mound Lake Letter Agreements.

They consist of three letters from RAW to Blaylock, to Elger, and to Hardwick.

See PX-1, DX-86, DX-1345. Hardwick is not a party to the letter to Blaylock or

Elger, so he cannot have breached either of those.

Hardwick was the recipient of the third RAW letter (PX-1), but there is no

evidence that he breached any promise there. The only promise that he arguably

made there was to pay his share of certain costs: “Hardwick will pay his way on

the completion cost of the first well and all subsequent operations including any

additional acreage purchases within the AMI area ....” PX-1. Nothing suggests

that Hardwick broke that promise. All agree that Hardwick paid his share of the

costs for all the various wells. 6 RR 270.

The next Fusselman agreement is Big Bump (DX-1354). This contract has

the virtue of including Hardwick as a party. However, it contains no promise for

Hardwick to do land work at any given rate or on any given terms. Nothing in the

contract obligates Hardwick to do any land work, let alone do it for a certain price.

Again, there is no evidence of breach.

Finally, there are the remaining Fusselman contracts: On Point, Muy

Caliente, North On Point, and Amended North On Point. DX-1351, 1356, 1298,

1350. These contracts include Hardwick as a party. But they do not require him to

perform land work. In fact, they provide for the opposite by assigning that job to

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RAW. Section 1.5(b) of each says that “RAW will provide or supervise the land

work.” Once again, there is no evidence that Hardwick breached any of these

Fusselman contracts.

Smith argued that Hardwick had a duty to do land work because the final

Fusselman contracts (On Point, Muy Caliente, and the North On Point) contain this

sentence in section 1.5: “All Parties will participate with RAW in accomplishing

the Geophysical Program as may be requested from RAW from time to time.”

That clause does not commit Hardwick to do land work. But even if it did,

the most that it might require would be to do what RAW “requested.” Yet there is

no evidence that he breached any such obligation. It is undisputed that Hardwick

did everything RAW asked him to do. Hardwick’s defense lawyer, the Hon. Rick

Strange, asked this simple question to RAW’s principal, Joey Hardin:

Q. Have you asked Mark to do any land services that he didn’t do?

A. No.

6 RR 247. This Court will find no evidence whatsoever of Hardwick refusing to

do any land work “requested” by RAW.

The question for all the Fusselman contracts thus boils down to this:

Where’s the breach? The evidence shows no breach of those contracts at all. The

Court should reverse the recovery of the $36,003.

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2. The Fusselman part of the contract recovery should be

reversed and rendered, because no overcharge damages

resulted from any breach.

Even if the Fusselman contracts had been breached, those contracts have no

connection to the overcharge damages found in Question 5(1)(a). The contracts

simply do not cap landman charges at $500 a day or at any particular price.

Although Smith’s damage expert assumed that the contracts impose such a ceiling

(7 RR 10-11), they do not. They never mention the subject. The jury had no basis

for finding that the $36,003 in overcharges “resulted from” any failure to comply

with the “Fusselman Prospect Agreements.”

Hardwick objected to these questions and assailed the findings in post-

verdict motions. CR 3012-32; CR 3530-32. He noted that Smith had evidence

(but not findings) about oral contracts, and findings (but not evidence) about

written contracts. See CR 3012. The disconnect between the written contracts and

the supposed oral deals is stark. See 6 RR 239 (“but that was not our gentleman

agreement”); 8 RR 82 (“We had an oral agreement”).

Hardwick’s JNOV motion made this point in a way that nobody could miss:

“The jury’s answer to Question 5.1(a) should also be disregarded because there is

no evidence to support this finding.” CR 3028. He went on to point out that there

was no evidence “that Mark Hardwick agreed in the written contracts to limit his

day rate or to charge no overtime.” Id.

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In his response to the lengthy JNOV motion, Smith could only write three

sentences to defend the indefensible finding of Fusselman overcharge damages:

The evidence clearly supports the jury’s finding that

Hardwick’s breach caused Smith Energy damage. The evidence

showed that Hardwick charged for days of work that he could not and

did not work. See Plaintiff Exhibit 182A. There was abundant

evidence that his billing constituted double billing or overbilling. See

Shaw, August 27 at 122-23.

CR 3118. That is it. That is all that Smith could say about the evidence supporting

the answer to Question 5.

As shown earlier, however, no evidence supports the award of $36,003 for

overcharge damages that “resulted from” any breach of the Fusselman contracts.

Those contracts say nothing about charging or overcharging. The Court should

reverse and render the $36,003 recovery, and the Court should award Hardwick his

fees (or at least remand to let him pursue them) as prevailing party under the

Fusselman contracts. See, e.g., DX-1298, 1351 (§ 6.5); Robbins v. Capozzi, 100

S.W.3d 18, 27 (Tex. App.—Tyler 2002, no pet.).

3. Alternatively, the Fusselman contract recovery should be

reversed and remanded because of charge error.

The jury charge defines “Smith Energy” and “the Fusselman Agreements.”

However, it defines those terms so broadly as to include items that do not belong.

This problem infects all four liability theories and constitutes reversible error, per

the progeny of Crown Life Ins. Co. v. Casteel, 22 S.W.3d 378 (Tex. 2000).

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First, the term “Fusselman Prospect Agreements” covers several contracts.

But the contracts differ significantly. The earliest Fusselman contract runs only

between RAW and Smith. DX-1346. Yet the jury found Hardwick liable for

breaching the “Fusselman Prospect Agreements.” See Questions 3a & 5.

Hardwick cannot have breached a contract to which he was not a party. Nor can he

have breached Big Bump, because it has no promise to do land work.

Second, the charge defines “Smith Energy Company” as including Smith

Energy Company and over two dozen other parties, such as the friends and family

members of Mr. Smith who took pieces of Smith’s interest by assignment.

The inclusion of extra parties creates severe problems. Trial focused on the

Hardwick’s dealings with Mr. Smith, but not with Mr. Smith’s friends and family.

Even if the contract was assignable (giving the extra parties a right to sue), there

must be evidence on every element of their claims. Take fraud. Fraud requires

reliance, but there is insufficient evidence of reliance by those parties.

Likewise, theft has a short statute of limitations. If the theft claims by the

extra parties were time-barred when assigned over to Smith (which they were),

they remain just as untimely when Smith sues on them. The definition of “Smith”

built error into the theft claim by including assigned claims from the extra entities.

While the other theories will come up later in this brief, the point here is that the

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jury charge was marred by Casteel error because of the way it defined “Smith” and

“the Fusselman Prospect Agreements.”

The law in this area is familiar to the Court. Broad-form submission is the

reigning model for charge practice. TEX. R. CIV. P. 277. But the model has limits:

“Rule 277 is not absolute.” Casteel, 22 S.W.3d at 390. Thus, “when the trial court

is unsure whether it should submit a particular theory of liability, separating

liability theories best serves the policy of judicial economy underlying Rule 277 by

avoiding the need for a new trial when the basis for liability cannot be

determined.” Id.

A trial court can combine different items into a single question as long as

each item genuinely belongs. But if an item does not belong, it may infect the

whole question. Thus, one “rotten apple” can spoil the whole barrel.

This doctrine comes from Casteel and its progeny, such as Harris County v.

Smith, 96 S.W.3d 230 (Tex. 2002), which extended the rotten apple concept to

situations where part of a submission is unsupported by sufficient evidence. See

Bed, Bath & Beyond, Inc. v. Urista, 211 S.W.3d 753, 756 (Tex. 2006) (“Under

Casteel and Harris County, we presume that the error was harmful and reversible

and a new trial required when we cannot determine whether the jury based its

verdict solely on the improperly submitted invalid theory or damage element.”).

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“Submission of an invalid theory involves ‘[a] trial court’s error in

instructing a jury to consider erroneous matters.’” Columbia Rio Grande

Healthcare, L.P. v. Hawley, 284 S.W.3d 851, 865 (Tex. 2009) (quoting Harris

County, 96 S.W.3d at 233). Here such “erroneous matters” appear in two key

definitions: Smith Energy Company and the Fusselman Prospect Agreements.

Page 3 of the charge defines “Smith Energy Company” as referring to the company

“and on behalf of the interests of” more than two dozen other entities.

Smith’s argument for including the extra entities in the definition was that

the company distributed slices of its oil and gas interests to all the recipients, while

later taking back litigation assignments of the right to sue Hardwick in this lawsuit.

For lack of a better term, this brief will refer to “tag-along” parties. The tag-along

parties did not sue in the lawsuit as plaintiffs, but they assigned their rights to sue

Hardwick to Smith, who prosecuted those claims as plaintiff.

Hardwick objected to defining Smith this way. 11 RR 398-99; see also 8

RR 231-33, 246-49. He argued that the assigned claims suffered from evidentiary

insufficiency as to their elements. The trial court should have sustained his

objections. The verdict treats him as breaching all the Fusselman agreements, but

he plainly did not breach North Mound Lake or Big Bump. At a minimum, the

contract recovery suffers from Casteel error because of the inclusion of the extra

parties and because of the combination of all the Fusselman contracts.

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B. The Bad Billy contract recovery should be reversed.

The trial court held the Bad Billy agreement ambiguous and asked the jury

to construe it. See Question 2; see also 11 RR 283 (trial court ruling of ambiguity).

The jury construed it in Smith’s favor and found Hardwick liable. See Question 3.

Damages were about $68,000 – i.e., $43,425 in overcharges and $25,448 for the

cost of hiring the replacement landmen. See Question 5.

1. The contract (PX-85) is not ambiguous.

Question 2 asked whether Hardwick agreed “[i]n the Bad Billy Agreement”

that he would “perform landman services for a day work rate of $500.” It told the

jury to construe the statement “that Smith shall pay all expenses incurred by Mark

in connection with such lease acquisition, plus a day-work brokerage fee.” But

that statement says nothing about fixing the fee at $500, and it says nothing about

the way such a fee would be computed.

The court rewrote the contract. There simply is no $500 rate “[i]n the Bad

Billy Agreement.” The agreement says nothing about a $500 rate, any more than it

says something about a rate of $1 or $15 million. The writing just does not set the

dollar amount. Courts should not supply missing terms in this fashion. The classic

example is Stanley Boot, where a loan contract failed to state the interest rate, and

the court refused to insert that missing term. See T.O. Stanley Boot Co., Inc. v.

