Mesquite Energy v. Sanchez Oil & Gas

2026 Tex. Bus. 10

• Court: Texas Business Court
• Decided: March 4, 2026
• Docket: 24-BC11B-0018
• Status: Published

Opinion

FILED IN BUSINESS COURT OF TEXAS BEVERLY CRUMLEY, CLERK ENTERED 3/4/2026 2026 Tex. Bus. 10

The Business Court of Texas, Eleventh Division

MESQUITE ENERGY, INC. f/k/a § SANCHEZ ENERGY CORPORATION, § ON ITS BEHALF AND AS THE ASSIGNEE OF EVOLVE TRANSITION § INFRASTRUCTURE, LP F/K/A § SANCHEZ MIDSTREAM PARTNERS Cause No. 24-BC11B-0018 LP F/K/A SANCHEZ PRODUCTION § PARTNERS LP § Plaintiff, § § v. § SANCHEZ OIL & GAS CORPORATION, § § Defendant.

═══════════════════════════════════════ OPINION ═══════════════════════════════════════

Syllabus 1 0F

This opinion addresses the division of settlement funds and the entitlement to reimbursement of litigation expenses arising from a prior lawsuit. The settlement funds were placed in an escrow account in 2024 pending the resolution of the present dispute.

1 Note: The syllabus was created by court staff and is provided for the convenience of the reader. It is not part of the Court’s opinion, does not constitute the Court’s official description or statement, and should not be relied upon as legal authority. INTRODUCTION

¶1 The Court held a bench trial from January 12 through January 16, 2026,

during which it received live testimony from seven witnesses, deposition designations,

and exhibits. The parties subsequently submitted post-trial briefs on January 30, 2026.

¶2 Plaintiff in this case is Mesquite Energy, Inc., a corporation organized under

the laws of Delaware, and which has its principal place of business in Houston, Texas.

From its formation until June 30, 2020—when Sanchez Energy Corporation (“SN”)

changed its name to Mesquite following its emergence from bankruptcy—Mesquite was

known as SN. Mesquite and SN are the same entity. These findings refer to “SN” when

referring to the period of time before June 30, 2020, and to “Mesquite” when referring to

the period of time after that date. Mesquite brings this case on its own behalf and on

behalf of Evolve Transition Infrastructure LP, formerly known as Sanchez Midstream

Partners LP, formerly known as Sanchez Production Partners LP (“SNMP”).

¶3 Defendant in this case is Sanchez Oil & Gas Corporation (“SOG”), a

corporation organized under the laws of Delaware, and which has its principal place of

business in Houston, Texas.

¶4 At issue in this case is the proper allocation of settlement proceeds resulting

from a prior trade secret misappropriation lawsuit, Sanchez Oil & Gas Corporation,

Sanchez Energy Corporation, and Sanchez Production Partners, LP v. Terra Energy

Partners LLC, Benjamin “BJ” Reynolds, Mark Mewshaw, and Wes Hobbs, Cause No.

2016-18909, 11th Judicial District Court, Harris County, Texas (the “Terra Litigation”). ¶5 This case presents three principal questions. First, whether SNMP

possessed an independent ownership interest in the trade secrets sufficient to support

allocation of a separate share of the Terra settlement proceeds 2 through assignment. 1F

Second, whether the Services Agreement or other governing principles establish exclusive

ownership of the Zero Dark Forty trade secrets in either Mesquite or SOG. Third, whether

the 2022 post-bankruptcy Settlement Agreement between Mesquite and SOG affects the

parties’ entitlement to the proceeds or reimbursement of litigation expenses.

¶6 Having considered all the testimony, admitted exhibits, and arguments of

counsel, the Court submits the following Findings of Fact and Conclusions of Law. To the

extent necessary, all findings of fact that are labeled conclusions of law should also be

considered findings of fact and vice versa.

¶7 FINDINGS OF FACT

1. SOG was founded in 1972 by A.R. Sanchez, Jr., his father, and other investors.

Over time, the other investors exited SOG, and it became a family-owned,

independent oil and gas exploration and production company.

