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Equistar Chemicals, LP v. ClydeUnion DB, Ltd.

Court of Appeals of Texas, Fourteenth District

May 16, 2019

EQUISTAR CHEMICALS, LP, Appellant
v.
CLYDEUNION DB, LIMITED, Appellee $469, 133.24 =$318, 352.18 $469, 133.24 =$0

          On Appeal from the 190th District Court Harris County, Texas Trial Court Cause No. 2014-71897

          Panel consists of Justices Wise, Jewell, and Poissant.

          OPINION

          Ken Wise Justice.

         A dispute arose between Equistar Chemicals, LP and ClydeUnion DB, Limited after Equistar purchased some pumps from ClydeUnion, and the pumps did not function well and became damaged. Equistar sued ClydeUnion for breaches of warranties, among other claims, and ClydeUnion sued Equistar for breach of contract because Equistar did not pay the full price for the pumps.

         A jury found that ClydeUnion breached an express warranty, and Equistar breached the contract. But the jury awarded Equistar only a fraction of the damages that Equistar had requested, and the jury found that Equistar had not given ClydeUnion "a reasonable opportunity to cure the breaches of warranties." Based on the jury's findings, or possibly the trial court's application of the offer-of-settlement statute and rule concerning the recovery of litigation costs, the trial court signed a judgment that Equistar take nothing and ClydeUnion recover damages on its breach of contract claim.

         Equistar appeals, contending that the trial court erred by (1) admitting, and rendering judgment on, unreliable and conclusory expert testimony; (2) excluding evidence of a letter written by ClydeUnion's attorney; (3) not disregarding the jury's answer concerning the "opportunity to cure" question; and (4) rendering a judgment for ClydeUnion on its counterclaim after applying the offer-of-settlement statute and rule.

         We overrule Equistar's first two issues and sustain the latter two issues. Accordingly, we reverse the trial court's judgment and render a judgment that both parties take nothing.

         I. Background

         Equistar had been using some pumps to help transport ethane from one location to another, but the pumps were unreliable. So, Equistar ordered two specially designed pumps from ClydeUnion with the expectation that Equistar would be able to use the pumps to transport an increased capacity of ethane. Equistar anticipated that one pump would be operated at a time while the second pump served as a spare.

         When ClydeUnion delivered the first pump, Equistar tried to operate it in December 2012. Part of the pump failed, and it had to be shut down. During the initial startup, the pump displayed subsynchronous vibrations. "Subsynchronous vibrations" means that there is a "whirl" in a pump, and "something is beating itself up" inside the pump. The pump was started again in early January 2013, but it had to be shut down after a few hours because the pump's bearings became too hot. The pump also displayed subsynchronous vibrations.

         Equistar started the pump again in late January but had to shut it down the following day. Again, the pump had high temperatures and subsynchronous vibrations. This time, the vibrations reached 5.5 mils, which was above the allowable maximum vibration of 1.67 mils according to the American Petroleum Standards. ClydeUnion told Equistar that the pumps were satisfactory and could be run with the vibrations. But the vibrations remained a major concern for Equistar. Equistar insisted on additional rotordynamic analysis, which ClydeUnion said was unnecessary.

         In March 2013, Equistar hired a General Electric company, Bently Nevada, to collect more detailed vibration data from the pump. The data showed "a large amount of subsynchronous vibration" as high as 5.6 mils with "steady state values near 2.6 mils." At trial, ClydeUnion presented evidence that Equistar did not provide the Bently Nevada data to ClydeUnion until after litigation began.

         Equistar continued to run the pump until the second ClydeUnion pump arrived. The second pump was started in April and had a failure with the oil cooler within about forty-five minutes. The second pump also experienced subsynchronous vibrations as high as 6.2 mils.

         Equistar restarted the first pump again in April and ran it through May or June. There were still issues, however, with high temperatures and vibrations and seals leaking oil. The vibration levels kept climbing, and Equistar and ClydeUnion agreed to shut down the pumps when the vibrations reached 4 mils. A ClydeUnion engineer testified that they "all felt massively disappointed at this point" and knew that the pump "had to come out." ClydeUnion recommended that the pump be taken out of service.

