Eastman Gas Company, L.L.C., F/K/A Fairplay Gas v. Goodrich Petroleum Company, L.L.C. , 456 S.W.3d 319 ( 2015 )

In The
Court of Appeals
Sixth Appellate District of Texas at Texarkana
No. 06-13-00128-CV
EASTMAN GAS COMPANY, L.L.C., F/K/A FAIRPLAY GAS, Appellant
V.
GOODRICH PETROLEUM COMPANY, L.L.C., Appellee
On Appeal from the 4th District Court
Rusk County, Texas
Trial Court No. 2010-328
Before Morriss, C.J., Moseley and Carter,* JJ.
Opinion by Justice Moseley
_____________
*Jack Carter, Justice, Retired, Sitting by Assignment
OPINION
Eastman Gas Company, L.L.C. (Eastman), 1 operates a service as an intermediate
transporter of natural gas. Under this service, Eastman collects natural gas from the wellheads or
collection points of gas producers, meters the amount collected, transports the gas in its pipeline
to points of sale, collects from the purchasers, and then pays the producer of the natural gas,
reserving unto itself a fee for the collection, transportation, and marketing of the natural gas.
Eastman and Goodrich Petroleum Company, L.L.C. (Goodrich), entered into a written agreement
for all aspects of this service. During 2007, Goodrich employed an independent auditor to
review its first two years (January 2005 through December 2006) of dealings with Eastman and,
according to that auditor, was credited by Eastman for a substantial amount less than that for
which it was paid. Confronted by the audit, Eastman disputed the methods employed by
Goodrich’s auditor and, thus, the results of the audit. The two companies were at an impasse
until Goodrich finally, eventually, refused to pay Eastman’s billing for its services, prompting
Eastman to bring suit against Goodrich. 2 This suit alleged a breach of contract and sought a
declaratory judgment. Goodrich responded to the lawsuit by filing a counterclaim for breach of
contract, alleging that according to the 2007 audit, Eastman failed to credit Goodrich for a large
amount of gas collected and delivered and that, therefore, Eastman owed millions of dollars.
1
At the time of the contract, Eastman was known as Fairplay Gas.
2
Originally appealed to the Twelfth Court of Appeals, this case was transferred to this Court by the Texas Supreme
Court pursuant to its docket equalization efforts. See TEX. GOV’T CODE ANN. § 73.001 (West 2013). We are
unaware of any conflict between precedent of the Twelfth Court of Appeals and that of this Court on any relevant
issue. See TEX. R. APP. P. 41.3.
2
The parties eventually entered into a Rule 11 agreement. See TEX. R. CIV. P. 11.
Pursuant to that agreement, the parties agreed to retain an independent auditor (whose fees were
to be shared equally by the parties) to conduct an audit of their dealings together. The findings
of that auditor as to the volume of gas supplied by Goodrich and shipped by Eastman and the
amount which Goodrich admittedly had not paid Eastman were to be determined so as to
“resolve all conflicts” between the parties, and a settlement agreement was to be drafted to
monument that resolution.
The agreed-upon independent auditor concluded in his 2012 audit that there was 323,024
MMBTU 3 of natural gas supplied by Goodrich to Eastman that had not been properly credited to
Goodrich during the two-year audit period, an amount that exceeded even that of Goodrich’s
2007 audit. Pursuant to the terms of their contractual agreement, Eastman owed Goodrich an
additional $2,187,280.14 in payment for the gas that it had credited.
The parties apparently believed that if they followed the procedures set out in the Rule 11
agreement, those procedures would resolve all the conflicts between them; they were apparently
in error. Unfortunately, after the parties followed through with the audit prescribed, the bases for
conflict seemed to evolve from those areas addressed in the Rule 11 agreement (that had been in
open conflict) into ones that were pronouncedly different from the ones originally contemplated.
Eastman took the position that the Rule 11 agreement called for incorporation of the terms of the
contract, which contains a provision that conditions any recovery by Goodrich on there being a
variance in the payment amount in excess of two percent over the two-year period under
3
MMBTU stands for one million British Thermal Units.
3
examination. Eastman moved to enforce the Rule 11 agreement as it perceived the agreement to
be, saying that pursuant to the contract’s notice and two percent variance provisions, Eastman
was not liable for the difference in the amount actually paid and that amount deemed to have
been due. In the alternative, Eastman claimed the Rule 11 agreement to be unenforceable
because it was excessively vague.
