American Nat. Petroleum Co. v. Transcontinental Gas Pipe Line Corp.
| Decision Date | 10 October 1990 |
| Docket Number | No. C-8350,C-8350 |
| Citation | 798 S.W.2d 274 |
| Parties | AMERICAN NATIONAL PETROLEUM COMPANY and Oil Investments, Ltd., Petitioners, v. TRANSCONTINENTAL GAS PIPE LINE CORPORATION, Respondent. |
| Court | Texas Supreme Court |
This is a breach of contract and tortious interference with contract case. Trial was to a jury, which found that Transcontinental Gas Pipe Line Company (Transco) breached its "take or pay" contracts with American National Petroleum Company (ANPC) and Oil Investments, Ltd. (Oil), and tortiously interfered with gas balancing agreements ANPC and Oil had with third parties. The jury found exemplary damages of $16 million for the tortious interference, and the trial court rendered judgment for ANPC and Oil on both theories, including the exemplary damages. The court of appeals, with other judgment modifications, reversed the judgment for exemplary damages, holding, in part, that ANPC and Oil's failure to obtain a separate finding of tort damages precluded recovery of the exemplary damages. 763 S.W.2d 809. We hold that Transco's express statement that it did not object to the failure to submit a tort damages jury question because the damages for tort and contract were the same, was sufficient to waive any error in the failure to submit a separate tort damages question. We reverse the judgment of the court of appeals and remand the cause to that court for it to consider points not previously addressed, including factual sufficiency points.
ANPC and Oil are independent producers who own working interests in two gas wells in the Vermilion field in the Gulf of Mexico. ANPC also owns a working interest in five gas wells in the Oakvale field in Mississippi. Transco buys gas from ANPC and Oil, and is in fact the only pipeline company servicing the Vermilion field. Both the Vermilion contract and the Oakvale contract obligated Transco to take-or-pay for specified annual and monthly percentages of ANPC's and Oil's gas delivery capacity. ANPC and Oil granted Transco the exclusive contract rights to their gas.
ANPC and Oil entered into an operating agreement with Samedan Oil Corporation and the other working interest owners in the Vermilion field. Samedan was designated as the gas operator for the field. Under the operating agreement, if a particular owner's working interest was underproduced and another owner's interest was overproduced, the underproduced owner could ask Samedan to bring it back into balance with the other working interest owners by reallocating an appropriate amount of the sales proceeds from gas taken by Transco. Samedan received monthly a notice of how much gas Transco intended to buy. Samedan would then instruct Transco on how to allocate the payments to the various working interest owners in accordance with their fractional interests and with due regard for the underbalanced/overbalanced situation. 1 ANPC entered into a similar operating agreement and gas balancing agreement for the Oakvale field. APC Operating Partnerships, known as "Apache," was the designated gas operator for the Oakvale field.
In the early 1980s a surplus of deliverable natural gas created a financial crisis for Transco. In 1983, at Transco's request, the Vermilion contract was modified to reduce Transco's annual take-or-pay percentage obligation and to add a "market-out" clause. 2 The "market-out" clause permitted Transco to reduce the contract price to be paid ANPC and Oil for their gas when, in Transco's "sole opinion," the existing contract price would render the gas "uneconomic" to Transco or its customers. The amended Vermilion contract provided that, if ANPC and Oil were dissatisfied with a market-out price established by Transco, their sole remedy was to request that Transco release all of their gas obligations. This remedy could be exercised if ANPC and Oil had another buyer willing to pay a gas price higher than that set by Transco as the new market-out price. The Oakvale contract was modified in 1984 to delete Transco's take-or-pay obligation in its entirety and to substitute a provision that required Transco to take ANPC's gas production ratably with other producers in the Oakvale field.
By 1985 gas prices had dropped dramatically. Transco engaged in a course of action to reduce its obligations to take higher-priced gas under contracts such as the Vermilion and Oakvale contracts. Transco developed an "omnibus agreement" under which gas producers waived any outstanding liability claims against Transco and agreed to a lower price and reduced purchase obligations. To pressure producers into signing the omnibus agreement, Transco adopted a policy of taking only 3% of the gas capacity of each non-signing producer regardless of take-or-pay or other minimum take provisions in its contracts. The policy was discriminatory against non-signers. A Transco officer admitted that the company took more than 3% from producers who signed the omnibus agreement. The Transco officer further testified that the objective of the 3% policy was to put financial pressure on the non-signers to force them to sign.