2. In August 2011, the Sanchez Family formed the Sanchez Energy Corporation, now

known as Mesquite Energy, Inc., as an oil and gas exploration and production

company. In December 2011, SN went through an Initial Public Offering.

2 On December 18, 2025, Defendant Sanchez Oil & Gas Corporation filed a Motion to Seal Records regarding certain settlement agreement information. The court granted that motion on January 6, 2026. Considering that order, no specific dollar amounts regarding settlement proceeds or sums to be reimbursed are included in this opinion. 3. On December 19, 2011, a Service Agreement was executed between SN and SOG.

PX 5. Under the Services Agreement, SOG provided management and

administrative support services to SN. Id.

4. These services were performed by SOG employees, and SN reimbursed SOG for

those services without markup.

5. This agreement was signed by Tony Sanchez III on behalf of both companies. PX 5.

6. In May 2014, SN acquired the Catarina Asset in the Eagle Ford Shale from Shell

for $639 million. During the relevant time period, SN and SOG operated in

coordination on the development of the Catarina Asset.

7. Following the acquisition of the Catarina Asset and amid declining oil prices, SN

and SOG developed a cost-reduction project called “Zero Dark Forty.” The project

successfully reduced drilling and operational costs at the Catarina Asset by a

significant amount.

8. The creation and implementation of Zero Dark Forty involved coordinated

participation by both SN and SOG.

9. SN paid the direct operational costs, employee salaries, and capital expenses

associated with the program, while SOG employees performed, directed, and

oversaw the operations required for its implementation.

10. In 2016, former SOG employees Benjamin “B.J.” Reynolds, Mark Mewshaw, and

Wes Hobbs departed SOG and subsequently joined Terra Energy Partners. Those

individuals downloaded and copied thousands of proprietary files, including data and trade secrets associated with the Zero Dark Forty project. The stolen

proprietary files were provided to their new employer, Terra Energy Partners.

11. In March 2016, SOG, SN, and SNMP (the “Terra plaintiffs”) filed suit in Harris

County District Court against the former employees and Terra Energy Partners,

asserting claims arising from alleged misappropriation of proprietary data and

trade secrets, including the Zero Dark Forty project.

12. At trial in the present case, Gregory Kopel—currently General Counsel for

Mesquite and previously counsel to SN and SOG—testified that SNMP was

included as a co-plaintiff in the Terra Litigation because a substantial volume of

information had been stolen and the plaintiffs sought to act quickly. Trial Tr. Vol. I

at 294:17–23.

13. Tony Sanchez III, who was President, CEO, and Chairman of SN as well as

President of SOG for the relevant period, testified that SNMP was included in the

Terra Litigation because, at the outset, it was unclear which specific data belonged

to which entity. Trial Tr. Vol. III at 142:15–143:6.

14. The law firm retained to represent the Terra plaintiffs initially billed them on an

hourly basis. PX 42.

15. The attorney’s fees and litigation costs associated with the prosecution of the

Terra Litigation were paid solely by SN until March 2019.

16. In March 2019, the Terra plaintiffs amended the retention agreement entered into

with the attorneys representing them to proceed on a contingency fee basis

regarding future attorneys’ fees. PX 43. 17. In August 2019, SN filed for Chapter 11 bankruptcy protection. SN emerged from

bankruptcy in June 2020 as Mesquite Energy, Inc.

18. On September 12, 2022, the parties entered into a Settlement Agreement resolving

claims asserted against SOG and members of the Sanchez family during the

bankruptcy proceedings.

19. The Settlement Agreement released SOG from claims Mesquite possessed as of the

effective date of September 12, 2022.

20. The Terra Litigation was resolved in 2024 through a negotiated settlement. After

deduction of the plaintiff's attorney’s contingency fee, the net settlement proceeds

were placed into escrow.

