District court erred in ruling Amerril Energy and U.S. KingKing are alter egos, appeals court says

By Karen Kidd | Jun 12, 2018

HOUSTON – A dispute between a Houston-based oil well operator and four of its servicers is on its way back to a Harris County court after a three-judge Texas appeals panel found the trial court had not proven alter ego status between the well's operators.

Texas 1st District Court of Appeals reversed the 129th District Court in Harris County's previous finding that Amerril Energy and U.S. KingKing were alter egos, reversed portions of the ruling that KingKing was liable for Amerril's obligations and remanded the case for further proceedings.

The appeals court concluded that the primary servicer and suppliers in the litigation, Weatherford International and two of its subsidiary companies, failed to establish "as a matter of law" that Amerril and KingKing acted with "dishonesty of purpose or intent to deceive," the appeals court said in its 40-page opinion issued June 5.

"Weatherford also has not conclusively established that Amerril’s and KingKing's use of limited liability was 'illegitimate' or that the companies used the corporate structure to shield abuse such as fraud, evasion of existing obligations, circumvention of statutes, monopolization, criminal conduct, and the like," the opinion continued.

"Because we conclude that Weatherford has not established that KingKing caused Amerril to be used for the purpose of perpetrating and did perpetrate an actual fraud on Weatherford primarily for KingKing's direct personal benefit, we hold that the trial court erred in ruling that KingKing was jointly and severally liable for Amerril’s contractual obligations to Weatherford," the opinion stated.

Justice Evelyn V. Keyes wrote the appeals court's opinion. Also on the panel were Justice Terry Jennings and Justice Laura Carter Higley.

The justices handed down its opinion in the dispute between Houston-based KingKing, and its goods and services suppliers Precision Energy Services, based in Hayden, Idaho, and Weatherford International, a multinational company that is one of the world's largest oil and natural gas service providers with headquarters in Houston. Other named litigants are two other members of the Weatherford group of companies - Weatherford Laboratories and Weatherford Artificial Lift System.

Precision Energy and Weatherford initially sued Amerril, a well operator and a limited liability company, alleging breach of contract, fraud, declaratory relief and foreclosure of a mineral lien, according to the background portion of the appeals court's decision. 

"Weatherford sought to pierce the corporate veil of Amerril and hold appellant U.S. KingKing LLC, likewise a limited liability company and a member of Amerril, liable for Amerril's obligations under an alter-ego theory," the opinion said.

U.S. KingKing is a U.S. branch of a Chinese corporation "and one of the members of Amerril," the opinion said

The litigation stems from the 2013 failure of plugs and the mud motor, provided by Weatherford, allegedly failed in a Leon County well leased and operated by U.S. KingKing and Amerril.

The 129th District Court in Harris County granted summary judgment in favor of Weatherford, holding Amerril and U.S. KingKing jointly and liable, awarded attorney's fees and collection costs and entered declaratory relief to Weatherford, ruling that Weatherford was entitled to foreclosure on its mineral lien.

In its appeal, U.S. KingKing claimed, among other things, that the district court was wrong when it granted summary judgment to Weatherford because it had not conclusively established an alter ego relationship with Amerril was KingKing's alter ego, that Weatherford's dismissed fraud claims could not be basis for judgment and that a new trial should have been granted.

"Because we hold that the trial court erroneously rendered summary judgment against KingKing and remand the case for further proceedings, we need not address KingKing's sixth appellate issue - whether the trial court abused its discretion by denying KingKing's motion for new trial," the opinion said.

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