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Fairfield Industries, Inc. v. EP Energy E&P Co.

Court of Appeals of Texas, Fourteenth District

July 6, 2017

FAIRFIELD INDUSTRIES, INC. D/B/A FAIRFIELDNODAL, Appellant
v.
EP ENERGY E&P COMPANY, L.P. F/K/A EL PASO E&P COMPANY, L.P., Appellee

         On Appeal from the 157th District Court Harris County, Texas Trial Court Cause No. 2014-11062

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

          OPINION

          Kem Thompson Frost Chief Justice.

         A licensor of seismic data brought suit against the licensee alleging that the licensee breached the license agreement by (1) failing to pay a fee the agreement required the licensee to pay after a change of control of an entity that controls the licensee, (2) disclosing data in violation of the license agreement, and (3) failing to affix warning labels to the data as required by the license agreement. The trial court granted the licensee's summary-judgment motion and dismissed the licensor's claims. Concluding that the trial court erred in granting summary judgment as to the first claim, we reverse and remand as to that claim and affirm the remainder of the judgment.

         I. Factual and Procedural Background

         Appellant/plaintiff Fairfield Industries, Inc. d/b/a Fairfield Nodal collects and processes seismic data and then licenses that data to oil and gas companies. In contracting with a customer-licensee, Fairfield generally enters into a Master License Agreement, which provides the terms and conditions under which Fairfield licenses data to the customer-licensee. The Master License Agreement itself does not obligate customers to purchase data, nor does it obligate Fairfield to provide data. Rather, customers sign "Supplement Agreements" to the Master License Agreement under which the parties specify the data licensed and the license fee to be paid to license the data under the terms of the Master License Agreement. From 1990 through 2010, Fairfield entered into a number of Master License Agreements with appellee/defendant EP Energy E&P Company, L.P. f/k/a/ El Paso E&P Company, L.P. and its predecessors in interest. During this period Fairfield licensed to EP Energy and its predecessors a substantial amount of seismic data through Supplement Agreements to these Master License Agreements.

         The Agreement

         Fairfield and EP Energy executed a Master License Agreement as of May 22, 2007 (the "Agreement"). In this contract, the parties agreed that all prior Master License Agreements between Fairfield and EP Energy's predecessors in interest as of May 22, 2007, were cancelled without prejudice to the rights and obligations accrued thereunder. The parties also agreed that all Supplement Agreements to these prior Master License Agreements became Supplement Agreements to the Agreement and were subject to all of the Agreement's terms as of the date of the Agreement. As of this date, all data Fairfield licensed under the Supplement Agreements was licensed to EP Energy under and subject to the Agreement's terms. After signing the Agreement, Fairfield and EP Energy entered into five additional Supplement Agreements to the Agreement. Fairfield granted EP Energy a non-exclusive right to use the data identified in each Supplement Agreement for a period of twenty-five years from the date of the Supplement Agreement.

         Fee Provision

         Under section 5 of the Agreement, Fairfield and EP Energy provided that, in the event of a change in control as to EP Energy or any entity that controls EP Energy, EP Energy "will pay [Fairfield], within thirty (30) days after the effective date of the change in control, for the Data licensed under this Agreement to which the party acquiring control does not already have a license from [Fairfield] for the same type of Data, a fee" determined by a formula in the Agreement (the "Fee").

         Third-Party Disclosure Provision

         Under section 3(c) of the Agreement, EP Energy may disclose the geophysical seismic data owned by Fairfield (the "Data") or Data Products[1] to certain third parties for certain purposes only if before viewing any Data or Data product and commencing any work, the third party executes and delivers to EP Energy a written confidentiality agreement under which the third party agrees to certain matters specified in section 3(c) of the Agreement. Under section 3(b) of the Agreement, the parties provided that EP Energy would affix a specified label to certain copies of a Data Product and that each Data Product must contain a specified notice. In section 4 of the Agreement, the parties agreed to a liquidated-damages provision for any breach of section 2 or section 3 of the Agreement.

         Change in Control of EP Energy

         A limited liability company affiliated with certain investors purchased EP Energy's parent company on May 24, 2012 (the "Change-in-Control Date") and this purchase constituted a change in control of an entity that directly or indirectly (through one or more other entities) controlled EP Energy.

         EP Energy's Purported Termination of the Agreement

         Nine days before the Change-in-Control Date, EP Energy sent a notice to Fairfield purporting to terminate the Agreement immediately. EP Energy stated that it was in the process of preparing to return all physical copies or embodiments of the Data in its possession as well as Data in the possession of any affiliate, consultant, partner, officer, or employee. According to the notice, EP Energy was permanently deleting and causing to be permanently deleted any copies or embodiments from the computers and other systems of EP Energy and all other entities. EP Energy stated that it was not using the Data and was not using embodiments of the Data. According to a summary-judgment affidavit, on the Change-in-Control Date, EP Energy returned 4, 496 data tapes and stored an additional 418 data tapes and Data Products in secure storage inaccessible to EP Energy. The affiant testified that after the Change-in-Control Date, EP Energy found some Fairfield Data and that, in July 2014, EP Energy returned this Data to Fairfield's counsel. According to the affiant, none of Fairfield's Data or Data Products had been used since the Change-in-Control Date.

         Fairfield responded that no provision of the Agreement allowed EP Energy to terminate the Agreement unilaterally. Fairfield took the position that the Agreement did not permit EP Energy to relieve itself from its obligations under the Agreement by returning Data and Data Products, ceasing the use of Data and Data Products, or deleting all copies or embodiments of Data and Data Products from EP Energy's computers and other systems. Fairfield later demanded that EP Energy pay the Fee under section 5. EP Energy declined to pay, and Fairfield filed this suit seeking to recover the Fee.

