Court Opinion

ID: 9949334
Source: CourtListenerOpinion
Date Created: 2024-03-11 14:11:24.565072+00
Date Added: 2024-06-11T14:25:46.505132
License: Public Domain

Opinion issued March 7, 2024

                                     In The

                              Court of Appeals
                                     For The

                          First District of Texas
                            ————————————
                              NO. 01-22-00656-CV
                           ———————————
LINDA AND BARRY SPAIN AS TRUSTEES OF THE LINDA AND BARRY
                  SPAIN TRUST, Appellants
                                        V.
  PHOENIX ELECTRIC, INC. AND HOUSTON METRO ELECTRICAL
                 CORPORATION, Appellees

                   On Appeal from the 129th District Court
                            Harris County, Texas
                      Trial Court Case No. 2021-53857

                         MEMORANDUM OPINION

      Appellants Linda and Barry Spain, as Trustees of the Linda and Barry Spain

Trust (collectively, “the Trustees”), sold their business, Houston Metro Electrical
Corporation (“HMEC”), to appellee Phoenix Electric, Inc. (collectively, “the

Purchasers”). Following the sale, a dispute arose over the amount to be paid to the

Trustees. The Trustees filed suit, alleging that the Purchasers failed to abide by their

agreement to use “best efforts” in operating HMEC to procure qualifying new

contracts, thereby maximizing the payments made to the Trustees pursuant to a

contractual formula. The Purchasers moved for summary judgment, arguing that the

best-efforts provision of the contract was vague and unenforceable. The trial court

granted summary judgment in favor of the Purchasers and dismissed the Trustees’

suit.

        On appeal, the Trustees argue that (1) the trial court erred in granting summary

judgment because the best-efforts provision is sufficiently definite to be enforceable;

and (2) the trial court erred by failing to reconsider its summary judgment ruling.

We affirm.

                                     Background

        Barry Spain founded HMEC, a company that performs electrical work for

commercial and multifamily residential construction projects, over forty years ago.

As part of his duties, Spain “manage[d] all projects, monitor[ed] and assist[ed] with

marketing and sales efforts, supervise[d] accounting, purchasing, and field

operations personnel, and [performed] other day-to-day tasks associated with

                                            2
running the business.” The Linda and Barry Spain Trust owned all the stock of

HMEC.

      In 2017, Phoenix Electric expressed interest in purchasing HMEC, and its

representatives met with Spain. Spain and Phoenix Electric negotiated the sale over

several months, and the parties executed a letter of intent in September 2017. The

letter of intent contemplated that the parties would execute a purchase agreement to

complete the sale of HMEC.

      On May 31, 2018, Phoenix Electric and the Trustees, on behalf of the Linda

and Barry Spain Trust, executed a Stock Purchase Agreement (“the Purchase

Agreement”). Under the Purchase Agreement, the Trust agreed to sell its shares of

HMEC’s stock to Phoenix Electric for $500,000, which was due at closing on the

Purchase Agreement. Phoenix Electric also agreed to pay to the Trust “75% of all

accrued Accounts Receivable Retainage on the balance sheet as of the Closing Date”

as HMEC collects such payments.1

      Phoenix Electric also agreed to make “Earn-Out Payments” to the Trust, and

it is these payments that form the basis for this appeal. This section of the Purchase

Agreement provided:

1
      The Purchase Agreement defined “Accounts Receivable Retainage” as “the
      retainage portion of any bid or contract entered into by [HMEC] for a job, typically
      10% of the total cost of the bid or contract, used by customers as security to ensure
      complete performance by [HMEC] of the terms of the bid or contract and payable
      upon job completion.”
                                            3
2.5   Earn Out Payments.
(a) Future Jobs. From and after the Closing, Purchaser [Phoenix
Electric] shall pay to the Selling Shareholder [the Trust] (i) 85% of all
Accounts Receivable Retainage from all contracts entered into by the
Company [HMEC] or Purchaser for jobs within a 100-mile radius of
downtown Houston during the 36 month period immediately
subsequent to the Closing with 10% retainage, and (ii) 8.5% of Revenue
for the balance of all contracts in progress as of the Closing Date and
for all contracts entered into by the Company or Purchaser for jobs
located within a 100-mile radius of downtown Houston during the 36
month period immediately subsequent to the Closing with less than
10% retainage (collectively, the “Earn-Out Payments”) payable upon
the earlier of (a) 120 days of job completion or (b) receipt by the
Company or the Purchaser of all or any portion of the retainage.
(b) Information to be Provided. The Company shall provide to
Purchaser a schedule of all contracts in progress as of the Closing Date
with less than 10% retainage. Purchaser shall provide the Selling
Shareholder with monthly information on all contracts in progress as of
the Closing Date and for all contracts subject to Earn-Out Payments
(contracts for jobs located within the 100-mile radius of downtown
Houston) entered into during the 36 month period immediately
subsequent to the Closing, including the revenue and retainage amounts
for each contract, and monthly collections information listed by jobs.
Any cost savings or overruns from the adjusted estimated cost of all
jobs in progress and at least 50% complete as of the Closing Date will
be equally shared by Purchaser and the Selling Shareholder and
Purchaser will provide substantiating documentation to Selling
Shareholder to Selling Shareholder’s reasonable satisfaction, as well as
monthly financial statements for the Company (or otherwise reflecting
the Houston operations). Purchaser shall also provide to the Selling
Shareholder such other additional information as the Selling
Shareholder may reasonably request to confirm and audit Earn-Out
Payments, cost savings and overruns and other related amounts.
Finalized savings and overruns shall be included and/or deducted from
amounts otherwise payable pursuant to Section 2.5(a) hereof.
(c) Approval Process. From and after the Closing, all contracts
submitted by the Company must be approved by the Purchaser prior to
submission to a customer, such approval to not be unreasonably