Bank of El Paso, 847 S.W.2d 218, 222 (Tex. 1992).

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Sometimes a court can imply a reasonable price, such as in a UCC contract

for the sale of goods. But that is not the factual issue that these parties litigated,

and it is not what the charge told the jury to find. If the jury had been asked simply

about the reasonableness of Hardwick’s rates, it likely would have found for him,

because so many people saw his invoices and approved them. Regardless, that is

not what Question 2 asks. The overcharge recovery should be reversed.

2. The statute of frauds applies to the Bad Billy claim.

The statute of frauds bars the claim for $25,000 as the cost of hiring

replacement landmen. Those expenditures occurred after Smith and Hardwick

separated in August 2011. But enforcing that part of the bargain is impermissible,

because Bad Billy is an agreement to convey real estate, without an adequate land

description. Although it attaches a map with a crude drawing, the drawing is too

fuzzy to satisfy the statute. The description fails as a matter of law, or at least as a

matter of the great weight of the evidence. Hardwick preserved this point by

raising it repeatedly. CR 3029-30, 3055, 3532, 3538; see also 11 RR 403.

Smith agreed to convey overrides to Hardwick, who agreed to do land work.

An overriding royalty interest is real property subject to the statute of frauds.

Quigley v. Bennett, 227 S.W.3d 51, 54 (Tex. 2007). Hence, the agreement triggers

the statute of frauds, as it refers to a “Lease Acquisition Program” and states that

Smith is desirous of “acquiring oil and gas leases.” PX-85.

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The contract “must furnish within itself, or by reference to some other

existing writing, the means or data by which the [property] to be conveyed may be

identified with reasonable certainty.” Long Trusts v. Griffin, 222 S.W.3d 412, 416

(Tex. 2006). “The essential elements may never be supplied by parol.” Wilson v.

Fisher, 144 Tex. 53, 57, 188 S.W.2d 150, 152 (1945). If enough description exists

so that a person familiar with the area can locate the premises with reasonable

certainty, it can satisfy the statute. Gates v. Asher, 154 Tex. 538, 541, 280 S.W.2d

247, 248-49 (1955). But even if the contracting parties knew and understood what

property was intended to be conveyed, their knowledge and intent will not make

the contract valid. Morrow v. Shotwell, 477 S.W.2d 538, 540 (Tex. 1972).

The text has no description at all. PX-85. It references five counties, an

area called the “Bad Billy Area” or “AMI Outline” in “portions” of those counties,

and an area that is excluded. There is nothing about tracts, sections, surveys, or

acreage size. There is no description of the location, distance, or direction of the

lines comprising the irregular boundary lines. There is no recording information.

The text itself is plainly inadequate.1

1 See., e.g., Long Trusts, 222 S.W.3d at 416 (description of lessors’ names and each lease’s

survey name, term, and net acreage insufficient); Morrow, 477 S.W.2d at 540-41 (description of

tract, survey, and county insufficient); Matney v. Odom, 147 Tex. 26, 28-29, 210 S.W.2d 980,

982 (1948) (description of acreage amount, survey, city, county, and relation to nearby

courthouse and highway insufficient); Greer v. Greer, 144 Tex. 528, 530-31, 191 S.W.2d 848,

849-50 (1946) (description of acreage amount, survey, county, patent, volume, and abstract

numbers insufficient).

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Nor does the attached map suffice. It is true that an “attached map becomes

a part of the written contract and can aid a defective written description if the map

contains enough necessary descriptive information.” U.S. Enters., Inc. v. Dauley,

535 S.W.2d 623, 628 (Tex. 1976). But not this map. The area depicted on the map

cannot be located with reasonable certainty.

The location of the irregularly-shaped boundaries is uncertain. The

boundary lines cut through portions of several counties, but there is no data to fix

the precise spots. There is no information about the width of the boundary lines.

There is no information regarding the courses and distances of the boundary lines.

There is no scale to determine the length of the lines. There is no identifiable

survey or recording information. An equally indeterminate “excluded” area falls in

and out of the boundary lines. These problems doom the map.2

The testimony reinforces this conclusion, inasmuch as the only surveyor

who testified indicated that the description is inadequate. 10 RR 57; 13 RR (Piper

excerpt). The surveyor flatly could not locate the “AMI Outline.” 13 RR at

deposition p. 25-27, 66, 80-81. For these reasons, Bad Billy fails the statute.

2 See, e.g., U.S. Enters., 535 S.W.2d at 628-29 (tract location uncertain on map); Sabine Inv. Co.

of Tex., Inc. v. Stratton, 549 S.W.2d 247, 249-50 (Tex. Civ. App.—Beaumont 1977, no writ)

(courses and distances not provided); Guenther v. Amer-Tex Const. Co., 534 S.W.2d 396, 398

(Tex. Civ. App.—Austin 1976, no writ) (map not drawn to scale did not show size, acreage,

recording information, or width, length, and position of boundary lines); Heir of Barrow v.

Champion Paper & Fibre Co., 327 S.W.2d 338, 347 (Tex. Civ. App.—Beaumont 1959, writ

ref’d n.r.e.) (width of boundary line uncertain).

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This does not undo the parties’ past performance. But it makes the contract

unenforceable as to future performance after Smith and Hardwick separated. See

Long Trusts, 222 S.W.3d at 417 (“Respondents’ acquisition of interests in the past

were completely separate from future transactions and did not insulate the

agreements from the Statute of Frauds for wells not drilled”). The Court should

reverse the $25,000 in damages found in Question 5 for services after Smith and

Hardwick separated.

C. There is no theft, and even if there were, the statute of limitations

would still bar almost all of the theft recovery.

The jury found statutory theft and assessed damages of about $79,000.

Those damages do not include the costs of hiring other landmen; they include only

overcharges. See Question 18. The question does not have separate blanks for

Fusselman and Bad Billy, but the answer of $79,428 matches the earlier findings

about overcharges for Fusselman ($36,003) and Bad Billy work ($43,425).

The theft recovery has two flaws. First, it has a titanic problem with the

statute of limitations. Almost all the damages come from assigned claims, but

those claims are untimely. Second, the theft recovery treats a bona fide contract

dispute as a crime. When a trial court cannot even tell what a contract means—and

a jury has to pick between two reasonable readings—there might be a breach of

contract but not statutory theft.

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1. The statute of limitations bars recovery.

The Texas Theft Liability Act creates a cause of action for theft. See TEX.

CIV. PRAC. & REM. CODE § 134.003. The 2-year statute of limitations applies to

theft claims. J&J Sports Prods., Inc. v. JWJ Mgmt., Inc., 324 S.W.3d 823, 832

(Tex. App.—Fort Worth 2010, no pet.); see Jeanbaptiste v. Wells Fargo Bank,

N.A., No. 14-10671, at *4 (5th Cir. Nov. 7, 2014) (“A two-year limitations period

applies to conversion and TTLA claims.”). Courts widely agree on this.3

Because the assigned claims were not sued on in this case until February

2014 (CR 1286, 1319), Hardwick asserted limitations. CR 3054, 3538; 11 RR 399,

405. Smith responded with the relation-back rule of TEX. CIV. PRAC. & REM. CODE

§ 16.068. CR 3135. Smith argued that the original petition was filed in November

2011, and that all new claims added in later pleadings count as timely as long as

they relate to the same transaction. Id.

Relation-back does not let a plaintiff resurrect somebody else’s dead claims

via assignment. If P sues timely, P can amend to add his or her own claims. But P

cannot collect stale claims belonging to another and turn them from stale to timely.

3 See Cooper v. Green Tree Servicing LLC, 2015 WL 799255, at *3 (N.D. Tex. Feb. 25, 2015);

Malik v. ConocoPhillips Co., 2014 WL 3420775, at *5 (E.D. Tex. June 23, 2014); Hoffart v.

Wiggins, 2010 WL 816915, at *12 (E.D. Tex. Jan. 30, 2010), adopted & rejected in part, 2010

WL 816863, at *4 (E.D. Tex. Mar. 3, 2010), rev’d in part on other grounds, 406 Fed. Appx. 834

(5th Cir. 2010); Howard v. Sony BMG Music Entm’t, 2007 WL 2537865, at *3 (S.D. Tex.

Aug. 31, 2007), aff’d, 293 Fed. Appx. 350 (5th Cir. 2008).

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Goose Creek Consol. I.S.D. v. Jarrar’s Plumbing, Inc., 74 S.W.3d 486, 493 (Tex.

App.—Texarkana 2002, pet. denied). A dead claim cannot be resurrected after D’s

limitations defense has vested. See Cadle Co. v. Henderson, 982 S.W.2d 543, 546

(Tex. App.—San Antonio 1998, no pet.) (“When the limitations period has run,

rights have become ‘vested and perfect,’ and even the Legislature cannot remedy

or lengthen the limitations period.”).

When TP assigns a claim to P, courts say that P has stepped into TP’s shoes.

See Sw. Bell Tel. Co. v. Marketing on Hold Inc., 308 S.W.3d 909, 920 (Tex. 2010)

(“stands in the shoes of his assignor”). A defense that was good against TP is good

against P: “an assignee or subrogee walks in the shoes of his assignor and takes

the assigned rights subject to all defenses which the opposing party might be able

to assert against his assignor.” Burns v. Bishop, 48 S.W.3d 459, 466 (Tex. App.—

Houston [14th Dist.] 2001, no pet.) (emphasis added); see Houchins v. Scheltz, 590

S.W.2d 745, 751 (Tex. Civ. App.—Houston [14th Dist.] 1979, no writ) (assignee

has no greater right to recover on contract than assignor).

Where, as here, the claim was time-barred before it was assigned, assigning

the claim will not bring it back to life. See Goose Creek, 74 S.W.3d at 493

(“Because an assignee stands in the shoes of the assignor, [P] was subject to the

statute of limitations as it applied to [D]’s independent actions for breach and

negligence, and was thus barred”).

