A Texas judge has recused himself from further involvement in a high-profile case from a rural county that has established widespread problems for landmen and private-equity dealmakers in Texas's energy industry. Defendants, who lost the case, discovered that the Honorable Glen Harrison, of the 32nd Judicial District Court, had followed plaintiffs' attorneys during the trial, tweeted about developments in the case, and "liked" a celebratory tweet by a plaintiff's attorney one day after the trial - and many more times thereafter.
The defendants are Kerwin Stephens and Chester Carroll, two landmen who packaged oil and gas leases and sold them to Devon Energy in 2012 for $35 million. Stephens and Carroll became liable to four passive investors in 2015 - for $50 million! - when each landman's company had made only $5 million on the deal. The Eastland Court of Appeals removed much of the huge liability but left $15 million in place.
Many passive investors, including the four who decided to sue Stephens and Carroll, made substantial profits. Some of these passive investors put in $600,000 and received back $2.4 million, and others put in $125,000 and received back $1.1 million - all in under one year.
The case illustrates the dangers of having juries award money damages in complex business cases - especially when turned loose with lengthy jury charges that enable them to award multiples of damages for the same underlying harm.
It also illustrates the dangers of having trial judges with potential bias and prejudice against business defendants. Here, the trial judge Hon. Glen Harrison signed a $50 million judgment against the landmen and their companies, including Mr. Stephens, and then refused their requests to supersede the judgment pending the appeal. All the while, the trial judge was in an active Twitter relationship with the plaintiffs' counsel, frequently communicating with one lawyer about personal matters and "liking" her negative views about Mr. Stephens on Twitter.
Mr. Stephens's legal team learned of the improper Twitter conduct in late 2020, years after the damage was done. Ultimately, in late 2021 the trial judge recused himself from any further activity in the case.
In the jury trial leading to the Stephens case, a Texas jury in tiny Fisher County (population 3,800) found the defendants personally liable after a bizarre three-week trial that culminated in a 70-page jury verdict with 230 distinct questions. The jury spent an average of just 1.3 minutes answering each sub-question in this protracted case. Many problems arose from the case's complex facts - and especially from the numerous verdict questions, which the jury spent little time answering.
The trial judge - while having Twitter communications with plaintiffs' counsel - signed a $50 million judgment on the jury's $96 million verdict. Then, he disallowed Mr. Stephens's efforts to supersede the judgment pending the appeal, until the Eastland Court of Appeals forced him to do so.
The trial focused on a unique theory that Mr. Stephens, an investor and landman for the deal, was acting as an "attorney" and "fiduciary" rather than acting solely through his land services companies. Thus, the case has created a template for passive investors to turn landmen and dealmakers into "attorneys," "partners," "trustees," and "fiduciaries" in oil and gas deals and in other private-equity opportunities. It also creates a template for investors to use elaborate "conspiracy" claims to make co-defendants fully liable for each other's actions. These templates are dangerous; they weaponize passive investors with legal claims to use - or to threaten to use - against the very dealmakers, like Mr. Stephens, who involve the investors in a successful deal.
The outcome of this case will have broad implications for landmen and dealmakers in Texas's energy industry. Not surprisingly, many business-minded attorneys hope the Texas legal community and oil and gas industry will study this case, in order to prevent or at least deter these kinds of cases from wrecking oil and gas deals in Texas.
Kerwin B. Stephens is a landman, rancher and oil and gas operator, and attorney with Stephens & Myers, L.L.P. He lives and works in Graham, Texas.
Kerwin B. Stephens,
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