                                                                                            ACCEPTED
                                                                                        12-15-00083-CV
                                                                           TWELFTH COURT OF APPEALS
                                                                                         TYLER, TEXAS
                                                                                  12/22/2015 5:45:12 PM
                                                                                              Pam Estes
                                                                                                 CLERK

                               No. 12-15-00083-CV

                                                             FILED IN
                                                      12th COURT OF APPEALS
                 IN THE TWELFTH DISTRICT COURT OF APPEALS TYLER, TEXAS
                              TYLER, TEXAS            12/22/2015 5:45:12 PM
                                                             PAM ESTES
                                                               Clerk
                            CARRIZO OIL & GAS, INC.,
                                  Appellant,

                                          v.

                    BARROW-SHAVER RESOURCES COMPANY,
                               Appellee.


                    On Appeal from the 7th Judicial District Court
                     Smith County, Texas, Cause No. 12-2565-A


                               BRIEF OF APPELLANT


Charles H. Clark            John M. Zukowski             Marcy Hogan Greer
State Bar No. 04274000      State Bar No. 22293400       State Bar No. 08417650
chc@charlesclarklaw.com     jmz@zbsplaw.com              mgreer@adjtlaw.com
THE LAW OFFICES OF          Pascal Paul Piazza           Wallace B. Jefferson
CHARLES H. CLARK            State Bar No. 15966850       State Bar No. 00000019
604 West Woldert Street     ppp@zbsplaw.com              wjefferson@adjtlaw.com
Tyler, Texas 75702          ZUKOWSKI, BRESENHAN,         ALEXANDER DUBOSE
Telephone: (903) 593-2514   SINEX & PETRY, L.L.P.        JEFFERSON & TOWNSEND LLP
Facsimile: (903) 595-1294   1177 West Loop South         515 Congress Avenue
                            Suite 1100                   Suite 2350
                            Houston, Texas 77027         Austin, Texas 78701-3562
                            Telephone: (713) 965-9969    Telephone: (512) 482-9300
                            Facsimile: (713) 963-9169    Facsimile: (512) 482-9303

             ATTORNEYS FOR APPELLANT CARRIZO OIL & GAS, INC.

                            Oral Argument Requested
                      IDENTITY OF PARTIES AND COUNSEL

Appellant:                     Carrizo Oil & Gas, Inc.

Trial and Appellate            Marcy Hogan Greer (trial & appellate counsel)
Counsel:                       State Bar No. 08417650
                               mgreer@adjtlaw.com
                               Wallace B. Jefferson (appellate counsel)
                               State Bar No. 00000019
                               wjefferson@adjtlaw.com
                               ALEXANDER DUBOSE JEFFERSON &
                               TOWNSEND LLP
                               515 Congress Avenue, Suite 2350
                               Austin, Texas 78701
                               Telephone: (512) 482-9300
                               Facsimile: (512) 482-9303

                               John M. Zukowski
                               State Bar No. 22293400
                               jmz@zbsplaw.com
                               Pascal Paul Piazza
                               State Bar No. 15966850
                               ppp@zbsplaw.com
                               ZUKOWSKI, BRESENHAN, SINEX &
                               PETRY, L.L.P.
                               1177 West Loop South, Suite 1100
                               Houston, Texas 77027
                               Telephone: (713) 965-9969
                               Facsimile: (713) 963-9169

                               Charles H. Clark
                               State Bar No. 04274000
                               chc@charlesclarklaw.com
                               THE LAW OFFICES OF CHARLES H. CLARK
                               604 West Woldert Street
                               Tyler, Texas 75702
                               Telephone: (903) 593-2514
                               Facsimile: (903) 595-1294
Appellee:             Barrow-Shaver Resources Company

Trial and Appellate   Otis Carroll
Counsel:              State Bar No. 03895700
                      ocarrroll@icklaw.com
                      Deborah Race
                      State Bar No. 16448700
                      drace@icklaw.com
                      Collin M. Maloney
                      State Bar No. 00794219
                      cmaloney@icklaw.com
                      IRELAND, CARROLL & KELLEY, P.C.
                      6101 S. Broadway, Suite 500
                      Tyler, Texas 75703
                      Telephone: (903) 561-1600
                      Facsimile: (903) 581-1071

                      R. Clay Hoblit
                      State Bar No. 09743100
                      choblit@hfdlaw.com
                      HOBLIT FERGUSON DARLING L.L.P.
                      2000 Frost Bank Plaza
                      802 North Carancahua
                      Corpus Christi, Texas 78401
                      Telephone: (361) 888-9392
                      Facsimile: (361) 888-9187




                            ii
                                              TABLE OF CONTENTS

Identity of Parties and Counsel ..................................................................................i

Index of Authorities ............................................................................................... vii

Record References .................................................................................................xiv

Statement of the Case..............................................................................................xv

Statement Regarding Oral Argument ....................................................................xvi

Issues Presented ................................................................................................... xvii

Statement of Facts .....................................................................................................2

         A.        The Parties Negotiate a Farmout Agreement for the Parkey
                   Lease .....................................................................................................3

         B.        BSR Enters into a Purchase and Sale Agreement with Raptor ............ 8

         C.        Carrizo Refuses to Consent to the Assignment ....................................9

         D.        BSR Files Suit ....................................................................................15

         E.        The Jury Is Instructed and Reaches a Verdict ....................................17

Summary of Argument ...........................................................................................19

Argument.................................................................................................................22

I.       The Trial Court Erred by Not Enforcing the Unambiguous Plain
         Language of the Farmout’s Hard-Consent Provision ...................................22

         A.        Standard of Review ............................................................................22

         B.        The Plain Language of the Farmout Expresses an Agreement to
                   an Unqualified “Hard Consent” .........................................................22

II.      The Farmout Agreement Leaves No Room for Implying a Covenant—
         Especially One that the Parties Expressly Rejected .....................................25



                                                             iii
       A.       Standard of Review ............................................................................25

       B.       The Trial Court Erred in Allowing the Jury to Imply a Covenant
                That Does Not Exist in the Contract ..................................................25

III.   The Exclusion of Uncontroverted Evidence That the Parties Agreed to
       a Hard Consent Compounded the Error in Misconstruing the
       Agreement.....................................................................................................28

       A.       Standard of Review ............................................................................28

       B.       Evidence of Carrizo and BSR’s Prior Negotiations Is
                Admissible ..........................................................................................29

       C.       The Trial Court’s Erroneous Resort to Custom and Usage
                Evidence Required Admission of the Prior-Negotiation
                Evidence .............................................................................................31

IV.    The Trial Court Erred in Admitting BSR’s Evidence Regarding
       Custom and Usage ........................................................................................34

       A.       Standard of Review ............................................................................34

       B.       Kramer’s Testimony Failed to Satisfy the Proof Requirements
                for Custom and Usage and Therefore Constitutes No Evidence .......35

       C.       The Trial Court Erred in Admitting Kramer’s Opinions
                Regarding Custom and Usage ............................................................36

                1.       Kramer was not qualified to testify regarding custom and
                         usage with respect to the Farmout Agreement ........................36

                2.       Kramer’s testimony regarding custom and usage was not
                         relevant .....................................................................................37

                3.       Kramer’s testimony regarding custom and usage was not
                         reliable ......................................................................................38

V.     The Contract Damages Awarded by the Jury Lack Legally and
       Factually Sufficient Proof in the Trial Record .............................................39

       A.       Standard of Review ............................................................................39

                                                         iv
       B.      The $27.6 Million Contract Damages Award Necessarily and
               Improperly Includes Compensation for the Exploration Partners .....41

       C.      BSR Should Not Have Recovered any Damages on Behalf of
               the Exploration Partners .....................................................................43

               1.       BSR failed to prove that the Exploration Partners
                        assigned any viable causes of action against Carrizo to
                        BSR ..........................................................................................44

                        a.        BSR did not prove that any purported causes of
                                  action were assigned to it...............................................44

                        b.        BSR did not prove that the Exploration Partners
                                  had any causes of action that were capable of
                                  assignment .....................................................................45

               2.       BSR was not entitled to seek recovery of the Exploration
                        Partners’ alleged damages........................................................48

       D.      BSR Lacks Competent, Admissible Proof to Support a
               Damages Award .................................................................................49

VI.    The Farmout Agreement Conclusively Negates BSR’s Tort Claims ...........51

       A.      BSR’s Fraud Claim Is Premised Entirely on its Erroneous
               Construction of the Farmout Agreement............................................51

       B.      Carrizo’s Justification Defense Was Established as a Matter of
               Law .....................................................................................................52

VII. Evidentiary Errors Require a New Trial .......................................................53

       A.      Standard of Review ............................................................................53

       B.      The Exclusion of Key Evidence Prejudiced Carrizo .........................54

VIII. Charge Errors Warrant a New Trial .............................................................56

       A.      Standard of Review ............................................................................56

       B.      The Contract Instructions Were Patently Erroneous..........................56

                                                          v
IX.      The Attorneys’ Fees Award Should Be Reversed ........................................58

Conclusion and Prayer ............................................................................................60

Certificate of Service ..............................................................................................63

Certificate of Compliance .......................................................................................63

Appendix




                                                          vi
                                            INDEX OF AUTHORITIES

Cases
Americo Life, Inc. v. Myer,
  440 S.W.3d 18 (Tex. 2014)...........................................................................22, 30

Aquaplex, Inc. v. Rancho La Valencia, Inc.,
  297 S.W.3d 768 (Tex. 2009) ..................................................................42, 49, 50

BP Am. Prod. Co. v. Zaffirini,
  419 S.W.3d 485 (Tex. App.—San Antonio 2013, pet. denied)..........................31

Ceramic Tile Int’l, Inc. v. Balusek,
  137 S.W.3d 722 (Tex. App.—San Antonio 2004, no pet.) ................................44

Cessna Aircraft Co. v. Aircraft Network, LLC,
  345 S.W.3d 139 (Tex. App.—Dallas 2011, no pet.) ..........................................60

City of Keller v. Wilson,
   168 S.W.3d 802 (Tex. 2005) ..............................................................................40
City of Laredo v. Montano,
   414 S.W.3d 731 (Tex. 2013) ........................................................................58, 60
Clear Lake City Water Auth. v. Kirby Lake Dev., Ltd.,
   123 S.W.3d 735 (Tex. App.—Houston [14th Dist.] 2003, pet.
   denied).................................................................................................................27

Columbia Rio Grande Healthcare, L.P. v. Hawley,
  284 S.W.3d 851 (Tex. 2009) ..............................................................................56
In re Commitment of Polk,
    187 S.W.3d 550 (Tex. App.—Beaumont 2006, no pet.) ....................................60

Corso v. Carr,
  634 S.W.2d 804 (Tex. App.—Fort Worth 1982, writ ref’d n.r.e.) .....................32

Crim Truck & Tractor Co. v. Navistar Int’l Transp. Corp.,
   823 S.W.2d 591 (Tex. 1992) ..............................................................................23

Danciger Oil & Ref. Co. of Tex. v. Powell,
  137 Tex. 484, 154 S.W.2d 632 (1941) ...............................................................26


                                                            vii
DRC Parts & Accessories, L.L.C. v. VM Motori, S.P.A.,
  112 S.W.3d 854 (Tex. App.—Houston [14th Dist.] 2003, pet.
  denied).................................................................................................................52

Dyer v. Cotton,
  333 S.W.3d 703 (Tex. App.—Houston [1st Dist.] 2010, no pet.) ......................29
Dynegy Midstream Servs., L.P. v. Apache Corp.,
  294 S.W.3d 164 (Tex. 2009) ..............................................................................22

E.I. du Pont de Nemours & Co. v. Robinson,
   923 S.W.2d 549 (Tex. 1995) ..............................................................................34
In re E.I. DuPont de Nemours & Co.,
   136 S.W.3d 218 (Tex. 2004) ........................................................................59, 60

El Apple I, Ltd. v. Olivas,
   370 S.W.3d 757 (Tex. 2012) ..............................................................................58
Energen Res. MAQ, Inc. v. Dalbosco,
  23 S.W.3d 551 (Tex. App.—Houston [1st Dist.] 2000, pet. denied) ................. 33
Esco Elevators, Inc. v. Brown Rental Equip. Co.,
   670 S.W.2d 761 (Tex. App.—Fort Worth 1984, writ ref’d n.r.e.) .....................45

Exxon Pipeline Co. v. Zwahr,
   88 S.W.3d 623 (Tex. 2002)...........................................................................37, 38

Fisher Controls Int’l, Inc. v. Gibbons,
   911 S.W.2d 135 (Tex. App.—Houston [1st Dist.] 1995, writ
   denied).................................................................................................................52
Flagstar Bank, FSB v. Walker,
   451 S.W.3d 490 (Tex. App.—Dallas 2014, no pet.) ..........................................45
Gammill v. Jack Williams Chevrolet, Inc.,
  972 S.W.2d 713 (Tex. 1998) ..............................................................................36
Gharda USA, Inc. v. Control Solutions, Inc.,
  464 S.W.3d 338 (Tex. 2015) ........................................................................34, 38
Gips v. Red Robin Corp.,
   366 S.W.2d 853 (Tex. Civ. App.—Houston 1963, writ ref’d n.r.e.).................. 55


                                                           viii
Gulf Ins. Co. v. Burns Motors, Inc.,
  22 S.W.3d 417 (Tex. 2000).................................................................................45

Gulf Liquids New River Project, LLC v. Gulsby Eng’g, Inc.,
  356 S.W.3d 54 (Tex. App.—Houston [1st Dist.] 2011, no pet.) ........................53

HECI Expl. Co. v. Neel,
  982 S.W.2d 881 (Tex. 1998) ..................................................................25, 26, 28

Holt Atherton Indus., Inc. v. Heine,
  835 S.W.2d 80 (Tex. 1992)...........................................................................49, 51

Houston Expl. Co. v. Wellington Underwriting Agencies, Ltd.,
  352 S.W.3d 462 (Tex. 2011) ........................................................................30, 31

Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am.,
    341 S.W.3d 323 (Tex. 2011) ..............................................................................22
JLG Trucking, LLC v. Garza,
  58 Tex. Sup. Ct. J. 726, 2015 WL 1870072 (Tex. Apr. 24, 2015) .....................53
Johnson v. Driver,
   198 S.W.3d 359 (Tex. App.—Tyler 2006, no pet.) ......................................23, 24

Kachina Pipeline Co. v. Lillis,
  No. 13-0596, 2015 WL 5889109 (Tex. Oct. 9, 2015) ............................24, 32, 33
Lamont v. Vaquillas Energy Lopeno Ltd., LLP,
  421 S.W.3d 198 (Tex. App.—San Antonio 2013, pet. filed) .............................52
Larson v. Cactus Util. Co.,
   730 S.W.2d 640 (Tex. 1987) ..............................................................................40

Lively v. Blackwell,
   51 S.W.3d 637 (Tex. App.—Tyler 2001, pet. denied) .................................28, 53

Lubbock Cty. Water Control and Imp. Dist. v. Church & Akin, L.L.C.
  442 S.W.3d 297 (Tex. 2014) ..............................................................................27

MCI Telecomms. Corp. v. Tex. Utils. Elec. Co.,
  995 S.W.2d 647 (Tex. 1999) ..............................................................................46




                                                      ix
McMillen v. Klingensmith,
  467 S.W.2d 193 (Tex. 1971) ..............................................................................48

Mengden v. Peninsula Production Co.,
  544 S.W.2d 643 (Tex. 1976) ................................................................................ 3

Merrell Dow Pharms., Inc. v. Havner,
  953 S.W.2d 706 (Tex. 1997) ..............................................................................39

Nat’l Prop. Holdings, L.P. v. Westergren,
  453 S.W.3d 419 (Tex. 2015) ..............................................................................51

OAIC Commercial Assets, L.L.C. v. Stonegate Vill., L.P.,
  234 S.W.3d 726 (Tex. App.—Dallas 2007, pet. denied)....................................46

Oil Ins. Ass’n v. Royal Indem. Co.,
   519 S.W.2d 148 (Tex. App.—Houston [14th Dist.] 1975, writ ref’d
   n.r.e.) ...................................................................................................................31

Owen v. Talbot,
  441 S.W.2d 887 (Tex. Civ. App.—Texarkana 1969, writ ref’d
  n.r.e.) ...................................................................................................................39
Palmer v. Liles,
   677 S.W.2d 661 (Tex. App.—Houston [14th Dist.] 1984, writ ref’d
   n.r.e.) ...................................................................................................................55
Paragon Sales Co. v. N.H. Ins. Co.,
  774 S.W.2d 659 (Tex. 1989) ..............................................................................47
Parkway Dental Assocs., P.A. v. Ho & Huang Props., L.P.,
  391 S.W.3d 596 (Tex. App—Houston [14th Dist.] 2012, pet.
  denied).................................................................................................................50
Phillips v. Carlton Energy Grp., LLC,
   58 Tex. Sup. Ct. J. 803, 2015 WL 2148951 (May 8, 2015) ...............................49
PNP Petroleum I, LP v. Taylor,
  438 S.W.3d 723 (Tex. App.—San Antonio 2014, pet. denied)....................30, 31
Prudential Ins. Co. of Am. v. Fin. Review Servs., Inc.,
   29 S.W.3d 74 (Tex. 2000)...................................................................................53



                                                               x
R&R White Family Ltd. P’ship v. Jones,
  182 S.W.3d 454 (Tex. App.—Texarkana 2006, no pet.)....................................45

Redmon v. Griffith,
  202 S.W.3d 225 (Tex. App.—Tyler 2006, pet. denied) .....................................46

Reeder v. Wood Cty. Energy, LLC,
   395 S.W.3d 789 (Tex. 2012) ..............................................................................23

Reynolds v. McCullough,
   739 S.W.2d 424 (Tex. App.—San Antonio 1987, writ denied) ...................23, 26

Ritchie v. Rupe,
   No. 11-0047, 2014 WL 2788335 (Tex. June 20, 2014) .....................................46

Se. Pipe Line Co. v. Tichacek,
   997 S.W.2d 166 (Tex. 1999) ..............................................................................40
Spencer v. Eagle Star Ins. Co. of Am.,
   876 S.W.2d 154 (Tex. 1994) ..............................................................................40
State Nat’l Bank of Hous. v. Woodfin,
   146 S.W.2d 284 (Tex. Civ. App.—Galveston 1940, writ ref’d) ..................35, 38

Stephenville, N. & S.T. Ry. Co. v. Baker,
   203 S.W. 385 (Tex. Civ. App.—Austin 1918, no writ)......................................48
Sun Oil Co. (Del.) v. Madeley,
   626 S.W.2d 726 (Tex. 1981) ..............................................................................30
Tex. Beef Cattle Co. v. Green,
   921 S.W.2d 203 (Tex. 1995) ..............................................................................53

Thedford Crossing, L.P. v. Tyler Rose Nursery, Inc.,
   306 S.W.3d 860 (Tex. App.—Tyler 2010, pet. denied) .....................................22

Thompson v. CPN Partners, L.P.,
  23 S.W.3d 64 (Tex. App.—Austin 2000, no pet.) ..............................................27

Thota v. Young,
  366 S.W.3d 678 (Tex. 2012) ..............................................................................56




                                                     xi
Tony Gullo Motors I, L.P. v. Chapa,
  212 S.W.3d 299 (Tex. 2006) ..............................................................................59

Trinity Prof’l Plaza Assocs. v. Metrocrest Hosp. Auth.,
   987 S.W.2d 621 (Tex. App.—Eastland 1999, pet. denied) ................................26

Universal Health Servs., Inc. v. Renaissance Women’s Grp., P.A.,
  121 S.W.3d 742 (Tex. 2003) ........................................................................25, 26

In re V.L.K.,
   24 S.W.3d 338 (Tex. 2000).................................................................................56

Valence Operating Co. v. Anadarko Petroleum Corp.,
   303 S.W.3d 435 (Tex. App.—2010, no pet.)......................................................37

Vernco Constr., Inc. v. Nelson,
   460 S.W.3d 145 (Tex. 2015) ..............................................................................44
Weil v. Anne Lewis Shops, Inc.,
  281 S.W.2d 651 (Tex. Civ. App.—San Antonio 1955, writ ref’d) ........25, 27, 28
Whirlpool Corp. v. Camacho,
  298 S.W.3d 631 (Tex. 2009) ..............................................................................38

Wiese v. Pro Am Servs., Inc.,
  317 S.W.3d 857 (Tex. App.—Houston [14th Dist.] 2010, no pet.) ................... 50
Wolert v. Arledge,
  4 Tex. Civ. App. 692, 23 S.W. 1052 (1893) .......................................................39
XTO Energy Inc. v. Smith Prod., Inc.,
  282 S.W.3d 672 (Tex. App.—Houston [14th Dist.] 2009, pet.
  dism’d) ................................................................................................................35

Zaan LLC v. Sangani,
  No. 05-12-00423-CV, 2015 WL 2398652 (Tex. App.—Dallas May
  20, 2015, pet. filed) .............................................................................................45

Statutes and Rules
TEX. CIV. PRAC. & REM. CODE ANN. § 38.001(8)....................................................58

TEX. R. APP. P. 44.1 .................................................................................................35


                                                            xii
TEX. R. APP. P. 44.1(a)(1) ........................................................................................53

TEX. R. CIV. P. 320 ...................................................................................................40

TEX. R. EVID. 611(b) ................................................................................................59

TEX. R. EVID. 702 ...............................................................................................34, 36

TEX. R. EVID. 705(a) ................................................................................................59

Other Authorities
Allen D. Cummings, Consent Asked For – But Not Received: The
   Enforceability of Consent to Assignment or Transfer Provisions,
   38th Annual Ernest E. Smith, OIL, GAS & MINERAL LAW INST.
   (Mar. 30, 2012) ...................................................................................................24

Louis J. Davis, Preferential Rights to Purchase and Consents to
  Assign, ASSOC. OF CORPORATE COUNSEL, HOUS. CHAPTER (Oct. 2,
  2013) ...............................................................................................................5, 23
WILLIAMS AND MEYERS, OIL AND GAS LAW, MANUAL OF TERMS
  (1971) ....................................................................................................................3




                                                            xiii
                               RECORD REFERENCES

      The record on appeal is composed of 15 volumes of a clerk’s record,

containing copies of the pleadings, motions, orders, and other papers from the

district court’s files, which will be referred to by volume, “CR,” and the

corresponding page number—e.g., 1CR221. The First Supplemental Clerk’s Record

will be cited as “1stSuppCR,” with the corresponding page number.

      The court reporter’s record is composed of 10 volumes of transcription of the

trial proceedings and exhibits that will be cited by “RR” volume and page number—

e.g., 1RR32.

      Exhibits contained in volumes 11-36 of the reporter’s record will be referred

to by the offering party (“DX” or “PX”), exhibit number and internal page reference

where appropriate. The supplemental exhibit to the court reporter’s record will be

cited as 1stSuppRR-JX1, with appropriate internal exhibit and page references.

      Documents contained in the Appendix will additionally be cited as “App.”

with the corresponding tab letter.




                                       xiv
                               STATEMENT OF THE CASE

    Nature of the   Breach of contract and tort case involving a Farmout Agreement
    Case:           between Defendant-Appellant Carrizo Oil & Gas, Inc.
                    (“Carrizo”) and Plaintiff-Appellee Barrow-Shaver Resources
                    Company (“BSR”). 1 PX36 (App. 3). A jury found that Carrizo
                    was required to consent to BSR’s assignment of BSR’s rights and
                    obligations under the Farmout Agreement or to provide a
                    reasonable basis for refusing to do so. 13CR3180.