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The assigned claims were dead when Smith obtained them. Most of the

$79,000 in overcharges preceded the blowup of August 2011, and any remaining

charges would have been incurred by the end of 2011. The statute would expire on

all charges by the end of 2013. In fact, it would have expired on most of them

before that, because they were paid earlier. See PX-40, 162, 174; DX-7, 8, 79, 80,

186-90. The theft recovery is time-barred as to assigned claims, and their inclusion

contaminates the remainder, per Casteel and Harris County.

2. Breach of a contract should not be theft.

The trial court found the language ambiguous, making it impossible for the

litigants to know what their contract meant until a jury verdict informed them.

Being on the wrong side of a contract dispute is not theft:

If a bona fide dispute exists as to the ownership of the property, then

the evidence is legally insufficient to sustain a theft conviction. See

Hann v. State, 771 S.W.2d 731, 733 (Tex. App.—Fort Worth 1989, no

pet.); see also Roper v. State, 917 S.W.2d 128, 132-33 (Tex. App.—

Fort Worth 1996, pet. ref’d) (ordering acquittal in a theft case that was

based on “a simple case of a civil contract dispute”).

Bokor v. State, 114 S.W.3d 558, 560 (Tex. App.—Fort Worth 2002, no pet.); see

Jacobs v. State, 230 S.W.3d 225 (Tex. App.—Houston [14th Dist.] 2006, no pet.)

(similar). Even if Hardwick is wrong about the contract’s meaning, the fact that it

had to go to a jury shows that this case is “a simple case of a civil contract

dispute.” Roper, 917 S.W.2d at 132. It is not theft. Id.

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II. THE TORT THEORIES SHOULD BE REVERSED.

The fraud and fiduciary duty theories have similar problems: the evidence

does not support them, and they have the same Casteel issues just discussed.

A. There is no breach of fiduciary duty.

The parties to the Fusselman projects disclaimed fiduciary duties. See DX-

1347, art. VII.A (“the parties shall not be considered fiduciaries”); DX-1354

(disclaiming “partnership,” “joint venture,” and “agency”). They did it repeatedly:

 “No Partnership.” (DX-1351, § 6.3)

 “No Partnership.” (DX-1356, § 6.3)

 “No Partnership.” (DX-1298, § 6.3)

Thus, Hardwick strenuously objected to the fiduciary duty issue (Question 13).

See 11 RR 411 (“there is no evidence of fiduciary duty. There’s no basis at all to

ask the jury if Mark owed a fiduciary duty because as a matter of law, he didn’t.”).

He did the same with the issues about joint venture (Question 11) and agency

(Question 12). 11 RR 408-11.4 The trial court erred in failing to heed.

4 Hardwick reiterated the no-evidence complaints in his JNOV motion. See CR 3047 (“The

Jury’s Finding That Mark Hardwick Breached His Fiduciary Duty Should Be Disregarded

Because He Owed No Such Duty.”); CR 3048 (“Hardwick was not a member of a joint venture

with Smith Energy Company, individually or as defined by the court, and he was not Smith

Energy Company’s agent.”); see also CR 3036 (“Hardwick was not a member of a joint venture

with Smith Energy”); CR 3037 (“There was no joint venture”); CR 3042 (“The evidence

establishes that there was no joint venture as a matter of law”); CR 3044 (“The evidence

conclusively establishes that Mark Hardwick was not Smith Energy Company’s (individually)

agent, let alone the vast majority of the individuals and entities included within the Court’s

definition of Smith Energy Company.”). His motion for new trial is similar. CR 3535-36.

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1. There is no joint venture, as the parties carefully disclaimed

any joint venture in writing.

Smith alleged a joint venture between Hardwick and Smith because of the

Fusselman contracts. See CR 2918 (alleging a joint venture “as a result of the fact

that Hardwick and Smith are joint working interest owners”); CR 2902 (“The

GEAs each created a joint venture”).

But the contracts say the opposite. Start with the North Mound Lake

Participation Agreement between Smith and RAW (DX-1346), and the three side

letters that brought Blaylock, Elger, and Hardwick into the project (DX-86). The

participation agreement says nothing about a joint venture. See DX-1346.

Paragraph 11 requires them to sign an operating agreement (DX-1347),

which they all did. That agreement disclaims any joint venture. It does so in

Article VII’s very first paragraph: “It is not the intention of the parties to create,

nor shall this agreement be construed as creating, a mining or other partnership,

joint venture, agency relationship or association, or to render the parties liable as

partners, co-venturers, or principals.” DX-1347. Article VII goes on to say that

“the parties shall not be considered fiduciaries.” Id. Lester Smith signed the

operating agreement, as did everyone else involved in the deal: Hardin, Blaylock,

Elger, and Hardwick. See id.

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If they had not signed this agreement, the parties might debate the effect of

the statutory rule that “ownership of mineral property under a joint operating

agreement” is a fact that, “by itself, does not indicate that a person is a partner in

the business.” TEX. BUS. ORGS. CODE § 152.052(b)(4). But the operating

agreement removes all room for debate. There was no joint venture.

The Big Bump contract contains similar terms. DX-1354. The contract has

an attached operating agreement, which again states in Article VII that there is no

joint venture or partnership, and that the parties “shall not be considered

fiduciaries.” Id.

The remaining agreements—On Point, Muy Caliente, and North On Point

Extension—loudly reject any possibility of a joint venture. Paragraph 6.3 of each

one is entitled “No Partnership.” There, the parties renounced any joint venture:

“The liabilities of the Parties hereunder shall be several, not joint or collective ….

It is not the intention of the Parties to create, nor shall this Agreement be deemed

as creating a mining or other partnership or association or to render the Parties

liable as partners.” DX-1351; accord DX-1356, DX-1298.

The operating agreements go further by rejecting any fiduciary duty between

the parties: “the parties shall not be considered fiduciaries or to have established a

confidential relationship.” DX-1354, art. VII.A; accord DX-1356, DX-1298.

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So while Smith certainly alleged that the contracts “created a joint venture”

(CR 2902), those allegations wither in the face of the contracts. There was no joint

venture, and even if there had been, the parties disclaimed any fiduciary duties.

Joint venturers have a right to agree that they will not owe fiduciary duties, as the

State’s policy of freedom of contract supports almost any bargain made by a joint

venture’s members. See TEX. BUS. ORGS. CODE § 152.002(a).

2. There is no agency, because the parties disclaimed it.

A similar analysis applies to agency. The Fusselman operating agreements

state in Article VII that it is not the intention of the parties to create “a mining or

other partnership, joint venture, agency relationship or association.” DX-1347;

accord DX-1354, DX-1351, DX-1356, DX-1298. Further, they likewise provide

that the “parties shall not be considered fiduciaries.” Id.

Smith says that agency existed for Bad Billy, but not Fusselman. CR 3129.

If so, agency cannot support the $5 million forfeiture award, because that money

(Question 15) relates to Fusselman, not Bad Billy. The most that agency might

support would be Bad Billy tort damages (Question 14) of $43,425 in overcharges

plus $25,448 in replacement costs, with no fees and no forfeiture of Fusselman

working interest money. CR 3092. So the most Smith could recover is $68,873.

But even that award has problems. First, there is no proof of any breach of a

fiduciary duty related to any Bad Billy agency. What did Hardwick do wrong on

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Bad Billy? According to Smith, he charged too much and stopped too soon.

Those acts may be contract breaches but not fiduciary duty breaches.

Second, the statute of frauds bars the recovery of the $25,448 in replacement

landman costs, because a plaintiff cannot have benefit-of-the bargain damages in

tort when the statute of frauds makes the bargain unenforceable, as is true of the

Bad Billy contract. Haase v. Glazner, 62 S.W.3d 795, 797-99 (Tex. 2001).

Finally, the definition of “Smith” injects Casteel error into the agency claim.

As noted earlier, the definition includes all the tag-along parties as “Smith,” but

there is no evidence of agency between Hardwick and those parties.

3. The contracts have legal effect.

When Hardwick pressed these arguments in his JNOV motion, Smith replied

that the contracts do not count. First, Smith claimed that there was testimony

about the five partnership factors. CR 3120-24; see CR 3124 (“regardless of the

language used in the Fusselman Prospect Agreements or the JOAs, the agreements

are not conclusive proof that a joint venture does not exist.”).

But that argument fails because it pretends that the contracts are ineffective.

Parties cannot end-run their written agreements by taking the stand and asserting,

“Oh yes, despite disclaiming a joint venture in writing, we actually had a joint

venture because we shared control and all those other things.”

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The whole point of the contractual disclaimers was to define the relations

between the parties and to prevent one party from ambushing another party with

phony allegations of partnership. Texas does not favor “surprise or accidental

partnerships.” Ingram v. Deere, 288 S.W.3d 886, 898 (Tex. 2009).

Texas recognizes “the right of persons to define the terms of their business

relationships.” Nat’l Plan Adm’rs, Inc. v. Nat’l Health Ins. Co., 235 S.W.3d 695,

702 (Tex. 2007); see Gym-N-I Playgrounds, Inc. v. Snider, 220 S.W.3d 905, 912

(Tex. 2007) (Texas “strongly favors” freedom of contract); Fairfield Ins. Co. v.

Stephens Martin Paving, LP, 246 S.W.3d 653, 664 (Tex. 2008) (“utmost liberty of

contracting”). Part of this is the freedom to determine when to be bound. See

Foreca, S.A. v. GRD Dev. Co., Inc., 758 S.W.2d 744, 745-46 (Tex. 1988); Scott v.

Ingle Bros. Pac., Inc., 489 S.W.2d 554, 555 (Tex. 1972).

Imagine the consequences of Smith’s position. If parties could not define

their relationships in written contracts, how will they ever know what duties they

owe each other? They can hire a lawyer and ask, “Am I in a partnership?,” but the

lawyer will not be able to say, because any decent lawyer would tell them that if

the two sides disagree, it must go to trial. The only way to know how to behave

toward another party would be to go ask a jury: “Were we in a joint venture?”

What a depressing and unpredictable world it would be if nobody could rely on

written contracts such as these. The Court should enforce the contracts as written.

