Marathon Oil v. Mercuria Energy America

FILED IN
BUSINESS COURT OF TEXAS
BEVERLY CRUMLEY, CLERK
ENTERED
10/28/2025

2025 Tex. Bus. 40

The Business Court of Texas,
11th Division
MARATHON OIL CO., §
Plaintiff, §
v. §
§ Cause No. 25-BC11A-0013
MERCURIA ENERGY AMERICA, §
LLC, §
Defendant. §
═══════════════════════════════════════
MEMORANDUM OPINION AND ORDER
═══════════════════════════════════════

¶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).

1
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.

2
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)).

3
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.

4
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, if Marathon 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

Stipulated Facts, { 5.
15

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
J
Fact and Conclusions of Law at 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: '°

Quantity x Cost = Cost Basis
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 14,400 MMBtu x $2.00 = $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.
Stipulation, { 3.
18

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
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.

7
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
21
Spot Price"):

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, if there 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 20,000 MMBtu x $62.999 = $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
Feb .21 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 20,000 MMBtu x $259.077 = $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
Feb .21 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
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.

11
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.

12
¶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).

13
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).
41
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
¶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.

15
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).

16
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.

17
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).
This, of course, assumes that Marathon was obligated to deliver under the contract. To the extent
51

Marathon’s delivery was excused by force majeure, Mercuria is not entitled to damages.

18
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.

19
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-

20
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.”).

21
¶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).

22
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

23
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