2019-64834 / COUFI. 055
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`CAUSE NO.
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`9/10/2019 7:46 AM
`Marilyn Burgess - District Clerk Harris County
`Envelope No. 36658217
`By: Joshua Hall
`Filed: 9/10/2019 7:46 AM
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`DANIEL CHARB ONNET AND
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`PAUL COCKERHAM,
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`Plaintiffs,
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`VS.
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`CROWNQUEST OPERATING LLC,
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`CROWNROCK, L.P., AND
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`EQ HOLDINGS LTD.,
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`Defendants.
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`mmmmmmmmmmmmm
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`IN THE DISTRICT COURT OF
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`HARRIS COUNTY, TEXAS
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`JUDICIAL DISTRICT
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`PLAINTIFFS’ ORIGINAL PETITION
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`AND DEMAND FOR ARBITRATION
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`Subject to their demand for arbitration, Plaintiffs Daniel Charbonnet and Paul Cockerham
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`file this Original Petition and Demand for Arbitration against Croanuest Operating LLC
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`(“Croanuest”), CrownRock, L.P. (“CrownRock”), and EQ Holdings Ltd. (“EQ Holdings”) as
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`follows:
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`INTRODUCTION
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`Daniel Charbonnet and Paul Cockerham worked for Croanuest, an affiliate of
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`CrownRock and EQ Holdings. Charbonnet and Cockerham were paid salaries and received equity
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`in CrownRock and EQ Holdings. To receive the part of their compensation that was paid in equity,
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`they were asked to sign award agreements. These award agreements contained covenants not to
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`compete, within the meaning of Section 15.51(a) of the Texas Business and Commerce Code. The
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`covenants in these agreements are overbroad, unreasonable, and unenforceable. Defendants have
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`

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`nonetheless tried to enforce these unenforceable clauses against Charbonnet and Cockerham and
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`have insisted that the units of equity that were paid to Charbonnet and Cockerham as part of their
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`wages no longer belong to them. Defendants have been willing to do business with Charbonnet
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`for years, but now take the position that all that activity was forbidden and has caused Charbonnet
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`to lose the interest he earned. Defendants nearly kept Cockerham from earning a living at all —
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`and while they initially appeared willing to narrow his overbroad restrictive covenant, they
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`suddenly reversed course with him, too. The agreements between the parties provide that this kind
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`of dispute must be submitted to arbitration in Harris County, therefore the Plaintiffs, Charbonnet
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`and Cockerham, respectfully ask this Court to order the Defendants to arbitrate the dispute that has
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`arisen between the parties and, after arbitration, enter judgment confirming the final arbitration
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`award.
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`DISCOVERY CONTROL PLAN
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`1.
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`Though this dispute is governed by an arbitration clause and discovery will be
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`determined in arbitration, in order to comply with Texas Rule of Civil Procedure 190.3, Plaintiffs
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`state that they intend to conduct discovery under Level 2. This suit is not subject to the expedited
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`actions process in Rule 169.
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`PARTIES
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`2.
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`3.
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`4.
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`Plaintiff Daniel Charbonnet is an individual who resides in Texas.
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`Plaintiff Paul Cockerham is an individual who resides in Texas.
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`Defendant CrownRock, LP. is a Delaware limited partnership with its principal
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`place of business in Texas, it may be served by service upon its registered agent, Robert W. Floyd,
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`18 Desta Drive, Midland, Texas 79705.
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`

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`5.
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`Defendant EQ Holdings Ltd. is a Texas limited partnership with its principal place
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`of business in Texas; it may be served by service upon its registered agent, Enerquest Property
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`Management, LLC, 18 Desta Drive, Midland, Texas 79705.
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`6.
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`Defendant Croanuest Operating LLC is a Texas limited liability company and
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`may be served by service upon its registered agent, Robert W. Floyd, 18 Desta Drive, Midland,
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`Texas 79705.
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`I.
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`JURISDICTION/VENUE
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`7.
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`This Court has subject matter jurisdiction under the Texas Government Code. The
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`amounts sought by the Plaintiffs exceed the minimum jurisdictional limits of this Court.
