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

RESPONSE in Opposition to 93 MOTION to Compel Discovery Responses, 94 Sealed Event

S.D. Tex.January 21, 2019

1 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION TOTAL E&P USA, INC. * CIVIL ACTION NO. Plaintiff * 4:16-cv-02678 * v. * JUDGE LYNN N. HUGHES * MARUBENI OIL & GAS (USA) INC. * Defendant * ******************************************* MOGUS’S OPPOSITION TO TOTAL’S MOTION TO COMPEL Marubeni Oil & Gas (USA) LLC (“MOGUS”) submits this opposition1 in response to the motion to compel by Total E&P USA, Inc. (“TOTAL”).2 TOTAL’s motion mischaracterizes its own discovery requests, misleads the court concerning the overriding royalty interest at issue, disregards its prior representations in open court, and ignores the years’ worth of exhaustive discovery on these issues that has already been conducted. MOGUS has nevertheless made a good faith effort to address TOTAL’s stated concerns and has now supplemented its responses. Consequently, TOTAL’s motion should be denied.3 1 MOGUS initially filed an opposition on January 15, 2018 (Dkt. 97), which was prior to the Court’s order on January 16, 2019 (Dkt. 98) vacating the Discovery Order (Dkt. 95) and setting a deadline for MOGUS to respond. Pursuant to the Court’s January 16, 2019 order, MOGUS hereby re-files and supplements its opposition to the motion to compel. 2 Dkts. 93 and 94. 3 For the Court’s information, MOGUS and TOTAL are currently in the midst of trial preparations in the related cases involving Mississippi Canyon Block 305 (“MC 305”) and the Canyon Express Pipeline System (“CEPS”). Trial in the MC 305 will commence on February 4, 2019. The CEPS trial will begin on February 19, 2019. Case 4:16-cv-02678 Document 99 Filed in TXSD on 01/21/19 Page 1 of 16 2 BACKGROUND A. General Background The motion to compel concerns the overriding royalty interest provided by Bennu Oil & Gas during the ATP bankruptcy associated exclusively with deep rights in Mississippi Canyon Block 348 (“Bennu ORRI”). Half of the override was assigned to MOGUS, and any future proceeds from the other half were pledged to the abandonment fund created in the ATP bankruptcy.4 MOGUS has never recorded a value of its share of the Bennu ORRI on its books and does not anticipate that it will ever generate revenue.5 If the Bennu ORRI ever does generate revenue, the proceeds from the abandonment fund portion of the override are to be applied proportionally against TOTAL’s (and ATP’s other predecessors’) share of liability for Canyon Express decommissioning costs.6 An “overriding royalty interest” or “ORRI” is an “interest in oil and gas produced at the surface, free of the expense of production, and in addition to the usual landowner’s royalty reserved to the lessor in an oil and gas lease.”7 An overriding royalty has been described as a “passive interest,” meaning that the royalty owner “has no right to produce or explore for minerals in the tracts, nor is it obligated to share the costs of production.”8 An overriding royalty interest is inherently speculative because the royalty owner has no authority to require that that the 4 See Contribution Agreement approved by the Final Order, Dkt. 76-27, at ¶ 4(a) (providing that proceeds from half of the Bennu ORRI are to be paid “directly to the Fund”). 5 Dkt. 89-4. 6 Dkt. 206 (Case No. 4:16-cv-2671), at n. 8 (court order accepting that “if the Bennu ORRI were to generate proceeds in the future, ‘half of those proceeds would be provided to the Abandonment Fund and a credit would be proportionally applied to offset each predecessors’ share of liability.’”). 7 Howard R. Williams & Charles J. Meyers, Manual of Oil and Gas Terms (14th ed. 2009). 