Appellant’s Brief

City of Brownsville v. AEP Texas Central Company

Description: This case is a breach of contract case involving a contract to purchase an ownership interest in an electric power plant.   The defendant sought summary judgment on the basis that a release agreement between the parties released all claims brought by Brownsville.  After hundreds of pages of briefing and multiple hearings over an 18-month period, the trial court granted defendant’s  motion.  Brownsville appealed, arguing that summary judgment was improper because its narrow interpretation of the release agreement as not releasing claims for breach of the parties’ purchase and sale agreement was reasonable.  The court of appeals agreed, reversing the trial court and finding that Brownsville’s interpretation of the release agreement was correct. This brief was filed by Heygood, Orr & Pearson on behalf of their client.

No. 05-09-00808-CV
IN THE COURT OF APPEALS FOR THE FIFTH
JUDICIAL DISTRICT OF TEXAS AT DALLAS
CITY OF BROWNSVILLE, TEXAS ACTING BY AND
THROUGH ITS PUBLIC UTILITIES BOARD,Appellant

v.

AEP TEXAS CENTRAL COMPANY,

Appellee

On Appeal from the 116th Judicial District Court
Dallas County, Texas
Cause No. 04-06040-F
(Honorable Bruce Priddy)

APPELLANT’S BRIEF

__________________________________________________________________

Eric D. Pearson

State Bar No. 15690472

Heygood, Orr &  Pearson

2331 W. Northwest Highway, 2nd Floor

Dallas, Texas 75220

(214) 237-9001 Telephone

(214) 237-9002 Facsimile

 

ATTORNEYS FOR APPELLANT

ORAL ARGUMENT REQUESTED

 

IDENTITY OF PARTIES AND COUNSEL

 

PLAINTIFF/APPELLANT COUNSEL FOR

PLAINTIFF/APPELLANT

 

City of Brownsville, Texas Acting byand through its Public Utilities Board

 

Eric D. PearsonHeygood, Orr & Pearson

2331 W. Northwest Highway

2nd Floor

Dallas, Texas 75220

(214) 237-9001 Telephone

(214) 237-9002 Facsimile

 

 

 

DEFENDANT/APPELLEE COUNSEL FORDEFENDANT/APPELLEE

 

AEP Texas Central Company  James KarenMonica Brown

JONES DAY

2727 North Harwood Street

Dallas, Texas 75201-1515

 


TABLE OF CONTENTS

 

IDENTITY OF PARTIES AND COUNSEL.. i

 

TABLE OF CONTENTS. ii

 

INDEX OF AUTHORITIES. iv

 

RECORD REFERENCES. viii

 

STATEMENT OF THE CASE.. ix

 

ISSUES PRESENTED   ix

 

STATEMENT OF FACTS. 1

 

SUMMARY OF THE ARGUMENT.. 12

 

ARGUMENT AND AUTHORITIES. 13

I. BPUB’s intepretation of the Termination Agreement and Releases was reasonable and summary judgment was therefore improper. 13
A. BPUB’s intepretation of the Termination Agreement and Releases was reasonable based on the language of the agreement itself. 14
B. BPUB’s intepretation of the Termination Agreement and Releases was reasonable based on the historical origin of the agreement 18
C. BPUB’s intepretation of the Termination Agreement and Releases was reasonable based on the purpose of the agreement 21
D. BPUB’s intepretation of the Termination Agreement  Releases was reasonable based on other provisons of the BPUB PSA.. 23
II. The extrinsic evidence offered by BPUB established the reasonableness of its  intepretation of the Termination Agreement and Releases. 25

A.        The original draft of the Termination Agreement and Releases established the reasonableness of BPUB’s intepretation. 28

B.        The February 1, 2007 draft of the Termination Agreement and Releases established the reasonableness of BPUB’s intepretation. 30

C.        Communications during this same time frame that indicated BPUB intended to preserve its claims against TCC established the reasonableness of BPUB’s intepretation. 32

D.        The actions of the parties at the time the Termination Agreement and Releases was signed established the reasonableness of BPUB’s intepretation  34

III. The Trial Court erred in granting summary judgment on all of BPUB’s claims, especially when TCC did not even argue that the Termination Agreement and Releases barred all of    BPUB’s claims. 36

IV. The Trial Court was required to deny TCC’s summary judgment motion because BPUB rasied a fact issue on the existence of a mutual or unilateral mistake. 39

A.        BPUB raised a fact issue on the existence of a mutual   mistake  39

B.        BPUB raised a fact issue on the existence of a unilateral   mistake  44

V. BPUB’s claims were not barred by the Termination Agreement     and Releases because the agreement was unenforceable. 45

A.        The Termination Agreement and Releases was unenforceable because it lacked consideration. 45

B         The Termination Agreement and Releases was unenforceable because it was procured by fraud. 48

 

Conclusion and Prayer.. 50……………………………………………………………………………..
INDEX OF AUTHORITIES

 

Baty v. Protech,

63 S.W.3d 841

(Tex. App.—Houston [14th Dist.] 2001, pet. denied)……………………… 15, 16, 27

Betco Scaffolds Co. v. Houston United Casualty Ins. Co.,

29 S.W.3d 341 (Tex. App.—Houston [14th Dist.] 2000, no pet.)………………… 13

Bolle, Inc. v. American Greetings Corp.,

….. 109 S.W.3d 827 (Tex. App.—Dallas 2003, pet. denied) ………………….. 35, 39-40

Bowden v. Phillips Petr. Co.,

247 S.W.3d 690 (Tex. 2008) …………………………………………………………………. 14

 

C.A. Dwyer 1962 Trust v. Taub,

No. 01-86-00826-CV, 1988 Tex App. LEXIS 30

(Tex. App.—Houston [1st Dist.] Jan. 7, 1988, no writ)………………………………… 35

 

Carr v. Christie,

970 S.W.2d 920 (Tex. App.—Austin 1998, pet. denied)……………………………… 13

 

City of Brownsville v. Golden Spread Elec. Coop.,

192 S.W.3d 876 (Tex. App.—Dallas 2006, pet. denied)………………………….. 2

 

CKB & Associates, Inc.,

734 S.W.2d 653 (Tex. 1987)……………………………………………………………………….. 17

Coker v. Coker,

650 S.W.2d 391 (Tex. 1987)…………………………………………………………………. 29, 32

 

Cook Composites, Inc. v. Westlake Styrene Corp.,

….. 15 S.W.3d 124 (Tex. App.-Houston [14th Dist.] 2000, pet. dism’d)…………….. 26

Creel v. Houston Industries, Inc.,

….. 124 S.W.3d 742 (Tex. App.—Houston [1st Dist.] 2003, no pet.)…………………. 26

 

Crockett v. Bell,

909 S.W.3d 70 (Tex. App.—Houston [14th Dist.] 1995, no writ) …………… 39

 

Dairyland County Mut. Ins. Co. of Texas v. Roman,

498 S.W.2d 154 (Tex. 1973) ……………………………………………………… 46

Davis v. Grammer,

750 S.W.2d 766 (Tex. 1988) …………………………………………………………………. 44

 

Declaire v. G&B McIntosh Family Ltd. P’ship,

260 S.W.3d 34 (Tex. App.—Houston [1st Dist.] 2008, no pet.)……………………. 26

 

DeLuca v. Munzel,

….. 673  S.W.2d 373 (Tex. App.-Houston [1st Dist.] 1984, writ ref’d n.r.e.)… 46, 48

Dewitt County Elec. Coop., Inc. v. Parks,

1 S.W.3d 96 (Tex. 1999)……………………………………………………………………….. 18, 24

Endeavor Natural Gas, L.P. v. Magnum Hunter Prod.,

No. 13-06-352-CV, 2007 Tex. App. LEXIS 9685

(Tex. App.—Corpus Christi Dec. 13, 2007, no pet.)……………………………………. 24

Ensearch Corp. v. Houston Oil & Minerals, Corp.,

….. 743 S.W.3d 654 (Tex. App.—Houston [1st Dist.] 1987, writ denied)………….. 25

ExxonMobil Corp v. Valence Operating Co.,

….. 174 S.W.3d 303 (Tex. App.-Houston [1st Dist.] 2005, pet. denied)…………….. 27

Formosa Plastics Corp. USA v. Presidio Eng’rs & Contractors, Inc.,

….. 960 S.W.2d 41 (Tex. 1998)…………………………………………………………………………. 49

 

Fourticq v. Fireman’s Fund Insurance Company,

….. 697 S.W.2d 562 (Tex. App. – Dallas 1984, no writ)…………………………………….. 45

Franks v. Brookshire Bros.,

… 986 S.W.2d 375 (Tex. App.—Beaumont 1999, no writ) …………. 48

 

GAF Corp. v. Bamber,

….. 29 S.W.3d 650 (Tex. App.—Beaumont 2000, pet. abated) …………………………. 25

Garcia v. Villarreal,

….. 478 S.W.2d 830 (Tex. Civ. App.–Corpus Christi 1971, no writ)…………………. 45

Hamberlin v. Hamberlin,

770 S.W.2d 12 (Tex. App.—Texarkana 1989, writ denied) ………………….. 44

 

Hankins v. Griffith,

773 S.W.2d 589 (Tex. App.—Corpus Christi 1989, writ denied) ………….. 46

 

Hidalgo v. Surety S&L Assn.,

….. 487 S.W.2d 702 (Tex. 1972) ………………………………………………………………………. 43

Hilco Elec. Coop. v. Midlothian Butane Gas Co.,

….. 111 S.W.3d 75 (Tex. 2003)…………………………………………………………………………. 28

King v. Dallas Fire Ins. Co.,

….. 85 S.W.3d 185 (Tex. 2002)…………………………………………………………………………. 29

 

Luckel v. White,

….. 819 S.W.2d 459 (Tex. 1991)……………………………………………………………………….. 24

 

Manzo v. Ford,

731 S.W.2d 673 (Tex. App.—Houston [14th Dist.] 1987, no writ)……………… 21

Matlock v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa.,

….. 925 F. Supp. 468 (E.D. Tex. 1996) ……………………………………………………………… 44

MCI Telecommunications Corp. v. Tex. Utils. Elec. Co.,

……….. 995 S.W.2d 647 (Tex. 1999) …………………………………………………………………. 14

 

National Union Fire Ins. Co. of Pittsburgh, Pa. v. CBI  Industries,

907 S.W.2d 517 (Tex.  1995)………………………………………………………………………. 13

Oxychem Corp. v. Elovitz,

….. No. 13-97-778-CV, 1998 Tex. App. LEXIS 3378

….. (Tex. App.—Corpus Christi June 4, 1998, no writ) ……………………………………. 36

 

Priem v. Shires,

….. 697 S.W.2d 860 (Tex. App.—Austin 1985, no writ)……………………………………. 25

Reilly v. Rangers Mgt., Inc.,

727 S.W.2d 527 (Tex. 1987)……………………………………………………………………….. 21

San Patricio Cty. v. Nueces Cty.,

….. 214 S.W.3d 536 (Tex. App.—Corpus Christi 2006, pet. filed) …………………… 43

 

Saunders v. Alamo Soil Conservation District,

545 S.W.2d 249 (Tex. Civ. App.—San Antonio 1976, writ ref’d n.r.e.)      46

Schmaltz v. Walder,

….. 566 S.W.2d 81 (Tex. Civ. App.—Corpus Christi 1978, writ ref’d n.r.e.)……… 49

 

Seagull Energy E&P, Inc. v. Eland Energy, Inc.,

207 S.W.3d 342 (Tex. 2006)……………………………………………………………………….. 24

Sun Oil Co. (Delaware)  v. Madeley,

….. 626 S.W.2d 726 (Tex. 1981)……………………………………………………………………….. 27

 

Vela v. Pennzoil Producing Co.,

….. 723 S.W.2d 199 (Tex. App.—San Antonio 1986, writ ref’d n.r.e.)…………. 17, 38

Victoria Bank & Trust Co v. Brady,

….. 779 S.W.2d 893 (Tex. App.—Corpus Christi 1991),

….. rev’d in part on other grounds, 811 S.W.2d 931 (Tex. 1991)……………………… 47

 

Victoria Bank & Trust Co. v. Brady,

….. 811 S.W.2d 931 (Tex. 1991)…………………………………………………………………. 17, 38

 

Williams v. Glash,

….. 789 S.W.3d 261 (Tex. 1990) …………………………………………………………… 39, 41, 43

 

Wright v. Sydow,

….. 173 S.W.3d 534 (Tex. App.—Houston [14th Dist.] 2004, pet. denied)……….. 49

 

Zinpro Corp. v. Ridenour,

No. 07-96-0008-CV, 1996 WL 438850

(Tex. App.–Amarillo Aug. 1, 1996, no writ) …………………………………………. 46

 

RECORD REFERENCES

“CR” refers to the Clerk’s Record on appeal.  Citations to the Clerk’s Record are to the volume and page number on which the information appears.

