                                                                                    ACCEPTED
                                                                                04-12-00630-CV
                                                                    FOURTH COURT OF APPEALS
                                                                         SAN ANTONIO, TEXAS
                                                                           5/29/2015 2:46:22 PM
                                                                                 KEITH HOTTLE
                                                                                         CLERK

                           No. 04-12-630-CV

                   IN THE COURT OF APPEALS           FILED IN
                                              4th COURT OF APPEALS
               FOR THE FOURTH DISTRICT OF TEXASSAN ANTONIO, TEXAS
                    AT SAN ANTONIO, TEXAS     05/29/2015 2:46:22 PM
                                                           KEITH E. HOTTLE
                                                                Clerk
            The Huff Energy Fund LP, WRH Energy Partners
              LLC, William R. “Bill” Huff, Rick D’Angelo,
                     Ed Dartley, Bryan Bloom, and
                    Riley-Huff Energy Group, LLC,
                                       Appellants,

                                    vs.

                     Longview Energy Company,
                                     Appellee.

               Appeal from the 365th Judicial District Court
                         of Zavala County, Texas
               Trial Court Cause No. 11-09-12583-ZCVAJA

      AMICUS CURIAE BRIEF OF ENERQUEST OIL & GAS, LTD.

Sawnie A. McEntire                        Joseph M. Nixon
Texas Bar No. 13590100                    Texas Bar No. 15244800
smcentire@bmpllp.com                      jnixon@bmpllp.com
David A. Walton                           BEIRNE, MAYNARD & PARSONS, L.L.P.
Texas Bar No. 24042120                    1300 Post Oak Blvd., Suite 2500
dwalton@bmpllp.com                        Houston, Texas 77056
BEIRNE, MAYNARD & PARSONS, L.L.P.         Tel. (713) 623-0887
1700 Pacific Avenue, Suite 4400           Fax (713) 960-1527
Dallas, Texas 75201
Tel. (214) 237-4300
Fax (214) 237-4340
                  ATTORNEYS FOR AMICUS CURIAE
                                         TABLE OF CONTENTS

IDENTITY AND INTEREST OF AMICUS CURIAE ........................................... 1

STATEMENT OF CASE ........................................................................................... 5

ISSUES PRESENTED ................................................................................................ 5

STATEMENT OF FACTS ......................................................................................... 5

SUMMARY OF ARGUMENT ................................................................................. 6

ARGUMENT .............................................................................................................. 8

         1.        Since directors and officers are uniquely privy to business
                   opportunities that could easily be exploited, fiduciary duties
                   owed by the directors and officers, such as duty of loyalty,
                   must be strictly enforced ..................................................................... 8

         2.        To excuse conduct in breach of the fiduciary duty of loyalty
                   would weaken the fundamental purpose of the corporate
                   opportunity doctrine to the point that the doctrine may not
                   effectively deter a fiduciary from personally developing
                   corporate opportunities. ...................................................................... 10

         3.        The “interest and expectancy” test should not be applied
                   narrowly, but rather broadly, in the unique circumstances of
                   the oil and gas industry so as not to create a dangerous
                   exception to the duty of loyalty that fosters, rather than
                   prohibits, disloyalty of directors and officers. ................................. 15

         4.        It would be imprudent to permit directors and officers to
                   exploit corporate opportunities based on their company’s
                   purported financial inability short of actual insolvency. ................. 22

PRAYER ...................................................................................................................... 26

                                                             i
                                   INDEX OF AUTHORITIES

CASES

Abbott Redmont Thinlite Corp. v. Redmont,
 475 F.2d 85 (2d Cir. 1973) ..................................................................................18

Alexander & Alexander of New York, Inc. v. Fritzen,
 147 A.D.2d 241, 542 N.Y.S.2d 530 (N.Y. App. Div. 1989).............................24

Boxer v. Husky Oil Co.,
  429 A.2d 995 (Del. Ch. 1981)...............................................................................9

Broz v. Cellular Info. Sys., Inc.,
  673 A.2d 148 (Del. 1996) ................................................................. 10, 11, 13, 22

Canion v. Texas Cycle Supply, Inc.,
 537 S.W.2d 510 (Tex. Civ. App.—Austin 1976, writ ref'd n.r.e.).................15

Cede & Co. v. Technicolor, Inc.,
 634 A.2d 345 (Del. 1993) ......................................................................................8

CST, Inc. v. Mark,
 520 A.2d 469 (Pa. Super. Ct. 1987) ...................................................................25

Duane Jones Co. v. Burke,
 306 N.Y. 172, 117 N.E.2d 237 (1954) ................................................................19

Durfee v. Durfee & Canning,
 323 Mass. 187, 80 N.E.2d 522 (1948) ................................................................19

Dweck v. Nasser,
 2012 WL 161590 (Del. Ch. Jan. 18, 2012) .........................................................13

Dyer v. Shafer, Gilliland, Davis, McCollum & Ashley, Inc.,
 779 S.W.2d 474 (Tex. App.—El Paso 1989, writ denied) ..............................12

Elec. Dev. Co. v. Robson,
  28 N.W.2d 130 (Neb. 1947) ...............................................................................25


                                                       ii
Equity Corp. v. Milton,
  221 A.2d 494 (Del. 1966) ....................................................................................11