8 Tidelands Royalty B Corp. v. Gulf Oil Corp., 804 F.2d 1344, 1350 (5th Cir. 1986). Case 4:16-cv-02678 Document 99 Filed in TXSD on 01/21/19 Page 2 of 16 3 operator/grantor actually drill upon the property subject to the override.9 The Fifth Circuit has observed as follows: The royalty owner’s interest is speculative: a hope that the grantor’s own interest in securing production will, in fact, result in production from the tract burdened by the royalty. If this hope fails to materialize because of the grantor’s inaction, the royalty owner has no complaint.10 As to the Bennu ORRI, MOGUS has no authority to require that the grantor (Shell) actually drill a well on the property subject to the override (MC 348). Nor does MOGUS have any expectation that Shell ever will.11 As MOGUS’s verified interrogatory responses make clear, MC 348 represents just a tiny fraction of Shell’s Appomattox reservoir and, based on the geological characteristics of that reservoir, “MOGUS believes that it is highly unlikely that the operator of the property, Shell Oil Company, would ever elect to drill a production well on MC 348.”12 Thus, “MOGUS does not anticipate ever receiving any proceeds from the MOGUS MC 348 ORRI.”13 In other words, if Shell never drills a well on MC 348, the Bennu ORRI will have “no value” because that it is the “nature of [an] override.”14 9 Spiner v. Phillips Petroleum Co., 94 F. Supp. 273, 278 (W.D. La. 1950) (“It is therefore apparent that [the royalty owner] [h]as no rights at all to require the lessee of the mineral owners to drill upon the property involved . . . .”); Norsul Oil & Min. Co. v. Texaco, Inc., 703 F. Supp. 1520, 1547 (S.D. Fla. 1988) (“[B]y its very nature, a royalty is dependent on the operator's decision that producing serves its own economic interest.”); Weaver v. Florida Expl. Co., 608 So. 2d 1034, 1040 (La. App. 3 Cir. 1992) (“The Court has previously stated that overriding royalties have not been proven. There has been no offer to buy or sell, only the Petitioner's own estimate of what the royalty interest is worth. The value of such interest is thus speculative and uncertain.”) (emphasis added). 10 Tidelands, 804 F.2d at 1352. 11 To be clear, separate and apart from the Bennu ORRI, MOGUS does own overriding royalty interests in Appomattox blocks MC 391 and MC 392, which are far more likely to eventually be developed by Shell in connection with its Appomattox development. MOGUS owned those MC 391 and MC 392 overriding royalty interests prior to the ATP bankruptcy, and those interests have nothing to do with the ATP bankruptcy or this lawsuit. 12 Dkt. 89-4. 13 Id. 14 Dkt. 89-3, at 97:25-98:6 (“[M]y understanding is if Appomattox was not development -- developed, then it would have no value and that is the nature of override.”). Indeed, it is very telling that Bennu provided the Bennu ORRI to MOGUS and the abandonment fund in exchange for nothing. Case 4:16-cv-02678 Document 99 Filed in TXSD on 01/21/19 Page 3 of 16 4 TOTAL has been aware of the Bennu ORRI and the agreements with ATP since at least January 31, 2014, when MOGUS and ATP filed a joint motion seeking bankruptcy court approval for MOGUS to become operator and decommission the Canyon Express properties. MOGUS’s agreements with ATP, including all details of the Bennu ORRI and other “consideration” contemplated by those agreements, were disclosed and attached to the joint motion. During the bankruptcy, TOTAL sought discovery concerning the proposed agreements and initially objected to the motion on the basis that such discovery was outstanding.15 Ultimately, TOTAL withdrew its objection and is “deemed to have consented” to the bankruptcy court’s “Final Order.”16 B. TOTAL’s Prior Discovery Concerning the Bennu ORRI After refusing to pay MOGUS for any share of Canyon Express decommissioning costs, resisting MOGUS’s efforts to arbitrate, and commencing these three actions, TOTAL conducted far-reaching discovery concerning the Bennu ORRI and other purported bankruptcy “consideration.” MOGUS’s counsel spent thousands of attorney hours reviewing documents and developing a privilege log, and MOGUS has incurred $592,768.64 in document vendor costs alone. MOGUS produced over 500,000 pages of documents, including hundreds of e-mails and other documents specifically addressing the agreements with ATP and/or MOGUS’s assessment of the Bennu ORRI.17 MOGUS also made nine different fact witnesses available for deposition.18 Among those deposed were Charlie Hughes and Perry Murphree, who were the two MOGUS company 15 Dkt. 76-12, at ECF p. 4. 