El Paso Marketing, L.P. v. Wolf Hollow I, L.P.

IN THE SUPREME COURT OF TEXAS
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NO . 13-0816
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EL PASO MARKETING, L.P., PETITIONER,
v.
WOLF HOLLOW I, L.P., RESPONDENT
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ON PETITION FOR REVIEW FROM THE
COURT OF APPEALS FOR THE FOURTEENTH DISTRICT OF TEXAS
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PER CURIAM
In this case the court of appeals remanded a claim for trial because it thought we had
compelled this result in an earlier appeal. Because we did not, we reverse this portion of the court
of appeals’ judgment.
Wolf Hollow I, L.P. owns a power plant. El Paso Marketing, L.P. provides gas for the plant
under a Supply Agreement with Wolf Hollow. Gas is transported to the plant through a pipeline
owned by Enterprise Texas Pipeline LLC. The gas is transported under terms of a Transportation
Agreement between El Paso and Enterprise.
El Paso sued Wolf Hollow seeking declarations construing their contractual relationship.
Wolf Hollow counterclaimed against El Paso for breach of the Supply Agreement. El Paso brought
a third-party claim against Enterprise, and Wolf Hollow brought a cross-claim against Enterprise for
negligence. Wolf Hollow’s claims against El Paso and Enterprise concerned two factual claims. One
claim concerned four interruptions in gas delivery that required purchases of replacement power. The
other claim was that Enterprise delivered gas contaminated with liquids that damaged Wolf Hollow’s
plant, required plant upgrades, and required purchases of replacement power.
The trial court granted summary judgment for El Paso and Enterprise. Among other holdings
and declarations, it held that the four delivery interruptions were excused under the force-majeure
provision of the Supply Agreement, and that all damages sought by Wolf Hollow against El Paso
were consequential damages waived by the Supply Agreement.
The trial court also rendered a declaratory judgment holding that (1) the four service
interruptions constituted events of force majeure excusing performance, (2) El Paso gave proper
notice of force majeure, (3) under Section 14.1 of the Supply Agreement, Wolf Hollow’s exclusive
remedy for the gas-quality claim is the assignment to Wolf Hollow of any claim El Paso has against
Enterprise, and (4) the default and remedies provision of the Supply Agreement (Article 21) does
not apply to Wolf Hollow’s gas-quality claim.
On appeal, the court of appeals, without reaching all of the issues presented, held that Wolf
Hollow’s claims against El Paso failed, agreeing with the trial court that all the alleged damages were
consequential damages waived by the Supply Agreement. 329 S.W.3d 628, 636–43 (Wolf Hollow
I). Because the court of appeals agreed with the trial court on this issue, it found the four trial court
declarations described above superfluous or moot, and modified the final judgment to remove the
declaratory judgment language. Id. at 645. The court of appeals reversed the summary judgment in
favor of Enterprise. Id. at 643–45.
2
In this posture the case reached us. We held that the negligence claim against Enterprise
failed as a matter of law. 383 S.W.3d 138, 142–44 (Wolf Hollow II). We then turned to Wolf
Hollow’s contract claims against El Paso. We reasoned that, questions of consequential versus direct
damages aside, and questions of “cover” under the Uniform Commercial Code aside, the Supply
Agreement expressly provided for a form of replacement-power damages in Article 21. Id. at
144–45. We briefly addressed contract provisions relating to the purchase of replacement power and
concluded there was some evidence that Wolf Hollow had complied with the procedures set out in
Article 21. Id. at 145. Finally, we briefly addressed the court of appeals’ decision to vacate the trial
court’s declaratory judgment. We reversed this part of the court of appeals’ judgment because we
concluded that the court of appeals had vacated the declaratory judgment as moot; the court of
appeals had concluded that there was no reason to issue the declaratory judgment in light of its
holding that all of Wolf Hollow’s claims were barred by the waiver of consequential damages. Id.Since we held that further proceedings were warranted on claims for replacement-power damages
that were not barred by the contractual waiver of consequential damages, we reversed this part of the
court of appeals’ judgment and remanded the case to the court of appeals. Id. at 145–46.