    Trial Court:    Hon. Kerry L. Russell, 7th Judicial District Court, Smith County,
                    Texas

    Course of       The district court refused to respect the parties’ agreement that
    Proceedings:    Carrizo could refuse to consent to an assignment by BSR of its
                    obligations under the Farmout Agreement without having to
                    provide any justification for its decision. 13CR3063;13CR3081;
                    13CR3085-87;10RR111-12;10RR114-15. The matter was tried
                    to a jury, which found Carrizo liable for breach of contract, fraud,
                    and tortious interference and awarded damages. 13CR3177-87
                    (App. 2).

    Trial Court     Judgment entered on jury’s verdict awarding Plaintiff-Appellee
    Disposition:    $27.6 million in contract damages and $1.018 million in
                    attorneys’ fees. 15CR3528-30 (App. 1).




1
    BSR is now known as Barrow-Shaver Resources Company LLC.


                                           xv
                   STATEMENT REGARDING ORAL ARGUMENT

      This appeal involves a complicated conflation of contract interpretation

principles that led to a $31.6 million judgment against Carrizo based on an alleged

promise that is not contained in the parties’ agreement. The record from the two-

week jury trial is voluminous, and Defendant-Appellee respectfully submits that oral

argument would aid the Court’s decision making.




                                        xvi
                         ISSUES PRESENTED

1.   The parties’ agreement unqualifiedly required a written consent from
     Carrizo in order for BSR to assign its rights and obligations. Did the
     district court err in failing to construe the agreement as a matter of law
     as providing Carrizo the unqualified right to refuse its consent?

2.   Was it error for the district court to have allowed the jury to nonetheless
     impose a duty on Carrizo not to unreasonably withhold its consent?

3.   Did the trial court err in excluding evidence of the parties’ negotiations
     during which they specifically agreed to delete the language “which
     consent shall not unreasonably be withheld” from the consent provision
     of their agreement prior to execution?

4.   Was custom and usage evidence improperly admitted to impose
     additional duties on Carrizo not found in the Farmout Agreement?

5.   Assuming custom and usage evidence could properly be considered,
     was the opinion testimony of BSR’s expert witness sufficiently reliable
     and relevant to be admitted?

6.   BSR was allowed to recover $27.6 million in damages representing the
     value of a third-party contract it claims it lost as a result of Carrizo’s
     breach, notwithstanding the fact BSR would have received only a small
     fraction of that sum had the other contract closed.

       a. Was it proper for the jury to award BSR the face value of a
          separate contract it claimed to have lost as a result of Carrizo’s
          refusal to consent when that separate agreement unequivocally
          obligated BSR to share the compensation with non-parties?

       b. Did BSR lack standing to sue to recover on behalf of the non-
          parties where it put on no proof of any assignment and
          demonstrated no representational capacity under any agreement
          or other authority to sue on their behalf?

       c. Were the contract damages awarded to BSR excessive,
          considering that the record conclusively showed that BSR was
          obligated to share unspecified portions of that recovery with non-
          parties?


                                 xvii
        d. Was it appropriate for BSR to recover damages on behalf of non-
           parties when those non-parties had neither pleadings nor proof of
           any wrong by Carrizo against them?

7.    Was BSR entitled to recover damages based on an improper measure?

8.    BSR claimed that it relied on oral promises from Carrizo’s landman
      that, notwithstanding the unqualified consent provision in the Farmout
      Agreement, Carrizo would consent to any future assignment proposed
      by BSR. Can such a statement or promise constitute fraud when it is
      contradicted by the express terms of the Farmout Agreement?

9.    Was Carrizo’s justification defense to the tortious interference claim
      established as a matter of law?

10.   Did the district court err in excluding the only document evidencing the
      $1.358 million profit that BSR would have actually recovered under the
      third-party agreement that was allegedly terminated as a result of
      Carrizo’s refusal to grant a consent?

11.   Should BSR’s letter providing its opinion to a third party that Carrizo’s
      refusal to consent could not prevent BSR from validly assigning its
      rights and offering to indemnify the third party from damages have been
      excluded from the jury’s consideration?

12.   Are the trial court’s erroneous charge instructions grounds for reversal
      of the judgment?

13.   Did the district court err in granting an award of attorney’s fees to BSR
      based on evidence that was not disclosed to Carrizo?




                                 xviii
TO THE HONORABLE TWELFTH COURT OF APPEALS:

        Carrizo must pay over $30 million in damages for a purported breach of an

obligation that is not found in the parties’ written agreement.          During their

negotiations, the parties expressly removed from the contract the language BSR

wishes was there. Instead, they agreed to a “hard consent:” BSR could not assign

BSR’s obligations under the agreement without Carrizo’s consent, and Carrizo could

withhold that consent without consequence. The parties’ intent could not be clearer:

both sides testified that they agreed to delete a clause from a prior draft of their

agreement providing that Carrizo’s “consent shall not be unreasonably withheld.”

And, as a result, neither the contract nor the negotiations giving rise to it required

Carrizo to consent to any assignment. The case should have terminated on summary

judgment.

        Instead, however, the trial court asked the jury to determine whether Carrizo’s

consent was subject to a “not to be reasonably withheld” qualifier based on “industry

custom and expectations.”2 In effect, the trial court concluded that an obligation that

the parties removed from the Farmout Agreement could be imposed on Carrizo by

implication. Compounding this error, the court instructed the jury that “the Farmout

Agreement is silent about the reasons under which Carrizo could refuse consent to



2
    13CR3180.
BSR’s assignment,” 3 excluded all evidence of the parties’ actual negotiations and

intent on the consent clause,4 and instructed the jury it could imply a “not [to] be

unreasonably withheld” covenant based on “industry custom.” 5 Whether a covenant

can be implied is a question of law, not fact. And, in any event, implied covenants

are disfavored because the parties are expected to spell out their rights and

obligations within the four corners of their written agreement. 6 The exacting

standards for an implied covenant have not been met in this case. The jury should

never have been permitted, much less instructed, to determine the parameters of

Carrizo’s consent or to find a breach and multi-million-dollar damages. The Court

should render judgment for Carrizo.

                               STATEMENT OF FACTS

          This appeal arises out of a Farmout Agreement between Carrizo and BSR.

PX31. In the oil and gas industry, a farmout agreement is not an interest in land but

a grant of exploration rights with a contingent right to receive an interest in land if

the assignee performs. 5RR23,142-43. “The primary characteristic of a farmout is

the obligation of the assignee to drill one or more wells on the assigned acreage as a



3
    Id.
4
    13CR3063-65;13CR3067-78;13CR3080-82;13CR3084-89.
5
    13CR3180.
6
    See Argument part I.


                                          2
prerequisite to the completion of the transfer to him.” Mengden v. Peninsula

Production Co., 544 S.W.2d 643, 645 n.1 (Tex. 1976) (quoting WILLIAMS           AND

MEYERS, OIL AND GAS LAW, MANUAL OF TERMS 167 (1971)).

       Carrizo is an independent oil and gas exploration and production company.

7RR41-43. BSR, also an oil and gas company, engaged in prospect development,

producing property acquisition, lease acquisition, and the assembly and marketing

of prospects for the exploration and development of oil and natural gas. 7RR143-

44. By its own testimony, BSR is a sophisticated player in the industry. 7RR235-

36.

       A.    The Parties Negotiate a Farmout Agreement for the Parkey Lease

       In July 2008, Carrizo acquired an undivided 100% working interest in the

“Parkey Lease,” which was part of PanAmerican Operating, Inc.’s Kingdom

Prospect in the Caddo Arch Bend in North Texas. DX12 & 15;5RR125;7RR48-49.

       In mid-2010, BSR identified the Caddo Arch Bend as an area of interest and

began acquiring assets in the area (“Prospect”). DX9. BSR had initially expressed

interest in the Parkey Lease during 2010, but nothing came of that effort, as Carrizo

was still actually exploring on the Parkey Lease. 7RR145-47. A few weeks before

the Parkey Lease was to expire, however, Carrizo offered, and BSR accepted, a

farmout opportunity to acquire Carrizo’s exploration rights in the Parkey Lease.

DX9.



                                         3
      The Farmout Agreement gave BSR the right to earn assignments of Carrizo’s

interest in the undeveloped acreage of the Parkey Lease below 2,500 feet as long as

BSR drilled wells, established production in paying quantities, and otherwise

fulfilled its obligations under the agreement. PX36. Specifically, if BSR drilled an

earning well, Carrizo would assign BSR 100% of the working interest below 2,500

feet and within 320 acres around each earning well drilled on the 20,000+ acre

Parkey Lease. Id. Carrizo would reserve an overriding royalty interest only in the

320 acres assigned to BSR. Id. BSR did not otherwise pay Carrizo for the

exploration rights to the 20,000 acres conveyed in the Farmout. Id.

      During the negotiations leading up to the Farmout Agreement, multiple drafts

were exchanged by the parties’ representatives—principally Stewart Laufer

(“Laufer”) for Carrizo and Hal Bertram (“Bertram”) for BSR, both of whom are

sophisticated in the industry.      DX17;DX18;DX20,DX22;5RR160-63,167,243;

8RR138-42. Laufer, a landman, was the only Carrizo employee involved in the

direct negotiations with BSR, although, as BSR understood, he did not have

authority to bind Carrizo. 5RR250-52,254;8RR139,146-47.

      BSR prepared the first draft. 5RR244. It contained no clause relating to

BSR’s ability to assign its rights and obligations under the Farmout to a third party.

DX17. Carrizo had confidence in BSR that it would perform and hold the Parkey

Lease, so it did not want BSR to assign those obligations to an unknown third party.


                                          4
8RR147.    Consequently, Carrizo proposed a clause obligating BSR to obtain

Carrizo’s written consent before any such assignment. DX18 at CAR000000977.

Carrizo included this provision “to control who could take over” BSR’s Farmout

obligations. 8RR147. Such clauses are “standard” in farmout agreements, as

Carrizo’s expert explained, “[b]ecause you want to know that whoever’s operating

your lease, building a well on it, has the financial resources to follow through and

meet his obligation. You want to know that he has the technical ability, the

experience, and the knowledge to do it properly.” 9RR19.

      The first iteration of the consent-to-assign clause contained the following

emphasized language:

      The rights provided to BSR under this Letter Agreement may not be
      assigned, subleased or otherwise transferred in whole or in part, without
      the express written consent of Carrizo, which consent shall not be
      unreasonably withheld.

E.g., DX18 (emphasis added). In a later draft sent to BSR on March 29, 2011,

Carrizo struck the emphasized language. DX20 at BSR00056. An unqualified

consent provision is not unusual in the oil and gas industry. Louis J. Davis,

Preferential Rights to Purchase and Consents to Assign, ASSOC.       OF   CORPORATE

COUNSEL, HOUS. CHAPTER (Oct. 2, 2013) at 22 (App. 6). It can be found in all types

of agreements, including farmouts, joint operating agreements, leases, and purchase

and sale agreements. Contracting parties request it when they want total control over

assignments to third parties—especially when those parties are unknown or

                                         5
unproven—and “[y]ou don’t want to have to justify saying ‘no.’” 9RR20. An

unqualified, or “hard,” consent provision means exactly that. 9RR20-21;10RR111-

12. It avoids forcing the nonconsenting party to defend its decision, denigrate the

proposed assignee, or disclose a confidential business reason. 9RR21-23,36.

       BSR fumed about the stricken clause. Bertram went immediately to BSR’s

Managing Partner, Scott Shaver (“Shaver”)—who became involved for the first time

in the negotiations—informing Shaver that Carrizo had deleted the clause in the

consent-to-assign provision. 5RR248-52 (App. 4); 5RR251-52 (App. 5). 7 Together,

Shaver and Bertram challenged Laufer about the stricken text.                         5RR251-

52;10RR119.       Bertram characterized the change as “an 180-degree reversal.”

5RR249. Both Shaver and Bertram understood the full implication of the modified

consent-to-assign provision, which permitted Carrizo to unilaterally withhold its

consent. 5RR249-50;10RR119-20. Yet, each claimed that Laufer orally assured

them that consent would be forthcoming notwithstanding the strikeout.

5RR176,180-81;7RR156;10RR119-20.

       Laufer, on behalf of Carrizo, confirmed to BSR that Carrizo would not restore

the “not be unreasonably withheld” language and would only sign an agreement




7
 Testimony as to the exchange of drafts was provided in a bill of exceptions, as the trial court
would not allow counsel to question witnesses about the prior drafts before the jury. See 5RR244-
53.


                                               6
without that restriction. 5RR250-52. In testimony outside the presence of the jury,

Shaver and Bertram conceded that they understood the implications of the revised

provision. 5RR252-53;10RR119-20. Yet BSR executed it anyway:

       The rights provided to BSR under this Letter Agreement may not be
       assigned, subleased or otherwise transferred in whole or in part, without
       the express written consent of Carrizo.

PX36 at 2.

       During the parties’ later dispute, Carrizo learned for the first time that BSR

had sold 100% of the working interest in the Prospect (but did not assign the

Farmout) to third-party investors (“Exploration Partners”) in order to fund the

Prospect’s exploration. 8 5RR106-07;DX16. Carrizo sought third-party discovery

as to these Exploration Partners, but the district court would not allow it.

1stSuppCR1-3.

       BSR did not enter in the Farmout Agreement on behalf of the Exploration

Partners. 7RR236-37. The Exploration Partners are not parties to the Farmout

Agreement. Id. They never acquired any rights in the Farmout Agreement because




8
  Although they were referred to as “Exploration Partners” at trial, the trial court excluded evidence
that these investors were not legal partners of BSR. To the contrary, the contracts creating their
relationship expressly disclaimed any “intention of the parties hereto to create, nor shall this
agreement be construed as creating a mining or other partnership or association to render them
liable as partners. The relationship of the parties hereto shall be that of independent contractors
owning properties as co-tenants.” DX16 at BSR002384.


                                                  7
BSR never requested Carrizo’s consent to assign any portion of its farmout rights to

the Exploration Partners. 7RR237.

       B.     BSR Enters into a Purchase and Sale Agreement with Raptor

       After drilling three wells with disappointing results, BSR felt that it had “done

the best that we could with the technology that we had.” 8RR104. BSR was

concerned about the project because of the poor production after claiming to invest

over    $20     million    of    the    Exploration      Partners’     money.         5RR106-

07;7RR218;8RR104. 9

       Raptor Petroleum II, LLC (“Raptor”) approached BSR “out of the blue” about

the property, and “it was a Godsend because we hadn’t had, really, the luck we

needed to move the project forward.” 7RR218;8RR20. According to Shaver, Raptor

“had a better idea” than BSR and “could look past the poor production that we had

established, thinking that they could do better.” Id.

       BSR and the Exploration Partners,10 as “Seller,” and Raptor, as Buyer, entered

into a Purchase and Sale Agreement (“PSA”) to sell BSR and the other Exploration

Partners’ interests in the Parkey Lease and other properties in the Prospect, totaling

more than 61,500 net acres. PX133 (DX34) at BSR000982. Although they are


9
  The district court excluded evidence showing that $20 million number was incorrect and deprived
the jury the chance to weigh the credibility of BSR’s contrary representation. 5RR107-08.
10
   These two dozen other Sellers, who were not corporately related to BSR, are listed in Schedule
1 to, and on the signature pages of, the PSA. DX34 at BSR000982,BSR001024-48;5RR223-26.


                                               8
referred to as “Exploration Partners,” these other Sellers were “independent

contractors owning the properties as co-tenants.” DX16 at BSR002384.

       The purchase price of the PSA was $27.6 million, but under the PSA, BSR

was to distribute the proceeds to the Exploration Partners and only retain a fraction

of the purchase price in its own right. 5RR237; see also 1stSuppRR-JX1(Exhibit B)

at 22 (Raptor’s president testifying that the payment would be made to BSR “and

for further distribution to the other sellers.”). The Preliminary Closing Statement

for the Raptor PSA showed that BSR was going to receive a total profit of $1.358

million at closing. 10RR120-25;DX32. 11 The remainder of the consideration was

to be paid to the Exploration Partners. Id.; see also DX34.

       C.     Carrizo Refuses to Consent to the Assignment

       In May, 2012, BSR sought Carrizo’s consent to assign BSR’s rights under the

Farmout to Raptor.        8RR148.      Laufer forwarded BSR’s request to Carrizo’s

management because he did not have, and never had, the authority to act. 8RR147-

49. At management’s request, Laufer investigated but found nothing enlightening

about Raptor’s involvement in leases or drilling activities in Texas. 8RR149-50. On

June 12, 2012, Carrizo’s Chief Operating Officer Brad Fisher (“Fisher”), Laufer, and

others met to discuss the request. 8RR151,154;10RR22-23. At the end of the



11
   This document and the testimony about it were excluded from evidence by the district court,
although admitted for purposes of the bill of exceptions. 13CR3064;10RR125.


                                              9
meeting, Fisher indicated his reluctance to give consent, but wanted to discuss it with

Chief Executive Officer Sylvester “Chip” Johnson (“Johnson”) before finalizing any

decision. 8RR155;10RR23. So, Fisher instructed Laufer not to call BSR until a

final determination was made. 8RR155.

      Soon after the June 12 meeting, Laufer left the country for a long-planned

25th-wedding anniversary trip.      7RR176;8RR156-57.        In his absence, another

Carrizo landman, Sarah Ruddock (“Ruddock”), filled in for Laufer. Id. Ruddock,

however, had no prior involvement with or knowledge about the Parkey Lease or the

Farmout. 8RR228,230-32. Shaver led Ruddock to believe that Carrizo did not

object to the consent. 8RR227-29,231-32. Later, she learned that the Farmout and

consent issues were more involved than she had originally appreciated and that

discussions were already underway within Carrizo, with Carrizo being disinclined

to grant approval. 8RR234-35. She informed BSR that Laufer would again be the

point of contact for the Farmout Agreement when he returned. 8RR245;DX47.

      BSR nevertheless kept pressing Ruddock for an answer, falsely reporting that

the Raptor deal was closing a week earlier than actually scheduled to close, 12 and

she communicated the message to Fisher. DX49;8RR248-49. On June 22, 2012,




12
   BSR and Raptor had already extended the closing date to July 3 by the point of this
communication, but Shaver indicated that it was still scheduled for June 25. DX48-
49;7RR254;8RR49-50,248-49.


                                          10
Fisher made the decision—after consulting with Carrizo’s CEO, Johnson—that

Carrizo would not grant its consent.      7RR112,115,138;DX49,50. Because he

understood that the Farmout provided Carrizo a “hard consent,” meaning that

Carrizo could grant or deny its consent without having to justify the decision to BSR,

he did not consider giving BSR a rationale. 10RR111-12. Carrizo did not offer any

monetary terms to obtain consent; it simply exercised its option under the Farmout

Agreement and refused consent.           PX210;DX50;8RR250;7RR113.             Fisher

considered his June 22 decision to be final and instructed Ruddock to communicate

the message to BSR, which she did in a telephone call and a single-line email:

“Carrizo does not consent to the assignment.” 7RR115-16;8RR251-52;DX50.

      Shaver never communicated to Carrizo his contention that Laufer had made

promises about future consents to anyone at Carrizo—even after Carrizo had

communicated its refusal to consent to the Raptor assignment. 7RR224 (Q: “[Y]ou

never told anyone at Carrizo that Stewart Laufer made that promise, correct? A: I

did not.”). In fact, Shaver did not communicate with anyone at Carrizo except for

Laufer and later Ruddock, both of whom were landmen without authority to give

consent. Id. Instead, he relied on one of BSR’s Exploration Partners, Tana Oil &

Gas (“Tana”), to reach out to another Carrizo executive, Richard Smith (“Smith”),

Vice-President of Land, in an attempt to get Carrizo to reconsider the decision.

7RR244-45;8RR160-61;10RR72-73.          Smith conveyed Carrizo’s concern about


                                         11
Raptor’s ability to perform to Tana. 8RR71. BSR later provided some information

about the Raptor PSA to Carrizo as part of its effort to get Carrizo to reconsider.

8RR61.

      Carrizo’s CEO Johnson met with other Carrizo executives, as well as Laufer,

to “reevaluate this [request] and try to figure out what to do.” 10RR72-73. Carrizo

reconsidered the facts, but came to the same conclusion. Johnson too felt no

compunction to explain the decision to BSR based on the Farmout Agreement’s

hard-consent clause. 10RR115. Johnson was aware that Carrizo had itself paid for

consents in other transactions, but decided not to explore that option with BSR.

10RR76,115-16. Instead, Johnson proposed a different solution—to sell Carrizo’s

entire leasehold in the Parkey Lease outright to BSR for $5 million, which

approximated Carrizo’s un-recouped investment in the Lease.              8RR165-

66;10RR65,75-76,79-80;PX233(DX56). As Shaver acknowledged, a sale of the

leasehold interest would have solved BSR’s problem because BSR then could have

assigned its rights to anyone it chose. 7RR258;10RR75-76. And Carrizo would

have no exposure to the landowner for Raptor’s operations on the land. 10RR75-

76. The quoted price term was one that BSR’s own witness, Ray Kasino (“Kasino”),

admitted would be reasonable. 5RR109-10. But BSR never reached out to anyone

but Laufer and only then to criticize the offer. 7RR190-91. Raptor’s President and

CEO, Jason Perkins, later testified that Raptor would have closed the PSA had BSR


                                        12
delivered unclouded title to the Parkey Lease. 1stSuppRR-JX1(Exhibit B) at 70.

Although Shaver testified that the sale to Raptor was “too important” to “give up,”

he also stated that he never countered the proposal nor sought to acquire the

necessary rights for any price. 7RR182;8RR134-35. And unbeknownst to Carrizo,

BSR represented to Raptor that Carrizo’s consent was not in fact required for BSR

to make a valid assignment to Raptor, offering to indemnify Raptor for any harm

that might result from an assignment without Carrizo’s consent.                         DX58 at

BSR002303.13 BSR stated that it was “of the opinion that the granting of Carrizo’s

consent to assignment of the Carrizo Farmout is not necessary to make the

assignment of BSR’s rights to [Raptor] legally effective” and that “the only material

legal consequence of failure to obtain such consent is that Carrizo might seek to

recover damages . . . .” Id. at BSR002302 (emphasis added).

       A focal point of BSR’s at trial was Ruddock’s suggestion to Laufer that

Carrizo consider dealing “with Raptor directly and cut out [BSR].” DX45. BSR’s

counsel thought this email set out an unlawful “plan” to blow up the Raptor PSA.

E.g., 8RR258;10RR235-36,239. But Carrizo’s management rejected this idea out of

hand. 6RR213,216;8RR78,240-41. Raptor’s President, Perkins, confirmed that no



13
   The indemnification letter was excluded from the jury. 7RR12,15. But BSR’s position in that
letter is a correct statement of Texas law. Carrizo could not void an assignment to Raptor without
its consent, it could only sue for any damages resulting from its lack of consent to the assignment.
See Argument, part V.B.


                                                13
one with Carrizo ever contacted Raptor about the PSA or the Parkey Lease.

1stSuppRR-JX1(Exhibit B) at 31,41.

       BSR also alleged that Carrizo had tried to “squeeze” it by extending the lease-

purchase offer so close to the July 3 closing date for the PSA. But on July 2, 2012—

the day before the anticipated closing date—BSR’s attorney, Ronald D. Krist

(“Krist”) sent a letter to Carrizo, threatening suit and giving Carrizo until July 9 to

capitulate. DX57.14 BSR also sent Raptor a letter offering both to further extend

the closing to July 10 and to indemnify Raptor “from and against any and all loss of

title to the portion of the [PSA] assets . . . burdened by the Carrizo Farmout as a

result of the failure to obtain Carrizo’s written consent to the assignment . . . .” DX58

at BSR002303. Carrizo argued that the letter was relevant to the timing of Carrizo’s

offer in relation to the Raptor closing and, more importantly, evidence of BSR taking

a contrary legal position that Carrizo’s consent was not required to close the Raptor

deal. E.g., 7RR12-13;10RR116-17,127-28 (bill of exceptions). However, the court

did not allow Carrizo to present this evidence to the jury or discuss its importance.

