Dominion Exploration & Production, Inc. et al v. Delmar Systems, Inc. et al

Filing 320

ORDER granting in part and denying in part 284 Motion for Summary Judgment To Dismiss Plaintiffs' Claims Under Terms of the Master Service Contract and for Lack of Causation. Signed by Judge Jay C. Zainey. (jrc)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA

DOMINION EXPLORATION & PRODUCTION, INC., ET AL.

CIVIL ACTION

VERSUS

NO. 07-9492

DELMAR SYSTEMS, INC., ET AL.

SECTION "A"(1)

ORDER AND REASONS
Before the Court is a Motion for Summary Judgment To Dismiss Plaintiffs’
Claims Under Terms of the Master Service Contract and for Lack of Causation
(Rec. Doc. 284) filed by defendant/counterclaimant Delmar Systems, Inc. Plaintiffs,
Dominion Oklahoma Texas Exploration & Production, Inc., et al., oppose the motion.
The motion is before the Court on the briefs without oral argument. 1 For the reasons
that follow, the motion is GRANTED IN PART AND DENIED IN PART.
I.

Background

A detailed factual background for this case is contained in the Court’s Order and
Reasons entered on December 3, 2012 (Rec. Doc. 230). It suffices for present

1

Delmar has requested oral argument but the Court is not persuaded that argument
would be helpful in light of the issues presented.

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purposes to note that this lawsuit involves an incident that occurred on the Outer
Continental Shelf off the coast of Louisiana. Pursuant to a contract with Plaintiffs,
Delmar provided a nine-point offshore mooring system for the AMOS RUNNER. One of
the ropes used in the mooring system — specifically, the rope that served as leg #2 in
the system — failed, and the AMOS RUNNER drifted off location ultimately causing
Plaintiffs significant damages. 2 The rope that failed was manufactured by Brazilian
defendant Cordoaria Sao Leopoldo, SA (“CSL”). It is undisputed that this specific
polyester rope was manufactured by CSL years earlier as part of a joint interest
program involving several companies that were interested in field testing polyester
ropes for offshore mooring systems. (Rec. Doc. 294, Exh. 6 Letter Agreement).
Plaintiffs’ expert has examined the failed rope and attributes its failure to end splicing
that occurred when CSL manufactured the rope — a manufacturing practice that would
have rendered the rope essentially useless for its intended purpose. In October 2014
Plaintiffs settled their claims with CSL for a relatively minor amount of money in
comparison to the near $50 million in damages that they allege in connection with the
failed mooring system.
Delmar moves for summary judgment on all of Plaintiffs’ claims. First, Delmar
points out that all of its work for Plaintiffs was performed pursuant to the December 5,

2

Beginning on September 6, 2006, Delmar installed the mooring system on location. On March
9, 2007, the AMOS RUNNER arrived at the well location and was attached to the mooring
system. On April 24, 2007, the mooring system failed. (Rec. Doc. 296, Plaintiffs’ Opposition).
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2005 Master Service Contract (“MSA”) in place between the parties. Delmar contends
that four primary contractual provisions in the MSA protect it from the damage claims
alleged by Plaintiffs in this lawsuit. Delmar stresses that Plaintiffs are sophisticated
business parties and that the damage limitations in the MSA were negotiated
specifically in light of the risks inherent in deepwater operations, the relative size of the
companies involved, and the rates that Delmar charged. Delmar argues that allowing
Plaintiffs to escape their obligations under the MSA would void the bargain reached by
the parties and eviscerate one of the primary causes of Delmar’s agreement to provide
deepwater mooring services to Plaintiffs in the first place.
Second, Delmar argues that many of the elements of damages claimed by
Plaintiffs were not proximately caused by Delmar, and are therefore not recoverable
regardless of the applicability of any contractual limitations.
II.

