Gulf Production Company, Inc. v. Hoover Oilfield Supply, Inc. et al
Filing
532
ORDER AND REASONS denying 183 Motion for Partial Summary Judgment. Signed by Judge Ivan L.R. Lemelle. (Reference: all cases)(ijg, )
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
GULF PRODUCTION CO., INC., et al.
CIVIL ACTION NO. 08-5016
VERSUS
JUDGE LEMELLE
HOOVER OILFIELD SUPPLY, INC., et al.
MAGISTRATE JUDGE ROBY
ORDER AND REASONS
Before the Court is Defendant Ployflow, Inc’s Motion for
Partial Summary Judgment (Rec. Doc. No. 183), which is opposed by
Plaintiffs B&L Exploration, LLC (“B&L”), Ralaco Ventures, LLC
(“Ralaco”), Lake Eugenie Land & Development, Inc. (“Lake Eugenie”),
and 50196, LLC (“50196") (Rec. Doc. No. 205); Plaintiffs Gulf
Production, Inc., Gulf Explorer, LLC, and Kaiser-Francis Gulf Coast
(collectively, “Gulf”) (Rec. Doc. No. 267), and Plaintiff State of
Louisiana through the State Mineral and Energy Board (collectively,
“the State”) (Rec. Doc. No. 273).
For the following reasons, Polyflow’s Motion for Partial
Summary Judgment is DENIED.
Plaintiffs filed this diversity action to recover damages
resulting from alleged improper application of a natural gas flow
line. Plaintiffs Gulf, Ralaco, and B&L are working interest owners
and/or mineral lessees under a joint operating agreement with Gulf
Production. The State, 50196, and Lake Eugenie are royalty owners,
and B&L is also an over-riding royalty owner. The natural gas flow
line at issue was made with Thermoflex pipe, which is manufactured
1
by Polyflow. Co-Defendant Hoover Oilfield Supply, Inc. (“Hoover”)
is a certified distributer of Thermoflex pipe and requires that one
of
their
qualified
technicians
oversee
the
installation
and
fabrication of line pipe with Thermoflex. Hoover is not involved in
the instant Motion for Partial Summary Judgment.
Hoover entered into a contract with Gulf for the installation
of the natural gas flow line (“flow line”).
The flow line was to
be constructed with Thermoflex piping. The flow line was installed
to transport natural gas from two producing wells on St. Bernard
properties
over
land
owned
by
Plaintiff
Biloxi
Marsh
Lands
Corporation (“Biloxi”).
Gulf and the other working interest owners Ralaco and B&L are
participating members in a Joint Operating Agreement (“agreement”)
for the development, production, and sale of oil and gas or other
minerals from certain properties in St. Bernard Parish. Under the
agreement, Gulf became the designated operator. All parties to the
agreement contributed to the costs for development, recovery,
production, transmission, and sale of natural gas. Each working
interest owner was responsible for its share of all related costs
and expenses in the acquisition, fabrication, and installation of
the flow line. The State, 50196, and Lake Eugenie, as royalty
owners, were not required to pay for their royalty share of costs
and expenses.
Plaintiffs allege that representatives and technicians from
2
Defendants Hoover and Polyflow directed and participated in the
fabrication, construction, and installation of the flow line. Also,
Plaintiffs
allege
that
Defendants
confirmed
and
warranted
in
writing that the Thermoflex pipe was rated at a maximum operating
pressure of 1200 psi and a braid strength of over 1700 psi,
indicating the flow line’s fitness for the purpose of transporting
natural gas over long distances. On the say the construction of the
flow line was completed, it failed during a hydrostatic test at 756
psi. During the failure, the flow line ruptured in several places,
causing the pipe line to twist and coil over the marsh.
Plaintiffs filed suit against Defendants claiming, among
several causes of action, that because of the failure, the natural
gas could not be transported for sale, causing them substantial
damages. Plaintiffs also seek economic damages for the cost of
installing, removing, and storing the Thermoflex pipe. Defendant
Polyflow filed the instant Motion for Partial Summary Judgment,
seeking dismissal of the tort claims of the working interest owners
and the royalty owners (with the exception of the State).