Gen. Video Corp. v. Kertesz,
 No. 1922-VCL, 2008 WL 5247120 (Del. Ch. Dec. 17, 2008)...........................22

Gottlieb v. McKee,
 107 A.2d 240 (Del. Ch. 1954).............................................................................17

Grove v. Brown,
 No. 6793-VCG, 2013 WL 4041495 (Del. Ch. Aug. 8, 2013) ...........................15

Guth v. Loft,
 5 A.2d 503 (Del. 1939) ............................................................................... passim

Harmony Way Bridge Co. v. Leathers,
 353 Ill. 378, 187 N.E. 432 (1933) ........................................................................20

Hollinger Intern., Inc. v. Black,
 844 A.2d 1022 (Del. Ch. 2004)...........................................................................13

Imperial Group (Texas), Inc. v. Scholnick,
  709 S.W.2d 358 (Tex. App.—Tyler 1986, writ ref'd n.r.e.)..................... 12, 16

In re Mobilactive Media, LLC,
  No. 5725-VCP, 2013 WL 297950 (Del. Ch. Jan. 25, 2013) ..............................13

Int'l Bankers Life Ins. Co. v. Holloway,
  368 S.W.2d 567 (Tex. 1963) ...........................................................................8, 12

Irving Trust Co. v. Deutsch,
  73 F.2d 121 (2d Cir. 1934) ........................................................................... 23, 24

Jasper v. Appalachian Gas Co.,
  152 Ky. 68, 153 S.W. 50 (1913) ..........................................................................19

Johnson v. Peckham,
  120 S.W.2d 786 (Tex. 1938) .................................................................................9


                                                       iii
Johnston v. Greene,
  121 A.2d 919 (Del. 1956) ............................................................................. 15, 16

Kerrigan v. Unity Sav. Ass'n,
 317 N.E.2d 39 (Ill. 1974).....................................................................................23

Kinzbach Tool Co. v. Corbett-Wallace Corp.,
  138 Tex. 565, 160 S.W.2d 509 (1942) ..................................................................8

Klinicki v. Lundgren,
  695 P.2d 906 (Or. 1985) ......................................................................................24

Lagarde v. Anniston Lime & Stone Co.,
  126 Ala. 496, 28 So. 199 (1900) ..........................................................................20

Landon v. S & H Mktg. Group, Inc.,
  82 S.W.3d 666 (Tex. App.—Eastland 2002, no pet.) ......................................21

Lincoln Stores, Inc. v. Grant,
  309 Mass. 417, 34 N.E.2d 704 (1941) ................................................................20

Litwin v. Allen,
  25 N.Y.S.2d 667 (N.Y. Sup. Ct. 1940) ...............................................................19

Meinhard v. Salmaon,
 249 N.Y. 458, 164 N.E. 545 (1928).......................................................................9

News-Journal Corp. v. Gore,
 147 Fla. 217, 2 So. 2d 741 (1941) .......................................................................20

Nicholson v. Evans,
 642 P.2d 727 (Utah 1982) ...................................................................................25

Norman v. Elkin,
 617 F. Supp. 2d 303 (D. Del. 2009) ...................................................................22

Northeast Harbor Golf Club, Inc. v. Harris,
 661 A.2d 1146 (Me. 1995) ..................................................................................24


                                                       iv
Paulman v. Kritzer,
  219 N.E.2d 541 (Ill. App. Ct. 1966) ..................................................................25

PJ Acquisition Corp. v. Skoglund,
  453 N.W.2d 1 (Minn. 1990) ...............................................................................21

Plas-Tex, Inc. v. Jones,
  No. 03-99-00286-CV, 2000 WL 632677
  (Tex. App.—Austin May 18, 2000, pet. denied) ............................................25

Rosenblum v. Judson Eng'g Corp.,
 99 N.H. 267, 109 A.2d 558 (1954) .....................................................................19

Schildberg Rock Products Co. v. Brooks,
  140 N.W.2d 132 (Iowa 1966) .............................................................................18

Southeast Consultants, Inc. v. McCrary Eng'g Corp.,
  273 S.E.2d 112 (Ga. 1980) ..................................................................................18

Winger v. Chicago City Bank & Trust Co.,
 394 Ill. 94, 67 N.E.2d 265 (1946) .......................................................................10

Yiannatsis v. Stephanis by Sterianou,
  653 A.2d 275 (Del. 1995) ....................................................................................22

Young v. Columbia Oil Co.,
 110 W. Va. 364, 158 S.E. 678 (1931) ..................................................................20

RULES

TEX. R. APP. P. 6.3 ...................................................................................................29

TEX. R. APP. P. 9.4 ...................................................................................................28

TEX. R. APP. P. 9.5 ...................................................................................................29

TEX. R. APP. P. 9.5(e) ..............................................................................................28

TEX. R. APP. P. 25.1(e) ............................................................................................29


                                                           v
            IDENTITY AND INTEREST OF AMICUS CURIAE

      EnerQuest Oil & Gas, Ltd. (“EnerQuest”) is a Texas limited

partnership which, since its formation in 2001, has been engaged in the

business of investing in oil and gas assets both within and outside of Texas.

