Berge Helene Ltd. v. GE Oil & Gas, Inc.

Citation896 F.Supp.2d 582
Decision Date30 September 2012
Docket NumberCivil Action No. 4:08–02931.
CourtU.S. District Court — Southern District of Texas
PartiesBERGE HELENE LTD., Plaintiff, v. GE OIL & GAS, INC. and John Does 1–10, Defendants.

OPINION TEXT STARTS HERE

John M. Elsley, Rachel Anne De Cordova, Royston Rayzor et al., Houston, TX, W. Cameron Beard, Alan M. Weigel, Michael Patrick Smith, Ryan E. Cronin, Blank Rome, LLP, New York, NY, for Plaintiff.

Collin Joe Cox, R. Paul Yetter, Wendie Seale Childress, Pamela Hohensee, Douglas S. Griffith, Deborah J. Karakowsky, Yetter Coleman LLP, Houston, TX, for Defendants.

OPINION

NANCY F. ATLAS, District Judge.

+-----------------+
                ¦TABLE OF CONTENTS¦
                +-----------------¦
                ¦                 ¦
                +-----------------+
                
+-----------------------------------+
                ¦I.¦Findings of Fact            ¦588¦
                +-----------------------------------+
                
+--------------------------------------------------------------------+
                ¦    ¦A. ¦Parties and Background                              ¦588   ¦
                +----+---+----------------------------------------------------+------¦
                ¦    ¦B. ¦Bidding and Sale Process                            ¦590   ¦
                +----+---+----------------------------------------------------+------¦
                ¦    ¦C. ¦SHMB604 Compressors and Packaging into the M60 Model¦590   ¦
                +----+---+----------------------------------------------------+------¦
                ¦    ¦D. ¦Features of the Parties' Contracts                  ¦592   ¦
                +----+---+----------------------------------------------------+------¦
                ¦    ¦E. ¦Procedural History                                  ¦594   ¦
                +--------------------------------------------------------------------+
                
+--------------------------------------------------------------+
                ¦    ¦                                                   ¦     ¦
                +----+---------------------------------------------------+-----¦
                ¦II. ¦Legal Analysis: Privity in Maritime Warranty Claims¦595  ¦
                +--------------------------------------------------------------+
                
+------------------------------------------+
                ¦  ¦A.¦Maritime Jurisdiction          ¦595 ¦
                +--+--+-------------------------------+----¦
                ¦  ¦B.¦Sources of Maritime Law        ¦595 ¦
                +------------------------------------------+
                
+----------------------------------------------------+
                ¦   ¦   ¦1.¦Maritime Uniformity                 ¦597 ¦
                +---+---+--+------------------------------------+----¦
                ¦   ¦   ¦2.¦Local or State Interests            ¦598 ¦
                +---+---+--+------------------------------------+----¦
                ¦   ¦   ¦3.¦East River   Principles             ¦599 ¦
                +---+---+--+------------------------------------+----¦
                ¦   ¦   ¦4.¦Conclusion                          ¦603 ¦
                +----------------------------------------------------+
                
+-------------------------------------------------------------------+
                ¦    ¦                                                       ¦      ¦
                +----+-------------------------------------------------------+------¦
                ¦III.¦Merits of Warranty Claims                              ¦603   ¦
                +-------------------------------------------------------------------+
                
+------------------------------------------+
                ¦  ¦A.¦Affirmations                   ¦603 ¦
                +------------------------------------------+
                
+----------------------------------------------------+
                ¦   ¦   ¦1.¦Express Warranties                  ¦603 ¦
                +----------------------------------------------------+
                
+-----------------------------------------------------+
                ¦   ¦   ¦  ¦a.¦February 2004 Statements          ¦604 ¦
                +---+---+--+--+----------------------------------+----¦
                ¦   ¦   ¦  ¦b.¦August 2004 Statements            ¦606 ¦
                +-----------------------------------------------------+
                
+----------------------------------------------------------------------------+
                ¦    ¦    ¦2. ¦Implied Warranty of Fitness for a Particular Purpose  ¦607    ¦
                +----+----+---+------------------------------------------------------+-------¦
                ¦    ¦    ¦3. ¦Failure to Comply with Affirmation and Lack of Fitness¦607    ¦
                ¦    ¦    ¦   ¦for Particular Purpose                                ¦       ¦
                +----------------------------------------------------------------------------+
                
+------------------------------------------+
                ¦  ¦B.¦Basis of the Bargain Reliance  ¦608 ¦
                +--+--+-------------------------------+----¦
                ¦  ¦C.¦Causation                      ¦610 ¦
                +------------------------------------------+
                
+----------------------------------------------------+
                ¦   ¦   ¦1.¦Base Day Rates                      ¦610 ¦
                +---+---+--+------------------------------------+----¦
                ¦   ¦   ¦2.¦Lost Capacity Damages               ¦617 ¦
                +---+---+--+------------------------------------+----¦
                ¦   ¦   ¦3.¦Conclusion                          ¦617 ¦
                +----------------------------------------------------+
                
