Cooper v. Fortney
| Decision Date | 07 November 1985 |
| Docket Number | No. B14-85-149-CV,B14-85-149-CV |
| Citation | 703 S.W.2d 217 |
| Parties | 1986-1 Trade Cases P 66,944 Duncan COOPER, Dennis L. Hoerr, and Valley Land & Cattle, Ltd., Appellants, v. David M. FORTNEY et al., Appellees. (14th Dist.) |
| Court | Texas Court of Appeals |
Yii-Chwen Pan of Gibbions, Burrows & Bratton, Houston, for appellants.
Theodore F. Weiss, Jr., E.W. Barnett, Patrick Zummo of Baker & Botts, Robin C. Gibbs of Gibbs & Ratliff, J.M. Slator, III of Slator & Pendergast, Houston, for appellees.
Before PAUL PRESSLER, MURPHY and DRAUGHN, JJ.
In this legal malpractice suit, the trial court granted a summary judgment in favor of the defendant/attorney. The attorney had drafted a contract for the sale of lignite from a mine in Brewster County, Texas. The two basic summary judgment questions in this appeal are (1) whether the attorney drafted a contract that violated Texas antitrust laws; and (2) whether the attorney's actions in drafting that contract were not as a matter of law a cause of the plaintiff/client's damages for lost profits when a federal court held the contract void and unenforceable under the Texas statutes prohibiting the restraint of free trade. We find that the contract did violate the Texas Antitrust laws and that the summary judgment evidence was insufficient to establish as a matter of law that the attorney's conduct did not cause his client's alleged damages. We reverse the summary judgment, and remand the case for a trial on the merits.
This case arose out of the following facts: Appellants Duncan Cooper, Dennis Hoerr, and Valley Land & Cattle, Ltd. ("Valley") mine lignite in Brewster County. Valley contracted to sell lignite to Arnold & Clarke Chemical Company ("Arnold & Clarke"). Disagreements arose over the contract's terms, whereupon Valley sought legal counsel from the appellee, attorney David Fortney ("Fortney" or "the attorney"). Fortney renegotiated the terms of the contract with Arnold & Clarke and drafted a new document.
Shortly after executing the new contract, Valley and Arnold & Clarke again disagreed. When Arnold & Clarke defaulted, Valley sued in state district court, pleading three causes of action: breach of contract, fraud, and promissory estoppel. Arnold & Clarke countersued and removed the case to federal court. In the meantime, another attorney had informed Valley that the contract violated Texas antitrust laws. Arnold & Clarke agreed with this assessment and moved for a summary judgment on Valley's breach-of-contract claim. When Valley did not oppose Arnold & Clarke's motion, the federal district judge granted a summary judgment on this issue, thus eliminating any claims for breach of contract from this federal suit. As a result of this action, Valley recovered a portion of its damages under theories of fraud and promissory estoppel but failed to recover its lost profits under the contract.
Valley subsequently filed this legal malpractice suit against Fortney in state district court. Valley sought to recover damages resulting from his negligence or omissions in negotiating and drafting the contract in question. Valley also asserted a claim under the Texas Deceptive Trade Practices Act for the attorney's misrepresentations concerning his professional ability and concerning the validity and effectiveness of the contract.
The attorney then moved for summary judgment, alleging (1) the contract did not violate Texas antitrust laws, and (2) even if the contract did violate such laws, the attorney's actions in drafting the contract were not the cause of Valley's damages. The state court granted the attorney's motion for summary judgment.
Our first task in this appeal is to determine whether the contract in question violated the Texas antitrust laws, TEX.BUS. & COM.CODE ANN. §§ 15.02, 15.03 and 15.04 (Vernon 1968). The contract (entitled "Purchase Order") contains, inter alia, provisions covering the amount of lignite to be sold, the manner in which the lignite is to be delivered, the price to be paid by Arnold & Clarke, quality specifications for the lignite, and an exclusive dealing arrangement between Valley and Arnold & Clarke. 1
To decide whether this contract violated the antitrust laws, we must initially ascertain whether it is an output contract or an ordinary supply contract. An output contract measures the quantity to be sold by an amount equal to the seller's total good-faith output, although the contract may limit that amount to estimates of minimum and maximum production. An output contract requiring sale of the product exclusively to one buyer for a specific purpose is usually valid and not a violation of Texas antitrust laws. TEX.BUS. & COM.CODE ANN. § 2.306 comments 2, 3 (Vernon 1968); Portland Gasoline Co. v. Superior Marketing Co., 150 Tex. 533, 243 S.W.2d 823 (1951); Loeb v. Winnsboro Cotton Oil Co., 93 S.W. 515 (Tex.Civ.App.1906).