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`8.
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`Harris County, Texas is the arbitral venue on which the parties agreed in the
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`CrownRock Limited Partnership Agreement.
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`11.
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`FACTS
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`A.
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`Daniel Charbonnet
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`9.
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`Daniel Charbonnet worked for Croanuest as a landman and owns restricted units
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`in two entities that Defendants wrongfully claim he has forfeited by becoming an entrepreneur in
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`the oil and gas business.
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`10.
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`Daniel Charbonnet is a native of Houston, Texas. Charbonnet attended The
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`Woodlands High School. Afterwards, he attended Texas Tech University.
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`11.
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`After college, he got his first professional job as a landman with Croanuest
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`Operating in Midland, Texas. Charbonnet started work for Croanuest on a contractual basis in
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`March 2010 and was hired as a full-time, salaried employee in the fall of 2010.
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`12.
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`Charbonnet was not asked to sign a non-compete on his first day, nor was he told a
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`non-compete would be required for his position.
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`13.
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`Charbonnet’s duties as a landman involved helping Croanuest purchase
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`subsurface mineral and leasehold rights. Charbonnet did not participate in high-level corporate
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`decision-making and did not receive high-level confidential information about Croanuest’s
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`strategic initiatives and plans.
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`Charbonnet’s duties involved analyzing publicly-available
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`information regarding mineral ownership and working to purchase subsurface mineral and
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`leasehold rights on behalf of, and at the direction of, Croanuest.
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`14.
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`For the duration of his employment at Croanuest, Charbonnet’s title was
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`landman. He did not receive any promotions, was not responsible for managing other employees,
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`and was never an executive or officer of Croanuest.
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`15.
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`Charbonnet was offered a below-market salary for the position as a Croanuest
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`employee that was lower than what he was then earning, but he accepted it because Croanuest
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`promised he would eventually also receive equity. To secure that equity, he was told he had to
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`sign award agreements. Nearly a year after he began to work, he was offered his first award
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`agreement. Without consulting a lawyer, Charbonnet signed the agreement.
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`16.
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`The EQ Holdings Ltd. Restricted Unit Agreement, dated January 1, 201 1, provided
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`Charbonnet with 2,802 restricted units, 934 each in Class A-II-2, B-2, and C-2, (also described as
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`“Class A-II,” “Class B” and “Class C” in the same document) subject to a vesting schedule. By
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`January 1, 2016 these units were all fully vested.
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`17.
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`About a year after the first agreement, Charbonnet was offered a second award
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`agreement. Like the EQ Holdings, Ltd. Agreement,
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`the CrownRock L.P. Restricted Unit
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`Agreement dated January 12, 2012 issued 1,000 Class D LP units to Charbonnet, also subject to a
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`vesting schedule. When Charbonnet departed,
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`these units were 40% vested. This pair of
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`agreements is referred to in this section as “the Agreements.”
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`18.
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`As described above, the Agreements contained a covenant not to compete, and
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`provided that Charbonnet would forfeit all restricted units if he engaged in any one of the myriad
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`“competing” activities defined in the Agreements.
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`19.
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`Charbonnet worked for Croanuest for nearly seven years.
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`20.
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`Then,
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`in late 2016, Charbonnet decided to leave Croanuest to become an
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`entrepreneur. Charbonnet began telling his coworkers, friends, and other community members in
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`Midland of his plans. Charbonnet also told his coworkers and superiors at Croanuest of his plans.
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`In fact, the executives at Croanuest, including Robert “Bobby” Floyd, President of Croanuest,
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`and Craig Clark, Vice President — Land, wished him well after learning of his plans to start a new
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`business.
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`21.
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`Perhaps recognizing that the Agreements contained unenforceable and overbroad
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`restrictions,
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`in October 2016 Croanuest sought
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`to reform Charbonnet’s restricted unit
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`agreements, to make the language narrower and more reasonable. However, Charbonnet never
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`consented to the attempted reformation of his restricted unit agreements.
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`22.
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`November 1, 2016 was Charbonnet’s last day at Croanuest.
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`23.
