Mar 03 2020

HOUSTON—A Womble Bond Dickinson team led by Tony Guerino earned a precedent-setting victory for firm client Chalker Energy Partners III LLC in a case decided by the Texas Supreme Court.

The oil and gas dispute centered around the question of when an agreement to sell becomes binding. In this case, Chalker sought to sell oil and gas properties in the Texas Panhandle. Le Norman Operating LLC (LNO) was a prospective buyer and the two parties entered negotiations, with LNO proposing to buy the oil and gas interests for $230 million. Prior to negotiations and in return for access to confidential information about the properties being offered for sale, LNO executed a Confidentiality Agreement containing a “No Obligation clause.” This clause allowed the two parties to negotiate but not be bound to a sale “unless and until a definitive agreement was executed and delivered.”

Chalker then struck a deal to sell the oil and gas interests to Jones Energy, a competing bidder. LNO sued Chalker claiming a breach of contract.

Guerino and the Chalker team argued that no agreement ever existed, much less was signed or delivered. Before negotiating, the two parties had agreed that they would not be bound to any deal unless and until the parties signed and delivered a definitive agreement.   LNO attorneys pointed to some emails that had been exchanged between Chalker’s sales advisor and LNO and claimed these formed the basis for a binding agreement per the terms of the No Obligation clause.

The case made its way through the courts over the last 7 years and on Feb. 28, 2020 the Texas Supreme Court ruled definitively in favor of Chalker that the emails did not constitute a definitive agreement and that Chalker was within its rights to sell to Jones Energy.

Chief Justice Nathan Hecht wrote that while a deal does not have to be a written agreement, email is “a distinctly conversational, informal medium,” in which “hitting send may be deliberate; it may be hasty.” The Texas Supreme Court likened email communication more to a preliminary agreement, rather than a definitive one. The Court also noted that “the parties’ dealings suggest that they intended that a more formalized document, like a [purchase-and-sale agreement], would satisfy the definitive-agreement requirement.”

This ruling will provide greater certainty for parties negotiating complex transactions, particularly in the oil and gas industry, and assures parties that No Obligation Clauses can be relied upon to avoid precisely this type of protracted litigation. 

Dale Wainwright and Kendyl T. Hanks of Greenberg Traurig LLP joined Guerino in representing Chalker.

The ruling has received significant media attention, including in Law360. Click here to read “Texas Justices Say Email Not Contract In $230M Energy Deal”.

Also, click here to read “When is a Deal a Deal? Texas Supreme Court Weighs in on Two Landmark Oil & Gas Cases” by Tony Guerino and Liz Klingensmith