The Texas Supreme Court has denied a petition for review in a case involving a breach of an indemnification provision in a contract conveying oil and gas interests in Louisiana.
Bryan C. Wagner and Duer Wagner III v. Exxon Mobil Corporation (No. 22-0932, pet. denied October 20, 2023; No. 14-21-00122-CV, filed November 8, 2022) arose from a 1994 purchase and sale agreement by which the Wagners acquired certain Louisiana oil and gas interests from Exxon. The Wagners acquired a 50% interest in a mineral servitude encumbering more than 120,000 acres, the remaining half of which was owned by Tensas Delta Land Company. As part of the purchase, the Wagners agreed to indemnify Exxon for certain liabilities, including damages arising from environmental claims. In 2006, assorted claimants filed three lawsuits against Exxon, the Wagners, and Tensas alleging environmental contamination and seeking remediation of the property conveyed to the Wagners in the 1994 agreement. Exxon and Tensas settled the first lawsuit for $59 million, $57.5 million of which was paid by Exxon. The second suit settled for just over $14 million and the third for no cost.
Shortly thereafter, Exxon sued the Wagners for indemnification of the two settlements. Following a discovery dispute that went up to the 14th Court of Appeals (upon which Exxon prevailed on an attorney-client privilege issue), the parties tried the case and went to the jury. The jury charge asked whether Exxon’s settlements were “made in good faith and reasonable and prudent under the circumstances,” to which the jury replied in the affirmative. Exxon moved for entry of judgment for the full $71.5 million in accordance with the verdict. The Wagners moved for judgment notwithstanding the verdict and for a directed verdict that Exxon take nothing. In December 2018 the trial court granted in part the Wagners’ JNOV motion, ruling that Exxon failed to provide an allocation of the settlement between “non-indemnity consideration and indemnified losses.” It thus disregarded part of the jury verdict and determined that only $14.11 million of the $57.5 million settlement in the first case was subject to indemnification. After a dispute regarding whether a trial court order to recalculate prejudgment interest was final or not (which also went up to the 14th Court), the trial court signed a final judgment in December 2020. That judgment awarded Exxon a total of $28.2 million in indemnity payments and prejudgment interest. Both parties filed appeals.
The court of appeals reversed and rendered in favor of Exxon. The Wagners first argued that Exxon’s failure to allocate the benefits of the $57.5 million settlement between indemnifiable and non-indemnifiable components “is fatal to its recovery.” Applying the test of whether Exxon’s settlement was “reasonable, prudent, and made in good faith under the circumstances” (citations omitted), the court looked to the sufficiency of the evidence supporting the jury’s finding. This evidence included testimony from Exxon’s witnesses about the Louisiana litigation, which included an unsuccessful motion to recuse a judge with a financial interest in one of the leases in question and several adverse rulings by the same judge. Eventually, the Louisiana Supreme Court determined that the judge should have recused himself and a new judge took over the case, who likewise made several rulings limiting Exxon’s defenses and excluding vital evidence. Moreover, during jury selection, the trial court allowed jury anchoring based on Exxon’s profits and other improprieties (woe be unto a major energy company that ends up defending itself in Louisiana). Once trial got underway, plaintiffs’ expert testified that it would take $3.9 billion to remediate the property. By the way, the same expert had testified on behalf of plaintiff landowners in another legacy case against another producer, this one for $60 million. Faced with the potential for an enormous verdict, Exxon and plaintiffs, after going back and forth for a while, settled for $59 million, $57.5 million of which would be paid by Exxon and the remainder by Tensas. Based on this record, the court of appeals found the evidence sufficient to support the jury’s finding that the settlement was reasonable.
The court of appeals further determined that the contractual indemnification language did not support the Wagners’ argument. That language broadly applied to “all damages, losses, expenses . . . as a result of claims, demands, and causes of action whether arising or made prior to or subsequent to the effective time or manifested in lawsuits filed prior to or subsequent to the effective time” arising from “the ownership or the operation of . . . the interests in the property,” including “the plugging or abandoning and reabandoning of any wells, . . . closure of pits, and restoration of the surface.” The purchase and sale agreement likewise obligated the Wagners to “accept all responsibility and liability for the environmental condition of the property and interests, … including, but not limited to, costs to cleanup or remediate,” as well as any claims “on account of … contamination or threat of contamination of natural resources.” Based on this language, the court of appeals had no trouble concluding that “all costs related to the settlement … likely fall within the scope of the Wagners’ indemnity obligations as defined by” the purchase and sale agreement.
Second, the Wagners argued that the Louisiana trial court’s grant of the Wagners’ motion for summary judgment on plaintiffs’ claims, which the court had previously severed from plaintiffs’ claims against Exxon, barred Exxon’s indemnity claims under the doctrine of res judicata. Applying Louisiana law to the question, the court of appeals determined that the Wagners did not raise the res judicata defense in the underlying action until more than three years after the summary judgment order was signed. As the court stated, “[p]ermitting res judicata to be asserted at this late stage would undercut the goals the doctrine is intended to advance, i.e., the efficient resolution of lawsuits” (citations omitted).
Finally, the court of appeals rejected the Wagners’ argument that the testimony of Exxon’s witness as to the reasonableness of the settlement was impermissible ipse dixit. The court concluded that the expert, a Louisiana lawyer, predicated his testimony on his experience in mediating similar legacy lawsuits, his review of documents in the Exxon litigation, trial testimony, and jury verdicts reached in other legacy cases. Based on that testimony, sufficient evidence supported the jury’s verdict.
The Wagners threw a Hail Mary, asking the court of appeals to reconsider its prior ruling granting Exxon’s writ of mandamus on attorney-client privilege. They reasserted their argument that Exxon waived its privilege under the offensive-use doctrine with regard to certain documents pertaining to its defense and settlement in the Louisiana litigation. This doctrine bars “a plaintiff from maintaining evidentiary privileges that protect from discovery outcome-determinative information not otherwise available to a defendant” (citations omitted). In the mandamus proceeding, In re Exxon Mobil Corp, 389 S.W.3d 577 (Tex. App.—Houston [14th Dist.] 2012, orig. proceeding [mand. denied]), the court ruled that the attorney-client communications Exxon sought to protect were not relevant to the jury’s determination of the reasonableness of the settlement (an objective not subjective, determination) and that the Wagners could have obtained the evidence elsewhere. Since the Wagners presented no new facts or issues, the court declined to review its prior ruling.
Having ruled in favor of Exxon on the propriety of the jury’s verdict on the reasonableness of the settlement agreement and disposed of the Wagners’ issues, the court of appeals reversed and rendered judgment against the Wagners for $71.6 million, $20.7 million in prejudgment interest, court costs, and post-judgment interest. All in all, not a bad day at the office and well worth the long wait.
