El Paso Natural Gas Company, El Paso Field Services Company, El Paso Energy Corporation, El Paso Energy Warwink I Company, L. L. C., El Paso Energy Warwink II Company, L. L. C. v. Lea Partners, L. P., A Texas Limited Partnership--Appeal from 143rd District Court of Ward County

COURT OF APPEALS

EIGHTH DISTRICT OF TEXAS

EL PASO, TEXAS

EL PASO NATURAL GAS COMPANY, EL PASO FIELD SERVICES COMPANY, EL PASO ENERGY CORPORATION, EL PASO ENERGY WARWINK I COMPANY, L.L.C., AND EL PASO ENERGY WARWINK II COMPANY, L.L.C.,

Appellants,

v.

LEA PARTNERS, L.P.,

Appellee.

No. 08-01-00310-CV

Appeal from the

143rd Judicial District Court

of Ward County, Texas

(TC# 00-04-19707-CVW)

MEMORANDUM OPINION

This is an appeal from the granting of summary judgment on liability and a bench trial on damages. For the reason stated, we affirm in part, and reverse and remand in part.

I. SUMMARY OF THE EVIDENCE

Appellee, Leapartners, L.P., brought this suit against Appellants, El Paso Natural Gas Company ( EPNG ), El Paso Field Services Company ( EPFS ), El Paso Energy Corporation ( EPEC ), El Paso Energy Warwink I Company, L.L.C. ( Warwink I ), and El Paso Energy Warwink II Company, L.L.C. ( Warwink II ), alleging that they were liable for breach of an option or non-compete provision in a contract between Leapartners and EPNG. Leapartners and EPNG entered into a contract known as the Agreement of Sale Concerning the Jal Plants and Gathering System ( the Agreement ), under which EPNG agreed to sell to Leapartners two natural gas processing plants in New Mexico and a network of gathering pipes that connect those plants to gas wellheads in New Mexico and the adjoining counties in Texas. Leapartners paid $27,500,000 to EPNG for the purchase of these gas gathering, processing, and treating assets, known as the Jal Plants, and related pipelines and contracts. The issue in this case revolves around the non-competition provision found in Paragraph 38 of the Agreement. Paragraph 38 provides:

38. New Gas Supplies. During a period expiring ten (10) years after the Second Transaction Date, if EPNG undertakes to purchase or gather gas (other than gas which it has undertaken to purchase or gather as of the date of this Agreement) in the geographical area located within ten (10) miles of any part of the System as it exists on the date hereof, EPNG will offer to Buyer the option of gathering, treating, compressing, dehydrating and processing such gas on the same terms as set forth in the Gathering Agreement.

The parties stipulated that the Second Transaction Date was November 1, 1991. Leapartners and EPNG modified the geographical limits of Paragraph 38 by a letter agreement dated January 17, 1995. Appellants maintain that Paragraph 38 was binding only on EPNG, while Leapartners argue that under Paragraph 39, Paragraph 38 is binding on all of the Appellants. Paragraph 39 provides:

39. Binding Effect; Assignment. This Agreement is binding upon EPNG and Buyer and upon their respective successors and assigns. Except as provided in this paragraph, neither EPNG nor Buyer shall assign its rights hereunder without the prior consent of the other party to this Agreement. EPNG shall have the right at any time after the Second Transaction Date to assign its right, title and interest hereunder to a wholly owned subsidiary, to its parent company, or to a wholly owned subsidiary of its parent company without obtaining the consent of Buyer, provided EPNG shall not be relieved of its obligations hereunder and such assignment shall not have the effect of limiting, delaying or diminishing Buyer s rights and remedies hereunder. Prior to the Second Transaction Date, Buyer shall have the right to assign its right, title and interest hereunder to, in whole or in part, in divided or undivided interests or to an entity or entities controlled by any of Buyer s partners or any member or members of the family of such partners or the shareholders of such partners. After the Second Transaction Date, Buyer (and any prior assignees permitted under the previous sentence) may transfer all of its rights hereunder without limitation. Buyer shall not be relieved of its obligations hereunder by reason of any assignment of its rights hereunder.

