Seminole Transportation and Gathering LP v. Cedyco Corporation

Reversed and Remanded and Memorandum Opinion filed April 27, 2006 Reversed and Remanded and Memorandum Opinion filed April 27, 2006. In The Fourteenth Court of Appeals ____________ NO. 14-05-00159-CV ____________ SEMINOLE TRANSPORTATION AND GATHERING, L.P., Appellant V. CEDYCO CORPORATION, Appellee On Appeal from the 190th District Court Harris County, Texas Trial Court Cause No. 2003-63730 M E M O R A N D U M   O P I N I O N This is an appeal from a summary judgment. In two issues, appellant Seminole Transportation and Gathering, L.P. (ASeminole@) argues that the trial court erred in granting summary judgment in favor of appellee Cedyco Corporation (ACedyco@) because Cedyco did not establish the elements of its breach of contract claim against Seminole and because a party necessary to the proceedings was absent. Because Cedyco fails to establish that Seminole had any contractual obligations toward it, we reverse and remand. The underlying case concerns a dispute over sales proceeds from a well in Terrebonne Parish, Louisiana (the AWell@). Cedyco and another company, Suard Workover, Inc. (ASuard@), dispute which company owns a certain working interest in the Well that entitles the working interest owner to a portion of the Well=s sales proceeds.[1] A joint operating agreement, entitled AModel Form Operating Agreement@ (the AAgreement@),[2] governs relations between the Well=s operator and its non-operator signatories. Baby Oil, Inc., a Suard subsidiary, began operating the Well in 2003 and sold well production to a purchaser, Gulfmark Energy, Inc. (AGulfmark@). Because it did not recognize Cedyco=s claimed working interest in the Well, Baby Oil did not pay Cedyco any proceeds from these sales. After unsuccessfully demanding payment and an accounting of the Well=s production and sales from Baby Oil, Cedyco demanded payment from Gulfmark, the purchaser, claiming it was entitled to direct payment from purchasers under the Agreement. Cedyco sent Gulfmark and its attorney several demand letters, and when Gulfmark failed to pay, Cedyco filed a breach of contract claim against Gulfmark, Baby Oil, and Suard in Harris County, Texas. Consequently, Gulfmark interpleaded the disputed funds into the trial court=s registry. Baby Oil then replaced Gulfmark with Seminole as its purchaser, after which Cedyco demanded direct payment from Seminole and amended its claim to add Seminole as a defendant. Cedyco and Seminole filed an agreed temporary injunction under which Seminole deposited the disputed proceeds into the court=s registry. Subsequently, Baby Oil, a Louisiana corporation, made a special appearance contesting the trial court=s jurisdiction. Cedyco filed a motion to nonsuit Baby Oil on May 4, 2004, which the trial court granted two days later. On July 29, 2004, Cedyco filed a motion for summary judgment on its breach of contract claims against Seminole and Gulfmark and requested disbursement of the interpleaded funds. Cedyco=s entire summary judgment evidence against Seminole consisted of: (1) an affidavit from Cedyco=s president claiming ownership of the funds in the registry and stating that Seminole had refused to pay Cedyco directly on demand, (2) a copy of the Agreement, (3) a revenue statement indicating that Cedyco received proceeds before Baby Oil became operator, and (4) Seminole=s Agreed Temporary Injunction. At this time, Seminole did not respond to Cedyco=s motion for summary judgment. On September 30, 2004, four days before the trial court granted Cedyco=s motion for summary judgment, Cedyco nonsuited Suard, a Louisiana corporation that, like Baby Oil, contested jurisdiction through a special appearance. The trial court granted Cedyco=s motion for summary judgment on October 4, 2004 and nonsuited its remaining claims without prejudice on November 29, 2004. In May 2004, Baby Oil filed an action in Lousiana seeking declaratory judgment on the disputed funds against Seminole, Cedyco, Petroquest, Suard, and Gulfmark. On December 8, 2004, the Louisiana court ordered the funds deposited into its registry. Upon finding itself suddenly subjected to double liability, Seminole moved in the Texas trial court to file a late response to Cedyco=s summary judgment motion and concurrently filed its response. The trial court did not grant Seminole leave to file its late response, and this appeal followed. In its first