Railroad Commission v. Gulf Energy Exploration Corp., 482 S.W.3d 559

Background

The Railroad Commission (the Commission) had orders to plug abandoned offshore wells after operator ACE became insolvent; Superior was contracted to plug eight wells including 707S-5 and 708S-5.
On May 19, 2008, representatives of Gulf Energy (lessee), ACE, and the Commission orally agreed to postpone plugging four wells (including 708S-5) while Gulf Energy posted a bond and applied to become operator; a written Settlement and Forbearance Agreement was signed June 9, 2008.
On May 25, 2008, the Commission (through contractor Superior) mistakenly plugged well 708S-5, apparently due to mislabeled procedure sheets and other alleged lapses by the plugging crew and Commission representatives aboard the vessel.
Gulf Energy obtained legislative permission to sue the Commission (limited to $2.5 million) and sued for negligence and breach of contract; the jury ruled for Gulf Energy and awarded the statutory maximum after settlements with other defendants.
The trial court refused the Commission’s requested jury question on the statutory good-faith defense (Tex. Nat. Res. Code § 89.045) and ruled as a matter of law that a binding contract existed as of the May 19 meeting; the court of appeals affirmed and the Commission sought review.

Issues

Issue	Plaintiff's Argument (Gulf Energy)	Defendant's Argument (Commission)	Held
Whether § 89.045’s good-faith defense bars liability and required a jury question	§ 89.045 does not apply to this mistaken plugging or to contract damages; good faith should be measured objectively	§ 89.045 is an available statutory defense for any damages from acts done in a good-faith effort to carry out chapter 89; trial evidence established good faith and the jury should have been asked	Court: Good faith is a subjective-state-of-mind defense (honesty, absence of improper motive or willful ignorance); evidence raised fact issues so the court erred by refusing the jury question; remand for new trial
Standard for "good faith" under § 89.045	Should be measured by objective reasonableness (not merely subjective)	Should be subjective: honesty in fact, free of improper motive or willful ignorance	Court: Adopts subjective standard (honesty in fact; absence of improper motive or willful ignorance); rejects importing official-immunity objective standard
Whether the parties formed a binding contract on May 19 (before the plugging)	The May 19 oral agreement and subsequent emails reflect a binding agreement before May 25	No binding contract existed until the written Settlement and Forbearance Agreement was signed June 9; intent to be bound is disputed	Court: Intent to be bound on May 19 is a disputed fact; trial court erred by resolving formation as a matter of law; contract-formation question must go to jury
Whether § 89.045 applies to contract damages as well as tort damages	Good faith is irrelevant to breach-of-contract liability	§ 89.045 applies broadly to "any damages" from acts in a good-faith effort to carry out chapter 89, so it may limit contract recovery	Court: § 89.045 is not limited to tort claims and can apply to contract damages; parties and jury should address it on remand

Key Cases Cited

Brown & Gay Eng’g, Inc. v. Olivares, 461 S.W.3d 117 (Tex. 2015) (sovereign immunity and waiver principles)
Kia Motors Corp. v. Ruiz, 432 S.W.3d 865 (Tex. 2014) (statutory interpretation; courts may not add language to alter plain meaning)
Zorrilla v. Aypco Constr. II, LLC, 469 S.W.3d 143 (Tex. 2015) (definition and nature of affirmative defenses)
Associated Indemnity Corp. v. CAT Contracting, Inc., 964 S.W.2d 276 (Tex. 1998) ("good faith" as honesty in fact; bad faith requires improper motive or willful ignorance)
Ballantyne v. Champion Builders, Inc., 144 S.W.3d 417 (Tex. 2004) (official-immunity framework for discretionary acts)
Chambers v. City of Lancaster, 883 S.W.2d 650 (Tex. 1994) (official-immunity doctrine and discretionary-vs-ministerial acts)
TGS-NOPEC Geophysical Co. v. Combs, 340 S.W.3d 432 (Tex. 2011) (undefined statutory terms receive ordinary meaning unless context indicates otherwise)
Foreca, S.A. v. GRD Development Co., 758 S.W.2d 744 (Tex. 1988) (when a formal document is or is not a condition precedent to contract formation)
David J. Sacks, PC v. Haden, 266 S.W.3d 447 (Tex. 2008) (meeting of the minds required for contract formation)