Discussion

Summary judgment is appropriate only if "the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if any," when viewed in the
light most favorable to the non-movant, "show that there is no genuine issue as to any material
fact." TIG Ins. Co. v. Sedgwick James, 276 F.3d 754, 759 (5th Cir. 2002) (citing Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 249-50 (1986)). A dispute about a material fact is "genuine" if
the evidence is such that a reasonable jury could return a verdict for the non-moving party. Id.
(citing Anderson, 477 U.S. at 248). The court must draw all justifiable inferences in favor of the
non-moving party. Id. (citing Anderson, 477 U.S. at 255). Once the moving party has initially
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shown "that there is an absence of evidence to support the non-moving party's cause," Celotex
Corp. v. Catrett, 477 U.S. 317, 325 (1986), the non-movant must come forward with "specific
facts" showing a genuine factual issue for trial. Id. (citing Fed. R. Civ. P. 56(e); Matsushita Elec.
Indus. Co. v. Zenith Radio, 475 U.S. 574, 587 (1986)). Conclusional allegations and denials,
speculation, improbable inferences, unsubstantiated assertions, and legalistic argumentation do
not adequately substitute for specific facts showing a genuine issue for trial. Id. (citing SEC v.
Recile, 10 F.3d 1093, 1097 (5th Cir. 1993)).
The Court has already ruled that maritime law governs this dispute between Plaintiffs and
Delmar. (Rec. Doc. 230). Thus, to the extent that the MSA’s various waivers and damage
limitations apply, they are enforceable. Plaintiffs do not contend otherwise. Further, although
Delmar raised many of the same arguments before the Court today as in its prior motion for
partial summary judgment (Rec. Doc. 176), the Court denied relief without prejudice. (Rec. Doc.
230 at 17). Therefore, the Court’s prior ruling does not foreclose any aspect of Delmar’s present
motion for summary judgment, and as the parties will note, some of the Court’s initial impressions
of the MSA have evolved over the last four years since the Court first considered it.
The Court recognizes that Delmar’s position in this case is that it played no role
whatsoever in the failure of the mooring system’s leg #2 (the CSL rope). Delmar’s
theory is that some external force cut or damaged the rope either after the AMOS
RUNNER was brought on site or during the six month interim that elapsed from the time
Delmar preset the system to the time when the AMOS RUNNER finally arrived for
mooring. The actual cause of the rope’s failure is a disputed issue of fact that is not
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presented in Delmar’s motion.
Furthermore, Delmar does not move for summary judgment on the issue of
whether it committed a breach of contract by incorporating the used CSL rope into the
mooring system. Delmar’s Bid #2599 does suggest that three new 800 ton polyester
ropes would be purchased at $115,000.00 each for legs 2, 6, and 7 of the mooring
system. (Rec. Doc. 296-3, Exh. 2). Plaintiffs’ understanding that all new ropes would be
used was not an unreasonable one in light of the deposition testimony of Delmar’s lead
engineer John H. Williams. Williams confirms that the original plan was to have all new
polyester ropes in the system. (Rec. Doc. 296-4, Exh. 3 at 136). Yet it is now known that
leg #2 of the system, which is the leg that failed, was not a new rope but instead a used
rope left over from the CSL joint interest field test program. Thus, the Court assumes for
present purposes that at the very least a breach of contract did occur when Delmar
incorporated the CSL rope into the mooring system. Of course even with a technical
breach of contract, if the evidence at trial establishes that Delmar’s fault is not the
proximate cause of Plaintiffs’ damages, i.e., that the rope did not fail but instead was
severed by an external force in the Gulf, then Plaintiffs recovery will be severely
limited. 3

3

Even if an external force beyond Delmar’s control cut the rope the Court questions whether
the used CSL rope was more vulnerable to severing because of any inherent defects in the
rope.
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A.

The MSA

The Court now turns to each of Delmar’s contentions regarding the MSA.
Although Delmar’s motion invites the Court to parse through Plaintiffs’ detailed list of
damages, the Court declines to do so in light of the fact-intensive nature of the damages
determination. But the following general rulings regarding the MSA will govern any
damages determination that the Court makes in conjunction with the trial.
1.