Goodrich also moved to enforce the Rule 11 agreement, arguing that according to the
auditor’s findings, the terms of the contract, and the terms of the Rule 11 agreement, it was
entitled to judgment. The parties did not dispute the 2012 audit’s findings, but rather, the parties
disagreed on how those findings applied to the contract. After a hearing on the parties’ motions,
the trial court awarded Goodrich a total of $3,034,766.40 in principal and interest, as well as 5.25
percent post-judgment interest, offset by $308,542.42 in unpaid invoices in favor of Eastman.
On appeal, Eastman contends that the trial court erred because (1) the Rule 11 agreement
is unenforceable; (2) under the two percent variance provision, Goodrich is not entitled to
payment for the under-credited gas; and (3) Eastman alleged that the date Goodrich gave notice
was not timely, this being an unanswered question of fact which prevented entry of judgment.
I. Standard of Review and Nature of the Trial Proceedings
The parties disagree on the nature of the proceedings at trial as well as the applicable
standard of review on appeal. Eastman contends that because the Rule 11 agreement and the
original pact between the parties are contracts, the posture of the hearing “was effectively one of
cross motions for summary judgment on a contract.” It maintains that under a summary
judgment, questions of law should be reviewed de novo, factual issues must be given every
4
reasonable inference, and all doubts resolved in its favor as the non-movant. See Valence
Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005). Goodrich denies that the hearing
was one for summary judgment, arguing that the trial court held hearings on competing motions
to enforce a settlement agreement. Because no motions for summary judgment were filed,
Goodrich’s argument continues, the trial court’s factual findings must be reviewed under an
abuse of discretion standard and its rulings of law reviewed de novo. See Mantas v. Fifth Court
of Appeals, 925 S.W.2d 656 (Tex. 1996) (per curiam).
Here, the hearing addressed the parties’ respective motions to enforce the Rule 11
agreement. At the hearing, the parties argued their respective cases but, somewhat strangely,
neither of the parties called a witness and neither introduced any of the pertinent and controlling
documents into evidence. After the hearing was over, the trial court took the case under
advisement and, via letter, requested information from Goodrich regarding the date it alleged it
had given Eastman notice that it disputed the amount paid. In response, Goodrich provided
copies of several emails, but Eastman disputed both the content of and meaning of those emails.
The trial court applied the auditor’s findings, construed the provisions of the contract, and ruled
in favor of Goodrich, while granting Eastman an offset.
Neither party filed a motion for summary judgment or a statement of undisputed facts.
Consequently, there is no summary judgment evidence in the record, and neither the contract
between the parties, nor the Rule 11 agreement, nor the auditor’s report rendered as a result of
the parties’ Rule 11 agreement, nor any of the contested emails were properly authenticated so as
to constitute competent summary judgment evidence. See Republic Nat’l Leasing Corp. v.
5
Schindler, 717 S.W.2d 606, 607 (Tex. 1986) (per curiam); see also Niu v. Revcor Molded Prod.
Co., 206 S.W.3d 723, 729 (Tex. App.—Fort Worth 2006, no pet.). Although there was neither a
request for findings of fact nor a request for conclusions of law, the final judgment included
findings of fact regarding the issue of notice. Further, Eastman’s motion for new trial failed to
raise the argument that the hearing was a summary judgment and, instead, contended that the
judgment “rests on a judge-made fact finding when Eastman asked for a jury.” 4
We find the trial proceeding was a bench trial on competing motions to enforce a
settlement agreement and not a summary judgment proceeding. “When a matter involving both
factual determinations and legal conclusions is decided by the trial court, Texas appellate courts
generally use an abuse of discretion standard of review.” Ex parte Myers, 68 S.W.3d 229, 231
(Tex. App.—Texarkana 2002, no pet.). In applying this standard, we defer to the trial court’s
factual determinations so long as they are properly supported by the record, and we review legal
determinations made by the trial court de novo. Pony Express Courier Corp. v. Morris, 921
S.W.2d 817, 820 (Tex. App.—San Antonio 1996, no writ) (per curiam).
Again, we note that the parties neither called a witness nor admitted evidence into the
record during the trial proceeding. However, it is plain from the record that there was evidence
upon which the trial court could base its judgment, because “evidence that is not objected to and
that the trial court and the parties treat as admitted is, for all practical purposes, admitted.” Tex.
