Lead Opinion
Appellant-Cross Appellee Dynegy Marketing and Trade (“Dynegy”) and Cross
FACTUAL AND PROCEDURAL BACKGROUND
This is a contract dispute between a natural gas clearinghouse, Dynegy, and two separate entities that manage refinery plants, Ergon Refining and Ergon-WV. The two Ergon entities
After the two Ergon companies’ suits were removed to federal court and consolidated, the district court held a bench trial. Following trial, the district court determined that the Ergon Refining contract was ambiguous and that extrinsic evidence showed that the contract did not obligate Dynegy to attempt to secure replacement gas. But the court concluded that the Ergon-WV contract unambiguously required Dynegy to make this attempt. The court’s analysis hinged on the language of the force majeure provisions in each contract.
Interpreting the Ergon Refining contract, the district court ruled for Dynegy. The language in this contract required the party invoking force majeure to demonstrate that it had “remedied with all reasonable dispatch” the force majeure event.
Because the district court concluded that the contract was ambiguous, it admitted parol evidence of trade usage in the form of unrebutted testimony given at trial by Dyaeg/s expert witness, whom it found “highly credible.” The district court explained that the witness testified that it is a “universal practice” in the gas industry for a downstream supplier to declare force majeure when its upstream supplier has done so and that the downstream supplier is not expected or obligated to search for replacement gas. Moreover, the court noted that the witness testified that “there were sound economic reasons for this approach,” and, particularly that it stabilized prices during a force majeure event by quelling demand. The court, based on this testimony, found that Dynegy had remedied with all reasonable dispatch the supply reduction caused by the hurricanes and held that Dynegy was excused from performing during the force majeure period.
Turning to the Ergon-WV contract, the district court ruled for Ergon-WV. Although this contract did not contain an “all reasonable dispatch” clause in its force majeure provision, it required that for some, if not all, force majeure events, the party invoking force majeure demonstrate that the event was one that it was unable to overcome with due diligence. The provision allowed a party to invoke force majeure if it was “rendered unable, by reason of an event of force majeure, to perform, wholly or in part” and listed events that qualify. Following its list of enumerated force majeure events, which included “hurricanes” and “partial or entire failure of wells or sources of supply of gas,” the provision concluded “and any other causes, whether of the kind herein enumerated or otherwise, not within the control of the party claiming suspension and which by the exercise of due diligence such party is unable to prevent or overcome.” (Emphasis added.) The court concluded that the language of the Ergon-WV force majeure provision was “far more straightforward” than the Ergon Refining provision, and thus that the Ergon-WV contract was unambiguous. According to the court, the Ergon-WV contract unambiguously “required [Dynegy] to find replacement gas or use due diligence to overcome the event.” Because Dynegy conceded that it was physically capable of transporting gas to Ergon-WV’s plant and that it could have purchased gas on the open market, the district court found that Dynegy could have provided replacement gas using due diligence, and so it was not entitled to invoke force majeure. The court, therefore, awarded Ergon-WV the difference between the cover price and the contract price plus pre-judgment interest.
Ergon Refining and Dynegy cross-appeal the district court’s construction of the two contracts’ force majeure provisions. Dynegy also contends on appeal that the district court erred by not requiring Er
STANDARD OF REVIEW
“The standard of review for bench trials is well-established: ‘findings of fact are reviewed for clear error; legal issues de novo.’” Gebreyesus v. F.C. Schaffer & Assocs., Inc., 204 F.3d 639, 642 (5th Cir. 2000) (quoting FDIC v. McFarland, 33 F.3d 532, 536 (5th Cir.1994)). Under the contracts’ choice-of-law-provisions, all issues of contract construction are governed by Texas law.
In Texas, the existence of ambiguity in a contract is a question of law, so the Court reviews whether the Ergon contracts were ambiguous de novo. In re D. Wilson Constr. Co., 196 S.W.3d 774, 781 (Tex.2006); see Gebreyesus, 204 F.3d at 642. “A contract is ambiguous only if it is subject to two or more reasonable interpretations after applying the pertinent rules of construction.” In re D. Wilson Constr. Co., 196 S.W.3d at 781 (citation and internal quotation marks omitted). A contract is unambiguous “[i]f the written instrument is so worded that it can be given a certain or definite legal meaning or interpretation.” Coker v. Coker, 650 S.W.2d 391, 393 (Tex.1983).
