Olf HOLLOW I, L.P., Appellant v. EL PASO MARKETING, L.P. and Enterprise Texas Pipeline, LLC, Appellees.
-- August 15, 2013
Jett Williams III, Jacks C. Nickens, for Olf Hollow I, L.P.D. Mitchell McFarland, Michael Hendryx, Kerry R. McEniry, for El Paso Marketing, L.P.Michael Hendryx, Suzanne Reddell Chauvin, Fernando De Leon, for Enterprise Texas Pipeline, LLC.
MAJORITY OPINION ON REMAND
Wolf Hollow I, L.P. appeals from a final judgment granted in favor of El Paso Marketing, L.P. and Enterprise Texas Pipeline, LLC. On remand from the Texas Supreme Court, our review is limited to deciding whether Wolf Hollow is entitled to replacement-power damages in its claims against El Paso. The trial court ordered that Wolf Hollow take nothing on these claims. Finding error in part, we affirm the judgment of the trial court in part, reverse in part, and remand for further proceedings not inconsistent with this opinion.
I. Factual and Procedural Background
Wolf Hollow owns an electric power plant in Granbury, Texas. The plant generates energy from the burning of natural gas, the supply of which is managed by El Paso. El Paso purchases the gas at a market hub near Pecos, Texas, where it flows into a pipeline owned by Enterprise. Wolf Hollow's plant is connected to that pipeline.
Wolf Hollow and El Paso operate under a Gas Supply and Fuel Management Agreement (the “Supply Agreement”). El Paso and Enterprise, in turn, operate under a Gas Transportation Agreement (the “Transportation Agreement”). The Transportation Agreement was originally executed between Wolf Hollow and Enterprise. Wolf Hollow assigned the agreement to El Paso with Enterprise's consent. The Transportation Agreement contemplated that assignment, and the Supply Agreement required it.
In 2006 and early 2007, Wolf Hollow experienced four interruptions in the delivery of natural gas. The first interruption occurred because of an equipment failure on the Enterprise pipeline. The second interruption occurred when an Enterprise technician made a computer error, which caused protective valves to automatically shut down gas flow to Wolf Hollow's plant. The third and fourth interruptions resulted from other pipeline equipment-failures.
El Paso gave notice of these four interruptions to Wolf Hollow, claiming that they were events of force majeure excused by the Supply Agreement. Wolf Hollow disputed that the interruptions were excused, and also complained about the quality of natural gas that it had been receiving. Wolf Hollow alleged that because the gas had been contaminated by heavy liquid hydrocarbons, it fell below the quality specified by the Transportation Agreement.
A. The Trial Court
Faced with these disputes, El Paso petitioned for declaratory judgment, seeking declarations that (1) it was excused from the delivery failures because of events of force majeure, and (2) it was not liable for Wolf Hollow's claims related to the quality of gas delivered. Wolf Hollow filed counterclaims against El Paso, alleging breach of contract and other causes of action not relevant here. It sought the following damages: costs incurred for purchasing replacement power to meet Wolf Hollow's output commitments; costs for physical damage sustained to the plant; costs of procuring additional fuel-treatment equipment; and costs for cleaning, replacing, and refurbishing turbine parts.
El Paso filed a third-party petition against Enterprise, seeking to recover contribution and indemnity for any liability that El Paso might have to Wolf Hollow. Wolf Hollow subsequently filed a cross-claim, alleging that Enterprise was negligent in allowing the interruptions of service and in delivering gas that failed to comply with quality specifications. Wolf Hollow sought damages similar to those pleaded in its action against El Paso.
The trial court resolved all issues in the litigation by ruling on a series of summary-judgment motions filed by El Paso and Enterprise. In its rulings, the trial court disposed of Wolf Hollow's claims against El Paso on multiple grounds, all based on interpretations of language found in the Supply Agreement and the amendments thereto. Among its rulings, the trial court concluded that (1) the four delivery interruptions were caused by events of force majeure, which excused El Paso's nonperformance; (2) all damages sought by Wolf Hollow were consequential damages barred under the Supply Agreement; (3) the Supply Agreement created an exclusive remedy for Wolf Hollow's gas-quality claims, which was an assignment by El Paso of any quality claims it might have against Enterprise; (4) there was no evidence of a breach of the fuel-management portion of the Supply Agreement; and (5) Wolf Hollow released all of its claims for damages. The trial court also granted Enterprise's motion for summary judgment, holding that Wolf Hollow could not assert a negligence cause of action because its claim sounded in contract rather than tort, and because its damages were precluded by the economic-loss rule.
After issuing its summary-judgment orders, the trial court rendered a final judgment that Wolf Hollow take nothing on its claims against El Paso and Enterprise. In the final judgment, the trial court included declarations that (1) the four service interruptions constituted events of force majeure; (2) El Paso gave Wolf Hollow proper notice of these events of force majeure, and El Paso has no liability regarding the incidents; (3) Wolf Hollow's exclusive remedy on its gas-quality claims for gas delivered by Enterprise is to receive an assignment of El Paso's claims against Enterprise; and (4) the default-and-remedies provision of the Supply Agreement does not apply to Wolf Hollow's gas-quality claims.
B. The Appellate Court's Opinion
On original submission, we agreed with the trial court's ruling that all of the damages sought by Wolf Hollow were consequential damages, which were waived under the Supply Agreement. Because this waiver defeated each of Wolf Hollow's claims against El Paso, we vacated the trial court's declaratory judgment, concluding that such declarations were moot. We also reversed the trial court's summary judgment with respect to Enterprise, concluding that Wolf Hollow was entitled to pursue a negligence claim against Enterprise and that the action was not otherwise barred by the economic-loss rule. See Wolf Hollow I, L.P. v. El Paso Mktg., L.P., 329 S.W.3d 628, 645 (Tex.App.-Houston [14th Dist.] 2010). Our disposition of these issues made it unnecessary to address some of the trial court's other summary-judgment rulings.
