Opinion ID: 6215883
Heading Depth: 2
Heading Rank: 2

Heading: Impairment of goods

Text: We just analyzed and rejected the claim that the manufactured valves failed to conform to the relevant drawings. We also will consider whether Hess provided evidence that any alleged non-conformity “substantially impair[ed] the value” of the goods to Hess. Such impairment is an element of a revocation claim under Section 2.608(a) of the Texas Business and Commerce Code. Hess’s theory at trial was that the non-conformities caused the valve failures, which substantially impaired their value. The district court, though, found that “the alleged violations of API 14A . . . neither caused the SCSSVs to fail nor substantially impaired their value to Hess.” Hess argues that the district court erred as a matter of law, first by 11 Case: 20-20663 Document: 00516194200 Page: 12 Date Filed: 02/07/2022 No. 20-20663 applying an incorrect standard of causation in determining the source of the valve failure, and second in applying that standard and determining that Schlumberger was not at fault for the substantial impairment of the value of the valves. We separately consider those two arguments. a. The district court’s applied standard of causation Section 2.608(a) does not identify a standard of causation to be applied when considering whether nonconformity impaired the value of goods. The district court did not identify a standard either, stating simply that the non-conformity of the SCSSVs “neither caused the SCSSVs to fail nor substantially impaired their value to Hess.” Hess argues that the district court should have relied on a line of Texas cases that inquire whether a contract breach was a “producing cause” of an injury. See, e.g., Hunt v. Ellisor & Tanner, Inc., 739 S.W.2d 933, 937–38 (Tex. App. — Dallas 1987, writ denied). 6 Hess infers error from the district court’s ruling by arguing that the court “treated causation as an ‘either/or’ proposition, such that if Hess’s operating practices contributed to the valve failures, then the nonconforming springs could not have been a legal cause of the failures.” Assuming without deciding that Hess is correct that the proper standard is “producing cause,” the district court’s order is consistent with the application of such a rule. The district court first determined that Schlumberger’s actions did not cause the failure of the SCSSVs. It then determined that Hess’s operation of the well caused the valves to fail. From there, the district court determined that Hess had “failed to establish by a preponderance of the credible evidence that the alleged [API 14A] violations . . . substantially impaired the value of the SCSSVs to Hess.” 6 Hess has cited no authority applying the “producing cause” standard in a revocation case. 12 Case: 20-20663 Document: 00516194200 Page: 13 Date Filed: 02/07/2022 No. 20-20663 We do not find in the district court’s analysis an “either/or” understanding of causation. Rather, the district court considered whether the valves would have failed regardless of the supposed non-conforming manufacture, and the court found that they would have. The only question, then, is whether the district court’s factual findings were clearly erroneous. b. The district court’s causation findings At trial, Schlumberger introduced evidence that inadequate pressure could “allow debris to flow with the pressure up to the MSE seals” and scratch the seals. Schlumberger’s claim was that low pressure, combined with the stress of temperature and pressure shifts from opening and closing the valves a large number of times, would create stress on the valves to the point of failure. The district court, in large part, adopted Schlumberger’s view. Hess claims that this “ignored a mountain of compelling evidence from internal, contemporaneous Schlumberger documents” and that “[t]here is no plausible view of the evidence taken as a whole” that supports the district court’s conclusion that the springs “did not at least substantially contribute to the valves’ failures.” Hess is correct that Schlumberger’s initial investigations and causation analyses identified the rosette spring as the source of the valve failure, consistent with what was found in an investigation into a failure of a BP valve that pre-dated the Hess failures. Further, Schlumberger employees communicated with each other internally, expressing confidence that the rosette spring had changed over time and that the spring was the cause of at least some valve failures. Hess is also correct that, in early investigations, Schlumberger disfavored alternative explanations for the failures such as low operating pressure, debris, and temperature swings. The record reveals explicit assertions by Schlumberger from early in this dispute that are strongly contrary to Schlumberger’s trial evidence. 13 Case: 20-20663 Document: 00516194200 Page: 14 Date Filed: 02/07/2022 No. 20-20663 Even with that change in position, though, there remains the fact question on causation to be answered: “If the district court’s account of the evidence is plausible in light of the record viewed in its entirety, the court of appeals may not reverse it even though convinced that had it been sitting as the trier of fact, it would have weighed the evidence differently.” Anderson, 470 U.S. at 573–74. The district court’s apparent crediting of Schlumberger’s explanation that it had first relied on what it learned from an above-ground test-failure of the valve and thus reached an incorrect conclusion is a reasonable interpretation of why the first explanation of the problem can be rejected. Such an account was supported by Schlumberger’s expert testimony. Hess also had no explanation the district court had to accept as to why Hess’s own failure rate is markedly higher than that of other Schlumberger customers. Such a finding requires a weighing of the evidence, and such weighing was the district court’s role, not ours. Schlumberger’s account was not “so internally inconsistent or implausible on its face that a reasonable factfinder would not credit it.” Id. at 575. This is not a case in which neither physical evidence nor credible expert evidence supported the district court’s determination. Luhr Bros., 157 F.3d at 342. Instead, “[e]ach [side] has support in inferences that may be drawn from the facts in the record.” See Anderson, 470 U.S. at 577. Accordingly, the district court did not clearly err in finding that any alleged non-conformity did not cause the valves’ failure which in turn would have impaired their value.