Paragon Asset Co. Ltd v. Gulf Copper & Mfg. Corp.

• Decision Date: 17 August 2022
• Docket Number: Civil Action 1:17-CV-203,1:17-CV-247,1:18-CV-035
• Parties: PARAGON ASSET COMPANY LTD, AS OWNER OF THE DRILLSHIP DPDS1, v. GULF COPPER & MANUFACTURING CORPORATION, et al., SIGNET MARITIME CORPORATION, AS OWNER OF THE TUG SIGNET ENTERPRISE, ITS ENGINES, TACKLE, ETC., IN A CAUSE OF EXONERATION FROM OR LIMITATION OF LIABILITY, SIGNET MARITIME CORPORATION, AS OWNER OF THE TUG SIGNET ARCTURUS, ITS ENGINES, TACKLE, ETC., IN A CAUSE OF EXONERATION FROM OR LIMITATION OF LIABILITY,
• Court: U.S. District Court — Southern District of Texas

PARAGON ASSET COMPANY LTD, AS OWNER OF THE DRILLSHIP DPDS₁,
v.
GULF COPPER & MANUFACTURING CORPORATION, et al., SIGNET MARITIME CORPORATION, AS OWNER OF THE TUG SIGNET ENTERPRISE, ITS ENGINES, TACKLE, ETC., IN A CAUSE OF EXONERATION FROM OR LIMITATION OF LIABILITY, SIGNET MARITIME CORPORATION, AS OWNER OF THE TUG SIGNET ARCTURUS, ITS ENGINES, TACKLE, ETC., IN A CAUSE OF EXONERATION FROM OR LIMITATION OF LIABILITY,

Civil Action Nos. 1:17-CV-203, 1:17-CV-247, 1:18-CV-035

United States District Court, S.D. Texas, Brownsville Division

August 17, 2022

AMENDED ORDER AND OPINION ^[1]

Fernando Rodriguez, Jr., United States District Judge.

On August 25, 2017, Hurricane Harvey made landfall near Corpus Christi as a Category 4 hurricane. In nearby Port Aransas, the drillship DPDS₁ lay docked, with no crew, but with two tug boats alongside to help keep her in place during the storm. Shortly before 11:00 p.m., the DPDS₁ broke free from her moorings. The drillship immediately propelled the two tug boats into adjacent semisubmersible oil rigs, damaging those vessels and sinking one tug boat and impairing

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the other. The DPDS₁ itself moved into and grounded in the ship channel, but refloated three days later, traveling across the channel and alliding with and damaging a research pier. The alleged damages total well over $10,000,000.

Three Complaints in Limitation ensued, filed by the respective owners of the DPDS₁ (Paragon) and the two tug boats (Signet). Each party filed counterclaims, and the owner of the semisubmersible oil rigs (Noble) and the research pier (The University of Texas) filed claims for the damage to their property. Gulf Copper, which owned the pier to which the DPDS₁ had been docked, also filed a claim for damage to that pier. And Paragon made claims against Signet's insurer, American Club.^[2]

The parties completed extensive discovery and motion practice, and in the process settled the claims that Noble, the University of Texas, and Gulf Copper filed. In July and August of 2021, the Court held a five-day bench trial on the claims remaining between Paragon, Signet, and American Club. At trial, 19 witnesses testified, and the Court admitted over 1,200 exhibits.^[3]

In this Order and Opinion, based on the voluminous trial record and the applicable law, the Court renders its findings of fact and conclusions of law as to the damages caused by the relevant events, and the comparative liability for those damages as between Signet and Paragon.

I. Findings of Fact

A. The History of the DPDS₁

In 1979, the Dynamically Positioned Drillship Number ₁ (“DPDS₁ ”) began operating as a 449-foot, Liberian flagged, deep water drilling ship. The vessel possessed thrusters that enabled it to remain dynamically positioned over a drilling site in deep water. Over the decades, various

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owners maintained and upgraded the drillship. For example, in 2008, the owners fully refurbished the vessel at an estimated cost of $350-500 million.

In 2010, Noble, Paragon's parent company at the time, acquired the DPDS₁. Over the next few years, Noble added new equipment and otherwise improved the vessel in preparation for work off the Brazilian coast. Aldert Schenkel, Paragon's Vice President of Engineering, oversaw this work and stated that the DPDS₁ “was in really good shape” at that time.^[4]

In 2014, Noble spun off Paragon, which became the sole owner of the DPDS₁. The drillship continued operations in Brazil. The following year, a downturn in the crude oil market decreased the demand for deep water drilling ships. As a result, Paragon decided to move the vessel to Port Arthur, Texas, and the drillship never again had commercial working ventures. By no later than mid-August 2017, Paragon intended to scrap the DPDS₁.^[5]

Between 2015 and 2017, the DPDS₁ remained “cold stacked”-i.e., the vessel was essentially shut down without a crew onboard-at two separate locations in Texas: Port Arthur and Port Aransas. During these years, four Paragon employees held primary responsibility for the DPDS₁'s management and care: Charlie Yester (Senior Vice President of Operations), Aldert Schenkel (Vice President of Engineering), Michael Koenig (Marine Operations Manager), and Jason Petten (Technical Marine Manager). They each possessed significant experience in the maritime drilling industry, although they possessed limited experience preparing for hurricane season in the Gulf of Mexico.