16 Dkt. 76-14, at ¶ 4. 17 MOGUS specifically utilized “MC 348” and variations thereof as search terms to isolate responsive documents. Any documents using those terms – such as “MC 348 ORRI,” for example – would have been individually reviewed by MOGUS’s counsel, and any non-privileged, responsive documents would have already been produced. 18 Three of these witnesses were deposed a second time as MOGUS’s 30(b)(6) representatives. Case 4:16-cv-02678 Document 99 Filed in TXSD on 01/21/19 Page 4 of 16 5 representatives most directly involved with the ATP bankruptcy.19 In addition, MOGUS produced a 30(b)(6) witness to testify specifically about “issues related to the ATP Bankruptcy.”20 At that deposition, TOTAL’s counsel inquired into the bankruptcy agreements and the abandonment fund.21 As to the Bennu ORRI, MOGUS testified that “there has not been any . . . source of revenue from that overriding royalty interest and [MOGUS is] uncertain there ever will be.”22 Additional testimony concerning the Bennu ORRI and the ATP bankruptcy agreements was provided by MOGUS representatives Shinya Furuyama and Hiroki Shima, the latter forced to travel from Tokyo to Houston at TOTAL’s behest simply to attend the deposition. During those depositions, it was made clear that, while MOGUS did have occasion to assess the hypothetical future cash flow potential of the Bennu ORRI, those evaluations were based on “a lot of assumptions,” including the assumption that the operator (Shell) would actually drill a producing well on the lease subject to the ORRI.23 One of these analyses was later offered by TOTAL during the summary judgment proceedings in the two related cases, and both judges determined that the analysis was “speculative and uncertain” and insufficient to establish an “actual value” of the Bennu ORRI, all consistent with applicable and governing jurisprudence.24 Even after the depositions, TOTAL continued to bury MOGUS with more demands for further discovery until Magistrate Smith (MC 305) and Magistrate Palermo (CEPS) eventually 19 Charlie Hughes was MOGUS’s General Manager of Land and Business Development. Perry Murphree was MOGUS’s Chief Operating Officer. 20 See TOTAL’s Second Amended Notice of Rule 30(b)(6) Deposition, Exhibit A hereto, at p. 9. Other topics included “all Communications between or including MOGUS and Shell Oil Company (and any affiliates thereof) and/or ATP relating to the Canyon Express Properties, Decommissioning the Canyon Express Properties, Shell’s Appomattox project and/or any potential transaction of any kind with regard to the CEPS.” Id., at p. 8. TOTAL has never argued that MOGUS’s corporate representatives were not fully prepared or responsive in their depositions. 21 Dkt. 89-6, at 68:5-71:24. 22 Id. at 71:21-24. 23 Dkt. 89-3, at 93:23-94:3; 88:13-20; and 97:25-98:6. 24 Dkt. 163 (No. 4:16-cv-02671), at pp. 32-33; Dkt. 230 (No. 4:16-cv-02674), at pp. 23-24. Case 4:16-cv-02678 Document 99 Filed in TXSD on 01/21/19 Page 5 of 16 6 shut them down. TOTAL’s final push for even more discovery was through a “Motion to Compel Documents Regarding Valuation of Consideration Received by MOGUS under Bankruptcy Agreement,” which both Magistrate Smith and Magistrate Palermo denied on April 5, 2018. Magistrate Palermo observed that the requested material “hardly seem[ed] relevant” and that “Total had ample opportunity to obtain discovery on this issue.”25 Magistrate Smith was even more direct, noting that “Total has already been given two bites at that apple – it is not entitled to a third.”26 Because both parties agreed that discovery would be conducted jointly in all three lawsuits, this is now the fourth bite at the apple on these issues for TOTAL. C. TOTAL’s About-Face in this Case TOTAL led MOGUS and this Court to believe that it would not pursue duplicative discovery in this case. On May 4, 2018 – less than one month after