Court Opinion

ID: 4583890
Source: CourtListenerOpinion
Date Created: 2020-11-05 01:00:19.568664+00
Date Added: 2024-06-11T13:45:15.788173
License: Public Domain

Case: 19-40934     Document: 00515627073          Page: 1    Date Filed: 11/04/2020

              United States Court of Appeals
                   for the Fifth Circuit                             United States Court of Appeals
                                                                              Fifth Circuit

                                                                            FILED
                                                                     November 4, 2020
                                   No. 19-40934
                                                                       Lyle W. Cayce
                                                                            Clerk
   AIG Europe, Limited,

                                                            Plaintiff—Appellant,

                                       versus

   Caterpillar, Incorporated; Dragon Products, L.L.C.,

                                                         Defendants—Appellees.

                  Appeal from the United States District Court
                       for the Eastern District of Texas
                            USDC No. 1:17-CV-319

   Before Jones, Haynes, and Ho, Circuit Judges.
   Per Curiam:*
          AIG Europe, Limited (“AIG”) appeals the district court’s exclusion
   of AIG’s expert report and its grant of summary judgment on AIG’s implied
   warranty and negligence claims against Caterpillar, Inc. (“Caterpillar”) and
   Dragon Products, L.L.C. (“Dragon”). For the following reasons, we affirm.

          *
            Pursuant to 5th Circuit Rule 47.5, the court has determined that this
   opinion should not be published and is not precedent except under the limited
   circumstances set forth in 5th Circuit Rule 47.5.4.
Case: 19-40934     Document: 00515627073            Page: 2   Date Filed: 11/04/2020

                                     No. 19-40934

                                          I.
          Baker Hughes Incorporated (“BHI”) contracted with XTO Energy,
   Inc. (“XTO”) to conduct thirty-four stages of hydraulic fracturing at an oil
   and gas well site in Loving County, Texas. BHI owned and maintained the
   sixteen pumping units used at the well site. Each unit contained a Caterpillar
   3512C engine. The pumping units were placed to the north and south of a
   main pumping line. The units on the north side were numbered one through
   nine, and the units on the south side were numbered ten through sixteen.
   During the twenty-third stage, the pumping unit in the third position began
   to overheat. This unit was removed and replaced with the unit located in
   position number four, the “Subject Unit.” Pumping resumed with stage
   twenty-four. About thirty minutes later, BHI personnel saw that the Subject
   Unit was on fire. BHI shut down all sixteen pumping units. Before the fire
   was extinguished, it damaged many of the pumping units, including all nine
   on the north side.
          BHI ordered the Subject Unit from Dragon. Before the Unit was
   delivered to BHI, it was sold through several entities in the chain of
   commerce. Caterpillar manufactured the engine and sold it to Mustang Cat
   Power Systems, an authorized Caterpillar dealer. Mustang sold the engine
   to Applied Cryo Technologies (“ACT”). Dragon hired ACT to assemble
   the pumping unit by installing a transmission and mounting the engine on a
   trailer. ACT delivered the Unit to Dragon. Together with Dragon, BHI
   completed assembly of the pumping unit and installed its own proprietary
   controls and engine hour meter.
          The engine had three engine hour meters that recorded engine run
   time. One was installed by Caterpillar and was located on the inside of the
   engine. The second, also installed by Caterpillar, was located on the outside
   of the engine. This meter did not function until it was repaired by an

