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1 Judge Parker was Chief Judge of the Eastern District of
Texas, sitting by designation at the time of oral argument.
2 Local rule 47.5 provides: "The publication of opinions
that have no precedential value and merely decide particular
cases on the basis of well-settled principles of law imposes
1
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
NO. 92-2779
_____________________
JOHN C. LUCK, JR., ET AL.,
Plaintiffs,
LUCK PETROLEUM CORPORATION,
Plaintiff-Appellant,
Cross Appellee,
versus
HOWARD A. SMITH, ET AL., Defendants-Appellees,
O & G CARRIERS, INC., Defendants, Counter Claim
Plaintiff-Appellee,
Cross-Appellant-Appellant,
versus
HOWARD A. SMITH, ET AL.,
Counter Defendants-Appellees.
_________________________________________________________________
Appeals from the United States District Court
for the Southern District of Texas
(CA-H-89-1403)
_________________________________________________________________
(July 15, 1994)
Before KING, BARKSDALE and PARKER,1 Circuit Judges.
Per curiam2:

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needless expense on the public and burdens on the legal
profession." Pursuant to that Rule, the court has determined
that this opinion should not be published.
3 John C. Luck, Jr. and Luck Petroleum Corporation were
plaintiffs in the trial court. Only Luck Petroleum Corporation
perfected an appeal from the holding below. References to "Luck"
in this opinion refer to the corporate Appellant.
4 Smith 1986-A Partnership is the party to the contracts in
question. Howard Smith and Smith Energy Company, Inc., the
general partners, were brought into the suit to trigger
individual liability if the partnership was found liable. These
three defendants will be referred to collectively as "Smith."
2
In April of 1986, Luck Petroleum Corporation3 purchased oil,
gas and mineral leasehold interests, producing oil wells and oil
field equipment located in Galveston County, Texas. Luck then
transferred the interests that it had purchased to O&G Carriers,
Inc. ("O&G") and Smith Energy 1986-A Partnership,4 reserving to
itself a contingent reversionary interest and option, which Luck
could elect to exercise if O&G and Smith received revenues from oil
and gas production in excess of the combined costs of acquisition
and operation. Smith received approximately 68% of the working
interest and O&G received the remaining share. The parties entered
into two additional agreements, dated April 8, 1986 and May 12,
1986, which contemplated that Luck would be the operator of the
property, while Smith and O&G were working interest owners. In
April, 1989 Luck brought the suit underlying this appeal against
Smith and O&G for breach of all three agreements, contending, among
other things, that the Defendants had failed to pay operating
expenses. Federal jurisdiction was based on diversity of
citizenship between Luck, a citizen of Texas, O&G, a citizen of New

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3
York and Delaware, and Smith, a citizen of New York. O&G
counterclaimed against Luck in October, 1989 contending that Luck
was negligent, and that the expenses of operation were falsified
and padded. At approximately the same time, Luck settled and
dismissed all claims against Smith. Smith then succeeded Luck as
operator of the property. Seventeen months later, Smith was
brought back into the suit when O&G amended its counterclaim
against Luck to include claims that Smith participated in,
sanctioned or directed Luck's wrongful conduct.
Prior to settlement between Luck and Smith, O&G commenced a
lawsuit in New York against Smith and Luck. After the Luck-Smith
settlement, Smith filed a third suit against O&G in a Galveston
state court, seeking to recover from O&G the operating expenses
previously sought by Luck as well as other relief. Luck was not a
party to the Galveston suit, which was tried to a jury in 1992.
The jury found that O&G failed to comply with the Operating
Agreement by not paying its share of the operating expenses, but
that failure was excused by Smith's failure to comply with material
obligations under the same agreement. Finally, the jury found that
Smith did not engage in any fraudulent or unconscionable action
that was a producing cause of damage to O&G. The court below held
that the jury findings in the Galveston case resolved all claims
between Smith and O&G in the instant suit.
Luck moved for summary judgment dismissing O&G's counterclaim,
which the trial court granted. Luck also moved for summary
judgment against O&G establishing liability for damages Luck

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4
allegedly sustained due to O&G's breach of express and implied
covenants, which was denied. The court held that Luck's claims
against O&G for operating expenses were resolved by the jury
findings in the Galveston case and by Luck's settlement with Smith.
Finally the Court dismissed Luck's claim that O&G breached an
implied covenant to develop for failure to state a cause of action.
Luck's claim under the express covenant was dismissed by the final
judgment without explanation.
Luck now appeals, asking this Court to reverse the dismissal of
those claims against O&G which were based on express and implied
covenants and render judgment finding O&G liable to Luck under
those covenants. O&G has also appealed the take nothing judgment
on its claims against Smith and Luck, asking that its counterclaims
be remanded to the district court for trial on the merits.
STANDARD OF REVIEW
The district court invited the parties to file motions for
summary judgment, putting all the parties on notice to come forward
with their best evidence. There is some confusion both in the
lower court opinion and in the parties' contentions on appeal
concerning whether the disposition of Luck's claims against O&G
could most accurately be characterized as a dismissal under Federal
Rule of Civil Procedure 12(b)(6) or a grant of summary judgment,
and whether the case was in a procedural posture that gave the
Court authority to dispose of the claim. "'[D]istrict courts are
widely acknowledged to possess the power to enter summary judgments
sua sponte, so long as the losing party was on notice that she had