                                   4
      withheld. Any contract not approved by Purchaser will be reviewed
      with the Selling Shareholder.
      (d) Jobs Included/Territory. Any Revenue from a job site in the
      Houston area (defined as a 100 mile radius from downtown Houston,
      Texas) will be included in the Revenue and retainage for purposes of
      the Earn-Out Payments.
      (e) Purchaser Best Efforts. Purchaser shall use its best efforts in the
      operation of the Company’s business from and after the Closing in a
      manner that maximizes the Earn-Out Payments to the Selling
      Shareholder, provided that Purchaser shall not be required to enter into
      any agreement that does not meet its historical profitability
      requirements.
      (f)   Payment Rate Adjustment. Once the total consideration paid by
      the Purchaser to the Selling Shareholder for the Purchase Price
      hereunder exceeds $5 million, any remaining Earn-Out Payments shall
      be paid in accordance with the provisions of Section 2.5(a) except the
      percentages shall be reduced to 25% of Accounts Receivable Retainage
      or 2.5% of Revenue, as applicable.

      In August 2021, the Trustees filed suit against the Purchasers and asserted a

cause of action for breach of contract. The Trustees alleged that HMEC “obtains

most of its work by submitting bids on projects with contractors” and that this

process “often occurs months or years before the work on the project.” By

“build[ing] a backlog of future work,” HMEC could “maximize productivity and

revenue of its work crews,” but it required “a team of people” to work in sales,

marketing, and bid estimation to ensure adequate business.

      The Trustees alleged that at the time Spain sought to retire in 2017, HMEC

was worth around $4–5 million. During sale negotiations with Phoenix Electric,

Phoenix Electric proposed that it make a down payment to purchase HMEC “plus a

                                         5
three-year ‘earn out’ whereby the Trust would receive a portion of the revenue on

HMEC’s contracts in progress and new contracts closed during the three years after

the sale, payable at the completion of each job.” The Trustees alleged that, contrary

to growing HMEC’s business following the sale, the Purchasers did not maintain

proper staffing levels at HMEC, and HMEC submitted far fewer bids on projects

than it had in the year leading up to the sale. The Trustees alleged that the Purchasers

breached the provision in the Purchase Agreement requiring them to use “best

efforts” to maximize the Earn-Out Payments to the Trust. As a result of the

Purchasers’ breach of this provision, the Trustees allegedly “suffered damages in the

form of lost Earn-Out Payments and the loss of the agreed-upon benefit of the

bargain.”

      The Purchasers moved for traditional summary judgment. The Purchasers

argued that to be enforceable, a best-efforts provision “must set some kind of goal

or guideline against which best efforts may be measured.” According to Purchasers,

the contract provision requiring them to use best efforts to operate HMEC “in a

manner that maximizes the Earn-Out Payments” was not an “objective goal or

guideline” for measuring the Purchasers’ performance. They argued that, as a result,

the best-efforts provision was unenforceable.

      In response, the Trustees argued that Texas law does not require a best-efforts

provision to contain a specific “goal” or “guideline” to be enforceable. They argued

                                           6
that, instead, when a best-efforts provision does not specify the performance that is

required, the provision holds the promisor to the standard of what a reasonable

person would do under the circumstances. The Trustees also argued that even if it

were necessary for the clause itself to contain a goal or guideline, that requirement

was satisfied because the contract required the Purchasers to operate HMEC in a

manner that “maximizes the Earn-Out Payments.”

      Following a hearing, the trial court granted the Purchasers’ motion for

summary judgment and entered a take-nothing judgment against the Trustees. The

Trustees moved for a new trial and for reconsideration of the trial court’s summary

judgment ruling, presenting additional summary judgment evidence and again

arguing that the best-efforts provision was enforceable. The Trustees’ motion for

new trial was overruled by operation of law. This appeal followed.

