# IN THE SUPREME COURT O F TEX AS

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## . 11-0059

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# P A S O 

# M A R K E T IN G



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. A N D 

# E N T E R P R IS E 

# T E X A S 

# P IP E L IN E 

# L L C

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# H O L L O W 

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## O N 

## P E T I T I O N F O R 

## R E V I E W F R O M T H E



## C O U R T O F 

## A P P E A L S F O R T H E 

## F O U R T E E N T H 

## D I S T R I C T O F 

## T E X A S



### 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4



## Argued F ebruary 8, 2012

J U S T I C E 

## H E C H T 

## delivere d the opinion of the Court.

The owner of a g as-f

ired elec tric power g ener ating plant sued the owner of the pipeline that

supplies fuel to the plant for neg lige nce in allowing interru p t i o n s i n service and in delivering g as

below contra ctual quality standards. The pipeline owner contends that the suit sounds in c ontrac t,

not in tort. We ag ree and thus rever se the c ourt of appe als’ judg ment. We also consider w hether 1



## all the plant’s claimed damag es are conseque ntial damag es that it ag ree d to waive. We rema nd the

case to the court of a

ppeals for further proce eding s.

3 2 9 S

. W

. 3 d 6 2 8 ( T e x

. A p p

. – H o u s t o n [ 1 4 t h D i s t

. ] 2 0 1 0 )

. 1

## I

El Paso Marke ting, L .P. manag es the g as fuel supply for an elec tric power g ener ating plant

owned and opera ted by Wolf Hollow I

, L .P. in Gra nbury

, Texas. El Paso purcha ses the amount of

g as needed by Wolf Hollow at a marke t hub near Pecos, Tex as. The ga s flows i nto a commercial

pipeline owned by Enterpr ise Texas Pipeline L L C. Wolf Hollow’s plant is connec ted to the pipeline.

Wolf Hollow and El Paso opera te under a Gas Supply and Fue l M an age m en t Ag ree ment

(“the Supply Ag ree ment”). El Paso and Enterpr ise, in turn, opera te under a Gas Transpor tation

Ag ree ment (“the Transpor tation Ag ree ment”). That ag ree ment was orig inally betwee n Enterpr ise 2



## and Wolf Hollow, but Wolf Hollow immediately assig ned the ag ree ment, with Enterpr ise’s consent,

to El Paso. The Transpor t ation Ag ree ment contemplated that assig nment, and the Supply 3 4



## Ag ree ment require d it. 5

M u l t i p l e c o n t r a c t s c o m p r i s e t h e c o m p l e t e a g r e e m e n t

. 2

“ W o l f H o l l o w ”

, “ E l P a s o ”

, a n d “ E n t e r p r i s e ” i n c l u d e t h e i r p r e d e c e s s o r s

. 3

A p a r a g r a p h a m o n g t h e “ A d d i t i o n a l S p e c i a l P r o v i s i o n s ” o f t h e T r a n s p o r t a t i o n A g r e e m e n t s t a t e s i n u p p e r c a s e 4

l e t t e r s : “ [ W o l f H o l l o w ] m a y a s s i g n i t s r i g h t s a n d o b l i g a t i o n s u n d e r t h i s a g r e e m e n t t o a n y p a r t y t h a t p r o v i d e s f u e l

m a n a g e m e n t s e r v i c e s t o [ W o l f H o l l o w ] o r a g r e e s t o s e l l a n d d e l i v e r g a s t o [ W o l f H o l l o w ] a t [ W o l f H o l l o w ’ s ] p l a n t

, u p o n

t h e c o n s e n t o f [ E n t e r p r i s e ]

, w h i c h c o n s e n t s h a l l n o t b e u n r e a s o n a b l y w i t h h e l d

. ” I n a d d i t i o n

, A p p e n d i x A

, S e c t i o n 2 2

s t a t e s : “ [ T h e T r a n s p o r t a t i o n A g r e e m e n t ] s h a l l i n u r e t o a n d b i n d t h e p e r m i t t e d s u c c e s s o r s a n d a s s i g n s o f [ W o l f H o l l o w ]

a n d [ E n t e r p r i s e ] ; p r o v i d e d

, n e i t h e r [ W o l f H o l l o w ] n o r [ E n t e r p r i s e ] s h a l l t r a n s f e r t h e

. . . a g r e e m e n t w i t h o u t t h e p r i o r

w r i t t e n a p p r o v a l o f t h e o t h e r a n d w h i c h a p p r o v a l m a y n o t b e u n r e a s o n a b l y w i t h h e l d

, d e l a y e d o r c o n d i t i o n e d

. . . .