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Smith says that witnesses such as Lester Smith and Steve Blaylock testified

to certain factors under the five-factor test for a joint venture. CR 3123. Yes, they

said that—despite signing contracts saying the opposite, and despite paying no

attention to the writings. See 5 RR 280 (Blaylock: “beat me with a wet rope if I

had to read one of those ... I don’t read them”); 6 RR 24 (Blaylock: “I haven’t read

through any of them even today.”); 6 RR 30 (Blaylock: “I didn’t read the

agreements we signed.”); 7 RR 249 (Smith: “I’m a handshake guy .... I don’t even

know if I read the contract.”). But it makes no difference.

Such parol evidence about what they felt and thought is legally immaterial.

If the contracts are enforceable, the effect is to trump the force of such testimony.

In the words of Chief Justice Calvert’s article, such testimony is classified as no

evidence because a rule of law bars its consideration. See Calvert, “No Evidence”

& “Insufficient Evidence” Points of Error, 38 TEX. L. REV. 361, 361-62 (1960).

Second, Smith argued that there was no signature on the operating

agreements attached to the contracts for On Point, Muy Caliente, and North On

Point Extension. CR 3124. That is an odd position to take, given that those three

contracts each positively scream “No Partnership” in section 6.3. Further, Smith

signed the operating agreement for North Mound Lake, which disclaims joint

venture and fiduciary duty.

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That leaves only the Big Bump participation agreement. In section 11,

Smith agreed that upon its execution, the parties would sign the attached operating

agreement. See DX-1354. That bound Smith to the terms of the attachment. See

In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 135 & n.41 (Tex. 2004) (“[A]n

unsigned paper may be incorporated by reference in the paper signed by the person

sought to be charged. The language used is not important provided the document

signed ... plainly refers to another writing.”); In re Bank One, N.A., 216 S.W.3d

825, 826 (Tex. 2007) (arbitration clause in Bank’s Account Rules and Regulations

was incorporated by reference into signature card where customer agreed to be

bound by the account rules and regulations). In short, the contracts count.

B. There is no fraud.

Question 9 asked the jury whether Hardwick committed fraud against Smith

Energy either by a misrepresentation or by a nondisclosure. The jury said Yes.

The jury found the same damages that it had found on the contract claim: $36,003

in Fusselman overcharges, $43,425 in Bad Billy overcharges, and $25,448 in Bad

Billy replacement landman costs. See Question 10.

Hardwick repeatedly assailed Question 9. First, he objected to the question

as being insufficiently specific. See 11 RR 406 (Mr. Strange: “it’s not limited in

scope in any way, shape, form or fashion. Did Mark Hardwick commit fraud

against Smith Energy in connection with what?”). Second, he objected to

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including the tag-along parties in the definition of “Smith” (11 RR 406), because

there is no evidence of any representation to, or reliance by, the tag-along parties.

11 RR 406-07. Third, he objected to the nondisclosure part of the question,

because a duty to disclose would exist only if there were a fiduciary relationship,

which there was not. 11 RR 407. Fourth, he assailed its intent element with a no-

evidence point in writing after the verdict. CR 3101.

Smith’s counsel argued that Hardwick committed fraud by not disclosing

that he and Lester Smith read the contracts differently. See 11 RR 323 (“The

testimony is certainly unequivocally from Mr. Smith that if he had known that this

man’s position was he didn’t have to do anything in order to collect 6 percent, he

would have never entered in the contract.”).

That is a peculiar notion of fraud, but Smith’s counsel committed himself to

it and stressed it in closing argument: “Lester Smith testified, ‘If I had known that

I thought that he thought that he didn’t have to do anything in return for this really,

really rich deal I was giving him, I’d have never entered into the contract.’ That is

the fraud.” 12 RR 62.

1. The fraudulent inducement aspect of the claim fails because

it lacks legally and factually sufficient evidence.

The fraudulent inducement complaint is untenable. Take the intent element.

To prove that Hardwick fraudulently induced the contracts, Smith had to prove that

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Hardwick had a bad intent at the time the parties entered into the contract. See

T.O. Stanley Boot Co., 847 S.W.2d at 222. But that lacks the support of legally

and factually sufficient evidence.

All agreed that Hardwick was an excellent landman and did good work.

E.g., 6 RR 50. Lester Smith said so himself. 7 RR 267 (“Mark’s an excellent

landman. Very, very good at his job.”); 8 RR 9 (“Mr. Hardwick was an excellent

landman and did great work”). Although Smith criticizes him for running out of

gas before finishing the race, that is a far cry from starting as a fraud.

To the contrary, Hardwick performed extensively under the agreements.

Hardwick put in long hours and worked on the projects during 2008, 2009, 2010,

and much of 2011. 9 RR 234-35; 10 RR 18, 98, 100-03, 129. He worked himself

nearly to the point of exhaustion, because the wells came in so successfully.

Performing a contract for years refutes fraudulent inducement. See IKON Office

Solutions, Inc. v. Eifert, 125 S.W.3d 113, 124 (Tex. App.—Houston [14th Dist.]

2003, pet. denied); Bank One, Tex., N.A. v. Stewart, 967 S.W.2d 419, 445-46 (Tex.

App.—Houston [14th Dist.] 1998, pet. denied); Ensil Int’l Corp. v. Lear Siegler

Servs., Inc., 2011 WL 2473067, at *3 (Tex. App.—San Antonio June 22, 2011, no

pet.); Reyna v. First Nat’l Bank, 55 S.W.3d 58, 66-68 (Tex. App.—Corpus Christi

2001, no pet.); Bay Colony, Ltd. v. Trendmaker, Inc., 121 F.3d 998, 1006 (5th Cir.

1997). The intent element is unproven.

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Further, there is legally and factually insufficient evidence of a failure to

disclose a “material fact.” Question 9 recognizes fraud by non-disclosure. As

noted earlier, Smith insisted that Hardwick’s failure to disclose that he read the

contracts a certain way was an actionable non-disclosure of a material fact. But

that is not a material fact. The Court should render on this theory.

Alternatively, the non-disclosure aspect of Question 9 injected Casteel error

into the charge. Hardwick owed no duty to disclose, for the reasons given earlier.

Thus, at a minimum, the fraud theory should be reversed and remanded because of

error in the charge.

2. The rest of the fraud claim is flawed.

Smith’s only other argument for fraud relates to overbilling. Smith asserted

that overbilling for the Fusselman and Bad Billy work constituted fraud. 12 RR

63-66; CR 3119. At most, the overbilling would justify damages of about $79,000.

It would not constitute fraudulent inducement, and it would not justify rescission of

the contracts.

But the problems with the fraud claim go deeper than that. The jury charge

contains more layers of Casteel error. First, the trial court erred in including the

tag-along parties in the definition of “Smith.” Those parties have no evidence of

fraud whatsoever. CR 2964-65. They conspicuously failed to prove material

misrepresentation or reliance.

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This is unsurprising, given that they had no contact with Hardwick. A

misstatement, its materiality, and reliance all “require individualized proof.”

Peltier Enters., Inc. v. Hilton, 51 S.W.3d 616, 623 (Tex. App.—Tyler 2000, pet.

denied); see Grant Thornton LLP v. Suntrust Bank, 133 S.W.3d 342, 355 (Tex.

App.—Dallas 2004, pet. denied) (“Proof of reliance or lack of reliance necessarily

requires an individualized determination”). There was no effort to prove these

individualized aspects of fraud claims as to the tag-along parties. There is simply

no evidence that any of them have supportable fraud claims.

Second, the tag-along plaintiffs also failed to prove that Hardwick had a duty

to disclose information to them. Failure to disclose does not constitute fraud

unless there is a duty to disclose. Ins. Co. of N. Am. v. Morris, 981 S.W.2d 667,

674 (Tex. 1998). “Generally, no duty of disclosure arises without evidence of a

confidential or fiduciary relationship.” Id. Duty is a matter of law for the court.

Bradford v. Vento, 48 S.W.3d 749, 755 (Tex. 2001).

There is no evidence that Hardwick had any type of relationship with the

tag-along parties, so no duty to speak could arise. Thus, any claim for fraud by

nondisclosure to the tag-alongs cannot stand. At a minimum, the Court should

reverse and remand the fraud recovery because of error in the charge.

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III. THE ADDITIONAL REMEDIES—$5 MILLION IN FORFEITURE, $3.5 MILLION

IN FEES, $750,000 IN INTEREST ON THE FORFEITURE, AND PARTIAL

RESCISSION—ARE IMPROPER.

The largest dollar amounts in this appeal involve remedies.

A. The $5 million forfeiture award is improper.

After obtaining only $104,000 in damages from the jury, Smith asked the

court to make the recovery nearly 50 times larger. Smith requested a “forfeiture”

award for $5,004,231, which is the sum of the dollar figures found in Questions

15a and 15b. See CR 3153-65.

Smith got its wish. The judgment awards the amount requested and recites

that “forfeiture” of this amount is “necessary to satisfy the public’s interest in

protecting fiduciary relationships.” CR 3604. That was error. There should be no

forfeiture at all, and certainly not one this large.

1. There is no underlying tort to support forfeiture.

No forfeiture is proper. There was no fiduciary duty and no breach, let alone

a clear and serious one, for the reasons discussed earlier in section II.A. The

Fusselman contracts repeatedly disclaim fiduciary duty. E.g., DX-1298, 1351,

1356. Although Smith says that a fiduciary duty flowed from an agency

relationship created by the Bad Billy contract, that is irrelevant; a breach on one

project will not support forfeiture as to another. Gregory v. Porter & Hedges,

LLP, 398 S.W.3d 881, 887 (Tex. App.—Houston [14th Dist.] 2013, pet. denied).

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Smith may seek to salvage the forfeiture award as a restitutionary remedy

for fraudulent inducement. That will not do. There was no fraudulent inducement,

for all the reasons discussed in section II.B. Accordingly, the forfeiture award

lacks the support of a proper legal predicate.

2. Even if forfeiture were available—so that Hardwick had to

“return” his “compensation”—the working interests never

came from Smith and were not compensation.

Even if there had been a breach to support forfeiture of something, it would

not justify turning over the working interest earnings. Smith analogized to a

refund that a disloyal lawyer might have to make to a client in an Arce situation.