13CR3064.

       Raptor eventually terminated the PSA, citing Carrizo’s failure to consent as

the reason. 7RR194.


14
  That letter too was excluded from the jury despite the fact that it was also referenced and even
displayed in the videotaped deposition of Gregg Evans offered by BSR. 7RR139-40.


                                               14
       D.      BSR Files Suit

       BSR sued Carrizo for its refusal to consent and also for fraud, tortious

interference, and various causes of action. 1CR1-7. Although it initially filed suit

in its personal capacity, 1CR1-7, BSR later claimed to represent the Exploration

Partners as well. E.g., 10CR2411.

       Before trial, BSR obtained limine and other pretrial rulings to hide from the

jury evidence that was essential to a full understanding of the dispute. 13CR3063-

64;13CR3065-66;13CR3073; 13CR3081.                     For example, Carrizo unsuccessfully

attempted to introduce evidence of the parties’ negotiations.                       E.g., 5RR242-

54;10RR101-10. After BSR opened the door to this evidence by introducing prior

drafts of the Farmout Agreement, the district court still excluded evidence showing

that the parties had deleted the “not to be unreasonably withheld” clause.15 The court

would not even permit the Carrizo witnesses to testify about their understanding of

the “hard consent” provision in the Farmout Agreement. 7RR74-79,100,102,107-

08,130-32. 16 Nor could they explain that a key basis for Carrizo’s election was that


15
   Instead, the court declared a mistrial sua sponte when BSR inadvertently violated the limine
order it had obtained by offering the prior drafts. 5RR206;7RR110. The parties were able to craft
an instruction to avoid the mistrial. 5RR209,220-21. But the court ordered Carrizo not to examine
the witnesses about these two prior drafts, 5RR209-12, so Carrizo was only able to elicit that
testimony in a bill of review.
16
   At one point in the trial, Carrizo’s counsel asked if he could ask Carrizo’s COO Fisher a single
question about his reasons for refusing the consent, and the court said, “I’ll let you ask the question
why. If he answers it like I think he’ll answer it, then we’ll be okay. If he doesn’t, they’re going
to be objecting, and I may very well grant a mistrial at that point.” 7RR132. As stated above in
note 15, this was not the trial court’s first suggestion of mistrial based on BSR’s violation of its

                                                 15
it had no contractual obligation to consent. Id. The court also precluded attempts to

draw comparisons between other contracts having the “not to be unreasonably

withheld” qualifier and the Farmout, as well as Carrizo’s proffer of other contracts

where Carrizo had paid in order to obtain a consent to assign. DX64;7RR6,10. The

district court recognized that its ruling would “basically eviscerate” Carrizo’s

business justification defense to the tortious interference claim. 7RR83,109. But it

held to its decision throughout the trial.

       The Preliminary Closing Statement for the Raptor PSA showed that BSR

would receive a profit of $1.358 million at closing—not the entire $27 million

purchase price of the Raptor PSA. DX32. Instead, the $25 million balance of the

purchase price was owed to the Exploration Partners.                  Id.   Suppressing that

document, BSR was permitted to argue that it should recover 100% of the purchase

price. 10RR248 (closing argument).

       BSR’s omission of any discussion of the Exploration Partners’ recovery under

the PSA was a deliberate trial strategy. When Carrizo’s counsel indicated that the

lack of their participation could not be fixed after trial, BSR’s counsel confirmed




own limine order. The Carrizo witnesses were so concerned about violating the limine order that
it impacted their credibility before the jury. 7RR32 (Fisher asking Carrizo’s counsel if he could
answer the question); 8RR204 (Carrizo’s counsel pointed out that Laufer was looking to him for
permission to answer because of the limine order).


                                               16
that BSR was “bearing the risk of being wrong. And if we’re wrong, we’re wrong

100 percent because we’re not going to put on proportionate damages.” 5RR235.

      BSR also opened the door to admission of its proposed indemnification letter

to Raptor, DX58, when it presented the video deposition of Raptor’s president, Jason

Perkins, in which he testified about the indemnity letter.        See 1stSuppRR-

JX1(Exhibit B) at 65,70-73;7RR12. The trial court excluded the letter even though

it contained BSR’s concession that Carrizo’s consent was not necessary to

consummate the Raptor PSA. 7RR12,15.

      E.    The Jury Is Instructed and Reaches a Verdict

      The trial court denied Carrizo’s motion for directed verdict, 15CR3543-

67;10RR131-37,139-41,143-44, and instead instructed the jury, over Carrizo’s

objections, 10RR147-52, as follows:

      You are instructed that the Farmout Agreement is silent about the
      reasons under which Carrizo could refuse consent to BSR’s assignment
      of the Farmout Agreement to Raptor. Therefore, you may consider
      evidence of industry custom and expectations in deciding whether
      Carrizo breached its agreement with BSR. BSR contends that there was
      a custom and usage in the oil and gas industry that a consent to
      assignment not be unreasonably withheld. . . .

13CR3180.

      In Question 2, the trial court instructed the jury to determine “[w]hat sum of

money . . . would fairly and reasonably compensate BSR for its damages, if any, that

resulted from Carrizo’s failure to comply . . . .” 13CR3181. The jury was further



                                        17
instructed to award the “difference if any between the purchase price in the Raptor

PSA and the fair market value, if any, of the remaining interests held by BSR on

July 5, 2012, that was a natural, probable, and foreseeable consequence of Carrizo’s

failure to comply with the Farmout Agreement.”             Id.   The jury awarded

$27,690,466.86, id.—to the penny, it was the full estimated purchase price of the

Raptor PSA. DX34 at BSR000985.

      The jury also found that Carrizo committed fraud against BSR and

intentionally interfered with the PSA and that Carrizo lacked a good-faith belief it

had the legal right to withhold its consent. 13CR3182-83. It awarded damages on

the tort claims in the amount of $1.7 million, although the tort damages instruction

was identical to the contract damages instruction. 13CR3184.

      The trial court entered judgment on the contract verdict. It awarded $1.018

million in attorneys’ fees based on the court’s in camera review of unredacted

attorney’s invoices that were never produced to Carrizo. 14CR3483. The trial court

denied Carrizo’s request to review the unredacted attorney’s invoices before making

its ruling. 14CR3485-87,3493,3499-3500; 15CR3501-04. The trial court also

awarded BSR $2.9 million in prejudgment interest. 15CR3528. Carrizo timely filed

motions to disregard the jury’s findings, for a new trial or alternatively remittitur,

and to modify the judgment. 15CR3543-79;1stSuppCR6. The court denied these




                                         18
motions on March 2, 2015, and Carrizo timely filed its notice of appeal on April 2,

2015. 15CR3604-8.

                                 SUMMARY OF ARGUMENT

           The Farmout Agreement unambiguously required Carrizo’s written consent

to any assignment by BSR. Period. End of story. The trial court should have

respected the parties’ agreement—as expressed within the four corners of the written

contract they signed—and rendered judgment for Carrizo.

           The trial court instead allowed BSR to rewrite the story. It did so by keeping

from the jury all evidence of the parties’ actual negotiations, agreement, and intent—

as confirmed by BSR’s own testimony—instructing the jurors that the agreement

was “silent about the reasons under which Carrizo could refuse consent to BSR’s

assignment,”17 and admitting evidence that contradicted the Farmout Agreement

under the guise of “custom and usage.”18 The trial court went so far as to instruct

the jury that “BSR contends that there was a custom and usage in the oil and gas

industry that a consent to assignment not be unreasonably withheld.” 19 The district

court thus instructed the jury that it could find the very language in the Farmout

Agreement that BSR was unable to obtain through negotiation. BSR’s subsequent


17
     13CR3180.
18
     Id.
19
     Id.


                                             19
remorse over the bargain it unquestionably struck cannot support the extraordinary

remedy of implying a covenant and inserting language that was deliberately

excluded by agreement of the parties. And BSR cannot meet the demanding

standards for implying such a promise.

         Even if the jury could have properly considered custom and usage, BSR failed

to produce admissible proof to substantiate a finding of an industry custom

concerning consents to assign. BSR’s sole proof of the supposedly prevailing trade

custom and usage on consent provisions was the subjective, unsubstantiated, and

unreliable opinion of an expert who has never negotiated such a contract and could

not identify a single objective source to support his view.

         The $27.6 million contract damages awarded by the jury were overly inflated,

as BSR was not entitled to recover on behalf of the Exploration Partners. 20 The sole

source of the damages award was the PSA between BSR and Raptor, as the jury

awarded the purchase price of that agreement—to the penny. 21 Under the PSA,

however, BSR was not the sole “Seller”—and not the sole entity to recover proceeds

from the PSA. Instead, BSR was poised to recover only a fraction of the purchase

price in its own right. Nor did the PSA give BSR the right to sue on behalf of the



20
  The other Sellers for purposes of the PSA are listed in an appendix to the PSA and have been
represented to be BSR’s Exploration Partners.
21
     13CR3181.


                                             20
Exploration Partners; instead, the record negated any argument that BSR and the

“Exploration Partners” were, in fact, partners. To the extent that BSR recovered on

claims or damages owned solely by its Exploration Partners: (i) BSR has provided

no proof that the Exploration Partners assigned any causes of action against Carrizo

to BSR; (ii) the Exploration Partners lack standing to pursue any claims against

Carrizo; and (iii) the Exploration Partners have not offered any evidence to support

any element of the claims BSR purported to bring on their behalf. And there is no

pleading or proof to support any argument that BSR was entitled to sue on behalf of

the Exploration Partners on “partnership” grounds.

      Once the Farmout Agreement is properly construed, BSR’s tort claims also

fail. BSR could not justifiably rely on a promise that is expressly contradicted by

the Farmout itself. And Carrizo’s justification defense to the tortious interference

claim was established as a matter of law because Carrizo had the unqualified right

under the Farmout Agreement to refuse consent.

      Evidentiary and jury instruction errors independently provide grounds to

reverse the judgment. Finally, the trial court’s unauthorized use of in camera review

of BSR’s fee bills to make fact findings to support a $1 million award of attorneys’

fees requires that part of the judgment to be set aside.




                                          21
                                    ARGUMENT

I.    The Trial Court Erred by Not Enforcing the Unambiguous Plain
      Language of the Farmout’s Hard-Consent Provision

      A.     Standard of Review

      In construing a written contract, the court’s primary concern is to ascertain the

parties’ true intentions as expressed in the instrument. Thedford Crossing, L.P. v.

Tyler Rose Nursery, Inc., 306 S.W.3d 860, 867 (Tex. App.—Tyler 2010, pet.

denied). If the written instrument is so worded that it can be given a certain or

definite legal meaning or interpretation, the court will construe the contract as a

matter of law. Id. The interpretation of an unambiguous contract is a question of

law, which this Court reviews de novo. Id.; see also Dynegy Midstream Servs., L.P.

v. Apache Corp., 294 S.W.3d 164, 168 (Tex. 2009).

      B.     The Plain Language of the Farmout Expresses an Agreement to an
             Unqualified “Hard Consent”

      A written contract must be construed to give effect to the parties’ intent

expressed in the text as understood in light of the facts and circumstances

surrounding the contract’s execution, subject to the limitations of the parol evidence

rule. Americo Life, Inc. v. Myer, 440 S.W.3d 18, 22 (Tex. 2014). To determine the

parties’ intent, courts must examine the express language of their agreement. Italian

Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323, 333 (Tex.

2011). To achieve this objective, the terms of the contract are given their plain and



                                         22
ordinary meaning unless the agreement indicates the parties intended a different

meaning. Reeder v. Wood Cty. Energy, LLC, 395 S.W.3d 789, 794-95 (Tex. 2012).

No other words varying the terms or contradicting the legal effect of an unambiguous

written instrument are to be added or subtracted. See Johnson v. Driver, 198 S.W.3d

359, 363 (Tex. App.—Tyler 2006, no pet.).

      Carrizo and BSR directly addressed the issue of assignment—the consent

provision of the Farmout Agreement states that BSR may not assign its rights

without Carrizo’s written consent.    The Agreement imposes no restriction on

Carrizo’s right to withhold such consent—Carrizo has the unqualified right to grant

or withhold its consent for any reason or no reason. An unqualified no-assignment-

without-consent provision is “designed to give the parties some degree of control

over with whom they do business and nothing more. This language was obviously

intended to render the [] agreement unilaterally unassignable.” Crim Truck &

Tractor Co. v. Navistar Int’l Transp. Corp., 823 S.W.2d 591, 596 (Tex. 1992); see

also Davis, Preferential Rights to Purchase and Consents to Assign, at 22 (App. 6)

(noting that “hard” consents “are common and generally enforceable” in oil and gas

leases: “Courts take such provisions at face value, and have been unwilling to imply

a covenant that the consent cannot be unreasonably withheld if such a covenant is

not   included    in   an   agreement.”      (citing   Reynolds   v.   McCullough,

739 S.W.2d 424, 429 (Tex. App.—San Antonio 1987, writ denied)). Yet the district


                                        23
court suggested in the court’s charge that there must be “reasons under which Carrizo

could refuse consent to BSR’s assignment” and credited BSR’s contention that

“custom and usage in the oil and gas industry” provides that “a consent to assignment

[may] not be unreasonably withheld.”            13CR3180.       That suggestion and

characterization pervert the legal effect of the Agreement’s express language. See

parts II & IV, infra; see also Johnson, 198 S.W.3d at 363.

      The parties could have, but did not, include a reasonableness restriction in the

consent provision. See, e.g., Allen D. Cummings, Consent Asked For – But Not

Received: The Enforceability of Consent to Assignment or Transfer Provisions, 38th

Annual Ernest E. Smith, OIL, GAS & MINERAL LAW INST. (Mar. 30, 2012)

(discussing various forms of assignability provisions). In fact, BSR entered into

several such agreements with other parties. See DX66. Here, the parties expressly

deleted that language, and so BSR could not reinsert a reasonableness condition.

Kachina Pipeline Co. v. Lillis, No. 13-0596, 2015 WL 5889109, at *6 (Tex. Oct. 9,

2015) (“[O]ur task is to interpret the [contract’s] language, not to justify the bargain

it memorializes.”).

      Because Carrizo was not obligated to consent or to provide any reason for

refusing to agree to an assignment, it could not have breached the Farmout

Agreement by withholding its consent to the assignment to Raptor. The district court

erred in submitting the contract claim to the jury, and there is no evidence supporting


                                          24
the jury’s finding of breach in answer to Question 1. 13CR3180. The judgment

should therefore be reversed and rendered in favor of Carrizo.

II.   The Farmout Agreement Leaves No Room for Implying a Covenant—
      Especially One that the Parties Expressly Rejected

      A.     Standard of Review

      Because the obligation that Carrizo could not unreasonably withhold its

consent to assignment is not contained in the four corners of the Farmout, any duty

in that regard would have to occur implicitly. Determining whether a duty arises by

implication is a matter of law for the court rather than a question of fact for the jury.

See, e.g., Weil v. Anne Lewis Shops, Inc., 281 S.W.2d 651, 655 (Tex. Civ. App.—

San Antonio 1955, writ ref’d) (detailing principles governing “the exercise of

judicial authority to insert implied covenants”). The trial court’s decision to imply

a covenant is reviewed de novo. Id. at 656 (court of appeals reviewed lengthy

contract, and construing it as whole, saw “no reason to write into this contract a

stipulation which the parties themselves did not see fit to place therein . . .”).

      B.     The Trial Court Erred in Allowing the Jury to Imply a Covenant
             That Does Not Exist in the Contract

      Texas disfavors implied covenants.           Universal Health Servs., Inc. v.

Renaissance Women’s Grp., P.A., 121 S.W.3d 742, 748 (Tex. 2003); see also HECI

Expl. Co. v. Neel, 982 S.W.2d 881, 888-89 (Tex. 1998) (“This Court has not lightly

implied covenants. . . . Our decisions have repeatedly emphasized that courts



                                           25
“‘cannot make contracts for [the] parties. . . .’”). This has been the law in Texas for

decades:

      [W]hen parties reduce their agreements to writing, the written
      instrument is presumed to embody their entire contract, and the court
      should not read into the instrument additional provisions unless this be
      necessary in order to effectuate the intention of the parties as disclosed
      by the contract as a whole. An implied covenant must rest entirely on
      the presumed intention of the parties as gathered from the terms as
      actually expressed in the written instrument itself, and it must appear
      that it was so clearly within the contemplation of the parties that they
      deemed it unnecessary to express it, and therefore omitted to do so, or
      it must appear that it is necessary to infer such a covenant in order to
      effectuate the full purpose of the contract as a whole as gathered from
      the written instrument.

Danciger Oil & Ref. Co. of Tex. v. Powell, 137 Tex. 484, 154 S.W.2d 632, 635

(1941) (emphasis added); see also Renaissance Women’s Group, 121 S.W.3d at 748.

The exacting standard is warranted because implied covenants are not to be used “to

achieve what it believes to be a fair contract or to remedy an unwise or improvident

contract. . . .” HECI, 982 S.W.2d at 888-89.

      In Reynolds v. McCullough, 739 S.W.2d at 429, the court held that “[a] lessor

may contract, by provision in the lease, not to unreasonably withhold his consent to

an assignment . . . of the premises. This type of provision is in the nature of a promise

or covenant which, if breached, could be grounds for an action for damages.” The

court held that “[a]bsent this promise, . . . there is no implied covenant by the lessor

to act reasonably in withholding his consent.” Id. (emphasis added); see also Trinity

Prof’l Plaza Assocs. v. Metrocrest Hosp. Auth., 987 S.W.2d 621, 625 (Tex. App.—

                                           26
Eastland 1999, pet. denied) (reaffirming the principle espoused in Reynolds, which

“correctly stated the rule”). Consequently, many contracts qualify the right of one

or more parties to withhold its consent to a future assignment. See, e.g., Lubbock

Cty. Water Control and Imp. Dist. v. Church & Akin, L.L.C. 442 S.W.3d 297, 299

(Tex. 2014); Clear Lake City Water Auth. v. Kirby Lake Dev., Ltd., 123 S.W.3d 735,

747 (Tex. App.—Houston [14th Dist.] 2003, pet. denied); Thompson v. CPN

Partners, L.P., 23 S.W.3d 64, 69-70 (Tex. App.—Austin 2000, no pet.). In fact, BSR

had entered into a number of other contracts containing that same language. DX66.

And the Raptor PSA required Raptor’s consent to any assignment by BSR and the

other Seller—without any reasonableness restriction on Raptor’s right of consent.

DX34 at BSR001022. BSR clearly understood the difference between a “hard

consent” and a qualified, “not to be unreasonably withheld” provision. 5RR246-49;

10RR118-20 (Bertram and Shaver’s testimony in bills of exceptions).

      It is not true that a reasonableness condition regarding consent to assignments

was “so clearly within the [parties’] contemplation … that they deemed it

unnecessary to express it.” Weil, 281 S.W.2d at 655. The contrary is true—the

parties did not intend a reasonableness qualifier to restrict Carrizo’s consent. During

the course of the parties’ negotiations, their experienced negotiators exchanged

multiple drafts of the Farmout.        5RR159-60,243-54;7RR142-43;10RR118-19.

Language qualifying that Carrizo’s consent to assignment would “not be


                                          27
unreasonably withheld” was expressly rejected, stricken from later drafts, and

ultimately not included in the final Agreement both Bertram and Shaver signed.

Compare DX18 with DX 20;PX36. Bertram and Shaver considered the deletion a

material change and were aware of the plain meaning of the consent provision

without the qualifier—that is, that Carrizo could withhold consent, even

unreasonably. 5RR248-51;10RR118-19. But after discussion between themselves

and Carrizo and reurging Carrizo to reinsert the reasonableness restriction—which

Carrizo refused—they signed the Agreement anyway.             5RR248-51;10RR118-

19;PX36.

       As was the case in Weil, the Farmout Agreement “seems to cover the parties’

entire understanding. It is plain and unambiguous, and we see no reason to write

into this contract a stipulation which the parties themselves did not see fit to place

therein . . . .” Weil, 281 S.W.2d at 656. The Court should not permit BSR to

belatedly rewrite the contract through the guise of an implied covenant in order to

avoid an agreement BSR freely and knowingly entered at the time of its execution.

HECI, 982 S.W.2d at 888-89.

III.   The Exclusion of Uncontroverted Evidence That the Parties Agreed to a
       Hard Consent Compounded the Error in Misconstruing the Agreement

       A.    Standard of Review

       A trial court’s exclusion of evidence is reviewed for abuse of discretion. See

Lively v. Blackwell, 51 S.W.3d 637, 641 (Tex. App.—Tyler 2001, pet. denied). The


                                         28
district court excluded a wide swath of evidence based on its erroneous reading of

the parol evidence rule, and its decision on that legal issue is reviewed de novo. Dyer

v. Cotton, 333 S.W.3d 703, 718 (Tex. App.—Houston [1st Dist.] 2010, no pet.).

      B.     Evidence of Carrizo and BSR’s Prior Negotiations Is Admissible

      The intentional absence of any restriction on Carrizo’s ability to withhold

consent is substantiated by the parties’ deletion of such a qualifier from an initial

draft of the Farmout Agreement. See parts I & II; see also 5RR250 (BSR’s Bertram

testifying on bill of exceptions that he understood that the Farmout Agreement as

ultimately executed permitted Carrizo to withhold its consent “[f]or any reason.”).

At BSR’s urging, the trial court excluded all of this evidence of the parties’

negotiations, including the draft deletion, finding it to contravene the parol evidence

rule. E.g., 13CR3063-64;13CR3067-78;13CR3080-82;13CR3084-89. BSR took

full advantage of the omission to suggest that no reasonable company would have

agreed to a hard consent:

      Q:    Can you imagine anybody in the oil business signing one of these
      agreements where Carrizo wrote in there, “Oh, by the way, we can deny
      consent for an illegal reason”?

      A:     No.

                    *            *             *

      Q:     Would you allow your clients to sign that?

      A:     No, I would not.

6RR107-08.


                                          29
      The parol evidence rule precludes considering evidence that would render a

contract ambiguous when—as here—the document, on its face, is capable of a

definite legal meaning. Sun Oil Co. (Del.) v. Madeley, 626 S.W.2d 726, 731–32

(Tex. 1981). The rule does not prohibit courts from considering the facts and

circumstances regarding the contract’s negotiation and execution “that inform the

contract text and render it capable of only one meaning.” Americo Life, 440 S.W.3d

at 22; Houston Expl. Co. v. Wellington Underwriting Agencies, Ltd., 352 S.W.3d

462, 469 (Tex. 2011) (holding that parol evidence rule does not “prohibit

consideration of surrounding circumstances that inform, rather than vary from or

contradict, the contract text”).

      In this context, “[n]egotiations of the parties may have some relevance in

ascertaining the dominant purpose and intent of the parties embodied in the contract

interpreted as a whole.” Houston Expl., 352 S.W.3d at 469-70 (citation omitted). In

particular, evidence of the deletion made to the draft Farmout Agreement during the

parties’ negotiations demonstrates an intent not to impose any conditions on

Carrizo’s right to withhold written consent. It is therefore valid evidence, and the

trial court erred in excluding it. PNP Petroleum I, LP v. Taylor, 438 S.W.3d 723,

735 (Tex. App.—San Antonio 2014, pet. denied) (holding that deletions and

revisions in oil and gas lease drafts were relevant as tending to demonstrate the intent

of the parties in selecting language used, were not barred by the parol evidence rule,


                                          30
and thus trial court’s refusal to admit drafts containing stricken text was abuse of

discretion); see also BP Am. Prod. Co. v. Zaffirini, 419 S.W.3d 485, 500 (Tex.