P r o v i d e d f

u r t h e r

, e i t h e r [ W o l f

H o l l o w ] o r [ E n t e r p r i s e ] m a y t r a n s f e r i t s i n t e r e s t t o a n y p a r e n t o r a f f i l i a t e b y a s s i g n m e n t

,

m e r g e r o r o t h e r w i s e w i t h o u t t h e p r i o r a p p r o v a l o f t h e o t h e r

, b u t n o s u c h t r a n s f e r s h a l l o p e r a t e t o r e l i e v e t h e t r a n s f e r o r

o f i t s o b l i g a t i o n s h e r e u n d e r

. ”

S e c t i o n 4

. 6 o f t h e S u p p l y A g r e e m e n t s t a t e s : “ [ W o l f H o l l o w ] s h a l l a s s i g n t o [ E l P a s o ] a n d [ E l P a s o ] s h a l l 5

a s s u m e t h e r i g h t s a n d o b l i g a t i o n s o f [ W o l f H o l l o w ] u n d e r t h e G a s T r a n s p o r t a t i o n A g r e e m e n t s

. . . . [ E l P a s o ] s h a l l b e

r e s p o n s i b l e f

o r t h e t r a n s p o r t a t i o n o f G a s s o l d a n d d e l i v e r e d h e r e u n d e r t o t h e r e l e v a n t P o i n t o f D e l i v e r y p u r s u a n t t o t h e

G a s T r a n s p o r t a t i o n A g r e e m e n t s b e t w e e n [ W o l f H o l l o w ] a n d t h e r e l e v a n t T r a n s p o r t e r

, a s a s s i g n e d t o [ E l P a s o ]

. ”



### 2

## Wolf Hollow sued El Paso for brea ch of the Supply A g r e e me n t a n d E n te r p r is e f o r neg lige nce.

Wolf Hollow asser

ts two claims. One is based on four interruptions in g as delivery

. E l P aso and

E n t er p ri se contend that eac h interruption was cause d by forc e majeure

, which, under the Suppl y

Ag ree ment, excuses a failure to meet delivery obliga tions. Wolf Hollow disag ree s. Wolf Hollow 6



## seeks to rec over the cost of replace ment power it purcha sed t o meet it s delivery obliga tions while

its plant was down. El Paso contends that these are consequential damag es waived by the Supply

Ag ree ment. Wolf Hollow disputes this char acte rization and arg ues that, in any event, such damag es

7



## are rec overa

ble under Section 21.1 of the Supply Ag ree ment. Section 21.1(a) pro v i d es t h at if El

Paso fails to deliver g as as require d, other than as ex cused by forc e majeure

, it must immediately

notify Wolf Hollow, which may then purcha se re place ment g as and r ecove r the e x tra c ost f rom El

Paso. Sections 21.1(b) and (c) provide that if no such g as is available

, Wolf Hollow may acc ept El 8



## Paso’s offe r to provide repla ceme nt power

, or purcha se such power itself and rec over the extra cost

S e c t i o n 1 7

. 1 o f

t h e S u p p l y A g r e e m e n t s t a t e s : “ F o r p u r p o s e s o f t h i s A g r e e m e n t

, a n ‘ E v e n t o f F o r c e M a

j e u r e ’ 6

m e a n s a n y a c t o r e v e n t t h a t p r e v e n t s t h e a f f e c t e d P a r t y f

r o m p e r f o r m i n g i t s o b l i g a t i o n s ( o t h e r t h a n t h e p a y m e n t o f m o n e y )

u n d e r t h i s A g r e e m e n t i f s u c h a c t o r e v e n t i s b e y o n d t h e r e a s o n a b l e c o n t r o l o f a n d n o t a r e s u l t o f t h e n e g l i g e n c e o r

i n t e n t i o n a l a c t o f t h e a f

f e c t e d P a r t y a n d s u c h a f

f e c t e d P a r t y h a s b e e n u n a b l e b y t h e e x e r c i s e o f d u e d i l i g e n c e t o o v e r c o m e

o r m i t i g a t e t h e e f

f e c t s o f s u c h a c t o r e v e n t

. ” F u r t h e r

, S e c t i o n 1 7

. 3 s t a t e s : “ I f e i t h e r P a r t y i s r e n d e r e d w h o l l y o r p a r t i a l l y

u n a b l e t o p e r f

o r m i t s o b l i g a t i o n s u n d e r t h i s A g r e e m e n t b e c a u s e o f a n E v e n t o f F o r c e M a j e u r e

, t h a t P a r t y s h a l l b e e x c u s e d

f r o m w h a t e v e r p e r f

o r m a n c e i s a f

f e c t e d b y t h e E v e n t o f F o r c e M a j e u r e t o t h e e x t e n t s o a f f e c t e d [ s u b j e c t t o v a r i o u s

p r o v i s o s ]

. ”