See CR 2919 (pleading for “compensation” to be “forfeited”); 11 RR 288 (“I’m

trying to get the value of the compensation that we paid him.”) Smith said that it

“simply wants back the compensation that Hardwick did not earn.” CR 3165.

The record refutes this myth of “compensation” going “back” to Smith.

First, the working interests never came from Smith. They came from RAW. See

DX-1298, 1346, 1354, 1351, 1356. Hardwick and friends took the deal to Smith,

not vice versa. 6 RR 108-09, 134-36. Second, the working interests were not

compensation and they are not conditioned on personal services. Conditions are

disfavored in law and would require very clear language. See Rogers v. Ricane

Enters., Inc., 772 S.W.2d 76, 79 (Tex. 1989). All a working interest owner must

do is pay his bills (6 RR 244), which Hardwick undisputedly did.

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43

To see the absurdity of Smith’s position, take a hypothetical that shows why

Hardwick’s share of the working interest cannot have been salary for land work.

What if Hardwick died in a wreck before all the work was done? Smith concedes

that forfeiture of the working interests would be improper for that. 11 RR 293-96.

Hardwick’s heirs would inherit the working interests and keep getting paid. Id.

But that concession proves the point. If the working interest earnings were truly a

paycheck for finishing a multi-year job, as Smith claims, they would need to stop if

Hardwick was run over by a train. The forfeiture claim is a baseless land grab.

3. The forfeiture award rests on inaccurate factual findings.

In Question 15, the jury found that “Hardwick” received $795,056 in

working interest earnings after stopping work. It also found that “Hardwick’s”

working interests had a market value of $4,209,175 in the middle of 2013. These

findings address Hardwick individually—as opposed to the LLC. But the findings

are excessive. Hardwick assigned the working interests to LLC in 2011. See DX-

848; DX-1371; 5 RR 205-06. This is undisputed. See id. Thus, most of the

$795,056 (Question 15a) was “received” by LLC, not Mark Hardwick. Similarly,

the value of “Mark Hardwick’s” working interests (Question 15b) on the relevant

date was not $4.2 million, because $2.8 million of that amount belonged to LLC by

then. Hardwick laid out the numbers in his new trial motion (CR 3537), and

Smith’s response neither quoted nor cited any evidence to contradict them.

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In response to the motion for new trial, Smith claimed that Hardwick was

“legally entitled to receive” the various working interests and associated earnings.

CR 3643. That may or may not be true, but it makes no difference. The charge did

not ask what Hardwick was “legally entitled to receive.” It asked what he

“received.” Sufficiency review takes place in light of the charge as submitted, not

some hypothetical charge. Osterberg v. Peca, 12 S.W.3d 31, 55 (Tex. 2000);

Larson v. Cook Consultants, Inc., 690 S.W.2d 567, 568 (Tex. 1985). Smith also

called LLC a “shell” company (CR 3643) but has no alter ego finding to support

that belated claim. The answers to Question 15 are simply unsupportable, and the

response to the new trial motion tends to suggest that Smith realizes it.

4. The forfeiture amount is too large.

If the Court gets this far, it should reduce the award’s size. While trial

courts have discretion over forfeiture amounts, see Burrow v. Arce, 997 S.W.2d

229, 246 (Tex.1999), if an award can ever be excessive, this one is.

First, the $5 million forfeiture of Fusselman working interest monies dwarfs

the damages associated with those projects. Second, the contracts disavow joint

ventures and fiduciary duties, so Hardwick had a good reason for any failure to

comply. See, e.g., DX-1298, 1347. Third, all agreed that Hardwick did excellent

work. 7 RR 267; 8 RR 9. Under these circumstances, such a disproportionately

large forfeiture is improper.

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5. The forfeiture cannot be saved as restitution and rescission

for fraud.

As an alternative, Smith treated the forfeiture as equitable relief to go with

rescission as a remedy for fraudulent inducement. CR 3150-69. Smith spoke of

restitution. See CR 3156-60. But that argument fails for multiple reasons.

To begin with, the law disfavors awarding equitable relief when money

damages are available. Money damages are generally an adequate remedy at law.

Smith sued for damages on the Fusselman contracts, and although the verdict was

less than Smith wanted, the jury awarded something. So if Hardwick breached the

Fusselman contracts, the damages make Smith whole. Nothing justifies piling on

with “equitable” relief.

Smith says that a fraudulent inducement plaintiff can seek “rescission and

restitution of the consideration paid.” CR 3156. But Smith does not want that.

The remedy Smith got is nothing like “rescission and restitution.” Smith positively

loves the Fusselman contracts because they turned out so profitably. Smith wants

to keep them in place, not rescind them. The twist is that Smith wants to rewrite

the contracts—partway—by readjusting the percentages, so that Hardwick’s share

goes down, Smith’s goes up, and there is no change in the percentage for Blaylock,

Elger, and RAW. That hardly sounds like rescission.

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Nor does Smith really want restitution of “consideration paid,” because the

$5 million in working interest earnings were not “consideration” for the contracts,

were not “paid” by Smith, and do not count as restitution in any sense of the word.

In substance, the $5 million borders on punitive damages.

Smith cites section 54 of a Restatement to shore up the remedy (CR 3465),

but that part of the Restatement deals with the return of “specific property in the

hands of a defendant, as opposed to a money judgment in the amount of the

defendant’s unjust enrichment.” RESTATEMENT (THIRD) OF RESTITUTION & UNJUST

ENRICHMENT, Introductory Note at 260 (2011). It imposes an “all-important

‘tracing requirement.’” Id. at 262. Thus, section 54 speaks of a person who has

“transferred money or other property” being entitled to recover “it.” Id. § 54.

Smith does not want to rescind the Fusselman contracts. Smith wants to

pick and choose—keeping some parts and rejecting others. The Court should

refuse to let Smith go halfway across the canyon. Texas law strongly disfavors

partial rescission: “It is the longstanding general rule in Texas that a rescission of

a contract must be in toto.” Costley v. State Farm Fire & Cas. Co., 894 S.W.2d

380, 387 (Tex. App.—Amarillo 1994, writ denied). That rule applies here and

condemns the trial court’s decree of rescission “as between” two parties to the five-

way set of Fusselman contracts.

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Although the rule against partial rescission has two narrow exceptions,

neither applies. The exceptions are for divisible contracts and “extreme” cases. Id.

The Fusselman contracts are not plainly divisible. Nor is this case extreme—after

all, the fraudulent inducement caused zero damages. Smith alleged that Hardwick

would work in perpetuity, but the jury brought back all zeros on that claim. See

Questions 10(3)(a)(i), (b)(i), (c)(i). That does not qualify as extreme. See Bryant

v. Vaughn, 33 S.W.2d 729, 730 (Tex. 1930) (rescission is improper for fraudulent

inducement that causes no damage).

In short, the only “consideration” worthy of the name is the money Smith

paid in so that RAW could acquire leases in the names of all five participants.

That money never went to Hardwick, so he cannot “return” it. Nor is that money

the same as the working interests or associated earnings he was ordered to forfeit.

The forfeiture award is not supportable as restitution of consideration paid.

B. The attorney’s fees should be reduced or eliminated.

The $3.5 million fees should be reduced or eliminated.

1. A reversal of the underlying damages will require either a

rendition or remand on attorney’s fees.

If the Court deletes the damages, it should delete the fees. Dryzer v.

Bundren, 2014 WL 1856849, at *5 (Tex. App.—Amarillo June 16, 2014, pet.

denied); see Gulf States Utils. Co. v. Low, 79 S.W.3d 561, 567 (Tex. 2002)

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(“Without an actual-damages recovery, a party is not entitled to an attorney’s fees

recovery.”). Likewise, if Smith’s damages are disturbed but not eliminated, the fee

award would necessarily require reconsideration by the fact finder. The jury was

asked to find fees based on the “amount involved and the results obtained.” CR

2985. When the damages are reduced, that changes “the results,” so a retrial on

fees is required. Barker v. Eckman, 213 S.W.3d 306, 313-15 (Tex. 2006).

2. Smith failed to segregate fees between recoverable and non-

recoverable claims.

But the fee award should be reversed no matter how the Court rules on the

actual damages. Smith did not prove fees properly. Attempting to inflate the fee

award, Smith openly refused to segregate recoverable from unrecoverable fees. In

fact, Smith redacted the invoices to hide virtually all signs of what the lawyers

were doing. Hardwick preserved these arguments. CR 3055-57, 3459, 3539.

Fees cannot be recovered unless authorized by contract or statute. In re

Nalle Plastics Family Ltd. P’ship, 406 S.W.3d 168, 172 (Tex. 2013). Thus, “if any

attorney’s fees relate solely to a claim for which such fees are unrecoverable, a

claimant must segregate recoverable from unrecoverable fees.” Tony Gullo Motors

I, L.P. v. Chapa, 212 S.W.3d 299, 313 (Tex. 2006). Here, Smith can recover fees

for only the contract and statutory-theft claims. See TEX. CIV. PRAC. & REM. CODE

§§ 38.001(8), 134.005(b). Smith cannot recover fees for tort claims.

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Nevertheless, Smith failed to segregate. Hardwick asked Smith’s main fee

expert whether he segregated the fees. The expert, Mr. Moore, said No:

Q. You have not attempted to allocate any fees to any particular

claim or cause of action?

A. I guess the answer is no because I don’t know how you could

particularly allocate a fee to a particular cause of action when

they’ve got about 10 or 12 and you’ve got about 12 or 15. So I

guess the answer is no.

7 RR 202; see 7 RR 203 (“I did not attempt to segregate a fee to a particular cause

of action”). Moore said that the case involved “interrelated causes of action,” so

he did not “know how you break it out.” 7 RR 215. Smith’s lead trial attorney,

Rusty Hardin, echoed this in some short follow-up testimony, contending that fees

were unsegregated because the causes of action “were all so interrelated” and

“impossible to divide.” 7 RR 219-20.