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`Pursuant to his plans that he had shared with Croanuest, Charbonnet started his
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`business and began analyzing potential investments. As before, Charbonnet was transparent with
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`Croanuest and others about his activities.
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`24.
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`Charbonnet regularly shared potential investment opportunities with Croanuest.
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`He even offered potential transactions and investments to Croanuest first, based on his strong
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`personal relationship with the executives at the company.
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`25.
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`For example, in December of 2016, Charbonnet contacted Drew Harris, a Landman
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`at Croanuest to ask whether Croanuest had any interest in mineral rights on the Powell Ranch.
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`26.
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`Again looking to include Croanuest, in April of 2017 Charbonnet contacted
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`Floyd, Lee Dunn, Vice President of Business Development, and Jeff Beard, Land Manager, to ask
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`whether Croanuest had any interest in investing in a transaction in Loving County involving
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`Fortress Energy, an oil and gas investment company that Charbonnet founded together with other
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`individuals, based in Midland.
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`27.
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`Again,
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`in mid-2017, Charbonnet contacted Floyd to invite Croanuest to
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`participate with Fortress Energy in a transaction regarding a portion of the Wheeler mineral
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`position. Charbonnet and Floyd corresponded extensively regarding this potential opportunity and
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`Floyd indicated he was interested in learning more. Although Croanuest did not ultimately
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`invest, at no time did Floyd or any other Croanuest executive advise Charbonnet that he viewed
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`any offer to allow Croanuest to invest as “competing activity.”
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`28.
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`In December 2017, Charbonnet had lunch with Floyd. Charbonnet told Floyd about
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`his business activities and what he planned to do.
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`29.
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`Charbonnet communicated with Floyd again regarding a potential transaction
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`involving the Wheeler mineral position throughout the summer of 2018. Pursuant to these
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`discussions, Charbonnet and his Fortress Energy colleagues met with Floyd and Beard and
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`provided extensive information on the proposed transaction, including financial information and
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`maps. Croanuest decided after this meeting that it would not participate.
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`30.
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`As these facts make clear, Charbonnet brought multiple potential investments to
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`Croanuest over the years after his departure.
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`In no instance did Croanuest’s representatives
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`tell Charbonnet they viewed the offer as improper or as a “competing activity.”
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`31.
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`Many of Charbonnet’s business activities were matters of public record, as
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`Croanuest acknowledged when it attached a public record of transactions to its correspondence
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`with Charbonnet. But Croanuest would not have had to consult these records to know about
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`what Charbonnet was doing because as detailed above, Charbonnet had consistently told
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`Croanuest executives of his business activities from the time he left Croanuest in November
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`2016.
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`32.
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`In fact, Croanuest was not just aware of Charbonnet’s business, it was also
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`supportive: while Croanuest never decided to co-invest, Croanuest executives repeatedly
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`expressed to Charbonnet their support for his new business.
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`33.
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`Croanuest consistently treated Charbonnet as an equity holder, including after
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`his departure from the company, and throughout the first years of his new business.
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`34.
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`He was sent regular Form K-ls on June 8, 2017 and July 11, 2018 that reflected his
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`equity interests in each entity, and Croanuest’s correspondence with Charbonnet regularly
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`reflected his status as an equity owner.
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`35.
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`Consistent with his status as an equity owner, on or about January 5, 2018,
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`Croanuest issued Charbonnet a distribution of $326,371.00 in connection with his equity
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`interests.
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`36.
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`Charbonnet’s unenforceable restrictive covenants expired by their own terms on
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`November 1, 2018.
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`37.
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`Months after the expiration of the restrictive covenant, in early 2019, Croanuest
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`inexplicably reversed course.
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`38.
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`On January 14, 2019 Charbonnet met with Jeff Beard, who on behalf of
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`Croanuest told him that Croanuest believed he was no longer the owner of his equity because
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`he had allegedly engaged in competing activity.
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`39.
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`Charbonnet was shocked at this sudden reversal of Croanuest’s position.
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`40.
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`After the meeting, remembering the strong personal relationships he believed he
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`still had after over a decade living and working in the same community as Croanuest’s leaders,
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`Charbonnet made an appeal to Floyd and Dunn. This appeal failed.
