Liquid Energy Corp. v. Trans-Pan Gathering, Inc.

• Decision Date: 26 August 1988
• Docket Number: No. 07-86-0200-CV,TRANS-PAN,07-86-0200-CV
• Citation: 758 S.W.2d 627
• Parties: LIQUID ENERGY CORPORATION, Appellant, v.GATHERING, INC., Trans-Pan Pipeline Company, and W.R. Edwards, Jr., Appellees.
• Court: Texas Court of Appeals

Page 627

758 S.W.2d 627

LIQUID ENERGY CORPORATION, Appellant, v. TRANS-PAN GATHERING, INC., Trans-Pan Pipeline Company, and W.R. Edwards, Jr., Appellees.

No. 07-86-0200-CV

Court of Appeals of Texas Amarillo.

Aug. 26, 1988.

Rehearing Denied Oct. 13, 1988.

Hinkle, Cox, Eaton, Coffield & Hensley, Richard R. Wilfong, Jerry F. Shackelford, and David T. Markette, Amarillo, for appellant.

Rain, Harrell, Emery, Young & Doke, Marshall M. Searcy, Jr., Dallas, Gassaway, Gurley, Sheets & Mitchell, Jody G. Sheets and Timothy D. Zeiger, Borger, for appellees.

Before REYNOLDS, C.J., and DODSON and BOYD, JJ.

REYNOLDS, Chief Justice.

In this cause involving contractual claims and counterclaims, Liquid Energy Corporation appeals on eighty-three points of error from a judgment, rendered after a bench trial, decreeing its monetary liability to Trans-Pan Gathering, Inc. and Trans-Pan Pipeline Company, granting injunctive and declaratory relief, and awarding attorneys' fees. Trans-Pan Gathering, Inc., Trans-Pan Pipeline Company, and W.R. Edwards, Jr., who was adjudged to take nothing on his claim, have responded with ten reply points and seven cross-points. For the reasons explained, the judgment will be affirmed.

1. Background

Liquid Energy Corporation (LEC), a wholly owned subsidiary of Mitchell Energy, Inc., is a Texas corporation, which owns and operates a gas processing facility and related facilities in Hutchinson County. Trans-Pan Gathering, Inc., a wholly owned subsidiary of REO Industries, Inc., is a Texas corporation, which gathers gas from producers in the Texas Panhandle Field in Hutchinson and Moore Counties. Trans-Pan Pipeline Company is a partnership, the managing partner of which is Trans-Pan Gathering, Inc., formed under the laws of Texas to transport gas. Both Trans-Pan organizations are referred to as Trans-Pan unless it is appropriate to designate one of them by name. W.R. Edwards, Jr. is president of Trans-Pan Gathering, Inc., and acts as a representative of the Trans-Pan organizations.

On 15 June 1984, LEC and each Trans-Pan organization formalized separate "Gas Processing" and "Gas Purchase" agreements, which are regarded as the four original contracts. By the terms of the agreements, Trans-Pan would purchase, gather, and deliver gas to LEC at LEC's REO-Barnhill Compressor Station, where LEC would accept all gas delivered, measure it, pump the gas to its Canadian River Gas Processing Plant for processing to extract liquid hydrocarbons, for which LEC would pay Trans-Pan a percentage of the gross sales, and after processing, redeliver the unused residue gas at the tailgate of the plant for measurement and purchase by LEC at a price fixed by the contracts. In this regard, Trans-Pan was required to deliver "pipeline quality" gas and LEC was obligated to accept delivery only if certain minimum standards were met. One standard was that the gas contain no more than three percent (3%) nitrogen; another was that the gas contain a specified minimum BTU (British thermal unit) heating value.

The agreements provided that LEC shall maintain measuring equipment of standard make and design commonly acceptable in the industry to accurately measure the gas delivered at the point of delivery and the gas processed at the point of redelivery. Sufficient samples for accurate analysis were to be taken at both points on a continuous basis. The meters were to be verified at least once a month for accuracy, and Trans-Pan was to be notified at least ten days prior to each test. Trans-Pan had the right to install and operate check measuring equipment at the point of delivery.

Among the other contractual provisions was one stating that LEC would not be obligated to continue to operate its processing plant and facilities if, in its sole judgment, the operation shall be deemed unprofitable. Upon LEC's giving Trans-Pan notice of the date its operations would be discontinued, which would not be earlier than three months after the date of the notice, the agreements shall terminate.

Trans-Pan delivered gas to LEC at the point of delivery through Trans-Pan Gathering, Inc.'s eight-inch line and Trans-Pan Pipeline Company's six-inch line, beginning in June of 1984. Later, on 4 March 1985, Trans-Pan sent to LEC a demand letter. Trans-Pan expressed that LEC had continuously failed to render correct accountings for gas purchased, was delinquent in paying the contract price for the volumes of gas delivered, and its consistent breaches of contract impaired Trans-Pan's expectations of receiving due performance of the contract provisions. Trans-Pan demanded that LEC provide adequate assurance of due performance, including prompt payment of all sums owed to Trans-Pan.

