Equistar Chem v. Indeck Power: Clarifying Damage Recovery Limits and Condition Precedent Standards in Commercial Service Contracts

Introduction

Equistar Chemicals, L.P. (“Equistar”) contracted with Indeck Power Equipment Company (“Indeck”) in December 2015 under a Master Contract for the supply, installation, and start-up of two industrial steam boilers at Equistar’s Tuscola, Illinois facility. Repeated delays, defective boiler components, and extensive rework extended the project timeline from an expected 36 days to over 186 days. Equistar incurred additional railcar charges and spent significant time correcting manufacturing defects. After Equistar sued in the Southern District of Texas for breach of contract and warranties, the district court awarded $644,859 in damages. Indeck appealed, challenging (1) incorporation of a support-labor clause, (2) notice requirements for invoice disputes as a condition precedent, (3) Equistar’s control of Indeck’s subcontractor, and (4) the basis for awarding damages for shipping delay under an “efficient service” clause. The Fifth Circuit affirmed, establishing key principles on contractual damage-limitation clauses, notice conditions precedent, subcontractor control, and efficiency obligations.

Summary of the Judgment

The Fifth Circuit affirmed the district court’s award of $644,859 to Equistar.
It held that the “support-labor” clause—even if incorporated—did not bar recovery of extra labor costs arising from Indeck’s breaches.
It found that Article 8(b)’s invoice-dispute notice requirement was not a condition precedent to Equistar’s right to sue, due to lack of express conditional language.
It rejected Indeck’s argument that Equistar’s coordination with Indeck’s subcontractor Vega estopped recovery or fell outside the Master Contract’s terms.
It upheld the award for the one-month shipping delay, concluding that withholding customs paperwork was an inefficient breach of Indeck’s obligation to provide “efficient” services.

Analysis

Precedents Cited

Conn Credit I, L.P. v. TF LoanCo III, L.L.C. 903 F.3d 493 (5th Cir. 2018). Established that contractual conditions precedent require express conditional language (“if,” “provided that,” etc.) and that factual findings at bench trial are reviewed for clear error while legal conclusions are de novo.
Global Octanes Tex., L.P. v. BP Exploration & Oil Inc. 154 F.3d 518 (5th Cir. 1998). Held that parties may contractually limit recoverable damages, but such limitations must be clear.
Associated Indem. Corp. v. CAT Contracting, Inc. 964 S.W.2d 276 (Tex. 1998). Defined “condition precedent” under Texas law as an event that must occur before a right vests.
Criswell v. European Crossroads Shopping Center, Ltd. 792 S.W.2d 945 (Tex. 1990). Clarified that absent explicit conditional language, provisions are construed as covenants to avoid forfeiture.
Solar Applications Eng’g, Inc. v. T.A. Operating Corp. 327 S.W.3d 104 (Tex. 2010). Reinforced the requirement of conditional language to create a condition precedent.
Arbor Windsor Ct., Ltd. v. Weekley Homes, LP. 463 S.W.3d 131 (Tex. App.—Houston [14th Dist.] 2015). Distinguished when written notice provisions constituted conditions precedent due to express linking language.

Legal Reasoning

1. Support-Labor Clause Does Not Bar Breach-Related Damages:
Indeck’s Domestic Field Service Rate Sheet purported to require Equistar to supply certain labor at no cost. The Court emphasized that this clause addressed only the allocation of original installation labor—not the additional labor necessitated by Indeck’s breaches. Under Texas law, contractual damage waivers must clearly apply to the specific harm; here, no language limited damages for rework arising from defective components.

2. Invoice-Dispute Notice Not a Condition Precedent:
Article 8(b) allowed Equistar to pay disputed invoices and later seek reimbursement but lacked express conditional terms (“if,” “provided that,” etc.) linking written notice to the right to sue. Citing Criswell and Solar Applications, the Court held the provision a covenant, not a condition precedent. Therefore, failure to provide written notice did not forfeit Equistar’s remedy.

3. No Estoppel or Bar from Subcontractor Control:
Indeck argued Equistar’s coordination with its subcontractor Vega in remedying defects estopped recovery. The Court found no bar in Article 16, which merely preserves subcontractor status and disclaims agency. Indeck also forfeited any estoppel argument by raising it first in a Rule 59 motion without district court consideration.

4. Efficient Service Requirement Breached by Delay:
Article 13(w)(i) obligated Indeck to deliver materials and services “in a good, efficient, and safe manner.” The district court’s defined standard—timely outcomes with customary efforts—was supported by trial evidence that Indeck intentionally delayed customs paperwork to leverage negotiations. The appellate court found no error in concluding the one-month delay was inefficient and awarding related railcar charges.

Impact

This decision provides commercial contracting parties with clear guidance:

Damage-Limitation Clauses: Clauses limiting labor costs must explicitly reference post-breach or rework scenarios to bar recovery for related damages.
Condition Precedent Requirements: Notice or dispute procedures in contracts will not be construed as conditions precedent unless drafted with unmistakable conditional language.
Subcontractor Relationships: Direct coordination with a contractor’s subcontractor to remedy defects does not automatically trigger estoppel or forfeiture of remedies unless the contract expressly states so.
Service Efficiency Standards: Obligations to perform services “efficiently” give rise to measurable obligations on timing and effort; intentional delays may constitute breach.

Future litigants and drafters should ensure clarity in damage-limiting language, condition-precedent drafting, and efficiency benchmarks.

Complex Concepts Simplified

Condition Precedent: An event that must occur before a party can enforce a contractual right. Under Texas law, it requires explicit words like “if” or “provided that.”
Contractual Covenant vs. Condition: A covenant is a promise; a condition is an event. If a contract term lacks clear conditional wording, it is treated as a covenant to avoid harsh forfeitures.
Support-Labor Clause: A clause allocating which party provides baseline labor for services. It does not necessarily limit recovery for extra labor caused by breach.
Estoppel: A legal principle preventing a party from asserting rights contradictory to its previous actions. Here, Indeck failed to show Equistar was estopped from claiming damages for subcontractor-related work.
Efficient Service Obligation: A requirement that a contractor perform its duties within a reasonable timeframe and with customary effort. Unjustified delays breach this obligation.

Conclusion

Equistar Chem v. Indeck Power affirms that under Texas law, contractual damage waivers and notice provisions must be drafted with unmistakable conditional language to preclude remedies. It clarifies that ordinary service provisions—such as efficiency obligations—can form the basis for breach claims when performance is intentionally delayed. The opinion reinforces careful contract drafting and underscores the judiciary’s reluctance to infer forfeitures absent crystal-clear clauses. For practitioners, this case highlights how courts interpret commercial agreements to preserve substantive rights and remedies for breaches.