GE Oil & Gas Pressure Control, L.P. v. Carrizo Oil & Gas, Inc. ( 2023 )

Opinion issued May 18, 2023
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-21-00285-CV
———————————
GE OIL & GAS PRESSURE CONTROL, L.P., Appellant
V.
CARRIZO OIL & GAS, INC., Appellee
On Appeal from the 165th District Court
Harris County, Texas
Trial Court Case No. 2014-24754
MEMORANDUM OPINION
This is an insurance subrogation case brought by Gemini Insurance
Company in the name of its insured, Carrizo Oil & Gas, Inc. (“Carrizo”) against
GE Oil & Gas Pressure Control, L.P. (“GE”). GE appeals from a final judgment
awarding appellee Carrizo Oil & Gas, Inc. (“Carrizo”) more than $2.5 million in
damages on its negligence claim arising from a well blowout.
GE leased and installed equipment for Carrizo (Marcellus) LLC (“Carrizo
Marcellus”), a wholly-owned subsidiary of appellee Carrizo, to drill and complete
a natural gas well. During the final fracking stage, a blowout occurred, resulting in
the release of water, sand, and drilling fluids, and necessitating remediation.
Carrizo sued GE and others, alleging negligence, breach of contract, product
liability, and breach of warranty. GE counterclaimed, alleging that Carrizo was
negligent, and that GE was entitled to indemnification from Carrizo.
In the summer of 2016, the trial court (Judge Mayfield) held a jury trial on
liability, and the jury found that both GE and Carrizo were negligent.1 The jury
found against Carrizo on the other claims. The trial court denied Carrizo’s motion
to disregard the jury’s finding that it was negligent. In 2018, the trial court (Judge
Hall) conducted the bench trial on GE’s indemnity claim. Two years later, the trial
court signed findings of fact and conclusions of law. In 2021, the trial court
granted Carrizo’s renewed motion to disregard the jury’s finding that it was
negligent and denied GE’s request for additional findings of fact and conclusions
of law. The court then rendered final judgment denying GE’s indemnity claim and
awarding Carrizo damages exceeding $2.5 million.
1
The parties agreed to try the indemnification to the bench after the jury trial on
liability, if necessary.
2
On appeal, GE raises three issues challenging: (1) Carrizo’s standing to sue
for damages sustained by its wholly-owned subsidiary Carrizo Marcellus; (2) the
trial court’s grant of Carrizo’s motion to disregard the jury’s verdict; and (3) the
trial court’s determination that GE was not entitled to indemnity.
We affirm.
Background
Carrizo is an oil and gas exploration and production company. Its wholly-
owned subsidiary, Carrizo Marcellus, owns and operates wells in the Marcellus
Shale “play” in Pennsylvania, including the Yarasavage 1H well that experienced
the blowout from which this litigation arose.2
GE is an oilfield service provider that leases and installs equipment used in
drilling and production, including the “frac valve assembly,” which is the main
valve assembly at the top of a well and which is used during the process of
fracturing a well to prepare it for production.3
2
A “shale gas play” is a “set of discovered, undiscovered or possible natural gas
accumulations that exhibit similar geological characteristics.” See
https://www.energy.gov/sites/prod/files/2013/04/f0/shale_gas_glossary.pdf (last
visited May 2, 2023). The Yarasavage 1H well takes its name, Yarasavage, from
the name of the owner of the surface estate. Its designation, 1H, refers to the fact
that it is the first (1) of several horizontal (H) wells. The Marcellus Shale (and
other similar formations) “hold hundreds of trillions of cubic feet of natural gas”
that was considered prohibitively expensive to access until innovations in drilling
and extraction technology brought it within reach. See https://tinyurl.com/y7ah37rr
(last visited May 2, 2023).
3
The frac valve assembly is also called the frac tree assembly.
3
GE installed the frac valve assembly that was used at Yarasavage 1H. All
the equipment, except a gasket in the flange beneath the main valve, was leased;
the gasket was sold to Carrizo because it is designed to be used once and replaced
after use. After passing a static pressure test upon installation, the frac valve
assembly was put into service. After twenty successful fracking stages, the frac
valve assembly failed during the twenty-first and final fracking stage. Fracking
fluids, water, and sand were expelled from the flange installed beneath the master
valve, as shown in this photo admitted at trial:
4
Carrizo regained control of the well, conducted remediation in accordance
with relevant laws and regulations, reported the incident to governmental agencies,
and made claims with its insurer, Gemini Insurance Company. Gemini later filed
suit on behalf of its insureds, Carrizo and Carrizo Marcellus, and in the name of
Carrizo. Although Gemini is the real party in interest, we refer to Carrizo as it is
the named plaintiff and appellee.
In its live pleading, Carrizo asserted that the frac valve assembly was
improperly installed and that the ring gasket used in the flange beneath the master
valve was defective and not within American Petroleum Institute (API) or
manufacturer specifications. Carrizo alleged claims against GE for negligence,
breach of contract, products liability, and breach of implied and express warranty.
GE generally denied the allegations and asserted counterclaims, including
allegations that Carrizo was negligent and was contractually obligated to
indemnify GE for its negligence. GE also sought attorney’s fees for asserting the
indemnity claim.
Carrizo filed an amended pleading adding Carrizo Marcellus as a plaintiff,
but the trial court sustained GE’s special exceptions and ordered Carrizo Marcellus
to file a petition in intervention if it wished to be joined as a plaintiff. Carrizo
Marcellus did not file a petition in intervention. GE moved for summary judgment,
arguing that because the Yarasavage 1H well was owned and operated by Carrizo
5
Marcellus, Carrizo lacked standing to claim damages from the blowout.4 GE
asserted that Carrizo “ha[d] not been personally aggrieved and therefore lack[ed]
standing to sue GE for those damages.”