At the time Leapartners and EPNG signed the Agreement, EPFS, Warwink I and Warwink II were not in existence. In 1993, EPFS was formed as a wholly-owned subsidiary of EPNG for the purposes of owning and operating facilities for gathering, dehydration, purification and product extraction activities ( field services ). In 1999, EPFS created Warwink I and Warwink II as wholly-owned subsidiaries which also provide field services. Leapartners alleged that these three entities breached the Agreement by providing field services in the ten mile area, without first offering Leapartners the option to perform such services. In 1999, EPFS began gathering and processing gas from the C.G. Ludeman B Well located in Loving County, Texas ( Ludeman Well ). On September 28, 1999, Leapartners sent EPNG a letter requesting strict compliance with the Agreement. On November 1, 1999, EPNG responded that it is not in the business of gas processing or gathering and has never considered or undertaken gas processing or gathering in the area covered by Paragraph 38 of the Agreement . . . . EPNG also stated that it had no subsidiary in the business of processing or gathering gas in the area covered by Paragraph 38. EPNG did admit that EPFS, an affiliate, may be gathering and treating gas from the Ludeman Well, but stated that it (EPNG) remained in compliance with all stipulations and provisions of the Agreement.

Leapartners filed a motion for partial summary judgment in which it requested that the court find Appellants each bound by the obligations of Paragraph 38 and that each were liable for breach of Paragraph 38. Appellants filed a motion for summary judgment in which they argued that 1) EPNG had not assigned any of its rights, obligations, or liabilities under the Agreement to any affiliate, subsidiary, or parent company; 2) EPFS, EPEC, Warwink I and Warwink II had not expressly assumed or received an assignment of any of EPNG s rights under the Agreement; and 3) EPNG had never attempted to purchase or gather gas in an area covered by Paragraph 38. The trial court granted Leapartners motion for partial summary judgment, finding Appellants bound by the obligations of Paragraph 38 and responsible for breaching their obligation under Paragraph 38. The court also denied Appellants motion for summary judgment and motion for summary judgment on their counterclaims. Following a bench trial on damages, the court awarded Leapartners $10,451,865 in damages, attorneys fees, and costs. This appeal follows.

II. DISCUSSION

Appellants bring eight issues on appeal, with numerous sub-issues. We begin with a discussion of the summary judgment standard of review and Issue No. One, followed by a discussion of the legal and factual sufficiency standards of review and Issue Nos. Two through Eight.

A. Summary Judgment Standard of Review

The standard of review on appeal is whether the successful movant at the trial level carried its burden of showing that there is no genuine issue of material fact and that a judgment should be granted as a matter of law. See Lear Siegler, Inc. v. Perez, 819 S.W.2d 470, 471 (Tex. 1991); Nixon v. Mr. Property Management Co., 690 S.W.2d 546, 548 (Tex. 1985); Cortez v. Liberty Mut. Fire Ins. Co., 885 S.W.2d 466, 469 (Tex. App.--El Paso 1994, writ denied). Thus, the question on appeal is not whether the summary judgment proof raises fact issues as to required elements of the movant s cause or claim, but whether the summary judgment proof establishes, as a matter of law, that there is no genuine issue of material fact as to one or more elements of the movant s cause or claim. See Gibbs v. General Motors,450 S.W.2d 827, 828 (Tex. 1970).

In resolving the issue of whether the movant has carried this burden, all evidence favorable to the non-movant must be taken as true and all reasonable inferences, including any doubts, must be resolved in the non-movant s favor. See Nixon, 690 S.W.2d at 548-49;DeLuna v. Guynes Printing Co., 884 S.W.2d 206, 208 (Tex. App.--El Paso 1994, writ denied). Where the defendants are the movants and they submit summary evidence disproving at least one essential element of each of plaintiff s causes of action, then summary judgment should be granted. See Perez, 819 S.W.2d at 471; Bradley v. Quality Serv. Tank Lines, 659 S.W.2d 33, 34 (Tex. 1983); Cortez, 885 S.W.2d at 469. Furthermore, when a trial court s order granting summary judgment does not specify the ground or grounds relied on for the ruling, summary judgment will be affirmed on appeal if any of the theories advanced are meritorious. See State Farm Fire & Cas. Co. v. S.S., 858 S.W.2d 374, 380 (Tex. 1993); Rogers v. Ricane Enter. Inc., 772 S.W.2d 76, 79 (Tex. 1989).