C. The Texas Supreme Court's Opinion
The Texas Supreme Court granted review of our decision, and organized its opinion around the following three issues: (1) whether Wolf Hollow's claims against Enterprise sounded in contract or tort, (2) whether Wolf Hollow had waived all of the damages it asserted under the terms of the Supply Agreement, and (3) whether we erred in vacating the declaratory judgment. See El Paso Mktg., L.P. v. Wolf Hollow I, L.P., 383 S.W.3d 138, 142 (Tex.2012). As to the first issue, the court concluded that Enterprise's duties were imposed by contract, rather than by law. Thus, the court held that even though Wolf Hollow no longer had a contractual relationship with Enterprise, Wolf Hollow could not assert an action against Enterprise sounding in negligence.
Addressing the second issue, the court conducted separate analyses of the two types of damages asserted. Wolf Hollow's “plant damages” represented the alleged damages for plant repairs and equipment upgrades. Its “replacement-power damages” represented the damages that were allegedly sustained when the plant was shut down. The court held that the plant damages were consequential, and therefore barred by agreement. The court reached a different conclusion on the replacement-power damages, which Wolf Hollow had sought in both its delivery and quality claims against El Paso.
Although the replacement-power damages were also determined to be consequential, the court held that Wolf Hollow's claims could still be viable because the parties had bargained for replacement costs in Article XXI of the Supply Agreement, and such costs were specifically excepted from the waiver of consequential damages. The court accordingly concluded that judgment should not have been granted against Wolf Hollow based on the waiver of consequential damages.
Addressing the third issue, the court briefly examined the trial court's declaratory judgment. We previously had determined that the declaratory judgment was moot based on the waiver of consequential damages. The Texas Supreme Court disagreed with that holding, concluding that the declaratory judgment was not moot because Wolf Hollow's replacement-power claims survived the waiver of consequential damages. For that reason, the court reversed our judgment and remanded the case to this court for further proceedings consistent with its opinion.
The parties submitted supplemental briefing on remand outlining the remaining issues to be decided from Wolf Hollow's original appeal. The parties and this court1 disagree about which issues were actually decided by the Texas Supreme Court.
II. Standard of Review
The Supply Agreement generally provides for replacement costs if there is an interruption in service or if the gas delivered fails to meet minimum quality specifications. Wolf Hollow sought such costs in its counterclaims, but the trial court, for reasons stated in its declaratory judgment and in its summary-judgment orders, ordered that Wolf Hollow take nothing. In deciding whether Wolf Hollow is entitled to replacement-power damages, we must determine whether the trial court erred in its grant of declaratory relief and whether the trial court erred in granting various summary judgments on some of El Paso's defenses.
Declaratory judgments rendered by summary judgment are reviewed under the same standards that govern summary judgments generally. Hourani v. Katzen, 305 S.W.3d 239, 248 (Tex.App.-Houston [1st Dist.] 2009, pet. denied). We review de novo the trial court's grant of a summary judgment. Ferguson v. Bldg. Materials Corp. of Am., 295 S.W.3d 642, 644 (Tex.2009) (per curiam) (citing Tex. Mun. Power Agency v. Pub. Util. Comm'n of Tex., 253 S.W.3d 184, 192 (Tex.2007)). We sustain a summary judgment when (1) there is a complete absence of evidence of a vital fact, (2) the court is barred by rules of law or of evidence from giving weight to the only evidence offered to prove a vital fact, (3) the evidence offered to prove a vital fact is no more than a mere scintilla, or (4) the evidence conclusively establishes the opposite of the vital fact. City of Keller v. Wilson, 168 S.W.3d 802, 816 (Tex.2005). Evidence is conclusive only if reasonable people could not differ in their conclusions. Id. The evidence is insufficient if “it is ‘so weak as to do no more than create a mere surmise or suspicion” ’ that the challenged fact exists. Akin, Gump, Strauss, Hauer & Feld, L.L.P. v. Nat'l Dev. & Research Corp., 299 S.W.3d 106, 115 (Tex.2009) (quoting Kroger Tex. Ltd. P'ship v. Suberu, 216 S.W.3d 788, 793 (Tex.2006)). We must affirm the summary judgment if any of the movant's theories presented to the trial court and preserved for appellate review are meritorious. Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d211, 216 (Tex.2003).
In a traditional motion for summary judgment, the movant has the burden of showing that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. Tex.R. Civ. P. 166a(c); Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex.2009). If the movant initially establishes a right to summary judgment on the issues expressly presented in the motion, then the burden shifts to the nonmovant to present to the trial court any issues or evidence that would preclude summary judgment. See City of Houston v. Clear Creek Basin Auth., 589 S.W.2d 671, 678–79 (Tex.1979). We consider all the evidence in the light most favorable to the nonmovant, crediting evidence favorable to the nonmovant if a reasonable factfinder could, and disregarding contrary evidence unless a reasonable factfinder could not. See Mack Trucks, Inc. v.. Tamez, 206 S.W.3d 572, 582 (Tex.2006). The movant is entitled to summary judgment only if it conclusively establishes every essential element of its claim or defense as a matter of law. Clear Creek Basin Auth., 589 S.W.2d at 678. On appeal, the summary-judgment movant still bears the burden of showing that there is no genuine issue of material fact and that the movant is entitled to judgment as a matter of law. Rhone Poulenc, Inc. v. Steel, 997 S.W.2d 217, 223 (Tex.1999).
In a no-evidence motion for summary judgment, the movant represents that there is no evidence of one or more essential elements of the claims for which the nonmovant bears the burden of proof at trial. Tex.R. Civ. P. 166a(i); Timpte Indus., Inc. v. Gish, 286 S.W.3d 306, 310 (Tex.2009). The burden then shifts to the nonmovant to present evidence raising a genuine issue of material fact as to the elements specified in the motion. Mack Trucks, 206 S.W.3d at 582. As in a traditional motion for summary judgment, we review the evidence in the light most favorable to the nonmovant, crediting evidence favorable to that party if a reasonable factfinder could, and disregarding contrary evidence unless a reasonable factfinder could not. See Timpte Indus., 286 S.W.3d at 310.
