C.K. Oil Properties, Inc. and Rocker a Operating Company v. Hrubetz Operating Company

• Court: Court of Appeals of Texas
• Decided: April 25, 2002
• Docket: 11-99-00066-CV
• Status: Published

Opinion

                                                             11th Court of Appeals

                                                                  Eastland, Texas

                                                                        Opinion

C.K. Oil Properties, Inc. and

Rocker A Operating Company

Appellants

Vs.                   No. 11-99-00066-CV B Appeal from Scurry County

Hrubetz Operating Company

Appellee

This appeal involves a dispute regarding the operation of a group of oil and gas leases located in Scurry County which we will refer to as the “Corazon leases.”  The Corazon leases were the subject of a 1987 written agreement referred to as the ACorazon Acquisition Participation Agreement.@  The record reflects that oil had been produced from the Corazon leases from approximately 150 wells for several years prior to 1987.  In the mid-1980s, Hrubetz Operating Company (HOPCO) and Kerr-McGee Corporation (Kerr-McGee) identified the Corazon leases as a prospect for the implementation of secondary recovery operations through the installation of a waterflood program.  They executed the participation agreement to govern the manner and means by which the Corazon leases would be acquired and operated.

The participation agreement provided that Kerr-McGee would obtain 100 percent of the present leasehold interest of the Corazon leases in consideration of Kerr-McGee paying 100 percent of the cost of acquiring and operating the leases, including the cost of installing the waterflood program.^[1]  The participation agreement further provided that HOPCO would serve as the operator of the Corazon leases until an agreed level of payout had occurred.  Kerr-McGee was, therefore, not at liberty to terminate HOPCO as the operator of the Corazon leases prior to payout even though Kerr-McGee owned all of the present leasehold interest in the leases. 

As of 1992, Kerr-McGee had expended in excess of $17,000,000 in acquiring the Corazon leases and installing the waterflood program under the participation agreement.   However, the waterflood had not resulted in any measurable increase in production.  Kerr-McGee deemed the waterflood program a failure at that point and instructed HOPCO to suspend the waterflood program.  Kerr-McGee additionally instructed HOPCO to reduce the number of wells being operated on the Corazon leases to less than 20.  HOPCO operated the Corazon leases on this limited basis as per the instructions of Kerr-McGee from 1992 until 1997.

Kerr-McGee conveyed its interests in the Corazon leases to C.K. Oil Properties, Inc. (C.K.) in November 1997 for $700,000.  Immediately upon its acquisition of the Corazon leases, C.K. forwarded a letter dated November 6, 1997, to HOPCO which informed HOPCO that it was terminated as operator effective December 1, 1997.  The letter instructed HOPCO to turn over all lease equipment and data to Rocker A Operating Company (Rocker A), the successor operator designated by C.K.^[2]  The letter further advised HOPCO that C.K. would not reimburse HOPCO for any operating expenses incurred after November 10, 1997. 

C.K. took the position that, as the owner of the working interest, it had the right to terminate HOPCO as the operator of the Corazon leases.  C.K. further alleged that, even if the termination of HOPCO constituted a breach of the participation agreement, HOPCO’s only remedy was to bring a suit for damages.  HOPCO took the position that it could not be terminated under the terms of the participation agreement prior to payout and that it was, therefore, not required to surrender operations of the Corazon leases as a result of the termination.  HOPCO, thus, continued to operate the leases until trial.

Approximately one year passed from HOPCO’s receipt of the termination letter until the controversy was tried on the merits. This one-year period was marked by a great deal of turmoil and conflict between the parties.   HOPCO and Rocker A each attempted to operate the Corazon leases at various times to the exclusion of the other.  Locks were frequently cut and replaced in the late evening and early morning hours as each party attempted to exclude the other from operating the leases. 

HOPCO initiated this litigation by seeking injunctive relief which requested the trial court to specifically enforce the terms of the participation agreement by declaring the attempted termination of HOPCO void.^[3]  HOPCO subsequently amended its pleadings to seek damages from C.K. and Rocker A as a result of the attempted termination.  These damages included expenses for operating the Corazon leases from the date of termination through the date of trial and damages which HOPCO asserted it would incur in the future.  

C.K. and Rocker A asserted numerous defenses, claiming that the operator provisions of the participation agreement were no longer binding.   Two of these defensive theories were presented to the jury.   The first defense consisted of a claim that the participation agreement was no longer in effect under a  “frustration of purpose” theory.  C.K. and Rocker A asserted that the purpose of the participation agreement was the successful installation of the waterflood program and that this purpose had failed.   The second defense was based on a provision in the participation agreement which required HOPCO to conduct operations on the Corazon leases in a good and workmanlike manner.^[4]  C.K. and Rocker A alleged that HOPCO had failed to meet this standard in its operation of the leases.

C.K. and Rocker A also asserted counterclaims against HOPCO for trespass, conversion,  tortious interference with a contract, and usury.   The trespass and conversion claims were premised on HOPCO’s refusal to surrender control of the leases after the attempted termination.  C.K. and Rocker A alleged that HOPCO’s refusal to surrender the leases tortiously interfered with contracts  executed between themselves and with third parties.   HOPCO relied on the provisions of the participation agreement and its ownership interests in the leases to defend these claims.   The usury claim involved additional charges assessed by HOPCO as a result of C.K.’s failure to timely pay HOPCO’s invoices for the lease operating expenses.   HOPCO alleged that the additional charges did not constitute the charging of interest and was, therefore, not subject to the usury statutes.

Significant matters were resolved by summary judgment prior to trial.  The trial court denied HOPCO’s request to obtain the remedy of specific performance of the contract.    The trial court also denied C.K. and Rocker A’s usury claim.   The remaining issues were tried to a jury.  C.K. and Rocker A did not prevail on the two defensive theories which were presented to the jury in defense of HOPCO’s termination.  First, the jury’s answers were not such that they would have supported  a finding that the participation agreement was no longer effective under a “frustration of purpose” theory.  Secondly, the jury found that HOPCO had operated the Corazon leases in a good and workmanlike manner at all relevant times.   C.K. and Rocker A have not appealed the denial of these defensive claims.  The jury returned a verdict in favor of HOPCO for damages incurred as a result of the breach of the participation agreement in the amount of $1,242,240.95.  The trial court’s judgment reduced the damages awarded to HOPCO to $680,356.95.  With respect to C.K. and Rocker A’s claims for affirmative relief, the jury ruled that HOPCO did not commit trespass or conversion.   The jury found that HOPCO had interfered with the contracts cited by C.K. and Rocker A.  However, the jury determined that HOPCO’s interference was justified.    Finally, the trial court’s judgment provides as follows regarding HOPCO’s termination as operator:

It is, therefore, ORDERED, ADJUDGED, AND DECREED that, effective December 1, 1997, [HOPCO] was terminated as the operator of the properties described on Exhibit A attached hereto (The ASubject Properties@).  From and after December 1, 1998, [HOPCO] has no right to continue to operate or otherwise occupy the Subject Properties....It is further ORDERED, ADJUDGED AND DECREED that [C.K.’s] termination of [HOPCO] as operator of the Subject Properties effective December 1, 1997 was a breach of the [participation agreement].

C.K. and Rocker A complain of the following matters on appeal:  (1) the summary judgment denying their usury claim; (2) the jury’s denial of their claims for affirmative relief; and (3) most of the damages awarded to HOPCO for breach of the participation agreement.   HOPCO attacks the trial court’s reduction of the damages awarded by the jury.  We affirm in part, modify in part, and reverse and remand in part.

