Wolf Hollow I, L.P. v. El Paso Mktg., L.P.
| Decision Date | 02 July 2015 |
| Docket Number | NO. 14–09–00118–CV,14–09–00118–CV |
| Citation | 472 S.W.3d 325 |
| Parties | Wolf Hollow I, L.P., Appellant v. El Paso Marketing, L.P. and Enterprise Texas Pipeline, LLC, Appellees |
| Court | Texas Court of Appeals |
Jacks C. Nickens, Jett Williams III, Houston, TX, for Appellant.
D. Mitchell McFarland, Carrie Schadle, Suzanne Reddell Chauvin, Fernando De Leon Jr., Michael Hendryx, Houston, TX, for Appellee.
Panel consists of Chief Justice Frost and Justices Christopher and Busby.
After many years of litigation, including two trips to the Texas Supreme Court, there is still one question that remains to be decided in this complex contract dispute: Can Wolf Hollow recover replacement-power damages in its gas-quality claim against El Paso? Our answer is "no." Because the trial court reached the same conclusion but through an erroneous declaratory judgment, we vacate the judgment in part and affirm the judgment as modified.
Wolf Hollow owns a power plant that runs on a supply of natural gas. El Paso manages that supply by purchasing gas at a market hub and then directing the gas into a pipeline connected to Wolf Hollow's plant. The pipeline is owned by Enterprise.
Wolf Hollow and El Paso operate under a Supply Agreement. El Paso and Enterprise operate, in turn, under a Transportation Agreement. The Supply Agreement requires El Paso to deliver gas that satisfies the minimum quality specifications set forth in the Transportation Agreement.
Between 2006 and 2007, Wolf Hollow experienced four interruptions in the delivery of gas to its plant. One of the interruptions was caused by an Enterprise technician whose computer error triggered safety valves to automatically halt the flow of gas to the plant. The other three interruptions were caused by equipment failures on the Enterprise pipeline.
El Paso notified Wolf Hollow of these interruptions and asserted that they were events of force majeure, which are excused under the Supply Agreement. Wolf Hollow disputed that the interruptions were excused. Wolf Hollow also complained that, on other occasions, El Paso had delivered contaminated gas with extremely variable heat content. Because of this poor quality gas, Wolf Hollow asserted that the plant had to be shut down, and that costs were incurred for purchasing replacement power and for cleaning and upgrading the plant's equipment.
Many issues were litigated in the trial court, but we will limit our discussion to the only issue remaining in this appeal. The litigation began when El Paso sued Wolf Hollow, seeking declarations construing the parties' contractual relationship. Wolf Hollow counterclaimed, asserting that El Paso had breached the Supply Agreement by delivering nonconforming gas, allowing interruptions in the delivery of conforming gas, and failing to provide fuel-management services. Wolf Hollow further alleged that El Paso breached an express warranty, an implied warranty of merchantability, an implied warranty of fitness for a particular purpose, and a warranty as to fuel-management services. Wolf Hollow sought actual damages with respect to these alleged breaches. The damages included costs for having to procure replacement power when the plant was shut down for repairs, and costs for cleaning and upgrading plant equipment damaged by the nonconforming gas.
The trial court resolved the parties' dispute by ruling on a series of summary-judgment motions filed by El Paso. The dispositive motions were all based on provisions of the Supply Agreement. The trial court ruled in pertinent part: (1) that all damages sought by Wolf Hollow were consequential damages barred by the Supply Agreement; (2) that Wolf Hollow had an exclusive remedy under the Supply Agreement for any claim concerning gas quality, and that remedy was an assignment by El Paso of any claim it might have against Enterprise; (3) that there was no evidence that El Paso had breached the fuel-management provisions of the Supply Agreement; and (4) that Wolf Hollow's gas-quality claim, as pleaded, did not fall within the scope of Article XXI of the Supply Agreement, which provided for the recovery of replacement-power costs.
After issuing its summary-judgment orders, the trial court rendered a final judgment that Wolf Hollow take nothing on its claims against El Paso. The trial court included four declarations in its judgment. Only the third and fourth declarations warrant discussion in this opinion. The third declaration provided that Wolf Hollow's exclusive remedy on its gas-quality claim for gas delivered on the Enterprise pipeline is to receive an assignment of El Paso's claim against Enterprise. The fourth declaration provided that Article XXI does not apply to Wolf Hollow's gas-quality claim against El Paso.
