Court Opinion

ID: 5131878
Source: CourtListenerOpinion
Date Created: 2021-12-06 08:43:25.932593+00
Date Added: 2024-06-11T08:23:26.740955
License: Public Domain

Reversed and Rendered and Memorandum Opinion filed December 2, 2021.

                                    In The

                    Fourteenth Court of Appeals

                             NO. 14-20-00207-CV

             WHITE STAR PUMP COMPANY, LLC, Appellant

                                      V.
                ALPHA HUNTER DRILLING, LLC, Appellee

                   On Appeal from the 189th District Court
                           Harris County, Texas
                     Trial Court Cause No. 2014-57416

                        MEMORANDUM OPINION

      Appellant White Star Pump Company, LLC appeals from a final judgment
awarding appellee Alpha Hunter Drilling, LLC damages following a jury trial.
Because the economic loss rule bars Alpha Hunter’s tort claim, we reverse and
render a take-nothing judgment.

                                  BACKGROUND

      Alpha Hunter is an oil and gas operator. White Star manufactures mud
pumps, which are used in oilfield drilling. Mud pumps are typically driven by
large diesel engines mounted on a skid or sled. Because the mud pumps at issue in
this case were intended to be used at multiple drilling sites over time, they were
considered mobile pumps.

      Alpha Hunter contacted White Star about the possible purchase of mud
pumps and engines to power them. White Star sent a written quote offering to sell
Alpha Hunter two new White Star mud pumps. Alpha Hunter accepted White
Star’s offer. The contracts for both mud pumps contain the same language. The
contracts provide, in relevant part:

      WHITE   STAR   PROVIDES    TWO     (2)                 DAYS       OF
      COMMISSIONING/TRAINING PER PUMP[.]
      ....
      WHITE STAR OFFERS A 24-MONTH WARRANTY FROM
      SHIPMENT OR 18 MONTHS FROM COMMISSIONING,
      WHICHEVER COMES FIRST[.]
      ....
      NO TERMS OR CONDITIONS, OTHER THAN THOSE STATED
      HEREIN, AND NO AGREEMENT OR UNDERSTANDING, ORAL
      OR WRITTEN, IN ANY WAY PURPORTING TO MODIFY
      THESE TERMS AND CONDITIONS, WHETHER CONTAINED IN
      BUYER’S PURCHASE OR SHIPPING RELEASE FORMS, OR
      ELSEWHERE, SHALL BE BINDING ON SELLER AND ANY
      SUCH ATTEMPTED MODIFICATIONS ARE HEREBY
      REJECTED BY SELLER. ALL PROPOSALS, NEGOTIATIONS,
      AND REPRESENTATIONS, IF ANY, MADE PRIOR, AND WITH
      REFERENCE HERETO, ARE MERGED HEREIN.
      ....
      THERE ARE NO WARRANTIES WHICH EXTEND BEYOND
      THE DESCRIPTION ON THE FACE HEREOF. THIS WARRANTY
      IS GIVEN EXPRESSLY AND IN PLACE OF ALL OTHER
      EXPRESS OR IMPLIED WARRANTIES AND ALL IMPLIED
      WARRANTIES FOR MERCHANTABILITY AND FITNESS FOR

