U.S. Polyco, Inc. v. Tex. Cent. Bus. Lines Corp.

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U.S. Polyco, Inc., Petitioner, v. Texas Central Business Lines Corporation, Respondent

No. 22-0901

Supreme Court of Texas

November 3, 2023

On Petition for Review from the Court of Appeals for the Tenth District of Texas

PER CURIAM

The parties in this case disagree about the meaning of a particular provision in their land-improvement contract. The trial court interpreted that provision as a matter of law and instructed the jury accordingly, leaving the jury to resolve liability and damages. The court of appeals also interpreted the provision and reached the same result as the trial court by methodically applying well-established canons of construction. What requires our review is what happened next. The court of appeals determined that, despite its analysis of the contract's language, the provision was still insolubly ambiguous. It thus reversed the trial court's judgment, which had been based on the jury's verdict, and ordered a new trial so that a jury could determine the meaning of the contractual text. The court of appeals provided this explanation:

The record demonstrates that the parties strongly disagree about the intent of [the contractual provision] and its application. Given the disagreement about the intent behind and application of [that provision], and the multiple reasonable interpretations of [it] outlined above, we conclude that [it] is ambiguous and cannot be construed as a matter of law.

___S.W.3d___, 2022 WL 2977477, at *5 (Tex. App.-Waco 2022).

This analysis is erroneous for two basic reasons. First, like all other considerations beyond the contract's language and structure, parties' "disagreement" about their intent is irrelevant to whether that text is ambiguous. Parties who find themselves in a business dispute can always claim an extratextual "intent" that would serve a current litigation position. Second, the "multiple reasonable interpretations" that the court of appeals invoked are illusory. If there were multiple interpretations and a court could not choose among them, then the text would be genuinely ambiguous and there would be no choice but to leave the question to a jury. But the multiple interpretations that the court was referencing here were merely the competing theories that the parties advanced about how to read the text-a dispute that both the trial and appellate courts had ably addressed as a matter of law.

The principles of contract interpretation at issue in this case are well established and of fundamental importance. Without hearing oral argument, we grant the petition for review reverse the judgment below, and remand for the court of appeals to address the parties' remaining arguments.

Petitioner U.S. Polyco, Inc. manufactures and sells asphalt products throughout the United States. In early 2013, Polyco sought to expand its business by building a new manufacturing plant that would have direct railroad service. To that end, Polyco contacted respondent Texas Central Business Lines Corporation, a short-line freight railroad company. After several months of negotiation, the two companies agreed that (1) Polyco would use an undeveloped parcel of land leased by Texas Central for Polyco's new asphalt manufacturing plant and (2) Polyco would use Texas Central's railroad service for its asphalt shipments.

The parties memorialized these agreements in two contracts. The "Transload Agreement" governed how Polyco would "transload" its asphalt shipments-that is, how it would transfer them from railcar to truck. The "Railroad Allowance Agreement" generally governed how the parties would develop and improve the undeveloped parcel of land for Polyco's asphalt plant and transloading operations. Both contracts also addressed how certain costs would be allocated once the project was underway.

The primary issue before this Court concerns how the Railroad Allowance Agreement allocated the costs of building infrastructure on the undeveloped parcel between Polyco and Texas Central. Polyco agreed to advance up to $1.2 million to make "TCB Infrastructure Improvements" as defined in Section 1.1 of the Agreement. The parties dispute whether Section 1.1(3)'s requirement of a further written agreement-italicized in the following reproduction of the text-applies to everything listed in Section 1.1(3) or only to the reference to "other items" that immediately precedes the "in writing" requirement:

1.1 TCB Infrastructure Improvements. As used in this Agreement: "TCB Infrastructure Improvements" will mean the following improvements agreed to and shown generally in Exhibit X attached and incorporated into this Agreement by this reference ("Preliminary Layout"): . . . (3) various concrete and ground surface improvements, including without limitation slabs for truck scales and racks, tank and appurtenant structures to house personnel, oil heating and steam generation equipment, curbs and planters for parking areas, and other items in or adjacent to the Designated Areas as are agreed upon by TCB and [Polyco] in writing. All TCB Infrastructure Improvements constructed or provided for under this Agreement will be the sole property of TCB upon completion and are intended for the primary use of TCB in the conduct of its railroad operations.

