First Court Affirms $23.5 Million Lost Profit Award in Water Supply Exclusivity Dispute
The Houston First Court of Appeals affirmed a $23,560,541.20 jury verdict awarding lost profits to a water supplier after Equinor breached an exclusivity provision by purchasing water from competing suppliers for its oil and gas wells. The court held that a contractual bar on consequential, indirect, or special damages—including lost profits—did not preclude recovery of direct lost profit damages measured by the benefit-of-the-bargain standard.
Background and Business Context
This dispute arose from a water supply agreement between Lindale Pipeline, LLC, a supplier of water for oil and gas wells, and Equinor Energy LP, a well developer. The agreement granted Lindale the right to operate and provide water through Equinor's freshwater pipeline. After a jury trial in the 157th District Court of Harris County, the court entered judgment on a verdict finding both parties breached the contract, but awarded Lindale $23,560,541.20 in damages plus pre- and post-judgment interest. Equinor appealed, and Lindale cross-appealed.
The Core Dispute: Exclusivity and Damages Limitations
The central issues on appeal concerned whether Lindale had an exclusive right to supply water to Equinor's wells and whether contractual language barring recovery of "consequential, indirect, or special damages" precluded Lindale's lost profit claim. Equinor argued that even if it breached the contract by purchasing water from other suppliers, Lindale could only recover market damages, not lost profits. The contract contained an exclusivity provision, though Equinor contested whether it was unambiguous, and a damages limitation clause that specifically mentioned lost profits as an example of non-recoverable consequential damages.
The Court's Analysis
The First Court of Appeals rejected Equinor's arguments on multiple grounds. First, addressing any potential error in submitting the contract's exclusivity provision to the jury, the court held that
"any error by trial court in submitting contract to jury, to extent exclusivity provision of contract was unambiguous in granting supplier of water for oil and gas wells not only right to operate and use well developer's freshwater pipeline, but also right to provide all water for developer's wells, was harmless"because the jury reached the same conclusion the trial court would have reached as a matter of law.
More significantly, the court distinguished between direct and consequential damages in the context of the contractual limitation clause. The court held that the
"contractual provision barring recovery of consequential, indirect, or special damages, which included lost profits, did not apply to direct damages from breach of contract."The court explained that Lindale's lost benefit of the bargain was the loss of profits for supplying water to Equinor's wells when Equinor used other suppliers, since Lindale expected under the contract to provide water to all of Equinor's wells on the freshwater pipeline for drilling, completion, and production.
On the measure of damages, the court applied the benefit-of-the-bargain standard, noting that
"the benefit-of-the-bargain measure of damages for a breach of contract can be supported by evidence of revenues, expenses, and lost profits."The court further found that evidence was legally sufficient to support the jury verdict awarding lost profit damages to Lindale.
Holding and Disposition
The Court of Appeals affirmed the trial court's judgment and dismissed Lindale's cross-appeal. The decision reinforces the distinction between direct and consequential damages in breach of contract cases, particularly where parties have negotiated limitations on consequential damages but the lost profits at issue represent the direct benefit of the bargain.