                                        2
A PARTICULAR PURPOSE ARE DISCLAIMED.
....
In the event any goods manufactured by Seller and furnished
hereunder are found to be defective or otherwise fail to conform to the
conditions of this contract, Seller will, at its option, either (1) replace
the goods at the delivery point specified herein, (2) repair the goods,
or (3) refund the purchase price. Buyer’s remedies with respect to
goods manufactured by Seller and furnished hereunder that are found
to be defective or otherwise not in conformity with the contract shall
be limited exclusively to the right to have said goods replaced,
repaired, or to a refund of the purchase price, at Seller’s option.
Buyer’s remedies with respect to goods manufactured by others and
furnished hereunder that are found to be defective or otherwise not in
conformity with the contract are limited to any warranties extended
and honored by the manufacturer. Buyer’s remedies are limited as
aforesaid regardless of whether Buyer’s claim is based on principles
of contract or tort. Claims must be made promptly following delivery
of the goods to buyer, but within one year from date of tender of
delivery. Seller must be given a reasonable opportunity to investigate.
NEITHER SELLER NOR THE MANUFACTURER SHALL HAVE
ANY LIABILITY FOR SPECIAL, INDIRECT, CONSEQUENTIAL,
INCIDENTAL, OR OTHER CLAIMS FROM ANY BREACH OF
CONTRACT OR TORT COMMITTED BY SELLER OR THE
MANUFACTURER OF GOODS RESOLD BY SELLER. Buyer
agrees that it is to be solely responsible for, and will hold Seller, and
the manufacturer of any goods resold by Seller, harmless from any
claims, regardless of their basis, by Buyer or third parties that may
arise from the goods after delivery, except for replacement, repair, or
refund of the purchase price, at Seller’s option, for Seller’s
manufactured goods or as provided in any warranties extended and
honored by the manufacturer on goods manufactured by others as
provided above. Seller’s total cumulative liability in any way arising
from or pertaining to any products sold or required to be sold under
this contract, shall not in any case exceed the purchase price paid by
Buyer for such product.
With respect to any work performed on goods furnished by Buyer
(including but not limited to repairing, welding, machining,
fabricating, heat treating, and forging) Seller agrees to make every

                                    3
      effort to perform fully such work in accordance with Buyer’s
      specifications. Seller shall be responsible for damages to such goods
      caused only by Seller’s negligence, in which case Buyer’s remedy
      shall be limited exclusively to the price of the work to be performed
      by Seller on the article damaged. Claims must be made promptly
      following delivery of the goods to Buyer, but within three months
      from the date the same is put into operation and, in any event, not later
      than one year after date of tender of delivery. Seller must be given a
      reasonable opportunity to investigate. Seller shall have no liability for
      special, indirect, consequential, incidental or other damages arising
      from any breach of contract or tort.
      ....
      THERE ARE NO WARRANTIES WHICH EXTEND BEYOND
      THE DESCRIPTION ON THE FACE HEREOF.           THIS
      WARRANTY IS GIVEN EXPRESSLY AND IN PLACE OF ALL
      OTHER EXPRESS OR IMPLIED WARRANTIES AND ALL
      IMPLIED WARRANTIES FOR MERCHANTABILITY AND
      FITNESS FOR A PARTICULAR PURPOSE ARE DISCLAIMED.

      Alpha Hunter purchased two unitized mud pump packages, each consisting
of a mud pump, a diesel engine, and additional necessary components. Each
package was mounted on two skids. Alpha Hunter used the mud pumps, called
Mud Pump 1 and Mud Pump 2, at a drilling site in Ohio. Mud Pump 2 forms the
basis of Alpha Hunter’s claims in this case. As part of the sale, White Star
provided two mud pump hands to assist Alpha Hunter’s employees in the
commissioning, setup, monitoring, servicing, and repairing of the equipment.

      The sale of mud pumps such as White Star’s requires a testing or
commissioning period to ensure that the machinery functions as intended. During
commissioning, the manufacturer or supplier of a product sends personnel to the
purchaser to train the purchaser’s employees on how to safely operate the
machinery and also remain on site to provide any support that might be necessary.
The commissioning period can range from a few hours to several weeks depending

                                         4
on the application, the type of equipment, the experience of the purchaser, the type
of well, and what happens at the drilling site during the commissioning period.1
For example, Schramm sold the drilling rig used at the Ohio drilling site to Alpha
Hunter. Schramm provided an employee, Daniel Gallagher, to assist Alpha Hunter
with the commissioning of the rig. Gallagher provided training and anything else
Alpha Hunter asked him to do to make certain the rig ran correctly, and that Alpha
Hunter was successful. According to Gallagher, commissioning of a drilling rig
can run anywhere from one to six months, but he was present at Alpha Hunter’s
Ohio drilling site for nine months. In addition, Gallagher testified that it was
typical for Schramm to send personnel to a site to cover the entire warranty period.

