638 S.W.3d 179
Tex.2022Background
- SIS contracted with International Paper (IP) in 2014 to upgrade a slaker; cost overruns led SIS to seek an additional $2.4M that IP refused to pay.
- Before litigation SIS had a confidential $42M acquisition offer from Primoris; negotiations collapsed after IP’s refusal to pay; later offers were much lower.
- SIS sued IP (and Ogden sued in his individual capacity) and sought consequential damages based on (a) the lost $42M sale, (b) a $12.4M decline in book value, and (c) $1.9M in tax penalties; a jury awarded $2.4M (direct) plus $56.3M (consequential).
- The court of appeals reversed fraud awards, affirmed $2.4M direct damages, and reduced consequential damages to $12.4M (book-value decline); it rendered judgment against Ogden and rejected IP’s indemnity claim.
- The Texas Supreme Court held that (1) the $42M lost-sale/market-value damages were not foreseeable to IP at contracting and thus unrecoverable; (2) the $12.4M book-value measure lacked reasonable certainty and was unrecoverable; (3) certain invoice charges were contractually barred, reducing direct damages by $622,560.61; (4) the indemnity claim remains barred by the Insurance Code; and (5) Ogden cannot recover individually on SIS’s contract.
Issues
| Issue | SIS’s Argument | IP’s Argument | Held |
|---|---|---|---|
| Consequential damages for lost market/company value (the $42M Primoris offer) | The $42M offer evidences SIS’s pre‑breach market value; jury awarded decline in company value | Loss of the Primoris sale (and resulting market‑value collapse) was not foreseeable to IP at contracting | Reversed: loss of market/company value was not foreseeable; $42M excluded |
| Consequential damages measured by decline in book value ($12.4M) | Book‑value decline reflects real loss to the company and is an appropriate measure | Book value is an accounting metric, not a reliable measure of consequential damages; lacks reasonable certainty | Reversed: book‑value decline insufficiently proved with reasonable certainty; $12.4M excluded |
| Direct damages (invoices totaling ≈ $2.4M) | Jury award of $2.4M is supported by invoices and evidence | Portions of Invoice #1200‑6087 (overhead, tax penalties, lost revenue) are barred by contract | Rendered judgment reducing direct award by $622,560.61 (Invoice #1200‑6087 barred); remaining invoice allowed |
| Indemnity for costs defending Ogden’s suit | IP seeks contractual indemnity from SIS for defense costs | SIS contends the indemnity clause’s sole‑negligence exception and the Insurance Code bar indemnity for claims caused by indemnitee’s breach | Affirmed: indemnity not enforceable here under Insurance Code §151.102 as to Ogden’s claims |
| Ogden’s individual breach‑of‑contract suit | Ogden claims assignment or agency rights to sue on SIS’s contract | IP argues Ogden lacked privity, no valid assignment, and agency exceptions do not apply | Affirmed: Ogden may not recover individually; no assignment or agency exception applies |
Key Cases Cited
- Phillips v. Carlton Energy Grp., LLC, 475 S.W.3d 265 (Tex. 2015) (consequential damages must be proved with reasonable certainty)
- Stuart v. Bayless, 964 S.W.2d 920 (Tex. 1998) (Hadley foreseeability requirement for consequential damages)
- Basic Capital Mgmt., Inc. v. Dynex Com., Inc., 348 S.W.3d 894 (Tex. 2011) (foreseeability of lost business opportunities when defendant knew how funds would be used)
- Pike v. Tex. EMC Mgmt., LLC, 610 S.W.3d 763 (Tex. 2020) (book value is not equivalent to market value for valuation/damages)
- City of Keller v. Wilson, 168 S.W.3d 802 (Tex. 2005) (legal‑sufficiency review standards for jury findings)
- Transp. Ins. Co. v. Moriel, 879 S.W.2d 10 (Tex. 1994) (legal sufficiency standard for evidence review)
- Horizon Health Corp. v. Acadia Healthcare Co., 520 S.W.3d 848 (Tex. 2017) (rendering take‑nothing judgment when lost‑profits evidence insufficient)
- Sw. Bell Tel. Co. v. DeLanney, 809 S.W.2d 493 (Tex. 1991) (distinguishing negligence from breach for indemnity/exceptions)
- Tinsley v. Dowell, 26 S.W. 946 (Tex. 1894) (agent generally cannot sue on principal’s contract; narrow exceptions explained)