TOTAL E&P USA, Inc. v. Marubeni Oil & Gas (USA), Inc.

REPLY in Support of 93 MOTION to Compel Discovery Responses

S.D. Tex.January 24, 2019

1 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION TOTAL E&P USA, INC., Plaintiff/Counter-Defendant, v. MARUBENI OIL & GAS (USA) INC., Defendant/Counter-Claimant. § § § § § § § § § CIVIL ACTION NO. 4:16-CV-2678 JUDGE LYNN N. HUGHES Total’s Reply in Support of Motion to Compel The Court allowed Total to serve its discovery requests, see Dkt. 82, to which MOGUS responded. In the face of a motion identifying irreconcilable differences between its answers and prior documents, and having undertaken no additional search, MOGUS’s response second-guesses this Court’s order permitting Total to serve those discovery requests in the first place. But Total’s requests are not duplicative of prior discovery— indeed, MOGUS identifies no similar document requests or interrogatories. MOGUS’s collateral attack of this Court’s order cannot avoid the actual issue raised by Total’s motion to compel: Whether MOGUS has provided complete, accurate, and non- evasive responses to Total’s discovery requests. MOGUS refers to the fact that it further supplemented its responses prior to this Court abating its original order on motion to compel. Dkt. 99 at 1, 14–15; see Ex. A (Supp. RFP Resp.); Ex. B (Supp. IROG Resp.). MOGUS does not withdraw those responses; does not seek an enlargement of time to answer them; and by its argument makes plain that it stands on that supplementation. But Case 4:16-cv-02678 Document 100 Filed in TXSD on 01/24/19 Page 1 of 11 2 far from curing deficiencies in its initial responses, its attempt to explain contradictions serves only to aggravate the situation. MOGUS has not provided complete, accurate, and non-evasive responses to Total’s discovery requests. With MOGUS having already provided supplementation and indicated it will do nothing more, the Court should order whatever further relief it deems necessary. A. IROG #1 and RFP #1: MOGUS has still not provided complete and non- evasive responses to discovery requests about financial statements and book value. In response to requests for financial statements and the book value of the MOGUS MC 348 ORRI, MOGUS’s supplemental responses simply repeat its claim that “it does not record a book value of the MOGUS MC 348 ORRI or for any of its collective interests in the Appomattox field.” Ex. A at 4; see also Ex. B at 4. MOGUS produces no additional financial or accounting records by which Total or the Court can confirm this assertion.1 As Total noted, MOGUS’s answer cannot be squared with its parent’s request for a “reserve evaluation” from MOGUS’s Chief Operating Officer in order to “record something for our 2Q consolidated financial on Appomattox ORRI.” See Dkt. 94, Ex. F at 2 (emphasis added). MOGUS attempts to explain this away in a footnote, claiming that 1 MOGUS refers to the fact that Total properly sought conference on these issues before bringing its motion. Dkt. 99 at 9. In connection with that call, MOGUS counsel forwarded and reviewed with Total counsel a previously-produced financial statement of a generalized, consolidated nature from 2016. See Ex. C. MOGUS counsel referred to general entries of the “Consolidated Balance Sheet”—id. at 4, which do not indicate what was, or was not, aggregated there—and stated that none include the MC 348 ORRI. When asked whether MOGUS would produce documents to support assertion that ORRI value was not included in those entries, the response was negative. Case 4:16-cv-02678 Document 100 Filed in TXSD on 01/24/19 Page 2 of 11 3 “further analysis by MOGUS and its auditors ... determined that accounting practices applicable to MOGUS did not permit the override to be included on MOGUS’s financial statement.” Dkt. 99 at 11 n.41 (emphasis added). But the information requested by the parent was for use in the consolidated financial statement of the parent regarding the Appomattox assets. Total’s discovery requests include the parent within the definition of “MOGUS,” and thus require answers with respect to the parent, even as to consolidated values. Beyond this evasive discrepancy, MOGUS produces no documents to confirm its assertion of supposed “further analysis,” and it