Section 14(d) of the MSA

Delmar contends that § 14(d) of the MSA forecloses all of Plaintiffs’ claims for
damages.
Section 14 of the MSA pertains to Warranties. (Rec. Doc. 284-5, Exh. BC-1). In
subpart 14(a) Plaintiffs agreed to waive the implied warranty of merchantability and the
implied warranty of fitness for a particular purpose. “The remedies of [Plaintiffs] for any
breach of warranty shall be limited to those provided herein.” Express warranties are
provided in subparts 14(b) and (c). Subpart 14(d) of the MSA provides the “sole and
exclusive remedy” such that if it is discovered that the goods sold or
design/engineering services rendered fail to conform to Delmar’s representations,
then Plaintiff’s sole and exclusive remedy shall be repair/replacement with no other
liability for any other costs and expenses. (Id. at 9).
Plaintiffs do not dispute that the MSA applies to all “service and work” for the
mooring system project. But according to Plaintiffs, § 14(d) does not apply on its own
terms because Delmar rented the mooring system to Plaintiffs so no goods were
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actually sold to Plaintiffs in the transaction. Plaintiffs’ position is that Bid #2599, which
called for new ropes, is a standalone contract that does not pertain to goods sold or
design/engineering services rendered — the specific factual predicate required by the
plain text of § 14(d). Plaintiffs point out that § 14(d) does not employ the broader
language referencing all “service and work” that is used in other sections of the MSA.
Plaintiffs argue that the different contractual language must be given effect, and that no
unfairness can result because Delmar actually drafted § 14(d) for inclusion in the MSA.
Delmar, on the other hand, argues that no significance should attach to the fact
that the mooring system equipment was rented as opposed to being sold because the
mooring system project was far broader than the equipment rental reflected in Bid
#2599. Delmar points out that the overall services provided on the mooring system
project as a whole did include design and engineering services, and the rental of the
equipment was just one aspect of Delmar’s services on the project. Delmar argues that
not covering the equipment rental under the subpart 14(d) exclusive remedy provision
simply ignores the fact that the rental of the mooring system was part and parcel of
Delmar’s services for this particular job.
The Court’s task in resolving these competing contentions is a difficult one
because both sides raise valid points and neither position is unreasonable. Even though
Delmar performed engineering and design services in conjunction with the nine-point
mooring system, there has been no allegation in this case that the system’s failure was
attributable to any deficiency in this area. On the contrary, the allegation is that if the
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system had been equipped in accordance with the design and specific equipment
proposal that Delmar gave Plaintiffs, then the failure would not have occurred. The
Court finds Plaintiffs’ position, which relies on a straightforward reading of the MSA’s
plain text, to be more reasonable, at least insofar as damages resulting from a breach of
contract are concerned. 4
2.

Consequential Damages

Delmar argues that Plaintiffs expressly waived all potential claims for
consequential damages yet the overwhelming majority of the $42 million that Plaintiffs
seek to recover is for costs and expenses that are “consequential” in nature.
Plaintiffs waived recovery for any consequential damages pursuant to § 21 of the
MSA. Plaintiffs do not contend otherwise. The dispute regarding this provision involves how
broadly the term “consequential damages” is defined. Plaintiffs deny that they are attempting to
recover any type of purely economic loss such as damages attributable to loss of production or
loss of profits. They argue that their damages are based on actual expenses that they incurred to
bring themselves to a position that they would have been in had the rope not failed.
The Court agrees that Delmar’s position relies on too broad a reading of the
consequential damages waiver. The Court is not suggesting that Delmar’s arguments lack merit
but they fall more appropriately under the rubric of proximate cause, not under the more narrow
4

The Court refers specifically to breach of contract because Delmar’s contention regarding
claims for breach of warranty are not so easily dismissed. Regardless of the factual predicate
contained in the exclusive remedy provision of subpart 14(d), subpart (a) specifically provides
that the remedy for any breach of warranty is limited to those provided herein, in other words in
§ 14(d).
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concept of consequential damages.
3.

Force Majeure

Delmar contends that many of the costs and expenses that Plaintiffs seek to
recover are precluded by the MSA’s force majeure provision because those costs were
due to causes and events beyond Delmar’s control.
Certain aspects of Plaintiffs’ expenses may very well trigger the MSA’s force
majeure provision in § 22 of the MSA. It is the Court’s understanding that Plaintiffs’
expenses and costs in the aftermath of the rope failure were in many ways increased by
third-party equipment shortages, governmental (MMS) regulations, and weather events.
The Court recognizes that Plaintiffs would not have incurred any of these costs if leg #2
of the mooring system had not failed but it remains that some of Plaintiffs’ additional
expenses might be attributable to causes beyond Delmar’s control. Whether Delmar
should ultimately be liable for those expenses really presents an issue of proximate
cause to be determined at trial. 5
4.