“The construction of an unambiguous contract is reviewed de novo, but while interpretation of an unambiguous contract is a question of law, clear error is the standard of review when a district court uses extrinsic evidence to interpret an ambiguous contract.” Tarrant Distribs. Inc. v. Heublein Inc., 127 F.3d 375, 377 (5th Cir.1997) (citation and internal quotation marks omitted); see Coker, 650 S.W.2d at 394. This Court also reviews for clear error the district court’s factual findings as to whether the parties fulfilled their duties under the contracts. See Sellers v. Delgado Coll., 902 F.2d 1189, 1193—94 (5th Cir.1990).
Finally, this Court reviews the propriety of damages awarded to ErgonWV as a question of law. State v. Ware, 86 S.W.3d 817, 822 (Tex.App.-Austin 2002, no pet.); see also Jackson v. Fontaine’s Clinics, Inc., 499 S.W.2d 87, 90 (Tex.1973) (“Damages must be measured by a legal standard.”). The actual calculation of damages is an issue of fact subject to clear error review. See Jackson, 499 S.W.2d at 90.
DISCUSSION
The resolution of these appeals turns on our interpretation of the contracts between Dynegy and the Ergon companies. We consider each of these agreements in turn.
The Ergon Refining Contract
The language of the Ergon Refining contract’s force majeure provision states that a party to the contract is only entitled to invoke force majeure if that party “remedied with all reasonable dispatch” the force majeure event. The meaning of “with all reasonable dispatch” determines whether Dynegy had a duty to secure replacement gas.
The district court based its conclusion that the contract was latently ambiguous on the contract’s reference to “certain volumes of gas” in the recital as well as on the initial presence of specified sources in exhibits to the contract. Although a “contract may be read in light of the surrounding circumstances to determine whether an ambiguity exists,” Balandran v. Safeco Ins. Co. of Am., 972 S.W.2d 738, 741 (Tex.1998) (citation omitted), there is a fine line between whether evidence of surrounding circumstances is used to create an ambiguity or to reveal an ambiguity. We need not navigate that line here.
The word “reasonable” is not ambiguous. When it modifies other terms in a contract — reasonable time, reasonable value — it is used by the parties to designate that specific time, value, or dispatch that “would be thought satisfactory to the offeror by a reasonable man in the position of the offeree.” Christy v. Andrus, 722 S.W.2d 822, 824 (TexApp.-Eastland 1987, writ ref d n.r.e.) (citation and internal quotation marks omitted). This is a question of fact that must be answered by looking to the circumstances of the case, including “the nature of the proposed contract, the purposes of the parties, the course of dealing between them, and any relevant usages of trade.” Id. (citation and internal quotation marks omitted). The district court thus properly looked to extrinsic evidence of standards used by the gas industry to determine what was “reasonable dispatch,” even though it mistakenly thought that what was “reasonable” was ambiguous, rather than definite.
The district court did not clearly err in finding that “reasonable dispatch” does not include a duty to try to secure replacement gas. It cited “highly credible” expert testimony, which Ergon Refining did not rebut, that it is practice in the natural gas industry for a seller to simply pass on force majeure if its upstream suppliers have declared force majeure. It therefore was reasonable for the district court to conclude that Dynegy’s responses to Hurricanes Katrina and Rita were enough to satisfy the reasonable dispatch requirement in the Ergon Refining contract. Accordingly, the district court did not err in concluding that Dynegy was entitled to invoke force majeure under the Ergon Refining contract.