cites no other evidence to support this claim. Total and the Court are simply left to wonder why MOGUS’s parent would so very specifically request information to record a value in the parent’s books—on which elaborate calculations were done—if it was not required to be recorded. It goes without saying that this is an extremely valuable collection of assets. See Ex. B at 6–7 (MOGUS summary chart reflecting, e.g., September 2014, NPV range $164– $200 million; August 2015, NPV range $133–371 million). Indeed, MOGUS asks this Court to believe that neither it nor its parent have ever recorded any value on any of their financial records—regardless whether as “a book value, a net present value, a discounted or undiscounted cash flow, or any other method of valuation.” Ex. B at 4–5. But the above, when paired with evidence that its parent was specifically seeking to quantify such information for the very purpose of recording value on its books, confirms that MOGUS’s responses to RFP #1 and IROG #1 are not complete, accurate and non-evasive. Case 4:16-cv-02678 Document 100 Filed in TXSD on 01/24/19 Page 3 of 11 4 B. IROG #2 and RFP #2: MOGUS has not provided complete and non- evasive responses to discovery requests about the value of the MOGUS MC 348 ORRI. In response to Total’s request for documents reflecting MOGUS’s or its parent’s valuation of the MOGUS MC 348 ORRI or related to a potential sale, MOGUS neither produces documents nor states that it will undertake any further search. Ex. A at 5. Instead, MOGUS refers Total to a non-exclusive list of previously produced documents, id. at 5–7, including many of the very documents that have made Total skeptical of MOGUS’s responses in the first place. MOGUS states only that it previously “utilized ‘MC 348’ (and certain variations thereof)” to conduct an electronic records search. Id. at 1; see also Dkt. 99 at 4 n.17. That in no way confirms that “Appomattox” or related search terms were run to confirm the completeness of its productions as to the current requests allowed by this Court—which included any consolidated treatment of that larger interest. As well, MOGUS last produced documents in November of 2017, yet it makes no supplemental search or production as to valuations made between then and now. Of central concern, MOGUS again unequivocally asserts that it believes it “highly unlikely” that Shell “would ever elect to drill a production well on MC 348.” Ex. B at 7 (emphasis added). With its supplementation, MOGUS produced a few public records from BSEE regarding the nature of the MC 348 ORRI interest. Id. at 8. This prompted Total’s own check of BSEE’s website, which revealed that on October 23, 2018, Shell appears to have revised its Initial Development Operations Coordination Document, to note that it now intends to drill a well on “Surface Block Number” MC 392, but with a “Bottom Block Number” under MC 348. Ex. D. This bottom-hole location would mean the drill-bit will Case 4:16-cv-02678 Document 100 Filed in TXSD on 01/24/19 Page 4 of 11 5 land in MC 348, drain production and reserves from MC 348, and allocate revenue to the MC 348 ORRI pursuant to the Appomattox Unit Agreement.2 If MOGUS was previously unaware of this update, Total specifically disclosed it last week with pretrial filings in the related MC 305 matter. And yet in its response, MOGUS repeats—indeed, quotes—the above averment from its supplemental interrogatory. See Dkt. 99 at 3. Viewed with a skeptical eye, MOGUS’s assertion of a belief that Shell would not “elect to drill a production well on MC 348” appears carefully qualified to avoid stating any belief as to whether Shell will drill under and into MC 348 from elsewhere in the Appomattox development. Ex. B at 7 (emphasis added). Either way, its answer is not accurate. As to fair market value, MOGUS’s supplementation repeats its prior response that “neither it nor its parent company has ever assigned a fair market value” to the MC 348 ORRI. Ex. B at 7. It makes no effort to explain the contradictions seen in its documents. One of the very documents it now lists in its supplemental response, see Ex. A at 5–7, and which Total attached to its motion, see Dkt. 94, Ex. J at 2, shows that MOGUS has actively considered how and when to “monetize” the