Frontera Generation Ltd. v. Mission Pipeline Co.

• Decision Date: 28 December 2012
• Docket Number: Nos. 13–12–00265–CV, 13–12–00321–CV.,s. 13–12–00265–CV, 13–12–00321–CV.
• Citation: 400 S.W.3d 102
• Parties: FRONTERA GENERATION LIMITED PARTNERSHIP, Appellant, v. MISSION PIPELINE COMPANY n/k/a Mission Pipeline, LLC, Appellee. In re Frontera Generation Limited Partnership.
• Court: Texas Court of Appeals

400 S.W.3d 102

FRONTERA GENERATION LIMITED PARTNERSHIP, Appellant,

v.MISSION PIPELINE COMPANY n/k/a Mission Pipeline, LLC, Appellee.

In re Frontera Generation Limited Partnership.

Nos. 13–12–00265–CV, 13–12–00321–CV.

Court of Appeals of Texas,

Corpus Christi–Edinburg.

Dec. 28, 2012.

Stephen W. Lemmon, Rhonda Mates, Brown McCarroll, LLP, Austin, TX, Francisco J. Rodriguez, Rodriguez & Tovar, Attorney at Law, McAllen, TX, for Appellant.

Christopher Knudsen, Mark Callender, William H. Whitaker, Robert Eugene Bell, Serpe, Jones, Andrews, Callender & Bell, PLLC, Houston, TX, Ricardo Palacios, Steven M. Gonzalez, Gonzalez Palacios, LLP, McAllen, TX, for Appellee.

Before Chief Justice VALDEZ and Justices RODRIGUEZ and GARZA.

OPINION

Opinion by Chief Justice VALDEZ.

By appeal and original proceeding, Frontera Generation Limited Partnership (“Frontera”) seeks to set aside a temporary injunction that was entered pending arbitration under the Federal Arbitration Act (“FAA”) that Frontera contends “effectively” compels it to arbitrate.¹ These two matters arise from a dispute between Frontera and Mission Pipeline Company n/k/a Mission Pipeline, LLC (“Mission”) regarding the operation of a series of pipelines and related equipment which transport natural gas to the Frontera natural gas fueled electric generating facility in Hidalgo County, Texas. Because these two matters are related and involve substantially similar facts and issues, we issue a single opinion disposing of both matters in the interests of judicial economy. See e.g., Holmes v. Beatty, 290 S.W.3d 852, 854 (Tex.2009). As stated herein, we affirm the injunction in cause number 13–12–00265–CV, and we deny the petition for writ of mandamus in cause number 13–12–00321–CV.

I. Background

In 1999, Frontera built a natural gas burning electric generating facility in Hidalgo County, Texas. When the Frontera facility was constructed, there were no natural gas pipelines connecting the facility to existing interstate pipelines, such as the Tennessee Gas Pipeline (“TGP”) or the Texas Eastern Pipeline (“TETCO”). Frontera entered into an agreement with Mission to acquire, construct, and operate a series of pipelines and related equipment to transport natural gas (the “Mission system”) to the Frontera facility from the interstate pipelines of upstream providers, including TGP and TETCO. The transaction was accomplished with two contracts, a Gas Pipeline and Interconnect, Construction, Sale, and Firm Capacity Agreement (the “Firm Capacity Agreement”) and a Firm Transportation and Capacity Agreement (the “Transportation Agreement”), along with a penumbra of agreements relatedto financing the transaction. Frontera financed the construction of the system by advancing $5,067,078.26 to Mission, and in exchange, Mission executed a Demand Note payable to Frontera in the event of a default. The Demand Note is secured by an Amended and Restated Deed of Trust, Financing Statement, Fixture Filing and Security Agreement with Assignment of Rents (“Deed of Trust”) and a Security Agreement and Assignment of Rights and General Pledge (“Security Agreement”) that gives Frontera a security interest in Mission's assets. Additionally, Mission's shareholders entered into a Stock Pledge Agreement in which they granted Frontera a security interest in their shares of stock and equity in Mission.

The Firm Capacity Agreement and the Transportation Agreement each include an identical arbitration clause:

Any dispute relating to this Agreement shall be resolved by binding, self-administered arbitration pursuant to the Commercial Arbitration Rules of the American Arbitration Association (“AAA”) and all such proceedings shall be subject to the Federal Arbitration Act. A single arbitrator shall be selected under the expedited rules of the AAA. ONLY DAMAGES ALLOWED PURSUANT TO THIS AGREEMENT MAY BE AWARDED AND THE ARBITRATOR SHALL HAVE NO AUTHORITY TO AWARD TREBLE, EXEMPLARY OR PUNITIVE DAMAGES OF ANY TYPE UNDER ANY CIRCUMSTANCES REGARDLESS OF WHETHER SUCH DAMAGES MAY BE AVAILABLE UNDER TEXAS LAW.

