Drill Cuttings Disposal Co L L C v. Kem-Tron Technologies Inc

Filing 68

REASONS FOR JUDGMENT. The parties are directed to file a proposed judgment for the Courts consideration, in accord with these reasons, approved by both counsel as to form, within ten (10) days. Signed by Magistrate Judge C Michael Hill on 10/14/2010. (crt,Davenport, M)

D r i l l Cuttings Disposal Co L L C v. Kem-Tron Technologies Inc

D o c . 68

UNITED STATES DISTRICT COURT W E S T E R N DISTRICT OF LOUISIANA L A F A Y E T T E DIVISION D R I L L CUTTINGS DISPOSAL CO., L .L .C . VS. K E M -T R O N TECHNOLOGIES, INC. * C I V I L ACTION NO. 08-1837

* *

M A G I S T R A T E JUDGE HILL B Y CONSENT OF THE P A R T IE S

R E A S O N S FOR JUDGMENT O n July 27-28, 2010, the Court conducted a bench trial of this matter. Appearing fo r the parties were Alan K. Breaud, representing plaintiff, Drill Cuttings Disposal Co., L .L .C . ("DCDC"), and John T. Nesser, IV, representing defendant, Kem-Tron T e c h n o lo g ie s, Inc. ("Kem-Tron"). The parties filed post-trial briefs, after which the C o u rt took the matter under advisement. For the following reasons, the Court will award ju d g m e n t in favor of plaintiff, DCDC. T h e following findings of fact and conclusions of law are made pursuant to Fed. R. C iv . P. 52. To the extent that any finding of fact constitutes a conclusion of law, the C o u r t hereby adopts it as such, and to the extent that any conclusion of law constitutes a fin d in g of fact, the Court hereby adopts it as such.

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F in d in g s of Fact 1. D C D C provides equipment, labor, parts, supplies, and rentals for the disposal of d rillin g cuttings, which are materials removed from the borehole while drilling w e lls for the production of petroleum. 2. K e m - T r o n specializes in the design, manufacture, and supply of solids separation a n d polymer application equipment for petroleum production. 3. In July, 2008, Kem-Tron's Vice-President of Technical Services, David Reardon ("R e a rd o n " ), contacted DCDC's President, Jeffrey Reddoch, Jr. ("Reddoch"), re g a rd in g the rental of a cuttings dryer for use on two wells in the Haynesville S h a le area in North Louisiana. 4. B y letter dated July 2, 2008, DCDC, through Reddoch, presented a bid to KemT ro n for the rental of a cuttings dryer in connection with a job being performed by K e m - T r o n 's customer, EnCana Oil & Gas (USA), Inc. ("EnCana"), in the H a y n e s v ille Shale area. 5. O n July 3, 2008, Reardon signed and accepted the bid on behalf of Kem-Tron (the " le tte r agreement"), and returned the executed letter agreement to DCDC by fa c sim ile . 6. P u r s u a n t to the letter agreement, Kem-Tron agreed to rent the dryer from DCDC at th e standard price of $1,500.00, which DCDC discounted to $800.00 per day based o n a 90 day or longer rental period. 7. In turn, Kem-Tron billed EnCana $1,150.00 per day for the dryer rental. Page 2

8.

D C D C also supplied personnel to install the equipment and perform monthly in s p e c tio n s at the rate of $550.00 per day.

9.

P u r s u a n t to the letter agreement, the operator was responsible for "[r]ig up/down, w e ld in g , electricians, assembly, connecting piping, electrical wire, shipping, flig h ts , taxis, taxes, trucking/transport, stands, catering/subsistence and housing."

10.

T h e "Terms and Conditions" provisions of the letter agreement provided that " [e ]q u ip m e n t and rental personnel charges are shop to shop." The Court finds that th e term "shop to shop" meant that DCDC was to charge, and Kem-Tron was to p ay , for the leased equipment from the day that equipment/personnel left DCDC's s h o p until the day the equipment was returned to DCDC.

11.

T h e letter agreement provided that "[e]quipment/personnel/supplies/parts, eq u ip m en t/p erso n n el transport not specifically quoted will be supplied at standard lis t price or cost plus 15%."

12.

K e m -T ro n did not have some of the equipment required for operation of the dryer. Accordingly, DCDC provided these additional items, which included a generator, v a c u u m , auger runs, and auger drives.

13.

