In a case that combines the interplay of related transportation and terminal agreements executed in the days leading up to the COVID shutdown and consequent disruption of the energy industry, the Dallas Court of Appeals has reversed a “nuclear” verdict against a midstream company.
Medallion Pipeline Company, LLC v. ARM Energy Management LLC (No. 05-23-00446-CV; May 19, 2025) arose from two related agreements executed in 2019 between Medallion and ARM. At the time, EPIC Terminal Co. was building a crude oil pipeline from West Texas to the Port of Corpus Christi to deliver up to 400,000 barrels per day. EPIC was also building a terminal facility with a capacity of 700,000 barrels per day. In 2017 ARM, an energy trading, transport, and marketing company, began developing a pipeline (Salt Creek) to connect with EPIC’s pipe to transport West Texas Light Crude (WTL), and between 2018 and 2020 the two entities “regularly communicated” about the status of the projects. Enter Medallion, which owned and operated a pipeline system in the Permian carrying only West Texas Intermediate crude oil (WTI). In 2019 Medallion agreed to provide EPIC with capacity on its pipeline if EPIC provided Medallion with capacity on its pipeline to deliver about 27,778 barrels a day to the EPIC’s in-service facility at the Port. Medallion entered into agreements with EPIC to sell the pipeline and terminal capacity to a third party.
Aware that ARM wanted to “over-buy” pipeline space and re-sell it to small producers, EPIC introduced ARM to Medallion. The parties subsequently entered into two agreements, both with five-year terms. At the time of the agreements, July 2019, EPIC’s new terminal was not completed. Under the deals, ARM had to tender to Medallion the 27,778 barrels per day on the pipeline capacity Medallion leased from EPIC at $1.35 per barrel or pay for the capacity if it failed to tender the oil, regardless of any change in economic conditions or other reason. ARM was also obligated to maintain credit support, whereas Medallion promised to provide committed firm service for the daily number of barrels, subject to tariffs. Medallion agreed to provide ARM with terminal services that it received from EPIC, including receipt of oil delivered to the Port and delivery to vessels at EPIC’s in-service terminals. In exchange, ARM agreed to a ship-or-pay obligation of $0.15 per barrel and provide a prepayment deposit and credit support. There was also a provision for a nomination of the monthly barrel commitment for each month after the commencement date, as well as a nominated vessel. Shortly after the deal was done, ARM contracted with Glencore, a shipping firm, and assigned its rights under the agreements with Medallion. Medallion consented to the assignment. ARM also had a deal with Lilis Energy to supply about half of its subleased capacity. This went by the boards when Lilis filed for bankruptcy and terminated its agreement with ARM.
As the COVID pandemic ramped up in April 2020, EPIC gave notice that it could no longer offer WTL service and requested all shippers to forego submitting nominations of WTL. ARM then asked EPIC if it were offering WTL service but was non-committal when asked how much and when. Shortly thereafter, ARM and Glencore sent a letter to Medallion griping about EPIC, to which Medallion responded by requesting documentation of the alleged problems. This request went unanswered. In late October EPIC revised its tariff to reflect suspension of service. ARM and Glencore didn’t object but instead Glencore submitted a nomination of 2,000 barrels per day of WTL. ARM admitted that this was a frivolous request because they knew EPIC wasn’t offering service at that time. Fast forward to February 2021, when Medallion adviced ARM and Glencore that EPIC would accept a WTL nomination of 3,333 barrels per day and would load their oil at a neighboring terminal. ARM and Glencore didn’t call back but instead terminated their agreement with each other.
Since Glencore no longer provided credit support, EPIC drew on ARM’s letters of credit and invoiced ARM for the rest. ARM sent notice of termination of the agreements and sued Medallion for a declaration that it had terminated the agreements and seeking a return of the prepayment deposit and credit support. It later amended its petition to assert breach of contract. Medallion counterclaimed for breach of contract. After a January 2023 bench trial, the Dallas district court decided in favor of ARM, concluding that Medallion materially breached the agreements by not providing WTL and various other transgressions. It rendered judgment awarding $37,823,306.70 in actual damages, including the return of the prepayments and credit support and prejudgment interest. It also awarded ARM attorney’s fees, costs, and post-judgment interest. Medallion appealed.
