ENI U.S. OPERATING COMPANY, INCORPORATED, Plaintiff - Appellant
TRANSOCEAN OFFSHORE DEEPWATER DRILLING, INCORPORATED, Defendant-Appellee
from the United States District Court for the Southern
District of Texas
CLEMENT, OWEN, and HO, Circuit Judges.
BROWN CLEMENT, Circuit Judge.
Transocean are both companies in the oil-drilling business.
They formed a contract about drilling for oil. Their
relationship soured. Both sued for breaches of that contract.
After a bench trial, Eni suffered a resounding loss on all
issues: The district court rejected its claims surrounding
Transocean's maintenance of its equipment, found that Eni
had wrongly repudiated the contract, and awarded damages to
Transocean. Eni asks us to undo all of this. Save for the
repudiation ruling, we find Eni's arguments meritorious.
The district court's judgment is vacated in part and
affirmed in part.
2008, when oil prices were high, Eni-a multinational oil
company- sought to conduct new exploratory drilling in the
Gulf of Mexico. It circulated a request for a drilling
vessel. Transocean-the largest offshore driller in the
Gulf-responded. The parties soon entered into a contract.
Transocean agreed to provide Deepwater Pathfinder to
Eni for its drilling operations and to operate it on
Eni's behalf. In exchange, Eni agreed to pay for the
right to use the rig for five years.
commencing drilling operations in 2010, the
Pathfinder went into a shipyard for maintenance.
During this time, Transocean installed a previously used
blowout preventer salvaged from the sea floor. Though old
and initially bent, Transocean successfully refurbished it,
and eventually it was certified for use. By February 2011,
the Pathfinder's maintenance was complete, and
it set out to drill Eni's first well.
immediately thereafter, problems began to bubble up on the
Pathfinder. Most notably, the blowout preventer kept
malfunctioning- requiring Transocean to suspend drilling on
numerous occasions. These problems persisted throughout the
contract's duration. From 2011 to 2014, maintenance and
repairs resulted in the Pathfinder being inoperable
for 19% of the time. Nonetheless, during that same time, the
Pathfinder successfully operated on numerous wells
for Eni, including one in excess of 10, 000 feet underwater.
early September 2014, the Pathfinder's drawworks
malfunctioned, but were soon fixed. Also in September, a loop
current damaged one of the two MUX cables that connect the
blowout preventer to its redundant yellow and blue control
pods. It is against federal regulation to drill wells unless
both control pods are fully operational. See 30
C.F.R. § 250.442(b). Thankfully, when the cable was
damaged, the Pathfinder was not drilling. Eni had
long before grown tired of the Pathfinder's
equipment problems, so it seized upon these two occurrences
to sever the contract. On October 13, Eni sent a letter
terminating the contract immediately, and by October 25,
Eni's men had fully evacuated the Pathfinder.
year before this point, Eni had sued Transocean arguing both
breach of contract and breach of warranty. Both claims were
anchored in what Eni believed was Transocean's failure to
upkeep its equipment in accordance with the contract and with
industry standards. Once Eni sent the October 13 letter in
2014, Transocean filed a counterclaim, arguing that the
October 13 letter was not a valid termination because it did
not comply with the contract's specific procedures. In
Transocean's view, the letter was a repudiation and
should be treated as a total breach.
10-day bench trial, the district court issued findings of
fact and conclusions of law. It rejected Eni's
breach-of-contract and breach-of-warranty claims. It held
that Transocean had not breached any contractual requirements
related to the maintenance of its equipment and that the
warranty claims were barred by the contract's indemnity
provision. As to Transocean's counterclaim, the district
court held that Eni did not follow the contract's
specific termination procedures. It therefore agreed with
Transocean that the October 13 letter was indeed a
repudiation, not a termination. It awarded damages to
Transocean on its counterclaim. Eni timely appealed,
challenging all the district court's conclusions.
bench trial, findings of fact are reviewed for clear error
while conclusions of law and mixed questions of law and fact
are reviewed de novo. In Re Luhr Bros., Inc., 325
F.3d 681, 684 (5th Cir. 2003). A finding of fact is clearly
erroneous if, after reviewing all the evidence, the court
"is left with the definitive and firm conviction that a
mistake has been committed." Flint Hills Res. LP v.
Jag Energy, Inc., 559 F.3d 373, 375 (5th Cir. 2009)
Eni's eyes, the district court got nothing right. It
wrongly rejected its breach-of-contract and
breach-of-warranty claims, incorrectly found it liable on
Transocean's breach-of-contract claim, and used an
improper methodology to calculate Transocean's damages.
We will address each argument in turn, beginning with
Eni's breach-of-contract claim.