EnerQuest currently invests in companies, such as Longview Energy

Company (“Longview Energy”),1 which are engaged in the exploration and

production of oil and gas. Such companies are commonly referred to as

Exploration and Production Companies (or “E&P Companies”), and they

are essentially engaged in the exploration, acquisition, development,

exploitation, production, and sale of crude oil and natural gas. This case

involves Longview Energy’s efforts as an E&P Company in the Eagle Ford

Shale, the “shale play” which is the subject of this case.

      EnerQuest is interested in this case, and submits this amicus curiae

brief, because of important issues concerning how directors and officers in

an E&P Company should define “corporate opportunities” and, in doing so,


1
 EnerQuest holds a 1.109% interest in Longview Energy. An affiliated entity, Hexagon
Interim Partners, Ltd. (“Hexagon”), holds a similar interest. Robert W. Floyd and
Timothy M. Dunn, both of Midland, Texas, are interest holders in EnerQuest. Mr. Dunn
and members of his family are interest holders in Hexagon.

                                         1
delineate prohibited conduct in light of their heightened duties of loyalty

as fiduciaries. In this current case, Appellants, William R. “Bill” Huff

(“Huff”) and Rick D’Angelo (“D’Angelo”), seek to shed liability for their

disloyalty to Longview Energy, as found by the jury, by advocating

narrowly defined fiduciary duties based upon a rigidly defined area of

geographic interest. In doing so, Huff and D’Angelo seek to narrow the

definition of what constitutes a “corporate opportunity” under pertinent

legal principles and Delaware law to justify their seizure of leasehold

interests which were the legitimate business opportunities of Longview

Energy. Their proposed limitations ignore the realities of the E&P industry

and “shale plays” – such as the Eagle Ford Shale – including how oil and

gas prospects are identified and explored, how leasehold acreage is

secured, and how oil and gas reserves are economically developed.

Appellants seek to excuse their disloyalties, as determined by the jury, by

“watering down” the types of oil and gas opportunities that trigger duties

of loyalty and trust.




                                    2
     E&P Companies, such as Longview Energy, incur substantial risks

when investing time, expertise, and money in researching, identifying, and

acquiring oil and gas prospects. The modern E&P company, such as

Longview Energy, typically identifies generally large geographic areas – in

this case, a large “shale play” covering almost 20,000 square miles – that

may hold prospective value. They then develop strategies to lease acreage

within this area to secure a foothold for the commencement of drilling

operations. Some wells are “exploratory” wells only. Importantly, there is

seldom a single well program. Rather, in large plays, such as the Eagle

Ford Shale, there will be multiple wells drilled under the aegis of multiple

mineral leases over extended periods of time by the same E&P Company.

Strategies regarding expansion of leasehold interests will be driven by well

data because the goal is exploration and exploitation of a large “shale play”

within a congruent formation or formations of hydrocarbons. Wells may be

in adjacent acreage or even separated by leases held by others. Wells that

are not economic may still yield important data that will lead the E&P

Company to explore other acreage or formations in the general, and often



                                     3
times larger area tied to the primary relevant geologic formation. Similarly,

a successful economic well will likely drive additional investment decisions

about the opportunities presented by other leased or unleased acreage

within the same “shale play.” No rigid line should be drawn about what is

included in an area of interest that is part of a “shale play,” such as the

Eagle Ford. Rather, the notion of “corporate opportunity” should be

broadly, and not narrowly defined. Otherwise, investments of an E&P

Company in such a “shale play” will be outweighed by the risks.

     The E&P industry is fraught with risk, and such risks are without

reward (or worse, without purpose) if fiduciaries are permitted to excuse

usurpation    of   exploration    opportunities    by    expediently    (and

retrospectively) redefining areas of geologic and/or geographic areas of

interest. Thus, EnerQuest seeks to call to the Court’s attention the

importance of upholding the highest ethical standards that must define the

crux of fiduciary relationships within the context of the E&P industry. A

reversal of the current judgment against Huff and D’Angelo will have a




                                     4
substantial negative effect upon the E&P industry because fiduciary

disloyalty will be encouraged, not discouraged.

      EnerQuest has paid the fees incurred in the preparation of this

amicus curiae brief.

                           STATEMENT OF CASE

      EnerQuest adopts the Statement of the Case of Appellee Longview

Energy to the extent such statement is applicable to the arguments

discussed herein. (Brief of Appellee at p. xxiii.)


                            ISSUES PRESENTED

      EnerQuest adopts the Statement of Issues, in particular issues (1) and

(2), of Appellee Longview Energy to the extent the arguments discussed

herein are limited to aspects of those issues. (Brief of Appellee at p. xxiv.)


                          STATEMENT OF FACTS

      EnerQuest adopts the Statement of Facts of Appellee Longview

Energy to the extent such facts are applicable to the arguments discussed

herein. (Brief of Appellee at pp. 1-25.)




                                       5
                       SUMMARY OF ARGUMENT

      Companies involved in E&P activities are dynamic, and a number of

factors influence these dynamics (and investment returns compared to

risk), including economies, innovation, efficiencies, and diversification of

development opportunities. Talent, know-how, time, and money go into

the identification of geographic and geologic areas holding prospective

value or interest for exploration and development. And, an essential tool

for protecting these proprietary opportunities are the fiduciary duties (in

particular, the duty of loyalty) owed by directors and officers of the E&P

Company to the E&P Company itself. Unless strictly governed by fiduciary

principles, a fiduciary’s pursuit of development opportunities that fall

within an area of geologic interest of an E&P Company will play havoc

with the ability to explore and develop mineral interests without fear that

directors or officers will seize legitimate corporate opportunities.

