Txu Portfolio Mgmt. Co. v. FPL Energy, LLC

• Decision Date: 18 August 2016
• Docket Number: No. 05-08-01584-CV.,05-08-01584-CV.
• Citation: 529 S.W.3d 472
• Parties: TXU PORTFOLIO MANAGEMENT COMPANY, L.P. n/k/a Luminant Energy Company, L.L.C., Appellant v. FPL ENERGY, LLC; FPL Energy Pecos Wind I, LP ; FPL Energy Pecos Wind II, and Indian Mesa Wind Farm, L.P., Appellees
• Court: Texas Court of Appeals

529 S.W.3d 472

TXU PORTFOLIO MANAGEMENT COMPANY, L.P. n/k/a Luminant Energy Company, L.L.C., Appellant

v.FPL ENERGY, LLC; FPL Energy Pecos Wind I, LP ; FPL Energy Pecos Wind II, and Indian Mesa Wind Farm, L.P., Appellees

No. 05-08-01584-CV.

Court of Appeals of Texas, Dallas.

Opinion Filed August 18, 2016

Rehearing Overruled September 11, 2017

William Thompson, Michael L. Raiff, James W. Walker, James C. Ho, Ashley Elizabeth Johnson, for TXU Portfolio Management Company, L.P. N/K/A Luninant Energy Company, L.L.C.

Jeffrey M. Tillotson, Ryan Paulsen, Ben L. Mesches, Anne McGowan Johnson, Nina Cortell, John D. Volney, for FPL Energy, LLC; FPL Energy Pecos Wind I, L.P., FPL Energy Pecos Wind II, L.P., and Indian Mesa Wind Farm, L.P.

Before Justices Francis, Evans,¹ and Whitehill²

OPINION ON REMAND

Opinion by Justice Whitehill

This contract dispute between TXU Portfolio Management Company, L.P. n/k/a Luminant Energy Company, L.L.C. (TXUPM) and FPL Energy, LLC, FPL Energy Pecos Wind I, L.P., FPL Energy Pecos Wind II, L.P., and Indian Mesa Wind Farm, L.P. (Wind Farms) is before us on remand from the Supreme Court of Texas. The case concerns three contracts requiring the Wind Farms to supply TXUPM with annual quantities of wind generated electricity and related renewable energy credits (the Agreements). The Wind Farms, however, did not meet their delivery obligations.

The supreme court affirmed our previous holding that TXUPM was not responsible for ensuring transmission capacity under those Agreements, but concluded that the Agreements' liquidated damages provisions were unenforceable as a penalty and thus reversed our ruling that TXUPM was entitled to damages based on those provisions. FPL Energy, L.L.C. v. TXU Portfolio Mgmt. Co. L.P. , 426 S.W.3d 59, 72–73 (Tex.2014). The supreme court then remanded the case to us "to determine damages consistent with [its] opinion." Id . at 73. The parties provided supplemental briefs on the remaining damages issues.

Our damages analysis turns on two questions the trial court submitted to the jury:

• Question 4 asked the jury to determine TXUPM's market damages for failing to deliver "Renewable Energy," which consists of both wind power generated electricity and its corresponding renewable energy credits; and

• Question 5 asked whether TXUPM covered for the electricity the Wind Farms failed to provide under the Agreements.

Based on the "yes" answer to Question 5, the trial court ruled that TXUPM was precluded from recovering market price based damages. Therefore, the trial court disregarded the $8,900,000 answer to Question 4 and entered a take nothing judgment against TXUPM, which adduced no evidence of damages calculated on a cover basis. TXUPM argues that the trial court erred in doing so because the undisputed facts show that the Wind Farms' defensive cover theory does not apply.

For the reasons discussed below, we sustain TXUPM's fourth point of error³ and hold that business and commerce code § 2.712(a) requires post-breach conduct taken for the purpose of effecting statutory cover, and, as a matter of law, TXUPM's non-contractual, daily supply and demand balancing activities were not evidence of § 2.712(a) covering transactions. Accordingly, the trial court erred both by submitting Question 5 over TXUPM's objection and by not disregarding the answer to that question as TXUPM requested.

Because the trial court erroneously relied on the Question 5 answer to ignore the jury's Question 4 market damages finding, and because no party challenged the jury's Question 4 answer in the trial court on legal or factual sufficiency grounds, TXUPM is entitled to recover the $8,900,000 the jury awarded. However, we reject TXUPM's new argument on remand that the market damages award should be increased.

We further conclude that, because TXUPM is entitled to market damages, the trial court erred by concluding that TXUPM was not entitled to retain the $3,075,000 it accessed under the letters of credit the Wind Farms provided to secure their performance under the Agreements. And TXUPM is entitled to recover its attorney's fees because it is the prevailing party on its breach of contract claim.

