The DFW International Airport Board
operates the DFW International Airport. In 2012 the Board’s staff retained
Vizant Technologies to analyze the airport’s payment-processing costs and
provide expense reduction suggestions.
Stuart A. Lautin , Esq.*
The DFW Board and Vizant negotiated
a Consulting Agreement for three years, with various incentives payable to
Vizant based upon recommendations that effectively reduced payment-processing
costs.
The Contract limited Vizant’s
compensation to $50,000. However, DFW agreed that the Board “will make a good
faith effort to receive board authorization to increase the compensation” and
if approved, the parties would amend the Contract accordingly.
According to Vizant its services
ultimately saved the airport ~ $82,000, and its fee under the agreed formula
should have exceeded $300,000. Vizant submitted an invoice for $50,000 and
requested that the Board approve an amendment authorizing the larger amount.
The Board paid the $50,000 but
denied the excess. So, Vizant sued the Board, alleging that the Board failed to
make the promised good faith effort to authorize the increased compensation.
And, appeals brought this case to
the attention of the Texas Supreme Court, which – surprisingly – agreed to accept
it.
First, the high Court reviewed the
exact language whereby the Board agreed to make a good faith effort to obtain its own authorization for the higher
payments. Thinking that it might be more reasonable for the Board’s staff to make a good faith effort to
obtain the Board’s approval, that
promise is not enforceable against the Board and even if it were, the remedy
could never be to require the Board to pay more than it authorized staff to
negotiate.
But back to the agreement. The
essence is that the Board agreed to make a good faith effort to authorize a
higher payment in the future. Note that the Board did not agree to make a
higher payment; rather it agreed to make a good
faith effort to accomplish that result.
This, the high Court reminded us, is
not the situation where parties agree to agree in the future. Rather this contract
obligated the Board to make a good faith
effort to agree. This may be a distinction without merit, as we get to the
same place.
The Court determined that the
Board’s promise was similar to the equivalent of a promise to negotiate towards
a future deal in good faith. And, an agreement regarding future negotiations is
unenforceable. The addition of the good
faith qualifier does not save the contract.
The Court also felt compelled to add
that Texas is in a minority position, as many more jurisdictions have
recognized the enforceability of contracts obligating parties to negotiate. But
even in this situation if the provision was enforceable, the proper remedy
might be difficult to find. Because the Board would have breached an “efforts” agreement, as opposed to breach
of an agreement obligating the Board to pay $330,000.
Some courts, say the Supremes, have
used reliance damages as a model (the amounts paid by plaintiff in reliance on
its belief that the defendant was negotiating in good faith). Other have
allowed expectancy damages (the amount the plaintiff expected to receive as a
result of the anticipated contract).
But no matter here. A Texas contract
obligating parties to agree in the future is unenforceable, as is a Texas
contract obligating a party to use its good faith efforts to agree in the
future to amend an existing contract.
Judgment is rendered dismissing all
claims. DFW wins; Vizant loses.
See
Dallas / Fort Worth International Airport Board v. Vizant Technologies, LLC
Texas Supreme Court; No. 18-0059; May 17, 2019: https://law.justia.com/cases/texas/supreme-court/2019/18-0059.html.
Lessons
Learned / Questions Asked:
1. Question:
Does your Contract provide for a future agreement to agree? These provisions
are ineffective in Texas.
2. Question:
Does your Contract provide for a future agreement to use good faith efforts to cause future payment or similar? Sorry, not
effective in Texas.
3. Lesson:
Don’t mess with Texas.
* Board Certified,
Commercial (1989) and Residential (1988) Real Estate Law,
Texas
Board of Legal Specialization
Licensed
in the States of Texas and New York
Higier
Allen & Lautin, PC
2711
N. Haskell Avenue, Suite 2400
Dallas
Texas 75204
P:
972.716.1888
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