“RR” refers to the Reporter’s Record.  Citations to the Reporter’s Record are to the volume and page number on which the information appears.

 

STATEMENT OF THE CASE

The City of Brownsville, Texas Acting by and through its Public Utilities Board (“Brownsville” or “BPUB”) brought suit against AEP Texas Central Company (”TCC”) for breach of a Purchase and Sale Agreement  (“PSA”) between the parties by which BPUB was to purchase TCC’s interest in an electric power plant.  TCC sought summary judgment on numerous grounds, including the ground that all of BPUB’s claims were barred by the terms of a release agreement between the parties signed prior to the sale.  After months of delay, hundreds of pages of briefing and five separate summary judgment hearings, the Trial Court granted TCC’s motion by Order dated June 11, 2009.  CR 39:8877.  The sole basis of the Court’s judgment was that all of BPUB’s claims were released pursuant to the terms of a February 12, 2007 Termination Agreement and Releases; the Trial Court rejected TCC’s other summary judgment arguments.  CR 39:8877.  BPUB thereafter filed its Notice of Appeal on July 2, 2009.  CR 39:8881.

ISSUES PRESENTED

  1. Whether the Trial Court erred in granting summary judgment under the terms of a Termination Agreement and Releases that never mentioned the claims allegedly released.
  2. Whether the Trial Court erred in granting summary judgment under the terms of a Termination Agreement and Releases that explicitly released only claims arising under a 1985 Participation Agreement between the parties but not claims arising under a 2004 PSA between the parties that formed the basis of BPUB’s claims.
  3. Whether the Trial Court erred in granting summary judgment under the terms of a Termination Agreement and Releases when the language of the agreement established that it did not release all of BPUB’s claims.
  4. Whether the Trial Court erred in granting summary judgment under the terms of a Termination Agreement and Releases when the historical origin of the agreement established that it did not release all of BPUB’s claims.
  5. Whether the Trial Court erred in granting summary judgment under the terms of a Termination Agreement and Releases when the drafts of the agreement established that it did not release all of BPUB’s claims.
  6. Whether the Trial Court erred in granting summary judgment under the terms of a Termination Agreement and Releases when the communications of the parties regarding the agreement established that it did not release all of BPUB’s claims.
  7. Whether the Trial Court erred in granting summary judgment under the terms of a Termination Agreement and Releases when the actions of the parties following the agreement’s execution established that the agreement did not release all of BPUB’s claims.
  8. Whether the Trial Court erred in granting summary judgment under the terms of a Termination Agreement and Releases when an analysis of the specific claims brought by BPUB herein established that the agreement did not release all of BPUB’s claims.
  9. Whether the Trial Court erred in granting summary judgment under the terms of a Termination Agreement and Releases when the agreement did not provide for the dismissal of an existing lawsuit between the parties in which the claims herein had already been brought.
  10. Whether the Trial Court erred in granting summary judgment under the terms of a Termination Agreement and Releases when the only release BPUB was required to provide to close the sale under the BPUB PSA was a release limited to claims arising under the parties’ separate 1985 Participation Agreement.
  11. Whether the Trial Court erred in granting summary judgment under the terms of a Termination Agreement and Releases when the agreement confirmed that the only release being granted was “such release” as was required to allow the sale to close, that is, a release limited to claims arising under the parties’ separate 1985 Participation Agreement.
  12. Whether the Trial Court erred in granting summary judgment under the terms of a Termination Agreement and Releases when BPUB offered a reasonable interpretation of the agreement that did not release its claims.
  13. Whether the Trial Court erred in refusing to consider extrinsic evidence that supported BPUB’s reasonable interpretation of the agreement as not releasing its claims.
  14. Whether the Trial Court erred in holding that the Termination Agreement and Releases was unambiguous as a matter of law.
  15. Whether the Trial Court erred in granting summary judgment under the terms of a Termination Agreement and Releases when BPUB raised an issue of fact as to whether the agreement was supported by consideration.
  16. Whether the Trial Court erred in granting summary judgment under the terms of a Termination Agreement and Releases when BPUB raised an issue of fact as to whether the agreement was procured by fraud.
  17. Whether the Trial Court erred in granting summary judgment under the terms of a Termination Agreement and Releases when BPUB raised an issue of fact as to whether the agreement was the product of a mutual or unilateral mistake.
  18. Whether the Trial Court erred in granting summary judgment under the terms of a Termination Agreement and Releases when TCC did not even argue that the agreement released all of BPUB’s claims.


STATEMENT OF FACTS

BPUB, TCC and the Oklahoma Municipal Power Authority (“OMPA”) were all co-owners of an electric power plant located near Vernon, Texas known as the Oklaunion Unit No. 1 (“Oklaunion”).  They were also parties to a 1985 Oklaunion Participation Agreement that governed their rights and responsibilities as co-owners. CR 5:1023.  Pursuant to that agreement, the parties each had a right of first refusal in the event that a co-owner sought to sell its interest in the plant.  CR 5:1023, 1048; CR 15:3001 at par. 3.

On January 30, 2004, TCC executed a Purchase and Sale Agreement (“PSA”) with Golden Spread Electric Cooperative (“Golden Spread”) for the sale of TCC’s interest in Oklaunion.  CR 1:37.  In the Golden Spread PSA, the Seller’s Conditions to Closing included TCC’s receipt of ‘Seller’s Required Consents,” a term defined as the release “specified on Schedule 1.1(j)” to the Golden Spread PSA, which stated:

  1. The Oklaunion Owners, other than seller, TCC Texas North Company (f/k/a West Texas Utilities Company) and Public Service Company of Oklahoma, shall have released Seller from liability under the Oklaunion Participation Agreement pursuant to a written release or other instrument in form and substance reasonably satisfactory to seller.

CR 1:118; CR 1:58.  CR 1:205 (emphasis added).  Thus, under the Golden Spread PSA, Golden Spread was required to obtain from BPUB and OMPA a release of TCC from liability under the Oklaunion Participation Agreement to which they were parties as co-owners of Oklaunion.

TCC claimed that to validly exercise their right of first refusal BPUB and OMPA were required to match each and every term of the Golden Spread PSA.  CR 6:1339 (“We would, accordingly, expect and require that you would enter a contract (or contract(s)), with TCC that is (are) exactly the same as the PSA, with only such changes as may be necessary to reflect the identity(ies) of the parties.”).  BPUB exercised its right of first refusal and entered into a Purchase and Sale Agreement with TCC dated May 25, 2004 (the “BPUB PSA”) under which BPUB agreed to purchase TCC’s ownership interest in Oklaunion for approximately $42 million on identical terms to those set forth in the Golden Spread PSA.  CR 15:3078; CR 7:1522.  OMPA subsequently entered into a nearly identical PSA (the “OMPA PSA”) on or about September 16, 2004.  CR 7:1430.  Both the BPUB PSA and the OMPA PSA contained a Schedule 1.1(j) identical to Schedule 1.1(j) in the Golden Spread PSA.  CR 23:5502, 23:5653.

Golden Spread thereafter filed suit in Dallas County District Court against TCC,  BPUB, and OMPA claiming that neither BPUB nor OMPA had validly exercised their rights of first refusal.  CR 1:28, CR 2:348.  BPUB answered and sought a declaratory judgment that OMPA had not timely exercised its right of first refusal and that TCC was obligated to convey its entire interest in Oklaunion to BPUB pursuant to their PSA.  CR 5:1003.  After extensive briefing, the trial court granted summary judgment in favor of Golden Spread.  CR 17: 3616.  The court also severed and abated BPUB’s pending claims against TCC.  CR 17:3659.  The losing parties appealed.  The Dallas Court of Appeals reversed the trial court and rendered judgment that Golden Spread take nothing on its claims.  City of Brownsville v. Golden Spread Elec. Coop., 192 S.W.3d 876 (Tex. App.—Dallas 2006, pet. denied).  Golden Spread filed a petition for review, which was denied in December 2006.

At the time the underlying lawsuit was resolved, TCC had not closed the sale of its portion of Oklaunion.  CR 36:8195 at par. 11; CR 36: 8283 at par. 8.  BPUB wanted to purchase all of TCC’s interest and did not believe that OMPA had validly exercised its right of first refusal.  Id. To resolve this issue, BPUB reached an agreement with OMPA whereby OMPA assigned its then-pending claims against TCC to BPUB and agreed to terminate its PSA so that BPUB could purchase TCC’s entire Oklaunion interest.  Id.

From December 2006 forward, BPUB expressed its intent to seek damages for TCC’s breach of the BPUB PSA occasioned by its lengthy delay in closing the sale to BPUB.  CR 36: 8196 at par. 12; CR 36: 8284 at par. 9.  For example, on December 20, 2006, BPUB attorney Gaines Griffin wrote to counsel for TCC following receipt of the Texas Supreme Court’s decision.  In that letter, he stated in part as follows:

Brownsville is ready, willing and able to close its purchase of Texas Central Company’s entire remaining interest in Oklaunion Unit No. 1 according to the terms and conditions set forth in the Purchase and Sale Agreement of May 25, 2004 and demands that this closing occur as soon as possible.

CR 34:7840.  He further informed TCC that BPUB intended to assert claims for the damages it had sustained as a result of the long delay in closing the transaction:

Because transfer of the interest Brownsville was entitled to receive under the Participation Agreement has been delayed, Brownsville has been forced to acquire power on the open market at a substantially higher price than the cost of power it would have received from Oklaunion.   As a result, Brownsville has incurred and is continuing to incur substantial damagesIn the coming weeks, Brownsville will be amending its pleadings to assert claims for the damages it has incurred.

CR 34:7840 (emphasis added).  Subsequently, in an e-mail to TCC’s lawyers dated January 4, 2007, counsel for BPUB attached “a Motion to Lift Abatement which BPUB intends to promptly file”  that sought to lift the abatement of this case so that BPUB could assert additional claims against TCC.  CR 38: 8687.

TCC clearly understood that BPUB intended to preserve its ability to bring such claims for damages.  On January 15, 2007, a TCC employee asked TCC’s Rocky Miracle “what is the push to get this sale through”?  CR 34:7841.  Miracle responded that, “[i]f we delay, Brownsville may sue us for replacement power.”  Id. On January 29, 2007, TCC’s attorney wrote to BPUB’s attorney and confirmed that “we understand that Brownsville’s position is that it will not execute a full and complete release of any party, except OMPA.”  CR 36:8240.  On January 31, 2007, Rocky Miracle of TCC wrote to John Bruciak of BPUB and stated:

John – Despite what I perceived to be our mutual desire that all issues related to the Oklaunion transaction be concluded, I cannot make that representation to TCC’s executive management, based on your response below.  As I stated earlier, we continue to work toward a February 8th close.  I am also operating under the assumption that further litigation is an unfortunate possibility.

CR 38:8691 (emphasis added).

From January 24, 2007 to February 12, 2007, the parties exchanged drafts of various documents intended to allow the sale of Oklaunion to BPUB to finally occur.  Among such documents was a Termination Agreement and Releases drafted by TCC’s lawyers that was intended to provide the release to which TCC was entitled under Schedule 1.1(j) to the PSAs.  CR 36:8213-8267.  The initial drafts required Golden Spread and OMPA to release TCC from liability under their PSAs, which were being terminated.  CR 36: 8219-8223.  These drafts clearly differentiated between claims arising under the respective PSAs and claims arising under the separate Participation Agreement.  For example, the draft agreement required Golden Spread to release TCC from all claims:

(ii) arising under or in connection with, based upon or relating in any way to

(A) the rights of first refusal or any related rights, duties or obligations set forth in Article XV of the Oklaunion Participation Agreement, to the extent relating to the sale by TCC of the Oklaunion Interest, or

(B) the TCC/GS PSA, the documents related thereto, or the transactions contemplated thereby . . . .

