Appeal from the 165th District Court Harris County, Texas
Trial Court Cause No. 2014-45455
consists of Chief Justice Frost and Justices Boyce and
William J. Boyce Justice.
Operating Partnership LP bought a company from QEP Marine
Fuel Investment, LLC and QEP Marine Fuel Holdings, Inc.
(collectively, "QEP Marine"). Martin Operating sued
for breach of contract in connection with this transaction;
it sought indemnification from QEP Marine for the purchased
company's state excise tax liability, an uncollectible
account receivable, and federally mandated overtime pay
obligations. The trial court signed a take-nothing summary
judgment in favor of QEP Marine, which Martin Operating now
challenges on appeal.
reverse the trial court's grant of summary judgment with
respect to indemnification for state excise tax liability and
remand that claim for further proceedings. We affirm the
trial court's grant of summary judgment with respect to
indemnification for the account receivable and overtime pay
litigation arose after Martin Operating purchased all of the
equity interest in a company called Talen's Marine &
Fuel, LLC from QEP Marine for $43.5 million. The price is
subject to adjustment based on various post-closing
contingencies and expenses.
accomplish the purchase, Martin Operating and QEP Marine
executed multiple contracts dated December 31, 2012. This
appeal focuses on two contracts: (1) the Purchase Agreement;
and (2) the Escrow Agreement, which is an exhibit to the
Key Contract Provisions
Operating and QEP Marine created an indemnification and
escrow mechanism to address claims related to Martin
Operating's purchase of Talen's Marine & Fuel.
section 1.04(a)(iv) of the Purchase Agreement, Martin
Operating paid $3.3 million of the $43.5 million purchase
price as an "Escrow Amount" to an escrow agent at
closing on December 31, 2012. The Escrow Amount is Martin
Operating's exclusive source of payment for some - but
not all - of the claims for which Martin Operating seeks
indemnity. In effect, Martin Operating seeks a purchase price
discount via indemnification from QEP Marine based on certain
post-closing contingencies that the parties addressed in
parties' appellate arguments center on three post-closing
contingencies for which Martin Operating seeks
indemnification from QEP Marine. These contingencies are (1)
liability for state excise tax; (2) an uncollectable account
receivable owed by Green Field Energy Services, which the
parties identify as the "Green Field Account
Receivable;" and (3) liability for Fair Labor Standards
Act ("FLSA") overtime pay. The indemnification and
escrow mechanism does not operate in the same way for all
parties' legal dispute turns on the interplay of the
Purchase Agreement and the Escrow Agreement as applied to the
three claims at issue.
VII governs indemnification. Under section 7.09(a)(iii), the
escrow fund is Martin Operating's exclusive source of
payment for indemnification claims based on the Green Field
Account Receivable and FLSA overtime pay.
tax liability is addressed differently. Section 7.09(a)(iii)
provides that Martin Operating "may seek payment
directly from" QEP Marine with respect to excise tax
liability "once the Escrow Fund is exhausted, expired or
has been finally disbursed . . . ."
section 7.03(a), Martin Operating is required "as soon
as practicable [to] give written notice" to QEP Marine
of an indemnification claim governed by Article VII. Sections
7.03(a) and 8.03 set out the required contents and means of
delivery for the written notice to QEP Marine mandated under
Martin Operating's opportunity to seek indemnification
from seller QEP Marine for post-closing contingencies does
not last indefinitely. The escrow fund has a 15-month
lifespan, after which amounts remaining in escrow are to be
distributed to QEP Marine. The parties dispute how
distribution of any remaining escrow funds to QEP Marine must
7.09(b) of the Purchase Agreement provides as follows:
"Promptly following the 15-month anniversary of the
Closing Date, Purchaser and Sellers shall deliver to the
Escrow Agent joint written instructions to distribute any
funds remaining in the Escrow Fund for which an indemnity
claim has not been made to the Sellers . . . ." This
section further provides that "such funds shall be
distributed to Sellers in accordance with the Escrow
Agreement." Another Purchase Agreement provision,
section 6.10, applies specifically to the Green Field Account
Receivable "[n]otwithstanding anything herein to the
contrary . . . ."
1.04(a)(iv) and 7.09(b) of the Purchase Agreement provide
that payment into and distribution from the escrow fund shall
be handled in accordance with the Escrow Agreement attached
as Exhibit A to the Purchase Agreement.
escrow fund's 15-month lifespan is reflected in the
2(a)(ii) defines the "Claims End Date" as the
15-month anniversary of the closing date. Based on a closing
date of December 31, 2012, the Claims End Date is March 31,
2014. This is the deadline under section 2(a)(ii) for Martin
Operating to "deliver a written notice to Escrow Agent
and [QEP Marine] . . . requesting that Escrow Agent
distribute all or a portion of the Escrow Funds to [Martin
Operating] . . . in satisfaction of such claim."
