GE Oil & Gas Pressure Control v. Carrizo Oil & Gas, Inc.

• Decision Date: 18 May 2023
• Docket Number: 01-21-00285-CV
• Parties: GE OIL & GAS PRESSURE CONTROL, L.P., Appellant v. CARRIZO OIL & GAS, INC., Appellee
• Court: Court of Appeals of Texas

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GE OIL & GAS PRESSURE CONTROL, L.P., Appellant v. CARRIZO OIL & GAS, INC., Appellee

No. 01-21-00285-CV

Court of Appeals of Texas, First District

May 18, 2023

On Appeal from the 165th District Court Harris County, Texas Trial Court Case No. 2014-24754

Panel consists of Chief Justice Adams, and Justices Kelly and Goodman.

MEMORANDUM OPINION

PETER KELLY, JUSTICE

This is an insurance subrogation case brought by Gemini Insurance Company in the name of its insured, Carrizo Oil & Gas Inc. ("Carrizo") against GE Oil & Gas Pressure Control, L.P. ("GE"). GE appeals from a final judgment awarding appellee Carrizo Oil & Gas, Inc. ("Carrizo") more than $2.5 million in damages on its negligence claim arising from a well blowout.

GE leased and installed equipment for Carrizo (Marcellus) LLC ("Carrizo Marcellus"), a wholly-owned subsidiary of appellee Carrizo, to drill and complete a natural gas well. During the final fracking stage, a blowout occurred resulting in the release of water, sand, and drilling fluids and necessitating remediation. Carrizo sued GE and others, alleging negligence, breach of contract, product liability, and breach of warranty. GE counterclaimed, alleging that Carrizo was negligent, and that GE was entitled to indemnification from Carrizo.

In the summer of 2016, the trial court (Judge Mayfield) held a jury trial on liability, and the jury found that both GE and Carrizo were negligent.^[1] The jury found against Carrizo on the other claims. The trial court denied Carrizo's motion to disregard the jury's finding that it was negligent. In 2018, the trial court (Judge Hall) conducted the bench trial on GE's indemnity claim. Two years later, the trial court signed findings of fact and conclusions of law. In 2021, the trial court granted Carrizo's renewed motion to disregard the jury's finding that it was negligent and denied GE's request for additional findings of fact and conclusions of law. The court then rendered final judgment denying GE's indemnity claim and awarding Carrizo damages exceeding $2.5 million.

On appeal, GE raises three issues challenging: (1) Carrizo's standing to sue for damages sustained by its wholly-owned subsidiary Carrizo Marcellus; (2) the trial court's grant of Carrizo's motion to disregard the jury's verdict; and (3) the trial court's determination that GE was not entitled to indemnity.

We affirm.

Background

Carrizo is an oil and gas exploration and production company. Its wholly-owned subsidiary, Carrizo Marcellus, owns and operates wells in the Marcellus Shale "play" in Pennsylvania, including the Yarasavage 1H well that experienced the blowout from which this litigation arose.^[2]

GE is an oilfield service provider that leases and installs equipment used in drilling and production, including the "frac valve assembly," which is the main valve assembly at the top of a well and which is used during the process of fracturing a well to prepare it for production.^[3] GE installed the frac valve assembly that was used at Yarasavage 1H. All the equipment, except a gasket in the flange beneath the main valve, was leased; the gasket was sold to Carrizo because it is designed to be used once and replaced after use. After passing a static pressure test upon installation, the frac valve assembly was put into service. After twenty successful fracking stages, the frac valve assembly failed during the twenty-first and final fracking stage. Fracking fluids, water, and sand were expelled from the flange installed beneath the master valve, as shown in this photo admitted at trial:

(Image Omitted)

Carrizo regained control of the well, conducted remediation in accordance with relevant laws and regulations, reported the incident to governmental agencies, and made claims with its insurer, Gemini Insurance Company. Gemini later filed suit on behalf of its insureds, Carrizo and Carrizo Marcellus, and in the name of Carrizo. Although Gemini is the real party in interest, we refer to Carrizo as it is the named plaintiff and appellee.

In its live pleading, Carrizo asserted that the frac valve assembly was improperly installed and that the ring gasket used in the flange beneath the master valve was defective and not within American Petroleum Institute (API) or manufacturer specifications. Carrizo alleged claims against GE for negligence, breach of contract, products liability, and breach of implied and express warranty.

