Reported / Citable
Background
MIECO L.L.C. and Targa Gas Marketing L.L.C. entered into transactions requiring Targa to deliver 45,000 MMBtu of natural gas per day at a Kansas trading pool. During six days of Winter Storm Uri in February 2021, Targa delivered substantially less than the required amount and invoked contractual force-majeure provisions based on regional weather conditions and force-majeure declarations by its affiliates.
Targa sought a declaration that force majeure excused its nonperformance, while MIECO asserted a breach-of-contract counterclaim. The district court granted Targa partial summary judgment, holding that Uri qualified as a force-majeure event and that Targa did not have to buy replacement gas. A Fifth Circuit panel initially reversed that ruling, reasoning that Targa’s “gas supply” included daily or spot-market sources it had used before the storm and that Targa had to continue purchasing from those sources to the extent reasonable despite economic hardship.
Targa petitioned for rehearing en banc, arguing that the panel’s interpretation of a standard-form natural-gas contract disrupted settled industry expectations. The Fifth Circuit recognized that the issue was important to the Texas natural-gas industry and lacked a clear answer under controlling Texas law.
The Court’s Holding
The Fifth Circuit denied rehearing en banc because no active judge requested a poll. Treating Targa’s petition as one for panel rehearing, however, the court granted it in part and withdrew Part I of its earlier opinion—the portion holding that Targa was required to continue using its customary spot-market sources during the force-majeure event. The remainder of the prior opinion was unaffected, and the court again affirmed the portion of the judgment based on the jury verdict.
The panel did not finally decide whether the contract required Targa to enter the spot market during Winter Storm Uri. Instead, it certified two questions to the Supreme Court of Texas: whether the North American Energy Standards Board form contract requires a nonproducer seller to use the spot market during a force-majeure event when it previously used that market for part of its supply, and, if so, how the contract’s “reasonable efforts” requirement should be defined.
Key Takeaways
- The Fifth Circuit withdrew its prior force-majeure analysis rather than leaving its spot-market ruling in place while certification proceeded.
- The court certified the controlling Texas-law questions because existing state authorities did not clearly resolve them and the answer could significantly affect the Texas natural-gas industry.
- The jury-verdict portion of the district court’s judgment remains affirmed; certification concerns the partial-summary-judgment dispute over Targa’s force-majeure defense.
Why It Matters
The Supreme Court of Texas’s eventual answer may determine whether nonproducer gas marketers using this standard-form contract must continue purchasing gas on the spot market during a force-majeure event, even when prices rise dramatically. It may also clarify what efforts such sellers must make before force majeure excuses nonperformance.
For now, the Fifth Circuit’s earlier interpretation is withdrawn, leaving the key Texas contract questions unresolved pending guidance from the state’s highest court.