                                                                        USURY

C.K.’s Appellate Issues Nos. 1.1, 1.2, 1.3, and 1.4 address its usury claim.  The usury claim is premised on additional charges purportedly assessed by HOPCO for C.K.’s refusal to pay the monthly operating expenses for the Corazon leases after November 1997.  HOPCO asserted that the participation agreement permitted it to assess a 400 percent Anon-consent penalty@ for each monthly billing which was more than 60 days past due.^[5]    Both C.K. and HOPCO  filed motions for partial summary judgment addressing HOPCO’s liability for usury.  The trial court denied C.K.’s motion and granted HOPCO’s motion and, thereby, denied C.K.’s usury claim.

When both sides move for summary judgment and the trial court grants one motion and denies the other, the reviewing court should review the summary judgment evidence presented by both sides and determine all questions presented.  Commissioners Court of Titus County v. Agan, 940 S.W.2d 77, 81 (Tex.1997); Jones v. Strauss, 745 S.W.2d 898, 900 (Tex.1988).  The reviewing court should render such judgment as the trial court should have rendered.  Commissioners Court of Titus County v. Agan, supra at 81.  When reviewing a traditional motion for summary judgment, the following standards apply:  (1) the movant for summary judgment has the burden of showing that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law; (2) in deciding whether there is a disputed material fact issue precluding summary judgment, evidence favorable to the non-movant will be taken as true; and (3) every reasonable inference must be indulged in favor of the non-movant and any doubts resolved in its favor. TEX.R.CIV.P. 166a; Goswami v. Metropolitan Savings and Loan Association, 751 S.W.2d 487, 491 (Tex.1988); Nixon v. Mr. Property Management Company, Inc., 690 S.W.2d 546, 548-49 (Tex.1985); City of Houston v. Clear Creek Basin Authority, 589 S.W.2d 671, 676 (Tex.1979).

Both C.K. and HOPCO devote a portion of their briefs to the question of whether or not the participation agreement authorized the assessment of the non-consent penalty for the untimely payment of joint interest billings.  We do not address this question because it is not necessary for the resolution of this appeal.^[6]   However, it is significant to note the contractual basis upon which HOPCO relies in assessing the non-consent penalty.  Most oil and gas operating agreements contain provisions which govern new projects undertaken on the operating agreement’s contract area.  The performance of a new project can be problematic because all of the working interests owners may not desire to participate in it.  Operating agreements typically include provisions which provide that, in the event a project is undertaken without the consent of all parties, the non-consenting parties do not receive any benefits that the new project may generate until a specified percentage of profit is derived from the new project.  These provisions are known as non-consent penalties because the non-consenting parties are penalized for not participating in the new project.  In actuality, these provisions are designed to compensate the financial risks that the consenting parties who finance the new project are subject to, considering the ultimate possibility that the new project may be unsuccessful.  Hamilton v. Texas Oil & Gas Corp., 648 S.W.2d 316, 321 (Tex.App. - El Paso 1982, writ ref’d n.r.e.).  HOPCO contends that the provisions of the participation agreement permitted it to assess the non-consent penalty typically assessed with regard to new projects to C.K.’s untimely payment of the leases’ operating expenses.

We first address the trial court’s order holding that HOPCO’s assessment of the non-consent penalty was not subject to the usury statutes.   A person who contracts for, charges, or receives interest that is greater than the amount authorized by law is liable to the obligor for penalties set forth in the usury statutes.   TEX. FIN. CODE ANN. ' 305.001 (Vernon Supp. 2002).  HOPCO’s motion asserted that the usury statutes were not applicable because the assessment of the non-consent penalty did not constitute the charging of interest with respect to a loan transaction.  The usury statutes define “interest” as “compensation for the use, forbearance, or detention of money.”  TEX. FIN. CODE ANN. ' 301.002(a)(4) (Vernon Supp. 2002). 

Several courts have analyzed the meaning of the statutory definition of “interest.”  In Tygrett v. University Gardens Homeowners’ Association, 687 S.W.2d 481, 483 (Tex.App. - Dallas 1985, writ ref’d n.r.e.), the court defined the three elements of interest as follows:  (1) the “use” of money is that which is contracted for when a loan is made; (2) “forbearance” occurs when there is debt due or to become due and when the parties agree to extend the time of its payment; and (3) the “detention of money” arises when a debt becomes due and the debtor has withheld payment without a new contract giving him the right to do so.  The “use” element is inapplicable to this case because HOPCO has not loaned any money to C.K. in the traditional sense of a loan.  The “forbearance” element also is not involved because HOPCO and C.K. did not enter into an agreement permitting C.K. to extend the due date for the payment of the monthly operating expenses.   We, therefore, focus our attention on the “detention of money” element. 

Several cases have analyzed the assessment of a late fee for the purpose of determining if the late fee constitutes compensation for the detention of money.  The first issue examined by these cases is whether or not a debt is owed by the debtor to the party assessing the late fee.  Tygrett involved periodic charges assessed in advance by a homeowners’ association to the individual homeowners to pay common expenses.  When Tygrett did not timely pay his assessments, the homeowners’ association assessed late charges.  The court held that the advance assessments did not constitute a debt that Tygrett owed to the association because the association did not pay any of its own money on Tygrett’s behalf.  Instead, the association was merely a payment agent of Tygrett through which he paid his own individual debts as a member of the association by paying his advance assessments.

Domizio v. Progressive County Mutual Insurance Company, 54 S.W.3d 867 (Tex.App. - Austin 2001, pet’n den’d), involved an insurance company which assessed a charge to its policyholders for the late payment of their insurance premiums.  The court was faced with determining whether or not the assessment of the late charge constituted the detention of money under the definition set out in Tygrett.   In discussing the definition, the court in Domizio placed emphasis on the words “debt” and “debtor.”  The court held that the detention of money element would only be invoked if the policyholder had detained the insurance company’s money.  The court ultimately held that the policyholders were not debtors detaining the insurance company’s money because there was no obligation on the part of the policyholders to make late payments of their premiums.  If the policyholders did not make the payments, their coverage would simply lapse.

Employing the analysis used in Domizio, we must determine if the operating expenses which HOPCO charged to C.K. constituted a debt which C.K. owed to HOPCO.   The terms of the participation agreement as well as the simple fact that HOPCO seeks a recovery in this action from C.K. for the leases’ operating expenses establish that the monthly operating expenses constitute a debt which HOPCO claims C.K. owed.   A portion of the leases’ operating expenses assessed to C.K. sought reimbursement for expenditures which HOPCO made to third parties on C.K.’s behalf.  The remaining portion of the operating expenses that HOPCO sought were compensation for HOPCO’s work in operating the leases.

HOPCO argues that a detention of money has not occurred because it did not loan any money to C.K.  While HOPCO did not loan any money to C.K. in the traditional sense, a “detention of money” occurred by definition.  Moreover, the usury statutes define a “loan” as “an advance of money that is made to or on behalf of an obligor, the principal amount of which the obligor has an obligation to pay the creditor.”  TEX. FIN. CODE ANN. ' 301.002(a)(10) (Vernon Supp. 2002). Thus, the usury statutes’ definition of a loan is broader than a traditional loan of money from one party to another.