App.—San      Antonio    2013,    pet.    denied)   (“‘[N]egotiations   prior   to   or

contemporaneous with the adoption of a writing are admissible in evidence to

establish . . . (c) the meaning of the writing, whether or not integrated.’” (quoting

Houston Expl., 352 S.W.3d at 470 n.28)).

      “Quite simply, the parties could not have intended for the law to engraft into

their agreement the very language they removed.” PNP, 438 S.W.3d at 737.

Admission of evidence regarding the negotiations and prior drafts was thus

permissible and appropriate even if offered only to clarify the parties’ intentional

decision to delete the reasonableness qualifier.

      C.     The Trial Court’s Erroneous Resort to Custom and Usage
             Evidence Required Admission of the Prior-Negotiation Evidence

      The excluded evidence was necessary to refute the erroneously admitted

“custom and usage” evidence BSR introduced to create a reasonableness restriction

out of whole cloth. See part IV, infra.

      Instead of respecting the agreement that the parties actually made, the trial

court adopted BSR’s proposal and instructed the jury to consider “industry custom

and expectations.” 13CR3180. In the oil and gas industry, “custom and usage”

testimony is ordinarily used to explain technical terms. See, e.g., Oil Ins. Ass’n v.

Royal Indem. Co., 519 S.W.2d 148, 150 (Tex. App.—Houston [14th Dist.] 1975,

                                           31
writ ref’d n.r.e.). “Reasonableness” is not a technical term that needs explanation

by an expert. And in any event, evidence of custom and usage “is not competent to

contradict the plain and unambiguous terms of an express contract nor to vary,

control, impair, restrict, or enlarge the explicit language of the agreement.” Corso

v. Carr, 634 S.W.2d 804, 808 (Tex. App.—Fort Worth 1982, writ ref’d n.r.e.).

      Recently, in Kachina Pipeline, the Supreme Court of Texas held that “industry

custom cannot impose obligations beyond those within the written Agreement.”

2015 WL 5889109, at *6. In that case, as here, the respondent argued that a

particular term had to be read into the parties’ agreement to honor industry custom.

Specifically, the parties disputed whether a natural-gas-purchase agreement between

a producer and pipeline operator entitled the pipeline operator to deduct compression

costs for the gas from its payments to the producer. Id. at *1. Their agreement

provided that “[i]f Buyer installs compression to effect delivery of Seller’s gas,

Buyer will deduct from proceeds payable to Seller hereunder a value equal to

Buyer’s actual costs to install, repair, maintain and operate compression . . . .” Id.

at *3. The pipeline operator interpreted that contract provision to apply to any

compression that aided in the final delivery of gas to the resale purchaser and so

deducted all costs of compression from the producer’s share. Id. Amici argued in

support of the pipeline operator’s interpretation, claiming that “downstream

centralization of compression is both common and critical to the efficient


                                         32
transportation of gas to market.” Id. at *6. The court “did not doubt that” or the fact

that “producers often contract to share in such costs.” Id. But those industry realities

did not change the contract the parties made: “[T]he Agreement does not express an

objective intent that [the producer] would [share these compression costs], and

industry custom cannot impose obligations beyond those within the written

Agreement.” Id.

       In the trial court, BSR relied on Energen Res. MAQ, Inc. v. Dalbosco, 23

S.W.3d 551 (Tex. App.—Houston [1st Dist.] 2000, pet. denied),22 for the proposition

that custom and usage evidence can be used to fill in terms where a contract is

“silent.” Dalbosco cannot be reconciled with the Supreme Court’s pronouncements:

“[I]ndustry custom cannot impose obligations beyond those written within the

Agreement.” Kachina Pipeline, 2015 WL 5889109, at *6. Moreover, Dalbosco

does not apply here because there is no silence on whether Carrizo had to consent in

writing to any assignment by BSR.




22
  Notably, Dalbosco relies on decisions from 1923 and 1940 to support its analysis of custom and
practice. See Energen Res. MAQ, Inc. v. Dalbosco, 23 S.W.3d 551, 556 (Tex. App.—Houston [1st
Dist.] 2000, pet. denied) (collecting cases). And it ignores the legions of recent opinions of the
Texas Supreme Court emphasizing the need to respect the agreements actually made by the parties
and disfavoring implied covenants. E.g., Kachina Pipeline Co. v. Lillis, No. 13-0596, 2015 WL
5889109, at *6 (Tex. Oct. 9, 2015).


                                               33
       This aspect of the trial court’s disposition requires reversal and remand for a

new trial in which evidence of the parties’ negotiations and the context of their

agreement is fully considered by the jury.

IV.    The Trial Court Erred in Admitting BSR’s Evidence Regarding Custom
       and Usage

       A.     Standard of Review

       BSR’s sole proof on “custom and usage” was the expert testimony of Bruce

Kramer. 23 Rulings on the admissibility of expert testimony are reviewed for abuse

of discretion. E.I. du Pont de Nemours & Co. v. Robinson, 923 S.W.2d 549, 558

(Tex. 1995). “Admission of expert testimony that does not meet the reliability

requirement is an abuse of discretion.” Gharda USA, Inc. v. Control Solutions, Inc.,

464 S.W.3d 338, 347-48 (Tex. 2015) (internal quotations and citation omitted).

       In order for expert testimony to be admissible: (1) the expert must be

qualified; (2) the testimony must be relevant; and (3) the testimony must be based

on a reliable foundation. Id. at 348 (citation omitted); Robinson, 923 S.W.2d at 556;

TEX. R. EVID. 702. Reviewing the record as a whole, BSR’s expert testimony

regarding custom and usage did not satisfy these requirements. Thus, the trial court




23
  Carrizo challenged the admissibility of Kramer’s testimony by filing a Motion to Exclude Expert
Testimony of Bruce M. Kramer, 10CR2470-11CR2535, and renewed its objection at trial, 6RR19.
The trial court denied all of these challenges. 13CR3025;1stSuppCR5;6RR19.


                                               34
erred in admitting that testimony, and that error “probably caused the rendition of an

improper judgment.” TEX. R. APP. P. 44.1.

      B.     Kramer’s Testimony Failed to Satisfy the Proof Requirements for
             Custom and Usage and Therefore Constitutes No Evidence

      In order to constitute an element of a contract, a custom “must be either shown

to have been known personally to the parties to the contract, or to have been so

general and universal that the parties are charged with knowledge of its existence to

such an extent as to raise a presumption that they dealt with reference to it.” State

Nat’l Bank of Hous. v. Woodfin, 146 S.W.2d 284, 286 (Tex. Civ. App.—Galveston

1940, writ ref’d); XTO Energy Inc. v. Smith Prod., Inc., 282 S.W.3d 672, 682 (Tex.

App.—Houston [14th Dist.] 2009, pet. dism’d) (no proof that custom and usage was

so universal that parties were charged with knowledge of its existence).

      Kramer did not testify—and there was no other evidence—that Carrizo

operated on any understanding that, as a matter of “custom,” in the oil and gas

industry, consent to an assignment can never be unilaterally withheld. Kramer did

not dispute that Carrizo thought it had a hard consent. Nor did Kramer demonstrate

that the alleged “custom” was “so general and universal that the parties are charged

with knowledge of its existence to such an extent as to raise a presumption that they

dealt with reference to it” as required by law. Given the parties’ prior dealings

regarding that provision, which were improperly excluded by the trial court, Kramer

could not possibly satisfy the proof requirements for custom and usage.

                                         35
      C.     The Trial Court Erred in Admitting Kramer’s Opinions Regarding
             Custom and Usage

             1.     Kramer was not qualified to testify regarding custom and
                    usage with respect to the Farmout Agreement

      A witness may be qualified as an expert “by knowledge, skill, experience,

training, or education.” TEX. R. EVID. 702; Gammill v. Jack Williams Chevrolet,

Inc., 972 S.W.2d 713, 726 (Tex. 1998). But an expert need not just be well-

credentialed; rather, he must be qualified with respect to the particular issue that is

the subject of his testimony. “The offering party must demonstrate that the witness

‘possesses special knowledge as to the very matter on which he proposes to give an

opinion.’” Gammill, 972 S.W.2d at 718 (citation omitted).

      Kramer was not qualified to testify that custom and usage in the oil and gas

industry requires that consent to an assignment not be unreasonably withheld.

Kramer, a law professor, testified that he had never:

   • been employed as an employee of an oil and gas company or served as a lease

      scout, landman, or in-house counsel;

   • prepared or negotiated a farmout agreement or purchase and sale agreement;

   • implemented the terms of a sale between the execution of the purchase and

      sale agreement and the closing;

   • conducted negotiations between the execution of a purchase and sale

      agreement and the closing; or



                                          36
   • decided whether to grant consent or not under a consent-to-assign provision.

6RR72-74,85.      Kramer admitted he had no practical experience or skill in

negotiating, drafting, executing, or fulfilling any consent-to-assign provision in a

contract and has no particular training or education with regard to consent-to-assign

provisions. Id.

      Kramer’s only basis for his consent-to-assign testimony is his “study of oil

and gas law,” “participation” in the industry for the last 30 years, and “discussions

with people in the industry.” 6RR84-85. He could not identify any treatise or other

authoritative source that is “definitive in terms of custom and practice of the

industry.” 6RR84,86,105-06. Talking to “people” “about farmout agreements” does

not qualify Kramer to opine that industry custom requires that a withholding of

consent under such agreements be reasonable. See Valence Operating Co. v.

Anadarko Petroleum Corp., 303 S.W.3d 435, 443 (Tex. App.—Texarkana 2010, no

pet.) (expert’s experience should be closely tied to opinions he is providing). But

even if it did, Kramer admitted that he had no specific recollection of any such

conversations. 6RR84,86,105-06.

             2.    Kramer’s testimony regarding custom and usage was not
                   relevant

      Evidence that has no relationship to any issue in the case does not satisfy Rule

702 and is thus inadmissible under Rule 702, as well as Rules 401 and 402. Exxon

Pipeline Co. v. Zwahr, 88 S.W.3d 623, 629 (Tex. 2002). Expert testimony that does

                                         37
not comply with the applicable legal standard is also irrelevant. Id. at 630-31 (expert

testimony that reflected enhancement in land value due to condemnation was

irrelevant when law provided that value because of a condemnation project is not

value for which a landowner may recover).

      Kramer’s opinion was not relevant because it was not based on the facts of

this case. Kramer ignored that the parties specifically negotiated the consent-to-

assignment provision and Carrizo deleted proposed language requiring consent not

to be unreasonably withheld. See part III, supra.

      Kramer also failed to prove a “custom” that consent to assignment cannot be

unreasonably withheld was “so general and universal that the parties are charged

with knowledge of its existence to such an extent as to raise a presumption that they

dealt with reference to it.” Woodfin, 146 S.W.2d at 286; see also part IV.B. It was

therefore irrelevant and inadmissible.

             3.     Kramer’s testimony regarding custom and usage was not
                    reliable

      An expert’s testimony must also be reliable and rest upon a reliable

foundation. Whirlpool Corp. v. Camacho, 298 S.W.3d 631, 637 (Tex. 2009).

“‘[E]ach material part of an expert’s theory must be reliable.’” Gharda, 464 S.W.3d

at 349 (quoting Camancho, 298 S.W.3d at 637).

      Kramer’s testimony does not satisfy this standard. His testimony was based,

at most, on his general study of oil and gas law and discussions with unnamed

                                          38
sources at unspecified times. 6RR84,86. Kramer could not identify a treatise, case,

law review, article, or any other industry publication regarding custom and usage

with respect to the consent-to-assign provision. 6RR84,86,105-06. Thus, Kramer’s

testimony was not based on objectively verifiable sources and was merely

“conclusory.” See, e.g., Owen v. Talbot, 441 S.W.2d 887, 888-89 (Tex. Civ. App.—

Texarkana 1969, writ ref’d n.r.e.) (testimony that the custom and usage with respect

to a bailee’s liability for loss of cattle was “common among the cattle people in

Bowie County” was “conclusory evidence”); Wolert v. Arledge, 4 Tex. Civ. App.

692, 23 S.W. 1052, 1053 (1893) (“Usage must be proved by evidence of facts, not

by mere speculative opinions . . .”).

      Because all Kramer brought to the table were his credentials and a subjective

and conclusory opinion that custom and usage imposed upon Carrizo an obligation

not to unreasonably withhold its consent to assignment, Kramer’s testimony

amounted to no evidence and should have been excluded. Merrell Dow Pharms.,

Inc. v. Havner, 953 S.W.2d 706, 712 (Tex. 1997).

V.    The Contract Damages Awarded by the Jury Lack Legally and Factually
      Sufficient Proof in the Trial Record

      A.     Standard of Review

      In the trial court, Carrizo challenged the lack of legally and factually sufficient

evidence to support the jury’s finding of $27.6 million in contract damages awarded

to BSR. E.g., 13CR3158-76;15CR3543-67;10RR131-34,151.


                                          39
       A “no evidence” challenge should be sustained when the record discloses one

of the following: (1) a complete absence of evidence of a vital fact; (2) the court is

barred by rules of law or evidence from giving weight to the only evidence offered

to prove a vital fact; (3) the evidence offered to prove a vital fact is no more than a

mere scintilla; or (4) the evidence establishes conclusively the opposite of a vital

fact. City of Keller v. Wilson, 168 S.W.3d 802, 810 (Tex. 2005). If the evidence is

so slight as to make any inference of a fact only a guess, it constitutes no evidence

at all. Id. at 813.

       An immaterial jury finding must be disregarded. Spencer v. Eagle Star Ins.

Co. of Am., 876 S.W.2d 154, 157 (Tex. 1994). “A question is immaterial when it

should not have been submitted,” where the question calls for a “finding beyond the

province of the jury,” or “when it was properly submitted but has been rendered

immaterial by other findings.” Id.; see also Se. Pipe Line Co. v. Tichacek, 997

S.W.2d 166, 172 (Tex. 1999).

       Further, a judgment based on a jury verdict should be reversed when the

damages are manifestly too large. TEX. R. CIV. P. 320. The jury’s contract damage

findings were legally unsupportable, contrary to undisputed evidence, and so

excessive that they should be entirely disregarded, or at the very least, a new trial

should be granted. Alternatively, this Court can and should suggest a remittitur of

the contract damages. See Larson v. Cactus Util. Co., 730 S.W.2d 640, 641 (Tex.


                                          40
1987) (“If part of a damage verdict lacks sufficient evidentiary support, the proper

course is to suggest a remittitur of that part of the verdict.”); see also 15CR3543-67.

       B.     The $27.6 Million Contract Damages Award Necessarily and
              Improperly Includes Compensation for the Exploration Partners

       In Question 2, the trial court instructed the jury to determine “[w]hat sum of

money . . . would fairly and reasonably compensate BSR for its damages, if any,

that resulted from Carrizo’s failure to comply . . . .” 13CR3181 (emphasis added).

But BSR never proved any damages that it suffered. Instead, BSR sought and

recovered the entire purchase price of the Raptor PSA—to the penny—as BSR’s

damages through Question 2. Compare DX34 at BSR00985 with 13CR3181.24

       The purchase price of the PSA belonged to BSR and the many other Sellers

(Exploration Partners) under the agreement. The PSA provided that BSR was to

receive the “purchase price” of “approximately $27,690,466.86” on behalf of the

other Sellers (Exploration Partners) and then “distribute the proportionate shares due

the other Sellers” within 10 days. DX34 at BSR000985.25 BSR is not an appropriate

recipient of the full Raptor purchase price.


24
   In its Original Petition, BSR sued Carrizo—solely on its own behalf—for the same causes of
action on which BSR recovered at trial and alleged nearly an identical amount of damages—
$28,000,000. Compare 1CR1-7 with 10CR2311,2437,2439. (The version of the Fourth Amended
Petition in the Clerk’s Record is out of order, with the exhibits interposed between pages of the
pleading, which is why the citations to that record sometimes span a number of pages.)
25
  BSR claimed to sue as an assignee and attached the assignments to its Fourth Amended Petition,
10CR2311-52, but offered no evidence concerning the alleged assignments at trial.


                                               41
       BSR suppressed the only document that in any way evidenced the

compensation that it would have received had the Raptor PSA closed. DX32. The

Preliminary Closing Statement—a document prepared by BSR that the court kept

hidden from the jury—showed that, under the PSA, BSR would have recovered

$1.358 million for its profit and been required to distribute $26 million to the

Exploration Partners. DX32;10RR120-24. Thus, at best, BSR could have recovered

the profits it would have purportedly recovered under the PSA ($1.358 million) less

the salvage value of BSR’s interest in the Farmout Agreement ($732,548.75 in

salvage value of assets remaining with BSR, 8RR130). See Aquaplex, Inc. v. Rancho

La Valencia, Inc., 297 S.W.3d 768, 776 (Tex. 2009) (per curiam) (loss of a separate,

third-party contract is a lost-profits analysis, and plaintiff bears the burden of

proving its lost profits, which must take into account the value of assets still retained

by the plaintiff).

       Because the Preliminary Closing Statement was excluded from the jury at

BSR’s insistence, 13CR3064;4RR21-31;10RR120-25, it cannot now be considered

to substantiate BSR’s damages in any way. Nevertheless, it conclusively establishes

that the $27.6 million awarded by the jury far exceeds any legitimate recovery by

BSR.

       Because there is no proof in the record of BSR’s damages—as a result of

BSR’s strategic trial decisions—there is no evidence to support the jury’s finding in


                                           42
answer to Question 2, and it should be disregarded and judgment entered for Carrizo

on the contract claim. Alternatively, the $27,690,466.86 in damages awarded by the

jury is patently excessive and unsupported by factually insufficient evidence, and so

the judgment awarding it should be reversed and the cause remanded for a new trial.

At the very least, the Court should order a remittitur in the amount of $625,073.70

(representing the $1,357,622.45 profit BSR anticipated under the PSA, DX32, less

the salvage value it proved at trial, $732,548.75, 8RR130).

      C.     BSR Should Not Have Recovered any Damages on Behalf of the
             Exploration Partners

      BSR sued Carrizo “individually” and as “assignee” of the “other parties” to

the PSA. 10CR2311. But BSR was prohibited from suing on behalf of the

Exploration Partners as “assignee” because BSR did not satisfy the legal

requirements of an assignment. Nor could BSR sue on “behalf” of the Exploration

Partners on any other basis. BSR did not allege or prove any other authority for its

claimed right to sue on behalf of the Exploration Partners. In fact, BSR successfully

sought to keep any evidence of the assignments of interests from the Exploration

Partners from the jury. 13CR3063-64;13CR3072-78;4RR22-31. On that basis

alone, the judgment should be reversed.




                                          43
             1.    BSR failed to prove that the Exploration Partners assigned
                   any viable causes of action against Carrizo to BSR

      Standing is a fundamental matter of subject-matter jurisdiction that is

necessary to entertain a claim. Vernco Constr., Inc. v. Nelson, 460 S.W.3d 145, 149

(Tex. 2015) (per curiam) (“Courts lack subject-matter jurisdiction to adjudicate

disputes initiated by parties lacking standing.”). In order to have standing to sue on

an assigned cause of action, “the party claiming the assigned right must prove a

cause of action existed that was capable of assignment and the cause was in fact

assigned to the party seeking recovery.” Ceramic Tile Int’l, Inc. v. Balusek, 137

S.W.3d 722, 724 (Tex. App.—San Antonio 2004, no pet.).

                   a.     BSR did not prove that any purported causes of action
                          were assigned to it

      BSR’s live petition at the time of trial attached assignments from the

Exploration Partners. See, e.g., 10RR2311,2435-42. But pleadings are not evidence,

and “[s]imply attaching a document to a pleading neither makes the document

admissible as evidence, dispenses with proper foundational evidentiary

requirements, or relieves a litigant of complying with the other admissibility

requirements.” Ceramic Tile, 137 S.W.3d at 725.

      If a party does not offer the actual assignment of a cause of action “into

evidence at trial, he does not meet his burden of proving a cause of action existed

that was capable of assignment and that the cause was in fact assigned to him.” Id.;



                                         44
see also Esco Elevators, Inc. v. Brown Rental Equip. Co., 670 S.W.2d 761, 764 (Tex.

App.—Fort Worth 1984, writ ref’d n.r.e.). The assignments are not in the record

because BSR persuaded the trial court to exclude them from the jury. E.g., 2RR11-

20,13CR3073. Nor was there any other evidence of the assignments at trial. R&R

White Family Ltd. P’ship v. Jones, 182 S.W.3d 454, 459 (Tex. App.—Texarkana

2006, no pet.) (party offered no testimony or documentary evidence that the cause

of action was in fact assigned or even that its existence was ever acknowledged).

Because BSR did not show that it was the assignee of any of the Exploration

Partners, BSR lacked standing to assert claims on behalf of the Exploration Partners

for claims that belong solely to those entities. Consequently, the district court had

no jurisdiction over those claims. Zaan LLC v. Sangani, No. 05-12-00423-CV, 2015

WL 2398652, at *5 (Tex. App.—Dallas May 20, 2015, pet. filed). This fatal defect

infects the damages awarded to BSR and mandates reversal of the judgment below.

                   b.     BSR did not prove that the Exploration Partners had
                          any causes of action that were capable of assignment

      Independent of its failure of proof as to the assignments, BSR demonstrated

no basis for recovering the Exploration Partners’ shares of the PSA. As an alleged

assignee of the Exploration Partners’ causes of action, BSR may assert only those

rights the Exploration Partners themselves could assert. See, e.g., Gulf Ins. Co. v.

Burns Motors, Inc., 22 S.W.3d 417, 420 (Tex. 2000); Flagstar Bank, FSB v. Walker,

451 S.W.3d 490, 497 (Tex. App.—Dallas 2014, no pet.) (assignee of a cause of

                                         45
action “stands in the shoes of the assignor” and may assert only those rights the

assignor itself could assert, “including bringing suit”). The Exploration Partners

have no standing to bring claims for breach of the Farmout Agreement between

Carrizo and BSR, and BSR likewise was barred from bringing, or recovering on,

those claims on the Exploration Partners’ behalf.

          In order to establish standing to maintain a breach of contract action, a plaintiff

who is not a party to a contract must show “either third-party beneficiary status or

privity.” OAIC Commercial Assets, L.L.C. v. Stonegate Vill., L.P., 234 S.W.3d 726,

738 (Tex. App.—Dallas 2007, pet. denied); see also Redmon v. Griffith, 202 S.W.3d

225, 239 (Tex. App.—Tyler 2006, pet. denied), disapproved on other grounds by

Ritchie v. Rupe, No. 11-0047, 2014 WL 2788335 (Tex. June 20, 2014).

          The Exploration Partners were not parties to the Farmout Agreement; that

contract was made solely between Carrizo and BSR. 7RR237. They were not

alleged to be in privity or third-party beneficiaries of the Farmout. 10CR2311,

2440.26 In fact, BSR never claimed—much less proved—that the Exploration

Partners were intended third-party beneficiaries under the Farmout Agreement. See

MCI Telecomms. Corp. v. Tex. Utils. Elec. Co., 995 S.W.2d 647, 651 (Tex. 1999)

(Third-party beneficiary contract will not be created by implication; “[t]he intention



26
     See supra note 28 regarding citations to the Fourth Amended Petition in the Clerk’s Record.


                                                 46
to contract or confer a direct benefit to a third party must be clearly and fully spelled

out or enforcement by the third party must be denied.”); Paragon Sales Co. v. N.H.

Ins. Co., 774 S.W.2d 659, 660 (Tex. 1989) (some evidence of standing as a third-

party beneficiary must be produced before the opposing party must prove any

defenses that would limit or bar recovery by the third-party beneficiary). Instead,

BSR admitted that it did not enter into the Farmout Agreement on behalf of the

Exploration Partners and the contract was not for their benefit. 7RR237. The

Exploration Partners thus lacked standing to bring a claim for breach of the Farmout

Agreement, and BSR likewise lacked the ability to bring such a claim on their behalf.