      Here, as directors who were privy to the plans of Longview Energy,

Huff and D’Angelo undeniably owed duties of utmost loyalty to Longview

Energy. And, contrary to their suggestions, corporate fiduciaries should



                                       6
not be indulged in efforts to “water down” the notion of what constitutes a

“corporate opportunity,” and thereby introduce ambiguity into the

enforcement of their duties. Rather, the notion of corporate opportunity

should be broadly applied in the E&P industry given the characteristics of

the E&P industry itself and the risks that E&P Companies face daily.

Indeed, any narrow application will invite gamesmanship and expedience,

and will encourage disloyalty. Fine lines will be drawn to facilitate self-

dealing and expedience, but not fairness. Based on the record and the jury’s

verdict, Huff and D’Angelo placed themselves in a position where their

self-interests conflicted with their duties to Longview Energy, and they

chose to promote this self-interest in derogation of the best interests of

Longview Energy.

     EnerQuest respectfully asks this Court to affirm the trial court’s

judgment, and avoid entering any decision that weakens the protections

which the “corporate opportunity” doctrine, as applied under Delaware law,

was intended to provide to companies, such as Longview Energy.




                                     7
                                ARGUMENT

1.    Since directors and officers are uniquely privy to business
      opportunities that could easily be exploited, fiduciary duties owed
      by the directors and officers, such as duty of loyalty, must be
      strictly enforced.

      At the core of fiduciary law are common sense principles aimed to

foster and encourage loyalty and trust. Delaware law, which applies to this

case, is substantially akin to Texas law in its clear mandate that directors

and officers owe fiduciary duties of care, loyalty, and good faith to their

company and should protect the company from self-interested conduct. See

Guth v. Loft, 5 A.2d 503, 510 (Del. 1939); Cede & Co. v. Technicolor, Inc., 634

A.2d 345, 361 (Del. 1993); Kinzbach Tool Co. v. Corbett-Wallace Corp., 138 Tex.

565, 160 S.W.2d 509, 512-13 (1942); Int’l Bankers Life Ins. Co. v. Holloway, 368

S.W.2d 567, 577 (Tex. 1963) (as a fiduciary, a director owes a duty to further

the interest of the corporation and to give it the benefit of uncorrupted

business judgment). As aptly stated by Justice Benjamin Cardozo:

            [T]hose bound by fiduciary ties … [are] held to
            something stricter than the morals of the market
            place. Not honesty alone, but the punctilio of an
            honor the most sensitive, is then the standard of
            behavior.


                                       8
Johnson v. Peckham, 120 S.W.2d 786, 788 (Tex. 1938) (quoting Meinhard v.

Salmon, 249 N.Y. 458, 464, 164 N.E. 545, 546 (1928)); see Boxer v. Husky Oil

Co., 429 A.2d 995, 997 (Del. Ch. 1981) (citing Meinhard).

      In Guth v. Loft, the Supreme Court of Delaware emphasized the

importance of these fiduciary duties:

            A public policy, existing through the years, and
            derived from a profound knowledge of human
            characteristics and motives, has established a rule
            that demands of a corporate officer or director,
            peremptorily and inexorably, the most scrupulous
            observance of his duty … [in order] to protect the
            interest of the corporation committed to his charge
            … [and] requires an undivided and unselfish
            loyalty to the corporation demands that there shall
            be no conflict between duty and self-interest.

Guth, 5 A.2d 503 at 510. And, because directors and officers are uniquely

privy to business opportunities that could easily be exploited, courts

universally emphasize the importance of strictly enforcing these fiduciary

duties:

            Nothing less than incapacity is able to shut the door
            to temptation, where the danger is imminent and
            security against discovery is great. The wise policy
            of the law has therefore put the sting of disability
            into the temptation, as a defensive weapon against


                                        9
           the strength of the danger which lies in the
           situation.

Winger v. Chicago City Bank & Trust Co., 394 Ill. 94, 116, 67 N.E.2d 265, 279

(1946).

      Delaware jurisprudence also favors certainty and predictability in the

context of fiduciary law. Broz v. Cellular Info. Sys., Inc., 673 A.2d 148, 159

(Del. 1996). The so-called corporate opportunity doctrine attempts to define

the boundaries of these duties where a director or officer may be tempted

to seize a business opportunity in derogation of the rights of the company

whose interests the fiduciary is bound to protect.


2.    To excuse conduct in breach of the fiduciary duty of loyalty would
      weaken the fundamental purpose of the corporate opportunity
      doctrine to the point that the doctrine may not effectively deter a
      fiduciary from personally developing corporate opportunities.

      Under Delaware law, “[t]he doctrine of corporate opportunity

represents but one species of the broad fiduciary duties assumed by a

corporate director or officer.” Broz, 673 A.2d at 154. The corporate

opportunity doctrine is implicated when the corporate director or officer

takes an opportunity that results in a conflict between the fiduciary duties



                                     10
of the director or officer to the company and the self-interest of the director

or officer. Id. at 157. Therefore, the central purpose of the doctrine is to stop

corporate directors or officers from misappropriating opportunities to

which the company has a superior right—that is, stop usurpation of

corporate opportunities. The basic question in all usurpation cases is

whether the director has appropriated something that, in all fairness,

should belong to the corporation. Equity Corp. v. Milton, 221 A.2d 494, 497

(Del. 1966).