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   independent Caterpillar dealer. BHI never reported a problem with this hour
   meter. The third was BHI’s own hour meter. This was the only meter BHI
   used and relied on.
          Caterpillar recommended that each 3512C engine’s oil be changed
   after 250 hours of run time. BHI had its own policy of changing engine oil
   every 800 hours. BHI changed the Subject Unit’s engine oil for the only time
   in May 2016. At that time, BHI’s hour meter showed the engine had run for
   about 800 hours. The engine’s internal hour meter showed it had run for
   1,911 hours as of March 2016.
          After the fire, an investigation indicated that the fire originated from
   the Subject Unit and that the engine had a disconnected crankshaft
   counterweight and broken connecting rod.
          AIG, as BHI’s insurer, sued Caterpillar and Dragon. AIG asserted
   Texas-law claims of negligence, design defect, manufacturing defect, and
   breach of implied warranty. The district court, among other rulings, (1)
   struck the report of one of AIG’s causation experts, Arthur Faherty, (2)
   denied AIG’s motion for partial summary judgment, (3) and granted
   summary judgment for Caterpillar and Dragon on each of AIG’s claims.
          On appeal, AIG challenges the district court’s exclusion of Faherty’s
   report, its grant of summary judgment on AIG’s implied warranty claim
   against Caterpillar and Dragon, and its grant of summary judgment on AIG’s
   negligence claim against Caterpillar and Dragon.
                                         II.
          AIG argues that the district court erred in striking Faherty’s report
   and deposition. We review the district court’s exclusion of an expert report
   for abuse of discretion. In re Complaint of C.F. Bean L.L.C., 841 F.3d 365, 369
   (5th Cir. 2016). A district court has “wide latitude in determining the

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   admissibility of expert testimony . . . and its decision will not be disturbed on
   appeal unless manifestly erroneous.” Id. (quotations omitted) (quoting
   Watkins v. Telsmith, Inc., 121 F.3d 984, 988 (5th Cir. 1997)).
          The district court excluded Faherty’s initial report because it failed to
   comply with Federal Rule of Civil Procedure 26(a). Under Rule 26(a), expert
   reports must be “detailed and complete so as to avoid the disclosure of
   sketchy and vague expert information.” Michaels v. Avitech, Inc., 202 F.3d
746, 749 (5th Cir. 2000) (quoting Sierra Club v. Cedar Point Oil Co., 73 F.3d
546, 571 (5th Cir. 1996)).        Faherty admitted his initial report was
   “preliminary,” contained “no real opinions,” and lacked a “complete
   analysis or findings section.” After reviewing Faherty’s initial report, we
   agree with the district court that the report is “grossly deficient.”
          The district court excluded Faherty’s supplemental report as
   untimely because AIG filed it on the final day of the discovery period.
   “District judges have the power to control their dockets by refusing to give
   ineffective litigants a second chance to develop their case.” Reliance Ins. Co.
   v. La. Land & Expl. Co., 110 F.3d 253, 258 (5th Cir. 1997). Further,
   supplemental disclosures “are not intended to provide an extension of the
   deadline by which a party must deliver the lion’s share of its expert
   information.” Sierra Club, 73 F.3d at 571. The district court had already
   extended the discovery period multiple times, and Caterpillar’s and
   Dragon’s experts did not have the opportunity to respond. Thus, the district
   court concluded AIG’s filing of Faherty’s supplemental report “appears
   merely to be gamesmanship designed to subvert the court’s scheduling order
   and the requirements of Rule 26(a).”
          “[W]e consider four factors to determine whether a district court
   abused its discretion by excluding expert testimony as untimely: ‘(1) the
   explanation for the failure to [produce the report earlier]; (2) the importance

