Ineos USA, LLC v. BNSF Railway Company

Appellee’s Motion for Rehearing Denied; Memorandum Opinion of November
15, 2012 Withdrawn; Reversed and Remanded and Substitute Memorandum
Opinion filed December 18, 2012.
In The
Fourteenth Court of Appeals
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NO. 14-11-01006-CV
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INEOS USA LLC, Appellant
V.
BNSF RAILWAY COMPANY, Appellee
On Appeal from the 281st District Court
Harris County, Texas
Trial Court Cause No. 2010-07142
SUBSTITUTE MEMORANDUM OPINION
We deny appellee BNSF Railway Company’s motion for rehearing, withdraw
our previous opinion of November 15, 2012, and issue this substitute memorandum
opinion.
In a single issue, appellant INEOS USA LLC argues that the trial court erred
by granting BNSF’s motion for summary judgment and denying INEOS’s
cross-motion for summary judgment. We reverse and remand.
I. BACKGROUND
INEOS produces plastic commodities and ships them from locations in Texas
and Oklahoma. During 2006, INEOS contracted with railway carrier BNSF to
transport INEOS’s plastics. INEOS and BNSF entered into a five-year
transportation master contract (“Master Contract”), effective May 1, 2006 through
April 30, 2011. Pursuant to provisions in the Master Contract, INEOS and BNSF
intended to enter into a Transportation Service Agreement (“TSA”) which would be
part of the parties’ agreement and govern routes, destinations, commodities, and
rates. The Master Contract did not refer to or identify specific routes, destinations,
commodities, or rates. Neither party contends the Master Contract was breached.
INEOS and BNSF entered into two TSAs, both of which were amended
numerous times. Our record contains the following versions of the TSAs: (1) TSA
0001 Amendment 45, effective from May 28, 2009 to April 30, 2011 (“TSA 1”); and
(2) TSA 0002 Amendment 47, effective from March 13, 2009 to April 30, 2009
(“TSA 2”). TSA 1 and TSA 2 contained the following identical “Minimum
Volume Requirement” provision: “[INEOS] agrees to ship 95% of all its rail
movements of the Commodities listed herein moving between the Origins and
Destinations listed herein, via routes listed herein during each year this contract
and/or amendments are in effect.”
Under TSA 1, the destinations and rates for shipment of INEOS’s plastics
were divided into two sections: (1) “BNSF Rate Matrix,” apparently providing rates
to final destinations accessible by BNSF (meaning use of another railway carrier
2
was unnecessary); and (2) “BNSF Rule 11 Matrix,” providing rates to destinations at
which it was anticipated another carrier would assume shipment of the commodities
and transport them to a final destination. The BNSF Rule 11 Matrix contained the
following condition: “Price must be used in combination with other prices for the
portion of the shipment subsequent to specified destination. Separate freight bills
will be issued for each price used according to the provisions of Railway Accounting
Rule 11.” In an affidavit, a BNSF manager defined Railway Accounting Rule 11 as
a railway shipping method in which
the customer tenders the shipment to an originating rail carrier, the
originating carrier takes the freight on the first leg of the trip, passes the
freight to the second carrier at an interchange location, and the second
carrier transports the freight to its final destination. . . . In a Rule 11
shipment, each of the railroads then submits separate invoices to the
customer covering only that railroad’s portion of the move.1
Accordingly, under the BNSF Rule 11 Matrix, INEOS and BNSF agreed to rates
pursuant to which BNSF would transport plastics to interchange locations, and it
was understood that the subsequent carrier would bill INEOS separately.
Importantly, East St. Louis and New Orleans are destinations under the BNSF Rule
11 Matrix.
INEOS, BNSF, and Norfolk Southern Railway Corp. entered into TSA 2.
TSA 2 contained a “Rate Matrix” listing rates for various destinations east of
BNSF’s rail lines. Under this matrix, BNSF would carry the plastics to East St.
1
INEOS argues BNSF’s definition is parol evidence that may not be considered when
interpreting the parties’ agreements. We disagree. A party may offer extrinsic evidence
regarding the definition of a specialized industry term, such as Railway Accounting Rule 11. See
Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v. CBI Indus., Inc., 907 S.W.2d 517, 521 & n.6 (Tex.
1995); Forest Oil Corp. v. Eagle Rock Field Servs., LP, 349 S.W.3d 696, 699 (Tex.
