Marathon Oil v. Mercuria Energy America, 2025 Tex. Bus. 40 (11th Div.) (mem. op.)

1
2025 Tex. Bus. 40
The Business Court of Texas,
11th Division
MARATHON OIL CO.,
Plaintiff,
v.
MERCURIA ENERGY AMERICA,
LLC,
Defendant.
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§
§
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§
Cause No. 25-BC11A-0013
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MEMORANDUM OPINION AND ORDER
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¶1 Pursuant to Texas Rule of Civil Procedure 166(g),1 the Court issues this
decision holding that (1) fact issues preclude the Court from determining whether
the liquidated-damages clause in the parties’ contract is an unenforceable penalty
and (2) under the circumstances of this case, the defendant’s cost-basis theory is not
the correct measure of the plaintiff’s actual damages.
1 TEX. R. CIV. P. 166(g); see also Skeels v. Suder, 671 S.W.3d 664, 670 (Tex. 2023); JPMorgan Chase
Bank, N.A. v. Orca Assets G.P., 546 S.W.3d 648, 653 (Tex. 2018).
FILED IN
BUSINESS COURT OF TEXAS
BEVERLY CRUMLEY, CLERK
ENTERED
10/28/2025

2
Introduction
¶2 This dispute arises out of Marathon’s declaration of force majeure in
February 2021 under its natural-gas contract with Mercuria.2 The parties’ contract
is based on a form North American Energy Standards Board (NAESB) Base Contract
for Sale and Purchase of Natural Gas.3 Section 3.2 of the form allows parties to
choose between two alternative remedy provisions: “Cover Standard” or “Spot
Price Standard.” Marathon and Mercuria selected the Spot Price Standard.4 Under
this standard, if Marathon breached its delivery obligations, as Mercuria asserts,
Mercuria’s “sole and exclusive remedy” is:
payment … in an amount equal to the difference between the Contract
Quantity and the actual quantity delivered by Seller and received by
Buyer for such Day(s), multiplied by the positive difference, if any, ob-
tained by subtracting the Contract Price from the Spot Price[.]5
¶3 The question before the Court is whether this clause is unenforceable
here because there is an “unbridgeable discrepancy” between the damages under
this clause (spot-price damages) and Mercuria’s actual damages. The Court holds
that neither party has conclusively proven the amount of either spot-price or actual
2 The background facts are well known to the parties and summarized in this Court’s prior opinions
in this case. See Marathon Oil Co. v. Mercuria Energy Am., LLC, No. 25-BC11A-0013, 2025 Tex.
Bus. 39, ¶ 2, ___ S.W.3d ___, ___ (11th Div. Oct. 14, 2025); Marathon Oil Co. v. Mercuria Energy
Am., LLC, 2025 Tex. Bus. 36, ¶¶ 3–5, ___ S.W.3d ___, ___ (11th Div. Sept. 18, 2025).
3 As noted in prior opinions in this case, the parties agreed to Special Exceptions that modified the
NAESB form in several aspects. They did not, however, modify Section 3.2, at issue here.
4 Base Contract p. 2 & § 3.2.
5 Id.

3
damages, such that it cannot decide this question as a matter of law. But the Court
can shed light on the correct measure of Mercuria’s actual damages and holds that
Marathon’s cost-basis theory of actual damages is legally incorrect because it does
not reflect the direct, actual economic harm to Mercuria at the time of breach.6
Analysis
A. Section 3.2 is enforceable unless there is an “unbridgeable discrepancy” be-
tween spot-price damages under that section and Mercuria’s actual damages.
¶4 The parties agree that the “Spot Price Standard” in Section 3.2 of the
parties’ contract is a liquidated-damages provision.7 Consistent with Texas’s strong
public policy in favor of freedom of contract,8 liquidated-damages provisions are
generally enforceable.9 But they are constrained by the “universal” rule that limits
damages to “just compensation for the loss or damage actually sustained.”10 Under
6 The parties initially asked the Court to decide “[w]hether Section 3.2 of the Base Contract (Spot
Price Standard) operates as an unenforceable penalty in these circumstances.” Joint Advisory on
Early Legal Issues, ¶ 12 (7/25/2025). In their pretrial filings, the parties again identified enforce-
ability as an issue that could be decided by the Court before trial and added a related issue: “the
proper measure of Mercuria’s actual damages”—an issue that also arose in a discovery dispute be-
tween the parties. Joint Pretrial Report at 4 (10/13/2025); Stipulation (10/8/2025), ¶ 1.
7 See Marathon’s Tr. Br. on Unenforceable Penalty (8/13/2025) (hereafter, Marathon’s Br.); Mer-
curia’s Br. Regarding the Enforceable Spot Price Standard (8/13/2025) (hereafter, Mercuria’s Br.).
8 Atrium Med. Ctr., LP v. Hous. Red C LLC, 595 S.W.3d 188, 192 (Tex. 2020) (“Texas favors free-
dom of contract, as a policy ‘firmly embedded in our jurisprudence.’” (quoting Phila. Indem. Ins.
Co. v. White, 490 S.W.3d 468, 471 (Tex. 2016))).
9 Bonsmara Nat. Beef Co., LLC v. Hart of Tex. Cattle Feeders, LLC, 603 S.W.3d 385, 397 n.23 (Tex.
2020): “[A] liquidated damages clause is generally as enforceable as any other contractual provi-
sion.” (citing Kothe & R.C. Taylor Tr., 280 U.S. 224, 226 (1930); BMG Direct Mktg., Inc. v. Peake,
178 S.W.3d 763, 767 (Tex. 2005)).
10 Atrium Med., 595 S.W.3d at 192 (quoting Stewart v. Basey, 150 Tex. 666, 245 S.W.2d 484, 486
(1952)).