S e c t i o n 2 4

. 1 1 ( a ) o f t h e S u p p l y A g r e e m e n t s t a t e s i n u p p e r c a s e l e t t e r s : “ E x c e p t a s s p e c i f i c a l l y s e t f

o r t h h e r e i n

, 7

n e i t h e r p a r t y s h a l l b e l i a b l e t o t h e o t h e r p a r t y f o r

. . . c o n s e q u e n t i a l d a m a g e s

. ” T h e T r a n s p o r t a t i o n A g r e e m e n t a l s o

w a i v e s c o n s e q u e n t i a l d a m a g e s

. A p p e n d i x A

, S e c t i o n 1 3

. 2 s t a t e s

, a g a i n i n u p p e r c a s e l e t t e r s : [ E n t e r p r i s e ’ s ] a n d [ W o l f

H o l l o w ’ s ] l i a b i l i t y t o e a c h o t h e r s h a l l

. . . b e l i m i t e d t o d i r e c t a c t u a l d a m a g e s o n l y

. . . . I n n o e v e n t s h a l l [ E n t e r p r i s e ] o r

[ W o l f H o l l o w ] b e l i a b l e t o e a c h o t h e r f o r

. . . c o n s e q u e n t i a l

. . . d a m a g e s

. . . . ”

S e c t i o n 2 1

. 1 ( a ) o f t h e S u p p l y A g r e e m e n t s t a t e s : “ U n l e s s e x c u s e d b y a n E v e n t o f F o r c e M a j e u r e

. . . , i f a t a n y 8

t i m e [ E l P a s o ] d e t e r m i n e s t h a t i t w i l l n o t b e a b l e t o

. . . d e l i v e r

. . . , o r a c t u a l l y f a i l s t o

. . . d e l i v e r

. . . [ g a s a s

c o n t r a c t u a l l y r e q u i r e d

, E l P a s o ] s h a l l i m m e d i a t e l y n o t i f y [ W o l f H o l l o w ] o f [ E l P a s o ’ s ] i n a b i l i t y t o f u l l y p e r f o r m i t s

o b l i g a t i o n s

. . . a n d [ W o l f H o l l o w ] m a y s e e k t o c o v e r

. . . b y m a k i n g s u c h G a s p u r c h a s e s f r o m o t h e r s u p p l i e r s u s i n g t h e

C o v e r S t a n d a r d

, a n d u p o n m a k i n g s u c h p u r c h a s e s s h a l l b e e n t i t l e d t o r e c o v e r f r o m [ E l P a s o d a m a g e s f o r t h e e x t r a c o s t ]

. ”



### 3

## from El Paso. The Supply Ag ree ment subjects Wo l f Ho l l o w’ s purcha ses of repla ceme nt g as or 9



## power to a “Cover Standard” requiring commerc ial rea sonablene ss in the circ umstances. El Paso 1 0



## contends that Wolf Hollow cannot recove r t he ex tra cost of replace ment p o we r beca use i t did not

first seek r eplac ement g as.

W olf Hollow’s second claim alleg es that from time to time Enterpr ise delivere d gas

contaminated with heavy liquid hy droca rbons and thus below the quality specifie d b y t he

Transpor tation Ag ree ment. Section 14.1 of the Supply Ag ree ment require s that the g as El Paso 1 1



## delivers to Wolf Hollow meet those specific ations, and that if it doe s not, E l Paso must assign any

claim it ha s ag ainst Enterpr ise to Wolf Hollow. Enterpr ise contends that this assig nment is Wolf 1 2

S e c t i o n 2 1

. 1 ( b ) o f t h e S u p p l y A g r e e m e n t s t a t e s : “ I f B u y e r h a s u s e d t h e C o v e r S t a n d a r d

. . . t o p u r c h a s e 9

[ r e p l a c e m e n t g a s a n d n o n e ] i s a v a i l a b l e

, [ E l P a s o ] m a y p r o v i d e r e p l a c e m e n t p o w e r

. . . . [ W o l f H o l l o w ] s h a l l a c c e p t o r

r e j e c t

, a t i t s s o l e d i s c r e t i o n

, t h e p r o p o s e d r e p l a c e m e n t p o w e r

, . . . [ a n d E l P a s o ] m a y s u b m i t o t h e r p r o p o s a l s

. . . . ”

S e c t i o n 2 1

. 1 ( c ) s t a t e s : “ I f [ E l P a s o ] i s u n a b l e t o p r o v i d e r e p l a c e m e n t p o w e r o r [ W o l f H o l l o w ] r e j e c t s [ E l P a s o ’ s ] o f f e r

t o p r o v i d e r e p l a c e m e n t p o w e r

, [ W o l f H o l l o w ] s h a l l b e e n t i t l e d t o r e c o v e r f r o m [ E l P a s o t h e e x t r a c o s t o f W o l f H o l l o w ’ s

p u r c h a s i n g r e p l a c e m e n t p o w e r ]

. ” S e c t i o n 2 1

. 1 ( c ) p r e s c r i b e s i n d e t a i l t h e m e t h o d o f c a l c u l a t i n g t h e a m o u n t d u e f r o m

E l P a s o

, w h i c h w e r e f

e r t o s i m p l y a s “ e x t r a c o s t ”

.

