TCJL has filed an amicus brief asking the Texas Supreme Court to reconsider its decision not to grant review of a Houston [14th] Court of Appeals decision affirming a trial court awarding $129 million in a commercial contract dispute between energy giants.
As you may recall from our post several weeks ago, Targa Channelview LLC v. Vitol Americas Corp. (No. 22-0958) arose from a contract under which Vitol agreed to deliver crude oil to a “splitter” facility to be built, owned, and operated by Targa. Targa agreed to buy the oil and split into, among other things, jet fuel and naphtha, which Vitol promised to buy. The contract gave Vitol the right to terminate if, within 27 months of receiving the necessary permits, Targa had not achieved “Startup” (sustained processing for 5 consecutive days at 80% of design capacity). It also obligated Vitol to pay $43 million each year for the first seven years of the term of the agreement into the so-called “Noble Account.” Once it achieved Startup, Targa agreed to invoice Vitol each month, showing the amount in the Noble Account, the amounts each party owed the other, and the net amount of the invoice after offsetting. In the event, Targa did not achieve Startup by the end of the 27-month period, which expired in December 2018. Vitol subsequently terminated the agreement, at which time $129 million remained in the Noble Account. Both parties claimed the cash, and when Targa did not remit the balance, Vitol sued for breach of contract and fraud. After a five-week bench trial, the trial court ruled for Vitol and awarded $129 million in contract damages and $10.57 million in fraud damages, plus pre- and post-judgment interest. Targa appealed.
In an opinion by Chief Justice Christopher, the court of appeals affirmed. Targa argued that it was entitled to the money in the Noble Account because the contract limited Vitol’s remedy if Startup failed to occur to termination of the contract. The court, however, held that the exclusive remedy provision applied only to Targa’s failure to achieve Startup, not to a default in the event that Vitol terminated in accordance with a different provision of the contract. This provision required Targa to remit the balance in the Noble Account pursuant to a final invoice at the conclusion of the contract “term.” Targa argued that the term, defined as the 84-month period after Startup, never “concluded” because it was never triggered to begin with. The court rejected this reasoning on the basis that the “term” of an agreement “has no independent existence and cannot outlive the Agreement itself.” In other words, a contract term may either “[be] passively allowed to ‘expire’ on its own” or “[be] actively terminated.” In this case, Vitol took the latter course. The court further determined that, consistent with the plain meaning, the phrase “conclusion of the term” encompassed both expiration and termination, and that if “conclusion” meant something different, as Targa argued that it did, the parties could have defined it that way (which they didn’t). Targa also argued that the section of the contract requiring it to issue invoices, including a final invoice, only applied to invoices issued post-Startup. Having already determined that “conclusion of the term” meant either expiration or termination, however, the court rejected this argument.
TCJL’s brief argues argues two points. First, the court of appeals misconstrued the contract to permit Vitol to claw back payments it made to build the splitter, which Targa duly spent on construction of the facility that Vitol later decided that it didn’t want. The contract, which is “forward looking,” doesn’t allow anything of the sort, and it’s hard to believe that any sophisticated party would agree to that. Second, if SCOTX does not review it, the court of appeals’ decision will become the law in the most heavily industrialized area of the state. If it does, we will have a nuclear judgment against a major energy company that held up its part of the bargain and now is being told that it has to take an $129 million hit on its balance sheet. That’s not good for the business climate or for fostering confidence that Texas courts will hold parties to the deals they make.
