Valero Energy Corp. v. M.W. Kellogg Const. Co., 13-91-666-CV

• Decision Date: 30 June 1993
• Docket Number: No. 13-91-666-CV,13-91-666-CV
• Citation: 866 S.W.2d 252
• Parties: VALERO ENERGY CORPORATION, et al., Appellants, v. The M.W. KELLOGG CONSTRUCTION COMPANY, et al., Appellees.
• Court: Texas Court of Appeals

Page 252

866 S.W.2d 252

VALERO ENERGY CORPORATION, et al., Appellants, v. The M.W. KELLOGG CONSTRUCTION COMPANY, et al., Appellees.

No. 13-91-666-CV.

Court of Appeals of Texas Corpus Christi.

June 30, 1993.

[Motion to Publish Granted, Nov. 17, 1993.]

Rehearing Denied Nov. 17, 1993.

William R. Edwards, Edwards & Terry, Corpus Christi, Mike A. Hatchell, Molly H. Anderson, Tom Henson, Gregory D. Smith, Ramey & Flock, Tyler, Thomas H. Watkins, Hilgers & Watkins, P.C., Austin, David M. Waterson, Jr., San Antonio, for appellants.

Christopher Langen, David H. Kagan, John M. Calimafde, Hopgood, Calimafde, Kalil, Blaustein & Judlowe, New York City, John B. Shely, Taylor M. Hicks, Jr., Andrews & Kurth, Houston, Joseph Katarincic, Kenneth L. Salmon, Terrence J. O'Rourke, Katarincic & Salmon, Pittsburgh, Rudy Gonzales, Jr., Harvey Ferguson, Jr., Chaves, Gonzales & Rodriguez, Corpus Christi, David Healey, Michael J. Stanley, Charles S. Kelley, Weil, Gotshal & Manges, Houston, for appellees.

Before DORSEY, SEERDEN and FEDERICO G. HINOJOSA, Jr., JJ.

OPINION

DORSEY, Justice.

Valero Energy Corporation ¹ appeals from a summary judgment entered in a negligence and deceptive trade practices case. The trial court found that a waiver provision in the parties' goods and services contract was valid and therefore Valero had no cause of action against appellees Kellogg and Ingersoll-Rand. By eighteen points of error, Valero complains of the judgment as well as a sanction striking its defenses to the contract. We affirm.

In July, 1979, Saber Energy, Inc. (now Valero) ² sought Kellogg's construction, engineering, and design services for a $500 million expansion of its Corpus Christi oil refinery. The parties negotiated an agreement until May 28, 1982, and signed a contract on that date. During the negotiations period, Kellogg tendered bargained-for services to Valero, which were included in the final contract; on the date of the signing of the contract, Kellogg had delivered some $15 million in goods and services to Valero.

Valero hired appellee Ingersoll-Rand, who would become a Kellogg subcontractor, in early 1981 to supply machinery for the refinery expansion. This machinery, called a Power Recovery Unit, consists of an expander, a compressor, a motor generator, and a steam turbine. The expander, which is used to derive mechanical energy from the hot gases emitted from the refining process, was delivered to the Valero refinery in September, 1982. That piece of equipment forms the basis of this suit, as it failed and exploded on May 3, 1988, causing damages to the Valero plant. Appellant maintains that flying shrapnel from the explosion damaged structural I-beams, a pipe rack, and several tons of catalyst.

Valero brought suit against Kellogg and Ingersoll-Rand alleging, among other actions, products liability, gross negligence, and violations of the Deceptive Trade Practices-Consumer Protection Act. ³ Both defendants filed motions for summary judgment based upon certain provisions of the contract, the most important of which were waiver, indemnity, and hold-harmless clauses. Ingersoll-Rand also alleged that Valero's suit was barred by limitations and that the appellant failed to properly allege actions sounding in tort, having suffered only economic damage.

Five years later, Valero filed a fifth amended original petition alleging for the first time defenses to the contract including, among others, fraud, unconscionability, duress, unenforceability of the waiver and indemnity provisions, and public policy. Valero filed a motion for partial summary judgment based upon that amended petition. The trial court ultimately struck, as a sanction, all pleadings, affidavits, and exhibits filed by Valero in connection with four of its defenses to the contract: unconscionability, fraud, duress, and adhesion.

Valero filed several subsequent amended petitions alleging essentially the same defenses. The trial court granted summary judgment in favor of Kellogg and Ingersoll-Rand. It is from those judgments that Valero appeals.