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`41.
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`On February 5, 2019, the General Counsel of Croanuest, Michael Scott, sent a
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`letter to Charbonnet. In that letter, Scott wrote that the business that Croanuest had not objected
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`to — and indeed, had encouraged — for over two years, it now regarded as “competing activity.”
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`Scott identified section 4(a) of the Agreements as the “Non-Compete Provisions” and stated that
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`at an unspecified time prior to the expiration of the non-compete provisions, Charbonnet had
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`violated these provisions and thereby forfeited his equity.
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`42.
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`Charbonnet
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`retained outside counsel, as did Croanuest and its affiliates.
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`Defendants’ counsel again alleged that Charbonnet had forfeited his equity interests by engaging
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`in so-called “competing activity,” and again said that the distribution that Charbonnet properly
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`received was distributed “in error.”
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`43.
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`After years of appearing willing to do business with Charbonnet, Defendants have
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`now taken the position that because of that activity, the equity that Charbonnet had earned over
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`six years of hard work was forfeited.
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`44.
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`The correspondence between Charbonnet’s counsel and Defendants’ counsel
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`shows that there is a live controversy between Charbonnet and Defendants regarding the status of
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`Charbonnet’s Restricted Units. Charbonnet maintains
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`that
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`the forfeiture provisions are
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`unenforceable, that the forfeiture provisions were waived in any event, and that he has not forfeited
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`his vested Restricted Units, or alternatively that Defendants are liable for breach of contract
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`damages for declaring the Restricted Units forfeited.
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`B.
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`Paul Cockerham
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`45.
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`Paul Cockerham worked for Croanuest as a field engineer and owns restricted
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`units in CrownRock and EQ Holdings that Defendants wrongfully claim he has forfeited by
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`working for another company in the oil and gas business.
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`46.
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`Cockerham accepted an offer of employment from Croanuest in December 2010,
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`in reliance on the promise of equity ownership in the company, with no mention of any non-
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`compete. It was understood that these units were an integral part of Mr. Cockerham’s overall
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`compensation and the main reason for a base salary below the industry average.
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`47.
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`After Cockerham accepted the employment offer, relocated his family to Midland,
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`and started working, Croanuest presented Cockerham with an EQ Holdings Ltd. Restricted Unit
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`Agreement. This agreement confirmed the issuance of 3,000 restricted units to Cockerham (1,000
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`each of Class A, B, and C), subject to a vesting schedule.
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`48.
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`Similarly, Croanuest presented Cockerham with a Crownrock, L.P. Restricted
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`Unit Agreement dated January 1, 2012. That agreement confirmed the issuance of 1,000 Class D
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`units to Cockerham, also subject to a vesting schedule. Both of the Restricted Unit Agreements
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`had clauses stating that Cockerham would forfeit all restricted units, “whether vested or not,” if he
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`engaged in a “Competing Activity,” which the agreements defined extremely broadly. At the time,
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`Cockerham trusted Croanuest and did not eXpect it would treat him unfairly, so he signed both
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`agreements, without consulting a lawyer.
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`49.
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`Cockerham was not in a position to receive any sensitive confidential information
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`about prospective oil and gas properties Croanuest was looking at. Cockerham has a master’s
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`degree in Engineering and worked as a Drilling and Production Engineer for Croanuest for over
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`five years. His job was field engineering, he did not do any reservoir engineering for Croanuest.
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`He was never part of management or business development. His job did not involve researching
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`potential oil and gas properties, identifying prospective oil and gas opportunities, or negotiating
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`for potential deals. Thus, he did not typically receive confidential information about oil and gas
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`prospects Croanuest was considering or pursuing. As a drilling and production engineer, he
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`would only become aware of the properties Croanuest acquired when he was called on to
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`provide engineering services for a particular wellsite.
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`50.
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`Cockerham worked diligently for Croanuest as a field engineer and earned vested
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`Restricted Units. By January 1, 2016, Cockerham owned 2,880 fully vested Class A, B, and C
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`Restricted Units in EQ Holdings, and 384 fully vested Class D Restricted Units in CrownRock.
