Exculpatory ClausesBlawgletter's seven-part exposition of the hottest oil and gas claims for 2015 (which we co-wrote for the Institute for Energy Law's 66th Oil & Gas Law Conference in Houston) moves into an area that plaintiffs hate and defendants love — the exculpatory clause. Specifically, the ones that the American Association of Petroleum Landmen put in the AAPL's standard-form joint operating agreements, or JOAs.

Changes in the JOA from the 1977 and 1982 forms to the 1989 version present the question of whether the exculpatory clause excuses breach of contract and, if so, which kinds of breach. We'll address that before turning to what fact patterns make avoiding the preclusive effect of JOA exculpatory clauses more likely.

Legal Backdrop

Since 1977, the dominant model for JOAs has excused the operator from “losses sustained or liabilities incurred” unless they “result from gross negligence or willful misconduct.”But what if the operator broke a  promise in the JOA itself? Does the non-operator still have to show gross negligence or willful misconduct to win a claim of breach?

The answer may depend on which version of the model JOA applies. Under the 1989 form, the Supreme Court of Texas held in Reeder v. Wood County Energy, LLC, 395 S.W.3d 789 (Tex. 2012), a party to a JOA does have to prove a higher degree of fault even for a simple contract claim.The Court pointed out that 1977 and 1982 models spoke of “operations” by the operator but that the 1989 form dealt, in contrast, with “activities under this agreement”.As the Court explained:

Reading the clause as written, we conclude that the model form transformation is significant, as the change in language broadens the clause’s protection of operators. . . . The agreed standard exempts the operator from liability for its activities unless its liability-causing conduct is due to gross negligence or willful misconduct.

Id. at 795. The Court thus held that the clause barred Reeder’s liability for failing (negligently) to repair oil wells. Id. at 797.

The older clauses, on the other hand, do not apply to pure claims for breach of the JOA, the Tenth Circuit has held, contrary to a 1992 ruling by the Fifth Circuit. In 4Shell Rocky Mountain Production, LLC v. Ultra Resources, Inc., 415 F.3d 1158, 1171 (10th Cir. 2005), the court declined to require gross negligence or willful misconduct for a claim that the operator mishandled “administrative and accounting duties”.5 A district court in Houston reached the same conclusion under Texas law, noting that Reeder had the effect of overruling a contrary Fifth Circuit decision. MDU Barnett Ltd. P’ship v. Chesapeake Expl. Ltd. P’ship, No. H-12-2528, 2014 WL 585740, at *1 & *7 (S. D. Tex. Feb. 14, 2014) (holding that 1982 exculpatory clause did not cover claims for breach of JOA and rejecting Stine v. Marathon Oil Co., 976 F.2d 254, 260-61 (5th Cir. 1992), under Reeder).

Plaintiff perspective

In contrast to the other issues this paper addresses, the question of what effect a JOA exculpatory clause may have presents a challenge more for the plaintiff than for the defendant. What factors will aid a plaintiff whose defendant claims a contractual right to exculpation for wrong-doing less culpable than “gross negligence or willful misconduct”?

  • Absence of contractual privity between the plaintiff and defendant under the JOA (e.g., the plaintiff or defendant did not become a party to the JOA and does not qualify as a third-party beneficiary);
  • Applicability of a pre-1989 JOA form – and therefore a narrower exculpatory clause – to some or all of the damage-causing conduct (as a result, for instance, of conduct occurring at a time or place to which an older JOA form applies);
  • For JOAs using the 1989 form, the source of injury to the plaintiff does not involve the operator’s “activities under this Agreement” or concern its role “as Operator”;
  • For JOAs using the 1977 or 1982 form, the harm to the plaintiff does not relate to the operator’s “operations on the Contract Area” or its behavior “as Operator”; and
  • Big damages.

Looking ahead, and back

We have two more topics to cover yet. For those who missed the first four parts, you can check them out here:

1 For a brief history of the Form 610 JOA since its advent in 1956, see “The 1989 JOA: Horizontal Modifications and Other Crucial Updates”, Oil and Gas Law Digest, Sept. 17, 2014 (available as of Jan. 21, 2015 at http://www.oilandgaslawdigest.com/newscaselawupdate/the-1989-joa-horizontal-modifications-and-other-crucial-updates/).

The 1989 clause (with our emphasis) speaks of “activities” rather than only “operations”, as follows:

Operator shall conduct its activities under this agreement as a reasonably prudent operator, in a good and workmanlike manner, with due diligence and dispatch, in accordance with good oilfield practice, and in compliance with applicable law and regulation, but in no event shall it have any liability as Operator to the other parties for losses sustained or liabilities incurred except such as may result from gross negligence or willful misconduct.

