Brown v. Petrolite Corp.

• Decision Date: 13 July 1992
• Docket Number: No. 91-8020,91-8020
• Parties: Fred G. BROWN, d/b/a National Parakleen Co., Plaintiff-Appellee, and Micro-Bac International, Inc., Plaintiff-Appellee, Cross-Appellant, v. PETROLITE CORPORATION, Defendant-Appellant, Cross-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 38

965 F.2d 38

23 Fed.R.Serv.3d 296

Fred G. BROWN, d/b/a National Parakleen Co., Plaintiff-Appellee and Micro-Bac International, Inc., Plaintiff-Appellee, Cross-Appellant, v. PETROLITE CORPORATION, Defendant-Appellant, Cross-Appellee.

No. 91-8020.

United States Court of Appeals Fifth Circuit.

July 13, 1992.

J. Clifford Gunter, III, Sarah P. Cowen, Edward S. Hubbard, Carrin F. Patman, Bracewell & Patterson, Houston, Tex., James E. Nelson, Shafer, Davis, McCollum, Ashley, O'Leary & Stoker, Odessa, Tex., for appellant.

Miles R. Nelson, James P. Boldrick, Boldrick & Clifton, Midland, Tex., for Brown.

John B. Meadows, Richard L. Welch, Meadows & Welch, Austin, Tex., for Micro-Bac.

Appeals from the United States District Court For the Western District of Texas.

Before DAVIS, JONES and EMILIO M. GARZA, Circuit Judges.

W. EUGENE DAVIS, Circuit Judge:

Appellant Petrolite Corporation appeals from a final judgment entered on a jury verdict, awarding Fred G. Brown, d/b/a National Parakleen Company ("Brown") and Micro-Bac International, Inc. ("Micro-Bac") (sometimes collectively "the appellees") actual and exemplary damages for Petrolite's tortious conduct. Petrolite contends that the evidence at trial was insufficient to support the jury's findings of liability and that the district judge committed several errors that require a reversal. In addition, Micro-Bac cross-appeals the district court's refusal to allow post-judgment interest on the jury's award of exemplary damages. We affirm in part, vacate and reverse in part, and remand.

I.

Since the earliest days of the oil industry, operators have confronted the production problems presented by the accumulation of paraffin in oil wells. Traditionally, oil producers have treated wells with hot oil or chemical solvents to eliminate paraffin build-up from drilling equipment. In extreme cases, operators often must remove their equipment and scrape off the paraffin. Appellant Petrolite is the nation's largest supplier of oil field chemicals and services and, in fact, founded the industry seventy years ago.

In the mid-1980s, however, appellee Micro-Bac developed an alternative method for purging paraffin from oil wells. Micro-Bac, a small, new technology company, isolated a bacteria that it believed broke down the paraffin in the oil. Two years later, Micro-Bac began manufacturing and marketing bacterial products, known as Para-Bac, for use in controlling paraffin, scale, and corrosion in oil wells. Micro-Bac markets its products through independent distributors, such as appellee Brown, who buy the products from Micro-Bac and resell them to sub-distributors and endusers.

In March 1988, Brown began a one-well pilot project for Coastal Oil & Gas Company (Coastal) in the Altamont Oil Field in Utah to test the effectiveness of Micro-Bac's bacterial products. In August 1988, Coastal's production superintendent for the Altamont Field, Lester Streeb, authorized tests of microbial bacteria in five more wells. Following these tests, Coastal decided to expand its use of the bacterial products to include all of its wells in the Altamont Field, starting by March of 1989 and adding thirty wells a month. Up until this time, Coastal had purchased Petrolite chemicals for use in its wells.

Evidently concerned by its loss of business to Brown and the "big play" the Para-Bac products were getting in the Houston, Texas area, Petrolite decided to analyze the products. In April 1989, while on Coastal's premises taking water samples, Preston Stewart, Petrolite's sales engineer for the Altamont Field, procured several samples of material that he found in barrels labelled "Para-Bac." The barrels were located in a locked treater house behind a locked fence. Stewart did not receive permission from either Brown or Coastal to take the samples.

Stewart assumed that the materials stored in the barrels were Para-Bac products and presented the samples to Petrolite's laboratory as such. In fact, Stewart was unsure what the barrels contained. At trial, Brown testified that the barrels did not contain true Para-Bac products but, instead, contained experimental materials.

When Petrolite's laboratory tested these samples, it discovered that they were contaminated. As a result, Doug Jones, the Petrolite microbiologist performing the tests, instructed Stewart to procure another set of samples, which he did. Once again, Stewart took the samples from the same location without getting permission from Brown or Coastal.

