531 S.W.3d 234
Tex. App.2017Background
- Fairfield Industries (Fairfield) licensed seismic data to EP Energy under a 2007 Master License Agreement with supplement agreements specifying licensed data and fees; licenses were non-exclusive for 25 years.
- Section 5 of the Agreement required EP Energy to pay a fee (the Fee) within 30 days after a change in control of EP Energy or any entity that controls EP Energy, for Data to which the acquiring party did not already have a license; the Fee equals at least 50% of the cash portion of the license fee per a formula.
- In May 2012, a purchase of EP Energy’s parent constituted a change in control. Nine days earlier EP Energy sent a notice purporting to terminate the Agreement and returned or stored/ deleted many data copies; EP Energy later declined to pay the Fee.
- Fairfield sued for breach of contract to recover the Fee (over $21 million), and asserted claims for improper disclosure, labeling failures, and trade-secret misappropriation; EP Energy moved for summary judgment dismissing Fairfield’s claims.
- The trial court granted EP Energy’s motion and dismissed Fairfield’s claims; Fairfield appealed the dismissal of the Fee claim and other claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a change in control obligates EP Energy to pay the Fee even if no data was transferred to the acquirer | Fairfield: Fee is triggered by change in control per §5 and does not require an actual transfer of Data to the acquirer | EP Energy: Fee is a "transfer fee" payable only if EP Energy actually transfers Data to a successor/acquirer | Court: Fee obligation is triggered by change in control regardless of whether Data was transferred; contract unambiguous to that effect (reversed as to Fee claim) |
| Whether industry custom/usage requires actual transfer to trigger a fee | Fairfield: Agreement text governs; customs cannot override clear contract language | EP Energy: Industry custom shows transfer fees apply only when licensed data is actually transferred | Court: EP Energy failed to prove a binding industry custom; even if shown, custom cannot contradict unambiguous contract language (trial court erred to rely on custom) |
| Whether EP Energy’s pre-change unilateral termination/return/ deletion of Data avoids Fee | Fairfield: Agreement contains no unilateral termination/right-to-avoid-Fee; returning/ deleting Data does not eliminate the license status under §5 | EP Energy: It waived rights and returned/ destroyed Data before change, so no Fee is owed | Court: Unambiguous Agreement does not permit unilateral termination to avoid Fee; those actions do not discharge the Fee obligation (trial court erred) |
| Whether the Fee is an unenforceable liquidated-damages penalty | Fairfield: §5 imposes a conditional payment, not liquidated damages; change in control is not a breach | EP Energy: The Fee functions as liquidated damages and is an unenforceable penalty | Court: §5 is not a liquidated-damages clause; Fee is not liquidated damages; trial court erred to the extent it relied on penalty theory |
Key Cases Cited
- KCM Fin. LLC v. Bradshaw, 457 S.W.3d 70 (Tex. 2015) (summary-judgment standard review)
- M.D. Anderson Hosp. & Tumor Inst. v. Willrich, 28 S.W.3d 22 (Tex. 2000) (summary-judgment burdens)
- Heritage Res., Inc. v. NationsBank, 939 S.W.2d 118 (Tex. 1996) (contract ambiguity principles)
- American Mfrs. Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154 (Tex. 2003) (construction of unambiguous contracts)
- Dynegy Midstream Servs. v. Apache Corp., 294 S.W.3d 164 (Tex. App.) (custom cannot contradict clear contractual language)
- Combs v. Health Care Servs. Corp., 401 S.W.3d 623 (Tex. 2013) (narrow absurdity doctrine in contract interpretation)
- FM Props. Operating Co. v. City of Austin, 22 S.W.3d 868 (Tex. 2000) (affirmance when any independent summary-judgment ground is meritorious)