The Ergorir-WV Contract
The force majeure provision in the Ergon-WV contract is significantly different from the one in the Ergon Refining contract. Like its counterpart in the Ergon Refining contract, it enumerates certain force majeure events, including hurricanes and well failures, but then it ends with a catch-all category: “and any other causes, whether of the kind herein or otherwise, not within the control of the party claiming suspension and which by the exercise of due diligence such party is unable to prevent or overcome.” (Emphasis added.) Because Dynegy stipulated that it could have purchased some gas on the open market at some price after its suppliers declared force majeure, the case turns on whether the final clause modifies only the “other causes” or whether it modifies each of the enumerated force majeure events as well. Dynegy argues that the final clause applies only to other, unenumerated
Both possibilities are reasonable and both have support in Texas case law.
The gas industry evidence the district court believed “highly credible” when it found that Dynegy had no duty to attempt to provide replacement gas to Ergon Refining similarly counsels that we conclude that the supplier had no such duty with respect to Ergon-WV either. Ergon-WV has provided no evidence to rebut Dynegy’s expert witness. We thus hold that Dynegy was entitled to invoke the force majeure clause of the Ergon-WV contract and is not liable to Ergon-WV for damages stemming from its failure to search for replacement gas.
CONCLUSION
Although the district court mistakenly concluded that the Ergon Refining contract was ambiguous, it nevertheless correctly used extrinsic evidence to determine the parties’ understanding of the contract’s “reasonable dispatch” clause. We therefore AFFIRM the district court’s judgment with respect to Ergon Refining. Because the district court erred in concluding that the Ergon-WV contract unambiguously required Dynegy to attempt to secure replacement gas, we REVERSE its decision with respect to Ergon-WV and RENDER a decision in favor of Dynegy.
. Ergon-WV is a subsidiary of Ergon Refining. The two are separate legal entities.
. This contract was originally with Chevron, as gas supplier, but was later assigned to Dynegy.
. Dynegy's primary response to the force majeure event was to maintain contact with its upstream suppliers. It also delivered a portion of the gas that was due to the Ergon companies during the force majeure and eventually resumed full gas supply to both entities.
. The Ergon Refining contract's force majeure provision reads:
In the event of either Party hereto being rendered unable, wholly or in part, by force majeure to carry out its obligations under this Contract, other than to make payment for gas delivered hereunder, it is agreed that on such Party’s giving notice and full particulars of such force majeure in writing to the other Party as soon as practicable after the occurrence of the cause relied on, then the obligations of the Party giving such notice, so far as they are affected by such force majeure, shall be suspended during the continuance of any inability so caused but for no longer period, and such cause shall as far as possible be remedied with all reasonable dispatch.
. Both Ergon companies also argue that the language, found in each contract, that a party must be “rendered unable” to perform "wholly or in part” by force majeure prevents Dynegy from invoking the provision, because even after the 2005 hurricanes, Dynegy had the physical capacity to continue supplying gas to the designated delivery points and could still purchase gas on the spot market. The district court did not place much weight on this argument, nor do we. The Ergon companies' interpretation would make the force majeure provisions essentially meaningless because it would mean that a seller could never invoke force majeure so long as there was some gas available anywhere in the world, at any price. It was not clearly erroneous for the district court to disagree with this interpretation.
. ”[I]n diversity cases this Court has further held that while the decrees of lower state courts should be attributed some weight ... the decision (is) not controlling ... where the highest court of the State has not spoken on the point.” C.I.R. v. Bosch’s Estate, 387 U.S. 456, 465, 87 S.Ct. 1776, 18 L.Ed.2d 886 (1967) (internal quotation marks and citation omitted, alterations in original).
. Because we conclude that Dynegy is not liable, we do not reach the issue of damages.
Dissenting Opinion
dissenting in part:
I would affirm the district court judgment. I concur with the judgment that,
Dynegy’s obligation to Ergon-West Virginia was not to deliver a particular source of gas; it was to deliver a designated quantity. If the Dynegy could not deliver its supply because of Katrina and Rita, the force majeure clause would be material; but nothing prevented Dynegy from performing its contract since gas supply was available. Dynegy agrees that it was capable of transporting gas that it could have obtained for Ergon-West Virginia. Therefore, its contract required it to do so.