       BSR instead claimed—for the first time at trial—that it had authority to pursue

the claims of the Exploration Partners against Carrizo because of a “partnership”

relationship. E.g., 10RR138-42. But BSR did not purport to bring its claims on

behalf of any “partnership” between it and the Exploration Partners or on behalf of

the “Exploration Partners” as its “partners.” 10CR2311-52. Carrizo specifically

challenged BSR’s standing, 11CR2636-37,2640, 27 and BSR’s counsel did not even

claim a partnership until it responded to Carrizo’s motion for directed verdict.

10RR138. The argument was easily refuted: as Carrizo pointed out to the trial court,




27
   Carrizo filed a verified denial asserting BSR’s lack of standing or capacity to sue as assignee,
which was the only capacity BSR attempted to plead. 11CR2636. BSR cannot now rely on a
different ground for its capacity to sue on behalf of the Exploration Partners.


                                               47
BSR’s agreements with the Exploration Partners expressly disclaimed any

possibility of a partnership. 10RR140-42,144-45; see also DX16 at BSR002384 (“It

is not the intent of the parties hereto to create, nor shall this agreement be

construed as creating a mining or other partnership or association to render them

liable as partners.” (emphasis added)). BSR kept the jury from hearing about these

entities and represented that it alone was entitled to recover from Carrizo the entire

purchase price of the Raptor PSA—notwithstanding the clear terms of the PSA and

agreements with the Exploration Partners.        E.g., 13CR3063-64;13CR3072-73.

Consequently, there is no evidence of any partnership between BSR and the

Exploration Partners. BSR’s own documents refuted it.

             2.    BSR was not entitled to seek recovery of the Exploration
                   Partners’ alleged damages

      The damages awarded to BSR were excessive because they included damages

that undisputedly belonged to the Exploration Partners. McMillen v. Klingensmith,

467 S.W.2d 193, 196-97 (Tex. 1971) (claimant not entitled to recover more than

amount required for full satisfaction of his damages); Stephenville, N. & S.T. Ry. Co.

v. Baker, 203 S.W. 385, 386 (Tex. Civ. App.—Austin 1918, no writ) (“[I]n any case

where the plaintiff is entitled to recover damages, the sum of money, and no more,

which is necessary to make fair and just compensation for the injury is the correct

measure of damages.”).




                                         48
       Not only did BSR fail to prove that it was entitled to recover damages on

behalf of the Exploration Partners, see part V.B, BSR also failed to prove the amount

of damages it was entitled to recover (if any), in its own right. By failing to submit—

and in fact successfully keeping out—proof of its proportionate share of recovery

under the PSA, BSR failed to prove the amount of damages to which it alone was

entitled.

       D.    BSR Lacks Competent, Admissible Proof to Support a Damages
             Award

       Independent of its erroneous windfall of the Exploration Partners’ share,

BSR’s damage model failed for additional reasons. BSR was entitled to recover

only the lost profits it suffered that were proximately caused by the conduct of

Carrizo. See Aquaplex, 297 S.W.3d at 774, 776. Such profits cannot be speculative

or hypothetical, but must be proven with reasonable certainty. See Phillips v.

Carlton Energy Grp., LLC, 58 Tex. Sup. Ct. J. 803, 2015 WL 2148951, at *9 (May

8, 2015). “As a minimum, opinions or estimates of lost profits must be based on

objective facts, figures, or data from which the amount of lost profits can be

ascertained.” Holt Atherton Indus., Inc. v. Heine, 835 S.W.2d 80, 84 (Tex. 1992).




                                          49
       Although BSR effectively sought benefit of the bargain damages, 28 it

erroneously applied that measure to the PSA rather than the Farmout Agreement.

BSR was not entitled to recover the benefit of the bargain it made with Raptor from

Carrizo—Carrizo was not a party to the PSA. Nor was BSR entitled to recover the

benefit of a bargain that was not breached. At best, BSR could recover the profits it

would have purportedly recovered under the PSA, less the salvage value of BSR’s

interest in the Farmout Agreement. See Aquaplex, 297 S.W.3d at 776. But BSR put

on no evidence of its lost profits under that measure.

       To substantiate BSR’s eight-figure damage finding, BSR’s counsel

questioned Shaver about an email containing an approximate value of the purchase

price of the Raptor PSA (“$30 million”), 7RR183,210—a number that is not even

accurate as to the amount of the purchase price under the written PSA agreement.

Further, the face value of the Raptor PSA did not take into account offsets and credits

that were expected in order to close the PSA. Whether termed as “expenses,” “costs

of performance,” or “losses,” these amounts had to be—but were not—proven and

deducted from gross profits or receipts in order to determine the true amount of “lost

profits” damages. See, e.g., Wiese v. Pro Am Servs., Inc., 317 S.W.3d 857, 863-64




28
  Benefit-of-the-bargain damages are not based on what actually occurred but on what would have
occurred had the Agreements been performed. Parkway Dental Assocs., P.A. v. Ho & Huang
Props., L.P., 391 S.W.3d 596, 608 (Tex. App—Houston [14th Dist.] 2012, pet. denied).


                                              50
& n.4 (Tex. App.—Houston [14th Dist.] 2010, no pet.) (evidence of lost gross

revenues without deducting “normal business operating expenses” was not

“competent evidence” of lost profits); see also Holt, 835 S.W2d at 83 n.1. BSR did

not attempt to offer such proof, and so there is not even a legitimate starting point

for determining its purported damages. BSR’s failure of proof based on its strategic

decisions at trial means that judgment should be rendered in favor of Carrizo on the

contract claims.

VI.   The Farmout Agreement Conclusively Negates BSR’s Tort Claims

      As was the case with the contract claim, BSR’s fraud claim and tortious

interference claims are barred by law because Carrizo had the absolute and

unqualified contractual right to withhold its consent. See part I. Accordingly, the

jury’s findings of liability for fraud and tortious interference should be set aside, and

the tort damages finding disregarded as immaterial.

      A.     BSR’s Fraud Claim Is Premised Entirely on its Erroneous
             Construction of the Farmout Agreement

      BSR’s fraud claims were based on a purported statement by Carrizo’s

landman, Laufer, promising BSR that, notwithstanding the “hard consent” agreed to

by the parties, Carrizo would grant its consent to BSR to assign the Farmout

Agreement if BSR ever requested it. This purported representation was contradicted

by the express terms of the Farmout Agreement and so cannot support a fraud claim

as a matter of law. Nat’l Prop. Holdings, L.P. v. Westergren, 453 S.W.3d 419, 424-


                                           51
25 (Tex. 2015) (“[A]s Texas courts have repeatedly held, a party to a written contract

cannot justifiably rely on oral misrepresentations regarding the contract’s

unambiguous terms.” (citation omitted); Fisher Controls Int’l, Inc. v. Gibbons, 911

S.W.2d 135, 141-42 (Tex. App.—Houston [1st Dist.] 1995, writ denied) (A plaintiff

“who voluntarily signed a contract whose terms he knew, should not be allowed to

claim fraud based on an earlier oral statement inconsistent with a specific contract

provision.”).     Moreover, “reliance upon an oral representation that is directly

contradicted by the express, unambiguous terms of a written agreement between the

parties is not justified as a matter of law.” DRC Parts & Accessories, L.L.C. v. VM

Motori, S.P.A., 112 S.W.3d 854, 858 (Tex. App.—Houston [14th Dist.] 2003, pet.

denied) (en banc). The determination that Carrizo had the unqualified right to grant

or withhold its consent under the Farmout Agreement means that BSR’s claim for

fraud fails as a matter of law.

      B.        Carrizo’s Justification Defense Was Established as a Matter of
                Law

      For similar reasons, properly interpreting the Farmout Agreement to entitle

Carrizo to an unqualified consent right also conclusively establishes Carrizo’s

business justification defense to BSR’s tortious interference claim.

      “Texas law recognizes a privilege to interfere with a contract if the defendant

is exercising ‘either (1) [its] own legal rights or (2) a good-faith claim to a colorable

legal right.’” See Lamont v. Vaquillas Energy Lopeno Ltd., LLP, 421 S.W.3d 198,

                                           52
218 (Tex. App.—San Antonio 2013, pet. filed) (quoting Prudential Ins. Co. of Am.

v. Fin. Review Servs., Inc., 29 S.W.3d 74, 80 (Tex. 2000)); see also Tex. Beef Cattle

Co. v. Green, 921 S.W.2d 203, 210 (Tex. 1995).

      Carrizo had the absolute right to withhold its consent, as it bargained for in

the Farmout Agreement. Gulf Liquids New River Project, LLC v. Gulsby Eng’g,

Inc., 356 S.W.3d 54, 77 (Tex. App.—Houston [1st Dist.] 2011, no pet.) (“Enforcing

or complying with one’s own valid contract does not constitute unjustifiable

interference with another’s contract.”). Thus, Carrizo’s justification defense was

established as a matter of law.

VII. Evidentiary Errors Require a New Trial

      A.     Standard of Review

      A trial court’s exclusion of evidence is reviewed for abuse of discretion. See

Lively, 51 S.W.3d at 641. A trial court abuses its discretion when its decision is

unreasonable, arbitrary, or made without regard for any guiding rules or principles.

Id. When the erroneous exclusion of evidence probably caused the rendition of an

improper judgment, reversal is required. JLG Trucking, LLC v. Garza, 58 Tex. Sup.

Ct. J. 726, 2015 WL 1870072, at *6 (Tex. Apr. 24, 2015); TEX. R. APP. P. 44.1(a)(1).




                                         53
      B.     The Exclusion of Key Evidence Prejudiced Carrizo

      There were several erroneous evidentiary rulings throughout the trial of this

case that, when viewed either individually or cumulatively, require the granting of a

new trial.

      First, the trial court’s erroneous exclusion of the Preliminary Closing

Statement, which was the only evidence showing what BSR—as opposed the

Exploration Partners—would have recovered under the PSA was error and

undoubtedly resulted in an improper judgement. That document showed that BSR

would have received only $1.358 million of the Raptor purchase price if the PSA

had closed. 10RR120-24;DX32; see also part V.B. The balance of the purchase

price was owed to the Exploration Partners. Considering that this document was the

only proof of what BSR would have obtained in profits under the Raptor PSA, there

can be no credible claim that it was not relevant. Yet with its exclusion, BSR was

awarded almost $28 million in damages—an amount that clearly includes the

purchase-price compensation for all Exploration Partners and is more than 20 times

what BSR would have actually received had the PSA closed.

      The trial court also excluded a written proposal by BSR to Raptor in which

BSR admitted that Carrizo’s refusal to consent would not preclude a valid

assignment of the Farmout to Raptor and offered to indemnify Raptor from potential

damages claims against it by Carrizo in order to conclude the sale. DX58. In that



                                         54
letter, BSR stated that it was “of the opinion that the granting of Carrizo’s consent

to assignment of the Carrizo Farmout is not necessary to make the assignment of

BSR’s rights to [Raptor] legally effective” and that “the only material legal

consequence of failure to obtain such consent is that Carrizo might seek to recover

damages . . . .” Id. at BSR002302 (emphasis added). BSR’s position in that letter is

a correct statement of Texas law. Carrizo could not void an assignment to Raptor

without its consent, it could only sue for any damages resulting from its lack of

consent to the assignment. Gips v. Red Robin Corp., 366 S.W.2d 853, 857 (Tex.

Civ. App.—Houston 1963, writ ref’d n.r.e.); Palmer v. Liles, 677 S.W.2d 661, 665

(Tex. App.—Houston [14th Dist.] 1984, writ ref’d n.r.e.). BSR’s concession—

which was entirely contrary to BSR’s arguments at trial—should be dispositive of

BSR’s claims. At the very least, the jury should have been able to consider the

inconsistency of BSR’s positions in weighing the evidence.

      These errors, as well as the other evidentiary errors discussed in parts III and

IV, independently and cumulatively amounted to such a denial of Carrizo’s right to

due process and a fair and impartial jury trial as was reasonably calculated and

probably did cause rendition of an improper judgment. Based upon these errors,

individually and cumulatively, a new trial should be granted.




                                         55
VIII. Charge Errors Warrant a New Trial

      A.     Standard of Review

      This Court reviews the decision to submit or reject a particular jury instruction

for abuse of discretion. Thota v. Young, 366 S.W.3d 678, 687 (Tex. 2012) (citing In

re V.L.K., 24 S.W.3d 338, 341 (Tex. 2000)). A trial court has discretion to determine

proper jury instructions: “If an instruction might aid the jury in answering the issues

presented to them, or if there is any support in the evidence for an instruction, the

instruction is proper.” Id. (citation omitted). “‘An instruction is proper if it (1)

assists the jury, (2) accurately states the law, and (3) finds support in the pleadings

and evidence.’” Id. (quoting Columbia Rio Grande Healthcare, L.P. v. Hawley, 284

S.W.3d 851, 855-56 (Tex. 2009)). “Charge error is generally considered harmful if

it relates to a contested, critical issue.” Id. at 856 (internal quotations and citation

omitted).

      B.     The Contract Instructions Were Patently Erroneous

      As to Question 1, Carrizo objected to the court’s instruction that the Farmout

Agreement was “silent about the reasons under which Carrizo could refuse consent,”

13CR3180, because, as explained above at parts I-II, that is a matter of contract

construction for the trial court, not for the jury. 10RR151 (reurging the grounds of

Carrizo’s motion for directed verdict as to the proposed charge questions and

instructions). Carrizo also objected that instructing the jury that the Farmout



                                          56
Agreement was “silent about the reasons under which Carrizo could refuse consent

to BSR’s assignment” 13CR3180, was in error because that determination is a

question of law for the court and its inclusion would be confusing to a jury.

10RR148-49.

      Similarly, the instruction relating to custom and usage was improper both

because there was no basis for submitting it, 10RR148-49,151; see also parts I-II &

IV, and because it was improperly worded. Carrizo specifically objected to the use

of “custom and expectations”—a term that appears to have no support in the case

law. 10RR191. BSR’s counsel responded that “expectations” were sufficiently

close to BSR’s expert’s testimony as to the relevant standard. Id. The trial court

responded that, “I think your jury will probably not make much distinction between

‘usage’ and ‘expectation.’ I’ll just leave it as ‘expectation,’ since that’s the way it’s

listed.” Id.

      Although “custom and usage” evidence can be used to assist in interpreting

technical terms in an ambiguous contract (which the Farmout Agreement was not),

see part IV.C, “expectations” expands the definition past what the case law permits.

Neither BSR nor the district court could offer any authority for such an expansion.

And none exists. The submitted instructions were plainly improper and collectively

amount to an abuse of discretion that more than likely resulted in an improper




                                           57
verdict. Consequently, the judgment should be reversed for retrial of the contract

issues with proper instructions.

IX.    The Attorneys’ Fees Award Should Be Reversed

       As demonstrated in parts I-V above, the judgment awarding contract damages

should be reversed. And as a result, the award of attorneys’ fees on which it depends

should likewise be set aside. See TEX. CIV. PRAC. & REM. CODE ANN. § 38.001(8)

(permitting recovery of attorneys’ fees for a successful contract claim). 29

       Independently, the fee award should be set aside because of the highly

questionable proceedings that led to its entry. As noted above, the trial court

awarded $1.018 million in attorneys’ fees based on an in camera review of

unredacted fee bills from BSR’s attorneys that Carrizo was never able to access.

       The Texas Supreme Court has emphasized that a party seeking fees must

provide the trial court with sufficient information to allow it to make a meaningful

evaluation of whether the tasks performed by the party’s attorneys were reasonable

and necessary. City of Laredo v. Montano, 414 S.W.3d 731, 734-36 (Tex. 2013); El

Apple I, Ltd. v. Olivas, 370 S.W.3d 757, 761 (Tex. 2012).

       BSR presented invoices that were so heavily redacted or so generalized in

narrative description as to provide only minimal specifics as to the legal services



29
  The same holds true for the award of prejudgment interest, which must also be predicated on a
recovery.


                                              58
performed. 13CR3193-3250;14CR3251-440. Other than for Mr. Hoblit and Mr.

Carroll, there was no description of the experience, reputations, or abilities of the

multiple individuals that allegedly performed the legal services. 14CR3446,3455-

57. Nor did BSR segregate the fees in any way between its contract and tort claims,

even though the tort claims could not support a fee award. 14CR3447-48; see also

Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299, 311 (Tex. 2006).

      The trial court recognized that it was not in a position to evaluate the work

that had allegedly been done because it ordered the unredacted fee bills to be

submitted in camera. 14CR3483. Carrizo specifically objected to this in camera

submission because the unredacted invoices had never been produced to Carrizo—

despite outstanding discovery requests—and so the in camera process was being

improperly used for the trial court to make ex parte fact findings. 14CR3485-

87;3493.

      The unorthodox procedure the trial court employed to make fact findings

supporting a fee award of over $1 million requires its reversal. See, e.g., In re E.I.

DuPont de Nemours & Co., 136 S.W.3d 218, 223 (Tex. 2004) (privileged

information submitted in camera cannot be considered by the court for purposes of

deciding facts). The district court’s reliance on in camera documents deprived

Carrizo of its ability to meaningfully cross-examine the evidence. See TEX. R. EVID.

611(b), 705(a). Without access to the underlying facts and data, Carrizo’s ability to


                                         59
discredit or challenge the information’s interpretation or characterization was

severely prejudiced. See, e.g., In re Commitment of Polk, 187 S.W.3d 550, 555 (Tex.

App.—Beaumont 2006, no pet.) (“The State was entitled to cross-examine Dr. Reid

concerning records he cited as the basis of his opinion, and to attempt to use the

records to discredit his testimony.”).

       Because the unredacted fee statements submitted in camera could not be

considered by the Court as part of BSR’s proof of attorneys’ fees, DuPont, 136

S.W.3d at 223, and the redacted versions filed of record were virtually unintelligible,

BSR failed to provide legally and factually sufficient evidence from which the trial

court could make findings as to the propriety and amount of the fee award. City of

Laredo, 414 S.W.3d at 735-36. The Court should vacate the award of attorneys’

fees to BSR for this independent reason. 30

                                 CONCLUSION AND PRAYER

       For these reasons, Defendant-Appellant Carrizo Oil & Gas, Inc. requests the

Court to reverse the judgment of the district court and: (i) render a take-nothing

judgment in favor of Carrizo; (ii) solely in the alternative, remand for a new trial;


30
   Carrizo also objected to the judgment to the extent it failed to condition the award of appellate
attorneys’ fees for proceedings in the Texas Supreme Court on BSR prevailing on the merits in
that forum. 15CR3574-75,3529. Any award of attorneys’ fees for appellate work not conditioned
on BSR prevailing would be improper, and BSR offered no legal authority for such an
unconditional award. See Cessna Aircraft Co. v. Aircraft Network, LLC, 345 S.W.3d 139, 147-48
(Tex. App.—Dallas 2011, no pet.) (“[A]n unconditional award of appellate attorney’s fees is
improper.”). This aspect too should be reversed.


                                                60
(iii) set aside the awards for attorneys’ fees and interest; (iv) require that the award

of appellate fees be conditioned upon success on appeal; and (v) grant such other

and further relief to which Carrizo is entitled.




                                          61
Respectfully submitted,

/s/ Marcy Hogan Greer
Marcy Hogan Greer
State Bar No. 08417650
mgreer@adjtlaw.com
Wallace B. Jefferson
State Bar No. 00000019
wjefferson@adjtlaw.com
ALEXANDER DUBOSE JEFFERSON &
TOWNSEND LLP
515 Congress Avenue, Suite 2350
Austin, Texas 78701-3562
Telephone: (512) 482-9300
Facsimile: (512) 482-9303

John M. Zukowski
State Bar No. 22293400
jmz@zbsplaw.com
Pascal Paul Piazza
State Bar No. 15966850
ppp@zbsplaw.com
ZUKOWSKI, BRESENHAN, SINEX &
PETRY, L.L.P.
1177 West Loop South, Suite 1100
Houston, Texas 77027
Telephone: (713) 965-9969
Facsimile: (713) 963-9169

Charles H. Clark
State Bar No. 04274000
chc@charlesclarklaw.com
THE LAW OFFICES OF CHARLES H. CLARK
604 West Woldert Street
Tyler, Texas 75702
Telephone: (903) 593-2514
Facsimile: (903) 595-1294

ATTORNEYS FOR APPELLANT


62
                            CERTIFICATE OF SERVICE

      On December 22, 2015, I electronically filed this Brief of Appellant with the

Clerk of the Court using the eFile.TXCourts.gov electronic filing system which will

send notification of such filing to the following (unless otherwise noted below).

Otis Carroll                               R. Clay Hoblit
ocarrroll@icklaw.com                       choblit@hfdlaw.com
Deborah Race                               HOBLIT FERGUSON DARLING L.L.P.
drace@icklaw.com                           2000 Frost Bank Plaza
Collin M. Maloney                          802 North Carancahua
cmaloney@icklaw.com                        Corpus Christi, Texas 78401
IRELAND, CARROLL & KELLEY, P.C.            Telephone: (361) 888-9392
6101 S. Broadway, Suite 500                Facsimile: (361) 888-9187
Tyler, Texas 75703
Telephone: (903) 561-1600
Facsimile: (903) 581-1071

ATTORNEYS FOR APPELLEE
BARROW-SHAVER RESOURCES
COMPANY


                                              /s/ Marcy Hogan Greer
                                              Marcy Hogan Greer


                          CERTIFICATE OF COMPLIANCE

      Based on a word count run in Microsoft Word 2013, this brief contains 14,431

words, excluding the portions of the brief exempt from the word count under Texas

Rule of Appellate Procedure 9.4(i)(1).

                                              /s/ Marcy Hogan Greer
                                              Marcy Hogan Greer



                                         63
                        APPENDIX

Tab   Item
1.    Final Judgment (15CR3528-30)

2.    Jury Charge (15CR3532-3542)

3.    Farmout Agreement (PX36)

4.    Testimony of Scott Shaver (on bill of review) (7RR223-24; 118-
      20)

5.    Testimony of Harold Bertram (on bill of review) (5RR246-53)

6.    Louis J. Davis, Preferential Rights to Purchase and Consents to
      Assign, ASSOC. OF CORPORATE COUNSEL, HOUS. CHAPTER (Oct.
      2, 2013)
Appendix 1
Appendix 2
Appendix 3
                                                   , .., . ...~. 1   ,•"Vtl.:°,~·. ..... .... ·   . -;·;.'\\".""' •   1 · :. ,   •· \ \' •"   ••   · ··, ··.\.l,.'.·•.\' "". t ~• ·r .· ·   ·: ·;   . ,..,._.."-"'\....:\'':'!-<•.·' ··   ···· ··· ·,,,.:"' I   .• u••       '




                                                                                          RI~                               0

March.28, 2011


Mr. Scott 0. Shaver
Ban:o:w-Shaver·Resowcea .Company
100 East I!erguson ~tre~t~ Suite 404
Tyle.r, Texas 7570'},

RE:      Letter. Aveement
         .James R. "I•atlcey et al OU and Gas Lease dated April 24,.2007
         A.rebel" anq Baylq:r Counfi~g; Te'Xa!\.
                                                                                                                                                                                                                                                                         i
                                                                                                                                                                                                                                                                         !·

Gentlemen:
                                                                                                                                                                                                                                                                         !i
                                                                                                                                                                                                                                                                         I
         When executed by bo.th undersYµled parties iA the manner -set forth be1o:w, this Letter Agreement                                                                                                                                                               !
shall serve tu set out the terms and -conditions which B~O'\V·S~av~r Resourc~s C<5mpany {h~~~h!aj:ler
referred t9 "BSR") sb.11U earn. !!I1 E1ssigmll,ent O.\" a's.sigoin~.lits .1l:oiji CEU"ri~o Oil & Gas; me. ("Car:tfao") with
re8pect .to Canizo's interest in the Parke)' Leas.e1 as more fully described in Exhibit 1'N 1, attached. hereto
and mado a part hereof.