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   of the testimony; (3) potential prejudice in allowing the testimony; and (4)
   the availability of a continuance to cure such prejudice.’” C.F. Bean, 841
F.3d at 369 (quoting Geiserman v. MacDonald, 893 F.2d 787, 791 (5th Cir.
   1990)). If we do find an abuse of discretion in excluding expert testimony,
   we “review the error under the harmless error doctrine, affirming the
   judgment, unless the ruling affected substantial rights of the complaining
   party.” Bocanegra v. Vicmar Servs., Inc., 320 F.3d 581, 584 (5th Cir. 2003).
   “The appellant bears the burden of proving the error was not harmless” by
   showing the error affected his “substantial rights.” McCaig v. Wells Fargo
   Bank (Tex.), N.A., 788 F.3d 463, 483–84 (5th Cir. 2015); see also Tanner v.
   Westbrook, 174 F.3d 542, 546 (5th Cir. 1999).
          First, AIG argues that they did not submit Faherty’s final report
   earlier because Caterpillar delayed the deposition of its representatives. This
   is not a satisfactory explanation.          If AIG needed information from
   Caterpillar’s experts to allow Faherty to complete his expert report, AIG
   should have moved to compel the depositions of those experts. We find no
   indication in the record that AIG made such a motion. While AIG did ask for
   several extensions of the discovery period, it never argued that Caterpillar
   was improperly denying AIG access to necessary depositions. Further,
   belying AIG’s argument is the fact that Faherty admitted he had enough
   information to conduct a root cause analysis and complete a final report in
   November 2018, long before the close of discovery. The district court was
   correct to find this first factor favors exclusion.
          Second, AIG argues that causation is the critical issue in this case and
   therefore that Faherty’s report and testimony at trial are essential. Faherty
   was a causation expert, but the district court did not exclude AIG’s other two
   causation experts, Andrew Stringer and Benjamin Pooler. AIG does state
   that Faherty’s report was “essential,” that he had “more developed views
   on causation” than other AIG experts, and that his report was “critical.”

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   However, these limited conclusory statements in AIG’s briefs do not show
   how Faherty’s report was critical. Thus, AIG’s claims do not turn on
   Faherty’s report. Despite the exclusion, AIG had experts on causation. See,
   e.g., 1488, Inc. v. Philsec Inv. Corp., 939 F.3d 1281, 1288 (5th Cir. 1991)
   (“Enforcement of the district court’s pretrial order did not leave defendants
   without an expert witness on the issue of valuation.”). The district court was
   correct to find the second factor favors exclusion.
          Third, AIG argues that Caterpillar and Dragon would not be
   prejudiced if the district court admitted Faherty’s report. To the contrary.
   As the district court recognized, while most of Faherty’s report responded
   to the analysis of Caterpillar’s experts, it also contained new analyses and
   conclusions. Defendants were not given the opportunity to challenge these
   conclusions on the critical issue of causation. See Reliance Ins., 110 F.3d at
   257–58 (“[T]he [district] court concluded that ‘[t]o allow plaintiff to add
   more material now and create essentially a new report would prejudice the
   defendants, who would then have to get an expert to address these last-
   minute conclusions, and thus disrupt the trial date in this case.’”). The
   district court was correct to find the third factor favors exclusion.
          Fourth, AIG argues that a continuance would have removed any
   potential prejudice before trial. While the district court agreed that a
   continuance could have removed the prejudice, it determined that a
   continuance was impractical and improper. This case has been pending for
   more than two years. The district court granted several continuances
   because of “AIG’s dilatory prosecution of this action.” While continuances
   are the preferred means of dealing with untimely expert reports, they are the
   exception. See Hamburger v. State Farm Mut. Auto. Ins. Co., 361 F.3d 875,
   884 (5th Cir. 2004) (“Because of a trial court’s need to control its docket, a
   party’s violation of the court’s scheduling order should not routinely justify
   a continuance.”). Accordingly, a district court is “not required to grant a