S e c t i o n 1

. 1 o f t h e S u p p l y A g r e e m e n t c o n t a i n s t h e f o l l o w i n g d e f

i n i t i o n : “ ‘ C o v e r S t a n d a r d ’ m e a n s t h a t

, i f t h e r e 10

i s a n u n e x c u s e d f

a i l u r e b y [ E l P a s o ] t o d e l i v e r a n y Q u a n t i t y o f G a s p u r s u a n t t o t h i s A g r e e m e n t

, [ W o l f H o l l o w ] s h a l l u s e

c o m m e r c i a l l y r e a s o n a b l e e f f o r t s t o o b t a i n a r e p l a c e m e n t Q u a n t i t y o f G a s

, a l t e r n a t e p o w e r g e n e r a t i o n f u e l s o r r e p l a c e m e n t

p o w e r

, a t a p r i c e r e a s o n a b l e f o r t h e d e l i v e r y a r e a c o n s i s t e n t w i t h t h e a m o u n t o f n o t i c e o f t h e p e n d i n g u n e x c u s e d d e l i v e r y

f a i l u r e p r o v i d e d b y [ E l P a s o ]

, t h e i m m e d i a c y o f [ W o l f H o l l o w ’ s ] G a s c o n s u m p t i o n n e e d s

, t h e Q u a n t i t y o f G a s i n v o l v e d

,

a n d t h e a n t i c i p a t e d l e n g t h o f t h e u n e x c u s e d d e l i v e r y f a i l u r e b y [ E l P a s o ]

. ”

Q u a l i t y s p e c i f

i c a t i o n s a r e s e t o u t i n S e c t i o n 1 4

. 1 o f A p p e n d i x t o t h e T r a n s p o r t a t i o n A g r e e m e n t

. A p p e n d i x 11

A c o n t a i n s w h a t t h e p a r t i e s r e f e r t o a s t h e p i p e l i n e ’ s “ S t a t e m e n t o f O p e r a t i n g C o n d i t i o n s f o r T r a n s p o r t a t i o n S e r v i c e ” o r

“ T r a n s p o r t e r ’ s T a r i f

f ”

. S e e S e c t i o n 1

. 1 o f

t h e S u p p l y A g r e e m e n t ( “ ‘ T r a n s p o r t e r ’ s T a r i f f ’ m e a n s t h e t a r i f

f o r s t a t e m e n t

o f o p e r a t i n g c o n d i t i o n s o f E P G T o r L S P

, a s t h e c a s e m a y b e

, a s a m e n d e d o r m o d i f i e d f r o m t i m e t o t i m e a n d a s a p p r o v e d

b y t h e G o v e r n m e n t a l A u t h o r i t y h a v i n g j u r i s d i c t i o n

. ” )

. T h e d e t a i l s a r e n o t a t i s s u e h e r e

.

S e c t i o n 1 4

. 1 o f

t h e S u p p l y A g r e e m e n t s t a t e s : “ T h e q u a l i t y

. . . o f G a s t h a t [ E l P a s o ] s e l l s

, d e l i v e r s o r c a u s e s 12

t o b e d e l i v e r e d t o [ W o l f H o l l o w ]

. . . s h a l l m e e t o r e x c e e d t h e m i n i m u m g a s q u a l i t y s p e c i f i c a t i o n s e s t a b l i s h e d i n t h e

[ E n t e r p r i s e ] T a r i f

f ; p r o v i d e d

, h o w e v e r

, t h a t ( i ) i f [ E n t e r p r i s e ] f a i l s t o d e l i v e r G a s

. . . t h a t m e e t s s u c h q u a l i t y

s p e c i f i c a t i o n s

, t h e n [ E l P a s o ] s h a l l a s s i g n t o [ W o l f H o l l o w ]

, o r o t h e r w i s e c a u s e [ W o l f H o l l o w ] t o b e s u b r o g a t e d t o

, a n y

c l a i m t h a t [ E l P a s o ] m a y h a v e a g a i n s t [ E n t e r p r i s e ] a s a r e s u l t o f s u c h d e l i v e r y f a i l u r e u n d e r t h e [ T r a n s p o r t a t i o n

A g r e e m e n t ] t o w h i c h [ E n t e r p r i s e ] i s a p a r t y

, a s a s s i g n e d b y [ W o l f H o l l o w ] t o [ E l P a s o ]

. . . . ”



### 4

## Hollow’s sole re medy for its quality claim. Wolf Hollow disag ree s. Wolf Hollow seeks damag es

for plant repa irs and equipment upg rade s to pr event future harm to the plant (“pla nt da mag es”)

, as

well as re place ment-powe r dama g es for shutdowns while repa irs and upg rade s were being made.