App.—Houston [14th Dist.] 2011, no pet.).
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Louis or New Orleans, where Norfolk Southern would assume the shipments and
carry them to final eastern destinations. Although there were two carriers, a single
rate was provided for each route. Apparently, the parties agree that this shipping
method is referred to as “joint-line rate.”
As the April 30, 2009 expiration date of TSA 2 approached, INEOS requested
bids from railway carriers to ship plastics to the eastern destinations listed in TSA 2.
Ultimately, INEOS entered into a TSA with Union Pacific Railroad Company and
Norfolk Southern 2 (“Union Pacific TSA”). In the Union Pacific TSA, INEOS
agreed to ship plastics via Union Pacific to East St. Louis and New Orleans, where
Norfolk Southern would assume the shipments and carry them to final eastern
destinations. Although we cannot determine the exact nature of the shipping
method employed under the Union Pacific TSA,3 the method appears to be more
similar to the joint-line rate used in TSA 2 and not Railway Accounting Rule 11 used
in TSA 1. For purposes of this opinion, we will assume joint-line rates were used in
the Union Pacific TSA.
Thereafter, TSA 2 expired but TSA 1 remained in effect. INEOS began
using Union Pacific to make shipments to eastern destinations via routes with a
carrier transfer in East St. Louis and New Orleans. BNSF accused INEOS of
breaching TSA 1, arguing INEOS was obligated under TSA 1 to use BNSF when
shipping plastics to East St. Louis and New Orleans enroute to other destinations.
INEOS filed suit for declaratory relief against BNSF; BNSF counterclaimed for
2
“Norfolk Southern Railway Company” is the Norfolk Southern entity which entered into
the Union Pacific TSA. Neither party mentions whether this entity is different than “Norfolk
Southern Railway Corp.,” which entered into TSA 2. For purposes of this opinion, we will
assume these names refer to the same entity.
3
Rates have been redacted on the copy of the Union Pacific TSA included in the record.
4
breach of contract. The parties filed competing traditional motions for summary
judgment relative to the breach issue. The trial court granted BNSF’s motion for
summary judgment and denied INEOS’s motion, determining INEOS breached
TSA 1. The parties stipulated to the amount of BNSF’s damages and attorney’s
fees, and the trial court signed a final judgment, awarding BNSF $812,750.00 in
damages, $54,926.00 in attorney’s fees, and contingent appellate attorney’s fees.
II. SUMMARY JUDGMENT
In a single issue, INEOS contends the trial court erred by granting BNSF’s
motion for summary judgment and denying INEOS’s motion.
A. Standards of review and contract construction
A party moving for traditional summary judgment must establish there is no
genuine issue of material fact and it is entitled to judgment as a matter of law. See
Tex. R. Civ. P. 166a(c); Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d
211, 215–16 (Tex. 2003). If the movant establishes a right to summary judgment,
the burden shifts to the non-movant to present evidence raising a material fact issue.
See M.D. Anderson Hosp. & Tumor Inst. v. Willrich, 28 S.W.3d 22, 23 (Tex. 2000);
Centeq Realty, Inc. v. Siegler, 899 S.W.2d 195, 197 (Tex. 1995).
We review a summary judgment de novo. Valence Operating Co. v. Dorsett,
164 S.W.3d 656, 661 (Tex. 2005). In reviewing the trial court’s rulings on
cross-motions for summary judgment, we must consider all summary-judgment
evidence, determine all issues presented, and render the judgment the trial court
should have rendered. FM Props. Operating Co. v. City of Austin, 22 S.W.3d 868,
872 (Tex. 2000). We may consider evidence presented by both parties in
determining the merits of either motion. Expro Americas, LLC v. Sanguine Gas
5
Exploration, LLC, 351 S.W.3d 915, 919 (Tex. App.—Houston [14th Dist.] 2011,
pet. filed).
In construing a contract, we must ascertain the true intentions of the parties as
expressed in the writing. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 229
(Tex. 2003). We should afford common words their plain meaning unless context
indicates otherwise. Lesikar v. Moon, 237 S.W.3d 361, 367 (Tex. App.—Houston
[14th Dist.] 2007, pet. denied). We must consider the entire writing in an effort to
harmonize and give effect to all provisions so that none are rendered meaningless.
Id.