Magistrate Smith and Magistrate Palermo denied TOTAL’s motion to compel more “valuation” documents – TOTAL stated the following in a joint status report with MOGUS filed with this Court: Due to the counterclaims involving all three Assets, discovery in the actions pending before Judge Hittner and Judge Atlas encompassed discovery related to MC 348, including written discovery, document production, depositions, and expert reports. Discovery in the other two actions is now closed. The parties reserved the right to pursue additional discovery in this action, but do not anticipate the need for any further discovery.27 TOTAL’s counsel made similar representations at the November 8, 2018 status conference 25 Dkt. 141 (No. 4:16-cv-02671), at p. 5. 26 Dkt. 215 (No. 4:16-cv-02674), at p. 3. In addition, there were extensive proceedings before Magistrate Smith in which TOTAL challenged the sufficiency of MOGUS’s privilege log and requested the appointment of a special master. After MOGUS made substantial revisions to its log and produced more documents, Magistrate Smith denied TOTAL’s request. Dkt. 199 (No. 4:16-cv-02674). TOTAL thereafter sought reconsideration of that ruling, which was also denied. Dkt. 202 (No. 4:16-cv-02674). 27 Dkt. 63, at p. 2. Case 4:16-cv-02678 Document 99 Filed in TXSD on 01/21/19 Page 6 of 16 7 and agreed with the Court’s view that “there’s no sense duplicating any of [the prior discovery].”28 TOTAL also suggested and agreed to a summary judgment briefing schedule in which it would file a motion addressing “the ATP bankruptcy with the resolution that Marubeni reached with ATP”29 (the same issue on which it now claims to need additional discovery and the same issue that was subject to its previously denied motions to compel before Magistrate Smith and Magistrate Palermo). TOTAL gave no indication that additional discovery to support its motion was necessary or appropriate. The Court subsequently entered an order, stating that “discovery done in the related cases is admissible as if taken in this case” and that “[t]he parties may not conduct further discovery without the court’s permission.”30 On November 30, 2018, TOTAL filed its motion for summary judgment, arguing that the Bennu ORRI and the other purported bankruptcy “consideration” pledged to the abandonment fund extinguished MOGUS’s claims against TOTAL.31 After filing that motion, TOTAL requested leave to serve what it claimed was “very limited discovery” in the form of “two narrow interrogatories and two narrow requests for production.”32 In its motion for leave, TOTAL represented to the Court that the discovery was served for purposes of “simply having MOGUS state the book value and fair market value that MOGUS itself has ascribed to the MOGUS 348 ORRI.”33 Accepting TOTAL’s representations, the Court granted TOTAL’s request, and TOTAL 28 Dkt. 85, at 10:25-11:7. 29 Id. at 18:10-16; see also Dkt. 70. 30 Dkt. 69; see also Dkt. 71. 31 Dkt. 78, at p. 7 (stating that “[t]he court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law”) (quoting Fed. R. Civ. P. 56) (emphasis added). 32 Dkt. 79. 33 Id. “MOGUS MC 348 ORRI,” as defined by TOTAL, refers to the half of the Bennu ORRI assigned to MOGUS. It does not include the other half of the Bennu ORRI, which was pledged to the abandonment fund. Case 4:16-cv-02678 Document 99 Filed in TXSD on 01/21/19 Page 7 of 16 8 promptly served MOGUS with requests for the following: • Interrogatory No. 1: “Please state the value recorded by MOGUS or its parent company in . . . its accounting ledgers, statements, books, or records with respect to the MOGUS MC 348 ORRI . . .” • Interrogatory No. 2: “Please state the fair market value MOGUS or its parent company believe the MOGUS 348 ORRI to have . . .” • Request for Production No. 1: “Please produce any and all accounting ledgers, statements, books, or records which refer to or include the MOGUS MC 348 ORRI, including without limitation any and all entries reflecting book value recorded by MOGUS . . .” • Request for Production No. 2: “Please produce