We need not detail all proce eding s in the t ri al court. The trial court g rante d summary

judgme nt motions b ro u ght by El Paso and denied summary judgme nt motions broug ht by Wolf

Hollow. The tr i al co urt also g rante d, without comment, Enterpr ise’s summary judgme nt motion

contending that Wolf Hollow could not asser t a neg lige nce cause of ac t i o n b ec au se its claims

sounded in contra ct and its damag es wer e prec luded b y the economic loss rule. The trial court

rende red judg ment for El Paso and E nterprise , specific ally holding that:

• the four delivery interruptions wer e eac h cause d by forc e majeure

, ex cu s i n g El Paso’s

perf ormanc e under

the Supply

Ag ree ment;

• al l damag es soug ht by Wolf Hollow are conseque ntial damag es waived by the S u p p l y

Ag ree ment (and by

the Tra nsportation Ag ree ment);

• Wolf Hollow’s exclusive reme dy for its quality claim is an assig nment of any claim El Paso

has ag ainst Enterprise ; and

• El Paso is entitled to decla rations reg arding forc e majeure and the exclusive reme dy for Wolf

Hollow’s quality

claim. 1 3



## The court of appea ls ag ree d that the repla ceme nt-power damag es and plant damag es claimed

by Wolf Hollow are conseque ntial da mag es waived in the Supply Ag ree ment. The c ourt did not

1 4

S p e c i f i c a l l y

, t h e d e c l a r a t o r y j u d g m e n t s t a t e d t h a t t h e f o u r d e l i v e r y i n t e r r u p t i o n s w e r e c a u s e d b y e v e n t s o f 13

f o r c e m a j e u r e

, o f w h i c h E l P a s o g a v e p r o p e r n o t i c e

, a n d e x c u s e d u n d e r t h e S u p p l y A g r e e m e n t s ; t h a t W o l f H o l l o w ’ s

e x c l u s i v e r e m e d y f

o r a g a s q u a l i t y c l a i m i s a n a s s i g n m e n t o f a n y c l a i m E l P a s o h a s a g a i n s t E n t e r p r i s e ; a n d t h a t A r t i c l e

X X I o f t h e S u p p l y A g r e e m e n t d o e s n o t a p p l y t o g a s q u a l i t y c l a i m s

.

3 2 9 S

. W

. 3 d 6 2 8

, 6 3 9

, 6 4 2 ( T e x

. A p p

. – H o u s t o n [ 1 4 t h D i s t

. ] 2 0 1 0 )

. 14



### 5

## addre ss whether the g as delivery interruptions wer e excused for forc e majeure

. And having held that

Wolf Hollow cannot prevail on its claims, the cour t concluded tha t decla

rations deny ing the basis

for those claims wer e moot. But the court held that beca use Wolf Holl o w h as no contra ct with 1 5



## Enterpr ise, it can sue for ne g lige nce, a nd that the ac tion is not barr ed by the ec onomic loss rule. 1 6



## The court vaca

ted the decla

ratory judgme nt and otherwise aff irmed judgme nt for El Paso, reve rsed

the judg ment for Ente rprise, a nd rema nded the c ase to the tria l court for further proce eding s. 1 7



## E l P as o an d Enterpr ise petitioned this court for revie w, and Wolf Hollow conditionally

petitioned for r eview. We g rante d all three petitions. 1 8



## We beg in by considering whether Wolf Hollow’s claims ag ainst Enterpr ise sound in tort or

contra ct. We then turn to whether Wolf Hollow waived al l the damag es it asser ts in the Supply

Ag ree ment. Finally

, we consider whether the court of appea ls err ed in vacating El Paso’s decla ratory

judgme nt.

II

“‘Tor t obliga tions ar e i n g ener al obliga tions that are imposed by law

— apar t from and

independe nt of promis es m ade and t here fore apar t from t h e manifested intention of t he parties

—

to avo i d i n

j ury to others.’” Acc ording ly

, in deter mining whether an action sounds in tort or 1 9

I d

. a t 6 4 2

. 15

I d

. a t 6 4 4

- 6 4 5

. 16

I d

. a t 6 4 5

. 17

5 5 T e x

. S u p

. C t

. J

. 1 4 5 ( D e c

. 1 6

, 2 0 1 1 )

. 18

S w

. B e l l T

e l

. C o

. v

. D e L a n n e

y

, 8 0 9 S

. W

. 2 d 4 9 3

, 4 9 4 ( T e x

. 1 9 9 1 ) ( q u o t i n g W

. P A G E K E E T O N

, D A N B

. D O B B S

, 19

R O B E R T E

. K E E T O N & D A V ID G

. O W E N

, P R O S S E R A N D K E E T O N O N T H E L A W O F T O R T S § 9 2 a t 6 5 5 ( 5 t h e d

. 1 9 8 4 ) )

.