Carrizo responded that both it and Carrizo Marcellus suffered damages and
that “all costs and expenses were passed on to and ultimately borne by” Carrizo, as
the parent company. Carrizo also argued that Carrizo Marcellus had assigned all its
rights to Carrizo and that all damages had been paid by and subrogated to its
insurer, Gemini Insurance Company, who was the real party in interest. The trial
court denied GE’s motion for summary judgment.
Before trial, GE and Carrizo agreed to bifurcate the trial into a jury trial on
liability and a later bench trial, if necessary, on GE’s counterclaims for
indemnification. The jury trial took place over seven days in the summer of 2016.
Manufacturing defect, negligence, and breach of contract theories were submitted
to the jury. The jury found that a manufacturing defect was not a producing cause
of the blowout, and that GE did not fail to comply with its agreement to install the
frac valve assembly on the Yarasavage 1H well. The jury found that the negligence
of both GE and Carrizo was a proximate cause of the blowout.
4
GE also made other arguments in this motion for summary judgment. GE filed
another motion for summary judgment three weeks after it filed the first summary-
judgment motion. It was largely identical to the first motion. GE filed an amended
summary judgment another month later, and the standing arguments were the
same.
6
After trial, Carrizo asked the trial court to disregard the jury’s answers to
questions 2b and 3. Question 2b asked whether the negligence, if any, of Carrizo
proximately caused the blowout on the Yarasavage 1H well. As to Carrizo,
“negligence” was defined as
[the] failure to use ordinary care, that is, failing to do that which an oil
and gas operator of ordinary prudence would have done under the
same or similar circumstances or doing that which an oil and gas
operator of ordinary prudence would not have done under the same or
similar circumstances.
(Emphasis added.) The jury answered question 2b, “YES.” Question 3 asked the
jury to find the percentage of responsibility attributable to GE and Carrizo. The
jury found that GE was 35% responsible and Carrizo was 65% responsible.
In its motion, Carrizo argued that GE presented no expert testimony or
competent evidence on elements of duty, breach, and causation that are necessary
to establish that Carrizo was negligent. Carrizo noted that GE did not object to the
part of the charge that defined negligence as it applied to Carrizo as the failure to
act as an ordinary and prudent oil and gas operator, as contrasted with the
definition of negligence as it applied to GE as the failure to act as an ordinary and
prudent person. Carrizo further argued that because GE failed to offer any expert
testimony that Carrizo was negligent, the jury’s answer to question 3, regarding the
apportionment of fault, was moot. In response, GE argued that no expert testimony
was needed because the failure to maintain the frac valve assembly through twenty
7
fracking stages was within the normal experience and common knowledge of the
jurors. In August 2016, the trial court denied Carrizo’s motion.
In January 2017, Judge Hall succeeded Judge Mayfield, and the parties
continued to work toward a bench trial on the indemnity issues. Because there was
no master service agreement (“MSA”) between GE and Carrizo, GE maintained
that it was entitled to indemnity based on language that appeared in four types of
documents: (1) quotes for materials and services, (2) invoices, (3) order
verification reports (“OVR”), and (4) field service orders (“FSO”). The quotes,
invoices, and OVRs were accompanied by the same version of GE’s standard
terms and conditions, which provided that the buyer would indemnify GE against
all claims arising out of the performance or non-performance of the contract
without regard to whether the claims or damages resulted from GE’s negligence.
Each FSO, including the FSO for installation of the frac valve assembly for the
Yarasavage 1H well, noted on its face that it was subject to terms and conditions
that were attached. The terms and conditions attached to the FSOs were different
from the terms and conditions that accompanied the three other types of
documents. Like the other terms and conditions, the terms and conditions attached
to the FSOs included a broad indemnification provision. However, the terms and
conditions attached to the FSOs specifically stated that the indemnity provision
extended to all claims “whether asserted directly by Customer or by a third party.”
8
The bench trial was held in October 2018. Coleby Weinstock, Carrizo’s
operations engineer, and Douglas Gosda, an attorney for GE, testified live. The
parties also proffered eleven deposition excerpts from nine witnesses who had
knowledge of facts relevant to GE’s indemnity claims. Two years later, the trial
court signed findings of fact and conclusions of law. In relevant part, the trial court
made the following findings of fact:
• GE “provided equipment and services to Carrizo and presented
‘field services orders,’ ‘verification reports,’ ‘invoices,’ and
quotes” such as the January 2012 quote.
• “The field services orders and verification reports were stamped
and required a signature for the sole purpose of confirming receipt
of equipment and services.”
• “Carrizo’s [wellsite supervisors] signed the stamped field services
orders and verification reports solely to confirm receipt of GE’s
equipment and services.”5
• “Coleby Weinstock, a district engineer for Carrizo, approved
payment for equipment and services. Carrizo electronically
received invoices from GE. Weinstock electronically received a
scanned copy of the front pages of an invoice that did not include
any terms and conditions. Weinstock reviewed the uploaded
invoice and approved or rejected payment of the uploaded
invoice.”
5
Different terms are used throughout the record and the briefing to refer to the role
of wellsite supervisor. These terms include company man, wellsite supervisor,
independent contractor, wellsite consultant, completions consultant, field
supervisor, and contract supervisor. Tom Weller and Larry Gerard served as
wellsite supervisors for the Yarasavage 1H well, working opposite 12-hour shifts.
Neither Weller nor Gerard was a direct employee of Carrizo or Carrizo Marcellus;
both were independent contractors, who contracted with Carrizo to work on
drilling and completion of wells in Marcellus Shale play. We refer to them as
wellsite supervisors.
