Knight Oil Tools, Inc. v. Rippy Oil Company, Rippy Interest LLC, the Genecov Group, Inc., and John D. Proctor ( 2020 )

IN THE
TENTH COURT OF APPEALS
No. 10-18-00284-CV
KNIGHT OIL TOOLS, INC.,
Appellant
v.
RIPPY OIL COMPANY, RIPPY INTEREST LLC,
THE GENECOV GROUP, INC., AND JOHN D. PROCTOR,
Appellees
From the 278th District Court
Leon County, Texas
Trial Court No. O-10-498
MEMORANDUM OPINION
Rippy Oil Company brought suit against Knight Oil Tools, Inc. for damages that
occurred when a drill pipe broke while drilling a well. Knight filed a counterclaim
against Rippy for unpaid invoices. The jury found Knight liable for damages and also
found Rippy failed to pay certain invoices. The trial court entered judgment in favor of
Rippy for $5,538,643.13. We affirm.
BACKGROUND FACTS
Knight Oil Tools rents drill pipe to oil companies and oil well operators for drilling
oil and gas wells. Rippy Oil Company made plans to drill a well in the Eagle Ford Shale
and contacted Knight to supply pipe for drilling the horizontal portion of the Easterling
1-H well. Rippy hired Leo Wiggins as a well consultant, and Larry Elkins to assist
Wiggins. Wiggins and Elkins had authority to order equipment as needed for drilling
and to accept delivery.
Knight delivered pipe and other equipment to the Easterling 1-H well site with a
delivery ticket and sent the invoice to the main office. The delivery ticket contained
language that the pipe measurements complied with the dimensions for American
Petroleum Institute (A.P.I.) premium class and/or Knight Oil Tools value. The testimony
at trial established that pipe marked with two white bands meets the standards for A.P.I.
premium pipe. The pipe delivered by Knight was marked with two white bands, but the
record shows that some of the pipe delivered did not comply with the dimensions for
A.P.I. premium class pipe.
On May 11, 2010, one of the drill pipes supplied by Knight broke while it was in
the well. The parties agree that the pipe failure was caused by fatigue. Rippy was not
able to recover the broken pipe and the drill string beyond it and eventually had to
abandon the Easterling 1-H. Rippy attempted to drill an offset well, Easterling 2-H, but
that effort was unsuccessful.
Knight Oil Tools v. Rippy Oil Company Page 2
Rippy filed suit against Knight to recover damages for the lost well, and Knight
filed a counterclaim to recover for unpaid invoices. The jury found in favor of Rippy on
submitted questions of negligent representation and breach of implied warranty of
fitness for a particular purpose. The jury further found in favor of Knight on unpaid
invoices. The trial court entered judgment in favor of Rippy.
SUFFICIENCY OF THE EVIDENCE
The case was submitted to the jury on two theories of liability: (1) negligent
misrepresentation, and (2) breach of warranty of fitness for a particular purpose. In its
first issue, Knight argues that the evidence is legally and factually insufficient to support
the jury’s findings regarding negligent misrepresentation or causation of the well failure
under any theory. Specifically, Knight argues that the evidence was insufficient to prove
Knight’s conduct was the proximate cause of the loss of the well under either theory
submitted to the jury. In the second issue, Knight argues that the evidence is legally and
factually insufficient to support the jury’s finding on breach of warranty of fitness for a
particular purpose.
In reviewing the jury's verdict for the legal sufficiency of the evidence, we consider
all of the evidence in the light most favorable to the prevailing party, "crediting favorable
evidence if reasonable jurors could, and disregarding contrary evidence unless
reasonable jurors could not." City of Keller v. Wilson, 168 S.W.3d 802, 808 (Tex.2005). We
must not substitute our opinion on witness credibility for that of the jury. Id. at 816-17.
Knight Oil Tools v. Rippy Oil Company Page 3
Jurors are the sole judges of the credibility of the witnesses and the
weight to give their testimony. They may choose to believe one witness and
disbelieve another. Reviewing courts cannot impose their own opinions to
the contrary.
Most credibility questions are implicit rather than explicit in a jury's
verdict. Thus, reviewing courts must assume jurors decided all of them in
favor of the verdict if reasonable human beings could do so. Courts
reviewing all the evidence in a light favorable to the verdict thus assume
that jurors credited testimony favorable to the verdict and disbelieved
testimony contrary to it.