By point of error 18, appellant maintains that the trial court erred by imposing the sanction against it. We review the propriety of the sanction order to determine whether the court committed a clear abuse of discretion when imposing it. TransAmerican Natural Gas Corp. v. Powell, 811 S.W.2d 913, 916-17 (Tex.1991); Bodnow Corp. v City of Hondo, 721 S.W.2d 839, 840 (Tex.1986); Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241 (Tex.1985), cert. denied, 476 U.S. 1159, 106 S.Ct. 2279, 90 L.Ed.2d 721 (1986). Sanctions must be just; we look to whether a direct relationship exists between the offensive conduct and the sanction imposed, and to whether the sanction is excessive. Remington Arms Co., Inc. v. Caldwell, 850 S.W.2d 167, 170 (1993); Chrysler Corp. v. Blackmon, 841 S.W.2d 844 (Tex.1992); TransAmerican, 811 S.W.2d at 916-17. Sanctions are appropriate when the sanctioned party's conduct " 'justifies a presumption that its claims or defenses lack merit.' " Caldwell, 850 S.W.2d at 171 (quoting Chrysler, 841 S.W.2d at 849).

Valero submitted only the affidavit of its in-house counsel, Mr. Cantrell, to support its unconscionability, fraud, duress, and adhesion defenses. In his affidavit, Cantrell averred that

I was concerned about article 6.8 and 6.9 of the contract relating to liability and indemnity and throughout the negotiations attempted to seek a better position for Valero. By May of 1982, however, it was apparent to me that Valero had no choice but to agree to the indemnity and release clauses required by Kellogg. * * * *

Additionally, throughout the contract negotiations, when we raised the issues of the exculpatory, indemnification, and liability limitations language in the draft contract, Kellogg told us not to worry about those provisions, because Kellogg had the expertise to make the project work, and was going to do the job right.

Appellees sought to depose Cantrell to inquire about his concerns and the advice he gave to Valero executives during negotiations. Valero agreed. During the deposition, however, Cantrell was instructed not to respond to any questions related to information or beliefs he submitted to Valero executives during the negotiation of this contract. Counsel asserted attorney/client privilege in support.

Some two weeks after the deposition adjourned, Valero sent letters to all parties, stating that it would waive the attorney/client privilege as to Cantrell, contingent upon a later determination by the court about whether the information obtained from him was in fact privileged, and whether the information was relevant. Valero refused to waive the privilege with regard to any additional depositions focusing upon unconscionability and related defenses, however.

Kellogg and Ingersoll-Rand filed motions to strike Valero's pleadings. They contended that both discovery abuse and abuse of the litigation process justified a sanction order. The parties highlighted Valero's failure to file affirmative defenses to the enforcement of the contract until five years after the defendants first asserted waiver as a defense to that contract. The parties also asserted that Valero had, by its actions, chosen to go forward with its attorney/client privilege assertion, thereby abandoning its affirmative defense allegations.

Texas law will not permit a party to raise a claim or defense in a lawsuit, then attempt to stave off discovery related to that allegation through the use of privilege. In Ginsberg v. Fifth Court of Appeals, ⁴ a mandamus proceeding, the underlying action concerned the validity of a ratification deed executed between the parties. The plaintiff contended that the defendant fraudulently induced her to sign the deed, and that she did not remember signing it. She stated during a deposition that she was being treated by a psychiatrist at the time she signed the deed. Defendant attempted to discover plaintiff's medical records, but she refused, citing psychiatrist/patient privilege. The supreme court found that plaintiff "has invoked the jurisdiction of the courts in search of affirmative relief against [defendant]; yet she would attempt, on the basis of privilege, to deny [defendant] that benefit of evidence which would materially weaken or defeat her claims against him." Id. at 107. The court refused to condone this offensive use of a privilege. Id.

A plaintiff cannot use one hand to seek affirmative relief in court and with the other lower an iron curtain of silence against otherwise pertinent and proper questions which may have a bearing upon his right to maintain his action.

Id. at 108 (citation omitted).

The rationale behind this rule was first applied in cases in which the Fifth Amendment privilege against self-incrimination was offensively utilized. Id. (citing Henson v. Citizens Bank of Irving, 549 S.W.2d 446, 448 (Tex.Civ.App.--Eastland 1977, no writ)). The Henson court noted the plaintiff's fundamental right to assert his Fifth Amendment privilege, but held that, based on principles of fundamental fairness, the plaintiff may be forced to elect to renew his claim of privilege or to abandon his claim. Henson, 549 S.W.2d at 448.

In Parten v. Brigham, ⁵ the court recognized that the attorney/client privilege, too, may not be used offensively to hinder the other party's discovery efforts. In that divorce and property settlement case, plaintiff sought to set aside the divorce decree on the ground that defendant fraudulently concealed community assets. The defendant alleged that he gave all property information to plaintiff's attorney, whose knowledge was therefore imputed to plaintiff. When defendant attempted to substantiate this through the deposition of plaintiff's attorney, plaintiff asserted the attorney-client privilege. The court held that the assertion of the attorney/client privilege was an impermissible offensive maneuver and that plaintiff may be forced to...