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Red Ball Oxygen Company, Inc. v. Southwest Railroad Car Parts Co.

Court of Appeals of Texas, Twelfth District, Tyler

May 31, 2017


         Appeal from the County Court at Law No. 2 of Gregg County, Texas (Tr.Ct.No. 2012-1074-CCL2)

          Panel consisted of Worthen, C.J., Hoyle, J., and Neeley, J.


          James T. Worthen Chief Justice.

         This case involves a dispute over a supply contract between Red Ball Oxygen Company, Inc. and Southwest Railroad Car Parts Company which led to litigation involving a suit on account, tortious interference, and reciprocal breach of contract claims. In six issues, Red Ball asserts the trial court misconstrued the contract, Southwest, not Red Ball, breached the contract, and therefore Red Ball, not Southwest, is entitled to damages and attorney's fees. We affirm.


         In 2005, Southwest agreed to a long-term contract with Red Ball for the purchase of oxygen and propane. In January 2012, David Toarmina, Southwest's vice president and general counsel, questioned price increases instituted by Red Ball, as well as certain other charges, and refused to pay a portion of billed amounts. In February 2012, Toarmina notified Red Ball that Southwest would be cancelling the contract effective June 1, 2012, but asked Red Ball to submit a proposal for supplying oxygen to Southwest after that date. The parties were unable to resolve the disputes concerning the 2005 contract or reach a new agreement. Southwest entered into contracts with other suppliers, Air Products and Air Liquide Industrial U.S., L.P., effective June 1, 2012.

         Red Ball sued Southwest for suit on account and breach of contract, and requested a declaration that Southwest prematurely terminated the contract and that the contract was valid until November 4, 2015. Red Ball also sued Air Liquide for tortious interference with contract. Red Ball prayed for actual damages against Southwest, damages against Southwest and Air Liquide for lost profits and rentals, exemplary damages against Air Liquide, attorney's fees, and a declaration that the contract was enforceable through November 4, 2015.

         Southwest and Air Liquide asserted numerous affirmative defenses to Red Ball's causes of action, and Southwest alleged counterclaims for breach of contract, declaratory relief, and violations of the Texas Deceptive Trade Practices Act (DTPA). After a trial before the court, the court rendered judgment that Red Ball prevailed in part on its suit on sworn account and that Red Ball take nothing on its suit for tortious interference against Air Liquide. The court also held that Southwest repudiated the agreement in good faith and the agreement terminated effective June 1, 2012, and that Southwest should prevail on its breach of contract claim, but take nothing on its DTPA claim. The court awarded damages and attorney's fees to Southwest.

         Cost Increases and Fees

         In its first issue, Red Ball contends that the trial court erred in interpreting the contract. It argues that the contract provided for price increases during the contract's term and did not limit those increases to increases in Red Ball's costs of bulk oxygen as found by the trial court. It argues that the pricing language provided that Red Ball was entitled to raise its prices for its products as its "operational and product costs" increased.

         In its second issue, Red Ball asserts that the trial court erred in ruling that Red Ball breached the contract by raising prices when the evidence establishes that the parties intended "cost increases" to include all costs, not just product costs. Red Ball argues that, even if the contract is ambiguous, the only evidence in this case supports Red Ball's interpretation. It relies on the testimony of its senior vice president of business development, Jarrod Lipsey, that the term "costs" included the everyday cost of doing business. It further relies on the testimony of Ralph Thomas, Red Ball's vice president of finance, who testified that "cost increases" means increases in the cost of goods sold and overhead costs combined together. Therefore, the argument continues, there is no evidence that Red Ball breached the contract by raising its prices by more than the direct amount charged by Red Ball's supplier.