            Jn tb,e· ~vent BSR. spuds a w~ll ("Test Well') .on Wids ~ov.ered ~Y the Parkey Lease-prior to- 11:59
pm on Apiil 23, :201:1, and ~erea:fter ··4tjU~ s~ with Q.Uo (l.i.JjgeM~ -~Q. .¢ ~ gq,o4 apd ;;yotl<inanli~o
m!lJll}.et lo. ·~ µiiriµnU:(i}. vertic~ depth of below 2500. feet subsurface (hereinafter referred to ·as the
11
   0bjeoti.Ve DeptJil.') and e8tabllshes production in p~ying quan~ii;i.es fr~ depths be19w 2500 ~eet
s.ub·~.\l!faf!' 1n s~.ch weJl (an, "E~g Wi::ll"), BSt ·sh!i11 :e~r.ti..fi:qpi C~P an as~,i.gnri:J.eiil covering
Ca,rizo'~ int~~~ (100% WI .E\Ild 75% NRI) in the Parke~ Lease as ~o that acreage and depth~ (b-elow
25.bO., ·subsw:face) that may ~e allo.catedJor su<ih w~~ -qna<:ir t,h¢J>l(Qyjsipns 9J;tl;i.e P?l'k¢y Le.ase ("Elti;Q,~
Tn~er<ist'1). Within. lo <;lay$ a.fl.et BSR.provides Written n'Oti,ce to Camzo of an Earriing We~,. Carrizo shall
~ecjJto and deliver. to B.SR a.mutually acceptable partia1 ~sigzµnen.t covering #1e Ea.m~c})"nt~rest. the                                                                                                                                                           .:
mutu~lly pcceptabfo.:pa~t:l~~.Migmn~nt ·shallJH:ovicfo fot.t"£&o~ to tese!y~~}>ve¢~1QYJ.1!¥-it"SJ..V81.l*.,..-·
th({ difference. of.25% aP.ci lease btltden& of record ~il .of tlio date of this Lett.¢r Agr~.m~P:t. Further, BSR
may havo the ·continui~~ iign~-out iiOttfie·Ob~ga~on;...i~~;e;m.-iltldiH~aTinter~ts ~fr.o~ C~o. irt tl~e
Pru-k~y Leas~ "by pexp~~ating th~ ·re.in.e.iriill:g •ttµd~v~lope9 ac,i;e~ge s.uhject 'tq ·th.e.Parkey L(:a$e by tini.ely
<lri.f}jng .ad.cllliotial w~ll~ to :the Objective Dep:th ("Additl6iial. Wells") as p1:ovided for iii the Parkey Le·ase
('~Continuous Development"). Within 10 ·da.ys· after BSR proVides "'#~~~ t,J.<?tj.ce to C~izo or ~a.Cl:~ s\'loh
:id4jtjonaJ. ·B~g W!'iU, Caufao ~haj.l ~~ec1J~e ~d deHver to BSR ~ rtnitually acceptable partial
~s$ightlieJit covenng snch Earned Interest.

         BS'R may designate a daJ prloi:; to··(l:p1;1dding J4e Te~t Well tq .come to Canizo'$ .offices durin~
normal b'IJsin.ess hours:fo review data in CaniZo's possession that is :related to ~he Parkey lea~e, ~cl~sive
of seisnll,c (Hi;llit~ to..re'View ono Sq\J~~ mi_to·ot; BSR's qhdieq, i..fi. lh~ ·s4ape of square, :ifp.raO.tiCal)1 well
logs, pi::o4tlctlon, -Pa;tk~y Le!li;~ file:> Mel: title opiniorui1 .eolleotiVel):' referred to .as ("data'-'.). BSR, it's
employe~.• agents, r~presentatives and .consultants shall b.Old and protect such ~~~ to the sarn.e d~gree pf
caro it uses in. protect~g its own prqpi'_ietaty ~orm!if.i:on of like kin4 $d hold ~ch d,ata i.u strict
co~d.el).b.e.: nSR shall fumish to .Catrizo the AW!les and addresses of.individuals who have been provided
access to all or part ·of the data and BSR specifically agrees to be re~pnI\sible.fo:r a:i;i.y br~9P. 9f !IP.-Y of the
te~ a.ri.4 provisions of this ~gre~o;le:t;>,t by such in~vi;dµals. BSR ~1.tali not rem.qve atiy data presehted by
Clltrizo fro;m the location of the presentation or remove or.copy any data·pravided by·Carrizo, e~cept as
Carrizo may specifically authorize in wrltin,g. BSR sf.ta.11 not.~e, Ol' al.low to be made, a<iditional copies




                                               Plaintiff Trial Exhibit                                36
                                                                                                                  1}-·· -··-· · ... ·EXHIBIT NO. '1
                                               cause No. 12-2565-A
                                               Bnrrow-Shavcr v. Carrizo
                                                                                                                                                         •-~~.J.1 ~ 9.:r.:X.:           . ..
                                                                                                                                                        SUnbtk R•portfnr &.Uclpdoo Servlcco
                  . . :. '. · ~   ·· · · ··'c:: ··1                               . . .· .,.. .
                                                                                   ':,            ~   . .,                                                            ,.,     .....·.;.: .,._ . ·..·...
                                                                                                                                                                            ·;~             ~




                          oflhe data or otherwise reproduce any of the data; except as Carrizo may specifically f!.Uthoij:ze in writing'.
                          All data and copies and excerpts thereof shall remain or become Carrizo'ii property. Fuither, the seismic
                          d?ita and ru;i.y derivati've wprks ther:e.froID. will be considered confidential and for BSR use only and will
                          not be g}veri, sol~ traded or otherwise made available to third parties. Carrizo jjJakes no repre~eri.tation m:
                          warranty, expressed or implied. as to the accurac;;y or quality of the qa1a, and ariy reliance thereon is at the
                          sole iisk and expense o:f)3SR.

                                   Jn the event :$SR fail~ fo tirn.el:Y ·s pµd the Test WeU, then BSR shall pay to Carrizo, as liquidated
                          damages, a ca.s h consideration of $50,000.00, due on or before May 10, 2011. Should it b.e detetttlln.~d
                          that the Parkey Lease has expired prior to April 22, 201.1, tb,en iI;l tµat case, BSR shall ~bt be subject to
                          the $50,000.00 liqllidated dam11ge fee set forlh above. Should BSR timely· drill the Test Well as C!ll
                          Earillng Well and .desires to move forward with Continuous Develop)lleIJ.t by dril.1.ii;i.g.M Ad<;Jitiqn Well on
                          the Parkey Lease, Carrizo shall provide to BSR the option to r(:quest to n;:view addltiopai seismic .data
                          (limited to Ol.1e $.qu.~e mi.J.e of BSR's choi¢e, l,n. the shape of a square; if practical) and ifBSR reviews
                          such atj,ditional s6isril.ic data at Carrizo's offices, BSR shall be requited to pay t() Cart:izo; G!S iiq4i4.ated
                          damag~s, a cash consideration ·o f $25,00Q.OO l.n the eve,r:i,t BSR fails to M:iely dtill s_Ucb., Adrotional Well
                          to per:P~tuate tbe :teti).ain:ing llll,clevefoped acteag~ under the P<rrkey Lease. Such liquidated.damages sl~aIJ
                          be paid to Ca,triio within 15 days after BSR fails to timely .drill such. .A;dditioi;ial Weil. Carrizo ~gi:ees to
                          continue to offer to BSR the option to review sue~ additional seistril.c (liriµted t.o qn:e square mile) as. to
                          e.a ch additionai well BSR d.esl.res to drill qn the. P~key Lease, subject to the liquidated damage fee 9f
                          $25,000 a.s set forth above. Further, in the event the P!i.rkey Lease e;x.pj.res and BSR shouid acquire a
                          lease or an interesdn la11.i:ls covered by the Parkey lease w1thin orie (l) year from the date of this Letter
                          A.greemeilt, BSR sh<;ill.notify Carrizo. of the interest acquired and such intei;est shall b~ l;mrd~ned with i:wd
                          be subject to an overriding royalty inter:est or an equ~va1ent jn,tc:;rest fu favor of Carri,zo equal to .the
                          difference betwee11 25% and the. lease. royalty. Any interest acquired by BSR pri9r to this Letter
                          Agreeme.D,t spall not be subject to the ove1riding royalty interest or equivalent in,tetest referenced in. the
                          previous sentence.

                                  Carriio' s tepre$en.tatives shall at all times be allowed tree acc~s to the 9,~rrkk floor at their sq le
                         risk and expense and to any and all information, geological or oti:wrwtse, pertaining fo the drilling of the
                        'Test Well or lfily other well drilled pursuant to this Letter Agreement. Prior to runnj.ng aµy lo&,oiug
                         device, coring or taking any formation test or other ~llnilar type test, BRS shaJl first .g ive Cartizo
                         reasonable notice in suffi~ient time to allow its representatives to be present to witness such test. .BSR
                         agtees to f'ufuish Cai;tjzq, upon its request, copies of each final print on electdc logs, m;ud logs, DST,
                         production.logs, or any other ~ormation obtained by BR.S at:id shall email daily reports to C~zo. Any
                         notice requirec.l by E~::R shai.~ be fi.u-plsh~d. t.o Carri,zo's Doug Reid at Dorn?,Reid@crzo.netor any other
                         te.Pr¢setitative named by Carrizo.                                                  · ··        ·

                                  BSR shaH, ~t BSR's soie cost ~d e:icpense, m;:lintain the lands used by BSR pu~suan.t to this
                          Lett;e.( Agreement in a clean and orderly condition, remove aU wai:;te produc;its,  fill in ali pits dug in
                          connection with BSR's operations hereunder aµd restore the lands as nea,rly as practicable to their original
                          Envifolim.ental cpnditiori., If any well drilled by BSR is a dr:y hole or is ii.on-pn;iductiye, BSR shall
                          properly plu~ any such well(s) drilled pursuant to this Letter Agreelfl.eiit ~d ii1 acco;r~a:nce with th~
                          Parkey Lease.

                                  Th~ rights provided to BSR .u nder this Letter Agreement may not be assigned, su]?leas~ or
                           otherwise transferred in whole or in pa:rt, without the express written consent 6£ Carrizo.

                                       BSR and Carrizo agree to execute and deliver aii su~h other a:nd additiqilal in,struments, notice$,
                           release~~    acquittances and other document~, and will do all such other acts and things, as may be


                                                                                              2



          -·--·---·-·- ···--. -· . . . ... ------ . . .
  -~-· ~ · --·-                                            .           .
·------··-- - ·········--···· ·····--····- ·- - -···--···--·····-·-·--········---··-·· - ·· - - - - - - - · - - - - - - - - - -···----- - - -- -····--···----·-----·-·---· -··-------
                                   .   .. .   : \ -.. '..:".· . ·. -.•   .~   .\   : . , ·;   ,,,~   _.,,.,.-..-._, ·-   .   .   •• .   . ·:·   I       ••   • •                  -....   I   • -~~... :"·. '·   . . . ·-.:   ·. ·•   -- •   ·•.   I   ,..   ~-   ·: · ·   ••   •• "· •••• •   ·- ·•   •   ·'   ••.   .- •   .,




                       necessary to mote fuUy a$sure to BSR and Carrizo, ~ of the respective rights and interests herein granted
                       or intended to be granted by this Letter Agreeme;1;1t,

                              In the event BSR ~lects p.ot to drill any additional wens as provided .for above on the Parkey
                       Lease, BSR shall provide written notice to Carrizo at least 30 days prior to the lands covered by t,he
                       Parkey Lease would othetwise exp;ire.

                              BS'.R. shall at all times at it's own expense, wilt provide :an\i maintaµi in force d\II"ing ~he e:iµstenqe
                       of this Letter Agreement commercial general liability 'insurance in aJ;ll.o\,int$ typically carried by.reputable,
                       pru4ent qp~rators, but in a,ny event not less than $2,000,000.00 .P er occurrence, $3,000,000 aggregate,
                       naming CarriZo as an a,dditi6nal insured, for any liability for property damage or personal ihjury arising as
                       a result of (i) BSR's conductil;ig opetatio;us 0n or off P.aikey· teas~, (ii) the exercise of any right grarited
                       bereuil.qer o,; (iii) cµiy obligation irpposed hCI'eb'y or associafed in any way with activities conducted by
                       BSR oh or ilnpa_c ting the lands· covered by the Parkey L~se. This ~urance is to be ~<;<i by one qr
                       more reputable iils~c~ comp~es authorize~ to tr~sact l;>i;isme::;s tn Te;x:.as. BSR will furnish Carrizo
                       with certificates of all. iI;1su.ratJ.ce required by·this Letter Agreement.

                             BSR, ITS HElRS, SUCCESSORS .A.ND ;\SSIGNS,EXPRESSLY AGREES TO INDEMNIFY
                       .AND }{OLD CARRIZO, ITS BEIRS, SUCCESSORS AND ASSIGNS, HARMLESS :FROM AND
                       A.OAINST ANY AND ALL COSTS, EXPENSES, CL.AIMS, DEMANDS AND CA.US.E,S Of ACTION
                       OF WHATSOEVER KIND OR CHARACTER, INCLUD:i:NG COURT COSTS AND ATTORNEY'S
                       FEpS,, ACCRUING QR RESDLTING FROM OPERATIONS ON TIIB LANDS COVEREp BY
                       PARKEY LEASE BY BSR, ITS HEIRS, SUCCESSQR$ A.Np ASSIQNS,     ;INPE:rvi::NrfICATION                                                                                     nus
                       EXPRESSLY INCLUDE.$ ANY i.;ENVIRO'NMENTAL CLAW" ON TIIB LAND COVERED BY
                       PARKEY LEASE IN ORDER TO FIND, EXPLORE, OR REMOVE ANY o~. SJAS mt OTHER
                       MINERALS COVERED. BY IBIS LETI:ER AGREE:MENT. BSR,·ITS ~iRS, SUCCESSORS AND
                       AS'SIGNS, EXPRESSLY AGREES TO INDEMNIFY         HOLD HARMLESS CARRIZO, ITS                                                                  AND
                       HEJRS, ·SUCCESSORS ,Alll"D ASSIGNS, FROM AND AG:AIN.S t ALL CLAIMS, 'I>EMANpS,
                       CAUSES OF ACTION, REQUESTS,. OR O~ERS FOR.REMOVAt,, A.J;iATEMENT, OR REMEDL<\.L
                       .t\Cl10N OR ANY TyPE OF CORRECTIVE ACTION OF ANY NATURE (AND ATTORNEY'S
                       FEES, EXPENSES AND PENALTIES RELATJNG THERETO) •. RESULTING FROM OR IN ANY
                       MANNER AR.IS)NG OuT OF BSR' S DEVELOPMENT OF OR 'OPERATIONS .ON THE LAND
                        coV;BRED BY. ~A.Ri<EY LEASE .AND THE MARKETING OF THE PRODUCTS T.E:Ig!IBFROM,
                       'REGARDLESS OF WHETHER COMM!ITED BY BSR OR ITS AUTHORIZED' AGENTS-,'
                        GONTRACTC)ks, LICENSEES oR: · ·:i:NvrrEE·s .·         usED HEREIN, rim TERM                                                                      As
                        "ENVIRONMENTAL CLAIM" SHALL MEAN (A) ANY EVENT OR 90NDITIO}{ WrPl RES,l?ECT
                       TO AIR, LAND, SOIL, SURFACE, SUB$URFACE S'.I'RArA, SURF.A.CE WATER, GROUND
                       WATER,. QR ~BDIMENT n!A.T CAU$ES THE EARNED INTEREST TO BECOME S'QBTEcr TO
                       REPORTING OR REMEDIATION UNDER, OR NOT.BE IN CbMJ>LIANCE WITH, ANY :F EDERAL
                        OR STATE ENVIRONMENTAL LA.W, RULE OR REGULATION OR ANY PERMIT ISSUED
                        PURSU~t TO A}lY ENvIRONMENTAL LAW; OR (B) ANY EVENT OR CO~iTION
                        DESCRIBED lN THE PRECEDING CLAUSE (A)~ T,HA.T ;REsut::t~·, OR CQuLD REAsdNABLY BE
                       EXPECTED TO :RESULT, IN LlA:Bp:,rrx TO ANY THIRii PERSON FOR INJURY TO OR DEATH
                        O:F ANY 'PERSON, PERSONS, OR DAMAGE, LOSS, OR DESTRUCTION: OF P~ZOPERTY
                        LOCATED ON TIIB EARNED LEASES. TIIB TERM "ENVIROlitv:tENTAL CLAIM" INCLUDES,
                        WITIIOUT :LIMITATION, ANY SPILLING, LEAKING, POURING, EMISSION, EMPTYING,
                        bIStHARGE, INJECTION, ESCAPE, TRANSMISSION, LEACHP:~m, OR PUMPING
                        (COLLECTIVELY, A "RELEASE;'), OR ANY THREATENED RELEASE, OF ANY
                        ¢0NTAMINANTS SUBJECT TO REGULATION UNDER ENVIRONMENTAL LAW FROM, OR
                        RELATED IN ANY WAY TO THE USE, OWNERSHIP, OR OPE:RA.TION OF, ':('HE EARNED


                                                                                                                                                    3



- --·----·---- .. ·--- .. _________ ...._., ___________ ...
                         ,                                                    _____                                                                           _____ ......
                                                                                                                                                                     ,       ________
                                                                                         ··.~ ;.:;;:.:-. ·.~:{'·.·   . .. .... ·• ·;·--··;--. ·. . . ·. ·. •. ·..   ·. ·-: ·. ··."'·'·· ·· -~ ,. ·. !- : _.. ... : - ·.: :•




                           INTEREST THAT HA$ NOT BEEN REMEDIHO lN ACCORDANCE WITH ALL APPLICABLE
                           ENVIRONMENTAL LAWS.


                                    The. tenns and provisions of this Letter Agreement are a!ld s.h all be Qind.ing upon, and, shall inure
                            to the benefit o~ BSR and Carrizo, and their respective heirS, devisees, fegal a.rtd personal representatives,
                            successors and assigns.

                                      Warranty oftitle is neither expressed nor implied, except by, tbrol,lgh and under Cartizo.

                                   lf you agree with all the terms and conditions in this Letter Agreement, plea~e in,di,cated your
                            acceptance in the space provided below and return o.n e copy to the undersigned.

                            Sincetely;

                            c:Aru,uz9 oiL ~ GAS, INC.
                           <dl!Jbi~
                          ( G~~gcG'E., ~vks
                                                    t ·~
                            Vice President

                            T:EIE u:N(>ER.SlGN);D PARTY HEREBY AGREES AND ACCEPTS THE TERMS AND
                            CONDITIONS OF TIDS LETTER AGREEMENT 48 .$~ATED ABOVE.

                            :BARROW~SHAW:R RESOURCES                            COl\.:IPANY




                                                                                                                       4.




· ·-~--·-· - ·   - · - - - -·-·--··-------·--·-······-----·------·---·-·---..·--·---·-·------··--.....·----···- ..---·--···-·-·------·--·---·-·--·-- --···-··-·· ·----·-··--·------ -·--·-·--··
                                                                                                                                                                                      ... . . .- ' . .. -. .    •... ;r-::.:•. ~......
.. · 1         • •' I     , .... ~r-.:-:-::<, :··.·.   ·~ ·. ··-·,   ..-.: -: ·.,.M   ·: ··· · · ~   ... . :· ·. --.. .. . _   ..... ....... ."· ·.· \·. :   .·1   I   · ··•• •   •




                                                                                                                                    EXBIBlT "A"

         A'ITACHED Tb MID MADE A PART OF THA.T CERTAJN I,.J3Tt:ER AGREEME'NT DATED
         N.IARcH 2.8,
                  2011, BY AND BETWEEN CARRIZO OIL & GAS, INC. AND BARROW-SHAVER
         RESOURCES COMPANY.

         All of the iands and rights covered by that certain Oil and Gas Lease dated April 24u1 2007, by and
         between James 'R. Parkey, III, Natalie Sanchez, Ryru1 Mayo, .J olem; P. :Parkey .a nd George )?aI-key, Trust~e
         qfthe G~rge P, Patk~y Trµst, Jolene P. :P1ttkey, Robert W. Goff, Jr, Trustees of the Jaines R. Parkey, Jr,
         Trust, as Lessor, and Cleo Oil, Inc, as Lessec;i, recorded in Volume 679, Page.272 ofthe beed Reqords                                                                                                 qf
         Archer County, Texas·, and Volume 319, Page!l 228-2631,n. \he Deecj. R.eeb'n;ls qfBaylOr Coµti:fy, 'Iha~, as
         an;i.e~ded by th.a t cert;<W,1 ;\.IiJ,endment to Paid Up O~l and Gas Lease, teeorded :in Volume 692, Page 504
         mthe Deed Records of Archer County, Texas and Volume 319, :Page 613 in the Deed Recc)rds <if Baylor
         County, 'J'.exas, and as .amen<led by that ceitaili Second Amendinen:~ to l>a.i<l Up Oil and Gas Lease,
         recor<;leci in Volum:e 6.96, l'age 339 in the:Deed Recordi:; of Archer County, Texas and Volume 321; Page
         69 in the Deed Records of Baylor County, Texas and limited fo those depths be1ow 2500 ff~et subsurface;
         l,ESS ANP '.EXCE.P T: that certain acreage to be designated by C~o sl.1I;!'ouil.cling it's Parkey Ran.c h B-1
         3.Jid B-2 wells, (Pailcey Lease").

         Caqizo' s interest ill..the Parkey ~ase i$ si,i.oj e.ct to the following :

             1.          Purchase and Sale Agreement by at,id betwe<::U Cleo Oil, Jij:c, anc1 Pai:J.AmericanOpei:'ating, Inc.
                        dated :M;ay l 9tiiz008, c:onceh:ring t}ie lands described i,n the above mentioned Paid 'up Oil and Gas
                        Lease, dated April 241 2007 and the Assignment, Coµyeyance artd Bill,.Of Sale datecl Jilly 7; '.2,008.
                        between Cle9 Oil, Inc and PaµAmeric~ OperaJing, '/n..c., :recorded .ill VolU'pie 69,5, Page 755 of
                        the Deed Records of Arclier County, Texas and.Volume 320, Page. 709 in the Deed lte.cords of
                        Ba,yk>r County, Texas,                                                                   ·

             2. As~ign.ment of Oil, G$5 anq Mineral Leasehold.Interest between PanAmeri~an Opetating, r+ic,
                and Carrizo Oil and Gas, Inc. dated July ih, 2008; recorded in Vphime 695, Page 789 in thei Deed
                Records of Atcher Couii,ty, Texas anQ. Vol1,1me 320, P~ge 684 in the Deed Records of Baylor
                County; 1'.exas.                                   ·




                                                                                                                                                             5
P L A I N T I F F 'S
       37
Appendix 4
08:28 1             REPORTER'S RECORD
  08:28             VOLUME 7 OF 36 VOLUMES
  08:28 2         TRIAL COURT CAUSE NO. 12-2565-A

 08:28 3

 08:28 4     BARROW-SHAVER RESOURCES                * IN THE DISTRICT COURT
 08:28      COMPANY, now known as Barrow- *
 08:28 5     Shaver Resources Company, LLC *
 08:28      individually & as assignee of *
 08:28 6     the causes of action of the *
 08:28      other parties to the Raptor * 7th JUDICIAL DISTRICT
 08:28 7     Purchase & Sale Agreement *
 08:28                          *
 08:28 8     VS.                  *
 08:28                          *
 08:28 9     CARRIZO OIL & GAS, INC.           * SMITH COUNTY, TEXAS

 08:2810

 08:2811

 08:2812

 08:2813      **************************************************

 08:2814              TRIAL ON THE MERITS

 08:2815      **************************************************

 08:2816

 08:2817

 08:2818

 08:2819       On the 19th day of September, 2014, the following

 08:2820 proceedings came on to be heard in the above-entitled

 08:2821 and -numbered cause before the HONORABLE JUDGE KERRY L.