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this rule, liquidated damages cannot operate as a penalty—whether by design or as
applied—rather than a reasonable forecast of damages.11 Thus, a court applying a
liquidated-damages clause must ensure three criteria are satisfied: (1) the harm to
be remedied is difficult or impossible to quantify or estimate, (2) the liquidated dam-
ages reasonably forecast just compensation for the harm, and (3) there is not an
“unbridgeable discrepancy” between liquidated damages and the actual damages.12
Marathon challenges only the third prong: whether the “Spot Price Standard” in
Section 3.2 is unenforceable because the gap between spot-price damages and actual
damages is simply too great. Marathon bears the burden of proof on this issue, which
is determined at the time of breach.13
B. The parties agree on several components of their damages calculations.
¶5 The parties do not agree on either side of unenforceability comparison:
actual damages versus liquidated (spot-price) damages. But they agree on several
components. First, they stipulate to the dates and amounts of Marathon’s delivery
shortfalls, which total 136,000 MMBtu:14
11 Id.; FPL Energy, LLC v. TXU Portfolio Mgmt. Co., L.P., 426 S.W.3d 59, 69 (Tex. 2014).
12 Atrium Med., 595 S.W.3d at 190, 192–93 (quoting Phillips v. Phillips, 820 S.W.2d 785, 788 (Tex.
1991), and FPL Energy, 426 S.W.3d at 72).
13 Atrium Med., 595 S.W.3d at 192–93, 196; FPL Energy, 426 S.W.3d at 69–70, 72.
14 Joint Pretrial Report and Proposed Pretrial Order (10/13/2025), Part III (hereafter, Stipulated
Facts), ¶ 9; see also Stipulation, ¶ 1.

Date 	Quantity
Feb. 	13 	8.900 	MMBtu
Feb. 	14 	8,900 	MMBtu
Feb. 	15 	14,700 MMBtu
Feb. 	16 	14,700 MMBtu
Feb. 	17 	20,000 	MMBtu
Feb. 	18 	20,000 	MMBtu
Feb. 	19 	20,000 	MMBtu
Feb. 	20 	14,400 MMBtu
Feb. 	21 	14,400 MMBtu
Total: 	136,000 	MMBtu
q6 	They 	also 	agree 	that 	the 	contract 	price 	is 	"Inside 	FERC 	PEPL 	Texas,
Oklahoma 	+ 	$0.035," 	and 	that 	the 	"Inside 	FERC 	PEPL 	Texas, 	Oklahoma" 	price
for 	February 	2021 	was 	$2.575,!° 	which 	results 	in 	a 	total 	price 	of 	$2.61, 	including
the 	$0.035 	premium. 	Thus, 	ifMarathon had 	performed 	under 	the 	contract, 	Mercuria
would 	have 	been 	obligated 	to 	pay 	Marathon 	$354,960 	(136,000 	MMBtu 	x 	$2.61)
under 	the 	contract.
47 	Theparties 	agree 	that 	Mercuria 	did 	not 	purchase replacement 	gas 	when
Marathon 	failed 	to 	deliver; 	instead, 	Mercuria 	replaced 	it 	with 	gas 	Mercuria 	had 	in
15
Stipulated 	Facts, 	{ 	5.
16 	The 	parties 	have 	stipulated 	to 	the 	Platts 	Gas 	Daily 	Midpoint 	daily 	index 	prices 	for 	PEPL 	Texas,
Oklahoma, 	id. 	at 	0 	11, 	which 	the 	Court 	understands 	that 	to 	be 	different 	from 	the 	Inside 	FERC 	index
for 	PEPL 	Texas, 	Oklahoma 	(a 	monthly, 	rather 	than 	daily, 	price). 	Marathon's 	Proposed 	Findings 	of
Fact 	and 	Conclusions 	of Law at J 	46; 	Mercuria's 	Proposed 	Findings of Fact 	and 	Conclusions 	of Law
at 	0 	84. 	Mercuria 	refers 	to 	$2.575 	as 	the 	"Contract 	Price" 	in 	its 	damages 	calculations 	but 	also
accounts 	for 	the 	$0.0350 	premium 	separately. 	See 	Mercuria's 	Fifth 	Supplemental 	Initial 	Disclo-
sures 	at 	5.
5