T h e letter agreement provided that repair charges "are billed at cost to repair plus 1 5 % ." . . . "Screens are $2600.00 each with return of screen body. A replacement s c re e n will be charged at end of job."

14.

D C D C offered Kem-Tron a five percent (5%) discount for prompt payment of in v o i c e s. Page 3

15.

T h e letter agreement provided that after the unit was operating to DCDC and KemT ro n 's satisfaction, Kem-Tron's personnel could take over operation, but KemT r o n was responsible for all normal maintenance and any damages/loss.

16. 17.

D C D C believed that Kem-Tron was a bad credit risk. R e d d o c h testified, and the Court accepts that testimony as true, that from the p e rsp e c tiv e of DCDC, it took from four to six months of timely payments to e s ta b lis h acceptable credit with DCDC.

18.

U n d e r the "Payment terms" section of the letter agreement, DCDC billed KemT ro n at the beginning of each month or ship date, one month at a time, net 30 days. Late fees applied for all late payments received after 30 days at 5% of the total in v o ic e per month. If collection was required, a 25% attorney fee applied.

19.

T h e letter agreement provided that any changes to prices or instructions "must be a g re e d in writing."

20.

T h e dryer was shipped to North Louisiana for work on the Nabors F-20 drilling rig (" N a b o rs rig") on July 14, 2008, and rigged up on July 15, 2008.

21.

B y invoice number KTN-07-08-1 dated July 21, 2008, DCDC billed Kem-Tron for $ 2 4 ,9 7 0 .1 3 , less the 5% discount for prompt payment, for a total of $23,721.62. T h is invoice was for personnel and related costs on the Nabors rig job.

22.

B y invoice number KTN-07-08-2 dated July 21, 2008, DCDC billed Kem-Tron for $ 3 9 ,9 6 0 .0 0 , less the 5% discount for prompt payment, for a total of $37,962.00. This invoice related to equipment rental for 18 days on the Nabors rig job. Page 4

23.

B y invoice number KTN-07-08-3 dated July 21, 2008, DCDC billed Kem-Tron for $ 7 1 ,1 4 5 .0 0 , less the 5% discount for prompt payment, for a total of $67,587.75. This invoice related to equipment rental for 31 days on the Nabors rig job.

24.

O n July 23, 2008, Reddoch met with Reardon at his office in Houston, Texas, w h e re Reardon signed the first three invoices, thus evidencing acceptance of the in v o i c e s.

25.

In an e-mail from Reddoch to Robert McDonald ("McDonald") of Kem-Tron d a te d July 25, 2008, Reddoch stated that "per the bid, we pre-bill for rental eq u ip m en t, however, this will change once credit is established. Also, if there are a n y days you can't charge for, like rig moves, we will credit on future invoices." A copy of this e-mail was sent to Reardon.

26. 27.

K e m -T ro n did not respond to this email. O n August 11, 2008, Kem-Tron paid the amount of $129,271.37 to DCDC by c h e c k number 20855. This check included payment in full for invoices KTN-07-1 ($2 3 ,7 2 1 .6 2 ), KTN-07-2 ($37,962.00), and KTN-07-3 ($67,587.75).

28.

In August, 2008, Kem-Tron requested another dryer from DCDC for the Precision # 6 3 0 drilling rig ("Precision rig") in the Haynesville Shell area.

29.

B y invoice number KTN-07-08-4 dated August 6, 2008, DCDC billed Kem-Tron fo r $16,694.44 for personnel and related costs as well as equipment costs in c o n n e c tio n with the Precision rig.

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30.

B y invoice number KTN-07-08-5 dated August 6, 2008, DCDC billed Kem-Tron fo r $9,990.00 for equipment rental for the Precision rig.

31.

B y invoice number KTN-07-08-6 dated August 15, 2008, DCDC billed Kem-Tron fo r $34,410.00 for equipment rental for the Precision rig.

32.

B y invoice number KTN-07-08-7 dated September 15, 2008, DCDC billed KemT ro n for $52,647.00 for equipment rental for the Precision rig.

33.

B y invoice number KTN-07-08-8 dated September 15, 2008, DCDC billed KemT ro n for $62,551.50 for equipment rental for the Nabors rig.

34.

B y invoice number 146947 dated September 17, 2008, Southland Electric Rental (" S o u th la n d " ) billed Kem-Tron $3,700.00 for equipment provided to Kem-Tron by S o u th lan d from August 1-30, 2008, to wit, the lease of an electrical distribution panel.