In contrast, an ordinary supply contract measures the quantity to be sold by stating a specific, fixed amount. Unlike an output contract, an ordinary supply contract requiring sale of the product exclusively to one buyer may violate the antitrust laws, depending upon the type and extent of the contract's trade restrictions. Therefore, if we conclude the contract before us is an ordinary supply contract, we must examine very closely any provisions that appear anticompetitive to determine whether the contract unduly restricts fair trade.
We conclude this contract is not an output contract but merely an ordinary supply contract. The contract basically contains two separate agreements: one primary and one ancillary agreement. The primary agreement states that Valley will sell a specific amount of lignite from the Brewster mine (65,280 tons) to Arnold & Clarke. The 65,280 tons is to be delivered at the minimum rate of 1,088 tons per month for 60 months (1,088 X 60 = 65,280). Nowhere does the contract indicate that Valley is to deliver the Brewster mine's total output for 60 months, nor does it state that 65,280 tons is an estimate of the Brewster mine's output for 60 months.
The estimate of "a minimum of 1,088 tons per month" (found in paragraph two entitled "Monthly Production, Processing and Delivery") is merely a term establishing the rate of delivery for the 65,280 tons and also refers to the fact that Arnold & Clarke at times would be accepting additional lignite under the ancillary agreement discussed below. Under the primary agreement, if Valley were to deliver substantially more than 1,088 tons per month, the contract's primary agreement apparently would terminate earlier than the projected term of 60 months, because Arnold & Clarke would have received the stated quantity (65,280 tons) before the 60-month deadline. If Valley were to deliver 65,280 tons within 50 months, for example, the contract does not require Arnold & Clarke to accept Valley's continued potential output of 1,088 tons per month for the ten months that would remain in the original 60-month term. Rather, Arnold & Clarke's obligation to accept lignite under the contract's primary agreement ends when it has received and paid for 65,280 tons, period.
We note that the contract also includes an ancillary agreement for the repayment of money loaned to Valley by Arnold & Clarke. At one point during its course of dealings with Arnold & Clarke, Valley borrowed money and executed a promissory note in the principal amount of $123,510.37. In the ancillary agreement, Valley promised to deliver to Arnold & Clarke, in addition to the primary quantity of 65,280 tons, another amount of lignite sufficient to pay off this note. The contract contains specific requirements as to the methods for stockpiling and delivering the lignite assigned to the repayment of this loan. However, this ancillary agreement is separate from the primary agreement to sell Arnold & Clarke 65,280 tons of lignite; like the primary agreement, however, it calls for the transfer of a specific amount of lignite to pay off the loan. This contract as a whole provides for the sale of a fixed quantity of lignite rather than for the sale of Valley's good-faith output over 60 months. Therefore, this contract is an ordinary supply contract.
We now turn to the contract's exclusive dealing provisions in paragraph ten entitled "Exclusive Purchaser." This paragraph includes the following arrangements:
(1) Valley may not sell lignite from any property in Brewster County to anyone in the oil and gas drilling fluid business except Arnold & Clarke.
(2) If Valley desires to pursue a market outside the oil and gas drilling fluid business, it must submit a detailed, written proposal to Arnold & Clarke and must request Arnold & Clarke's permission to sell lignite to purchasers in this market.
(3) Arnold & Clarke must decide within 180 days after receipt of such proposal whether to buy additional lignite from Valley for use in the proposed market. If Arnold & Clarke decides to purchase additional lignite for this purpose, Valley agrees not to pursue this market independently and agrees to increase production to satisfy Arnold & Clarke's requirements in supplying this market.
(4) If Arnold & Clarke explicitly elects not to pursue this market, or implicitly so elects by allowing the 180 days to elapse without communicating its decision, only then may Valley independently enter this market.
We must now decide whether these provisions, as contained in an ordinary supply contract, unduly restrain competition in contravention of the antitrust laws in effect from November of 1979 through January of 1980 when the attorney drafted the contract. TEX.BUS. & COM.CODE ANN. §§ 15.02, 15.03 and 15.04 (Vernon 1968). 2
This court found an ordinary supply contract highly anticompetitive, void, and unenforceable in Elray, Inc. v. Cathodic Protection Service, 507 S.W.2d 570 (Tex.Civ.App.--Houston [14th Dist.] 1974, no writ). The Elray contract prohibited the seller from manufacturing a product for the...
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