storage.!' 	To 	resolve 	a 	discovery 	dispute, 	the 	parties 	filed 	a 	stipulation 	agreeing 	that
Mercuria's 	cost 	of 	acquiring 	the 	stored 	gas 	was 	"no 	more 	than 	$2 	per 	MMBtu,"
which 	includes 	"acquisition 	costs 	and 	applicable 	storage 	and 	transportation 	fees."*
Under 	this 	stipulation, 	Mercuria's 	cost 	basis 	for 	the 	stored 	gas 	it 	used 	to 	replace 	the
undelivered 	gas 	is 	$272,000: '°
x 	Cost 	= 	Cost 	Basis	Quantity
Feb 	-13 	8,900 	MMBtu 	x 	$2.00 	= 	$17,800
Feb 	14 	8,900 	MMBtu 	x 	$2.00 	= 	$17,800
Feb 	15 	14,700 MMBtu 	x 	$2.00 	= 	$29,400
Feb 	16 	14,700 MMBtu 	x 	$2.00 	= 	$29,400
Feb .17 	20,000 	MMBtu 	x 	$2.00 	= 	$40,000
Feb .18 	20,000 	MMBtu 	x 	$2.00 	= 	$40,000
Feb 	19 	20,000 	MMBtu 	x 	$2.00 	= 	$40,000
Feb .20 	x 	$2.00	14,400 	MMBtu 	= 	$28,800
Feb .21 	14,400 	MMBtu 	x 	$2.00 	= 	$28,800
Total: 	$272,000
C. 	The 	Court 	cannot 	determine 	whether 	there 	is 	an 	"unbridgeable 	discrepancy"
because 	neither 	spot-price 	nor actual 	damages 	have been 	conclusively proven.
q8 	Whether 	a 	liquidated 	damages 	provision 	is 	an 	unenforceable 	penalty 	is
a 	legal 	question, 	but 	its 	resolution 	may 	depend 	on 	certain 	fact 	findings."° 	To 	decide
17
Stipulation, 	q 	4.
18
Stipulation, 	{ 	3.
19 	Td.
20 Atrium 	Med., 	595 	S.W.3d 	at 	195; 	BMB Dining 	Servs. 	(Willowbrook), 	Inc. 	v. 	Willowbrook I Shop-
ping 	Ctr. 	L.L.C., 	No. 	01-19-00306-CV, 	2021 	WL 	2231258, 	at 	*5 	(Tex. 	App.-Houston 	[1st 	Dist.]
June 	3, 	2021, 	no 	pet.).
6

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whether there is an “unbridgeable discrepancy” between spot-price damages under
Section 3.2 and Mercuria’s actual damages, the Court must determine what those
amounts are—matters the parties dispute. Marathon calculates Mercuria’s actual
damages as $0 and compares that amount against Mercuria’s requested spot-price
damages of $26.5 million—a number that Marathon argues is wrong. Mercuria uses
identical calculations for its actual and spot-price damages such that there would be
no discrepancy at all.
¶9 The Court holds that neither party has conclusively proven the amount
of spot-price or actual damages; therefore, fact issues prevent a pretrial resolution
of the enforceability issue. Marathon has offered no argument or evidence as to what
it contends is the correct amount of Mercuria’s spot-price damages, and the Court
holds that Marathon’s cost-basis model is not the correct legal measure of actual
damages under the circumstances of this case. Marathon thus has not met its burden
of proving unenforceability as a matter of law. Mercuria, which does not bear the
burden of proof on this enforceability issue but will bear the burden of proving its
damages at trial, likewise has not established its actual or spot-price damages as a
matter of law. Because the Court cannot determine either liquidated damages under
the Contract’s spot-price formula or actual damages as a matter of law, it likewise
cannot determine whether the liquidated-damages clause is enforceable at this time.

1. 	The 	parties 	have 	not 	conclusively 	proven 	the 	spot 	price.
q10 	When, 	as 	here, 	the 	spot-price 	exceeds 	the 	contract 	price, 	Section 	3.2's
spot-price 	formula 	can 	be 	stated 	as 	the 	quantity 	delta 	("the 	difference 	between 	the
Contract 	Quantity 	and 	the 	actual 	quantity 	delivered") 	multiplied 	by 	the 	price 	delta
("the 	positive 	difference, 	if any, 	obtained 	by 	subtracting 	the 	Contract 	Price 	from 	the
Spot 	Price"):21
Spot-Price 	Standard
Quantity 	Delta 	x 	Price 	Delta
(contract 	quantity -
actual 	quantity) 	x 	(spot 	price -
contract 	price)
q11 	Asnoted 	above, 	the 	quantity 	delta 	is 	136,000 	MMBtu 	and 	the 	contract
price 	is 	$2.61. 	But 	the 	parties 	disagree 	about 	how 	to 	calculate 	the 	"spot 	price" 	price
variable 	and 	thus 	dispute 	the 	price 	delta 	for 	each 	day 	and 	the 	total 	spot-price 	dam-
ages. 	The 	parties' 	contract 	defines 	the 	"Spot 	Price" 	as 	"the 	price 	listed 	in 	the 	[Gas
Daily 	Midpoint], 	under 	the 	listing 	applicable 	to 	the 	geographic 	location 	closest 	in
proximity to 	the 	Delivery 	Point(s) 	for 	the 	relevant 	Day; 	provided, 	ifthere 	is 	no 	single
price 	published 	for 	such 	location 	for such 	Day, 	but 	there 	is 	published 	a 	range 	of
prices, 	then 	the 	Spot 	Price 	shall 	be 	the 	average 	of 	such 	high 	and 	low 	prices."2?
21 	Base 	Contract 	§ 	3.2.
22 	Base 	Contract 	§ 	2.31. 	The 	definition 	refers 	to 	the 	"publication 	indicated 	in 	the 	Base 	Contract,"
and 	the 	parties checked 	the 	box 	for 	"Gas 	Daily 	Midpoint" 	in their 	Base 	Contract. 	Id. 	§ 	2.31 	& 	p. 	2.
8

