Case No. 23-0384
Rainbow Energy Marketing Corporation, a gas-trading company, had contracts to transport natural gas through the Transco and Magnolia pipelines, and American Midstream (Alabama Intrastate), LLC (AMID) owns the Magnolia.1 Seeking to leverage the balancing flexibility AMID had under its operational balancing agreement with Transco, Rainbow executed in February 2015 the MAG-0005, a "Firm Gas Transportation Agreement" that in practice was a balancing agreement under which Rainbow could withdraw up to 20,000 MMBtu per day from the Magnolia without simultaneously supplying it, so long as it resupplied by the end of the month.2 Section 9.1 excused AMID from providing balancing services if Transco, as an upstream or downstream party, requested or required AMID or Rainbow to balance receipts and deliveries of gas attributable to Rainbow, and Transco could require that by issuing an Operational Flow Order (OFO).3 After Transco began limiting imbalances more strictly in 2016, AMID told Rainbow it could not always provide the full service and, on a December 2016 call, that the MAG-0005 was "interruptible, subject to the approval or being under [the] radar with Transco"; Rainbow kept operating for over a month and terminated in February 2017.4
Rainbow sued for breach of contract, repudiation, fraud, fraudulent inducement, and negligent misrepresentation, seeking over $6 million in lost profits for its inability to enter additional forward sales contracts, and AMID counterclaimed for breach.1 After a bench trial, the trial court read Section 9.1 as excusing AMID only when Transco required it to balance "scheduled" quantities or "physical" deliveries, found breach, repudiation, fraud, and negligent misrepresentation, and awarded Rainbow over $6 million.2 A divided First Court of Appeals affirmed, and the dissent would have rendered judgment for AMID on repudiation and the tort claims and remanded the contract claims because the trial court inserted qualifiers into Section 9.1.3 AMID petitioned for review on July 27, 2023, and Rainbow responded on December 22, 2023; the Court requested merits briefing on January 26, 2024, granted the petition on October 18, 2024, heard argument on January 13, 2025, and decided the case on May 23, 2025.4
Petition for review from the First Court of Appeals after a bench trial; argued January 13, 2025, and decided May 23, 2025.5
AMID presents whether the court of appeals disregarded the rules of contract construction by inserting words into the parties' contract, whether it lowered the bar for repudiation, whether it created an unsupported exception to the election-of-remedies doctrine, and whether it blessed a speculative lost-profits model.1 Rainbow presents whether the trial court correctly held that AMID breached, repudiated, fraudulently induced and negligently misrepresented, whether it correctly awarded $6,145,215.89 in lost profits, and whether AMID should take nothing on its counterclaim.2 The Court decided the proper interpretation of Section 9.1 and its consequences for the contract, repudiation, tort, and lost-profits rulings, without reaching the election-of-remedies issue.3
The Court interprets a contract by first looking to its language, giving effect to the parties' intentions as expressed in the agreement and the language's plain, grammatical meaning; courts may not rewrite agreements to insert provisions parties could have included or disturb the risk allocation the parties agreed to.1
How Section 9.1 should be interpreted.
Petitioner (AMID): The court of appeals' majority inserted words into the contract, as the dissent explained, and that threshold error infected its findings on breach, repudiation, and fraud, as well as on election of remedies and lost profits.1
Respondent (Rainbow): The trial court correctly interpreted Section 9.1, which let AMID refuse firm balancing service in two scenarios, and the court of appeals' decision does not merit further review; the added words merely distinguish point-to-point imbalances from single-point imbalances.2
Whether AMID repudiated and made false representations, and whether the lost-profits award stands.
Petitioner (AMID): A repudiation must be clear and unequivocal, and the majority lowered that bar by finding repudiation in statements that fall far short of it; the lost-profits model rested on a strategy Rainbow never used.3
Respondent (Rainbow): AMID repudiated by calling the firm agreement interruptible, its representations about firm balancing service induced Rainbow to contract, and its damages model computed lost profits with reasonable certainty.4
AMID argued that the court of appeals created a broad, unprecedented exception to the election-of-remedies doctrine, disregarded fundamental teachings on contract construction by inserting words into the contract, and undermined the reasonable-certainty test for lost profits by blessing a made-for-litigation damages model.1
Unofficial and machine-generated: YouTube’s automatic captions of the Court’s recording, with no speaker names and frequent errors in names, numbers and legal terms. Use the video, linked at each time stamp, as the record of what was said.