In an opinion by Justice Kennedy, the court of appeals reversed and rendered and remanded in part. The parties agreed that the agreements were unambiguous, and the court of appeals concurred. It thus looked to the plain text of the agreements and the surrounding circumstances (citing Barrow-Shaver). Medallion’s first took issue with the trial court’s finding that the terminal agreement entitled ARM to so-called “Suezmax service,” that is, a nominated vessel capable of transiting the Suez Canal with up to 1,000,000 barrels of oil. It argued further that even so, ARM never nominated a Suezmax vessel. Additionally, the fact that Medallion had not completed its terminal facility prior to commencement of the lawsuit did not constitute a breach. The parties disputed whether the 1,000,000 number in the terminal agreement referred to the vessel (ARM) or the terminal (Medallion). The court agreed with ARM that the number related back to the nominated vessel. But, as the court pointed out, the agreement only stated a number of up to a million barrels and, when read in conjunction with the terminal agreement indicating that access to a Suezmax vessel depended on several capacity factors at the Port, the agreement could not be read to guarantee ARM the Suezmax. The agreement also required ARM to give Medallion written nomination notice with specific details about the proposed vessel and loading date, including that the nominated vessel complied with Port rules and restrictions. Medallion further had the right to refuse the nomination.
Looking to what those Port rules actually were, the court determined that in the relevant time frame maximum vessel sizes for the Port corresponded to the much smaller “Aframax” vessel, not a Suexmax. ARM could thus not have nominated a Suezmax vessel even had it wanted to. The court indicated that the record contained evidence that the trial court considered ARM’s “subjective understanding” stemming from pre-contract negotations, so the trial court erred to the extent that it did so. Additionally, the trial court erred when it ruled that ARM’s ship-or-pay quantity of 850,000 barrels dictated the nomination of a Suezmax vessel, regardless of the provisions of the terminal agreement. As to the fact that ARM never nominated any vessel as required by the agreements, Medallion couldn’t have breached that part of the agreement, i.e. by not providing a Suezmax vessel. Similarly, the trial court’s conclusion that Medallion breached the agreement by failing to guaranty the completion of the construction of EPIC’s new terminal. Nothing in the terminal agreement stated anything of the kind. Instead, the deal was “subject to” the completion date of the terminal. This issue went to Medallion.
Medallion’s second issue involved ARM’s contention that its failure to provide WTL service breached the transportation agreement. Here the court determined that the agreement obligated Medallion to transport crude oil on EPIC’s system using EPIC’s tariff. The problem was, EPIC notified ARM two days after the agreement’s commencement date that had suspended WTL service and sometime later revised its tariff to reflect that. The trial court ruled that despite EPIC’s actions, Medallion was still obligated to provide WTL service. But the record didn’t support this finding because Medallion’s performance was tied to the terms of EPIC’s tariff. Once it terminated WTL service and changed its tariff, Medallion was no longer bound to deliver WTL. ARM could not also assert an anticipatory breach on the basis of EPIC’s actions, thus rendering its failure to actually make a contractually required nomination excusable. It didn’t plead anticipatory breach, and the trial court didn’t decide the case on that basis. This issue went to Medallion as well.
The court of appeals reversed the trial court’s judgment and rendered judgment for Medallion. It remanded to the trial court for further proceedings, presumably the issue of whether ARM has to pay any attorney’s fees and costs itself. For those of you who made your way through the rather extended discussion of the facts to what the court of appeals held, congratulations! But we think it an important part of our duty to report in some detail on the difficult and complex work that our intermediate courts of appeals have to do. In the future a case like this is likely to go the business court and then on to the 15th Court of Appeals, but that doesn’t mean the existing courts aren’t capable of handing complex matters the way the Dallas court did here.
