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Apache Deepwater, L.L.C. v. W&T Offshore, Inc.

United States Court of Appeals, Fifth Circuit

July 16, 2019

APACHE DEEPWATER, L.L.C., Plaintiff - Appellee

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

          Before HIGGINBOTHAM, GRAVES, and WILLETT, Circuit Judges.


         This dispute arises from a successful plugging and abandonment operation of three offshore oil and gas wells in the Mississippi Canyon area of the Gulf of Mexico. Apache Deepwater, LLC performed the operation and seeks payment from its non-operator partner, W&T Offshore, Inc. A jury awarded $43.2 million to Apache for W&T's breach of the Joint Operating Agreement. W&T challenges the district court's application of the Louisiana Civil Code and interpretation of the contract. Alternatively, W&T contends that it is entitled to an offset in damages because of Apache's bad faith. Finding no error, we affirm.


         In May 1999, Apache and W&T's predecessors entered into a Joint Operating Agreement ("JOA") that governed the operation of three offshore deepwater oil and gas wells (the "Wells") in the Mississippi Canyon area of the Gulf of Mexico. This dispute arises from operator Apache's plugging and abandonment ("P&A") of the Wells.

         In 2012, Apache attempted to P&A the Wells with an intervention vessel called Uncle John with the consent of W&T, but that operation was unsuccessful. Following that failure, Apache contracted to use a different intervention vessel, the Helix-534 ("Helix"). An internal figure by Apache estimated that the cost to P&A the Wells with the Helix was approximately $56, 350, 000. In June 2014, W&T contacted Apache to set up a status conference in July discussing the P&A operation, confirming that W&T knew "that the Helix 534 is contracted for the project." At that meeting, W&T learned that Apache proposed using two drilling rigs for the project instead of the Helix, the Ocean Onyx ("Onyx") and Ensco-8505 ("Ensco").

         W&T and Apache offered to the jury competing explanations for the switch from the Helix to the Onyx and Ensco drilling rigs. By W&T's telling, Apache's decision to use the Onyx and Ensco was a simple matter of cost: W&T contends that Apache entered into a contract for the two drilling rigs for the purpose of drilling new deepwater wells, but abandoned that project in 2014 and was left with exorbitant stacking costs for the idle rigs (approximately $1, 000, 000 per day). W&T asserts that Apache's decision to use the rigs instead of the Helix was an attempt to recoup on the costs of contracting for the unused rigs because Apache had been unsuccessful in unloading the rigs onto another operator. Prior to the July meeting, Apache prepared estimates for the use of the rigs which totaled between $81 and $104 million. W&T points to an internal presentation in which Apache was weighing the costs of using the Helix against the rigs and determining that with the stacking costs Apache was paying for the idle rigs, the use of the rigs would be cheaper because the cost would be split with W&T. Apache cancelled the Helix contract. W&T claims that although Apache purported to rely on written evaluations explaining the technical reasons the rigs were necessary (including that the Helix no longer complied with government regulations), Apache refused to provide those analyses to W&T.

         Apache rejects W&T's economic explanation and argues that the Helix was not a safe option after the Deepwater Horizon spill and the government regulators would not have approved the Helix for the P&A operations. Apache put on evidence that it had discussed the risks of using the Helix with W&T, and demonstrated that technical difficulties posed by the Wells would make the "open water" operations of the Helix environmentally risky, that the Wells were "high risk," and that the drilling rigs were able to conduct the P&A operations with safeguards mitigating the risk of oil spills. Apache also claimed that the federal Bureau of Safety and Environmental Enforcement ("BSEE") advised Apache that it was no longer approving the type of open-water operations that Helix would need to perform to complete the P&A task. In Apache's version, W&T began "actively resisting" the P&A plan using the rigs because the Helix operation would be far cheaper for W&T and W&T was disregarding the environmental risk.[1] Apache argued to the jury that W&T ignored the fact that Helix would have had operational issues that would have increased the costs of the operation past the initial estimates and that the use of the rigs was "reasonably necessary."

         Amid their dispute over the appropriate intervention vessel, Apache sought W&T's approval for use of the rigs through an Authorizations for Expenditure ("AFE"), but W&T decided not to approve the use of the rigs, [2] and rejected two other requests for AFEs. Apache decided to use the rigs for the P&A and the work was successfully completed in February 2015 for a total cost of $139, 900, 000. Apache billed W&T for its contractual 49% share, or $68, 570, 000. W&T decided to pay $24, 860, 640, which represented 49% of the estimate for use of the Helix, contending that "Apache's insistence on using a drilling rig unnecessarily and unreasonably increased the costs of this work," and determining that it was not obligated to pay the full billed amount because it had not approved the AFEs.

