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GB Tubulars, Inc. v. Union Gas Operating Co.

Court of Appeals of Texas, Fourteenth District

June 29, 2017

GB TUBULARS, INC., Appellant

         On Appeal from the 333rd District Court Harris County, Texas Trial Court Cause No. 2011-28193

          Justice Panel consists of Justices Boyce, Christopher, and Jamison.


          Martha Hill Jamison Justice.

         Union Gas Operating Company sued GB Tubulars, Inc. after the failure of an oil and gas well in which Union Gas used equipment purchased from GB Tubulars. Union Gas asserted numerous causes of action premised on the incident, including several theories of products liability, negligence, and breach of express and implied warranties. The jury found among other things that GB Tubulars breached an express warranty causing Union Gas to incur $3 million in damages. The jury additionally found that Union Gas was negligent and therefore responsible for 45 percent of its own damages and that a reasonable and necessary fee for Union Gas's attorneys in this case was zero. The trial court granted Union Gas a new trial on the attorney's fees issue, which was then retried to the bench. In its final judgment, the trial court awarded Union Gas damages for breach of an express warranty and attorney's fees but did not reduce the damages award based on Union Gas's own negligence.

         In five issues on appeal, GB Tubulars contends that (1) the trial court erred in admitting evidence of other well failures; (2) the evidence was legally and factually insufficient to support the jury's findings on breach of an express warranty; (3) the trial court erred in submitting multiple jury questions premised on the same facts; (4) the trial court erred in refusing to take into account Union Gas's negligence in determining the amount of damages to award; and (5) the trial court erred in granting Union Gas a new trial on attorney's fees. We affirm.

         I. Overview

         In 2010, Union Gas drilled the Dubose #2H well in the Eagle Ford Shale formation in Gonzales County, Texas. Union Gas engineering consultant Russell Chabaud testified that he consulted GB Tubulars' website, viewed its products specifications on a datasheet published there, and decided to select certain GB Tubulars' couplings for use in the well.[1] In September 2010, Union Gas purchased couplings from GB Tubulars and began installing casing strings (joints joined together by the couplings) in the well. After installation and during hydraulic fracking operations in the well, the well failed on September 21, 2010 when casing joints and couplings separated. Union Gas ultimately had to plug and abandon the well.

         After an investigation by consultant Viking Engineering into the causes of the failure, Union Gas sued GB Tubulars, raising the following theories of recovery: strict products liability based on a design defect, a manufacturing defect, and a marketing defect; breach of an express warranty; breach of the implied warranties of merchantability and fitness for a particular purpose; negligence; negligent misrepresentation; and several varieties of violations of the Texas Deceptive Trade Practices Act, including false, misleading, or deceptive acts or practices, breach of express warranties, breach of implied warranties, and unconscionable conduct. During trial, both sides presented expert witnesses who testified regarding causation of the well failure. Union Gas also presented evidence regarding failures in other wells where GB Tubulars couplings were installed. GB Tubulars objected to this evidence on the ground that the other incidents were not sufficiently similar to the subject occurrence.

         The trial court submitted to the jury all twelve theories of recovery noted above. The jury found no design or manufacturing defect existed and no breach of an implied warranty of merchantability, negligent misrepresentation, or unconscionable conduct occurred. However, the jury found that there was a marketing defect, that GB Tubulars breached five express warranties as well as the implied warranty of fitness for a particular purpose and express and implied warranties under the DTPA, and that GB Tubulars committed negligence, which was defined to include negligent marketing. For each tort that the jury found GB Tubulars committed, it found damages in the amount of $3 million. The jury also found that 45 percent of Union Gas's damages were caused by its own negligence. Although the jury affirmatively answered several predicate questions, it found the amount of Union Gas's reasonable and necessary attorney's fees to be zero.

         After the jury returned its verdict, Union Gas moved to accept the verdict into the record. Union Gas subsequently filed a motion for new trial arguing that "zero" was an inappropriate response to the jury question on attorney's fees. The trial court granted the motion, and the parties agreed to retry the attorney's fees issue to the bench. Union Gas also elected to recover damages under its breach of express warranties cause of action. In its final judgment, the trial court awarded Union Gas $3 million for breach of express warranties and $950, 000 in attorney's fees. The court further awarded prospective attorney's fees should GB Tubulars appeal the judgment.

