Keyes Helium Company v. Regency Gas Services, L.P.
393 S.W.3d 858
Tex. App.2012Background
- U.C.C. breach of contract dispute between Keyes Helium and Regency Gas Services arising from an Aug. 1, 1996 contract to buy crude helium from Regency’s Lakin Plant (through 2008 volumes capped at 120 million cu ft per year).
- Regency closed the Lakin Plant on Aug. 1, 2005 due to cost pressures and to protect its primary customer Oxy, riskingKeyes’s primary helium supply.
- Keyes sued Regency alleging breach of good faith, unreasonable variation from estimates, and failure to use best efforts.
- Trial court submitted a single liability question defining good faith to include a potential legitimate business reason for eliminating output; Keyes argued this expanded beyond U.C.C. definition.
- Jury rendered an 11-1 verdict for Regency; trial court granted directed verdicts against Keyes on unreasonable variation and best efforts.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Definition of good faith under the U.C.C. | Keyes—definition should track U.C.C. § 2-103(1). | Definition permissible; included legitimate business reason as a factor. | No reversible error; charge language did not improperly convert good faith. |
| Exclusion of expert testimony on fair dealing standards | Wilkins’s experience justifies expert status on fair dealing. | Error not preserved; no proper objections cited; testimony not properly designated as expert. | Issue not preserved; waived on appeal. |
| Directed verdict on unreasonable variation | Regency unreasonably reduced output contrary to contract; evidence supports claim. | Under U.C.C. 2-306(1), seller may reduce output in good faith; no liability absent bad faith. | Regency properly directed verdict; seller may reduce output in good faith. |
| Directed verdict on best efforts in exclusive dealing context | Keyes entitled to best efforts to obtain helium due to exclusive commitment. | Best efforts duty applies only to exclusive counterparties; Regency’s obligation did not transfer to Keyes. | Best efforts claim fails as matter of law; directed verdict upheld. |
Key Cases Cited
- Empire Gas Corp. v. American Bakeries Co., 840 F.2d 1333 (7th Cir. 1988) (output contracts may reduce to zero in good faith despite estimates)
- Lenape Res. Corp. v. Tenn. Gas Pipeline Co., 925 S.W.2d 565 (Tex. 1996) (Texas recognizes good-faith reductions in output under 2-306(1))
- Atlantic Track & Turnout Co. v. Perini Corp., 989 F.2d 541 (1st Cir. 1993) (supports good-faith reduction rationale in output contracts)
- Brewster of Lynchburg, Inc. v. Dial Corp., 33 F.3d 355 (4th Cir. 1994) (good-faith limitations on output under U.C.C. 2-306(1))