III. Governing Law
When construing a written contract, our primary goal is to ascertain the intent of the parties as expressed in the agreement. Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 662 (Tex.2005). Ordinarily, the writing alone is sufficient to express the parties' intentions, because it is the objective, not subjective, intent that controls. Matagorda Cnty. Hosp. Dist. v. Burwell, 189 S.W.3d 738, 740 (Tex.2006) (per curiam) (citing City of Pinehurst v. Spooner Addition Water Co., 432 S.W.2d 515, 518 (Tex.1968)). To determine intent, we examine and consider the entire writing in an effort to harmonize and give effect to all provisions of the contract, so that none will be rendered meaningless. Valence Operating Co., 164 S.W.3d at 662. No single provision controls; rather, all the provisions must be considered with reference to the entire instrument. Myers v. Gulf Coast Minerals Mgmt. Corp., 361 S.W.2d 193, 196 (Tex.1962). We presume that the parties to the contract intended every clause to have some effect. Fein v. R.P.H., Inc., 68 S.W.3d 260, 266 (Tex.App.-Houston [14th Dist.] 2002, pet. denied) (citing Heritage Res., Inc. v. NationsBank, 939 S.W.2d 118, 121 (Tex.1996)). Contract terms are given their plain, ordinary, and generally accepted meanings unless the contract itself shows them to be used in a technical or different sense. Valence Operating Co., 164 S.W.3d at 662. We construe contracts from a utilitarian standpoint, bearing in mind the particular business activity sought to be served, and will avoid, when possible, an unreasonable, inequitable, or oppressive construction. Frost Nat'l Bank v. L & F Distribs., Ltd., 165 S.W.3d 310, 312 (Tex.2005) (per curiam). Courts are not authorized to rewrite agreements by inserting additional terms, definitions, or provisions that the parties could have included themselves, or by implying terms for which the parties have not bargained. Tenneco, Inc. v. Enter. Prods. Co., 925 S.W.2d 640, 646 (Tex.1996). In other words, courts cannot make contracts for the parties. HECI Exploration Co. v. Neel, 982 S.W.2d 881, 888 (Tex.1998).
A. Force Majeure excuses El Paso's delivery failures.
The trial court's judgment contained four declarations broadly addressing Wolf Hollow's two causes of action. Regarding Wolf Hollow's delivery claim, the declarations provided that El Paso was not liable for the interruptions in service because the delivery failures were excused by events of force majeure. The facts regarding the cause and duration of each delivery failure are undisputed.2 The legal question is whether or not these are events of force majeure as described in the contract.
Article XXI of the Supply Agreement provides for Wolf Hollow to recover its replacement-power costs from El Paso in the event of a default, but only if the default were not otherwise “excused by an Event of Force Majeure or by any other provision of this Agreement.” In its motion for summary judgment, El Paso argued that its nonperformance was excused because each of the four interruptions constituted an event of force majeure. El Paso's performance was governed by the Supply Agreement, which, as amended, defined an event of force majeure as follows:
Section 17.1 Event of Force Majeure Defined. For purposes of this Agreement, an “Event of Force Majeure” means any act or event that prevents the affected party from performing its obligations (other than the payment of money) under this Agreement if such act or event is beyond the reasonable control of and not a result of the negligence or intentional act of the affected Party and such affected Party has been unable by the exercise of due diligence to overcome or mitigate the effects of such act or event. Events of Force Majeure shall include acts of declared or undeclared war; sabotage; landslides; revolution; terrorism; flood; tidal wave; tornado; hurricane; loss or accident during marine or land transportation in the event and to the extent that such loss or accident causes physical damage to the equipment being transported; drought; hail storm; lightning; earthquake; fire; explosion, breakage or accidents to machinery or lines of pipe caused by any event or occurrence of the character herein defined as an Event of Force majeure; civil disturbance; act of God or of the public enemy; any unreasonable delay, action or failure to act of a Governmental Authority ․; failure of a Transporter to provide Gas transportation services or the inability to burn natural gas in Buyer's Facility due to an event otherwise described herein as an Event of Force Majeure; ․ provided, however, Events of Force Majeure do not include causes or events affecting the performance of third-party suppliers of goods or services except to the extent caused by an event that otherwise is an Event of Force Majeure hereunder, changes in market conditions that affect the price of Gas or Gas transportation services, the ability to sell Gas to a third-party at a higher price, or the failure to timely apply for or to obtain Approvals that the relevant Party knows or should know as of the date of this Agreement; provided, further, that with respect to [El Paso], any Event of Force Majeure declared by [El Paso] shall be limited to the Events of Force Majeure that arise as a result of (i) the inability to obtain Gas due to freezing of Gas wellheads; (ii) a Texas or Federal regulatory action prohibiting delivery of Gas to electricity generators generally or the burning of Gas by electricity generators generally; or (iii) the interruption or curtailment of firm transportation on pipelines connected to [Wolf Hollow's] Facility.
Relying on the final clause in this definition, the trial court agreed with El Paso and declared that the delivery failures were events of force majeure. In its declarations, the trial court specifically stated the following:
1. The events ․ described in Plaintiff's First Amended Petition and Plaintiff's Motion for Summary Judgment constitute events of Force Majeure as defined in the Gas Supply and Fuel Management Agreement as amended (herein the “Agreement”).
2. El Paso gave Wolf Hollow proper notice of these events of Force Majeure as required by the Agreement and El Paso has no liability regarding the four described incidents.
Wolf Hollow contests the trial court's declarations that the delivery failures qualify as events of force majeure, and bases its challenge on two alternative arguments.
In its first argument, Wolf Hollow maintains that the delivery failures were not events of force majeure because “as a matter of law, the events in question were not beyond the control of El Paso.” In support of this proposition, Wolf Hollow cites Section 16 .1 of the Supply Agreement, which provides as follows:
Possession of and title to Gas sold by [El Paso] to [Wolf Hollow] hereunder shall pass from [El Paso] to [Wolf Hollow] at the relevant Point of Delivery. As between [El Paso] and [Wolf Hollow], until the Gas reaches the relevant Point of Delivery, [El Paso] shall be deemed to be in exclusive control and possession of and have title to and be responsible for such Gas.