                                     Analysis

      In their first issue, the Trustees argue that the trial court erred in granting

summary judgment in favor of the Purchasers because the best-efforts provision in

the Purchase Agreement was not vague or unenforceable. In their second issue, the

Trustees argue that the trial court erred by not reconsidering its summary judgment

ruling.

                                         7
A.    Standard of Review

      We review a trial court’s summary judgment ruling de novo. Helena Chem.

Co. v. Cox, 664 S.W.3d 66, 72 (Tex. 2023). A party moving for traditional summary

judgment must demonstrate that there is no genuine issue of material fact and that it

is entitled to judgment as a matter of law on the issues expressly set out in the motion.

TEX. R. CIV. P. 166a(c). In reviewing a summary judgment ruling, we examine the

evidence in the light most favorable to the non-moving party, indulging reasonable

inferences and resolving doubts against the party seeking summary judgment.

Helena Chem. Co., 664 S.W.3d at 73.

      When construing a contract, we look to the language of the parties’ agreement.

Barrow-Shaver Res. Co. v. Carrizo Oil & Gas, Inc., 590 S.W.3d 471, 479 (Tex.

2019). Our goal is to give effect to the parties’ intentions, as expressed in their

agreement. Id. We should consider contractual provisions together and harmonize

them, when possible, so that no provision will be rendered meaningless. Pathfinder

Oil & Gas, Inc. v. Great W. Drilling, Ltd., 574 S.W.3d 882, 889 (Tex. 2019)

(quotations omitted). If we determine that we can give a contract’s language certain

or definite legal meaning, then the contract is not ambiguous, and we will construe

the contract as a matter of law. Barrow-Shaver Res., 590 S.W.3d at 479.

      Whether a contract is enforceable is generally a question of law. Turman v.

POS Partners, LLC, 541 S.W.3d 895, 905 (Tex. App.—Houston [14th Dist.] 2018,

                                           8
no pet.); El Expreso, Inc. v. Zendejas, 193 S.W.3d 590, 594 (Tex. App.—Houston

[1st Dist.] 2006, no pet.); Chavez v. McNeely, 287 S.W.3d 840, 843–44 (Tex. App.—

Houston [1st Dist.] 2009, no pet.) (stating that whether contract is sufficiently

definite to be enforceable is legal issue “to be reviewed de novo by this Court”).

Similarly, the interpretation of an unambiguous contract is a question of law that we

review de novo. URI, Inc. v. Kleberg Cnty., 543 S.W.3d 755, 763 (Tex. 2018).

      For a contract to be enforceable, it must “address all of its essential and

material terms with a reasonable degree of certainty and definiteness.” Fischer v.

CTMI, L.L.C., 479 S.W.3d 231, 237 (Tex. 2016) (quotations omitted); see

Dallas/Fort Worth Int’l Airport Bd. v. Vizant Techs., LLC, 576 S.W.3d 362, 369

(Tex. 2019). An agreement’s “essential terms” are those terms that parties would

reasonably regard as “vitally important ingredients” of their bargain. Fischer, 479

S.W.3d at 237 (quotations omitted).

      A contract must “at least be sufficiently definite to confirm that both parties

actually intended to be contractually bound.” Id. Even when the parties’ intent to be

bound is clear, the terms of the agreement must also be sufficiently definite to

“enable a court to understand the parties’ obligations” and “give an appropriate

remedy if they are breached.” Id. (quotations omitted). “A lack of definiteness in an

agreement may concern the time of performance, the price to be paid, the work to

be done, the service to be rendered or the property to be transferred.” Knowles v.

                                         9
Wright, 288 S.W.3d 136, 143 (Tex. App.—Houston [1st Dist.] 2009, pet. denied)

(quotations omitted).

B.    Whether the Best-Efforts Provision in the Purchase Agreement is
      Enforceable

      The question before us is whether the contractual obligation for Phoenix

Electric to use “its best efforts in the operation of [HMEC’s] business from and after

the Closing in a manner that maximizes the Earn-Out Payments to the Selling

Shareholder” is sufficiently definite to be enforceable. The Trustees contend that this

best-efforts provision “necessarily means that [the Purchasers] must use best efforts

to operate HMEC in a manner that maximizes the number of new contracts” that

HMEC procures in the future. The trial court found that this provision was

unenforceable. The Trustees disagree.

      1.     Courts Have Applied Differing Standards for Determining
             Whether Best-Efforts Clauses are Enforceable.

      The Texas Supreme Court has recognized that contractual “best efforts”

clauses present a “multitude of thorny issues” regarding interpretation and

enforceability. Vizant Techs., 576 S.W.3d at 369 n.12. The term “best efforts” is

“susceptible to a variety of interpretations,” see Citizens First National Bank of Tyler

v. Cinco Exploration Co., 540 S.W.2d 292, 297 (Tex. 1976), and courts have reached

inconsistent conclusions with respect to whether such contracts are enforceable.

