TEC Olmos, LLC v. ConocoPhillips Co.

555 S.W.3d 176
CourtCourt of Appeals of Texas
DecidedMay 31, 2018
DocketNO. 01-16-00579-CV
StatusPublished
Cited by16 cases

This text of 555 S.W.3d 176 (TEC Olmos, LLC v. ConocoPhillips Co.) is published on Counsel Stack Legal Research, covering Court of Appeals of Texas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
TEC Olmos, LLC v. ConocoPhillips Co., 555 S.W.3d 176 (Tex. Ct. App. 2018).

Opinions

Sherry Radack, Chief Justice

This dispute arises in the context of the oil and gas industry. The parties entered into a drilling contract that contained a "force majeure" clause. When one of the parties failed to perform its contractual obligations by the contract deadline, it sought to invoke force majeure protections. Litigation followed, and the trial court held that the force majeure clause was inapplicable as a matter of law. This appeal requires us to construe the parties' force majeure provision.

BACKGROUND

TEC Olmos ["Olmos"] entered into a farmout agreement with ConocoPhillips Company ["ConocoPhillips"] to test-drill land leased by ConocoPhillips in search of oil and gas. The contract set a deadline to begin drilling and contained a liquidated damages clause that required Olmos to pay $500,000 if it failed to begin drilling by the specified deadline.

The contract also contained a force majeure clause that listed several events that would suspend the drilling deadline, followed by a "catch-all" provision for events beyond the reasonable control of the party affected. The force majeure clause provides:

FORCE MAJEURE
Should either Party be prevented or hindered from complying with any obligation created under this Agreement, other than the obligation to pay money, by reason of fire, flood, storm, act of God, governmental authority, labor disputes, war or any other cause not enumerated herein but which is beyond the reasonable control of the Party whose performance is affected , then the performance of any such obligation is suspended during the period of, and only to the extent of, such prevention or hindrance, provided the affected Party exercises all reasonable diligence to remove the cause of force majeure. The requirement that any force majeure be remedied with all reasonable diligence does not require the settlement of strikes, lockouts or other labor difficulties by the Party involved.

(Emphasis added.)

The contract provided for $500,000 in liquidated damages to ConocoPhillips if Olmos failed to timely commence drilling operations. Because the parties "acknowledge[d] that actual damages would be difficult to ascertain," they agreed that "the amount of [liquidated damages] is reasonable, and that [liquidated damages] are not intended to be a penalty." Olmos's parent *180company, Terrace Energy Company ["Terrace"], guaranteed Olmos's contractual obligations.

After the contract was executed, changes in the global supply and demand of oil caused the price of oil to drop significantly. The entity that Olmos intended to handle the financing for the ConocoPhillips drilling project backed out. Other sources of financing also became unavailable. Without financing for its project, Olmos informed ConocoPhillips that it was unable to meet the drilling deadline. Olmos attempted to invoke the force majeure clause to extend the drilling deadline.

ConocoPhillips disputed the applicability of the force majeure clause and sued both Olmos and Terrace [herein collectively, "Olmos" unless specified otherwise]. It sought a declaration that Olmos's claim did not constitute a valid force majeure event and that Terrace owed $500,000 in "maximum liquidated damages" under the "default" provision of the parties' agreement. ConocoPhillips also sought attorney's fees.

Olmos responded by asserting the affirmative defenses of force majeure and unenforceable penalty and bringing a counterclaim for repudiation.

ConocoPhillips moved for summary judgment, arguing that it established each element of its breach-of-contract claim as a matter of law and disproved Olmos's claims and affirmative defenses as a matter of law. It moved for attorney's fees under the contract and under Sections 37.009 and 38.001 of the Civil Practice and Remedies Code. See TEX. CIV. PRAC. & REM. CODE ANN. §§ 37.009 (West 2015) (allowing award of attorney's fees in declaratory-judgment actions); 38.001(8) (West 2015) (allowing award of attorney's fees in breach-of-contract actions). The trial court granted ConocoPhillips summary judgment, and Olmos appeals.

PROPRIETY OF SUMMARY JUDGMENT

In three issues on appeal, Olmos challenges the propriety of the trial court's ruling on ConocoPhillips's motion for summary judgment, contending as follows:

1. Under a correct understanding of the law, fact issues precluded summary judgment on Defendants' invocation of the Farmout Agreement's "Force Majeure" clause.
2. Fact issues also precluded summary judgment regarding whether the "Maximum Liquidated Damages" sought by ConocoPhillips constituted an unenforceable penalty.
3. ConocoPhillips is not entitled to attorneys' fees against [Olmos] as a matter of law.

A. Standard of Review

We review a trial court's ruling on a motion for summary judgment de novo. Travelers Ins. Co. v. Joachim , 315 S.W.3d 860, 862 (Tex. 2010). To prevail on a traditional summary judgment motion, the movant bears the burden of proving that no genuine issues of material fact exist and that it is entitled to judgment as a matter of law. TEX. R. CIV. P. 166a(c) ; Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding , 289 S.W.3d 844, 848 (Tex. 2009).

When a plaintiff moves for summary judgment on its cause of action, it must prove each element of that cause of action. MMP, Ltd. v. Jones , 710 S.W.2d 59, 60 (Tex. 1986) (per curiam); Cleveland v. Taylor , 397 S.W.3d 683, 696-97 (Tex. App.-Houston [1st Dist.] 2012, pet. denied). To defeat a plaintiff's motion for summary judgment with an affirmative defense, the defendant must bring forth evidence sufficient to raise a genuine issue of material fact on each element of its affirmative defense.

*181Brownlee v. Brownlee , 665 S.W.2d 111, 112 (Tex. 1984) ; Anglo-Dutch Petrol. Int'l, Inc. v. Haskell , 193 S.W.3d 87, 95 (Tex. App.-Houston [1st Dist.] 2006, pet. denied). The defendant is not required to prove its affirmative defense as a matter of law; raising a material fact issue is sufficient to defeat summary judgment. See Brownlee , 665 S.W.2d at 112 ; Anglo-Dutch Petrol.

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Bluebook (online)
555 S.W.3d 176, Counsel Stack Legal Research, https://law.counselstack.com/opinion/tec-olmos-llc-v-conocophillips-co-texapp-2018.