On remand the court of appeals held that the service-interruption claim failed because that
claim was barred by the force-majeure provision of the Supply Agreement. 409 S.W.3d 879, 885–88
(Wolf Hollow III). This holding marked the first time an appellate court had reached the force-
majeure defense, the subject of the first two declarations of the trial court’s judgment. Wolf Hollow
does not challenge this ruling.
3
With the claims against Enterprise gone after our Wolf Hollow II decision and the service-
interruption claim barred by force majeure, the court of appeals was left to address Wolf Hollow’s
gas-quality claim against El Paso. The trial court had granted summary judgment for El Paso on this
claim and had issued two declarations regarding it. The third declaration held that Wolf Hollow
could not recover on this claim because Wolf Hollow’s exclusive remedy was an assignment of any
gas-quality claim El Paso may have against Enterprise under Section 14.1 of the Supply Agreement.
The court of appeals concluded that we had expressly overruled this declaration in Wolf Hollow II,
when we stated that “nothing in Section 14.1 suggests that [Wolf Hollow] cannot sue El Paso for
breach of the Supply Agreement in allowing poor quality gas to be delivered.” Wolf Hollow III, at
889 (quoting Wolf Hollow II, at 144).
The trial court separately rejected Wolf Hollow’s gas-quality claim in its fourth declaration,
which declared that Article 21, providing for replacement-power damages, “does not apply to gas
quality claims for gas delivered to Wolf Hollow on the [Enterprise] pipeline.” The court of appeals
in Wolf Hollow III concluded that we had also rejected this declaration in Wolf Hollow II. The court
of appeals quoted our decision in Wolf Hollow II, including our statement that “there is evidence
Wolf Hollow is entitled to recover replacement-power damages under Section 21.1(c).” Wolf Hollow
III, at 889 (quoting Wolf Hollow II, at 145). Concluding that “[t]he Texas Supreme Court effectively
reversed the trial court’s third and fourth declarations,” the court of appeals “remand[ed] the case
for trial on Wolf Hollow’s claims for replacement-power damages for the failure to deliver quality
gas.” Wolf Hollow III, at 892.
4
In Wolf Hollow III, Justice Busby concurred, agreeing with the majority opinion that our
decision in Wolf Hollow II effectively reversed the trial court’s declaratory judgment, including the
trial court’s fourth declaration that Article 21 did not apply to gas-quality claims. Id. at 892–93
(Busby, J., concurring). However, he opined that if he were writing on a clean slate he would affirm
the trial court’s fourth declaration that Article 21 does not apply to Wolf Hollow’s gas-quality claim
against El Paso. Without repeating here Justice Busby’s analysis, he read Article 21 as only applying
to certain gas-quantity claims.
Chief Justice Hedges concurred in part and dissented in part in Wolf Hollow III. Id. at 893–97
(Hedges, C. J., concurring in part and dissenting in part). She agreed that the trial court’s first and
second declarations should be affirmed, and thus agreed that El Paso should prevail on the delivery-
interruption claim. However, she also believed that (1) the trial court’s summary judgment on the
gas-quality claim, as reflected in the third and fourth declarations, was correct, and (2) the Supreme
Court had not precluded the court of appeals from affirming the summary judgment on both the
delivery-interruption claim and the gas-quality claim. Like Justice Busby, Chief Justice Hedges
focused in part on whether replacement-power damages under Article 21 could be awarded on Wolf
Hollow’s gas-quality claim.
In its second appeal to us, El Paso now argues that Wolf Hollow’s gas-quality claim should
fail because Article 21 does not apply to that claim, as the trial court held in its fourth declaration.