CR 36:8219 (emphasis added).  OMPA was to provide a similar release.  CR 36:8223.

Unlike the provisions relating to Golden Spread and OMPA, BPUB was not required by the terms of the draft Termination Agreement and Releases to release claims arising under its PSA, which, unlike the Golden Spread and OMPA PSAs was not being terminated.  CR 36: 8224.  In the BPUB release, no mention was made of a release of claims arising under the BPUB PSA.  Id. However, the draft agreement would have released TCC from “all causes of action . . . asserted in or that could have been asserted in the [Golden Spread] litigation.”  CR 36:8225.  The draft also contained an Agreed Motion to Dismiss with Prejudice that would have dismissed all claims in the underlying lawsuit, including BPUB’s breach of contract claims against TCC.  CR 36:8234-38.

On behalf of BPUB, attorney John Davidson refused to agree to the broad release set forth in the draft.  Instead, he informed Michael Gibbs, the attorney for TCC, that:

The City of Brownsville is unwilling to execute a full and complete release of any party to the case other than Oklaunion [sic] Municipal Power Authority.  Nor does Brownsville believe that TCC can properly require the execution of a full and complete release as a condition of closing under its May 25, 2005 Purchase and Sale Agreement with Brownsville.

CR 36:8239 (emphasis added).  On January 29, Gibbs wrote back and insisted that TCC was merely seeking a release from liability under the Oklaunion Participation Agreement:

In our view, the express terms of the PSA clearly entitle TCC to require, as a condition to its obligations to close, that both Brownsville and OMPA release TCC from liability under the Oklaunion Participation Agreement pursuant to a written release in form and substance reasonably satisfactory to TCC.

TCC is entitled, as a condition to closing under Section 9.4, to be released by Brownsville and OMPA from liability under the Oklaunion Participation Agreement, and Brownsville is obligated, under Section 6.1, to use its Commercially Reasonable Efforts to satisfy that condition.

We see no basis for Brownsville to refuse to release TCC, in view of Brownsville’s obligation to use its Commercially Reasonable Efforts to satisfy the condition precedent that TCC be released from liability under the Participation Agreement by both Brownsville and OMPA.

CR 36:8240 (emphasis added).

Davidson responded that BPUB “has no objection to releasing TCC from liability under the Oklaunion Participation Agreement” but read the draft as “substantially broader in scope than required by the PSA and includ[ing] all dealings of any kind or nature.”  CR 36:8242 (emphasis added).  He stated that “[p]rovided the release is limited in scope to a release from liability under the Oklaunion Participation Agreement, as is stated in Schedule 1.1(j) to the PSA, Brownsville will execute the release.”  CR 36:8243 (emphasis added).

Two days later, on February 1, 2007, Gibbs forwarded a revised agreement to Davidson that he stated was “intended to address what we understood to be the concerns of the City of Brownsville with the prior draft.”  CR 36:8244.  That agreement omitted the previous Motion to Dismiss with Prejudice. Moreover, in a section entitled Releases of TCC from liability under the Oklaunion Participation Agreement,” BPUB and OMPA were to release TCC from:

(i) all liabilities and obligations of TCC under the Oklaunion Participation Agreement and (ii) without limiting the generality of the foregoing, all Claims  arising under or in connection with, or based upon any liability or obligation of TCC under the Oklaunion Participation Agreement, whether in contract, tort or any other legal theory . . . .

 

CR 36:8250 at Section 5 (emphasis added).  These claims were defined as the “Released Participation Agreement Claims Against TCC.”  Id.

Like the prior draft, the February 1st draft made no mention of a release of claims under the BPUB PSA.  It did, however, provide for a release of claims arising under the OMPA PSA, which was being terminated.  This release was in a separate section from the Section 5 release above, and stated:

Section 4.  Mutual Releases under TCC/OMPA PSA.

(b)  Effective at the Effective Time, subject to the terms and conditions specified herein, including the performance by each of the TCC Releasors of its obligations set forth in Section 4(c) below, . . . the “OMPA Releasors” jointly and severally, immediately, unconditionally and irrevocably remise, release, relinquish, waive and forever discharge TCC . . . of and from all Claims arising under or in connection with, or based upon or relating in any way to the TCC/OMPA PSA, the documents related thereto, or the transactions contemplated thereby . . . .

CR 36:8249 at Section 4 (emphasis added).  These claims were defined as the “OMPA Released PSA Claims Against TCC.”  CR 36:8250.

After receiving the February 1, 2007 draft, OMPA and BPUB (which was receiving an assignment of OMPA’s claims against TCC) refused to agree to release TCC from liability under the OMPA PSA. CR 36:8202 at par. 22; CR 37:8408 at par. 7.  OMPA’s Max Speegle stated in an e-mail to TCC attorney Michael Gibbs:

I believe I can state that OMPA and Brownsville have agreed that the “Termination Agreement and Releases” document is acceptable and will be signed by OMPA if TCC agrees to delete paragraph 4 (PSA release), subject to final approval by BPUB.

CR 36:8255.  TCC’s attorney wrote back that TCC would agree to delete the release:

As previously indicated, TCC is willing to the delete Section 4 (the mutual releases by TCC and OMPA of claims under the TCC/OMPA PSA) from the final version of the Termination Agreement and Release.

CR 36:8256.  As a result, the final Termination Agreement and Releases contained no release from liability under either the BPUB or OMPA PSAs.  CR 36:8257.

During this time frame, counsel for TCC sent e-mails to BPUB demonstrating that TCC knew BPUB was preserving its claims against TCC. For example, Rocky Miracle of TCC wrote to John Bruciak of BPUB on January 31, 2007 and stated:

John – As you are aware, our Jones Day attorney received the below email from John Davidson.  It appears we will be able to move forward.

However, one observation is the appearance of Brownsville’s desire to retain the ability to litigation “certain” issues related to Oklaunion.  In order that I can convey Brownsville’s intentions properly to executive management, what are your thoughts?  Knowing there are Oklaunion related lawsuits outstanding, will Brownsville’s claims in the current lawsuit be dismissed with prejudice?

CR 36:8268 (emphasis added).  Davidson responded the same day as follows:

As far as Brownsville is concerned, the only direction given to us at this time is to close the transaction in accordance with the Purchase and Sale Agreement (“PSA”) and to leave any claims pending which are not foreclosed by closing of the PSA.

. . .  Brownsville is reserving its right to pursue or not to pursue the claims, which is its right separate and apart from closing the PSA transaction.

The answer to Mr. Miracle’s question, therefore, is Brownsville might pursue claims associated with the Golden Spread litigation, and has requested that its right to do so be preserved.

CR 36: 8270 (emphasis added).

On February 12, 2007, the parties signed the final Termination Agreement and Releases.  CR 36:8257.  The agreement specifically stated that the releases contained therein were being provided subject to the requirements of Schedule 1.1(j) of the BPUB PSA and affirmatively represented that the releases were only “such releases” as were required by Schedule 1.1(j):

The obligations of TCC under the TCC/PUB PSA to consummate the purchase and sale of the Oklaunion Interest and related transactions contemplated thereby are subject to the condition precedent (among other conditions precedent) that, at or prior to the Closing, OMPA and PUB shall have released TCC from liability under the Oklaunion Participation Agreement pursuant to a written release or other instrument in form and substance reasonably satisfactory to TCC.  TCC has requested PUB and OMPA to furnish such release and PUB and OMPA are effecting such release pursuant to this Termination Agreement and Release.

 

CR 36:8258-59 (emphasis added).  The release from BPUB in the final agreement was contained in a section titled “Section 4: Releases of TCC from Liability Under Oklaunion Participation Agreement” and limited the release to claims:

of and from (i) all liabilities and obligations of TCC under the Oklaunion Participation Agreement and (ii) without limiting the generality of the foregoing, all Claims  arising under or in connection with, or based upon any liability or obligation of TCC under the Oklaunion Participation Agreement, whether in contract, tort or any other legal theory, which any one or more of the PUB Releasors ever had, now has or hereafter may have against the TCC Releasees (the PUB Released Participation Agreement Claims Against TCC”).

CR 36:8261.  OMPA gave an identical release.  Id. The released claims were defined as the “Released Participation Agreement Claims Against TCC.”  Id. No mention was made of a release of claims arising under the entirely separate BPUB or OMPA PSAs.

The final, executed version of the Termination Agreement and Releases contained no motion to dismiss with prejudice as had the original draft prepared by TCC’s attorneys.  CR 36:8257.  It contained no release of “all causes of action . . . asserted in or that could have been asserted in the [Golden Spread] litigation” as had the earlier draft prepared by TCC’s attorneys.  CR 36:8225.  The final, signed agreement also omitted any release of claims arising under the BPUB PSA or the OMPA PSA.  Id. Although the final, executed Termination Agreement and Releases specifically terminated the PSA between TCC and OMPA, nowhere in the agreement did the parties similarly terminate the BPUB PSA.  CR 36:8260 at section 3.

On February 12, 2007, the very day the parties signed the Termination Agreement and Releases, TCC’s counsel prepared a “Closing Checklist” in preparation of the February 14, 2007 closing of the sale of TCC’s interest in Oklaunion to BPUB.  The document described the Termination Agreement and Releases as follows:

Execution and delivery of Termination and Release Agreement, by and among Seller, PUB and OMPA, terminating the TCC/OMPA PSA, mutually releasing certain claims under the TCC/OMPA PSA and including a release by PUB and OMPA of TCC from liability under the Oklaunion Participation Agreement.

CR 38: 8679 (emphasis added).  That same day, Dale Patterson of TCC sent an e-mail to TCC’s Rocky Miracle asking about the proration of expenses for the Oklaunion plant to BPUB.  Despite the release language in the Termination Agreement and Releases, Miracle wrote back that Dale should “[b]e careful with proration.  We have some litigation exposure.”  CR 36:8272 (emphasis added).

No claims were dismissed by BPUB at the time the Termination Agreement and Releases was signed.  Nor did TCC take any action to dismiss the then-pending claims.  Instead, just two days after the transaction closed, the City Commission of Brownsville passed a resolution to “secure counsel to seek additional damages regarding underlying claims.”  CR 36:8276.   The case remained inactive until April 27, 2007, when BPUB sought to have the abatement of the pending claims lifted so it could assert additional claims against TCC.  CR 18:3665.  TCC did not oppose the motion.  Id.

After the abatement was lifted, both parties moved for summary judgment.  TCC argued that many of BPUB’s claims were barred by the Termination Agreement and Releases.  BPUB disagreed, stating that the agreement was meant only to release claims for liability “under the Oklaunion Participation Agreement.”  The Trial Court conducted no less than five separate hearings relating to the parties’ respective summary judgment motions.  CR 39:8877.  Almost a year later, the Court finally signed its summary judgment order.  CR 39:8877.  The sole basis of the Court’s order was that all of BPUB’s claims had been released by the Termination Agreement and Releases.  CR 39:8877.  Despite the hundreds of pages of briefing and hours of argument, it appears the Court’s ruling was nothing more than a product of its desire to “expedite” appellate review:

Part of me wants to say, well, why don’t we have them do it now rather than after we have a big trial if its going to go up to the Court of Appeals.  If in fact – then why don’t I just grant it and let the Court of Appeals.  That’s part of – that’s part of what I – that’s part of what I’m thinking.  I haven’t made a final decision yet, but it seems if I then – if I then deny it and we go to trial and then the Court of Appeals reviews, there seems to be a lot of wasted effort there.

RR 4:50.

SUMMARY OF THE ARGUMENT

The Trial Court committed reversible error by granting summary judgment based on the terms of an ambiguous agreement that was required only to release claims arising “under the Oklaunion Participation Agreement,” that never mentioned claims arising under the BPUB and OMPA PSAs, that did not terminate the BPUB PSA, that did not provide for the dismissal of the pending lawsuit between TCC and BPUB and that the parties had agreed was limited to a release of claims arising “under the Oklaunion Participation Agreement.”  All of the evidence before the Trial Court supported BPUB’s interpretation of the agreement as effecting a limited release of claims arising “under the Oklaunion Participation Agreement.”  TCC’s contrary interpretation was not supported by the language of the agreement, the drafts of the agreement, the correspondence relating to the agreement or the actions of the parties following the agreement’s execution.