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`51.
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`Personal tension between Cockerham and a member of Croanuest management
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`led to Croanuest pressuring Cockerham to resign from Croanuest on October 1, 2016.
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`52.
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`After resigning, Cockerham wanted to honor the non-competes in his Restricted
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`Unit Agreements, but the agreements defined “Competing Activity” extremely broadly. In effect,
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`the non-competes as written would prevent Cockerham from working in the oil and gas industry
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`anywhere in the Permian and Delaware Basins, which cover a massive area in West Texas and
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`New Mexico. As a practical matter, to continue working in his profession Cockerham would have
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`had to uproot his family from Midland—where they had established close ties with school, church,
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`community, and friends—and move out of West Texas. Cockerham instead tried to find work in
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`his field in the Midland area, but because of the extremely broad scope of the non-competes, he
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`had trouble finding work that Croanuest would consider outside the scope of the “Competing
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`Activity” defined in the agreements.
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`53.
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`Cockerham made a good-faith effort to find work that would not cause any concerns
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`for Croanuest. He interviewed with several companies for positions that were unrelated to his
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`10
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`work at Croanuest and/or focused on geologic areas where Croanuest was not active, but the
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`broad scope of his non-compete was an obstacle to finding employment in the oil and gas industry
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`in the area. On one occasion, Cockerham reached out to Croanuest for consent to a position that
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`would not involve any actual competition with Croanuest, but Croanuest refused.
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`54. Croanuest eventually acknowledged that the scope of the non-compete was
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`broader than necessary to protect Croanuest’s interests. In October 2016, Croanuest’s Vice
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`President of Engineering & Operations, Luke Dunn, stated by email that the scope of the non-
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`compete would only apply to the following Texas counties where Croanuest is focused:
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`Midland, Martin, Howard, Glasscock, Upton, and Reagan.
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`55.
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`Cockerham started working for Fortress Energy, which operates in the same general
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`industry as Croanuest, i.e. oil and gas investment. But Cockerham’s work at Fortress Energy
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`has been unrelated to the field engineering work he did at Croanuest. Prior to March 2019,
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`Fortress Energy did not even have a f11ed Form P-5 with the Texas Railroad Commission and did
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`not have any Texas oil and gas assets under operation. Cockerham did not, and could not have,
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`done any field engineering work for Fortress Energy during that time.
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`56.
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`Furthermore, as described above, Daniel Charbonnet and Fortress Energy made a
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`good faith effort to avoid any direct competition with Croanuest. On several occasions, Fortress
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`Energy even disclosed its potential deals to Croanuest, voluntarily giving Croanuest the
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`option to pursue or participate in the deals. On each occasion, Croanuest declined.
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`57. Croanuest knew since as early as February 2017 that Cockerham was working
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`for Fortress Energy. Communications between Croanuest and Cockerham show that
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`Croanuest continued to treat Mr. Cockerham as a limited partner for over a year after learning
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`that Mr. Cockerham was working for Fortress Energy. Furthermore, in January 2018 Croanuest
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`11
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`distributed $356,924 to Cockerham based on his vested Restricted Units. By making this
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`distribution, Croanuest acknowledged that Cockerham still owned those units and had not
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`forfeited them by violating the non-competes.
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`58.
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`It was not until February 2019 that Croanuest sought to enforce the extremely
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`broad non-competes against Cockerham as written. Croanuest’s Vice President and General
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`Counsel sent Cockerham a letter dated February 19, 2019. The letter cited Section 4(a) of the
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`Restricted Unit Agreements and called those sections the “Non-Compete Provisions.” The letter
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`stated that “if you engaged in Competing Activity prior to October 1, 2018 the Restricted Units in
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`EQ Holdings and CrownRock you were issued would automatically be forfeited.” It went on to
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`say that “it appears you may have forfeited your remaining Class ‘A’, ‘B’, and ‘C’ Restricted Units
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`in EQ Holdings and your remaining Class ‘A’, ‘B’, and ‘C’ Restricted Units in EQ Holdings and
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`your remaining Class ‘D’ Restricted Units in CrownRock.” Croanuest based the alleged
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`forfeiture on Cockerham working for Fortress Energy in violation of the “Non-Compete
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`Provisions.”
