Hess Corporation v. Schlumberger Technology Corporation
MEMORANDUM OPINION AND ORDER (Amended Complaint due by 2/15/2017.) (Signed by Judge Sim Lake) Parties notified. (aboyd, 4)
United States District Court
Southern District of Texas
January 27, 2017
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
David J. Bradley, Clerk
CIVIL ACTION NO. H-16-3415
MEMORANDUM OPINION AND ORDER
Rule 12 (b) ( 6)
("Motion to Dismiss")
(Docket Entry No. 8) .
Hess will be ordered to file an amended
complaint or face dismissal of this action.
Factual and Procedural Background
The valves were purchased under terms set forth in
a contract entered into by the parties on February 2, 2000.
expressly covered all
materials or other items" provided by Schlumberger to Hess and
The following facts are presented as alleged in Plaintiff's
Original Complaint (Docket Entry No. 1).
defined the rights,
and liabilities of both parties. 2
Schlumberger disclaimed all implied warranties and provided express
warranties "for a period of one
warranted that its valves would "(1} be new if specified by [Hess];
be free from defects in design,
drawings or other descriptions contained in the applicable .
purchase order .
The valves at issue were purchased for wells in the Tubular
New Orleans on the Outer Continental Shelf.
The safety valves for
were installed in April 2014,
January 14, 2015, and ceased due to valve failure on August 10,
2015. Production on Well B began on December 14, 2014, and ceased
due to valve failure on January 29,
Production on Well C
began on July 21, 2015, and ceased due to valve failure on July 28,
In the wake of each failure Hess called in Schlumberger to
See Master Service Contract ("the Contract"), Exhibit A to
Defendant's Motion to Dismiss, Docket Entry No. 8-2, p. 3, § 2(a).
Id. at 3-4,
Id. at 3,
Schlumberger continued to investigate the failures and concluded
that the primary root cause of the valve failure was the quality of
the Metal Spring Energized
On January 18,
Schlumberger told Hess that it had identified an issue with the
seals and had engaged in a
inventory manufactured from 2012 to 2015.
The MSE seals identified
in the investigation were part of suspect batches that decreased
engineers also told Hess that the
issues with respect to the MSE seals may have been exacerbated by
pressure bleed off during the Factory Acceptance Test either fully
damaged the seals or at least compromised them.
Schlumberger communicated to Hess that destructive testing
confirmed that the MSE seals in the Well B valve suffered from the
same issue as those in the Well D valve.
On May 17, 2016, Hess
Schlumberger Safety Valves used in Wells D and B pursuant to Texas
Business & Commerce Code
Hess revoked acceptance of the
This statute states:
The buyer may revoke his acceptance of a lot or
commercial unit whose non-conformity substantially impairs its
value to him if he has accepted it
(1) on the reasonable assumption that its non-conformity
would be cured and it has not been seasonably curedi or
(continued ... )
SSV used in Well C on July 29,
on the same basis.
alleges that it was not aware of the issues with respect to the MSE
seals contained in the SSVs when it accepted the valves and could
not have become aware of the issues with respect to the MSE seals
without conducting destructive testing on the valves.
defective MSE seals were
non-conforming goods and that the non-conformities substantially
impaired the value of the valves to Hess.
Hess now seeks to recover for breach of contract pursuant to
Schlumberger moves to dismiss pursuant to Federal Rule of
Civil Procedure 12(b) (6).
In a motion to dismiss under Rule 12(b) (6),
the court must
"'accep[t] all well-pleaded facts as true and vie[w] those facts in
the light most favorable to the plaintiff.'"
(2) without discovery of such non-conformity if his
induced either by the
difficulty of discovery before acceptance or by the
Revocation of acceptance must occur within a
reasonable time after the buyer discovers or should have
discovered the ground for it and before any substantial change
in condition of the goods which is not caused by their own
It is not effective until the buyer notifies the
seller of it.
A buyer who so revokes has the same rights and
duties with regard to the goods involved as if he had rejected
Tex. Bus. & Com. Code
681 F.3d 215, 219
(5th Cir. 2012).
tiff's obligation to provide the grounds of his entitlement to
relief requires more than labels and conclusions, and a formulaic
recitation of the elements of a cause of action will not do."
(internal quotation marks omitted) . "Factual allegations must be
enough to raise a right to relief above the speculative level[.]"
Id. at 1965.
