ConTorts and Exxon

This is a story about a ConTort.  If you don’t know what a ConTort is, you’re not alone.

In the 1950’s, Exxon entered into a mineral lease with a group of landowners (we’ll call them the” Miesch Group”)and agreed to pay them 50% royalties.   Thirty years later, Exxon contacted the Miesch Group and said the minerals were depleted and that it wanted to renegotiate the leases to pay a lower royalty than the admittedly onerous 50%.    When the Miesch Group refused to renegotiate, Exxon terminated the leases and plugged the wells.

The Miesch Group then entered into a contract with another production company, which sent them  a letter that it had  encountered “junk,” cut casing, packers, and other debris in its attempt to re-open the plugged wells.   After the wells were re-opened, the Miesch Group discovered that, contrary to Exxon’s statements, the minerals were not depleted.   Suspecting Exxon had lied to them just to drive down the royalty cut, the Miesch Group sued Exxon on several tort theories (a tort is a common-law claim that the defendant’s  acts caused injury to the plaintiff).

Exxon vigorously denied everything, and further added that it couldn’t be liable on a tort when there had been a contract (the lease) in place.  It said the Miesch Group could only sue them on the contract.

Why was this important?  Because if a party wins on a tort claim, then it may also qualify for punitive damages.   There have been cases where the amount of the original claim has been dwarfed by the amount of punitive damages – sometimes by millions of dollars.   In addition,  Exxon could assert defenses on the contract that it could not on the tort.

Was Exxon going to get off on slick lawyering?

Nope.  Enter the ConTort, a hybrid of tort and contract that carried the worst of all worlds for Exxon.  The Court of Appeals decided that, while it was true that Exxon and the Miesch Group had a contract, Exxon had committed a tort when it lied about the mineral reserves in order to gain a negotiating advantage for a new contract.  The Court said that Exxon had a “duty to use reasonable care” when it provided information to a potential customer.

So Exxon committed a tort in trying to form a contract.  A ConTort, pure and simple.

Let’s apply this to the real world.  Is it a ConTort if

  • Your  mechanic lies to you about the need for a new part on your car?
  • Before entering a rental agreement, the apartment complex leasing agent falsely tells you the parking lot is patrolled 24 hours daily?
  • Your sister asks to borrow $25 and falsely tells you she is going to use it to buy food?

All of them are ConTorts.  Still confused?  Rest assured, so are a lot of appellate judges.  There will be a lot more litigation in this area.