q12 	Mercuria 	originally 	invoiced 	Marathon 	for 	just 	under 	$17.5 	million,
calculated 	based 	on 	the 	undisputed 	delivery 	shortfalls 	and 	the 	following 	pricing
Quantity 	x 	Price
Feb 	13 	8,900 	MMBtu 	X 	$251.51 	= 	$2,238,439.00
Feb 	14 	8,900 	MMBtu 	X 	$251.51 	= 	$2,238,439.00
Feb 	15 	14,700 MMBtu 	x 	$251.51 	= 	$3,697,197.00
Feb 	16 	14,700 MMBtu 	x 	$251.51 	= 	$3,697,197.00
Feb 	17 	20,000 	MMBtu 	x 	$170.634 	= 	$3,412,680.00
Feb .18 	x 	$62.999	20,000 	MMBtu 	= 	$1,259,980.00
Feb .19 	20,000 	MMBtu 	x 	$39.394 	= 	$787,880.00
Feb .20 	14,400 	MMBtu 	x 	$3.309 	= 	$47,649.60
.21	Feb 	14,400 	MMBtu 	x 	$3.309 	= 	$47,649.60
Total: 	$17,427,111.20
The 	Court is 	uncertain 	of 	the 	source 	of these 	prices, 	and 	Mercuria 	does 	not 	address
its 	invoice 	in 	its 	briefing. 	Marathon 	says 	the 	invoice 	is 	based 	on 	spot 	prices 	at 	the
"West 	Transfer 	Delivery 	Point."
q13 	Later, 	Mercuria 	increased 	its 	damages 	calculation 	by 	more 	than 	$9 	mil-
lion, 	to 	just 	over 	$26.5 	million.25 	Mercuria 	calculated 	this 	amount 	by multiplying
the 	agreed 	shortfall 	quantities 	by 	the 	price 	deltas 	below, 	which 	it 	calculated 	by
23 	Marathon 	Br. 	at 	Exhibit 	6 	(Mercuria 	Invoice).
24 	Marathon's 	Br. 	at 	15; 	see 	also 	id. 	at 	6.
25 	Marathon's 	Br. 	at 	Exhibits 	7-8.
9

subtracting 	the 	total 	contract 	price 	($2.61) 	from 	the 	average 	of 	daily 	price 	indices
for 	five 	different 	locations 	around 	the 	delivery 	point:76
Quantity 	x 	Price 	= 	Total
Feb 	13 	8,900 	MMBtu 	X 	$265.888 	= 	$2.366,403.20
Feb 	14 	8,900 	MMBtu 	X 	$265.888 	= 	$2.366,403.20
Feb 	15 	14,700 MMBtu 	x 	$265.888 	= 	$3,908,553.60
Feb 	16 	14,700 MMBtu 	x 	$265.888 	= 	$3,908,553.60
Feb 	17 	20,000 	MMBtu 	x 	$432.972 	= 	$8,659,440.00
Feb .18 	x 	$259.077	20,000 	MMBtu 	= 	$5,181.540.00
Feb .19 	20,000 	MMBtu 	x 	$5.469 	= 	$109,380.00
Feb .20 	14,400 	MMBtu 	x 	$1.442 	= 	$20,764.80
.21	Feb 	14,400 	MMBtu 	x 	$1.442 	= 	$20,764.80
Total: 	$26,541,803.20
Neither 	the 	average 	nor 	any 	of 	the 	spot 	prices 	in 	any 	of 	these 	five 	locations 	match
the 	spot 	prices 	used 	in 	Mercuria's 	original 	invoice."
q14 	Marathon 	argues 	that 	Mercuria's 	calculation 	of 	spot-price 	damages 	is
wrong, 	asserting 	that 	Mercuria 	"created 	a 	fake 	index 	at 	which 	gas 	would 	never 	be
sold 	upon 	withdrawal" 	and 	"distort[s] 	the 	relevant 	Spot 	Price 	index 	to 	artificially
inflate 	its 	damages."2® 	But 	Marathon 	does 	not 	offer 	its 	own 	calculation 	or 	otherwise
26 	Marathon's 	Br. 	at 	Exhibits 	7-8. 	These 	price 	deltas 	are 	not 	explicitly 	stated in 	the 	damages 	calcu-
lation but 	can be 	calculated by 	dividing 	the 	stated 	sum by 	the 	stated quantity 	delta 	or by 	subtracting
$2.61 	from 	the 	indices 	averages 	used 	to 	calculate 	the 	spot 	price. 	For 	example, 	Mercuria 	calculated
the 	average 	spot 	price 	for 	February 	13 	as 	$268.498. 	Subtracting $2.61 	from 	this 	amount 	results 	in
a 	difference 	of 	$265.888, 	the 	asserted 	price 	delta 	for 	Feb. 	13. 	Multiplying 	$265.888 	by 	8,900
MMBtu 	(the 	agreed 	quantity 	delta 	for 	Feb. 	13) 	results 	in 	a 	product 	of 	$2,366,403.20 	(the 	damages
asserted 	by 	Mercuria 	for 	Feb. 	13).
27 Compare 	Marathon 	Br. 	at 	Exhibit 	6, 	with 	Marathon's 	Br. 	at 	Exhibits 	7-8.
28 	Marathon's 	Br. 	at 	15.
10

