Cherokee County Cogeneration Partners, L.P. v. Dynegy Mktg. & Trade

In Cherokee County Cogeneration Partners, L.P. v. Dynegy Mktg. & Trade, 305 S.W.3d 309 (Tex. App.--Houston 14th Dist. 2009, no pet.), a long-term contract for purchase of gas to operate a cogeneration facility contained a provision allowing the buyer to use the gas to operate the facility or to resell the gas to third parties. Id. at 311. When the seller failed to deliver the required volumes of gas as the claimed result of weather disruptions, the buyer sued for damages based on the difference between the amount it would have to pay under the contract and the much higher amount that it would have received by selling the gas to third parties during that period. Id. at 311-12. The seller contended that the damages amounted to lost profits waived by the clause prohibiting recovery of consequential damages, and the trial court granted summary judgment to the seller. Id. at 312. The Houston Fourteenth Court of Appeals reversed and remanded, holding that the lost profits from the buyer's inability to resell gas not delivered to customers at the higher market value were "direct" damages not precluded by the waiver of "consequential" damages contained in the contract. Id. at 314-15. Holding that the contract was not a sale of goods controlled by the UCC, the court used the common law definition of "consequential damages" and held that, by the parties' express agreement that the buyer could resell the gas to a third party, the contract thereby implicitly authorized the buyer to profit from increases in the market price of the gas; thus, any wrongful interference with that contract right "would naturally and necessarily cause the buyer to suffer direct damages in the form of profits on the agreement itself." Id. at 315 & n.11.