         In June 2013, Equistar sent the second pump to another company, HydroTex, to be opened and evaluated. They discovered that the second pump had a cracked shaft and other damage inside. Based on this information, Equistar also shut down the first pump and sent it for evaluation. The first pump's shaft was also cracked. The pumps could not be safely operated with cracked shafts.

         Equistar began working on modifications to Equistar's old pumps for more reliable ethane transportation. By November 2013, Equistar was able to use the old pumps to transport an amount of ethane equal to Equistar's expected capacity from the ClydeUnion pumps. After Equistar's need to transport significant quantities of ethane ceased in September 2014, Equistar got a bid from HydroTex to repair and modify the two ClydeUnion pumps with delivery to take place in eight to ten weeks.

         Equistar sued ClydeUnion for breach of warranty, and ClydeUnion countersued for breach of contract because Equistar failed to pay the full price for the pumps. The jury found that Equistar notified ClydeUnion of breaches of warranties within a reasonable time after Equistar discovered or should have discovered the breaches, but Equistar did not "give ClydeUnion a reasonable opportunity to cure the breaches of warranties." The jury awarded Equistar $391, 694 in damages on the breach of warranty claim. The jury also found that Equistar failed to comply with the agreement to pay the full price for the pumps, and the jury awarded ClydeUnion $150, 781.06 for the breach of contract claim. After considering the parties' post-verdict motions, the trial court rendered a judgment for ClydeUnion in the amount of $150, 781.06. Equistar appeals.

         II. Expert Testimony

         In its first issue, Equistar contends that the trial court erred by "admitting, and rendering judgment on, unreliable and conclusory expert testimony that artificially limited the magnitude of Equistar's lost profits."[1] Equistar complains about ClydeUnion's expert on damages, David Townsend, basing his opinion about lost profits damages on two assumptions: (1) the pumps should have been taken out of service in March 2013; and (2) the pumps could have been repaired in ten weeks. Based on these assumptions, Townsend opined that Equistar's lost profits damages should have been measured based on a shorter time period compared to the time period used by Equistar's expert. Using the same methodology for calculating damages as Equistar's expert, Townsend opined that Equistar's lost profits damages for the shorter time period were about $37, 500- must less than Equistar's proposed damages of about $5.1 million. The jury awarded Equistar an amount of lost profits damages consistent with Townsend's opinion. And, consistent with ClydeUnion's theory that the pumps could have been repaired before Equistar modified its old pumps for more reliable ethane transport, the jury did not award Equistar any damages for the modifications.

         A. Legal Principles

         To be admissible, an expert's opinion testimony must have a reliable foundation. Ford Motor Co. v. Ledesma, 242 S.W.3d 32, 38 (Tex. 2007). We review a trial court's ruling on the admissibility of evidence, including a ruling on the reliability of expert testimony, for an abuse of discretion. Gharda USA, Inc. v. Control Sols., Inc., 464 S.W.3d 338, 347 (Tex. 2015). A trial court has extensive discretion in evidentiary rulings, and we will uphold decisions within the zone of reasonable disagreement. Diamond Offshore Servs., Ltd. v. Williams, 542 S.W.3d 539, 545 (Tex. 2018).

         Expert testimony is not reliable if there is too great an analytical gap between the data on which the expert relies and the opinion offered. Gharda, 464 S.W.3d at 349. "Whether an analytical gap exists is largely determined by comparing the facts the expert relied on, the facts in the record, and the expert's ultimate opinion." Id. An analytical gap exists if the expert's opinion is based on assumed facts that vary materially from the facts in the record. Id.