         II. Sufficiency of the Evidence

         We begin with GB Tubulars' second issue-asserting the evidence is legally and factually insufficient to support the jury's finding on breach of express warranties-because legal sufficiency is a potential reverse and render point. See Horrocks v. Tex. Dep't of Transp., 852 S.W.2d 498, 499 (Tex. 1993); see also In re Estate of Parrimore, No. 14-14-00820-CV, 2016 WL 750293, at *4 (Tex. App.- Houston [14th Dist.] Feb. 25, 2016, no pet.) (mem. op.) ("We address these issues first because, if successful, they would provide appellants with the greatest relief.").[2]

         When reviewing for legal sufficiency, we consider the evidence in the light most favorable to the finding and indulge every reasonable inference that supports the challenged finding. City of Keller v. Wilson, 168 S.W.3d 802, 822 (Tex. 2005). We credit favorable evidence if a reasonable factfinder could and disregard contrary evidence unless a reasonable factfinder could not. Id. at 827. If there is more than a scintilla of evidence to support the finding, the legal sufficiency challenge fails. BMC Software Belgium, N.V. v. Marchand, 83 S.W.3d 789, 795 (Tex. 2002). In reviewing the factual sufficiency of the evidence, we consider all of the evidence and set aside the judgment only if it is so contrary to the overwhelming weight of the evidence that it is clearly wrong and manifestly unjust. Cain v. Bain, 709 S.W.2d 175, 176 (Tex. 1986). The factfinder is the sole judge of witness credibility and the weight to be given testimony. Keller, 168 S.W.3d at 819. Where, as here, the parties have not objected at trial to the substance of the law set forth in the jury charge, we review sufficiency of the evidence in light of legal standards contained in the unobjected-to charge. See Osterberg v. Peca, 12 S.W.3d 31, 55 (Tex. 2000) ("[I]t is the court's charge, not some other unidentified law, that measures the sufficiency of the evidence when the opposing party fails to object to the charge.").[3]

         The jury charge contained a series of questions relating to alleged express warranties. The charge defined "express warranty" as "an affirmation of fact or promise made by GB Tubulars [which became] a basis of the bargain. It is not necessary that GB Tubulars used formal words such as 'warrant' or 'guarantee' or that it had a specific intention to make a warranty." The charge further defined "producing cause" in this context as "a cause that was a substantial factor in [the] bringing about of an occurrence, and without which the occurrence would not have occurred. There may be more than one producing cause." The jury found that the Connections failed to meet the following representations made by GB Tubulars that became "part of the basis of the bargain" and that the failures were a producing cause of the well failure:[4]

(1) the Connections exceeded casing pipe performance properties under all load combinations,
(2)the Connections were rated for a Minimum Internal Yield Pressure of 12, 640 pounds per square inch (psi),
(3)the Connections were rated for a Minimum Connection Tension of 685 kips (685, 000 pounds-force),
(4)the Connections were rated for a Minimum Joint Strength of 667 kips (677, 000 pounds-force), and
(5)the Connections had enhanced fatigue life.[5]

         In its appellate briefing, GB Tubulars does not deny that these statements constituted express warranties or that Union Gas relied on the statements in deciding to purchase the couplings. Instead, GB Tubulars asserts that Union Gas failed to present evidence of breach of any of these warranties or resulting causation of injuries.

         Union Gas argues that the jury's findings on breach and causation are supported by several pieces of evidence, including investigative reports prepared by Viking Engineering and MTL Engineering, pressure charts from the well at the time of failure, and testimony from Viking Engineer John Greenip and expert witnesses Brian Schwind and William Coleman. The Viking and MTL reports conclude the well failure was caused by a crack that formed in one of the couplings and "[t]he loads on the string did not exceed the published performances of the pipe body or the CDE connection [i.e., the GB Tubulars coupling]." In other words, the coupling failed though under stress within the advertised parameters for the product. This conclusion is supported by the charts showing well pressure at the time of failure. Greenip, who authored the Viking reports, also testified that two representations were inaccurate: (1) that the couplings exceeded the casing pipe's performance properties under all load combinations, and (2) that the couplings could withstand a minimum connection tension of 685, 000 pounds-force.

         Coleman, a metallurgical engineer, testified that GB Tubulars did not use "reasonable care" in representing the couplings' performance characteristics on the website's data sheet. He stated that the claim that the couplings possessed enhanced fatigue resistance was inaccurate. He further opined that the claim the couplings were at least as strong as the pipe body was inaccurate and specifically noted that the wall thickness of the coupling where the crack occurred was thinner than the pipe body.[6] He explained that a thinner cross-section meant that the coupling could not withstand the same loads as the pipe body. Lastly, Coleman testified that the advertised capacity of the coupling, i.e., "how much this thing can handle before it breaks, " was inaccurate.

         Schwind, a consulting engineer, testified that the GB Tubulars coupling was similar to another product that had had to be "redefined" to be considered reliable. He explained that pressure vessels, such as casing pipe and couplings, are normally not "plastically deformed, " i.e., stressed beyond the point where they can return to their original shape. He then opined that the coupling that cracked had been stressed to a level that it was plastically deformed. He said the data sheet did not provide stress limits and "the specifications that are there"-clearly referencing the actual properties of the coupling and not the parameters in the data sheet-did "not permit it to perform in a reliable manner." Schwind additionally asserted that the GB Tubulars promotional materials were inaccurate regarding the couplings' physical properties. He explained that the couplings actually had a smaller "section area" than the pipe and indicated that this resulted in a lower joint strength than indicated in the materials. He continued that the minimum joint strength listed in the materials appeared to be taken from a different product. Additionally, Schwind said that the listed internal yield pressure was inaccurate. He explained that this would affect whether the coupling could return to its original shape when pressure was released. Also, Schwind averred that because the couplings did not possess 100% of the minimum internal yield pressure of the pipe, it would not have been reliably leak resistant. He said that it was inaccurate to say the connection was "as strong as the pipe body when, in fact, it's significantly higher stressed and significantly weaker than the pipe body."

