In El Paso Marketing, L.P. v. Wolf Hollow I, L.P., the Texas Supreme Court decided that the economic loss rule and a consequential damages clause eliminated a power plant owner’s claim against a pipeline company for interruptions in service. No. 11-0059, 2012 Tex. LEXIS 489 (Tex. June 15, 2012). The plant owner had a transportation agreement with the pipeline company that the plant owner later assigned to a gas supply manager. The plant owner argued that thereafter it did not have a contract with the pipeline company and could sue in tort for service interruptions. The Supreme Court disagreed: “Generally speaking, a party cannot escape its obligations under a contract merely by assigning the contract to a third party.” Moreover, the Court held that the plant owner’s argument assumed that it could sue the pipeline company for something. But the plant owner’s agreement expressly provided that it could look to the gas supply manager to answer for delivery interruptions, and that agreement expressly provided that the gas supply manager would then assign its claims against the pipeline company to the plant owner. So, the plant owner did have a contract action against the pipeline company. The problem with that option for the plant owner was that any such claim would be barred by a consequential damages clause in the agreement. That is why the plant owner attempted to sue the pipeline company in tort and not under the contract. The Court held that the plant owner chose to limit its contractual rights via the consequential damages clause against the pipeline company whether it kept those rights or assigned them away. The Court held that under the economic loss rule and the consequential damages clause, the plant owner had no claim against the pipeline company. The Court did hold that under the parties’ agreement, the plant owner may have a claim against the gas supply manager for the cost of purchasing replacement power.
Considering the liberal use of assignments and liability-limiting clauses in the financial industry, this case may be very important precedent for financial institutions being sued in tort when the claim really arises in contract.