...
Nor is it necessary to have testimony from both parties before jurors
may disbelieve either. Jurors may disregard even uncontradicted and
unimpeached testimony from disinterested witnesses. Even
uncontroverted expert testimony does not bind jurors unless the subject
matter is one for experts alone.
Of course, "[t]he jury's decisions regarding credibility must be
reasonable." Jurors cannot ignore undisputed testimony that is clear,
positive, direct, otherwise credible, free from contradictions and
inconsistencies, and could have been readily controverted. And as noted
above, they are not free to believe testimony that is conclusively negated by
undisputed facts. But whenever reasonable jurors could decide what
testimony to discard, a reviewing court must assume they did so in favor
of their verdict, and disregard it in the course of legal sufficiency review.
Id. at 819-20 (footnotes and citations omitted).
In a factual-sufficiency challenge, an appellate court must consider and weigh all
of the evidence. Cain v. Bain, 709 S.W.2d 175, 176 (Tex. 1986) (per curiam). The verdict
should be set aside only if it is so contrary to the overwhelming weight of the evidence
as to be clearly wrong and unjust. Id. We may not pass upon the witnesses' credibility
or substitute our judgment for that of the factfinder, even if the evidence would support
a different result. 2900 Smith, Ltd. v. Constellation New Energy, Inc., 301 S.W.3d 741, 746
(Tex. App. —Houston [14th Dist.] 2009, no pet.). If we determine the evidence is factually
Knight Oil Tools v. Rippy Oil Company Page 4
insufficient, we must detail the evidence relevant to the issue and state in what regard
the contrary evidence greatly outweighs the evidence supporting the trial court's
judgment; we need not do so when affirming the judgment. Id.
NEGLIGENT MISREPRESENTATION
The jury was asked in Question 2 whether Knight Tool made a negligent
representation with respect to the condition of the drill pipe on which Rippy justifiably
relied and was the proximate cause of the drill pipe separation. The jury answered “yes,”
and Knight challenges the jury finding.
The elements of negligent misrepresentation are: (1) a defendant provided
information in the course of his business; (2) the information supplied was false; (3) the
defendant did not exercise reasonable care or competence in obtaining or communicating
the information; (4) the plaintiff justifiably relied on the information; and (5) the plaintiff
suffered damages proximately caused by the reliance. Retherford v. Castron, 378 S.W.3d
29, 37 (Tex. App. — Waco 2012, pet. den’d); Larsen v. Carlene Langford & Associates, 41
S.W.3d 245, 249-50 (Tex. App. —Waco 2001, pet. den’d).
Charles Rippy, the President of Rippy Oil, testified that Rippy requested A.P.I.
premium pipe for the Easterling 1-H well. The evidence shows that A.P.I. premium pipe
is marked with two white bands to signify that it is premium. Daniel Rogers, a corporate
representative for Knight, testified by deposition that if the drill pipe supplied by Knight
had two white bands, the customer could rely on the pipe being A.P.I. premium pipe and
Knight Oil Tools v. Rippy Oil Company Page 5
that “the whole world” could rely on it being premium pipe. Rogers further stated that
Knight intended to represent the pipe as being inspected to A.P.I. premium standards.
The record shows that the pipe that failed did not meet A.P.I. premium standards.
The pipe broke in the well, and the well was lost. Viewing the evidence in the light most
favorable to the jury’s verdict, we find that a rational factfinder could conclude that
Knight made a false representation about the quality of the drill pipe, that Knight did not
use reasonable care in obtaining or communicating the information, and that Rippy
justifiably relied on the representation.
We now address whether the evidence supports the jury’s finding on proximate
cause. The components of proximate cause are cause-in-fact and foreseeability. See
Western Investments, Inc. v. Urena, 162 S.W.3d 547, 551 (Tex. 2005). The cause-in-fact
element is satisfied by proof that (1) the act was a substantial factor in bringing about the
harm at issue, and (2) absent the act ("but for" the act), the harm would not have
occurred. HMC Hotel Props. II Ltd. Partnership v. Keystone-Texas Prop. Holding Corporation,
439 S.W.3d 910, 913 (Tex. 2014). These elements cannot be established by mere conjecture,
guess, or speculation. Id.
