ACCEPTED
14-09-00118-CV
FOURTEENTH COURT OF APPEALS
HOUSTON, TEXAS
3/23/2015 7:24:36 PM
CHRISTOPHER PRINE
CLERK
IN THE COURT OF APPEALS
FOR THE FOURTEENTH DISTRICT OF TEXAS
HOUSTON FILED IN
14th COURT OF APPEALS
__________________________________________________________________
HOUSTON, TEXAS
3/23/2015 7:24:36 PM
Appeal No. 14-09-00118-CV CHRISTOPHER A. PRINE
Clerk
__________________________________________________________________
WOLF HOLLOW I, L.P.
Appellant,
v.
EL PASO MARKETING, L.P. and
ENTERPRISE TEXAS PIPELINE, LLC.
Appellees.
On Remand from the Supreme Court of Texas
__________________________________________________________________
WOLF HOLLOW’S SUPPLEMENTAL REPLY BRIEF ON REMAND
__________________________________________________________________
Respectfully submitted,
MCGUIREWOODS LLP
Jacks C. Nickens
State Bar No. 15013800
600 Travis Street, Suite 7500
Houston, Texas 77002
(713) 353-6668
(832) 214-9931 Fax
Email: jnickens@mcguirewoods.com
ATTORNEYS FOR APPELLANT
ORAL ARGUMENT REQUESTED
IDENTITY OF PARTIES AND THEIR COUNSEL
Appellant: Trial and Appeal Counsel for Appellant:
Wolf Hollow I, L.P. Jacks C. Nickens
State Bar No. 15013800
McGuireWoods LLP
600 Travis Street, Suite 7500
Houston, Texas 77002
(713) 353-6668
(832) 214-9931 Fax
Appellees: Trial and Appeal Counsel for Appellees:
El Paso Marketing, L.P. D. Mitchell McFarland
State Bar No. 13597700
Munsch Hardt Kopf & Harr, PC
700 Milam Street, Suite 2700
Houston, Texas 77002
(713) 222-4041
(713) 222-5894 Fax
Enterprise Texas Pipeline, LLC Michael Hendryx
State Bar. No. 09461200
Suzanne R. Chauvin
State Bar No. 04160600
M. Chad Gerke
State Bar No. 24027390
Strong Pipkin Bissell & Ledyard, L.L.P.
1301 McKinney, Ste. 2100
Houston, TX 77010
(713) 210-4377
(713) 651-1920 Fax
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TABLE OF CONTENTS
IDENTITY OF PARTIES AND COUNSEL .............................................................i
TABLE OF CONTENTS .......................................................................................... ii
TABLE OF AUTHORITIES ................................................................................... iii
INTRODUCTORY STATEMENT OF ISSUES....................................................... 1
I. The Supply Agreement Does NOT Bar Wolf Hollow’s
Damage Claims ................................................................................................3
II. Section 21.1 Applies to Gas Quality Claims ................................................... 6
III. El Paso Breached Its Duties Under Article V of the Supply Agreement ........ 9
CONCLUSION ........................................................................................................10
ii
TABLE OF AUTHORITIES
Cases
Wolf Hollow I, L.P. v. El Paso Marketing, L.P. (Wolf Hollow II),
383 S.W.3d 138 (Tex. 2012) ............................................................ 2, 3, 4, 7
Wolf Hollow I, L.P. v. El Paso Marketing, L.P. (Wolf Hollow III),
409 S.W.3d 879 (Tex. App.–Houston [14th Dist.]
2013, pet. pending) ................................................................................... 5, 9
Wolf Hollow I, L.P. v. El Paso Marketing, L.P. (Wolf Hollow IV),
450 S.W.3d 121, 58 Tex. Sup. Ct. J. 108 (Tex. 2014) ........................... 5, 9
iii
IN THE COURT OF APPEALS
FOR THE FOURTEENTH DISTRICT OF TEXAS
HOUSTON
__________________________________________________________________
Appeal No. 14-09-00118-CV
__________________________________________________________________
WOLF HOLLOW I, L.P.
Appellant,
v.
EL PASO MARKETING, L.P. and
ENTERPRISE TEXAS PIPELINE, LLC.
Appellees.
