TruSouth Oil L L C v. Burlington Insurance Co et al
Filing
134
MEMORANDUM RULING: denying 64 Motion for Partial Summary Judgment. Signed by Magistrate Judge Mark L Hornsby on 10/01/12. (crt,Delgado, S)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF LOUISIANA
SHREVEPORT DIVISION
TRUSOUTH OIL, LLC
CIVIL ACTION NO. 11-cv-0493
(Consolidated with 11-cv-1256)
VERSUS
BURLINGTON INSURANCE CO., ET AL
MAGISTRATE JUDGE HORNSBY
MEMORANDUM RULING
TruSouth Oil, LLC (“TruSouth”) bought a petroleum product from PetroTech Energy,
LLC (“PetroTech”) and used it to make hydraulic fluid. TruSouth then sold its hydraulic fluid
to its customers, many of whom are in the logging business. PetroTech changed the formula
for its product but did not tell TruSouth that the new formula contained bio-oil, which some
experts say is not suitable for making hydraulic fluid. Customers who used TruSouth’s
hydraulic fluid began reporting problems with their equipment. TruSouth believes the
problems were caused by the bio-oil that came from PetroTech.
American International Specialty Lines Insurance Company provided insurance to
TruSouth. As TruSouth’s customers asserted claims of damaged or destroyed equipment
caused by the hydraulic fluid, the insurer, now known as Chartis Specialty Insurance Co.
(“Chartis”), paid them millions of dollars on behalf of TruSouth. Chartis then filed a civil
action against PetroTech in state court, which PetroTech removed based on diversity
jurisdiction. The case was consolidated with a similar suit that TruSouth filed against
PetroTech and its insurer. Before the court is PetroTech’s Motion for Partial Summary
Judgment (Doc. 64) that argues Chartis does not have a valid legal basis on which to assert
a claim against PetroTech.
Chartis’s petition alleges the facts regarding the change in formula and damage to
Trusouth’s customers’ equipment. The insurer then alleges that it has made payments and
continues to make payments to TruSouth or on behalf of TruSouth for damages to the third
parties caused by the defective blended base stock made by PetroTech. Petition, ¶ 21.
Chartis asserts that it is now legally and equitably subrogated to the rights of TruSouth
against PetroTech to the extent the insurer has paid and continues to pay proceeds to or on
behalf of TruSouth. ¶ 22. Chartis represents in its memorandum that it has produced to
PetroTech written settlement agreements with the TruSouth customers, and the agreements
contain assignments to Chartis of the rights of the customers in redhibition or otherwise that
the customers may have against PetroTech.
A seller such as PetroTech is deemed to know that the thing he sells has a redhibitory
defect when he is a manufacturer of that thing. La. Civ. Code art. 2545. A seller who knows
that the thing he sells has a defect but omits to declare it is liable to the buyer for the return
of the price, reimbursement of the “reasonable expenses occasioned by the sale,” and also
for damages and reasonable attorney fees. Id. The basic purpose of the remedy is to return
the parties to their original position, to restore the status quo. Hollybrook Cottonseed
Processing, LLC v. Carver, Inc., 2011 WL 2214936, *3 (W.D. La. 2011). For example, the
plaintiff who purchased a defective building for part of its business operations was allowed
to recover damages including the cost of removing its inventory from the building, overtime
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wages to employees required to replenish the inventory after the building was suitable, the
cost to transport the inventory to another facility, and the like. A. Copeland Enterprises, Inc.
v. Harimaw, Inc., 528 So.2d 707, 714 (La. App. 5th Cir. 1988).
The obligation of TruSouth to repair the damage to its customers’ equipment is an
entirely foreseeable consequence of (allegedly) providing TruSouth a component for its
hydraulic fluid that was not suitable for such a purpose. The payments to the customers
appear to fall comfortably within the scope of the damages and expenses that may be
recovered under Art. 2545. PetroTech has not cited any authority that would negate that
conclusion or suggest the remedy is too narrow to permit such items of recovery. Chartis
paid those amounts on behalf of TruSouth and became subrogated to TruSouth’s rights with
respect to those amounts. Chartis is entitled to stand alongside TruSouth in this litigation and
attempt to make out a claim in redhibition against PetroTech and recover the amounts it has
paid on TruSouth’s behalf if the claim is established. Accordingly, PetroTech’s Motion for
Partial Summary Judgment (Doc. 64) is denied.
THUS DONE AND SIGNED in Shreveport, Louisiana, this 1st day of October, 2012.
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