### 6

## contra ct, we look to the source of the duty alleg edly violated and the nature of t he claimed loss. 2 0



## Wolf Hollow alleg es violations of g as delivery and g as quality obliga tions that exis t o n l y i n the

Supply Ag ree ment and the Transpor tation Ag ree ment. The g ist of Wolf Hollow’s claims is not that

Enterpr ise failed to act as a rea sonable pipeline s h o u l d have, which is the liability standard for

neg lige nce, but that it violated specific obliga tions that might o r m i gh t not be unrea sonable apar t

from the parties’ ag ree ments. For Wolf Hollow, firm service was cruc ial; another buy er might elec t

interruptible service

, which contemplates that deliverie s will not be constant. Wolf Hollow’s plant 2 1



## depende d on a ce rtain quality of g as, while a

g as proc essor would de pend on a supply of raw g as.

Clearly

, the duties Wolf Hollow alleg es Enterpr ise violated we re imposed by contra ct, not by law.

Wolf Hollow arg ues that beca u s e i t no longe r has any contra ctual rela tionship with

Enterpri s e, h aving assig ned the Transpor tation Ag ree ment to El Paso, it is entitled to sue for

neg lige nce. Enterpr ise counter s that Wolf Hollow cannot shed by assig nment the Transpor tation

Ag ree ment’s ri gh t s

, d uties, and limit ations. “Ge nera lly speaking

, a party cannot esca pe its

obliga tions under a contra ct mere ly by assig ning the contra ct to a third party .” But even assuming 2 2



## that Wolf Hollow’s assig nment relieve d it of its rig hts and obliga tions under the Transpor tation

Ag ree ment, Wolf Hollow’s arg ument is nev erthe less flawe d. I t incorre ctly assumes that Wolf

I d

. 20

S e e M i d w e s t G a s S e r v s

. , I n c

. v

. I n d

. G a s C o

. , I

n c

. , 3 1 7 F

. 3 d 7 0 3

, 7 0 7 n

. 2 ( 7 t h C i r

. 2 0 0 3 ) ( “ F i r m s e r v i c e i s 21

t h e g u a r a n t e e d r i g h t t o r e c e i v e a c e r t a i n v o l u m e o f g a s v i a a s p e c i f i c p i p e l i n e

. I n t e r r u p t i b l e s e r v i c e i s t h e r i g h t t o r e c e i v e

a c e r t a i n v o l u m e o f

g a s f r o m a p i p e l i n e o u t o f t h e e x c e s s c a p a c i t y t h e p i p e l i n e h a s a v a i l a b l e

, i

. e

. , t h e p i p e l i n e ’ s s u r p l u s

c a p a c i t y l e f

t a f t e r t h e p i p e l i n e h a s m e t t h e n e e d s o f i t s f i r m s e r v i c e c u s t o m e r s

. I n t e r r u p t i b l e s e r v i c e c u s t o m e r s u s u a l l y

h a v e a l t e r n a t i v e f

u e l s o u r c e s f

o r t h e i r e n e r g y n e e d s

, s u c h a s f u e l o i l o r c o a l

, w h i l e f

i r m c a p a c i t y c u s t o m e r s a r e a b l e t o

u s e n a t u r a l g a s a s t h e i r e x c l u s i v e f u e l s o u r c e

. ” )

.

S e a g u l l E n e r

g y E & P

, I

n c

. v

. E l a n d E n e r

g y

, I n c

. , 2 0 7 S

. W

. 3 d 3 4 2

, 3 4 6

- 3 4 7 ( T e x

. 2 0 0 6 )

. 22



### 7

## Hollow must be entitled to sue Enterpr ise for something

— if not b r eac h of contra ct, then neg lige nce.

But Wolf Hollow, by its Supply Ag ree ment, can look to El Paso, its g as supply manag er, to answe r

for de livery

interruptions, poor quality g as, and othe r g as supply problems.