35.

P r io r to authorizing the issuance of a check to Southland to pay this invoice, KemT ro n 's assistant controller, Ranga Kandoor ("Kandoor"), called Southland and asked fo r a reduction on the invoiced amount based on the number of days Kem-Tron a c tu a lly used Southland's equipment.

36.

S o u th la n d agreed to reduce the amount owed on the invoice to $2,400.00 based on 20 d a y s of actual use instead of 30 days as per the invoice.

37.

O n November 19, 2008, Kem-Tron issued a check in the amount of $2,400.00 to S o u th la n d .

38.

In August, 2008, Kem-Tron re-negotiated with EnCana the rental of DCDC's c u ttin g s dryer, reducing EnCana's daily rate from $1,150 to $575.00 per day. Page 6

39.

B y invoice number KTN-07-08-9, DCDC billed Kem-Tron for $2,787.00 for p e rs o n n e l costs associated with the Nabors rig.

40.

B y invoice number KTN-07-08-10, (dated September 15, 2008), DCDC billed K e m - T r o n for $1,600.65 for the Precision rig.

41.

B y invoice number KTN-07-08-11 dated September 22, 2008, DCDC billed KemT ro n $39,240.00 for equipment rental for the Precision rig.

42.

B y invoice number KTN-07-08-10 (repeated number) dated October 14, 2008, DCDC b ille d Kem-tron for $5,661.06 for personnel costs and equipment rental for the N a b o rs Rig.

43.

B y invoice number KTN-07-08-12 dated October 14, 2008, DCDC billed Kem-Tron $ 1 8 ,6 4 8 .7 5 for personnel costs and equipment rental for the Precision rig.

44.

D C D C did not charge sales taxes on invoices KTN-07-08-1 through KTN-07-08-6 a n d KTN 07-08-9.

45.

D C D C charged sales taxes on invoice numbers KTN-07-08-7, KTN-07-08-8, KTN0 7 -0 8 -1 0 (on both the original and mis-numbered invoice), KTN-07-08-11, KTN-070 8 -1 3 , and KTN-07-08-14. DCDC charged $48.15 in sales tax under invoice number K T N -0 8 -1 2 .

46.

O n October 24, 2008, Kem-Tron made a wire transfer payment of $81,119.55 to D C D C . This is the only amount paid on these invoices.

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47.

D C D C assessed finance charges against Kem-Tron by invoice number FC 1 dated S e p te m b e r 15, 2008, in the amount of $495.21; FC 4 dated October 1, 2008, in the a m o u n t of $1,606.87; FC 6 dated October 15, 2008, in the amount of $1,406.01; F C 7 dated October 24, 2008, in the amount of $1,835.45, and FC 8 dated October 2 4 , 20008, in the amount of $966.65.

48. 49.

K e m -T ro n stopped renting equipment from DCDC on September 30, 2008. O n October 1, 2010, DCDC began renting equipment for EnCana to Steve Kent T ru c k in g .

50.

B y invoice number KTN-07-08-13 dated November 25, 2008, DCDC billed KemT ro n $32,686.56 for damages to the cuttings dryer on the Precision rig. This in c lu d e d a charge of $2,800.00 for replacement of the dryer screen.

51.

It is unknown whether the damages to the dryer occurred while it was being rented to Kem-Tron, Steve Kent Trucking or EnCana.

52.

B y invoice number KTN-07-08-14 dated October 31, 2008, DCDC billed KemT ro n $9,882.02 for two dryer screens and oil filters on the Nabors rig.

53.

B y invoice number ENC-07-08-3 dated November 18, 2008, DCDC billed EnCana $ 2 ,8 0 0 .0 0 for a dryer screen on the Nabors rig.

54.

B y invoice number ENC-07-08-1 dated November 18, 2008, DCDC billed EnCana $ 2 ,8 0 0 .0 0 for a dryer screen on the Precision rig.

55.

