March 15 (Bloomberg) -- Devon Energy Production Co. and Trevor Rees-Jones must pay the Dallas billionaire’s ex-partner $116 million for defrauding him of his true share of a company that Devon later bought for $2 billion, a Houston jury said.
A Texas state court jury yesterday awarded damages to D. Bobbitt Noel Jr., a former minority partner in Chief Holdings LLC, which Rees-Jones sold to Devon in 2006. Jurors found Rees-Jones profited in excess of $360 million by selling Chief Holdings to Devon for 20 times the value he placed on the company when he bought Noel out in 2004.
“The two men were friends going back to high school, and the jury held that Rees-Jones didn’t fully and fairly disclose the value” when he bought out his minority partner, Noel’s lawyer, Grant J. Harvey of Gibbs & Bruns LLP in Houston, said today in a telephone interview.
Chief Holdings’ mineral rights were located in a historically lower-yielding section of the Barnett Shale, a prolific tight-gas reservoir near Fort Worth, Texas, Harvey said. Rees-Jones learned of a technological breakthrough that could dramatically increase production from his part of the formation, thus boosting its value, and he didn’t tell Noel about it, Harvey said.
“A number of advances revealed a large upside that wasn’t revealed before,” Harvey said. “Mr. Noel sold without that knowledge.”
Noel sold his 5.76 percent stake in Chief Holdings to Rees-Jones for $6.5 million in 2004, Harvey said. Jurors found that if he’d retained the interest, it would be worth $116 million today.
Craig Haynes, Rees-Jones’s lawyer, said he expects the oilman to prevail in spite of the jury’s verdict. Noel signed a release of all claims and promised never to sue Rees-Jones as part of the sale of his stake, which could lead the judge to disregard the jury’s findings, Haynes said.
“We are confident that release is going to be enforced as a matter of law and that no judgment will be entered,” Haynes said in a telephone interview. “There was another partner in the same position and making the same claims as Noel, and his release has been enforced in a different court.”
Rees-Jones also disputes the damages calculation, in that Texas law forbids jurors to award “consequential damages,” which is how the $116 million was characterized, Haynes said. The true damages should be $8 million, based on the value of Noel’s stake at the time Rees-Jones sold it to Devon, he said.
Devon Found Liable
Devon, as successor-in-interest to Chief, was also found liable for the fraud by the jury.
“Devon acquired Chief Holdings in 2006, two years after the events in question occurred, and was named as a defendant solely because it had assumed the legal liabilities of Chief Holdings in connection with that acquisition,” Chip Minty, Devon’s spokesman, said in an e-mailed statement today. “The plaintiff did not allege any misconduct of any sort by any persons at Devon.”
Minty said Oklahoma City-based Devon plans to appeal the verdict and seek full payment of any judgment and legal expenses from Rees-Jones, under an indemnity agreement. The lawsuit isn’t anticipated to have any material effect on the company, he said.
Devon Energy fell $1.02, or 1.2 percent, to close at $87.55 today in New York Stock Exchange composite trading. The stock has risen 29 percent in the last year.
The case is Noel v. Devon Energy Production Co., 2008-39598, 127th Judicial District Court of Harris County, Texas (Houston).
To contact the reporter on this story: Laurel Brubaker Calkins in Houston at firstname.lastname@example.org.
To contact the editor responsible for this story: David E. Rovella at email@example.com.