Cronus Offshore, Inc. v. Kerr Mcgee Oil & Gas, 1:02-CV-565.

CourtUnited States District Courts. 5th Circuit. United States District Court of Eastern District Texas
Citation369 F.Supp.2d 848
Docket NumberNo. 1:02-CV-565.,1:02-CV-565.
PartiesCRONUS OFFSHORE, INC., Plaintiff, v. KERR McGEE OIL & GAS CORPORATION, Kerr McGee Corporation and Kerr McGee Worldwide Corporation, Defendants.
Decision Date09 February 2004

Thomas J. Kerr of Bradford Koenig Shepperd and Kerr, Houston, TX, for Plaintiffs.

Allen D. Cummings, Michael Thomas Powell and Kirk Lane Worley of Haynes & Boone, Houston, TX, for Defendants.

MEMORANDUM AND ORDER

CRONE, District Judge.

Pending before the Court is Defendants Kerr McGee Oil & Gas Corporation, Kerr McGee Corporation, and Kerr McGee Worldwide Corporation's (collectively "Kerr McGee") Motion for Summary Judgment (# 29). Kerr McGee seeks summary judgment on Plaintiff Cronus Offshore, Inc.'s ("Cronus") action alleging claims for breach of contract, fraud, fraudulent inducement to contract, and breach of implied warranties. Having reviewed the pending motion, the submissions of the parties, the pleadings, and the applicable law, the Court is of the opinion that summary judgment is warranted.

I. Background

On or about July 31, 2000, Cronus and Kerr McGee executed a Purchase and Sale Agreement ("the Purchase Agreement") under which Kerr McGee transferred to Cronus its interest in the High Island A-9 offshore oil and gas lease ("the Lease"). Cronus assumed all obligations related to the Lease and agreed to plug and abandon all wells located on the Lease. As part of the transaction, Kerr McGee paid Cronus $175,000.00 toward any abandonment costs.

Prior to the closing, Cronus performed a due diligence review of the documentation provided by Kerr McGee, including AIDC (Association of Independent Drilling Contractors) reports, well logs, and well-bore schematics. Representatives of Cronus also visited the site and inspected the offshore platform. Subsequently, while conducting drilling operations on Well No. A-1, Cronus struck an area of undrillable material in the well bore above its target zone. As a result of the obstruction, Cronus was unable to complete the well and abandoned the project.

Cronus instituted this lawsuit against Kerr McGee in August 2003, alleging claims for breach of contract, fraud, fraudulent inducement to contract, and breach of implied warranties. While Cronus asserts various causes of action, its claims all stem from the contention that Kerr McGee wrongfully failed to disclose the existence of an obstruction in Well No. A-1 and, had it done so, Cronus would not have purchased the Lease. Kerr McGee maintains that, under the Purchase Agreement, Cronus disclaimed all implied warranties and waived reliance on any alleged representations or omissions by Kerr McGee as to the condition of the Lease.

Section V of the Purchase Agreement, entitled "Seller's Representations," contains a disclaimer and waiver provision, printed in all capital letters, which states:

(j) THE EXPRESS REPRESENTATIONS OF SELLER CONTAINED IN THIS AGREEMENT ARE EXCLUSIVE AND ARE IN LIEU OF ANY OTHER REPRESENTATIONS OR WARRANTIES. SELLER EXPRESSLY DISCLAIMS AND NEGATES AND PURCHASER HEREBY WAIVES, ANY REPRESENTATION OR WARRANTY WITH RESPECT TO THE QUALITY, QUANTITY OR VOLUME OF RESERVES, OIL, GAS OR OTHER HYDROCARBONS, IF ANY, IN OR UNDER THE LEASES; THE ENVIRONMENTAL CONDITION, EITHER SURFACE OR SUBSURFACE, OR OTHER CONDITION OF THE ASSETS; OR THE OWNERSHIP OR OPERATION OF THE ASSETS OR ANY PART THEREFOR (EXCEPT FOR A LIMITED WARRANTY AS TO SELLER'S TITLE AS SET FORTH IN ARTICLE V(f) ABOVE). SELLER DOES NOT

MAKE OR PROVIDE, AND PURCHASER HEREBY WAIVES, ANY WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, AS TO THE QUALITY, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, CONFORMITY TO SAMPLES, OR CONDITION OF THE ASSETS OR ANY PART THEREOF. SELLER DISCLAIMS AND NEGATES, AND PURCHASER HEREBY WAIVES, ALL OTHER REPRESENTATIONS AND WARRANTIES, EXPRESS, IMPLIED OR STATUTORY. THE PERSONAL PROPERTY, EQUIPMENT, IMPROVEMENTS, FIXTURES AND APPURTENANCES CONVEYED AS PART OF THE ASSETS ARE SOLD AND PURCHASER ACCEPTS SAME "AS IS, WITH ALL FAULTS".