      The seminal case on establishing the existence of a corporate

opportunity under Delaware law, and most other jurisdictions, is Guth v.

Loft. In Guth, the Supreme Court of Delaware held that a corporate director

or officer is not permitted, as a matter of law, to seize a corporate

opportunity:

               [I]f there is presented to a corporate officer or
               director a business opportunity which the
               corporation is financially able to undertake, is, from
               its nature, in the line of the corporation’s business
               and is of practical advantage to it, is one in which
               the corporation has an interest or a reasonable
               expectancy, and by embracing the opportunity, the



                                        11
           self-interest of the officer or director will be brought
           into conflict with that of his corporation ….

Guth, 5 A.2d 503 at 511; see Holloway, 368 S.W.2d at 576-78; Dyer v. Shafer,

Gilliland, Davis, McCollum & Ashley, Inc., 779 S.W.2d 474, 477 (Tex. App.—El

Paso 1989, writ denied). Thus, the Delaware Supreme Court laid out three

principal factors to consider in evaluating a corporate opportunity issue: (1)

whether or not the corporation has the financial ability to undertake the

opportunity; (2) whether or not the opportunity is in the corporation’s line

of business and is of practical advantage to it; and, (3) whether or not the

corporation has an interest or reasonable expectancy in the opportunity.

Guth, 5 A.2d 503 at 511.

     The corporate opportunity doctrine is a judicially-designed means to

test the conduct of a director or officer when weighed and measured in the

context of the duties of utmost good faith and loyalty. See Imperial Group

(Texas), Inc. v. Scholnick, 709 S.W.2d 358, 363 (Tex. App.—Tyler 1986, writ

ref’d n.r.e.) (citing Guth, 5 A.2d at 510)). Therefore, and arguably most

importantly, whether a corporate opportunity exists “is not one to be

decided on narrow or technical grounds, but upon broad considerations of


                                     12
corporate duty and loyalty.” Guth, 5 A.2d at 511; see In re Mobilactive Media,

LLC, No. 5725-VCP, 2013 WL 297950, at *21-22 (Del. Ch. Jan. 25, 2013)

(citing Dweck v. Nasser, 2012 WL 161590, at *13 (Del. Ch. Jan. 18, 2012)). No

single factor determines when a corporate opportunity exists, and issues of

fairness are central to the analysis. Broz, 673 A.2d at 155; see also Hollinger

Intern., Inc. v. Black, 844 A.2d 1022, 1061-62 (Del. Ch. 2004).

      The fiduciary duties owed by directors and officers to a company, in

particular the duty of loyalty, mandates that the best interests of the

company take precedence over any interest of the director or officer. Put

differently, the duty of loyalty requires strict compliance and restraint from

self-dealing. These duties are especially important in the E&P industry in

light of the significant risks and investment, financially and otherwise,

associated with an E&P Company’s efforts to identify areas of prospective

value or geologic interest, and then acquiring leasehold acreage for

development.

      As discussed above, E&P Companies, such as Longview Energy,

typically identify generally large areas that may hold prospective value,



                                       13
then they develop strategies to lease acreage within this area to secure a

foothold for commencement of drilling operations. Thereafter, based on

well data from drilling operations, E&P Companies implement strategies

regarding expansion of leasehold interests to explore and exploit the large

“shale play” in an efficient and economical manner. The E&P Company has

a clear “interest or reasonable expectancy” in the opportunity to fully

exploit a “shale play.” Clearly, the expansion of leasehold interests within a

“shale play” is, under the three-pronged Guth test, consistent with an E&P

Company’s “line of business” and provides significant “practical

advantage.”

     Here, based on the record, Huff and D’Angelo engaged in conduct

that directly conflicted with their responsibilities to Longview Energy. To

excuse their conduct (whether shown to be minor, moderate, or severe) will

weaken the fundamental purpose of the corporate opportunity doctrine to

the point that the doctrine may not effectively deter a fiduciary from

personally developing corporate opportunities.




                                     14
3.    The “interest and expectancy” test should not be applied narrowly,
      but rather broadly, in the unique circumstances of the oil and gas
      industry so as not to create a dangerous exception to the duty of
      loyalty that fosters, rather than prohibits, disloyalty of directors
      and officers.

      One of the “traditional” factors required to establish the existence of a

corporate opportunity, as promulgated in Guth, is whether “the

corporation has an interest or a reasonable expectancy” in the business

opportunity. Guth, 5 A.2d 503 at 511; see Canion v. Texas Cycle Supply, Inc.,

537 S.W.2d 510, 513 (Tex. Civ. App.—Austin 1976, writ ref'd n.r.e.). “[F]or a

corporation to have an expectant interest in any specific property, ‘there

must be some tie between the property and the nature of the corporate

business.’” Grove v. Brown, No. 6793-VCG, 2013 WL 4041495, at *8 (Del. Ch.

