     Case: 12-20716   Document: 00512332637        Page: 1   Date Filed: 08/06/2013




        IN THE UNITED STATES COURT OF APPEALS
                 FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                 Fifth Circuit

                                                                    FILED
                                                                   August 6, 2013

                                 No. 12-20716                      Lyle W. Cayce
                                                                        Clerk

ANADARKO PETROLEUM CORPORATION,

                                           Plaintiff - Appellant
v.

WILLIAMS ALASKA PETROLEUM, INCORPORATED,

                                           Defendant - Appellee



                Appeal from the United States District Court
                     for the Southern District of Texas


Before SMITH, HAYNES, and GRAVES, Circuit Judges.
HAYNES, Circuit Judge:
      Anadarko Petroleum (“Anadarko”) appealed the district court’s grant of
summary judgment in favor of Williams Alaska Petroleum (“Williams Alaska”)
in this breach-of-contract action. Williams Alaska’s petition for rehearing is
DENIED and the following opinion is substituted in place of our prior opinion.
      Anadarko argues that Williams Alaska ignored the parties’ agreements to
pass through shipping credits on purchased oil, denying it more than $9 million
due under the contract. In light of the agreements, we REVERSE and RENDER
judgment in favor of Anadarko for the amount of the credit, and REMAND for
a determination of interest and attorney’s fees.
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                                              I.
       Anadarko produces crude oil on the Alaskan North Slope, and Williams
Alaska operates a refinery in Alaska near the Trans Alaska Pipeline System
(“TAPS”). The two parties entered into two purchase agreements in 2000 and
2001, under which Anadarko agreed to sell crude oil to Williams Alaska. The
first agreement became effective on September 1, 2000, and expired pursuant to
its own terms on November 30, 2001. The second purchase agreement was
executed and became effective on December 1, 2001. Anadarko terminated the
second agreement pursuant to a termination agreement, signed on September
25, 2002, and becoming effective on December 31, 2002.
       Under both agreements, the parties tied the contract price for crude oil to
several factors, including an independent quality assessment performed by the
TAPS Quality Bank.1 The TAPS Quality Bank is a third-party accounting
arrangement designed to ensure that pipeline users are appropriately
compensated for the value of the crude oil they ship through the common-carrier
pipeline. The Quality Bank is a “zero sum” operation: shippers of lower-quality
crude oil pay into the Quality Bank, while shippers of higher-quality crude oil
receive payments from the Quality Bank. Both are known as “Quality Bank
adjustments.”
       During the contractual relationship, the exact amounts of the prevailing
Quality Bank adjustments were not known at the time Anadarko invoiced
Williams Alaska for the crude oil delivered the prior month. Anadarko derived


       1
        The contract pricing provision reads:
      Price will be the average of [an index price for crude oil] less the following amounts[:]
      . . . Quality Bank payments required for the shipment of Alpine crude oil from the inlet
      of the Alpine Pipeline to Pump Station #1 on TAPS. If Quality Bank for Alpine crude
      oil is a credit, Price will be increased by the amount of the credit. Price will not be
      adjusted for any Quality Bank payments or credits downstream of Pump Station #1 on
      TAPS.
(emphasis added).

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the contract price using the other known factors and by estimating the amounts
for the Quality Bank adjustments. The parties would then “true-up” the price,
or bring it to the correct balance, the following month based on the actual
Quality Bank credits or debits received by Williams Alaska.
       Several years after the termination of the contracts, the Federal Energy
Regulatory Commission (“FERC”) determined that the methodology for assessing
the quality of oil entering the pipeline was inaccurate. FERC changed the
methodology and applied the change retroactively to February 1, 2000. The new
methodology resulted in a substantial credit—over 9 million dollars—issued to
Williams Alaska by the Quality Bank, based on the crude oil that was produced
by Anadarko and sold under the agreements.
                                             II.
       We review a grant of summary judgment de novo, applying the same
standard as the district court. Moss v. BMC Software, Inc., 610 F.3d 917, 922
(5th Cir. 2010). Summary judgment is appropriate if no genuine issue of
material fact exists and the moving party is entitled to judgment as a matter of
law. FED. R. CIV. P. 56(a). Contract interpretation, including the question of
whether a contract is ambiguous, is a question of law subject to de novo review.
Instone Travel Tech Marine & Offshore v. Int’l Shipping Partners, Inc., 334 F.3d
423, 428 (5th Cir. 2003).
                                            III.
       The district court interpreted the contractual language and concluded that
the agreements called for “contemporaneous” payments and thus did not entitle
Anadarko to the later-determined Quality Bank credits.2 The pricing provision


       2
          Alternatively, the district court also concluded that Williams Alaska’s receipt of
adjustments from the Quality Bank was a condition precedent to its duty to pay any credit to
Anadarko under the agreement, and that condition did not arise prior to the contract’s
termination. We disagree. A condition precedent is an event that must be performed before
a right can accrue to enforce an obligation. Centex Corp. v. Dalton, 840 S.W.2d 952, 956 (Tex.