In Issue No. One, Appellants attack the trial court s finding that they are liable for breach of EPNG s non-compete agreement. Appellants argue that EPNG did not breach the agreement and that EPFS, Warwink I and Warwink II did not agree to the non-competition provision.

In interpreting whether an assignee impliedly agreed to assume an assignor s obligations, courts look to the language of the assignment and to the surrounding circumstances. See Lone Star Gas Co. v. Mexia Oil & Gas, Inc., 833 S.W.2d 199, 202-03 (Tex. App.--Dallas 1992, no writ) (citing Keyes v. Sharer, 14 Mich. App. 68, 165 N.W.2d 498, 501 (1969)). The question of interpretation is ordinarily more a question of fact than of law. Id. at 203 (citing Keyes, 165 N.W.2d at 501). Courts have found implied assumptions where (1) the benefit was so entwined with the burden that the assignee was estopped from denying assumption and (2) the assignee would otherwise be unjustly enriched. See generally 4 A. Corbin, Corbin on Contracts 906 (1951 & Supp. 1991).

Generally, the assignor of a contract remains liable for performance of the obligations which he assumed therein, even after it is assigned. Potts v. Burkett, 278 S.W. 471, 473 (Tex. Civ. App.--Eastland 1926, no writ). The assignee of a contract is not bound to perform the assignor s obligations under the contract unless they are expressly or impliedly assumed by the assignee. Id.; Int'l Ass'n of Machinists v. Falstaff Brew. Corp., 328 S.W.2d 778, 782 (Tex. Civ. App.--Houston 1959, no writ). In order to expressly assume a contractual obligation, there must be actual promissory words, or words of assumption, on the part of the assignee. Lone Star Gas, 833 S.W.2d at 203 (citing 4 A. Corbin, Corbin on Contracts 906, at 632 n.1).

An illustrative case is Kirby Lumber Co. v. R.L. Lumber Co., 279 S.W. 546 (Tex. Civ. App.--Beaumont 1926, no writ). The timber contract in Kirby provided for Kirby to sell timber to the buyer, who was obligated to make periodic payments. The buyer assigned the contract, which was binding upon the parties assigns. The assignee cut and removed the timber from Kirby s land but refused to pay for it. The court held that the assignee acquired not only the right to enforce performance against Kirby, but it also assumed the burdens imposed by the contract. Kirby, 279 S.W. at 549; see also McCormick v. Krueger, 593 S.W.2d 729, 730-31 (Tex. Civ. App.--Houston [1st Dist.] 1979, writ ref d n.r.e.).

The summary judgment evidence established that in January, 1996, EPNG transferred its Field Systems and Other Field Assets to EPFS. In the Agreement of Transfer, EPFS agreed to assume, pay, perform, fulfill, and discharge all Assumed Liabilities . . . and EPNG agreed to retain, pay, perform, fulfill, discharge, and remain liable for all Retained Liabilities . . . . Assumed Liabilities included all costs, expenses, liabilities, and obligations arising out of, in connection with, or resulting from the following, to the extent such are attributable to the periods of time on or after the Closing Date . . . (d) all contractual obligations of [EPNG] included within or consisting of Related Interests. Related Interests included all real property rights, licenses, leases, benefits, orders, authorizations, and agreements, associated with and/or necessary for the operation of the Transferred Properties, together with all encumbrances, liabilities, and obligations incident thereto.