Polyflow asserts that the deferred production tort claims of
the “Non-Operating Plaintiffs” (the working interest owners and
royalty owners, above) should be dismissed. Polyflow contends that,
under Louisiana’s duty/risk analysis of tort claims, the NonOperating Plaintiffs cannot prove any of the essential elements
required to attach liability, but focuses its argument on the scope
3
of protection element. (Rec. Doc. No. 183-2 at 4). Polyflow asserts
that there is no ease of association between the victims’ alleged
injuries, the alleged tort, and these plaintiffs’ alleged damages.
(Id. at 6). Furthermore, Polyflow asserts that the Non-Operating
Plaintiffs’ deferred production claims assert economic injuries
that do not fall within the scope of Polyflow’s general legal
duties not to manufacture defective products. (Id. at 7).
Polyflow asserts, secondly, that Plaintiffs Gulf and Biloxi’s
tort claims are improper under the Louisiana Products Liability
Act, which establishes the exclusive theories of liability for
manufacturers for damages caused by their products. Polyflow thus
argues that Gulf and Biloxi may maintain only a cause of action for
breach of the warranty against redhibitory defects, assuming a
vendor/vendee relationship exists. Id. at 7.
Plaintiffs B&L, Ralaco, 50196, and Lake Eugenie jointly filed
an opposition to Polyflow’s motion (Rec. Doc. No. 205), alleging
that Polyflow owed a duty to the Non-Operating Plaintiffs and that
there is an ease of association between the failure of Polyflow’s
product and the damages suffered by these Plaintiffs. Rec. Doc. No.
205
at
1.
The
further
assert
that
the
question
of
ease
of
association is a question of fact for the jury. Id. at 1-2.
Specifically, B&L, Ralaco, and Gulf assert that, as working
interest owners and participants to the Joint Operating Agreement,
they were co-purchasers and co-owners of the Thermoflex pipe. Id.
4
at 2. Thus, they argue, the failure of the pipe caused the working
interest owners direct and immediate damages, namely loss of the
purchase price of the pipe, loss of the installation costs of the
pipe, and loss of the economic interest in the sale of the gas that
would have been transported through the pipe. Id. at 3.
On the other hand, they argue that the remaining Non-Operating
Plaintiffs, the State, 50196, and Lake Eugenie, have claims against
Polyflow because Polyflow owes these plaintiffs a duty under
Article 2315 of the Louisiana Civil Code, which covers “every act
whatever of man that causes damage to another.” Plaintiffs assert
that they were directly and foreseeably damaged when the natural
gas
in
which
they
had
an
ownership
interest
could
not
be
transported to the point of sale. (Rec. Doc. No. 205 at 9).
Plaintiff Gulf, collectively, also opposes the Motion for
Partial Summary Judgment, asserting that a dismissal of Plaintiffs’
tort claims would be contrary to the law. (Rec. Doc. No. 267 at 2).
Gulf asserts that Polyflow is liable to the working interest owners
under the five-prong test of the Louisiana duty/risk analysis and
alleges that the facts of this case are distinguished from the
precedent cases which Polyflow seeks to apply. (Id. at 3-5).
Gulf
asserts
that
the
issue
of
the
Louisiana
Products
Liability Act was addressed by the Court in its Order and Reasons
denying Polyflow’s 12(b)(6) Motion to Dismiss (Rec. Doc. No. 28).
Gulf reiterates the arguments of other plaintiffs in opposition to
5
the motion to dismiss (Rec. Doc. No. 18), namely (1) that it has a
valid cause of action for the negligent conduct of Polyflow’s
agents, employees, and representatives that are separate and apart
from and unrelated to the condition or manufacture of the product,
and (2) that an action for economic damages caused by a breach of
the implied warranty of fitness (redhibition) is not subject to the
exclusivity provisions of the Louisiana Products Liability Act.
The State filed an opposition to the Partial Motion for
Summary Judgment (Rec. Doc. No. 273), despite the fact that
Polyflow did not bring this motion against the State. (Rec. Doc.
No. 273 at 1). The State adopts and incorporates the substance of
the memoranda filed by the other Plaintiffs and incorporates its
arguments
from
its
Reply
Brief
to
Polyflow’s
Objection
to
Magistrate Judge Roby’s Granting of the State’s Intervention (Rec.
