Quarternorth Energy LLC v. Valero Mktg. & Supply Co. (In re Fieldwood Energy LLC)
| Decision Date | 10 December 2021 |
| Docket Number | CASE NO: 20-33948,ADVERSARY NO. 20-3497 |
| Parties | IN RE: FIELDWOOD ENERGY LLC, et al., Debtors. QuarterNorth Energy LLC and Certain of its Affiliates, Plaintiff, v. Valero Marketing and Supply Company, Defendant. |
| Court | United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Southern District of Texas |
Emilio Fernando DeAyala, Helen Hemingway McLaughlin, Robert L. Paddock, Buck Keenan LLP, Houston, TX, for Plaintiff.
C. Brannon Robertson, Fernelius Simon, Houston, TX, Deborah Daywood Williamson, Dykema Cox Smith, San Antonio, TX, for Defendant.
QuarterNorth and Valero dispute whether Valero can succeed on its breach of contract claim. The parties filed opposing motions for summary judgment on the issue of whether Valero is entitled to recover damages. For the reasons set forth below, QuarterNorth's summary judgment motion is granted. Valero has no claim against QuarterNorth and owes QuarterNorth $2,102,544.00, plus attorneys’ fees, costs, and interest.
In June 2018, Valero, a refiner and marketer of petroleum products, entered into a contract to purchase crude oil from Fieldwood, an upstream oil and gas operator and producer. (ECF No. 1-1 at 2). The parties agreed that: (1) Fieldwood would deliver approximately 10,000 barrels of crude oil per day1 with a "tolerance" of "per actual production about 49.5 percent of Noble's share"2 of the Big Bend and Dantzler fields; (2) price is variable according to various market rates for crude oil;3 (3) the contract continues until one party cancels with thirty days’ written notice; and (4) Texas law governs. (ECF No. 1-1).
Fieldwood delivered 195,000 barrels to Valero in April 2020, averaging 6,500 barrels per day.4 (ECF Nos. 15 at 4; 17 at 3). Because of low prices for crude oil, Fieldwood decided to temporarily shut in the wells associated with the Big Bend and Dantzler fields in May 2020. (ECF No. 15 at 2). As a result of temporarily shutting in the wells, there was no output. Fieldwood informed Valero that it would not make any May deliveries on April 27, 2020. (ECF No. 17-3). On April 29, 2020, Fieldwood sent an official notice terminating the purchase contract effective May 30, 2020. (ECF No. 17-5). Valero sent a demand for adequate assurance on May 14, 2020. (ECF No. 1 at 9). Fieldwood did not give adequate assurance and delivered nothing in May 2020. (ECF No. 17 at 4).
Under the contract, Valero owes $3,090,564.29 for the April 2020 delivery. (ECF Nos. 15-3; 17-2). Valero only paid $988,020.29. (ECF No. 17 at 4). Fieldwood filed this adversary proceeding to recover the unpaid $2,102,544.00 on December 11, 2020. (ECF No. 1 at 3). Valero asserted a counterclaim for breach of contract on January 15, 2021. (ECF No. 4 at 7). Valero acknowledges that it owes Fieldwood $2,102,544.00 for the April 2020 delivery, but maintains that it is entitled to market damages of $3,118,600.00 for Fieldwood's non-delivery in May 2020.5 (ECF Nos. 17-7 at 2; 17 at 5). After offsetting the unpaid $2,102,544.00, Valero believes that Fieldwood owes it $1,016,056.00. (ECF No. 17 at 5).
Before conducting discovery on damages, the parties agreed to file cross-motions for summary judgment on the issue of whether Valero is entitled to damages. (ECF Nos. 6 at 3; 15 at 1; 17 at 6).
QuarterNorth acquired Fieldwood's interests in this adversary proceeding on August 27, 2021.6 (Case No. 20-33948, ECF Nos. 2013 at 553; 2016). The Court entered an order substituting QuarterNorth as plaintiff in this adversary proceeding on October 27, 2021.7 (ECF No. 29).
The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334. Proceedings affecting the debtor-creditor relationship are core proceedings under 28 U.S.C. § 157(b)(2)(O). Venue is proper in this District consistent with 28 U.S.C. §§ 1408 and 1409.
"The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and that the movant is entitled to judgment as a matter of law." FED. R. CIV. P. 56(a). A party seeking summary judgment must demonstrate the absence of a genuine dispute of material fact by establishing an absence of evidence supporting an essential element of the non-movant's case. Sossamon v. Lone Star State of Tex. , 560 F.3d 316, 326 (5th Cir. 2009). A genuine dispute of material fact is one that could affect the outcome of the action or allow a reasonable fact finder to find in favor of the non-moving party. Gorman v. Verizon Wireless Tex., LLC , 753 F.3d 165, 170 (5th Cir. 2014) (citing Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ).
A court views the facts and evidence in the light most favorable to the non-moving party at all times. Plumhoff v. Rickard , 572 U.S. 765, 768, 134 S.Ct. 2012, 188 L.Ed.2d 1056 (2014). Nevertheless, a court is not obligated to search the record for the non-moving party's evidence. Keen v. Miller Envtl. Grp., Inc. , 702 F.3d 239, 249 (5th Cir. 2012). "Summary judgment may not be thwarted by conclusional allegations, unsupported assertions, or presentations of only a scintilla of evidence." Hemphill v. State Farm Mut. Auto. Ins. Co. , 805 F.3d 535, 538 (5th Cir. 2015).
