Antero Resources Corp. v. C & R Downhole Drilling, Inc. et al, proves again the extreme risk when one bites the hand that feeds him (shoutout to Greek poet Sappho, 600 BCE). Antero sued former employee Kawsak and his accomplices Robertson and his companies for breach of fiduciary duty, fraud, and unjust enrichment. The jury award Antero $11.1 million against Kawsak in actual damages, $775,000 as recoupment for the value Kawcak received as a result of the breach, and forfeiture of 130,000 shares of stock in Antero Midstream. It could have been worse. The district court had denied Antero’s request that Kawcak disgorge $12 million in salary and vested stock, reasoning that Antero was made whole with the damage award.

Why is it a big deal?

A “fiduciary duty” apples to a person who occupies a position of particular confidence towards another and requires a higher standard of behavior than in just about any other relationship. Employees owe the duty to their employers.

The bad acts

Kawcak was Antero’s Marsellus Shale operations supervisor. From 2011 to 2015 he arranged to hire companies owned by his close friend Robertson to perform post-frac drillout operations. Kawsak and Robertson were “dealing under the table”, as the court described it. Kawcak gave Robertson confidential information on Antero’s other drillout vendors so that Robertson could underbid the competition. As if winning the contracts wasn’t enough, Robertson’s companies deliberately took longer than necessary to conduct operations, and employees dropped tools down the well, brought faulty equipment to well sites, and allowed other equipment to freeze.  All of this resulted in costly delays.

During the five-year period Kawcak received $2.6 million in salary and bonuses and unrestricted stock grants from Antero. during the same time, Kawcak received a private jet and $729,000 in cash payments from Robertson.

Damages – close enough

On appeal Kawcak challenged the calculation of Antero’s damages. Antero’s expert Taylor determined that Robertson’s companies took longer to carry out operations than other drill-out vendors beginning in similar working conditions, accounting for uncontrollable delays and site-specific conditions.  He opined that Antero’s loss caused by the inefficiencies was $11.1 million.

Kawcak claimed that there was uncertainty as to the fact of Antero’s out-of-pocket damages, which in Texas is fatal to recovery. The court concluded that Kawcak’s argument really went to the amount of damages, not the fact of them. Kawcak was arguing that Taylor failed to prove $11.1 million of overbilling, not that he failed to prove overbilling at all.

According to Kawcak Taylor should also have done an invoice-by-invoice analysis. But it didn’t follow that Taylor’s testimony was no evidence at all. Perhaps Antero could have offered a more precise estimation of how the Robertson companies overbilled it, said the court, but all that was required was an estimate of damages with a reasonable degree of certainty. Taylor’s method was a “perfectly rational way” of approximating overbilling.

Competitors’ rates don’t matter

Kawcak alleged that Taylor’s testimony was faulty in that he didn’t consider what rates competing drillout contractors charged. Evidence of a competitor’s rate is not necessary to prove out-of-pocket damages. Plus, Kawcak’s testimony was found to be not reliable and not credible.

Potential offset for Robertson settlement

All wasn’t lost for Kawsak. The court concluded that the district court should have allowed him an opportunity to conduct discovery on how much Antero received in settlement from Robertson and to ask for an offset from the award. The case was remanded for that purpose.

Your musical interlude, Mardi Gras edition.

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