The Business Court has granted partial summary judgment in a dispute between chemical companies over the terms of a purchase and exchange agreement.
Westlake Longview Corp. and Westlake Chemical OPCO, LP v. Eastman Chemical Co. (2026 Tex. Bus. 26; May 13, 2026) arose from a contract dispute between two chemical companies. In 2006 Eastman sold Westlake its polyethylene plant in Longview, as well as a pipeline that carried its product to a trading hub in Mont Belvieu. Eastman also owned crackers in Longview that supplied its plant. After the transaction was completed, Eastman retained ownership of the crackers, but Westlake obtained ownership of the plant and the pipeline. The parties entered into a long-term agreement under which Westlake would buy Eastman’s Longview ethylene and allow Eastman to transport ethylene not purchased by Westlake out to other companies.
The first agreement, now expired, guaranteed an ethylene supply to Westlake. The second agreement (the ESA), still in effect, requires Eastman to offer, and Westlake to either buy or exchange, Eastman’s “excess ethylene quantities (EEQ). This includes all ethylene produced by Eastman’s Longview crackers, subject to limited exclusions and a cap. At the beginning of each year, Eastman must offer Westlake the EEQ it intends to produce in the coming year. Whatever Westlake doesn’t want may be contracted to third parties for that year. Additionally, any EEQ not sold to Westlake or third parties under the annual nominations process must be offered again to Westlake on a month-to-month basis. Anything Westlake doesn’t want in this stage may also be contracted to third parties. Westlake thus has right of first refusal on annual contracts and on monthly sales of EEQ. Eastman, on the other hand, gets free exchange on the pipeline for any EEQ Westlake doesn’t buy. The ESA contains a choice-of-law provision specifying Delaware law, which the parties do not dispute.
Either way, Eastman delivers the ethylene through the distribution grid in Longview. Westlake pays the contract price for what it wants and delivers the rest in like kind and quality to Eastman in Mont Belvieu at no charge. If Eastman needs to buy ethylene from a third-party, it gets delivered back up the pipeline, but at a fee. The dispute arose when, as Westlake alleged in its suit, Eastman withheld EEQ from its monthly nomination for sale to Westlake “that is not subject to third-party one year firm sales contracts (even if Westlake declined all or part of the annual nomination).” Additionally, Westlake claimed that Eastman’s third-party sales are not entitled to free exchange but must pay Westlake OpCo’s pipeline tariff. In other words, the long-term agreement only provides right of free exchange “for quantities of ethylene produced in a given month, properly nominated for sale to Westlake at the end of the month, and are declined by Westlake as part of Eastman’s nomination for the corresponding month.” Westlake moved for summary judgment.
In an opinion by Judge Andrews, the court granted the motion in part and denied it in part. First, the ESA requires Eastman, in good faith, to offer to sell Westlake all EEQ it intends to produce in the following calendar year. Unlike Texas law, Delaware law “imposes a covenant of good faith and fair dealing,” so that was Eastman’s obligation, which it didn’t contest. Once Eastman makes the annual nomination, Westlake has until August 31 to notify Eastman how much it will take for the year. The parties, however, disputed when during the year that EEQ must be delivered. Though the agreement specified that purchased ethylene must be delivered ratably over the period, that doesn’t apply to committed ethylene subject to the annual nomination. Eastman argued that Westlake had to take it in equal monthly installments, but since the ESA does not require that, the court accepted Westlake’s position that installments could vary. But the court observed that Westlake also had an implied duty of good faith and couldn’t structure its purchase of committed EEQ in an unreasonable or unreasonable manner.
The parties further disputed which third party sales came under the contract requirement that Eastman must offer uncommitted EEQ to Westlake on a monthly basis. Westlake argued that spot contracts made during the year are one-time sales and may not be excluded from the monthly nomination. In other words, the December 31 deadline for Eastman’s annual nomination requires Eastman to enter into third-party contracts by that date. Eastman disagreed on the basis that the ESA didn’t set the December 31 deadline for that purpose. Despite that, the court agreed with Westlake that the ESA requires that third-party contracts have a one-year term running from the annual nomination, and that any third-party sales must be contracted for the nomination year. Spot sales don’t meet that requirement. Otherwise, as the court pointed out, there wouldn’t be any point in the monthly nomination process because Eastman would thus withhold its EEQ in order to play the spot market.
Eastman, however, won the issue of whether its third-party sales of EEQ (that not taken by Westlake in the annual nomination) in compliance with the one-year requirement were entitled to free exchange. Westlake had argued that free exchange only applied to ethylene going through the monthly nomination process, but, as the court pointed out, the ESA handled all EEQ delivery or exchange quantities on a monthly basis, as well as calculating payments on a monthly basis. This monthly reckoning went for the purchased ethylene quantities nominated for the year and those nominated for the month. In any event, the court ruled, the ESA gave Eastman the right to invoke free exchange for all EEQ not purchased by Westlake.
Next, the parties disputed whether Eastman could invoke free exchange for ethylene stored in its inventory in Tyler because that ethylene “was not produced in the corresponding month.” The court ruled that the ESA contained no such limitation, which would clearly “conflict with the ESA’s mandate the Eastman prorate the EEQ on an approximately monthly basis.” The court also rejected Eastman’s contention that “tolled” or converted ethylene was subject to free exchange, since the ESA excluded it from the definition of EEQ. Indeed, the court stated, the ESA applies only to EEQ, not other products.
The court also dealt with an evidentiary issue of whether course-of-performance evidence may be considered in the absence of an ambiguity (the court found the ESA unambiguous). Under Delaware, such evidence may be considered under some circumstances if it leads to a reasonable construction of the contract’s express terms. Eastman wanted the evidence, but Westlake objected to it. To determine the issue, the court had to decide whether the Delaware UCC applied, which depended on whether the sale-of-goods aspect of the transaction predominated. The court determined that it didn’t because the services aspect (transportation) is equally important. Consequently, any course-of-performance evidence would be limited to the sales aspect of the contract. But in this case, the disputed evidence related only to the services aspect. Course-of-performance evidence could not be considered as to the ESA’s exchange rights. But even it it could, the court added, it wouldn’t have made any difference because the course of performance evidence generally showed compliance with the terms of the contract, and when it appeared not to, the pattern was intermittent, inconsistent, and sometimes to the advantage of one party and sometimes to the other.
This case once again exemplifies the purpose of the Business Court: to resolve complex business disputes at the earliest possible stage in a compressed time frame. It also shows the deliberate care that the Business Court judges take in crafting their written opinions. Based on what we’ve seen so far, the 15th Court may not have to settle too many appeals.