9
• “Carrizo did not authorize its [wellsite supervisors] or Coleby
Weinstock to negotiate contract terms with its vendors or to bind
Carrizo to an agreement requiring Carrizo to indemnify GE for
GE’s own negligence. Carrizo did not authorize its [wellsite
supervisors] or Coleby Weinstock to bind Carrizo to indemnify
contractors or to negotiate or agree to the terms of any indemnity
contracts. Neither negotiating nor agreeing to such indemnity
provisions was necessary for the [wellsite supervisors] and/or
Weinstock to perform their work for Carrizo or to interact with
GE.”
• “Carrizo did not knowingly permit its [wellsite supervisors] or
Coleby Weinstock to hold themselves out as having authority to
execute indemnity agreements on behalf of Carrizo. Carrizo did
not grant such authority to its [wellsite supervisors] or to Coleby
Weinstock.”
• “Carrizo never told the [wellsite supervisors] or Coleby Weinstock
they possessed any authority to approve and bind Carrizo to
indemnity agreements. Carrizo did not grant such authority to its
[wellsite supervisors] or to Coleby Weinstock.”
• “Carrizo never told GE the [wellsite supervisors] or Coleby
Weinstock had authority to approve and bind Carrizo to indemnity
agreements. Carrizo did not grant such authority to its [wellsite
supervisors] or to Coleby Weinstock.”
• “Coleby Weinstock reviewed and approved several invoices
electronically submitted by GE for equipment and services. The
electronically submitted invoices did not include the back side of
the invoice, which included an indemnity provision.”
• “By its express terms,” the January 2012 quote “expired on
February 23, 2012. At the time GE provided equipment and
services to Carrizo,” the January 2012 quote “had expired. Further,
no evidence exists in this record that the [January 2012 quote]
provided by GE to Carrizo included the terms and conditions GE
seeks to enforce.”
10
• “The field services order is two-sided. The indemnity provision is
on the back side of the field services order. The document is thin,
and the entire indemnity provision is in very small font, regular
typeface, and not capitalized.”
• “Coleby Weinstock reviewed and approved several invoices
electronically submitted by GE for equipment and services. The
electronically submitted invoices did not include the back side of
the invoice, which included an indemnity provision.”
• “In exchange for the money paid by Carrizo, it received equipment
and GE’s installation services.”
• “Carrizo received no benefit in exchange for a promise to
indemnify GE for GE’s negligence, and GE incurred no loss or
detriment.”
• “Not all attorney’s fees and expenses GE seeks were reasonable
and necessary to defend against Carrizo’s lawsuit.”
• “Certain experts retained by GE were excluded or their testimony
was substantially limited, and expenses associated for those
particular experts are neither reasonable nor necessary.”
• “GE was found partially liable for the blowout and resulting
damages. The jury found GE to be 35% liable and at fault.”
The trial court also made the following conclusions of law:
• “A reasonably prudent person would not rely on any conduct by or
apparent authority of the [wellsite supervisors] or Coleby
Weinstock to bind Carrizo to indemnity agreements. . . . The
[wellsite supervisors] and Coleby Weinstock did not have actual or
apparent authority to bind Carrizo to the indemnity agreements.
Carrizo did not grant such authority to its [wellsite supervisors] or
to Coleby Weinstock.”
• “Neither Carrizo’s prior payments of GE’s invoices nor any other
course of conduct created an implied acceptance or agreement by
Carrizo of the terms and conditions on the back side of GE’s
11
electronically submitted field tickets and invoices, including the
indemnity provision.”
• “Weinstock’s approval of GE’s electronically submitted invoices
does not constitute ratification of, acceptance of, or agreement to
the indemnity provisions in GE’s field service orders and
verification reports.”
• “The indemnity provisions on the back side of the field services
order is not conspicuous, does not meet the express negligence test,
and is unenforceable.”
• “The indemnity provisions on the back side of the GE invoice is
not conspicuous, does not meet the express negligence test, and is
unenforceable.”
• “The indemnity provisions in the field services orders, verification
reports, invoices, and [the January 2012 quote] (even if they were
included as part of the invoices or Quotation, which the Court finds
they were not) are unenforceable against Carrizo as
unconscionable and grossly one-sided in favor of GE. . . . As
written, GE would be entitled to pursue indemnity from Carrizo for
all its costs arising from a claim even if Carrizo had completely
prevailed against GE in the first trial.”
• “[T]he indemnity agreement in the field services orders,
verification reports, invoices, and [the January 2012 quote] (even if
they were included as part of the invoices or Quotation, which the
Court finds they were not) are void for lack of valid
consideration.”
About three months after the trial court issued its findings of fact and
conclusions of law, Carrizo again filed a motion for judgment notwithstanding the
verdict asking the trial court to disregard the jury’s answers to question 2b and
question 3. Carrizo raised the same arguments that it made when it first urged this
motion after the jury trial. GE again argued that the motion should be denied,
12
noting that the trial court had previously considered and denied the same
arguments. Both Carrizo and GE submitted transcripts of relevant trial testimony
for the court’s consideration.
The trial court granted Carrizo’s motion, and it entered final judgment in
favor of Carrizo in the amount of $2,531,785.68 (total) plus pre- and post-
judgment interest. The court also rendered judgment that GE was not entitled to
indemnity, and it incorporated its findings of fact and conclusions of law into the
final judgment by reference. GE appealed.
Analysis
GE raises three issues on appeal. First, GE argues that Carrizo lacked
standing to sue because Carrizo Marcellus was the undisputed owner and operator
of the Yarasavage 1H well. Second, GE argues that the trial court erred by granting
Carrizo’s motion to disregard the jury’s verdict, especially when the judge who
granted the motion was not the judge who presided over the jury trial. Third, GE
argues that the trial court erred by refusing to enforce the indemnity provisions in
the contracts that formed the parties’ agreement.
I. Carrizo has standing to sue GE because it is personally aggrieved and
the 100% owner of Carrizo Marcellus.
