WTG GAS PROCESSING v. ConocoPhillips Co.

Citations: 309 S.W.3d 635; 2010 Tex. App. LEXIS 1872; 2010 WL 695801Docket: 14-08-00019-CV

Court: Court of Appeals of Texas; March 2, 2010; Texas; State Appellate Court

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WTG Gas Processing, L.P. initiated a lawsuit against ConocoPhillips Company and Targa Resources entities, alleging breach of contract, fraud, negligent misrepresentation, and tortious interference with a contract or prospective business relationship after ConocoPhillips sold a natural-gas processing facility to Targa instead of WTG. The trial court granted summary judgment in favor of ConocoPhillips and Targa, resulting in a final judgment dismissing WTG's claims. WTG appealed, challenging the grounds for the summary judgment, while ConocoPhillips and Targa raised cross-points for alternative grounds to uphold the judgment. The court found merit in the cross-points, thus affirming the trial court's decision.

The background indicates that in 2003, ConocoPhillips, seeking to sell several natural gas processing plants and pipelines, engaged Morgan Stanley to facilitate the sale. Interested parties, including WTG, were provided a Confidential Information Memorandum (CIM) detailing the assets and the bidding process. The CIM specified that ConocoPhillips and Morgan Stanley retained the right to negotiate with any party at their discretion and could reject bids or terminate discussions without notice. After WTG submitted an Indication of Interest (IOI) for one of the assets, it was invited to submit a binding proposal as part of the next phase of the sale process.

The proposal required WTG to submit ConocoPhillips's draft Purchase and Sale Agreement (PSA) with marked changes. The bid procedures stipulated that a Proposal would only be accepted upon execution of a PSA by ConocoPhillips, which retained the right to exclude parties, reject any Proposals, and negotiate with prospective purchasers at its discretion. ConocoPhillips and its affiliates would not be liable for rejecting Proposals or accepting others, and no obligations existed until a PSA was executed. On November 19, 2003, WTG submitted a final binding bid of $135.4 million for SAOU, later raising it to $145.4 million after feedback indicated stronger bids were under consideration. Following advice from Morgan Stanley, WTG increased its bid to $148.4 million on December 10, 2003.

On December 11, ConocoPhillips representatives informed WTG that it would proceed with them, indicating a deal was in place with minor changes needed to WTG's draft PSA. However, WTG's draft PSA was incomplete and not in executable form, lacking essential details and exhibits. No further negotiations occurred, and the PSA was never executed. Concurrently, Targa submitted a bid of $335 million for multiple assets, expressing a preference for a group purchase. Despite Targa's higher single bid, ConocoPhillips decided to negotiate separately with WTG for SAOU, Targa for LOU, and another entity for SENM. Internal communications among ConocoPhillips employees indicated a preference for separate sales over a package deal with Targa.

On December 12, Will Duey informed William Earnest and Mary Pearce of ongoing negotiations with DEFS for SENM, WTG for SAOU, and Targa for LOU, aiming to finalize PSAs for SENM and SAOU by mid-January and close them by the end of February, contingent on due diligence and HSR requirements. Due to Targa's conditions, the LOU closing is anticipated to be later. Morgan Stanley began notifying unsuccessful bidders of the shift to negotiations with other parties. Later, Earnest communicated to John Lowe that the strategy had changed to pursue three sales instead of a single transaction with Targa, citing concerns over closing and due diligence. Pearce raised concerns about a potential "political problem" with Targa's bid, noting risks related to pricing. Targa threatened to withdraw from the LOU purchase when informed that due diligence would continue with other parties. Duey later expressed that Targa seemed to be seeking a better bid rather than proposing a revised PSA, and on December 15, Targa submitted a $255 million bid for SAOU and LOU, acknowledging that a combined purchase including SENM was unlikely. This bid included concessions and a total premium of $22 million over existing offers. ConocoPhillips indicated this offer could be viable with further negotiations. On December 19, Morgan Stanley notified Freeman that ConocoPhillips was contemplating another offer. Freeman requested a meeting to discuss the PSA, emphasizing WTG's eagerness to conclude the transaction. Engle confirmed WTG could continue due diligence but noted that ConocoPhillips's attorney was unavailable until January. Rychlik reiterated that ConocoPhillips was considering another offer, indicating that a decision would not be made before January, asserting sincerity in evaluating WTG's position.