issue, Seminole complains that the trial court=s summary judgment in favor of Cedyco was erroneous because Cedyco failed to establish the elements of its breach of contract claim. The standard of review for a traditional motion for summary judgment is whether the successful movant at the trial level carried its burden of showing that there is no genuine issue of material fact and that judgment should be granted as a matter of law. KPMG Peat Marwick v. Harrison County Hous. Fin. Corp., 988 S.W.2d 746, 748 (Tex. 1999). Under this traditional standard, this court must take as true all evidence favorable to the nonmovant and must make all reasonable inferences in the nonmovant=s favor. Sci. Spectrum, Inc. v. Martinez, 941 S.W.2d 910, 911 (Tex. 1997). However, summary judgments must stand on their own merits, and the nonmovant=s lack of response does not negate the movant=s burden of proving entitlement to summary judgment as a matter of law. City of Houston v. Clear Creek Basin Auth., 589 S.W.2d 671, 678 (Tex. 1979). A non-movant is not precluded from asserting on appeal that the grounds presented to the trial court in the movant=s motion for summary judgment are insufficient as a matter of law to support the motion. Hammond v. Katy Indep. Sch. Dist., 821 S.W.2d 174, 177 (Tex. App.CHouston [14th Dist.] 1991, no pet.). To recover under a breach of contract claim, a plaintiff must prove (1) the existence of a valid contract, (2) performance or tendered performance by the plaintiff, (3) defendant=s breach, and (4) resulting damages. Renteria v. Trevino, 79 S.W.3d 240, 242 (Tex. App.CHouston [14th Dist.] 2002, no pet.). Cedyco=s claim of contractual obligation against Seminole is based entirely on Cedyco=s rights under the Agreement. At oral argument, Cedyco=s counsel pointed to a provision of the Agreement that states, AEach party . . . shall be entitled to receive payment direct from the purchaser thereof for its share of all production.@ Although this language may obligate the well operator and other signatories to the Agreement, it does not obligate Seminole, a non-signatory. Cedyco argues that Seminole ratified the Agreement by depositing the disputed funds into the court=s registry. Ratification of a contract occurs when a party recognizes the validity of the contract by acting under the contract, performing under it, or affirmatively acknowledging it. Zieben v. Platt, 786 S.W.2d 797, 802 (Tex. App.CHouston [14th Dist.] 1990, no pet.). Cedyco cites no law, and we have found none, that infers ratification from the act of interpleading funds. Further, to hold that Seminole=s interpleading of funds constituted ratification would defeat the purpose of interpleader, which is to protect innocent stakeholders. See Clements v. Minn. Life Ins. Co., 176 S.W.3d 258, 263 (Tex. App.CHouston [1st Dist.] 2004, no pet.) (AThe purpose of interpleader is to allow an innocent stakeholder facing rival claims to let the courts decide who is entitled to the funds and, thus, avoid the peril of acting as judge and jury itself.@).[3] Having reviewed the summary judgment evidence before the trial court, we find Cedyco failed to carry its summary judgment burden because it failed to establish that Seminole had any contractual obligations toward it. Accordingly, we sustain Seminole=s first issue. Thus, we need not consider its second issue regarding the absence of necessary parties. We reverse the trial court=s judgment and remand for proceedings consistent with this opinion. /s/ Leslie Brock Yates Justice Judgment rendered and Memorandum Opinion filed April 27, 2006. Panel consists of Chief Justice Hedges and Justices Yates and Guzman. [1] Both parties claim they purchased the same working interest from a third party, Petroquest Energy, L.L.C., which is not a party to this lawsuit. [2] The record reflects two such agreements that are substantially similar except for their dates and several minor variances. At oral argument, Cedyco=s attorney stated that both agreements contain direct payment language, the subject of this dispute. Accordingly, we refer to both agreements collectively as the AAgreement.@ [3] Moreover, when Seminole entered the agreed temporary injunction and interpleaded the funds in March 2004, both Baby Oil and Suard, the other claimants to the proceeds, were defendants in the case. Thus, Cedyco was not the only party claiming entitlement to the funds when Seminole interpleaded them.