any and all documents or communications reflecting or relating to MOGUS’s or its parent company’s valuation of the MOGUS MC 348 ORRI . . .”34 MOGUS fully responded to these requests on December 20, 2018. MOGUS’s responses made clear, through verified answers to the interrogatories, that MOGUS “has never recognized the MOGUS MC 348 ORRI as an asset on its balance sheet or otherwise recorded a value of the MOGUS MC 348 ORRI in any of its financial statements or any other ‘accounting ledgers, statements, books, or records.’”35 The responses further advised TOTAL that MOGUS has never assigned a “fair market value” to the MOGUS MC 348 ORRI and that “MOGUS does not anticipate ever receiving any proceeds from the MOGUS MC 348 ORRI.”36 MOGUS, therefore, advised TOTAL that it had no documents to produce as to “book value” and “fair market value” – the two discrete issues on which TOTAL represented to this Court additional “limited” discovery was needed. With respect to TOTAL’s broad request for “valuation” documents as to the MOGUS MC 348 ORRI, MOGUS referred TOTAL to the various documents already produced, including 34 Dkts. 83-1 and 83-2 (emphasis added). 35 Dkt. 89-4, at ECF p. 5; see also Dkt. 89-5. 36 Dkt. 89-4, at ECF p. 6. Case 4:16-cv-02678 Document 99 Filed in TXSD on 01/21/19 Page 8 of 16 9 MOGUS’s previously produced hypothetical cash flow assessments of the override, which the other courts had already determined was insufficient to establish an “actual value.” After TOTAL’s counsel “question[ed] the veracity” of MOGUS’s responses and threatened to immediately file a motion to compel, MOGUS’s counsel participated in a telephone conference with counsel for TOTAL to review MOGUS’s financial statements and explain how only the oil and gas reserves on MOGUS’s owned properties – not its overriding royalty interests – are represented on MOGUS’s balance sheet.37 Following the call, MOGUS provided additional information requested during the call and offered to provide more explanation as needed. TOTAL did not respond and, instead, filed this motion to compel.38 What must be made clear is that MOGUS has previously produced all non-privileged documents on TOTAL’s present scope of inquiry and all logical extensions thereto. In fact, TOTAL refers to some of those documents in its motion. Repackaging interrogatories and requests for production of documents to set up discovery disputes is what is really occurring at present, and such activities should be curtailed as appropriate to prohibit duplication of what have proven to be already extensive, time consuming, and exceedingly expensive endeavors. ARGUMENT A. MOGUS Has Fully Responded to TOTAL’s Discovery Requests. TOTAL represented to this Court that it was seeking discovery for the sole purpose of “simply having MOGUS state the book value and fair market value that MOGUS itself has ascribed to the MOGUS 348 ORRI.”39 MOGUS fully addressed TOTAL’s discovery requests through verified responses, which make clear that: (i) MOGUS has never recorded a book value 37 See January 7-8, 2019 email correspondence between parties’ counsel, Exhibit B hereto. 38 See id. 39 Dkt. 79, at p. 2. Case 4:16-cv-02678 Document 99 Filed in TXSD on 01/21/19 Page 9 of 16 10 of the MOGUS 348 ORRI; and (ii) MOGUS never assigned a “fair market value” to the MOGUS MC 348 ORRI. TOTAL’s refusal to accept these direct, non-evasive answers does not justify a motion to compel. Dissatisfied with MOGUS’s true, accurate, and complete responses, TOTAL now takes a broader view of the term “valuation” to include not just the “fair market value” or “book value” of the MOGUS MC 348 ORRI but essentially any estimates or projections of potential value as to any of MOGUS’s interests in the Appomattox development. But discovery on those issues has already been done and included extensive review and production of documents concerning MOGUS’s various overriding royalty interests (some of which TOTAL attaches to its motion) as well as depositions addressing those very same documents. To be clear, MOGUS has never