Smith seeks to revive the old intertwining exception to segregation, which

Tony Gullo explicitly rejected: “To the extent Sterling suggested that a common

set of underlying facts necessarily made all claims arising thereform ‘inseparable’

and all legal fees recoverable, it went too far.” 212 S.W.3d at 313; see also MBM

Fin. Corp. v. Woodlands Operating Co., L.P., 292 S.W.3d 660, 667 (Tex. 2009)

(similar). Tony Gullo “reestablished the rule that attorney’s fees are recoverable

only if necessary to recover on a contract or statutory claim allowing them.”

Varner v. Cardenas, 218 S.W.3d 68, 69 (Tex. 2007).

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The only time that segregation is not required is “when discrete legal

services advance both a recoverable and unrecoverable claim that they are so

intertwined that they need not be segregated.” Tony Gullo, 212 S.W.3d at 313-14

(emphasis added). The focus of the exception now is on the work performed, not

the facts or claims. Id. “Intertwined facts do not make tort fees recoverable” or

any other fees not related to a contract or statute. See id. at 313.

Here, any work that Smith’s lawyers performed solely to advance issues not

related to the contract or statutory-theft claims cannot lead to fee recovery. Thus,

any work done on the following issues must be segregated and excluded from

Smith’s fee calculation:

 Breach of fiduciary duty

 Joint venture

 Agency

 Fraud

 Forfeiture (which includes the working-interest earnings that

Hardwick received after he stopped his services, and the value of

his working interests)

 Exemplary damages

 Claims on which Smith did not prevail, such as fraud claims

relating to the North On Point Extension GEA amendment (8 RR

235, 238, 252)

 Smith’s non-suited claims, such as the fraudulent-transfer claim

(8 RR 236-38, 252)

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This partial list shows how many significant issues involved work related only to

tort claims.

In fact, segregation on this record was impossible. As Hardwick noted in his

JNOV motion, the invoices from Smith’s lawyers “are so heavily redacted as to be

essentially meaningless.” CR 3056. E.g.:

 “1/26/2012 RKH Telephone calls to [redacted]; review

[redacted] draft [redacted]”

 “12/19/2012 CPC Conduct legal research regarding [redacted]

and conduct factual research regarding [redacted]”

 “10/25/2013 LH Meeting with Carolyn Courville and Ryan

Higgins regarding [redacted] research regarding [redacted]”

 “6/19/2014 RH Meeting with Ryan Higgins and Carolyn

Courville to [redacted] conference with Carolyn Courville”

PX-166. These general descriptions of the work go on for page after page. Id.

Were the lawyers working on Smith’s tort claims? Contract claims? Nobody can

tell from the invoices, because the subject matter is marked out. The redactions

make it impossible to tell what work the plaintiffs’ lawyers did on claims for which

fees are recoverable and on claims for which they are not. The failure to segregate

warrants at least a reversal and remand. See A.G. Edwards & Sons Inc. v. Beyer,

235 S.W.3d 704, 710 (Tex. 2007).

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3. There is no evidence that the hours worked by Smith’s

lawyers were necessary.

But the problems go deeper than failure to segregate. Smith had the burden

to prove that the fees awarded for the fee-recoverable contract and statutory-theft

claims were not only reasonable, but necessary. TEX. CIV. PRAC. & REM. CODE

§§ 38.001(8), 134.005(b). Any fees expended solely on non-recoverable claims,

by definition, are not necessary. See Tony Gullo, 212 S.W.3d at 311-14. Here,

Smith supplied no specific evidence—none—that the hours worked by the

attorneys were necessary. See CR 3055-57, 3459, 3539 (Hardwick’s objections).

Smith’s fee expert, Bradford Moore, used the lodestar method to calculate

trial fees by relating the hours worked for each person who worked on the case

multiplied by their hourly rates for a total fee. PX-166, 276-80. A “party choosing

the lodestar method of proving attorney’s fees must provide evidence of the time

expended on specific tasks to enable the fact finder to meaningfully review the fee

application.” Long v. Griffin, 442 S.W.3d 253, 253 (Tex. 2014) (per curiam).

“[G]eneralities about tasks performed provide insufficient information for the fact

finder to meaningfully review whether the tasks and hours were reasonable and

necessary under the lodestar method.” Id. (citing El Apple I, Ltd. v. Olivas, 370

S.W.3d 757, 763 (Tex. 2012)). But Smith offered only generalities, not specifics,

about the tasks performed by the attorneys.

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As discussed above, the contemporaneous billing records are heavily

redacted. PX-166. They speak only in general terms about the work; such

generalities are not evidence of “time spent on specific tasks” for recoverable

claims. Long, 442 S.W.3d at 255; see City of Laredo v. Montano, 414 S.W.3d 731,

736 (Tex. 2013) (per curiam) (“lodestar calculation requires certain basic proof,

including itemizing specific tasks”).

The expert, Moore, concluded that the total amount of fees was “reasonable

and necessary” (7 RR 197), but he did not explain how the hours worked satisfied

that standard. He conceded that he could not explain the substance of the tasks

performed because the invoices were redacted. 7 RR 207-11. This is

understandable, since he apparently reviewed only the redacted bills. 7 RR 207,

209. That leaves Smith with the expert’s mere say-so, which is not enough. See

Burrow, 997 S.W.2d at 235 (“a claim will not stand or fall on the mere ipse dixit of

a credentialed witness.”).

Likewise, Moore made no effort to determine whether the billings for the

legal support staff included only substantive legal work (possibly recoverable), as

opposed to clerical work (not recoverable). 7 RR 204-13. He made that

assumption based on his experience with other law firms and the Hardin firm’s

reputation. Id. Mr. Hardin did testify that all the staff’s work encompassed legal

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matters (7 RR 220-21), and his testimony can be taken as true, but this testimony

says nothing about whether their hours worked were necessary.

In sum, under the method that Smith chose to use, no evidence supports the

amount of attorney’s fees awarded. No evidence indicates the hours expended on

the specific tasks working on claims for which fees may be recovered. Smith

offered only generalities, and “[o]ne does not satisfy that obligation by simply

proffering evidence of generalities.” Sullivan v. Abraham, 2014 WL 5140289, at

*3 (Tex. App.—Amarillo Oct. 13, 2014, pet. filed). The Court should reverse and

render as to fees. Alternatively, the Court should reverse and remand.

This complaint about evidentiary insufficiency is not some technicality.

Smith wants a $3.5 million fee award for recovering a mere $104,000. Such a

disproportionate fee award ought to rest on solid proof. If the Court were to

approve of Smith’s evidence, the law would have no way of stopping an award at

$3.5 million. Why not $10 million next time? Why not $100 million? If all a

plaintiff needs to do is what Smith did, reviewing courts will have no way to know

when a fee award crosses the line. Smith’s fee award rests on legally and factually

insufficient evidence.

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C. The judgment wrongly stacks remedies: Smith cannot have both

the $5 million in disgorgement and the $3.5 million in fees.

The trial court erred in stacking inconsistent remedies. The most obvious

example of this error comes in the stacking of the $5 million disgorgement award

on top of the $3.5 million fee award. Smith sought disgorgement on the basis of

the tort theories—fiduciary duty and fraud—while seeking fees on the basis of the

contract and statutory theft theories.

Hardwick asked the court to require an election. See CR 3035 (“At a

minimum Plaintiffs must elect a damage theory”); CR 3455 (“election of remedies

doctrine and the one-judgment rule”); CR 3456 (similar); CR 3458 (objecting to

“multiple recoveries”); CR 3459 (objecting to the fee award under the “election of

remedies and one-satisfaction doctrines”). The court erred in failing to do so.

A plaintiff is entitled to elect the greatest recovery when the verdict supports

relief under multiple theories. See Boyce Iron Works, Inc. v. Sw. Bell Tel. Co., 747

S.W.2d 785, 787 (Tex. 1988) (“When a party tries a case on alternative theories of

recovery and a jury returns favorable findings on two or more theories, the party

has a right to a judgment on the theory entitling him to the greatest or most

favorable relief.”). But the plaintiff cannot stack them all on top of each other.

The rule came up in Tony Gullo, which involved three theories, namely

contract, fraud, and DTPA:

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For breach of contract, Chapa could recover economic damages and

attorney’s fees, but not mental anguish or exemplary damages. For

fraud, she could recover economic damages, mental anguish, and

exemplary damages, but not attorney’s fees. For a DTPA violation,

she could recover economic damages, mental anguish, and attorney’s

fees, but not additional damages beyond $21,639 (three times her

economic damages). The court of appeals erred by simply awarding

them all.

Tony Gullo, 212 S.W.3d at 304.

Smith won on four theories. The fraud and fiduciary duty theories sound in

tort and arguably support disgorgement, but they will not support an award of fees.

The contract and theft theories support an award of fees, but not disgorgement.

The trial court “erred by simply awarding them all.” Id.

Smith cannot mix and match theories. Smith needs to elect “the theory

entitling him to the greatest or most favorable relief.” Boyce, 747 S.W.2d at 787.

If the rule were otherwise, the plaintiff in Tony Gullo would have been able to

cherry-pick by stacking economic losses plus mental anguish plus fees plus

exemplary damages. See id.

This is not a case where the jury found different damages for each theory.

Every overcharge finding is the same from theory to theory—to the last dollar.

Every finding of damages for “cover” is also the same from theory to theory.

Accordingly, Smith must elect. Id.; see Saden v. Smith, 415 S.W.3d 450, 469 (Tex.

App.—Houston [1st Dist.] 2013, pet. denied).

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D. The rescission remedy is improper.

The judgment rescinded seven contracts “as between” Smith and Hardwick.

Those seven are the first five Fusselman contracts, the amended version of the last

Fusselman contract (North On Point Extension / O’Donnell), and Bad Billy.

Hardwick objected to rescission (CR 3088-101) because, as noted earlier, the law

strongly disfavors partial rescission. See Costley v. State Farm Fire & Cas. Co.,

894 S.W.2d 380, 387 (Tex. App.—Amarillo 1994, writ denied). The Court should

follow Costley and reverse.