In its first issue, GE argues that Carrizo lacked standing to sue because
Carrizo Marcellus was the undisputed owner and operator of the Yarasavage 1H
well. GE maintains that an assignment of claims from Carrizo Marcellus to Carrizo
13
after the suit was filed was ineffective because limitations had already run. GE also
contends that the nature of this case as a subrogation claim does not affect the
analysis because an insurer can only assert claims that the insured could itself
assert.
Carrizo argues that both Carrizo and Carrizo Marcellus had standing to sue,
and both were insured by Gemini Insurance Company. Carrizo maintains that this
case is a subrogation suit, and the real party in interest is Gemini. Carrizo further
reasons that because Gemini was fully subrogated to the rights of both Carrizo and
Carrizo Marcellus, it had standing to sue and could do so in its own name, or in the
name of its insureds.
A. Legal standards
1. Standing and subject-matter jurisdiction
“Subject matter jurisdiction is essential to a court’s authority to decide a
case.” Meyers v. JDC/Firethorne, Ltd., 548 S.W.3d 477, 484 (Tex. 2018) (citing
Tex. Ass’n of Bus. v. Tex. Air Control Bd., 852 S.W.2d 440, 443 (Tex. 1993)). A
party’s standing to sue is implicit in the concept of subject-matter jurisdiction.
Linegar v. DLA Piper LLP (US), 495 S.W.3d 276, 279 (Tex. 2016) (citing Tex.
Ass’n of Bus., 852 S.W.2d at 445–46). Standing is a question of law, which we
review de novo. In re H.S., 550 S.W.3d 151, 155 (Tex. 2018); Heckman v.
Williamson Cnty., 369 S.W.3d 137, 150 (Tex. 2012).
14
“In Texas, the standing doctrine requires a concrete injury to the plaintiff
and a real controversy between the parties that will be resolved by the court.”
Heckman, 369 S.W.3d at 154. “The standing requirement derives from the Texas
Constitution’s provision for separation of powers among the branches of
government, which denies the judiciary authority to decide issues in the abstract,
and from the open courts provision, which provides court access only to a ‘person
for an injury done him.’” Meyers, 548 S.W.3d at 484 (quoting TEX. CONST. art. I,
§ 13); see Tex. Ass’n of Bus., 852 S.W.2d at 443–44.
Texas’s standing test parallels the federal test for Article III standing, which
requires a plaintiff to allege “personal injury fairly traceable to the defendant’s
allegedly unlawful conduct and likely to be redressed by the requested relief.”
Heckman, 369 S.W.3d at 154; see also Pike v. Tex. EMC Mgmt., LLC, 610 S.W.3d
763, 778 (Tex. 2020) (looking to federal jurisprudence to resolve issue of standing
under Texas law). The Texas Supreme Court has adopted the three-element test for
standing articulated by the United States Supreme Court:
First, the plaintiff must have suffered an “injury in fact”—an invasion
of a legally protected interest which is (a) concrete and particularized,
and (b) “actual or imminent, not ‘conjectural’ or ‘hypothetical.’”
Second, there must be a causal connection between the injury and the
conduct complained of—the injury has to be “fairly . . . trace[able] to
the challenged action of the defendant, and not . . . th[e] result [of] the
independent action of some third party not before the court.” Third, it
must be “likely,” as opposed to merely “speculative,” that the injury
will be “redressed by a favorable decision.”
15
Heckman, 369 S.W.3d at 154–55 (quoting Lujan v. Defenders of Wildlife, 504 U.S.
555, 560–61 (1992)) (citations omitted); see In re Abbott, 601 S.W.3d 802, 807
(Tex. 2020) (noting that Supreme Court of Texas has adopted this standard).
The Supreme Court of Texas has held that “a partner or other stakeholder in
a business organization has constitutional standing to sue for an alleged loss in the
value of its interest in the organization.” Pike, 610 S.W.3d at 778. In Pike, the
Supreme Court noted that “statutory provisions . . . define and limit a stakeholder’s
ability to recover certain measures of damages, which protect the organization’s
status as a separate and independent entity.” Id. at 778. However, the Court also
opined that “[t]hose provisions, however, go to the merits of the claim,” but they
do not deprive a court of subject-matter jurisdiction. Id.
2. Capacity
“A plaintiff must have both standing and capacity to bring a lawsuit.” Austin
Nursing Ctr., Inc. v. Lovato, 171 S.W.3d 845, 848 (Tex. 2005). “The issue of
standing focuses on whether a party has a sufficient relationship with the lawsuit so
as to have a ‘justiciable interest’ in its outcome, whereas the issue of capacity ‘is
conceived of as a procedural issue dealing with the personal qualifications of a
party to litigate.’” Lovato, 171 S.W.3d at 848 (citing 6A CHARLES ALAN WRIGHT
ET AL., FEDERAL PRACTICE AND PROCEDURE § 1559, at 441 (2d ed. 1990)).
“Separate from the issue of a party’s standing, a party’s capacity implicates its
16
legal authority to file a lawsuit and pursue a particular cause of action.” Mariner
Health Care of Nashville, Inc. v. Robins, 321 S.W.3d 193, 200 (Tex. App.—
Houston [1st Dist.] 2010, no pet.) (citing Lovato, 171 S.W.3d at 848). “A plaintiff
has standing when it is personally aggrieved, regardless of whether it is acting with
legal authority; a party has capacity when it has the legal authority to act,
regardless of whether it has a justiciable interest in the controversy.” Nootsie, Ltd.
v. Williamson Cnty. Appraisal Dist., 925 S.W.2d 659, 661 (Tex. 1996) . Whether a
claim brought by a stakeholder in a business organization actually belongs to the
organization is a matter of capacity. Pike, 610 S.W.3d at 779.
The burden is on the defendant to challenge a plaintiff’s capacity to sue.