Health Enters., Inc. v. Tex. Dep’t of Human Servs., 949 S.W.2d 313, 314 (Tex. 1997);
DaimlerChrysler Corp. v. Brannon, 67 S.W.3d 294, 300 (Tex. App.—Texarkana 2001, no pet.).
4
On appeal, Eastman does not contend that the trial court erred by denying its motion for new trial.
6
In the Texas Health Enterprises case, an administrative record was never admitted into evidence,
but “both parties relied on the administrative record in their arguments[,] and the trial court based
its decision upon the administrative record.” Tex. Health Enters., Inc., 949 S.W.2d at 313–14.
Here, both parties and the trial court all treated the contract, the Rule 11 agreement, and the
auditor’s report as if they had been admitted into evidence. No objections were lodged by either
party to their use in trial court, and they formed the bases of both the parties’ arguments and the
trial court’s judgment. Accordingly, they were, for all practical purposes, admitted into evidence
at trial.
II. Is the Rule 11 Agreement an Unenforceable Agreement to Agree?
In its first point of error, Eastman argues that the Rule 11 agreement is unenforceable
because it fails for lack of essential terms and is nothing more than an unenforceable “agreement
to agree.”
“A settlement agreement satisfies the requirements of Rule 11 if it is (1) in writing,
(2) signed, and (3) filed with the court or entered in open court . . . .” Staley v. Herblin, 188
S.W.3d 334, 336 (Tex. App.—Dallas 2006, pet. denied) (citing TEX. R. CIV. P. 11; Padilla v.
LaFrance, 907 S.W.2d 454, 461 (Tex. 1995)). The enforceability of a settlement agreement is a
question of law. McCalla v. Baker’s Campground, Inc., 416 S.W.3d 416, 418 (Tex. 2013) (per
curiam); Martin v. Martin, 326 S.W.3d 741, 746 (Tex. App.—Texarkana 2010, pet. denied).
Whether a term is essential to the enforceability of a contract is determined on a case-by-case
basis. T.O. Stanley Boot Co. v. Bank of El Paso, 847 S.W.2d 218, 221 (Tex. 1992). “The issue
of whether a [Rule 11] settlement agreement fails for lack of an essential term is a question of
7
law to be determined by the court, unless there is ambiguity or unless surrounding facts and
circumstances demonstrate a factual issue as to an agreement.” Ronin v. Lerner, 7 S.W.3d 883,
888 (Tex. App.—Houston [1st Dist.] 1999, no pet.).
A binding settlement may exist when parties agree upon some terms, understanding them
to be an agreement, and leave other terms to be made later. Oakrock Exploration Co. v. Killam,
87 S.W.3d 685, 690 (Tex. App.—San Antonio 2002, pet. denied). When an agreement leaves
essential (or material) matters open for future negotiation and those negotiations are
unsuccessful, however, the agreement “is not binding upon the parties and merely constitutes an
agreement to agree.” Fort Worth Indep. Sch. Dist. v. City of Fort Worth, 22 S.W.3d 831, 846
(Tex. 2000); see Mattlage v. Mattlage, 243 S.W.3d 763, 769 (Tex. App.—Waco 2007, pet.
denied) (“If an essential term is left open for future negotiation, ‘there is nothing more than an
unenforceable agreement to agree[.]’” (quoting Killam, 87 S.W.3d at 690)); cf. E.P. Towne Ctr.
Partners, L.P. v. Chopsticks, Inc., 242 S.W.3d 117, 122 (Tex. App.—El Paso 2007, no pet.)
(“Where the parties have intended to conclude a bargain, the agreement’s silence as to non-
essential, or collateral, matters is not fatal.”); Kelly v. Rio Grande Computerland Grp., 128
S.W.3d 759, 766 (Tex. App.—El Paso 2004, no pet.) (same); Mabon Ltd. v. Afri–Carib Enters.,
Inc., 29 S.W.3d 291, 300 (Tex. App.—Houston [14th Dist.] 2000, no pet.) (same). Essential
terms are those terms that the parties “would reasonably regard as vitally important elements of
their bargain.” Potcinske v. McDonald Prop. Invs., Ltd., 245 S.W.3d 526, 531 (Tex. App.—
Houston [1st Dist.] 2007, no pet.). While “Texas courts favor validating transactions rather than
voiding them, a court may not create a contract where none exists and generally may not add,
8
alter, or eliminate essential terms.” 5 Kelly, 128 S.W.3d at 766; T.O. Stanley Boot Co., 847
S.W.2d at 222 (observing that courts cannot supply material contract terms); Argo Data Res.