In approximately 2006, Frontera stopped using the Mission System due to concerns over the quality of the gas being provided by TGP and TETCO and, instead, purchased gas from another source. In 2011, Frontera received notice that its primary source of gas would be out of service for several days and asked TGP to supply gas through the Mission system. TGP stated that it could not deliver gas through the system because there was no longer an active meter at the interconnect. On April 13, 2011, Frontera notified Mission that it could not obtain gas volumes through the system. Over the next several months, the parties discussed the situation and disagreed regarding the cause, fault, and consequences. Frontera contended that Mission was required to provide firm capacity under the agreements and that Mission had the obligation under the agreements to keep the Mission System ready and available if Frontera chose to use it. In contrast, Mission contended that Frontera had abandoned the Mission System and that any alleged problems with the Mission system were caused by Frontera's five-year abandonment of the system and caused by TETCO and TGP's independent actions of deactivating the lines and removing their equipment.

On February 10, 2012, Frontera sent Mission a demand for payment and a notice of foreclosure sale for Mission's assets. On March 1, 2012, Mission obtained a temporary restraining order. On March 2, 2012, Mission filed its original complaint in arbitration. On April 13, 2012, the trial court entered a temporary injunction prohibiting Frontera from, among other things, attempting a foreclosure sale of Mission's assets. The injunction provides in relevant part:

The Court has examined the pleadings and evidence submitted by Plaintiff and Defendant and the Court has found that it is likely that Plaintiff will prevail on the merits of its claims against Defendant and is entitled to equitable relief. The court finds that Plaintiff has a probable right of recovery at the arbitration of its claims and defenses against Frontera for declaratory relief and/or breach of contract.

The Court further finds that Plaintiff will suffer imminent and irreparable injury, specifically loss and/or damage to title and possession of its property, assets, collateral and stock unless Defendant is immediately enjoined from proceeding, directly or indirectly with (i) the Foreclosure Sale as provided and described in Frontera's February 10, 2012 correspondence to Plaintiff; (ii) the Disposition of Collateral as provided and described in Frontera's February 10, 2012 correspondence to Plaintiff; (iii) any other sale, foreclosure, action or relief provided and described in Frontera's February 10, 2012 correspondence to Plaintiff; and (iv) any attempt to enforce any remedies provided in the Firm Capacity Agreement, the Transportation Agreement and the Collateral Documents (including the Deed of Trust, Demand Note, Security Agreement and Stock Pledge Agreement). The Court further finds that if Plaintiff's application for temporary injunction is not granted, and Defendant is not enjoined from proceeding with the Foreclosure Sale and/or disposition of Plaintiff's collateral, stock and assets, Plaintiff will have no adequate remedy at law as Plaintiff will lose title and possession of its collateral, stock, and assets.

The Court further finds that the harm Plaintiff will suffer if its application for temporary injunction is not granted far outweighs any hardship that may result to Defendant. The Court further finds that the relief Plaintiff seeks is not adverse to the public interest in that Plaintiff is merely seeking to maintain the status quo pending arbitration of its claims and defenses against Defendant. Accordingly, the Court finds that Plaintiff is entitled to a temporary injunction.

IT IS THEREFORE ORDERED that the clerk issue a writ of injunction enjoining Defendant, and Defendant is immediately enjoined, from directly or indirectly, for itself or on behalf of or in conjunction with any other person, trustee, company, partnership, corporation or business of whatever nature, proceeding with:

a. The Foreclosure Sale as provided and described in Frontera's February 10, 2012 correspondence to Plaintiff ...

b. The Disposition of Collateral as provided and described in Frontera's February 10, 2012 correspondence to Plaintiff ...

c. Any other sale, foreclosure, action or relief provided and described in Frontera's February 10, 2012 correspondence to Plaintiff ...

d. Any attempt to enforce any remedies provided in the Firm Capacity Agreement, the Transportation Agreement and the Collateral Documents (including the Deed of Trust, Demand Note, Security Agreement and Stock Pledge Agreement); and

e. Engaging in any transaction that would affect title or possession to the property, assets, collateral and stock of Plaintiff.

The temporary injunction set the case for trial on the merits and ordered that “this case is stayed pending the outcome of the arbitration pending before the American Arbitration Association and styled as Case Number: 50 459 T 00164 12, Mission Pipeline Company v. Frontera Generation Limited Partnership.” This appeal and original proceeding ensued.

II. Appeal in Cause No. 13–12–00265–CV

By appeal, Frontera raises three issues, contending the trial court abused its discretion:(1) by entering a temporary injunction pending arbitration under the FAA; (2) by entering a temporary injunction based on legally and factually insufficient evidence of a probable right of recovery; and (3) by entering a temporary injunction based on legally and factually insufficient evidence of a probable, imminent, and irreparable injury.

A. Standard Of Review

In general, a temporary injunction is an extraordinary remedy and does not issue as a matter of right. Walling v. Metcalfe, 863 S.W.2d 56, 57 (Tex.1993). The purpose of a temporary...