### I N THE UNI TED STATES COURT OF APPEALS FOR THE FI F TH CI RCUI T

No. 12-20716

ANADARKO PETROLEUM CORPORATION, Plaintiff - Appellant
v. WILLIAMS ALASKA PETROLEUM, INCORPORATED, Defendant - Appellee

A ppeal from the United States District Court for the Southern District of Texas

Before SMITH, HAYNES, and GRAVES, Circuit Judges. HAYNES, Circuit Judge: Anadarko Petroleum (“Anadarko”) appeals t h e d i strict court’s grant of
summary judgment in favor of Williams A laska Petroleum (“Williams Alaska”) i n t h i s b r e a c h

- o f

- c o n tract action. Anadarko argues t hat Williams Alaska ignored the parties’ agreements to pass through shipping credits on p u r c h a sed oil, denying it more t han $ 9 million d u e u n d e r t h e contract. In l ight of the agreements, we REVERSE and RENDER judgment in f avor o f Anadarko for the amount of the c redit, and REMAND for a determi nation of interest and attorney’s fees. U n i t e d S t a te s C o u r t o f A p p e al s F i f t h C i rc u i t 

### F I L E D J uly 10, 2013 Ly l e W . Cay ce Clerk Case: 12-20716 Document: 00512302437 Page: 1 Date Filed: 07/10/2013No. 12-20716 I. Anadarko produces crude o i l on the Alaskan North Slope, a nd W illiams Alaska oper a t e s a r efinery in Alaska n ear the Trans A l a ska Pipeline System (“TAPS”). The two parties e n te r e d i n t o two purchase agreements in 2000 and 2001, under which Anadarko agreed to s e ll crude o i l t o W i l l iams A laska. The first agreement became effective o n September 1, 2 000, and expired pursuant to its own terms on November 30, 2001. T h e s econd purchase agreement was executed and became effective on December 1, 2001. Anadarko terminated the second agreement pursuant to a termination agreement, s igned on September 25, 2002, and becoming effective on December 31, 2002. Under both agreements, the parties tied the c ontract price for crude oil to several factors, including an i ndependent quality assessment performed by the TAPS Qua l i t y B a n k. 1 The TAPS Quality Bank is a t hird-party accounting arrangement d esigned to ensure that pipeline users a re appropriately compensated f

or t he value of the crude oil they ship through t he common-carrier pipeline. The Quality Bank is a “zero sum” operation: shippers of lower-quality

c r u d e o i l pay into t he Quality Bank, w hile shippers of higher-quality crude o i l receive payments from the Quality B a nk. Both are k nown as “Quality Bank adjustments.” During the contractual relationship, the e xact amounts of the prevailing Quality Bank a djustme n t s w ere not known at the time Anadarko invoiced Williams Alaska for the crude oil delivered t h e prior month. Anadarko derived

1 The contract p ricing p rovis ion read s: Price w ill be the average of [ an ind ex p rice f or crud e oil] les s the f

ollow ing am ounts [: ]

. . . Q uality Bank p aym ents required f or the s hip m ent of Alp ine crud e oil f rom the inlet of the A lp ine Pip eline to Pum p Station #1 on TAPS. If Q ua l i ty Ba nk f or Al p i ne crude oi l i s a credi t, Pri ce w i l l be i ncrea sed by the a m ount of the credi t

. P r i c e w i l l not be ad jus ted f or any Q uality Bank p aym ents or cred its d ow ns tream of Pum p Station #1 on TAPS. ( em p has is ad d ed )

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the contract price using t he other known factors and by estimating the a mounts for the Quality Bank a djustments. The parties w ould t hen “true-up” the price,

or bring it to t he correct b alance, the following m onth based o n t he actual Quality Bank credits or debits received by Williams Alaska. Several years after the termination of the contracts, the Federal Energy Regulatory Co m m i s s i o n ( “ F E R C ” ) d e t e r m i n e d t h a t t h e m e t h o d o l o g y f o r a s s e s s i n g the quality o f o il entering the pipeline was i n a ccurate. FERC c hanged the methodology and applied the c hange r e troactively to February 1, 2000. The new methodology resulted in a substantial c r edit—over 9 m illion dollars—issued to Williams Alaska by the Quality Bank, based on t he c rude oil t hat was produced by Anadarko and sold under the agreements. II. W e r eview a grant of summary judgment de novo, applying the same standard as the dist r ict court. Moss v. B MC S oftware, Inc. , 610 F.3d 917, 922 (5th C i r
. 2010). Summary judgment is appropriate if no genuine issue of material fact exists and the moving party is e ntitled to judgment as a matter of law. F E D

