O & G Carriers, Inc. v. Smith Energy 1986-A Partnership

826 S.W.2d 703, 1992 Tex. App. LEXIS 612, 1992 WL 41400
CourtCourt of Appeals of Texas
DecidedFebruary 27, 1992
DocketNo. 01-91-01078-CV
StatusPublished
Cited by16 cases

This text of 826 S.W.2d 703 (O & G Carriers, Inc. v. Smith Energy 1986-A Partnership) 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
O & G Carriers, Inc. v. Smith Energy 1986-A Partnership, 826 S.W.2d 703, 1992 Tex. App. LEXIS 612, 1992 WL 41400 (Tex. Ct. App. 1992).

Opinions

OPINION

MIRABAL, Justice.

This is an appeal from an interlocutory order1 granting the application of appellee, Smith Energy 1986-A Partnership (Smith), for the appointment of a limited receiver of [704]*704the proceeds of oil and gas leases in Galveston County, Texas. We affirm.

Smith and appellant, 0 & G Carriers, Inc. (0 & G), are co-owners of the working interest in certain oil and gas properties. Smith owns a 68% working interest in the lease and 0 & G owns a 32% working interest.

On May 12, 1986, as “non-operators,” Smith and 0 & G entered into an operating agreement (sometimes referred to as “the agreement”) with a third party, Luck Petroleum Corporation (Luck), the “operator.” Under article VII A of the agreement, each party was to be liable for its proportionate share of the costs of development of the lease. Article VII C provided that the operator would pay expenses in the operation of the lease and charge the parties with their respective proportionate shares on the expense basis provided in the accounting procedure attached to the agreement as exhibit C. Exhibit C, entitled “Accounting Procedure Joint Operations,” provided in paragraph 3 that each non-operator should pay its proportion of all bills within 15 days after the billing was issued by the operator. Under paragraph 4 of exhibit C, non-operators could take written exception to the operator’s bills and make a claim on the operator for adjustment.

Attached to the agreement as article XV was an addendum, under which a New York accounting firm was designated to act as the collecting and disbursing agent for the parties to receive all income from production, remit to the operator the amounts due it under the agreement, and reimburse the remaining cash receipts to the working interest owners. Apparently, this provision was never implemented. Instead, Smith and 0 & G, as non-operators, received the revenue from the sale of the oil and gas directly from their purchasers and were then billed by the operator for expenses.

Smith succeeded Luck as operator under the terms of the agreement, but this did not affect the relation of Smith and 0 & G as non-operators in their respective percentages under the agreement.

0 & G and Smith have been involved in ongoing disputes regarding Smith’s actions in the operation of the leases, the propriety of certain of Smith’s charges and adjustments to the joint accounts, and 0 & G’s refusal to pay what it believes are unauthorized and improper expenses charged by Smith. Smith filed the Galveston County suit to recover alleged unpaid amounts owed by 0 & G for the operation of the lease. 0 & G has denied that it owes any expenses and has counterclaimed against Smith for breach of contract, breach of fiduciary duty, fraud in the sale of real estate, violations of the Deceptive Trade Practices Act, and common law fraud.

Smith filed an unsworn “Motion for Interim Relief,” requesting that the trial court appoint an “escrow agent” to receive all revenues and pay expenses as submitted by the operator, subject to an audit to be conducted by an auditor agreed to by both parties. The motion proposed that if the parties could not agree on the auditor, (1) each party retain its own auditor and the two auditors attempt to reconcile the differences; and (2) failing to do so, a special master be appointed to resolve any dispute between the two auditors. The motion then requested that a mediator be appointed to use the auditor(s)’ report as a basis for resolving the dispute, and that if the mediator was unsuccessful, the case be preferentially set for trial.

The trial court held an evidentiary hearing on the motion on August 23,1991. The trial court recognized that Smith’s proposed “escrow agent” resembled a “receiver,” as did 0 & G’s attorney. Smith’s attorney initially resisted the label “receiver.” The court heard testimony from Smith’s expert witness, Harold Buck, a joint interest auditor who reviewed the operating agreement in question and testified that, under the agreement, if a non-operator received a billing he believed to be in error, he would be in default if he withheld payment of the invoice.

0 & G called Tina Williams, a CPA, who testified that she had reviewed the joint interest billings from 1989 through 1990, as well as a few for 1991. Based on that [705]*705review, she found administrative costs that Smith, the operator, was passing through to 0 & G which, according to the operating agreement, were supposed to be included in the overhead flat rate Smith was also charging. She testified there are times when a non-operator will withhold payment on disputed charges.

On cross-examination, Williams acknowledged that under article VII C of the agreement, the non-operator did not have the right to withhold payment.

During the hearing, Smith first expressly disavowed any interest in the appointment of a receiver, but indicated it might consider a “limited receiver.” 0 & G continued to object to any type of extraordinary relief because there were no pleadings or evidence to justify it. At the close of the hearing, the court announced that it would consider appointing a receiver.

After the August 23 hearing, on that same day, Smith filed a pleading, “Supplemental Memorandum In Support of Motion For Interim Relief And For Preferential Trial Setting (Request for a Limited Receivership),” requesting a limited receiver with the power to receive production proceeds, pay operation expenses, and distribute the balance to the working interest owners. The pleading invoked Tex.Civ. PRAC. & Rem.Code Ann. § 64.001(a)(3) (Vernon 1986), and alleged a “probable interest” in the leases and revenue in question as well as a danger of loss, removal or injury to that property. Smith’s pleading was not sworn or supported by attached affidavits. However, as supporting evidence, the pleading referred to (1) the agreement, (2) the testimony of Harold Buck, and (3) the affidavits of Howard Smith and Monroe Cutler. These affidavits, which are not in the appellate record, were attached to an unsuccessful motion for summary judgment Smith filed before it filed the motion for interim relief. In addition to requesting the limited receivership, Smith’s supplemental motion prayed the court to order the procedure requested in Smith’s original motion for interim relief, e.g., audit, master, mediator, preferential trial setting.

On August 28, 1991, 0 & G filed a response opposing Smith’s request for a limited receiver. The response asserted, among other things, that Smith had not met the requirements of section 64.001 because it had not shown that it had a probable right to recovery of the interest or fund in question, or that the fund or interest was in danger of being lost, removed, or materially injured. O & G did not assert another hearing was necessary on Smith’s request for a limited receiver, nor did O & G complain that Smith was not entitled to the appointment of a limited receiver because its pleadings did not request a receiver before the August 23 hearing.

On August 29,1991, the trial court noted on its docket sheet, “Motion for Interim Relief granted per order to be filed.”

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826 S.W.2d 703, 1992 Tex. App. LEXIS 612, 1992 WL 41400, Counsel Stack Legal Research, https://law.counselstack.com/opinion/o-g-carriers-inc-v-smith-energy-1986-a-partnership-texapp-1992.