On Remand from the Supreme Court of Texas
_________________________________________________________________
WOLF HOLLOW’S SUPPLEMENTAL REPLY BRIEF ON REMAND
__________________________________________________________________
TO THE HONORABLE COURT OF APPEALS:
INTRODUCTORY STATEMENT OF ISSUES
Even after years of appellate review, Wolf Hollow’s remaining arguments
and El Paso’s defenses bear repeating. El Paso breached the Supply Agreement by
delivering contaminated gas to Wolf Hollow’s plant, in violation of the pipeline
1
Tariff standards of quality. 1 Such deliveries were a breach of the provisions of
Article V’s fuel management services as well as the quality provisions of Article
XIV. 2 The breaches caused Wolf Hollow to shut down the plant and necessitated
the purchase of replacement power as “cover.” The Supply Agreement and the
general law of contracts provide remedies for El Paso’s breach. El Paso concedes
that Article XXI, entitled Default and Remedies, is not subject to Section 24.11’s
provision on consequential damages, at least in part. Section 21.1 provides a
process for a replacement power remedy. There is “evidence,” the Supreme Court
has concluded, that Wolf Hollow complied with that process. Wolf Hollow II at
145. Section 1.1’s definition of “Cover Standard” for a “delivery failure” similarly
relates to replacement power claims. Article XIV defines a quality failure as a
delivery failure. Section 21.2 defines a delivery failure, including under Article
XIV, as an “Event of Default.” Section 21.3 provides remedies for events of
default, including replacement power under section 21.1, the cover standard, and
general contract principles.
El Paso’s defenses to its breach were or are: 1) Article XIV provides an
exclusive remedy for quality breaches; 2) replacement power damages are
1
The Court’s review is of the trial court’s granting of summary judgment. Disputed facts are
subject to proof at trial on remand but for appellate purposes are accepted.
2
The Court reviews legal conclusions de novo. Wolf Hollow adopts and incorporates its prior
briefs, including the defined terms used in previous filings.
2
consequential damages barred by the Supply Agreement unless permitted under
Section 21.1; and 3) Section 21.1 does not apply to quality claims. El Paso lost its
exclusive remedy argument and at least part of its consequential damages argument
in the Texas Supreme Court. The matter now before this Court is the applicability
of Article XXI to Wolf Hollow’s gas quality claims. 3
I. The Supply Agreement Does NOT Bar Wolf Hollow’s Damage Claims.
El Paso begins its Supplemental Brief with the bold claim that the
“following points cannot be disputed.” (El Paso’s Brief I at 1) Then, in the same
paragraph, El Paso asserts the erroneous and disputed claim that the Supreme
Court affirmed that “all of Wolf Hollow’s damage claims for property damage and
replacement power were claims barred under the Agreement.” 4 [Emphasis added.]
The Supreme Court did not hold that the Supply Agreement barred Wolf Hollow’s
claims for replacement power. To the contrary, the Court held that Wolf Hollow’s
replacement power claims were NOT barred under the Agreement. Wolf Hollow II
at 145. Furthermore, the Court held there was “evidence” that Wolf Hollow
complied, as best it could under the circumstances, under Section 21.1 (c) of the
Supply Agreement. Specifically, the Court stated, “We thus conclude there is
evidence Wolf Hollow is entitled to recover replacement-power damages under
3
Technically, the Court is reviewing Declaration 4 of the trial court’s Final Judgment in granting
El Paso’s motion for Summary Judgment.
4
El Paso repeats the error later in its Supplemental Brief. Id. at 9.
3
Section 21.1 (c), precluding summary judgment against Wolf Hollow based on the
consequential damages waiver.” Id. The issue before the Court generally is not
consequential damages. The issue is the applicability of Article XXI to gas quality
claims.
El Paso has previously conceded that Article XXI is not subject to Section
24.11’s limitations.5 But, El Paso now argues that only Section 21.1 is excluded
from the consequential damages waiver, not all of Article XXI, as El Paso
previously stated. (El Paso’s Brief I at 9, 19.) There is no basis in the language of
the Supply Agreement for El Paso’s extension of the waiver. El Paso cites none
and offers no supporting argument. If the consequential damages exception
applies to Section 21.1, it applies to all of Article XXI. In addition, El Paso’s
sought a “clarification” in its Motion for Rehearing that the Supreme Court did not
intend “its holding to extend to replacement power purchased by Wolf Hollow
during the period of time the plant was out of service for repairs.” [Emphasis
added.] (El Paso’s Motion for Rehearing I at 2.) The Court denied the Motion
without comment. With regard to Section 14.1, the Court noted that El Paso
moved for rehearing, “arguing that “[t]he Court incorrectly construes El Paso’s
obligation under Section 14.1 of the Supply Agreement as to gas quality,” but we
5
“Article XXI provides an exception to Section 24.11 for deficiencies in gas quantity.” El Paso’s
Brief I at 15. Also, see El Paso Brief on the Merits I in Wolf Hollow II (June 27, 2011 at 15).