The court also erred by granting summary judgment on all of BPUB’s claims when TCC did not even argue that the Termination Agreement and Releases barred all of BPUB’s claims.  Moreover, the court erred by enforcing the agreement when BPUB raised an issue of fact under the doctrines of mutual and unilateral mistake.  Finally, the court erred in granting summary judgment when BPUB raised a fact issue relating to fraud and a lack of consideration.

ARGUMENT AND AUTHORITIES

I. BPUB’s interpretation of the Termination Agreement and Releases was reasonable and summary judgment was therefore improper.

 

As set forth more fully below, the Trial Court erred in granting summary judgment to TCC because BPUB’s interpretation of the Termination Agreement and Releases as limited to claims for liability under the Oklaunion Participation Agreement was clearly reasonable.  In order to grant TCC’s summary judgment motion, it was not enough for the Court to determine that TCC’s interpretation was also reasonable.  Nor was it enough that the Court conclude that TCC’s contrary interpretation of the release was more reasonable than BPUB’s.  So long as BPUB’s interpretation was not unreasonable as a matter of law, the Court was required to deny TCC’s summary judgment motion.  Carr v. Christie, 970 S.W.2d 620, 623 (Tex. App.—Austin 1998, pet. denied) (“Because Carr’s interpretation is reasonable, it was error to render judgment as a matter of law on his contract claim.”); Betco Scaffolds Co. v. Houston United Casualty Ins. Co., 29 S.W.3d 341, 344 (Tex. App.—Houston [14th Dist.] 2000, no pet.) (“Where a policy exclusion is ambiguous, a court must adopt the construction urged by the insured as long as it is not unreasonable, even if the interpretation urged by the insurer appears to be a more reasonable or accurate reflection of the parties’ intent.”); Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v. CBI Industries, Inc., 907 S.W.2d 517, 520 (Tex. 1995) (“[i]f, however, the language of a policy or contract is subject to two or more reasonable interpretations, it is ambiguous.”).  The Trial Court erred in refusing to do so, an error reviewed de novo.  Bowden v. Phillips Petr. Co., 247 S.W.3d 690, 705 (Tex. 2008) (“Whether a contract is ambiguous is a question of law, subject to de novo review.”);  MCI Telecommunications Corp. v. Tex. Utils. Elec. Co., 995 S.W.2d 647, 650-51 (Tex. 1999) (the interpretation of an unambiguous contract us a question of law reviewable under a de novo standard.”).

A. BPUB’s interpretation of the Termination Agreement and Releases was reasonable based on the language of the agreement itself.

 

In the Termination Agreement and Releases, BPUB and OMPA released TCC from:

(i) all liabilities and obligations of TCC under the Oklaunion Participation Agreement and (ii) without limiting the generality of the foregoing, all Claims  arising under or in connection with, or based upon any liability or obligation of TCC under the Oklaunion Participation Agreement, whether in contract, tort or any other legal theory . . . .

CR 36:8261 at Section 4 (emphasis added).        The releases were defined as the “Released Participation Agreement Claims Against TCC.”  They were found in a section entitled “Releases of TCC from Liability Under Oklaunion Participation Agreement.”  Id.

Before the Trial court, the parties advanced conflicting interpretations of the agreement.  BPUB asserted that a reasonable interpretation of the agreement was that it only released claims for breach of the 1985 Participation Agreement that applied to BPUB, OMPA and TCC as co-owners of Oklaunion and not to claims for breach of the entirely separate  BPUB and OMPA PSAs, lengthy, detailed agreements that spelled out the parties’ rights and responsibilities with respect to the sale of Oklaunion.  TCC asserted that the release released most of BPUB’s claims, including claims for breach of the BPUB and OMPA PSAs.

BPUB’s interpretation was supported by the language of the agreement itself.  First, the title of the section containing the releases at issue was “Releases of TCC from Liability under Oklaunion Participation Agreement.”  CR 36:8261.  Second, the released claims were defined as the “OMPA Released Participation Agreement Claims Against TCC” and the “PUB Released Participation Agreement Claims Against TCC”  CR 36:8261.  Third, the introductory language of the release clearly stated that it was meant solely to release claims arising under the Participation Agreement, as was required by Schedule 1.1(j) to the various PSAs:

The obligations of TCC under the TCC/PUB PSA to consummate the purchase and sale of the Oklaunion Interest and related transactions contemplated thereby are subject to the condition precedent (among other conditions precedent) that, at or prior to the Closing, OMPA and PUB shall have released TCC from liability under the Oklaunion Participation Agreement pursuant to a written release or other instrument in form and substance reasonably satisfactory to TCC.  TCC has requested PUB and OMPA to furnish such release and PUB and OMPA are effecting such release pursuant to this Termination Agreement and Release.

CR 36:8258 at Section I (emphasis added).  And fourth, the releases made no mention whatsoever of the BPUB or OMPA PSAs.  CR 36:8261.

Texas cases arising under similar facts have held that contractual releases did not encompass claims that were not mentioned by the release itself.  In the case of Baty v. Protech Ins. Agency, 63 S.W.3d 841 (Tex. App.—Houston [14th Dist.] 2001, pet. denied), an insurance agency sued for breach of a covenant not to compete.  The lawsuit was settled and agency released certain claims against the defendants.  When  the agency filed a second lawsuit against the same defendants asserting tort claims, the trial court granted summary judgment on their affirmative defense of release.  On appeal, the court held that the release at issue did not release the plaintiffs’ tort claims because it was limited to a release of claims “arising under” a contract between the parties and made no mention of tort or extra-contractual claims.  Id. at 849.  The court pointed out that, “[s]ignificantly, at the time the parties entered into the ‘Settlement and Rescission Agreement,’ the breach of fiduciary duty claims BAI and Baty had asserted against Malliaros and Neill were pending, yet the parties did not refer to these claims in the settlement agreement. . . . . This silence supports an inference that the parties did not intend to include tort claims in the settlement agreement.”  Id. at 854.[1] The court also noted that the “the settlement agreement does not provide for the dismissal of claims with prejudice, but instead expressly states that all parties agree to dismiss their claims without prejudice.”  Id. at 855.[2] The court concluded:

The role of the court is to construe the release to follow the expressions of the written instrument. We will not expand the language of the release to cover claims not specifically mentioned, nor will we infer or presume an intent of the parties to release claims that are not clearly within the scope of the agreement.

Id. at 855; see also Victoria Bank & Trust Co. v. Brady, 811 S.W.2d 93, 939 (Tex. 1991) (“any claims not clearly within the subject matter of the release are not discharged.”); Vela v. Pennzoil Producing Co., 723 S.W.2d 199, 204 (Tex. App.—San Antonio 1986, writ ref’d n.r.e.) (“Any claims not clearly within the subject matter of the release are not discharged, even if such claims existed at the time the release was executed.”).

In the instant case, there were two entirely separate agreements between the parties:  the 1985 Participation Agreement that governed the parties’ rights and duties as co-owners of the Oklaunion facility and the 2004 PSAs that governed the sale of TCC’s interest in Oklaunion to BPUB and OMPA.  The Termination Agreement and Releases signed by the parties made no mention whatsoever of the BPUB PSA or claims arising thereunder.  CR 36:8245.   Nor did it ever describe the release as encompassing claims arising under either the BPUB or OMPA PSAs, despite the fact that such claims had already been asserted by BPUB.  Id. The agreement did not terminate the BPUB PSA. And at the time the transaction closed, none of BPUB’s pending claims were dismissed.  Under such facts, the only logical conclusion is that claims for breach of the BPUB and OMPA PSAs were not released.  See, e.g., CKB & Associates, Inc. v. Moore McCormack Petroleum, Inc., 734 S.W.2d 653, 655-56 (Tex. 1987) (“The settlement agreement released MMP from any claims and causes of action arising out of the presentation of the two quality drafts while claims arising out of the presentment of the volume draft were not mentioned. This silence raises an inference that the parties did not intend to preclude the volume draft presentment causes of action by the settlement agreement.”).

Given the above facts, BPUB’s interpretation of the Termination Agreement and Releases as not releasing claims for breach of the BPUB and OMPA PSAs was clearly reasonable.  The Trial Court therefore erred in granting summary judgment to TCC.

B. BPUB’s interpretation of the Termination Agreement and Releases was reasonable based on the historical origin of the agreement.

 

BPUB’s interpretation of the agreement was also reasonable based on the historical origin of the agreement.  As stated in the Termination Agreement and Releases, “[t]he obligations of TCC under the TCC/PUB PSA to consummate the purchase and sale of the Oklaunion Interest and related transactions contemplated thereby are subject to the condition precedent (among other conditions precedent) that, at or prior to the Closing, OMPA and PUB shall have released TCC from liability under the Oklaunion Participation Agreement . . . .” CR 36:8258 at Section I.  That condition precedent had its origin in the Golden Spread PSA, a document properly considered in interpreting the Termination Agreement and Releases because it related to the same transaction and was expressly referenced in the agreement.  DeWitt County Elec. Coop., Inc. v. Parks, 1 S.W.3d 96, 102 (Tex. 1999) (“all writings that pertain to the same transaction will be considered together, even if they were executed at different times and do not expressly refer to one another.”)  In particular, the Seller’s Conditions to Closing in the Golden Spread PSA included TCC’s receipt of ‘Seller’s Required Consents,” a term defined as the release “specified on Schedule 1.1(j)” to the Golden Spread PSA, which stated:

The Oklaunion Owners, other than seller, TCC Texas North Company (f/k/a West Texas Utilities Company) and Public Service Company of Oklahoma, shall have released Seller from liability under the Oklaunion Participation Agreement . . . .

CR 1:118; CR 1:58; CR 1:205 (emphasis added).  Thus, under the Golden Spread PSA, Golden Spread, a non-owner of Oklaunion, was required to obtain from BPUB and OMPA a release of TCC from liability under the Oklaunion Participation Agreement to which they were parties.  Because it was selling its interest in Oklaunion to Golden Spread, it made perfect sense that TCC wanted to terminate any potential liability to BPUB and OMPA under the Oklaunion Participation Agreement.

Following execution of the Golden Spread PSA, TCC claimed that to exercise its right of first refusal, BPUB was required to sign a PSA that included the very same terms as the Golden Spread PSA.  CR 6:1339.  Thus, BPUB and OMPA were required to provide the same release – no more, no less – than the one identified in Schedule 1.1(j) to the Golden Spread PSA:  a release of TCC “from liability under the Oklaunion Participation  Agreement.”  CR 1:205.   In fact, the release in the final, signed Termination Agreement and Releases was specifically identified as only “such release” as was required by Schedule 1.1(j) to the PSAs.  CR 36:8258-59.

Given the history and origin of the release in the Termination Agreement and Releases, TCC’s interpretation of such release as encompassing claims for breach of the BPUB and OMPA PSAs was nonsensical.  As stated above, the origin of the Termination Agreement and Releases was Schedule 1.1(j) to the Golden Spread PSA, which called for the other Oklaunion owners – BPUB and OMPA – to release TCC from liability “under the Participation Agreement.”  CR 1:205.  Identical language was included in Schedule 1.1(j) to the BPUB and OMPA PSAs due to TCC’s insistence that BPUB “enter a contract (or contract(s)), with TCC that is (are) exactly the same as the [Golden Spread] PSA, with only such changes as may be necessary to reflect the identity(ies) of the parties.”  CR 6:1339, CR 23:5502, 23:5653.  Because their language was identical, the  release required by Schedule 1.1(j) of the BPUB and OMPA PSAs can be no broader in scope than that required by Schedule 1.1(j) of the Golden Spread PSA.

TCC’s argument that the release called for by Schedule 1.1(j) of the BPUB and OMPA PSAs encompassed claims arising under the BPUB and OMPA PSAs completely ignored the historical origin of the release.  At the time Schedule 1.1(j) was included in the Golden Spread PSA, BPUB and OMPA had not even exercised their rights of first refusal much less signed a PSA of their own.  As such, the release called for under Schedule 1.1(j) could not possibly be meant to encompass claims arising under a BPUB and/or OMPA PSA that did not yet exist.  Moreover, once BPUB signed its PSA, the Golden Spread PSA became null and void.  It therefore makes no sense that a condition of closing the sale to Golden Spread under its PSA would be the release of TCC from liability under the BPUB PSA; once the BPUB PSA came into existence, there could be no closing of the Golden Spread PSA.