Wolf Hollow seems to suggest that because the gas was deemed to be within El Paso's exclusive control, there could be no “act or event” beyond El Paso's reasonable control, as required for an event of force majeure. This argument is unpersuasive. El Paso's control of the natural gas does not determine El Paso's control over the pipeline through which it travels or other external acts and events. If it did, and Wolf Hollow's argument were correct, this reading of the contract would render the force majeure provision meaningless because there would never be an interruption in gas delivery beyond El Paso's control. Wolf Hollow's argument accordingly violates the principle of contract construction that requires us to presume that the parties intended every provision to be effective. See Fein, 68 S.W.3d at 266.
In its second argument, Wolf Hollow relies on the first of two provisos in the definition of an event of force majeure. In this proviso, the parties agreed that “[e]vents of Force Majeure do not include causes or events affecting the performance of third-party suppliers of goods or services except to the extent caused by an event that otherwise is an Event of Force Majeure hereunder.” Wolf Hollow argues, “This provision makes it clear that, in order to qualify as an Event of Force Majeure, such an event must be caused by an event that is an Event of Force Majeure as to the third [-] party supplier in question.” Wolf Hollow then suggests that the delivery failures do not qualify under this interpretation because El Paso produced no evidence that the failures themselves were caused by events of force majeure suffered by third parties.
Wolf Hollow's interpretation disregards the context in which this language appears. The first proviso on which Wolf Hollow's argument depends begins with “provided, however,” and is immediately followed in the same sentence by a second limiting proviso, which begins with the words “provided further that with respect to [El Paso].” Under this second proviso, any event of force majeure declared by El Paso must be limited to one of three occurrences, including “the interruption or curtailment of firm transportation on pipelines connected to [Wolf Hollow's] facility.”
The Texas Supreme Court has explained that each “proviso must be construed as a limitation or restraint upon the authority defined in the clause immediately preceding it. Words such as “ ‘provided, however’ ․ mean substantially the same as ‘but notwithstanding what is granted above.’ “ Knight v. Chi. Corp., 144 Tex. 98, 104, 188 S.W.2d 564, 566 (1945). The court further explained that the word “provided” is commonly used to express “a qualification, limitation, condition, or an exception respecting the scope and operation of words previously used.” Id., 144 Tex. at 104, 188 S.W.2d at 567 (quoting Sears v. Childs, 309 Mass. 337, 345–46, 35 N.E.2d 663, 667 (1941)). Thus, a proviso's ‘ “true office and its general purpose is to restrict the sense or make clear the meaning of that which has gone before.’ “ Id. (quoting Sears, 309 Mass. at 346, 35 N.E.2d at 667). Moreover, Wolf Hollow's argument that force majeure should be judged with respect to a third-party supplier runs afoul of the definition of force majeure. The parties' agreement provides that force majeure is an event that prevents “the affected party ”—defined elsewhere as a signatory to the agreement—“from performing its obligations ․ under this Agreement.” Thus, the force majeure analysis must focus on signatory El Paso, not third party Enterprise.
“Freedom of contract allows parties to bargain for mutually agreeable terms and allocate risks as they see fit.” Gym–N–I Playgrounds, Inc. v. Snider, 220 S.W.3d 905, 912 (Tex.2007). Here, the parties exercised that freedom by very specifically addressing the types of events that would constitute an event of force majeure excusing El Paso's nonperformance. See Sun Operating Ltd. P'ship v. Holt, 984 S.W.2d 277, 283 (Tex.App.-Amarillo 1998, pet. denied) (observing that force majeure is “little more than a descriptive phrase without much inherent substance” and is dictated by the contours defined by the parties in their contract).
As can be seen by the above description of the interruptions, it is undisputed that the four interruptions in the delivery of natural gas to Wolf Hollow's plant resulted from interruptions of firm transportation on the Enterprise pipeline that were beyond El Paso's reasonable control and that it was unable to overcome with due diligence. Therefore, we conclude that under the plain language of the Supply Agreement, the interruptions of delivery constitute events of force majeure, thereby excusing El Paso's nonperformance. We accordingly affirm the portion of the trial court's judgment containing the first and second declarations, which foreclose Wolf Hollow's delivery claims. The remainder of this opinion will focus on Wolf Hollow's claims that El Paso provided them with poor quality gas.
B. Section 14.1 does not provide the exclusive remedy for quality issues.
Wolf Hollow sued El Paso for providing Wolf Hollow with poor quality gas through the Enterprise pipeline. The trial court stated in its third declaration that Wolf Hollow could not recover damages against El Paso because, for gas delivered on the Enterprise pipeline, Wolf Hollow was limited to an assignment of El Paso's claims against Enterprise:
3. Wolf Hollow's exclusive remedy regarding gas quality claims for gas delivered by Enterprise Texas Pipeline is to receive an assignment as set forth in Article XIV, Section 14.1 of any claims that El Paso Marketing, L.P. may have against such transporter.
This declaration was expressly overruled by the Texas Supreme Court. After noting El Paso's argument that Section 14.1 is an exclusive remedy, the court expressly stated, “Nothing in Section 14.1 suggests that [Wolf Hollow] cannot sue El Paso for breach of the Supply Agreement in allowing poor quality gas to be delivered.” El Paso Mktg., L.P., 383 S.W.3d at 144.
C. Article XXI remedies apply to gas-quality claims.
The trial court also ruled against Wolf Hollow on its claim that it could invoke Article XXI remedies (including cost of replacement power) for gas-quality problems. The fourth declaration is as follows:
4. Article XXI of the Agreement does not apply to gas quality claims for gas delivered to Wolf Hollow on the Enterprise Texas Pipeline․
This declaration also was rejected by the Texas Supreme Court, which held that “there is evidence Wolf Hollow is entitled to recover replacement-power damages under Section 21.1(c) of the Supply Agreement, precluding summary judgment against Wolf Hollow based on the consequential damages waiver.” Id. at 145. We previously held that the consequential-damages waiver precluded claims for both quantity and quality failures, but the Texas Supreme Court's reversal of that holding means that Wolf Hollow can sue for replacement-power damages under Article XXI for both quantity and quality delivery failures. Indeed, the court expressly stated that “Wolf Hollow, by its Supply Agreement, can look to El Paso ․ to answer for ․ poor quality gas,” id. at 143, and, as noted above, that “there is evidence Wolf Hollow is entitled to recover replacement-power damages under Section 21.1(c).” Id. at 145 (emphasis added). The court further construed Section 21.1 to include a failure to deliver gas “as contractually required.” Id. at 140 n.8. El Paso was contractually required to deliver gas of a certain quality. Thus, the Texas Supreme Court has concluded that replacement-power damages are available for gas that did not meet the quality standards in the Agreement.