         Schwind further asserted that these errors in the promotional materials caused an operator or drilling engineer to be misled into using this product. Although Schwind's statement was generic, it supports Chabaud's testimony that he chose the GB Tubulars couplings for application on the Dubose #2H well after viewing the specifications on the website. Schwind concluded that the couplings were not fit for use in a horizontally drilled well that was going to be fracture stimulated.

         GB Tubulars nevertheless argues this evidence establishes no causal connection between inaccurate representations and the well failure. As GB Tubulars correctly points out, expert testimony related to causation is required when an issue involves matters beyond jurors' common understanding. See Mack Trucks, Inc. v. Tamez, 206 S.W.3d 572, 583 (Tex. 2006).

         We conclude that, considering the evidence in the light most favorable to the finding, legally sufficient evidence supports the jury's finding as to causation. As described, Union Gas presented evidence-including expert testimony-of misrepresentations regarding the couplings' physical properties and ability to withstand certain levels of pressure and stress; Union Gas presented expert testimony regarding the problems that such misrepresentations could cause; and Union Gas presented evidence-including expert testimony-that at least one of the couplings failed at pressure levels within those representations. Union Gas also presented expert testimony that the alleged misrepresentations could have misled a drilling engineer into using the product and evidence that Union Gas purchased the couplings relying on the misrepresentations. The jury is authorized to make reasonable inferences from the evidence. See, e.g., Sw. Key Program, Inc. v. Gil-Perez, 81 S.W.3d 269, 274 (Tex. 2002) ("While examining the record to determine if there is sufficient evidence of causation, we must view the evidence in a light that tends to support the finding of causation and disregard all evidence and inferences to the contrary."); Gunn v. McCoy, 489 S.W.3d 75, 93 (Tex. App.- Houston [14th Dist.] 2016, pet. filed) (upholding jury verdict on causation in medical malpractice case after considering all evidence, including expert testimony, and reasonable inferences therefrom in the light most favorable to the jury's findings). The evidence therefore supported the jury's apparent conclusion that misrepresentations regarding the couplings' properties led Union Gas to purchase and use the couplings for a purpose that they were not capable of performing, thus proximately causing damages.

         GB Tubulars additionally asserts that, as Union Gas's experts testified, the couplings corroded after installation in the well, which could have caused the failure. In support, GB Tubulars cites Safeway Stores, Inc. v. Certainteed Corp., 710 S.W.2d 544, 548 (Tex. 1986) (discussing under what circumstances an express warranty under the Uniform Commercial Code may extend to future performance), and American Alloy Steel, Inc. v. Armco, Inc., 777 S.W.2d 173, 176 (Tex. App.- Houston [14th Dist.] 1989, no pet.) (same).[7] We note that the coupling in question failed after being in the well for less than two weeks. However, even if corrosion was present, that does not require the conclusion that one or more of the warranty breaches found by the jury could not have been a producing cause of the well failure. As defined by the charge, "producing cause" means "a cause that was a substantial factor in [the] bringing about of an occurrence, and without which the occurrence would not have occurred. There may be more than one producing cause." See Ford Motor Co. v. Ledesma, 242 S.W.3d 32, 46 (Tex. 2007). Moreover, Union Gas argued at trial that the couplings should have been able to withstand expected corrosive effects of being used in-ground. Although GB Tubulars disagrees, arguing the warranties did not apply in a corrosive environment, it does not cite conclusive evidence or helpful authority in support of its position.

         As described, the evidence was legally and factually sufficient to support the jury's conclusion that GB Tubulars' breach of one or more express warranties was a producing cause of Union Gas's damages. Accordingly, we overrule GB Tubulars' second issue.

         III. Evidence of Other Failures

         We next turn to GB Tubulars' first issue, the trial court's alleged error in admitting evidence of other well failures because Union Gas failed to demonstrate that the other failures occurred under sufficiently similar circumstances. The evidence GB Tubulars complains about concerns sixteen other well failures in which the same or similar GB Tubulars' couplings were involved. Union Gas introduced fairly voluminous records and reports regarding these other failures, questioned several witnesses regarding the other failures, and offered the testimony of one witness who worked on one of the failed wells. GB Tubulars contends that Union Gas failed to establish the admissibility of this evidence by demonstrating the other failures ...

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