11
say what the correct spot-price damages are. Mercuria’s briefing does not address
Marathon’s complaints or offer arguments or evidence as to why the variables it
used to calculate the spot-price are correct.29 At this stage, the parties have not yet
offered evidence about which geographic location is closest in proximity to the West
Pool,30 whether there is a single price publication for such location, or what pub-
lished range of prices should be used, if any. Under these circumstances, the Court
cannot determine the amount of the spot-price damages as a matter of law.
2. The parties have not conclusively proven Mercuria’s “actual damages.”
¶15 “[T]o show that a liquidated damages provision is unreasonable be-
cause the actual damages incurred were much less than the amount contracted for,
a defendant may be required to prove what the actual damages were.”31 Marathon
has not done so. Although Marathon has proven the amount owed under its cost-
basis theory of actual damages, the Court holds that is not the correct measure of
29 This is understandable, as Mercuria does not bear the burden of proof on unenforceability, which
was the issue the parties had asked the Court to decide at the time of briefing. It was not until the
pretrial filings that the parties asked the Court to also decide “the proper measure of Mercuria’s
actual damages.” Joint Pretrial Advisory at 4.
30 In another case involving the same contract provision and lawyers and one of the parties here, the
parties disputed the meaning of the phrase “geographic location closest in proximity to [the delivery
point]” in the definition of “Spot Price.” Marathon Oil Co. v. Koch Energy Servs., LLC, No. CV H-
21-1262, 2025 WL 950085, at *1 (S.D. Tex. Mar. 28, 2025). Marathon argued that proximity
should be measured by pipeline distance (how far the gas would have to travel), while Koch argued
that it should be measured as a straight-line distance (“as the crow flies”). Id. The court denied
summary judgment on that issue. Id. at *6.
31 Atrium Med., 595 S.W.3d at 195 (quoting Phillips, 820 S.W.2d at 788); see also FPL Energy, 426
S.W.3d at 70.

12
damages here. Mercuria likewise has not conclusively proven actual damages, leav-
ing a fact issue for trial.
¶16 The fundamental purpose of damages in a breach-of-contract case is to
put the plaintiff in the economic position it would have been in if the contract had
been performed.32 Actual damages “compensate for a proven injury or loss.”33 This
can be measured by expectation, reliance, and/or restitution damages.34 Expectancy
damages award a contract plaintiff the benefit of its bargain; reliance damages com-
pensate the plaintiff for out-of-pocket expenses; and restitution damages restore to
the plaintiff a benefit that it had conferred on the defendant.35 These damages
measures address the amount of actual damages suffered, a separate question from
whether, under the parties’ contract, such damages are recoverable.
32 See, e.g., White Knight Dev., LLC v. Simmons, 718 S.W.3d 203, 209 (Tex. 2025) (“Whether a
plaintiff seeks legal damages or specific performance, the goal is to put the plaintiff back to the
position it would have been in had there been no breach.”); Sharyland Water Supply Corp. v. City
of Alton, 354 S.W.3d 407, 419 n.20 (Tex. 2011) (quoting Am. Nat'l Petroleum Co. v. Transcon. Gas
Pipe Line Corp., 798 S.W.2d 274, 278 (Tex.1990), for proposition that “[t]he basic measure of ac-
tual damages” for breach of contract or tortious interference with a contract is “to put the plaintiff
in the same economic position he would have been in had the contract interfered with been actually
performed”).
33 In re Nalle Plastics Family Ltd. P’ship, 406 S.W.3d 168, 171–72 (Tex. 2013); damages, BLACK’S
LAW DICTIONARY (12th ed. 2024).
34 Atrium Med., 595 S.W.3d at 193.
35 Id.

13
¶17 This is a contract for the sale of goods, generally governed by Texas’s
Uniform Commercial Code (the UCC).36 Under the UCC, a buyer’s actual damages
for a seller’s failure to deliver the goods may depend on whether the buyer “co-
vers”—i.e., purchases substitute goods.37 If the buyer covers, its damages are
typically measured by [1] “the difference between the cost of cover and the contract
price” [2] plus any recoverable incidental or consequential damages, [3] less ex-
penses saved (such as the unpaid contract price).38 If the buyer does not cover, its
damages are typically measured by [1] “the difference between the market price at
the time when the buyer learned of the breach and the contract price” [2] plus any
recoverable incidental and consequential damages, [3] less expenses saved (such as
the unpaid contract price).39 The fundamental difference, then, is that a covering
buyer’s damages are measured by the difference between the cost of the cover gas
36 Contracts for the purchase and sale of natural gas, once produced, are generally contracts for the
sale of goods governed by the UCC. See TEX. BUS. & COM. CODE § 2.107(a); Lenape Res. Corp. v.
Tenn. Gas Pipeline Co., 925 S.W.2d 565, 569–71 (Tex. 1996); Aquila Sw. Pipeline, Inc. v. Harmony
Expl., Inc., 48 S.W.3d 225, 234 (Tex. App.—San Antonio 2001, pet. denied); Fletcher v. Ricks Expl.,
905 F.2d 890, 892 (5th Cir. 1990). The UCC applies when the gas sold is “to be severed by the
seller,” “but until severance a purported present sale thereof which is not effective as a transfer of
an interest in land is effective only as a contract to sell.” TEX. BUS. & COM. CODE § 2.107(a). Mar-
athon has not raised any arguments relating to severance of the gas.
37 TEX. BUS. & COM. CODE §§ 2.711–.712.
38 Id. § 2.712(b).
39 Id. § 2.713(a). In this scenario, the market price is determined at the place of tender, id. § 2.713(b).

