Kachina Pipeline Company, Inc. v. Michael D. Lillis

Summary

The Supreme Court of Texas interpreted a natural-gas purchase agreement between Kachina Pipeline Company and Michael Lillis. The Court held that the agreement did not authorize deductions for the disputed compression costs and did not grant Kachina a five-year extension, affirming the court of appeals and remanding for consideration of accounting, costs, and attorney's fees.

Holdings

1. The agreement unambiguously authorized deductions only for compression installed during the agreement's term to overcome the working pressure in Kachina's system and effect delivery of Lillis's gas. It did not authorize deductions for preexisting compression or compression installed to increase throughput or obtain a higher resale price.
2. The option to continue purchasing gas under the agreement did not authorize Kachina to impose a new five-year initial term or extend the agreement through May 31, 2015.
3. Reversal of the declaratory judgments warranted reversal and remand of the attorney's-fees issue for the trial court to determine the appropriate award of costs and fees, and Lillis preserved that issue despite presenting it conditionally and in a footnote.

Questions Presented

1. Whether the 2005 Gas Purchase Agreement unambiguously authorized Kachina to deduct compression costs from Lillis's proceeds for compression not installed to overcome inadequate pressure at the delivery point.
2. Whether the agreement's option to continue purchasing gas allowed Kachina to extend the agreement for a new five-year term through May 31, 2015.
3. Whether reversal of the declaratory judgments required reversal and remand of the attorney's-fees award and whether Lillis preserved the fees issue.

Disposition

affirmed