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5
to come forward with all of her evidence.'" Arkwright-Boston Mfrs.
Mut. Ins. Co. v. Aries Marine Corp., 932 F.2d 442, 445 (5th Cir.
1991) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 326, 106
S.Ct. 2548, 2554, 91 L.Ed.2d 265 (1986)). We find that, because
the record indicates that matters outside the pleadings were
presented to and considered by the lower court, the ruling was a
grant of summary judgment, appropriately made after notice to all
parties.
To review the decision of the trial court, this Court must
perform its own de novo review of the record following the same
summary judgment standards as the trial court to determine whether
there are genuine issues of material fact. Christopher v. Mobil
Oil Corp., 950 F.2d 1209, 1213-14 (5th Cir. 1992), Fed.R.Civ.P.
56(c). In reviewing the evidence, we must make all justifiable
inferences in favor of the non-moving party. Id., at 1213-14.
However, if a movant has advanced summary judgment evidence
regarding an issue on which the non-movant has the burden of proof
at trial, the burden shifts to the non-movant to come forth with
evidence establishing each of the challenged elements of its case.
Duckett v. Cedar Park, 950 F.2d 272, 276 (5th Cir. 1992). The non-
movant is not allowed to rely on its pleadings at this juncture.
Mere allegations that facts exist which create a genuine issue of
material fact are insufficient to defeat a properly supported
motion for summary judgment. Hanks v. Transcontinental Gas Pipe
Line Corp., 953 F.2d 996, 997 (5th Cir. 1992).
LUCK'S CLAIM AGAINST O&G BASED ON EXPRESS COVENANT

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Luck claims that O&G breached an express covenant to develop
the lease, which arose from language in the operating agreement
that obligated Smith and O&G to test a minimum of three wells per
year. In its Memorandum Opinion, the Court below held that Luck
failed to state a cause of action on its implied covenant claim,
and then denied Luck's motion for partial summary judgment
establishing liability on the express and implied covenant claims,
leaving the express covenant claim pending. The same day the court
entered a final take nothing judgment in the case, although the
express covenant claim had not been previously disposed of.
Perhaps it could be argued that the district court's language
earlier in the Memorandum Opinion finding that "[d]ismissal [of
Luck's suit against Smith] resulted in a dismissal of all of Luck's
claims against Smith and O&G Carriers," was intended to dispose of
the express covenant claim. However, the referenced settlement
disposed of Luck's claims for operating expenses only, and did not
include its express and implied covenant claims. The district
court acknowledged this by discussing both claims and disposing of
the implied covenant claim separately in the same order.
Because the Final Judgment had the effect of dismissing the
express covenant claim, this Court must determine whether the trial
court's dismissal should be affirmed on a ground not expressly
relied on. The judgment must be affirmed if it is sustainable on
any legal ground apparent in the record, Jaffke v. Dunham, 352 U.S.
280, 77 S.Ct. 307, 1 L.Ed.2d 314 (1957), even if the district
court's reasoning is rejected. Levene v. Pintail Enterprises, Inc.,

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943 F.2d 528, 534 (5th Cir. 1991).
O&G takes the position that Luck's express covenant claim was
properly dismissed because various work done on the lease fulfilled
the contractual obligation to test three wells per year, and Luck
failed to submit competent summary judgment evidence demonstrating
that the testing required by the covenant had not been done. In
fact, the deposition of Howard Smith attached to Plaintiffs' Motion
for Partial Summary Judgment as to Liability (Mr. Smith testified
that O&G did not pay their bills which prevented the required
testing) creates a genuine issue of material fact concerning
whether or not the required testing was done.
Next O&G argues that Luck had not and could not demonstrate
that any damages arose from the failure to test the wells, because
there was no express obligation in any of the agreements among the
parties to place tested wells back in operation. The language of
the partial assignment binds O&G and the other assignees "to test
a minimum of three (3) of the presently existing shut-in wells upon
the above-described leases per year from the date of this
instrument." If the wells proved not to be productive they were to
be assigned to a third party, and if they turned out to be
productive they were to be retained by the working interest owners.
The language of the contract does not expressly require that any
affirmative action be taken as to productive wells. Had the wells
been properly tested, the lease, and therefore Luck, might have
benefitted from the assignment of nonproductive wells, or the
working interest owners may have chosen to put productive wells