Citations and excerpts from the cited pleadings are reproduced in the Appendix.
4
denied the motion. [Emphasis added.] Wolf Hollow IV, n 1. The Court thus gave
significance to arguments denied in the motion for rehearing. Judge Busby also
found significance in the Supreme Court’s denial of El Paso’s motion for
rehearing. Wolf Hollow III at 893.
El Paso’s new argument ignores Section 21.3 which incorporates Section
21.1, meaning that all replacement power claims, including those under Article
1.1’s definition of cover standard, are not subject to the consequential damages bar
if Section 21.1 or the definition of cover applies. El Paso also overlooks Section
24.11(b). CR 548-49. There the Supply Agreement states that damages under
Section 21.1 and 21.3 are capped at $26 Million. Wolf Hollow’s claims are well
within this cap. The structure of Section 24.11 offers an additional argument that
damages under Section 21.1 (which deals only with replacement power) and
Section 21.3 are not barred; they are capped.
Even if one accepts El Paso’s more restricted concession, El Paso’s position
has been that Section 21.1 does not apply to quality claims, or the provisions of
Section 21.1 (c) were not followed, or Section 21.1 does not apply to gas delivered
and accepted, or Section 21.1 is not applicable when the plant is shut down. El
Paso repeats these arguments in its Supplemental Brief at 9 to 16. Wolf Hollow
addresses each of these familiar El Paso arguments below, but one starts the
5
analysis with El Paso’s concession that replacement power is not barred by the
consequential damages provision.
II. Section 21.1 Applies to Gas Quality Claims.
For the reasons stated in Wolf Hollow’s Supplemental Brief, no doubt
should remain that Article XXI provides remedies for Wolf Hollow’s quality
claims. Article XIV expressly references Article XXI and replacement power. It
“deems” a quality failure as a “delivery failure” under Article XXI. Article XXI
provides a remedy for Article XIV gas quality delivery failures. 6 Conversely,
Section 21.2 makes uncured delivery failures under Article XIV (and any other
breach of a material provision in the Supply Agreement) an event of default. And
Section 21.3 provides a panoply of remedies, including replacement power under
Section 21.1, for an event of default. Except for a few paragraphs toward the end
of its Supplemental Brief, El Paso ignores these contentions. (El Paso
Supplemental Brief at 16 – 17).
Instead, El Paso reasserts its arguments listed above, each of which fails.
The first of El Paso’s arguments is that the procedures of Section 21.1 (c) were not
followed. El Paso’s position runs afoul of the Supreme Court’s finding there was
“evidence” that Wolf Hollow invoked and complied with these procedures for
6
El Paso stated that “If Wolf Hollow rejects gas on the LSR pipeline as not meeting quality
specifications, by the language of Article XIV, that action would be deemed a failure to deliver
and Article XXI would apply.” El Paso’s Motion for Rehearing II at 11, n. 6. El Paso offers no
argument to differentiate deliveries on the EPGT pipeline other than its failed exclusive remedy
argument.
6
making replacement power claims, which makes the granting of summary
judgment improper. Wolf Hollow II at 145.
El Paso offers a couplet of unsupported contractual arguments about Section
21.1 that together end in a nonsensical result. First, El Paso argues that Section
21.1 does not apply to gas “delivered and accepted.” If El Paso delivers
contaminated gas that shuts the plant down, El Paso claims there is no replacement
power remedy. On the other hand, El Paso also claims that Section 21.1 does not
apply when the plant is shut down for repairs. Together, El Paso’s arguments
mean that Section 21.1 does not apply if gas is delivered or not delivered. Under
El Paso’s scheme, replacement power is available only if Wolf Hollow schedules
the delivery of gas and then refuses the delivery before it can be delivered. This is
nonsense. The gas is delivered in huge quantities at very high pressures.
