Eastman Gas Company, L.L.C., F/K/A Fairplay Gas v. Goodrich Petroleum Company, L.L.C.
456 S.W.3d 319
Tex. App.2015Background
- Eastman Gas (formerly Fairplay) operated as an intermediate transporter/marketer under a written Gas Gathering Agreement with Goodrich; Eastman collected, transported, sold gas and paid producers after deducting fees.
- Goodrich commissioned a 2007 audit alleging Eastman undercredited Goodrich; Eastman disputed the audit methods and refused to pay, leading Eastman to sue and Goodrich to counterclaim.
- The parties executed a Rule 11 settlement agreement to retain a mutually agreed independent auditor, accept reasonable audit methodology, and draft a settlement based on the auditor’s findings, the contract, and offsets for unpaid invoices.
- The agreed auditor’s 2012 report found Eastman undercredited Goodrich by 323,024 MMBTU, entitling Goodrich to over $2.1 million under the parties’ agreement; the trial court entered judgment for Goodrich (with an offset for unpaid Eastman invoices and post-judgment interest).
- Eastman appealed, arguing the Rule 11 agreement was unenforceable (an agreement to agree), that a contract two-percent variance clause barred recovery, and that there was a factual dispute over whether Goodrich gave timely notice of disputed statements.
Issues
| Issue | Plaintiff's Argument (Eastman) | Defendant's Argument (Goodrich) | Held |
|---|---|---|---|
| Enforceability of Rule 11 settlement | Agreement is vague/missing essential terms (how contract terms apply, releases, payment/interest) and thus an unenforceable agreement to agree | Rule 11 was written, signed, filed, identified auditor process, incorporated contract and audit results — contains essential terms and is enforceable | Rule 11 enforceable; taken with the underlying contract and auditor report, it contained essential terms and bound the parties |
| Applicability of two-percent variance clause | The undercredit (323,024 MMBTU) is within two percent of total volume so clause bars recovery | Clause inapplicable here; audit did not find aggregate meter inaccuracy of ≥2% | Clause did not apply; paragraph 5.8 addresses aggregate meter inaccuracy findings, not overall volumetric variance over a long audit period |
| Waiver of two-percent defense | Not asserted earlier but preserved | Eastman waived by agreeing to audit and failing to raise the defense before audit completion | No waiver found; Eastman’s post-audit assertion did not constitute unequivocal conduct relinquishing the right |
| Timeliness/notice of dispute | There is a factual dispute over whether Goodrich timely notified Eastman of billing disputes, precluding judgment | Notice was an affirmative defense on which Eastman bore the burden; the documentary record before the court did not establish untimely notice | No genuine dispute in the admitted record; trial court correctly resolved notice against Eastman (Eastman bore burden and evidence failed to prove timely-notice defense) |
Key Cases Cited
- Valence Operating Co. v. Dorsett, 164 S.W.3d 656 (Tex. 2005) (standard for interpreting contracts and summary-judgment principles)
- McCalla v. Baker’s Campground, Inc., 416 S.W.3d 416 (Tex. 2013) (settlement agreement enforceability where essential terms are present)
- T.O. Stanley Boot Co. v. Bank of El Paso, 847 S.W.2d 218 (Tex. 1993) (courts may not supply material contract terms)
- Tex. Health Enters., Inc. v. Tex. Dep’t of Human Servs., 949 S.W.2d 313 (Tex. 1997) (documents treated as admitted by parties and court can be considered even if not formally admitted)
- Jernigan v. Langley, 111 S.W.3d 153 (Tex. 2003) (definition and elements of waiver)