Petroleum Solutions, Inc. v. Head

• Decision Date: 19 December 2014
• Docket Number: NO. 11–0425,11–0425
• Citation: 454 S.W.3d 482
• Parties: Petroleum Solutions, Inc., Petitioner, v. Bill Head d/b/a Bill Head Enterprises and Titeflex, Inc., Respondents
• Court: Texas Supreme Court

454 S.W.3d 482

Petroleum Solutions, Inc., Petitioner

v.Bill Head d/b/a Bill Head Enterprises and Titeflex, Inc., Respondents

NO. 11–0425

Supreme Court of Texas.

Argued December 4, 2012

OPINION DELIVERED: December 19, 2014

Dissenting Opinion by Justice Boyd July 11, 2014

David E. Chamberlain, Timothy Poteet, Chamberlain & McHaney, Austin, Jennifer Bruch Hogan, Matthew E. Coveler, Richard P. Hogan Jr., Hogan & Hogan, L.L.P., Houston, Michael Albert McGurk, Kittleman Thomas PLLC, Victor V. Vicinaiz, Roerig Oliveira & Fisher, L.L.P., McAllen, for Petitioner.

Craig Stephen Smith, Law Office of Craig S. Smith, Corpus Christi, Roberta S. Dohse, Hoblit Ferguson Darling LLP, Corpus Christi, Benjamin Charles Nichols, Stephen R. Darling, Thomas A. Cowen, Hoblit Ferguson Darling LLP, San Antonio, Donald H. Grissom, William W. Thompson III, Grissom & Thompson LLP, Austin, George P. Powell, George P. Powell, P.C., McAllen, George Petersmarck Jr., Petersmarck & Associates, P.C., St. Clair Shores, MI, for Respondents.

Opinion

Justice Lehrmann delivered the opinion of the Court, in which Chief Justice Hecht, Justice Green, Justice Johnson, Justice Willett, Justice Guzman, Justice Devine, and Justice Brown joined, and in Parts I and II of which Justice Boyd joined

We deny the motions for rehearing of Bill Head d/b/a Bill Head Enterprises and Petroleum Solutions, Inc. We withdraw our opinion of July 11, 2014, and substitute the following in its place.

Bill Head, doing business as Bill Head Enterprises (Head), hired Petroleum Solutions, Inc. to manufacture and install an underground fuel system. Following a large diesel leak, Head sued Petroleum Solutions for its resulting damages, and the trial court rendered judgment on the jury's verdict in Head's favor. The trial court also rendered judgment in favor of third-party defendant Titeflex, Inc., the alleged manufacturer of a component part incorporated into the fuel system, on Titeflex's counterclaim against Petroleum Solutions for statutory indemnity. The court of appeals affirmed the judgment. Petroleum Solutions presents two principal issues for our review. First, Petroleum Solutions challenges the trial court's issuance of spoliation sanctions against it, which included submitting a spoliation instruction to the jury and striking Petroleum Solutions' statute-of-limitations and statutory-indemnity defenses. Second, Petroleum Solutions complains that Titeflex's statutory-indemnity claim fails as a matter of law.

We hold that the trial court abused its discretion by charging the jury with a spoliation instruction and striking Petroleum Solutions' defenses because those sanctions do not conform to the standards set forth in our recent decision in Brookshire Brothers, Ltd. v. Aldridge, 438 S.W.3d 9 (Tex. 2014). Because the trial court's abuse of discretion was harmful with respect to the claims between Head and Petroleum Solutions, we reverse the court of appeals' judgment as to Head's claims and remand to the trial court for further proceedings between those parties. However, we agree with the trial court and the court of appeals that Titeflex was entitled to statutory indemnity from Petroleum Solutions and hold that any spoliation error with respect to the indemnity claim was harmless. Therefore, we affirm the court of appeals' judgment as to Titeflex's indemnity claim.

I. Factual and Procedural Background

Head owns and operates the Silver Spur Truck Stop in Pharr, Texas. Head contracted with Petroleum Solutions to install a diesel-fuel storage system that included pipes necessary to transport the fuel from the tanks to the station's fuel pumps. The parties agree that flex connectors—parts of the piping system—were components of the new fuel system. However, they disagree about who manufactured the connectors that Petroleum Solutions used in the system.

After installing the fuel system, Petroleum Solutions recommended installing an automatic tank-gauging system to detect any fuel releases. Head agreed, and Petroleum Solutions completed the system's installation in October 1999. Shortly after both the fuel and gauging systems were installed, Head began to experience problems, mainly with the gauging system, and requested maintenance and repair work from Petroleum Solutions on numerous occasions. In November 2001, Head contacted Petroleum Solutions about fluctuations in the fuel inventory data from the gauging system. Petroleum Solutions investigated and discovered that a major diesel-fuel release had occurred. The Texas Natural Resource Conservation Commission (now the Texas Commission on Environmental Quality) recorded a recovery of approximately 20,000 gallons of diesel fuel from the surrounding ground.