We next turn to Wolf Hollow's issues that we did not address in our first opinion, but which could still support reversal of the trial court's judgment.
D. El Paso was not entitled to no-evidence summary judgment on Wolf Hollow's claims for breach of the fuel-management services provisions.
El Paso moved for summary judgment on the ground that there was no evidence that it breached the obligations of the fuel-management services provisions under Article V of the Supply Agreement. In our original opinion, we concluded that any damages for such a breach were barred by the consequential-damages provision in Section 24.11. Wolf Hollow I, L.P., 329 S.W.3d at 638. El Paso contends that Wolf Hollow did not challenge that ruling in its brief to the Texas Supreme Court and that this holding is therefore affirmed. We disagree. In its brief to the Texas Supreme Court, Wolf Hollow argued that its damages were direct damages for breach of Article V. Although the Texas Supreme Court agreed with our opinion that all of the damage claims were consequential damages, it held that the parties had contractually agreed to allow claims for replacement power under Section 21.1 of the contract. El Paso Mktg., 383 S.W.3d at 145. As discussed above, the court held that replacement-power damages could be recovered for both quality and quantity problems, and that Section 14.1 did not provide an exclusive remedy for quality issues. Id. at 144.
We now examine whether the trial court properly granted the summary-judgment motion. We agree with Wolf Hollow that the motion essentially asked the trial court to conclude that the fuel-management claims did not cover gas quality. In response to the motion, Wolf Hollow argued that the fuel-management duties were broad enough to include gas-quality issues. Wolf Hollow is correct.
The fuel-management duties under the agreement are very broad, requiring El Paso to manage the gas transportation and to use prudent fuel-management practices to minimize costs to Wolf Hollow. Wolf Hollow also produced summary-judgment evidence that El Paso both had and breached these obligations. This evidence included testimony from an El Paso corporate representative that his responsibilities as fuel manager included responsibility for gas quality. Wolf Hollow additionally produced evidence that El Paso failed to monitor the quality of gas and that there were numerous breaches of El Paso's obligations to deliver quality gas.
Because the fuel-management services provisions include matters of gas quality, and because Wolf Hollow produced competent evidence supporting a claim for breach of the fuel-management services provisions, it was error for the trial court to grant El Paso's no-evidence motion for summary judgment. We therefore reverse the trial court's order that Wolf Hollow take nothing on any claims related to El Paso's breach of the fuel-management services provisions and remand that claim for trial; however, damages for this breach, if any, would be limited to replacement-power damages.
E. There was no release or waiver of claims related to gas quality.
In our previous opinion, we did not reach Wolf Hollow's issue that the trial court erred in granting summary judgment on release and waiver of claims related to gas quality. El Paso filed an original motion for summary judgment based on the “First Amendment” to the contract and then filed supplemental briefing in which it argued that Section 16.1 of the Agreement also operated as a release. The parties and the trial court appear to have considered this supplemental brief to be a separate motion for summary judgment. The trial court signed two summary-judgment orders sustaining El Paso's release arguments. One order dealt with release under the First Amendment generally, and the other order concerned release under Section 16.1.
1. The First Amendment
El Paso filed a traditional motion for summary judgment in which it argued that Wolf Hollow released its gas-quality claims when it signed the First Amendment to the Contract on December 22, 2005. The release language in the First Amendment provides in pertinent part as follows:
[Wolf Hollow releases El Paso for any claims that either of them] ever had, now has or may hereafter have ․ which arise out of or relate to the Agreement based on ․ [El Paso's] alleged failure to deliver to [Wolf Hollow] [g]as meeting the quality requirements set forth in Section 14.1 of the Agreement as stated by [Wolf Hollow] in the letters attached to this Amendment ․ 3
The letters attached to the amendment concern quality claims for gas delivered in 2004.
El Paso argues that this language acts as a release for the quality problems that arose in 2006, a year after the First Amendment was signed. We disagree. There is nothing in the release that addresses future gas deliveries. While the release mentions future claims, the reference to the letters attached to the amendment shows that the parties were releasing future claims only in connection with the 2004 delivery problems. See Keck, Mahin & Cate v. Nat'l Union Fire Ins. Co. of Pittsburgh, Pa., 20 S.W.3d 692, 698 (Tex.2000) (noting that a valid release must mention the claim to be released, but may encompass damages that may develop in the future from the claim mentioned); Victoria Bank & Trust Co. v. Brady, 811 S.W.2d 931, 938 (Tex.1991) (explaining that courts narrowly construe general release clauses and “any claims not clearly within the subject matter of the release are not discharged”); Baty v. ProTech Ins. Agency, 63 S.W.3d 841, 850 & n.7 (Tex.App.-Houston [14th Dist.] 2001, pet. denied) (op. on reh'g) (collecting cases enforcing release restrictions and holding that a release of claims relating to certain agreements did not act as a release of unmentioned tort claims).
We therefore conclude that the trial court erred in granting summary judgment on this basis.
2. Section 16.1
El Paso argues that Section 16.1 operates to extinguish Wolf Hollow's claim. In Section 16.1, the parties agreed that title passes at the point of delivery. They further agreed that during the time one party held title, that party would indemnify the other party as follows:
As between them, ․ each assumes full responsibility and liability for and shall indemnify, defend and save harmless the other Party ․ on account of any and all damages, claims or actions, including damage to property or injury to or death of persons, arising from any act or accident occurring while title to the Gas is vested in the indemnifying Party․
El Paso argues that all of Wolf Hollow's damages occurred after it had title, and thus, this language acts as a release for those damage claims. In support of this argument, El Paso relies on Cole v. Johnson, 157 S.W.3d 856 (Tex.App.-Fort Worth 2005, no pet.). The facts in Cole are quite different from the facts of this case. The Coles purchased a house “as-is” from Johnson. Id. at 861. The house had foundation problems, and in exchange for a price reduction, the Coles agreed to hold Johnson “harmless of any present or future repair.” Id. The Second Court of Appeals concluded that the Coles had released their claims against Johnson by that provision. Id. at 861–62. We do not find the Cole case controlling. El Paso also relies on Helmerich & Payne International Drilling Co. v. Swift Energy Co., 180 S.W.3d 635 (Tex.App.-Houston [14th Dist.] 2005, no pet.). That case, however, deals with third-party claims and is not on point.