Freeman indicated that WTG would be significantly distressed if a transaction with ConocoPhillips was not completed, particularly since WTG had offered a premium for SAOU and its complementary facility. He expressed concerns over ConocoPhillips potentially accepting another bid without allowing WTG to adjust its offer. The following day, Freeman communicated to Morgan Stanley and Rychlik that facilitating WTG's due diligence would lead to a swift signing of a Purchase and Sale Agreement (PSA). Throughout late December 2003 and into early 2004, negotiations were ongoing between ConocoPhillips and Targa, while WTG maintained communication with both parties about its due diligence progress and expressed a desire to revise its bid.

In early January, Freeman again requested the chance to adjust WTG’s bid. Morgan Stanley informed him that ConocoPhillips would likely proceed with the other offer if it was superior, but WTG could submit a revised bid. J.L. Davis, WTG's owner, sent letters to Morgan Stanley asserting that WTG would not increase its offer, citing an understanding on price and significant resources already committed based on their belief that WTG was chosen to purchase SAOU. He expressed disappointment if the transaction did not materialize and reiterated WTG's expectation for ConocoPhillips to honor its bid.

Morgan Stanley cautioned WTG to conduct due diligence at its own risk and reminded them that ConocoPhillips could negotiate with other parties until a PSA was finalized. Shortly thereafter, Freeman indicated that WTG was close to finalizing the PSA. Morgan Stanley later advised that negotiations with the competing party were at a critical point, but ConocoPhillips wished to keep communication open with WTG. Ultimately, on February 28, 2004, ConocoPhillips and Targa executed PSAs, with the closing occurring in April 2004.

In December 2005, WTG filed a lawsuit against ConocoPhillips for breach of contract, fraud, and negligent misrepresentation, and against Targa for tortious interference. Both defendants moved for summary judgment, which was granted by the trial court on October 2, 2007, resulting in a final judgment on October 4, 2007, ruling that WTG receive nothing on its claims. WTG subsequently appealed the summary judgment. The standard for a traditional summary judgment requires the moving party to demonstrate that there are no genuine material facts in dispute and that they are entitled to judgment as a matter of law, as outlined by Texas Rule of Civil Procedure 166a(c).

A defendant seeking summary judgment must conclusively disprove at least one element of the plaintiff's claim or establish all elements of an affirmative defense. If successful, the burden then shifts to the plaintiff to demonstrate a genuine issue of material fact. Summary judgments are reviewed de novo, with all favorable evidence to the nonmovant taken as true. 

In the case involving WTG and ConocoPhillips, WTG claimed the trial court erred in granting summary judgment for ConocoPhillips regarding WTG's breach-of-contract claim. ConocoPhillips sought summary judgment on two grounds: (1) WTG failed to prove a valid contract due to a lack of mutual agreement, and (2) the statute of frauds barred the claim. The trial court found a genuine issue of fact regarding contract formation but ruled that a legally enforceable contract did not exist because it lacked a writing satisfying the statute of frauds, and WTG did not substantiate its promissory-estoppel claim.

WTG appealed, contesting the trial court's findings on the statute of frauds, while ConocoPhillips raised cross-points challenging the trial court's determination of a genuine issue of material fact regarding contract formation. The appellate court agreed with ConocoPhillips that, as a matter of law, it had negated the existence of a valid contract, thus eliminating the need to address the statute-of-frauds issue.

For a breach-of-contract claim, a plaintiff must prove (1) the existence of a valid contract, (2) performance or an excuse for non-performance, (3) breach by the defendant, and (4) damages incurred. ConocoPhillips claimed evidence negated the contract's existence due to the absence of a meeting of the minds, which requires a demonstrated offer and acceptance. While intent to be bound is typically a factual question, it can be resolved as a matter of law. WTG argued that a December 11 phone conversation indicated ConocoPhillips accepted its offer, suggesting that they had a deal and would proceed to finalize it.

