Here is an analysis of the American Midstream v. Rainbow Energy case from the Texas Supreme Court issued May 23, 2025. You can read the full opinion by clicking here.
The dispute revolves around a natural gas transportation and balancing contract (MAG-0005) between American Midstream (AMID) and Rainbow Energy. The core issue is about whether AMID breached the contract by limiting balancing services it was supposed to provide under the agreement, especially when constrained by operational flow orders (OFOs) issued by Transco, the upstream pipeline operator.
Rainbow used the MAG-0005 contract mainly for balancing gas flows—pulling gas out when prices were high and resupplying later when prices dropped. The contract had a key clause (Section 9.1) that excused AMID from providing balancing services if either AMID or Rainbow was required by Transco to limit imbalances of gas attributable to Rainbow.
The trial court and the appellate court had sided with Rainbow, finding AMID breached and repudiated the contract, awarding Rainbow over $6 million in lost profits. They interpreted Section 9.1 narrowly, inserting terms like “scheduled” and “physical” imbalances that weren’t in the original contract, which made AMID’s excuses for not performing much narrower.
The Texas Supreme Court reversed this interpretation, saying courts can’t rewrite contracts or add words the parties didn’t include. The plain language of Section 9.1 excuses AMID from performing whenever Transco requires limiting imbalances attributable to Rainbow, regardless of the type of imbalance. Because the trial court inserted extra words that changed the meaning, the Supreme Court ordered a new trial on the breach-of-contract claims to determine if AMID’s non-performance was excused on specific days.
The Supreme Court also threw out the repudiation and fraud claims against AMID, finding no evidence AMID falsely represented its ability to provide balancing services. The court was skeptical of Rainbow’s lost profits claim because Rainbow’s business model for those profits was speculative and unproven—they never actually used the contract as an “insurance policy” to support forward sales contracts before.
In short, the court emphasized sticking to the contract’s plain text, refusing to rewrite terms to favor one side, and pointed out that operational constraints by the upstream pipeline (Transco) legally excuse AMID’s performance gaps.
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