. R. C I V

. P. 5 6 ( a )

. Contract interpretation, including t he question of whether a contract is ambiguous, is a question of law subject t o d e novo review. Instone Travel T

ech M arine & Offshore v. I

nt’l Shipping Partners, Inc. , 334 F.3d 423, 428 (5th Cir. 2003). I II. T h e d i s t rict court interpreted the contractual language and conc l u d e d t h a t the agreements called f or “contemporaneous” payments and t h us did not entitle Anadarko to the later-determined Quality Bank c redits. 2 The pricing provision

2 Alternatively, the d is trict court a l s o c o n clud ed that William s Alas k a’s receip t of ad jus tm ents f

rom the Q uality Bank w as a cond ition p reced ent to its d uty to p ay any cred it to Anad ark o und er the agreem en t , a n d t h a t cond ition d id not aris e p rior to the contract’s term ination. We dis agree. A cond ition p reced ent is an event that mus t be p erf orm ed bef

ore a right can accrue to enf orce an obligation. Centex Corp

. v
. D a l ton , 840 S. W. 2d 952, 956 ( Tex.

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states that “if Quality Bank for A l p i n e c rude oil i s a credit, Price will be i n c r eased by the amount of the credit.” The p ayment provision in the Agreements provided that: “Payment wil l b e m ade by wire transfer of immediately available funds on or before the 20th day of the month following the month of delivery.” A contract fo r the sale of oil i s a contract for t he sale o f goods under the Texas Uniform Commercial Code (“U.C.C.”). T E X

. B U S

. & C O M

. C O D E § 2.107(a); Fletcher v. Ricks Exploration , 905 F.2d 890, 892 (5th Cir. 1990 ) ; L e n ape Res. Corp. v
. Tenn. Gas Pipeline Co. , 925 S.W.2d 565, 577 (Tex. 1996) (Phillips, C.J., concurring i n part a nd dissent ing in part). Although the terms of a written

a g reement may not be contradicted b y contemporaneous or antecedent evide n c e , terms may be explained by course of dealing or c ourse o f performance. T E X

. B U S

. & C O M

. C O D E § § 1.205; 2.202; 2.208. Construing the effect of the a g r e e m ents in l ight of the contract and the parties’ course of performance, w e conclud e t h a t the judgment for W illiams Alaska cannot stand. While the payment provision providing for payment by the twentieth day of the month indicates the parties’ i ntent that Williams Alaska’s monthly payments s hould b e made o n a t imely basis, that is t h e extent of its reach. Noth i n g i n this p rovision—or i n the remainder of the agreements—indicates that if Williams Alaska’s payments w e re later determined to be inaccurate, the p arties would let the error stand. Furthermore, th e p l a in language of the price provision c learly states that if Quality Bank

1992)

. Although the provis ion “[ i] f Q uality B ank f or Alp ine crud e oil is a cred it, Price w ill be increas ed by the am ount of the cred it” us es cond itional language, it d oes not create a cond ition p reced ent to William s Alas k a’s ultim ate obligation to p ay Anad ark o the contract p rice f or the crud e oil d elivered

. H ere, the “if ” term is m eant to d if f erentiate the s ituation w here the Q uality Bank ins tead as s es s ed a p aym ent becaus e the value of the crud e oil d elivered w as les s than the com m on s tream

. The obligation to p as s through Q u a lity Bank cred its attached to Anad ark o’s tend er of th e c r ud e oil, and the w ord ing d oes not s peak to w hen the cred its are given.
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adjustments are a credit, “Price will be increased by the amount of the credit.” The price provision contains no encumbering terms to indicate t hat there is a time limitation on Williams Alaska’s obligation t o pay f o l l o w i ng receipt of the credit. Moreover, the undispute d e v i d ence s hows that the parties’ course of performance indicates that they consistently made adjustments to the amount of payment d ue at a time after the contract payment date, in order to “ true-up” the a ctual Quality Bank adjustments from t he estimated amounts. W e construe the e xpress terms of an agreement, where reasonable, t o b e c o nsistent with the applicable course of performance. S ee T E X