It is clear from this unambiguous language that EPFS expressly assumed EPNG s contractual obligations associated with the acquisition of EPNG s field services business and thus is bound to the terms of Paragraph 38 as a matter of law. Moreover, Paragraph 39 expressly provides that all of the terms and provisions of the Agreement shall be binding on EPNG and Leapartners and upon their respective successors and assigns. Paragraph 39 also provides that EPNG shall not be relieved of its obligations hereunder and such assignment shall not have the effect of limiting, delaying, or diminishing Buyer s rights and remedies hereunder. As noted above, EPNG remains liable to Leapartners for performance of the obligations even after the assignment. Potts, 278 S.W. at 473.

Next, it is undisputed that EPFS created Warwink I and Warwink II as wholly-owned subsidiaries to provide field services. In 1999, EPFS began gathering and processing gas from the Ludeman Well in Loving County, Texas. Moreover, Appellants admitted in their summary judgment response that EPFS and/or Warwink I and Warwink II have undertaken to purchase and gather gas from a limited number of wells that are within the area covered by paragraph 38. They just maintain that they are not bound by Paragraph 38.

Considering the summary judgment evidence presented, we find that such evidence establishes, as a matter of law, that Appellants are bound by Paragraph 38 of the Agreement and that Appellants are in breach of their obligations under the Agreement. Issue No. One is overruled. We now address the remaining issues relating to damages.

B. Legal and Factual Insufficiency Standards of Review

In considering a no evidence legal insufficiency point, we consider only the evidence and inferences that tends to support the jury s findings and disregard all evidence and inferences to the contrary. Weirich v. Weirich, 833 S.W.2d 942, 945 (Tex. 1992); Pool v. Ford Motor Co., 715 S.W.2d 629, 634-35 (Tex. 1986); Garza v. Alviar, 395 S.W.2d 821, 823 (Tex. 1965); Texas Tech Univ. Health Sciences Ctr. v. Apodaca, 876 S.W.2d 402, 411 (Tex. App.--El Paso 1994, writ denied). If more than a scintilla of evidence supports the questioned finding, the no evidence point fails. Tseo v. Midland Am. Bank at 893 S.W.2d 23, 25 (Tex. App.--El Paso 1994, writ denied); Hallmark v. Hand, 885 S.W.2d 471, 474 (Tex. App.--El Paso 1994, writ denied).

An insufficient evidence or factual insufficiency issue involves a finding that is so against the great weight and preponderance of the evidence as to be manifestly wrong. The test for factual insufficiency issues is set forth in In re King s Estate, 150 Tex. 662, 244 S.W.2d 660, 661-62 (1951). In reviewing an issue asserting that a finding is against the great weight and preponderance of the evidence, we must consider all of the evidence, both the evidence which tends to prove the existence of a vital fact, as well as evidence which tends to disprove its existence. It is for the jury to determine the weight to be given to the testimony and to resolve any conflicts in the evidence. Carrasco v. Goatcher, 623 S.W.2d 769, 772 (Tex. App.--El Paso 1981, no writ). The jury s finding should be sustained if there is some probative evidence to support it and provided it is not against the great weight and preponderance of the evidence. Id. Thus, we cannot substitute our judgment for that of the fact finder even if we find a fact contrary to that found by the jury. If, however, the verdict is so contrary to the great weight and preponderance of the evidence as to be manifestly unjust, the issue should be sustained.

In Issue No. Two, Appellants argue that the trial court erred in awarding damages for anticipatory breach. Anticipatory Breach is a breach committed before there is a present duty of performance, and it is the outcome of words evincing intention to refuse performance in the future. King Features Syndicate v. Valley Broadcasting Co., 42 F. Supp. 107, 108 (N.D. Tex. 1941); see also Chavez v. Chavez, 577 S.W.2d 306, 307 (Tex. App.--El Paso 1979, writ ref d n.r.e). In order for a statement to be deemed repudiation, a party s language must be sufficiently positive to be reasonably interpreted to mean that the party will not or cannot perform. Restatement (Second) of Contracts 250 cmt. b (1979). The effect of anticipatory repudiation is to give the aggrieved party the option of treating the repudiation as a breach or ignoring the repudiation and awaiting the time of performance. See Ingersoll-Rand Co. v. Valero Energy Corp., 997 S.W.2d 203, 211 (Tex. 1999). A breach by non-performance gives rise to a claim for total breach only if it so substantially impairs the value of the contract to the injured party at the time of the breach. Restatement (Second) of Contracts 243(4) (1979).