ConocoPhillips asserts that oral representations regarding WTG's offer do not constitute acceptance because a Proposal is only accepted upon the execution and delivery of a Purchase and Sale Agreement (PSA). Until the PSAs are executed, ConocoPhillips claims it has no obligations regarding the transaction, and its obligations post-execution are limited to the terms outlined in the PSAs. Conversely, WTG argues that these provisions do not definitively negate acceptance of its offer for two reasons: first, the expectation of a later-executed PSA does not preclude an informal agreement from being binding; second, there is a factual dispute regarding whether ConocoPhillips waived or modified these procedural requirements.

The trial court acknowledged that while the bid procedures might negate ConocoPhillips' oral acceptance, a factual issue remained regarding the potential waiver of these procedures. ConocoPhillips cites case law, including *John Wood Group* and *COC Services*, to support its position that the bid procedures negate any acceptance. In *John Wood Group*, a letter of intent indicated that it was not binding except for certain provisions, leading the court to conclude there was no enforceable contract. Similarly, in *COC Services*, the court found no intent to be bound by an incomplete agreement due to explicit expiration language.

WTG counters with case law suggesting that the expectation of a future written agreement does not prevent the existence of a binding informal contract, as illustrated in *Foreca*, where initialed terms established a binding agreement despite the anticipation of further documentation.

The seller initiated a breach of contract lawsuit against the prospective buyer after the buyer refused to proceed with the purchase of rides. The buyer argued that no enforceable agreement existed, citing language from prior cases. The Texas Supreme Court determined that the intent to contract was not conclusively established, as a fact question remained regarding whether a formal writing was a condition precedent to forming a contract or merely a record of an already binding agreement. 

The court referenced Murphy v. Seabarge, where a "Memorandum of Understanding" stated it was not intended as a binding contract, leading a partner to argue the memorandum was unenforceable. However, the court found a factual issue regarding the parties' intent to be bound. Key contract principles established include that contemplating a formal writing does not preclude the formation of a binding contract and that agreements can be binding even when some terms are left open for later negotiation.

In comparing the current case with Foreca and Murphy, it was concluded that ConocoPhillips' bid procedures were more definitive than the language in Foreca, indicating a clear intention not to accept an offer or bear contractual obligations without executing a Purchase and Sale Agreement (PSA). The court affirmed that executing a PSA was a condition precedent to contract formation. Unlike the situations in the prior cases, where partial performance indicated intent to be bound, no such performance occurred here, as the dispute arose from ConocoPhillips selling the facility to another party. The court cautioned that parties might risk being bound by a letter of intent that includes essential terms, despite not containing all protections typically negotiated.

A party seeking to avoid premature binding by a letter agreement should explicitly state that the letter is nonbinding, as such disclaimers are legally effective. The court highlighted that the case centered not on the absence of non-essential terms but on mutual consent regarding essential terms. While the parties had preliminarily agreed on key aspects, the seller withheld final consent until a purchase agreement was signed. Similarly, ConocoPhillips did not accept an offer until a Purchase and Sale Agreement (PSA) was executed, despite prior discussions about essential terms. Unlike previous cases where intent not to be bound was expressed in a signed written agreement, here, the relevant language was in bid procedures issued by ConocoPhillips. WTG contended that its bid was merely a response to the requirements of the bid procedures, not an acceptance of them. Although the trial court sided with WTG on the contract dispute, it noted that WTG's offer appeared to incorporate the bid procedures, as indicated by the term 'in accordance with.' WTG was aware that ConocoPhillips intended not to be bound until a PSA was executed. Under contract law, if one party knows the other views the agreement as incomplete and intends no obligation until further terms are agreed upon, the preliminary negotiations do not form a contract. 