Corp. v. Shagrithaya, 380 S.W.3d 249, 274 (Tex. App.—Dallas 2012, pet. denied) (“Although
Texas courts favor validating contracts, we may not create one where none exists.”); Univ. Nat’l
Bank v. Ernst & Whinney, 773 S.W.2d 707, 710 (Tex. App.—San Antonio 1989, no writ)
(observing that jury cannot supply essential contract terms).
The relevant portion of the Rule 11 agreement between Eastman and Goodrich states:
1. An independent, third-party auditor (“Auditor”) will audit all relevant data
related to the transportation of gas according to the April 5, 2010, Gas
Gathering Agreement between [Eastman] and Goodrich, for the
production months of January, 2005, through December, 2006, including
the gas charts or electronic data generated by the metering stations and
conditions and accuracy of the metering stations as documented by
Southern Petroleum Labs, and the information related to the blow down
and pigging of the lines in the first quarter of 2006;
2. [Eastman] and Goodrich shall exchange proposed Auditors on or before
December 19, 2011, at 5:00 p.m. The Auditor will be chosen and
mutually agreed upon by both [Eastman] and Goodrich on or before
December 23, 2011;
3. [Eastman] and Goodrich shall submit all materials to the Auditor on or
before January 15, 2012. [Eastman] and Goodrich shall submit all
additional materials subsequently requested by the Auditor within 15 days
of such request;
4. [Eastman] and Goodrich will each pay 50% of the costs for the Audit;
5
Courts have noted, however, occasions in which an agreement may be upheld by supplying missing terms, such as
implying a reasonable price. See Bendalin v. Delgado, 406 S.W.2d 897, 900 (Tex. 1966); see also Crest Ridge
Constr. Grp., Inc. v. Newcourt, Inc., 78 F.3d 146, 152 (5th Cir. 1996) (Benavides, J., concurring) (“Industry custom
can fill in missing terms of a contract or determine the meaning of an agreement.”); Tex. Oil Co. v. Tenneco, Inc.,
917 S.W.2d 826, 830 (Tex. App.—Houston [14th Dist.] 1994) (observing that in certain situations, court may
uphold agreement by supplying missing terms but may not create contract where none exists or interject or eliminate
essential terms), rev’d on other grounds sub nom. Morgan Stanley & Co. v. Tex. Oil Co., 958 S.W.2d 178 (Tex.
1997).
9
5. To the extent that the Auditor’s methods and calculations are reasonable,
all of the Auditor’s findings and conclusions rendered in the Audit will be
entered as stipulated facts in the record and will not be objected to by
either [Eastman] or Goodrich;
6. In order to determine the reasonableness of the Audit, upon receipt of the
audit results, both parties will have five (5) business days to review same
and to submit a “Request for Clarification” if needed. If either party has
any questions, concerns or objections relating to the methodology of the
audit, that party shall prepare a written objection. The objection for [sic]
shall include the following: (1) identify the specific objection to the
methodology; (2) describe why said party believes there is an error;
(3) propose the methodology that should be utilized. The objection shall
be delivered to the opposing party and the auditor on or before five
(5) business days after receipt of the audit results by 5:00 p.m. Central
time. If no objection is received by the deadline, both parties agree to
accept the results of the audit. If either party submits an objection, the
Auditor shall have ten (10) business days to review same and respond.
The response of the Auditor, and the objection shall be included in the
stipulated facts with no further objections regarding the audit results or
methodology utilized.
7. Goodrich acknowledges receipt of invoices which [Eastman] claims are
unpaid (“Unpaid Invoices”), further [Eastman] agrees to providing any
backup or other documentation requested by Goodrich to substantiate the
invoices;
8. [Eastman] and Goodrich agree that they shall resolve all conflicts in,
arising out of, or incident to the above referenced matter through a
settlement agreement which shall be drafted in accordance with the
Auditor findings (including but not limited to any under/over payment(s)
for the gas volumes transmitted by Goodrich to [Eastman], if any); the Gas
Gathering Agreement, and offset by any Unpaid Invoices (subject to proof
of payment); and
10
9. Both parties agree to postpone and abate all discovery, which includes
[Eastman]’s Responses to Defendant Goodrich Petroleum L.L.C.’s
Interrogatories, Requests for Production, and Request for Admission, and
Goodrich’s Responses to [Eastman]’s First Set of Interrogatories and
Request for Production to Goodrich.
