X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Click here for the full text of this decision FACTS: The Oklaunion Unit No. 1 electrical generating facility is co-owned by several entities including the city of Brownsville, the Oklahoma Municipal Power Authority (OMPA), and AEP Texas Central Co. (TCC). The sale of any ownership interest in the Oklaunion facility is controlled by a participation agreement. Article XV of the participation agreement grants the co-owners a “right of first refusal.” On Jan. 30, 2004, TCC executed an agreement with Golden Spread Electrical Cooperative for the sale of TCC’s 7.81 percent ownership interest in the Oklaunion facility. This agreement specifically stated that TCC’s obligation to consummate the transaction was subject to the fulfillment of various conditions, including there being no effective exercise of the right of first refusal held by the facility’s co-owners. TCC sent a required notice of intention to transfer to the Oklaunion co-owners. Within the three-month exercise period, Brownsville sent notice to TCC and the other co-owners of its intent to exercise its option to purchase. OMPA also sent a notice of intent to exercise its option, but it is disputed whether a proper notice was sent by OMPA within the three-month exercise period. Brownsville and TCC executed a contract under which Brownsville agreed to purchase TCC’s ownership interest on essentially identical terms to those set forth in TCC’s contract with Golden Spread. Golden Spread then filed this suit against TCC, Brownsville and OMPA claiming that neither Brownsville nor OMPA had validly exercised its right of first refusal. Golden Spread sought a declaratory judgment that its purchase agreement with TCC was valid and enforceable and sought damages for alleged tortious interference with its contract. All parties filed motions for summary judgment. Brownsville and TCC filed motions for summary judgment arguing that Brownsville had properly exercised its right of first refusal and, therefore, Golden Spread’s claims failed as a matter of law. OMPA filed a similar motion for summary judgment arguing that it had properly exercised its right of first refusal or, in the alternative, Brownsville’s exercise of its right of first refusal rendered Golden Spread’s contract with TCC unenforceable. Golden Spread filed three motions for summary judgment to support its claim that neither Brownsville nor OMPA had properly exercised its right of first refusal. Golden Spread’s first motion for summary judgment was based on the assertion that neither Brownsville nor OMPA could exercise its right of first refusal without violating the laws of their respective states. Specifically, Golden Spread argued that to effectively exercise their right of first refusal both Brownsville and OMPA were required to accept all the terms and conditions set forth in the contract for sale between Golden Spread and TCC, including the agreement’s indemnity provisions. According to Golden Spread, the indemnity provisions were a fatal impediment for both Brownsville and OMPA. It argued that neither Brownsville nor OMPA could legally assume the obligation to indemnify TCC and, therefore, any attempt by either party to exercise its right of first refusal was ineffective. The trial court granted Golden Spread’s first motion for summary judgment and declared that Golden Spread was entitled to specific performance of its contract with TCC. The trial court denied Golden Spread’s second and third motions for summary judgment and the motions for summary judgment filed by Brownsville, TCC, and OMPA. HOLDING: The court reverses the trial court’s judgment and renders judgment that Golden Spread take nothing by its claims for declaratory judgment and specific performance. Brownsville, OMPA and TCC contend the trial court erred in granting Golden Spread’s first motion for summary judgment because neither Brownsville nor OMPA was legally prohibited from indemnifying TCC. Brownsville further argues that, to the extent the indemnity provisions may be void or unenforceable, the provisions are not central to the agreement and the severability provision of the agreement renders the remainder of the contract enforceable and the exercise of its right of first refusal effective. It is undisputed that Brownsville unequivocally accepted all the terms and conditions set forth in Golden Spread’s offer to purchase TCC’s interest in the Oklaunion facility. Golden Spread argues, however, that Brownsville was prohibited by the Texas Constitution from accepting the indemnity provisions of the contract and that any purported acceptance of those provisions rendered the contract between TCC and Brownsville void. If the contract were void, Golden Spread contends Brownsville’s exercise of its right of first refusal was not effective. The indemnity provisions of the Oklaunion purchase contract are tangential to the main purpose of the agreement, which is the transfer of the ownership interest. The inclusion of the severability provision in the agreement indicates the parties were willing to sever out such tangential matters to preserve the main agreement. Therefore, the possible invalidity of the indemnity provisions does not render the entire agreement between TCC and Brownsville void, the court finds. To conclude that Brownsville’s exercise of its right of first refusal was ineffective because one of the tangential provisions of the contract may be invalid or unenforceable against the city would be tantamount to removing the severability clause from the agreement offered to Brownsville. This is not permissible, the court states. Golden Spread’s argument is essentially that, to effectively exercise its right of first refusal, Brownsville must not only accept all the terms and conditions of Golden Spread’s offer to purchase TCC’s interest, but TCC’s ability to enforce the contract against Brownsville must be identical to its ability to enforce the contract against Golden Spread. The law does not require equivalent enforceability, however, the court states. Brownsville did everything in its power, and everything necessary, to effectively exercise its right of first refusal, the court concludes. OPINION: Morris, J.; Thomas, C.J., Morris and FitzGerald, J.J.

Want to continue reading?
Become a Free ALM Digital Reader.

Benefits of a Digital Membership:

  • Free access to 3 articles* every 30 days
  • Access to the entire ALM network of websites
  • Unlimited access to the ALM suite of newsletters
  • Build custom alerts on any search topic of your choosing
  • Search by a wide range of topics

*May exclude premium content
Already have an account?

 
 

ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.