Charles Rippy testified that after the lawsuit was filed, Knight provided serial
numbers for some of the drill pipe. Based on those serial numbers, evidence showed that
Knight Oil purchased the drill pipe in 1993, and delivered the pipe to the well site in April
2010. Charles Rippy further testified that some of the drill pipe had not been inspected
Knight Oil Tools v. Rippy Oil Company Page 6
by Knight in over a year. The jury heard evidence that the fatigue cracks in the pipe were
present before the pipe was used by Rippy. Hilton Prejean, an A.P.I. member who helped
write the A.P.I. standards, testified by deposition that the pipe that broke was “scrap tool
joint” with excessive wear. Prajean found that the tool joint on the pipe had pre-existing
cracks before being used at the Rippy well and that it “should not have been on location
at all.”
Knight argues that Rippy was required to produce evidence that the pipe would
not have failed assuming it met A.P.I. premium standards citing BIC Pen Corporation v.
Carter, 346 S.W.3d 533 (Tex. 2011) as authority. In BIC, a six year-old girl was severely
burned when her five year-old brother started a fire with a BIC lighter. The plaintiff
alleged that the manufacturing defects in the lighter were the cause of the fire and the
girl’s injuries. The Court stated that there must have been some evidence that the fire
that burned the little girl started because of the specific manufacturing defects and that
absent those defects her injuries would not have occurred. Id. at 542. The Court
concluded that the evidence was insufficient to support the finding that manufacturing
defects in BIC's Subject Lighter were a cause-in-fact of the injuries. Id. at 545.
We do not agree with Knight’s premise that under BIC, Rippy must show that the
pipe would not have failed assuming it met A.P.I. premium standards. Rather, pursuant
to BIC, Rippy must show that the condition of the pipe supplied by Knight was a
Knight Oil Tools v. Rippy Oil Company Page 7
substantial factor in the loss of the well and that absent the condition of the pipe, the harm
would not have occurred.
The parties agree that the pipe broke as a result of fatigue failure. Rippy presented
evidence that the tool joint was worn excessively, did not meet A.P.I. premium standards,
and had pre-existing cracks before being used in the Rippy well. Although Knight
presented evidence that other factors could have caused the fatigue failure, we must not
substitute our opinion on witness credibility for that of the jury. City of Keller v. Wilson,
168 S.W.3d at 816-17.
We find that the evidence is legally sufficient to support the jury’s finding on
negligent representation. Additionally, we cannot say that the jury's verdict as to this
claim is so contrary to the overwhelming weight of the evidence as to be clearly wrong
and unjust.
We overrule Knight’s first issue as to the sufficiency of the evidence on proximate
cause and negligent misrepresentation. When the judgment rests on multiple theories of
recovery, we need not address all causes of action if any one theory is valid. EMC
Mortgage Corp. v. Jones, 252 S.W.3d 857, 870 (Tex. App. —Dallas 2008, no pet.); Checker Bag
Co. v. Washington, 27 S.W.3d 625, 634 (Tex. App. — Waco 2000, pet. den’d). Therefore, we
need not address Knight’s second issue on appeal as to the sufficiency of the evidence to
support the jury’s answer on breach of breach of implied warranty of fitness for a
particular purpose.
Knight Oil Tools v. Rippy Oil Company Page 8
NEGLIGENCE
In the fourth issue, Knight argues that the evidence is factually insufficient to
support the jury’s failure to find that Rippy and Gyrodata were negligent. In Question 3,
the jury was asked if the negligence of the Rippy Oil Company and/or Gyrodata
proximately caused the occurrence in question. The jury answered “No” for both Rippy
Oil Company and Gyrodata.
Knight contends that there were problems in the well prior to the drill pipe
breaking. Charles Rippy testified that they encountered a trouble spot while drilling the
Easterling 1-H, but that it was not a “catastrophe” and was fairly common. Rippy also
testified that a Gyrodata motor broke off in the well, and they had to make adjustments
for that. In Question 3 the jury was asked if the negligence of Rippy or Gyrodata
proximately caused the “occurrence” in question. Occurrence was defined for the jury as
“the drill pipe separation that occurred on the Easterling No. 1-H well on May 11, 2010.”