Indemnity agreements generally do not apply to claims between the parties. Wallerstein v. Spirt, 8 S.W.3d 774, 780 (Tex.App.-Austin 1999, no pet.) (citing Derr Constr. Co. v. City of Houston, 846 S.W.2d 854, 858 (Tex.App.-Houston [14th Dist.] 1992, no writ)). And releases typically contain the language “release, discharge, relinquish.” Derr Constr. Co., 846 S.W.2d at 858. A release must also identify the claim released. Baty, 63 S.W.3d at 848. Section 16.1 contains no typical release language and does not identify a claim to be released, but instead relates to third-party claims; thus, we conclude that this provision does not operate as a release of Wolf Hollow's claims for replacement-power damages. We therefore hold that the trial court erred in granting summary judgment on this basis.
In its first and second declarations, the trial court correctly held that El Paso's nonperformance was excused under the contract. Because the four delivery interruptions qualify as events of force majeure, Wolf Hollow is not entitled to replacement-power damages under Article XXI of the Supply Agreement for these events. We therefore affirm the portion of the trial court's judgment concerning recovery of damages for the four delivery failures.
The Texas Supreme Court effectively reversed the trial court's third and fourth declarations. We additionally reverse the summary judgments as to the fuel-management claims and as to waiver and release. Thus, we affirm the trial court's judgment in part, reverse it in part, and remand the case for trial on Wolf Hollow's claims for replacement-power damages for the failure to deliver quality gas.
CONCURRING OPINION ON REMAND
I join Justice Christopher's opinion for the Court in full. I write separately to explain that if I were writing on a clean slate, I would affirm the trial court's fourth declaration rejecting Wolf Hollow's gas-quality claims. I agree with Justice Christopher, however, that the Texas Supreme Court's opinion requires reversal of that declaration.
When this case was last before this Court, we did not reach the issue whether Article XXI of the Supply Agreement allows Wolf Hollow to recover replacement-power damages from El Paso for delivering gas that allegedly failed to meet quality specifications. I would hold that the trial court correctly answered this question “no.”
Article XXI defines when Wolf Hollow may purchase replacement gas or replacement power at El Paso's expense.1 Section 21.1 provides that the triggering event for such damages is the failure to deliver “a Quantity of Gas in an amount equal to the Scheduled Delivery Quantity.” The agreement defines a “Quantity of Gas” as “an amount of Gas expressed in MMBtus.”2
Given this definition, damages under Article XXI flow from the failure to deliver a scheduled quantity of gas, not a particular quality of gas. The definition of quantity chosen by the parties does not address the amount of liquid hydrocarbons that may be in the gas stream—the issue about which Wolf Hollow complains. Of course, it is possible that a gas stream including significant amounts of liquid hydrocarbons might not contain enough MMBtus to meet the scheduled delivery quantity. But in the trial court, Wolf Hollow stated that it was not asserting any claim that it did not receive the scheduled number of MMBtus. See CR 336. Accordingly, I would hold that Article XXI does not allow Wolf Hollow to recover damages for the quality problems at issue.
I conclude that the supreme court's opinion forecloses my interpretation of Article XXI, however. In the wake of this Court's original opinion, the principal issues before the supreme court were: (1) whether Wolf Hollow could sue Enterprise for negligence in failing to deliver gas and delivering poor quality gas; and (2) whether Wolf Hollow's damages were consequential damages waived by its contract with El Paso.
On the first issue, the supreme court held that Wolf Hollow could not sue Enterprise for negligence because the duties Enterprise allegedly violated were imposed by contract. El Paso Mktg., L.P., 383 S.W.3d at 143. Although Wolf Hollow later assigned the contract and could no longer sue on it, the court observed that no such suit was necessary because “Wolf Hollow ․ can look to El Paso ․ to answer for ․ poor quality gas.” Id.
On the second issue, the supreme court held that the damages Wolf Hollow sought were consequential, but that Article XXI allowed for recovery of replacement-power damages. It also held that there is evidence Wolf Hollow complied with the steps necessary to seek such damages under Section 21.1. Id. at 144–45. The court did not specifically state that Wolf Hollow had provided evidence of the triggering event provided in Section 21.1: a failure to deliver the scheduled number of MMBtus of gas. In summarizing this section of its opinion, however, the court concluded that “there is evidence Wolf Hollow is entitled to recover replacement-power damages under Section 21.1(c) of the Supply Agreement, precluding summary judgment against Wolf Hollow based on the consequential damages waiver.” Id. at 145 (emphasis added).
After the supreme court issued its opinion, El Paso filed a motion for rehearing. In part, El Paso asked the court to amend its opinion to state that Section 21.1 does not allow recovery of replacement-power damages on the gas-quality claims, but only on the delivery-failure claims. The supreme court denied the motion without comment.
I do not believe it was necessary for the supreme court, in deciding the issues before it, to conclude that that Wolf Hollow offered sufficient evidence that it is entitled to recover replacement-power damages for poor quality gas under Section 21.1. Yet the supreme court made—and declined to reconsider—the statements quoted above after full consideration and to guide the future conduct of this very litigation. As a lower court, we are bound to follow the supreme court's statements, leaving to that court the function of reconsidering the matter if it wishes. See Edwards v. Kaye, 9 S.W.3d 310, 314 (Tex.App.-Houston [14th Dist.] 1999, pet. denied). Justice Christopher's opinion for the Court, which I join, appropriately does so.
CONCURRING AND DISSENTING OPINION ON REMAND
I respectfully disagree with the majority's treatment of Wolf Hollow's gas quality claim. The majority concludes that this claim must be remanded because the Texas Supreme Court reversed two of the trial court's declarations. In my view, the supreme court did not address the merits of any declaration in the trial court's final judgment; the court held only that the declarations were not moot. Addressing the merits for the first time on appeal, I would uphold each of the trial court's declarations and affirm the trial court's judgment that Wolf Hollow takes nothing.
