Red Ball Oxygen Company, Inc. v. Southwest Railroad Car Parts Company and Air Liquide Industrial U.S., L.P.
523 S.W.3d 288
Tex. App.2017Background
- Red Ball Oxygen (seller) and Southwest Railroad Car Parts (purchaser) had a long-term bulk oxygen supply agreement (2005) with prices listed on Schedule A and a paragraph permitting price increases "due to cost increases incurred by the Seller."
- Southwest disputed Red Ball’s price increases in early 2012, paid lesser amounts, and notified Red Ball it would cancel the contract effective June 1, 2012, while soliciting alternative suppliers.
- Red Ball sued Southwest on account and for breach, and sued Air Liquide for tortious interference; Southwest counterclaimed for breach, declaratory relief, and DTPA claims.
- The bench trial court concluded the contract was unambiguous, construed "increased costs incurred by Seller" to mean costs directly attributable to the Agreement (i.e., supplier charges), held Red Ball breached by passing general overhead and surcharges to Southwest, and found Southwest justified in repudiating/terminating the contract.
- The trial court awarded damages and attorney’s fees to Southwest and denied Red Ball’s fee claim based on untimely expert designation.
- Red Ball appealed, arguing the contract permitted broader cost increases and surcharges and that Southwest improperly repudiated; the Court of Appeals affirmed.
Issues
| Issue | Plaintiff's Argument (Red Ball) | Defendant's Argument (Southwest) | Held |
|---|---|---|---|
| Contract construction — meaning of "increased costs incurred by Seller" | Term covers all operational/product costs and overhead; Red Ball may raise prices accordingly | Phrase means only costs directly attributable to supplying the contract (supplier/product costs) | Court: Unambiguous; limited to costs directly attributable to the Agreement (supplier charges). |
| Breach — did Red Ball breach by passing broader costs | No — evidence (company witnesses) shows parties intended "costs" to include overhead and routine business expenses | Yes — Red Ball’s evidence shows it passed non-authorized overhead and surcharges, breaching the contract | Court: Evidence legally sufficient that Red Ball breached by charging unauthorized amounts. |
| Surcharges/delivery/hazardous fees — contract authorization | Contract allows surcharges and F.O.B. language permits charging delivery/fuel/hazardous fees | Contract’s sole reference excludes those surcharges from price increases; no language makes purchaser liable; F.O.B. in contract billing paragraph does not shift costs | Court: Contract does not permit charging hazardous material, delivery, or fuel surcharges; Red Ball cannot invoice these. |
| Repudiation/termination — was Southwest’s termination justified | Southwest waived repudiation by continuing orders and thus breached by terminating early | Southwest properly repudiated after material breach and was excused from further performance | Court: Southwest acted in good faith; prior breach by Red Ball excused Southwest’s performance; termination justified. |
| Attorney’s fees — entitlement and exclusion of fee evidence | Red Ball entitled to fees as prevailing party and its fee evidence should not have been excluded | Red Ball’s expert designation on fees was untimely; exclusion was proper; Southwest entitled to fees | Court: Exclusion proper under Tex. R. Civ. P. 193.6; Red Ball not awarded fees; Southwest awarded fees. |
Key Cases Cited
- In re Doe, 19 S.W.3d 249 (Tex. 2000) (bench-trial findings reviewed like jury verdict on sufficiency)
- Exxon Corp. v. Emerald Oil & Gas Co., L.C., 348 S.W.3d 194 (Tex. 2011) (no-evidence standard for issues not burdened at trial)
- City of Keller v. Wilson, 168 S.W.3d 802 (Tex. 2005) (legal and factual sufficiency review principles)
- MCI Telecommunications Corp. v. Texas Utilities Electric Co., 995 S.W.2d 647 (Tex. 1999) (de novo review of unambiguous contract legal conclusions)
- Tawes v. Barnes, 340 S.W.3d 419 (Tex. 2011) (contract construction is question of law)
- Frost National Bank v. L & F Distributors, Ltd., 165 S.W.3d 310 (Tex. 2005) (contract construed to avoid unreasonable or oppressive meanings)
- Valence Operating Co. v. Dorsett, 164 S.W.3d 656 (Tex. 2005) (plain, ordinary meaning governs contract terms)
- National Union Fire Ins. Co. v. CBI Industries, Inc., 907 S.W.2d 517 (Tex. 1995) (trade usage evidence admissible to explain industry meaning)