High Plains Natural Gas Co. v. Warren Petroleum Co. a Div. of Gulf Oil Corp.

Decision Date19 May 1989
Docket NumberNo. 87-2466,87-2466
Citation875 F.2d 284
Parties8 UCC Rep.Serv.2d 1015 HIGH PLAINS NATURAL GAS COMPANY, Plaintiff-Appellant, v. WARREN PETROLEUM COMPANY, A DIVISION OF GULF OIL CORPORATION, Defendant-Appellee.
CourtU.S. Court of Appeals — Tenth Circuit

Barry Bishop of Clark, Thomas, Winters & Newton, Austin, Tex. (James H. Russell, Jr. of Valdez, Russell, Read & Rivera, Santa Fe, N.M., with him on the briefs), for plaintiff-appellant.

Bradford C. Berge of Campbell & Black, P.A., Santa Fe, N.M., for defendant-appellee.

Before ANDERSON, BRORBY and O'CONNOR. *

BRORBY, Circuit Judge.

High Plains Natural Gas Company (High Plains), the buyer, filed suit for damages against Warren Petroleum Company (Warren), the seller, alleging Warren's failure to deliver marketable natural gas breached implied warranties of merchantability and fitness for a particular purpose and violated the Texas Deceptive Trade Practices Act (DTPA). Warren moved for summary judgment asserting the remedies sought by High Plains could not be awarded as a matter of law because the contract limits the remedies for breach of contract to rejection of the natural gas or termination of the contract. The trial court granted summary judgment in favor of Warren holding the contract's limitation of remedies provision precluded relief. High Plains appeals the order granting summary judgment. We agree with the trial court's disposition and AFFIRM.

High Plains asserts three errors for our review: (1) High Plains is entitled to pursue its claim for breach of implied warranty as the limitation of remedies provision does not modify the implied warranties; (2) the limitations of remedies clauses in the contract do not prohibit High Plains from pursuing its remedies under the DTPA; and (3) Warren breached its implied duty of good faith and fair dealing.

The material facts are undisputed. High Plains operates a natural gas distribution system in northern Texas, buying gas and selling it to various commercial and residential customers. Warren operates a gas gathering system and extraction facility, buying gas from various producers, transporting the gas to its plant, extracting from the natural gas various hydrocarbon products such as butane and pentane, and selling the "residue gas," in this case to High Plains. Warren's gas gathering system operates on a vacuum principle which sucks the natural gas through its gas gathering system to its plant. When leaks occur in the lines, gas does not escape, rather outside air is sucked into the line. As more air enters the line the heating content of the gas is reduced. As various hydrocarbon products are extracted from the natural gas, again the heating content of the gas is reduced. The heating content or quality of the residue gas fluctuates depending upon the condition of Warren's system and of the amount of hydrocarbons extracted.

High Plains and Warren first entered into a contract in 1964 whereby High Plains agreed to buy, and Warren agreed to sell, the residue gas from Warren's McLean Plant. In 1981, High Plains filed suit against Warren complaining of the quality of the residue gas it was receiving. This suit was compromised and settled in 1983. The settlement included amendments to the contract and the payment by Warren of a significant sum of money.

The contract as amended, which is now before this court, contains provisions: (1) basing the price of the gas on its BTU content; (2) specifically providing there is no limitation upon the quality, quantity, number or kinds of products (hydrocarbons) that Warren could extract; (3) giving to High Plains the right to reject any residue gas which does not meet its quality specifications; and (4) allowing High Plains to cancel the contract if its quality specifications are not met for 30 days. Finally, the contract provides "there shall be no other penalty to Warren" in the event the quality specifications of High Plains are not satisfied.

The trial court ruled the contractual provisions limiting remedies for breach of contract apply to the implied warranties of merchantability and fitness for a particular purpose under the applicable portions of the Texas Uniform Commercial Code (U.C.C.). The trial court further held the limitation of remedies provision in the contract precluded High Plains' cause of action under the Texas Deceptive Trade Practices-Consumer Protection Act (DTPA). The trial court granted Warren's motion for summary judgment as to all of High Plains claims.

We review the grant of a summary judgment motion under the same standard employed by the trial court. Our review is de novo because a ruling on the motion involves purely legal determinations. See Missouri Pacific R.R. Co. v. Kansas Gas and Elec. Co., 862 F.2d 796, 798 (10th Cir.1988). In deciding these issues under our diversity jurisdiction, we apply the law of Texas. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938); Brady v. Hopper, 751 F.2d 329, 332 (10th Cir.1984).