TCC’s argument also was nonsensical because the release called for in Schedule 1.1(j) of the Golden Spread PSA did not require any release at all from Golden Spread.  It required only a release from “the Oklaunion Owners,” which were defined as including only the then-current owners of Oklaunion (BPUB and OMPA) and not as including Golden Spread.  CR 1:205.  Thus, under the Golden Spread PSA, Golden Spread was not required to release claims for breach of its PSA in order to close the transaction.  And yet TCC claimed before the Trial Court that the identically worded Schedule 1.1(j) to the BPUB and OMPA PSAs somehow required those entities to release claims arising under their respective PSAs prior to closing the very transaction governed by the PSAs.

C. BPUB’s interpretation of the Termination Agreement and Releases was reasonable based on the purpose of the agreement.

 

Courts “should construe contracts from a utilitarian standpoint bearing in mind the particular business activity sought to be served.” Reilly v. Rangers Mgt., Inc., 727 S.W.2d 527, 530 (Tex. 1987).  In interpreting a contract, courts should also consider the contract’s purpose.  Manzo v. Ford, 731 S.W.2d 673, 676 (Tex. App.—Houston [14th Dist.] 1987, no writ) (“This court will construe the language used in the contract by . . . considering the circumstances surrounding its negotiation and keeping in mind the purposes intended to be accomplished by the parties when entering into the contract.”).  Here, the business activity sought to be served was the sale of TCC’s interest in Oklaunion under the BPUB and OMPA PSAs.  The purpose of the Termination Agreement and Releases was to fulfill BPUB’s and OMPA’s obligations under Schedule 1.1(j) of their respective PSAs to provide TCC a release from liability “under the Oklaunion Participation Agreement.”  CR 36:8258-59.  In fact, the language of the agreement expressly confirmed this fact.  Id. The uncontested purpose of the releases was to provide the release “from liability under the Oklaunion Participation Agreement” that was a condition precedent to closing the sale to BPUB or OMPA.

The BPUB PSA was signed on May 25, 2004.  CR 7:1522.   As a result of the Golden Spread lawsuit, TCC refused to close the sale of Oklaunion to BPUB until February 2007.  BPUB and OMPA signed the Termination Agreement and Releases on February 12, 2007 to be effective at closing, which occurred on February 14, 2007.  In light of the limited purpose of the Termination Agreement and Releases, it would be unreasonable to assume that BPUB signed a lengthy, detailed PSA containing numerous obligations on the part of TCC and, before the sale even closed, released TCC from liability in the event it breached those obligations.  The Court’s interpretation of the Termination Agreement and Releases essentially rendered meaningless and unenforceable each and every obligation of TCC contained in the PSA.  This interpretation was patently unreasonable, especially insofar as it would release TCC from liability for all of its post-closing obligations under the PSA, including:

  • The obligation of TCC under Section 2.5 of the PSA to control certain ongoing litigation;
  • The obligation of TCC under Section 3.5(b) of the PSA to make certain post-closing adjustments to the purchase price;
  • The obligation of TCC under Section 3.7 of the PSA to file tax returns consistent with the allocation of the purchase price;
  • The obligation of TCC under Section 3.8 of the PSA to refund any overpaid sales taxes;
  • The obligation of TCC under Section 6.10 of the PSA to provide certain post-closing assurances;
  • The obligation of TCC under Section 6.17 of the PSA to make certain post-closing emission allowance adjustments;
  • The obligation of TCC under Section 7.2 of the PSAs to indemnify BPUB from certain claims; and
  • The obligation of TCC under Section 11.8 of the PSA to resolve certain post-closing disputes pursuant to specified dispute resolution procedures.

CR 23:5430, 5436, 5438, 5440, 5461, 5466, 5472, 5435.
According to the Trial Court’s ruling, BPUB paid TCC $42 million to purchase its interest in Oklaunion pursuant to the terms of the BPUB PSA but simultaneously released TCC from liability for any pre-closing breaches of the PSA and from liability for any future, post-closing breaches of the PSA’s numerous post-closing obligations.  Such an interpretation of the Termination Agreement and Releases was unreasonable as a matter of law, particularly in light of the purpose of the Termination Agreement and Releases: to allow the closing of the BPUB PSA to occur by providing TCC with the release required by Schedule 1.1(j) of the PSA, a release from liability “under the Oklaunion Participation Agreement.”  Conversely, BPUB’s contrary interpretation was clearly reasonable.

D. BPUB’s interpretation of the Termination Agreement and Releases was reasonable based on other provisions of the BPUB PSA.

 

BPUB’s interpretation of the agreement was also reasonable based on other provisions of the PSA.   Specifically, Section 11.15 of the BPUB PSA stated:

Section 11.15 Survival
(b)  The covenants and agreements of the Parties contained in this Agreement, including those set forth in ARTICLE 7, shall survive the Closing indefinitely, unless otherwise specified herein.

CR 23:5488 (emphasis added).  Section 11.15 was clear and unequivocal.  It commanded that the parties’ covenants and agreements shall survive the Closing indefinitely. Section 11.15 clearly preserved BPUB’s ability to bring claims against TCC arising from its breach of the PSA even after the closing and the required execution of the Termination Agreement and Releases that was a condition precedent to closing.

“Under generally accepted principles of contract interpretation, all writings that pertain to the same transaction will be considered together, even if they were executed at different times and do not expressly refer to one another.”  DeWitt County Elec. Coop., Inc. v. Parks, 1 S.W.3d 96, 102 (Tex. 1999); Endeavor Natural Gas, L.P. v. Magnum Hunter Prod., No. 13-06-352-CV, 2007 Tex. App. LEXIS 9685 at *11-12 (Tex. App.—Corpus Christi Dec. 13, 2007, no pet.) (“Here, the Assignment and the Letter Agreement should be considered in determining the intent of the parties considering both pertain to the same transaction: the conveyance of the Subject Wells from Magnum Hunter to Endeavor.  We will, therefore, read the contracts together.”).  The Termination Agreement and Releases was specifically required by the BPUB PSA, made specific reference to it and was part of the same transaction.  CR 36:8257-58 at Recitals F, I.  As such, in construing the Termination Agreement and Releases, the Trial Court was required to examine the terms of the BPUB PSA, including Section 11.15.

The Trial Court was also required to harmonize any seemingly conflicting language contained in the various agreements, including the BPUB PSA, so that none of the contractual provisions would be rendered mere surplusage.  See, e.g., Seagull Energy E & P, Inc. v. Eland Energy, Inc., 207 S.W.3d 342, 345 (Tex. 2006) (“Our primary concern when interpreting a contract is to ascertain and give effect to the intent of the parties as that intent is expressed in the contract.  To discern this intent, we examine and consider the entire writing in an effort to harmonize and give effect to all the provisions of the contract so that none will be rendered meaningless.”);  Luckel v. White, 819 S.W.2d 459, 462 (Tex. 1991) (“the court must strive to harmonize all of the parts, construing the instrument to give effect to all of its provisions.”).  A court “may not interpret [a] single provision in question to so distort and contradict the other express provisions and the whole tenor and effect of the parties’ contract.”  Priem v. Shires, 697 S.W.2d 860, 865 (Tex. App.–Austin 1985, no writ).

The Trial Court’s interpretation of the Termination Agreement and Releases violated these well-established principles by rendering meaningless Section 11.15 of the PSA, which specifically stated that the agreements contained in the PSA survived closing.  The Trial Court’s interpretation also conflicted with the maxim that the specific controls over the general since Section 11.15 specifically stated that the obligations under the PSAs survived closing while the Termination Agreement and Releases was alleged to indirectly effect a release of claims arising under the PSAs.   See, e.g., GAF Corp. v. Bamber, 29 S.W.3d 650, 653 (Tex. App.—Beaumont 2000, pet. abated) (“[I]t is a well established rule of construction that the specific language of an instrument controls over its general terms.”); Ensearch Corp. v. Houston Oil & Minerals, Corp., 743 S.W.3d 654, 657 (Tex. App.—Houston [1st Dist.] 1987, writ denied) (“in resolving contractual disputes, courts must give full effect to particular clauses over more general clauses.”).

II. The extrinsic evidence offered by BPUB established the reasonableness of its

interpretation of the Termination Agreement and Releases.

 

BPUB’s interpretation of the Termination Agreement and Releases was supported by the agreement’s plain language as well as the extrinsic evidence of the parties’ negotiations, drafts and communications leading to the eventual signing of the Termination Agreement and Releases.  Unfortunately, it appeared during various summary judgment hearings that the Trial Court refused to consider the extrinsic evidence detailed above.  This decision, reviewed de novo by this Court, was in error.  See, e.g., Declaire v. G&B McIntosh Family Ltd. P’ship, 260 S.W.3d 34, 45 (“We review parol evidence questions de novo, as questions of law. “).

Even if the releases were unambiguous, other documents were still admissible to provide the court with evidence of surrounding circumstances. See, e.g., Creel v. Houston Ind., Inc., 124 S.W.3d 742, 750 (Tex. App.—Houston [1st Dist.] 2003, no pet.) (“Evidence of surrounding circumstances may be consulted.”).  As one court explained:

In construing the contract, we consider how a reasonable person would have used and understood the language, by pondering the circumstances surrounding the contract’s negotiation, and by considering the purposes which the parties intended to accomplish by entering into the contract.  We are free to examine prior negotiations and all other relevant incidents bearing on the intent of the parties; however, the parties may not contradict or vary the terms of the agreement by oral statements of their intentions.

Cook Composites, Inc. v. Westlake Styrene Corp., 15 S.W.3d 124, 132 (Tex. App.-Houston [14th Dist.] 2000, pet. dism’d) (“We are free to examine prior negotiations and all other relevant incidents bearing on the intent of the parties”).  This is especially true where, as here, the agreement contained no merger or integration clause.

The evidence offered by BPUB was also admissible because even when a document is unambiguous, parol evidence is admissible so long as it does not seek to vary or contradict the written terms of the agreement.  See, e.g., Creel., 124 S.W.3d at 750 n. 8 (“The parol evidence rule does not preclude evidence of prior or contemporaneous agreements that are not inconsistent with, and do not vary or contradict, express or implied terms or obligations of a separate written agreement.”);  Baty v. Protech Ins. Agency, 63 S.W.3d 841, 848 (Tex. App.—Houston [14th Dist.] 2001, pet. denied) (“although oral statements regarding the parties’ intentions are inadmissible to vary or contradict the terms of the agreement, the court may examine prior negotiations and all other relevant incidents bearing on the intent of the parties.”).  For example if the releases explicitly released “claims for breach of the BPUB PSA,” BPUB could not offer parol evidence that such claims were not released.  But here, the Termination Agreement and Releases never even mentioned claims for breach of the BPUB PSA.  Evidence establishing that such claims were not released cannot possibly be seen as “varying” or “contradicting” the terms of the release when those terms never even mention claims for breach of the PSA.

Finally, under Texas law, even when a contract is unambiguous on its face, a court may properly look to the circumstances surrounding its execution to determine whether there is a latent ambiguity.  See, e.g., ExxonMobil Corp. v. Valence Operating Co., 174 S.W.3d 303, 312 (Tex. App.—Houston [1st Dist.] 2005, pet. denied) (“when a question relating to the construction of a contract is presented, we are required to take the wording of the instrument, consider it in the light of the surrounding circumstances, and apply the rules of contract construction to determine the meaning.); Sun Oil Co. (Delaware) v. Madeley, 626 S.W.2d 726, 731 (Tex. 1981) (“Evidence of surrounding circumstances may be consulted”).  Here, the surrounding circumstances showed that the only reason the Termination Agreement and Releases was signed was because a release of claims “under the Oklaunion Participation Agreement” was a condition precedent to closing under Schedule 1.1(j) to the BPUB and OMPA PSAs.  These circumstances clearly supported BPUB’s interpretation of the agreement.  The Trial Court’s refusal to consider such evidence was in error.