The 1977 and 1982 clause provided as follows (with our emphasis):

[Operator] … shall conduct and direct and have full control of all operations on the Contract Area as permitted and required by, and within the limits of, this agreement. It shall conduct all such operations in a good and workmanlike manner, but it shall have no liability as Operator to the other parties for losses sustained or liabilities incurred, except such as may result from gross negligence or willful misconduct.

4 The Fifth Circuit ruled that the 1977 and 1982 language applied to contract claims in Stine v. Marathon Oil Co., 976 F.2d 254, 260-61 (5th Cir. 1992) (applying Texas law). At least one court has noted the split between the Fifth and Tenth Circuits on the issue. See Forest Oil Corp. v. Union Oil Co. of Am., No. 3:05-cv-0078, 2006 WL 905345, at *3 (D. Alaska Apr. 7, 2006) (adopting Ultra Resources holding and rejecting Stine’s) (applying Alaska law).

The court cited its decision in Amoco Rocmount Co. v. Anschutz Corp., 7 F.3d 909, 923 (10th Cir. 1993) (noting that clause may cover “tortious acts related to the performance of the contract” but did not apply to “actions taken deliberately and . . . in breach of the contract involving shifting costs between the contracting” working interest owners) (applying Colorado law).


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Photo of Barry Barnett Barry Barnett

Clients and colleagues call Barry Barnett an “incredibly gifted lawyer” (Chambers and Partners) who is “magic in the courtroom” (Who’s Who Legal), “the top antitrust lawyer in Texas” (Chambers and Partners), and “a person of unquestioned integrity” (David J. Beck, founder of Beck…

Clients and colleagues call Barry Barnett an “incredibly gifted lawyer” (Chambers and Partners) who is “magic in the courtroom” (Who’s Who Legal), “the top antitrust lawyer in Texas” (Chambers and Partners), and “a person of unquestioned integrity” (David J. Beck, founder of Beck Redden).

Barnett is a Fellow in the American College of Trial Lawyers, and Lawdragon has named him one of the top 500 lawyers in the United States three years in a row. Best Lawyers in America has honored him as “Lawyer of the Year” for Bet-the-Company Litigation (2019 and 2017) and Patent Litigation (2020) in Houston. Based in Texas and New York, Barnett has tried complex business disputes across the United States.

Barnett’s background, training, and experience make him indispensable to his clients. The small-town son of a Texas roughneck and grandson of a Texas sharecropper, Barnett “developed an unusual common sense about people, their motivations, and their dilemmas,” according to former client Michael Lewis.

Barnett has been historically recognized for his effectiveness and judgment. His peers chose him, for example, to the American College of Trial Lawyers and American Law Institute. His decades of trial and appellate work representing both plaintiffs and defendants have made him a master strategist and nimble tactician in complex disputes.

Barnett focuses on enforcement of antitrust laws, the “Magna Carta of free enterprise,” in Supreme Court Justice Thurgood Marshall’s memorable phrase. “Barry is one of the nation’s outstanding antitrust lawyers,” according to Joseph Goldberg, a member of the Private Antitrust Enforcement Hall of Fame. Named among Texas’s top ten antitrust lawyers of 2023, Business Today calls Barnett a “trailblazer” among the “distinguished legal minds” who “dedicate their skill and expertise to the maintenance of healthy competition in various sectors” of the Lone Star State’s booming economy. Barnett is also adept in energy and intellectual property matters and has battled for clients against a Who’s Who list of corporate behemoths, including Abbott Labs, Alcoa, Apple, AT&T, BlackBerry, Broadcom, Comcast, Dow, JPMorgan Chase, Samsung, and Visa.

Barnett commands a courtroom with calm and credibility and “is the perfect lawyer for bet the company litigation,” said Scott Regan, General Counsel of former client Whiting Petroleum. His performance before the Supreme Court in Comcast Corp. v. Behrend prompted the Court to withdraw the question on which it had granted review. The judge in a trial involving mobile phone technology called Barnett “one of the best” and that his opening statement the finest he had ever seen. Another trial judge told Barnett minutes after a jury returned a favorable verdict against the county’s biggest employer that he was one of the two best trial lawyers he’d ever come across—adding that the other one was dead.

A versatile trial lawyer, Barnett knows how to handle a case all the way from strategic pre-suit planning to affirmance on appeal. He’s tried cases to verdict and then briefed and argued them when they went before appellate courts, including the Second, Third, Fifth, and Tenth Circuits, the Supreme Court of Louisiana, and (in the case of Comcast Corp. v. Behrend) the Supreme Court of the United States.