On original submission, this court agreed with the trial court's ruling that all of the damages sought by Wolf Hollow were consequential damages, which the parties specifically waived under the Supply Agreement. See Wolf Hollow I, L.P. v. El Paso Mktg., L.P., 329 S.W.3d 628, 639, 642 (Tex.App.–Houston [14th Dist.] 2010) (" Wolf Hollow I "). Believing that this waiver defeated each of Wolf Hollow's claims against El Paso, we vacated the trial court's declaratory judgment, concluding that the declarations were moot. Id. at 642.
The parties petitioned to the Texas Supreme Court, which granted review of our judgment. The court held that our analysis was incorrect on the issue of consequential damages. See El Paso Mktg., L.P. v. Wolf Hollow I, L.P., 383 S.W.3d 138, 144–45 (Tex.2012) (" Wolf Hollow II "). The court explained that Wolf Hollow had sought two types of damages: "replacement-power damages" for the costs of procuring replacement power when the plant was shut down, and "plant damages" for the costs of cleaning and upgrading plant equipment. Id. at 142. The court agreed that both types of damages were consequential, as opposed to direct, but the court held that only the plant damages were barred by the Supply Agreement's waiver of consequential damages. Id. at 143–45. Because Wolf Hollow and El Paso had expressly bargained for replacement power in the Supply Agreement, the court held that a claim for replacement power would survive the waiver of consequential damages. Id. at 145–46. The court also held that there was some evidence that Wolf Hollow had followed the necessary procedures under the Supply Agreement for recovering replacement power. Id. at 145.
The court then addressed our judgment regarding the trial court's declaratory judgment. Explaining that the waiver of consequential damages did not fully preclude Wolf Hollow from recovering all of its requested damages, the court held that the declarations should not have been vacated as moot, as we had previously determined. Id. at 145–46. The court remanded the case to us to decide whether Wolf Hollow could recover replacement-power damages on any of its claims against El Paso. Id.
A majority of this court concluded that Wolf Hollow could assert a gas-quality claim against El Paso, as opposed to just Enterprise, despite the assignment remedy provided under the Supply Agreement. See Wolf Hollow I, L.P. v. El Paso Mktg., L.P., 409 S.W.3d 879, 888–92 (Tex.App.–Houston [14th Dist.] 2013) (" Wolf Hollow III "). The majority explained that the assignment was not an exclusive remedy because the Supreme Court had stated in Wolf Hollow II that "nothing in [the Supply Agreement] suggests that [Wolf Hollow] cannot sue El Paso for breach of the Supply Agreement in allowing poor quality gas to be delivered." Id. Relying on this statement, the majority held that the trial court's third declaration had already been overruled. Id.
The majority reached a similar conclusion regarding the trial court's fourth declaration, which stated that Article XXI of the Supply Agreement did not apply to gas-quality claims. Id. The majority held that Article XXI did apply to gas-quality claims because Article XXI was the only section in the contract that provided for replacement power and the supreme court had stated in Wolf Hollow II that "there is evidence Wolf Hollow is entitled to recover replacement-power damages under Section 21.1(c) of the Supply Agreement." Id. The majority concluded that the supreme court had rejected the declaration. Id.
Among other issues, the majority addressed El Paso's fuel-management duties, which had not been discussed in Wolf Hollow I. These duties, which are organized under Article V of the Supply Agreement, require El Paso to manage the transportation of gas and to use prudent fuel-management practices to minimize costs to Wolf Hollow. The majority held that these duties were very broad and that there was evidence showing that El Paso had breached them. Id. at 890. The majority accordingly held that the trial court erred by granting El Paso's no-evidence motion for summary judgment. Id.
Chief Justice Hedges dissented. She believed that the assignment remedy was exclusive and that Article XXI did not apply to Wolf Hollow's gas-quality claim, as the trial court had held. Id. at 894–95. She further contended that the supreme court's decision in Wolf Hollow II did not preclude the court of appeals from affirming the trial court's declaratory judgment. Id.
El Paso filed a petition for review, complaining that the majority in Wolf Hollow III had misinterpreted the supreme court's opinion in Wolf Hollow II. El Paso argued that Wolf Hollow II did not dispose of the trial court's third and fourth declarations. El Paso accordingly requested the supreme court to reach the merits of those declarations, or remand the case for this court to reconsider them. Wolf Hollow did not file a petition for review.
The supreme court granted review once again, but it limited its opinion to...
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