Aquila Southwest Pipeline v. Harmony Exploration
| Decision Date | 14 February 2001 |
| Docket Number | No. 04-00-00112-CV,04-00-00112-CV |
| Parties | (Tex.App.-San Antonio 2001) AQUILA SOUTHWEST PIPELINE, INC., Appellant/Cross-Appellee v. HARMONY EXPLORATION, INC., Appellee/Cross-Appellant |
| Court | Texas Court of Appeals |
From the 73rd Judicial District Court, Bexar County, Texas Trial Court No. 96-CI-11705 Honorable David Peeples, Judge Presiding
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[Copyrighted Material Omitted] Sitting:Phil Hardberger, Chief Justice Alma L. Lopez, Justice Karen Angelini, Justice
This appeal arises from a breach of a natural gas purchase and processing contract between the appellant, Aquila Southwest Pipeline, Inc. ("Aquila"), a gas purchaser/processor and the appellee, Harmony Exploration, Inc. ("Harmony"), an oil and gas producer. This case is governed by the Uniform Commercial Code ("UCC"). Aquila appeals the trial court's judgment awarding damages, attorney's fees and prejudgment interest in favor of Harmony. Harmony cross-appeals the trial court's judgment granting Aquila's Motion for Judgment Notwithstanding the Verdict ("JNOV") on jury questions three (3) and four (4). We affirm the trial court's judgment.
Harmony is a small oil and gas company that has several producing oil and gas wells in Burleson County, Texas. All of Harmony's wells are classified as oil wells under Texas Railroad Commission rules, yet the wells have produced substantial quantities of natural gas. Under the Railroad Commission rules, natural gas produced from a well classified as an oil well is called casinghead gas. In order for Harmony to market and sell natural gas produced from a well, a gathering line must be installed to take the gas from the wellhead into a common carrier pipeline system. Aquila is a major common carrier pipeline system in Texas and is the dominant purchaser of natural gas produced in the Giddings Field, where Harmony's wells are located.
Aquila's predecessor company was Clajon Gas Company, L.P. ("Clajon"). In 1991, Clajon's gas purchase contracts were transferred and assigned to Aquila. Harmony and Aquila entered into a gas purchase and processing contract on May 1, 1991 ("the 1991 contract"), in which Aquila agreed to purchase and process Harmony's casinghead gas on several leases. In this contract, Harmony's gas would be delivered at the wellhead to Aquila. Aquila would take the gas into its system, process the gas to strip out and pull out the liquids to be sold separately, and then sell the residue gas at the tailgate of the plant. The amount paid to Harmony would be determined from the residue and the liquids. The 1991 contract had a four-year base term with an "evergreen" clause that renewed it for successive one-year periods unless terminated by either party. The 1991 contract specifically stated:
3.1 Subject to the terms and conditions of this contract, Seller hereby commits and dedicates to the performance of this Contract all of Seller's Gas Reserves. . . to Buyer at the Point(s) of Delivery. . .
. . . . .
5.1 During the term of this Contract, Buyer shall have the right to take and purchase one hundred percent (100%) of Seller's Delivery Capacity. . .
. . . . .
5.2 . . . The parties expressly recognize that Buyer's obligations to take pursuant to the rules or otherwise shall be subject to the ability of Buyer's facilities to handle all gas connected thereto, lessening or fluctuating demand for gas on Buyer's or its resale purchaser's system, the location on Buyer's or its resale purchaser's system of gas supplies and demand, and any other valid reason such as force majeure, whether or not of a kind herein mentioned.
. . . . .
5.5 In the event any of Buyer's facilities are of insufficient capacity to handle all of the gas connected thereto, Buyer shall be obligated only to take gas ratably from all leases and/or wells delivering into such facilities.
. . . . .
Harmony and Aquila renegotiated a new contract dated May 1, 1995 ("the 1995 contract"). According to Harmony, since May 1, 1995, Aquila's gas purchases from Harmony have been governed by the 1995 contract, which included all of Harmony's wells. However, according to Aquila, the 1995 contract was never executed and Aquila's gas purchases from Harmony have been governed by the 1991 contract.
