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Martin Operating Partnership LP v. QEP Marine Fuel Investment, LLC

Court of Appeals of Texas, Fourteenth District

April 6, 2017

MARTIN OPERATING PARTNERSHIP LP, Appellant
v.
QEP MARINE FUEL INVESTMENT, LLC AND QEP MARINE FUEL HOLDINGS, INC., Appellees

         On Appeal from the 165th District Court Harris County, Texas Trial Court Cause No. 2014-45455

          Panel consists of Chief Justice Frost and Justices Boyce and Christopher.

          OPINION

          William J. Boyce Justice.

         Martin 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.

         We 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 claims.

         Background

         This 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.

         To 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 Purchase Agreement.

         I. Key Contract Provisions

         Martin Operating and QEP Marine created an indemnification and escrow mechanism to address claims related to Martin Operating's purchase of Talen's Marine & Fuel.

         Under 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 their contracts.

         The 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 three claims.

         The parties' legal dispute turns on the interplay of the Purchase Agreement and the Escrow Agreement as applied to the three claims at issue.

         Purchase Agreement.

         Article 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.

         Excise 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 . . . ."

         Under 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 section 7.03(a).

         Purchaser 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 be accomplished.

         Section 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 . . . ."

         Sections 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 Agreement.

         The escrow fund's 15-month lifespan is reflected in the Escrow Agreement.

         Section 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."

         Section 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]."

         QEP 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.

         II. Escrow Distribution After the Claims End Date

         Three contingencies arose in the 15 months after Martin Operating closed on its purchase of Talen's Marine & Fuel from QEP Marine in December 2012.

         First, 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.

         It is 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.

         The 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.

         It is 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.

         The 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.

         III. Martin Operating's Suit

         Martin 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.

         The 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 ...


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