The question on remand is whether Wolf Hollow may recover replacement power damages in its claims against El Paso. Insofar as Wolf Hollow's gas quality claim is concerned, our review requires that we determine the correctness of the trial court's third and fourth declarations. Those declarations provide as follows:
3. Wolf Hollow's exclusive remedy regarding gas quality claims for gas delivered by Enterprise Texas Pipeline is to receive an assignment as set forth in Article XIV, Section 14.1 of any claims that El Paso Marketing, L.P. may have against such transporter.
4. Article XXI of the Agreement does not apply to gas quality claims for gas delivered to Wolf Hollow on the Enterprise Texas Pipeline (referenced as “EPGT” or E.P.G.T. Texas Pipeline in the Agreement).
The majority concludes that the supreme court disposed of these declarations. I, however, cannot find any such holding in the supreme court's opinion. The supreme court ended its opinion with a final holding paragraph that only briefly addressed the trial court's declaratory relief. The court held: “Because Wolf Hollow's replacement-power claim survives, the trial court's declaratory judgment is not moot.” El Paso Mktg., L.P. v. Wolf Hollow I, L.P ., 383 S.W.3d 138, 146 (Tex.2012). There was no additional holding specifically rejecting the trial court's individual declarations.
The majority nevertheless construes the supreme court's opinion as having reached the merits on the trial court's declaratory judgment. I do not believe that the posture of this case permits such a construction. When we decided this case on original submission, we made a limited holding vacating the trial court's declarations as moot. Our holding was guided by a determination that Wolf Hollow's damages were consequential in nature, and therefore barred by contractual waiver. This reasoning made a merits-based decision on the declarations unnecessary. See Wolf Hollow I, L.P. v. El Paso Mktg., L.P., 329 S.W.3d 628, 639, 642 (Tex.App.-Houston [14th Dist.] 2010). Based on our narrow holding, the supreme court had no occasion to address the merits of the trial court's declaratory judgment. The court simply rejected our waiver analysis and remanded for additional proceedings. Our court must now address the merits for the first time on remand.
When read together, the declarations describe the types of relief that are unavailable to Wolf Hollow when nonconforming gas is delivered on the Enterprise pipeline. Specifically, the declarations hold that Wolf Hollow is precluded from bringing gas quality claims against El Paso (Declaration 3) and from seeking the remedies provided by Article XXI (Declaration 4). In my opinion, this correctly states the rights of the parties under the contract.
I begin my analysis with a review of Article XIV, which the parties have entitled “Quality.” As the caption appropriately suggests, Article XIV of the contract describes El Paso's general obligation to supply Wolf Hollow with natural gas that meets or exceeds certain quality specifications. This section also prescribes two distinct remedies available to Wolf Hollow when nonconforming gas is delivered to its facility. The applicable remedy is determined according to the pipeline that carried the nonconforming gas. The first remedy applies to the main pipeline, which is owned and operated by Enterprise. This remedy states as follows:
[I]f [Enterprise] fails to deliver Gas at the [Enterprise] Point of Delivery that meets such quality specifications, then [El Paso] shall assign to [Wolf Hollow], or otherwise cause [Wolf Hollow] to be subrogated to, any claim that [El Paso] may have against [Enterprise] as a result of such delivery failure under the Gas Transportation Agreements to which [Enterprise] is a party, as assigned by [Wolf Hollow] to [El Paso]․
The second remedy refers to an alternative pipeline, the LSP pipeline. When nonconforming gas is delivered in this context, the parties bargained for the following remedy:
In the event that ․ [El Paso] delivers Quantities of Gas on the LSP pipeline at the LSP Point of Delivery that fail to meet the quality specifications set forth herein, [Wolf Hollow] may refuse to accept any such Quantities of Gas. Any Quantity of Gas that [El Paso] delivers to the LSP point of Delivery and that [Wolf Hollow] rejects in accordance with this Section 14.1 shall be deemed a failure of [El Paso] to deliver such Quantity of Gas in accordance with the terms of this Agreement, with [El Paso's] liability for such failure determined in accordance with Article XXI hereof.
Thus, for quality disputes arising on the Enterprise pipeline, Article XIV requires that El Paso assign any claim to Wolf Hollow that El Paso might have against Enterprise. For disputes on the LSP pipeline, Article XIV allows Wolf Hollow to sue El Paso directly, with El Paso's liability determined by Article XXI.
Article XXI is the “Default and Remedies” provision of the contract. The parties drafted this article in three parts. The first part, Section 21.1, outlines the procedures for obtaining and calculating replacement power damages. Unless excused by events of force majeure, this part comes into play whenever El Paso fails to deliver a necessary quantity of gas. The final two parts concern “Events of Default.” Section 21.2 is a definition section. Without referencing any gas quality issues, this section defines the term as either a failure to meet certain payment obligations or, as in Section 21.1, a failure to deliver a “Quantity of Gas” at the appropriate point of delivery. Section 21.3 prescribes several remedies available in the event of a default. The final remedy is broadly written in a form similar to a Mother Hubbard clause, stating that the non-defaulting party may “pursue any other remedy provided under this Agreement, or now or hereafter existing at law or in equity or otherwise.”
Wolf Hollow alleged that the nonconforming gas was delivered on the Enterprise pipeline, not the LSP pipeline. In light of this fact, I believe that Wolf Hollow is unable to recover replacement power damages in a quality claim against El Paso. The parties bargained for two separate remedies under Article XIV, and the contract classified these remedies based on the individual pipeline involved: an assignment when the nonconforming gas is delivered on the Enterprise pipeline, and the Article XXI remedies when the gas is delivered on the LSP pipeline. This distinction manifests the parties' intent that Article XXI remedies should not be available in quality disputes involving gas delivered on the Enterprise pipeline.