 08:2822 RUSSELL, Judge presiding, held in Tyler, Smith County,

 08:2823 Texas.

 08:2824       Proceedings reported by Computerized Stenotype

 08:2825 Machine.
                                       223

16:15 1 Carrizo that Stewart had made this promise?

16:15 2     A No, sir.

16:15 3     Q Never once?

16:15 4     A No, sir.

16:15 5     Q    It was so important to you that you relied on

16:15 6 it and wouldn't have done this deal but for that

16:15 7 promise. But you never told anyone at Carrizo that

16:15 8 Stewart Laufer had made that promise.

16:15 9     A    I relied on him and his word.

16:1510      Q Yes, sir.

16:1511          But you never told anyone at Carrizo that he

16:1512 had, in fact, made that promise to you, did you?

16:1513      A    I was dealing with him.

16:1514      Q Mr. Shaver, my question was: Did you ever

16:1615 tell anyone at Carrizo that Stewart Laufer had made that

16:1616 promise?

16:1617      A Only after the fact.

16:1618      Q Who?

16:1619      A Through the depositions and so forth that came

16:1620 out.

16:1621      Q Right. But before this lawsuit was filed, we

16:1622 won't find one piece of paper that ever said that

16:1623 Stewart Laufer made that promise, correct?

16:1624      A No, sir.

16:1625      Q And you never told anyone at Carrizo that
                                         224

16:16 1 Stewart Laufer made that promise, correct?

16:16 2     A    I dealt with Stewart the whole time and --

16:16 3 other than he and Sarah.

16:16 4     Q Again, Mr. Shaver, you never told anyone at

16:16 5 Carrizo that Stewart Laufer made that promise, correct?

16:16 6     A    I did not.

16:16 7     Q You didn't tell Sarah Ruddock that

16:16 8 Stewart Laufer made that promise, did you?

16:16 9     A    I don't know if I did or not.

16:1610      Q Well, we've looked at all the e-mails that you

16:1711 sent to Sarah Ruddock where you were telling her about

16:1712 the deal.

16:1713          I didn't see in any of those e-mails where you

16:1714 ever told her, "Oh, by the way, Stewart Laufer said if I

16:1715 need a consent, I'll get the consent."

16:1716          Did you see that in all the e-mails we've been

16:1717 looking at all afternoon?

16:1718      A    I had more conversations on the phone than I

16:1719 did e-mails with those people. I tend to talk to people

16:1720 more so than e-mail them.

16:1721      Q But, Mr. Shaver, my question was: Did you see

16:1722 that in any of the e-mails that you sent to

16:1723 Sarah Ruddock?

16:1724      A No, sir.
16:1725   Q You were trying to tell her what the deal was;
                                                   1

09:30 1             REPORTER'S RECORD
09:30             VOLUME 10 OF 36 VOLUMES
09:30 2          TRIAL COURT CAUSE NO. 12-2565-A

09:30 3

09:30 4    BARROW-SHAVER RESOURCES                * IN THE DISTRICT COURT
09:30     COMPANY, now known as Barrow- *
09:30 5    Shaver Resources Company, LLC *
09:30     individually & as assignee of *
09:30 6    the causes of action of the *
09:30     other parties to the Raptor * 7th JUDICIAL DISTRICT
09:30 7    Purchase & Sale Agreement *
09:30                         *
09:30 8    VS.                  *
09:30                         *
09:30 9    CARRIZO OIL & GAS, INC.           * SMITH COUNTY, TEXAS

09:3010

09:3011

09:3012

09:3013     **************************************************

09:3014             TRIAL ON THE MERITS

09:3015     **************************************************

09:3016

09:3017

09:3018

09:3019      On the 24th day of September, 2014, the following

09:3020 proceedings came on to be heard in the above-entitled

09:3021 and -numbered cause before the HONORABLE JUDGE KERRY L.

09:3022 RUSSELL, Judge presiding, held in Tyler, Smith County,

09:3023 Texas.

09:3024      Proceedings reported by Computerized Stenotype

09:3025 Machine.
                                                        118

12:13 1 check my notes, Your Honor?

12:13 2           THE COURT: You may, sir.

12:14 3           MR. ZUKOWSKI: That will conclude our

12:14 4 Bill with Mr. Johnson, Your Honor.

12:14 5           THE COURT: Thank you.

12:14 6           Plaintiff care to ask any questions of

12:14 7 Mr. Johnson in the Bill of Exception?

12:14 8           MR. HOBLIT: No, Your Honor.

12:14 9           MR. ZUKOWSKI: May Mr. Johnson be

12:1410 excused?

12:1411            THE COURT: He's free to go.

12:1412            Thank you, sir.

12:1413            (Witness exits courtroom.)

12:1414            MR. ZUKOWSKI: And the last would be

12:1415 Mr. Shaver.

12:1416            THE COURT: All right. Mr. Shaver, if

12:1417 you'll come on back up, please.

12:1518            You may proceed.

12:1519               SCOTT SHAVER,

12:1520 having been duly sworn, further testified as follows:

12:1521    DIRECT EXAMINATION FOR PURPOSES OF BILL OF EXCEPTION

12:1522 BY MR. ZUKOWSKI:

12:1523     Q    I'll give you a chance to get ready,

12:1524 Mr. Shaver. Are you ready?

12:1525     A Yes.
                                        119

12:15 1     Q And, again, you're not my client, but I'll

12:15 2 caution you of the same thing. Those exhibits in front

12:15 3 of you, they're loose. Be careful. Next thing you'll

12:15 4 know, they'll be all over the place.

12:15 5        And, again, picking up in regard to the

12:15 6 negotiations. Mr. Shaver, on March 29th, 2012, did

12:15 7 Hal Bertram make you aware of the fact that Carrizo had

12:15 8 deleted the "not unreasonably withheld" language from

12:15 9 the proposed farmout agreement?

12:1510      A Yes, sir.

12:1511      Q And that was something that was a significant

12:1512 change to you, was it not?

12:1513      A Yes, sir.

12:1514      Q You discussed it with Mr. Bertram?

12:1515      A Yes, sir.

12:1516      Q And you subsequently decided that you wanted

12:1517 to have a phone conversation with Mr. Laufer for

12:1618 purposes of discussing that change, correct?

12:1619      A Yes, sir.

12:1620      Q And it was during that phone conversation that

12:1621 you alleged that Mr. Laufer made assurances to

12:1622 Barrow-Shaver that if Barrow-Shaver ever needed a

12:1623 consent to assign, that Mr. Laufer would -- and I'm

12:1624 paraphrasing -- would get that consent for you; is that

12:1625 correct?
                                          120

12:16 1     A Yes, sir.

12:16 2          He had spoken with Hal earlier in the day and

12:16 3 had told him that. And I told Hal I wanted to hear it

12:16 4 from him myself; and so he told me that as well.

12:16 5     Q But it is the change in the form of the

12:16 6 farmout agreement removing the "not unreasonably

12:16 7 withheld" language that prompted you and Mr. Bertram to

12:16 8 have the conversation with Mr. Laufer that led to his

12:16 9 assurances, correct?

12:1610      A Yes, sir.

12:1711      Q    If you will go to Defendant's Exhibit 32.

12:1712 And, again, that will be in that loose group. Are you

12:1713 there?

12:1714      A    I think I'm at the right one.

12:1715             MR. ZUKOWSKI: May I approach the witness

12:1816 to be sure?

12:1817             THE COURT: You may.

12:1818      Q (By Mr. Zukowski) It should be the preliminary

12:1819 closing statement.

12:1820      A Yes, sir. That's it.

12:1821      Q Okay. Exhibit 32 is Barrow-Shaver Caddo

12:1822 Project Preliminary Closing Statement on Sale to

12:1823 Raptor Petroleum as of March 2nd, 2012, correct?

12:1824      A Yes, sir.

12:1825      Q And this is a document that was prepared by
Appendix 5
                                      1

1              REPORTER'S RECORD
              VOLUME 5 OF 36 VOLUMES
2           TRIAL COURT CAUSE NO. 12-2565-A

3

4 BARROW-SHAVER RESOURCES                 * IN THE DISTRICT COURT
  COMPANY, now known as Barrow- *
5 Shaver Resources Company, LLC *
  individually & as assignee of *
6 the causes of action of the *
  other parties to the Raptor * 7th JUDICIAL DISTRICT
7 Purchase & Sale Agreement *
                      *
8 VS.                   *
                      *
9 CARRIZO OIL & GAS, INC.            * SMITH COUNTY, TEXAS

10

11

12

13   **************************************************

14             TRIAL ON THE MERITS

15   **************************************************

16

17

18

19     On the 17th day of September, 2014, the following

20 proceedings came on to be heard in the above-entitled

21 and -numbered cause before the HONORABLE JUDGE KERRY L.

22 RUSSELL, Judge presiding, held in Tyler, Smith County,

23 Texas.

24     Proceedings reported by Computerized Stenotype

25 Machine.
                246

1     Q And the e-mail is from Stewart Laufer;

2 March 23rd, 2011; addressed to yourself?

3     A That's correct.

4     Q And it attaches a form of letter agreement,

5 does it not?

6     A That's correct.

7     Q And I know, ultimately, you negotiated some

8 changes. But this, ultimately, became the form that was

9 utilized for purposes of the farmout agreement that was

10 finally signed by and between Barrow-Shaver and Carrizo,

11 correct?

12     A Some form of it, yes.

13     Q This agreement -- if you go to the second

14 page -- contains a provision in regards to consent to

15 assignment, correct? And I call your attention -- it's

16 about four paragraphs down. Second page.

17     A Second page?

18     Q Third full paragraph. Begins with "The rights

19 provided."

20     A Yes, I found it. Thank you. Yes.

21     Q   It states, "The rights provided to BSR" -- and

22 that's Barrow-Shaver, correct?

23     A Correct.

24     Q "Under this letter agreement may not be

25 assigned, subleased or otherwise transferred in whole or
                                      247

1 in part, without the express written consent of Carrizo,

2 which consent shall not be unreasonably withheld."

3         Correct?

4      A Correct.

5      Q And that's something that Mr. Laufer added to

6 the agreement?

7      A That's correct.

8      Q Now, as you read that provision, there's a

9 requirement for Barrow-Shaver to obtain Carrizo's

10 consent if they want to make an assignment. Is that

11 your understanding?

12     A Yes, sir.

13     Q But it also has a condition for Carrizo that

14 if Carrizo -- in regard to that consent -- can't

15 unreasonably withhold the consent?

16     A That's correct.

17            MR. ZUKOWSKI: Let me go back for the

18 offer of proof. First of all, Your Honor, I'd offer

19 Exhibit Number 17, which is the one we just previously

20 mentioned.

21            THE COURT: Be admitted for the bill.

22            MR. ZUKOWSKI: And I'm offering Exhibit

23 Number 18 for the bill.

24            THE COURT: Be admitted as well.

25            THE COURT REPORTER: Are these
                                     248

1 Plaintiff's exhibits or Defendant's exhibits, please?

2 Just for the record.

3             MR. ZUKOWSKI: Defendant's. I'll try to

4 add that.

5     Q (By Mr. Zukowski) Let's go to Exhibit Number

6 20. Is Exhibit Number 20 another e-mail with attached

7 farmout agreement?

8     A Yes, it is.

9     Q And the date of the e-mail is

10 March 23rd, 2011, 5:26 p.m.?

11     A No, I've got March 28th.

12     Q Excuse me. I'm sorry. I'm looking at the

13 wrong one. Let me go back to it.

14        It's March 29th, 2011, at 9:02 a.m.? Exhibit

15 Number 20?

16     A Yes, the e-mail is. Yes.

17     Q And this is an e-mail that Stewart Laufer sent

18 to you; is that correct?

19     A That is correct.

20     Q And it attaches a form of letter agreement,

21 does it not?

22     A Yes, it does.

23     Q And if you go to the second page, the second

24 paragraph from the bottom, do we find the consent

25 provision?
                                     249

1     A Yes.

2     Q All right. And had Mr. Laufer changed the

3 consent provision from the prior exhibit?

4     A Yes.

5     Q And had he deleted the "not unreasonably

6 withheld" language?

7     A Yes.

8     Q    In your opinion, was that 180-degree reversal

9 from what the prior provision had been?

10     A    It changed the intent of the paragraph, yes.

11     Q And it was a major change, was it not?

12     A    I felt like it was.

13     Q All right. Now, in your experience, was it

14 common to find a consent provision in a farmout

15 agreement that states "consent will not be unreasonably

16 withheld"?

17     A You find them in this form, and then you also

18 find them in the previous form that we talked about.

19     Q So you find --

20     A Both ways.

21     Q Both ways.

22         Now, your immediate concern was that Carrizo

23 could withhold consent unreasonably under the terms as

24 proposed by Mr. Laufer. Is that not correct?

25     A No. By taking out that language, it left some
                                      250

1 ambiguity.

2     Q And you were concerned that, in fact, Carrizo

3 could withhold consent unreasonably; is that correct?

4     A They could withhold consent.

5     Q For any reason?

6     A For any reason.

7     Q Did you immediately call Mr. Laufer about

8 this?

9     A    I did. I was concerned about him taking out

10 that.

11     Q And did you have a long conversation with

12 Mr. Laufer?

13     A We had a pretty lengthy conversation about it.

14     Q Do you recall telling me that you talked

15 ad nauseam with him about it?

16     A Well, we talked about this issue ad nauseam.

17 So we talked several times, yes.

18     Q But right after receiving this e-mail with the

19 change in the consent to assign provision, you called

20 Mr. Laufer and had a long telephone conversation with

21 him?

22     A   I had a conversation with him about this and

23 why was it taken out; and he explained to me why he took

24 it out. He said that his management and his legal team

25 advised him to take that out.
                                    251

1        And I asked him why, and he said, "It was just

2 company policy. Don't worry. I will work with you, and

3 we'll give you consent down the road."

4     Q All right. Now, after you talked to

5 Mr. Laufer, did you go talk to Mr. Shaver?

6     A Yes, I did.

7     Q And did you tell Mr. Shaver about the fact

8 that there had been this change in the former farmout

9 agreement?

10     A Yes, I did.

11     Q And was Mr. Shaver concerned about the fact

12 that the consent to assign provision had been changed?

13     A Yes, he was concerned.

14     Q And did you get on the phone with Mr. Shaver

15 and call Stewart Laufer?

16     A Yes, we did.

17     Q And did you have a conversation with

18 Stewart Laufer, again, about this consent provision?

19     A Yes, we did.

20     Q And was it a lengthy conversation?

21     A Yeah. You know -- define "lengthy". We

22 talked about this particular issue. And Stewart

23 reiterated the same answer that he gave me; that his

24 management had taken it out -- asked him to take it out.

25 His legal team asked him to take it out. And that he
                                       252

1 would work with us and give us consent down the road.

2 Not a problem.

3     Q But you understood that Carrizo was going to

4 insist that the farmout agreement have the consent

5 provision as it was presented in this Exhibit Number 20?

6     A Yes.

7     Q And that Mr. Laufer was not authorized to put

8 the language "not unreasonably withheld" back in the

9 agreement?

10     A   I assume his management told him not to put it

11 back in the agreement.

12           MR. ZUKOWSKI: Now, Your Honor, I would

13 move, for purposes of the bill, Defendant's Exhibit

14 Number 20.

15           THE COURT: Be admitted for the bill.

16     Q (By Mr. Zukowski) Like you to go to

17 Defendant's Exhibit Number 22. Are you there?

18     A Yes, sir.

19     Q Exhibit 22, is that an e-mail from you?

20     A Yes, it is.

21     Q   It was sent at 1:33 p.m.?

22     A That's correct.

23     Q And you are sending it to Mr. Laufer in regard

24 to the draft agreement that he had sent you previously

25 that morning, correct?
                                        253

1     A That's correct.

2     Q And in the e-mail you state, "We appreciate

3 the letter agreement. I have a couple of minor changes,

4 and I feel we are ready to proceed."

5          Did I read that correctly?

6     A That's correct.

7     Q And if we go to the next page, do we see the

8 minor changes?

9     A Yes.

10     Q And you just proposed three changes to the

11 form that Mr. Laufer had proposed?

12     A That's correct.

13     Q But you didn't say anything about the consent

14 to assign provision having changed, did you?

15     A No.

16     Q And although it was a big deal, you had two

17 phone conversations with Mr. Laufer, you didn't bring it

18 up in the e-mail that he had said anything or given you

19 any assurances in regard to the change in the consent to

20 assign provision, did you?

21     A We had talked about it previously. We also

22 talked about it the day that we met with Mr. Laufer.

23     Q    I'm talking about between -- I'm talking about

24 on this day, Mr. Bertram. You received an e-mail at

25 9:00 in the morning on this day that changed the consent
                                    254
1 to assign provision --

2      A   Yes.

3      Q   -- and then you sent another e-mail back to

4 him, correct?

5      A   Yes, making these changes.

6      Q   And you told me that you'd had a couple of

7 conversations with him, during which he gave you

8 assurances that you relied on, correct?

9      A   Yes, that's correct.

10     Q    And based on those assurances that you

11 received from Mr. Laufer during those two phone

12 conversations, you decided to go forward with the

13 farmout agreement, correct?

14     A    That's correct.

15     Q    In the form, as proposed by Mr. Laufer?

16     A    That's correct.

17     Q    And the reason you had -- we talked about this

18 previously. Is it true that the reason that you didn't

19 tell Mr. Laufer anything, or say anything to Mr. Laufer

20 about this e-mail, is you had felt that you had

21 thoroughly discussed it during your phone conversations?

22     A    Yes. We had discussed that issue, and he told

23 me that his legal team and his management would not

24 change that provision.

25     Q    I want you to go to Defendant's Exhibit
Appendix 6
                              Presented:
                   Association of Corporate Counsel
                           Houston Chapter
                            October 2, 2013
                               Houston




Preferential Rights to Purchase and Consents to Assign


                        Louis J. Davis




                                                Author contact information:
                                                Louis J. Davis
                                                Baker & McKenzie LLP
                                                Houston, Texas

                                                louis.davis@bakennckenzie.com
                                                713-427-5031
         PREFERENTIAL RIGHTS TO PURCHASE AND CONSENTS TO ASSIGN
                              By Louis J. Davis 1
                           Baker & McKenzie LLP

 I.      INTRODUCTION AND SCOPE
       This paper is divided into two parts, the first addressing preferential rights to purchase,
and the second concerning consents to assign.
         The first part of this paper is intended to provide a comprehensive analysis of the wide
array of issues affecting the operation of preferential rights, including a discussion concerning
the types of transactions that trigger preferential rights, the notice requirements that must be
provided by the grantor to the rightholder following a triggering event, the process by which the
rightholder exercises the preferential right, the situations in which a preferential right provision
terminates, the possibility that parties other than the initial grantor and holder of the preferential
right may become subject to the preferential right, the remedies available to the rightholder when
the grantor breaches the preferential right, and the defenses available to the grantor in case of
litigation alleging a breach of the preferential right.
         It is important to acknowledge, with sincere thanks, that this paper draws heavily upon
several previous works. Robert K. Wise, Andrew J. Szygenda, and Thomas F. Lillard provide an
excellent and thorough discussion of preferential rights. 2 Rick Strange and Thomas Fahring
similarly produced an exhaustive article with a special emphasis on preferential rights in package
transactions, when the burdened property is sold by the grantor as part of a package of various
assets. 3 The first part of this paper uses a similar structure to that of Wise, Szygenda, and Lillard
to group the legal issues that affect preferential rights and builds upon their work by emphasizing
the effect of cases decided since their article was published in 20 I 0.
       The second part of this paper addresses consents to assign and issues related to
enforceability and breach thereof. First, it provides a background for consent-to-assign analysis
by examining landlord-tenant law. Then, it discusses four forms of consent-to-assign provisions
and issues that arise when they are encountered. Finally, it highlights some special concerns
when dealing with consent provisions in state leases. The previous papers of Terry Cross 4 and
Corby Considine 5 each contain detailed sunnnations of judicial interpretations of consent-to-
assign provisions and discussion of important drafting considerations, and were very helpful in
the preparation of the second part of this paper.



1
  This paper is the result of the collective and significant efforts of several contributing authors and editors,
including Baker & McKenzie Houston Office Oil and Gas Associates Rahul Vashi and Jonathan Lancton, and Baker
& McKenzie Houston Office Summer Associates Katherine Jordan, Ross Staine and Benjamin Fedorko. Grateful
thanks are extended to each for making the time to get this paper prepared.
2
  Robert K. Wise, Andrew J. Szygenda & Thomas F. Lillard, First-Refusal Rights Under Texas Law, 62 BAYLORL.
REV. 433 (2010).
3
  Rick Strange & Thomas Fahring, Rights of First Refusal and Package Oil and Gas Transactions, 53 S. TEX. L.
REV. 29 (2011).
4
  Terry I. Cross, The Ties that Bind: Preemptive Rights and Restraints on Alienation that Commonly Burden Oil and
Gas Properties, 5 TEX. WESLAYANL. REV. 193 (1999).
5
  Corby Considine, Restrictions on Assignability (1996).


                                                                                                               2
 an outright prohibition of indeterminate duration from selling any portion of the land in question
 less than four acres." 180
        In Texas, preferential rights do not violate the rule against perpetuities, even if the
 preferential right is unlimited in duration. 181
         The grantor may also defend himself by invoking the statute of limitations. The
 limitations period for a lawsuit seeking specific performance to require the conveyance of real
property is four years from the date the cause of action accrues. 182 Generally, accrual of a cause
of action occurs "when a wrongful act causes a legal injury, even if the fact of injury is not
discovered until later, and even if all resulting damages have not yet occurred." 183 However, the
discovery rule applies to certain causes of action, and "when applicable, provides that limitations
begin to run from the date the plaintiff discovers or should have discovered, in the exercise of
reasonable care and diligence, the nature of the injury." 184 In Gilbreath v. Steed, the Tyler Court
of Appeals suggested that the discovery rule should not be applied in the context of a breach of a
preferential right provision. 185 The court held that, whether or not the discovery rule applied, the
preferential rightholder's claim was barred by the statute of limitations. 186 Thus, the court did
not have to decide whether the discovery rule applied. 187 However, in dicta, the court noted that
"(the holder] has cited no authority, nor are we aware of any, that supports her proposition that
sale of... property ... in disregard of a third party's right of first refusal tolls the limitations
period on the right of first refusal once it has become ripe. Instead, [the holder's] right of first
refusal ripened into an option when [the grantor] elected to sell the property." 188
        The grantor may further defend himself by invoking waiver. The doctrine of waiver can
be asserted when the holder of a preferential right "intentionally relinquishes [the preferential
right] or engages in intentional conduct inconsistent with claiming that right." 189 Waiver can be
established either through an express renunciation or "[ s]ilence or inaction, for so long a period
as to show an intention to yield the known right." 190
III.        CONSENTS TO ASSIGN
        In any given oil and gas transaction, there is likely to be at least one lease, easement or
contract containing a consent-to-assign provision. This section of the paper will address consent-
to-assign provisions in several respects. First, it will briefly discuss consents to assign in the
landlord-tenant context for historical background. Second, it will highlight four types of
consent-to-assign provisions that may be encountered in oil and gas transactions and discuss

1so Id.
181
    Forderhause, 641 S.W.2d at 526; Weber v. Tex. Co., 83 F.2d 807, 808 (5th Cir. 1936) (applying Texas law);
Jarvis, 2013 Tex. App. LEXIS at *12-13.
182
    TEX. CIV. PRAC. & REM. CODE ANN.§ 16.004(a)(l).
183
    Gilbreath v. Steed, No. 12-11-00251, 2013 Tex. App. LEXIS 5947, at *10 (Tex. App.-Tyler May 15, 2013, no
pet.) (mem. op.).
184
    Id. at *10-11.
185
    Id. at *11-12.
1s6 Id.
1s1 Id.
1ss Id.
189
      Tenneco, 925 S.W.2d at 643.
190   Id.


