Councils Corner v110
Let’s Just Agree On That Later, Ok?
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.
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.
Stuart A. Lautin, Esq.*
* 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