Appeal from the 113th District Court Harris County, Texas
Trial Court Cause No. 2014-52578
consists of Justices Wise, Zimmerer, and Spain (J. Spain
concurring without opinion).
breach of contract case Tendeka, Inc. appeals a judgment
following a bench trial. In two issues Tendeka argues (1) the
trial court erred when it concluded that Tendeka repudiated
the contract between the parties; and in the alternative (2)
if the trial court correctly concluded Tendeka repudiated the
contract, the trial court erred in failing to conclude the
repudiation was either excused or retracted. Concluding there
is sufficient evidence to support the trial court's
findings, we affirm the trial court's judgment.
manufactures and sells a tool known as a swellable packer
that is used in horizontal oil wells. The packer swells when
it comes into contact with water but allows oil to flow by
the packer. This tool is used to segment horizontal wells to
allow hydraulic fracturing in specific locations. A packer is
made of metal and rubber; the rubber has a limited shelf-life
and begins to degrade over time. Nine Energy focused on the
completion phase of development once the well is drilled and
was a purchaser of packers.
Energy operated as Northern States Completions (NSC) until
February 2013. Sometime in 2012, Northern States began
purchasing packers from Tendeka. In February 2013 Northern
States merged into Nine Energy. On October 25, 2013, Tendeka and
Nine Energy entered into an agreement ("the October
Agreement") in which "the parties agreed that, in
return for [Tendeka]'s agreement to a $3, 000.00 unit
price, [Nine Energy] would assure the annual purchase of not
fewer than 3, 000 [packers]." Paul Butero, Chief Executive
Officer of Nine Energy in 2013 and Kenneth Miller, vice
president of Tendeka in 2013, were the primary negotiators
involved in the agreement between the parties. Butero
testified that there were three components to the agreement
between Nine Energy and Tendeka. Those components included
(1) a negotiated price, (2) consignment, and (3) payment
regard to consignment, Nine Energy purchased packers on
consignment from vendors; when a packer was placed in the
well Nine Energy would notify the vendor to invoice Nine
Energy for the packer. The packers were being used in wells
located in North Dakota. The parties operated under this
consignment arrangement before the date of the October
Agreement and continued to operate under this arrangement
regard to pricing, before the October Agreement, price was
negotiated on a weekly and monthly basis. At that time Nine
Energy was paying $3, 700 per packer. The October Agreement
lowered the price to $3, 000. Sometime between the start of
the October Agreement and June 9, 2014, Tendeka lowered the
price of the packers sold to Nine Energy to $2, 800 each.
9, 2014, almost eight months after entering into the October
Agreement, Miller sent a letter ("the June Letter")
to Butero stating as follows:
I have tried to contact you several times over the past weeks
to discuss this in person. It has come to the point in our
relationship that we realize Nine Energy has opted to utilize
one vendor in North Dakota or at the very least not Tendeka
as a Swell Packer supplier. We are disappointed that it has
come to this despite having lowered our prices to a level
that we were told was competitive. This has not resulted in
any additional work to Tendeka and instead simply resulted in
large levels of stock manufactured for Nine Energy. Also it
has created competitive intensity with Nine Energy clients
impacting market pricing which has done no one any favors.
Currently we are supplying no packers to NSC and would like
to make a clean break from the past distribution model.
Tendeka would like all of the unused packers returned to us
as to preserve their integrity to be run in future wells
(they are currently being stored outdoors).
We will be invoicing for packers not on hand as per what is
returned to us. In the future we will provide packers if
needed for $3000 per packer and they will be invoiced at the
time of delivery to NSC.
Energy considered the June Letter to be a refusal to abide by
the pricing, consignment, and payment terms of the October
Agreement. Butero responded to the June Letter by instructing
Miller to "make arrangements to have your packers picked
up." Tendeka picked up its packers after Butero's
instruction to do so.
month after sending the June Letter, on July 10, 2014, Miller
sent another letter to Butero "reminding" Butero of
Nine Energy's "minimum purchase obligation"
based on the October Agreement. The July Letter noted that
Nine Energy had purchased 1, 923 packers as of the date of
the letter. The letter further stated that if the
"guaranteed 3, 000 volume" was not met, packers
would be priced at $3, 700 each rather than $3, 000.
testified that he and John Crooks were primarily responsible
for Tendeka's relationship with Nine Energy. John Crooks
worked at Tendeka as a salesperson and was primarily
responsible for day-to-day interactions with Nine Energy.
Before the October Agreement the price of packers fluctuated
week to week but was higher than $3, 000 per packer, up to
$3, 700 per packer.
2013, after the date of the October Agreement, Crooks offered
to sell packers for $2, 800 per unit with no volume
commitment. According to Miller Crooks was authorized to make
that offer. Miller called the June Letter the "breakup
letter" because, in his opinion, Nine Energy was not
honoring its volume commitment at that time. Miller admitted
that at the time he sent the June Letter no one at Nine
Energy had told him they would not meet the volume
commitment. Miller testified that the June Letter changed the
price of the packers, the consignment terms, and when payment
would be required. After Miller sent the June Letter Tendeka
began selling packers to Nine Energy's customers.
Barbot, co-founder of Norther States Completions, which
became a subsidiary of Nine Energy in 2013, testified that in
Nine Energy's dealings with Tendeka they were shipped
packers on consignment, agreed on a price in advance, and
re-negotiated the price from time to time. Barbot also
testified that before the October Agreement Nine Energy paid
$3, 700 per packer; after the October Agreement Nine Energy
paid $3, 000 per packer. Barbot testified there was never a
volume commitment tied to the $3, 000 price.
December 2013 Tendeka dropped the price to $2, 800 per
packer. Miller testified that Crooks, Tendeka's
salesperson, initiated the lower price and was authorized to
do so. Barbot's understanding of the June Letter was that
Tendeka wanted to cancel the consignment arrangement, change
the price per packer, and change the payment arrangements.
The June Letter "fundamentally changed" the way
Nine Energy had been doing business with Tendeka. Barbot
never told anyone at Tendeka that they would not purchase
more packers from Tendeka.
reviewing the June Letter, Ann Fox, Nine Energy's Chief
Executive Officer at the time of trial, testified that she
interpreted the term "clean break" to mean that
Tendeka sought to end the consignment arrangement that was
previously in place. After receipt of the ...