The Rule 11 agreement was reduced to writing and signed by both parties.
Eastman contends that the Rule 11 agreement is missing essential terms. First, Eastman
argues that paragraph eight (which specifies that a settlement agreement will be drafted in accord
with the auditor’s findings and the contract) failed to specify how the contract would be applied.
Specifically, Eastman alleges that it failed to address the issues of whether Goodrich gave timely
notice of any dispute and whether the two percent variance provision applied. Eastman argues
that the purpose of the Rule 11 agreement was to settle a dispute about a contract, and, therefore,
how the contract applies is an essential term. Second, Eastman argues that the Rule 11
agreement is silent on “what releases will be executed” and that an enforceable agreement must
include release provisions determining which liabilities are to be settled and how. Third,
Eastman contends that the Rule 11 agreement lacks the essential terms regarding the means by
which the amount of payment would be calculated and the manner in which payment was to be
made. In other words, Eastman maintains that the agreement fails to specify what the parties are
to pay, to whom payment should be made, or how interest, if any, is to be calculated. Here, the
trial court awarded $85,000.00 in interest when enforcing a Rule 11 agreement that fails to
mention interest.
In support of its arguments, Eastman cites to McCalla, 416 S.W.3d 416, and Chopsticks,
Inc., 242 S.W.3d at 122–23. In McCalla, two parties entered into an agreement where some of
11
the terms implied that the parties contemplated forming an additional contract in the future.
McCalla, 416 S.W.3d at 417. The parties agreed to purchase a piece of property once a lease on
the property was declared null and void, and they agreed to execute any documents necessary to
carry out the terms of that agreement. Id. The court found that all of the essential terms were
present (payment terms, mutual obligation, release, etc.), even though the parties agreed to agree
in the future, because everything the court needed to enforce the agreement was present. Id. at
418.
In Chopsticks, Inc., a landlord and tenant reached a mediated settlement agreement of
their competing claims for breach of contract. 242 S.W.3d at 120–21. The settlement agreement
stated that the tenant would make certain payments to the landlord, the parties would bear their
own attorney fees, the parties would execute mutual releases, and the lawsuit would be dismissed
with prejudice. Id. at 120. The court of appeals held that the settlement agreement was
enforceable even though it failed to address the disposition of the tenant’s security deposit or
state the date to vacate premises (even though these terms “may have been significant to the
parties’ relationship”) because those terms were unessential “collateral matters.” Id. at 123.
We find the Rule 11 agreement, when taking into account the content of the contract
which was the initial basis of their agreement, contains all essential terms of the agreement
between the parties and is, therefore, enforceable. The Rule 11 agreement does not reference the
applicability of the two percent variance provision or the notice issue because these issues were
not in dispute at the time the parties entered into the agreement. Whether the two percent
variance provision applies is a question of law, and insofar as it is a question of fact under
12
Eastman’s interpretation of the provision, its applicability is dependent upon the auditor’s
findings rather than the parties’ agreement.
The Rule 11 agreement is not silent on what releases will be executed. Paragraph eight
states that Goodrich and Eastman “agree that they shall resolve all conflicts in, arising out of, or
incident to” the case “through a settlement agreement which shall be drafted in accordance with
the Auditor findings, . . . the [contract], . . . and offset by any [u]npaid [i]nvoices.” The amount
of payment is dependent entirely upon the auditor’s findings and his valuation of any
underreported gas, and here, Eastman did not dispute the auditor’s findings or valuation. Under
the facts of this case, the manner of payment and the amount and rate of interest are not essential
terms. Accordingly, we find that the Rule 11 agreement is enforceable and overrule this point of
error.
III. Does the Two Percent Variance Provision Apply to Bar Recovery by Goodrich?
The 2012 audit of the January 2005 through December 2006 period concluded that the
total gas volume for the audit period was 17,722,989 MMBTU and that Eastman undercredited
Goodrich by 323,024 MMBTU. In its second point of error, Eastman argues that the trial court
erred in awarding Goodrich money damages because the amount of undercredited gas was within
the two percent variance allowed by the contract.