Doc. No. 271). (Id. at 2).
A.
Summary Judgment Standard
Summary judgment is proper if the pleadings, depositions,
interrogatory
answers,
and
admissions,
together
with
any
affidavits, show that there is no genuine issue as to any material
fact and that the moving party is entitled to judgment as a matter
of law. Fed. R. Civ. P. 56(c); see also Celotex Corp. v. Catrett,
477 U.S. 317, 327 (1986). A genuine issue exists if the evidence
would
allow
a
reasonable
jury
to
return
a
verdict
for
the
nonmovant. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248,
6
(1986). Although the Court must consider the evidence with all
reasonable inferences in the light most favorable to the nonmoving
party, the nonmovant must produce specific facts to demonstrate
that a genuine issue exists for trial. Webb v. Cardiothoracic
Surgery Assocs. of N. Texas, 139 F.3d 532, 536 (5th Cir. 1998). The
nonmovant
must
go
beyond
the
pleadings
and
use
affidavits,
depositions, interrogatory responses, admissions, or other evidence
to establish a genuine issue. Id. Accordingly, conclusory rebuttals
of the pleadings are insufficient to avoid summary judgment.
Travelers Ins. Co. v. Liljeberg Enter., Inc., 7 F.3d 1203, 1207 (5th
Cir. 1993).
B.
Non-Operating Plaintiffs’ Tort Claims
Polyflow’s Motion for Partial Summary Judgment on Tort Claims
seeks dismissal of the Non-Operating Plaintiffs’ tort claims for
deferred production damages under La. Civ. Code art. 2315. (Rec.
Doc. No. 183-2 at 2). Louisiana courts have adopted a duty-risk
analysis in determining whether to impose liability under La. Civ.
Code art. 2315. Pinsonneault v. Merchants & Farmers Bank & Trust
Co.,
01-2217
(La.
4/3/02),
816
So.2d
270,
276.
Under
this
negligence duty/risk analysis, a plaintiff must establish that (1)
the defendant had a duty to conform his or her conduct to a
specific standard of care (the duty element); (2) the defendant
failed to conform his or her conduct to the appropriate standard of
care (the breach of duty element); (3) the defendant’s substandard
7
conduct was a cause-in-fact of the plaintiff’s injuries (the causein-fact element); (4) the defendant’s substandard conduct was a
legal cause of the plaintiff’s injuries (the scope of protection
element); and (5) the plaintiff suffered actual damages (the damage
element).Id. The existence of a duty is a question of law, as is
the question of whether a specific risk is included within the
scope of the duty owed. Ellison v. Conoco, Inc., 950 F.2d 1196,
1205 (5th Cir. 1992).
Polyflow focus its motion on negating the scope of protection
element (Rec. Doc. No. 183-2). Polyflow cites PPG Industries, Inc.
v. Bean Dredging, 442 So.2d 1058 (La. 1984) as support for entry of
partial summary judgment. (Rec. Doc. No. 183-2 at 5-6). Polyflow
asserts that the economic injuries alleged by the Non-Operating
Plaintiffs, as analyzed under PPG Industries, do not fall within
the scope of Polyflow’s duty not to manufacture defective products.
(Rec. Doc. No. 183-2 at 7).
In PPG Industries, the defendant’s dredging operations damaged
a natural gas pipeline owned by Texaco, which had contracted to
supply natural gas to PPG. 442 So.2d at 1059. As a result of the
damage to the pipeline, PPG was forced to obtain natural gas from
another source. PPG sued the dredging company seeking recovery of
the additional costs expended to obtain gas. Id. Bean Dredging, the
dredging company, filed an exception of no cause of action,
contending
that
Louisiana
has
never
8
recognized
the
right
of
recovery for negligent interference with contractual relations. Id.
at 1060. The Louisiana Supreme Court abandoned per se exclusion of
such claims that Louisiana courts had previously adopted, and
instead applied a duty/risk analysis to determine whether PPG’s
claims fell within the scope of Bean Dredging’s duty. Id. at 1061.