Appellants contend that the trial court failed to recognize that EPNG s termination was valid and that it incorrectly concluded that the notice of termination constituted an anticipatory breach. It is undisputed by either party that the date of termination of Paragraph 38 of the Agreement of Sales was ten (10) years after the Second Transaction Date, meaning November 1, 2001. However, Appellants argue that because the provisions of the Gathering Agreement were incorporated in Paragraph 38 they had an option to terminate ten years after the First Transaction Date, February 24, 2001. We disagree. The terms of Paragraph 38 were unambiguous in selecting the expiration date as ten years after the Second Transaction Date. We are unconvinced by Appellants argument that Paragraph 12.2 of the Gathering Agreement would pre-empt over the termination date provided in Paragraph 38 of the Agreement of Sale. There is no indication in the record from which this Court could determine that there was valuable, bargained-for-contract right to terminate Paragraph 38 prior to the ten year provided in such paragraph. We find that Appellants could not terminate Paragraph 38 prior to the expiration date provided in it. We further find that the trial court did not err in awarding damages for the anticipatory breach of the provisions in Paragraph 38, and overrule Appellants Issue No. Two.

In Issue No. Three, Appellants argue that the trial court erred in awarding damages that were outside the scope of the Agreement of Sale. When interpreting a contract, the primary concern of courts is to ascertain and to give effect to the intentions of the parties as expressed in the instrument. Haddad v. Wood, 949 S.W.2d 438, 441 (Tex. App.--El Paso 1997, writ denied) (citing Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983); Duracon, Inc. v. Price, 817 S.W.2d 147, 149 (Tex. App.--El Paso 1991, writ denied). If the interpretation of the contract is at issue, the courts must first determine if the language of the provisions in question are ambiguous. Id. If the written instrument is so worded that it can be given a certain or definite legal interpretation, then it is not ambiguous and the court will construe the contract as a matter of law. Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983). A contract is ambiguous if it is uncertain or reasonably susceptible to more than one meaning.Id. If a contract is determined ambiguous, the granting of summary judgment is improper since the determination of it becomes an issue of fact. Id. at 394. However, if there is no ambiguity, the terms of a written instrument become questions of law for the court. See Westwind Exploration, Inc. v. Homestate Sav. Ass n, 696 S.W.2d 378, 381 (Tex. 1985).

Both Appellants and Appellee agree that Paragraph 38 of the Agreement of Sale is unambiguous. However, Appellants contend that the trial court s interpretation of Paragraph 38 of the Agreement of Sale is improper. Namely, the trial court s conclusion of law No. 4 states:

Defendant s obligations to Leapartners under Paragraph 38 of the Agreement also cover all gas purchased by Defendants at delivery or receipt points located within the area covered by Paragraph 38, whether or not the surface location of the wells delivering gas to those delivery points are within the Paragraph 38 area. This includes all wells covered by the gas purchase contracts that are Plaintiff s Exhibits 22 and 27.

Appellants further contend that this Court should find that there can be no damages for wellheads found outside the Ten Mile Area set forth in Paragraph 38. We disagree. After throughly reviewing the language in Paragraph 38 and in the remainder of the Agreement, we have found no language that suggests that Paragraph 38 will only apply to wellheads found within the compound of the Ten Mile Area. Paragraph 38 specifically states that . . . if EPNG undertakes to purchase or gather gas . . . in the geographical area located within ten miles of any part of the System as it exists . . . EPNG will offer to [Leapartners] the option of gathering, treating, compressing, dehydrating, and processing such gas . . . . (emphasis added). The amendment made to Paragraph 38 in 1995 speaks to wellheads found west of specific west lines. However, we do not find this amendment to Paragraph 38 to limit Appellants liability in regards to the purchase or gathering of gas within the Amended area covered under Paragraph 38. Similarly, this Court does not agree with Appellants statement that the Amendment to Paragraph 38 shows an interpretation different from that reached by the trial court or that it implies that the inclusion or exclusion from the Ten Mile Area depends on the location of the wellhead.