Compare, e.g., Kraftco Corp. v. Kolbus, 274 N.E.2d 153, 156 (Ill. App. Ct. 1971)

                                          10
(“The mere allegation of best efforts is too indefinite and uncertain to be an

enforceable standard.”), with Ashokan Water Servs., Inc. v. New Start, LLC, 807

N.Y.S.2d 550, 553–54 (N.Y. Civ. Ct. 2006) (identifying multiple courts that “have

applied an express ‘best efforts’ provision without articulated objective criteria, or

implied one where it was not expressed”). Despite the “deeply unsettled” state of the

law, parties “routinely include best efforts clauses in contracts.” Rob Park,

Comment, Putting the “Best” in Best Efforts, 73 U. CHI. L. REV. 705, 705 (2006);

cf. Matthew (Hyung Kyun) Kwon, Rise and Fall of Ordinary Course Covenants and

Mae Clauses: Case and Trend Analysis, 41 J.L. & COM. 199, 234 (2023) (noting

recent trend of increasing use of qualifiers like “reasonable best efforts” and

“commercially reasonable efforts” in merger agreements from 2005 to 2020) (citing

Guhan Subramanian & Caley Petrucci, Deals in the Time of Pandemic, 121 COLUM.

L. REV. 1405, 1463 (2021)); Zachary Miller, Note, Best Efforts?: Differing Judicial

Interpretations of a Familiar Term, 48 ARIZ. L. REV. 615, 615 (2006) (“The judicial

landscape is littered with conflicting interpretations of efforts clauses.”).

      The Texas Supreme Court has not ruled on the general enforceability of “best

efforts” clauses in actions for breach of contract. See Herrmann Holdings Ltd. v.

Lucent Techs. Inc., 302 F.3d 552, 558–59 (5th Cir. 2002) (making Erie guess absent

controlling Texas Supreme Court precedent); W. Power, Inc. v. TransAmerican

Power Prods., Inc., No. H-17-1028, 2018 WL 1697122, at *3 (S.D. Tex. Apr. 6,

                                           11
2018) (continuing to rely on Texas intermediate court authority absent controlling

Texas Supreme Court holding).

      The Trustees urge us to hold that the best-efforts clause is enforceable, and

that a “best efforts” clause need not set out any specific goal or benchmark to be

enforceable. For support, they cite to the Fort Worth Court of Appeals’ statement

that “[c]ourts construing a best efforts provision that does not specify the

performance to be required commonly hold the promisor to the standard of the

diligence a reasonable person would use under the circumstances.” DaimlerChrysler

Motors Co. v. Manuel, 362 S.W.3d 160, 171 (Tex. App.—Fort Worth 2012, no pet.).

According to the Trustees, best efforts is neither a “nebulous” nor “unworkable

standard,” as evidenced by the Texas Supreme Court’s use of the term “best efforts”

to explain a partner’s obligation under a partnership agreement. See Huffington v.

Upchurch, 532 S.W.2d 576, 579 (Tex. 1976) (establishing burden of proof to

encourage best efforts of partner whose contract required partner to “give his

attendance to, and to the utmost of his skill and power shall exert himself for, the

joint interest, benefit and advantage of said partnership”). The Trustees also point

out that the Uniform Commercial Code imposes a contractual best-efforts standard

in at least one circumstance. See TEX. BUS. & COM. CODE § 2.306(b) (“A lawful

agreement by either the seller or the buyer for exclusive dealing in the kind of goods

concerned imposes unless otherwise agreed an obligation by the seller to use best

                                         12
efforts to supply the goods and by the buyer to use best efforts to promote their

sale.”).

       The Trustees also urge us to follow cases from other jurisdictions that have

enforced best-efforts provisions. For example, in Bloor v. Falstaff Brewing Corp.,

the Second Circuit affirmed a judgment that a brewery breached a contractual clause

requiring it to “use its best efforts to promote and maintain a high volume of

sales . . . .” See 601 F.2d 609, 613 (2d Cir. 1979). Although enforceability of the

clause was not at issue, the Bloor court noted that other New York cases suggested

that “best efforts” clauses impose “an obligation to act with good faith in light of

one’s own capabilities.” See id. at n.7; see also Bloor v. Falstaff Brewing Corp., 454

F. Supp. 258, 266 (S.D.N.Y. 1978) (“‘Best efforts’ is a term which necessarily takes

its meaning from the circumstances.”) (quotations omitted), aff’d, 601 F.2d 609 (2d

Cir. 1979). The Trustees also highlight Conley v. Dan-Webforming International A/S

(Ltd.), in which a federal court applied Delaware law to enforce a provision requiring

the parties to “each use their best efforts to maximize the Sales in the Territory” and

to “use their best efforts to cause [certain parties] to fulfill each of their obligations

under this Agreement.” See Civ. A. No. 91-401 MMS, 1992 WL 401628, at *19–20

(D. Del. Dec. 29, 1992). The court noted that “[t]he best efforts clause often insures

the parties will do their best to accomplish the conditions necessary to complete the

contract.” Id. at *19.