In addition, Section VII of the Purchase Agreement, entitled "Property Review," printed in part in capital letters, provides for an independent investigation of the Lease by the Purchaser:

(a) Seller has allowed Purchaser physical access, at Purchaser's sole risk and subject to the indemnities set forth in this Article VII(a), to inspect the Assets and further access to review, at Seller's office in Houston, Texas, the documents listed in Article XIII (a) which relate to the Assets. Purchaser shall indemnify, release, defend and hold Seller, its agents, officers and employees, harmless from and against any and all claims, damages, liabilities, judgments, costs and expenses (including attorneys' fees and court costs) of every kind and character, including without limitation personal injury or death to any person or property damage, resulting from or arising out of Purchaser's activities conducted during the inspections undertaken by Purchaser pursuant to this Article VII(a), regardless of any claimed negligence, in whole or in part, attributable to Seller or other indemnified party. Seller shall not be obligated to perform any title work and shall not be required to update or supplement abstracts or title opinions. PURCHASER ACKNOWLEDGES THAT SELLER HAS MADE NO REPRESENTATIONS OR WARRANTIES AS TO THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION OR AS TO ITS TITLE TO THE ASSETS (EXCEPT FOR A LIMITED WARRANTY AS TO SELLER'S TITLE AS SET FORTH IN ARTICLE V(f) ABOVE), AND IN ENTERING INTO AND PERFORMING THIS AGREEMENT, PURCHASER HAS RELIED AND WILL RELY SOLELY UPON ITS INDEPENDENT INVESTIGATION OF AND JUDGMENT WITH RESPECT TO THE ASSETS, THEIR VALUE, AND SELLER'S TITLE THERETO.

The Purchase Agreement, in Section XIV, further calls for the application of Texas law and also contains a merger clause, which reads:

(o) This Agreement constitutes the entire agreement between Seller and Purchaser with respect to the transactions contemplated herein, and supersedes all prior oral or written agreements, commitments, understandings, or information otherwise furnished by Seller to Purchaser with respect to such matters. No amendment shall be binding unless in writing and signed by representatives of both parties.

Kerr McGee asserts that the foregoing provisions preclude any recovery by Cronus in this action.

II. Analysis
A. Summary Judgment Standard

Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." FED. R. CIV. P. 56(c). The party seeking summary judgment bears the initial burden of informing the court of the basis for its motion and identifying those portions of the pleadings, depositions, answers to interrogatories, admissions on file, and affidavits, if any, which it believes demonstrate the absence of a genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Martinez v. Schlumberger, Ltd., 338 F.3d 407, 411 (5th Cir.2003); Terrebonne Parish Sch. Bd. v. Mobil Oil Corp., 310 F.3d 870, 877 (5th Cir.2002); Colson v. Grohman, 174 F.3d 498, 506 (5th Cir.1999); Marshall v. East Carroll Parish Hosp. Serv. Dist., 134 F.3d 319, 321 (5th Cir.1998). Where a defendant moves for summary judgment on the basis of an affirmative defense and, thus, bears the ultimate burden of persuasion, "it must adduce evidence to support each element of its defenses and demonstrate the lack of any genuine issue of material fact with regard thereto." Rushing v. Kansas City S. Ry. Co., 185 F.3d 496, 505 (5th Cir.1999), cert. denied, 528 U.S. 1160, 120 S.Ct. 1171, 145 L.Ed.2d 1080 (2000) (citing Exxon Corp. v. Oxxford Clothes, Inc., 109 F.3d 1070, 1074 (5th Cir.), cert. denied, 522 U.S. 915, 118 S.Ct. 299, 139 L.Ed.2d 231 (1997)); see Fontenot v. Upjohn Co., 780 F.2d 1190, 1194 (5th Cir.1986).

"A fact is `material' if it `might affect the outcome of the suit under governing law.'" Bazan v. Hidalgo County, 246 F.3d 481, 489 (5th Cir.2001) (emphasis in original) (quoting Anderson, 477 U.S. at 248, 106 S.Ct. 2505); see Harken Exploration Co. v. Sphere Drake Ins. PLC, 261 F.3d 466, 471 (5th Cir.2001); Merritt-Campbell, Inc. v. RxP Prods., Inc., 164 F.3d 957, 961 (5th Cir.1999); Burgos v. Southwestern Bell Tel. Co., 20 F.3d 633, 635 (5th Cir.1994). "An issue is `genuine' if it is real and substantial, as opposed to merely formal, pretended, or a sham." Bazan, 246 F.3d at 489 (emphasis in original). Thus, a genuine issue of material fact exists "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248, 106 S.Ct. 2505; accord Harken Exploration Co., 261 F.3d at 471; Merritt-Campbell, Inc., 164 F.3d at 961. The moving party, however, need not negate the elements of the nonmovant's case. See Wallace v. Texas Tech Univ., 80 F.3d 1042, 1047 (5th Cir.1996) (citing Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir.1994)).

Once a proper motion has been made, the nonmoving party may not rest upon mere allegations or denials in the pleadings but must present affirmative evidence, setting forth specific facts, to show the existence of a genuine issue for trial. See Celotex Corp., 477 U.S. at 322-23, 106 S.Ct. 2548; Anderson, 477 U.S. at 257, 106 S.Ct. 2505; Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 585-86, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); Rushing, 185 F.3d at 505; Colson, 174 F.3d at 506; Marshall, 134 F.3d at 321-22; Wallace, 80 F.3d at 1047; Little, 37 F.3d at 1075. "[T]he court...

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