Atlantic Richfield Company v. The Long Trusts

860 S.W.2d 439 (1993)

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Nature of the Case

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Facts

Henderson Clay Products (HCP) and P drilled gas wells during the early 1980s. The wells became producers, and HCP created B&A Pipe Line Company as its wholly-owned subsidiary to build and maintain the pipeline and facilities transporting the gas to purchasers. HCP and B&A entered into a contract whereby HCP dedicated its gas to B&A at the 'applicable maximum lawful price per MMBTU [One Million British Thermal Units] as provided by the Federal Energy Regulatory Commission.' B&A entered into a ten-year contract with Lone Star Gas in which B&A dedicated its gas to Lone Star, to be purchased at the price that B&A had agreed to pay HCP. Lone Star also agreed to pay B&A an operations fee on all volumes of gas delivered by B&A at the point of delivery, in addition to the gas cost. D purchased HCP and stands in its position for all purposes. D was operating under joint operating agreements with P. Those operating agreements allowed D the right to purchase unsold gas for the account of the non-taking party at the best price obtainable in the area for such production. P contends that they were defrauded by D because the phrase 'best price obtainable in the area for such production' mandated that B&A keep in effect the right to receive the 'maximum lawful price' for the gas delivered under the terms of the May 10, 1982, contract between HCP and B&A. The agreement also allowed P to terminate any sales and sell the gas on its own accord. P argued that subsequent amendments to the initial contract between D and B&A and between B&A and Lone Star Gas defrauded them by lowering the gas price. The amendments were made as part of the settlement of a take-and-pay lawsuit between B&A and Lone Star Gas. The original contract between B&A and Lone Star was negotiated and signed at a time when natural gas prices were at their highs. Prices began to drop drastically, and Lone Star Gas failed to take the quantities of gas to which they had agreed under the contract or pay at the high price specified by the contract. B&A filed suit on the contract. The settlement of the suit provided that Lone Star Gas would agree to take substantially higher quantities of gas at a new, lower price. Even so, the price remained substantially above the going price for gas on the spot market. P sued Ds. At trial the evidence proved that Lone Star’s new purchase price from B & A was much higher than B & A’s purchase price from D. The trial court held for D on the breach of contract claim and for P on the failure to account claim.