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states that “if Quality Bank for Alpine crude oil is a credit, Price will be
increased by the amount of the credit.”                 The payment provision in the
Agreements provided that: “Payment will be made by wire transfer of
immediately available funds on or before the 20th day of the month following the
month of delivery.”
       A contract for the sale of oil is a contract for the sale of goods under the
Texas Uniform Commercial Code (“U.C.C.”). TEX. BUS. & COM. CODE § 2.107(a)
(West 2009); Fletcher v. Ricks Exploration, 905 F.2d 890, 892 (5th Cir. 1990);
Lenape Res. Corp. v. Tenn. Gas Pipeline Co., 925 S.W.2d 565, 577 (Tex. 1996)
(Phillips, C.J., concurring in part and dissenting in part). Although the terms
of a written agreement may not be contradicted by contemporaneous or
antecedent evidence, terms may be explained by course of dealing or course of
performance. TEX. BUS. & COM. CODE §§ 1.205; 1.303(a), (d), & (e) (formerly
codified at TEX. BUS. & COM. CODE § 2.208 (repealed 2003)); 2.202.
       On petition for rehearing, Williams Alaska argues that this court erred in
failing to make a “requisite determination under the [U.C.C.] that the parties’
agreements were ambiguous.” Counsel misleadingly cites comment 1(c) to §
2.202 for the proposition that “a condition precedent to the admissibility of
[course-of-performance evidence] . . . is an original determination by the court
that the language used [in a contract] is ambiguous.” TEX . BUS. & COM. CODE
§ 2.202 cmt. 1. When the comment is read in full, it is quite clear that the
opposite proposition is true as the predicate section to all three subparts,



1992). Although the provision “[i]f Quality Bank for Alpine crude oil is a credit, Price will be
increased by the amount of the credit” uses conditional language, it does not create a condition
precedent to Williams Alaska’s ultimate obligation to pay Anadarko the contract price for the
crude oil delivered. Here, the “if” term is meant to differentiate the situation where the
Quality Bank instead assessed a payment because the value of the crude oil delivered was less
than the common stream. The obligation to pass through Quality Bank credits attached to
Anadarko’s tender of the crude oil, and the wording does not speak to when the credits are
given.

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including subpart(c), is as follows: “This section definitely rejects” the arguments
that follow it, namely Williams Alaska’s contention that we may not consider
course-of-performance evidence absent an ambiguity finding. TEX. BUS. & COM.
CODE § 2.202 cmt. 1 (emphasis added). Indeed, comment 2 notes that “the course
of actual performance by the parties is considered the best indication of what
they intended the writing to mean,” because, “[u]nless carefully negated,” the
course of performance has “become an element of the meaning of the words
used.” TEX. BUS. & COM. CODE § 2.202 cmt. 2.3
       Construing the effect of the agreements in light of the contract and the
parties’ course of performance, we conclude that the judgment for Williams
Alaska cannot stand. While the payment provision providing for payment by the
twentieth day of the month indicates the parties’ intent that Williams Alaska’s
monthly payments should be made on a timely basis, that is the extent of its
reach.       Nothing       in   this    provision—or        in    the    remainder       of   the
agreements—indicates that if Williams Alaska’s payments were later
determined to be inaccurate, the parties would let the error stand. Furthermore,
the plain language of the price provision clearly states that if Quality Bank
adjustments are a credit, “Price will be increased by the amount of the credit.”

       3
           Williams Alaska further cites Texas case law to support its position that this court
is required to find the contract ambiguous before considering course-of-performance evidence.
Some of the cited cases, addressing non-U.C.C. contracts, plainly do not apply. See Twittizer
v. Union Gas Corp., 171 S.W.3d 857, 860 (Tex. 2005) (royalty dispute over oil and gas lease);
Nat’l Union Fire Ins. Co. Of Pittsburg v. CBI Indus., Inc., 907 S.W.2d 517, 520 (Tex. 1995)
(insurance contract); Corso v. Carr, 634 S.W.2d 804, 808 (Tex. App.—Fort Worth 1982, writ
ref’d n.r.e.) (construction contract). Of the cases cited to that do apply the U.C.C., none require
a finding of ambiguity before course of performance may be considered. For example, Frost
National Bank v. L & F Distributors, Ltd., 165 S.W.3d 310 (Tex. 2005), merely noted in a
footnote that “[b]ecause the plain language of the contract is clear and supports Frost’s
interpretation, we need not consider such [course-of-performance] evidence for explanatory
purposes.” Id. at 313 n.3; see also James L. Gang & Assocs., Inc. v. Abbott Labs, Inc., 198
S.W.3d 434, 437–38 (Tex. App.—Dallas 2006, no pet.) (addressing course-of-dealing evidence);
Atl. Richfield Co. v. ANR Pipeline Co., 768 S.W.2d 777, 783–84 (Tex. App.—Houston [14th
Dist.] 1989, no writ) (discussing supplementation or explanation by usage of trade under §
2.202). These cases do not support Williams Alaska’s interpretation of the law.

