978-1285770178 Case Printout Case CPC-18-04

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559 F.3d 373

(Cite as: 559 F.3d 373)

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559 F.3d 373

(Cite as: 559 F.3d 373)

95k323 Questions for Jury

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170BVIII(K) Scope, Standards, and Extent

170BVIII(K)5 Questions of Fact, Verdicts and Findings

170Bk850 Clearly Erroneous Findings of Court or Jury in General

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A finding of fact is “clearly erroneous” when, although there is evidence to support it, the reviewing court based on

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170BVIII(K)1 In General

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Factual findings made under an erroneous view of controlling legal principles are reviewed de novo.

Under Texas law, provisions of crude oil purchase agreement, stating that purchaser could suspend payment upon

any dispute or lack of information affecting title to the crude oil, and that if requested, the seller was required to fur-

nish evidence of title satisfactory to the purchaser, gave purchaser the right to request title information and suspend

payment, which was not conditioned on the presence of an adverse claim, verifiable proof of theft, or objective evi-

dence of wrongdoing; thus, purchaser did not breach parties’ agreement when it suspended payment based on its

Marvin C. Moos (argued), James David Ebanks, Deanna Dean Smith, Ebanks Taylor Horne, LLP, Houston, TX, for

Defendant-Appellee.

Appeals from the United States District Court for the Southern District of Texas.

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559 F.3d 373

(Cite as: 559 F.3d 373)

EMILIO M. GARZA, Circuit Judge:

This dispute arose from a contract to supply natural gas condensate in south Texas. Flint Hills, a refiner of crude oil

products, agreed to purchase “[a]pproximately 1,000 barrels per day” of “Mexican Condensate” from JAG, a broker

in such products. The agreement permitted either party to cancel the arrangement with one month’s notice. The con-

tract began without incident in December of 2005. In mid-March of 2006, Flint Hills employee Rhonda Schlatter

(“Schlatter”) attended a business lunch with Rodrigo Aranda (“Aranda”) of PMI Trading (“PMI”). PMI is the mar-

firm and a Mexico City law firm to advise Flint Hills about its rights and obligations. The Mexican law firm con-

firmed that there was an ongoing investigation into thefts of condensate in Mexico but offered no specific infor-

mation. The D.C. law firm advised Flint Hills that continuing to purchase condensate from JAG could subject Flint

Hills to criminal liability if the product was in fact stolen. Flint Hills did not attempt to contact Aranda or anyone at

PMI/Pemex for further investigation.

Flint Hills sent a letter cancelling the agreement on May 16. JAG subsequently brought a contract claim in the dis-

trict court, alleging that Flint Hills breached the parties‘ agreement by withholding payment.

The district court held a bench trial and applied Texas contract law. After considering the evidence and the parties‘

contract, the court determined that Flint Hills had overreacted to a vague rumor and acted unreasonably in suspend–

[1][2][3][4] On appeal from a judgment after a bench trial, we review findings of fact for clear error and conclusions

of law de novo. Houston Exploration Co. v. Halliburton Energy Servs., Inc., 359 F.3d 777, 779 (5th Cir.2004). We

assume arguendo that the district court’s determination that Flint Hills breached the contract constitutes a finding of

fact. We have stated that it is “well-settled that whether the parties’ conduct constitutes breach presents a pure ques-

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559 F.3d 373

(Cite as: 559 F.3d 373)

tion of fact….” Concise Oil & Gas P’ship v. La. Intrastate Gas Corp., 986 F.2d 1463, 1469 (5th Cir.1993) (internal

quotation marks omitted); see also Leson Chevrolet Co. v. Oakleaf & Associates, Inc. 796 F.2d 76, 79 (5th Cir.1986)

(per curiam) (reviewing the district court’s finding of breach under a clearly erroneous standard). “A finding of fact

is clearly erroneous when, although there is evidence to support it, the reviewing court based on all the evidence is

left with the definitive and firm conviction that a mistake has been committed. However, factual findings made un-

[Paragraph 5]: In the event of any adverse claim, lien, dispute or lack of information affecting or concerning title

to the property or to the crude oil proceeds from lands described in this agreement, Buyer may withhold payment

for the crude oil until the claim, lien, dispute or lack of information is settled or resolved, without liability for in-

terest. If requested, Seller agrees to furnish evidence of title satisfactory to Buyer.

* * * *

available where a third-party brings an adverse claim of ownership or where there is objective evidence of bad title.

FN1 In evaluating *376 Flint Hills decision to withhold payment, the court repeatedly emphasized that Flint Hills had

“overreacted” to a vague rumor and inadequately investigated the general allegations of theft. On this basis, the

court held that Flint Hills breached the contract by withholding payment.

FN1. The district court made the following relevant findings of fact and conclusions of law:

* * * *

18. Flint Hills breached the contract when it rejected additional condensate on March 24 through July 1.

Flint Hills had no commercial basis to reject the condensate. The absence of an adverse claim or plausi-

ble factual support for a question of title made Flint Hills’ arbitrary quibbling about the sequence of sales

categorically unreasonable.

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559 F.3d 373

(Cite as: 559 F.3d 373)

reasonableness of Flint Hills‘ own investigation was inconsistent with the contract language. Under the plain terms

of the agreement, Flint Hills could suspend payment upon any “dispute or lack of information affecting” title. This

tying JAG’s condensate back to Pemex and suspended its purchases until this “lack of information” was resolved.

JAG was then obligated to provide “satisfactory” evidence of title. After initially promising to do so, JAG ultimately

failed to provide any reliable evidence that its condensate was purchased through Pemex at some point down-

stream.FN2 When it became clear that JAG could not or would not provide this requested evidence, Flint Hills can-

celled the arrangement. Thus, the “lack of information” regarding title was never resolved. Regardless of whether

In sum, the district court erred in concluding that Flint Hills breached the contract. Even if we credit all of the court’s

factual findings-that Aranda’s comment was disingenuous, that Flint Hill‘s investigation was inadequate, and that

Flint Hills overreacted-Flint Hills was nevertheless entitled to request evidence of title and suspend payment until

any “lack of information” was resolved to its satisfaction. The district court improperly imposed extra-contractual

IV

Viewing the record as a whole, we are convinced that Flint Hills’ actions were consistent with its contractual rights.

Accordingly, we REVERSE the judgment of the district court and RENDER a take-nothing judgment in favor of

Flint Hills.