denied that it has evaluated the cash flow potential of the Bennu ORRI if Shell were to drill a production well on MC 348. Those analyses have been produced, and TOTAL now refers to some of them in its motion. However, TOTAL fails to advise the Court that the same types of documents were reviewed and analyzed by the judges in the related cases, who both concluded that those documents did not represent an “actual value” of the override. Relying on the Fifth Circuit and other legal authority, both judges found that the “valuation” reflected in those documents was “speculative and uncertain” and based on “assumptions, speculation, and ‘hope.’”40 Although TOTAL relies on some new documents that were not presented in the other cases, they are essentially no different than the documents rejected as not representing “actual value.” As it relates to TOTAL’s specific discovery requests, none of those documents provide a fair market value of the override, and none of the figures provided in those 40 Dkt. 163 (No. 4:16-cv-02671), at pp. 31-32; Dkt. 230 (No. 4:16-cv-02674), at pp. 22-23. Case 4:16-cv-02678 Document 99 Filed in TXSD on 01/21/19 Page 10 of 16 11 documents were ever recorded on MOGUS’s balance sheet or other financial statements.41 TOTAL also refers to certain produced documents referring to the potential reserve value of MOGUS’s collective overriding royalty interests in Appomattox (as opposed to just the Bennu ORRI). But like the Bennu ORRI, the potential reserve value of Appomattox is not reflected on MOGUS’s balance sheet or other financial statements, although it is represented on MOGUS’s reserve reports – which MOGUS has produced along with e-mails analyzing same. None of those reserve reports or e-mails identify any specific value associated with the Bennu ORRI, and the undisputed testimony makes clear that “the majority of th[e] value is from MC 391 and MC 392” (as opposed to MC 348).42 As it concerns TOTAL’s pending discovery requests, none of the documents cited by TOTAL reflects a fair market value or book value of the Bennu ORRI so those documents are not even responsive to the requests made (and all were previously produced anyway). MOGUS has fully responded to TOTAL’s discovery requests. TOTAL is not entitled to more discovery merely because it is dissatisfied with MOGUS’s accurate and complete responses. TOTAL’s motion should be denied. B. The Discovery Requests Are Unreasonably Cumulative and Duplicative. It is “well established that the district court has wide discretion in establishing the confines of discovery.”43 Under Rule 26(a)(2), a court must limit discovery that is “unreasonably cumulative or duplicative” or if the requesting party “has had ample opportunity 41 TOTAL cites one document stating that “MOGUS’s parent requested a ‘reserve evaluation’ specifically in order to ‘record something for our 2Q consolidated financial on Appomattox ORRI.’” Dkt. 94, at p. 3. However, after further analysis by MOGUS and its auditors, it was determined that accounting practices applicable to MOGUS did not permit the override to be included on MOGUS’s financial statements. 42 See excerpts from deposition of Hiroki Shima, Exhibit C hereto, at 96:12-19. 43 Performance Pricing, Inc. v. Google Inc., 2009 WL 2832353, at *2 (E.D. Tex. Aug. 31, 2009) (citing Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 351 (1978) and Alpine View Co. v. Atlas Copco AB, 205 F.3d 208, 220 (5th Cir.2000)). Case 4:16-cv-02678 Document 99 Filed in TXSD on 01/21/19 Page 11 of 16 12 to obtain the information.”44 A court should also not permit discovery that “is motivated by bad faith.”45 As noted above, the topic of TOTAL’s requests was subject to extensive discovery in the related cases, and TOTAL specifically agreed that it would not pursue duplicative discovery in this case. The other courts have already found that TOTAL had multiple “bites at [the] apple” during discovery and “ample opportunity to obtain discovery on [the ORRI valuation] issue.” TOTAL’s attempt to circumvent those rulings with demands for more