         Furthermore, if an expert's opinion is conclusory, the testimony is incompetent and cannot support a judgment. See City of San Antonio v. Pollock, 284 S.W.3d 809, 816 (Tex. 2009). To be competent evidence, an expert's opinion must have a demonstrable and reasoned basis on which to evaluate the opinion. Rogers v. Zanetti, 518 S.W.3d 394, 405 (Tex. 2017). "When an expert's opinion is based on assumed facts that vary materially from the actual, undisputed facts, the opinion is without probative value and cannot support a verdict or judgment." Id. (quoting Burroughs Wellcome Co. v. Crye, 907 S.W.2d 497, 499 (Tex. 1995)).

         B. Waiver

         Equistar contends that it objected to Townsend's proposed opinions regarding when the pumps should have been taken out of service and the amount of time it would take to make repairs. In its reply brief, Equistar acknowledges that the trial court ruled on Equistar's objection to the first opinion (when the pumps should have been taken out of service) but, as to the second opinion (the time it would take to make repairs), the trial court instead "made a questionable timeliness ruling." Indeed, the trial court ruled that Equistar did not timely file its "motion to strike certain opinions" of Townsend, but the trial court indicated that the "previous stuff that I've ruled on with him, I will let that stand." On appeal, Equistar does not challenge the timeliness basis for the trial court's ruling. Equistar contends that "the first objection is preserved as both a reliability complaint and a challenge to conclusory testimony," and the "second objection is preserved as a challenge to conclusory testimony."

         A party may complain on appeal that conclusory opinions are legally insufficient evidence to support a judgment even if the party did not object to the admission of the testimony. Pollock, 284 S.W.3d at 816-17. But, to preserve a complaint that an expert's testimony is unreliable, a party must object to the testimony. Guadalupe-Blanco River Auth. v. Kraft, 77 S.W.3d 805, 807 (Tex. 2002); see also Tex. R. Evid. 103(a)(1). Generally, if an appellant fails to challenge all possible grounds for a trial court's ruling, we must accept the validity of the unchallenged ground and affirm the adverse ruling. St. John Missionary Baptist Church v. Flakes, 547 S.W.3d 311, 314 (Tex. App.-Dallas 2018, pet. pending); see, e.g., Oliphant Fin. L.L.C. v. Hill, 310 S.W.3d 76, 77-78 (Tex. App.-El Paso 2010, pet. denied); Britton v. Tex. Dep't of Crim. Justice, 95 S.W.3d 676, 680-81 (Tex. App.-Houston [1st Dist.] 2002, no pet.); cf, e.g., Katy Springs & Mfg., Inc. v. Favalora, 476 S.W.3d 579, 607 (Tex. App.-Houston [14th Dist.] 2015, pet. denied) ("If a party does not challenge all possible grounds for a trial court's ruling that sustains an objection to evidence, then the party waives any error for appellate review.").

         Because Equistar does not challenge on appeal a ground for the trial court's ruling to admit Townsend's opinion regarding the time it would take to make repairs, we affirm the admission of that portion of Townsend's opinion.[2]

         C. Reliability and Conclusory Challenge: When to Remove Pumps

         The trial court admitted testimony from one of ClydeUnion's experts, Peter Thompson, that the Bently Nevada report provided to Equistar in March 2013 showed that "the pumps shouldn't run any further." Had Thompson seen the Bently Nevada report in March 2013, he "would have said that this pump now requires internal examination. In other words, stop it." Thompson testified that had the damage to the pump been discovered, the pump could have been repaired.

         Townsend, a damages expert, may use other experts' opinions or data to formulate opinions based on his own expertise. See Gharda, 464 S.W.3d at 352 (noting that experts may rely on other experts' opinions and data so long as the other experts' opinions and data is also reliable). To formulate Townsend's damages opinion, Townsend could have relied on Thompson's conclusion that the pumps should have been stopped and examined in March 2013 immediately following Equistar's receipt of the Bently Nevada report. Equistar does not challenge Thompson's opinions based on the Bently Nevada report, nor does Equistar challenge any experts' reliance on the data in the Bently Nevada report. Thus, the first assumption upon which Townsend relied-that the pumps should have been stopped and examined in March 2013-is not a fact that varies materially from the facts in the record. Townsend's reliance on this assumption when calculating lost profits damages does not render his opinion on damages unreliable or conclusory.