                                           13
      By contrast, the Purchasers argue that a best-efforts clause is not enforceable

unless it “set[s] some kind of goal or guideline against which best efforts may be

measured.” See CKB & Assocs., Inc. v. Moore McCormack Petroleum, Inc., 809

S.W.2d 577, 581 (Tex. App.—Dallas 1991, writ denied) (op. on reh’g). This

language comes from dicta in CKB & Associates, a breach-of-contract case

involving a best-efforts provision. The suit arose following CKB’s purchase of an

oil refinery and subsequent agreement to refine approximately 15,000 barrels per

day of sweet crude oil supplied by MMP into various refined products. Id. at 578.

The contract required CKB to “use its best efforts to process the crude oil into the

volumes of refined products reflected on Exhibit ‘A,’ with variations not to exceed

plus or minus one percent (1%) from the volumes reflected on Exhibit ‘A’ for each

product and from the total volume.” Id. Exhibit A to the contract listed per-day

targets for seven different petroleum products. Id. CKB also agreed to use its “best

efforts” to help MMP market production of a particular type of jet fuel. Id. at 579.

Although CKB processed MMP’s oil, it did not do so in accordance with the targets

listed in Exhibit A to the contract. Id. Specifically, CKB “significantly under-

produced” the jet fuel. Id.

      The enforceability of the best-efforts provisions in this contract was not at

issue on appeal. However, in addressing whether the trial court could have found

that CKB “failed to use its best efforts to produce within 1% tolerance the volumes

                                         14
of refined products derived from Exhibit ‘A,’” the Dallas Court of Appeals discussed

some principles that have since become key to analyzing best-efforts provisions

under Texas law. Id. at 581–82. The court stated:

      Best efforts is a nebulous standard. Under some circumstances, a party
      could use best efforts to achieve a contractual goal and fall well short.
      Under different circumstances, an effort well short of one’s best may
      suffice to hit a target. Contracting parties ordinarily use best efforts
      language when they are uncertain about what can be achieved, given
      their limited resources. Nonetheless, to be enforceable, a best efforts
      contract must set some kind of goal or guideline against which best
      efforts may be measured. A contracting party that performs within the
      guidelines fulfills the contract regardless of the quality of its efforts.
      When a party misses the guidelines, courts measure the quality of its
      efforts by the circumstances of the case, and by comparing the party’s
      performance with that of an average, prudent, comparable operator.

Id. (citations omitted) (emphasis added).

      In concluding that no fact issue existed on whether CKB breached its

obligation to use best efforts, the court stated, “As a matter of law, no efforts cannot

be best efforts.” Id. at 582. The Fifth Circuit, when making an Erie guess on the

enforceability of best-efforts provisions under Texas law, has adopted the standard

set out in CKB & Associates. See Herrmann Holdings, 302 F.3d at 558–60 (citing

CKB & Associates and interpreting Texas law as requiring “some kind of goal or

guideline” for best-efforts provision to be enforceable, but recognizing that contract

need not set forth “a definite quantity” or “fix a date certain”).

      Both parties rely on the Fort Worth Court of Appeals’ opinion in

DaimlerChrysler Motors Co. v. Manuel. In that case, Chrysler had been attempting
                                            15
to expand its share of the market in the Dallas-Fort Worth area, but it had a

contentious relationship with Manuel, one of its existing dealers in the region. 362

S.W.3d at 166–68. Chrysler and Manuel entered into a franchise agreement allowing

Manuel to open a new dealership in South Arlington and requiring him to open the

new franchise by January 1, 2001. Id. at 168. The parties contemplated that other

dealers in the region were likely to protest the opening of the new dealership, which

would delay the opening due to mandatory regulatory proceedings that would be

triggered by a protest. Id. Chrysler agreed that in the event of a protest against the

new dealership, it would “use its best efforts to litigate or settle the protest or lawsuit

in order to allow the establishment of [the South Arlington] dealership.” Id.

       Another dealer protested the creation of the new dealership, and it took nearly

a year—from January 28, 2000, to December 21, 2000—before this protest was

dismissed. Id. at 168–69. By the time Manuel could open the new dealership in

February 2002, the automobile market was in “steep decline.” Id. at 169.

       In the ensuing litigation with Manuel, Chrysler argued that the best-efforts

provision was “unenforceable because it lacks measurable goals and guidelines.” Id.

at 170. The Fort Worth Court noted that “courts enforce contractual best efforts

clauses in a wide variety of circumstances” and that courts consider this standard to

be “workable.” Id. (quotations omitted). The court reviewed CKB & Associates and

cases from other jurisdictions and stated, “Courts construing a best efforts provision

                                            16
that does not specify the performance to be required commonly hold the promisor to

the standard of the diligence a reasonable person would use under the

circumstances.” Id. at 171.

