Enter. Prods. Operating, LLC v. Trafigura AG
| Decision Date | 08 December 2020 |
| Docket Number | NO. 01-19-00309-CV,01-19-00309-CV |
| Parties | ENTERPRISE PRODUCTS OPERATING, LLC, Appellant v. TRAFIGURA AG, Appellee |
| Court | Texas Court of Appeals |
On Appeal from the 333rd District Court Harris County, Texas
This appeal arises out of a decade-long contract dispute between Trafigura AG and Enterprise Products Operating, LLC. A jury found that Enterprise breached the contract between the parties and awarded Trafigura actual damages and attorneys' fees. On appeal, Enterprise brings four issues. First, it challenges Trafigura's standing and capacity to sue Enterprise. Second, Enterprise argues that the trial court erred by submitting an unambiguous contract to the jury. Third, Enterprise also argues that the evidence is legally and factually insufficient to support the jury's finding of breach. Fourth, Enterprise contends the trial court improperly calculated prejudgment interest. We affirm.
Trafigura is a commodities trading company that buys oil and gas products and transports and sells them internationally. Enterprise is a midstream energy services company. Enterprise has a facility and an export terminal on the Houston Ship Channel for processing oil and gas products and loading them onto refrigerated tankers before shipment.
Enterprise and Trafigura have entered into "over a hundred" transactions for the purchase of oil and gas products like the transaction here. Enterprise and Trafigura's course of dealing consisted of exchanging a short document highlighting the key terms of each transaction, such as the parties, dates, estimated price, quantity of goods, and other transaction-specific information. Enterprise and Trafigura incorporated standard terms by reference to a separate long-form contract.
In July 2009, Enterprise and Trafigura executed an Export Contract Amendment ("Export Contract"). Enterprise sold 400,000 barrels of propane and 125,000 barrels of normal butane (collectively, the "cargo") to Trafigura. The ExportContract incorporated by reference general terms and conditions ("GTCs") that addressed other common provisions:
Enterprise Products Operating LLC Natural Gas Liquids Purchase, Sale or Exchange General Terms and Conditions and Enterprise Ship Nomination and Dock Procedures (a copy of which shall be provided upon request) are incorporated herein by reference for all purposes.
These 2001 GTCs were not attached to the Export Contract.
According to the Export Contract, Enterprise had to sell Trafigura pure propane and butane that met Enterprise's export specifications. The parties attached a separate document listing various substances and compounds for the specific purity standards and prohibiting contamination of the cargo:
This specification defines only a basic purity for this product. This product is to be free of any contamination that might render the product unusable for its commonly used applications. Specific contaminants include (but are not limited to) dirt, rust, scale, and all other types of solid contaminants, caustics, chlorides, heavy metals, and oxygenates.
After execution of the Export Contract, Enterprise began loading propane and butane into the tanks of the vessel named Clipper Sirius in September 2009. Intertek, Enterprise's independent inspection company, found black residue in the manifold strainer when it was checking the purity of the cargo during the quality inspection. The substance was described as a "black blob" that had a "mercaptan odor . . . like the stench of a skunk." The residue was conspicuously different from the appearance and smell of the cargo because propane and butane are "clear" and "odorless."Intertek notified Enterprise about this finding. Despite the black blob, Intertek's composite test results revealed that the cargo met basic purity standards.
A dispute arose about whether the cargo was contaminated. Even though the parties had not resolved the dispute, Trafigura transported the cargo from Houston to Ecuador. When the Clipper Sirius arrived in Ecuador, Trafigura filtered the contaminants from the cargo, leaving the solid black matter in the Clipper Sirius's tanks. Trafigura resold the cargo for the full contract price of $27,711,654.68.
An inspection of the Clipper Sirius confirmed that the black solid matter at the bottom of the tanks tested positive for caustics, which have a high pH. Producers use caustic materials to remove acidic sulfur compounds from hydrocarbons. The Clipper Sirius required extensive professional cleaning to remove the caustic residue from the tanks. Under an implied term of a charter agreement between Trafigura and the ship owners, Trafigura was prohibited from transporting dangerous cargo, like caustics, without giving notice to the ship owners to "ensure that the cargo could be carried without causing damage." The ship owners sent a letter to Enterprise and Trafigura outlining the cleaning processes and procedures. The Clipper Sirius returned to Houston where the cleaning operations began. The ship owners incurred $1,459,791.85 in cleaning costs. The ship owners sent a notice to Trafigura about starting arbitration proceedings to recover cleaning costs and lost income they would have earned while the Clipper Sirius was being cleaned.