         The Parties' Claims

         Fairfield eventually asserted claims for (1) breach of contract based on EP Energy's refusal to pay the Fee, which Fairfield alleges to be in excess of $21 million; (2) breach of the Agreement by disclosing Data in violation of the Agreement; (3) breach of the Agreement by failing to affix warning labels and notices on Data Products to protect their confidentiality; and (4) misappropriating trade secrets. EP Energy asserted various defenses and several counterclaims.

         The Summary-Judgment Motions

         EP Energy filed a summary-judgment motion in which it sought dismissal of all Fairfield's claims and judgment as a matter of law on one of EP Energy's counterclaims. Fairfield filed two motions, one seeking dismissal of EP Energy's counterclaims, and the other asserting that EP Energy was liable as a matter of law for the Fee and that EP Energy's defenses failed as a matter of law, without seeking summary judgment as to damages on the Fee claim and without seeking summary judgment as to its other claims.

         The trial court granted EP Energy's summary-judgment motion to the extent EP Energy sought dismissal of Fairfield's claims, and denied the remainder of EP Energy's motion. The trial court granted one of Fairfield's motions to the extent Fairfield sought dismissal of EP Energy's counterclaims. The trial court denied the remainder of Fairfield's motions. The trial court ordered that Fairfield take nothing from EP Energy and that EP Energy take nothing from Fairfield.

         Fairfield has appealed the trial court's judgment. EP Energy has not appealed.

         II. Analysis

         In its first appellate issue, Fairfield asserts that the trial court erred in granting EP Energy's summary-judgment motion as to Fairfield's breach-of-contract claim for the Fee. We review a grant of summary judgment de novo. KCM Fin. LLC v. Bradshaw, 457 S.W.3d 70, 79 (Tex. 2015). In a traditional summary-judgment motion, if the movant's motion and summary-judgment evidence facially establish its right to judgment as a matter of law, the burden shifts to the nonmovant to raise a genuine, material fact issue sufficient to defeat summary judgment. See M.D. Anderson Hosp. & Tumor Inst. v. Willrich, 28 S.W.3d 22, 23 (Tex. 2000) (per curiam). In our review of the trial court's granting of EP Energy's summary-judgment motion, we consider all the evidence in the light most favorable to Fairfield, crediting evidence favorable to Fairfield if reasonable jurors could, and disregarding contrary evidence unless reasonable jurors could not. See Mack Trucks, Inc. v. Tamez, 206 S.W.3d 572, 582 (Tex. 2006). The evidence raises a genuine fact issue if reasonable and fair-minded jurors could differ in their conclusions in light of all the summary-judgment evidence. Goodyear Tire & Rubber Co. v. Mayes, 236 S.W.3d 754, 755 (Tex. 2007). In its summary-judgment order, the trial court did not specify the grounds upon which the trial court relied; therefore, we must affirm the summary judgment if any of the independent summary-judgment grounds is meritorious. FM Props. Operating Co. v. City of Austin, 22 S.W.3d 868, 872 (Tex. 2000).

         As to Fairfield's breach-of-contract claim for the Fee, EP Energy asserted the following grounds in its summary-judgment motion:

(1) EP Energy does not owe the Fee because before the change of control, EP Energy waived its right to keep and use the licensed Data, terminated the license under the Agreement, and returned the licensed Data to Fairfield;
(2) EP Energy does not owe the Fee because, under the unambiguous language of the Agreement, EP Energy has to pay the Fee only if EP Energy actually transfers Data to a successor, but EP Energy did not transfer Data to a successor;
(3) The custom and practice of the seismic-data industry confirms that a licensee owes a transfer fee only if the licensee elects to actually transfer licensed Data to a corporate successor;
(4) Fairfield's interpretation of the Agreement would lead to absurd results; and
(5) Even under Fairfield's theory for recovering the Fee, Fairfield seeks to recover based on a liquidated-damages clause in section 5 of the Agreement, and the Fee would be an unenforceable penalty.

         A. Under the Agreement, does EP Energy have to pay the Fee only if EP Energy actually transfers Data to an acquiring successor?

         The trial court impliedly granted summary judgment on the ground that EP Energy does not owe the Fee because, under the unambiguous language of the Agreement, EP Energy has to pay the Fee only if EP Energy actually transfers Data to a successor, and EP Energy did not transfer Data to a successor. Fairfield argues that, under the contract's clear text, EP Energy's obligation to pay the Fee after a change in control does not turn on a transfer of Data to a successor or acquiring entity.

         1. Canons of Contract Construction

         In construing the Agreement, our primary concern is to ascertain and give effect to the parties' intentions as expressed in the Agreement. SeeKelley-Coppedge, Inc. v. Highlands Ins. Co., 980 S.W.2d 462, 464 (Tex. 1998). We examine the entire Agreement in an effort to harmonize and give effect to all provisions of the contract so that none will be rendered meaningless. See MCI Telecomms. Corp. v. Tex. Utils. Elec. Co., 995 S.W.2d 647, 652 (Tex. 1999). Whether the Agreement is ambiguous is a question of law for the court. See Heritage Res., Inc. v. NationsBank, 939 S.W.2d 118, 121 (Tex. 1996). A contract is ambiguous when its meaning is uncertain and doubtful or is reasonably susceptible to more than one interpretation. Id. But, when a written contract is worded so ...


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