Petroleum Solutions workers immediately notified Head and Petroleum Solutions' president, Mark Barron, about the leak, and Barron traveled to the Silver Spur to help determine the cause. After testing, Petroleum Solutions concluded that the leak originated in the piping that ran from the tanks to the fuel dispensers. Barron subsequently informed the Silver Spur's general manager, Robert Carpenter, that the source of the leak was a faulty flex connector located under “Dispenser Number 4.” Barron showed Carpenter the allegedly faulty connector and asked if Petroleum Solutions could retain it for safekeeping and possible testing. Carpenter agreed to Barron's request. That was the last time Carpenter or Head saw the flex connector. Petroleum Solutions would later say that Titeflex had manufactured the flex connector, but photos of the connector did not reveal the manufacturer, and Petroleum Solutions was unable to produce records showing that Titeflex was the manufacturer.

Petroleum Solutions reported the incident to its liability insurer, which engaged attorney Elizabeth Neally to represent Petroleum Solutions. In February 2002, Barron gave the flex connector to Neally, who sent it to metallurgist David Hendrix for evaluation along with instructions not to perform destructive testing. Hendrix performed an unspecified analysis on the component, then processed it into inventory for storage at WH Laboratories. In April 2002, Neally sent Hendrix a letter inquiring about his review and inspection of the flex connector, and Hendrix responded with an invoice for his professional engineering services, which included photographing the flex connector, four hours of professional time, and one hour of laboratory time. Petroleum Solutions did not contact Hendrix again or otherwise inquire about the connector until March 2006, shortly after Head filed suit. By that time, the storage facility at WH Laboratories had been demolished, and certain contents of the building had been discarded or destroyed in conjunction with the building's demolition. Howard Heinsohn, the lab's manager, testified at a deposition that he orally advised Hendrix that the building would be torn down and its contents destroyed, and that Hendrix retrieved some items and told Heinsohn he could throw out the rest. However, nothing in the record suggests Petroleum Solutions was informed that WH Laboratories would be torn down or even knew that the connector was being stored there.

Beginning in December 2001, Head withheld payments from Petroleum Solutions, which it blamed for causing the leak. In May 2002, Head's attorney wrote a letter to Petroleum Solutions threatening suit. While the letter requested that Petroleum Solutions contact Head to resolve their dispute amicably, the letter did not request production of the flex connector. Head eventually filed suit against Petroleum Solutions on February 13, 2006, asserting claims for breach of the warranty of fitness, breach of the implied warranty of good and workmanlike services, and negligence.¹ Because the lawsuit was filed more than four years after the leak was discovered, Head also pleaded the discovery-rule and fraudulent-concealment exceptions to the statute of limitations. Petroleum Solutions answered, asserting limitations and other affirmative defenses. It also alleged that Titeflex had manufactured the missing flex connector that caused the leak.

Petroleum Solutions then filed a third-party petition against Titeflex, claiming indemnity and contribution based on a products-liability theory. Head followed in Petroleum Solutions' footsteps and amended its petition to assert a strict products-liability claim directly against Titeflex. The amended petition attributed the leak and the resulting damages to several deficiencies, including: a failure of the line leak detector and gauging system; the faulty flex connector, which was “part of the [fuel] system” and which Titeflex allegedly sold to Petroleum Solutions; and Petroleum Solutions' failure to properly install or repair the fuel and gauging systems.

Titeflex moved for summary judgment on both Petroleum Solutions' and Head's claims, urging that no evidence showed that a Titeflex–manufactured connector was used in the Silver Spur's fuel system. The trial court ultimately denied Titeflex's motion. Petroleum Solutions also twice moved for summary judgment on limitations grounds, but the trial court denied both motions. Petroleum Solutions then designated an expert to opine that the damages resulting from the leak were attributable to the flex connector, but the expert failed to attend three noticed depositions and was de-designated by Petroleum Solutions on the eve of trial.

In January 2008, Titeflex moved for sanctions against Petroleum Solutions. Titeflex claimed that Petroleum Solutions spoliated evidence by failing to produce the allegedly faulty flex connector and sought a jury instruction to that effect. Head then nonsuited its claims against Titeflex and also moved for sanctions against Petroleum Solutions. Head argued that Petroleum Solutions intentionally destroyed crucial evidence and requested that the trial court consider a broad range of sanctions, including striking Petroleum Solutions' pleadings. Petroleum Solutions...