and 	the 	contract 	price, 	while 	a 	non-covering 	buyer's 	damages 	are 	measured 	by 	the
difference 	between 	the 	market 	price 	of the 	gas 	and 	the 	contract 	price.*°
a. 	Marathon's 	cost-basis 	measure 	of Mercuria's 	actual 	damages 	is 	not 	the
correct 	standard 	here.
q18 	Marathon 	argues 	that 	Mercuria's 	actual 	damages 	are 	measured 	by 	the
difference 	between 	what 	it 	originally 	paid 	for 	that 	stored 	gas 	plus 	any 	storage 	and
transportation 	costs 	less 	what 	it 	would 	have 	paid 	for 	the 	undelivered 	gas 	under 	the
contract.*! 	Under 	this 	theory, 	the 	actual-damages 	formula 	would be: 	quantity 	x 	(cost
basis 	- 	contract 	price). 	Since 	the 	parties 	stipulate 	a 	total 	cost 	basis 	$272,000 	and
the 	total 	contract 	price 	$354,960, 	these 	two 	amounts 	can 	be 	netted 	to 	determine
Mercuria's 	actual 	damages under 	this 	theory. 	The 	calculation 	results 	in 	a 	negative
number, 	such 	that 	Mercuria 	would 	have 	no 	actual 	damages:
Total 	Cost 	Basis 	- 	Total 	Contract 	Price 	= 	Total
$272,000 	-$354,960 	= < 	$0
Marathon 	essentially 	implies 	that Mercuria 	economically 	benefited 	from 	Marathon's
failure 	to 	deliver.
40 Id. 	§§ 	2.712(b), 	2.713(a).
4 1 	Marathon's 	Resp. 	to 	Mercuria's 	Br. 	at 	6 	("Mercuria's 	actual 	damages under 	an 	expectancy 	meas-
ure 	are 	the 	costs 	of 	its 	storage 	gas, 	plus 	fees, 	less 	what 	it 	would 	have 	paid 	Marathon 	for 	the 	same
volume."); 	Stipulation 	at 	q 	3.
14

15
¶19 Marathon essentially seeks to treat Mercuria’s stored gas as “cover,”
measuring Mercuria’s actual damages as the difference between the contract price
and what Mercuria paid for the storage gas. But Mercuria did not “cover”—i.e., it
did not “purchase” substitute goods “after a breach.”42 Instead, Mercuria used gas
it already owned and purchased well before the breach.43
¶20 This is important because actual damages are determined at the time of
the breach, and Mercuria’s stored gas was worth significantly more at the time of
the breach than when it was purchased. Likewise, whether there is an “unbridgeable
discrepancy” between the liquidated and actual damages is measured at the time of
breach.44 Marathon cannot use past gas prices in its actual-damages model when
Mercuria’s actual damages are measured at the time of breach, using the market
price of gas at that time. And because Mercuria would purchase cover gas at or near
the time of breach, the cost of the cover gas is likely to be similar to, or even the
42 TEX. BUS. & COM. CODE § 2.712(a) (emphasis added).
43 Id; see also ATD Combusters, LLC v. Ameritube, LLC, No. 618-CV-00077, 2019 WL 7759503, at
*2 (W.D. Tex. Oct. 10, 2019) (holding that, under Section 2.712’s definition of “cover,” “a buyer
must contract or purchase goods from a third party. A buyer cannot draw from its own inventory in
substitution for the goods due from the seller.” (citing Chronister Oil Co. v. Unocal Ref. & Mkg., 34
F.3d 462 (7th Cir. 1994), for the holding that “an actual purchase or contract is required—taking
similar goods from an existing inventory, without an actual purchase to replace them, is not
‘cover’”)); but see Transoil (Jersey) Ltd. v. Belcher Oil Co., 950 F.2d 1115, 1121 (5th Cir. 1992)
(allowing cover damages where party manufactured cover goods itself upon breach).
44 Atrium Med., 595 S.W.3d at 190; FPL Energy, 426 S.W.3d at 72.

16
same as, the market price at the time of breach, meaning actual damages under either
the cover or non-cover standards would likely result in similar amounts.
¶21 Marathon’s briefing does not argue that Mercuria had a duty to buy
“cover” gas when Marathon failed to deliver instead of using its stored gas. Notably,
under the NAESB form, the parties could have elected the Cover Standard, which
would have required Mercuria to use “commercially reasonable efforts” to obtain
replacement product at a reasonable price, and measures damages by the difference
between the contract and the cover prices.45 They did not. If Mercuria had covered,
it would be in a very different situation than it is now because it would not have had
to sacrifice 136,000 MMBtu in stored gas that was highly valuable at that time to
replace the gas Marathon did not deliver. But Marathon would not necessarily have
been better off: Mercuria could recover its cover costs, and there is no evidence that
the price of cover gas would have been below market value.
¶22 Marathon’s proposed actual-damages calculation suffers from three
key defects: (1) it uses the cover approach to damages, when Mercuria did not pur-
chase substitute goods after the breach; (2) it values the substitute gas at the time
Mercuria purchased it rather than at the time of the alleged breach; and (3) it does
not place Mercuria in (or even close to) the position Mercuria would have been in
45 Base Contract § 3.2 (“Cover Standard” not selected by parties here).