discovery in this case is contrary to its representations to this Court and inconsistent with its decision to affirmatively file a motion summary judgment on this same issue. TOTAL is not entitled to “unreasonably cumulative or duplicative” discovery, and its motion should be denied. C. The Discovery Sought Is Not Relevant TOTAL, as the party moving to compel discovery, “bears the initial burden of showing that the information or materials sought are relevant to the claims or will lead to the discovery of admissible evidence.”46 TOTAL has not met its burden. The potential future value of the Bennu ORRI, if any, has no bearing on any issue in this case and will not lead to the discovery of relevant evidence. The contracts approved by the bankruptcy court specifically dictate that only actual royalty payments from the Bennu ORRI – not hypothetical future values – are to be deposited into the abandonment fund and proportionally 44 Fed. R. Civ. P. 26; see also Benevis, LLC V. Mauze & Bagby, 2015 WL 12763537, at *2 (S.D. Tex. Dec. 14, 2015) (emphasis added) (quoting Fed. R. Civ. P. 26(b)(2)(C)(i)). 45 Martin v. Seterus, Inc., 2013 WL 12157167, at *1 (S.D. Tex. Nov. 14, 2013). 46 Alcala v. Texas Webb Cty., 2009 WL 10694159, at *3 (S.D. Tex. Dec. 7, 2009); see also Moser v. Navistar Int'l Corp., 2018 WL 3614012, at *2 (E.D. Tex. July 27, 2018) (“The moving party bears the burden of showing that the materials and information sought are relevant to the action or will lead to the discovery of admissible evidence.”). Case 4:16-cv-02678 Document 99 Filed in TXSD on 01/21/19 Page 12 of 16 13 applied against TOTAL’s (and ATP’s other predecessors’) share of decommissioning liability.47 There is no dispute that the Bennu ORRI has not generated any actual royalty payments, but, if it ever does, half of those proceeds will be deposited into the abandonment fund and applied to proportionately reduce TOTAL’s share of liability. Until then, any hypothetical future value of the Bennu ORRI is immaterial under the governing agreements and, therefore, irrelevant to this case. Moreover, even disregarding the confines of the bankruptcy agreements, any future- projected value of the Bennu ORRI would still be irrelevant because there is no legal theory whereby the Bennu ORRI would impact MOGUS’s claims against TOTAL. Under Alabama law, only the settlement contributions of a “joint obligor” are relevant for purposes of establishing an offset.48 The Bennu ORRI, however, was contributed by Bennu, not ATP, and, unlike ATP, Bennu never held any interests in MC 348, was never a party to the operating agreement, and bears no share of the abandonment liabilities at issue in this case. Therefore, a matter of law, TOTAL has no right to offset its share of liability based on any value of the Bennu ORRI because Bennu is not a “joint obligor” of TOTAL.49 Any evidence of the Bennu ORRI’s hypothetical future value is, thus, irrelevant, and TOTAL has failed to show otherwise. 47 See Contribution Agreement, Dkt. 76-27, at ¶¶ 1, 2, and 4(a) (providing that “payments” on the abandonment fund portion of the Bennu ORRI would be paid “directly to the Fund” and then “applied by the Administrator to the ATP Obligations”). 48 Har-Mar Collisions, Inc. v. Scottsdale Ins. Co., 212 So. 3d 892, 904 (Ala. 2016) (overturning verdict that applied a setoff as there was no evidence of a joint obligation and stating “the dispositive question in determining whether a setoff is applicable under these circumstances is . . . whether the [defendant and the settling party] undertook a joint obligation as to the [plaintiff].”). 