West Texas Utilities Co. v. Exxon Coal USA, Inc.

Decision Date14 March 1991
Docket NumberNos. 90-190,90-191,s. 90-190
PartiesWEST TEXAS UTILITIES CO., Appellant (Defendant), v. EXXON COAL USA, INC., Appellee (Plaintiff). EXXON COAL USA, INC., Appellant (Plaintiff), v. WEST TEXAS UTILITIES CO., Appellee (Defendant).
CourtWyoming Supreme Court

Lawrence A. Yonkee of Redle, Yonkee & Toner, Sheridan, Craig Newman of Brown & Drew, Casper, Orrin Harrison III and James E. Fisher of Locke Purnell Rain Harrell, Dallas, Tex., and Roy B. Longacre of Wagstaff, Alvis, Stubbeman, Seamster & Longacre, Abilene, Tex., for West Texas Utilities Co.

Marilyn S. Kite of Holland & Hart, Cheyenne, and David J. Beck, John M. Simpson, Robert A. Burgoyne, and Richard J. Wilson of Fulbright & Jaworski, Houston, Tex., for Exxon Coal USA, Inc.

Before URBIGKIT, C.J., and THOMAS, CARDINE, MACY and GOLDEN, JJ.

OPINION

MACY, Justice.

West Texas Utilities Co. appeals from the district court's ruling that Exxon Coal USA, Inc. may select either of the remedies enumerated in the parties' contract if West Texas repudiates that contract.

We affirm in part and reverse in part.

West Texas raises the following issues:

I. The District Court erred by misinterpreting the Coal Sale and Purchase Agreements (the "Contracts") to allow Exxon, upon a repudiation by [West Texas], to hold the Contract open for up to 20 years and to seek annual "Minor Breach" liquidated damages instead of "Major Breach" liquidated damages.

II. The District Court erred by misinterpreting the Contract to allow Exxon to collect annual payments under Exhibit A, Part 6, even after Exxon cancels the Contract.

III. The District Court erred by ruling that if the Minor Breach damages provision is declared to be unenforceable, then UCC § 2-708 (and not the Major Breach damages provision) would govern the measure of damages for repudiation.

IV. The District Court erred by refusing to dismiss this anticipatory suit between citizens of Texas seeking only declaratory relief concerning the proper interpretation of contracts made in Texas, in which Texas law is controlling.

West Texas, a public utility, provides electricity to consumers in the Abilene, Texas, area. Exxon, through its "operating division," Carter Mining Company, excavates coal from two open-pit mines in Campbell County, Wyoming. In 1979, West Texas decided to build two coal-fired power plants near Vernon, Texas. West Texas chose Exxon to supply the coal needed to fuel the proposed power plants. On May 15, 1981, after six months of negotiations, the parties signed a twenty-year agreement. 1

Under the contract, West Texas agreed to purchase a minimum quantity of coal each year from Exxon's mines which were located in Wyoming. In 1986, when West Texas received its first shipment of coal, the market price for coal was lower than the price set out in the contract. Consequently, the Texas Public Utility Commission, which regulates the rates charged by West Texas to its customers, directed West Texas to "reevaluate" and report on its attempts to "renegotiate, terminate, or litigate" the contract price in order to lower the cost of the coal it purchased from Exxon.

After negotiations stalled, Exxon filed this declaratory action in the district court on March 9, 1989, seeking a declaration of its remedies in the event that West Texas repudiated the contract. 2 Both parties filed cross-motions for partial summary judgment on the issue of repudiation. Exxon argued that it has the right, if West Texas repudiates the contract, to pursue either of the contract's liquidated damages provisions. The contract provided for the following remedies in the event that West Texas failed to perform:

18.2 BUYER's Failure to Perform.

(a) Minor Breach. If, in any calendar year during the term of this Agreement, BUYER fails to accept some or all of the coal for which BUYER is obligated hereunder, without excuse either by law or expressly hereunder, and with SELLER ready, willing, and able to mine and tender such coal, BUYER shall pay SELLER as liquidated damages within thirty (30) days after the end of said calendar year, for each ton of coal not taken, an amount equal to the average Price (as defined in Section 18.1(a)) applicable under this Agreement during said year, less an amount equal to the portions of the Price representing materials and supplies, power, royalty payments, and production taxes not paid.

