Company Sues Oil Exploration Consultant Over Conflict of Interest


Oil Expert WitnessCASE: Mar Oil Co. v. Korpan, 973 F. Supp. 2d 775

BACKGROUND:

On January 27, 2000, MAR Oil Company entered into a Consulting and Gross Overriding Royalty Interest (GORI) Agreement with Myron Korpan as its consultant for exploring oil and gas reserves and leasing land in Northwest Ohio. The agreement stated that Myron would not compete with MAR over the land, its exploration, or in any financial capacity on the capital market or otherwise. Also, any information MAR had on the area would be held confidential.

On July 2, 2002, MAR and Korpan entered into a superseding Gross Overriding Royalty Agreement (GORA), incorporating the prior GORI Agreement but changing and further codifying some of the terms. These changes related primarily to the scope of the area of mutual interest. The agreement expired on January 27, 2005, subject to extension or renewal.

During the term of the GORA, MAR invested millions of dollars in exploration, including the production of seismic readings. MAR considers the seismic data among its confidential trade secrets. Korpan had access to the seismic data during his time consulting for MAR.

MAR and Korpan did not extend the GORA past January 27, 2005. Since the end of his contractual involvement with MAR in 2005, Korpan has retained certain materials relating to MAR’s exploration for oil and gas reserves. These materials contain information about MAR’s efforts, and include some of MAR’s seismic readings.

In 2008, Korpan began working with Brock and SEP to lease land and explore for oil and gas reserves in the area of mutual interest that was the subject of the GORA. MAR held a lease on what is referred to as “the Johnson property,” but let that lease lapse. On November 22, 2010, after discovering the defendants’ subsequent lease on that land, MAR e-mailed Korpan to ask if he was involved in the other defendants’ leasing and exploration efforts. Korpan promptly confirmed his involvement with them.

Defendants have multiple leases within the previously designated area of mutual interest. Some border directly on plaintiff’s leases.

MAR sued the defendants, seeking lost profits and other monetary damages, including the loss of prospective investment. MAR contends that, due to its conflict with Korpan and SEP, it lost a potential initial investment of at least $800,000 and a longer-term investment of millions of dollars by Marksmen Energy Inc. (Marksmen), claims which it intended to support by retaining an oil expert witness.

Expert Witness:

MAR designated geologist Arthur Berman as its oil expert witness. Berman intended to opine on the importance and value of seismic data, oil and industry standards of confidentiality, defendants’ actions in light of those industry standards, MAR’s measures to preserve the confidentiality of the seismic data, and MAR’s damages from defendants’ use of the proprietary information.

Berman also intended to opine that MAR suffered monetary damages, including the: 1) cost of acquisition of proprietary geological data, including seismic, drilling, and leasing information; 2) loss of prospective investments from Marksmen; and 3) loss of future profits.

Berman expected to base his testimony on: 1) MAR’s records of its expenses to obtain the geological data ($2.9 million); 2) statements by Wayne Toole, the owner of MAR, about Marksmen’s anticipated $800,000 investment; and 3) reports by two geological consulting firms, Ryder Scott Company and Billman Geologic Consultants, Inc., which, according to Berman support an estimated loss of future profits of $1.9 million.

Daubert Challenge:

SEP argued that Berman is not qualified to testify about any of MAR’s alleged damages because he is an expert on geological matters only, and not necessarily a full oil expert witness.

Conclusion:

In plaintiff’s trade secret misappropriation under Ohio Rev. Code Ann. § 1333.63(A), arising from defendants’ alleged improper use of confidential and proprietary information to lease land and drill for oil and gas, the court found that Berman was qualified under Daubert and Fed. R. Evid. 702 to testify as to the general nature of oil and gas exploration based on his experience and training, but he could not testify on topics that he lacked expertise on, such as why an investor backed out or as to a definitive opinion about damages suffered. Furthermore, the court found that the expert was qualified to testify on industry customs, standards, and duties, including the duty of confidentiality under Ohio Rev. Code Ann. § 1333.61(B)(2), based on his years of experience and the industry associations’ codes of ethics and training courses on ethics.

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