17
had Marathon performed. Marathon’s actual-damages calculation is thus incorrect
as a matter of law.
b. A market-price standard is generally consistent with governing legal
standards for actual damages.
¶23 Because Mercuria did not cover, Mercuria’s actual damages typically
would be measured by the difference between the market price46 at the time of
breach and the contract price (plus incidental costs, less savings).47 This measure of
damages is consistent with the overarching goal of damages: to put Mercuria in the
position it would have been if Marathon had performed under the contract.
¶24 Consider, for example, if the market value of natural gas had been
$10/MMBtu at the relevant location on each of the relevant days:48
• If Marathon had performed, Mercuria would have kept its 136,000 MMBtu
in stored gas worth $1,360,000 (136,000 x $10), received and used
46 The market price and the spot price are distinct concepts, even if they are likely to be similar or
the same amounts. The market price is the value of the gas for the purpose of calculating actual
damages, and it may be measured by the spot market or another market, depending on the circum-
stances. The spot price is the value of the gas for the purpose of calculating liquidated damages per
the parties’ contract, and it is a defined term with a contract-specific meaning. Marathon argues
that basing damages on market-value impermissibly collapses actual and liquidated damages. This
argument fails for two reasons. First, it conflates the market price with the spot price. They may
well be different amounts. Second, and more importantly, when these two amounts are similar or
the same and result in similar or the same damages amounts, that does not indicate a problem; to
the contrary, it indicates that the liquidated-damages provision is functioning exactly as intended
by accurately estimating actual damages.
47 TEX. BUS. & COM. CODE § 2.713(a). The Court ignores consequential damages, which Marathon
argues are barred by the contract. Marathon’s Br. at 14.
48 For simplicity, this example ignores incidentals.

18
136,000 MMBtu from Marathon (net 0 MMBtu),49 and paid Marathon
$354,960, for a total of $1,005,040 ($1,360,000 – $354,960).
• Consistently, measuring Mercuria’s damages by the difference between
the market price at the time of breach and the contract price would result
in actual damages of $1,005,040 ($1,360,000 –$354,960).
• Notably, if Mercuria instead purchased cover gas at market price (136,000
x $10 = $1,360,000), measuring Mercuria’s damages by the difference be-
tween cover costs and the contract price would result in the same amount:
$1,005,040 ($1,360,000 – $354,960).50
• And if the spot price and market price were the same—a possibility but not
a necessity—the spot-price damages would also be the same amount:
136,000 x ($10 – $2.61) = 136,000 x $7.39 = $1,005, 040.
In this hypothetical, the spot-price standard does exactly what a liquidated-damages
provision is supposed to do: accurately estimate what the actual damages would be
in an event of breach. And all three damages measures (cover, non-cover, and spot-
price) do what they are supposed to do: put Mercuria in the position it would have
been in if Marathon had performed under the contract.51
¶25 Marathon argues that allowing Mercuria to recover more than $26 mil-
lion in damages, “even though it did not purchase any gas on the spot market to
replace [the undelivered] gas” would be an impermissible “windfall.” That is not
49 This example does not add any amount for profits Mercuria could have made on its use of the gas
delivered by Marathon.
50 Cf. Equitable Res. Mktg. Co. v. U.S. Gas Transp., Inc., No. 05-99-00619-CV, 2001 WL 533808,
at *8 (Tex. App.—Dallas May 21, 2001, no pet.) (observing that, because the buyer purchased cover
gas at market price, there was no difference between the damages measures in 2.712 and 2.713).
51 This, of course, assumes that Marathon was obligated to deliver under the contract. To the extent
Marathon’s delivery was excused by force majeure, Mercuria is not entitled to damages.

19
necessarily the case. If the market price and value of the gas was $26 million,
whether Mercuria bought $26 million worth of new gas or gave up $26 million worth
of gas it already owned, Marathon’s breach would have deprived Mercuria of $26
million in assets (whether funds or stored gas).
c. Mercuria has not conclusively proven its actual damages.
¶26 Mercuria agrees that its actual damages should be measured by “the
difference between the market price and the contract price at the time of the
breach,”52 but it calculates the market value of the gas using the same formula it
uses to calculate the spot price, such that its proposed actual and spot-price damages
are identical:53 $26,541,803.20.54 The Court holds that Mercuria has not conclu-
sively proven that this is the correct amount of its actual damages, as several issues
remain outstanding.
¶27 First, Mercuria agrees that the UCC governs its actual damages55 but
has not yet shown that its damages model conforms to the UCC’s standards for prov-
ing market value. In the event of failure to deliver, market price “is to be determined
52 Mercuria’s Br. at 9–10.
53 See Marathon’s Br. at Exhibit 7 (Mercuria’s Fifth Supplemental Initial Disclosures) & Exhibit 8
(Mercuria’s Responses and Objections to Marathon’s Sixth Set of Requests for Production and Fifth
Set of Interrogatories).
54 See “Mercuria’s Spot-Price Calculation” Table, supra.
55 Mercuria’s Resp. to Marathon’s Br. at 5, 11.

20
as of the place for tender” and “at the time when the buyer learned of the breach.”56
If evidence of the market price at that time and place “is not readily available,” a
party can rely on evidence of the market price “within any reasonable time before or
after the time described or at any other place which in commercial judgment or under
usage of trade would serve as a reasonable substitute,” subject to “any proper al-
lowance for the cost of transporting the goods to or from such other place.”57
Mercuria has not yet shown whether or how its spot-price calculation complies with
those standards, or if it does not, why that is appropriate here.
¶28 Second, as discussed above, Mercuria has not shown that the variables
it used to calculate the spot price are the correct variables. Thus, even assuming the
market price for actual damages should be calculated using the same variables as
those required by the contract to calculate the spot price, those variables have not
been established as a matter of law at this time.
d. Market value does not necessarily equate to lost profits.
¶29 Marathon equates the market value of gas with lost profits Mercuria
would have obtained from selling its stored gas and argues that they are thus conse-
quential damages barred by Section 13 of the contract.58 The Court disagrees that
56 See TEX. BUS. & COM. CODE § 2.713(a), (b).
57 Id. § 2.723(b).
58 Marathon’s Br. at 14 (“Section 13 of the Base Contract forbids Mercuria’s recovery of the ‘market
value’ of that gas because it states that ‘neither party shall be liable for consequential, non-