Wolf Hollow can enf

orce Enterpr ise’s g as quality obliga tions through a

n assig nment of El

Paso’s claims ag ainst Enterpr ise, to which it is entitled by Section 14.1 of the Supply Ag ree ment. 2 3



## But Wolf Hollow conce des, in this Court, that the conseque ntial damag es waivers i n the Supply

Ag ree ment an d t he Transpor tation Ag ree ment prec lude it from rec overing plant damag es on a 2 4



## contra ctual claim. That ex plains why Wolf Hollow has refused to acc ept s uch an assig nment and

instead seeks to avoid the waiver s by asser ting an action for neg lige nce. Wolf Hollow’s position is

that it aug mented its rig hts ag ainst Enterpr ise by assig ning awa y the contra ct that cre ated them in the

first place

. We disag ree

. Wolf Hollow chose to limit its contra ctual rig h ts ag ainst Enterpr ise,

whether it kept those rig hts or assig ned them aw ay

.

El Paso and Enterpr ise arg ue that a Secti o n 14.1 assig nment is Wolf Hollow’s exclusive

reme dy fo r its quality claim. Thoug h Wolf Hollow cannot sue Enterpr ise for neg lige nce, for the

rea sons we have ex plained, nothi ng in Section 14. 1 s u ggest s that it cannot sue El Paso for breac h

of the Supply Ag ree ment in allowing poor quality g as to be delivere d. I ndeed, the g ener al obliga tion

to supply quality g as under Section 14.1 is El Paso’s. But the conseque ntial da mag es waiver s that

prec lude Wolf Hollow from rec overing plant damag es on an assig ned claim ag ainst Enterpr ise also

prec lude rec overy o f s u ch damag es on a quality claim ag ainst El Paso. The question rema ins

S e e s u p r a n o t e 1 2

. 23

S e e s u p r a n o t e 7

. 24



### 8

## whether Wol f Ho l low’s claim for repla ceme nt-power damag es is barr ed by the conseque ntial

damag es wa iver.

III

“Dire ct damag es are the nece ssary and usual result of the defe ndant’s wrong ful act; they flow

natura lly and necessarily from the wrong

. . . . Consequential damag es, on the other hand, result

natura lly

, but not nece ssarily

. . . .” Although Wolf Hol low arg ues that its repla ceme nt-power 2 5



## damag es are direc t, not conseque nti al, these damag es derive entirely from the ag ree ments Wolf

Hollow has with its customers and thus do not flow n ecessarily from plant shutdowns due to g as

supply problems. Wolf Hollow’s replac ement-pow er da mag es ar e not direc t damag es.

Wolf Hollow never

theless arg

ues that the y a

r e n o t c o n s e q

u e n tial damag es for another rea son.

The parties ag ree that the Supply Ag ree ment’s cons eq u en t i al damag es waiver is g overne d by the

Uniform C o m m ercial Code. The UCC definition of conseque ntial damag es excludes cover

, 2 6 2 7



## define d as “making in g ood faith and without unrea sonabl e d elay any rea sonable purcha se of or

contra ct to pur chase g oods in substi tution for those due fr om the seller.” Wolf Hollow contends 2 8



## that the extra costs it incurred to pur chase repla ceme nt pow er to me et its own delivery obliga tions

A r t h u r A n d e r s e n & C o

. v

. P e r r y E q u i p

. C o r p

. , 9 4 5 S

. W

. 2 d 8 1 2

, 8 1 6 ( T e x

. 1 9 9 7 )

. 25

T h e S u p p l y A g r e e m e n t c a l l s f o r t h e a p p l i c a t i o n o f N e w Y o r k l a w

, b u t t h e p a r t i e s h a v e n o t p o i n t e d t o a n y 26

m a t e r i a l d i f

f e r e n c e b e t w e e n N e w Y o r k l a w a n d T e x a s l a w

, s o w e p r e s u m e t h e y a r e t h e s a m e

. S e e C o c a

- C o l a C o

. v

.

H a r m a r B o t t l i n g C o

. , 2 1 8 S

. W

. 3 d 6 7 1

, 6 8 5 ( T e x

. 2 0 0 6 )

.

T E X

. B U S

. & C O M

. C O D E § 2

. 7 1 5 ( b ) ( 2 ) ( “ C o n s e q u e n t i a l d a m a g e s r e s u l t i n g f r o m t h e s e l l e r ’ s b r e a c h i n c l u d e 27

. . . “ a n y l o s s r e s u l t i n g f r o m g e n e r a l o r p a r t i c u l a r r e q u i r e m e n t s a n d n e e d s o f w h i c h t h e s e l l e r a t t h e t i m e o f c o n t r a c t i n g

h a d r e a s o n t o k n o w a n d w h i c h c o u l d n o t r e a s o n a b l y b e p r e v e n t e d b y c o v e r o r o t h e r w i s e

. . . . ” )

.

I d

. § 2

. 7 1 2 ( a )

. 28



### 9

## when its plant was shut down due to g as delivery interruptions and poor g as quality wer e cover and

there fore n o t conseque ntial damag es. But the power Wolf Hollow purcha sed was not, strictly

speaking

, a substitut e for the g as due; the power was a substitut e for what was to be produce d from

that g as. Wolf Hollow arg ues that by purcha sing replac ement power, i t discharg ed it s obliga tions

to its customers the same as if it had purcha sed re p l acement g as. But even assuming that

repla ceme nt power is simil ar to repla ceme nt g as, it does not fit within the plain statutory lang uag e.