The facts in this case are analogous to an open account transaction wherein credit is extended  by the creditor to the debtor from the date of purchase to the date of payment.  See Potomac Leasing Company v. Housing Authority of the City of El Paso, 743 S.W.2d 712, 713 (Tex.App. B El Paso 1987, writ den’d).  A service charge or finance charge assessed on an open account is generally interest within the meaning of the usury statute.  Windhorst v. Adcock Pipe and Supply, 547 S.W.2d 260, 260-61 (Tex.1977); Varel Manufacturing Company v. Acetylene Oxygen Company, 990 S.W.2d 486, 492 (Tex.App. B Corpus Christi 1999, no pet’n).  The statute covers late charges of this nature because the definition of “interest” includes compensation for the obligor’s detention of money past the due date.  Varel Manufacturing Company v. Acetylene Oxygen Company, supra at 492.  In Varel Manufacturing Company, the court held that the assessment of a finance charge on an open account for the sale of gas was subject to the usury statute.  In William C. Dear & Associates, Inc. v. Plastronics, Inc., 913 S.W.2d 251 (Tex.App.- Amarillo 1996, writ den’d), the court held that a finance charge assessed on an open account for investigatory services was subject to the usury statute.  Varel Manufacturing Company and William C. Dear & Associates, Inc. are examples of cases holding that the usury statutes were applicable even though a traditional loan of money was not made by the creditor to the debtor.

Having determined that the operating expenses constituted a debt which C.K. owed HOPCO, we must now determine if the non-consent penalty assessed by HOPCO constituted compensation sought for C.K.’s withholding of payment of its debt.  See Tygrett v. University Gardens Homeowners’ Association, supra at 483.  The leading case in this regard is First Bank v. Tony’s Tortilla Factory, Inc., 877 S.W.2d 285 (Tex.1994).  First Bank determined whether a bank’s insufficient funds check fee was subject to the usury statutes.  The court held that fees which are an additional charge supported by distinctly separate and additional consideration, other than the simple lending of money, are not interest and, thus, do not violate the usury laws.  First Bank v. Tony’s Tortilla Factory, Inc., supra at 287.  The court ruled that the bank’s fee was not subject to the usury statutes because it was assessed as a processing fee for the additional work required of bank personnel in connection with handling a bad check.   The court cited other examples of fees supported by separate consideration to which the usury statutes do not apply.

The record in this cause indicates that the non-consent penalties assessed by HOPCO were compensation for the detention of money because the penalties were not supported by any consideration other than C.K.’s untimely payment of its debts.  HOPCO assessed the non-consent penalties when each invoice submitted by HOPCO became past due by 60 days.  Had C.K. paid the invoices within 60 days, the non-consent penalty would not have been assessed. 

HOPCO argues that the decision in Hamilton establishes that the non-consent penalty was supported by separate consideration.  Hamilton involved the assessment of a 400 percent non-consent penalty for the drilling of a new well.  The non-consenting party against whom the penalty was assessed argued that the penalty constituted an unenforceable liquidated damage clause.  Hamilton v. Texas Oil & Gas Corp., supra at 321.  The court rejected the argument by holding that the non-consent penalty was designed to compensate the financial risks that the consenting parties were subject to, considering the ultimate possibility that the new well might not have been successful.  Hamilton is distinguishable from this case because Hamilton involved the traditional use of the non-consent penalty being applied to a new project.   As noted by the court in Hamilton, a new project involves speculative financial risks which the non-consent penalty is designed to compensate.   HOPCO’s performance of daily operations on the leases simply does not involve the financial risks which are involved in the drilling of a new well, especially when one considers the fact that the participation agreement granted HOPCO extensive liens on C.K.’s leasehold interest to secure payment.

C.K.’s Appellate Issues Nos. 1.1 and 1.2 complaining of the trial court’s granting of HOPCO’s motion for summary judgment on C.K.’s usury claim are sustained.  The trial court’s order denying C.K.’s usury claim is reversed and remanded to the trial court for further proceedings consistent with this opinion.  We note that C.K.=s motion for summary judgment sought rulings from the trial court seeking to establish all liability elements of the usury claim.  It does not appear that the trial court addressed these additional matters because it determined that the usury statutes were not applicable.  C.K. offered a bill of exception at trial which it contends established the extent of its damages for the usury claim.  C.K.=s Appellate Issue No. 1.3 seeks the rendition of a judgment in favor of C.K. on the usury claim both as to liability and damages.   Given the fact that the usury claim was not fully developed in the trial court, we decline C.K.=s request to render judgment in its favor on the usury claim.  Our holding is limited to a determination that the non-consent penalty constituted the charging of interest under the usury statutes.  All remaining elements of C.K.=s usury claim are, therefore, remanded for further proceedings in the trial court.  We do not address C.K.=s Appellate Issue No. 1.4 requesting a remand for the consideration of C.K.=s attorney=s fees incurred in presenting its usury claim because this issue is moot in light of our remand of the usury issue for full consideration.

                                                                     TRESPASS

Both C.K. and Rocker A complain in several appellate issues of the denial of their counterclaim for trespass.   The jury answered Ano@ to the following question: ADid [HOPCO] trespass on leases held by C.K. or Rocker A?@  The charge defined Atrespass@ as follows:

ATrespass@ means entering or causing another to enter property without the consent or authorization, express or implied, of the owner, and it includes any act which exceeds or passes beyond the bounds of any rights which have been legally granted.  Consent may be found by virtue of a pre-existing contract between the parties or a license granted by the owner of the property to another to enter the owner=s property for a specified purpose.  A trespass may be committed on, beneath, or above the surface of the earth.  Every unauthorized entry upon land is a trespass, even if no damage is done.  One may commit a trespass irrespective of whether he thereby causes harm to any legally protected interest of the other if he intentionally remains on the premises after being instructed to leave.

 Trespass to real property occurs when a person enters another=s land without consent.  See General Mills Restaurant, Inc. v. Texas Wings, Inc., 12 S.W.3d 827, 833 (Tex.App. - Dallas 2000, no pet=n).  Consent is an affirmative defense to a cause of action for trespass.  General Mills Restaurant, Inc. v. Texas Wings, Inc., supra at 835.  There is no dispute that HOPCO entered the lands which comprised the Corazon leases after its termination.   Accordingly, HOPCO=s liability for trespass is dependent upon whether its entry was with C.K. and Rocker A=s consent.  

C.K. and Rocker A argue that the jury instruction should not have included an instruction regarding  consent.  They base this argument on the contention that HOPCO failed to plead consent as an affirmative defense.  An affirmative defense is generally waived if it is not pleaded.  TEX.R.CIV.P. 94; Shoemake v. Fogel, Ltd., 826 S.W.2d 933, 937 (Tex.1992).   Texas follows a Afair notice@ standard for pleading which looks to whether the opposing party can ascertain from the pleading the nature and basic issues of the controversy and what testimony will be relevant.  Horizon/CMS Healthcare Corporation v. Auld, 34 S.W.3d 887, 896 (Tex.2000).  HOPCO asserted several affirmative defenses in its answers to C.K. and Rocker A=s counterclaims.  A portion of HOPCO=s affirmative defenses were specifically directed at C.K. and Rocker A=s trespass allegations.  These pleadings did not use the word Aconsent.@  However, both of HOPCO=s answers alleged that its entry and occupation of the Corazon leases were justified as an exercise of its rights under the participation agreement and its ownership interests in the leases. We hold that these allegations provided fair notice to C.K. and Rocker A of HOPCO=s intent to rely on the affirmative defense of consent and the evidence which would be offered in connection therewith. 

