TEXARKANA – Harleton Oil & Gas Inc. will no longer receive $6.8 million it was awarded by the 71st District Court, Harrison County in connection with a sale of deep right interests in an oil and gas leasehold after the 6th District Court of Appeals at Texarkana reversed part of the district court’s ruling.

According to the July 7 appeals court ruling, Chesapeake Louisiana LP agreed to buy three-year assignments in Buffco Production Inc. and Twin Resources LLC’s “right, title and interest in and to the lands described,” including the 680-acre Geisler Gas Unit No. 1.

In consideration for the purchase of the interest, Chesapeake agreed to pay $13.6 million for a 50 percent portion of the interest it believed was jointly owned by Buffco and Twin Resources, as well as the same amount for a 50 percent interest held by Freeman Resources LTD.

However, “Chesapeake’s due diligence failed to uncover the fact that Harleton Oil & Gas Inc. actually owned a 50 percent nonoperating working interest to the deep rights in the Geisler unit,” according to the appeals court ruling.

Harleton subsequently sought payment as a third-party beneficiary of Chesapeake’s purchase agreement with Buffco and Twin Resources, while Chesapeake filed a lawsuit alleging that it was owed overpayments under the agreement because it did not, in fact, own all of the interests in the unit.

The district court granted Harleton third-party beneficiary status and ordered the Buffco and Freeman defendants to oversee a $6.8 million trust, funded from the Chesapeake payment, and turn those funds over to Harleton.

All of the parties to the letter agreement and Harleton appealed the lower court’s decision.

In its ruling, the appeals court said “imposition of a constructive trust on the monies received by the Buffco and Freeman defendants for the sums received by them from Chesapeake was improper” for a variety of reasons.

Specifically, the appeals court ruled that “Harleton’s unjust enrichment claims were barred by the statute of limitations, (and) Chesapeake cannot recover sums from Freeman for any overpayment under the letter agreement

In addition, the court said Chesapeake is not required to pay Harleton’s attorney's fees, “being neither a primary party to the contract nor a third-party beneficiary of the contract,” and, as a result, the lower court lacked jurisdiction to rule on Harleton’s breach-of-contract claim against Chesapeake.

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