Regarding the modification or waiver of bid procedures, WTG and the trial court argued that the language in the procedures did not definitively reject acceptance of WTG's offer, as there was a genuine issue of material fact on whether ConocoPhillips had modified or waived the procedures. The bid procedures allowed ConocoPhillips to amend, modify, or waive terms without notice. Additionally, Texas law permits oral modifications of a contract, despite any written prohibitions, if both parties agree to disregard such language.

The trial court determined that ConocoPhillips may have intended to form a contract without adhering to its bid procedures, suggesting that by accepting an offer immediately, it might have waived the requirement for a formal agreement. However, the court acknowledged that the question of intent and acceptance constitutes a factual matter for a jury. While ConocoPhillips' bid procedures did not outright prevent acceptance of WTG's proposal, the trial court noted that WTG cited legal authority supporting the idea that a party can waive conditions initially imposed for contract formation. Although ConocoPhillips did not explicitly communicate a waiver of the bid procedures, it retained the unilateral right to do so without informing WTG. The central issue was whether ConocoPhillips' conduct during a phone conversation implied a waiver of the bid procedures, which necessitates clear evidence of intent and conduct that contradicts the assertion of a right. The court concluded that the oral representations made were legally insufficient to establish a waiver, as allowing a jury to decide otherwise would undermine the bid process designed to secure the best value for ConocoPhillips. The bid procedures aimed to ensure competitive evaluation of proposals to achieve optimal outcomes, aligning with ConocoPhillips' objective of maximizing value through a structured bidding process.

ConocoPhillips maintained the right to seek the most advantageous bid until a Purchase and Sale Agreement (PSA) was executed, allowing for simultaneous negotiations with multiple parties at any time. The complexity of commercial transactions necessitates significant time and resources, often requiring preliminary agreements to facilitate negotiations without prematurely binding parties. ConocoPhillips distinguished preliminary agreements from PSAs, indicating that a preliminary deal did not negate the need for a formal PSA to form a binding contract. The bid procedures were designed to protect ConocoPhillips from informal agreements that could inadvertently create binding contracts prior to a formal writing. The court reasoned that representations made during a conversation on December 11 did not constitute a waiver of these bid procedures or acceptance of WTG's offer. The court referenced COC Services and Arcadian Phosphates, where despite certain conduct suggesting a binding agreement, the courts upheld that no binding contract existed until formal execution of a master franchise agreement. The essence of these cases supports that ConocoPhillips's statements about a 'deal' and intentions to negotiate a PSA did not undermine the established bid procedures requiring formal acceptance before a contract could exist.

ConocoPhillips's actions following the December 11th representations did not establish a fact issue regarding whether it waived the bid procedures or accepted WTG's offer. Instead, these actions indicated that ConocoPhillips maintained its right to enforce the procedures and had not entered into a binding contract with WTG. Internal emails from ConocoPhillips post-conversation suggested a commitment to negotiate exclusively with WTG for the SAOU but were not inconsistent with the intention to execute a Purchase and Sale Agreement (PSA) as a prerequisite for a definitive agreement. References in the emails highlighted a cautious approach, implying that negotiations were ongoing and that a contract had not yet been formed.

WTG cited a December 22nd email from Engle at Morgan Stanley, which authorized due diligence and suggested the parties were close to finalizing the PSA. However, Engle clarified that "finalizing" referred to ongoing negotiations rather than an impending contract, indicating that significant discussions were still needed. Additionally, communications from ConocoPhillips in late December 2003 and early 2004 reinforced that it had not waived bid procedures, as they indicated consideration of other offers and reminded WTG of its rights under the bid procedures, including the ability to submit revised bids. The bid procedures were notably favorable to ConocoPhillips, granting it final interpretation authority.

WTG argued in its summary-judgment response that ConocoPhillips was attempting to manipulate the situation to its advantage, disregarding prior statements. WTG faced challenges in demonstrating waiver without an explicit waiver from ConocoPhillips or evidence of partial performance. Despite this, WTG chose to engage in the bidding process, fully aware that ConocoPhillips retained the right to change its decision before finalizing a Purchase and Sale Agreement (PSA). Consequently, ConocoPhillips established that no binding contract existed since it did not accept WTG's offer, leading to the upholding of the summary judgment in favor of ConocoPhillips.