(b) Major Breach. If BUYER's default amounts to twenty per cent (20%) or more of the tonnage BUYER is required to take hereunder in any calendar year, such a default shall entitle SELLER to cancel this Agreement unless BUYER pays or tenders payment according to the preceding paragraph. If SELLER elects to cancel for this reason, or if BUYER specifically repudiates this Agreement, SELLER's remedy shall be an amount equal to the Price per ton applicable under this Agreement at the time SELLER cancels less an amount equal to the portion of the Price representing those costs of direct mine labor, black lung benefits, materials and supplies, power, royalty payments, and production taxes in that Price to the extent that said costs are not actually paid, multiplied by the minimum number of tons BUYER would have been required to take hereunder for the next three (3) years following SELLER's cancellation (or for the first three (3) full calendar years if performance has yet to begin when SELLER cancels). This amount shall not be reduced to present value at time of payment and shall be in addition to the payment to which SELLER is entitled at the time of cancellation under the preceding paragraph of this Article. 3

West Texas countered by contending that the express terms of the contract limit Exxon's remedy for West Texas' repudiation to a single liquidated damages payment under the formula detailed in section 18.2(b) of the contract.

In its decision letter granting Exxon's cross-motion for partial summary judgment, the district court ruled that, on the basis of Texas law, the parties' contract was unambiguous. The contract provided that it "shall be governed by and construed in accordance" with Texas law. The court interpreted the contract as being an "integrated and coherent whole" and ruled that the language of section 18.2(b) does not grant the right to West Texas to "unilaterally terminate the Contract at [West Texas'] election and thereby limit [West Texas'] liability for damages to the amounts specified in Section 18.2(b) of the Contract, unless Exxon cancels the Contract in response to a repudiation" by West Texas. The court further stated that "the proper interpretation of Section 18.2 of the Contract is that, in the event [West Texas] specifically repudiates the Contract, Exxon may elect whether to cancel or seek annual liquidated damages, the alternate remedy to which the parties agreed in Section 18.2(a)."

We first address West Texas' claim that the district court should have granted its motion to dismiss on the grounds of forum non conveniens. West Texas accuses Exxon of "forum shopping" in filing its declaratory action in Wyoming and asserts that a dispute between two Texas companies over a contract executed in Texas should be decided in Texas. Whether a case should be dismissed under the doctrine of forum non conveniens lies within the discretion of the district court. Booth v. Magee Carpet Company, 548 P.2d 1252 (Wyo.1976). The district court reviewed the arguments for and against dismissing the action and found, inter alia, that Exxon based its suit on rational grounds; e.g., the coal mine is located in Wyoming, and the suit was not brought for purposes of harassment. The district court did not abuse its discretion when it denied West Texas' motion to dismiss for forum non conveniens.

West Texas also asserts that Exxon's use of declaratory judgment was an improper anticipatory suit and, therefore, should have been dismissed. Wyoming's Uniform Declaratory Judgments Act recognizes, "A contract may be construed either before or after there has been a breach thereof." Wyo.Stat. § 1-37-104 (1988). The district court did not abuse its discretion in allowing this suit to proceed before West Texas breached the contract. 4

West Texas makes the additional claim that the declaratory judgment did not resolve the controversy. The district court has broad latitude to decide whether declaratory relief is appropriate. 5 Here, the district court's ruling resolved the uncertainty of whether the contract gives Exxon the right to elect either of the liquidated damages remedies in the event West Texas repudiates the contract. We find there was no abuse of discretion.

We now address the principal issue of this appeal: What remedies does the parties' contract give to Exxon, as seller, if West Texas repudiates that contract? The parties agree that the contract is unambiguous. They disagree, however, on the interpretation of that contract. West Texas asserts that section 18.2(b) grants to it the unilateral right to terminate the contract and to limit its liability to the liquidated damages measurement detailed in that same section. West Texas believes that the language, "if BUYER specifically repudiates this Agreement" in section 18.2(b), clearly shows the intent of the parties to create a single liquidated damages payment in the event of repudiation. Exxon disagrees and argues that the intent of the parties was for Exxon to have the right to elect either "minor" or "major" breach damages if West Texas repudiates the contract.

Summary judgment is proper where the language of an agreement is plain and unambiguous. Sturman v. First National Bank, 729 P.2d 667 (Wyo.1986).

The Texas courts have enunciated the following rules of contract construction:

In construing a written contract, the primary concern of the court is to ascertain the true intentions of the parties as expressed in the instrument. * * * The intention of the parties is discovered primarily by reference to the words used in the contract....

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