El Paso argues that we did not decide this question in Wolf Hollow II. Without reaching the ultimate
merits of this argument and deciding whether summary judgment was warranted on the gas-quality
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claim, we agree with El Paso that our decision in Wolf Hollow II did not preclude the court of
appeals from deciding this question.
We believe the court of appeals felt itself too constrained by our decision in Wolf Hollow II.
In holding that the Supply Agreement provided for replacement-power damages that were available
notwithstanding a separate waiver of consequential damages, and that “Wolf Hollow may pursue
replacement-power damages under the contract,” Wolf Hollow II, at 145, we did not hold that Wolf
Hollow would necessarily prevail in obtaining replacement-power damages on its gas-quality claim.
We reversed the court of appeals’ judgment insofar as it deleted the trial court’s “declarations as
moot on the ground that all of Wolf Hollow’s claims were barred by the waiver of consequential
damages.” Id. Read in context, vacating this portion of the court of appeals’ judgment was warranted
because we held that the Supply Agreement’s waiver of consequential damages did not necessarily
preclude an award of replacement-power damages. We did not hold, on the merits, that Wolf Hollow
was entitled to recover on its claim for replacement-power damages resulting from poor-quality gas.
While we held that replacement-power damages were available under the terms of the Supply
Agreement in certain circumstances, and thus disagreed with the court of appeals’ conclusion in Wolf
Hollow I that the waiver of consequential damages entitled El Paso to summary judgment on all
claims against it, we did not rule on all the issues, including those discussed in the court of appeals’
concurring and dissenting opinions in Wolf Hollow III, regarding the availability of replacement-
power damages on Wolf Hollow’s gas-quality claim.1 No appellate court has decided the merits of
1
W e note, however, that insofar as Chief Justice Hedges relied on Section 14.1 of the Supply Agreement, we
held in Wolf Hollow II, and continue to hold, in response to El Paso’s argument that W olf Hollow’s exclusive remedy
on gas-quality claims is an assignment of El Paso’s claim against Enterprise under Section 14.1, that “nothing in Section
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these questions, nor has any appellate court passed on whatever error-preservation issues might
accompany them. The court of appeals erred in Wolf Hollow III insofar as it held that our Wolf
Hollow II decision precluded it from reviewing these questions.
Accordingly, without hearing oral argument, see TEX . R. APP . P. 59.1, we reverse the court
of appeals’ judgment relating to Wolf Hollow’s gas-quality claim for replacement-power damages,
and otherwise affirm the judgment.2 We remand the case to the court of appeals for further
proceedings consistent with this opinion.
OPINION DELIVERED: November 21, 2014
14.1 suggests that [W olf Hollow] cannot sue El Paso for breach of the Supply Agreement in allowing poor quality gas
to be delivered.” Wolf Hollow II, at 144. In Wolf Hollow II, El Paso moved for rehearing, arguing that “[t]he Court
incorrectly construes El Paso’s obligation under Section 14.1 of the Supply Agreement as to gas quality,” but we denied
the motion.
2
In Wolf Hollow III, the court of appeals separately held that W olf Hollow’s claims for breach of the Supply
Agreement’s Article 5 provisions survived summary judgment insofar as W olf Hollow suffered replacement-power
damages. W e agree with the court of appeals that “[t]he fuel-management duties under [Article 5 of] the agreement are
very broad, requiring El Paso to manage the gas transportation and to use prudent fuel-management practices to minimize
costs to W olf Hollow.” Wolf Hollow III, at 890. The court of appeals correctly held that its earlier ruling— that any
breach of Article 5 was barred by the waiver of consequential damages— could no longer stand in light of our ruling in
Wolf Hollow II that W olf Hollow can recover for breaches of the Supply Agreement if it can establish replacement-power
damages. However, as explained above, neither this Court nor the court of appeals has ruled on whether Article 21, which
provides for replacement-power damages, applies only to gas-quantity claims, as El Paso contends, or applies to W olf
Hollow’s gas-quality claim as well, as W olf Hollow contends.
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