¶8 CONCLUSIONS OF LAW

1. The Court has jurisdiction over this action under Tex. Gov. Code §25A.004(d)(1)

because it arises out of a “qualified transaction.” The case arises out of a qualified

transaction because the claims involve “a transaction, or series of related

transactions . . . under which” either Plaintiff or Defendant “is entitled to receive,

consideration with an aggregate value of at least $5 million.” Tex. Gov. Code

§25A.001(14). The parties have agreed that each party is subject to the Court’s

personal jurisdiction in this action. The parties further agree that venue is proper in

Harris County under Tex. Civ. Prac. & Rem. Code §15.002(a)(1) because all or a

substantial part of the events or omissions supporting Plaintiff’s and Defendant’s

claims occurred in Harris County, and under Tex. Civ. Prac. & Rem. Code §15.002(a)(2) because Plaintiff’s and Defendant’s principal offices are located

within Harris County.

SNMP’s Role in the Terra Litigation

2. The principle that an assignee acquires only the rights possessed by the assignor

has been consistently recognized across Texas courts and represents a fundamental

tenet of assignment law in Texas. Boeing Co. v. Sw. Airlines Pilots Ass’n, 716

S.W.3d 140, 154 (2025) (“An assignment of a legal claim does not relieve the

assignee from the burden of proving what the assignor would have to prove to

recover on the claim because the assignee acquires no greater rights than his

assignor had.” (citing York’s Adm’r v. McNutt, 16 Tex. 13, 17 (1856)).

3. SNMP did not prove an independent ownership interest in the trade secrets at issue

in the Terra Litigation. The trial record does not establish that SNMP owned trade

secrets that were independently misappropriated, or that it suffered a distinct

injury arising from stolen data related to the Zero Dark Forty project.

4. The court concludes that SNMP was included as a co-plaintiff in the Terra

Litigation out of caution and expediency, given the volume of data that was stolen

by the former employees. Accordingly, SNMP’s prior status as a co-plaintiff and

any subsequent assignment from SNMP could not expand SN’s ownership

interests or support allocation of a separate share of the Terra settlement proceeds

to SN. Ownership of the Trade Secrets

5. The Court concludes that the settlement proceeds arising from the Terra Litigation

are to be divided equally between Mesquite and SOG. The evidence presented at

trial shows the trade secrets underlying the Terra Litigation were developed

through the parties’ joint efforts, and neither party proved exclusive ownership.

6. Mesquite argues that under Texas law, whether a trade secret exists —and thus

whether a plaintiff owns a trade secret—turns on “the amount of effort or money

expended . . . in developing the information.” In re Bass, 113 S.W.3d 735, 739

(Tex. 2003) (quoting Restatement of Torts §757 cmt. B. (1939)). In determining

ownership of the trade secrets, Mesquite urges this court to look to which co-

plaintiff incurred the costs associated with developing the specific information at

issue in the Terra Litigation. 3 2F

7. While the Court in Bass considered the amount of effort or money expended as one

of six factors that may determine the existence of a trade secret, the Court also

indicated “it is not possible to state precise criteria for determining the existence

of a trade secret.” Id. (quoting Restatement (Third) of Unfair Competition §39

cmt. d (1995)).

3 The Texas Uniform Trade Secrets Act defines “trade secret” and “owner.” TEX. CIV. PRAC.

& REM. CODE ANN. §134A.002. In the present case, the court is not addressing whether a trade secret exists or who the owner is with respect to the misappropriation of a trade secret. The Terra plaintiffs proved the existence and ownership of trade secrets in the Terra Litigation. At issue in this case is the allocation of the settlement proceeds resulting from the successful prosecution of the Terra Litigation. 8. This Court finds that Mesquite did, in fact, fund the development of the Zero Dark

Forty project. However, Texas law does not hold that the party providing funding

automatically acquires exclusive ownership of proprietary information developed,

as in this case, through collaborative operations.

9. While expended resources are probative of contribution, they are not dispositive of

exclusive title to the trade secrets, particularly where the parties functioned in an

integrated business relationship.

10. SOG argues that the Services Agreement and well-established contract law govern

ownership of the trade secrets. SOG also argues that the Zero Dark Forty cost-

saving initiatives were developed and implemented by SOG employees under

SOG’s operational control. As well as that, Mesquite’s prior sworn statements in

related proceedings serve as binding judicial admissions of SOG’s ownership of the

trade secrets. This court has examined the Services Agreement in full.

11. The intellectual property provision does not clearly and unequivocally assign to

SOG exclusive ownership of newly developed trade secrets arising from joint

operations. The agreement contains no express language divesting SN of

ownership rights in information developed through the parties’ coordinated efforts.