. B U S

. & C O M

. C O D E §§ 1.303(e), 2.202. While t he parties were not confronted w i th FERC-ordered retroactive Quality Bank adjustments, their c ourse of performance shows that t hrough their “trueup” arrangement, t hey did not treat t he payment provision’s monthly s chedule

as conclusive on Williams Alaska’s obligation to pay the correct purchase price. Accordingly, the agreements require Williams Alaska to remit any Quality Bank credits it receives for the crude oil purchased under the contract. W e f u r t h er reject Williams Alaska’s contention that the obligation to rem i t the credits expired u pon the termination o f t he a greement. When a contract terminates, “all obligations which are still executory on b o t h s i des are discharged but any right based on prior breach or performance survives.” T E X

. B U S

. & C O M

. C O D E § 2.106(c)

. An obligation i s executory on bot h s i d e s i f it is

“ o n e that is still unperformed by both p arties or one w ith respect t o w h i c h something still remains t o be done on both sides.” Lee v. Cherry , 8 12 S.W.2d 361, 363 (Tex. App.—Houston [14th Dist.] 1 991, writ denied) (emphasis in original) (internal quotation marks o mitted). Anadarko ga v e notice under the terms of the agreements that the contract would not renew as of January 1 , 2 0 03. Effectively, Anadarko no longer promised to s e ll crude oil to W illiams Alaska, and Williams Alaska was n ot obligated t o purchase oil after that date. W illiams

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Alaska’s obligation to remit Quality Bank credits, however, is tied to Anadarko’s
p r i o r t e n d e r of the crude oil. This is again evidenced by t he parties’ conduct : Williams Alaska m a de “true-up” pay m ents in e arly 2003, after termination, based on crude oil s old in the months prior. Thus, we c o n c l u d e t hat where Anadarko has already dischar g e d i t s full p erformance under the contract by tendering t he oil, Williams Alaska’s obligation to pay the correct contract price, including t he Quality Bank credits, i s no longer executory a nd thus survives the contract’s termination. Williams Alaska argues that Anadarko is barred by the stat u t e o f limitations. A four-year period a pplies to actions b ased upon breach-of-contract claims for the s ale o f goods. T E X

. B U S

. & C O M

. C O D E § 2.725(a). “A c ause of action accrues when the breach o ccurs[.]” Id. § 2.725(b). Because the contract’s price provision required Williams Alaska to a ccount to A nadarko for Quality Bank adjustments o n the purchased oil, Williams A l a ska did not breach this provision o f t h e c o ntract until it received the Quality Bank adjustments and f ailed t o remit them. The contract thus was breached in August 2007. A s Anadarko filed suit in March 2011, it was b rought within t he four-year statute of limitations and is not time-barred. Finally, we conclude t hat A nadarko is entitled to interest o n t h e u n paid Quality Bank credits from the time of breach. The contract expressly p rovided for the accrual of i nterest for a n y payment not made w hen due. 3 Contrary to Williams Alaska’s contention, Anadarko was not required to issue a n invoice to

3 Par a g rap h F of the G eneral Provis ions incorp orated into the agreem ents p rovid es that: “In the event that [ William s Alas k a] f ails to m ak e any p aym ent w hen due, [ Anad ark o]
s hall have the right to charge interes t on the am ount of the overd ue p aym ent at a p er annum rate w hich shall be tw o p erce ntage p oints higher than the p ublis hed p rim e lend ing rate of M organ G uaranty Trus t Com pany of N ew Y ork on t h e d ate p aym ent w as d ue, but not to exceed the m axim u m r a t e p e r m i tted by law

. ” The “p ublis hed p rim e lend ing rate” of the
s ucces sor in interes t to Morgan G ua ranty Trus t Com p any w as 8. 25% on Augus t 20, 2007,
m ak ing the p rejud gm ent interes t rate ap p licable here 10. 25%

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trigger the running of prejudgment interest. Indeed, a s we discussed above, there was n o contractual precondition on Williams Alaska’s obligation to pay the contract price, oth e r t h a n Anadarko’s tender o f the oil. Therefore, W illiams Alaska’s failure to remit the credits was a “fail[ure] t o make any payment when due” under the agreements, and Anadarko is entitled to charge interest on this amount from the time of the breach in August 2 007. Further, as the prevailing
p a r t y i n a b r e ach-of-contract action, Anadarko is entitled t o attorney’s fees un d e r Texas law. See T E X

. C I V

. P R A C

. & R E M

. C O D E § 38.001(8). Based on the foregoing discussion, we R EVERSE and RENDER judgment in favor o f Anadarko for the amount of t h e credit, and REMAND to the district court to calculate the interest and determine attorney’s fees owed to Anadarko, and any other proceedings consistent with this opinion.

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