Generally, when a contract contains a material ambiguity, granting a motion
for summary judgment is improper because interpretation of the contract becomes a
fact issue. See Hewlett–Packard Co. v. Benchmark Elecs., Inc., 142 S.W.3d 554,
561 (Tex. App.—Houston [14th Dist.] 2004, pet. denied). A contract is not
ambiguous if it is so worded that it can be given a definite or certain legal meaning.
Wal–Mart Stores, Inc. v. Sturges, 52 S.W.3d 711, 728 (Tex. 2001). Conversely, a
contract is ambiguous when its meaning is uncertain and doubtful or reasonably
susceptible to more than one interpretation. White Oak Operating Co., LLC v. BLR
Const. Comps., LLC, 362 S.W.3d 725, 733 (Tex. App.—Houston [14th Dist.] 2011,
no pet.). However, an ambiguity does not arise simply because the parties advance
conflicting interpretations of the contract. Sturges, 52 S.W.3d at 728. Rather, for
an ambiguity to exist, both interpretations must be reasonable. Id.
B. Analysis
As noted above, the Minimum Volume Requirement in TSA 1 provided:
“[INEOS] agrees to ship 95% of all its rail movements of the Commodities listed
herein moving between the Origins and Destinations listed herein, via routes listed
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herein during each year this contract and/or amendments are in effect.” BNSF
alleges that INEOS breached the Minimum Volume Requirement of TSA 1 by using
Union Pacific to ship plastics to East St. Louis and New Orleans, where the plastics
were transferred to Norfolk Southern for shipment to eastern destinations.
According to BNSF, INEOS was required to comply with TSA 1 for any routes that
included East St. Louis or New Orleans as an “interchange destination.”
INEOS contends TSA 1 existed simultaneously with TSA 2 for several years
and, thus, TSA 1 and TSA 2 must be construed together to determine the parties’
intent. In support of this contention, INEOS cites well-established precedent that
documents pertaining to the same transaction may be read together as if they were
part of a single, unified instrument, even if they were executed at different times and
do not reference each other. See In re Laibe Corp., 307 S.W.3d 314, 317 (Tex.
2010) (orig. proceeding) (per curiam).
INEOS argues a reasonable construction of TSA 1 and TSA 2 together
conclusively establishes that the parties intended for TSA 1 to apply only when East
St. Louis and New Orleans were final destinations. According to INEOS, during
the course of the parties’ relationship, TSA 2 applied whenever INEOS shipped
plastics to final eastern destinations via routes with a carrier transfer in East St.
Louis or New Orleans; TSA 1 simply did not apply in such situations. Therefore,
INEOS contends that expiration of TSA 2 freed INEOS to contract with, and use,
other carriers for shipping plastics to final eastern destinations with transfers in East
St. Louis or New Orleans. INEOS also argues there was no provision in TSA 1 or
TSA 2 mandating that TSA 1 would exclusively control shipments via those routes
after expiration of TSA 2.
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BNSF alleges INEOS breached a version of TSA 1 that was amended on May
28, 2009—after TSA 2 expired on April 30, 2009. Thus, the relevant version of
TSA 1 was not effective simultaneously with TSA 2. Assuming it is appropriate for
this court to construe TSA 1 with prior versions of TSA 1 and TSA 2, our record
does not contain the full text of any prior version of the agreements. We are
precluded from construing these agreements together to determine the parties’ intent
relative to application of TSA 1 after expiration of TSA 2.4 Therefore, INEOS has
not conclusively established that it is entitled to summary judgment based on a
combined interpretation of TSA 1 and prior versions of TSA 1 and TSA 2. See
Barzoukas v. Found. Design, Ltd., 363 S.W.3d 829, 833–34, 837–38 (Tex.
App.—Houston [14th Dist.] 2012, pet. filed) (concluding summary judgment was
inappropriate because relevant contracts were not included in the record).
Consequently, on this record, we are confined to the contents of TSA 1 to
determine whether BNSF is entitled to summary judgment.5 As noted above, TSA 1
contained two matrices of routes: (1) the BNSF Rate Matrix, comprised of routes to
destinations which were apparently intended to be final destinations; and (2) the
BNSF Rule 11 Matrix, comprised of routes to destinations where a second carrier
would assume the shipment and bill INEOS separately. Notably, many of the
destinations listed in the BNSF Rate Matrix are also listed in the BNSF Rule 11
Matrix, including East St. Louis. However, the Minimum Volume Requirement
does not specify which routes (whether those in the BNSF Rate Matrix or the BNSF
4
For example, it is unknown when the original versions of TSA 1 and TSA 2 were
executed or whether East St. Louis and New Orleans were always listed as destinations throughout
the permutations of the agreements.