On August 13, 1996, Harmony filed a lawsuit against Aquila. On February 26, 1999, Harmony filed a third amended petition alleging two claims of breach of contract, discrimination by a common carrier, and class allegations on behalf of producers in Burleson County, Texas. On August 31, 1999, Aquila filed special exceptions to Harmony's third amended petition, specially excepting to Harmony's second claim of discrimination by a common carrier. The case was tried on September 7, 1999. At the conclusion of Harmony's case-in-chief, the trial court granted Aquila's motion for directed verdict on Harmony's claim of discrimination by a common carrier, and denied Aquila's motion for directed verdict on Harmony's breach of contract claims. On September 13, 1999, the jury returned a verdict in favor of Harmony on two breach of contract claims and awarded damages on those claims and attorneys' fees. On October 22, 1999, Aquila filed a motion for JNOV on all five questions submitted to the jury that Harmony take nothing. The trial court granted Aquila's motion for JNOV as to questions three (3) and four (4), and denied Aquila's motion as to questions one (1), two (2), and five (5). On November 23, 1999, the trial court awarded Harmony damages, attorneys' fees, prejudgment interest, court costs, and post-judgment interest. On February 22, 2000, the trial court denied Aquila's motion for new trial.
On appeal, Aquila complains in six issues that the trial court erred in submitting the charge to the jury, that the evidence was legally and factually insufficient to support the jury's verdict, and that the trial court erred in awarding attorneys' fees and prejudgment interest. On cross appeal, Harmony complains in four issues that the trial court erred in granting Aquila's motion for JNOV as to jury questions three (3) and four (4).
In its first and second issues, Aquila complains that the trial court erred in submitting question one (1) to the jury because: (1) Harmony failed to adequately plead that it was invoking the "best efforts" provision as required by section 2.306 of the UCC; and (2) the 1991 contract was not an "exclusive dealing" contract pursuant to section 2.306(b) of the UCC. See Tex. Bus. & Com. Code Ann. § 2.306 (Vernon 1994). Question one (1) of the jury charge states: "Do you find from a preponderance of the evidence that Aquila did not use its best efforts to process Harmony's gas from the Harmony Wells?" The jury responded, "Yes."
In reviewing a trial court's submission of jury questions, appellate courts employ an abuse of discretion standard. See Tex. R. Civ. P. 277; Texas Dep't of Human Servs. v. E.B., 802 S.W.2d 647, 649 (Tex. 1990); Green Tree Acceptance, Inc. v. Combs, 745 S.W.2d 87, 89 (Tex. App. San Antonio 1988, writ denied). A trial judge must submit requested questions to the jury if the pleadings and evidence support them. See Tex. R. Civ. P. 278; Hyundai Motor Co. v. Rodriguez ex rel. Rodriguez, 995 S.W.2d 661, 663 (Tex. 1999). For the appellate court to reverse on a jury charge error, the appellant must show harmful error. See Boatland of Houston, Inc. v. Bailey, 609 S.W.2d 743, 749-50 (Tex. 1980). Error in the jury charge is reversible only if it probably caused the rendition of an improper judgment or probably prevented the appellant from properly presenting the case on appeal. See Tex. R. App. P. 44.1(a); Timberwalk Apts., Partners, Inc. v. Cain, 972 S.W.2d 749, 756 (Tex. 1998). To determine whether an alleged error in the charge is reversible, the reviewing court must consider the pleadings of the parties, the evidence presented at trial, and the charge in its entirety. See Timberwalk Apts., 972 S.W.2d at 756; Island Recreational Dev. Corp. v. Republic of Texas Sav. Ass'n, 710 S.W.2d 551, 555 (Tex. 1986).
In its first issue, Aquila complains that trial court erred in submitting jury question one (1) because Harmony failed to plead that the 1991 contract was missing a quantity term or that the contract was an exclusive dealing contract or that the trial court should impose the "best efforts" quantity provision from the UCC or that Aquila failed to use its "best efforts." Aquila argues that Harmony's pleadings failed to place Aquila on notice of any cause of action pursuant to section 2.306(b) of the UCC governing "exclusive dealings" and "best efforts." In response, Harmony contends that the trial court did not commit error by submitting jury question one (1) because: (1) Harmony adequately pled breach of contract governed by the UCC; (2) Harmony was not required to plead law; and (3) Aquila failed to file special exceptions to Harmony's breach of contract claims and therefore waived any right to challenge the sufficiency of Harmony's pleadings on appeal.
Harmony's pleadings alleged that Aquila breached the 1991 and 1995 contracts in the following respects: (1) not paying Plaintiff all sums due under the contract for the sale of liquids; (2) not properly paying Plaintiff for all sums due under the contract; (3) charging Plaintiff excess compression costs; (4) not paying Plaintiff based on the price formula set forth in the contract; and (5) failing to process Plaintiff's casinghead gas as required by the express terms of the contracts.
Despite Aquila's arguments regarding Harmony's defective pleadings, there are two types of pleading defects to which the opponent must object before trial: (1) defects in form (e.g., failure to include a verification); and (2) defects...
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