We cannot say that the jury’s answer to Question 3 is so contrary to the overwhelming
weight of the evidence as to be clearly wrong and unjust. We overrule the fourth issue.
SUMMARY JUDGMENT
In the third issue, Knight argues that the trial court erred in granting summary
judgment. Rippy filed a traditional and no evidence motion for summary judgment as
to Knight’s affirmative defense of release and indemnity.
Knight Oil Tools v. Rippy Oil Company Page 9
We review the trial court's granting of a motion for summary judgment de novo.
The movant in a traditional summary judgment motion must show that there is no
genuine issue of material fact and that he is entitled to judgment as a matter of law.
See TEX. R. CIV. P. 166a(c); Nixon v. Mr. Prop. Mgmt. Co., Inc., 690 S.W.2d 546, 548 (Tex.
1985). The granting of a no-evidence motion will be sustained when the evidence offered
by the non-movant to prove a vital fact is no more than a mere scintilla. Merrell Dow
Pharms., Inc. v. Havner, 953 S.W.2d 706, 711 (Tex. 1997).
The pipe was delivered to the well site with a delivery ticket that had a provision
on the front indicating that the customer agrees to the terms and conditions on the reverse
side of the document. The reverse side of the delivery ticket contained terms and
conditions including a paragraph on release and indemnity:
Customer assumes full responsibility for and agrees to defend, indemnify
and hold Knight harmless from every demand, claim, suit or cause of
action, including, but not limited to, personal injury, illness, death, loss of
well, well damage, reservoir damage, blowout pollution, contamination or
any damage to property which arise out of, in connection with, incident to
or results directly or indirectly from the rental or use of the equipment or
services provided.
Customer’s release, defense, indemnity, and hold harmless obligations
apply even if the liability demand, claims, suits and causes of action are
caused by the sole, concurrent, active or passive negligence, fault or strict
liability of Knight, the unseaworthiness of any vessel, a pre-existing
condition or any defect in the services or equipment or services provided..
There was also a paragraph on waiver of warranty:
Knight makes no representation or warranty of any kind, express or
implied, with respect to drill pipe, tools or other equipment or services
provided; customer understands and agrees that no warranty is to be
Knight Oil Tools v. Rippy Oil Company Page 10
implied with respect to the condition of the equipment, or its
merchantability or the fitness of the equipment for a particular purpose.
Knight shall not in any event be liable for any special, direct, indirect,
incidental or consequential damages. Knight makes no warranty as to
whether the equipment leased or sold meets the specifications, stipulated
size, or the description for which customer contracted. Customer
understands and acknowledges that the equipment rented or sold may be
used equipment.
Because of the uncertainty of well conditions and the necessity of relying
on information and services provided by others, Knight cannot guarantee
the effectiveness of the equipment or services provided by Knight. Knight
shall not be liable for any special, direct, indirect, incidental or
consequential damages. Customer agrees that Knight shall not be liable for
and customer shall indemnify Knight against any damages arising from the
use of such services and equipment, even if such is contributed to by
Knight’s sole or concurrent negligence, fault or strict liability or the defect
of any equipment sold or leased by Knight.
The trial court initially granted the motion without stating the basis for its ruling.
During trial, Knight moved for reconsideration of the trial court’s ruling. The trial court
denied the motion for reconsideration and found that the Release Discharging Indemnity
Agreement on back of the invoice was not negotiated between the parties. The trial court
further found that “neither Elkins or Wiggins had apparent, implied, or actual authority
on behalf of Rippy to bind them to the indemnity, discharge and release provisions….”
“Contracts indemnifying one against his distribution of defective products should
be viewed as exceptions to the usual business practice, in the same manner as those
indemnifying one against his own negligence.” Rourke v. Garza, 530 S.W.2d 794, 804 (Tex.
1975). Leo Wiggins and Larry Elkins were well consultants on the Easterling 1-H well,
but they were not employees of Rippy. The summary judgment evidence establishes that
Knight Oil Tools v. Rippy Oil Company Page 11
Wiggins and Elkins had authority to order equipment and accept delivery of equipment
and to supervise operations at the well, but that they did not have authority to negotiate
any agreement on behalf of Rippy on release and indemnity. Such negotiations may
have great financial impact on the parties, and are therefore not of the kind ordinarily
executed by a superintendent of job sites. See Rourke v. Garza, 530 S.W.2d at 804. The trial
court did not err in granting Rippy’s motion for summary judgment. We overrule the
third issue.