Furthermore, Appellants argue that in some instances they could not have fulfilled the

requirements of the Gathering Agreement and therefore could not fulfill the trial court s interpretation of Paragraph 38. We find this reasoning inconsistent with the language of the Gathering Agreement. Appellants reason that Paragraph 38 is only relevant to gas that Appellee could gather, treat, compress, dehydrate and process. We do not find this to be the case. Paragraph 38 language specifically gives the option to Leapartners to offer the aforementioned services in regards to all purchase and gathering EPNG does within the Ten Mile Area. We do not find anything in the Gathering Agreement that would indicate otherwise. For the reasons stated above, we overrule Appellants Issue No. Three.

In Issue No. Four, Appellants assert that the trial court erred in awarding damages for a weighted average charge. Appellants argue that in order to be subject to the weighted average charge provision, any gas would have to be delivered at Receipt Points in the Gathering System . Since Appellee s damages model delivers the gas to the Keystone plant, Appellants contend the trial court erred in awarding damages for a weighted average charge. Appellants also contend that Paragraph 5.04 of the Gathering Agreement provided that the weighted average charge would equal the amount Appellee charged third parties for use of the Facilities and since the only facility that would have been used is the Keystone plant, no weighted average charge should have been assessed. Finally, Appellants argue that Appellee had no contracts under which it could have received any processing charges from third parties.

We will first dispense with whether the use of the Keystone plant inhibits the award of damages for the weighted average charge. This Court is unconvinced by Appellants argument in regards to this matter. Appellants seem to have overlooked Article I, Paragraph 1.11 of the Gathering Agreement which states:

1.11 Plant or Plants - shall mean the Plants as defined in the Agreement of Sale owned and/or operated by Leapartners as well as any new, replaced, modified or enlarged processing facilities installed and owned by Leapartners at such Plants and shall also include other natural gas processing plants in the area to the extent Leapartners or Sid Richardson Carbon & Gasoline Co. ( Richardson ) uses such other plants to perform Leapartners obligations hereunder.

(emphasis added). We agree with Appellee in that the Agreement of Sale and the Gathering Agreement clearly contemplated and expressly provided that Appellee could use any of the facilities or plants in the area that it operated or those operated by its affiliate, Sid Richardson Carbon & Gasoline Co. For this reason, we find that the trial court did not err in awarding damages for a weighted average charge.

In regards to Appellants argument that Appellee had no contracts under which it could have received any processing charges from third parties, this Court disagrees. Appellee, represented by its affiliate and at the time general partner of Leapartners, L.P., Richardson, took many gas contracts. Wayne Farley s testimony established that Appellee had to seek contracts since it did not inherit any gas purchase or gathering agreements from Appellant at the time the Jal facilities transaction took place. Farley s testimony further establishes that it took one year for Appellee to sign up the gas. For the reasons stated above, Appellants Issue No. Four is overruled.

In Issue No. Five, Appellants argue that the trial court erred in awarding damages for an additional gathering fee. Appellants contend that Appellee did not bring forth evidence to prove that an additional gathering fee was warranted due to an unaccountable gas loss of less than 3.5 percent. Appellee introduced the expert testimony of Wayne Farley, Director of Operations for Sid Richardson Companies. Farley testified that Appellee had brought the unaccountable gas levels down considerably within the first year of the acquisition of the Jal System. Appellants were aware of this and were charged the four cent (4 ) differential set forth in Paragraph 5.04 of the Gathering Agreement. Furthermore, Appellee brought forth the expert testimony of Carey McGregor, P.E. McGregor also testified as to the reduction of the unaccountable gas levels. Appellants argue that Appellee provided no basis, other than speculation, on which to assess the likelihood that the unaccountable gas losses in the system would have been less that 3.5 percent. We disagree. We find that Appellee has introduced more than a scintilla of evidence from which the trial court could find damages for the unaccountable gas levels. The fact that Appellee had already brought down the levels in the existing pipelines and that Appellants were already being charged the four cent (4 ) differential stipulated in Paragraph 5.04 of the Gathering Agreement provides more than a scintilla of evidence that it was likely that the new facilities would have had unaccountable gas levels of less than 3.5 percent. For the reasons stated above, Issue No. Five is overruled.