Aug. 8, 2013) (quoting Johnston v. Greene, 121 A.2d 919, 924 (Del. 1956)). An

opportunity is said to be in the corporation’s line of business where the

opportunity embraces “an activity as to which [the corporation] has

fundamental knowledge, practical experience and ability to pursue, which,

logically and naturally, is adaptable to its business, and . . . consonant with




                                      15
its reasonable needs and aspirations for expansion.” Id. (quoting Guth, 5

A.2d at 512); see Scholnick, 709 S.W.2d at 365 (citing Guth, 5 A.2d 503).

      It should be beyond credible dispute that E&P Companies, such as

Longview Energy, invest significant time and financial resources into the

research and discovery of potentially feasible prospects across expansive

geographic and geologic areas. Such Companies must first find before they

can mine. It may take several wells, some of which may be uneconomical

or marginally economical, on several leases before a formation is fully

defined, and a prospect is fully exploited by the E&P Company. Again,

there is a reasonable expectancy that E&P Companies have (and should

have) that its exploration and development strategies will be free from

directors and officers who unilaterally determine to seize exploration and

development opportunities for themselves.

      Thus, one of the most effective tools available to an E&P Company

for protecting valuable research and evaluations concerning oil and gas

prospects is the duty of loyalty of those who have gained access to the E&P

Company’s intentions or strategies, and the valuable data supporting those



                                      16
intentions and strategies. If fiduciaries are not strictly discouraged from

personally capitalizing on such strategies and supporting data, then what

was highly valuable to the E&P Company and those that financially invest

in such Companies (except those that decide to usurp the strategies and

data), becomes practically worthless.

      Huff and D’Angelo appear to rely upon an antiquated “present

interest” rule illustrated in the Colorado & Utah Coal Co. v. Harris opinion for

the proposition that Longview Energy has no “practical, not a mere

theoretical, basis for the opportunity” across such a “vast” area. (Brief of

Appellants Huff and D’Angelo at pp. 31-32); see, e.g., Guth, 5 A.2d 503 and

Gottlieb v. McKee, 107 A.2d 240 (Del. Ch. 1954). The court in the 80 year old

Colorado & Utah Coal opinion summarily found that a company had no

expectancy in the opportunity to purchase a particular piece of land

contained in “vast” coal deposits because it may create a “virtual

monopoly” in the opportunity. However, Huff and D’Angelo’s reliance on

this outdated opinion implicitly asks this Court to ignore the unique

opportunities that arise for an E&P Company in significant “shale plays”



                                      17
from informed (and highly valuable) research and analysis of the oil and

gas prospects. Huff and D’Angelo seek to create a dangerous exception to

the duty of loyalty that fosters, rather than prohibits, disloyalty.

      Again, directors and officers, such as Huff and D’Angelo, have a

fiduciary duty not to engage in activities that directly compete with and

have potentially detrimental effect upon Longview Energy’s business. Huff

and D’Angelo cannot be disloyal to the interests and welfare of Longview

Energy, and the Colorado & Utah Coal opinion does not (and should not)

change that conclusion. See Abbott Redmont Thinlite Corp. v. Redmont, 475

F.2d 85, 88-89 (2d Cir. 1973) (finding company had tangible expectancy in

multiple potential projects for which its former officer had written product

specifications and prepared bids); Southeast Consultants, Inc. v. McCrary

Eng’g Corp., 273 S.E.2d 112, 116-18 (Ga. 1980) (finding prospective city

planning project in which former officer had prepared preliminary study

before the project was financed was a corporate opportunity); Schildberg

Rock Products Co. v. Brooks, 140 N.W.2d 132, 137-38 (Iowa 1966) (finding

company had interest and reasonable expectancy in prospective limestone



                                       18
quarry which it had previously explored for economic feasibility and

quality of limestone); Durfee v. Durfee & Canning, 323 Mass. 187, 198-99, 80

N.E.2d 522, 528-29 (1948) (citing Guth, 5 A.2d at 510, and Jasper v.

Appalachian Gas Co., 152 Ky. 68, 79, 153 S.W. 50, 55 (1913)) (it is “inveterate

and uncompromising in its rigidity” based on “wise public policy” that

“one in ‘a position of trust in the management and conduct of the affairs of

a corporation … owes to said corporation the duty … of refraining from

doing anything whatever that would injuriously affect said corporation”);

Rosenblum v. Judson Eng’g Corp., 99 N.H. 267, 271-73, 109 A.2d 558, 562-63

(1954) (finding unfaithful directors may be found liable despite absence of

company’s present interest or expectancy in opportunity); Duane Jones Co.

v. Burke, 306 N.Y. 172, 187-89, 117 N.E.2d 237, 245 (1954) (finding former

directors and officers violated fiduciary duty by engaging in conduct to

acquire multiple accounts that “resulted in benefit to themselves through

destruction of” the business they owed the fiduciary duties); Litwin v. Allen,

25 N.Y.S.2d 667, 685-86 (N.Y. Sup. Ct. 1940) (right or expectancy may arise

from fact that directors had undertaken to negotiate in the field at issue);



                                      19
Young v. Columbia Oil Co., 110 W. Va. 364, 158 S.E. 678 (1931) (finding

directors of oil and gas company that purchased land on their own

behalves without notifying company of the opportunity breached their

fiduciary duty despite purchase being potentially “impractical” for

company).