5
BNSF contends that TSA 1 should be construed without reference to TSA 2.
8
Rule 11 Matrix) INEOS must use when shipping plastics “between the Origins and
Destinations listed herein.”
INEOS argues that the parties intended for the Minimum Volume
Requirement in TSA 1 to apply only when INEOS shipped plastics to East St. Louis
and New Orleans as final destinations. In support, INEOS notes that the Minimum
Volume Requirement applied to plastics “moving between the Origins and
Destinations.” (emphasis added). Applying the common meaning, INEOS argues
“Destinations” clearly referred to “the place for which a person or thing is destined;
the intended end of a journey or course.” Fountain Place Cinema 8, LLC v. Morris,
707 S.E.2d 859, 864 (W. Va. 2011) (quoting common meaning of “destination”).
However, contract terms are given their plain, ordinary, and generally accepted
meanings unless the contract itself shows them to be used in a technical or different
sense. Forest Oil Corp., 349 S.W.3d at 699. In the BNSF Rate Matrix,
“Destination” apparently referred to locations where the shipment would be
delivered; in the BNSF Rule 11 Matrix, “Destination” referred to locations where a
second carrier would assume the shipment and carry it to another location. Thus,
the term “Destinations” could have referred to either final destinations or
interchange destinations. The parties must have intended that the destination of a
shipment (i.e., whether it is a final destination or an interchange destination) would
be determinative of which matrix to apply.
With this understanding, we conclude one reasonable interpretation of the
Minimum Volume Requirement is that the parties intended for INEOS to use routes
and rates listed in BNSF Rule 11 Matrix for shipments requiring a carrier transfer in
East St. Louis and New Orleans pursuant to Railway Accounting Rule 11 or any
other shipping method. In other words, whenever INEOS shipped plastics to East
9
St. Louis or New Orleans as an interchange destination, the Minimum Volume
Requirement applied. Under this interpretation, INEOS breached the Minimum
Volume Requirement by using Union Pacific to carry more than 5% of INEOS’s
joint-line rate shipments to East St. Louis and New Orleans where Norfolk Southern
assumed the plastics and carried them to eastern destinations, even though the routes
listed in the Union Pacific TSA were not governed by Railway Accounting Rule 11.
However, construing the same language, we also conclude the parties may
have intended the Minimum Volume Requirement to apply to INEOS’s shipments
of plastics that required a carrier transfer in East St. Louis and New Orleans pursuant
to only Railway Accounting Rule 11. In other words, INEOS was required to
comply with the Minimum Volume Requirement for shipments to East St. Louis or
New Orleans as an interchange destination only when Railway Accounting Rule 11
applied. This interpretation is reasonable because Railway Accounting Rule 11 is
the only multi-carrier shipping method used in the BNSF Rule 11 Matrix. Under
this interpretation, INEOS did not breach the Minimum Volume Requirement by
using Union Pacific to carry more than 5% of INEOS’s joint-line rate shipments of
plastics to East St. Louis and New Orleans where Norfolk Southern assumed the
plastics and carried them to eastern destinations because the routes listed in the
Union Pacific TSA were not governed by Railway Accounting Rule 11.
Accordingly, TSA 1 is subject to at least two reasonable interpretations: one
establishes BNSF’s breach-of-contract claim, and the other negates the claim. We
hold the trial court erred by granting BNSF’s motion for summary judgment but did
not err by denying INEOS’s motion. INEOS’s sole issue is sustained in part and
overruled in part.
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We reverse the trial court’s judgment and remand for further proceedings
consistent with this opinion.6
/s/ Charles W. Seymore
Justice
Panel consists of Chief Justice Hedges and Justices Seymore and Brown.
6
Our interpretation of TSA 1 is based solely on a review of TSA 1, not a construction of
TSA 1 coupled with the former versions of TSA 1 and TSA 2. Our opinion does not prevent the
parties from contending on remand that their agreement was unambiguous when TSA 1 and the
former TSAs are considered together. We do not address whether a joint construction of the
agreements is appropriate in this context.
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