         Apache sued for breach of contract in Texas state court in December 2014 and the case was removed by W&T in January 2015. Prior to trial, W&T moved for summary judgment on Apache's breach of contract claim, arguing that the JOA was unambiguous in requiring the operator (Apache) to obtain an approved AFE before expending over $200, 000. The parties' argument turned on the reading of two provisions in the JOA: § 6.2 governing authorizations for expenditures and § 18.4 governing abandonment operations required by the government:

6.2. Authorization for Expenditure: The Operator shall not make any single expenditure or undertake any activity or operation costing Two Hundred Thousand Dollars ($200, 000) or more, unless an AFE has either (1) been included in a proposal for an activity or operation and is approved by the Participating Parties through their Election to participate in the activity or operation, or (2) received the approval of the Parties as a General Matter. When executed by a party, an AFE grants the Operator the authority to commit or expend funds on the activity or operation in accordance with this Agreement for the account of the Participating Parties. . . .
18.4. Abandonment Operations Requirement by Governmental Authority: The Operator shall conduct the abandonment and removal of any well, Production System or Facilities required by a governmental authority, and the Costs, risks and net proceeds will be shared by the Participating Parties in such well, Production System or Facilities according to their Participating Interest Share.

         The district court denied W&T's motion for summary judgment and determined that the interaction of the provisions in the JOA was ambiguous, creating an issue of fact as to the "parties' intent on the applicability of § 6.2 to a government-mandated plugging and abandonment operation governed by § 18.4." The case proceeded to trial and the jury made five findings:

(1) Did W&T fail to comply with the Contract by failing to pay its proportionate share of the costs to plug and abandon the MC 674 wells?
(2) What sum of money, if any, would compensate Apache for W&T's failure to pay its proportionate share of costs to plug and abandon the MC 674 wells? $43, 214, 515.83.
(3) Was Apache required to obtain W&T's approval under Section 6.2 of the Contract before Apache plugged and abandoned the MC 674 wells as required under Section 18.4 of the Contract? No.
(4) Did Apache act in bad faith, thereby causing W&T to not comply with the contract? Yes.
(5) By what amount, if any, should the amount you found in response to Jury Question No. 2 be offset? $17, 000, 000.

         Following trial, the court entered its order and final judgment, determining that the jury's "bad faith" finding in Question 4 did not preclude Apache's recovery for breach of contract under Louisiana law and holding that W&T was not entitled to an offset under Louisiana law. The district court also denied W&T's motion for a new trial or remittitur and renewed motion for judgment as a matter of law. This appeal followed.


         This court reviews the denial of a Rule 50(b) renewed motion for judgment as a matter of law de novo, "but our standard of review with respect to a jury verdict is especially deferential."[3] A party is only entitled to judgment as a matter of law on an issue where no reasonable jury would have had a legally sufficient evidentiary basis to find otherwise.[4] In evaluating the evidence, this court "credit[s] the non-moving party's evidence and disregard[s] all evidence favorable to the moving party that the jury is not required to believe."[5] This court also has jurisdiction "to hear an appeal of the district court's legal conclusions in denying summary judgment, but only if it is sufficiently preserved in a Rule 50 motion."[6]

         "A district court's resolution of a motion for new trial is reviewed for abuse of discretion, and '[t]he district court abuses its discretion by denying a new trial only when there is an "absolute absence of evidence to support the jury's verdict."'"[7] "A motion for a new trial or to amend a judgment cannot be used to raise arguments which could, and should, have been made before the judgment issued."[8] "To the extent that a Rule 59(e) ruling was a reconsideration of a question of law, . . . the standard of review is de novo."[9]


         W&T contends that the plain language of Louisiana Civil Code Article 2003 dictates that the jury's bad faith finding bars Apache's recovery for breach of contract. Article 2003 states that

An obligee may not recover damages when his own bad faith has caused the obligor's failure to perform or when, at the time of the contract, he has concealed from the obligor facts that he knew or should have known would cause a failure.
If the obligee's negligence contributes to the obligor's failure to perform, the damages are reduced in proportion to that negligence.[10]

         In answering the fourth question on the verdict form, the jury found that "Apache act[ed] in bad faith thereby causing W&T to not comply with the contract."

         The district court denied W&T's motion for judgment as a matter of law, concluding that it was bound by the Louisiana Supreme Court's decision in Lamar Contractors, Inc. v. Kacco, Inc.[11] The district court determined that, under Lamar, Article 2003's bad faith damages bar is only implicated where the obligor has established that the obligee failed to perform a contractual obligation that caused the obligor's failure to perform. In other words, to avoid liability pursuant to Article 2003's bad faith bar, W&T would have to show that Apache failed in its performance of the contract and that failure caused W&T's breach. Because the jury did not find that Apache had breached any obligation under the contract, [12] the district court reasoned that ...

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