Quicksilver Resources, Inc. v. CMS Marketing Services and Trading Company

Citation: Not availableDocket: 02-03-00251-CV

Court: Court of Appeals of Texas; January 26, 2005; Texas; State Appellate Court

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Quicksilver Resources, Inc. contests a summary judgment and declaratory judgment favoring CMS Marketing Services and Trading Company in a Texas appeals court. The case primarily examines whether an express merger clause in a contract prohibits the introduction of parol evidence regarding a prior verbal agreement and whether collateral estoppel applies when the issue differs from a previously litigated matter. The court determines that Michigan law does prevent parol evidence from altering the terms of a written contract with an express merger clause. Additionally, it finds that collateral estoppel is inapplicable due to the differing issues. Consequently, the court reverses the trial court’s summary judgment concerning Quicksilver’s claims of breach of contract, breach of UCC duties, fraud in the inducement, and recission, remanding these claims for further proceedings. However, it affirms the trial court’s summary judgment for CMS on Quicksilver’s unjust enrichment claim, as an express, written contract exists. 

Factual background reveals that after a Michigan company declared bankruptcy, Quicksilver negotiated with CMS, culminating in a verbal agreement on March 26, 1999, to sell 10,000 mmbtu of natural gas daily for ten years at a minimum price of $2.47 per mmbtu, with shared profits on any additional revenue. This agreement was formalized in a written GISB Base Contract, which included a merger clause that superseded prior agreements. Under this contract, governed by Michigan law, CMS failed to share profits with Quicksilver as gas prices surged, leading to Quicksilver's lawsuit for various claims. It was later revealed that CMS had negotiated a financial hedge prior to the agreement, limiting its effective recovery on the gas to $2.54 per mmbtu.

CMS responded to Quicksilver's lawsuit by filing a counterclaim for a declaratory judgment and later an amended motion for summary judgment addressing all of Quicksilver's claims and its own counterclaim. The trial court granted CMS's motion, concluding that CMS did not breach the gas purchase and sale agreement and was not obligated to pay Quicksilver beyond the agreed price of $2.47 per MMBTU for the contract's remaining term. Quicksilver appealed the decision.

The standard for reviewing a summary judgment is whether the movant has demonstrated that no genuine issue of material fact exists and is entitled to judgment as a matter of law. The burden of proof lies with the movant, and any doubt regarding material facts must be resolved in favor of the nonmovant. Evidence favorable to the nonmovant is accepted as true, while evidence supporting the movant's position is only considered if uncontroverted.

CMS's grounds for summary judgment included claims that Quicksilver's allegations of breach of contract and related claims were barred by collateral estoppel and that a recorded conversation demonstrated no agreement on the upside sharing clause, which was deemed merely an agreement to agree. CMS also argued that Quicksilver's claim for fraud in the inducement failed due to a lack of reasonable reliance, and that unjust enrichment was not applicable due to the existence of a valid contract. Quicksilver argued that the trial court erred in granting summary judgment based on these grounds.

Collateral estoppel was invoked in a lawsuit where Quicksilver sought to enforce a profit-sharing provision in a contract with Reliant Energy Services, Inc. The court ruled in favor of Reliant, determining that the provision was discretionary rather than mandatory, based on the language indicating that actions were optional (e.g., "may encounter, may propose"). CMS argued that Quicksilver's claims against it were barred by collateral estoppel based on the earlier ruling, asserting that Quicksilver had judicially admitted the similarity of the profit-sharing arrangements in both contracts. Quicksilver contested this, arguing there was no judicial admission and that collateral estoppel did not apply due to differences in contracts and parties involved. The court noted that while Quicksilver's CEO stated the agreements aimed for identical outcomes, he also acknowledged differences in wording, which disqualified the testimony as a judicial admission. For collateral estoppel to apply, it must be shown that the facts were fully litigated, essential to the prior judgment, and that the parties were adversaries in that action.

Quicksilver's lawsuit against CMS pertains to a different contract than that involved in its earlier suit against Reliant, specifically regarding a unique upside sharing clause. The differing contracts prevent the application of collateral estoppel, allowing Quicksilver to proceed with its claims for breach of contract, breach of UCC duties of good faith and fair dealing, and declaratory judgment. The trial court incorrectly considered the Quicksilver-Reliant contract as part of the summary judgment evidence. 

