$175M suit accuses BigLaw firm of ‘critical drafting errors’ and ‘sloppy and imprecise’ contract language

5M suit accuses BigLaw firm of ‘critical drafting errors’ and ‘sloppy and imprecise’ contract language


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$175M suit accuses BigLaw firm of ‘critical drafting errors’ and ‘sloppy and imprecise’ contract language

A Texas state lawsuit filed by Bridgeland Resources and Zargon Acquisition Inc. seeks “no more than $175 million” in damages. Image from Shutterstock.

Two energy companies allege that Winston & Strawn bungled two intertwined contracts involving the purchase of Southern California oil and gas wells, leading the two clients to give up a 25% equity stake in their businesses while receiving nothing in return.

The Texas state lawsuit filed by Bridgeland Resources and Zargon Acquisition Inc. seeks “no more than $175 million” in damages, report Reuters and Law360.

The Nov. 3 suit alleges that Winston & Strawn made “critical drafting errors” in the contracts while using “sloppy and imprecise” language.

Throughout the suit, Bridgeland Resources and Zargon Acquisition are referred to as “Bridgeland.”

Bridgeland intended to enter into a partnership with the E&B Natural Resources Management Corp., an oil and gas operator, according to the suit. The plan was for Bridgeland to put up the financing for the oil and gas wells and for the E&B Natural Resources Management Corp. to run them.

The first intertwined contract would give E&B a 25% equity stake in Bridgeland, with an option to buy an additional 25% stake under certain conditions, the suit said. The second contract would provide for E&B to supply its management services at favorable prices, locked in for a number of years.

A last-minute switch in the entity that would provide management services led to a delay in the second contract deal. In its place was a two-page letter agreement providing that E&B would provide management services for six weeks. After that, Bridgeland was told, an E&B affiliated entity staffed with E&B personnel would be the contractor providing management services.

Amid the flurry of changes, Winston allowed Bridgeland to sign the first contract without getting the second contract for long-term management services signed, according to the suit. The result was that Winston’s client had given away the 25% equity stake, with the option for another 25% stake, without getting well-priced management services in return.

When E&B failed to live up to its promises, Bridgeland hired another contractor, the suit said. E&B and its parent company “then doubled down on their failures” by trying to increase their equity stake to 50% at a time when Bridgeland had more than tripled in value, according to the suit. E&B relied on contract ambiguities to assert that it could pay a fraction of the value of the increased stake.

“Vicious litigation” followed in which Winston’s “numerous errors” were “exploited to maximum effect,” the suit said. The litigation allegedly cost Bridgeland millions of dollars. Uncertainty made settlement “the only reasonable solution.”

The suit alleges that these mistakes were made:

  • The first contract contained an integration and merger clause, titled an “entire agreement” clause, which made it possible for E&B entities to refuse to provide services after the six-week interim agreement ended.

  • The two-page letter agreement was essentially a “get out of jail free card” because it provided broad releases for any E&B affiliated parties. The releases protected the parties from liability for failing to follow through on negotiated promises.

  • A “stray parenthesis” created ambiguity in a contract provision regarding the option for an E&B entity to purchase another 25% equity stake. Winston attempted to fix the problem by adding a closing parenthesis, but it “made the meaning of the clause even murkier.” At issue was whether the E&B entity needed Bridgeland’s approval to buy the additional stake through a cash contribution.

  • Winston failed to include a contract fix requiring the E&B entity to pay 50% of Bridgeland’s fair market value in exchange for a 50% stake in Bridgeland. Instead, the contract reverted to an earlier version that arguably required payment of only $1.3 million, which was far less than 50% of fair market value.

  • A contract reference to “intangible assets” that an E&B entity was supposed to provide to Bridgeland did not include specifics. Bridgeland thought that the intangible assets meant that the E&B entity had to sign the second agreement to provide management services in the future. Even worse, the agreement said the intangible assets had already been provided when the contract was signed, a “bombshell” in the litigation that followed.

The effect of signing the first contract and the letter agreement meant that Bridgeland had limited, if any, recourse when E&B affiliates failed to follow through on promises to provide comprehensive management services by a first-class operator, according to the suit.

“This is a case about an oil and gas transaction that went terribly wrong because of the negligent conduct of the law firm hired to negotiate and document it,” the suit said.

The relationship partner in charge of Winston’s engagement with Bridgeland was Michael Blankenship, currently the managing partner of Winston’s Houston office. He did not immediately reply to the ABA Journal’s request for comment.


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