South Central Petroleum, Inc. v. Long Bros. Oil Co.
974 F.2d 1015, 1992 U.S. App. LEXIS 21079 (1992)
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Rule of Law:
A party asserting waiver or estoppel must demonstrate that the party alleged to have waived its rights had actual knowledge of the relevant facts and intended to relinquish those rights. Additionally, under Federal Rule of Evidence 703, expert witnesses may rely on inadmissible hearsay evidence in forming their opinions, provided the information is of a type reasonably relied upon by experts in their particular field.
Facts:
- In 1985, Long Brothers Oil Company (Long Brothers), along with other investors, purchased Fouke Field, including all but an 11.22 percent interest in the Silberberg B-1 gas well, from Phillips Petroleum Company, acquiring a preferential right to purchase the remaining 11.22 percent interest from Texaco Producing, Inc. (Texaco).
- On September 27, 1988, Long Brothers signed an agreement with South Central Petroleum and Jerry Sawyer to jointly acquire Texaco's 11.22 percent interest in the Silberberg B-1 for a price not exceeding $400,000, with an agreed ownership split (50% Long Brothers, 37.5% South Central Petroleum, 12.5% Sawyer) if the property was not quickly resold; this agreement was effective September 15, 1988, for six months and thereafter terminable with thirty days' written notice.
- On December 5, 1988, Texaco agreed to sell its Silberberg B-1 interest to a third party.
- On February 14, 1989, Long Brothers notified Sawyer that it was terminating their joint acquisition agreement.
- Less than thirty days after providing the termination notice, on March 15, 1989, Long Brothers exercised its preferential purchase right to acquire Texaco's 11.22 percent interest in the Silberberg B-1 for $137,500, without notifying Sawyer or South Central Petroleum of the acquisition.
- On January 15, 1991, Sawyer and South Central Petroleum learned of Long Brothers' acquisition of the Texaco interest and demanded conveyance of their one-half share according to the 1988 agreement, which Long Brothers refused.
Procedural Posture:
- Sawyer and South Central Petroleum sued Long Brothers Oil Company in federal district court (a diversity action) for enforcement of their contract.
- Sawyer and South Central Petroleum moved the district court for summary judgment, arguing their contract with Long Brothers should be enforced.
- The district court granted Sawyer and South Central Petroleum's motion for summary judgment.
- The district court conducted a trial to determine an appropriate remedy.
- The district court ordered Long Brothers to transfer one-half of the acquired Texaco interest to Sawyer and South Central Petroleum, who were ordered to pay Long Brothers one-half of the purchase price and transaction costs, minus an offset for profits.
- Long Brothers appealed the district court's grant of summary judgment and its order regarding the remedy to the United States Court of Appeals for the Eighth Circuit, with Long Brothers as the appellant and Sawyer and South Central Petroleum as the appellees.
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Issue:
1. Did Long Brothers Oil Company's co-venturers, South Central Petroleum and Jerry Sawyer, waive their right to enforce a joint acquisition agreement by allegedly sitting on their rights or failing to act, despite not being informed of Long Brothers' acquisition of the shared interest? 2. Did the district court abuse its discretion by allowing an expert witness to rely on hearsay evidence to calculate an offset for profits in the remedy phase, when that hearsay evidence itself was not admitted?
Opinions:
Majority - HEANEY, Senior Circuit Judge
No, Sawyer and South Central Petroleum did not waive their right to enforce the agreement, and no, the district court did not abuse its discretion in admitting expert testimony. The court affirmed the district court's grant of summary judgment, finding that Long Brothers failed to establish the elements of waiver or estoppel. Long Brothers did not dispute that Sawyer and South Central Petroleum did not discover the acquisition until nearly two years after the purchase, thus failing to prove the first element of estoppel, which requires the party to be estopped to know the facts. Furthermore, there was no showing that their failure to participate in unrelated foreclosure litigation was inconsistent with an intent to enforce the contract with Long Brothers. Therefore, the contract was interpreted as valid because Long Brothers acquired the Texaco interest on March 15, 1989, while the thirty-day termination notice issued on February 14, 1989, would not have become effective until March 16, 1989. Regarding the remedy, the court found no abuse of discretion in admitting expert opinions for calculating the offset credit. Federal Rule of Evidence 703 permits experts to rely on inadmissible information, such as hearsay, in forming their opinions, as long as the information is 'of a type reasonably relied upon by experts in the particular field.' The district court explicitly limited the admission to the expert’s opinion, not the underlying data, and both parties' experts relied on similar production figures. Any weaknesses in the factual basis of the expert’s opinion go to its weight and credibility, not its admissibility. Finally, the court held that equity demanded Long Brothers compensate Sawyer and South Central Petroleum for lost profits during the period of non-ownership, given Long Brothers' failure to notify them of the acquisition despite the contractual agreement to work together.
Analysis:
This case provides critical clarification on the high evidentiary bar for proving waiver or estoppel, particularly underscoring that a party cannot waive rights of which they were ignorant. It strongly reinforces the broad discretion afforded to trial courts in admitting expert testimony under Federal Rule of Evidence 703, emphasizing that experts may permissibly rely on reasonably trusted, though otherwise inadmissible, hearsay data without such data itself being admitted into evidence. Furthermore, the ruling highlights the importance of good faith and transparency in contractual joint ventures, especially where one party possesses a unique advantage like a preferential purchase right, necessitating notification to co-venturers to prevent unjust enrichment.