GE generally denied the allegations and asserted counterclaims, including allegations that Carrizo was negligent and was contractually obligated to indemnify GE for its negligence. GE also sought attorney's fees for asserting the indemnity claim.

Carrizo filed an amended pleading adding Carrizo Marcellus as a plaintiff, but the trial court sustained GE's special exceptions and ordered Carrizo Marcellus to file a petition in intervention if it wished to be joined as a plaintiff. Carrizo Marcellus did not file a petition in intervention. GE moved for summary judgment, arguing that because the Yarasavage 1H well was owned and operated by Carrizo Marcellus, Carrizo lacked standing to claim damages from the blowout.^[4] GE asserted that Carrizo "ha[d] not been personally aggrieved and therefore lack[ed] standing to sue GE for those damages."

Carrizo responded that both it and Carrizo Marcellus suffered damages and that "all costs and expenses were passed on to and ultimately borne by" Carrizo, as the parent company. Carrizo also argued that Carrizo Marcellus had assigned all its rights to Carrizo and that all damages had been paid by and subrogated to its insurer, Gemini Insurance Company, who was the real party in interest. The trial court denied GE's motion for summary judgment.

Before trial, GE and Carrizo agreed to bifurcate the trial into a jury trial on liability and a later bench trial, if necessary, on GE's counterclaims for indemnification. The jury trial took place over seven days in the summer of 2016. Manufacturing defect, negligence, and breach of contract theories were submitted to the jury. The jury found that a manufacturing defect was not a producing cause of the blowout, and that GE did not fail to comply with its agreement to install the frac valve assembly on the Yarasavage 1H well. The jury found that the negligence of both GE and Carrizo was a proximate cause of the blowout.

After trial, Carrizo asked the trial court to disregard the jury's answers to questions 2b and 3. Question 2b asked whether the negligence, if any, of Carrizo proximately caused the blowout on the Yarasavage 1H well. As to Carrizo, "negligence" was defined as

[the] failure to use ordinary care, that is, failing to do that which an oil and gas operator of ordinary prudence would have done under the same or similar circumstances or doing that which an oil and gas operator of ordinary prudence would not have done under the same or similar circumstances.

(Emphasis added.) The jury answered question 2b, "YES." Question 3 asked the jury to find the percentage of responsibility attributable to GE and Carrizo. The jury found that GE was 35% responsible and Carrizo was 65% responsible.

In its motion, Carrizo argued that GE presented no expert testimony or competent evidence on elements of duty, breach, and causation that are necessary to establish that Carrizo was negligent. Carrizo noted that GE did not object to the part of the charge that defined negligence as it applied to Carrizo as the failure to act as an ordinary and prudent oil and gas operator, as contrasted with the definition of negligence as it applied to GE as the failure to act as an ordinary and prudent person. Carrizo further argued that because GE failed to offer any expert testimony that Carrizo was negligent, the jury's answer to question 3, regarding the apportionment of fault, was moot. In response, GE argued that no expert testimony was needed because the failure to maintain the frac valve assembly through twenty fracking stages was within the normal experience and common knowledge of the jurors. In August 2016, the trial court denied Carrizo's motion.

In January 2017, Judge Hall succeeded Judge Mayfield, and the parties continued to work toward a bench trial on the indemnity issues. Because there was no master service agreement ("MSA") between GE and Carrizo, GE maintained that it was entitled to indemnity based on language that appeared in four types of documents: (1) quotes for materials and services, (2) invoices, (3) order verification reports ("OVR"), and (4) field service orders ("FSO"). The quotes, invoices, and OVRs were accompanied by the same version of GE's standard terms and conditions, which provided that the buyer would indemnify GE against all claims arising out of the performance or non-performance of the contract without regard to whether the claims or damages resulted from GE's negligence. Each FSO, including the FSO for installation of the frac valve assembly for the Yarasavage 1H well, noted on its face that it was subject to terms and conditions that were attached. The terms and conditions attached to the FSOs were different from the terms and conditions that accompanied the three other types of documents. Like the other terms and conditions, the terms and conditions attached to the FSOs included a broad indemnification provision. However, the terms and conditions attached to the FSOs specifically stated that the indemnity provision extended to all claims “whether asserted directly by Customer or by a third party.”

The bench trial was held in October 2018. Coleby Weinstock Carrizo's operations engineer, and Douglas Gosda, an attorney for GE, testified live. The parties also proffered eleven deposition excerpts from nine witnesses who had knowledge of facts relevant to GE's...