The court stated that “there must be an ease of association between
the rule of conduct, the risk of injury, and the loss sought to be
recovered.” Id. The court denied recovery to PPG because Bean
Dredging’s duty not to negligently damage property belonging to
Texaco “did not encompass the particular risk of injury sustained
by PPG and did not intend protection from the particular loss for
which recovery is sought in PPG’s petition.” Id. at 1062. The
Louisiana Supreme Court denied recovery in order to avoid creating
liability “in an indeterminate amount for an indeterminate time to
an indeterminate class.” Id. at 1061 (internal citation omitted).
The court made a policy decision on the limitation of recovery of
damages, drawing the line of limitation based on the court’s
determination of the scope of Bean Dredging’s duty. Id. at 1061-62.
Similarly, in the Fifth Circuit, “the primary indicator of
duty is whether the harm suffered by the plaintiff was foreseeable.
Harm is foreseeable if harm of a general sort to persons of a
general
class
might
have
been
anticipated
by
a
reasonably
thoughtful person, as a probable result of the act or omission,
considering the interplay of natural forces and likely human
9
intervention.” Crear v. Omega Protein, Inc., 86 Fed.Appx. 688, 69091 (5th Cir. 2004)(internal citations omitted).
Here, Polyflow asserts that the duty/risk analysis, as applied
to the facts of this case, supports a partial summary judgment by
negating the scope of protection element. (Rec. Doc. No. 183-2 at
4). Polyflow alleges that its duty not to manufacture defective
products did not encompass the risk of injury sustained by the NonOperating Plaintiffs for deferred production tort claims.
However, Polyflow has not negated the scope of protection
element, as a matter of law, because the duty/risk analysis of PPG
Industries
does
not
preclude
Plaintiffs
under
the
facts
distinguishable
for
three
recovery
of
this
reasons:
by
case.
(1)
the
PPG
there
Non-Operating
Industries
is
an
ease
is
of
association between Polyflow’s duty not to manufacture defective
products and the Non-Operating Plaintiffs’ harm; (2) the NonOperating Plaintiffs incurred economic losses that were direct; and
(3) allowing the Non-Operating Plaintiffs’ claims to go forward
would not create liability in an indeterminate amount for an
indeterminate time to an indeterminate class. Therefore, Polyflow’s
Motion for Partial Summary Judgment on Tort Claims must be denied.
First, in order to determine whether Polyflow has negated the
scope of protection element, the proper inquiry is “how easily the
risk of injury to plaintiff can be associated with the duty sought
to be enforced.” Roberts v. Benoit, 605 So.2d 1032, 1045 (La.
10
1991). Absent an ease of association between the duty breached and
the damages sustained, legal fault is lacking. Id. Here, there is
an ease of association between Polyflow’s duty not to manufacture
defective products and the Non-Operating Plaintiffs’ harm. Injury
to the Non-Operating Plaintiffs was foreseeable when the pipeline
was installed as the only means by which the natural gas produced
from the well would be transported from the well to the point of
sale. The Non-Operating Plaintiffs as working interest owners or
mineral interest owners were the beneficiaries of any sale of
natural gas produced from the two wells at issue, so it was
foreseeable when the pipeline was installed that any failure in the
pipeline would have injured the Non-Operating Plaintiffs.
However, “[a]lthough the ease of association encompasses the
idea of foreseeability, it is not based on foreseeability alone.”
Roberts, 605 So.2d at 1045. Here, there is an ease of association
because there are no attenuating factors to make association more
difficult.
The
Non-Operating
Plaintiffs
would
have
directly
benefitted from the sale of natural gas that would have been
produced from the wells at issue and transported to the point of
sale through a working pipeline, but for the failure of Polyflow’s
allegedly defective pipeline. There is no attenuating factor, such
as a third-party purchaser of the gas from the injured pipeline
owner as in PPG Industries.
PPG
Industries
had
no
Contrary to the instant plaintiffs,
direct
relationship
11
with
the
alleged
tortfeasor. PPG Industries, Inc. v. Shell Oil Co., 447 So.2d 1058
(La. 1984). Polyflow’s duty not to manufacture a defective pipeline
is easily associated with the economic injuries sustained by the
parties who stood directly to benefit from the production of
natural gas delivered to the point of sale by way of a working
pipeline. Accordingly, Polyflow has not negated the scope of
protection
element
under
the
duty/risk
analysis
of
the
Non-
Operating Plaintiffs’ claims.