12. Importantly, witness testimony at trial demonstrated significant overlap in

corporate leadership and operational control between the parties. Tony Sanchez III

testified that he “was performing [his] duties as an executive officer of SN as SOG

employee.” Trial Tr. Vol. III at 64:22–25. Cameron George testified he held the

roles of Senior Vice President of Capital Markets and later Chief Financial Officer at both SN and SOG simultaneously. Trial Tr. Vol. I at 106:21–107:14. Mr. George

described a general practice in which employees typically held the same titles at

both companies. Id.

13. The record shows that numerous other individuals who were SOG employees

during the relevant time testified that they served concurrent roles at both SN and

SOG, with SOG paying their employment compensation while holding officer titles

or job functions at SN. This overlapping leadership structure reflects that the

development and implementation of the cost-saving initiatives from the Zero Dark

Forty project did not occur through arm’s-length dealings between fully distinct

entities, in which SOG retained all operational control.

14. Similarly, the prior testimony cited by SOG does not constitute a conclusive

judicial admission resolving this dispute. The statements were made in different

proceedings addressing different issues. The evidence does not establish a clear,

deliberate, and unequivocal concession of exclusive ownership that would be

binding in the present action.

15. Accordingly, SOG did not prove sole ownership under either contract principles, by

exercising exclusive control, or under the doctrine of judicial admissions.

16. The evidence at trial established that the Zero Dark Forty program was developed

through coordinated and interdependent contributions by both Mesquite and SOG.

Mesquite funded the project’s capital and operating expenditures and owned the

Catarina Asset, where the Zero Dark Forty cost-saving initiatives were

implemented. SOG provided operational management by employing and directing the personnel who engineered and executed the strategies. Both parties made

substantial and indispensable contributions to the development of the Zero Dark

Forty project, and no governing agreement assigns exclusive ownership of trade

secrets to one party. The record establishes joint development, and therefore, the

court concludes that Mesquite and SOG are co-owners of the Zero Dark Forty trade

secrets.

Effect of the 2022 Settlement Agreement

17. The court concludes that the 2022 post-bankruptcy Settlement Agreement does

not bar Mesquite’s claim to its share of the Terra settlement proceeds. The release

does not bar claims for reimbursement out of a settlement fund that did not exist

until 2024.

Reimbursement of Litigation Expenses

18. SN paid all attorneys’ fees and litigation costs to prosecute the Terra Litigation

that were billed on an hourly rate from the start of the litigation in March 2016

until March 2019. Under the doctrine of unjust enrichment, when a party passively

receives a benefit that would be unconscionable to retain without payment, the law

implies an obligation to restore those benefits.

19. “Unjust enrichment occurs when a person has wrongfully secured a benefit or has

passively received one which it would be unconscionable to retain.” Eun Bok Lee v.

Ho Chang Lee, 311 S.W.3d 95, 111 (Tex. App.—Houston [1st Dist.] 2013, no pet.) (citing Heldenfels Bros., Inc. v. City of Corpus Christi, 832 S.W.2d 39, 41 (Tex.

1992)). “When a person has been unjustly enriched by the receipt of benefits in a

manner not governed by contract, the law implies a contractual obligation upon

that person to restore the benefits to the plaintiff.” Id.

20. SN bore one hundred percent (100%) of the financial risk and burden of

prosecuting the Terra Litigation. Without SN’s funding, the settlement proceeds

would not exist. SOG is receiving half of the settlement benefit. Therefore, it shall

be legally and equitably required to bear half of the litigation costs.

CONCLUSION

¶9 The proceeds from the Terra settlement shall be divided equally, as each

party is entitled to fifty percent (50%) of the settlement proceeds. From their share of the

Terra settlement proceeds, SOG is ORDERED to pay Mesquite half of the legal expenses

SN paid to prosecute the Terra Litigation prior to March 2019. The court will issue a Final

Judgment concurrently with the filing of this opinion.

SO ORDERED.

MARIALYN BARNARD Judge of the Texas Business Court

SIGNED ON: March 4, 2026