In addressing WTG's claims against Targa for tortious interference with contract, WTG needed to prove (1) the existence of a contract, (2) intentional interference, (3) that the interference caused damage, and (4) actual loss. WTG alleged that Targa, aware of a potential oral contract between WTG and ConocoPhillips, intentionally interfered by making a higher bid. Targa's defense included the lack of a valid contract between WTG and ConocoPhillips and the assertion that it was merely participating as the highest bidder in a competitive auction. The trial court granted summary judgment to Targa, initially stating no contract existed but later indicating that any contract would be unenforceable under the statute of frauds. The court found that Targa had no obligation to inquire about any existing contract and was not liable for submitting a superior bid. On appeal, WTG contested both the ruling and the trial court’s finding of a factual issue regarding the existence of a contract. Ultimately, as there was no enforceable contract, Targa was not liable for tortious interference, and the summary judgment in favor of Targa was upheld.

The trial court's final judgment is affirmed in full. The entities involved, referred to as "Targa," acquired certain assets with financing from Warburg Pincus, and the same claims were made against these defendants. WTG also filed suit against Morgan Stanley, which the trial court granted summary judgment in favor of, a decision not contested by WTG on appeal. WTG is not appealing the summary judgment on its fraud and negligent misrepresentation claims.

WTG contends that a contract was effectively executed through internal emails from ConocoPhillips following a phone conversation on December 11, along with WTG's Purchase and Sale Agreement (PSA) and related documents. Alternatively, WTG argues that ConocoPhillips should be estopped from invoking the statute of frauds due to WTG's reliance on ConocoPhillips's promise to sign a PSA, which led to missed opportunities and incurred expenses.

The trial court examined an email dated December 12 from Mary Pearce, which included the essential terms of any potential oral contract but concluded it lacked sufficient assent to form an agreement. Furthermore, the court dismissed the promissory estoppel claim, citing a lack of evidence supporting a promise to sign a written agreement satisfying the statute of frauds, alongside WTG's independent actions regarding the complementary facility purchase.

Discrepancies arose regarding the details of the phone conversation, with ConocoPhillips disputing WTG's account. However, for summary judgment considerations, WTG's version of events is accepted, leading to the conclusion that there were no factual disputes regarding contract formation. The trial court acknowledged the principle of oral modifications relevant to contract formation, despite ConocoPhillips's objections.

The power to modify a pre-existing contract is equivalent to the power to initiate one. Oral modifications of a written contract not required by law to be in writing are recognized, but it is unnecessary to determine how much a written contract can be modified orally in this case because ConocoPhillips did not waive the bid procedures. Garrett Rychlik, a representative of ConocoPhillips, testified that there were no changes to the procedures following a December 11th phone conversation. Although ConocoPhillips's counsel stated that the defendants would limit reliance on certain deposition excerpts, Rychlik’s full deposition was included with the summary judgment motion, but the specific excerpt was not cited. The trial court did not strike all unreferenced deposition testimonies, yet WTG failed to provide evidence that ConocoPhillips expressly waived the bid procedures. ConocoPhillips opted not to sign a Purchase and Sale Agreement (PSA) with WTG due to receiving a better offer rather than failing to agree on terms, while maintaining the right to condition acceptance on an executed PSA. The trial court questioned the relevance of ConocoPhillips’s representations about the immateriality of PSA revisions, stating that if WTG was unwilling to accept these revisions, it might argue that ConocoPhillips had never accepted its offer. The court also found that a statement reflecting a commitment to agreements was ambiguous and did not necessarily indicate a binding agreement with WTG. WTG's communications post-December 11 were inconsistent regarding whether it believed a contract existed; while some communications suggested negotiations were still ongoing, others indicated an expectation of an existing agreement. Ultimately, the issue remains whether ConocoPhillips waived the bid procedures, which it reserved the right to change unilaterally. WTG did concede that summary judgment was appropriate for its claim of tortious interference with a business relationship and does not contest this on appeal.