      In addition, courts have upheld a company’s expectancy interest in a

corporate opportunity if the company is in substantial need of the

opportunity. See Lagarde v. Anniston Lime & Stone Co., 126 Ala. 496, 502, 28

So. 199, 201 (1900) (director or officer may not pursue opportunity if it “will

in some degree balk the corporation in effecting the purposes of its

creation”); News-Journal Corp. v. Gore, 147 Fla. 217, 223, 2 So. 2d 741, 744

(1941) (director breached fiduciary duty by purchasing and increasing rent

on land that company leased for its equipment and office); Harmony Way

Bridge Co. v. Leathers, 353 Ill. 378, 395, 187 N.E. 432, 439 (1933) (“corporate

director who purchases property which he knows the corporation will

need, and then sells the same to the corporation at an advanced price,

abuses the trust reported in him”); Lincoln Stores, Inc. v. Grant, 309 Mass.



                                      20
417, 421, 34 N.E.2d 704, 707 (1941) (“director cannot be allowed to profit

personally by acquiring property that he knows the corporation will need

or intends to acquire”); PJ Acquisition Corp. v. Skoglund, 453 N.W.2d 1, 8-9

(Minn. 1990) (acknowledging general rule that corporate “necessity” may

be considered to determine corporate opportunity); Landon v. S & H Mktg.

Group, Inc., 82 S.W.3d 666, 681 (Tex. App.—Eastland 2002, no pet.) (finding

opportunity to improve company’s financial condition clearly constitutes a

business opportunity).

     Here, assuming that Longview Energy was financially distressed for

argument purposes, it can hardly be disputed that Longview Energy

would be in substantial need of the corporate opportunity it identified in

the Eagle Ford Shale that was later usurped by Huff and D’Angelo. Also,

without a doubt, investment companies, such EnerQuest, would be

substantially less likely to invest in an E&P Company, such as Longview

Energy, if they knew that the directors and officers of the E&P Company,

such as Huff and D’Angelo, do not have strict disincentives from taking

proprietary information and seizing production opportunities of the E&P



                                    21
Company. Accordingly, to accept Huff and D’Angelo’s lax interpretation of

the “interest or expectancy test” promulgated in Guth would foster, not

frustrate, fiduciary disloyalty.


4.    It would be imprudent to permit directors and officers to exploit
      corporate opportunities based on their company’s purported
      financial inability short of actual insolvency.

      Another focus of the corporate opportunity doctrine is whether “the

corporation is financially able to undertake” the opportunity. Guth, 5 A.2d

503 at 511; Broz, 673 A.2d at 155 (permitting limited defense of financial

inability under the corporate opportunity doctrine). Delaware courts

recognize the policy concerns implicated by the financially inability

defense: a director or officer is less likely to fulfill duties of loyalty to

improve the business’ financial condition to permit it to exploit a business

opportunity if the business is financially distressed. Norman v. Elkin, 617 F.

Supp. 2d 303, 312 (D. Del. 2009) (citing Gen. Video Corp. v. Kertesz, No. 1922-

VCL, 2008 WL 5247120, at *19 (Del. Ch. Dec. 17, 2008) (finding financial

inability must amount to insolvency such that the company is practically

defunct)); Yiannatsis v. Stephanis by Sterianou, 653 A.2d 275, 279 (Del. 1995)


                                      22
(flexible standard applies to the consideration of whether the corporation

was financially able to undertake the opportunity).

      Here, it would be imprudent to permit directors and officers, such as

Huff and D’Angelo, to exploit opportunities based on their company’s

purported financial inability short of actual insolvency. See Irving Trust Co.

v. Deutsch, 73 F.2d 121, 124 (2d Cir. 1934), cert. denied, 55 S. Ct. 405 (1935)

(“[u]ncompromising rigidity has been the attitude of courts of equity when

petitioned to undermine the rule of undivided loyalty by the

‘disintegrating erosion’ of particular exceptions.”) Indeed, it would

incentivize, and not discourage, disloyalty, especially if the opportunity

may later be more valuable or coveted by a competitor. Again, courts

recognize the inevitable consequences of a lax standard, including the

disincentive a director or officer would have to solve corporate financing

and other problems facing the corporation. See Irving Trust Co., 73 F.2d at

124 (“If directors are permitted to justify their conduct on [a financial

inability] theory, there will be a temptation to refrain from exerting their

strongest efforts on behalf of the corporation since, if it does not meet the



                                      23
obligation, an opportunity of profit will be open to the them personally.”);

Kerrigan v. Unity Sav. Ass’n, 317 N.E.2d 39, 44 (Ill. 1974) (relying on Irving

Trust in finding the directors “were actively exploiting their position as

directors … for their personal benefit”); Northeast Harbor Golf Club, Inc. v.

Harris, 661 A.2d 1146, 1149 (Me. 1995) (“the injection of financial inability

into the equation will unduly favor the inside director or executive” and

“will also act as a disincentive to corporate executives to solve corporate

financing and other problems”); Alexander & Alexander of New York, Inc. v.

Fritzen, 147 A.D.2d 241, 247-49, 542 N.Y.S.2d 530 (N.Y. App. Div. 1989)

(permitting a dispositive inability defense would “reduce[ ] the incentive

for executives to seek effective solutions to corporate problems,” and

would “encourage employees and fiduciaries to divert corporate

opportunities knowing that the diversion may not be effectively

challenged”); Klinicki v. Lundgren, 695 P.2d 906, 915-16 (Or. 1985).