E. Interest on forfeiture.

Over Hardwick’s objection (CR 3459), the trial court awarded prejudgment

interest on forfeiture. Prejudgment interest accrues on actual damages because the

plaintiff’s money has been detained: “Prejudgment interest is ‘compensation

allowed by law as additional damages for lost use of the money due as damages

during the lapse of time between the accrual of the claim and the date of

judgment.’” Johnson & Higgins of Tex., Inc. v. Kenneco Energy, Inc., 962 S.W.2d

507, 528 (Tex. 1998). But forfeiture does not compensate. Forfeiture has a more

punitive aspect and is available even absent actual damages. Because prejudgment

interest’s purpose is to “fully compensate the injured party, not to punish the

defendant,” Brainard v. Trinity Universal Ins. Co., 216 S.W.3d 809, 812 (Tex.

2006), the award of prejudgment interest on forfeiture is improper.

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IV. LLC Should Recover Fees Because It Prevailed on the Theft Claim.

Smith alleged theft against two defendants—Hardwick individually and

Hardwick LLC—not one:

 “Defendants have intentionally and unlawfully appropriated

property”

 “Defendants are liable for the damages resulting from such theft.”

 “Plaintiffs bring this claim against Defendants pursuant to Chapter

134 of the TEX. CIV. PRAC. & REM. CODE”

CR 2923-24. Smith did not prevail on the theft claim against the LLC.

A. The Theft Liability Act alters the American Rule by making fees

mandatory for a person who “prevails.”

The Act has a loser-pays rule: “Each person who prevails in a suit under this

chapter shall be awarded court costs and reasonable and necessary attorney’s fees.”

§ 134.005(b). “The Theft Act is unusual in Texas law in that it requires the court

to award attorney’s fees to a party who successfully defends a Theft Act claim,

without any prerequisite that the claim is found to be groundless, frivolous, or

brought in bad faith.” Air Routing Int’l Corp. (Canada) v. Britannia Airways, Ltd.,

150 S.W.3d 682, 686 (Tex. App.—Houston [14th Dist.] 2004, no pet.).

B. Under this Court’s reasoning in Dean Foods, the prevailing party

on Smith’s theft claim against LLC is not Smith, but LLC.

Section 134.005(b) uses the word “prevails” but does not define that word.

This Court has shown how to analyze language in comparable enactments.

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In Dean Foods Co. v. Anderson, 178 S.W.3d 449 (Tex. App.—Amarillo

2005, pet. denied), the dispute involved a statutory phrase, “prevailing party.” The

Court held that Ms. Anderson prevailed when her late husband’s employer

nonsuited its effort to overturn a compensability determination. Id. at 454. The

employer argued that its nonsuit kept her from prevailing, but the Court disagreed.

Id.

Chief Justice Quinn amplified on the analysis in a concurrence. He noted

that defendants who win by non-suit routinely recover court costs under Rule 131:

“it consistently has been held that the beneficiary of a non-suit, e.g., the defendant

when a plaintiff files a non-suit, is the prevailing or successful party for purposes

of Rule 131.” Dean, 178 S.W.3d at 456 (Quinn, C.J., concurring). “If we are to

retain the uniformity spoken of above, then we cannot but conclude that Anderson

was the successful or prevailing party here when Dean Foods filed its non-suit.”

Id. As the Chief Justice noted, the Court previously construed the term “prevailing

party” in a different statute so as to harmonize with the cases under Rule 131. See

City of Amarillo v. Glick, 991 S.W.2d 14 (Tex. App.—Amarillo 1997, pet. denied).

Just as in Dean Foods, the statute does not define what it means to prevail.

Just as in Dean Foods, the Court should promote consistency in the law by reading

the term “prevails” in the Theft Liability Act to include a defendant who is sued for

theft but is not found liable for theft.

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C. LLC should recover fees.

For these reasons, LLC prevailed and should have recovered fees. Smith

sued LLC for theft but did not prevail. Smith neither obtained jury findings nor a

judgment for theft against LLC.

When LLC raised this point after trial (CR 3079), Smith responded with

three contentions. First, Smith said that it did not really sue LLC for theft. CR

3107. But the pleadings say otherwise. CR 2923-24 ¶ 94. The theft count always

refers to the “Defendants” in the plural. Id. The petition even asks for damages to

be awarded against the two defendants “jointly and severally.” CR 2927. Smith

plainly sued LLC for theft.

Second, Smith said that a theft defendant does not “prevail” unless there is

an affirmative finding of outright innocence. CR 3107. In other words, Smith

argued that a defendant does not prevail by merely winning a take-nothing. Id.

But Dean Foods proves otherwise. Where a plaintiff sues for $50 million, as

Smith did, a defendant who walks away with a take-nothing has prevailed.

The only case cited on this point in Smith’s response was a memorandum

opinion from San Antonio. See CR 3107 (citing Travel Music of San Antonio, Inc.

v. Douglas, 04-00-757-CV, 2002 WL 1058527, at *3 (Tex. App.—San Antonio

May 29, 2002, pet. denied)). That decision is unpersuasive. Insisting on a finding

of affirmative innocence would complicate trials by making juries answer liability

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questions twice: (1) Is D guilty of theft?, and (2) Is D innocent of theft? The

better view is the one in Dean Foods and the Chief Justice’s concurrence.

Finally, Smith argued that LLC waived its fee claim by not getting a jury

finding on the dollar amount. CR 3108. But Smith told the trial court otherwise.

When the trial court was going through draft charge language about fees, the court

asked Smith about the “concept” of submitting questions for both defendants.

This discussion came up while the court was discussing fees. 11 RR 316-18.

The court suggested trying fees to the bench, if both sides consented. Id. at 316.

The court was looking for ways to shorten the trial. Id. at 318. In the very next

breath, the court raised the issue of whether to have duplicate questions for

Hardwick and LLC. Id. Smith told the court that there was no need for findings

on behalf of LLC:

The Court Well, let’s – let me talk about this concept

for just a minute. I noticed that Mr. Strange

has, on behalf of the defendant, several

questions for Mark Hardwick and Mark

Hardwick, LLC. And we don’t need to do

LLC, do we?

Ms. Hollingsworth No.

The Court I mean, we can eliminate that and just go

with Mark Hardwick, can’t we?

Ms. Hollingsworth Yes, sir.

11 RR 318-19. Smith cannot undo that representation now.

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This Court should reverse that part of the judgment that denies fees to LLC.

As a remedy, the Court should either award LLC half the total amount found by

the jury or remand the fee issue for trial. If the Court chooses to remand for a trial,

the resulting proceedings would be speedy, because a fee dispute such as this can

be resolved in less than a day of trial time.

PRAYER FOR RELIEF

The judgment should be reversed.

As to Hardwick individually, the Court should reverse the judgment and

render judgment that Smith take nothing or, alternatively, reverse and remand. The

Court should reverse the decree of rescission, the award of fees, and the forfeiture.

The Court should forbid stacking of forfeiture and fees, and it should require an

election of remedies. Any excessive recovery should be reduced or remitted.

As to Hardwick LLC, the Court should award LLC its fees in the amount of

half of what the jury found in answer to Question 25. Alternatively, the Court

should remand LLC’s fee claim for a trial on the proper amount.

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Respectfully submitted,

BECK REDDEN LLP

By: /s/ David M. Gunn

David M. Gunn

State Bar No. 08621600

dgunn@beckredden.com

Chad Flores

State Bar No. 24059759

cflores@beckredden.com

Erin H. Huber

State Bar No. 24046118

ehuber@beckredden.com

1221 McKinney, Suite 4500

Houston, TX 77010-2010

(713) 951-3700

(713) 951-3720 (Fax)

COUNSEL FOR APPELLANTS

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CERTIFICATE OF SERVICE

I hereby certify that on September 9, 2015, a true and correct copy of the

above and foregoing Brief of Appellants was forwarded to all counsel by the

Electronic Service Provider, if registered, otherwise by email, as follows:

Rusty Hardin

rustyhardin@rustyhardin.com

Ryan K. Higgins

rhiggins@rustyhardin.com

Jeremy Monthy

jmonthy@rustyhardin.com

Lara Hollingsworth

lhollingsworth@rustyhardin.com

Carolyn P. Courville

ccourville@rustyhardin.com

RUSTY HARDIN & ASSOCIATES, LLP

1401 McKinney Street, Suite 2250

Houston, TX 77010

Counsel for Appellees

/s/ David M. Gunn

David M. Gunn

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CERTIFICATE OF COMPLIANCE

1. This brief complies with the type-volume limitation of

Tex. R. App. P. 9.4 because it contains 14,973 words, 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: September 9, 2015.

/s/ David M. Gunn

David M. Gunn

Counsel for Appellant

1890.001/55701

66

No. 07-15-00083-CV

IN THE SEVENTH COURT OF APPEALS

AMARILLO, TEXAS

MARK P. HARDWICK, INDIVIDUALLY AND D/B/A

MARK P. HARDWICK OIL AND GAS PROPERTIES AND

MARK P. HARDWICK, LLC

Appellants,

v.

SMITH ENERGY COMPANY, ON ITS OWN BEHALF

AND ON BEHALF OF SMITH ENERGY RESOURCE OIL, LTD.,

A TEXAS LIMITED PARTNERSHIP, AND ON BEHALF OF SMITH

ENERGY PARTNERS I, LTD., A TEXAS LIMITED PARTNERSHIP,

Appellees.

On Appeal from the 121st District Court, Terry County, Texas

Trial Court Cause No. 19,490; The Honorable Rick Morris, Presiding

APPENDIX TO

BRIEF OF APPELLANTS

Tab

A Jury Verdict (2 CR 2948-92)

B Judgment (2 CR 3600-11)

C North Mound Lake Participation Agreement (DX 1346)

D North Mound Lake Operating Agreement (DX 1347)

E North Mound Lake letter (DX 1345) (incorrectly dated as

January 17, 2008 instead of July)

F Big Bump Participation Agreement & Operating

Agreement (DX 1354)

G On Point GEA (DX 1351)

H Muy Caliente GEA (DX 1356)

I Amended North On Point Extension & O’Donnell GEA

(DX 1350)

J Bad Billy Agreement (Amended) (PX 85)

1890.001/565701

No. 07-15-00083-CV

IN THE SEVENTH COURT OF APPEALS

AMARILLO, TEXAS

MARK P. HARDWICK, INDIVIDUALLY AND D/B/A

MARK P. HARDWICK OIL AND GAS PROPERTIES AND

MARK P. HARDWICK, LLC

Appellants,

v.

