A Texas-sized win for freedom of contract

June 12, 2015 | By WENCONG FA

Today the Texas Supreme Court held in Plains v. Torch that a contract dispute worth over 43 million dollars should be governed by the words of the contract, rather than by vague notions of abstract justice. PLF filed an amicus brief in the case, and we have previously posted about the case on this blog (here and here).

In 1996, Torch Energy Advisors sold its leasehold interest in undeveloped oil and gas fields to Plains Exploration & Production Company. It retained certain assets, however, pursuant to an express provision in the contract. Years later, a federal court held that the federal government repudiated the mineral leases at the heart of the contract and awarded Plains, the owner of the leases, a multi-million dollar judgment. Torch argued that the excluded-assets provision entitled it to a portion of that judgment; Plains argued otherwise. But the key here is that both parties buttressed their arguments with the words of the contract itself. The court of appeals, however, found the contract ambiguous, and allowed a jury to split up over 43 million dollars in equity, guided only by vague notions of abstract justice.

Today the Texas Supreme Court reversed. The court’s opinion contained a detailed analysis of the relevant contractual provisions. The court held that the words in the contract, when viewed in context of the contract as a whole, belied any suggestion of ambiguity. The court’s decision, which favors an objective analysis of contractual provisions rather than a subjective determination of equitable results, will preserve freedom of contract for years to come.