HOUSTON – A Texas appellate court recently nixed a $4.5 million award of exemplary damages to Shale Exploration, but did decide, however, to affirm a judgment of $14.3 million in lost profits allegedly caused by Eagle Oil & Gas’ theft of trade secrets.

In 2011, three companies partnered to develop an oil and gas prospect in Montana – Shale Exploration, Orion Resources and Black Pearl Exploration.

Black Pearl identified Eagle Oil, an exploration and drilling company, as a possible development partner. 

However, the parties never reached a development deal.

Court records show Shale Exploration began to acquire leases but soon learned a competing purchaser was also purchasing target mineral leases and assigning them to a subsidiary of Eagle Oil.

Shale sued Eagle by intervening in a lawsuit brought against Eagle by Orion and Black Pearl, alleging Eagle had breached a confidentiality agreement and engaged in the theft of trade secrets. 

At trial, the jury found in favor of Shale, awarding the company $14.3 million in lost profits.

Court records further show jurors found Eagle acted with malice, tacking on $4.5 million in exemplary damages.

The trial court entered judgment on the jury’s misappropriation of trade secrets findings and ruled that Eagle Wes-Tex, Eagle’s subsidiary, take nothing on its counterclaims.

On appeal, Eagle argued that since Orion settled and non-suited, the non-suit is res judicata (a matter already adjudicated by a court) and legally bars the judgment.

The company also contended the evidence was legally and factually insufficient to support the jury’s findings, including its findings that Eagle misappropriated trade secrets from Shale and acted with malice.

On April 19, the First Court of Appeals found that Eagle did not explain how the evidence contradicted the jury’s findings, opting to keep the judgment for loss of profits intact.

“There was evidence from which the jury reasonably could have inferred that Eagle tried to conceal that it was acquiring mineral leases within the prospect,” the opinion states.

However, justices did find the evidence was legally insufficient to support the jury’s finding of malice, reversing the award of exemplary damages.

Disagreeing with his counterparts, Justice Terry Jennings issued a dissenting opinion, stating there was sufficient evidence to support the jury’s malice finding.

“The majority agrees that the record contains evidence that … Eagle wrongfully misappropriated Shale’s trade secrets,” the dissenting opinion states. “And it even recognizes that Eagle went to great lengths to conceal its behavior by creating a new company to compete directly with Shale.

“Regardless, the majority reverses the trial court’s judgment awarding Shale exemplary damages, based on the jury’s malice finding, because there is no evidence that Eagle intended to injure Shale in a manner that is ‘independent and qualitatively different’ from the compensable harms associated with its misappropriation of Shale’s trade secrets.’”

Eagle is represented in part by Bruce Bowman Jr., attorney for the Dallas law firm Godwin Bowman & Martinez.

Shale is represented in part by San Antonio attorney Brendan McBride.

Appeals case No. 01-15-00888-CV

Harris County District case No. 2012-25694

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