Section 9.1's plain language excused AMID from providing balancing services on any day Transco required AMID or Rainbow to limit imbalances of whatever type, scheduled or physical, attributable to Rainbow, so the courts below erred by blue-penciling "scheduled" and "physical" into it; AMID did not repudiate and made no false representation, and lost profits from Rainbow's untried forward-sales strategy would be speculative.1
Interpretation of Section 9.1. The trial court's reading added the words "scheduled" and "physical," which appear nowhere in the text, and materially changed its meaning.2 Rainbow argued that the added words distinguish point-to-point from single-point imbalances, but the parties agree sentence one concerns point-to-point imbalances and sentence two single-point imbalances, so the "and" and "or" already did that work; a point-to-point imbalance can be either scheduled or physical, and the text does not distinguish between them.3 The trial court's reading would also limit sentence one to a scenario that never occurs, since Rainbow never had a scheduled imbalance, rendering the sentence meaningless.4
Contract claims. The Court reversed and remanded for a new trial on both parties' breach-of-contract claims to determine on which days AMID failed to provide balancing services and whether a Transco mandate excused it, including the disputed question whether OFOs that left the "affected shipper" box blank applied to Rainbow.5
Repudiation. A party repudiates by a distinct and unequivocal absolute refusal to perform, and the other party must treat the refusal as unconditional.6 Viewed in the context of the entire December 2016 call, AMID expressed a willingness to continue operating under Transco's stricter practices, its description of the agreement as "interruptible" meant a Transco mandate could excuse performance, and Rainbow agreed to "huddle up" and kept operating for over a month, so the Court rendered judgment for AMID on repudiation.7
Tort claims. AMID's representation that it could provide firm balancing service subject only to the express limits in the contract was true under a proper reading, and Rainbow knew before contracting that AMID maintained daily imbalances as large as 40,000 MMBtu; any alleged representation that conflicted with the express terms could not be justifiably relied on, and Rainbow cannot convert its contract claim into torts, so judgment was rendered for AMID on fraud, fraudulent inducement, and negligent misrepresentation.8
Lost profits. For guidance on remand, the Court explained that lost profits require proof of fact and amount with reasonable certainty and cannot rest on profits dependent on uncertain market conditions or a new and unproven enterprise.9 Rainbow had never used the daily market or the MAG-0005 to fulfill forward sales contracts, and with gas prices that swung from a few dollars to over a hundred dollars per MMBtu, its "insurance policy" theory was too speculative to support recovery.10
The Court reversed the court of appeals' judgment, rendered judgment for AMID on Rainbow's repudiation and tort claims, and remanded for a new trial on Rainbow's and AMID's breach-of-contract claims.11
Joined by Blacklock, C.J., and Bland, Boyd, Busby, Huddle, Lehrmann, and Young, JJ.
Devine, J.
The following is current as of October 9, 2026.
| Date | Event |
|---|---|
| 07/27/2023 | Petition for Review (American Midstream, LLC) |
| 12/22/2023 | Response to Petition (Rainbow Energy Marketing Corporation) |
| 01/10/2024 | Reply to Response (Rainbow Energy Marketing Corporation) |
| 01/26/2024 | Brief on the Merits Ordered |
| 04/26/2024 | Petitioner's Brief on the Merits (American Midstream, LLC) |
| 07/31/2024 | Respondent's Brief on the Merits |
| 09/16/2024 | Petitioner's Brief on the Merits (American Midstream, LLC) |
| 01/13/2025 | Oral argument Argued on behalf of Petitioner by Polly B. Fohn; Argued on behalf of Respondent by R. Alan York (Justice Devine not participating) |
| 05/23/2025 | Opinion issued The Court reverses the court of appeals' judgment, renders judgment in part, and remands the case to the trial court. Justice Sullivan delivered the opinion of the Court. (Justice Devine not participating) |
| 07/08/2025 | Mandate issued |
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