A party asserting that a fact cannot be or is genuinely disputed must support that assertion by citing to particular parts of materials in the record, showing that the materials cited do not establish the absence or presence of a genuine dispute, or showing that an adverse party cannot produce admissible evidence to support the fact. FED R. CIV. P. 56(c)(1). A court need consider only the cited materials, but it may consider other materials in the record. FED. R. CIV. P. 56(c)(3). A court should not weigh the evidence. Wheat v. Fla. Par. Juvenile Justice Comm'n , 811 F.3d 702, 713 (5th Cir. 2016). A credibility determination may not be part of the summary judgment analysis. EEOC v. LHC Grp., Inc. , 773 F.3d 688, 694 (5th Cir. 2014). However, a party may object that the material cited to support or dispute a fact cannot be presented in a form that would be admissible as evidence. FED. R. CIV. P. 56(c)(2). Moreover, a court is not bound to search the record for the non-moving party's evidence of material issues. Willis v. Cleco Corp. , 749 F.3d 314, 317 (5th Cir. 2014).
"The moving party bears the initial responsibility of informing the ... court of the basis for its motion, and identifying those portions of the record which it believes demonstrate the absence of a genuine issue of material fact."
Nola Spice Designs, LLC v. Haydel Enters., Inc. , 783 F.3d 527, 536 (5th Cir. 2015). The evidentiary support needed to meet the initial summary judgment burden depends on whether the movant bears the ultimate burden of proof at trial.
If the movant bears the burden of proof on an issue, a successful motion must present evidence entitling the movant to judgment at trial. Celotex Corp. v. Catrett , 477 U.S. 317, 326, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Upon an adequate showing, the burden shifts to the non-moving party to establish a genuine issue of material fact. FED. R. CIV. P. 56(c)(1) ; Celotex , 477 U.S. at 322-24, 106 S.Ct. 2548. The non-moving party must cite to specific evidence demonstrating a genuine dispute. FED. R. CIV. P. 56(c)(1) ; Celotex , 477 U.S. at 324, 106 S.Ct. 2548. The non-moving party must also "articulate the manner in which that evidence supports that party's claim." Duffie v. United States , 600 F.3d 362, 371 (5th Cir. 2010). Even if the movant meets its initial burden, the motion cannot be granted if the non-movant establishes a genuine issue of material fact.
Under Texas law, a breach of contract occurs when a party fails to perform an act it explicitly or implicitly promised to perform. Gaspar v. Lawnpro, Inc. , 372 S.W.3d 754, 757 (Tex. App.—Dallas 2012, no pet.) (citing Esty v. Beal Bank S.S.B. , 298 S.W.3d 280, 299 (Tex. App.—Dallas 2009, no pet.). The elements of a breach of contract claim are (1) the existence of a valid contract; (2) performance or tendered performance by the plaintiff; (3) breach of the contract by the defendant; and (4) damages to the plaintiff as a result of the defendant's breach. Williams v. Wells Fargo Bank, N.A. , 884 F.3d 239, 244 (5th Cir. 2018) ; Gaspar , 372 S.W.3d at 757. Under the present facts, the third element is dispositive.
A court's primary concern in construing a written contract is to ascertain the parties’ true intent as expressed in the contract. Valence Operating Co. v. Dorsett , 164 S.W.3d 656, 662 (Tex. 2005) (citing J.M. Davidson, Inc. v. Webster , 128 S.W.3d 223, 229 (Tex. 2003) ); Gulf Ins. Co. v. Burns Motors, Inc. , 22 S.W.3d 417, 423 (Tex. 2000) ; Coker v. Coker , 650 S.W.2d 391, 393 (Tex. 1983). In discerning the parties’ intent, a court must examine the entire agreement and give effect to each provision of the contract so that none is rendered meaningless. Valence , 164 S.W.3d at 662 ; J.M. Davidson, Inc. , 128 S.W.3d at 229 ; see Tawes v. Barnes , 340 S.W.3d 419, 425 (Tex. 2011) (citing Coker , 650 S.W.2d at 393 ) ("No single provision taken alone will be given controlling effect; rather, all the provisions must be considered with reference to the whole instrument."). The terms of the contract are to be given their plain, ordinary, and generally accepted meanings unless the contract itself shows them to be used in a technical or different sense. Valence , 164 S.W.3d at 662 ; Heritage Res., Inc. v. NationsBank , 939 S.W.2d 118, 121 (Tex. 1996) ; W. Reserve Life Ins. Co. v. Meadows , 152 Tex. 559, 564, 261 S.W.2d 554 (Tex. 1953).
The parties dispute whether the contract was an output contract or a contract for a fixed amount. An output contract is one in which the buyer agrees to buy the seller's entire output of production. Lenape Res. Corp. v. Tenn. Gas Pipeline Co. , 925 S.W.2d 565, 570 (Tex. 1996) ; Aquila Sw....
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