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   continuance at such a late date” in litigation. Harmon v. Ga. Gulf Lake
   Charles L.L.C., 476 F. App’x 31, 39 (5th Cir. 2012) (per curiam). Yet another
   continuance would have delayed summary judgment and a potential trial
   even further. The district court was correct to find the fourth factor favors
   exclusion.
          In sum, all four factors favor excluding Faherty’s report. Thus, the
   district court did not abuse its discretion. Because we find no abuse of
   discretion, we do not need to conduct a harmless error analysis.
                                         III.
          Next, we turn to whether the district court’s grant of summary
   judgment for Caterpillar and Dragon on AIG’s implied warranty of
   merchantability claim was correct. We review the district court’s grant of
   summary judgment de novo, applying the same standards as the district
   court. Hagen v. Aetna Ins. Co., 808 F.3d 1022, 1026 (5th Cir. 2015).
          The implied warranty of merchantability requires that goods “are fit
   for the ordinary purposes” for which they are used. See TEX. BUS. & COM.
   CODE § 2.314.      To establish a claim for breach of the warranty of
   merchantability, a plaintiff must show: (1) that the merchant leased or sold a
   product to the plaintiff; (2) that the product was unmerchantable, that is,
   unfit for its ordinary purpose; (3) that the plaintiff notified the defendant of
   the breach; and (4) that the plaintiff suffered injury. Equistar Chems., L.P. v.
   Dresser-Rand Co., 240 S.W.3d 864, 867 (Tex. 2007) (quoting Polaris Indus.,
   Inc. v. McDonald, 119 S.W.3d 331, 336 (Tex. App. 2003)).
          While Caterpillar argues that it did not breach the implied warranty,
   it also argues in the alternative that it disclaimed the implied warranty. In
   response, AIG asserts that it is unclear whether the disclaimer was
   communicated to BHI. Regardless, the record indicates that Dragon, a
   downstream purchaser, knew about Caterpillar’s limited warranty, which

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   disclaimed the warranty of merchantability. AIG did not challenge this
   testimony. Thus, Caterpillar disclaimed the warranty as to Dragon. “[A]
   downstream purchaser cannot obtain a greater warranty than that given to
   the original purchaser, so if the manufacturer at the point of original sale
   makes a valid disclaimer of implied warranties, that disclaimer extends to
   subsequent purchasers.” MAN Engines & Components, Inc. v. Shows, 434
S.W.3d 132, 140 (Tex. 2014). Because Caterpillar made a valid disclaimer as
   to Dragon, that disclaimer extends to BHI, a downstream purchaser.
   Accordingly, the district court was correct to grant summary judgment on
   disclaimer and AIG does not challenge this determination on appeal. We may
   affirm summary judgment on any ground raised below and supported by the
   record, so we do not discuss whether Caterpillar breached the implied
   warranty. See James v. Woods, 899 F.3d 404, 407–08 (5th Cir. 2018).
          As for Dragon, AIG first argues that because the engine hour meter
   did not work when it left Dragon’s control, Dragon breached the implied
   warranty. However, to assert a breach of implied warranty it is necessary to
   show that the breach of the warranty was the proximate cause of the injury.
   See TEX. BUS. & COM. CODE § 2.314 & cmt. 13; Everett v. TK-Taito, L.L.C.,
   178 S.W.3d 844, 853 (Tex. App. 2005). There is no dispute in the record that
   BHI only used its own hour meter and never relied on the engine hour meter.
   Because BHI did not rely on the broken engine hour meter, it was not the
   proximate cause of the fire. Therefore, Dragon did not breach the implied
   warranty with respect to the engine hour meter.
          Aside from the defective engine hour meter, AIG presents no
   evidence that any other part of the pumping unit was unmerchantable when
   it left Dragon’s control. The warranty of merchantability only applies to
   conditions that exist at the time of the sale, not those that develop later. See
   Pittsburg Coca-Cola Bottling Works v. Ponder, 443 S.W.2d 546, 548 (Tex.
   1969). AIG does not offer any direct evidence of a defect with the pumping