Then, on the following March 11, LEC reminded Trans-Pan of its 30 November 1984 letter, by which it gave Trans-Pan notice of its unprofitable operations and intent to cease operations unless certain modifications were made to the payments due Trans-Pan under the agreements. LEC further stated that although the three month notice required expired on 28 February 1985, the shutdown date was being extended to 1 April 1985 because of ongoing negotiations, but that operations would cease on that date if their negotiations were not sooner finalized.

Seven days afterward on March 18, Trans-Pan communicated to LEC its intent to continue delivering gas to the REO-Barnhill compressor station even if LEC decided to shut down its Canadian River processing plant, and that on 1 June 1985, its delivery of gas would increase to forty million cubic feet per day. In turn, on March 21, LEC notified Trans-Pan that because its gas contained more than three percent nitrogen, LEC would refuse to accept the gas beginning the next day, March 22.

On 25 March 1985, Trans-Pan initiated the action underlying this appeal, seeking money damages and injunctive relief from LEC. Afterwards on April 12, LEC notified Trans-Pan that the Canadian River plant would close on 13 July 1985. In response to Trans-Pan's court action, the district court, on April 29, temporarily enjoined LEC from refusing to accept, process, and purchase gas delivered by Trans-Pan.

Subsequently on May 1, LEC and Trans-Pan executed two "Supplemental Agreements" to modify the original contracts. LEC rescinded its April 12 letter of intent to discontinue operation of its processing plant. The parties agreed to a temporary adjustment of the residue gas prices and processing payments to be paid by LEC to Trans-Pan, and provided that the theoretical recovery accounting method set forth in their 31 October 1984 agreement shall be effective for gas delivered under the original gas processing contract from April 1 through October 31, 1985. The parties further agreed to negotiate in good faith to reach amendments to the original contracts providing for the gas prices and processing payments, and to stay all proceedings in the court action until July 31. If the parties had not reached and executed agreements to the original contracts by July 31, LEC retained the right, to be exercised not later than August 10, to give Trans-Pan notice of its reinstated intent to discontinue, and to discontinue, the operation of its Canadian River processing plant on 1 November 1985. Trans-Pan Pipeline Company was given the option to sell and deliver gas, which LEC would release from coverage under the contracts, to third parties from May 1 through October 31, 1985. Additionally, the parties provided that all terms and conditions of the original contracts not modified by or inconsistent with the supplement agreements would remain in full force and effect.

Subsequent court proceedings ensued. As a result of a 4 September 1985 hearing set on LEC's motions for continuance and other relief, the parties, outlining areas of agreement and without offering evidence, agreed that the court's order was going to be signed by counsel as an agreed order. The order signed by the court on 18 September 1985 regulated the proceedings and specified, among other matters, that prior to the judgment on the merits, LEC will accept and process all casinghead gas Trans-Pan is capable of delivering and "purchase and pay for all of [Trans-Pan's] residual casinghead gas, all as more fully set forth in the contracts attached to the [pleadings] as Exhibits 'A' through 'D'. If at any time prior to judgment, [LEC] encounters any substantial inability to accept, process and purchase casinghead gas deliverable by [Trans-Pan], [LEC's] counsel will promptly notify [Trans-Pan's] counsel and this Court." The attached exhibits were copies of the original contracts only. Counsel endorsed the order as "APPROVED FOR ENTRY AS AN AGREED ORDER."

W.R. Edwards, Jr. became a plaintiff in the action on September 10 when he joined Trans-Pan in filing a first amended original petition. The following September 23, Trans-Pan and Edwards filed their second amended original petition, their live trial pleadings.

By these pleadings, Trans-Pan and Edwards sought damages amounting to millions of dollars for LEC's (1) breaches of contract by failing to account for gas and liquids received, and to accept gas and liquids delivered, (2) damages to Trans-Pan's business reputation and to Edward's reputation, (3) causing Trans-Pan and Edwards to lose the sales of their assets, and (4) anticipatory breaches of the contracts. Sought also were (5) specific performance of the four original contracts, with a declaration (6) of the contract provisions and (7) that the 1 May 1985 supplemental agreements were void.

Three days later on September 26, LEC filed its second amended original answer. With it, LEC lodged special exceptions, interposed a plea in abatement and affirmative defenses, counterclaimed for damages for Trans-Pan's breach of the original processing contracts by upstream removal of liquid hydrocarbons from the gas, and sought attorney's fees. The court denied all of the special exceptions and the plea in...