       White Star delivered the mud pumps and engines and initially set them up
for a test run at Schramm’s rigging yard. Once the drilling rig and all associated
equipment, including the mud pumps, had been tested at the rigging yard, Alpha
Hunter accepted the mud pump packages and they were moved to the drilling site
in Ohio. Alpha Hunter asked White Star, as part of the commissioning process, to
send some of their people to the Ohio drilling site to assist Alpha Hunter with the
mud pumps. According to David Evans, Alpha Hunter’s rig manager on the Ohio
drilling rig, White Star personnel were supposed to stay at the drilling site “during
the whole first well to make sure the pumps performed like they were supposed
to.” While White Star provided two hands on the drilling site, the drilling controls,
including the controls for operating the mud pumps, were located in the drilling
house.2 Evans explained that this was necessary because the Alpha Hunter “driller

       1
         David Cason, a drilling superintendent for Alpha Hunter, testified that commissioning
normally takes four to eight hours. He recognized however, that the length of a commissioning
“just depends, depends on what you find. I mean, if everything goes smooth for the first four
hours, you might be okay and stop there. But, if you’ve had any kind of hiccup, you might want
to see what caused it and just continue with the test.”
       2
           The drilling house is where the drilling operator runs the rig. In Texas, the drilling
                                                5
needs complete control.”

       White Star sent two hands, Adam Schafer and Paul Tweddle, to assist Alpha
Hunter’s employees in Ohio. They were to perform maintenance on the mud
pumps and assist Alpha Hunter in the operation of the mud pumps during
commissioning of the pumps at the drill site. Mike Rogers, Alpha Hunter’s vice
president of operations, testified that White Star told him the White Star hands
would stay for 10 to 12 days to make sure the mud pumps operated effectively and
up to par on what Alpha Hunter expected. Schafer worked the 12-hour night shift,
and Tweddle worked the 12-hour day shift.

        Gallagher testified that it was his understanding that the White Star
personnel were at the drilling site to “provide commissioning support for the mud
pumps.” Tweddle testified that he would not consider a commissioning complete
unless he was satisfied that everything had been set up correctly and the mud
pumps were operating properly. Rogers testified that there is a commissioning
period and normally, when all goes well, somebody declares everything is good
and the commissioning phase ends. Rogers then testified that they did not reach
that point with the White Star mud pumps at issue here.                In addition to the
commissioning activities, according to Tweddle, White Star provided a few weeks
of training as part of the mud pump packages Alpha Hunter purchased.

       The White Star mud pumps began experiencing problems immediately once
they were put into service at the drilling site on July 17, 2013. The mud pumps
were “jacking” and “cavitating,” which are industry terms generally describing
vibration caused by several factors, such as insufficient mud fluid pressure, an

house is called the doghouse. Alpha Hunter asked for mud pump controls to be installed in the
drilling house so the drilling operator could control the mud pumps. Schramm installed those
controls.

                                             6
uneven foundation supporting the mud pumps, or a lack of mud pump control in
the drilling house. Cavitating and jacking are serious problems, and the White Star
mud pump hands worked with Alpha Hunter to manage them. Tweddle testified
that he reported the problems to Alpha Hunter, but they would come over to the
mud pump, listen, and then do nothing because, in their view, there was nothing
wrong. Tweddle continued that all he could do was monitor the situation and
advise Alpha Hunter because the Alpha Hunter driller was the “only person on that
rig who can shut that [mud] pump down.”

      On August 8, 2013, Mud Pump 2’s engine exploded. It is undisputed that no
one was injured from the explosion and the only damage that occurred was to Mud
Pump 2’s engine that had been supplied by White Star pursuant to the contract.
Prior to the explosion, Tweddle arrived in the morning and spoke with the drilling
house crew for less than an hour. One of the subjects discussed was the cavitation
and jacking the pumps were experiencing and what Tweddle thought they should
do about it. Tweddle testified that he believed the explosion was attributable to
three things: (1) a lack of interest by Alpha Hunter employees in training and
maintenance; (2) frequent instances of cavitation and jacking coupled with a tepid
reaction by the Alpha Hunter tool personnel in charge; and (3) uneven and poorly
constructed rig flooring and matting, which created an uneven floor for the sleds
holding the two mud pump packages.

