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Traxys North America, LLC v. Fila Oilfield Services, LLC

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

September 12, 2017




         Pending before the court are Defendants Fila Oilfield Services, LLC and Fila-Mar Energy Services, LLC's ("Fila") Motion to Exclude Testimony of Charles Mazur ("Fila's Motion to Exclude") (Docket Entry No. 30); Defendants Fila Oilfield Services, LLC and Fila-Mar Energy Services, LLC's Motion for Partial Judgment on the Pleadings ("Fila's Motion for Partial Judgment on the Pleadings") (Docket Entry No. 31); Defendant NST Transload Operating Company, LLC d/b/a NorthStar Midstream's ("NST") Motion for Summary Judgment ("NST's MSJ") (Docket Entry No. 32); Defendants Fila Oilfield Services, LLC and Fila-Mar Energy Services, LLC's Motion for Leave to Amend Answer ("Fila's Motion for Leave to Amend") (Docket Entry No. 33); Defendant NST Transload Operating Company, LLC d/b/a NorthStar Midstream's Motion for Leave to File an Amended Answer ("NST's Motion for Leave to Amend") (Docket Entry No. 34); Defendant NST Transload Operating Company, LLC d/b/a NorthStar Midstream's Motion for Summary Judgment on Damages ("NST's MSJ on Damages") (Docket Entry No. 38); and Defendants Fila Oilfield Services, LLC and Fila-Mar Energy Services, LLC's Motion for Summary Judgment ("Fila's MSJ") (Docket Entry No. 39).

         For the reasons stated below, Fila's Motion to Exclude will be denied, Fila's Motion for Partial Judgment on the Pleadings will be granted, NST's MSJ will be denied, Fila's Motion for Leave to Amend will be granted, NST's Motion for Leave to Amend will be granted, NST's MSJ on Damages will be denied, and Fila's MSJ -- insofar as it is ripe for decision -- will be denied.

         I. Factual and Procedural Background

         In the spring of 2014 an associate trader with plaintiff Traxys North America, LLC ("Traxys"), Scott Musser, visited North Dakota in an attempt to locate indoor warehousing suitable for ceramic proppant.[1] While there Musser saw an advertisement for storage at the NST transloading facility and contacted NST about the possibility of storing proppant.[2] NST could not meet Traxys' storage needs because it did not have indoor facilities.[3] NST referred Musser to Fila, which was planning to construct indoor storage facilities at the NST terminal.[4] Fila had an agreement with NST, titled the Commodity Transloading Services Agreement, under which it could store goods at the NST terminal.[5] But per that agreement, Fila's right to access the storage facility was not "to substantially interfere with or diminish [NST's] complete control and responsibility for the operation of the [storage facility] and the performance of the [transloading services]. "[6]

         Traxys eventually entered into an agreement with Luoyang Aoxiang Ceramics Co., Ltd., to purchase 6, 000 metric tons of 20/40 ISP ceramic proppant to be shipped from Qingdao, China.[7] On August 28, 2014, Traxys entered into an agreement with Fila for the delivery of the 6, 000 metric tons of ceramic proppant in 4, 000 bulk bags, each containing 1.5 metric tons of proppant.[8] Fila agreed that it would be responsible for the loading, ocean transport, discharging, loading onto railcars, and rail freight from Qingdao, China to the Bakken Shale play in North Dakota, and the discharging of railcars to a warehouse.[9] The agreement between Traxys and Fila also included the following term: "Warehouse storage at NorthStar Terminal is $5.00 per 1.5 MT super-sack after 30 free days."[10]

         The proppant was loaded at the Port of Qingdao on or about October 23, 2014.[11] The vessel carrying the proppant arrived in Everett, Washington, on or around November 12, 2014.[12] A Fila-ordered survey of the proppant completed upon arrival found that moisture levels in the proppant ranged from 9 to 11%.[13]