Parties may ag ree

, howeve r, to “re medies in addition to or in substitut ion for those provided”

by the UCC. I n the Supply Ag ree ment, Wolf Hollow and El Paso contemplated the possibili ty of

2 9



## interruptions in g as delivery

, expressly providing that those cause d by forc e majeure wer e excused. 3 0



## They further anticipated that Wolf Hollow might not be able to obtain re p l acement gas to avoid a

plant shutdown, that Wolf Hollow could then purcha se repla ceme nt power instead, and that El Paso

would be liable for the extra cost. They ag ree d to a “Cover Standa rd” tha t w ould a

pply to “ eff

orts

to obtain a repla ceme nt Quantity of Gas, alterna te power g ener ation fuels or replace ment power ”. 3 1



## And in Section 21.1 they set forth the following three -s t ep p ro ce d u re for cover ing a lack of g as

supply with replac ement powe r:

• Section 21.1(a) : I f El Paso deter mines that it will not be able to make the require d delivery

of g as or actua lly fails to do so, it must “immediately notify ” Wolf Hollow, which can then

attempt to cover

by purcha sing r eplac ement g as. 3 2

I d

. § 2

. 7 1 9 ( a ) ( 1 )

. 29

S e e s u p r a n o t e 6

. 30

S e e s u p r a n o t e 1 0 ( e m p h a s i s a d d e d )

. 31

S e e s u p r a n o t e 8

. 32



### 1 0

## • Section 21.1(b): I f replace ment g as i s not available

, El Paso can o ff er re place ment power

, but Wol f Hollow is not require d to acc ept it. 3 3



## • Section 21.1(c) : I f repla ceme nt power is either not offe red or not acc epted, Wolf Hollow can

purcha se re place ment power and re cover

the extra cost from El Paso. 3 4



## The court of appea ls held that Wolf Hollow did not comply with the first t wo s t ep s

, whi ch are

prer equisites to the third. But ther e is evidenc e that it did. El Paso did not not ify Wolf Hollow of

g as delivery failure s until afte r they occur red. At that point, repla ceme nt g as could not avoid a plant

shutdown that had alre ady occur red or reme dy the power shortag e to Wolf Hollow’s customers.

Only repla ceme nt power c ould remedy that shortag e.

I t makes sense that the par ties would provide for

an alter nate c over- ty

pe mechanism when

obtaining repla ceme nt g as would be pr oblematic. El Paso contends that Wolf Hollow’s plant was

connec ted to a second pipeline, from which it could have taken g as, but it is not clea r whether Wolf

Hollow had the right to do so. I t is even less clea r t hat s uch a g as source, i f available, could have

avoided a plant shutdown and the c onsequent da mag es to Wolf Hollow.

We thus conclude that there is evidenc e Wolf Hollow i s enti tled to rec over repla ceme ntpower damag es under Section 21.1(c) of the Supply Ag ree ment

, prec luding summary judgme nt

ag ainst Wol f Hollow base d on the conse quential damag es wa iver.

IV

We turn briefly to El Paso’s contention that the court of appea ls improperly modified the trial

court’s judgme nt by deleting its decla rations as moot on the g round that all of Wolf Hollow’s claims

S e e s u p r a n o t e 9

. 33

I d

. 34



### 1 1

## wer e barred by the waiver of con s eq u en t i al damage s in the S upply Ag ree ment. Be cause we have

held that Wolf Hollow may pursue repla ceme nt-power damag es under the contra ct, we reve rse this

part of the court of a

ppeals’ judg ment.

* * *

We hold: Wolf Hollow cannot asser t its delivery and quality claims ag ainst Enterpr ise in an

action for neg lige nce, and though it could asser t its quali t y cl ai m ag ainst Enterpr ise throug h an

assig nment from El Paso, the damag es it s ee k s wo uld be barr ed by the conseque ntial damag es

waiver s. Those waiver s also prec lude Wolf Hollow’s rec overy of plant damag es from El Paso, but

El Pa s o has not established that they prec lude rec overy of repla ceme nt-power damag es. Be cause

Wolf Hollow’s repla c e me n t- p o w e r c la im s u r v iv e s

, th e trial court’s decla ratory judgme nt is not moot.

Acc ording ly

, the judgme nt of the court of appea ls is reve rsed, and the case is rema nded to the court

of appe als for f

urther pr ocee dings in a ccor dance with this opi nion.

Nathan L . Hec ht

J ustice

OP INION DELIVERED: J une 15, 2012

1 2