       Chrysler argued that the best-efforts provision was unenforceable “because it

fails to set forth a measurable goal or guideline in that no date was specified by

which Chrysler was required to litigate or settle the [other dealer’s] protest.” Id. at

172. Manuel responded that, reading the contract as a whole, the contract required

Chrysler to settle the protest in a manner that allowed Manuel to open the new

dealership by January 1, 2001. Id. The Fort Worth Court agreed with Manuel and

refused to interpret the best-efforts provision “as placing no deadline at all for

Chrysler to litigate or settle” the protest because doing so would read the January 1,

2001 deadline out of the contract. Id. Instead, the “goal or objective” of the best-

efforts provision, in light of the entire contract, was for Chrysler to use its best efforts

to litigate or settle the protest “in such a period of time that Manuel could establish

the South Arlington dealership by January 1, 2001.” Id.

       The court noted the “well-established rule” that when a contract does not fix

a time for performance, “it will be presumed that the agreement is to be performed

within a reasonable time,” and what is a reasonable time depends upon the facts and

circumstances at the time of contract formation. Id. at 173. Ultimately, the court

concluded that the best-efforts provision “had a measurable timeline or goal of

                                            17
resolving any protest by settlement or litigation within a reasonable time and was

thus enforceable.” Id.; see also Kevin M. Ehringer Enters., Inc. v. McData Servs.

Corp., 646 F.3d 321, 326 (5th Cir. 2011) (“In interpreting CKB & Associates, we

have held that the term ‘goal’ or ‘guideline’ need not be read narrowly.”); Herrmann

Holdings, 302 F.3d at 560 (stating that CKB & Associates “does not stand for the

proposition that only goals which set forth a definite quantity are enforceable” and

that requiring parties to “fix a date certain in order to set a temporal guideline in

which to complete a certain task demands more definiteness than Texas law

requires”).

      This Court has neither adopted nor rejected the standard articulated in CKB &

Associates. We have acknowledged that “some cases hold that an agreement to use

best efforts can be enforceable.” Maranatha Temple, Inc. v. Enter. Prods. Co., 893

S.W.2d 92, 103 (Tex. App.—Houston [1st Dist.] 1994, writ denied). We have also

noted, however, that “the words ‘good faith effort’ or ‘best effort’ are not

talismanic,” and the presence of these phrases in an agreement “does not

automatically mean that the provision which contains them is enforceable.” Id. at

103–04.

      2.      Application of Law to the Facts

      Applying the law to the facts of this case, we hold that the Purchase

Agreement provision at issue is unenforceable.

                                         18
      The Trustees and Phoenix Electric executed the Purchase Agreement to

effectuate the sale of HMEC. The parties agreed that, as compensation under the

agreement, the Trust would receive a $500,000 payment at closing, a percentage of

“accrued Accounts Receivable Retainage on the balance sheet as of the Closing

Date,” and “Earn-Out Payments.” With respect to Earn-Out Payments, the Purchase

Agreement provided:

      2.5    Earn Out Payments.
      (a) Future Jobs. From and after the Closing, Purchaser [Phoenix
      Electric] shall pay to the Selling Shareholder [the Trust] (i) 85% of all
      Accounts Receivable Retainage from all contracts entered into by the
      Company [HMEC] or Purchaser for jobs within a 100-mile radius of
      downtown Houston during the 36 month period immediately
      subsequent to the Closing with 10% retainage, and (ii) 8.5% of Revenue
      for the balance of all contracts in progress as of the Closing Date and
      for all contracts entered into by the Company or Purchaser for jobs
      located within a 100-mile radius of downtown Houston during the 36
      month period immediately subsequent to the Closing with less than
      10% retainage (collectively, the “Earn-Out Payments”) payable upon
      the earlier of (a) 120 days of job completion or (b) receipt by the
      Company or the Purchaser of all or any portion of the retainage.
      ....
      (c) Approval Process. From and after the Closing, all contracts
      submitted by the Company must be approved by the Purchaser prior to
      submission to a customer, such approval to not be unreasonably
      withheld. Any contract not approved by Purchaser will be reviewed
      with the Selling Shareholder.
      ....
      (e) Purchaser Best Efforts. Purchaser shall use its best efforts in the
      operation of the Company’s business from and after the Closing in a
      manner that maximizes the Earn-Out Payments to the Selling
      Shareholder, provided that Purchaser shall not be required to enter into

                                         19
      any agreement that does not meet its historical profitability
      requirements.
      (f)   Payment Rate Adjustment. Once the total consideration paid by
      the Purchaser to the Selling Shareholder for the Purchase Price
      hereunder exceeds $5 million, any remaining Earn-Out Payments shall
      be paid in accordance with the provisions of Section 2.5(a) except the
      percentages shall be reduced to 25% of Accounts Receivable Retainage
      or 2.5% of Revenue, as applicable.