Meanwhile, in November 2009, Trafigura, through its counsel, sent a letter to Enterprise detailing Enterprise's potential liability for default under the Export Contract and requesting enforcement of the indemnity provision for loading contaminated cargo onto the Clipper Sirius. Under this provision, Enterprise had to defend, indemnify, and hold Trafigura harmless for all out-of-pocket expenses, including any legal costs, incurred if Enterprise disregarded its obligation to provide Trafigura conforming cargo in connection with damages resulting from contaminants, among other things. Enterprise denied any obligation to defend or indemnify Trafigura against any of the ship owners' claims.
Later, in 2011, the ship owners began arbitration proceedings against Trafigura. Following a formal invitation to participate in the arbitration proceedings between the ship owners and Trafigura, Enterprise continued to deny liability for any contaminated cargo, refused to indemnify Trafigura against the ship owners' claims, and declined to participate in the arbitration. In 2013, the ship owners filed a detailed claim submission in the arbitration proceedings.
In January 2014, Trafigura sued Enterprise in state court alleging breach of contract and breach of warranty.1 Trafigura alleged that Enterprise breached the Export Contract by delivering contaminated cargo and by failing to defend andindemnify it against the ship owners' claims. Trafigura also alleged that Enterprise breached the warranties in the "General Terms and Conditions for International Purchase and Sale of Propane, Mixed Butane And/Or LPG Mix," ("Propane GTCs.") Trafigura sought actual damages, attorneys' fees, and costs incurred here and in the arbitration proceedings. Trafigura also sought a declaratory judgment that Trafigura was entitled to be indemnified under the Export Contract. Enterprise answered and asserted affirmative defenses, such as statute of limitations, contractual limitations, and contractual risk of loss, among other defenses.
The trial court abated the proceedings while Trafigura's arbitration with the ship owners continued. In December 2017, Trafigura settled with the ship owners for $3,083,896.05 in damages and interest, $1,027,713.59 in attorneys' fees, and $32,581.88 in arbitration fees. Trafigura's insurer paid the settlement amount. The Trafigura-Enterprise litigation resumed, and Trafigura amended its petition, added claims for promissory estoppel, negligent misrepresentation, ambiguity, breach of contractual indemnification, and reformation of contract, and sought indemnification of the settlement payments and additional fees incurred during arbitration.2 During discovery, Enterprise produced the 2001 GTCs, arguing that the Export Contract incorporated the 2001 GTCs and not the Propane GTCs.
Enterprise filed a motion for summary judgment. Enterprise denied breaching the Export Contract, contending that it did not deliver defective or non-conforming goods to Trafigura. Enterprise argued that the Export Contract incorporated the 2001 GTCs, not the Propane GTCs, and that Trafigura failed to timely object in writing to the proposed terms of the 2001 GTCs. It also argued that the 12-month contractual limitations period in the 2001 GTCs barred Trafigura's claims because Trafigura sued Enterprise almost four years after its claims arose. Finally, it argued that the subrogation waiver in the 2001 GTCs precluded recovery for any amounts paid by Trafigura's insurer.
Trafigura responded to Enterprise's motion for summary judgment. Trafigura contended that the Export Contract incorporated the Propane GTCs, even though there was a discrepancy in the title. Trafigura contended that a latent ambiguity, or, in the alternative, a mutual mistake of fact existed. It asserted that their course of dealing showed that the parties relied on the Propane GTCs based on an irreconcilable system issue that prevented Enterprise from changing the title of the appropriate GTCs to the Propane GTCs.
Trafigura also asserted that all provisions that contained the 2001 GTCs—including the contractual limitations period and the subrogation waiver—did not apply because the Propane GTCs governed the Export Contract. Trafigura also argued that it timely sued Enterprise and that the contract limitations period was voidon public policy grounds because it shortened the statutory two-year limitations period to 12 months.
Enterprise also filed a plea to the jurisdiction seeking dismissal of the case. Enterprise alleged that Trafigura lacked standing and capacity to sue. Enterprise argued that Trafigura suffered no injury because Trafigura's insurance carrier, not Trafigura, paid for the...
To continue reading
Request your trial