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   unit. Rather, AIG argues that the unexplained connecting rod failure is
   circumstantial evidence of a defect. To prove a defect by circumstantial
   evidence, AIG must show that BHI properly used the engine and that it
   malfunctioned anyway. Omni USA, Inc. v. Parker Hannifin Corp., 964 F.
   Supp. 2d 805, 837 (S.D. Tex. 2013) (citing Plas-Tex, Inc. v. U.S. Steel Corp.,
   772 S.W.2d 442, 444–45 (Tex. 1989)). AIG does not offer any evidence that
   BHI properly used the Subject Unit’s engine. Rather, the evidence is
   undisputed that BHI disregarded Caterpillar’s guidance that the engine oil
   be changed after every 250 hours of run time. Instead, BHI adopted its own
   policy of changing the oil every 800 hours. In fact, BHI only changed the
   engine oil once, and only after the engine had run for at least 800 hours.
   Because AIG does not create a genuine dispute of fact about proper use, the
   district court was correct to award summary judgment for Dragon.
          Finally, Texas law requires that BHI have notified Dragon of the
   breach of warranty before bringing a claim. See McKay v. Novartis Pharm.
   Corp., 751 F.3d 694, 706 (5th Cir. 2014). There is no evidence in the record
   that BHI notified Dragon of any breach of warranty.
          Thus, the district court was correct to award summary judgment to
   Caterpillar and Dragon on AIG’s implied warranty claim.
                                        IV.
          Next, we turn to the district court’s grant of summary judgment for
   Caterpillar and Dragon on AIG’s negligence claim.            AIG argues that
   Caterpillar’s defective engine hour meter demonstrates negligence in
   inspecting and assembling the engine.           Caterpillar argues that AIG’s
   negligence claim fails on causation, breach, and duty.
          With respect to Caterpillar, we start and end our analysis with
   causation. “[N]egligence requires a showing of proximate cause” which
   consists of “cause in fact and foreseeability.” Meador v. Apple, Inc., 911 F.3d
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   260, 264 (5th Cir. 2018) (quotations omitted) (quoting Union Pump Co. v.
   Allbritton, 898 S.W.2d 773, 775 (Tex. 1995)). “Cause in fact means that the
   defendant’s act or omission was a substantial factor in bringing about the
   injury which would not otherwise have occurred.” Id. (quoting Allbritton,
   898 S.W.2d at 775).
          Here, AIG concedes that the engine hour meter itself was not the
   cause of the fire. Rather, it argues that, had the meter worked, BHI would
   have been able to take action to prevent the fire. Even still, AIG points to no
   evidence that the meter’s inoperability or BHI’s lack of knowledge of the
   discrepancy in engine-hours caused the fire. Indeed, it is undisputed that
   BHI relied solely on its own proprietary engine hour meter. Nor did BHI
   notify Caterpillar at any point that the engine hour meter was not working,
   which indicates that BHI did not even attempt to rely on this hour meter.
   Further, even if the meter had been working, there is no indication this would
   have prevented the fire since, as noted above, BHI adopted its own oil change
   policy. Thus, because BHI did not use or rely on the engine hour meter, it
   was not the proximate cause of the fire. Indeed, as the Texas Supreme Court
   has held, “cause in fact is not established where the defendant’s negligence
   does no more than furnish a condition which makes the injuries possible.”
   IHS Cedars Treatment Ctr., Inc. v. Mason, 143 S.W.3d 794, 799 (Tex. 2004).
   The district court was correct to grant summary judgment to Caterpillar on
   the causation element. Because AIG cannot survive summary judgment on
   causation, we need not consider the breach and duty elements of negligence.
          With respect to Dragon, our analysis is even simpler. Negligence
   requires evidence that the defendant owes the plaintiff a duty and that it
   breached that duty. See D. Houston, Inc. v. Love, 92 S.W.3d 450, 454 (Tex.
   2002). On appeal, AIG offers no arguments that Dragon was negligent.
   Every argument AIG makes is directed to Caterpillar.            “An appellant
   abandons all issues not raised and argued in its initial brief on appeal.” Cinel

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   v. Connick, 15 F.3d 1338, 1345 (5th Cir. 1994). Thus, AIG’s negligence claim
   against Dragon is waived.
            Even if we looked past waiver, AIG sets forth no specific facts
   attempting to show Dragon’s negligence. See Anderson v. Liberty Lobby, Inc.,
   477 U.S. 242, 256 (1986) (“[A] party opposing a properly supported motion
   for      summary     judgment      may        not     rest     upon   the   mere
   allegations . . . but . . . must set forth specific facts showing that there is a
   genuine issue for trial.”) (quotations omitted). Accordingly, the district
   court was correct to grant summary judgment to Dragon on AIG’s negligence
   claim.
                                         ***
            For the foregoing reasons, we affirm.

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