2(c)(i) states as follows: "On the day following the
Claims End Date . . . Escrow Agent shall deliver any Escrow
Property" to QEP Marine. According to Martin Operating,
this language in section 2(c)(i) "appears to suggest
that the escrow funds should be distributed
automatically" to QEP Marine after the Claims End Date.
Martin Operating contends that this language in section
2(c)(i) conflicts with section 2(c)(iii)'s requirement of
joint written instructions to distribute remaining escrow
funds to QEP Marine after the Claims End Date. Section
2(c)(iii) states that, once Martin Operating's claims to
the escrow fund have been resolved and disbursed,
"following the Claims End Date . . . [Martin Operating]
and [QEP Marine] shall deliver Joint Release Instructions to
Escrow Agent instructing Escrow Agent to deliver any then
remaining Escrow Property to [QEP Marine]."
Marine contends that no conflict exists between sections
2(c)(i) and 2(c)(iii) of the Escrow Agreement because Martin
Operating never submitted written notice of the
indemnification claims at issue to the escrow agent under
section 2(a)(ii). Therefore, according to QEP Marine, section
2(c)(iii)'s provision regarding joint written
instructions did not come into play and distribution of
escrow funds after the Claims End Date to QEP Marine properly
occurred under section 2(c)(i) without submission of joint
written instructions to the escrow agent.
Escrow Distribution After the Claims End Date
contingencies arose in the 15 months after Martin Operating
closed on its purchase of Talen's Marine & Fuel from
QEP Marine in December 2012.
Martin Operating received notice in March 2013 of more than
$7.5 million in liability to the State of Texas for excise
taxes incurred in connection with Talen's Marine &
Fuel's purchases of motor fuel in 2010 and 2011. Second,
Green Field Energy Services filed for bankruptcy in October
2013, after Martin Operating obtained a $3.8 million default
judgment for the unpaid account receivable. Third, a former
employee of Talen's Marine & Fuel filed a federal
lawsuit in 2013 seeking certification as a collective action
on behalf of other employees. The lawsuit alleged that
Talen's Marine & Fuel failed to pay overtime to
certain of its employees as required under the FLSA; this
suit was settled for $50, 000 after November 2014.
undisputed that Martin Operating sent letters to QEP Marine
in March and April 2013, invoking its indemnity rights under
Article VII of the Purchase Agreement with respect to excise
taxes and the FLSA claim. In May 2013, QEP Marine responded
to these indemnity claims in writing. QEP Marine's May
2013 letter "acknowledge[s] . . . [QEP Marine's] . .
. obligation to indemnify" Martin Operating for the
excise tax and FLSA claim under the Purchase Agreement.
parties dispute whether Martin Operating sent and QEP Marine
received written notice in December 2013 invoking Martin
Operating's indemnity rights with respect to the Green
Field Account Receivable.
undisputed that Martin Operating never sent written notice of
an indemnification claim to the escrow agent with respect to
excise taxes, the FLSA claim, or the Green Field Account
Receivable. QEP Marine contends that Martin Operating was
required to submit notice to the escrow agent with respect to
the Green Field Account Receivable claim and the FLSA
overtime claim, and that the absence of this notice mandates
summary judgment in favor of QEP Marine. Martin Operating
contends that the absence of such notice to the escrow agent
does not foreclose its indemnification claims.
escrow agent contacted QEP Marine in early April 2014 - after
the Claims End Date - to ask whether Martin Operating had
made a claim on the escrow account. QEP Marine responded that
Martin Operating had not done so. The escrow agent
distributed the escrow funds to QEP Marine on April 15, 2014.
To date, Martin Operating has received no payment for its
indemnity claims based on excise taxes, the FLSA claim, or
the Green Field Account Receivable.
Martin Operating's Suit
Operating sued QEP Marine in August 2014 alleging that QEP
Marine breached the Purchase Agreement by failing to pay its
indemnity claims with respect to excise tax liability, the
Green Field Account Receivable, and FLSA liability. Martin
Operating alleged that all conditions precedent had been
satisfied. Additionally, Martin Operating alleged that QEP
Marine breached a separate contractual obligation to pay the
excise tax and FLSA claims arising from the May 2013 letter
sent by QEP Marine in response to Martin Operating's
March and April 2013 letters. Martin Operating also asserted
claims based on estoppel by contract, equitable estoppel,
promissory estoppel, and quasi-estoppel. It sought
attorney's fees in addition to damages. QEP Marine
answered with a general denial, and the parties filed
cross-motions for summary judgment.
trial court signed an order denying Martin Operating's
motion for partial summary judgment and a separate order
granting QEP Marine's motion for summary judgment in its
entirety. The granting of QEP Marine's motion created a
final and appealable judgment by disposing of all claims.
Martin Operating ...