Transco elected to establish its market-out price on the market price for "spot" gas, which is gas not dedicated to a specific buyer sold on a short term, interruptible basis. It was less expensive than the "system" gas sold under the long-term dedicated and uninterruptible contracts between Transco and its producers such as ANPC and Oil. Transco thus set its market-out price below the prevailing price for comparably situated gas. To justify this policy, Transco asserted that federal regulations required it to buy gas at the lowest price available, which it construed to be the "spot" gas price.
Transco applied its 3% policy to ANPC's and Oil's gas in both the Vermilion and Oakvale fields, although ANPC and Oil offered all of their reserves to Transco. Moreover, Transco set the Oakvale contract gas price for ANPC using a market-out method, even though the Oakvale contract had no such provision. A Transco officer testified that the company used the market-out price policy to pressure producers who refused to sign the proposed omnibus agreement without regard to whether Transco had a contractual or other right to reduce the prices. The Transco officer further admitted that Transco paid more to the settling producers for their gas from the same field than it did for the gas purchased from ANPC and Oil and other "non-settling producers" who refused to waive their liability claims or to sign the omnibus agreement.
As a result of the 3% policy, Transco did not take the monthly minimum required volumes of ANPC's and Oil's production capacity from November 1985 through July 1986, nor the contract annual minimum for the fiscal year ended June 30, 1986. As another result of its 3% policy, ANPC and Oil became underbalanced in the Vermilion field. The 3% policy also caused ANPC to become underbalanced in the Oakvale field because that contract called for Transco to take the gas ratably among all producers.
In November 1986 ANPC and Oil requested their gas operators, Samedan and Apache, to bring them back into balance in the Vermilion and Oakvale fields, respectively. Copies of the requests were forwarded to Transco, which responded in December. A Transco vice president wrote ANPC and Oil, with copies to the respective operators, that until ANPC (respectively Oil) agreed to the omnibus agreement Transco refused to reallocate payments for future production to bring ANPC (respectively Oil) back into balance. The same vice president testified at trial as to the meaning of the letter:
Q. Then likewise you sent the same letter to Samedan so they would know the same thing, I guess, is that correct, sir?
A. That's correct.
Q. All right.
What you were trying to get to Samedan was to the effect the purpose of the letter is to tell Samedan was until we settle with ANPC we are not going to take gas in accordance with your allocation. We are not going to pay you for the gas that way.
A. That's correct.
* * * * * *
Q. And what you were trying to tell Samedan and Apache that if you do that [ask that ANPC and Oil be brought back into balance] we will not buy any gas. That was the purpose of your letter, wasn't it?
A. I believe that is right.
In context, the jury was entitled to conclude from this testimony that at the very least Transco would refuse to take even the 3%, thus putting ANPC and Oil further out of balance with the other interest owners serviced by the operator. The context of the testimony also admits of the interpretation that Transco threatened not to take any gas from the wells operated by Samedan (or Apache) in which ANPC or Oil was an interest owner. Thereafter both operators told ANPC and Oil that "their hands were tied" and that "they couldn't do any thing about" enforcing the provisions of the gas balancing agreements with other producers in the Vermilion and Oakvale fields.
Transco further admitted that in order to bring ANPC and Oil back into balance, Transco would not have had to take any additional gas. It would merely have had to reallocate payments for gas already taken. Further, the reallocation requested through the operators would have permitted Transco to pay less for the gas taken because of other transactions affecting Transco's purchasing prices at that time.
In addition to breach of contract and bad faith findings, the jury found that Transco tortiously interfered with the gas balancing agreements among ANPC, Oil and their co-interest owners in the Vermilion and Oakvale fields; that such interference was without legal justification or excuse; that such interference proximately caused damages to ANPC and Oil; and that Transco acted with malice...
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