In Issue No. Six, Appellants argue that the trial court erred in awarding damages for lost profits. Appellants contend that there is no evidence, or in the alternative factually insufficient evidence, to support the trial court s finding that Appellee s damages began to accrue on December 1, 1999. Farley testified that two to three months would have been necessary to get the permits and build the facilities necessary to hook up the gas in the West Gas Area. Appellee presented testimony stating that there is no need to double ditch the right-of-ways in the area. Appellee s evidence was based on actual jobs in the area, rather than theoretical estimates. Additionally, Farley testified that the work on the Emperor Field region could be completed in about a month. In considering only the evidence that tends to support the trial court s finding, we find that Appellee has brought forth more than a scintilla of evidence and therefore Appellants no evidence point fails.

Appellants argue that in the West Area, extensive construction would have been necessary before Appellee could receive any gas. Also, a substantial quantity of the pipe would have to be laid out in rock and heavy sand, taking more time and expense to complete. Furthermore, Appellants introduced evidence that landowners in the area would require the pipes to be double ditched , which was not accounted for by Appellee s figures. Finally, Appellants expert witness testified that in order to gather the required permits, it could take at least 45 days and as long as six months. However, Appellants own expert used the 45 days to calculate the time necessary for permits. Also, Appellee introduced testimony that the double ditch was not required by landowners in the area. Appellants concede that Appellee could have done the required construction in the Emperor area and actions to hook-up the gas in 30 days. Having analyzed the whole of the record before us on this issue, this Court does not find the trial court s finding awarding damages for los profits be so contrary to the great weight and preponderance of the evidence as to be manifestly unjust. For the reasons stated above, we overrule Issue No. Six in its entirety.

In Issue No. Seven, Appellants argue that the trial court erred in failing to reduce damages for capital costs. Appellants contend that the trial court should have reduced the award of damages by at least $3.5 million, rather than the $2,070,206 that the trial court reduced from the damages. They argue that Appellee brought forth no evidence or rather factually insufficient evidence to support the capital cost figures. Appellants first contend that Appellee underestimated their capital costs primarily because they undervalued the cost to lay the 12-inch pipe and they did not include in their estimates labor costs to install new gas meters and the costs to acquire permits. The argument is that since Appellee did not include these two items the total figure cannot be correct. In cross-examination by Appellee Appellants expert witness agreed that the costs may vary dramatically and that he had not built pipelines in the region in the last five years. He further conceded that he had not visited with any ranchers to determine the actual price paid for a pipeline right-of-way. Furthermore, Appellee s expert witness, Wayne Farley, introduced evidence showing actual costs of building a pipeline with similar conditions in the region. Appellee s estimate also includes contingency costs in case of unknowns. In considering evidence that tends to support the trial court s finding, this Court finds that there is more than a scintilla of evidence to prove the reduction in capital costs.

Appellants introduced evidence representing the total cost of laying the 12-inch pipe would be closer to $13 rather than the $6 estimated by Appellee. Appellants expert witness, Alan Stumbaugh, believed based on his experience that Appellee s estimate was unreasonable. Furthermore, Stumbaugh estimated the total cost of the project to be $3,560,000 plus or minus fifteen percent (15%). Appellants witness conceded that a prudent operator would take bids from various contractors in order to build a pipeline. He further agreed that he was not aware of the prices of pipeline construction prior to the Spring of 2000. Also, he conceded that the numbers he used were the ones given to him by Appellants and that the time period he used was based on the time-frame that Appellants requested. This Court, having analyzed the whole of the record, does not believe the trial court s finding to be against the great weight and preponderance of the evidence in regards to capital costs. This portion of Issue No. Seven is overruled.