O n October 31, 2010, Attorney Steven C. Lanza of the Onebane Law Firm sent a d e m a n d letter on behalf of DCDC to Kem-Tron demanding payment of the balance Page 8

o f $169,421.04. This amount included the amounts remaining due under invoice n u m b e rs KTN-07-08-4, KTN-07-08-5, KTN-07-08-6, FC 1, KTN-07-08-7, KTN0 7 -0 8 -8 , KTN-07-08-9, KTN-07-08-10, KTN-07-08-11, FC 4, KTN-07-08-10, K T N -0 7 -0 8 -1 2 , FC 6, FC 7 and FC 8, less the wired funds of $81,119.55 received b y DCDC on October 24, 2008. 56. R ea d in g the July 25, 2008 e-mail from Reddoch to McDonald, as a whole, DCDC w a s willing to credit future invoices for any days which Kem-Tron could not c h a rg e its customer for, like rig moves, "once credit is established." 57. 58. K e m -T ro n never established credit with DCDC. R e a r d o n ' s approval of the first three invoices and Kem-Tron's payment of these in v o ic e s in full clearly confirms Kem-Tron's understanding that it owed for rental o f the equipment on a shop-to-shop basis, and not just for the days Kem-Tron a c tu a lly used the equipment. 59. K e m - T r o n called Southland and asked for a reduction of the rental based on the n u m b e r of days Kem-Tron actually used Southland's equipment on the EnCana jo b , which was agreed to by Southland. 60. K e m - T r o n never contacted DCDC to ask for a similar modification; Kem-Tron had n o such agreement with DCDC. 61. T h e letter agreement between Kem-Tron and DCDC was never modified in w riting . DCDC never verbally agreed to modify the letter agreement.

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62.

K e m - T r o n never made any contact with DCDC in which it (Kem-Tron) indicated th a t it believed that the "shop to shop" payment term in the letter agreement had b e e n modified.

63.

T h e Court finds that DCDC did not prove that the damages to the dryer were c a u se d by Kem-Tron, as it is unknown whether the damages to the dryer occurred w h ile it was being rented to Kem-Tron, Steve Kent Trucking or EnCana.

64.

T h ere was no evidence that proved whether the damages to the DCDC dryer were d u e to misuse or normal wear and tear.

65.

T h e Court finds as fact that the dryer on the Precision rig was damaged while it w a s leased to EnCana, and that EnCana paid for the dryer damages.

66. 67.

T h u s , DCDC can only recover payment for one of the dryer screens. W h ile the Blanket Certificate of Exemption from sales tax for Steve Kent In v e stm e n ts , Inc. was introduced as an exhibit, Kem-Tron produced no evidence sh o w in g that it had filed the necessary documents with the State of Louisiana in o rd e r to be exempt from sales tax.

68.

T h e letter agreement provided that if collection was required, a 25% attorney fee w o u ld apply. DCDC had to retain counsel and institute collection efforts against K e m -T ro n to collect the amounts due under the letter agreement.

69.

DCDC is a Louisiana Limited Liability Company, domiciled in Lafayette Parish L o u is ia n a . Kem-Tron is a Texas Corporation doing business in Louisiana.

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C o n c lu s io n s of Law 1. T h is Court has diversity jurisdiction in this case pursuant to 28 U.S.C. § 1332. Accordingly, Louisiana law applies. Wampold v. E. Eric Guirard, 442 F.3d 269 (5 th Cir. 2006). 2. A contract is an agreement by two or more parties whereby obligations are created, m o d ifie d , or extinguished. LA CIV. CODE art. 1906. 3. C o n tra c ts have the effect of law for the parties and may be dissolved only through th e consent of the parties or on grounds provided by law. Contracts must be p e rfo rm e d in good faith. LA. CIV. CODE art. 1983. 4. In te rp re ta tio n of a contract is the determination of the common intent of the p a rtie s. LA. CIV. CODE art. 2045. 5. T o determine the parties' intent, courts must first look to the words and provisions o f the contract. When they are clear and explicit, no further interpretation may be m a d e in search of the parties' intent. Amend v. McCabe, 95-0316 (La. 12/01/95); 6 6 4 So.2d 1183, 1187. 6. T h e words of a contract must be given their generally prevailing meaning. Words o f art and technical terms must be given their technical meaning when the contract in v o lv e s a technical matter. LA. CIV. CODE art. 2047. 7. W o rd s susceptible of different meanings must be interpreted as having the m e a n in g that best conforms to the object of the contract. LA. CIV. CODE art. 2048. Page 11

8.

A contract provision susceptible of different meanings must be interpreted with a m ea n in g that renders it effective and not with one that renders it ineffective. LA. C IV IL CODE art. 2049.

9.

E a c h provision in a contract must be interpreted in light of the other provisions so th a t each is given the meaning suggested by the contract as a whole. LA. CIV. C O D E Art. 2050.

