Polaris Engineering, a Louisiana industrial engineering firm, entered into three interrelated contracts with Texas International Terminals (TXIT), a Galveston logistics company, to construct a new crude oil refining facility with a capacity of 50,000 barrels per day. The agreement outlined shifting obligations: once Polaris achieved mechanical completion, TXIT had 21 days to start up the facility and issue a Notice of Stable Operations, after which Polaris would conduct performance testing. Although TXIT claimed performance and safety issues, it never issued the required Notice of Stable Operations. When TXIT insisted Polaris bear the costs of performance testing and sought payment from Polaris's insurer, Polaris terminated the contract and sued for breach of contract and quantum meruit. TXIT counterclaimed for breach of contract and conversion of dock equipment. The district court granted partial summary judgment to Polaris, ruling that TXIT breached the agreement twice: first by failing to reasonably satisfy mechanical completion, and second by refusing to certify stable operations despite operating at 30,000 barrels per day. A jury subsequently found that while both parties breached, TXIT breached first, awarding Polaris $23 million in damages and offsetting $2 million for conversion, resulting in a net judgment of $20.8 million plus interest.
The Fifth Circuit reviewed the district court's rulings on liability and damages, finding no reversible error. The court emphasized that Texas law aims to give effect to the intent of the parties. A central issue was the interpretation of the term stable operations, which was ambiguously defined in the contract, appearing both with and without the clarifying term 50,000 barrels per day. The appellate court affirmed the district court's approach of adopting the ordinary meaning of steady, consistent operations to resolve the ambiguity, reasoning that this interpretation aligned the relevant contractual sections. The court noted that TXIT's operation of the facility at 30,000 barrels per day qualified under this ordinary-meaning definition. Consequently, TXIT's refusal to certify the notice of stable operations constituted a breach. The court also addressed the materiality of the breach, rejecting TXIT's arguments on the matter. Finally, the court reviewed the jury verdict against the manifest weight of the evidence, a high bar for review, and concluded that the district court's rulings were fair and reasonable given the voluminous and fact-intensive record.
The decision affirms the district court's judgment, leaving the $20.8 million principal and $14.3 million interest award against TXIT in place. The ruling clarifies that in construction contracts with ambiguous operational definitions, courts may apply ordinary meanings to resolve disputes, provided the interpretation aligns with the contract's structure. The case is closed with no remand instructions, as the appellate court found no reversible error in the lower court's handling of liability, damages, or post-trial motions.
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