It can be tricky to preserve your rights to recover damages for breach of warranty involving goods, including expensive commercial equipment, as exemplified in a recent Houston Court of Appeals case. Equistar Chemicals, LP v. ClydeUnion DB, Ltd., 579 S.W.3d 505, 509 (Tex. App.—Houston [14th Dist.] 2019, pet. filed).

In this case, Equistar Chemicals, LP purchased pumps from ClydeUnion DB, Limited used for transporting ethane from one location to another. However, the pumps were defective and Equistar eventually had them repaired by another company. Equistar sued ClydeUnion for breach of warranty and ClydeUnion counter-sued for Equistar’s failure to pay the full purchase price for the pumps.  “The jury awarded Equistar $391,694 in damages on the breach of warranty claim. The jury also found that Equistar failed to comply with the agreement to pay the full price for the pumps, and the jury awarded ClydeUnion $150,781.06 for the breach of contract claim. After considering the parties’ post-verdict motions, the trial court rendered a judgment for ClydeUnion in the amount of $150,781.06.” Id at 510. Apparently, the reason the trial court awarded this amount to ClydeUnion was because the jury found that Equistar failed to give ClydeUnion a reasonable opportunity to cure the breaches of warranties, and thus, the trial court found that Equistar was barred from recovering damages from ClydeUnion.

The issues on appeal included whether the expert testimony presented by ClydeUnion was sufficient to limit Equistar’s damages for lost profits, whether Equistar was required to give ClydeUnion the opportunity to cure in order to recover damages for breach of warranty, and the amount  which ClydeUnion was entitled to recover as an offset for its litigation costs.

The court of appeals found that the testimony from ClydeUnion’s damages expert rebutting the testimony from Equistar’s damages expert was sufficiently reliable for the jury to consider in determining the amount of lost profits sustained by Equistar.

In regard to whether Equistar was required to give ClydeUnion a reasonable opportunity to cure the defective pumps, the court of appeals  found that this was not required. This dispute was governed by the Uniform Commercial Code (UCC). When a buyer such as Equistar accepts noncomforming goods, the buyer only has to give the seller notice within a reasonable time after the defects are discovered. According to the court of appeals, the purpose of the notice is to open the door for settlement negotiations. Equistar timely notified ClydeUnion of the defects and did not have to give ClydeUnion the opportunity to cure.

Lastly in determining the amount of litigation costs that ClydeUnion was entitled to recover, the Court discussed Chapter 42 of the Texas Civil Practice  & Remedies Code. If a defendant makes a settlement offer under this statute and the ultimate award by the fact-finder at trial is less than 80% of the rejected offer, then the defendant is entitled to recover its litigation costs including attorney fees up to the total amount of plaintiff’s recovery. ClydeUnion apparently made an offer of settlement under the statute entitling it to recover litigation costs from Equistar. The court of appeals found that the statute limits the defendant’s recovery of litigation costs to plaintiff’s net recovery from the defendant, before making adjustments for defendant’s litigation costs. Since ClydeUnion’s litigation costs exceeded Equistar’s net recovery, then neither party was entitled to recover anything from the other.

In conclusion, this appears to be a case where there were no winners. Reading between the lines, Equistar had an opportunity to settle for terms that would have been more favorable than the take nothing judgment rendered and ClydeUnion incurred attorney fees and other litigation costs that greatly exceeded the amount it was owed for the equipment.