§ 501(b)(1) of the contract, Transocean needed to
"employ commercially reasonable efforts to perform all
work and operations . . . in conformity with the requirements
of the Contract and good oilfield practice." Eni claimed
that Transocean materially breached this contractual
obligation by not adequately maintaining and repairing
important equipment on the Pathfinder, most
importantly the blowout preventer. The district court
rejected this claim, finding that Transocean complied with
argues that the district court's ultimate conclusion must
be set aside because the court only conducted half of the
relevant analysis necessary for that conclusion. Section
501(b)(1) requires that Transocean use commercially
reasonable efforts to do two things: (1) conform with the
contract's requirements; and (2) conform with good
oilfield practice. These are separate inquiries. The district
court, however, only meaningfully addressed the first one. On
the good-oilfield-practice requirement, the court simply
noted that the term was undefined. It never specifically
examined Transocean's practices to determine if they met
that standard. Despite its failure to engage with the
relevant evidence, the court still concluded that Transocean
used good oilfield practice. This, Eni says, was legal error.
On its account, the district court needed to lay out the many
subsidiary factual findings that would have been necessary to
reach the ultimate factual conclusion that Transocean used
commercially reasonable efforts to comply with good oilfield
practice throughout the contract's life.
start with the basics. After a bench trial, a district court
must make factual findings. Federal Rule of Civil Procedure
52(a) makes that clear. The question before us is how
detailed those factual findings need to be. Is the district
court required to make subsidiary findings? Or can it
announce only its ultimate factual conclusion? We long ago
answered that question: Rule 52(a) compels a district court
to lay out enough subsidiary findings to allow us to
understand "the basis of the trial court's
decision." Gulf King Shrimp Co. v. Wirtz, 407
F.2d 508, 515 (5th Cir. 1969). Put differently, "the
findings . . . must be sufficiently detailed to give us a
clear understanding of the analytical process by which [the]
ultimate findings were reached and to assure us that the
trial court took care in ascertaining the facts."
Golf City, Inc. v. Wilson Sporting Goods, Co., 555
F.2d 426, 433 (5th Cir. 1977). When the district court fails to
do this, remand for additional fact finding is proper.
See, e.g., Redditt v. Miss. Extended Care Ctrs.,
Inc., 718 F.2d 1381, 1386-87 (5th Cir. 1983) (remanding
for additional fact finding on the issue of pretext in a
basis-of-decision approach encourages district courts to lay
out their factual findings as skillfully as possible. See
Golf City, Inc., 555 F.2d at 433 (noting that
"every effort should be made to render [fact finding] as
adequate as it humanly can be" (quotation omitted));
Hydrospace-Challenger, Inc. v. Tracor/MAS, Inc., 520
F.2d 1030, 1033 (5th Cir. 1975) ("Statements conclusory
in nature are to be eschewed in favor of statements of the
preliminary and basic facts on which the District Court
relied." (quotation omitted)). The more complex the
case, the more important the task of articulating detailed
factual findings becomes. Chandler v. City of Dall.,
958 F.2d 85, 90 (5th Cir. 1992) (per curiam).
of the basis-of-decision approach's many benefits, an
alternative rule has crept into our precedent-a rule that
Transocean would like us to adopt. We have, at times, said
that if "a trial judge fails to make a specific finding
on a particular fact, the reviewing court may assume that the
court impliedly made a finding consistent with its general
holding so long as the implied finding is supported by the
evidence." Becker v. Tidewater, Inc., 586 F.3d
358, 371 n.9 (5th Cir. 2009) (quotation omitted). This
implicit-finding rule seems to have originated-over the
dissent of Judge Godbold-in Gilbert v. Sterrett, 509
F.2d 1389, 1393 (5th Cir. 1975). In that case, Judge Godbold
astutely recognized that the majority's implicit-finding
rule was inconsistent with Gulf King Shrimp
Co.'s basis-of-decision approach. Id. at
1397-98 (Godbold, J., dissenting). We agree. The former
transforms this court into the factfinder by supplying the
subsidiary facts necessary to support the general holding;
the latter cabins this court to its appellate role of
reviewing the district court's factual reasoning.
event, as Gilbert was decided after Gulf King
Shrimp Co., the rule of orderliness mandates that the
basis-of-decision approach be retained, and the
implicit-finding rule jettisoned.See Mercado v.
Lynch, 823 F.3d 276, 279 (5th Cir. 2016) ("Under
our rule of orderliness, one panel of our court may not
overturn another panel's decision, absent an intervening
change in the law, such as by a statutory amendment, or the
Supreme Court, or our en banc court."
(quotation omitted)). We now vindicate Judge Godbold and set
our jurisprudence back on course: Under Rule 52(a), implicit
findings will not automatically be inferred to support a
conclusory ultimate finding. The district court must lay out
enough subsidiary findings to allow us to glean "a clear