+---------------------------------------------------+
                ¦   ¦                                          ¦    ¦
                +---+------------------------------------------+----¦
                ¦IV.¦Fraud by Omission                         ¦618 ¦
                +---------------------------------------------------+
                
+--------------------------------------------------+
                ¦   ¦A.¦Falsity and GE's Knowledge of Falsity ¦619 ¦
                +---+--+--------------------------------------+----¦
                ¦   ¦B.¦Duty to Disclose                      ¦620 ¦
                +---+--+--------------------------------------+----¦
                ¦   ¦C.¦Conclusion                            ¦621 ¦
                +--------------------------------------------------+
                
+-----------------------------------+
                ¦  ¦                            ¦   ¦
                +--+----------------------------+---¦
                ¦V.¦Conclusion                  ¦621¦
                +-----------------------------------+
                

Plaintiff Berge Helene Ltd. (Berge) asserts in this action against Defendants GE Oil & Gas, Inc. and John Does 1–10 1 (GE) claims of breach of express warranties, breach of implied warranty of fitness for a particular purpose, and fraud by omission. The Court has subject matter jurisdiction pursuant to 28 U.S.C. §§ 1332 and 1333.

This case was tried to the Court on seventeen separate days from May 21 through July 5, 2012. Each party presented numerous live witnesses, depositions, and extensive exhibits. Having carefully considered all the evidence introduced by the parties, all matters of record in this case, the arguments of counsel, and applicable authorities, the Court makes the following findings of fact and conclusions of law. The Court first summarizes the facts essential to an understanding of the parties, their relationships, and a chronology of events. Additional important facts are described where necessary in connection with analysis of the legal issues presented.2

I. FINDINGS OF FACTA. Parties and Background

Plaintiff Berge Helene Ltd. (Berge) 3 is an experienced operator of floating production, storage, and offloading units (“FPSOs”). Berge Helene Ltd. is an entity organized and existing under the laws of Bermuda. Berge owns the BERGE HELENE, a FPSO. FPSOs generally are used for the production and storage of petroleum products. A key function of an FPSO is to process the components of a well stream, which generally comprise petroleum (“oil”), water, and gas. The oil is generally isolated and stored. The water is cleaned and returned to the sea or injected into the reservoir to maintain reservoir pressure. The gas is compressed by a gas compression module on the topside of the FPSO.4

There are five participants and four contracts relevant to the events in issue. All participants are highly sophisticated businesses.

Woodside Mauritania Pty. Ltd. (“Woodside”) sought bids for the lease and operation of an FPSO in 2003. Woodside hoped to be the first to develop the Chinguetti oil field off the coast of Mauritania, Africa. On May 29, 2004, Berge entered into a contract with Woodside to provide the requested FPSO. 5 Because the Chinguetti field contained the first commercial discovery of oil in Mauritania, Woodside wanted to fast-track the development of the Chinguetti project in order to give Woodside a competitive edge in the region. The reserve estimate of the Chinguetti field was originally 123 million barrels of oil (“MMBO”), but the estimate was lowered to 68 MMBO in 2004 and was further decreased to 34 MMBO by the end of 2007.

Woodside's contract with Berge was to have the BERGE HELENE refitted to receive and produce processed crude oil at Chinguetti. The Woodside–Berge contract obligated Berge, inter alia, to operate and maintain the BERGE HELENE to “receive Production from the subsea system into the FPSO,” “process the Production by separating oil, gas and water,” “produce Processed Crude at a rate which [meets] the [specified] Volumes,” and carry out compression and reinjection of processed gas as required under the agreement.6 The Woodside–Berge contract required the FPSO BERGE HELENE, among other things, to compress up to 70 million standard cubic feet per day (“mmscfd”) of gas. 7 The contract provided that Berge would be paid a base day rate (“BDR”) of $95,000 (this figure was later increased to $104,000).8 However, if 90% of required compression were not supplied on any given day (that is, at least 63 mmscfd), Woodside would be entitled to reduce the day rates otherwise payable to Berge under the contract.9 Berge was the supplier to Woodside.

Berge contracted with a Norwegian company, ABB Offshores Systems AS (referred to hereafter as “Aibel”) 10 on June 24, 2004, to supply, install, and operate various types of topside modules aboard the BERGE HELENE, including the M60 gas compression module with three GE compressors (labeled A, B, and C).11 Berge selected Aibel over a competitor, Gas Services International, Ltd. (“GSI”), that proposed to supply compressors by Ariel Corporation (“Ariel”), a well-regarded and very experienced compressor manufacturer in the oil and gas industry.12 Berge and Aibel had had a business relationship since 2001 pursuant to an operating agreement 13 and had worked together on various projects. At least in part, Berge selected Aibel to supply the M60 compression module because Woodside preferred to have all the BERGE HELENE topside modules provided by the...

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