El Paso Refining v Scurlock Permian Corp.
| Decision Date | 31 January 2002 |
| Docket Number | 8,089900005CV |
| Parties | EL PASO REFINING, INC., Appellant, v. SCURLOCK PERMIAN CORPORATION, Appellee.Court of Appeals of Texas, El Paso |
| Court | Texas Court of Appeals |
Appeal from 346th District Court of El Paso County, Texas (TC# 93-9289)
Before Panel No. 1 Larsen, McClure, and Chew, JJ.
O P I N I O N
This is an appeal from a take-nothing judgment rendered in favor of appellee/defendant Scurlock Permian Corporation ("SP") against appellant/plaintiff El Paso Refining, Inc.'s ("EPRI ") usury suit. EPRI raises seven points of error and contends that the trial court erred by: (1) charging the jury to apply a clear and convincing, instead of by a preponderance of the evidence, burden of proof, (2) submitting the issue of EPRI's obligor status to the jury as an instruction, (3) submitting the issue of SP's time-price differential defense to the jury as an instruction, (4) submitting SP's waiver defense to the jury as an instruction, (5) submitting SP's usury savings clause defense to the jury as an instruction, (6) allowing expert testimony on EPRI's standing to sue for usury and, (7) failing to order a new trial because the jury's failure to find usury was against the great weight and preponderance of the evidence.
For those reasons detailed below, we affirm the judgment of the trial court.
I. PROCEDURAL AND FACTUAL SUMMARY
In May 1986, Michael Shelton ("Shelton") formed a partnership with David Jones to acquire the Texaco Refinery ("the Refinery") in El Paso, Texas. After acquiring the Refinery, the partnership transferred it to a newly-created corporate entity, EPRI. The sole source of crude oil to the Refinery at all times relevant to this appeal was SP or its predecessors in interest.
In 1989, the 1986 partnership was absorbed into a master limited partnership, El Paso Refinery, L.P. ("LP") to raise funds to expand the Refinery's capacity and to bring it into compliance with environmental standards. In exchange for cash and units of participation, EPRI contributed the Refinery to LP. EPRI also became LP's general partner. As EPRI's executive vice-president, Shelton was in charge of crude supply, marketing, refinery operations, and financing.
In November 1989, an amended oil sales contract ("the 1989 Contract") was executed between SP as "Seller" and LP as "Buyer." EPRI signed the contract as the guarantor of any debt LP would incur pursuant to its past, present, or future agreements with SP.
Under the 1989 Contract, LP would receive a daily supply of 26,000 barrels of SP crude. The price per barrel would be determined by the sum of a posting price, a gathering and handling allowance per barrel, and transportation costs. Payment in full for a monthly supply was due by wire transfer to SP on or before the 20th day of the month following the month of delivery. The 1989 Contract explicitly warns the signatories in full caps that "Time is of the essence in this contract."
The 1989 Contract contained extensive and unambiguous payment and default provisions. If the amount due and owing to SP exceeded the Current Collateral Value at any time, SP would notify LP. Within 24 hours, LP would be required to pay an amount sufficient to reduce the unpaid amount down at least to the Current Collateral Value.1 SP also retained the right to terminate the contract unilaterally, withhold shipments without notice, and/or demand immediate payment of all amounts due if reasonable grounds for insecurity arose with respect to LP's performance of the contract. Interest on past due amounts would be payable at "the Highest Lawful Rate."
On the same day that the 1989 Contract was executed, EPRI executed a Continuing Guaranty agreement ("the Guaranty"). The 1989 Contract specifically incorporated the Guaranty by reference, and required that LP's performance was guaranteed pursuant to its terms. Under the Guaranty, EPRI "absolutely and unconditionally guarantee[d] to [SP] the full, prompt, and punctual payment at maturity" of all LP's then existing or thereafter arising obligations to SP. The 1989 Guaranty section entitled "Primary Liability of Guarantor" contains a single reference to EPRI as "a primary obligor."
By signing the Guaranty, EPRI agreed to waive any rights to notice it may have otherwise had if SP sought to collect any of LP's debts from EPRI. EPRI further agreed to waive any defenses, including usury, that LP could have asserted against SP. The Guaranty also ensured that SP did not have to seek payment or performance from any other entity, including LP, before it demanded payment from EPRI. The Guaranty also contained a usury savings clause that prevented interest in excess of the maximum amount permitted by law from being collected from, reserved from, or charged to EPRI.
