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ENI U.S. Operating Co., Inc. v. Transocean Offshore Deepwater Drilling, Inc.

United States Court of Appeals, Fifth Circuit

March 28, 2019

ENI U.S. OPERATING COMPANY, INCORPORATED, Plaintiff - Appellant
v.
TRANSOCEAN OFFSHORE DEEPWATER DRILLING, INCORPORATED, Defendant-Appellee

          Appeal from the United States District Court for the Southern District of Texas

          Before CLEMENT, OWEN, and HO, Circuit Judges.

          EDITH BROWN CLEMENT, Circuit Judge.

         Eni and 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.

         I.

         In 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.

         Before commencing drilling operations in 2010, the Pathfinder went into a shipyard for maintenance. During this time, Transocean installed a previously used blowout preventer[1] 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.

         Almost 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.

         In 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.

         About a 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.

         After a 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.

         II.

         After a 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) (quotation omitted).

         III.

         In 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.

         A.

         Under § 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 § 501(b)(1).

         Eni 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.[2]

         We 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).[3] 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 discrimination case).

         This 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).

         Regardless 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.

         In any 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.[4]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 ...


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