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TEC Olmos, LLC v. ConocoPhillips Co., 555 S.W.3d 176 (Tex. App.—Houston [1st Dist.] 2018, pet. denied), held that a force majeure clause can be invoked as to expressly named disabling events without regard to foreseeability (in dicta), but the “catch all” provision can be invoked as to an unspecified disabling event only if the disabling event was unforeseeable at the time the contract was executed. ConocoPhillips Company (“Farmor”) entered into a farmout agreement with TEC Olmos (“Farmee”) including a drilling obligation and a liquidated damages clause. The price of oil fell, Farmee lost its source of financing, and Farmee failed to drill the obligation well.  The force majeure clause provided:

 Should either Party be prevented or hindered from complying with any obligation under this Agreement . . . by reason of fire, flood, storm, act of God, governmental authority, labor disputes, war, or any other cause not enumerated herein but which is beyond the reasonable control of the Party whose performance is affected, then the performance of any such obligation is suspended. . . .

 The issue on appeal was foreseeability.

 Courts may consider common law rules to “fill in gaps” when interpreting force majeure clauses. The court analyzed two federal circuit cases in which the courts came to differing conclusions as to whether a showing of unforeseeability is required to establish a force majeure event. In Gulf Oil Corp. v. Fed. Energy Regulatory Comm’n, 706 F.2d 444 (3d Cir. 1983), the Third Circuit required a showing of unforeseeability, even though the alleged force majeure event—mechanical repairs—was specifically listed in the force majeure clause. In Eastern Air Lines v. McDonnell Douglas Corp., 532 F.2d 957 (5th Cir. 1976), the Fifth Circuit held that because the parties had specifically included the force majeure event in the clause, the party intending to invoke the force majeure clause did not have to also show that the event included in the force majeure clause was unforeseeable. However, both of these cases involved a situation in which the alleged force majeure event was specifically listed in the force majeure clause, whereas the alleged force majeure event in Olmos was applicable only under the “catch-all” provision in the force majeure clause. The court noted that at least one Texas court agreed with Eastern Airlines, and the Olmos court expressly said it, too, agreed. However, the Olmos court also said that it was not called upon to determine that question because the case before it involves only the “catch-all” provision, not specifically listed events.

 The court held that a “catch-all” provision in a force majeure clause does not include events that are foreseeable, such as a fluctuation in the oil and gas market that affects a party’s ability to obtain financing. The court pointed to its own precedent in Valero Transmission Co. v. Mitchell Energy Co., 743 S.W.2d 658 (Tex. App.—Houston [1st Dist.] 1987, no writ) in which it reached a similar conclusion. In Valero, the court held that a significant change in market price, which was not specifically listed as a force majeure event in the force majeure clause at issue, and was foreseeable, was not an event that would trigger the force majeure clause.

 The court in this case concluded that if the force majeure event is not specifically stated, a force majeure clause does not relieve a contracting party of the obligation to perform unless the disabling event was unforeseeable at the time the parties made the contract. Moreover, fluctuations in the oil and gas market are foreseeable as a matter of law, and cannot be considered a force majeure event unless specifically listed as such in the contract. 

 The court also relied upon the doctrine of ejusdem generis as applied to the force majeure clause. When “general words follow an enumeration of two or more things, they apply only to . . . things of the same general kind or class specifically mentioned.” TEC Olmos, 555 S.W.3d at 185 (quoting Antonin Scalia & Bryan A. Garner, Reading Law: The Interpretation of Legal Texts 199 (2012)). Applying the doctrine of ejusdem generis, the court held that the general phrase “any other cause not enumerated herein” must be limited to the types of events specified before that phrase, i.e., “fire, flood, storm, act of God, governmental authority, labor disputes, [&] war.” Changes in the commodities market and the resulting ability of a party to obtain financing did not fit into the categories of natural or man-made disasters, governmental actions, or labor disputes.

 The significance of the case is the holding that unforeseeability is required for any force majeure event not specified as a force majeure event, but (in dicta) unforeseeability is not required as to any force majeure event specifically listed in the force majeure clause. Fluctuations in the oil and gas market are foreseeable as a matter of law.


Author

Jeffery A. McCarn

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