Lovato, 171 S.W.3d at 853 n.7. An alleged defect in capacity must be raised by a
verified denial in the trial court. Id. at 849. Once capacity is controverted by a
verified denial, the plaintiff must prove at trial that it is entitled to recover in the
capacity in which it has sued. Republic Petroleum LLC v. Dynamic Offshore Res.
NS LLC, 474 S.W.3d 424, 432 (Tex. App.—Houston [1st Dist.] 2015, pet. denied).
If the court submits a question to the jury assuming the capacity originally pleaded,
the defendant must object to that question or risk waiver of the issue of capacity.
See Osterberg v. Peca, 12 S.W.3d 31, 55 (Tex. 2000); Republic Petroleum, 474
S.W.3d at 432.
17
3. Subrogation
Subrogation means “[t]he substitution of one party for another whose debt
the party pays, entitling the paying party to rights, remedies, or securities that
would otherwise belong to the debtor.” Subrogation, BLACK’S LAW DICTIONARY
(11th ed. 2019). The doctrine of subrogation commonly arises in the context of
insurance. Fed. Home Loan Mortg. Corp. v. Zepeda, 601 S.W.3d 763, 765 n.3
(Tex. 2020). Whether the right to subrogation arises from contract (conventional
subrogation) or by virtue of the involuntary payment of a debt for which another
was primarily liable (equitable subrogation), when an insurer exercises its
subrogation rights, it “stands in the shoes of the insured, obtaining only those rights
held by the insured against a third party, subject to any defenses held by the third
party against the insured.” Mid-Continent Ins. Co. v. Liberty Mut. Ins. Co., 236
S.W.3d 765, 774–75 (Tex. 2007) (citing Interstate Fire Ins. Co. v. First Tape, Inc.,
817 S.W.2d 142, 145 (Tex. App.—Houston [1st Dist.] 1991, writ denied)); see
Frymire Eng’g Co., Inc. ex rel. Liberty Mut. Ins. Co. v. Jomar Int’l, Ltd., 259
S.W.3d 140, 142 (Tex. 2008) (“The doctrine of equitable subrogation allows a
party who would otherwise lack standing to step into the shoes of and pursue the
claims belonging to a party with standing.”); Uddin v. Cunningham, No. 01-18-
00002-CV, 2019 WL 4065273, at *5 (Tex. App.—Houston [1st Dist.] Aug. 29,
2019, pet. dism’d) (mem. op.) (same). The insurance company can bring suit in its
18
own name or in the name of its insured. See Finger v. S. Refrigeration Servs., Inc.,
881 S.W.2d 890, 894 (Tex. App.—Houston [1st Dist.] 1994, writ denied)
(“Because Finger [the insured] had the right to sue for damages to his property,
Travelers, as the insurance company that paid for the repairs, had the right to sue in
his name for its subrogation interest.”); see also Sullivan v. Smith, 570 S.W.2d 197,
197 (Tex. Civ. App.—Houston [1st Dist.] 1978, no writ) (noting that insurance
subrogation claim was brought in name of insured).
B. Carrizo has standing to sue
GE’s arguments broadly fall into two categories. First, GE argues that
Carrizo did not have standing because it did not suffer an injury. Thus, GE
contends, the doctrine of subrogation does not change the outcome because the
insurer was limited to asserting the claims of Carrizo, and Carrizo had none.
Second, GE argues that an assignment of claims from Carrizo Marcellus to Carrizo
was ineffective to confer standing because the assignment occurred after
limitations expired.
1. Carrizo suffered an injury
In the trial court, Carrizo relied on an affidavit from Larry Michael
Kennington, the associate general counsel of Carrizo and the general counsel of
Carrizo Marcellus, to prove it sustained damages from the blowout. Kennington
explained that Carrizo Marcellus, a wholly-owned subsidiary of Carrizo, operated
19
the Yarasavage 1H well on behalf of itself and its joint venture partner, who
together held a 71.63% interest in the well. Carrizo Marcellus obtained insurance
on behalf of itself, its joint venture partner, and “certain other non-operating
working interest owners, totaling 81.59% of the insurable interests in the Well.”
The remaining non-operating working interest owners insured their own interests
separately. Kennington also averred:
4. Eighty-one-point-five-nine percent (81.59%) of all of the well
control costs and remediation costs, including testing, monitoring,
evaluation, and cleanup operations, which are being sought as
damages in this litigation damages [sic] were incurred and paid either
by [Carrizo Marcellus] or [Carrizo]. To the extent that [Carrizo
Marcellus] paid any of the damages, [it] was reimbursed by or the
costs were passed on to [Carrizo]; therefore, ultimately, [Carrizo] has
paid and continues to pay all the damages.
5. [Carrizo Marcellus] has assigned to [Carrizo] all rights,
privileges, entitlements, or causes of action, whether in contract, tort,
or otherwise and whether existing now or in the future, which [Carrizo
Marcellus] has or may have against the defendants in this case, or
other responsible parties, pertaining to the damges. . . . .
6. [Carrizo] submitted an insurance claim for the damages, to its
insurer, Gemini Insurance Company. Gemini has reviewed, adjusted,
paid and indemnified, and is continuing to review, adjust, and pay and
indemnify [Carrizo] for the damages. Gemini is therefore subrogated
to all claims of both [Carrizo Marcellus] and [Carrizo] for the
damages and is the real party in interest in this litigation.
The affidavit was dated November 30, 2015, and the assignment, which was
not otherwise dated, stated: “Effective April 30, 2014.”