The trial court's declarations are corollaries of this distinction. If I am correct that Article XXI is excluded from the pool of available remedies, then Wolf Hollow must be precluded from “pursu[ing] any other remedy provided under this Agreement, or now or hereafter existing at law or in equity,” as provided under Section 21.3. Accordingly, Wolf Hollow's assignment remedy must be exclusive. And not only is Section 21.1 unavailable because of the exclusivity of the assignment remedy, Section 21.1 treats only remedies for quantity issues, not quality.
The majority claims that the supreme court overruled the trial court's third declaration when it stated that “nothing in [Article XIV] suggests that [Wolf Hollow] cannot sue El Paso for breach of the Supply Agreement in allowing poor quality gas to be delivered.” See ante, at Part IV.B (quoting El Paso Mktg., L.P., 383 S.W.3d at 144). It is true, generally, that Wolf Hollow may look to El Paso for damages resulting from nonconforming gas, but the supreme court never stated that this remedy is available in every context. The court did not acknowledge that two pipelines were connected to Wolf Hollow's plant or that there were separate remedies afforded under Article XIV. I would uphold the trial court's third declaration and conclude, consistent with the supreme court's opinion, that Wolf Hollow can sue El Paso for quality issues under Article XIV, but only when the quality dispute arises on the LSP pipeline.
The majority also claims that the trial court's fourth declaration was rejected based on the following sentence in the supreme court's opinion: “We thus conclude that there is evidence Wolf Hollow is entitled to recover replacement-power damages under Section 21.1(c) of the Supply Agreement, precluding summary judgment against Wolf Hollow based on the consequential damages waiver.” See ante, at Part IV.C (quoting El Paso Mktg., L.P., 383 S.W.3d at 145). I do not believe that this pronouncement even relates to the trial court's fourth declaration. The fourth declaration pertains specifically to “gas quality claims,” but the word “quality” never appears in Section 21.1(c). That section deals strictly with gas quantity failures.
The majority overstates the supreme court's opinion when it relies on the statement quoted above. This statement is the concluding sentence to Part III of the supreme court's opinion, and contrary to the majority's suggestions, the focus of Part III is not whether Wolf Hollow should recover replacement power damages, but whether those damages survive the waiver of consequential damages. The court's holding was that replacement power damages are consequential damages, but they are excepted from the contract's waiver provision because the parties specifically bargained for them in their cover standard.
In Part III, the supreme court also considered whether Wolf Hollow had followed the procedures for applying the contract's cover standard. On original submission, our court held that Wolf Hollow had failed to abide by the procedures. See Wolf Hollow I, L.P., 329 S.W.3d at 639 (“Wolf Hollow does not contend that all of the predicates to its recovery of replacement power costs under Section 21.1 occurred in this case. In short, section 21.1 provides very specific remedies for very specific circumstances that Wolf Hollow does not alleged occurred in this case.”). The supreme court disagreed with our judgment and held that there was evidence that Wolf Hollow had complied with the procedures. See El Paso Mktg., L.P., 383 S.W.3d at 145 (“The court of appeals held that Wolf Hollow did not comply with the first two steps, which are prerequisites to the third. But there is evidence that it did.”). The court then remanded to us for further proceedings.
The majority treats Part III as a definitive holding that Wolf Hollow “is entitled” to replacement power damages. As I read the opinion, the supreme court was simply deciding that our reasons for denying relief were incorrect. The ball is now in our court to consider whether the provisions cited in the trial court's declarations preclude Wolf Hollow's recovery of replacement power damages.
The majority finally decides that Article XXI is applicable to both quantity and quality disputes. See ante, at Part IV.C. The majority arrives at this conclusion because the supreme court substituted the term “Quantity of Gas,” which is a specially defined term under the contract, for “gas as contractually required .” See El Paso Mktg., L.P., 383 S.W.3d at 140 n.8. The substitution appears to have been done for ease of the reader, and not for some larger purpose.
The contract defines a “Quantity of Gas” in terms of MMBtus, which are thermal units rather than units of volume. Wolf Hollow argues that a certain volume of conforming gas will yield a certain amount of thermal units, whereas the same volume of nonconforming gas will yield a different amount. This makes sense in the abstract; a fuel laden with contaminants will not burn as efficiently as a fuel that is pure. But even if the term includes an implicit quality component, neither Wolf Hollow nor the supreme court has explained how this is enough to bring gas quality disputes within the scope of Article XXI. The contract already provides a mechanism for dealing with gas quality disputes. It's Article XIV. The parties clearly intended for Articles XIV and XXI to work together; the former even cross-references the latter. This court should strive to find an interpretation of the contract that gives effect to both provisions. Under the majority's view, however, Wolf Hollow may bypass Article XIV altogether.
I agree with the majority that Wolf Hollow cannot recover replacement power damages on its gas delivery claim. The majority correctly upholds the trial court's first and second declarations on this point. See ante, at Part IV.A. For the reasons stated above, I would also uphold the third and fourth declarations, and conclude that replacement power damages are unavailable on Wolf Hollow's gas quality claim. Because the majority holds otherwise, I respectfully dissent.
1. See dissenting opinion.
2. The first failure occurred on August 8, 2006, when there was an equipment failure on the Enterprise pipeline that is used to transport gas to Wolf Hollow's facility. Enterprise remedied the equipment failure the same day. The second failure took place on September 11, 2006, when a technician for Enterprise made a computer error which interrupted the gas flow. Enterprise corrected the problem the same day. On January 8, 2007, the third delivery failure occurred when there was another equipment failure on the Enterprise pipeline, and Enterprise again remedied the problem the same day. Finally, the fourth delivery failure occurred on January 11, 2007, when there was another equipment failure on the Enterprise pipeline. Enterprise remedied the problem the next day.
3. Emphasis added.
1. The supreme court has held that Article XXI is Wolf Hollow's sole avenue for recovering otherwise-waived consequential damages. El Paso Mktg., L.P., 383 S.W.3d at 144–45.
2. The details of how Section 21.1 works were not important to the issues addressed in this Court's original opinion and presented to the supreme court for review. Thus, the supreme court did not discuss the exact language quoted above. Instead, the court summarized section 21.1 as allowing purchases upon the failure to deliver “[gas as contractually required ․ ].” El Paso Mktg., L.P., 383 S.W.3d at 140 n.8.
TRACY CHRISTOPHER, Justice.