Beach Capital Partnership, L.P., Gary M. Beach, Playa Oil and Gas GP LLC. and Playa Oil & Gas LP v. Deeprock Venture Partners LP and Paul Touradji

442 S.W.3d 609, 2014 Tex. App. LEXIS 8401, 2014 WL 3765820
CourtCourt of Appeals of Texas
DecidedJuly 31, 2014
Docket01-11-00968-CV
StatusPublished
Cited by3 cases

This text of 442 S.W.3d 609 (Beach Capital Partnership, L.P., Gary M. Beach, Playa Oil and Gas GP LLC. and Playa Oil & Gas LP v. Deeprock Venture Partners LP and Paul Touradji) is published on Counsel Stack Legal Research, covering Court of Appeals of Texas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Beach Capital Partnership, L.P., Gary M. Beach, Playa Oil and Gas GP LLC. and Playa Oil & Gas LP v. Deeprock Venture Partners LP and Paul Touradji, 442 S.W.3d 609, 2014 Tex. App. LEXIS 8401, 2014 WL 3765820 (Tex. Ct. App. 2014).

Opinion

OPINION

REBECA HUDDLE, Justice.

This appeal arises from a business partnership gone sour. A jury found breaches of fiduciary duties by both sides, breach of a partnership agreement by Beach Capital, and fraud by Gary Beach, chief executive officer of Playa Oil and Gas LP, the partnership at the heart of the dispute. The trial court’s judgment ordered Beach and one of the entities under his control to pay damages, attorney’s fees, and costs, and dissolved the partnership. Beach, two of the partners, and the partnership itself appeal, arguing that three portions of the damages award are supported by no or factually insufficient evidence or are unrecoverable as a matter of law and that error in the jury charge demands reversal and partial remand of the case. We affirm.

Background

A. Formation of the partnership

In 2005, Gary Beach, a Houston businessman, and Paul Touradji, a New York hedge fund manager, decided to go into business together. Beach’s son, Gentry Beach, worked for Touradji at the time. Gentry introduced Touradji to Beach, and Beach and Touradji began discussions regarding a possible oil and gas exploration partnership.

Beach and representatives of Touradji Capital Management LP, an investment fund managed by Touradji, discussed what Beach described as his best oil and gas prospect, a salt dome in Louisiana known as Bayou Bouillon. Beach claimed to have an agreement with an experienced petroleum engineer, seismic studies, an “engineered” analysis of the reserves, and drilling or leasing rights to the prospect, along with a funding commitment of more than $20 million.

*612 Eventually, Beach and Touradji decided to form a partnership, Playa Oil and Gas, LP (“Playa”). A subsidiary of Touradji Capital Management LP, DeepRock Venture Partners, LP, held an 80 percent interest in Playa and agreed to contribute between $8 million and $30 million to Pla-ya. An entity controlled by Beach, Beach Capital Partnership, L.P., held a 19.9% interest and agreed to contribute to Playa all rights, title, and interest in certain oil and gas leases, seismic permits, and options to lease, including Bayou Bouillon. An entity named Playa Oil and Gas GP, LLC, controlled by Beach, held the remaining 0.1% interest as Playa’s sole general partner. 1 A written partnership agreement controlled Playa’s ownership, activities, and management.

B. The partnership’s business activities

Bayou Bouillon was never developed; Playa’s sole attempt to drill there resulted in a “dry hole.” Beach began to have second thoughts on the prospect, expressing concerns that Playa was “wasting [its] time,” could not afford to spend more money on the project, and should not pursue further drilling of Bayou Bouillon or other prospects. DeepRock’s own analysis determined that the prospect was high-risk and would require a three-dimensional seismic study to substantiate the existence of any reserves, at a cost of $15 million to $30 million. DeepRock employees advised Touradji not to drill the prospect and to walk away.

In early 2008, one company, Energy XXI, expressed interest in jointly drilling a portion of Bayou Bouillon with Playa. Those discussions, however, did not culminate in any agreement. Instead, Playa attempted to sell the prospect to another party, which also ultimately declined to participate. Thus, Bayou Bouillon remained undeveloped.

Meanwhile, DeepRock’s leadership became concerned that it might not recover its investment in Playa, which had by then swelled to $41 million. Under the partnership agreement’s original terms, DeepRock was entitled to only 80% of any distribution, so DeepRock would not be made whole until Playa distributed at least $51.25 million. DeepRock sought to amend the agreement to provide that DeepRock would be entitled to recover its capital investment before Beach Capital and the general partner received any distribution. Beach, on behalf of Beach Capital, agreed to the amendment and executed an amended partnership agreement. Shortly after the amendment, Playa began selling some of its assets, particularly oil and gas leases in various locations. As a result, in August 2008, Playa had more than $41 million in cash on hand. In accordance with the amended agreement, Playa distributed $41 million to DeepRock, but made no distribution to the other partners. Playa had difficulty selling other properties. Beach estimated that Playa could sell one property for $5 million at auction, but Playa received only one offer, for $100,000. Beach, however, remained upbeat and wrote as late as August 2008 that he believed Bayou Bouillon alone could be worth a billion dollars.

C. Breakdown of the partners’ relationship

The relationship between the partners degenerated, with Beach and Touradji each coming to believe that the other was stalling on opportunities, withholding information, or otherwise behaving improperly. By September 2008, Beach believed that Touradji was “squeezing” him out of *613 Playa and would not allow him to /‘get a dime” from the partnership.

In September 2008, Beach proposed making a distribution to the partners. DeepRock opposed Beach’s proposal in an email. Nonetheless, Beach distributed $2.5 million to the limited partners. Of this $2.5 million — approximately half of Playa’s cash on hand — $2 million went to Deep-Rock and $500,000 went to Beach Capital. When DeepRock learned of the distribution, it immediately demanded that Beach return the $500,000 distribution he made to Beach Capital, but no part of the $2.5 million distribution was repaid to the partnership. The morning that Beach made the distribution, he emailed DeepRock, purporting to withdraw his consent to the amendment of the partnership agreement on the basis that DeepRock had never signed it.

D. This litigation begins

Several days later, Beach initiated this action, naming himself, Beach Capital, Pla-ya, and the general partner (collectively, the “Beach parties”) as plaintiffs and DeepRock and Touradji as defendants. Beach claimed that DeepRock and Tourad-ji had defrauded him by misleading him into believing that DeepRock would fund drilling at Bayou Bouillon only if Beach consented to the amendment to the partnership agreement. Beach therefore claimed that he was entitled to 20 percent of the $41 million that Playa had distributed to DeepRock, that is, $8.2 million. He also alleged breach of fiduciary duty, breach of contract, tortious interference with existing business relations, and intentional infliction of emotional distress, asserted a claim for punitive damages, and sought a declaration that he alone was entitled to control the general partner and, through it, Playa. Finally, Beach sought injunctive relief to prevent DeepRock or ' Touradji from interfering with Playa’s activities or with the Beach parties’ rights.

Shortly after suit was filed, DeepRock executed a written consent adopting the amendment to the partnership agreement. A few days later, at DeepRock’s instigation, Playa’s management committee met and passed resolutions affirming the effectiveness of the amended partnership agreement and removing Beach from his position as CEO of Playa, replacing him with Bill Moody, Playa’s president.

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442 S.W.3d 609, 2014 Tex. App. LEXIS 8401, 2014 WL 3765820, Counsel Stack Legal Research, https://law.counselstack.com/opinion/beach-capital-partnership-lp-gary-m-beach-playa-oil-and-gas-gp-llc-texapp-2014.