Background: A Post-Acquisition Supply and Transportation Agreement

The dispute arises from a transaction in which Eastman Chemical sold Westlake its polyethylene facilities in Longview, Texas, and a pipeline running from Longview to the Mont Belvieu ethylene trading hub. Before the sale, Eastman owned the ethylene-producing "crackers" in Longview, the polyethylene facility that was the largest customer for that ethylene, and the pipeline that was "the principal means for getting ethylene out of Longview." Post-transaction, Eastman retained the crackers (the local supplier) while Westlake acquired the polyethylene facilities (the local customer) and the pipeline (the key transportation asset). To address this reconfiguration, the parties executed an ethylene sales and exchange agreement (ESA) containing a Delaware choice-of-law provision. The ESA's "two principal functions" included an expired fixed-quantity purchase obligation and an ongoing requirement that Eastman offer, and Westlake either buy or exchange, Eastman's "Excess Ethylene Quantities" (EEQ)—essentially all ethylene produced by Eastman's Longview crackers, subject to limited exclusions and a cap.

The Dispute: Nomination Obligations and Third-Party Sales

Westlake moved for summary judgment seeking declaratory rulings interpreting the ESA's nomination structure. The ESA establishes a two-stage right-of-first-refusal process: an annual nomination before each year begins, in which Eastman must offer Westlake the EEQ it intends to produce and any declined amounts may be contracted to third parties for that one-year period; and a monthly nomination for any EEQ not already sold to Westlake or third parties under annual contracts. Westlake contended that Eastman must nominate in good faith all intended EEQ in the annual process, that monthly nominations must include all EEQ not subject to such one-year contracts, that spot sales do not qualify as exempting contracts, that Westlake may purchase any portion of monthly nominations, and that only EEQ Westlake declines—not ethylene Eastman purchases from third parties—qualifies for free pipeline exchange. The parties also filed competing objections to each other's summary-judgment evidence.

The Court's Analysis: Delaware Contract Interpretation Principles

The Court began by confirming that Delaware law governs and methodically catalogued Delaware's contract-interpretation principles. Like Texas, Delaware "holds parties' freedom of contract in high regard" and construes contracts to give language its "plain and ordinary meaning" while effectuating all terms and avoiding surplusage. Delaware courts apply an objective standard, construing contracts "as an objective, reasonable third party would understand" them. Language is unambiguous if "susceptible to only one reasonable interpretation." Contract language need not be perfectly clear for an interpretation to be the only reasonable one; even a problematic reading can be reasonable. But if contract language is susceptible to more than one reasonable interpretation or meaning, it is ambiguous—even if one such interpretation is more reasonable than the other(s). If a contract is unambiguous, extrinsic evidence generally may not be used to vary its meaning or create an ambiguity; but if a contract is ambiguous, courts may look beyond the four corners of the document.

The Ruling: Partial Grant, Partial Denial

The Court granted in part and denied in part Westlake's motion for summary judgment. The Court also sustained in part and overruled in part both Eastman's objections to Westlake's summary judgment evidence and Westlake's objections and motion to strike Eastman's summary-judgment evidence. The memorandum opinion addresses the parties' competing interpretations of the ESA's nomination requirements, the treatment of third-party sales, and the scope of pipeline exchange rights under the agreement.