With the new samples in hand, Jones conducted a series of tests to determine whether the products performed as claimed. Based on his test results, Jones wrote a report concluding that Micro-Bac's products did not work, contained high numbers of sulfate-reducing bacteria (SRBs), ¹ caused corrosion, and were likely to result in extensive damage to wells and equipment. Petrolite employees attached two letters to the report, explaining the test results and the company's conclusions, and circulated the materials to its sales force throughout the country. In addition, Petrolite sent copies of the letters and the report to several Micro-Bac customers, including Coastal and the T.N. Berry Company in Oklahoma.

When efforts to have Petrolite retract these statements failed, Brown and Micro-Bac filed suit against Petrolite in November 1989. The suit alleged (1) libel, (2) conversion, (3) tortious interference with business relationships, (4) negligence and gross negligence, (5) commercial disparagement, and (6) antitrust violations. ² Brown and Micro-Bac sought actual and exemplary damages and an injunction against further publication of the test results. The district court granted Petrolite's motion for directed verdict on the antitrust violations and submitted the remaining claims to the jury by special interrogatories.

The jury found in favor of Brown on each of his claims but concluded that the value of his converted property was zero. The jury also determined that Petrolite had interfered with Brown's relationship with Coastal but no other customers. The jury awarded Brown $1 in compensatory damages and $300,000 in exemplary damages. In addition, the jury returned a favorable verdict for Micro-Bac on all but its tortious interference claim. The jury awarded Micro-Bac $60,000 in compensatory damages and $700,000 in exemplary damages. ³

Petrolite filed timely appeals against both Brown and Micro-Bac. On appeal, Petrolite argues that the jury's damage awards are unsubstantiated and excessive and that the district court erred by refusing to submit a special issue on Petrolite's defense of truth, in granting injunctive relief, and in failing to grant a new trial on newly discovered evidence. Brown and Micro-Bac also appeal the district court's refusal to award them post-judgment interest on their exemplary damages.

II.

At trial, the appellees' central charge against Petrolite was that it negligently and maliciously published its report, libeled Brown and Micro-Bac, and disparaged the Micro-Bac products. We therefore begin our analysis by focusing on the appellees' claim that Petrolite's report libeled them, which we view as the essence of this suit. ⁴ We must determine whether the jury verdict for Brown and Micro-Bac is proper under constitutional and Texas law governing defamation actions. In conducting this inquiry, we must decide whether the statements in Petrolite's report and accompanying letters are defamatory and, if so, whether Petrolite can be held liable for their publication.

A.

A defamation plaintiff must prove that the allegedly defamatory language is false and that the defendant's publication of the language proximately caused the plaintiff's damages. Trevino v. Espinosa, 718 S.W.2d 848, 851 (Tex.App.--Corpus Christi 1986, no writ) (proof of falsity required); Reicheneder v. Skaggs Drug Ctr., 421 F.2d 307, 311-12 (5th Cir.1970) (publication and proximate causation required). ⁵ Petrolite argues that neither the report nor the letters are defamatory and that Brown and Micro-Bac have failed to prove that the statements in either are false or have caused any damages. Brown and Micro-Bac, of course, argue to the contrary. Brown and Micro-Bac contend that Petrolite's statements in the report and letters that Micro-Bac products are ineffective and likely to damage oil wells and equipment have defamed them.

In determining whether a statement is libelous, Texas law looks to the effect of the statement on the minds of "ordinary readers." Golden Bear Distr. Sys. of Texas, Inc. v. Chase Revel, Inc., 708 F.2d 944, 948 (5th Cir.1983); Hajek v. Bill Mowbray Motors, Inc., 645 S.W.2d 827, 832 (Tex.App.--Corpus Christi 1982), rev'd on other grounds, 647 S.W.2d 253 (Tex.1983). Here, the jury found that the statements in Petrolite's report were false and defamatory. We must affirm this verdict if substantial evidence supports the jury's conclusion. Levine v. CMP Publications, Inc., 738 F.2d 660, 671 (5th Cir.1984). Giving the record evidence all reasonable inferences in favor of the verdict, we find that the record supports the jury's finding.

Faced with increased competition from Micro-Bac products in Utah and Texas, Petrolite undertook to test Micro-Bac products to determine their effectiveness. Petrolite's laboratory tested samples received from Utah of what were claimed to be Micro-Bac products. Following its tests, Petrolite issued a report stating that it had found the products to be ineffective. Specifically, according to Petrolite, the tests indicated that the products did not degrade paraffin, as claimed, contained high numbers of SRBs, and produced significant amounts of H sub2 S. As summarized in letters attached to the report, Petrolite concluded that the products, if used, were likely to increase corrosion in wells and damage wells and their equipment.

At trial, Brown and Micro-Bac presented evidence that disputed the accuracy of the report and its conclusions. Brown...