C.K. and Rocker A also attack the legal and factual sufficiency of the evidence supporting the jury=s answer of Ano@ to the trespass issue.  C.K. and Rocker A had the burden of proof with respect to obtaining an affirmative jury finding of trespass.  However, the only disputed issue pertaining to the trespass claim was the issue of consent.  As per the holding in General Mills, the issue of consent was an affirmative defense for which HOPCO had the burden of proof.   We, therefore, review the jury=s finding of consent under a no-evidence standard with respect to C.K. and Rocker A=s legal sufficiency challenge.  An appellate court will sustain a no-evidence point of error when:  (1) the record discloses a complete absence of evidence of a vital fact;  (2) the court is barred by rules of law or of evidence from giving weight to the only evidence offered to prove a vital fact;  (3) the only evidence offered to prove a vital fact is no more than a mere scintilla; or (4) the evidence conclusively establishes the opposite of the vital fact.  Uniroyal Goodrich Tire Company v. Martinez, 977 S.W.2d 328, 334 (Tex.1998).  Any evidence supporting the jury's finding that is of probative value and that is more than a scintilla is legally sufficient to uphold the finding.  Leitch v. Hornsby, 935 S.W.2d 114, 118 (Tex.1996); Burroughs Wellcome Company v. Crye, 907 S.W.2d 497, 499 (Tex.1995).  More than a scintilla of evidence exists where the evidence supporting the finding, as a whole, rises to a level that would enable reasonable and fair-minded people to differ in their conclusions.  Transportation Insurance Company v. Moriel, 879 S.W.2d 10, 25 (Tex.1994).  In determining the factual sufficiency of the evidence, we must consider and weigh all the evidence and should set aside the verdict only if it is so contrary to the overwhelming weight of the evidence as to be clearly wrong and unjust.  Cain v. Bain, 709 S.W.2d 175 (Tex.1986); In re King's Estate, 244 S.W.2d 660, 661 (Tex.1951).

HOPCO=s primary basis for establishing consent was the terms of the participation  agreement itself.  HOPCO argued that it had the right to enter the leases irrespective of the termination because the participation agreement designated it as operator.  HOPCO additionally asserted that its designation as the operator of record with the Railroad Commission of Texas through the date of trial is further evidence of consent for its entry on the leases.  HOPCO also relied on its ownership interests in the Corazon leases as constituting evidence of its consent to enter the leases after termination.  The evidence established that HOPCO possessed an overriding royalty interest in the leases and contingent future working interests which possibly might vest in the future.

The facts of this case present an unusual situation when one considers the relationship between C.K.=s breach of the participation agreement and the counterclaims sounding in tort which C.K. and Rocker A have asserted against HOPCO.   The participation agreement provides that HOPCO is to be the operator of the Corazon leases until payout occurs.  The trial court ruled that C.K.=s termination of HOPCO constituted a breach of the participation agreement.  C.K. has not appealed this ruling.  Thus, despite the fact that its actions constituted an uncontested breach of the participation agreement, C.K. contends that HOPCO was required to accept its breach.  Furthermore, C.K. argues that HOPCO is liable to C.K. and Rocker A in tort for HOPCO=s refusal to accept C.K.=s breach of the participation agreement.  

With respect to the trespass cause of action, C.K. and Rocker A contend that HOPCO cannot rely on the terms of the participation agreement to justify its entry onto the Corazon leases.  They cite Osage Oil & Refining Co. v. Lee Farm Oil Co., 230 S.W. 518, 522 (Tex.Civ.App. - Amarillo 1921, writ ref=d), in support of this proposition.  The court in Osage Oil stated as follows:

A party, while in the performance of a contract, when served with notice of its repudiation by the other party, cannot proceed with the performance of the contract except it be one of which specific performance may be enforced and increase the damages to which he would otherwise be entitled.

The rule announced in Osage Oil is one which speaks to the damages which a non-breaching party can recover for the other party=s act of repudiating a contract.   We find that this damage rule does not apply to affirmative claims for relief  which a repudiating party asserts against the non-breaching party for failing to accept the breach.   

Notice of a party=s intent to not perform under a contract does not, of itself, constitute an automatic contract rescission.  Greenwall Theatrical Circuit Co. v. Markowitz, 79 S.W. 1069, 1071 (Tex.1904); Griffith v. Porter, 817 S.W.2d 131, 135 (Tex.App. - Tyler 1991, no writ).  When one party repudiates a contract, the other party may then elect to either accept the repudiation and bring a suit to recover damages for its breach or treat the repudiation as inoperative and sue for damages as they accrue when the time for performance under the contract is due.  Pollack v. Pollack, 39 S.W.2d 853, 857 (Tex. Comm=n App. 1931, holding approved); America=s Favorite Chicken Company v. Samaras, 929 S.W.2d 617, 626 (Tex.App. - San Antonio 1996, writ den=d).  If the repudiation is not accepted by the non-repudiating party, the contract is kept alive for the benefit of both parties.  Griffith v. Porter, supra at 135.  HOPCO was, therefore, not required to accept C.K.=s repudiation of the participation agreement.  To hold otherwise would permit C.K. and Rocker A to profit from their own wrong.  Courts have always looked with disfavor upon a party that intentionally breaches a contract.  National Farmers Organization v. Smith, 526 S.W.2d 759 (Tex.Civ.App. - Corpus Christi 1975, no writ). Accordingly, we hold that HOPCO was permitted to continue operations under the terms of the participation agreement without incurring tort liability to C.K. and Rocker A.

The participation agreement permitted HOPCO to enter the Corazon leases for the purpose of conducting its duties as operator.  The participation agreement, therefore, constituted evidence of C.K. and Rocker A=s contractual consent to HOPCO=s entry on the leases.   The evidence of the terms of the participation agreement along with HOPCO=s refusal to accept C.K.=s termination constituted legally and factually sufficient evidence supporting the jury=s denial of C.K. and Rocker A=s trespass claim.  C.K. and Rocker A=s Appellate Issues Nos. 2.1 and 2.3 are overruled.

C.K. and Rocker A complain in Appellate Issue No. 2.2 of the evidence supporting the  jury=s denial of their trespass claim for one of the Corazon leases which is referred to as the Patterson lease.  They contend that the circumstances of the Patterson lease differentiate it from the other leases.  C.K. and Rocker A argue that the participation agreement did not permit HOPCO to enter the Patterson lease based on their contention that the original Patterson lease had expired.  Rocker A subsequently obtained  a new lease for the Patterson lease which C.K. and Rocker A argue is not governed by the participation agreement. 

The issue of HOPCO=s trespass upon the Patterson lease was separately submitted to the jury.  The jury found that HOPCO did not trespass upon the Patterson lease.  We find that legally and factually sufficient evidence supported the jury=s determination that HOPCO did not commit trespass upon the Patterson lease.   Rocker A took the new Patterson lease on November 14, 1997, at a time when Rocker A did not own an interest in the Corazon leases.  Rocker A subsequently obtained a 2 percent interest in the Corazon leases on March 17, 1998, from C.K.  The assignment by which C.K. subsequently assigned the 2 percent interest to Rocker A was made effective as of July 1, 1997.  As a successor-in-title to Kerr-McGee, by and through C.K., Rocker A, thus, became subject to the terms of the participation agreement as of July 1, 1997.  The participation agreement contained an Aarea of mutual interest@ provision which effectively placed any leases held or taken by a party to the agreement lying within a defined geographic area under the terms of the participation agreement.  The evidence established that the Patterson lease is located within the defined geographic area.   The new Patterson lease was, therefore, governed by the participation agreement.  Therefore, the terms of the participation agreement constituted evidence of HOPCO=s consent to enter the Patterson lease.  C.K. and Rocker A=s Appellate Issue No. 2.2 is overruled.

