Face Challenges Confidently

075 Enserch Corp. v. Rebich,

Friday, September 4th, 2015

Richard F. Brown

The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.
In Enserch Corp. v. Rebich, No. 12-93-00303-CV, 1995 WL574240 (Tex. App.– Tyler Sept. 29, 1995, no writ) the applicable gas contract was executed in 1980 for a term of fifteen years and called for pricing to be tied to “the maximum lawful price for Section 102 … gas,” as determined by the federal government under the Natural Gas Policy Act of 1978 (“NGPA”). The Section 102 gas price was calculated monthly by the Federal Energy Regulatory Commission using a formula that resulted in a progressively escalating price that has significantly exceeded the market price for gas. When the gas market collapsed, Enserch unilaterally began paying at a market rate in 1984. For the next 100 months Rebich and his predecessors simply accepted the lower prices. In 1985 gas prices on domestic wells were deregulated, so that there was no longer a “maximum lawful price”. Deregulation, however, did not end the publication of a Section 102 price, although the price published after deregulation pertained to the type of Section 102 gas produced offshore. In March of 1993 the NGPA was repealed, and the government ceased publishing the Section 102 price altogether.
Rebich filed suit in April 1993 to recover the underpayment for gas for the four years preceding the date that his suit was filed. The trial court granted summary judgment for Rebich, and the Tyler Court affirmed. The judgment also fixed the price from March of 1993 (when the Section 103 price ceased to be published) until the expiration of the contract in 1995 at the last published Section 102 price. Enserch argued that “maximum lawful price” was the controlling phrase, which the Court conceded had no meaning after 1985. Nevertheless, the remainder of the contract terminology, “… for Section 102 … gas” remained. The court concluded that the parties selected this index for their pricing scheme, and it provided a certain and definite meaning. Id. at 4.
Enserch argued that there were other possible interpretations rendering the contract ambiguous, or al least not subject to summary judgment. In particular, Enserch contended that the contract was silent as to a post-deregulation price, and therefore upon deregulation a commercially reasonable price or the last regulated price should control. The Court rejected this argument because the parties know in 1980 when they entered into the contract that gas prices would be deregulated in 1985. It was not reasonable to interpret the contract as having no pricing provision applicable to the final two-thirds of the contract period. Id.
Enserch’s affirmative defenses of modification, ratification, amendment and novation were each rejected, because any revision of the contract was required to have been in writing and signed. Tex. Bus. & Com. Code Ann. §26.01(a)(6). The estoppel defense was rejected because there was no showing of detrimental reliance. Gulbenkian v. Penn., 151 Tex. 412, 252 S.W. 2d 929 (Tex. 1952). Waiver was rejected as a defense on the theory that the waiver, if any, was implied, and implied waiver can only be invoked to prevent fraud or inequitable consequences. Id. at 6.
The significance of the case is that there may still be a number of these old “maximum lawful price” contracts still in effect, and under which producers have taken an inert position similar to the facts in this case. The opinion suggests that for these producers there may be an avenue of recovery still open against their purchaser.