A. The original draft of the Termination Agreement and Releases established the reasonableness of BPUB’s interpretation.On January 24, 2007, TCC attorney Michael Gibbs sent a draft of the Termination Agreement and Releases to BPUB attorney John Davidson.  The draft agreement required that the OMPA PSA be terminated.  CR 36:8219-8223.  Because the OMPA PSA was being terminated, the draft agreement required OMPA to release TCC from all claims:

(i) asserted in, or that could have been asserted in, the GS litigation, or

(ii) arising under or in connection with, based upon or relating in any way to

(A) the rights of first refusal or any related rights, duties or obligations set forth in Article XV of the Oklaunion Participation agreement, to the extent relating to the sale by TCC of the Oklaunion Interest, or

(B) the TCC/OMPA PSA, the documents related thereto, or the transactions contemplated thereby . . . .

CR 36:8223 (emphasis added).  The foregoing paragraphs clearly distinguished between claims related to the Participation Agreement (see section ii(A)) and claims relating to the entirely separate PSA (see section ii(B)).  As such, the release in section (ii)(A) – which formed the basis of the release eventually agreed to by BPUB — cannot be read to encompass claims arising under the respective PSAs.  See, e.g., Hilco Elec. Coop. v. Midlothian Butane Gas Co., 111 S.W.3d 75, 81 (Tex. 2003) (“we apply the principle of ejusdem generis, which provides that when words of a general nature are used in connection with the designation of particular objects or classes of persons or things, the meaning of the general words will be restricted to the particular designation.”).  Such a reading would render paragraph (ii)(B) above meaningless surplusage in violation of well-recognized principles of contract construction.  See, e.g., Coker v. Coker, 650 S.W.2d 391, 392 (Tex. 1983) (“courts should examine and consider the entire writing in an effort to harmonize and give effect to all the provisions of the contract so that none will be rendered meaningless”); King v. Dallas Fire Ins. Co., 85 S.W.3d 185, 193 (Tex. 2002) (“the construction given to the word ‘occurrence’ by Dallas Fire renders the exclusion for intended injury surplusage. . . . our duty is to give effect to all contract provisions, and render none meaningless.”).

The January 24, 2007 draft of the Termination Agreement and Releases also supported BPUB’s interpretation because it did not explicitly require BPUB to release claims arising under its PSA as was required of OMPA in Section ii(b) above.  Rather, the release sought by TCC only required BPUB to release TCC from all claims:

(i) asserted in, or that could have been asserted in, the GS litigation, or

(ii) arising under or in connection with, based upon or relating in any way to the rights of first refusal or any related rights, duties or obligations set forth in Article XV of the Oklaunion Participation Agreement, to the extent relating to the sale by TCC of the Oklaunion Interest . . . .

Exhibit 1-B at TCC4945.  Section (ii) is the same language from section (ii)(A) above relating to OMPA.  Unlike the release from OMPA, however, the BPUB release contained no Section ii(B) requiring a release of claims under the BPUB PSA.

Finally, the introductory language of the January 24th draft confirms that TCC was not seeking a release from BPUB of claims arising under the BPUB.  That language stated that:

TCC and GS mutually desire to terminate and resolve any claims arising under the TCC/GS PSA.  TCC and OMPA mutually desire to terminate and resolve any claims arising under the TCC/OMPA PSA.

CR 36:8216.  No such language pertaining to the BPUB PSA was included.

B.        The February 1, 2007 draft of the Termination Agreement and Releases established the reasonableness of BPUB’s interpretation.

The January 24, 2007 draft Termination Agreement and Releases would have released TCC from “all causes of action . . . asserted in or that could have been asserted in the [Golden Spread] litigation.”  CR 36:8225.  The draft agreement also contained an Agreed Motion to Dismiss with Prejudice that would have dismissed all pending claims in the underlying lawsuit. CR 36:8234.  On behalf of BPUB, attorney John Davidson refused to agree to the broad release set forth in the January 24, 2007 draft Termination Agreement and Releases.  Instead, on Friday, January 26, 2007, he e-mailed Michael Gibbs, the attorney for TCC, regarding the draft Termination Agreement and Releases.  He clearly and unequivocally stated that “[t]he City of Brownsville is unwilling to execute a full and complete release of any party to the case other than Oklaunion [sic] Municipal Power Authority.”  CR 36:8239 (emphasis added).

On January 29, 2007, Gibbs wrote Davidson back and confirmed that “we understand that Brownsville’s position is that it will not execute a full and complete release of any party, except OMPA.”  CR 36:8240.  Gibbs insisted that TCC was merely seeking a release from liability under the Oklaunion Participation Agreement.  CR 36:8240.  Davidson responded that BPUB “has no objection to releasing TCC from liability under the Oklaunion Participation Agreement” but read the draft as “substantially broader in scope than required by the PSA and includ[ing] all dealings of any kind or nature.”  CR 36:8242.  He then reiterated that “[p]rovided the release is limited in scope to a release from liability under the Oklaunion Participation Agreement, as is stated in Schedule 1.1(j) to the PSA, Brownsville will execute the release.”  CR 36:8243 (emphasis added).

Two days later, on February 1, 2007, TCC attorney Michael Gibbs forwarded a revised agreement to BPUB attorney John Davidson that he stated was “intended to address what we understood to be the concerns of the City of Brownsville with the prior draft.”  CR 36:8244.  Significantly, the new draft deleted the previous Motion to Dismiss with Prejudice. Section 5 contained releases from BPUB and OMPA:

of and from (i) all liabilities and obligations of TCC under the Oklaunion Participation Agreement and (ii) without limiting the generality of the foregoing, all Claims  arising under or in connection with, or based upon any liability or obligation of TCC under the Oklaunion Participation Agreement, whether in contract, tort or any other legal theory, which any one or more of the PUB Releasors ever had, now has or hereafter may have against the TCC Releasees . . .

 

CR 36:8250 (emphasis added).  This was the exact language included in the final Termination Agreement and Releases signed by TCC and BPUB, language AEP argued released claims under the BPUB and OMPA PSAs.  CR 36:8261.  But this interpretation ignores the fact that the February 1st draft contained a specific release of claims arising under the OMPA PSA in a separate section from Section 5 above:

Section 4.  Mutual Releases under TCC/OMPA PSA.

(b)  Effective at the Effective Time, subject to the terms and conditions specified herein, including the performance by each of the TCC Releasors of its obligations set forth in Section 4(c) below, . . . the “OMPA Releasors” jointly and severally, immediately, unconditionally and irrevocably remise, release, relinquish, waive and forever discharge . . . the “TCC Releasees” of and from all Claims arising under or in connection with, or based upon or relating in any way to the TCC/OMPA PSA, the documents related thereto, or the transactions contemplated thereby . . . .

CR 36:8249 (emphasis added).

Because the release of claims arising under the OMPA PSA was set forth separately in Section 4 and was not part of the releases found in Section 5, the Court could not properly construe the Section 5 releases by OMPA and BPUB as encompassing claims arising under their respective PSAs.  A more expansive reading of the Section 5 releases as encompassing claims arising under the PSAs would render meaningless Section 4 and its specific release of claims arising under the OMPA PSA in violation of principles of contract construction.  See, e.g., Coker, 650 S.W.2d at 392 (courts should “give effect to all the provisions of the contract so that none will be rendered meaningless”).

C.        Communications during this same time frame that indicated

BPUB intended to preserve its claims against TCC established

the reasonableness of BPUB’s interpretation.

 

During this same time frame, counsel for TCC sent e-mails to BPUB’s agents and attorneys demonstrating that TCC knew BPUB was preserving its claims against TCC under the PSAs.  For example, on December 20, 2006, counsel for BPUB informed counsel for TCC that:

As a result, Brownsville has incurred and is continuing to incur substantial damagesIn the coming weeks, Brownsville will be amending its pleadings to assert claims for the damages it has incurred.

CR 34:7840.  (emphasis added).  Subsequently, in an e-mail to TCC’s lawyers dated January 4, 2007, counsel for BPUB attached “a Motion to Lift Abatement which Brownsville intends to promptly file.”  CR 38: 8687.  The Motion sought to lift the abatement of this case, which had occurred after this case was severed from Golden Spread’s claims that went up on appeal.

On January 26, 2007, BPUB’s counsel informed TCC’s counsel that “the City of Brownsville is unwilling to execute a full and complete release . . . .”  CR 36:8239.  TCC’s counsel wrote back the next business day and stated that “we understand that Brownsville’s position is that it will not execute a full and complete release of any party, except OMPA.”  CR 36:8240.  On January 30, 2007, Davidson reiterated in an e-mail to TCC’s attorney that “[p]rovided the release is limited in scope to a release from liability under the Oklaunion Participation Agreement, as is stated in Schedule 1.1(j) to the PSA, BPUB will execute the release.”  CR 36:8243.  After receiving Davidson’s e-mail, Rocky Miracle of TCC wrote to John Bruciak of the BPUB Public Utilities Board on January 31, 2007 expressing concern that BPUB appeared to be preserving some of its claims:

John – As you are aware, our Jones Day attorney received the below email from John Davidson.  It appears we will be able to move forward.

However, one observation is the appearance of Brownsville’s desire to retain the ability to litigation “certain” issues related to Oklaunion.

CR 36:8268 (emphasis added).  After this information was passed on to Davidson, he responded the same day as follows:

As far as Brownsville is concerned, the only direction given to us at this time is to close the transaction in accordance with the Purchase and Sale Agreement (“PSA”) and to leave any claims pending which are not foreclosed by closing of the PSA. . .

The answer to Mr. Miracle’s question, therefore, is Brownsville might pursue claims associated with the Golden Spread litigation, and has requested that its right to do so be preserved.

CR 36:8270 (emphasis added).  As a result, TCC’s Rocky Miracle wrote to TCC’s John Bruciak:

John – Despite what I perceived to be our mutual desire that all issues related to the Oklaunion transaction be concluded, I cannot make that representation to TCC’s executive management, based on your response below.  As I stated earlier, we continue to work toward a February 8th close.  I am also operating under the assumption that further litigation is an unfortunate possibility.

CR 38:8691 (emphasis added).  These pieces of correspondence clearly demonstrate that all parties knew and understood that BPUB refused to provide a broad release that would encompass its claims under the BPUB and OMPA PSAs.

D. The actions of the parties at the time the Termination Agreement and Releases was executed established the reasonableness of BPUB’s interpretation.

While the parties offered different interpretations of the February 12, 2007 Termination Agreement and Releases before the Trial Court, perhaps the best evidence of the parties’ intent came from a “Closing Checklist” prepared by TCC’s attorneys on the very day the agreement was signed.  That checklist described the Termination Agreement and Releases as follows:

Execution and delivery of Termination and Release Agreement, by and among Seller, PUB and OMPA, terminating the TCC/OMPA PSA, mutually releasing certain claims under the TCC/OMPA PSA and including a release by PUB and OMPA of TCC from liability under the Oklaunion Participation Agreement.

CR 38: 8679 (emphasis added).

The same day the Termination Agreement and Releases was signed, Dale Patterson of TCC sent an e-mail to TCC’s Rocky Miracle asking about the proration of expenses for the Oklaunion plant to BPUB.  Despite the release language in the Termination Agreement and Releases, Miracle wrote back that Dale should “[b]e careful with proration.  We have some litigation exposure.”  CR 36:8272 (emphasis added).

After the signing of the Termination Agreement and Releases on February 12, 2007 and the sale of TCC’s interest in Oklaunion on February 14, 2007, no claims were dismissed by any party.  CR 36:8206 at par. 27.  Nor did TCC take any action to dismiss the then-pending claims.  Instead, on January 16, 2007, just two days after the transaction closed, the City Commission of BPUB authorized its attorneys to “secure counsel to seek additional damages regarding underlying claims.”  CR 36:8273.  The case remained inactive until April 27, 2007, when BPUB sought to lift the abatement of the suit  so it could assert additional claims against TCC.  TCC did not oppose the motion. CR 18:3665

“The conduct of the parties following the agreement is a critical factor to be considered in determining the intention of the parties.”  C.A. Dwyer 1962 Trust v. Taub, No. 01-86-00826-CV, 1988 Tex. App. LEXIS 30 (Tex. App.—Houston [1st Dist.] Jan. 7, 1988, no writ).  “When parties release claims made in pending litigation, the logical next step is to dismiss those pending claims” Bolle, Inc. v. American Greetings Corp., 109 S.W.3d 827, 837 (Tex. App.—Dallas 2003, pet. denied).  If as TCC suggests, the parties intended through the Termination Agreement and Releases to release any and all claims or potential claims by BPUB against TCC, then TCC would have insisted that the lawsuit be dismissed following the execution of the Termination Agreement and Releases on February 12, 2007.   The fact that it did not is further evidence of the reasonableness of BPUB’s interpretation of the agreement.