                                                                 CONVERSION

C.K. and Rocker A=s Appellate Issue No. 2.4 attacks the legal and factual sufficiency of the denial of their counterclaim for conversion.  C.K. and Rocker A asserted that HOPCO committed conversion after HOPCO=s termination by selling the oil produced from the Corazon leases to a different purchaser than the one designated by C.K. and Rocker A.  The jury found that no conversion had occurred.  Since C.K. and Rocker A had the burden of proof on their counterclaim for conversion, their challenge to the legal sufficiency of the evidence supporting a judgment denying their conversion claim is a "matter of law" challenge.  When a party attacks the legal sufficiency of an adverse finding on an issue on which it has the burden of proof, it must demonstrate on appeal that the evidence establishes, as a matter of law, all vital facts in support of the issue.  Dow Chemical Co. v. Francis, 46 S.W.3d 237, 241 (Tex.2001).

 Conversion occurs when one person makes an unauthorized and wrongful assumption and exercise of dominion and control over the personal property of another, to the exclusion of or inconsistent with the owner's rights.  Waisath v. Lack's Stores, Inc., 474 S.W.2d 444, 447 (Tex.1971).  However, there can be no conversion where one takes only what he is entitled to receive.  Enduro Oil Company v. Parish & Ellison, 834 S.W.2d 547, 549 (Tex.App. - Houston [14th Dist.] 1992, writ den=d).  If a defendant proves that he has a superior title or is entitled to the property pursuant to an agreement, an action for conversion cannot be maintained.  Id. 

The evidence offered at trial regarding the conversion issue showed that, soon after C.K. and Rocker A acquired the Corazon leases from Kerr-McGee, they retained a new crude oil purchaser to purchase the oil produced from the leases.  Sometime later, HOPCO retained another crude oil purchaser to purchase the oil.  The purchaser retained by HOPCO paid a lower price for the oil than the previous purchaser retained by C.K. and Rocker A.  HOPCO asserted that it had the right to switch oil purchasers for the same reasons that it felt it had the right to continue operating the leases after termination.  Specifically, HOPCO relied on the operator designation contained in the participation agreement and its designation as the operator of record with the Railroad Commission.  The participation agreement contained provisions which permitted HOPCO, as the operator of the leases, to control the sale of oil produced from the Corazon leases whenever the working interest owner did not pay the operating expenses for the leases.  There is evidence that C.K. refused to pay the leases= operating expenses to HOPCO after the date of the purported termination.  The terms of the participation agreement, therefore, permitted HOPCO=s change of oil purchasers.  C.K. and Rocker A=s Appellate Issue No. 2.4 is overruled.

                                                      TORTIOUS INTERFERENCE

C.K. and Rocker A=s Appellate Issue No. 3.1 is directed at their claims for tortious interference with a contract.  They allege that HOPCO  tortiously  interfered with the new Patterson lease which Rocker A had obtained and the operating agreement executed by C.K. and Rocker A.  The alleged interference was premised on HOPCO=s refusal to surrender the Corazon leases after the attempted termination.  As stated earlier, the jury found that HOPCO interfered with each of these contracts.  However, the jury further found that HOPCO=s interference with these contracts was justified.  

The supreme court has identified the elements of tortious interference with an existing contract as follows: (1) an existing contract subject to interference and (2) a willful and intentional act of interference with the contract (3) that proximately caused the plaintiff=s injury and (4) caused actual damages or loss.  Prudential Insurance Company of America v. Financial Review Services, Inc., 29 S.W.3d 74, 77 (Tex.2000); ACS Investors, Inc. v. McLaughlin, 943 S.W.2d 426, 430 (Tex.1997).  A defendant may negate liability on the ground that its conduct was privileged or justified.  Prudential Insurance Company of America v. Financial Review Services, Inc., supra at 77-78; ACS Investors, Inc. v. McLaughlin, supra at 430-31.  The justification defense can be based on the exercise of either (1) one=s own legal right or (2) a good-faith claim to a colorable legal right, even though that claim ultimately proves to be mistaken.  Prudential Insurance Company of America v. Financial Review Services, Inc., supra at 80; Texas Beef Cattle Company v. Green, 921 S.W.2d 203, 211 (Tex.1996). 

C.K. and Rocker A complain that a justification question should not have been submitted to the jury because the evidence conclusively negated HOPCO=s justification defense.  They, therefore, attack the legal sufficiency of the evidence supporting the jury=s finding of justification.  Distilled to its essence, C.K. and Rocker A=s contention regarding their tortious interference claims  involves the same dynamics under which their claims for trespass and conversion are brought.  They contend that HOPCO was not permitted to rely on the terms of the participation agreement after termination.  They buttress this contention with the fact that the trial court denied HOPCO=s claim for specific performance.  As set forth in Texas Beef Cattle, a good-faith claim to a colorable legal right is a defense to a tortious interference claim even if the claim ultimately proves to be mistaken.  HOPCO=s reliance on the terms of the participation agreement constituted evidence supporting the jury=s finding of justification.  C.K. and Rocker A=s Appellate Issue No. 3.1 is overruled. 

                                                            HOPCO=S DAMAGES

Both C.K. and HOPCO attack the trial court=s judgment regarding the damages awarded to HOPCO as a result of C.K.=s termination of HOPCO as operator.^[7]  With respect to HOPCO=s contentions, C.K. has filed a motion to strike HOPCO=s appellate issues on the basis that HOPCO did not file an appellant=s brief setting forth said issues.  Instead, HOPCO raised its appellate complaints for the first time in its appellee=s brief.  Our review of the record indicates that HOPCO timely filed a notice of appeal in this matter.  Furthermore, HOPCO paid an additional filing fee which was assessed by this court.  These acts were sufficient to invoke the jurisdiction of this court to consider HOPCO=s complaints regarding the trial court=s judgment.  While it would probably be a better practice for HOPCO to submit its complaints in an appellant=s brief filed at the outset of the briefing phase of the appeal, we will consider HOPCO=s appellate issues.    C.K.=s motion to strike HOPCO=s appellate issues is overruled.  We note in making this ruling that C.K. has submitted a reply brief in which it was able to submit any response to HOPCO=s appellate issues which it deemed necessary. 

Several damage elements were submitted to the jury which sought findings from the jury of HOPCO=s damages for various activities and time periods.  The jury answered the question regarding HOPCO=s damages as follows:

What sum of money, if any, if paid now in cash, would fairly and reasonably compensate [HOPCO] for its damages, if any, that resulted from [C.K.=s] removal of [HOPCO] as operator?

Consider the following elements of damages, and no others.  Do not add any amount of interest on damages, if any.  Answer in dollars and cents, if any, for each of the following:

1.                  Payment of indirect overhead               

charges in the past.                                           Answer $240,000.00

2.                  Payment of indirect overhead

charges in the future.                                         Answer $480,000.00

3.                  Payment of Joint Interest Billings.                      Answer $160,240.76

4.                  Reimbursement for third party

operating and contractor expenses.                   Answer $  58,290.19

5.                  Lost revenues from secondary

recovery operations.                                         Answer $    None       

Upon considering C.K.=s motion for judgment notwithstanding the verdict, the trial court lowered the awards for the first two damage elements from $240,000.00 and $480,000.00 to $50,946.00 and $197,880.00 respectively.