DAMAGES
In issues five, six, and seven, Knight argues that the evidence is insufficient to
support the jury’s finding on damages, that the trial court erred in admitting evidence
and refusing jury charge instructions, and that the trial court erred in wording jury
questions.
In Question 5, the jury was asked if the Easterling No. 1-H well was capable of
being reproduced by drilling another well as it existed at the time of the occurrence in
question. The jury answered “No.” In Question 6, the jury was asked what would have
been the reasonable and necessary costs of drilling and equipping the Easterling 2-H well
in the condition the Easterling 1-H well was equipped before the occurrence in question
less the salvage value. The jury answered that the reasonable and necessary drilling and
equipping costs for the Easterling No. 2-H well were $1.5 million. In Question 7, the jury
was asked the reasonable fair market value of the Easterling 1-H well immediately before
Knight Oil Tools v. Rippy Oil Company Page 12
the occurrence in question and immediately after the occurrence in question. The jury
was instructed that fair market value means the price a willing seller not obligated to sell
can obtain from a willing buyer not obligated to buy. The jury answered that the value
of the Easterling 1-H before the occurrence was 5.9 million dollars and after the time of
the occurrence was 0.
We will not disregard a jury's determination of damages merely because its
reasoning in reaching its figures is unclear. Enright v. Goodman Distribution, Inc., 330
S.W.3d 392, 403 (Tex. App. —Houston [14th Dist.] 2010, no pet.). A jury generally has
discretion to award damages within the range of evidence presented at trial. Gulf States
Utilities. Co. v. Low, 79 S.W.3d 561, 566 (Tex. 2002). It may not, however, "arbitrarily assess
an amount neither authorized nor supported by the evidence presented at trial." First
State Bank v. Keilman, 851 S.W.2d 914, 930 (Tex. App. Austin —1993, writ denied).
Charles Rippy testified that the fair market value of the Easterling 1-H well just
prior to the drill pipe breaking was nine million dollars. Charles Rippy explained that
they drilled the Sims 3-H as a concept well to gather information before drilling the
Easterling 1-H. Charles Rippy explained that he used the production data from the Sims
3-H to help determine the fair market value of the Easterling 1-H.
Knight produced evidence that the fair market value of the Easterling 1-H before
the drill pipe break was between $1,053,315 and $2,231,600. Knight’s fair market value
Knight Oil Tools v. Rippy Oil Company Page 13
made reductions for potential mechanical problems. Knight’s expert explained in detail
how he arrived at those values.
The jury’s answer of 5.9 million dollars is in the range of evidence presented at
trial. The jury heard differing methods for arriving at the value of the well and for
discounting the value for risk. Although no one testified to the 5.9 million figure
determined by the jury, the amount is supported by the evidence at trial. We find that
the evidence is legally sufficient to support the jury’s determination of damages.
Additionally, we cannot say that the jury's verdict as to this claim is so contrary to the
overwhelming weight of the evidence as to be clearly wrong and unjust.
Knight argues that the trial court admitted “numerous” exhibits relating to lost
profits over objection. Knight contends that such evidence was confusing, prejudicial,
and irrelevant.
We review a trial court's decision to admit or exclude evidence under an abuse of
discretion standard. Interstate Northborough Partnership v. State, 66 S.W.3d 213, 220 (Tex.
2001). A trial court abuses its discretion if it acts in an arbitrary or unreasonable manner
without reference to any guiding rules or principles. Downer v. Aquamarine Operators,
Inc., 701 S.W.2d 238, 241-42 (Tex. 1985). Knight does not specifically identify which
exhibits were erroneously admitted. However, we find that the trial court did not abuse
its discretion in admitting exhibits relating to lost profits.
Knight Oil Tools v. Rippy Oil Company Page 14
Knight also argues that the trial court erred in refusing its requested instructions
in Question 7. Knight requested the trial court include two instructions: (1) lost profits
should not be considered in fair market value, and (2) lost profits should be shown with
reasonable certainty.
We review a trial court's decision to submit or refuse a particular instruction under
an abuse of discretion standard of review. Thota v. Young, 366 S.W.3d 678, 687 (Tex. 2012).