         In mid-December of 2 014 the proppant began to be transported by rail from the port and to NST's terminal in North Dakota.[14] When Traxys visited the NST facility on May 7, 2015, to check on the condition of the bags, it found that only 1, 0 90 of the 4, 000 bags had been moved inside the warehouse.[15] A moisture probe analysis conducted by Scott Musser in May of 2015 revealed that some of the bags had moisture readings up to 29.9%.[16] Traxys withheld storage payments from February of 2015 through June of 2015.[17] Fila eventually sent an invoice reflecting a reduced rate of $3 per bag to cover the months of outdoor storage, which Traxys paid.[18] Fila's later invoices reverted to the rate of $5 per bag.[19] As of September of 2015, approximately 1, 000 bags remained outside.[20] A number of the bags had been damaged during attempts to move them by forklift.[21] On September 30, 2015, Fila notified Traxys that Fila was defaulting on its storage agreement with NST that required Fila to move a specified quantity of material through the storage facility monthly.[22] Traxys subsequently sold the proppant for salvage. Traxys sold 828, 000 pounds of proppant to RockPile Energy Services at $0.06/lb for a total of $46, 368, [23] and Traxys sold 12, 387, 720 pounds of proppant to Kelly Supply at $0.009/lb for a total of $111, 489. 48.[24]

         On March 18, 2016, Traxys sued NST and Fila asserting breach-of-contract and negligence claims in connection with damages to the ceramic proppant stored on NST's property. Defendants have moved for summary judgment on several issues, moved to amend their original answers, and moved to exclude Traxys' expert testimony.

         II. Choice of Law

         As a preliminary matter, defendants argue that North Dakota law controls. A federal court sitting in diversity applies the forum state's choice-of-law rules to determine which substantive law will apply. See Erie Railroad Co. v. Tompkins, 58 S.Ct. 817 (1938); Klaxon Co. v. Stentor Electric Manufacturing Co., Inc., 61 S.Ct. 1020 (1941). Texas courts resolve the issue of which state's law applies in a contract dispute by looking to the Restatement (Second) of Conflict of Laws (1971) . Maxus Exploration Co. v. Moran Brothers, Inc., 817 S.W.2d 50, 53 (Tex. 1991). If the contract does not stipulate the law to be applied in the event of a dispute, as is the case here, the general rule of section 188 of the Restatement controls. See id.; see also DeSantis v. Wackenhut Corp., 793 S.W.2d 670, 677-78 (Tex. 1990), cert, denied. 111 S.Ct. 755 (1991). Under that rule "[t]he rights and duties of the parties with respect to an issue in contract are determined by the local law of the state which, with respect to that issue, has the most significant relationship to the transaction and the parties under the principles stated in § 6." Restatement (Second) of Conflicts of Laws § 188(1) (1971). State contacts are evaluated not by their number, but by their quality. Minnesota Mining and Manufacturing Co. v. Nishika Ltd.. 955 S.W.2d 853, 856 (Tex. 1996) (citations omitted). In applying this test, the court considers (1) "the place of contracting, " (2) "the place of negotiation of the contract, " (3) "the place of performance, " (4) "the location of the subject matter of the contract, " and (5) "the domicile, residence, nationality, place of incorporation and place of business of the parties." Bailey v. Shell Western E&P, Inc., 609 F.3d 710, 723 (5th Cir. 2010).

         The parties' contract does not stipulate which law is to be applied in the event of a dispute. Defendants argue that the balance of factors supports application of North Dakota law. Fila notes that the proppant at issue was to be delivered to and stored in North Dakota. The remaining factors do not clearly indicate a more significant relationship with another state. Traxys does not dispute the significance of the relationship with North Dakota but argues that no choice of law analysis is required because it has withdrawn its claims for punitive damages[25] and thereby removed the conflict Fila identified between the applicable law of Texas and that of North Dakota. But Fila identifies another conflict between North Dakota and Texas law in its Reply.[26] Moreover, the alleged torts and the resulting damage occurred in North Dakota. For clarity and consistency, the court will therefore apply North Dakota law to all state law issues.