By July 1991, the expansion project was almost complete, although LP's available cash was nearly depleted due to cost overruns. A $25 million credit line for LP was arranged with Bank Brussels Lambert. EPRI also loaned LP another $7.5 million.
In July 1991, Scurlock Permian Corporation, the instant appellee, acquired Permian Operating Limited Partnership. In July 1991, the Refinery also completely shut down for a brief period to re-integrate its equipment and operations. It reopened on August 3, 1991.
Although the Refinery was closed, LP still owed SP for crude delivered in June. Because LP was short on cash, Shelton called SP and told them that payment would be late by a few days. This news engendered a negative response from SP. In fact, SP responded by letter stating that it would declare a default if payment was not received by July 25 for the balance of LP's 17-odd million dollar debt to SP.
A meeting and other discussions between the two entities immediately followed receipt of this letter. SP's representative told Shelton it would no longer accept late payments and that it would declare a default or terminate the crude supply if payment was not timely received. Shelton, already upset by what he believed to be "outrageous" pricing by SP, asked for an explanation of how SP set prices. SP's representative told Shelton it felt it faced "extreme financial risk" by continuing to sell LP crude. He also allegedly told Shelton that SP would now charge a risk premium of 15 to 20 cents per barrel as part of the gathering and handling fee because of that risk. EPRI has consistently maintained that the risk premium constitutes usurious interest.
Similar discussions were held in the successive months. From August 1991 onward, LP received pricing amendment letters from SP advising them of price changes and volumes. Invoices for deliveries were also sent. Payments based on the delivery invoices were made by wire transfer from LP to SP. Although LP did accept delivery of SP's crude, it never countersigned any of the price amendment letters, and continued to try to negotiate with SP over the alleged inclusion of a risk premium in the gathering and handling fee component of the per barrel price billed to LP. There is no dispute that EPRI never paid for any of the crude received by LP.
LP continued to be plagued with financial difficulties. In August 1991, it was unable to pay SP. On August 23, 1991, SP declared a default and sent LP written notice of that default. In October 1991, LP was short on its payments and SP again notified LP of a default by letter.
On November 8, 1991, LP's lenders met in New York to discuss its worsening financial situation. SP attended the meeting. No solution regarding LP's liquidity problem was reached at that meeting. Immediately following the meeting however, SP's representative told Shelton that LP had to provide SP with a $5 million guaranty before midnight November 12, 1991 or it would suspend shipment of all crude to the Refinery. Shelton solved this crisis by obtaining an additional $5 million letter of credit for LP from Bank Brussels Lambert by the deadline.
By December 1991, LP owed SP $37,400,000 just for November's delivery of crude. Another $85 million was owed to other term lenders. The two groups of creditors fought over LP's rapidly dwindling cash supply. LP gave priority to SP because the Refinery could not generate any revenue without a continuing supply of crude oil.
The Refinery continued operations throughout 1992, but LP's severe financial difficulties forced it to file for bankruptcy in October. In 1993, LP filed a suit against several entities including SP. The suit against SP included a usury cause of action identical to that alleged by EPRI in the instant suit. LP's lawsuit was settled via a complete and full release of liability for SP and dismissal of the suit with prejudice. Ultimately, EPRI filed for bankruptcy approximately one year after LP's bankruptcy was filed.
II. THE POINTS OF ERROR1. The Proper Burden Of Proof.
EPRI's usury claim was submitted to the jury via a single broad-form question: "Did SCURLOCK PERMIAN CORPORATION charge EL PASO REFINING, INC. interest in the price of crude oil in excess of the amount allowed by law?" The burden of proof instruction given in conjunction with this liability question was as follows:
EPRI contends the appropriate burden of proof in a usury case is by a preponderance of the evidence. In its first issue, it thus asserts that the trial court committed reversible error by permitting the inclusion of the "clear and convincing" burden of proof instruction in the charge.
Refusal to submit a requested definition or instruction will not be overturned unless an abuse of discretion is found. Pearce v. Pearce, 824 S.W.2d 195, 199 (Tex. App.--El Paso 1991, writ denied). The standard of review for a trial court's failure to instruct is that the error must...
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