asset. In July 2015, in response to the parent’s request “to see the sales number,” MOGUS’s Chief Operating Officer provided an “updated value for Appomattox ORRI” (including the MOGUS MC 348 ORRI), showing net present values ranging between $141 and $266 million (assuming sale in 2018, with 2 It also corresponds perfectly to facts that Total brought forward in its motion, that two exploratory wells had already been drilled in MC 348, one of which “encountered an additional 46 metres (150 feet) of pay.” See Dkt. 94 at 5–6. MOGUS apparently made no further investigation of this fact, and made no pretense in its response of explaining it. Case 4:16-cv-02678 Document 100 Filed in TXSD on 01/24/19 Page 5 of 11 6 other intervals stated for years prior and after). Id. MOGUS obviously has strong and ongoing opinions about sale of this asset, yet simply says “fair market value” is something it just hasn’t considered—and refuses to list in response. C. MOGUS cannot hide valuations on claim of privilege. MOGUS makes clear that it has at least some relevant information on its privilege log.3 Ex. A at 7 (“Privileged documents that would otherwise be responsive are identified on MOGUS’s privilege log.”); see also Dkt. 99 at 9 (noting production of “all non- privileged documents”). And indeed, after serving its supplemental responses, MOGUS presented Total with a list of 11 documents on its privilege log (which itself stands at more than 6,000 entries) that contain responsive valuation information. See Dkt. 99, Ex. E. The descriptions there are generalized in the extreme, obscuring any reference to valuation or the ORRI. Only three even indicate an attorney’s name as involved (with two not even listing the recipients). Apart from redaction issues, business valuations of assets are simply a fact that cannot be shielded behind a claim of privilege. It is for the Court’s discretion as to whether it wishes to review the newly-identified 11 documents in camera. But MOGUS should not be permitted to evade response in a seeming effort to require Total to bring a distinct motion to compel as to its privilege log. 3 It is also unclear the extent to which MOGUS hides behind its wall of “general objections” in both its initial and supplemental responses in order to avoid answering interrogatories or producing documents. But these general objections are improper, and do not obviate MOGUS’s duty to provide accurate and non-evasive discovery responses. See Kleppinger v. Texas Dep’t of Transp., 2013 WL 12138545, at *2 (S.D. Tex. Jan. 3, 2013) (“general objections” “are meaningless[,] and constitute a waste of time for opposing counsel and the court”) (citation omitted); see also Fed. R. Civ. P. 33(b)(4), 34(b)(2)(B). Case 4:16-cv-02678 Document 100 Filed in TXSD on 01/24/19 Page 6 of 11 7 D. Total’s discovery requests are relevant. MOGUS’s claim that Total’s discovery requests are not relevant is misplaced. See Dkt. 99 at 12–13. Even the case MOGUS relies on recognizes that “a request for discovery should be deemed relevant if there is any possibility that the information sought may be relevant to the claim or defense of any party.” Alcala v. Texas Webb Cty., 2009 WL 10694159, at *2 (S.D. Tex. Dec. 7, 2009) (emphasis added; internal quotation omitted). Total easily meets this standard. And in truth, MOGUS applies no such standard, instead seeking to transform a response to a motion to compel into something akin to a motion for summary judgment. Id. at 12–13; see also Dkt. 88 at 10 n.44 (making same argument in response to Total’s motion for summary judgment). MOGUS also attempts to confuse the issue by suggesting that the limited discovery sought is somehow related to Total’s pending motion for summary judgment.4 See Dkt. 99 at 7, 12. To the contrary, Total’s motion for summary judgment argues that the ORRI— together with all of the other consideration MOGUS received in the ATP bankruptcy— represents far more than a peppercorn in exchange for the “satisfaction” of ATP’s obligations, and thus extinguished the entirety of any obligation. See Dkt. 78 at 10–11. As Total originally noted, its request for additional discovery “does not prevent this Court 4 As to MOGUS’s argument, Dkt. 99 at 13, the fact that the ORRI came from Bennu instead