Liquidated Damages Enforceability Turns on Fact Issues in Natural Gas Contract Dispute
Judge Melissa Davis Andrews
Decided October 28, 2025
Mem. Op.
Summary Judgment
In Marathon Oil v. Mercuria Energy America, the Business Court of Texas held that material fact disputes preclude summary determination of whether a NAESB Base Contract "Spot Price Standard" liquidated-damages clause operates as an unenforceable penalty under the "unbridgeable discrepancy" standard. The court rejected Marathon's cost-basis theory as the proper measure of Mercuria's actual damages under the circumstances of the case.
Court Staff Summary
Pursuant to Texas Rule of Civil Procedure 166(g), 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.
Background: Force Majeure Declaration Under NAESB Form Contract
This dispute arises from Marathon Oil's declaration of force majeure in February 2021 under its natural-gas supply contract with Mercuria Energy America—a declaration Mercuria contends was an improper breach of Marathon's delivery obligations. The parties' contract incorporated a North American Energy Standards Board (NAESB) Base Contract for Sale and Purchase of Natural Gas, with Section 3.2 offering two alternative remedy provisions: "Cover Standard" or "Spot Price Standard." Marathon and Mercuria selected the Spot Price Standard, which provides that if Marathon breached its delivery obligations, 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, obtained by subtracting the Contract Price from the Spot Price[.]
The parties agreed to Special Exceptions that modified the NAESB form in several aspects, but they did not modify Section 3.2.
The Central Legal Question: "Unbridgeable Discrepancy" Between Liquidated and Actual Damages
The question before the court is whether the Section 3.2 liquidated-damages clause is unenforceable because there is an "unbridgeable discrepancy" between the damages under this clause (spot-price damages) and Mercuria's actual damages. The court noted that whether a liquidated-damages provision is an unenforceable penalty is a legal question, but its resolution may depend on certain fact findings. Marathon bore the burden of proving the clause's unenforceability, with enforceability determined at the time of breach.
The Court's Holdings: Fact Issues Preclude Summary Determination
The court held that neither party has conclusively proven the amount of either spot-price damages or actual damages, such that it cannot decide the enforceability question as a matter of law under Texas Rule of Civil Procedure 166(g). Without definitive amounts for both sides of the comparison—liquidated damages under the Spot Price Standard versus Mercuria's actual damages—the court cannot determine whether an "unbridgeable discrepancy" exists.
Significantly, however, the court addressed the proper measure of Mercuria's actual damages and rejected Marathon's cost-basis theory. The opinion states that "under the circumstances of this case, the defendant's cost-basis theory is not the correct measure of the plaintiff's actual damages." While the court could not resolve the enforceability issue on summary judgment due to unresolved fact questions, it provided guidance on the legal framework for measuring actual damages in this contractual context.
The memorandum opinion references the court's prior opinions in this case, which summarized the background facts. The decision was filed on October 28, 2025, and issued pursuant to Texas Rule of Civil Procedure 166(g).