         In its third issue, Red Ball contends the trial court erred in ruling that Red Ball was not entitled to charge hazardous material fees, fuel surcharges, and delivery fees because the contract allows those charges. Red Ball asserts that the evidence conclusively establishes that it did not breach the contract by charging for those items. Red Ball argues that the contract "specifically discusses Surcharges and the effect of changes in those over the term of the Contract." Therefore, the trial court's finding that the contract does not provide for Red Ball to invoice Southwest for surcharges makes the language regarding those charges surplusage, violating a cannon of interpretation. It argues that the contract specifies that Red Ball was to provide liquid oxygen to Southwest at Red Ball's facility, and Southwest was then responsible for shipping costs after that point. Thus, Red Ball was entitled to bill Southwest delivery and fuel charges under the term "F.O.B. Seller's location." Further, the parties operated under the contract for more than six years with Red Ball passing on those charges to Southwest without complaint from Southwest. Accordingly, Red Ball argues that "all competent evidence establishes that the only viable interpretation [of the contract] is that the parties intended that the Contract allow for Red Ball to bill Southwest for the surcharges and to increase those charges from time to time." Thus, the trial court's finding to the contrary "is in contradiction of the plain language of the Contract and the evidence and should be reversed."

         Standard of Review

         In an appeal of a judgment rendered after a bench trial, the trial court's findings of fact have the same weight as a jury's verdict, and we review the legal and factual sufficiency of the evidence used to support them just as we would review a jury's findings. In re Doe, 19 S.W.3d 249, 253 (Tex. 2000). A party who challenges the legal sufficiency of the evidence to support an issue upon which it did not have the burden of proof at trial must demonstrate on appeal that there is no evidence to support the adverse finding. Exxon Corp. v. Emerald Oil & Gas Co., L.C., 348 S.W.3d 194, 215 (Tex. 2011). When reviewing a no evidence issue, we determine whether the evidence at trial would enable reasonable and fair minded people to reach the verdict under review. City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005). In making this determination, we must credit favorable evidence if a reasonable finder of fact could and disregard contrary evidence unless a reasonable finder of fact could not. Id. If there is any evidence of probative force to support the finding, i.e., more than a scintilla, we will overrule the issue. Uniroyal Goodrich Tire Co. v. Martinez, 977 S.W.2d 328, 334 (Tex. 1998).

         We review the trial court's legal conclusions concerning an unambiguous contract de novo. MCI Telecomm. Corp. v. Tex. Utils. Elec. Co., 995 S.W.2d 647, 651 (Tex. 1999). We will uphold them if the judgment can be sustained on any legal theory supported by the evidence. Brown v. Brown, 236 S.W.3d 343, 348 (Tex. App.-Houston [1st Dist.] 2007, no pet.). The trial court's conclusions of law are not subject to challenge for lack of factual sufficiency, but we may review the legal conclusions drawn from the facts to determine their correctness. Id.

         Applicable Law

         The construction of an unambiguous contract is a question of law for the court, which we may consider under a de novo standard of review. Tawes v. Barnes, 340 S.W.3d 419, 425 (Tex. 2011). Our primary concern is to ascertain the true intent of the parties as expressed in the instrument. Wood Care Ctrs., Inc. v. Evangel Temple Assembly of God of Wichita Falls, Tex., 307 S.W.3d 816, 820 (Tex. App.-Fort Worth 2010, pet. denied). When discerning the contracting parties' intent, courts must examine the entire agreement and give effect to each provision so that none is rendered meaningless. Id. An unambiguous contract's meaning and intent is determined from the four corners of the document without the aid of extrinsic evidence. Mikob Props., Inc. v. Joachim, 468 S.W.3d 587, 595 (Tex. App.-Dallas 2015, pet. denied). We give contract terms their plain, ordinary, and generally accepted meanings unless the contract itself shows them to be used in a technical or different sense. Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 662 (Tex. 2005). We construe contracts from a utilitarian standpoint bearing in mind the particular business activity sought to be served and will avoid a construction which is unreasonable, inequitable, and oppressive when possible. Frost Nat'l Bank v. L & F Distribs., Ltd., 165 S.W.3d 310, 312 (Tex. 2005) (per curiam).

         Increased ...

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