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`59.
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`Cockerham engaged counsel
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`to respond, and his counsel
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`sent a letter to
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`Croanuest dated April 26, 2019, providing factual background and explaining why the forfeiture
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`clauses are unenforceable non-competes under Texas law. Croanuest and its affiliates then
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`engaged outside counsel, who sent a letter to Cockerham’s counsel dated June 6, 2019. In that
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`letter, Defendants’ counsel disputed Cockerham’s legal position, took the position that Cockerham
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`forfeited his Restricted Units by violating the non-competes, and demanded that Cockerham return
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`the $356,924 distribution, claiming the distribution had been made “in error.”
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`60.
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`The correspondence between Cockerham’s counsel and Defendants’ counsel shows
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`that there is a live controversy between Cockerham and Defendants regarding the status of
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`12
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`Cockerham’s Restricted Units. Cockerham maintains
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`that
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`the forfeiture provisions are
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`unenforceable, that he has not forfeited his vested Restricted Units, or alternatively that Defendants
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`are liable for breach of contract damages for declaring the Restricted Units forfeited.
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`C.
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`The Restrictive Covenant
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`61.
`
`As described in greater detail above, Plaintiffs Charbonnet and Cockerham both
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`worked for Croanuest. As part of their compensation, after signing award agreements, they
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`received equity in two entities, EQ Holdings Limited and CrownRock, LP.
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`62.
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`Upon information and belief, Croanuest serves as the operator for the oil and gas
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`properties owned by CrownRock, L.P. pursuant
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`to an Administrative Support Agreement.
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`Croanuest has at times acted as an agent on behalf of CrownRock L.P. and/or EQ Holdings Ltd.
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`in dealings with Charbonnet and/or Cockerham.
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`63.
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`The EQ Holdings form agreements that Charbonnet and Cockerham signed
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`provided that Charbonnet and Cockerham would receive equity awarded on a set vesting schedule.
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`64.
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`Charbonnet and Cockerham also signed form agreements with CrownRock L.P.
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`Like the EQ Holdings form agreements, these agreements also awarded equity in different classes
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`of units, awarded on a vesting schedule.
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`65.
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`The agreements Charbonnet and Cockerham signed contain a substantially similar
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`restrictive covenant (the “Restrictive Covenant”) that prohibits the equity holder from engaging in
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`any “Competing Activity.” In each agreement, the Restrictive Covenant prohibits:
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`having a direct or indirect financial interest in, managing, operating,
`f1nancing,
`controlling, participating in the management
`of,
`operating, owning, being employed by, consulting with or lending
`credit
`to, or otherwise competing with,
`the acquisition of,
`exploration for, development of and/or operation of oil and gas
`properties and related assets in any geologic basin in which the
`Partnership owns properties or is considering prospects, all as
`determined by the General Partner in its discretion, during Holder’s
`
`l3
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`

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`employment by an Affiliated Employer or at any time within two
`(2) years after the termination of such employment.
`
`66.
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`If an equity holder engages in a “Competing Activity,” both Agreements provide
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`that the equity holder will forfeit all restricted units, “whether vested or not.”
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`The Restrictive Covenant is a covenant not to compete.
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`67.
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`Defendants have taken the position that the Restrictive Covenant is not a “covenant
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`not to compete” governed by the Texas Covenants Not to Compete Act, TEX. BUS. & COM. CODE
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`§ 15.50 et seq. (the “Act”), but this position is contrary to Texas law. An agreement that does not
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`expressly prohibit competition but imposes a financial penalty for competition is subject to the
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`requirements of the Act. PeatMarwickMain & Co. v. Haass, 818 S.W.2d 381, 383 (Tex. 1991).
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`This is true even if the clause recites that it is not a non-compete. Valley Diagnostic Clinic, PA. v.