III.      The Trial Court erred in granting summary judgment on all of BPUB’s claims, especially when TCC did not even argue that the Termination Agreement and Releases barred all of BPUB’s claims.

The Trial Court granted summary judgment on all of BPUB’s claims against TCC.  The sole basis for its ruling was its conclusion that “Brownsville’s claims were released pursuant to the provisions of the February 12, 2007 Termination Agreement and Releases between Brownsville, TCC and OMPA.”  CR 39:8878.  The most fundamental problem with this ruling was that it ignored the fact that TCC did not move for summary judgment on all of BPUB’s claims on the basis of the releases contained in the Termination Agreement and Releases.  Rather, TCC argued that such releases barred BPUB’s claims for breach of the Participation Agreement, breach of the PSAs, breach of fiduciary duty, unjust enrichment, constructive trust and declaratory judgment.  CR 24:5819-22.  As for BPUB’s remaining five claims for resulting trust, conversion, theft, common law fraud and statutory fraud, TCC argued only that such claims were released under Section 11.13 of the PSAs, an argument the court rejected. CR 24:5522-24, 5843; CR 39:8878.   Thus, at a minimum, the Trial Court erred as a matter of law in granting summary judgment on those five causes of action on a basis never pled by TCC.  Oxychem Corp. v. Elovitz, No. 13-97-778-CV, 1998 Tex. App. LEXIS 3378 at * 5 (Tex. App.—Corpus Christi June 4, 1998, no writ) (“it is well settled that a motion for summary judgment cannot be sustained on grounds not pleaded in the motion.”); Tex. R. Civ. P. 166a(c).

The Trial Court also erred in accepting TCC’s argument that the releases encompassed claims for breach of the PSAs.  Section 4(a)(ii) and 4(b)(ii) of the Termination Agreement and Releases merely stated that the release applied to claims  arising under, in connection with or based upon “any liability or obligation of TCC under the Oklaunion Participation Agreement.”  CR 36:8261 at Section 4.  BPUB alleged TCC breached the PSA by:

a.         Refusing to close the sale of its interest in the Oklaunion plant to BPUB in a commercially reasonable manner following execution of the BPUB PSA as required by Article 6.1 of the BPUB PSA; and

b.         Refusing to close the sale of its interest in the Oklaunion plant to BPUB by December 31, 2004 as required by Articles 6.1 and 10.1(e) of the BPUB PSA.

CR 34:7915.  BPUB’s Seventh and Eighth claims, for conversion and theft, were similarly based on the allegation that TCC exercised control over BPUB’s rights to ownership in the plant when it refused to timely transfer those rights pursuant to the specific requirements of the BPUB PSA.  CR 34:7921.  Clearly, the foregoing claims were based solely on specific provisions of the BPUB PSA and were not encompassed by the release applying to claims arising from liability of TCC under the Participation Agreement.

TCC’s theory to the contrary seemed to be that such claims were “claims arising under or in connection with, or based upon any liability or obligation of TCC under the Oklaunion Participation Agreement” because it was the 1985 Participation Agreement that contained BPUB’s right of first refusal, it was BPUB’s exercise of its right of first refusal that allowed it to purchase TCC’s Oklaunion interest, it was in furtherance of BPUB’s purchase of TCC’s Oklaunion interest that BPUB and TCC signed the 2004 BPUB PSA and it was the terms of the BPUB PSA upon which these claims were based.  For the reasons set forth above, this strained reading of the agreement was unreasonable as a matter of law.  The only reasonable interpretation of the agreement was that claims for breach of the BPUB PSA were not released when they were not even mentioned in the release.  See, e.g., Baty, 63 S.W.3d at 849 (“the parties did not refer to these claims in the settlement agreement.  . . . . This silence supports an inference that the parties did not intend to include tort claims in the settlement agreement . . . We will not expand the language of the release to cover claims not specifically mentioned, nor will we infer or presume an intent of the parties to release claims that are not clearly within the scope of the agreement.”); Victoria Bank & Trust, 811 S.W.2d at 939 (“any claims not clearly within the subject matter of the release are not discharged.”); Vela v. Pennzoil Producing Co., 723 S.W.2d 199, 204 (Tex. App.—San Antonio 1986, writ ref’d n.r.e.) (“Any claims not clearly within the subject matter of the release are not discharged, even if such claims existed at the time the release was executed.”).

BPUB’s Third through Fifth claims – for breach of fiduciary duty, unjust enrichment, constructive trust and resulting trust – were predicated on a special relationship between TCC, BPUB and OMPA.  TCC claimed that because the Participation Agreement governed that relationship, these claims were covered by the release.  TCC was wrong.  The special relationship at issue arose from the parties’ status as co-owners of Oklaunion.  The Participation Agreement simply set forth the rights and duties of the parties as co-owners.  Claims based upon the violation of a special or fiduciary relationship were not claims based on “any liability or obligation of TCC under the Oklaunion Participation Agreement,” but were claims based on violations of common law duties owed by parties to a fiduciary relationship.  For the foregoing reasons, the Trial Court erred by granting summary judgment on all of BPUB’s claims.

IV. The Trial Court was required to deny TCC’s summary judgment motion because BPUB raised a fact issue on the existence of a mutual or unilateral mistake.

A. BPUB raised a fact issue on the existence of a mutual mistake. 

Under Texas law, “if it can be established that a release sets out a bargain that was never made, it will be invalidated” under the doctrine of mutual mistake.  Williams v. Glash, 789 S.W.3d 261, 265 (Tex. 1990).  When a mistake has been alleged, “the task of the court is not to interpret the language contained in the release, but to determine whether or not the release itself is valid.”  Id. When a party asserts mutual mistake, it “must bring forth the necessary facts to show the circumstances surrounding the signing of a release, including the conduct of the parties and the information available to them at the time a release is signed.”  Crockett v. Bell, 909 S.W.3d 70, 74 (Tex. App.—Houston [14th Dist.] 1995, no writ).

In Bolle, Inc. v. American Greetings Corp., 109 S.W.3d 827 (Tex. App.—Dallas 2003, pet. denied), parties to a letter of intent became embroiled in a lawsuit in Dallas.  The parties settled the suit for $877,000, a dismissal of the suit and a broad release.  During this same time frame, there were pending in California three patent cases between some of the same parties.  After one of the parties took the position that the settlement agreement in the Dallas suit had released the claims in the California patent cases, the other parties filed a declaratory judgment action seeking a declaration that the release did not cover such claims.  The trial court held that the release was broad enough to encompass the claims in the California patent cases but rescinded the release agreement under the doctrine of mutual mistake.  The Dallas Court of Appeals affirmed the trial court, noting that the only consideration in the settlement agreement was the payment of an amount identified as payment for settlement of the letter of intent suit.  Id. at 836.  “In other words, despite appellants’ claim that the parties intended to resolve three other lengthy and apparently contentious lawsuits, there was no additional consideration for releasing those claims.”  Id. [3] The court also found the parties’ conduct after they signed the release was significant in determining their intent:

we believe another objective factor provides insight into the intent of the settling parties: the conduct of the parties to that unrelated litigation after the release is executed.  When parties release claims made in pending litigation, the logical next step is to dismiss those pending claims. This is what happened to the claims in the Letter of Intent Suit immediately after the Settlement Agreement was executed. However, the claims in the California Patent Cases were not dismissed. That litigation proceeded.

Id. at 837.[4]

In Williams v. Glash,789 S.W.2d 261 (Tex. 1990), Williams was a passenger in a car struck by Glash.  At the time of the accident, there was obvious damage to the car but no obvious injuries to Williams.  Williams made a claim against Glash’s insurance company, State Farm, and State Farm gave Williams a check for $899.46 for the costs of repair to her car.  The back of the check contained a release which purported to release both property damage and personal injury claims Williams might have against Glash.  When she was later diagnosed with TMJ as a result of the accident, Williams brought suit against Glash.  The trial court and court of appeals held that Williams’ personal injury claims against Glash had been released as a matter of law by the unambiguous terms of the release on the check.  The Texas Supreme Court disagreed, stating:

Under Texas law, a release is a contract and is subject to avoidance, on grounds such as fraud or mistake, just like any other contract.  Pursuant to the doctrine of mutual mistake, when parties to an agreement have contracted under a misconception or ignorance of a material fact, the agreement will be avoided. The parol evidence rule does not bar extrinsic proof of mutual mistake.

Id. at 264.  The court held that “[w]hen mutual mistake is alleged, the task of the court is not to interpret the language contained in the release, but to determine whether or not the release itself is valid.”  Id. at 265.  Because there was “some evidence” raising a fact issue on mutual mistake, the Texas Supreme Court reversed and remanded.

Before the Trial Court, BPUB provided uncontroverted evidence that it did not intend to release its claims under the PSAs when it signed the Termination Agreement and Releases.  CR 36:8206-8208 at pars. 28-30; CR 36:8292-94 at par. 23-25.  This testimonial evidence was supported by evidence showing that BPUB informed TCC repeatedly during the negotiations of the Termination Agreement and Releases that:

  • it would be amending its pleadings to assert claims for delay damages (CR 34:7840);
  • it was unwilling to execute a full and complete release of TCC (CR 36:8239);
  • it would only sign the release if it was limited to a release from liability under the Oklaunion Participation Agreement (CR 36:8243);
  • it would not agree to a specific release of claims arising under the OMPA PSA (CR 36:8255);
  • it intended “to leave any claims pending which are not foreclosed by closing of the PSA” (CR 36:8270); and
  • it “might pursue claims associated with the Golden Spread litigation, and has requested that its right to do so be preserved” (CR 36:8270).

BPUB also offered substantial evidence that neither TCC nor BPUB intended the agreement to release claims for breach of the PSAs:

  • The drafts of the Termination Agreement and Releases clearly distinguished between claims arising under the Participation Agreement and claims arising under the various PSAs;
  • The drafts of the Termination Agreement and Releases contained a release of claims arising under the OMPA and Golden Spread PSAs but no release of claims arising under the BPUB PSA;
  • The drafts of the Termination Agreement and Releases contained a recitation that “TCC and GS” and “TCC and OMPA” “mutually desire to terminate and resolve any claims arising under” their respective PSAs but no such recital as to the BPUB PSA;
  • Neither the final Termination Agreement and Releases nor any of the drafts made mention of claims arising under the BPUB PSA despite the fact that BPUB has stated it intended to assert such claims;
  • The release from BPUB to TCC in the final Termination Agreement and Releases was contained in a section titled “Releases of TCC from liability under the Oklaunion Participation Agreement;” and
  • The claims released by BPUB in the final Termination Agreement and Releases were defined as the “PUB Released Participation Agreement Claims Against TCC.”

All of this evidence supported the conclusion that the agreement did not provide a broad release of all of BPUB’s claims, including claims for breach of the PSAs.

For its part, TCC argued before the Trial Court that there was no “mutual mistake” because the agreement reflected no mistake on its part.  Its counsel argued that while it may have indicated something different to BPUB – that the final draft of the Termination Agreement and Releases was “intended to address what we understood to be the concerns of the City of BPUB with the prior draft” – TCC nevertheless intended to obtain a broad release from BPUB.  CR 36:8244; CR 35:7956; RR 2:86, 101, 107-8.  But these unsupported, conclusory statements about TCC’s intent were inadmissible.  See, e.g., Hidalgo v. Surety S&L Assn., 487 S.W.2d 702, 703 (Tex. 1972) (“conclusions are not competent evidence to support summary judgment.”); San Patricio Cty. v. Nueces Cty., 214 S.W.3d 536, 548 (Tex. App.—Corpus Christi 2006, pet. filed) (“Nueces’s statements are mere conclusions and, accordingly, not competent summary-judgment proof.”).  Even if they were admissible, they would not be dispositive because “the question of mutual mistake is determined not by self-serving subjective statements of the parties’ intent . . . but rather solely by objective circumstances surrounding execution of the release.”  Williams, 789 S.W.2d at 264.   Those “objective circumstances” raised a fact issue on the issue of mutual mistake that rendered summary judgment improper as a matter of law.  See, e.g., Matlock v. Nat’l Union fie Ins. Co. of Pittsburgh, Pa., 925 F. Supp. 468, 475 (E.D. Tex. 1996) (“Plaintiff has raised a genuine issue of fact as to whether the parties mutually intended the Release to cover only defendant’s actions occurring prior to the Release date” and “[a]s a result, plaintiff should be permitted to utilize the doctrine of mutual mistake to convince a trier of fact that the parties mutually agreed to a Release agreement which differed from the one which was ultimately reduced to writing.”).