C.K. globally attacks the damages submission on the ground that it was not conditioned on a finding of liability.  This contention is without merit.  The jury was not asked a question as to whether or not C.K.=s termination of HOPCO constituted a breach of contract.  However, this question was unnecessary because the trial court ruled as a matter of law that C.K.=s termination of HOPCO constituted a breach of the participation agreement.   Furthermore, C.K. has not challenged this ruling on appeal.  Thus, the only disputed question regarding HOPCO=s breach of contract claim was the damages to which it was entitled.  C.K.=s Appellate Issue No. 4.3 is overruled.

                                                      Past Indirect Overhead Charges

C.K.’s Appellate Issue No. 4.1 attacks the legal and factual sufficiency of the evidence supporting the damages awarded for past and future indirect overhead charges.  The term “indirect overhead charge” represents a monthly per well charge which HOPCO was entitled to collect for each well it operated on the Corazon leases.  The indirect overhead charge was an amount which HOPCO was entitled to collect in addition to its actual costs in operating the leases.  In essence, the indirect overhead charge represented the profit HOPCO was entitled to receive in operating the Corazon leases under the terms of the participation agreement.  With respect to the indirect overhead charges at issue in this appeal, there are three amounts which must be multiplied together to determine the total charges for a given period of time:  (1) the monthly per well indirect overhead charge; (2) the number of wells being operated each month; and (3) the number of months in the calculation period.

In connection with the first damage element regarding past indirect overhead charges, the record reflects that HOPCO sought a recovery for indirect overhead charges which accrued during the months of July 1998 through November 1998 (the date of trial).^[8]   HOPCO offered an exhibit which was specifically directed to the past indirect overhead charges element.  This exhibit calculated the amount which HOPCO sought to recover for past indirect overhead charges to be $31,538.00.  This figure was calculated by multiplying the monthly per well indirect overhead charge of $485.20 x 13 wells x 5 months.^[9]  The jury awarded $240,000.00 for this damage element.  The trial court reduced the jury’s award to $50,946.00.  C.K. argues that the evidence conclusively established the amount of damages for this element to be $31,538.00.  HOPCO argues that the trial court erred in reducing the jury’s answer of $240,000.00 to $50,946.00. 

A trial court may render a judgment notwithstanding the verdict if a directed verdict would have been proper and may, upon notice and motion, disregard any jury finding on a question that has no support in the evidence.  See TEX.R.CIV.P. 301; Mitchell v. LaFlamme, 60 S.W.3d 123, 127 (Tex.App. - Houston [14th Dist.] 2000, no pet’n).   An appellate court will affirm a judgment notwithstanding the verdict if there is no evidence to support an issue or, conversely, if the evidence establishes an issue as a matter of law.  See Exxon Corporation v. Quinn, 726 S.W.2d 17, 19 (Tex.1987); Mitchell v. LaFlamme, supra at 127.  We agree with C.K.’s contention that the evidence conclusively established the amount of past indirect overhead charges to be $31,538.00.   The above-mentioned exhibit was specifically tailored to this damage element.  There is no evidence of HOPCO operating any additional wells during this five-month period of time.  Accordingly, C.K.’s complaint regarding the judgment awarding past indirect overhead charges of $50,946.00 is sustained.  HOPCO’s Appellate Issue No. 4.2(a) seeking the full recovery of the jury’s award of $240,000.00 is overruled because the evidence conclusively established the amount of $31,538.00 in damages for the first element.

                                                    Future Indirect Overhead Charges

C.K. next complains of the judgment’s award for the second damage element regarding  future indirect overhead charges.   The record reflects that this damage element was intended to compensate indirect overhead charges which would occur after the date of trial (November 1998).  The jury awarded $480,000.00 for this damage element.  The trial court reduced the jury’s award to $197,880.00.  C.K. attacks the legal and factual sufficiency of the evidence supporting the recovery of any damages for this element.  HOPCO argues that the trial court erred in reducing the jury=s answer of $480,000.00 to $197,880.00. 

Given the fact that C.K.’s termination of HOPCO constituted a breach of the participation agreement, HOPCO was entitled to recover as damages the present value of payments of future indirect overhead charges that it would have received had C.K. abided by the terms of the participation agreement.  See Pollack v. Pollack, supra at 857.  C.K. argues that HOPCO’s recovery of future indirect overheard charges is tantamount to a recovery of lost profits.  Consequently, C.K. contends that the rather strict evidentiary requirements for obtaining a recovery for lost profits apply to this case.  See Holt Atherton Industries, Inc. v. Heine, 835 S.W.2d 80 (Tex.1992).  While the indirect overhead charges represented the profit which HOPCO was entitled to receive for the services it performed under the participation agreement, we do not agree that the rules for obtaining a recovery for lost profits apply to this case.  A  recovery for lost profits in the typical case is dependent upon fluctuating market conditions which require careful scrutiny in order to overcome concerns of a speculative recovery.  In this case, however, the amount of profit (i.e. the indirect overhead charge) which HOPCO was entitled to receive was expressly set out in the contract.  

The recovery of future indirect overhead charges in this case is analogous to the damages at issue in Kiewit Texas Mining Company v. Inglish, 865 S.W.2d 240 (Tex.App. - Waco 1993, writ den’d).  Kiewit involved a claim for the recovery of future royalties under a coal lease which had been wrongfully repudiated.   The amount of each of the future royalties in Kiewit was contractually established by the lease as is the case with the amount of the indirect overhead charges being established by the participation agreement.  Citing WILLISTON ON CONTRACTS '1397 (Baker Voorhis, 3rd ed. 1968), the court held that the claimants were entitled to the value of the expected performance of the contract which is to be calculated by estimating the probability of future performance.  Kiewit Texas Mining Company v. Inglish, supra at 245. 

The receipt of future royalties in Kiewit depended upon a single variable, that being the period of time in which the lease would remain in force in the future.  The amount of future indirect overhead charges to which HOPCO is entitled depends on two variables:  (1) the number of wells which would be operated in the future and (2) the length of time in which the Corazon leases would remain in force in the future.  With respect to the number of wells to be operated, the evidence showed that both Kerr-McGee and C.K. limited the number of wells to be operated by HOPCO to less than 20.  However, the evidence also showed that C.K. brought several additional wells into operation after its purchase, raising the total number of wells operated on the Corazon leases to over 50.  As for the future existence of the Corazon leases, there was evidence that the leases had been in existence for several years.  Testimony was also offered to the effect that several million barrels of oil reserves remained in place.   This evidence constituted objective data upon which the jury could draw a reasonable conclusion based upon a reasonable certainty.   We, therefore, find that some evidence was offered as to the future indirect overhead charges to which HOPCO would be entitled had C.K. not breached the participation agreement.   C.K.’s challenge to the legal sufficiency of the evidence supporting a recovery for future indirect overhead charges is overruled. 

We next address C.K.’s complaint regarding the factual sufficiency of the evidence supporting the jury’s finding of future indirect overhead charges in the amount of $480,000.00.  The record is devoid of any attempt by the parties to offer evidence regarding the present value of the future indirect overhead charges which HOPCO would be entitled to receive.  Furthermore, the jury charge did not request the jury to limit its answer to present value.  We, therefore, find that the evidence is factually insufficient to support the jury’s finding of $480,000.00.  C.K.’s factual sufficiency complaint is, therefore, sustained.  The question pertaining to the amount of future indirect overhead charges to which HOPCO is entitled is remanded to the trial court for determination consistent with this opinion.  We do not address HOPCO’s appellate issues attacking the trial court’s refusal to enter judgment in the amount of $480,000.00 because the jury’s answer was not supported by factually sufficient evidence.   