         III. Fila Motions

         A. Motion to Exclude

         Fila asks the court to exclude the testimony of Traxys' expert witness, Charles Mazur. Fila argues that Mazur's references to the facts and data he relied upon do not satisfy the notice requirements of Federal Rule of Civil Procedure 26, that Mazur lacks the requisite background, that Mazur's testimony is based on sources not reasonably relied upon by experts in the relevant fields, and that Mazur offers impermissible legal opinions. Traxys argues that Mazur's experience valuing projects in the oil and gas industry qualifies him "to testify on the market conditions of ceramic proppant, as well as other related matters, including logistics. "[27]

         Unless an expert is clearly unqualified to render an opinion, the court's usual practice is to rule on such motions at trial because (1) counsel frequently limit the scope of experts' testimony at trial, (2) counsel often establish more extensive predicates for experts' testimony at trial, and (3) experts sometimes modify their opinions at trial. Having carefully considered the parties' arguments the court is not persuaded that Mazur should be excluded. Although there is no indication that Mazur is an expert on proppant from a materials standpoint, his experience as a valuation expert for oil and gas projects may qualify him to opine on relevant aspects of the proppant market. At any rate, the court is not persuaded that Mazur is clearly unqualified. Questions regarding the sources relied upon by an expert typically go to credibility rather than admissibility. For the reasons stated above, the court will decide on the admissibility of specific portions of Mazur's testimony at trial. Accordingly, Fila's Motion to Exclude will be denied. Traxys should, however, supplement Mazur's report with the specific identities of sources upon which Mazur relies. Specifically, Traxys must identify the records and information on which Mazur relied, the identity of the source from Carbo Ceramics with whom Mazur or his organization discussed moisture testing of ceramic proppant, the industry sources on which Mazur relied for his pricing of distressed ceramic proppant, and the identifying information of the Carbo Ceramics report on the value of undamaged proppant. Traxys will have 14 days from the entry of this Memorandum Opinion and Order to provide that information to all defendants.

         B. Motion for Partial Judgment on the Pleadings

         Once a responsive pleading has been filed, a motion to dismiss for failure to state a claim is treated as a motion for judgment on the pleadings under Rule 12(c). Jones v. Greninger, 188 F.3d 322, 324 (5th Cir. 1999) (per curiam). "VA motion brought pursuant to Fed.R.Civ.P. 12(c) is designed to dispose of cases where the material facts are not in dispute and a judgment on the merits can be rendered by looking to the substance of the pleadings and any judicially noticed facts.'" In re Enron Corp. Securities, Derivative & "ERISA" Litigation, 439 F.Supp.2d 692, 695 (S.D. Tex. 2006) (quoting Great Plains Trust Co. v. Morgan Stanley Dean Witter & Co., 313 F.3d 305, 312 (5th Cir. 2002) and Herbert Abstract Co. v. Touchstone Properties, Ltd., 914 F.2d 74, 76 (5th Cir. 1990) (per curiam)). "A motion for judgment on the pleadings under Rule 12(c) is subject to the same standard as a motion to dismiss under Rule 12(b)(6)." Doe v. MySpace, Inc., 528 F.3d 413, 418 (5th Cir. 2008) (citing Johnson v. Johnson, 385 F.3d 503, 529 (5th Cir. 2004)). Accepting the plaintiff's factual allegations as true, the court considers whether the complaint states a plausible claim for relief. See Young v. City of Houston, 599 F.App'x 553, 554 (5th Cir. 2015).

         Fila seeks judgment as a matter of law as to Traxys' tort claims.[28] Fila argues that a breach of contract, without more, cannot support a tort claim, such as negligence. Traxys responds by citing Texas cases involving parties who were not in a contractual relationship. Under North Dakota law "[c]onduct that constitutes a breach of contract does not subject the actor to an action in tort for negligence, unless the conduct also constitutes a breach of an independent duty that did not arise from the contract." Dakota Grain Co., Inc. v. Ehrmantrout, 502 N.W.2d 234, 236-37 (N.D. 1993) . Accepting Traxys' factual allegations as true, Traxys has not identified any independent duty that did not arise from its contract with Fila. See Olander Contracting Co. v. Gail Wachter Investments, 643 N.W.2d 29, 39 (N.D. 2002). Fila's Motion for Partial Judgment on the Pleadings will therefore be granted, and Traxys' tort claims against Fila will be dismissed.