10.

A contract is binding between two parties when an offer is made by one of the p a rtie s and acceptance is made by the other party, thereby establishing a c o n c u rr e n c e in understanding the terms. Shreveport Elec. Co., Inc. v. Oasis Pool S e rv ic e , Inc., 38,776 (La. App. 2 Cir. 9/29/04); 889 So.2d 274, 279 (citing Tyler v. H a y n e s, 99-1921 (La. App. 3 Cir. 05/03/00); 760 So.2d 559).

11.

T h e letter agreement between DCDC and Kem-Tron is a legally binding contract u n d e r Louisiana law.

12.

U n d e r the terms of letter agreement, Kem-Tron was bound to pay for rental of the D C D C equipment for each day, from the day the equipment left DCDC's shop u n til the day it was returned to DCDC.

13. 14.

DCDC and Kem-Tron never agreed to modify the letter agreement. U n d e r the letter agreement, Kem-Tron was obligated to pay sales tax. Since the c o u rt found no evidence that the necessary documents were filed with the State of L o u is ia n a to exempt Kem-Tron form paying sales tax, the Court finds that KemT ro n was obligated to pay sales tax according to law.

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15.

U n d e r the letter agreement, late fees applied for all late payments received after 30 d a y s at 5% of the total invoice per month. Thus, Kem-Tron is liable for the late fe e on each invoice from the date it became 30 days past due until paid.

16.

T h e final wire transfer payment of $81,119.55 dated October 24, 2008, will be a p p lie d to oldest invoices first, to penalties then principal. There being no p ro v isio n to the contrary in the letter agreement, the finance charges are not compounded.

17.

A c c o r d in g ly , the Court finds that DCDC is entitled to judgment as follows: K T N -0 7 -0 8 -4 K T N -0 8 -0 7 -5 K T N -0 8 -0 7 -6 K T N -0 8 -0 7 -7 K T N -0 8 -0 7 -8 K T N -0 8 -0 7 -9 K T N -0 8 -0 7 -1 0 K T N -0 8 -0 7 -1 1 K T N -0 8 -0 7 -1 0 (repeat number) K T N -0 8 -0 7 -1 2 K T N -0 8 -0 7 -1 3 K T N -0 8 -1 7 -1 4 (less costs of 2 dryers) TOTAL $ $ $ $ $ $ $ $ $ $ $ $ 16,694.44 9,990.00 34,410.00 52,647.00 62,551.50 2,787.00 1,600.65 39,240.00 5,661.06 18,648.75 32,686.56 3,778.03 1

$ 2 8 0 ,6 9 4 .9 9

18.

To this amount must be added finance charges as set out in the letter agreement of 5 % per month (not compounded), less the $ 81,119.55 payment made by KemT ro n , applied as set out above.

This amount was calculated by deducting the cost of the two dryers ($5,600.00), for a pretax total of $3,446.08, plus 9% sales tax on that amount. Page 13

1

19.

L o u isia n a law provides that "[i]f the parties, by written contract, have expressly a g re e d that the obligor shall also be liable for the obligee's attorney fees in a fixed o r determinable amount, the obligee is entitled to that amount as well." LA. CIV. C O D E art. 2000.

20.

T h u s, Kem-Tron owes DCDC attorney's fees. Although the parties are free to s tip u la te the amount of attorney fees if collection is required, (here the parties a g re e d to attorney's fees in the amount of 25%), the Court may inquire into the re a so n a b le n e ss of the fee. Fourchon Docks, Inc. v. Milchem Inc., 849 F.2d 1561 (5 th Cir. 1988) citing Central Progressive Bank v. Bradley, 502 So. 2d 1017 (La. 1 9 8 7 ).

21.

I T IS HEREBY ORDERED THAT DCDC's counsel file an affidavit of a tto rn e y 's fees into the record along with an itemized bill of fees and expenses w ith in ten (10) days. This affidavit must contain a description of the work done, a breakdown of time spent performing this work and the customary hourly rate c h a rg e d clients for this type of litigation.

22.

S in c e DCDC is the prevailing party, costs of this case will be assessed against K em-Tron.

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22.

T h e parties are directed to file a proposed judgment for the Court's consideration, in accord with these reasons, approved by both counsel as to form, within ten (10) day s. T H U S DONE AND SIGNED October 14, 2010, at Lafayette, Louisiana.

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