      We begin our analysis by agreeing with CKB & Associates that, while best-

efforts clauses may be enforceable, the contract nevertheless must “set some kind of

goal or guideline against which best efforts may be measured.” See 809 S.W.2d at

581. The contract at issue here fails to do so. This is not a case like Bloor where the

agreement was to use “best efforts” to achieve a measurable production goal. See

601 F.2d at 610 (“After the Closing Date the (Buyer) will use its best efforts to

promote and maintain a high volume of sales under the Proprietary Rights.”). Rather,

this case is analogous to Pinnacle Books, Inc. v. Harlequin Enterprises Ltd., a case

decided under New York law that acknowledged Bloor but nonetheless found a best-

efforts provision to be unenforceable. See 519 F. Supp. 118, 121–22 (S.D.N.Y.

1981), aff’d, 661 F.2d 910 (2d Cir. 1981).

      In Pinnacle Books, the court considered an enforceability challenge to a “best

efforts” clause by which a publisher agreed to publish ten books in a particular series.

Id. at 120. If, after extending their best efforts, the parties could not reach an

agreement on the terms of a new contract for the series, the author would be free to

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offer rights in the other books in the series to any other publisher. Id. Applying New

York law, the court concluded that “the ‘best efforts’ clause is unenforceable

because its terms are too vague.” Id. at 121. The court explained that “[e]ssential to

the enforcement of a ‘best efforts’ clause is a clear set of guidelines against which

the parties’ ‘best efforts’ may be measured.” Id.

      The problem in Pinnacle Books was that “[u]nless the parties delineate in the

contract objective standards by which their efforts are to be measured, the very

nature of contract negotiations renders it impossible to determine whether the parties

have used their ‘best’ efforts to reach a new agreement.” Id. at 122. In so holding,

the court distinguished this scenario from enforceable best-efforts agreements to

work toward a stated goal, as in Bloor. Id. at 121–22. New York state courts have

held similarly. See Bernstein v. Felske, 533 N.Y.S.2d 538, 540 (N.Y. App. Div.

1988) (stating that even if letter of intent contained implied promise to use good faith

efforts to negotiate toward future deal, agreement was unenforceable because it

lacked “a clear set of guidelines against which” party’s best efforts could be

measured); Mocca Lounge, Inc. v. Misak, 462 N.Y.S.2d 704, 706–07 (N.Y. App.

Div. 1983) (“[A] clear set of guidelines against which to measure a party’s best

efforts is essential to the enforcement of such a clause.”).

      As in Pinnacle Books, the contract at issue here lacks a clear set of guidelines

against which Phoenix Electric’s best efforts can be measured. The Purchase

                                          21
Agreement does not specify how Phoenix Electric is to maximize Earn-Out

Payments to the Trustees, for example, by requiring Phoenix Electric to bid on as

many new contracts as possible or by requiring Phoenix Electric to prioritize more

lucrative new contracts that would yield a higher amount of retainage. The only

parameters were that the Purchasers need not enter a new agreement that does not

meet “historical profitability requirements.” This is not enough to go on to determine

whether the Purchasers used their best efforts to procure new contracts that would

qualify for Earn-Out payments.

      This absence of parameters for performance makes this agreement similar to

other agreements that we have found to be unenforceable in prior cases. In Knowles

v. Wright, we addressed whether an alleged oral contract for one party to use “his

best effort” to “build a business enterprise” was sufficiently definite to be

enforceable. 288 S.W.3d at 143–46. Knowles, a landman, alleged that he and Wright

orally agreed to “build a business focused on the Barnett Shale.” Id. at 139. Knowles

further alleged that he would provide consulting services to acquire oil and gas

leases, and in exchange, he would receive 50% of Wright’s interest in the business

after Wright had recovered his costs. Id. After Wright allegedly offered Knowles

“far less” than the number of shares Knowles believed he was owed, Knowles sued

Wright for several claims, including breach of contract. Id. Wright moved for

summary judgment, arguing that Knowles’ breach of contract claim was barred

                                         22
because the alleged oral contract was not sufficiently definite to be enforceable. Id.

at 140.

       During Knowles’ deposition, he was asked what the alleged oral contract

required him to do. Id. at 143. Knowles “explained that he had promised Wright all

of his ‘best effort’ and ‘everything else, such as [his] blood, sweat, tears and anything

else [he] could come up with to get it done, avoiding any and all other opportunities.”

Id. Knowles was also asked “exactly what he was to direct his best efforts toward,”

and Knowles responded, “Build a business enterprise of which [he] would share half

of.” Id.

       In concluding that no enforceable oral contract existed, we reasoned that

Knowles “offered no testimony as to what specific services the oral contract actually

required of him.” Id. We stated:

       The bottom line is that Knowles did not offer evidence as to what
       exactly he was obligated to do and what specific services he was
       required to provide under this subsequent oral contract to build a
       business with Wright—terms essential to the parties’ purported oral
       contract to build a business and ultimately sell the shares of that
       business for profit.