         Equistar also challenges Townsend's opinion because Townsend broadly referred to "the pumps" rather than just the first pump, since the second pump had not yet been started or analyzed by March 2013. Equistar attempts to undermine Townsend's opinion by pointing to evidence that ClydeUnion encouraged Equistar to keep running the second pump after March 2013.

         Townsend's lost profits damages opinion was based on Equistar's inability to pump the expected capacity of ethane in April and May 2013. From this record, it appears Townsend's opinion about damages assumed that neither pump was sufficient to pump the expected capacity of ethane in April and May 2013. Townsend used the same underlying data and methodology for calculating damages as did Equistar for the months of April and May 2013. Thus, even if Townsend relied on an erroneous assumption that both "pumps," rather than just the first pump, should have been removed in March 2013, Townsend's ultimate opinion about the measure of lost profits damages was not affected. If the second pump had been fully operational in April and May 2013, Equistar would have suffered no lost profits damages. Accordingly, Townsend's purported reliance on an assumption that the "pumps" would be out of service in April and May 2013 does not render his damages calculation unreliable or conclusory.

         D. Conclusory Challenge: Time for Repairs

         Townsend based the second assumption upon which he relied-that the pumps could have been repaired in ten weeks-on a bid HydroTex gave to Equistar. Equistar contends that the ten-week estimate for repairs renders Townsend's damages opinion unreliable and conclusory because the HydroTex proposal was for a "major modification" of the pumps and would turn the pumps into different kinds of pumps that could pump materials other than ethane. The HydroTex proposal would make the pumps transport fewer gallons per minute. And, Equistar contends that the HydroTex timetable necessarily did not include any diagnostic analysis that took place before Equistar requested the bid from HydroTex.

         Equistar's arguments, however, require a court to "evaluate the underlying methodology, technique, or foundational data used by the expert." See Pollock, 284 S.W.3d at 817. These complaints are directed at the reliability of Townsend's opinion, not whether it is conclusory on its face. See id.

         Furthermore, the record contains other evidence to support Townsend's use of the HydroTex time frame. Another ClydeUnion expert, Kenneth Fischer, testified that the problems with the pumps could have been "quickly and effectively addressed" by replacing the pumps' damaged shafts and utilizing a different type of bushings (Graphalloy). Thompson similarly testified that the fundamental repair to be made to the pumps would be to change out the bushings for Graphalloy with increased clearance and grooving. Two of the many items HydroTex proposed to replace during its ten-week time frame included new shafts and Graphalloy bushings. Thus, although the HydroTex time frame of up to ten weeks included a "remanufacture" of the ClydeUnion pumps, the modifications included replacing the shafts and bushings using the same material suggested by ClydeUnion's experts. Townsend explained that the ten-week time frame was a "conservative" estimate of the time necessary for making repairs-specifically, replacing the shafts and bushings with Graphalloy.

         Townsend's opinion about the amount of lost profits, based on an estimated repair time of ten weeks, does not vary materially from undisputed facts in the record. Townsend's ultimate opinion is not "speculative or conclusory on its face." See id.

         Equistar's first issue is overruled.

         III. Exclusion of Evidence

         In its second issue, Equistar contends that the trial court erred by excluding "evidence that was essential to prove both (a) that Equistar gave ClydeUnion an opportunity to cure, and (b) the magnitude of Equistar's lost profits." We assume without deciding that the trial court erred by excluding the evidence. However, the alleged error was not harmful.

         A. The Evidence and Procedural Background

         Equistar complains about the trial court's exclusion of a letter sent by ClydeUnion's attorney in October 2013 wherein ClydeUnion offered to perform warranty work on the pumps. In the letter, ClydeUnion wrote that in exchange for performing the work, CyldeUnion would require Equistar to release ClydeUnion from all damage ...


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