Additionally, Quicksilver challenged the trial court's acceptance of a transcript from a March 26, 1999 phone conversation as summary judgment evidence. Quicksilver argues that the verbal agreement made during this call was merged into their subsequent written contract due to its merger clause. CMS contends that the lawsuit concerns the interpretation of the verbal agreement, claiming that the terms are outlined in the transcript. However, Quicksilver's lawsuit specifically targets the upside sharing agreement in the written contract, which includes a merger clause. Under Michigan law, parol evidence contradicting or modifying a clear written agreement is inadmissible unless it involves fraud or the written document is clearly incomplete. The presence of a merger clause in the contract reinforces that parol evidence regarding prior verbal agreements cannot be used to dispute the contract's completeness.

Quicksilver and CMS entered a written contract that included a merger clause, indicating the contract represented the complete agreement and negated any prior verbal agreements. Under Michigan law, parol evidence that contradicts or modifies this written contract is inadmissible, as affirmed by several case precedents. CMS's motion for summary judgment was based solely on a verbal agreement rather than the written contract, and CMS did not argue that the contract's upside sharing provision was ambiguous, which would allow for the introduction of parol evidence. Although CMS attempted to invoke the Michigan Uniform Commercial Code to support its argument that a phone conversation should be considered in interpreting the contract, this conversation only raised a factual issue about intent rather than conclusively proving CMS's position. CMS's new argument regarding the enforceability of the written contract's terms was not presented in the trial court, preventing it from being a basis for summary judgment. Consequently, the summary judgment granted to CMS was improper as the evidence did not definitively negate Quicksilver’s breach of contract claim or allegations of bad faith. The court upheld Quicksilver's claims and reversed the summary judgment.

An action for fraud in the inducement requires the plaintiff to prove that the defendant made a material misrepresentation that was false, knew it was false or acted recklessly, intended for the plaintiff to rely on it, and that the plaintiff suffered damages due to reliance on this representation. CMS contends that a March 26, 1999 phone conversation negates Quicksilver’s reliance claim; however, Quicksilver presented evidence, including testimony from its President and Chairman, indicating they would not have signed the contract without a specific understanding about revenue sharing. Therefore, the court upheld Quicksilver's claim regarding detrimental reliance.

Regarding unjust enrichment, CMS argued that Quicksilver's claim fails due to the existence of a valid express contract governing the sale of gas, which precludes recovery under quasi-contract theory. The court agreed, affirming the trial court’s summary judgment for CMS on this claim.

In relation to the recission claim, CMS asserted that a unilateral mistake does not warrant recission. The court noted that rescission is generally only available for mutual mistakes or unilateral mistakes induced by fraud. Quicksilver raised a genuine issue of material fact about whether its unilateral mistake regarding profit expectations was based on CMS’s alleged fraudulent nondisclosure. Consequently, the court found that the trial court erred in granting summary judgment for CMS on this claim.

In conclusion, the court reversed the trial court's summary judgment on Quicksilver's claims for breach of contract, breach of UCC duties, fraud in the inducement, recission, and declaratory judgment, remanding these claims for further proceedings. The court, however, affirmed the summary judgment regarding unjust enrichment.

The merger clause in the contract explicitly states that all previous agreements and representations between the parties regarding transactions are merged into and superseded by the current contract and any effective Transaction Confirmations, with amendments requiring written consent from both parties. Testimony highlighted a disagreement about the similarities between two deals (the Reliant and CMS deals), with Quicksilver asserting that the deals had the same intent despite differing language in the written confirmations. CMS emphasized that the initial agreement was verbal, which complicates the interpretation. CMS argued that if the upside sharing provision were ambiguous, it would require a trier of fact to determine the parties' intent, making summary judgment inappropriate. The trial court ruled that CMS did not breach the gas purchase and sale agreement, which runs from April 1, 1999, to March 31, 2009, and that CMS is only obligated to pay a fixed price of $2.47 per MMBTU for natural gas for the remaining term. Quicksilver contested the trial court's summary judgment and declaratory judgment related to CMS's alleged breach of duties under the UCC, but other arguments were deemed alternative and contingent on earlier issues not being sustained.