A. Waiver
First, Goodrich argues that Eastman waived its claims regarding the two percent variance
provision. “Contractual rights can be waived.” Johnson v. Structured Asset Servs., LLC, 148
S.W.3d 711, 722 (Tex. App.—Dallas 2004, no pet.). “Waiver is defined as ‘an intentional
13
relinquishment of a known right or intentional conduct inconsistent with claiming that right.’”
Jernigan v. Langley, 111 S.W.3d 153, 156 (Tex. 2003) (per curiam) (quoting Sun Exploration &
Prod. Co. v. Benton, 728 S.W.2d 35, 37 (Tex. 1987)); Mandell v. Mandell, 214 S.W.3d 682, 692
(Tex. App.—Houston [14th Dist.] 2007, no pet.). Waiver may be “established by a party’s
express renunciation of a known right, or by silence or inaction for” a period long enough to
demonstrate “an intention to yield the known right.” Aguiar v. Segal, 167 S.W.3d 443, 451 (Tex.
App.—Houston [14th Dist.] 2005, pet. denied). “Waiver is largely a matter of intent.” Beal
Bank, S.S.B. v. Schleider, 124 S.W.3d 640, 654 (Tex. App.—Houston [14th Dist.] 2003, pet.
denied). For implied waiver to be found, “the surrounding facts and circumstances must clearly
demonstrate intent.” Id.; see also Taub v. Houston Pipeline Co., 75 S.W.3d 606, 624 (Tex.
App.—Texarkana 2002, pet. denied). To establish waiver by conduct, “that conduct must be
‘unequivocally inconsistent’ with claiming a known right.” Van Indep. Sch. Dist. v. McCarty,
165 S.W.3d 351, 353 (Tex. 2005).
After the Rule 11 agreement was executed and the 2012 audit springing from it had been
completed, Eastman, for the first time, claimed that Goodrich’s claims were barred by the two
percent variance provision. Goodrich contends that Eastman waived this argument by agreeing
to a new audit of the same time period and by failing to raise the argument prior to the Rule 11
agreement and 2012 audit. Goodrich’s initial counterclaims against Eastman were based on the
findings of the disputed 2007 audit, which showed an undercredit of 234,023 MMBTU, which is
even less than the 323,024 MMBTU undercredit shown by the 2012 audit. However, Eastman
14
failed to raise the issue of the two percent variance provision until after the agreed-upon
independent audit had been completed and its results released.
Here, nothing in the record shows Eastman to have explicitly waived this claim, and
Eastman’s behavior is not unequivocally inconsistent with claiming the right to invoke the two
percent variance provision because the new audit’s findings could have been more favorable to
Eastman than those of the 2007 audit. Therefore, we find that Eastman did not waive the two
percent variance claim.
B. The Two Percent Variance Provision
Eastman argues that the trial court erred in awarding Goodrich money damages because
the amount of undercredited gas was less than two percent of the total volume during the two-
year audit period and that a contractual provision protects it from liability for any variance of less
than two percent.
In construing a written contract, the primary concern of the court is to ascertain the true
intentions of the parties as expressed in the terms and language of the instrument. Valence
Operating Co. v. Dorsett, 164 S.W.3d 656, 662 (Tex. 2005). When discerning the contracting
parties’ intent, “we give contract terms their plain and ordinary meaning unless the instrument
indicates the parties intended a different meaning.” Dynegy Midstream Servs., Ltd. P’ship v.
Apache Corp., 294 S.W.3d 164, 168 (Tex. 2009).
The construction of an unambiguous contract is a question of law for the court, a question
which we review de novo. Tawes v. Barnes, 340 S.W.3d 419, 425 (Tex. 2011). Where a
contract is unambiguous, the language of the contract alone expresses the parties’ intent, and it
15
must be enforced as written. Puckett v. U.S. Fire Ins. Co., 678 S.W.2d 936, 938 (Tex. 1984);
Yancey v. Floyd W. & Co., 755 S.W.2d 914, 918 (Tex. App.—Fort Worth 1988, writ denied).
“A contract is not ambiguous simply because the parties disagree over its meaning.” Apache
Corp., 294 S.W.3d at 168. Rather, “[a] contract is ambiguous when its meaning is uncertain and
doubtful or is reasonably susceptible to more than one interpretation.” Heritage Res., Inc. v.
NationsBank, 939 S.W.2d 118, 121 (Tex. 1996).