The rationale employed in PPG Industries is inapplicable here
because the Non-Operating Plaintiffs incurred direct economic
losses. In PPG Industries, PPG was a contract customer of the
pipeline owner (Texaco) which was forced to seek and obtain natural
gas at a higher price from another supplier because a dredging
company negligently damaged Texaco’s pipeline. 442 So.2d at 1059.
The Louisiana Supreme Court characterized PPG as a plaintiff “whose
only
interest
in
the
pipeline
damaged
by
the
tortfeasor’s
negligence arose from a contract to purchase gas from the pipeline
owner.” Id. at 1061. The court stated that PPG Industries brought
“into focus the broad question of recovery of an indirect economic
loss incurred by a party who had a contractual relationship with
the owner of property negligently damaged by a tortfeasor.” Id. at
1059. Here, in contrast, the Non-Operating Plaintiffs’ deferred
production claims under La. Civ. Code art. 2315 produced credible
evidence that they suffered direct economic damages from the gas
12
not being able to be transported through Polyflow’s allegedly
defective product. (Rec. Doc. No. 205 at 7). The working interest
owners and mineral interest owners are not alleging that Polyflow
negligently interfered with the performance of a contract; they
allegedly lost revenues directly from their inability to transport
the natural gas from the wells to the point of sale through the
ruptured pipeline. Id. Therefore, the rationale employed in PPG
Industries
is
inapplicable
to
the
damages
alleged
here,
and
Polyflow has failed to negate the scope of protection element under
the duty/risk analysis of the Non-Operating Plaintiffs’ claims.
Finally, allowing the Non-Operating Plaintiffs’ claims to go
forward would not create liability in an indeterminate amount for
an indeterminate time to an indeterminate class; therefore the
concerns expressed in
PPG Industries
do not apply here. The
Louisiana Supreme Court, in denying recovery to PPG, considered the
policy implications of imposing responsibility on the dredging
company for indirect economic losses and expressed concern that
“the list of possible victims and the extend of economic damages
might be expanded indefinitely.” PPG Industries, 442 So.2d at 106162.
The
court
“necessarily
[made]
a
policy
decision
on
the
limitation of recovery of damages” based on the facts of that case.
Id. Here, the undisputed facts show that there are a limited number
of working interest owners and royalty interest owners, such that
the class of plaintiffs is not indeterminate and the list of
13
possible victims is not in danger of indefinite expansion.
The
concerns
that
formed
the
basis
of
PPG
Indsutries’
limitation of recovery do not apply here, so the economic injuries
alleged by the Non-Operating Plaintiffs do not fall outside the
scope of Polyflow’s duty not to manufacture defective products.
Moreover, the Non-Operating Plaintiffs can carry their burden of
production as to the other elements of the duty/risk analysis.
Summary judgment on their tort claims is denied.
C. Exclusivity of Louisiana Products Liability Act
In
Order
and
Reasons
dismissing
Defendants
Hoover
and
Polyflow’s Motion to Dismiss claims under Federal Rule of Civil
Procedure 12(b)(6), this Court found that negligence, negligent or
intentional
misrepresentation, and redhibition/breach of implied
warranty of fitness claims could be supported under the facts of
this case. (Rec. Doc. No. 28 at 17).
Polyflow correctly points out that the prima facia burden of
proof necessary to survive a motion to dismiss is much less than
the burden necessary to survive a motion for summary judgment.
(Rec. Doc. No. 324 at 4). However, in summary judgment practice,
when the non-moving party bears the burden of proof as to an issue,
the movant must point to an absence of evidence supporting it, thus
shifting to the non-movant the burden of demonstrating by competent
summary judgment proof that there is an issue of material fact
warranting trial. Lindsey v. Sears Roebuck & Co., 16 F.3d 616, 618
14
(5th Cir. 1994) (citing Celotex Corp. V. Catrett, 477 U.S. 317
(1986)). Polyflow attempts to
re-litigate the purely legal issue
of whether the claims are permitted in light of the Louisiana
Products Liability Act. This Court has already ruled that the
actions may be maintained. As such, summary judgment on this issue
is denied.
New Orleans, Louisiana, this 30th day of September, 2011.
______________________________
UNITED STATES DISTRICT JUDGE
15
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