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`Dougherty, 287 S.W.3d 151 (Tex. App.—Corpus Christi 2009, no pet.) (“Although the provision
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`at issue here is a forfeiture clause and expressly states that it is not a covenant not to compete, the
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`Texas Supreme Court has analyzed such clauses in the same manner as covenants not to compete
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`because they share the same objective—to restrain a former employee from competing against the
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`employer.”).
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`68.
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`Defendants have cited cases holding that a forfeiture clause was not a covenant not
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`to compete, but those cases did not involve forfeiture of fully vested shares. In Exxon Mobil Corp.
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`v. Drennen, the court held that a forfeiture clause was not subject to the limitations in the Texas
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`non-compete statute where (1) New York law applied, and (2) the forfeiture applied to unvested
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`shares that had been awarded but not yet delivered pursuant to a non-contributory profit-sharing
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`plan. 452 S.W.3d 319, 329-31 (Tex. 2014). The Court expressly left open whether such a clause
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`is an unenforceable restraint of trade under Texas law. Id. at 329. Defendants have also cited
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`Dollgener v. Robertson Fleet Services, Inc., 527 S.W.2d 277 (Tex. App—Waco 1975, writ ref’ (1
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`n.r.e.), a pre-Act case holding that a forfeiture provision in a noncontributory prof1t-sharing trust
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`was not a covenant not to compete. But like Drennen, Dollgener did not involve forfeiture of
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`vested shares the employee had already earned. Id. at 278-80.
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`69.
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`In a more recent case, the Houston Court of Appeals applied this very distinction
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`in Rieves v. Buc-ee ’s Ltd, 532 S.W.3d 845 (TeX. App—Houston [14th Dist] 2017, no pet.). The
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`court held that an agreement that imposes a severe economic penalty on an at-will employee for
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`quitting must meet the reasonableness requirements for non-competes, even if the agreement does
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`not expressly prohibit competition. Id. at 851. Quoting Haass, the court reasoned that the “practical
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`and economic reality” of such a contractual penalty is that it inhibits employee mobility in virtually
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`the same manner as a non-compete. Id.
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`70.
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`Like the Defendants here, the employer in Rieves cited Exxon Mobil v. Drennen for
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`the proposition that a forfeiture provision is not a non-compete, but the court rejected this
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`argument. Characterizing Drennen as a “choice-of—law case,” the Rieves court distinguished
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`Drennen as involving “cancellation of future payments of unvested stock options that had been
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`awarded but not delivered to Drennen, an ExxonMobil vice president, under a non-contributory
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`profit-sharing plan.” Rieves, 532 S.W.3d at 852. One critical distinction was that “Drennen did not
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`involve ExxonMobil seeking the return of Drennen’ s salary or any stock options that had already
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`vested.” Id. (emphasis added).
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`71.
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`In short, Defendants ignore the fact that the forfeiture clause in this case applies to
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`fully vested units in CrownRock LP. and EQ Holdings Ltd. that Charbonnet and Cockerham
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`already own. Thus, the Restrictive Covenant that would require forfeiture of those units clearly
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`functions as a non-compete and must be treated as such under applicable Texas case law. And
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`although it is not dispositive, it is telling that Defendants’ own counsel has candidly referred to the
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`forfeiture clause as a “non-compete.”
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`The Restrictive Covenant is unreasonable and unenforceable under the Act.
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`72.
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`The Act requires that a non-compete be reasonable in time, geographic area, and
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`scope of activity restrained, such that it does not impose any greater restraint than necessary to
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`protect the goodwill or other legitimate business interest of the employer. TEX. BUS. & COM. CODE
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`15.50(a). The non-competes here were tied to agreements for personal services, and Defendants
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`therefore have the burden to prove that the non-competes meet these reasonableness requirements.
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`TEX. BUs. & COM. CODE 15.51(b).
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`73.
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`The Restrictive Covenant does not meet these requirements. The time period of two
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`years is longer than necessary to protect Defendants’ confidential information and goodwill, and
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`the geographic area of any geologic basin in which the company owns properties or is considering
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`prospects is unnecessarily broad. Any confidential
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`information Charbonnet or Cockerham
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`received during their employment would become stale long before two years after termination,
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`and the geologic basins where Defendants own properties—including the Permian and Delaware
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`basins—are extremely large.