21
market value necessarily equates to lost profits.59 A party might rely on evidence of
market value to show the price that would have been paid in a lost sale60 or evidence
of lost profits to show the market value of something.61 But does not make market
value and lost profits interchangeable. Mercuria’s lost profits on a hypothetical sale
of the gas may or may not be the same as the gas’s market value.62 And even if Mer-
curia sold the gas at market value, the entire amount would not be profits; Mercuria
would need to reduce that amount by its cost basis for obtaining the gas as well all
of the costs incurred incident to the sale.63
incidental, punitive, exemplary or indirect damages, lost profits, or other business interruption
damages[.]’ In other words, Marathon is not liable for Mercuria’s lost profits as a result of it being
unable to sell Marathon’s gas for ‘market value.’”). Marathon’s Resp. at 7 (“Mercuria’s theory
converts actual damages into market value damages, which is forbidden by the text of Section 13.”).
59 For example, the Texas Supreme Court has observed that “an increase in the market value of
goods never delivered under a contract is not the same as lost profits.” Miga v. Jensen, 96 S.W.3d
207, 213 (Tex. 2002) (holding that contract damages are measured at the time of breach, not the
time of trial).
60 See, e.g., Am. Midstream (Ala. Intrastate), LLC v. Rainbow Energy Mktg. Corp., 714 S.W.3d 572,
584 (Tex. 2025) (“The parties do not dispute that the lost-profits damages were based on accu-
rate market prices.”).
61 Phillips v. Carlton Energy Grp., LLC, 475 S.W.3d 265, 278 (Tex. 2015) (“Fair market value is
generally determined either by using comparable market sales, calculating replacement cost less
depreciation, or capitalizing net income—that is, profits.”).
62 See, e.g., Transoil (Jersey) Ltd. v. Belcher Oil Co., 950 F.2d 1115, 1121 (5th Cir. 1992) (recognizing
that “[i]n some situations, the resale price may accurately reflect the value of the goods on the date
of delivery,” but holding that was not so under the facts of that case).
63 Bowen v. Robinson, 227 S.W.3d 86, 96 (Tex. App.—Houston [1st Dist.] 2006, pet. denied) (“Lost
profits are damages for the loss of net income to a business and, broadly speaking, reflect income
from lost business activity, less expenses that would have been attributable to that activity.”); Tex-
aco, Inc. v. Phan, 137 S.W.3d 763, 771 (Tex. App.—Houston [1st Dist.] 2004, no pet.) (“Lost profits
must be based on net profits, not gross revenues.”).

22
¶30 Importantly, when a sales contract does not bar consequential dam-
ages, a buyer may recover consequential damages in addition to the difference
between the contract price and market price (or for a covering buyer, the difference
between the contract price and the cost of cover).64 If Mercuria sought to recover
both the market value of its stored gas (or Marathon’s undelivered gas) plus the lost
profits it would have made on the sale of that gas, that could be a “windfall” and an
impermissible double recovery.65 But here, Mercuria’s damages model only seeks to
recover this value (or what it contends this value is) once, whether as the market or
spot price, and does not seek to recover lost profits on any potential sale of such gas.
Conclusion
¶31 The arguments and evidence necessary to ascertain the amount of Mer-
curia’s actual and spot-price damages have not yet been put before the Court.
Without this, the Court cannot determine whether there is an “unbridgeable gap”
64 TEX. BUS. & COM. CODE §§ 2.712(b), 2.713(a). Under the UCC, consequential damages include,
among other things, “any loss resulting from general or particular requirements and needs of which
the seller at the time of contracting had reason to know and which could not reasonably be prevented
by cover or otherwise.” Id. § 2.715(b)(1). Comment six to section 2.715 specifies that “[i]n the case
of sale of wares to one in the business of reselling them, resale is one of the requirements of which
the seller has reason to know.” Id. cmt. 6; see also Amerada Hess Corp. v. Schwartz, No. 14-93-
01057-CV, 1995 WL 472341, at *4 (Tex. App.—Houston [14th Dist.] Aug. 10, 1995, no writ) (up-
holding award of lost profits on resale of pipe under UCC).
65 For example, in real-property cases, a party may be able to recover lost profits in addition to the
market value if the market value is cost based but cannot recover lost profits in addition to market
value if the market value already takes into account any potential revenue stream from the property.
Compare City of San Antonio v. El Dorado Amusement Co., Inc., 195 S.W.3d 238, 247 (Tex. App.—
San Antonio 2006, pet. denied), with State v. Whataburger, Inc., 60 S.W.3d 256, 263 (Tex. App.—
Houston [14th Dist.] 2001, pet. denied).

23
between the two that makes Section 3.2 an unenforceable penalty as applied here.
The Court has determined, however, that Marathon’s cost-basis measure of actual
damages is not the correct legal standard under the facts of this case.
Date signed: October 28, 2025
Hon. Melissa Andrews
Judge of the Texas Business Court,
Third Division, sitting by assignment
in the Eleventh Division

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