“Refusal” under the circumstances El Paso posits is a practical impossibility. El
Paso never gave Wolf Hollow notice it was delivering contaminated gas. The
replacement power remedy is needed precisely when the plant is not producing
power (i.e., “shut down”). However, El Paso argues these sophisticated parties
agreed this is precisely when replacement power is not available. The Supreme
Court rejected this argument: “[R]eplacement gas could not avoid a plant
shutdown that had already occurred or remedy the power shortage to Wolf
Hollow’s customers. Only replacement power could remedy that shortage.” Id.
7
Also, see El Paso’s statement cited at page 4, supra, re El Paso’s motion for
rehearing in the Supreme Court. El Paso’s Motion for Rehearing I. The situation
at hand is one where Wolf Hollow “refused” the gas from El Paso after
“accepting” gas that shut the plant down.
El Paso relies on the absence of the word “quality” from Section 21.1 while
ignoring that Article XIV expressly refers to Article XXI and its remedies. The
true magic words which appear in both are “delivery failure.” Wolf Hollow may
refuse to accept gas that does not meet quality specifications, and such refused gas
“shall be deemed a failure…to deliver such Quantity of Gas in accordance with the
terms of this Agreement, with EPME’s liability for such failure determined in
accordance with Article XXI hereof.” This provision relates to the alternate gas
delivery portal but is equally applicable to the EPGT point of delivery because the
remedy there is not exclusive. The simple and unexceptional fact is that delivering
gas that does not meet the Transporter’s Tariff Standards is a “delivery failure” for
which Article XXI remedies apply.
El Paso similarly ignores Section 21.2 (v) which provides that an uncured
failure to perform any material provision of the Agreement is an event of default,
and Section 21.3 provides that “the Party not in default shall have the right to
pursue any other remedy under this Agreement…..” Section 21.1 is a remedy under
8
the Agreement for replacement power that El Paso admits is not subject the
consequential damages waiver. El Paso does not address Wolf Hollow’s argument.
El Paso dismisses Wolf Hollow’s contention that quality and quantity are
interrelated as “unrelated to the issue at hand.” (El Paso’s Supplemental Brief at
14.) But the issue is whether Article XXI applies to Wolf Hollow’s quality claim.
The fact that gas quality is definitionally and operationally interrelated to gas
quantity is directly related to this issue, and El Paso concedes there is a fact issue
of whether the contaminated gas met Tariff specifications.
Finally, El Paso relies on Judge Busby’s concurring opinion in Wolf Hollow
III. Wolf Hollow addresses this point in its Supplemental Brief at 15-16. Judge
Busby’s opinion was based on an understandable misreading of Wolf Hollow’s
pleading.
III. El Paso Breached Its Duties Under Article V of the Supply Agreement.
This Court and the Supreme Court have concluded that Wolf Hollow has
alleged and provided evidence of El Paso’s breach of its fuel management
obligations under Article V of the Supply Agreement. Wolf Hollow III at 889-90;
Wolf Hollow IV at n.2. The remaining question under Article V is whether the
Supply Agreement provides a remedy. With regard to that question, the Supreme
Court noted that Wolf Hollow’s replacement power damages for breach of Article
9
V are not barred “if it can establish replacement power damages.” Wolf Hollow IV
at n. 2.
CONCLUSION
This case demands a fully developed trial record. Wolf Hollow asks that the
Court remand for trial on the issue of replacement power damages for El Paso’s
delivery of contaminated gas to Wolf Hollow’s plant.
Respectfully submitted,
MCGUIREWOODS LLP
/s/ Jacks C. Nickens
Jacks C. Nickens
State Bar No. 15013800
600 Travis Street, Suite 7500
Houston, Texas 77002
(713) 353-6668
(832) 214-9931 Fax
ATTORNEYS FOR APPELLANT
CERTIFICATE OF COMPLIANCE
The undersigned counsel hereby certifies that the word count in this
document is 1,849, in compliance with Texas Rules of Appellate Procedure 9.4.
/s/ Jacks C. Nickens
Jacks C. Nickens
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CERTIFICATE OF SERVICE
As required by Texas Rule of Appellate Procedure 6.3 and 9.5(b), (d), (e), I
certify that I have served this document on all other parties which are listed below
via email and U.S. first-class mail on the 23rd day of March, 2015:
Via email mmcfarland@munsch.com
And U.S. First-Class Mail
D. Mitchell McFarland
Munsch Hardt Kopf & Harr, PC
700 Milam Street, Suite 2700
Houston, TX 77002
/s/ Jacks C. Nickens
Jacks C. Nickens
65547180_1.docx
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