B. Paragon and Signet Business Relationship

1. The Master Charter Agreement (“MCA”)

In June 2015, Paragon and Signet began their business relationship by jointly creating a Master Charter Agreement (MCA) to govern at least some of their business dealings. Within the industry, companies who plan to repeatedly work together commonly use an MCA to

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“pre-negotiate such things as the indemnities, warranties, [and] governing law”.^[6] Each company assigned an in-house counsel-Jay Oliver, Assistant General Counsel for Paragon, and Scott Reid, General Counsel for Signet-to represent its respective interests in the negotiations.

The parties ultimately signed the MCA.^[7] This successful conclusion, however, did not create an enforceable contract. Rather, the signed document solely provided a form to shorten the negotiation and drafting process when Paragon required vessel-chartering services for specific projects. The MCA established a standard base of legal terms for certain work that Paragon might contract in the future from Signet, and allowed the companies' respective commercial teams to finalize individual vessel hires more quickly by providing only the details needed for the vessel specifications, such as the rate, time, and pick up and redelivery locations. Reid testified that one of Signet's primary motivations for entering into the MCA was that the company viewed Paragon as a desirable customer in the Gulf of Mexico.

The MCA contained three sections: (1) a three-page manuscript outlining the intent of the agreement; (2) Part I of the Baltic & International Maritime Council (BIMCO) SUPPLYTIME 2005 Uniform Charter Party for Offshore Service Vessels; and (3) Part II of the BIMCO form, which contained detailed provisions that would govern all services provided. The BIMCO form functioned as a towage contract. Part I contained 35 blank boxes that the parties filled with each job's specific commercial terms, such as the services to be provided, the vessel that would be supplied, the time and place of delivery, and the rates. Such terms varied from project to project, and the companies' business representatives, rather than in-house counsel, would agree upon them. Oliver testified that absent completion of Part I, “you don't have a charter.”^[8]

Within Part II, Section 1.3 indicated that the MCA “shall control and govern in all situations in which Owners [(Signet)] charter to Charterers [(Paragon)] a vessel or vessels, and

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the terms and conditions of this Agreement shall be deemed incorporated by reference”.^[9] At the same time, other sections of Part II noted that the contract applied to “offshore activities” and “voyages”,^[10] and no section referenced hold-in-place or in-harbor services.

2. The Signet Tariff

In August 2016, Signet published its tariff terms and conditions for the Ingleside division of its operations, a document referred to as the “Tariff”.^[11] The agreement applied to tug services that Signet provided to customers within the greater Corpus Christi port area.

Tug companies in United States ports commonly use tariffs, which establish the terms of service, such as the applicable rate and indemnity obligations, so that all entities receive tug services within a specific port on equal terms. During the relevant period, Signet's competitors within the Greater Port of Corpus Christi maintained tariffs with set rates, terms, and conditions.

Signet delivered its Tariff to customers every January and after significant modifications. The parties did not provide evidence as to whether or when Signet delivered the Tariff to Paragon before August 2017. At the same time, Paragon does not dispute that it could have accessed the Tariff, as Signet had published it.

C. The DPDS₁ in Port Arthur, Texas

In 2015, Paragon cold stacked the DPDS₁ at the Gulf Copper berth in Port Arthur, Texas. The vessel had no permanent crew onboard, but a mooring crew and Paragon employees regularly performed inspections. The DPDS₁ always remained afloat and maintained its navigational aids, including battery-operated lights. Paragon also installed a RigStat GPS system to track small movements by the rig and to detect any leakage on the vessel through level sensors on the bilges. At least once a week, Koenig would check on the DPDS₁ to do “whatever needed to be done”.^[12]

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In early 2017, however, the dock owners in Port Arthur decided to convert the dock's use. This decision forced Paragon to relocate the DPDS₁.

Koenig oversaw the site-selection process for the new location, and he ultimately chose to dock the DPDS₁ at Port Aransas. He considered several potential sites along the Gulf Coast, factoring in water and land access points, potential hazards beneath the water's surface, the quality of the dock bollards, and the potential effect that adjacent ship traffic could have on devising a suitable mooring arrangement. He considered each site's proneness to hurricanes, weighing the potential berth's location and possible hurricane landfalls. This analysis included reviewing studies of the historical tracks of hurricanes approaching the Texas coastline. Koenig did not detail the specific historical information that he reviewed, but Signet's weather expert, Joseph Spain, testified that between 1951 and 2020, 23 hurricanes passed or made landfall within 50 nautical miles of Port Aransas. He explained that in a ten-year period, a 41.1% chance exists of a major hurricane striking the Texas coast, and that in his...