                                           Joint Interest Billings and Third-Party Expenses

C.K.’s Appellate Issue No. 4.2  attacks HOPCO’s recovery under the jury’s answers for the third and fourth damage elements.  The third damage element sought the payment of joint interest billings.  The term “joint interest billing” is a term commonly used in the oil and gas industry to refer to a statement periodically submitted by the operator to the working interest owners to obtain payment of their proportionate share of a lease’s operating expenses.   In this case, the third damage element sought the recovery of all operating expenses incurred in the production of the leases from December 1997 through June 1998.  As set forth in Footnote No. 8 above, the third damage element included future indirect overhead charges for the months of December 1997 through June 1998.  The remainder of the charges sought by the third damage element consisted of other expenses  purportedly incurred by HOPCO in operating the leases from December 1997 through June 1998.  The fourth damage element sought reimbursement for the third-party operating and contractor expenses incurred by HOPCO from July 1998 to November 1998.^[10]

Citing the previously-quoted ruling of Osage Oil, C.K. argues that HOPCO was not entitled to recover any damages for expenses it incurred in actually operating the leases after the date of the purported termination.^[11]   As stated by the court in Osage Oil:

A party, while in the performance of a contract, when served with notice of its repudiation by the other party, cannot proceed with the performance of the contract except it be one of which specific performance may be enforced and increase the damages to which he would otherwise be entitled.

Osage Oil & Refining Co. v. Lee Farm Oil Co., supra at 522.   C.K. is essentially arguing that HOPCO failed to mitigate its damages as a matter of law under Osage Oil by continuing to perform under the contract after the purported termination.  The record reveals that, while HOPCO sought a recovery for specific performance at various points in these proceedings, the trial court denied this requested relief by granting partial summary judgment.^[12]        For the same reasons that we have rejected the ruling in Osage Oil as serving as a basis for C.K.’s and Rocker A’s counterclaims sounding in tort, we do not find Osage Oil to be controlling on the issue of HOPCO’s damages.   As noted previously, a non-breaching party has the option of treating a repudiation of contract as inoperative.  See America’s Favorite Chicken Company v. Samaras, supra at 626.  If the repudiation is not accepted by the non-repudiating party, the contract is kept alive for the benefit of both parties.  See Griffith v. Porter, supra at 135.  Because the ruling in Osage Oil directly conflicts with the non-breaching party’s option of treating the repudiation as inoperative, we decline to apply Osage Oil to the facts of this case.  We hold that HOPCO was permitted to treat the purported termination as inoperative and, thereby, continue performing under the contract at least until the matter was litigated.   C.K.’s Appellate Issue No. 4.2 is overruled.

                                                Remand of HOPCO’s Damage Awards

In summary, we have determined the amounts which the evidence established as HOPCO’s damages for C.K.’s breach of the participation agreement.  However, we are unable to render judgment in HOPCO’s favor for these amounts because of our remand of the usury claim.  The usury statutes contain a provision whereby the principal amount of the debt upon which usurious interest is charged is forfeited if the rate of interest charges is greater than twice the amount of interest authorized by the usury statutes.  TEX. FIN. CODE ANN. ' 305.002 (Vernon Supp 2002)^[13]; see Steves Sash & Door Company, Inc. v. Ceco Corporation, 751 S.W.2d 473 (Tex.1988).   A penalty at the rate of 400 percent would obviously be greater than twice the maximum interest rate.  HOPCO would not be entitled to recover for any damage element upon which the non-consent penalty may have been assessed.  We, therefore, remand all damage awards to HOPCO so that the trial court may determine which portion of the damage elements served as the basis for the assessment of the non-consent penalty.  HOPCO should be awarded as damages, in the amounts set forth in this opinion, all portions of the damage elements which did not serve as the basis for the assessment of the non-consent penalties.  See Steves Sash & Door Company, Inc. v. Ceco Corporation, supra at 475.

In remanding the issue of future indirect overhead charges, we feel it necessary to define the relevant time period of our remand order.   The jury’s answers to the first, third, and fourth damage elements covered the damages HOPCO sought for the period of December of 1997 through November 1998.  The issue that we are remanding concerns indirect overhead charges which  possibly have accrued after November 1998.  It would appear that the remanded issue of indirect overhead charges should be submitted to the fact finder as two separate questions.  The first question should inquire as to the indirect overhead charges which would have accrued after November 1998 until the date of retrial.  The second question should seek a finding of the present value of indirect overhead charges possibly accruing after the date of retrial.

                                                                  Attorney’s Fees

C.K.’s Appellate Issue No. 5 attacks the trial court’s award of attorney’s fees to HOPCO.  The jury awarded HOPCO attorney’s fees in the amount of $303,710.00 for preparation and trial.  The jury refused an award of attorney’s fees for services which may be rendered in the event of an appeal.  The trial court reduced the jury’s award of $303,710.00 for preparation and trial to $183,000.00.  C.K. argues that HOPCO is not entitled to recover any amount in attorney’s fees because it failed to properly segregate its attorney’s fees with respect to claims alleged against parties which had been non-suited and claims for which attorney’s fees are not recoverable.  HOPCO argues on appeal that the trial court erred in reducing the amount awarded by the jury for preparation and trial.

As a general rule, a party seeking to recover attorney’s fees has the burden of proof to establish that he is entitled to them.  Stewart Title Guaranty Company v. Sterling, 822 S.W.2d 1, 10 (Tex.1991); Lesikar v. Rappeport, 33 S.W.3d 282, 317 (Tex.App. - Texarkana 2000, pet’n den’d).  When a plaintiff seeks to recover attorney’s fees in a case in which he asserts multiple claims, at least one of which supports an award of attorney’s fees and at least one of which does not, or asserts claims against multiple defendants, he must offer evidence segregating attorney’s fees among his various claims.  Stewart Title Guaranty Company v. Sterling, supra at 10-11; Lesikar v. Rappeport, supra at 317.  An exception to this duty to segregate arises when the attorney’s fees rendered are in connection with claims arising out of the same transaction and are so interrelated that their prosecution or defense entails proof or denial of essentially the same facts.  Stewart Title Guaranty Company v. Sterling, supra at 11.

Our remand of the usury claim requires a remand of the issue of HOPCO’s attorney’s fees.  HOPCO was entitled to recover its attorney’s fees with respect to its breach of contract claims under the terms of the participation agreement and TEX. CIV. PRAC. & REM. CODE ANN. ' 38.001 (Vernon 1997) to the extent that it prevailed in the trial court.   As noted above, the trial court may determine that HOPCO is not entitled to recover a portion of the damages it was awarded as a result of a usury violation.  To the extent that a portion of HOPCO’s breach of contract damages are forfeited, it cannot be a prevailing party with respect to its claim for attorney’s fees.  See Broady v. Johnson, 763 S.W.2d 832, 835 (Tex.App. B Texarkana 1988, no writ).  No evidence of attorney’s fees was offered to distinguish between HOPCO=s successful and unsuccessful breach of contract claims.  We, therefore, remand HOPCO’s entire attorney’s fee award for consideration under the rules set out in Stewart Title Guaranty Company v. Sterling. 

                                                         THIS COURT’S RULING

The judgment of the trial court insofar as it denies C.K. Oil Properties, Inc.’s usury claim is reversed, and that cause of action is remanded.  In light of the remand of the usury cause of action, the issue of recovery for damages and for attorney’s fees is returned to the trial court for further consideration.  The actual award for future indirect damages is also reversed, and that issue is remanded.  The actual amount of past indirect overhead charges stated in the trial court’s judgment is modified to reflect the amount of $31,538.00 as supported by the record.  In all other matters, the judgment of the trial court is affirmed.