The trial court has considerable discretion to determine proper jury instructions, and "[i]f
an instruction might aid the jury in answering the issues presented to them, or if there is
any support in the evidence for an instruction, the instruction is proper." Id. An appellate
court will not reverse a judgment for a charge error unless that error was harmful because
it "probably caused the rendition of an improper judgment" or "probably prevented the
petitioner from properly presenting the case to the appellate courts." TEX. R. APP. P. 61.1;
Thota v. Young, 366 S.W.3d at 687.
Knight has not shown that the trial court abused its discretion in denying the
requested instructions. Moreover, because we found that the jury’s answer of 5.9 million
dollars was supported by the evidence, Knight has not shown that failure to include the
instruction probably caused the rendition of an improper judgment.
Knight further argues that the proper measure of damages when the damaged
property is an oil or gas well is the lesser of the cost of drilling and equipping a
replacement well, less the value of salvage and the reasonable cash market value of the
Knight Oil Tools v. Rippy Oil Company Page 15
well immediately before the occurrence in question citing Basic Energy Services, Inc. v. D-
S-B Props., Inc., 367 S.W.3d 254, 262 (Tex. App. —Tyler 2011, no pet.). Knight states that
the trial court should have entered judgment on the jury’s answer in Question 6 rather
than the jury’s finding in Question 7.
If the well can be reproduced by drilling another one, the proper measure of
damages is the cost of drilling and equipping another such well, less the value of any
salvage; provided that this cost does not exceed the reasonable cash market value of the
well immediately before the tubing collapse. Atex Pipe & Supply, Inc. v. Sesco Production
Co., 736 S.W.2d 914, 917 (Tex. App. —Tyler 1987, writ den’d). If the well cannot be
reproduced or if the cost of reproduction exceeds the value of the well, the proper
measure of damages is the difference in the reasonable cash market value of the well, as
equipped, immediately before and immediately after the tubing collapse. Id.
In Question 5, the jury found that the Easterling No. 1-H well was not capable of
being reproduced by drilling another well as it existed at the time of the occurrence in
question. The trial court did not abuse its discretion in submitting Question 5 to the jury.
Because the jury found the well could not be reproduced, the proper measure of damages
is the difference in the reasonable cash market value of the well, as equipped,
immediately before and immediately after the drill pipe failure as found by the jury in
Question 7. See Atex Pipe & Supply, Inc. v. Sesco Production Co., 736 S.W.2d at 917.
We overrule the fifth, sixth, and seventh issues on appeal.
Knight Oil Tools v. Rippy Oil Company Page 16
CONCLUSION
We affirm the trial court’s judgment.
JOHN E. NEILL
Justice
Before Chief Justice Gray,
Justice Davis, and
Justice Neill
(Chief Justice Gray dissents with a note)*
Affirmed
Opinion delivered and filed December 30, 2020
[CV06]
*(Chief Justice Gray dissents. A separate opinion will not issue. Chief Justice Gray notes,
however, that prior to the jury trial the trial court granted a motion for summary
judgment on the affirmative defenses of indemnity and release. The basis of the motion
was that the person who had the authority to order and accept delivery of the pipe for
Rippy did not have the authority to accept the terms and conditions on the delivery
ticket. The question thus framed was the scope of the agency; was he a "company man"
or was he merely a "job superintendent" with no real authority to contract on behalf of
the company. Chief Justice Gray believes that Rippy did not conclusively prove through
summary judgment evidence that the well consultants did not have that limitation on
their authority. The evidence established that they had the authority to agree to the terms
necessary to order equipment and accept delivery on behalf of the company. At the very
least the scope of the agency was disputed. Moreover, because the evidence regarding
these defenses also impacts the reasonableness of the reliance on the representation of
Knight, the evidence of the defenses has evidentiary implications on the reasonableness
of Rippy's reliance upon the representations of Knight as to the quality/condition of the
pipe that was delivered, thus potentially impacting the jury findings on the elements of
Rippy's claims. Therefore, in fairness, a new trial is warranted which is not limited to the
affirmative defenses. Because the Court affirms the trial court's judgment, Chief Justice
Gray respectfully dissents.)
Knight Oil Tools v. Rippy Oil Company Page 17