I. ISSUES

We address only those issues preserved in the trial court, raised in the original briefs, and that remained after the supreme court opinion. Those issues are whether: (i) the trial court erred by submitting the cover question to the jury and refusing to disregard the corresponding answer; (ii) TXUPM should recover market value damages; (iii) TXUPM is entitled to retain the amounts collected under the letters of credit; and (iv) TXUPM is entitled to recover civil practice and remedies code Chapter 38 attorney's fees.⁴

II. BACKGROUND

A detailed recital of this case's factual and procedural background is provided in our prior opinion. See TXU Portfolio Mgmt. Co., L.P. v. FPL Energy, LLC , 328 S.W.3d 580, 581–85 (Tex.App.–Dallas 2010), aff'd in part, rev'd in part , 426 S.W.3d 59 (Tex.2014). Here, we limit our discussion to the matters needed to resolve the issues before us.

TXUPM sued the Wind Farms alleging that they failed to deliver the contractually required minimum annual quantities of wind generated electric energy (electricity) and related renewable energy credits (RECs) due under the Agreements, and the trial court instructed the jury that the Wind Farms breached the Agreements as TXUPM alleged. The Wind Farms, however, contested TXUPM's legal ability to recover market damages for those breaches by arguing that (i) market price damages under business and commerce code § 2.713(a) are not allowed if the buyer covered for the seller's breaches and (ii) TXUPM covered for the Wind Farms' annual deficiencies within the meaning of business and commerce code § 2.712(a) when it daily replaced from other sources any electricity the Wind Farms did not deliver as projected.⁵

The Wind Farms' argument was based on undisputed evidence of TXUPM's real-time "balancing activities." The parties agree that electricity cannot be stored and therefore, once generated, must be immediately transmitted to its destination. According to TXUPM, real-time balancing refers to the constant adjustments it makes to its electricity supply to ensure that it meets its demand for energy at every given moment, without regard to the Wind Farms' annual deficiencies.

At a pretrial hearing, the parties and the trial court discussed the competing damage theories and the Wind Farms' argument that TXUPM had not produced in discovery, and therefore could not present at trial, evidence of its cover costs. The Wind Farms contended that the parties had a factual dispute regarding whether TXUPM's conduct constituted cover that should be submitted to the jury. TXUPM, however, argued that cover did not apply because its daily balancing activities did not occur post-breach. The trial court then said that whether TXUPM covered was likely a fact question for the jury and that TXUPM would receive a take-nothing judgment if the jury answered that TXUPM had covered and TXUPM had no evidence of the costs to cover.

Consistent with its prior position regarding cover, TXUPM at trial adduced evidence of only market damages measured at the time TXUPM learned of the breaches. At the close of evidence, the trial court submitted the two damages related questions at issue. Question 4 instructed the jury to answer a market price damages question for combined electricity and RECs (together, Renewable Energy) independent of its answer to the cover question:

What sum of money, if any, if paid now in cash, would fairly and reasonably compensate [TXUPM] for its damages, if any, that resulted from the Wind Farm's [sic] failure to pay [TXUPM] for the Renewable Energy not provided?

...[T]he amount of damages that you determine must be based on the market value of the Renewable Energy the Wind Farms failed to provide to [TXUPM], and this market value should be the market value as of the time that [TXUPM] learned of the Wind Farms' failure to comply with the Agreements.

Consider the following element of damages, if any, and none other.

The difference between the market value of the Renewable Energy not delivered and the contract price for the Renewable Energy provided in the Agreements.

In response, the jury found $8,900,000 in damages.

At the Wind Farms' request, the trial court also submitted Question 5 to the jury, which asked: "Did [TXUPM] ‘cover’ for the electricity that the Wind Farms failed to provide under the Agreements?" In connection with that question, the trial court instructed the jurors that, " ‘Cover’ means purchasing or producing electricity as a substitute for the electricity promised but not delivered under the Agreements." Because the charge defined "Agreements" to be the three contracts at issue, the jury was required to answer this question in light of the Agreements' terms.

TXUPM objected to submitting Question 5 concerning the Wind Farms' defensive cover theory, arguing that there was no evidence of cover and the question was a comment on the weight of the evidence. For support, TXUPM directed the trial court to our sister court's holding in Jon – T Farms, Inc. v. Goodpasture, Inc. , 554 S.W.2d 743, 750 (Tex.Civ.App.–Amarillo 1977, writ ref'd n.r.e.), disapproved on other grounds by McKinley v. Drozd , 685 S.W.2d 7, 10–11 (Tex.1985), which we discuss below. TXUPM, however, did not object to that instruction for not including § 2.712(a)'s "After a breach" language.⁶ The trial court overruled TXUPM's objections and submitted the question to the jury, which found that TXUPM had covered the Wind Farms' failure to provide the electricity due under the Agreements.

Following the verdict, TXUPM moved the trial court to disregard the Question 5 answer and to enter judgment based on the $8,900,000 Question 4 damages answer. To that end, TXUPM argued that Question 5 should not have been submitted since there was no evidence of post-breach replacement electricity purchases. TXUPM,...