B. BPUB raised a fact issue on the existence of a unilateral mistake.

 

TCC’s motion should also have been denied because BPUB raised a fact issue on the existence of a unilateral mistake. BPUB offered sworn affidavit testimony of its intent to release only claims arising under the Participation Agreement as it was obligated to do pursuant to Schedule 1.1(j) of the PSA.  CR 36:8205-8208; CR 36:8293-94 at pars. 24-25.  It also provided reams of evidence involving the drafting and negotiation of the release that support this intent.  In the face of such evidence, TCC offered no explanation as to why BPUB would have intended or agreed to provide a broader release than that required by Schedule 1.1(j).  As its counsel stated at a prior summary judgment hearing:  “Why did they sign it?  I can’t tell you, Judge, why the people sitting back there chose to sign a broader release, but they did.”  RR 2:86.

Although TCC argued that unilateral mistake does not permit rescission or reformation of an agreement, courts in Texas have long held that “[u]nilateral mistake by one party, and knowledge of that mistake by the other party, is equivalent to mutual mistake.”  See, e.g., Davis v. Grammer, 750 S.W.2d 766, 768 (Tex. 1988); Hamberlin v. Hamberlin, 770 S.W.2d 12, 14 (Tex. App.—Texarkana 1989, writ denied) (“a mistake by one of the parties and knowledge of that mistake by the other party is equivalent to mutual mistake.”).  Here, as set forth above, there is ample evidence that TCC knew that BPUB believed the Termination Agreement and Releases was limited to claims arising under the Participation Agreement and intended to preserve claims arising under the entirely separate BPUB PSA. CR 36:8268 (“one observation is the appearance of BPUB’s desire to retain the ability to litigation “certain” issues related to Oklaunion.”); CR 36:8270 (“The answer to Mr. Miracle’s question, therefore, is BPUB might pursue claims associated with the Golden Spread litigation, and has requested that its right to do so be preserved.”); CR 38:8691 (“I am also operating under the assumption that further litigation is an unfortunate possibility.”).  Because TCC had knowledge of BPUB’s mistake, any unilateral mistake was equivalent to a mutual mistake.  Because BPUB raised a fact issue on the existence of a unilateral or mutual mistake, the Trial Court erred in granting summary judgment in favor of TCC.

V. BPUB’s claims were not barred by the Termination Agreement and Releases because the agreement was unenforceable .

 

  1. A. The Termination Agreement and Releases was unenforceable because it lacked consideration .

 

Under Texas law, all contracts must be supported by consideration to be enforceable. See, e.g., Garcia v. Villarreal, 478 S.W.2d 830, 832 (Tex. Civ. App.–Corpus Christi 1971, no writ) (“consideration is a fundamental element of every valid contract”); Fourticq v. Fireman’s Fund Ins. Co., 697 S.W.2d 562, 564 (Tex. App.– Dallas 1984, no writ) (“It is elementary that every contract must be supported by consideration.”).  Like any contract, a release unsupported by consideration is unenforceable.  See, e.g., Dairyland County Mut. Ins. Co. of Texas v. Roman, 498 S.W.2d 154, 160 (Tex. 1973) (“there is no evidence of any benefit conferred upon plaintiff or detriment suffered by Mrs. Hayes in exchange for the release.  Since the release is not supported by consideration, it is not binding on plaintiff”); Hankins v. Griffith, 773 S.W.2d 589, 591 (Tex. App.–Corpus Christi 1989, writ denied) (“a release is binding unless it is set aside by a showing of fraud, mutual mistake or lack of consideration.”).

Here, there was no consideration to BPUB under the Termination Agreement and Releases.  In fact, the agreement recites no benefit to BPUB or detriment to TCC.  As to BPUB, the agreement does not obligate TCC to do anything!  While the agreement recited consideration, and contracts are presumed to be supported by consideration, such recitals and presumptions are rebuttable.  See, e.g., Saunders v. Alamo Soil Conservation District, 545 S.W.2d 249, 252 (Tex. Civ. App.—San Antonio 1976, writ ref’d n.r.e.) (“a recital or acknowledgment of consideration received is no more than a statement of fact which may be contradicted by parol evidence.”); Zinpro Corp. v. Ridenour, No. 07-96-0008-CV, 1996 WL 438850 at *9 (Tex. App.–Amarillo Aug. 1, 1996, no writ) (“the agreement’s recitation of consideration does not estop Ridenour from challenging the consideration supporting the agreement.”); DeLuca v. Munzel, 673 S.W.2d 373, 376 (Tex. App.–Houston [1st Dist.] 1984, writ ref’d n.r.e.) (“parol evidence is admissible to show want or failure of consideration.”).

Before the Trial Court, TCC’s only argument that the Termination Agreement and Releases was supported by consideration was that consideration existed because the agreement enabled BPUB to close the transaction with TCC and obtain TCC’s interest in the Oklaunion plant.  CR 24:5832-33.  But this argument overlooks the fact that BPUB was already entitled under its PSA to purchase TCC’s interest and was required under Schedule 1.1(j) of the BPUB PSA only to provide TCC with a release of liability “under the Oklaunion Participation Agreement” prior to closing:

There was an obligation to provide a release under the Oklaunion Participation Agreement, and that was provided.  But what was also provided was something in addition.  And we’re here really debating about the addition.

I am not quarreling with this Schedule 1.1(j).  It says that they get a release from liability under the Oklaunion Participation Agreement.  They’ve got that.  That’s what’s in number one.  For whatever reason, they agreed to more than that.

RR 2:101, 107-8; see also CR 23:5503.  According to TCC, when it came time to sign the Termination Agreement and Releases, BPUB inexplicably agreed to provide TCC with a much broader release than it was required to provide.  RR 2:86 (“Why did they sign it?  I can’t tell you, Judge, why the people sitting back there chose to sign a broader release, but they did.”); RR 2:108 (“For whatever reason, they agreed to more than that.”).

To the extent the Termination Agreement and Releases provided TCC with a broader release than it was entitled to under Schedule 1.1(j) to the BPUB PSA, the agreement was without consideration; BPUB already had the unquestioned legal right to close the transaction with TCC upon providing a limited release of “liability under the Oklaunion Participation Agreement.”  Under Texas law, consideration does not exist where one party to a contract is merely given what he already has a right to.  See, e.g., Victoria Bank & Trust Co v. Brady, 779 S.W.2d 893, 903 (Tex. App.–Corpus Christi 1991), rev’d in part on other grounds, 811 S.W.2d 931 (Tex. 1991) (“Logic dictates that compensation to which one is already entitled cannot constitute consideration”); DeLuca v. Munzel, 673 S.W.2d 373, 376 (Tex. App.–Houston [1st Dist.] 1984, writ refused n.r.e) (release would fail for lack of consideration if employee could show that the “only consideration he received for the execution of the releases was an amount already due and owing under the parties’ contract.”).  The Trial Court erred in granting TCC summary judgment on the basis of the release.  See, e.g., Franks v. Brookshire Bros., 986 S.W.2d 375, 378 (Tex. App.—Beaumont 1999, no writ) (“We hold that the summary judgment evidence presents a material fact issue concerning whether the release in question was supported by consideration.  Therefore, the trial court erred in granting judgment for Brookshire.”); DeLuca, 673 S.W.2d at 376 (“an issue exists as to the existence of consideration, and, therefore, the court’s entry of summary judgment was improper.”).

B.        The Termination Agreement and Releases was unenforceable because it was procured by fraud .

 

After BPUB unequivocally refused to provide TCC with a broad, all-encompassing release, TCC repeatedly assured BPUB that the revised Termination Agreement and Releases was limited to a release of claims under the Oklaunion Participation Agreement.  See, e.g., CR 36:8240, CR 36:8244. The uncontroverted summary judgment evidence was that BPUB relied upon these representation in entering into the Termination Agreement and Releases.  CR 36:8201-8208 at pars. 20, 22, 28-30; CR 36:8294 at par. 25.  After the agreement was signed and this litigation was resumed, TCC claimed that the releases in the Termination Agreement and Releases were much broader than that required by the BPUB PSA and applied to all of BPUB’s claims, even those for breach of the entirely separate BPUB PSA.  CR 35:7956; RR 2:86, 101, 107-8.  It even admitted that while it had told BPUB that the February 1, 2007 draft of the Termination Agreement and Releases was “intended to address what we understood to be the concerns of the City of BPUB with the prior draft” (CR 36:8244), that draft was actually intended to preserve the full and complete release TCC was seeking:

When BPUB and OMPA insisted that the first release provision (then Section 4) releasing claims under the OMPA PSA be deleted, TCC agreed to delete that provision because it believed that it was still protected by the broad language in the second provision set forth then in Section 5, now Section 4 of the Termination Agreement and Releases.

TCC, in the context of negotiation, agreed to delete certain provisions requested by BPUB and OMPA with the knowledge that it would still be protected by the broad language used in what is currently Section 4 of the release agreement.

CR 35:7956.  In other words, TCC admitted that it agreed to delete certain terms of the draft release because it believed it was still protected by other language in the agreement that it intended to argue effected a release of all of BPUB’s claims.

The foregoing evidence raised a question of fact on the issue of fraud and fraudulent inducement.   See, e.g., Formosa Plastics Corp. USA v. Presidio Eng’rs & Contractors, Inc., 960 S.W.2d 41, 47 (Tex.1998) (reciting elements of fraud claim).  Because a contract procured by fraud is unenforceable, the Trial Court erred in granting summary judgment in favor of TCC.  Wright v. Sydow, 173 S.W.3d 534, 543-44 (Tex. App.—Houston [14th Dist.] 2004, pet. denied) (“A settlement agreement or release is a contract and, like other contracts, may be avoided if it was procured through fraud.”); see also Schmaltz v. Walder, 566 S.W.2d 81, 84 (Tex. Civ. App.—Corpus Christi 1978, writ ref’d n.r.e.) (“A release, like any other contract, may be set aside if it is induced by fraud.”).

CONCLUSION AND PRAYER

Appellant City of Brownsville Acting by and through its Public Utilities Board respectfully prays that this Court reverse the ruling of the Trial Court, remand this case for further proceedings and grant Appellant such other and further relief, at law and in equity, to which it may show itself justly entitled.

Respectfully submitted,

 

_________________________________

Eric D. Pearson

State Bar No. 15690472

Heygood, Orr & Pearson

2331 W. Northwest Highway

2nd Floor

Dallas, Texas 75220

214-237-9001 Telephone

214-237-9002 Facsimile

 

 

 

CERTIFICATE OF SERVICE

 

The undersigned certifies that a true and correct copy of the foregoing instrument was served upon all counsel of record by hand delivery in accordance with Rule 21a of the Texas Rules of Civil Procedure on the _____ day of December, 2009.

 

 

_________________________________                                                                                                                                                                                                                                                                                                                                                                                                                                 _________________________________________                                                                                                                                                                                                                                         Eric D. Pearson

 

APPENDIX

 

  1. Oklaunion Participation Agreement (selected portions)
  2. BPUB Purchase and Sale Agreement (selected portions)
  3. OMPA Purchase and Sale Agreement (selected portions)
  4. Affidavit of John Davidson and attached documents relating to drafting of

Termination Agreement and Releases

 

  1. Termination Agreement and Releases
  2. Trial Court’s Final Summary Judgment

[1]Shortly before the execution of the release, BPUB informed TCC that it intended to bring additional claims for breach of the BPUB PSA. CR 34:7840.  Despite this fact, the Termination Agreement and Releases made no mention of claims arising under the PSA.

[2]Here, BPUB refused to agree to a motion to dismiss with prejudice.  Likewise, at the time the release was signed, BPUB did not dismiss any of its pending claims.

[3] In the instant case, there was similarly no consideration for the release of claims arising under the PSAs.

[4] In the instant case, although the initial drafts of the Termination Agreement and Releases contained a motion to dismiss the pending lawsuit with prejudice, later versions did not.  And the parties did not dismiss any claims following execution of the Termination Agreement and Releases in February 2007.