Appellant further contends in a sub-part to Issue No. Seven, that the trial court erred in calculating depreciation based on a 20-year period. Appellants argue that this is contrary to the Gathering Agreement because it rendered the facilities useless close to two years after they were constructed and therefore proper accounting would not permit a 20-year depreciation for the new facilities. Evidence shows that the industry practice is to amortize over a 20-year period. Appellants further argue that they should not be required to subsidize the cost of equipment that Appellee might use in the future in unrelated business transactions. However, it is undisputed that these facilities would have been built for use consistent with business transactions Appellee entered into with Appellants with regards to the Jal System. Furthermore, Appellee introduced uncontested evidence that competitors in the region use anywhere between 20 and 30 years to depreciate, including EPNG. It is undisputed that these type of facilities have a useful life far beyond 20 years. We find the trial court s finding is not against the great weight and preponderance of the evidence with regards to the depreciation of the facilities. For all the reasons stated above, we overrule Issue No. Seven in its entirety.

In Issue No. Eight, Appellants argue that the trial court erred in calculating the prejudgment interest. Prejudgment interest is compensation allowed by law as additional damages for lost use of money due as damages during the lapse of time between the accrual of the claim and the date of the judgment. See Johnson & Higgins of Texas, Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507, 528 (Tex. 1998). There are two legal sources for awarding prejudgment interest, 1) general principles of equity and 2) an enabling statute. See id. The Texas Supreme Court and the Texas Finance Code require that prejudgment interest be calculated as simple interest. See id. at 532; Tex. Fin. Code Ann 304.103 (Vernon 1998) (current version at Tex. Fin. Code. Ann 304.104 (Vernon Supp. 2003)). Prejudgment interest begins to accrue either 180 days after the defendant receives written notice of a claim or the date the suit is filed. See Johnson & Higgins, 962 S.W.2d at 531. The holding of the Texas Supreme Court in regards to prejudgment interest in Johnson & Higgins applies to all cases in which judgment is rendered on or after December 11, 1997. See id. at 533.

Appellants contend that the trial court erred by compounding the interest. We agree. It is established law that prejudgment interest shall be calculated as simple interest by both common law and statute. See Johnson & Higgins, 962 S.W.2d at 532; Tex. Fin. Code Ann 304.103 (Vernon 1998) (current version at Tex. Fin. Code. Ann 304.104 (Vernon Supp. 2003)). Additionally, Appellants contend that the prejudgment interest rate should be 6 percent pursuant to Section 302.002 of the Texas Finance Code. Tex. Fin. Code Ann. 302.002 (Vernon 1998). Appellants argue that the 1998 version of the statute applies because it was in effect when the cause of action arose. Appellants cite Aquila Southwest Pipeline, Inc. v. Harmony Exploration, Inc. to support their argument. 48 S.W.3d 225 (Tex. App.--San Antonio 2001, pet. denied). However, we find this case to be distinguishable with respect to the application of Section 302.002. In Aquila, Harmony filed a suit against Aquila in August 13, 1996. Aquila, 48 S.W.3d at 232. This is more than three years prior to the revision of September 1, 1999 of this statute. This cause of action was filed on November 11, 1999. Prior to that, Appellee sent Appellants a demand letter on September 28, 1999. On September 1, 1999, Section 302.002 was revised to what it is now Tex. Fin. Code Ann. 302.002 (Vernon Supp. 2003). We therefore find the latter to be inapplicable. The new Section 302.002 is under a sub-chapter of the Texas Finance Code entitled Usurious Interest. Id. This is a breach of contract and for this reason common law applies. See De La Morena v. Ingenieria E Maquinaria de Guadalupe, S.A., 56 S.W.3d 652, 659 (Tex. App.--Waco 2001, no pet.). For the reasons stated above, we find that the trial court properly set prejudgment interest at 10 percent, however, we further find that the court erred in compounding the interest. Appellants Issue No. Eight is overruled.

We affirm the judgment of the trial court as to Appellants Issue Nos. One through Seven, but reverse the judgment as it to relates to Issue No. Eight and the compounding of interest. We remand the cause to the trial court for proceedings not inconsistent with this opinion.

August 14, 2003

RICHARD BARAJAS, Chief Justice

Before Panel No. 3

Barajas, C.J., Larsen, and Chew, JJ.