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into operation. However, the testing may have cost more than any
benefit gained. It would have been a simple matter to produce
expert testimony that addressed the likelihood of economic benefit
from the testing procedure. However, a close perusal of the record
reveals nothing more than speculation, which does not create a fact
issue concerning whether Luck was more likely than not damaged by
the failure to test three wells per year. Because the record
reveals no evidence of damages beyond mere speculation, the trial
court's effective grant of summary judgment must be affirmed.
We therefore find that the district court did not err in
dismissing Luck's claim based on the express covenant.
LUCK'S CLAIM UNDER AN IMPLIED COVENANT
Luck claimed that O&G breached an implied covenant to
reasonably develop the leases. The court below found that there
was no implied covenant because the express terms of the agreement
describe the parties' obligations to each other. We agree. Luck
cannot assert a breach of an implied covenant to develop where the
written agreement sets forth the parties' obligation. See Exxon
Corp. v. Atlantic Richfield Co., 678 S.W.2d 944, 947 (Tex. 1984).
Luck argues that the duty implied under Texas law to develop the
leasehold estate is a greater obligation and is in addition to the
obligation to test a minimum of three presently existing shut-in
wells per year. A lessee's obligation to develop and protect the
lease which is implied under Texas law is indeed broader than O&G's
express contractual duty in this case. However, that duty is not
in addition to an express covenant and is implied only when an oil

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and gas lease fails to express the lessee's obligation to develop
and protect the lease. Amoco Production Co. v. Alexander, 622
S.W.2d 563 (Tex.1981). Texas law does not prevent parties from
expressly limiting, expanding, or specifying the details of the
duty to develop a particular lease by contract, as the parties did
in this case. We therefore hold that the district court did not
err in finding that there was no implied covenant in this case.
Because there is no implied covenant, it is unnecessary to
reach the question, raised by Luck, of whether under Texas law an
implied covenant, which traditionally runs between the lessee and
the lessor or royalty interest owner, can be implied for the
benefit of a reversionary interest owner.
SUMMARY JUDGMENT ON O&G'S COUNTERCLAIMS
The district court granted John C. Luck summary judgment
against O&G on O&G's counterclaim for failure to state a cause of
action, noting that O&G had sued Luck individually, although he was
not a party to the contractual agreements that formed the basis of
the lawsuit. O&G's brief on appeal argues only that the "Luck
counter defendants" should not have prevailed on the basis of the
compulsory counterclaim rule or collateral estoppel. John C. Luck
filed no brief on appeal. We find no basis for disturbing the
district court's award of summary judgment for John C. Luck against
O&G.
O&G filed a counterclaim seeking damages from Smith for breach
of contract, fraud, negligence, conversion, misrepresentation and
violations of the Texas Deceptive Trade Practices Act. The court

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below held that all of these assertions could have been litigated
or had been litigated in the Galveston and New York cases involving
the same facts and the same parties. Therefore, citing the rule of
compulsory counterclaims and the doctrine of collateral estoppel,
the court granted Smith's motion for dismissal of the counterclaim.
O&G argues on appeal that the counterclaims against Smith were
not controlled by the compulsory counterclaim rule and were not
barred by collateral estoppel. Smith responds that the district
court's dismissal was essentially based on deference to the state-
court litigation. A federal district court may decline to exercise
its jurisdiction because of parallel state-court litigation only in
exceptional circumstances. Only the clearest of justifications
will warrant dismissal. Colorado River Water Conservation District
v. United States, 424 U.S. 800, 818-819, 96 S.Ct. 1236, 1246-1247,
47 L.Ed.2d 483 (1976). Although there are no hard-and-fast rules
for dismissals due to the presence of a concurrent state
proceeding, the Supreme Court has listed the following factors as
relevant to the decision: 1) inconvenience of the federal forum, 2)
the desirability of avoiding piecemeal litigation, and 3) the order
in which jurisdiction was obtained by the concurrent forums. Moses
H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 15,
103 S.Ct. 927, 937, 74 L.Ed.2d 765 (1983). The weight to be given
any one factor may vary greatly from case to case, depending on the
circumstances of the case. Id.
When, as here, the counterclaim rests entirely on Texas law and
has all but been resolved in a Texas court, the district court has

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no independent jurisdiction over the counterclaim and has dismissed
the claim that established jurisdiction, and the counterclaimant
unduly delayed filing the counterclaim in federal court, deference
to the parallel state court action is called for primarily based on
factor two, the avoidance of piecemeal litigation. Although the
district court did not specifically rely on Cone/Colorado River
abstention, the facts of the case and the language in the lower
court's order support the conclusion that this was an appropriate
case for dismissal in deference to the Galveston litigation. We
therefore affirm the district court's dismissal of O&G's
counterclaim against Smith on the basis of abstention. See Jaffke
v. Dunham, 352 U.S. 280, 77 S.Ct. 307 1 L.Ed.2d 314 (1957).
Because the district court was correct in dismissing O&G's
counterclaim against Smith, we decline to address the remaining
arguments advanced by Smith for affirming the dismissal.
CONCLUSION
The district court's order is AFFIRMED.

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