20
GE’s argument centers on the first element of standing: that the plaintiff
must have suffered an “injury in fact.” See Lujan, 504 U.S. at 560. GE asserts that
it was Carrizo Marcellus—not Carrizo—that suffered damages from the well
blowout. GE maintains that a corporation cannot sue to recover costs incurred by
its subsidiary. Kennington’s affidavit is evidence that Carrizo itself incurred costs
and suffered damages as a result of the well blowout. In addition, the evidence at
trial showed that there was some overlap between Carrizo and Carrizo Marcellus’s
operations. For example, Weinstock worked directly for Carrizo, and the
contracted wellsite supervisors—Tom Weller and Larry Gerard—had contracts
with Carrizo, not Carrizo Marcellus. In addition, GE sent its invoices related to the
Yarasavage 1H well to Carrizo, not Carrizo Marcellus, and Carrizo was listed as
the customer on field service orders. The evidence supports a conclusion that
Carrizo suffered an injury in fact sufficient to confer standing in the constitutional
sense. See id.; Meyers, 548 S.W.3d at 485.
2. Carrizo suffered an injury as the owner of Carrizo
Marcellus
In addition, the undisputed evidence was that Carrizo Marcellus was a
wholly-owned subsidiary of Carrizo. As a stakeholder, Carrizo has constitutional
standing to sue for an alleged loss in the value of its interest in Carrizo Marcellus.
See Pike, 610 S.W.3d at 778. Because Carrizo Marcellus was wholly owned by
Carrizo, to the extent that the damages were suffered only by Carrizo Marcellus,
21
Carrizo nevertheless had an interest in the economic impact of the multimillion-
dollar damages suffered by its subsidiary on the value of Carrizo Marcellus. This
interest was sufficient to confer jurisdiction in the constitutional sense of an injury
in fact.6 See Lujan, 504 U.S. at 560–61; Pike, 610 S.W.3d at 778.
***
Finally, GE argues that the assignment of claims from Carrizo Marcellus to
Carrizo was not effective because it occurred after limitations had expired.
Limitations is an affirmative defense, not a jurisdictional requirement. See Uddin,
2019 WL 4065273, at *6. “[A] plaintiff does not lack standing in its proper,
jurisdictional sense ‘simply because he cannot prevail on the merits of his claim;
he lacks standing [when] his claim of injury is too slight for a court to afford
redress.’” Pike, 610 S.W.3d at 774 (quoting Meyers, 548 S.W.3d at 484–85).
We have already concluded that Carrizo had standing in the constitutional
sense because it suffered an injury in fact and had a 100% ownership interest in
Carrizo Marcellus. We overrule GE’s first issue.
6
In this case, GE filed a verified pleading challenging Carrizo’s capacity. At trial,
the jury charge did not include any questions or instructions relevant to capacity.
The charge asked—and the jury found—that Carrizo suffered damages in an
amount exceeding $2.5 million. GE did not object to the damages question
(question no. 5), nor did it request an instruction narrowing the damages question
to the lost value of Carrizo’s interest in Carrizo Marcellus resulting from the
blowout. Thus, GE waived any issue of Carrizo’s capacity. See Republic
Petroleum LLC v. Dynamic Offshore Res. NS LLC, 474 S.W.3d 424, 432 (Tex.
App.—Houston [1st Dist.] 2015, pet. denied). On appeal, GE has not challenged
Carrizo’s capacity, the jury charge (including the damages question), or the jury’s
answer to the damages question.
22
II. The trial court did not err by granting Carrizo’s motion to disregard
the jury’s findings.
In its second issue, GE argues that the trial court erred by vacating that part
of the jury’s verdict that found Carrizo’s negligence contributed to the blowout and
that Carrizo was 65% responsible for damages. GE contends that this unfairly
made it responsible for 100% of the damages as opposed to 35% of the damages.
Carrizo asserts that expert testimony was required to prove all the elements of
GE’s contributory negligence allegation because the jury was asked whether
Carrizo failed to act as “an oil and gas operator of ordinary prudence,” and GE
presented no such expert testimony. GE responds that expert testimony was not
required, and even if it were required, testimony from Carrizo’s expert, Weinstock,
and GE’s salesman Robert Ripple was sufficient to prove the standard of care and
the breach of the standard of care.
A. Preliminary considerations
1. GE cannot challenge the jury charge’s differing definitions
of negligence on appeal.
In addition, GE argues that if expert testimony were required to prove
Carrizo’s negligence, it was also required to prove GE’s negligence. We disagree
with this contention. In Question No. 2, the jury was asked whether the negligence,
if any, of GE and Carrizo proximately caused the blowout. But negligence was
defined differently for GE and Carrizo. As to GE, the jury charge stated:
23
“Negligence” means failure to use ordinary care, that is, failing to do
that which a person of ordinary prudence would have done under the
same or similar circumstances or doing that which a person of
ordinary prudence would not have done under the same or similar
circumstances.
As to Carrizo, the jury charge stated:
“Negligence” means failure to use ordinary care, that is failing to do
that which an oil and gas operator of ordinary prudence would have
done under the same or similar circumstances or doing that which an
oil and gas operator of ordinary prudence would not have done under
the same or similar circumstances.
GE did not object to the part of the charge that defined negligence
differently as applied to Carrizo compared to how it defined negligence as it
applied to GE. GE also did not challenge the court’s charge on appeal. Any
complaint about the charge is waived. See Osterberg, 12 S.W.3d at 55. Under the
charge as given, the jury was only required to assess GE’s negligence under the
standard of an ordinarily prudent person, not a standard relating to specialized
skills or activities.
2. GE did not challenge the jury’s finding of damages on appeal.
In addition, although GE argues that the trial court’s action in disregarding
some of the jury’s answers transformed the verdict finding it 35% responsible into
a judgment making it 100% responsible, GE has not complained about the jury’s
assessment of damages on appeal.
24
Questions 2 and 5 asked about damages. Question 2 was subdivided into
parts “a” and “b”:
Did the negligence, if any, of those named below proximately cause
the blowout on the Yarasavage No. 1H well?