      White Star sent its vice president of engineering, Peter Wan, to investigate
the cause of the explosion. Alpha Hunter conducted an internal investigation and
employed outside consultants to render their opinion about why the incident
occurred. White Star’s investigation of the explosion concluded that it was a result
of (1) Alpha Hunter’s incompetence and refusal to heed warnings or properly run
the mud pumps, and (2) a defective control system requested by Alpha Hunter and

                                         7
installed by Schramm. Both of Alpha Hunter’s testifying experts told the jury that
the cause of the accident was a lack of rubber mounts, a deficiency that existed
when the mud pump packages left White Star’s facility.

      After the explosion, Alpha Hunter submitted a warranty claim to White Star.
In response, White Star offered to repair or replace the damaged equipment if
Alpha Hunter fronted the cost of the replacement part pending the completion of
the investigations into the explosion. In addition, White Star offered to reimburse
Alpha Hunter that amount if the investigation established White Star was
responsible for the explosion. Alpha Hunter refused White Star’s proposal.

      Alpha Hunter eventually filed suit against White Star alleging causes of
action for breach of contract/warranty, fraud, and negligent undertaking. After a
lengthy trial, the jury found that White Star failed to provide Alpha Hunter with
non-defective equipment. The jury then rejected Alpha Hunter’s contract/warranty
claim, when it refused to find that White Star had “failed, at its election, to either
repair, replace, or refund the purchase price of the Equipment” to Alpha Hunter.
The jury also rejected Alpha Hunter’s fraud claim. The jury, however, found that
White Star was liable under a negligent-undertaking theory. The jury found that
Alpha Hunter’s damages were approximately $1.6 million under the negligent-
undertaking cause of action for the market value of the pump and the loss of use of
the pump. The jury also found that Alpha Hunter was 35% responsible. The trial
court signed a final judgment based on the jury’s verdict. This appeal followed.

                                     ANALYSIS

      Alpha Hunter filed suit against White Star alleging causes of action for
breach of contract/warranty, fraud, and negligent undertaking. The jury rejected
all of Alpha Hunter’s claims except the negligent undertaking claim. On appeal,
White Star raises two issues challenging the trial court’s negligent undertaking
                                          8
judgment against it.

      In its first issue on appeal White Star asserts that the trial court erred when it
signed the judgment against it because the economic loss rule bars any recovery
under Alpha Hunter’s negligent undertaking claim. Focusing exclusively on the
contract’s language that White Star would provide two days of commissioning
support to Alpha Hunter, Alpha Hunter argues the purchase contract had been
completed, and White Star voluntarily assumed a new legal duty, separate and
apart from the previously existing contractual duties, to “monitor, maintain, and
service the Mud Pumps on Rig No. 7 in a reasonable and prudent manner.”

      The economic loss rule addresses the use of negligence claims as a vehicle
to recover economic losses. Sharyland Water Supply Corp. v. City of Alton, 354
S.W.3d 407, 415 (Tex. 2011).        “The economic loss rule generally precludes
recovery in tort for economic losses resulting from a party’s failure to perform
under a contract when the harm consists only of the economic loss of a contractual
expectancy.” Chapman Custom Homes, Inc. v. Dallas Plumbing Co., 445 S.W.3d
716, 718 (Tex. 2014) (per curiam). More specifically, “the economic loss rule
forecloses strict liability claims based on a defective product that damages only
itself but not other property.” Barzoukas v. Foundation Design, Ltd., 363 S.W.3d
829, 834 (Tex. App.—Houston [14th Dist.] 2012, pet. denied). The rule “also
forecloses a negligence claim predicated on a duty created under a contract to
which the plaintiff is a party when tort damages are sought for an injury consisting
only of economic loss to the subject of the contract.” Id. at 835. But the economic
loss rule does not bar all claims arising out of a contractual setting, and a party
cannot “avoid tort liability to the world simply by entering into a contract with one
party.” Id. If that was the case, “the economic loss rule [would] swallow all
claims between contractual and commercial strangers.” Id. Specifically, a party