                                                                                                           18
 their effects. Lastly, this paper will lay out the requirements for consent-to-assign provisions in
 state leases.
 A.      CONSENTS TO ASSIGN IN LANDLORD-TENANT LAW
        Although it is not clear that legal principles applicable to consent to assignment
provisions contained in landlord-tenant contracts are controlling with respect to consent to
assignment provisions in oil and gas leases, since consent to assignment provisions are
commonly found in landlord-tenant contracts, the following review of such legal principles may
be instructive, and helpful, in evaluating the issues presented in the instant facts.
       Because a landlord's consent to assignment is statutorily required in Texas, 191 consent to
assignment provisions that require that a landlord/lessor give consent not to be unreasonably
withheld are treated as covenants which, if breached, could be grounds for actions for
damages. 192 Texas courts do not have a settled legal definition for what constitutes a reasonable
reason to withhold consent. 193 However, in determining whether a landlord/lessor is acting
unreasonably in withholding a consent to an assignment, courts have examined various factors,
including the intended use of the property, the financial status of the proposed assignee, and the
evidence supporting the commercial reasonableness of the denial. 194                  Furthermore,
reasonableness should be determined from the landlord - tenant lease terms, and an~ demand to
change the terms of such lease in exchange for consent is deemed unreasonable. 1 5 Courts in
other states have also applied reasonably prudent person standards and reasonable business
person standards to determine reasonableness. 196
        If a landlord/lessor unreasonably withholds consent under one of the above applicable
standards, a tenant/lessee has a cause of action for breach of the covenant to reasonably
consent. 197 Furthermore, at least one court in another state has held that a tenant/lessee no longer
needs to obtain consent if a landlord/lessor previously withheld consent unreasonably. 198 In that
case, the court held that a landlord/lessor who withholds consent without giving any
consideration to the financial stability of the proposed assignee and ignores reasonable efforts by
tenant/lessee to obtain consent waives its right to withhold consent. 199 Under this rule, a
landlord/lessor's unwillingness to reasonably consider a tenant/lessee's good faith effort to
obtain consent voids the consent requirement.
       In the absence of a covenant not to unreasonably withhold consent, Texas courts have
been unwilling to read in an implied covenant that the landlord/lessor act reasonably in
withholding consent. 200 However, the justification for not implying a covenant not to

191
    TEX.PROP.CODEANN. § 91.005 {Vernon 1984).
192
    Reynolds v. McCullough, 739 S.W.2d 424, 429 (Tex. App.-San Antonio 1987, writ den.)
193
    Burlington Northern and Santa Fe Rwy. Co. v. South Plains Switching, Ltd. Co., 174 S.W.3d 348, 352 (Tex.
App.-Fort Worth [2" Dist] 2005).
19
    Burlington, 174 S.W.3d at 353.
195
    B.MB. Corp. v. McMahan 's Valley Stores, 869 F.2d 865, 869 (5fu Cir. 1989).
196
    Ernst Home Center, Inc. v. Sato, 910 P.2d 486 (Wash. App. [Div. 1] 1996); Tenet Healthsystem Surgical, L.L.C.
v. Jefferson Parish Hospital Svc. Dist. No. I, 426 F.3d 728 (5" Cir. 2005).
197
    B.MB., 869 F.2d at 869.
198
    Roundup Tavern, Inc. v. Pardini, 68 Wash. 2d 512, 514-515 (1966).
199 Id.

zoo Reynolds, 739 S.W.2d at 429, discussing TEX. PROP. CODE ANN. § 91.005 {Vernon 1984).


                                                                                                                19
 unreasonably withhold consent comes from deference to a state property statute that allows a
 laodlord to withhold consent to an assigrunent. 201 As such, aod as noted above, it is unclear
 whether a court would find an implied covenant of reasonableness for a consent provision
 existed in ao oil and gas lease, which is considered a fee interest aod would not be governed by
 the landlord-tenant statute. No cases addressing this issue could be found. In the absence of
 statutory limitations like the one found in Texas, courts in other states have applied a staodard of
 good faith and fair dealing for landlord-tenant contracts to read in a requirement that any non-
 consent be reasonable, even if the consent provision did not explicitly require reasonableness. 202
 In this regard, even consent requirements without reasonableness standards may be subject to
 some good faith constraints on a lessor's ability to withhold consent, although it is unclear
 whether such a constraint would be applied to an oil and gas lease in Texas.
 B.         CONSENTS TO ASSIGN BETWEEN OIL AND GAS LESSOR AND LESSEE
        In Texas, an oil and gas lease is a lease in name only, as Texas oil and gas leases create
determinable fee interests, which are distinguishable from leases in the landlord-tenant context.
As a general rule, attempted restraints on alienation of a fee are void. Thus, while consents in oil
and gas leases are generally treated similarly to landlord-tenant leases, any consent provision in
ao oil and gas lease is likely unenforceable if the penalty for breach is forfeiture, or if the
provision completely restricts future conveyances. If a lease contains such a provision, a court
will probably construe the consent provision against the party seeking termination. 203
        Depending upon the language, consent-to-assign provisions may be construed as either
covenaots or conditions subsequent. As such, the provisions must be carefully analyzed in order
to ascertain the risks, effects, and duties that arise thereunder. Breach of a covenaot typically
results in a cause of action for damages, whereas breach of a condition subsequent typically
results in the underlying lease or assignment being forfeited or voided, respectively. Courts tend
to disfavor conditions subsequent because "a failure of the graotee to perform as promised is not
a sufficient ground for forfeiture of the estate graoted in the absence of additional
circumstaoces." 204 If the consent-to-assign provision cao be read as a covenant, a court will
likely interpret it as such.
        Though this paper focuses on Texas law, it should be noted that Louisiana courts are
more likely to enforce a consent-to-assign provision with forfeiture. Louisiana case law upholds
caocellation as a remedy for breach. 205 In one case, the Louisiana Supreme Court affirmed the
cancellation of a lease where a commercial lessee breached the consent-to-assign provision bl.
subletting property across from the recently-built Superdome to be used as a parking facility. 2 6
The Court cancelled the lease, allowing the lessor to execute a new lease on the property, which
had increased in value substantially. 207

201   Id.
202
      Weisner v. 791 Park Avenue Corp., 180 N.Y.S. 2d 734 (1958), rev'd on other grounds, 190 N.Y.S.2d 70 (1959).
203
      Considine, supra note 5, at 3.
204
    Haskins v. First City Nat'/ Bank of Lufkin, 698 S.W.2d 754, 757 (Tex. App.-Beaumont 1985, no writ) (quoting
Anderson v. Anderson, 620 S.W.2d 815 (Tex. Civ. App.-Tyler 1981, no writ)).
205
    See Aimee L. Williams, Restrictions on Assignment: Consent to Assign, Preferential Rights to Purchase and
Maintenance of Uniform Interest Provisions, 49TH ANN. INST. ON MINERAL L. 224, 248 (2002).
206
    Ill. Cent. GulfR.R. Co. v. Int'/ Harvester Co., 368 So.2d 1009, 1012 (La. 1979).
207
    See id.


                                                                                                                20
          Consent-to-assign provisions can be written in countless ways, but !bis section discusses
 the following four general categories, all of which have been discussed in published cases. A
 provision can be classified as a Category !, or "soft consent," if it states that consent to assign is
 required, but that consent shall not be unreasonably withheld. By contrast, a Category 2 consent
 provision requires prior written consent, but contains no language requiring that the consent shall
 not be unreasonably withheld. The last two categories are rare, but are discussed herein to
 illustrate the importance of carefully evaluating consent language, and the legal consequences of
 using certain provisions. Category 3 consent provisions require consent, the lack of which voids
 the underlying assignment. A Category 4 consent provision is created by language stating that
 consent is required and that lack of consent results in a forfeiture of the lease.
 1.         Categorv I: Consent Shall Not Be Unreasonably Withheld
       An example of a Category I consent provisions is as follows: "The rights of lessee shall
not be assigned without the written consent of lessor, which consent shall not be unreasonably
withheld."
         Category 1 consent provisions are quite common, and are both valid and enforceable. 208
Whether withholding consent is reasonable is a question of fact. 209 Courts have found that
withholding consent due to economic concerns is not unreasonable. 210 However, there is very
little guidance on what other facts might be considered reasonable bases for withholding consent.
If a rightholder does withhold consent, and the parties seeking to transfer rights under a lease
seek legal action claiming that the consent was unreasonably withheld, it should be noted that
since the putative assignee is not a party to the contract containing the consent provision, only
the p~ seeking to assign the contract would have standing to sue the party withholding
consent. 11
        Due to courts' reluctance to void contracts, the breach of a Category I is highly unlikely
to result in the termination of the underlying lease or invalidation of the improper assignment. If
a rightholder withholds consent but a lessee assigns the oil and gas lease despite the lack of
consent, the rightholder is instead limited to a cause of action for breach of contract against the
assignee. However, the breach of contract claim typically results in a "no harm, no foul"
situation, generally due to the difficulty on the part of the rightholder of proving damages for the
assignor's breach. 212 As such, damages seldom result from breach of this type of consent
provision. 213
        It is possible that a lessor could insert a monetary damages clause for breaches of contract
resulting from unpermitted assignment of a lease without consent, and a court may allow such
monetary damages if they are reasonable and not punitive, and if the parties acknowledge in the
agreement that such monetary damages are a fair estimate of damages that would otherwise be
difficult to ascertain. However, no cases with a lease containing such a clause could be found.
208
      Cross, supra note 4 at 224.
209
    See Ridge/ine, Inc. v. Crow-Gottesman Shafer #1, 734 S.W.2d 114, 116 {Tex. App.-Austin 1987, no writ).
210
    Mitchell's, Inc. v. Nelms, 454 S.W.2d 809 {Tex. Civ. App.-Dallas 1970, writ refd n.r.e.) (commercial real
estate lessor did not unreasonably withhold consent to sublease where lessor would not have received adequate rent).
211
    Oliver Res. PLC v. Int'/ Fin. Corp., 62 F.3d 128, 132 (5th Cir. 1995)(applying Texas law).
212
    Id. at 223.
213
    Palmer v. Liles, 677 S.W.2d 661, 665 (Tex. App.-Houston [!st Dist.] 1984, writ refd n.r.e.); Cross, supra note
4 at 223.


                                                                                                                  21
 In the absence of any stipulated damages, the lessor will likely be unable to prove actual
 damages, thus breach of a Category I consent provision will probably result in a take-nothing
 judgment.
 2.          Categorv 2: Prior Written Consent Required, No Reasonableness Language
        An example of a Category 2 consent provision is as follows: "The rights of lessee shall
 not be assigned without the written consent oflessor."
         A Category 2 consent (or "hard" consent) is one that requires the lessee to seek the
 lessor's consent prior to assigning the lease, but lacks a clause stating that consent shall not be
unreasonably withheld. Such consent provisions are common and generally enforceable. When
 interpreting such consent provisions in the oil and gas context, courts have directly adopted the
law under the landlord-tenant context. Category 2 consents are distinguishable from Category I
consents because they ostensibly allow a holder to withhold consent for any reason, whether or
not such action is reasonable. Courts take such provisions at face value, and have been unwilling
to imply a covenant that the consent cannot be unreasonably withheld if such a covenant is not
                            214
included in an agreement.       As a result, a rightholder under a Category 2 consent will have a
stronger cause for breach of contract than under Category I against an assignor who assigns the
lease without proper consent, since a Category 2 consent allows the rightholder to avoid the
question of reasonableness regarding the withheld consent. However, like a breach of a
Category I consent, breach of a Category 2 provision would likely result in a cause of action for
damages and a take-nothing judgment, since actual damages resulting from the lessee's breach
will be difficult for the lessor to prove. As with Category I consents, courts are generally
reluctant to allow forfeiture of the lease, so a party breaching the consent provision does not risk
termination of the lease or invalidation of the assignment.
3.          Category 3: Lack of Consent Voids the Assignment
       An example of a Category 3 consent provision is as follows: "The rights of lessee are not
assignable without the prior written consent of lessor, and an attempted transfer without prior
written consent oflessor shall be void ab initio and without any effect."
        Category 3 consent provisions are not uncommon, but there are very few cases discussing
the enforceability of such provisions. A Category 3 consent-to-assign provision appears to avoid
the issues surrounding a forfeiture consent clause, while still restricting assignability. 215
Unfortunately for lessors, a Category 3 consent provision may not yield the desired results. In
fact, such a restriction on the assignability of a fee interest is akin to the language rejected by the
Eastland Court of Appeals in Soper v. Medford. 216 In that case, the court found language stating
that the underlying property was "never to be sold or traded off' without consent to be void as
"repugnant to the grant" ofa fee interest. 217
       It is unclear whether a court might allow a consent provision similar to Category 3 but
which limits the consent so it cannot be unreasonably withheld. It is possible that parties could

214
   Reynolds, 739 S.W.2d at 429, discussing TEX. PROP. CODE ANN.§ 91.005 (Vernon's 1984); Williams, supra note
205 at 248.
215
      Cross, supra note 4 at 226.
216
    Soper v. Medford, 258 S.W.2d 118, 120-21 (Tex. Civ. App.-Eastland 1953, no writ).
217
    Id. at 122.


                                                                                                           22
 draft a hybrid Category I/Category 3 consent provision that could arguably be less of an absolute
 restraint on alienation than the provision in Soper, and thus may be seen as enforceable.
 However, there has been no case law regarding such a provision, and in light of the lack of
 authority regarding what constitutes reasonable withholding of consent, there may be little
 practical difference between such a provision and the provision in Soper. In this regard, the
 provision would likely still be considered unenforceable.
 4.         Category 4: Lessee's Failure to Obtain Consent Results in Forfeiture of the Lease
        An example of a Category 4 consent provision is as follows: "In the event Lessee, its
 successors or assigns, should attempt to assign any interests without the written consent of the
 Lessors, this lease shall ipso facto terminate as to the interest so assigned, as well as all of the
 remaining interest owned by the person making such assignment."
        As stated above, generally, consent provisions in oil and gas leases that provide forfeiture
as a penalty for breach will not be enforced. 218 Because oil and gas leases are considered fee
simple determinable interests, and attempted restraints on the alienation of a fee are void as a
general rule, consents to assignment of oil and gas leases are not enforceable if they establish
forfeiture as a penalty for breach or completely restrict future conveyances. 219 Texas courts have
been unwilling to enforce forfeiture or automatic termination clauses (in consent provisions or
otherwise), with one court holding that a forfeiture clause did not provide an "enforceable
penalty."220 In Outlaw v. Bowen, the Amarillo Court of Appeals refused to enforce a forfeiture
clause in a mineral deed. 221 The deed in Outlaw attempted to maintain the uniformity of the
underlying royalty interest by restricting the transfer of less than the whole interest, stating that
"no conveyance or assignment of [the underlying] royalty shall ever be made except in whole
and that any attempt to convey or assignany portion less than the whole thereof, either by
grantee, her heirs or assigns, shall operate to forfeit the entire royalty hereby conveyed to the
grantor herein, and any such conveyance or a portion thereof shall be null and void."222 The
court stated that the forfeiture provision was void as a restraint on alienation. 223 In coming to its
decision, the court utilized language indicating it did not consider forfeiture of fee simple title to
be an enforceable penalty. 224
        Since an oil and gas lessee holds a fee simple determinable as opposed to a fee simple
interest, it is unclear whether a court would void a Category 4 consent-to-assign provision in an
oil and gas lease in its entirety in light of Outlaw. Theoretically, fee simple title exists until the
end of time; an oil and gas lease exists until the lease ceases to produce in paying quantities.
Forfeiture of a perpetual estate is a more heinous penalty than forfeiture of an estate that will
eventually terminate. As such, a Category 4 consent in an oil and gas lease is unlikely to be
considered void on its face as the court held in Outlaw. Instead, a court will likely consider the
218
    Cross, supra note 4 at 224.
219
    See Knight v. Chicago Corp., 183 S.W.2d 666 (Tex. Civ. App.-San Antonio 1944), ajf'd, 188 S.W.2d 564 (Tex.
 1945); see also Cross, supra note 4 at 226.
220
    Outlaw v. Bowen, 285 S.W.2d 280, 283 (Tex. Civ. App.-Amari!lo 1955, writ refd n.r.e.); see also 5 Tex.
Wesleyan L. Rev. at 226, noting that a forfeiture restraint in a consent requirement would be unreasonable under
Restatement (Second) of Property §4.2 (1981).
221
    Outlaw, 285 S.W.2d 280.
222
    Id at 283.
223   Id.
224   Id.


                                                                                                              23
 consent prov1S1on valid, but avoid enforcing any language requmng lease forfeiture or
 termination. Although there have been cases in other states that have resulted in lease
 termination for breach of consent provisions, 225 Texas courts interpret restrictive provisions as
 strictly as possible against a lessor who seeks termination of the lease. 226 As the Texas Supreme
 Court held in Knight v. Chicago Corp. when it affirmed a San Antonio Court of Civil Appeals
 decision rejecting a provision similar to the above Category 4 example in an oil and gas lease, "if
 there is any uncertainty in the language so as to make it ambiguous or of doubtful meaning" that
 lease termination is the only remedy, then the court will avoid declaring a termination. 227
         The consent provision in Knight was designed to prolong the productive life of the lease
 by preventing any dilution of the working interest without the lessor's written consent. 228 Per the
 lease terms, an assignment of an undivided interest or an override would "ipso facto" terminate
            229
 the lease.     In dicta, the San Antonio Court of Civil Appeals rejected the ipso facto language as
creating a condition subsequent. 230 The court supported its decision not to give effect to the
termination clause by quoting "§ 74. Construction of Instruments" in American Jurisprudence,
which states that "[A] provision restraining the grantee from 'offering' or 'attempting' to alien is
ordinarily void for uncertainty and cannot be restrained. This attitude of the courts is in accord
with the general rule that conditions subse::i:,uent in conveyances are not to be favored, since they
tend to impair the fee or estate granted." 31 In this regard, consent provisions in Texas are
generally enforceable only to the extent that they do not stipulate that breach voids the lease or
that assignability is expressly barred. However, the unenforceability of the consent provision in
Knight was not determinative in the outcome of either the court of appeals case or the Texas
Supreme Court case affirming the court of appeals' decision, and the Knight courts indicated that
it may enforce a consent provision with a forfeiture penalty if the penalty was clearly and
expressly provided in the lease. 232 As such, while Knight has not been interpreted to mean that
lease termination provisions are ineffective per se, strict interpretation against termination in the
case of any ambiguity, as favored by the court, make lease termination highly unlikely.
C.          STATE LEASES
I.          Texas Public Lands and the Relinquishment Act
       The consent provisions contained in state leases ought to be strictly adhered to because of
the severity of the penalty for breach. 233 In general, oil and gas leases on Texas public lands are
assignable. 234 However, any assignment must be filed with the General Land Office (the




225
    4-51 Kuntz, Law of Oil and Gas §5!.2(b).
226
    Knight v. Chi. Corp., 183 S.W.2d 666 (Tex. Civ. App.-San Antonio 1944), aff'd, 188 S.W.2d 564 (Tex. 1945).
227
    Knight, 188 S.W.2d at 566.
228
    Knight, 183 S.W.2d at 668.
229   Id.
230
      See id. at 671.
231
    Knight,183 S.W.2dat671,quoting41 Am.Jur.114.
232
    See Knight, 188 S.W.2d at 566.
233
    Considine, supra note 5 at 5.
234
    TEX. NAT. RES. CODE ANN.§ 52.172 (West 2012).


                                                                                                             24
            235
 "GLO").    Failure to file the assignment with the GLO may result in a forfeiture of the lease,
 which may be reinstated upon a showing of "satisfactory evidence of future compliance." 236
         Under the Relinquishment Act, the surface owner acts as an agent of the State in leasing
 minerals on public lands. 237 Prior to assigning the lease to an owner of the soil, both the lessee
 and the owner of the soil must notify the GLO of their intent to assign the lease. 238 If the lease is
 assigned to an owner of the soil without the GLO's prior consent, the lease is void as of the time
 of assignment. 239

        To further complicate the matter, the statute gives an extensive definition of who qualifies
 as an owner of the soil. Thus, a Relinquishment Act lessee should beware of assignments to
 people in the following categories:

          (1)       a nominee of the owner of the soil;

          (2)      a corporation or subsidiary in which the owner of the soil is a principal
                   stockholder or is an employee of such a corporation or subsidiary;

          (3)      a partnership in which the owner of the soil is a partner or is an employee of such
                   a partnership;

          (4)      a principal stockholder or employee of the corporation which is the owner of the
                   soil;
          (5)      a partner or employee in a partnership which owns the soil;

          (6)      a fiduciary for the owner of the soil, including but not limited to a guardian,
                   trustee, executor, administrator, receiver, or conservator for the owner of the soil;
                   or
          (7)      a family member of the owner of the soil or related to the owner of the soil by
                   marriage, blood, or adoption. 240

       Iftitle passes to any of the listed persons without the GLO's approval, the lease is void.
Additionally, the owner of the soil is required to pay a penaltt,; to the state for the attempted
assignment. 241 Payment of the penalty does not revive the lease. 42
2.       Louisiana State Leases

       By comparison, Louisiana's consent provisions in state leases are considerably more
stringent than those found in Texas state leases. Louisiana law provides that transfers or
assignments of state leases are invalid unless approved by the State Mineral and Energy Board


"'Id. at § 52.176.
236
    Id. at§ 52.176 (lessee loses its interest in the lease, but the owner of the soil does not lose its agency).
237
    Id. at§ 52.188(a).
238
    Id. at § 52.l 88(b).
239
    Id. at § 52.188(c).
240
    Id. at§ 52.188(e).
241
    Id. at§ 52.188(d).
242
    Id. at§ 52.188(d)(l).


                                                                                                                   25
 (the "Board"). 243 Failure to obtain the Board's approval within sixty days of the execution of the
 assignment subjects the assigning party to a penalty of $100 per day. 244 The statute states that
 the Board may waive the penalty, but one commentator advises against relying on such a
 waiver. 245 Until the Board approves the assignment, Louisiana courts refuse to recognize that the
 purported assignee has any rights in the property. 246 Thus, one must pay close attention when
 assigning state leases in Louisiana.
 IV.     CONCLUSION
        There are a number of different issues presented by preferential rights to purchase and
consents to assign. Not surprisingly, the particular language of a preferential right or consent to
assign will directly affect the enforceability of such provisions. By recognizing and identifying
the different clauses that may be used in preferential right and consent provisions and noting the
issues that may arise therefrom, parties to oil and gas leases and similar instruments can avoid
unintended or unanticipated restrictions on the use and assiguability of oil and gas properties.
Familiarization with common language used in such provisions and courts' treatment thereof can
therefore aid in the drafting of clear and enforceable restrictions to transfer and prevent
unnecessary disputes between grantors and rightholders.




243 LA. REV. STAT. ANN.§ 30:128A (2012).
244
    Id. at § 30: 128B.
245
    Williams, supra note 205 at 255.
246 Id. (citing Transworld Drilling Co. v. Tex. Gen. Petroleum Corp., 480 So.2d 323, 325 (La. App. 4 Cir. 1985)).




                                                                                                                    26