of ATP is a meaningless distinction under the law of satisfaction pertinent to joint obligations, where the obligee is entitled only to one satisfaction. See, e.g., 4 A. Corbin, Contracts § 928 (rendition of full performance “or its full agreed equivalent, by anyone,” discharges all joint obligors). MOGUS completely ignores that the terms of its settlement provided that “ATP will satisfy the ATP Obligations … including through Bennu’s participation in this Agreement with regard to the … ORRI.” Dkt. 76, Ex. 26 ¶ 5 (emphasis added). Case 4:16-cv-02678 Document 100 Filed in TXSD on 01/24/19 Page 7 of 11 8 from ruling as a matter of law” on the motion for summary judgment. Dkt. 79 at 2. If the Court denies Total’s motion for summary judgment, however, MOGUS’s discovery responses—once provided in accurate and non-evasive fashion—will be used at trial to quantify the deduction attributable to the ORRI. E. Total’s discovery requests are not duplicative and are not foreclosed by rulings in the related cases. Finally, MOGUS asserts that Total’s discovery requests are duplicative of discovery conducted in the related cases, claiming that Total is attempting to “circumvent” rulings by Magistrate Judges Smith and Palermo. See Dkt. 99 at 6, 12. Not so. Those decisions held only that Total’s motions for additional discovery were untimely because they were filed after the discovery deadline applicable in those cases.5 See Case No. 4:16-cv-2671, Dkt. 141 at 4; Case No. 4:16-cv-2674, Dkt. 215 at 1. This Court largely had this matter stayed, with no discovery deadline ever set. Contrary to MOGUS’s assertions, this Court specifically permitted the parties to request permission to take additional discovery. See Dkt. 69. Total did so; the Court ordered the discovery; MOGUS has essentially refused to comply; and so this motion to compel remains pending. And to be clear, the discovery requests Total served are not duplicative of discovery in the related cases. MOGUS nowhere suggests that Total’s narrow document requests and related interrogatories were, in fact, covered by some prior request. It never was, which 5 Total does not agree with those limited rulings, given the very late production of documents from the Japanese server of MOGUS’s parent. But Total also believes it inappropriate—as sought by MOGUS—to relitigate such disagreement before this Court. Instead, Total submits that this Court should simply judge the discovery served and responses made in this action, over which it has control. Case 4:16-cv-02678 Document 100 Filed in TXSD on 01/24/19 Page 8 of 11 9 is why Total sought permission to serve “narrowly-targeted” discovery requests related on that topic. See Dkt. 79 at 1. MOGUS’s claim that the discovery sought is duplicative is simply an effort to avoid providing accurate and non-evasive responses to those requests. Conclusion Even after supplementation, MOGUS’s discovery responses are not complete, accurate, and non-evasive. Given that MOGUS stands on its supplementation, with indication it will do nothing more, the Court should order the relief it deems appropriate. Case 4:16-cv-02678 Document 100 Filed in TXSD on 01/24/19 Page 9 of 11 10 Dated: January 24, 2019. Respectfully submitted, /s/ Charles Eskridge Charles Eskridge Texas Bar No. 06666350 charleseskridge@quinnemanuel.com Karl Stern Texas Bar No. 19175665 karlstern@quinnemanuel.com Kate Kaufmann Shih Texas Bar No. 24066056 kateshih@quinnemanuel.com Carl Hennies Texas Bar No. 24104029 carlhennies@quinnemanuel.com QUINN EMANUEL URQUHART & SULLIVAN, LLP 711 Louisiana St., Suite 500 Houston, Texas 77002 713.221.7000 – Telephone 713.221.7100 – Facsimile Philip G. Eisenberg Texas Bar No. 24033923 peisenberg@lockelord.com Alicia Castro acastro@lockelord.com Texas Bar No. 24069705 LOCKE LORD LLP 600 Travis St., Suite 2800 Houston, Texas 77002 713.226.1200 – Telephone 713.223.3717 – Facsimile ATTORNEYS FOR PLAINTIFF/COUNTER-DEFENDANT TOTAL E&P USA, INC. Case 4:16-cv-02678 Document 100 Filed in TXSD on 01/24/19 Page 10 of 11 11 CERTIFICATE OF SERVICE A copy of the foregoing reply was served on all counsel of record for the parties via CM/ECF on January 24, 2019. /s/ Carl Hennies Carl Hennies Case 4:16-cv-02678 Document 100 Filed in TXSD on 01/24/19 Page 11 of 11