Cherokee County Cogeneration Partners, L.P. v. Dynegy Mktg. & Trade

Opinion

 [*311]  This commercial dispute arises from a natural-gas seller's failure to deliver an agreed quantity of gas to the purchaser, appellant Cherokee County Cogeneration Partners, L.P. ("Cherokee"). The seller, appellee Dynegy Marketing and Trade, ² successfully moved for summary judgment by arguing Cherokee seeks only consequential "lost profits" damages disclaimed by the parties' contract. We hold Cherokee has alleged compensable direct damages under the contract. Therefore, we reverse and remand.

BACKGROUND

Pursuant to a take-or-pay Gas Purchase Agreement (the "Agreement"), ³ Dynegy must supply, and Cherokee must purchase, a fixed quantity of natural gas daily at an agreed-upon price that is identified in the Agreement as the "Commodity Charge." Under the Agreement, Cherokee  [**2] may use the purchased gas at its discretion to fuel its cogeneration facility or resell the gas to third parties.

When Hurricanes Katrina and Rita struck the Gulf Coast in the fall of 2005, Dynegy declared force majeure. From August 29 through October 3, Dynegy did not supply the full contract amount of natural gas, which prompted Cherokee to operate its cogeneration facility in some diminished capacity. During that time, the market price of natural gas skyrocketed to an amount between five and ten times the Commodity Charge specified in the Agreement.

Cherokee demanded Dynegy support its force majeure declaration with the "full particulars" of its inability to perform. After Dynegy refused Cherokee's request to audit its financial records, Cherokee sued Dynegy for breach of contract and declaratory judgment. Cherokee alleged Dynegy  [*312]  could have performed its contract obligations but instead improperly declared force majeure to capitalize on the higher market price. ⁴ 

In its petition, Cherokee pleaded damages according to a formula contained in Section 5.2 of the Agreement. Briefly, that provision identified Cherokee's breach-of-contract remedy, as to the undelivered natural gas, as the difference between the Commodity Charge and market price.

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