      Huff and D’Angelo are attempting to exploit a financial inability

defense, without evidence of insolvency, to ask this Court to ignore the

time and expense invested by Longview Energy in the research and



                                      24
identification of development opportunities in the Eagle Ford Shale. Not

surprisingly, courts have rejected (and should reject) the notion that

fiduciaries, such as Huff and D’Angelo, may excuse unfaithful conduct

because a company is merely distressed financially. See Paulman v. Kritzer,

219 N.E.2d 541, 547 (Ill. App. Ct. 1966) (finding contention that company

was not financially able to seize the opportunity “not particularly

compelling in view of its solvency”); Elec. Dev. Co. v. Robson, 28 N.W.2d

130, 138 (Neb. 1947) (“Financial inability, unless it amounts to insolvency to

the point where the corporation is practically or actually defunct, is

insufficient to warrant application of the [defense].”); CST, Inc. v. Mark, 520

A.2d 469, 472 (Pa. Super. Ct. 1987) (stating that there “was no evidence that

[the corporation] was near insolvency or that it could not have produced

the funds necessary” to exploit the opportunity); Nicholson v. Evans, 642

P.2d 727, 731 (Utah 1982) (“in most jurisdictions, corporate financial

difficulty short of actual insolvency … is inadequate by itself to exonerate a

fiduciary who appropriates an opportunity”); see also Plas-Tex, Inc. v. Jones,

No. 03-99-00286-CV, 2000 WL 632677, at *6 (Tex. App.—Austin May 18,



                                      25
2000, pet. denied) (finding no usurpation of corporate opportunity because

company was “insolvent, [and] in default”).

      Accordingly, directors and officers should not be excused from

conduct detrimental to the company because a company may be financially

distressed. Instead, it is only when the company is insolvent that financial

inability is so palpably clear that the law should allow a fiduciary to take

what is otherwise a corporate opportunity. Based on the record, that is not

the case here.


                                  PRAYER

      For the foregoing reasons, EnerQuest Oil & Gas, Ltd. respectfully

requests that this Court affirm the trial court’s judgment.

      Dated: May 29, 2015.




                                      26
Respectfully submitted,

BEIRNE, MAYNARD & PARSONS, LLP

By: /s/ David A. Walton
    Sawnie A. McEntire
    Texas Bar No. 13590100
    smcentire@bmpllp.com
    David A. Walton
    Texas Bar No. 24042120
    dwalton@bmpllp.com
    1700 Pacific Avenue, Suite 4400
    Dallas, Texas 75201
    Tel. (214) 237-4300
    Fax (214) 237-4340

    Joseph M. Nixon
    Texas Bar No. 15244800
    jnixon@bmpllp.com
    BEIRNE, MAYNARD & PARSONS, L.L.P.
    1300 Post Oak Blvd., Suite 2500
    Houston, Texas 77056
    Tel. (713) 623-0887
    Fax (713) 960-1527

Attorneys for Amicus Curiae, EnerQuest Oil &
Gas, Ltd.




       27
     CERTIFICATE OF COMPLIANCE WITH RULE 9.4

As required by Texas Rule of Appellate Procedure 9.4, I certify that:

1.   This amicus curiae brief complies with the type-volume
     limitation of TEX. R. APP. P. 9.4 because it contains 4,652
     words, excluding the parts of the brief exempted by TEX.
     R. APP. P. 9.4.

2.   This amicus curiae brief complies with the typeface
     requirements of TEX. R. APP. P. 9.5(e) because it has been
     prepared in a proportionally spaced typeface using
     Microsoft Work 2010 in 14 point Palatino Linotype font
     for the text and 12 point Palatino Linotype font for the
     footnotes.

                             /s/ David A. Walton
                             David A. Walton




                               28
                      CERTIFICATE OF SERVICE

      As required by Texas Rules of Appellate Procedure 6.3, 9.5, and
25.1(e), I certify that I have served this document on all other parties—
which are listed below—on May 29, 2015, by fax or e-service.

Thomas R. Phillips               Louis M. Solomon
Matt C. Wood                     Hal S. Shaftel
BAKER BOTTS LLP                  Solomon B. Shinerock
1500 San Jacinto Center          CADWALADER WICKERSHAM & TAFT LLP
98 San Jacinto Blvd.             One World Financial Center
Austin, Texas 78701              New York, New York 10281

Daryl L. Moore                   Ricardo R. Reyna
DARYL L. MOORE PC                BROCK PERSON GUERRA REYNA PC
1005 Heights Boulevard           17339 Redland Road
Houston, Texas 77008             San Antonio, Texas 78247-2302

Dean V. Fleming                  Alfredo Z. Padilla
Michael W. O’Donnell             LAW OFFICE OF ALFREDO Z. PADILLA
Jeffrey A. Webb                  104 N. 5th Street
FULBRIGHT & JAWORSKI LLP         Carrizo Springs, Texas 78834
300 Convent Street, Suite 2100
San Antonio, Texas 78205         Pamela Stanton Baron
                                 P. O. Box 5573
Sharon E. Callaway               Austin, Texas 78763
CROFTS & CALLAWAY PC
300 Austin Highway, Suite 120
San Antonio, Texas 78209



                                 /s/ David A. Walton
                                 David A. Walton



                                   29