         C. Motion for Leave to Amend

         Under Rule 16(b)(4) "[a]fter a scheduling order deadline has passed, a party must show good cause [in order] to obtain leave to amend the operative pleadings." Meaux Surface Protection, Inc. v. Fogleman, 607 F.3d 161, 167 (5th Cir. 2010). The court's discretion to grant such leave is "guided by the following factors: ' (1) the explanation for the failure to timely move for leave to amend; (2) the importance of the amendment; (3) potential prejudice in allowing the amendment; and (4) the availability of a continuance to cure such prejudice.'" Id. (quoting S&W Enterprises, L.L.C. v. SouthTrust Bank of Alabama, NA, 315 F.3d 533, 536 (5th Cir. 2003)). Once the Rule 16(b)(4) standard has been met, the court applies the more liberal Rule 15(a) standard by which "leave to amend 'shall be freely given when justice so requires.'" S&W Enterprises, 315 F.3d at 53 5 (quoting Fed.R.Civ.P. 15(a)) . Leave may be denied under Rule 15(a) only for a "substantial reason." In re Southmark Corp., 88 F.3d 311, 314-15 (5th Cir. 1996) .

         Fila asks the court to modify its September 23, 2016, deadline for amended pleadings to permit Fila to amend its answer to include counterclaims for breach of contract and quantum meruit. Fila argues that there is good cause to amend the scheduling order because (1) the amendment is of critical importance, (2) Traxys will not suffer prejudice by the amendment, but (3) if Traxys is prejudiced, a continuance could cure the prejudice, and (4) litigation had not begun in earnest as of the deadline for motions to amend. Fila's argument regarding the status of the litigation at the time of the deadline for amendments constitutes an adequate excuse for Fila's failure to timely amend its answer. The court encourages parties to attempt early resolution, and the fact that no parties had begun conducting discovery as of the court's initial deadline for amendment suggests that all parties were working toward that end. The court concludes that the delayed start of discovery also minimizes the potential prejudice to Traxys. When Fila filed its motion, it had only taken one deposition and Traxys had taken none. The court also concludes that the amendment is important as it may constitute a dispositive defense and allow the suit to serve as a "final accounting" between the parties.[29] Moreover, a continuance would cure any prejudice Traxys may suffer from the amendment. Because the balance of Rule 16 factors weighs in favor of permitting amendment, and because the court is not aware of any substantial reason to deny the amendment, Fila's Motion for Leave to Amend will be granted. Fila will not, however, be permitted to re-depose any witness.

         D. Motion for Summary Judgment

         Fila seeks summary judgment on Traxys' breach-of-contract claim, on damages, on Traxys' gross-negligence claim, and on its counterclaims for breach of contract and quantum meruit.[30] Because Traxys' tort claims will be dismissed for the reasons stated in Section III.B., Fila's motion is moot as to those claims. Summary judgment is appropriate if the movant establishes that there is no genuine dispute about any material fact and the movant is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a) . "The movant accomplishes this by informing the court of the basis for its motion, and by identifying portions of the record which highlight the absence of genuine factual issues." Topalian v. Ehrman, 954 F.2d 1125, 1131 (5th Cir. 1992) (citing Fed.R.Civ.P. 56(c)). "In order to avoid summary judgment, the nonmovant must identify specific facts within the record that demonstrate the existence of a genuine issue of material fact." CO, Inc. v. TXU Mining Company, L.P., 565 F.3d 268, 273 (5th Cir. 2009).

         In reviewing the evidence "the court must draw all reasonable inferences in favor of the nonmoving party, and it may not make credibility determinations or weigh the evidence." Reeves v. Sanderson Plumbing Products, Inc., 120 S.Ct. 2097, 2110 (2000). The court resolves factual controversies in favor of the nonmovant, "but only when there is an actual controversy, that is, when both parties have submitted evidence of contradictory facts." Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994). "Unsubstantiated assertions are not competent summary judgment evidence." Hugh Symons Group, pic v. Motorola, Inc., 292 F.3d 466, 468 (5th Cir. 2002) (citing Celotex Corp. v. Catrett, 106 S.Ct. 2548, 2553 (1986)). And "[m]ere conclusory allegations are not competent summary judgment evidence." Id. (citing Eason v. Thaler, 73 F.3d 1322, 1325 (5th Cir. 1996)).

         1. Traxys' ...

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