Property Damage—Indemnity

Delmar contends that Plaintiffs’ property damage claims (including damage to the

5

The Court found the parties’ competing arguments regarding the effect of loop currents in the
Gulf somewhat confusing in the context of the force majeure argument. The Court gathered
from Delmar’s briefing that its position was that it should not be liable for any delays in resetting
the AMOS RUNNER that were attributable to loop currents because this force of nature would
be an act of God covered by the force majeure waiver. But Plaintiffs’ argument in opposition —
that the mooring system had been designed specifically to withstand loop currents — seemed to
be directed at defending an allegation that loop currents had played some role in the failure of
the mooring system.
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well, damages to Schlumberger’s subsea test tree, the BOP, lost fluids and tools) are
barred by § 4(f) of the MSA, the indemnity or hold harmless provision, because Plaintiffs
expressly assumed the risk for damage to their own property and that of their
contractors and subcontractors.
Plaintiffs point out that Delmar is actually seeking indemnity for its own breach of
contract and that interpreting § 4(f) to allow Delmar to be indemnified for its own breach
of contract would be unreasonable. Further, Plaintiffs contend that the reciprocal
indemnity provision in § 4(d) in favor of Plaintiffs serves to cancel out the indemnity
provision in § 4(f).
The Court does not read § 4(d) and § 4(f) as cancelling each other out because
the Court does not read § 4(d) in the manner that Plaintiffs are interpreting it, i.e., that
Delmar agreed to indemnify Plaintiffs for any damage caused by Delmar’s equipment
(the rope). Rather, both subpart 4(d) and 4(f) are properly interpreted in the manner that
Delmar suggests, which is that each party agreed to be responsible for damages to the
property that it owned or leased from others, not for damages caused by the property.
Moreover, the Court is persuaded that § 4(f)’s use of the term “”other legal fault”
is broad enough to encompass liability for breach of contract. Corbitt v. Diamond M.
Drilling Co., 654 F.2d 329 (5th Cir. 1981), cited by Plaintiffs, does not hold otherwise.
Corbitt dealt with indemnity for contractual liability, not indemnity for liability for breach
of a contract.
Thus, any damage that the Court determines at trial to be fairly characterized as
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“property damage” — and items such as damage to the well, Schlumberger’s subsea
test tree and the BOP would seem to be fairly characterized as such — will not be
recoverable per subpart 4(f) of the parties’ MSA. Delmar’s motion is granted as to this
claim.
B.

Proximate Cause

Aside from the limitations imposed by the MSA, Delmar argues that the majority
of costs and expenses claimed by Plaintiffs were not proximately caused by any fault by
Delmar. Delmar argues that the majority of the damages claimed by Plaintiffs are made
up of costs and expenses which would have been incurred by Plaintiffs even if the rope
in leg #2 had not failed.
Delmar points out that the failed rope was repaired by April 28, 2007 yet Plaintiffs
contend that their damage period extends through June 20, 2007. According to Delmar,
Plaintiffs are basically trying to recover every expense that they incurred on the job
during this time period. Delmar contends that even if the exclusive remedy provision of
the MSA were not enforced for some reason, Plaintiffs are precluded nonetheless from
recovering the $37 million in additional expenses incurred from April 29, 2007 through
June 20, 2007, as these damages do not directly relate to the repair of the rope and are
indirect and consequential.
Delmar will only be liable for damages proximately caused by its fault. Plaintiffs
do not contend otherwise. The determination as to whether any specific item of
damages was proximately caused by Delmar is a fact-intensive determination that the
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Court will make following the trial on the merits.
C.

Attorney’s Fees

Delmar argues that Plaintiffs cannot recover attorney’s fees. Absent a statute or
enforceable contract, litigants in a maritime case generally must pay their own
attorney’s fees. Texas A&M Res. Found. V. Magna Transp., Inc., 338 F.3d 394,405 (5th
Cir. 2003) (quoting Galveston Cty. Nav. Dist. v. Hopson Towing Co., 92 F.3d 353, 356
(5th Cir. 1996)). The MSA does not provide for an award of attorney’s fees. Delmar’s
motion is granted as to this claim.
Accordingly, and for the foregoing reasons;
IT IS ORDERED that the Motion for Summary Judgment To Dismiss
Plaintiffs’ Claims Under Terms of the Master Service Contract and for Lack of
Causation (Rec. Doc. 284) filed by defendant/counterclaimant Delmar Systems, Inc. is
GRANTED IN PART AND DENIED IN PART as explained above.
October 27, 2016

JAY C. ZAINEY
UNITED STATES DISTRICT JUDGE

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