In another sandbox fight between big energy companies, the Houston [14th] Court of Appeals has affirmed a trial court judgment awarding $129 million in a breach of contract case.
Targa Channelview LLC v. Vitol Americas Corp. (No. 14-21-00048-CV) arose from a contract under which Vitol (originally “Noble Americas Corp.”) agreed to deliver crude oil to a splitter facility to be constructed, owned, and operated by Targa. Targa would buy the crude and split it into multiple products, such as jet fuel and naphta, which Vitol agreed to purchase. Vitol could terminate the contract if Targa failed to get the splitter up and running within 27 months after receiving all necessary permits. Vitol agreed to pay $43 million annually for the first seven years of the agreement, which would be deposited into the “Noble” account. Following startup of the facility, Targa would issue monthly invoices showing the balance in the account. Targa failed to meet the startup deadline in December 2018, resulting in Vitol terminating the agreement and demanded remittance of the $129 million remaining in the Noble account. When Targa refused, Vitol sued, asserting breach of contract and fraud claims. After a five-week bench trial, the trial court awarded Vitol $129 million on its breach of contract claim and $10 million on the fraud claim (plus pre- and post-judgment interest and costs). Targa appealed.
The court of appeals affirmed on the breach of contract issue. Targa asserted that in the event startup was not achieved, Vitol’s sole remedy under the contract was to terminate the contract. Vitol, however, argued that under a different contract provision, Targa’s failure to perform a material provision of the contract entitled it to seek damages for breach. Targa breached a material provision when it failed to prepare a final invoice at the end of the agreement and remit the balance in the Noble account to Vitol. Based on the plain meaning of the text, the court concurred with Vitol, holding that the unambiguous meaning of the contract required Targa, upon termination of the agreement, to issue a final invoice and remit the account balance. The court rejected Targa’s argument that only the expiration of the agreement, not its termination, triggered that requirement. Targa also asserted that the contract’s use of the word “conclusion of the Term” meant that it only had the obligation to issue the final invoice if the contract expired “naturally”—that is, the seven-term that would have occurred if Targa had achieved startup. Applying the dictionary definition of the undefined term, the court determined that “termination” is commonly defined to include both “conclusion” and “expiration,” frustrating Targa’s attempt to escape the obligation to pay the money back. “In sum,” the court concluded, “Targa’s construction of the Agreement would require us to imply that because Vitol exercised its contractual right to terminate the Agreement for Targa’s failure to achieve timely Startup. Targa gets to keep all of the money paid into the Noble Account without ever having supplied any splitter products. Such a right would have to be implied, for the Agreement does not say this. But the existence of such an implied right could not be harmonized with the Agreement’s express provisions.”
This is another case that would fit into the jurisdiction of a specialized business court under prior versions of the proposal—a breach of contract case between business entities involving more than $1 million. But is a specialized court really needed for a straight-up contract interpretation case without any particular complex questions of law or fact? Probably not, but again the question arises as to how much more quickly the parties might have gotten this result if such a court existed. Here Vitol terminated in late 2018, suit was filed in 2019, the court of appeals came down in September, 2022. One might also ask the question of how quickly the parties want to get a decision. Clearly, Vitol wanted one fast because it was out-of-pocket for $129 million. Targa, on the other hand, might not have been very eager to hand over the money (although it risked pre- and post-judgment interest piling up on the damages). Perhaps a new business court proposal could require the parties to consent to its jurisdiction, either in the contract or when suit is filed. Not all disputes between businesses are complex, even though they may involve a lot of money, so a dedicated court for those might not be an efficient use of resources. But for truly complex cases with a lot of evidentiary and document interpretation issues, a specialty business court could be a time and money saver for the parties.