49 Moreover, “[t]he applicability of a setoff arising from a settlement agreement is an affirmative defense,” which TOTAL has never pled. Id. at 904 (the party offering the setoff defense carries the burden of proof). Case 4:16-cv-02678 Document 99 Filed in TXSD on 01/21/19 Page 13 of 16 14 D. MOGUS Supplemented its Discovery Responses to Address TOTAL’s Stated Concerns. After the Court issued its now-vacated Discovery Order, MOGUS complied with the order and supplemented its responses. MOGUS’s supplemental responses provide additional detail to clarify and explain how there has never been any book value or fair market value assigned to the Bennu ORRI.50 And although not directly responsive to the requests, the supplemental responses specifically identify by Bates number various MOGUS evaluations and analyses concerning the potential value of the Bennu ORRI and/or MOGUS’s collective overriding royalty interests in the Appomattox development. Moreover, although the Discovery Order did not require it, MOGUS, as specifically requested in TOTAL’s motion, reviewed the privileged documents of both MOGUS and Marubeni Corporation (the ultimate parent of MOGUS) and identified any documents that included an analysis of the potential value (or potential lack thereof) of the Bennu ORRI and/or MOGUS’s collective overriding royalty interests in Appomattox.51 Excluding duplicates, MOGUS identified eleven privileged documents and sent TOTAL a letter on January 16, 2019 with the privilege log descriptions of those documents.52 The Court should also be aware that the sufficiency of MOGUS’s privilege log was already the subject of extensive proceedings before Magistrate Smith. Those proceedings included thirteen different pleadings filed by the parties,53 four different orders by Magistrate Smith,54 and two in 50 See MOGUS’s Supplemental Responses and Objections to TOTAL’s Interrogatories and Requests for Production, Exhibit D hereto, in globo. 51 See January 16, 2019 letter from Mr. Mouledoux to Mr. Eskridge, Exhibit E hereto. 52 Id. 53 Dkts. 77, 91, 100, 128, 129, 130, 134, 139, 158, 200, 204, 212, and 213 (No. 4:16-cv-02674). 54 Dkts. 122, 133, 202, 215 (No. 4:16-cv-02674). Magistrate Smith’s rulings addressing privilege log issues are attached hereto as Exhibit F, in globo. In addition, and troubling to MOGUS is that one of Magistrate Smith’s rulings Case 4:16-cv-02678 Document 99 Filed in TXSD on 01/21/19 Page 14 of 16 15 camera reviews by Magistrate Smith. After MOGUS made substantial revisions to its privilege log and Magistrate Smith completed his second in camera review, Magistrate Smith denied TOTAL’s request for the appointment of a Special Master and thereafter denied TOTAL’s request for reconsideration of that order.55 CONCLUSION For these reasons, MOGUS respectfully requests that the Court deny TOTAL’s motion to compel and order that discovery in this case is closed. Respectfully submitted, LOOPER GOODWINE P.C. /s/ Paul J. Goodwine Paul J. Goodwine (Attorney-in-Charge) LA Bar No. 23757; SDTX ID No. 437800 Holly O. Thompson LA Bar No. 31277; SDTX ID No. 2953818 Taylor P. Mouledoux LA Bar No. 31889; SDTX ID No. 1581156 Taylor P. Gay LA Bar No. 35140; SDTX ID No. 3251449 650 Poydras Street, Suite 2400 New Orleans, Louisiana 70130 Telephone: (504) 503-1500 Telecopier: (504) 503-1501 pgoodwine@loopergoodwine.com hthompson@loopergoodwine.com tmouledoux@loopergoodwine.com tgay@loopergoodwine.com -and- specifically found that one of the e-mails that Total now attaches to support its motion to compel was privileged. TOTAL should refrain from using privileged documents to advance its arguments in all aspects of this litigation. 55 Id. at Dkts. 133 and 202 (No. 4:16-cv-02674). Case 4:16-cv-02678 Document 99 Filed in TXSD on 01/21/19 Page 15 of 16 16 SCHONEKAS, EVANS, McGOEY & McEACHIN, LLC Kyle Schonekas LA Bar No. 11817; SDTX ID No. 305350 Joelle F. Evans LA Bar No. 23730; SDTX ID No. 436275 909 Poydras Street, Suite 1600 New Orleans, LA 70112 Telephone: (504) 680-6050 Telecopier: (504) 680-6051 kyle@semmlaw.com joelle@semmlaw.com Attorneys for Marubeni Oil & Gas (USA) LLC CERTIFICATE OF SERVICE I hereby certify that a true and correct copy of the above and foregoing pleading has been served on all counsel of record for the parties via e-mail, FedEx and/or by electronic filing in the Court’s electronic filing system on this 21st day of January 2019. /s/ Paul J. Goodwine Paul J. Goodwine Case 4:16-cv-02678 Document 99 Filed in TXSD on 01/21/19 Page 16 of 16