Dismissal under Rule 12(b) (6) is appropriate when a
plaintiff's legal theory is incorrect:
"When a complaint raises an
arguable question of law which the district court ultimately finds
Rule 12(b) (6) grounds is appropriate .
s. Ct. 18 2 7
18 3 3
( 19 8 9) .
" [W] hen
Neitzke v. Williams,
complaint, however true, could not raise a claim of entitlement to
relief, this basic deficiency should . .
be exposed at the point
of minimum expenditure of time and money by the parties and the
(internal quotation marks
The parties dispute the nature of Hess's claim.
that the SSVs with the defective seals were non-conforming goods
and that Schlumberger failed to fulfill its obligations under the
circumvent the time-limited express warranty to which the parties
agreed by mislabeling what is in fact a breach of warranty claim.
Whether Hess can assert a viable claim turns on the nature of the
somewhat unclear on that point, the court concludes that the course
of action most consistent with the Federal Rules of Civil Procedure
is to allow Hess the opportunity to amend its claims. 6
In cases of non-conforming goods,
the distinction between
Some courts appear to have held that breach of contract
claims are limited to non-delivery and that claims for delivered
non-conforming goods must be for breaches of warranty. 7
courts have held that delivering non-conforming goods may reflect
either a breach of contract, a breach of warranty, or both. 8
should be construed,
employed by the court and the parties to secure the just, speedy,
and inexpensive determination of every action and proceeding.
Fed. R. Civ. P. 1.
See, e.g., A.O. Smith Corp. v. Elbi S.p.A., 123 F. App'x 617,
619 (5th Cir. 2005) (per curiam) ("Texas law forbids conflating
breach of warranty and breach of contract:
There is a
definitive distinction between failure to conform and failure to
(internal quotation marks and citation omitted) ; Chilton
Ins. Co. v. Pate & Pate Enterprises, Inc., 930 S.W.2d 877, 890
(Tex. App. -- San Antonio 1996, pet. denied) (holding that breach
of contract damages are available for failure to perform, but not
for delivery of non-conforming goods) .
See Contractor's Source Inc. v. Hanes Companies, Inc., Civil
Action No. H-09-0069, 2009 WL 6443116, at *6 (S.D. Tex. Dec. 29,
2009) (holding that a breach of contract remedy is not wholly
foreclosed in a case involving defective or non-conforming goods
rather than failure to deliver); Morgan Buildings and Spas, Inc. v.
Humane Society of Southeast Texas, 249 S.W.3d 480, 491 (Tex. App -Beaumont 2008, no pet.) (holding that a buyer could recover under
breach of contract for non-conforming goods) .
The problem is
On the one hand,
outcomes in some cases.
lead to unjust
sellers should not be
able to disclaim all warranties to the extent that they need not
even fulfill the terms of the contract.
On the other hand, breach
of contract claims should not subsume all breaches of warranty.
[W]here the non-conformity alleged relates to the
specific obligations of the seller under the terms of the
primarily under a breach of contract claim. If, however,
the non-conformity arises solely from the seller's
express or implied warranties outside of its contractual
obligations, or from generally defective goods, the
buyer's sole remedy is for breach of warranty.
2009 WL 6443116 at
Under this analysis when a
particular characteristics or composition is specified under the
specifications is a contractual obligation rather than a warranty
of quality or future performance.
As such, it cannot be disclaimed
seller's warranties or disclaimers.
In this case, it is not clear whether Hess is alleging that
or their MSE
Technology Corporation's Motion To Dismiss, Docket Entry No. 10,
(continued ... )
defective, it has no viable breach of contract claim.
obligations in the contract other than those found in the express,
time-limited warranties, it may have a claim.
Hess will therefore
be given an opportunity to amend its Complaint.
Hess is ORDERED to file an amended complaint by February 15,
2017, that states a viable breach of contract claim.
If Hess fails
to do so, Schlumberger's Motion to Dismiss will be granted.
SIGNED at Houston, Texas, on this 27th day of January, 2017.
UNITED STATES DISTRICT JUDGE
( • • • continued)
p. 10 ("Through Commercial Agreement# 46000010410 -- entered into
'For the Provision of Surface Controlled
Sub-surface Safety Valves' -- Schlumberger further promised that it
would 'provide SCSSV' s that comply with Company and industry
standards and specifications and in accordance with the drawing and
specifications which are
contained or referenced in this
Agreement.'") with id. ("Based on Schlumberger' s own investigation,
Schlumberger's safety valves were not 'free from defects' on the
dates Schlumberger furnished them to Hess.").
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