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`74.
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`The broad scope of the Restrictive Covenant is especially unreasonable. First, the
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`scope is unreasonable because it is vague and indefinite. Texas courts deny enforcement of non-
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`competes that leave such essential terms unclear. See, e.g., W&O Supply, Inc. v. Pilre, No. 4:19-
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`CV-00153, 2019 WL 1559209, at *3 (SD. Tex. Apr. 10, 2019) (non-compete that contained no
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`time limitation was unenforceable and could not be reformed), Cent. Slates Logistics, Inc. v. BOC
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`Trucking, LLC, No. 01-16-00693-CV, 2018 WL 5662669, at *5 (Tex. App—Houston [lst Dist]
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`16
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`Nov. 1, 2018, no pet.) (non-compete was unenforceable where there was no discernible method to
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`determine its time period).
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`75.
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`Second, the scope is unreasonable because it would effectively prohibit Charbonnet
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`and Cockerham from working for any company in the oil and gas investment, exploration and
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`production industry. This is a prohibited “industry-wide exclusion.” John R. Ray & Sons, Inc. v.
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`Slroman, 923 S.W.2d 80, 85 (Tex. App—Houston [14th Dist.] 2010, no pet.) (“The Texas
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`Supreme Court has held that an industry-wide exclusion is unreasonable”) (citing Peat Marwick
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`Main & Co. v. Haass, 818 S.W.2d 381, 386-88 (Tex. 1991)), see alsoD ’Onofiio v. Vacation Pubs,
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`Inc., 888 F.3d 197, 211-12 (5th Cir. 2018) (covenant that amounted to an industry-wide exclusion
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`was unenforceable under Texas law). The scope is unreasonable because it is not limited to
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`preventing Charbonnet and Cockerham from pursuing oil and gas deals or prospects that they were
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`involved in or learned about while working for Croanuest. See EMS USA, Inc. v. Shary, 309
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`S.W.3d 653, 660 (Tex. App—Houston [14th Dist] 2010, no pet.) (enforceability of non-compete
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`would turn on whether it extended to customers that employee had no dealings with), Wright v.
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`Sport Supply Group, Inc., 137 S.W.3d 289, 298 (Tex. App—Beaumont 2004, no pet.) (non-
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`compete that was not limited to customers employee had dealings with while employed by
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`company was unreasonably broad).
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`76.
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`For these reasons,
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`the Restrictive Covenant is unenforceable as written, and
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`Defendants may not declare the units forfeited based on alleged violations of an unenforceable
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`forfeiture clause.
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`It appears that a “Liquidation Event” also prevents the claimed forfeiture.
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`77.
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`The Agreements also provide: “Notwithstanding the foregoing, the following shall
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`not be considered nor constitute a Competing Activity...(v) activities engaged in following a
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`Liquidation Event.”
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`78.
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`Because they extend for two years from the termination of employment, both the
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`Charbonnet and Cockerham covenants have now by their terms expired.
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`79.
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`In fact, these covenants may have already expired on or about January of 2018,
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`when it appears that Croanuest experienced a Liquidation Event as defined in the award
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`agreements. Section 3(b) of Cockerham and Charbonnet’s Restricted Unit Agreements with EQ
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`Holdings Ltd. provides that all unvested Restricted Units shall become immediately and
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`automatically vested in full if a Liquidation Event occurs.
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`80.
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`The agreement defines “Liquidation Event” as the occurrence of any of the
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`following: (i) the sale by the Partnership [EQ Holdings Ltd.] of substantially all of its interest in
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`CrownRock, L.P.,
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`(ii) the Transfer of all or substantially all of the assets of CrownRock, LP, or
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`(iii) upon either the Partnership or CrownRock, L.P. entering into any merger, consolidation or
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`similar transaction.
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`81.
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`Cockerham and Charbonnet’s Restricted Unit Agreements with CrownRock, L.P.
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`contain similar provisions.
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`82.
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`Croanuest has not disclosed such a transaction to Cockerham or Charbonnet.
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`83.
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`However, on information and bel