SMITH ENERGY COMPANY, ON ITS OWN BEHALF

AND ON BEHALF OF SMITH ENERGY RESOURCE OIL, LTD.,

A TEXAS LIMITED PARTNERSHIP, AND ON BEHALF OF SMITH

ENERGY PARTNERS I, LTD., A TEXAS LIMITED PARTNERSHIP,

Appellees.

On Appeal from the 121st District Court, Terry County, Texas

Trial Court Cause No. 19,490; The Honorable Rick Morris, Presiding

APPENDIX TO

BRIEF OF APPELLANTS

Tab

A Jury Verdict (2 CR 2948-92)

B Judgment (2 CR 3600-11)

C North Mound Lake Participation Agreement (DX 1346)

D North Mound Lake Operating Agreement (DX 1347)

E North Mound Lake letter (DX 1345) (incorrectly dated as

January 17, 2008 instead of July)

F Big Bump Participation Agreement & Operating

Agreement (DX 1354)

G On Point GEA (DX 1351)

H Muy Caliente GEA (DX 1356)

I Amended North On Point Extension & O’Donnell GEA

(DX 1350)

J Bad Billy Agreement (Amended) (PX 85)

1890.001/565701

TAB A

Jury Verdict

(2 CR 2948-92)

:i ·:._ ·-:,..I_

'

CAUSE NO. 19,490

,..,

-I

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SMI'I'H ENERGY COMPANY, ON § IN THE DISTRICT c~uRt = -.,

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ITS OWN BEHALF AND ON BEHALF §

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OF SMITH ENERGY RESOURCE § (.~

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OIL, LTD., A TEXAS LIMITED § . r-'

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PARTNERSHIP, AND ON BEHALF OF § --;c

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SMITH ENERGY PARTNERS I, LTD., § ~1'1

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ATEXASLIMITEDPARTNERSHIP § -I

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Plaintiffs,

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§

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.

vs. § TERRY COUNTY, TEXAS

§ ' '

MARK P. HARDWICK, INDIVIDUALLY §

AND D/B/A MARK P. HARDWICK OIL & §

GAS PROPERTIES, AND §

MARK P. HARDWICK, LLC §

§

Defendants. § 121 st JUDICIAL DISTRICT

COURT'S CHARGE

MEMBERS OF THE JURY:

After the closing arguments, you will go to the jury room to decide the case, answer

the questions that are attached, and reach a verdict. You may discuss the case with other

jurors only when you are all together in the jury room.

Remember my previous ins~ctions: Do not discuss the case with anyone else,

either in person or by any other means. Do not do any independent investigation about the

case or conduct any research. Do not look up any words in dictionaries or on the Internet.

Do not post information about the case on the Internet. Do not share any special

knowledge or experiences with the other jurors. Do not use your phone or any other

electronic device during your deliberations for any reason.

Any notes you have taken are for your own personal use. You may take your notes

back into the jury room and consult them during deliberations, but do not show or read

your notes to your fellow jurors during your deliberations. Your notes are not evidence.

Each of you should rely on your independent recollection of the evidence and not be

influenced by the fact that another juror has or has not taken notes.

After you complete your deliberations, the bailiff will collect your notes. When

you are released from jury duty, the bailiff will promptly destroy your notes so that nobody

can read what you wrote.

1

2948

Here are the instructions for answering the questions.

I. Do not let bias, prejudice, or sympathy play any part in your

decision.

2. Base your answers only on the evidence admitted in court and on the

law that is in these instructions and questions. Do not consider or discuss any

evidence that was not admitted in the courtroom.

3. You are to make up your own minds about the facts. You are the

sole judges of the credibility of the witnesses and the weight to give their testimony.

But on matters of law, you must follow all of my instructions.

4. If my instructions use a word in a way that is different from its

ordinary meaning, use the meaning I give you, which will be a proper legal

definition.

5. All the questions and answers are important. No one should say that

any question or answer is not important.

6. Answer "yes" or "no" to all questions unless you are told otherwise.

A "yes" answer must be based on a preponderance of the evidence unless you are

told otherwise. Whenever a question requires an answer other than "yes" or "no,"

your answer must be based on a preponderance of the evidence unless you are told

otherwise.

The term "preponderance of the evidence" means the greater weight of

credible evidence presented in this case. If you do not find that a preponderance of

the evidence supports a "yes" answer, then answer "no." A preponderance of the

evidence is not measured by the number of witness'es or by the number of

documents admitted in evidence. For a fact to be proved by a preponderance of the

evidence, you must find that the fact is more likely true than not true.

7. Do not decide who you think should win before you answer the

questions and then just answer the questions to match your decision. Answer each

question carefully without considering who will win. Do not discuss or consider

the effect your answers will have.

8. Do not answer questions by drawing straws or by any method of

chance.

9. Some questions might ask you for a dollar amount. Do not agree in

advance to decide on a dollar amount by adding up each juror's amount and then

figuring the average.

2

2949

·'

10. Do not trade your answers. For example, do not say, "I will answer

this question your way if you answer another question my way."

11. Unless otherwise instructed the answers to the questions must be

based on the decision of at least ten of the twelve jurors. The same ten jurors must

agree on every answer. Do not agree to be bound by a vote of anything less than

ten jurors, even if it would be a majority.

As I have said before, if you do not follow these instructions, you will be guilty of

juror misconduct, and I might have to order a new trial and start this process over again.

This would waste your time and the parties' money, and would require the taxpayers of this

county to pay for another trial. If a juror breaks any of these rules, tell that person to stop

and report it to me immediately.

A fact may be established by direct evidence or by circumstantial evidence or

both. A fact is established by direct evidence when proved by documentary evidence or

by witnesses who saw the act done or heard the words spoken. A fact is established by

circumstantial evidence when it may be fairly and reasonably inferred from other facts

proved.

The terms set forth below are defined in this charge as follows:

I. "Smith Energy Company" refers to itself, and on behalf of the interests of the

following persons and/or entities:

a. Alec Smith

b. A.M. Greene Trust

c. Brian Hendry

d. Bronze Creek Holdings, Ltd.

e. David Garcia

f. Elger Exploration

g. Janice Holloway

h. JOH RAW Energy, L.C.

i. Jeff Kimble

j. Jennifer Huber

k. Julie Rouse

I. JZM Oil and Gas,, LLC

m. Karen Collier

n. Karla Neal

o. KB Oil and Gas, LP

p. Lawrence E. Glenn

q. Lester H. Smith 1999 Revocable Trust

r. Lester H. Smith 2004 Family Legacy Trust

s. Limor Smith

t. Margaret Farmer

u. PAH Energy

3

2950

v. Patricia Morille

w. Paul Hardwick

x. RAW Oil & Gas, Inc.

y. Shari Mota)

z. Smith Energy Partners I, Ltd.

aa. Smith Energy Resource Oil Ltd.

bb. Steve Blaylock

cc. Stuart Smith & Michelle Hendry 2004 Family Legacy Trust

dd. Sue Ashcraft Smith

ee. Triple S Energy

ff. Vika Bel ova Irrevocable Trust

gg. Wanda Ripple

hh. Wanda Tollett

2. "Fusselman Prospect Agreements" refers to the following agreements:

a.North Mound Lake Participation Agreement.

b.North Mound Lake Letter Agreements.

c.Big Bump Geophysical Exploration Agreement.

d.On Point Geophysical Exploration Agreement.

e.Muy Caliente Geophysical Exploration Agreement.

f. North On Point Extension/O'Donnell Geophysical Exploration

Agreement.

g. Amended North On Point Extension/O'Donnell Geophysical Exploration

Agreement.

3. "Working interests" refers to the working interests Mark Hardwick received

pursuant to the Fusselman Prospect Agreements.

"Landman services" refers to the acquisition or supervision of the acquisition of

oil and gas leases, performance of curative title work, and maintenance and management

of acquired leases.

4

2951

•

QUESTIONl

Was Mark Hardwick obligated to provide landman services for the Fusselman

prospects until the prospects were completed?

It is your duty to interpret the following language:

"All Parties will participate with RAW in accomplishing

the Geophysical Program as may be requested from RAW

from time to time."

In deciding whether the parties reached an agreement, you may consider

what they said and did in light of the surrounding circumstances, including

any earlier course of dealing. You may not consider the parties'

unexpressed thoughts or intentions.

You must decide its meaning by determining the intent of the parties at the

time of the agreement. Consider all the facts and circumstances

surrounding the making of the agreement, the interpretation placed on the

agreement by the parties, and the conduct of the parties.

Answer "Yes" or "No."

Answer: --'1--+-"'e...._0=----

5

2952

. ...

QUESTION2

In the Bad Billy Agreement of December 17, 2010, did Mark Hardwick agree to

perform landman services for a day work rate of $500.00?

It is your duty to interpret the following language of the agreement:

Smith shall pay all expenses incurred by Mark in

connection with such lease acquisition, plus a day-work

brokerage fee.

In deciding whether the parties reached an agreement, you may consider

what they said and did in light of the surrounding circumstances, including

any earlier course of dealing. You may not consider the parties'

unexpressed thoughts or intentions.

You must decide its meaning by determining the intent of the parties at the

time of the agreement. Consider all the facts and circumstances

surrounding the making of the agreement, the interpretation placed on the

agreement by the parties, and the conduct of the parties.

Answer "Yes" or "No."

Answer:

6

2953

QUESTION3

Did Mark Hardwick fail to comply with the Agreements?

Answer "Yes" or "No" for each of the following:

a. Fusselman Prospect Agreements ye-s

b. Bad Billy Agreement

7

2954

J

If you answered "Yes" to any part of Question 3, then answer the following

question. Otherwise, do not answer the following question.

QUESTION 4

Was Mark Hardwick's failure to comply excused?

Failure to comply by Mark Hardwick is excused if compliance is waived by

Smith Energy Company.

Waiver is an intentional surrender of a

This text is long and has been trimmed here. Open the source document for the complete record.