Answer “Yes” or “No” for each of the following:
a. GE: YES
b. Carrizo: YES
The jury answered “yes” to both GE and Carrizo. The jury further found that
GE was 35% responsible for the blowout and that Carrizo was 65% responsible for
it. Question 5 asked:
QUESTION 5
What sum of money, if any, if paid now in cash, would fairly and
reasonably compensate Carrizo for its damages, if any, that resulted
from the conduct you found in response to Questions 1, 2.a, or 4.
Consider the following elements of damages, if any, and none other.
Do not add any amount for interest on damages, if any.
Do not reduce the amounts, if any, in your answers because of the
negligence, if any, of the Plaintiff. Do not speculate about what any
party’s ultimate recovery may or may not be. Any recovery will be
determined by the court when it applies the law to your answers at the
time of judgment.
Answer separately in dollars and cents for damages, if any.
1. Costs to bring the well under control sustained in the past.
Answer: $ 300,068.81
25
2. Costs to remediate, test and monitor the land sustained in the past.
Answer: $ 2,003,264.87
3. Costs to remediate, test and monitor the land which will, reasonable
probability, will be sustained in the future. [sic]
Answer: $ 228,452.00
(Emphasis added.)
GE did not object to the submission of question 5, which asked for the
amount of damages that would compensate Carrizo for the damages arising from
the conduct in question 2a. Question 2a asked only about the negligence of GE.
Thus, as written, the charge asked the jury to determine the amount of damages
caused by GE’s negligence, not the total amount of damages sustained by Carrizo.
Because GE did not object to question 5, it cannot (and did not) complain about it
on appeal. See id.
B. Standards of review
“We review a trial court’s grant of a judgment notwithstanding the verdict
under a no-evidence standard, examining whether any evidence supports the jury’s
findings.” Gharda USA, Inc. v. Control Sols., Inc., 464 S.W.3d 338, 347 (Tex.
2015). We consider the evidence in the light most favorable to the jury’s verdict,
indulging every reasonable inference in favor of the verdict and disregarding
contrary evidence unless a reasonable factfinder could not. City of Keller v. Wilson,
168 S.W.3d 802, 827 (Tex. 2005). No evidence exists when there is:
26
(a) a complete absence of evidence of a vital fact; (b) the court is
barred by rules of law or of evidence from giving weight to the only
evidence offered to prove a vital fact; (c) the evidence offered to
prove a vital fact is no more than a mere scintilla; (d) the evidence
establishes conclusively the opposite of the vital fact.
Id. at 810 (citing Robert W. Calvert, “No Evidence” and “Insufficient Evidence”
Points of Error, 38 TEX. L. REV. 361, 362–63 (1960)).
Carrizo and GE each pleaded that the other’s negligence caused the blowout
and ensuing damages. Thus, each was required to establish the elements of
negligence as to the other party. See Bustamante v. Ponte, 529 S.W.3d 447, 456
(Tex. 2017). “The elements of a common-law negligence claim are (1) a legal
duty; (2) a breach of that duty; and (3) damages proximately resulting from the
breach.” Elephant Ins. Co., LLC v. Kenyon, 644 S.W.3d 137, 144 (Tex. 2022).
“The threshold inquiry in a negligence case is duty.” Id. (quoting Greater Houston
Transp. Co. v. Phillips, 801 S.W.2d 523, 525 (Tex. 1990)). The existence of a duty
is a question of law for the court to decide from the facts surrounding the
occurrence in question. Id.; Nabors Drilling, U.S.A., Inc. v. Escoto, 288 S.W.3d
401, 404–05 (Tex. 2009).
Whether expert testimony is necessary to establish negligence is a question
of law, which we review de novo. FFE Transp. Servs., Inc. v. Fulgham, 154
S.W.3d 84, 89 (Tex. 2004); Simmons v. Briggs Equip. Tr., 221 S.W.3d 109, 114
(Tex. App.—Houston [1st Dist.] 2006, no pet.). “Expert testimony is necessary
27
when the alleged negligence is of such a nature as not to be within the experience
of the layman.” Roark v. Allen, 633 S.W.2d 804, 809 (Tex. 1982). To determine
whether expert testimony is required, we consider “whether the conduct at issue
involves the use of specialized equipment and techniques unfamiliar to the
ordinary person.” FFE Transp. Servs., 154 S.W.3d at 91. “In such a case, the
expert testimony must establish both the standard of care and the violation of that
standard.” Simmons, 221 S.W.3d at 114.
In FFE Transportation, a long-haul trucker was injured in an accident while
he was driving a refrigerated trailer. Id. at 86. The trucker had inspected the pre-
loaded refrigerated trailer and the tractor-trailer connection before he began
driving. Id. While exiting a highway, “the trailer’s upper coupler assembly broke
loose from the trailer, causing the trailer to separate from the tractor and overturn.”
Id. The trucker sued FFE Transportation, alleging that the trailer he was driving
was defective “because the bolts and plates anchoring the upper coupler assembly
to the trailer were missing or weak or both due to rust and inadequate torque.” Id.
at 87. The trial court granted a directed verdict because the trucker did not present
any expert testimony to establish the applicable standard of care. Id. The court of
appeals, however, reversed, holding that expert testimony was not required to show
the standard of care because “the inspection and detection of loose and rusty bolts
connecting parts of a trailer” was not beyond the experience of laymen. Id.
28
The Texas Supreme Court disagreed, holding that expert testimony was
necessary to establish the standard of care and its breach. Id. at 91. The Supreme
Court held:
The upper coupler assembly, kingpin, and base rail of a refrigerated
trailer are specialized equipment, and the proper inspection and
maintenance of those parts involve techniques unfamiliar to the
ordinary person.
Few people not involved in the trucking industry are familiar with
refrigerated trailers, the mechanisms for connecting them to tractors,
and the frequency and type of inspection and maintenance they
require. While the ordinary person may be able to detect whether a
visible bolt is loose or rusty, determining when that looseness or rust
is sufficient to create a danger requires specialized knowledge.