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The price provision contains no encumbering terms to indicate that there is a
time limitation on Williams Alaska’s obligation to pay following receipt of the
credit.
         Moreover, the undisputed evidence shows that the parties’ course of
performance indicates that they consistently made adjustments to the amount
of payment due at a time after the contract payment date, in order to “true-up”
the actual Quality Bank adjustments from the estimated amounts. We construe
the express terms of an agreement, where reasonable, to be consistent with the
applicable course of performance. See TEX. BUS. & COM. CODE §§ 1.303(e), 2.202.
While the parties were not confronted with FERC-ordered retroactive Quality
Bank adjustments, their course of performance shows that through their “true-
up” arrangement, they did not treat the payment provision’s monthly schedule
as conclusive on Williams Alaska’s obligation to pay the final, correct purchase
price.    Accordingly, the agreements require Williams Alaska to remit any
Quality Bank credits it receives for the crude oil purchased under the contract.
         We further reject Williams Alaska’s contention that the obligation to remit
the credits expired upon the termination of the agreement. When a contract
terminates, “all obligations which are still executory on both sides are
discharged but any right based on prior breach or performance survives.” TEX.
BUS. & COM. CODE § 2.106(c). An obligation is executory on both sides if it is
“one that is still unperformed by both parties or one with respect to which
something still remains to be done on both sides.” Lee v. Cherry, 812 S.W.2d 361,
363 (Tex. App.—Houston [14th Dist.] 1991, writ denied) (emphasis in original)
(internal quotation marks omitted). Anadarko gave notice under the terms of
the agreements that the contract would not renew as of January 1, 2003.
Effectively, Anadarko no longer promised to sell crude oil to Williams Alaska,
and Williams Alaska was not obligated to purchase oil after that date. Williams
Alaska’s obligation to remit Quality Bank credits, however, is tied to Anadarko’s

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prior tender of the crude oil. This is again evidenced by the parties’ conduct:
Williams Alaska made “true-up” payments in early 2003, after termination,
based on crude oil sold in the months prior. Thus, we conclude that where
Anadarko has already discharged its full performance under the contract by
tendering the oil, Williams Alaska’s obligation to pay the correct contract price,
including the Quality Bank credits, is no longer executory and thus survives the
contract’s termination.
       Williams Alaska argues that Anadarko is barred by the statute of
limitations. A four-year period applies to actions based upon breach-of-contract
claims for the sale of goods. TEX. BUS. & COM. CODE § 2.725(a). “A cause of
action accrues when the breach occurs[.]” Id. § 2.725(b). Because the contract’s
price provision required Williams Alaska to account to Anadarko for Quality
Bank adjustments on the purchased oil, Williams Alaska did not breach this
provision of the contract until it received the Quality Bank adjustments and
failed to remit them. The contract thus was breached in August 2007. As
Anadarko filed suit in March 2011, it was brought within the four-year statute
of limitations and is not time-barred.
       Finally, we conclude that Anadarko is entitled to interest on the unpaid
Quality Bank credits from the time of breach. The contract expressly provided
for the accrual of interest for any payment not made when due.4 Contrary to
Williams Alaska’s contention, Anadarko was not required to issue an invoice to
trigger the running of prejudgment interest. Indeed, as we discussed above,


       4
         Paragraph F of the General Provisions incorporated into the agreements provides
that: “In the event that [Williams Alaska] fails to make any payment when due, [Anadarko]
shall have the right to charge interest on the amount of the overdue payment at a per annum
rate which shall be two percentage points higher than the published prime lending rate of
Morgan Guaranty Trust Company of New York on the date payment was due, but not to
exceed the maximum rate permitted by law.” The “published prime lending rate” of the
successor in interest to Morgan Guaranty Trust Company was 8.25% on August 20, 2007,
making the prejudgment interest rate applicable here 10.25%.

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there was no contractual precondition on Williams Alaska’s obligation to pay the
contract price, other than Anadarko’s tender of the oil. Therefore, Williams
Alaska’s failure to remit the credits was a “fail[ure] to make any payment when
due” under the agreements, and Anadarko is entitled to charge interest on this
amount from the time of the breach in August 2007. Further, as the prevailing
party in a breach-of-contract action, Anadarko is entitled to attorney’s fees under
Texas law. See TEX. CIV. PRAC. & REM. CODE § 38.001(8).
      Based on the foregoing discussion, we REVERSE and RENDER judgment
in favor of Anadarko for the amount of the credit, and REMAND to the district
court to calculate the interest and determine attorney’s fees owed to Anadarko,
and any other proceedings consistent with this opinion.




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