(Emphasis added.) The scope of the "in writing" provision determines whether Polyco had to obtain Texas Central's further written agreement for work involving concrete slabs on the land.

According to Texas Central, Polyco's contract with a third party to construct those slabs (and other contracts) led Polyco to incur expenses far above its $1.2 million advance. Because Polyco did not obtain Texas Central's written agreement about such improvements, Texas Central reasoned, the improvements did not qualify as "infrastructure" that Texas Central was obligated to fund under Section 1.1(3). Polyco countered that no such written agreement was required. Only "other items in or adjacent to" the property required separate written agreements, Polyco argued, but concrete slabs were already specifically listed as infrastructure in Section 1.1(3). The parties' disagreement, in other words, turned entirely on the syntactic issue of how far the "in writing" requirement reached back into Section 1.1(3).

Polyco sued Texas Central for breach of contract and moved for partial summary judgment on this interpretive issue. The trial court granted the motion, specifically holding that:

Under paragraph 1.1(3) of the Railroad Allowance Agreement . . ., the phrase "as are agreed upon by TCB and Customer in writing" modifies only the phrase "other items in or adjacent to the Designated Areas" and does not modify the phrase "various concrete and ground surface improvements, including without limitation slabs for truck scales and racks, tank and appurtenant structures to house personnel, oil heating and steam generation equipment, curbs and planters for parking areas."

The parties proceeded to a jury trial on their respective breach-of-contract claims, and the trial court's jury instructions were consistent with its interpretation of Section 1.1(3). The jury found that Texas Central had breached the Railroad Allowance Agreement. The court then awarded Polyco almost $9 million in damages and approximately $2 million in prejudgment interest and attorney's fees.

Texas Central appealed, arguing (among other things) that the trial court erred in its reading of Section 1.1(3). Reviewing the issue de novo, the court of appeals applied two relevant canons of construction: the series-qualifier canon and the last-antecedent canon. Under the series-qualifier canon, the court reasoned, "the phrase 'as are agreed upon by [Texas Central] and [Polyco] in writing' would modify all items in the series listed in section 1.1(3) . . ., including 'various concrete and ground surface improvements.'" 2022 WL 2977477, at *4. But under the last-antecedent canon, the court said, "the phrase 'as are agreed upon by [Texas Central] and [Polyco] in writing' would only modify the last item in the series, which is the phrase 'other items in or adjacent to the [property].'" Id. Standing alone, either canon "might reasonably apply to this text," the court of appeals explained, but "'[p]unctuation is a permissible indicator of meaning,'" and "based on the absence of a comma" before the "as are agreed in writing" phrase, that phrase "appears to only apply to 'other items in or adjacent to the [property],' as suggested by the last-antecedent doctrine." Id. at *5 (quoting Sullivan v. Abraham, 488 S.W.3d 294, 297 (Tex. 2016)). This result is precisely what the trial court had reached.

The analytical approach undergirding that result is consistent with our general principles of contract interpretation, and it would have been unremarkable but for the fact that the court of appeals' reasoning did not stop there. In a subsequent section titled "Other Considerations," the court ventured beyond the contractual text. "Despite the foregoing," the court of appeals continued, "[t]he record demonstrates that the parties strongly disagree about the intent of section 1.1(3) of the [Railroad Allowance Agreement] and its application." Id. And "[g]iven the disagreement about the intent behind the application of section 1.1(3) of the [Railroad Allowance Agreement], and the multiple, reasonable interpretations of [it] outlined above, we conclude that section 1.1(3) . . . is ambiguous and cannot be construed as a matter of law." Id. The court accordingly reversed the trial court's judgment and remanded for a new trial so that a jury could resolve the purported ambiguity. Id. at *7. Polyco petitioned for review.

Our "primary objective" when construing private legal instruments like the parties' Railroad Allowance Agreement here "is to...