W. G. ARNOT, III

CHIEF JUSTICE

April 25, 2002

Do not publish.  See TEX.R.APP.P. 47.3(b).                           

Panel consists of: Arnot, C.J., and

Wright, J., and McCall, J.

     ^[1]The participation agreement also provided a mechanism by which HOPCO would obtain a portion of the leasehold interest in the future upon various levels of payout being realized from the Corazon leases. 

     2The record indicates that Earl Chapman is the principal stockholder and president of Rocker A.   Chapman is also the president of C.K. 

     3HOPCO sought injunctive relief on several occasions during the pendency of this matter seeking an order declaring that it had the exclusive right to operate the Corazon leases.  Each of these requests were denied.  The record does not reveal any requests for injunctive relief by C.K. and Rocker A to have the trial court exclude HOPCO from the leases during the pendency of the suit.  C.K. and Rocker A sought relief from the Railroad Commission of Texas to have HOPCO removed as the operator of record with the Commission.  The Commission dismissed this relief on the basis that the dispute should be settled by a court of competent jurisdiction.

     ⁴The participation agreement incorporated by reference a form operating agreement promulgated by the American Association of Petroleum Landmen referred to as the A.A.P.L. Form 610-1982 Model Form Operating Agreement.  It should be noted, however, that the operating agreement was so significantly modified by the parties that it should not be considered a standard operating agreement.

     ⁵HOPCO contends that the following provision permitted the assessment of a 400 percent non-consent penalty for untimely payment: AIf any party fails or is unable to pay its share of expenses within sixty (60) days after rendition of a statement therefor by Operator...*the defaulting party=s interest shall be subject to the non-consent penalties set forth in Article XV.B.@  The underlined portion of the foregoing provision was added  by the parties to the form language of the operating agreement.  In addition to the 400 percent non-consent penalty, HOPCO also charged interest on the unpaid invoices at the rate of 12.5 percent per annum.

     ⁶The trial court ultimately held that the participation agreement did not permit HOPCO to assess the charge.

     ⁷The trial court entered a directed verdict in favor of Rocker A regarding all damages sought by HOPCO against Rocker A.  HOPCO does not challenge this ruling.

     ⁸The indirect overhead charges for the months of December 1997 (the date of termination) through June 1998 were included in the third damage element seeking a recovery for joint interest billings.

     ⁹The amount of $485.20 was set out in the participation agreement.  The 13 wells were the number of wells which C.K. instructed HOPCO to operate during the pendency of this action.  The 5 months represent the months of July 1998 through November 1998. 

     ¹⁰To recap, the third damage element regarding the payment of joint interest billings concerned all charges sought  by HOPCO for operating the Corazon leases, including indirect overhead charges, for the months of December 1997 through June 1998.  Two separate damage elements pertained to the charges HOPCO sought for the months of July 1998 through November 1998 (date of trial): (1) the first damage element sought indirect overhead charges for July 1998 through November 1998 and (2) the fourth damage element sought all other charges incurred by HOPCO from July 1998 through November 1998.  The second damage element involved all sums which HOPCO sought to recover for damages to be incurred after the date of trial (November 1998).  

    ¹¹C.K. does not attack the amounts found by the jury for the third and fourth damage elements.

   ¹²HOPCO did not expressly seek the remedy of specific performance at one point in these proceedings.  C.K.  and Rocker A filed a motion for summary judgment seeking to deny HOPCO=s original request for specific performance.   When the motion for summary judgment came up for consideration, HOPCO=s attorney of record announced in open court that HOPCO was not seeking specific performance.

    ¹³TEX. FIN. CODE ' 305.002 (1998) was amended effective September 1, 1999.  The amendment does not affect the usury claim in this case because the usurious charges are alleged to have occurred prior to September 1, 1999.

---

     ^[1]The participation agreement also provided a mechanism by which HOPCO would obtain a portion of the leasehold interest in the future upon various levels of payout being realized from the Corazon leases. 

     ^[2]The record indicates that Earl Chapman is the principal stockholder and president of Rocker A.   Chapman is also the president of C.K. 

     ^[3]HOPCO sought injunctive relief on several occasions during the pendency of this matter seeking an order declaring that it had the exclusive right to operate the Corazon leases.  Each of these requests were denied.  The record does not reveal any requests for injunctive relief by C.K. and Rocker A to have the trial court exclude HOPCO from the leases during the pendency of the suit.  C.K. and Rocker A sought relief from the Railroad Commission of Texas to have HOPCO removed as the operator of record with the Commission.  The Commission dismissed this relief on the basis that the dispute should be settled by a court of competent jurisdiction.

     ^[4]The participation agreement incorporated by reference a form operating agreement promulgated by the American Association of Petroleum Landmen referred to as the A.A.P.L. Form 610-1982 Model Form Operating Agreement.  It should be noted, however, that the operating agreement was so significantly modified by the parties that it should not be considered a standard operating agreement.

     ^[5]HOPCO contends that the following provision permitted the assessment of a 400 percent non-consent penalty for untimely payment: AIf any party fails or is unable to pay its share of expenses within sixty (60) days after rendition of a statement therefor by Operator...*the defaulting party=s interest shall be subject to the non-consent penalties set forth in Article XV.B.@  The underlined portion of the foregoing provision was added  by the parties to the form language of the operating agreement.  In addition to the 400 percent non-consent penalty, HOPCO also charged interest on the unpaid invoices at the rate of 12.5 percent per annum.

     ^[6]The trial court ultimately held that the participation agreement did not permit HOPCO to assess the charge.

     ^[7]The trial court entered a directed verdict in favor of Rocker A regarding all damages sought by HOPCO against Rocker A.  HOPCO does not challenge this ruling.

     ^[8]The indirect overhead charges for the months of December 1997 (the date of termination) through June 1998 were included in the third damage element seeking a recovery for joint interest billings.

     ^[9]The amount of $485.20 was set out in the participation agreement.  The 13 wells were the number of wells which C.K. instructed HOPCO to operate during the pendency of this action.  The 5 months represent the months of July 1998 through November 1998. 

     ^[10]To recap, the third damage element regarding the payment of joint interest billings concerned all charges sought  by HOPCO for operating the Corazon leases, including indirect overhead charges, for the months of December 1997 through June 1998.  Two separate damage elements pertained to the charges HOPCO sought for the months of July 1998 through November 1998 (date of trial): (1) the first damage element sought indirect overhead charges for July 1998 through November 1998 and (2) the fourth damage element sought all other charges incurred by HOPCO from July 1998 through November 1998.  The second damage element involved all sums which HOPCO sought to recover for damages to be incurred after the date of trial (November 1998).  

     ^[11]C.K. does not attack the amounts found by the jury for the third and fourth damage elements.

     ^[12]HOPCO did not expressly seek the remedy of specific performance at one point in these proceedings.  C.K.  and Rocker A filed a motion for summary judgment seeking to deny HOPCO=s original request for specific performance.   When the motion for summary judgment came up for consideration, HOPCO=s attorney of record announced in open court that HOPCO was not seeking specific performance.

     ^[13]TEX. FIN. CODE ' 305.002 (1998) was amended effective September 1, 1999.  The amendment does not affect the usury claim in this case because the usurious charges are alleged to have occurred prior to September 1, 1999.