I The Contractual Limitation of Remedies

On appeal, High Plains contends the trial court erred in using the contractual provisions limiting the remedies for breach of contract to exclude or modify all the implied warranties contrary to the U.C.C. provisions requiring conspicuous and explicit mention of merchantability for modification of that warranty. Tex.Bus. & Com.Code Ann. Sec. 2.316(b) (Vernon 1968). We disagree. The trial court did not apply the contract provisions to exclude the implied warranties, rather it applied the contract provisions to limit the remedies available if a breach of either warranty occurred.

Next High Plains contends the contractual provisions may limit the remedies for breach of the contract, but those provisions fail to limit the remedies for breach of an implied warranty. We disagree.

The trial court found the language in the contract limits High Plains to two remedies: (1) rejection of the natural gas, which is not of merchantable quality; and (2) cancellation of the contract if the supply of gas remains below merchantable quality for more than thirty days. The trial court based this decision on the following contract clauses:

5. ... Buyer shall have the right to reject any residue gas that does not meet the following specifications....

8. ... Should the BTU content of the residue gas delivered by Warren fall below 1,000 per Mcf for a continuous period of thirty (30) days ... Buyer shall have the right to cancel this agreement, but there shall be no other penalty to Warren.

Amendment to Gas Purchase Contract, p 5; Original Residue Gas Sales Contract, p 8 (emphasis added). The trial court further ruled the phrase emphasized above is an express agreement that rejection of the gas and cancellation of the contract are the sole remedies available to High Plains for lack of merchantability of gas. Memorandum Opinion at 4. We agree.

Under the U.C.C. as enacted by Texas, remedies for breach of warranty may be limited, 1 and remedies may be substituted for those provided in the U.C.C. 2 The contract language clearly limits the remedy for breach of an implied warranty. The U.C.C. prescribes no statement or language in order to constitute a limitation of a remedy. Any language which manifests to the buyer as a reasonable person that the contract is entered into on the basis of a specified limitation of a remedy is sufficient. 5 Ronald A. Anderson, Anderson on the Uniform Commercial Code Sec. 2-719:21, at 13 (3d ed. 1985). As said in the official commentary to Sec. 2.719 of the U.C.C.: "Under this section parties are left free to shape their particular requirements and reasonable agreements limiting or modifying remedies are to be given effect." Tex.Bus. & Com.Code Ann. Sec. 2.719, Uniform Commercial Code Comment p 1. The test is whether the plain meaning of the contract demonstrates an intent to limit the seller's liability. See Fredonia Broadcasting Corp. v. RCA Corp., 481 F.2d 781, 797-98 (5th Cir.1973) (applying Texas law).

Looking at the clear and unambiguous language of the contract, and in particular that language emphasized in paragraph eight, we conclude the contract clearly demonstrates an intent to limit the seller's liability under the contract. 3 We hold that the contractual provisions limiting remedies, in this case, apply to the remedies for breach of implied warranties.

II

The Application of the Texas Deceptive Trade

Practices-Consumer Protection Act

High Plains asserts the trial court erred in finding the limitation of remedies clause in the contract was a complete defense to the claim under the Texas Deceptive Trade Practices Act (DTPA). 4 The court reasoned the facts alleged in the DTPA claim were the same as the facts alleged in the breach of warranty claim. High Plains contends the limitation of remedies clause of the contract does not prohibit it from pursuing its statutory right of recovery under the DTPA. High Plains asserts the clear language of the "no waiver" provision of the DTPA prohibits the use of warranty disclaimers to preclude the right to bring an action under the DTPA. We frame the issue as whether the contractual provision limiting remedies for breach of the warranties of merchantability and fitness for a particular purpose is enforceable under the Texas Deceptive Trade Practices Act.

We first note that our task here is to interpret and apply the law of Texas as we believe the Texas Supreme Court would. Rawson v. Sears, Roebuck & Co., 822 F.2d 908, 910 (10th Cir.1987), cert. denied, --- U.S. ----, 108 S.Ct. 699, 98 L.Ed.2d 651 (1988) (citing City of Aurora v. Bechtel Corp., 599 F.2d 382, 386 (10th Cir.1979), and Symons v. Mueller Co., 493 F.2d 972 (10th Cir.1974)). Counsel for the parties have cited us to no Texas authorities directly in point and we are able to find none.

The DTPA is a statutory scheme designed to provide consumers with a remedy for deceptive trade practices without the burden of proof and numerous...

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