Atlantic Richfield Co. v. The Long Trusts

Atlantic Richfield Co. (ARCO) (defendant) operated a series of gas wells under a joint operating agreement with The Long Trusts (Trusts) (plaintiff). The operating agreement stated that if Trusts did not dispose of its share of produced gas, ARCO had “the right, subject to revocation at will by [Trusts], but not the obligation, to purchase such . . . gas or sell it to others . . . for the account of [Trusts] at the best price obtainable in the area for such production.” ARCO created B & A Pipeline Company (B & A) as wholly owned subsidiary. ARCO then contracted with B & A to sell to B & A Trusts’s non-marketed gas. B & A signed a ten-year contract committing to sell the gas to Lone Star Gas (Lone Star). At the time, gas prices were extremely high. B & A sued Lone Star in a separate action and the parties reached a settlement under which Lone Star would buy more gas from B & A, but at a lower price. Trusts then brought suit against ARCO, claiming that this modification of B & A’s contract with Lone Star violated the ARCO-Trusts joint operating agreement by resulting in a failure to sell Trusts’s gas at the best price obtainable in the area for such production. Trust also sought accounting for B & A’s sale of the gas to Lone Star. At trial, evidence indicated that even after the settlement, Lone Star’s purchase price from B & A was much higher than B & A’s purchase price from ARCO. The trial court found in favor of ARCO on the breach of contract claim and in favor of Trusts on the failure to account claim. Both parties appealed.