Id. at 144. We concluded that the “lack of definiteness” concerning the work to be

done and the services that Knowles was to perform under the alleged oral agreement

was fatal to Knowles’ breach of contract claim. Id. We further stated that Knowles

could not establish the existence of an oral contract “simply by detailing the

consulting services that he actually provided during the parties’ business
                                           23
relationship.” Id. Additionally, we noted that while a contract would not need to

specify the “day-to-day duties” of Knowles and Wright, who were both experienced

in the oil and gas industry and had knowledge of the role of a landman, the agreement

needed to provide terms relating to Knowles’ “specific obligations, i.e., exactly what

was required of Knowles so that Wright could enforce the contract against

Knowles.” Id. “Without evidence of the performance specifically required under an

oral or written contract, a court simply cannot fix the legal obligations and liabilities

of the parties.” Id. at 145.

       This same lack of definiteness plagued the agreement in Chavez v. McNeely,

a case that involved enforcement of a contract incident to a divorce decree. See 287

S.W.3d at 845–47. In that case, an agreed divorce decree contained a provision

stating that the husband’s sister would be responsible for the daily physical care of

the husband, who had been paralyzed in a horseback riding accident. Id. at 842. The

wife stipulated that she “will provide as much toward the care and providing for the

needs of [the husband] as possible, limited only by her personal financial situation.”

Id. The husband later filed a breach of contract claim against the wife, and the wife

argued that the provision in the divorce decree that served as the basis for this claim

was too indefinite to be enforceable. Id. at 843.

       On appeal the wife argued that the provision contained three indefinite terms:

(1) the provision did not define “as much as possible” or “explain how the parties

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will reach an agreement as to what that term means”; (2) the provision did not specify

what the husband’s “needs” were; and (3) the provision did not explain “how or

when” the wife’s “‘personal financial situation’ would be impacted such that it

would excuse or reduce any performance required by her.” Id. at 846. We agreed

with the wife. Id. at 846–47. We stated that the wife’s attempts to comply with the

provision “for some time” did “nothing to clarify the clause in question.” Id. The

provision included “simply no guidance” to tell the wife “or the court how much [the

wife] is required to pay each month or how and when her personal financial situation

would be such that it would reduce or excuse her performance.” Id. at 847. We

concluded that the provision was too indefinite to be enforced as a contract. Id.

      We therefore conclude that the best-efforts provision of the Purchase

Agreement is unenforceable. We hold that the trial court did not err by granting

summary judgment in favor of the Purchasers.

      We overrule the Trustees’ first issue.

C.    Whether the Trial Court Erred by Failing to Grant the Trustees’ Motion for
      Reconsideration

      In their second issue, the Trustees argue that the trial court erred by failing to

grant their motion for reconsideration and for new trial. After the trial court granted

the Purchasers’ summary judgment motion, the Trustees sought reconsideration of

this decision and attached additional evidence, including a new declaration from

Spain addressing the differences in HMEC’s business operations before and after

                                          25
the sale of the company and drafts of the Purchase Agreement reflecting that both

the Trustees and Phoenix Electric had input into the language of the best-efforts

provision. This motion was overruled by operation of law.

      The Trustees argue that evidence relating to the negotiation of the best-efforts

provision—specifically, Phoenix Electric’s addition of language that it “shall not be

required to enter into any agreement that does not meet its historical profitability

requirements”—indicates that Phoenix Electric understood the meaning of the

provision and what was required of it under the provision. However, the inquiry is

not whether the parties to the contract subjectively understand what performance is

required of them but whether the terms of the contract are sufficiently definite to

“enable a court to understand the parties’ obligations” and “give an appropriate

remedy if they are breached.” See Fischer, 479 S.W.3d at 237 (quotations omitted);

see also Knowles, 288 S.W.3d at 145 (“Without evidence of the performance

specifically required under an oral or written contract, a court simply cannot fix the

legal obligations and liabilities of the parties.”); Chavez, 287 S.W.3d at 846–47

(stating that wife’s “attempt to comply with the indefinite term for some time does

nothing to clarify the clause in question” because clause itself provides “simply no

guidance” to tell wife or court how much she must pay per month or how her

financial situation might excuse future performance).

                                         26
      The language of the best-efforts provision itself does not provide a goal or

guideline against which a court can measure whether Phoenix Electric used its best

efforts to maximize Earn-Out Payments to the Trustees. The evidence submitted by

the Trustees in their motion for reconsideration does not change this conclusion. We

therefore hold that the trial court did not err by failing to grant the Trustees’ motion

for reconsideration.

      We overrule the Trustees’ second issue.

                                     Conclusion

      We affirm the trial court’s summary judgment in favor of the Purchasers,

Phoenix Electric and Houston Metro Electrical Corporation.

                                               April L. Farris
                                               Justice

Panel consists of Justices Kelly, Landau, and Farris.

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