Barnett is a sought-after public speaker, often serving on panels and talking about topics like the trials of antitrust class actions and techniques for streamlining complex litigation. He also comments on trends in commercial litigation and the implications of major rulings for outlets such as NPR, Reuters, Law360, Corporate Counsel, and The Dallas Morning News. He’s even appeared in a Frontline program about underfunding of state pensions, authored chapters on “Fee Arrangements” and “Techniques for Expediting and Streamlining Litigation” (the latter with Steve Susman) in the ABA’s definitive treatise on Business and Commercial Litigation in Federal Courts, 5th, and commented on How Antitrust Enforcers Might Think Like Plaintiffs’ Lawyers.

Clients and other hard graders have praised Barnett for his courtroom skills and legal acumen.

A client in a $100 million oil and gas case, which Barnett’s team won at trial and held on appeal, said Barnett and his team “presented a rare combination of strong legal intellect, common sense about right and wrong, and credibility in the courtroom.” David McCombs at Haynes and Boone said Barnett “has a natural presence that goes over well with juries and judges.”

Even former adversaries give Barnett high marks. Lead opposing counsel in a decade-long antitrust slugfest said “Barry is a highly skilled advocate. He understands what really matters in telling a narrative and does so in a very compelling manner.”

Barnett relishes opportunities to collaborate with all kinds of people. At the Center for American and International Law (CAIL), founded by a former prosecutor at Nuremberg in 1947 and headquartered in the Dallas area, he has served on the Executive Committee, co-chaired the committee that produced CAIL’s first-ever strategic plan, supported CAIL’s Institute for Law Enforcement Administration and other development efforts, and proposed formation of a new Institute for Social Justice Law. CAIL’s former President David Beck said “Barry is extremely bright” and is “very well prepared in every lawsuit or professional task he undertakes.”

Barnett is also a Trustee of the New-York Historical Society, a Sterling Fellow at Yale, a member of the Yale University Art Gallery’s Governing Board, a winner of the Class Award for his work on behalf of his college class, and a proud contributor to the Yellow Ribbon Program at Harvard Law. Barnett’s pro bono work includes leading the trial team representing people who are at greatest risk of severe illness and death as a result of being exposed to the novel coronavirus SARS-CoV-2 while being detained in the Dallas County jail—work for which he received the NGAN Legal Advocacy Fund RBG Award.

At Susman Godfrey, Barnett has served on the firm’s Executive Committee, Employment Committee, and ad hoc committees on partner compensation, succession of leadership, and revision of the firm’s partnership agreement. He also twice chaired the Practice Development Committee.

Barnett understands that clients face many pressures. Managing the stress is important, especially in matters that take years to resolve. He encourages clients to call him whenever they have a question or concern and to keep the inevitable ups and downs in perspective. He wants them to know that he will do his level best to help them achieve their goals. He also strives to foster trust and to make working with him a pleasure.

Cyrus “Skip” Marter, the General Counsel of Bonanza Creek in Denver and a former Susman Godfrey partner and client, said Barnett is “excellent about communicating with clients in a full and honest manner” and can “negotiate for his clients from a position of strength, because he is not afraid to take a case through a full trial on the merits.” Stacey Doré, the President of Hunt Utility Services and a former client, said that Barnett is “an excellent trial lawyer and the person you want to hire for your bet-the-company cases. He is client focused, responsive, and uniquely savvy about trial and settlement strategy.” A New York colleague said, “Barry is a joy to work with as co-counsel. He tackles complex procedural and factual hurdles capably, efficiently, and without drama.”

Barnett’s wide-ranging experience and calm, down-to-earth approach enable him to connect with clients, judges, jurors, witnesses, and even opposing counsel. He grew up in Nacogdoches, Texas. He co-captained his high school varsity football team as an All-East Texas middle linebacker while also serving as the Editor of Key Club’s Texas-Oklahoma District, won the Best Typist award, took the History Team to glory, and sang in the East Texas All Region Choir. As Dan Kelly of client Vistra Corp. put it, Barnett is “a great person to be around.”

Barnett is steady and loyal. He has practiced at Susman Godfrey his entire career. He and his wife Nancy live in Dallas and enjoy spending time in Houston and New York. Their daughter works for H-E-B in Houston, and their son is a Haynes and Boone transactions lawyer in Dallas.

As a member of Ivy League championship football teams in his junior and senior years at Yale and a parent of two Yalies, Barnett has no trouble choosing sides for “The Game” in November. And he knows how important fighting all the way to the end is. On his last play from scrimmage, in the waning minutes of The Game on Nov. 22, 1980, he recovered a Crimson fumble.

Yale won, 14-0.