                                           9
states a tort claim which is not barred by the economic loss rule “when the duty
allegedly breached is independent of the contractual undertaking and the harm
suffered is not merely the economic loss of a contractual benefit.” Chapman
Custom Homes, Inc., 445 S.W.3d at 718. (emphasis added). Stated another way,
the rule precludes recovery of economic losses in negligence when the loss is the
subject matter of a contract between the parties. Coastal Conduit & Ditching, Inc.
v. Noram Energy Corp., 29 S.W.3d 282, 285 (Tex. App.—Houston [14th Dist.]
2000, no pet.). While the rule has sometimes been described as “murky,” the
Texas Supreme Court has stated that it is “fairly clear” under Texas law, “that one
party to a contract cannot recover from another party, in an action for negligence,
an economic loss to the subject of the contract.” LAN/STV v. Martin K. Eby Const.
Co., Inc., 435 S.W.3d 234, 242 (Tex. 2014). The rule reflects a determination that
economic losses in these contexts “are more appropriately addressed through
statutory warranty actions or common law breach of contract suits.” Fleming v.
Kinney, 395 S.W.3d 917, 923 (Tex. App.—Houston [14th Dist.] 2013, pet. denied).

      Here, there is no dispute that Alpha Hunter directly contracted with White
Star for the purchase of the two mud pumps and two diesel engines to power them.
There is also no dispute that the damage Alpha Hunter sustained was exclusively to
one of the diesel engines White Star sold Alpha Hunter. The evidence is also
undisputed that no drilling-site personnel were injured because of the explosion.
As a result, the economic loss rule bars any recovery by Alpha Hunter under its
negligent undertaking theory. See LAN/STV, 435 S.W.3d at 236 (“We conclude
that the economic loss rule does not allow recovery and accordingly reverse the
judgment of the court of appeals and render judgment for the architect.”); Jim
Walter Homes, Inc. v. Reed, 711 S.W.2d 617, 618 (Tex. 1986) (“When the injury is
only the economic loss to the subject of a contract itself, the action sounds in

                                        10
contract alone.”); Mid-Continent Aircraft Corp. v. Curry Cty. Spraying Servs., Inc.,
572 S.W.2d 308, 313 (Tex. 1978) (“In transactions between a commercial seller
and commercial buyer, when no physical injury has occurred to persons or other
property, injury to the defective product itself is an economic loss governed by the
Uniform Commercial Code.”); Hou-Tex, Inc. v. Landmark Graphics, 26 S.W.3d
103, 107 (Tex. App.—Houston [14th Dist.] 2000, no pet.) (“In this case, the fact of
most import is that Hou-Tex suffered only economic damages for its cost of
drilling a dry well. Given this fact, we hold that the economic loss rule precludes
any duty in tort by Landmark to Hou-Tex.”); cf. Torrington Co. v. Stutzman, 46
S.W.3d 829, 837–39 (Tex. 2000) (negligent undertaking case where it was alleged
that a defective product caused the death of two U.S. Marines and there was no
contractual privity between parties).

      Alpha Hunter’s argument in response does not change this result. Alpha
Hunter’s entire argument that the economic loss rule does not apply is based on its
contention that White Star’s activities at the drilling site were “wholly removed
from the framework and context of the Contract” and the activities “gave rise to a
tort claim that was distinct and separate from any contract claims.” In making this
argument, Alpha Hunter focuses entirely on only one part of the contract, the
provision limiting White Star’s commissioning and training commitment to a
maximum of two days per pump. Alpha Hunter also overlooks the second part of
the economic loss rule which disallows tort recovery when the harm suffered is
limited to the economic loss of a contractual benefit. See LAN/STV, 435 S.W.3d at
242 (“It was also fairly clear that one party to a contract cannot recover from
another party, in an action for negligence, an economic loss to the subject of the
contract.”); Barzoukas, 363 S.W.3d at 835. In that situation, the plaintiff is limited
to a breach of contract or warranty action. See LAN/STV, 435 S.W.3d at 242.

                                         11
(“Recovery of such damages must be for breach of contract or warranty.”).