Paragraph 5.8 of the contract states,
If upon any test, the metering equipment in the aggregate is found to be inaccurate
by two (2%) percent or more, registration thereof and any payment based upon
such registration shall be corrected at the rate of such inaccuracy for any period of
inaccuracy which is definitely known or agreed upon, or if not known or agreed
upon, then for a period extending back one-half (1/2) of the time elapsed since the
date of the last calibration, not to exceed fifteen (15) Days. Following any test,
any metering equipment found to be inaccurate to any degree shall be adjusted
immediately to measure accurately. If for any reason any meter is out of service
or out of repair so that the quantity of Gas deliveries or redeliveries through such
meter cannot be ascertained or computed from the readings thereof, the quantity
of Gas so delivered or redelivered during such period same is out of service or out
of repair shall be estimated and agreed upon by the parties hereto upon the basis
of the best available data, using the first of the following methods which is
feasible:
a. By using the registration of any check measuring equipment of the
other party, if installed and registering accurately;
b. By correcting the error if the percentage of error is ascertainable by
calibration, test or mathematical calculations; or
c. By estimating the quantity of deliveries or redeliveries during
preceding periods under similar conditions when the meter was registering
accurately.
We find that the two percent variance provision does not apply. Goodrich did not
contend that the “metering equipment in the aggregate” was inaccurate by more than two
16
percent, and there was no such finding by the Rule 11 audit or the trial court. Simply put, the
facts of this case do not implicate the provisions of paragraph 5.8. 6
IV. Did Goodrich Provide Proper Notice?
In its final point of error, Eastman contends that there is a disputed issue of material fact
regarding whether Goodrich gave timely notice that it questioned the monthly gas statements for
the audit period and that the trial court “misapplied the summary-judgment burden by making
inferences in [Goodrich’]s favor.”
As we ruled hereinabove, the trial proceeding was not a summary judgment hearing, but
rather a trial to the court based upon the three documents in evidence: the contract, the Rule 11
agreement and the auditor’s report. Eastman’s contention that Goodrich’s claims are barred by a
failure of timely notice is an affirmative defense claiming that a breach of contract or duty is
legally excused, akin to limitations. See Robbins v. Payne, 55 S.W.3d 740, 747–48 (Tex. App.—
Amarillo 2001, pet. denied); Bracton Corp. v. Evans Const. Co., 784 S.W.2d 708, 710 (Tex.
App.—Houston [14th Dist.] 1990, no writ). It, therefore, is an issue on which Eastman bore the
burden of proof. See In re Office of Attorney Gen., 422 S.W.3d 623, 631 n.10 (Tex. 2013) (orig.
proceeding) (“‘[T]he defendant bears the burden of proving an affirmative defense.’” (quoting
BLACK’S LAW DICTIONARY 482 (9th ed. 2009))).
6
Even if paragraph 5.8 applied, Eastman’s formula is incorrect because the total volume of gas passing through the
meters over a certain time period would be irrelevant to the percentage variance in the meters, but here, Eastman’s
contention, and calculation, depends entirely on the total volume passing through the meters. Eastman is arguing
that because the underreported gas amounts to less than two percent of the total volume over that two-year audit
period, that they are not liable for the variance. Eastman’s formula depends on the total volume of the audit
period—the larger the audit period, the larger the total volume, and the larger the volume, the smaller the
underreported gas appears. Under Eastman’s interpretation of paragraph 5.8, Goodrich could, by carefully selecting
the audit period, artificially tailor the underreported amount of gas to be far over the two percent threshold, whereas,
if the total meters were actually inaccurate by 2.1 percent, that percentage would hold true no matter the total
volume passing through the meters, be it over a period of one month or ten years.
17
Here, the three documents in evidence, surprisingly, the only evidence in the case, fail to
establish Eastman’s claim that Goodrich failed to give timely notice. 7 Therefore, we overrule
this point of error.
We affirm the trial court’s judgment.
Bailey C. Moseley
Justice
Date Submitted: November 10, 2014
Date Decided: January 14, 2015
7
The trial court did not take judicial notice of the court’s file or the parties’ pleadings. While the trial court
requested and received post-hearing evidence from Goodrich, consisting of emails regarding the original 2007 audit,
the emails were not properly offered or admitted into evidence, and they were disputed and objected to by Eastman.
Therefore, the emails were not before the trial court under the holding of Texas Health Enterprises, Inc. See Tex.
Health Enters., Inc., 949 S.W.2d 313; DaimlerChrysler Corp., 67 S.W.3d 294.
18