      When construing a contract, we may not limit our review to only one part of
the contract. Instead, when construing a written contract, our primary goal is to
ascertain the true intentions of the parties as expressed in the instrument. J.M.
Davidson, Inc. v. Webster, 128 S.W.3d 223, 229 (Tex. 2003). We give contract
terms their plain, ordinary, and generally accepted meanings unless the contract
itself shows them to be used in a technical or different sense. Valence Operating
Co. v. Dorsett, 164 S.W.3d 656, 662 (Tex. 2005). We construe contracts from a
utilitarian standpoint, bearing in mind the particular business activity sought to be
served, and we avoid, when possible and proper, a construction that is
unreasonable, inequitable, or oppressive. Frost Nat’l Bank v. L & F Distrib.,
Ltd., 165 S.W.3d 310, 312 (Tex. 2005). Courts are not authorized to rewrite
agreements to insert additional provisions the parties could have included, or to
remove provisions that the parties, for whatever reason, would prefer to ignore.
Tenneco, Inc. v. Enterprise Prod. Co., 925 S.W.2d 640, 646 (Tex. 1996). In other
words, courts cannot make, or remake, contracts for the parties. HECI Exploration
Co. v. Neel, 982 S.W.2d 881, 888 (Tex. 1998). When a contract is unambiguous, a
reviewing court construes it as a matter of law.3 Am. Mfrs. Mut. Ins. Co. v.
Schaefer, 124 S.W.3d 154, 157 (Tex. 2003).

      Even if we accept Alpha Hunter’s contention that White Star’s
commissioning and training activities ceased two days after each mud pump began
operating at the drilling site, the contract still controls because there are other
provisions in the contract explaining the presence and activities of the two White
Star technicians at the drilling site beyond the commissioning and training period.
See Chapman Custom Homes, Inc., 445 S.W.3d at 718 (“A party states a tort claim

      3
          Neither party argues that the contract at issue was ambiguous. We conclude it is not.

                                                12
when the duty allegedly breached is independent of the contractual undertaking
and the harm suffered is not merely the economic loss of a contractual benefit.”);
Houston Metro Ortho and Spine Surgery, LLC v. Juansrich, Ltd., No. 14-19-
00732-CV, 2021 WL 2799643, at *5 (Tex. App.—Houston [14th Dist.] July 6,
2021, pet. filed) (“The LLC Agreement covers the field of this dispute. It created
Juansrich’s ownership interest, defined the parties’ rights and duties under the
agreement, and established the remedies available when a party failed to perform
those duties.”). In addition to the two days of commissioning and training per
pump, the contract provided for an express warranty of a maximum of 24-months
from the shipping date for White Star, at its option, to repair, replace, or refund the
purchase price of any defective mud pump.4 The contract also gave White Star the
right to a reasonable opportunity to investigate any problems with the mud pumps.
Finally, it limited any damages caused by White Star’s repair work to the price of
the work. In addition, the contract did not limit White Star’s discretion in how it
would exercise those contractual rights. The fact that White Star, faced with a
warranty on two mud pumps experiencing problems from the start of their
operation at the drilling site, decided to keep two technicians on the scene to make
warranty repairs and observe the operations of the mud pumps, as the contract
allowed and was in line with industry practice, does not mean White Star
embarked on a voluntary assumption of a new duty outside the framework of its
contract with Alpha Hunter. See Houston Metro Ortho and Spine Surgery, LLC,
2021 WL 2799643, at *6 (rejecting tort claim because “the LLC Agreement covers
all aspects of Juansrich’s unjust enrichment claim.”); Zurich Am. Ins. Co. v.
Certain Underwriters, No. 01-19-00184-CV, 2020 WL 5048141, at *9 (Tex.
App.—Houston [1st Dist.] Aug. 27, 2020, pet. filed) (“Court’s construe contracts

       4
       The contract provided for either a 24-month warranty from the shipping date, or an 18-
month warranty from the date of commissioning, whichever came first.

                                             13
in accordance with the custom and practices of the industry and locale to which
those contracts relate.)”

       Because the contract authorized White Star’s drilling site activities and the
only loss Alpha Hunter experienced was damage to the subject of the contract, we
hold that the economic loss rule bars Alpha Hunter’s negligent undertaking
recovery. We sustain White Star’s first issue on appeal.

                                       CONCLUSION

       Having sustained White Star’s first issue on appeal, we reverse the trial
court’s judgment and render judgment that Alpha Hunter take nothing on its causes
of action against White Star.5

                                           /s/    Jerry Zimmerer
                                                  Justice

Panel consists of Justices Wise, Bourliot, and Zimmerer.

       5
         Because we have sustained White Star’s first issue which resolves the appeal, we need
not reach White Star’s second issue on appeal. Tex. R. App. P. 47.1.

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