Therefore, the layman does not know what the standard of care is for
the inspection and maintenance of the upper coupler assembly,
kingpin, and base rail of a refrigerated trailer.
Id.
Other cases have engaged in a similar analysis to determine whether expert
testimony is required to establish the standard of care and its breach in negligence
cases. See, e.g., Knox v. Eagle Water Mgmt., Inc., No. 01-17-00627-CV, 2018 WL
891239, at *3 (Tex. App.—Houston [1st Dist.] Feb. 15, 2018, no pet.) (mem. op.);
Fairways Offshore Expl., Inc. v. Patterson Servs., Inc., No. 01-11-00079-CV, 2013
WL 371601, at *6 (Tex. App.—Houston [1st Dist.] Jan. 31, 2013, pet. denied)
(mem. op.), op. partially withdr. by agrmt., 2013 WL 3148263 (Tex. App.—
Houston [1st Dist.] Feb. 15, 2018, no pet.) ; Simmons, 221 S.W.3d at 109.
29
C. Expert testimony was required to establish the standard of care
and breach in this case.
In its brief, GE initially evaluates all the evidence under the JNOV standard
of review. However, Carrizo’s contention in the trial court and on appeal is that
expert testimony was necessary to establish both the standard of care and breach of
that standard in this case. Before we consider whether the evidence satisfies the
JNOV standard of review, we must first determine whether expert testimony is
required to establish the duty and the breach of that duty, because that
determination will inform our legal sufficiency review of the evidence. See Jelinek
v. Casas, 328 S.W.3d 526, 533 (Tex. 2010) (“Lay testimony may be used as
evidence of causation in certain circumstances, but ‘[w]hen expert testimony is
required, lay evidence supporting liability is legally insufficient.’” (quoting City of
Keller, 168 S.W.3d at 812)).
On appeal, GE argues that Carrizo was negligent in monitoring the frac
valve assembly and that failure to detect a leaking flange below the master valve
caused the damage from the blowout. GE argues that expert testimony was not
needed because it was within the experience of the layman that failing to visually
monitor and check the torque on nuts and bolts on the frac valve assembly caused
Carrizo’s damages.
Carrizo argues that the conduct of oil and gas operators during fracking
processes is “well outside the common knowledge of laypersons.” Carrizo relies on
30
precedent from the court to reason by analogy that expert testimony was required
in this case. See Knox, 2018 WL 891239, at *4; Fairways Offshore, 2013 WL
371601, at *6; Simmons, 221 S.W.3d at 109.
In Knox, homeowners sued a pumping facility operator after the wastewater
pumps in their neighborhood failed during a heavy rainfall and wastewater flooded
their homes. 2018 WL 891239, at *1. The trial court granted summary judgment in
favor of the pumping facility operator, and the homeowners appealed. Id. at *2. On
appeal, we assumed that “expert testimony was not required to show that [the
pumping facility operator] owed a legal duty to the homeowners.” Id. at *3. But we
held that expert testimony was required to show that a breach of that duty caused
the flooding. Id. We explained:
The answer to whether a breach occurred thus requires an
understanding of the specific cause of the pump stoppage and [the
pumping facility operator’s] role, if any, in contributing to that cause.
The pumps at the lift station are specialized equipment. To evaluate
the evidence about the proper operation and maintenance of the
pumps, a jury would require information concerning the equipment
and processes involved in operating a sanitary wastewater collection,
transportation, and treatment system, as well as the impact of the
weather event that preceded the pump stoppage. Testimony from a
witness with specialized knowledge of those operations is necessary
to identify whether the stoppage resulted in part from [the pumping
facility operator’s] failure to act as a reasonably prudent operator.
Id. at *4. Because there was no expert testimony attributing the pump stoppage and
flooding to the pumping facility operator’s failure to act as a reasonably prudent
31
operator, we concluded that the trial court properly granted summary judgment. Id.
at *5.
In Fairways Offshore, Fairways was the operator and leaseholder of a
natural gas well in Wyoming. 2013 WL 371601, at *1. Fairways hired a contractor
to complete the well, which contained a high concentration of hydrogen sulfide. Id.During the completion process, the contractor lowered its equipment into the well
under a nitrogen blanket. Id. Overnight, to relieve pressure in the well, Fairways
decided to “flow the well,” which introduced gas that displaced the protective
nitrogen blanket. Id. The next day, the contractor’s equipment failed. Id. at *2. The
gas that Fairways released into the well contained hydrogen sulfide, which caused
a sulfide-stress fracture in the contractor’s equipment. Id. The contractor’s
equipment failure caused property damage but no personal injuries. Id. Fairways
sued the contractor for negligence, and the contractor countersued Fairways for
negligence. Id. We held that expert testimony was required to prove the standard of
care applicable to Fairways and whether Fairways breached the standard of care.
Id. at *8. We held:
[T]he proper operation of a sour gas well is not a matter within the
experience of laypersons. Specifically, whether or not the use of a
nitrogen blanket in a well, such as the one in this case, was necessary
to protect the well piping and equipment, would be unfamiliar to the
ordinary person.
Id. at *6.
32
In Simmons, an employee was injured when he was forced to jump from a
rail-car mover when a fire started in its engine compartment. 221 S.W.3d at 111.
His employer sued the company that had contracted to provide maintenance
services for the rail-car mover. Id. at 112. The trial court granted a no-evidence
summary judgment, and the employer appealed. Id. We held that expert testimony
was required to prove that the contractor was negligent:
Here, the record reveals that the maintenance and service of a [rail-car
mover] involves specialized equipment and techniques unfamiliar to a
lay person. Few people not involved in the rail-car industry are
familiar with rail-car movers, the functioning of their engines and
other internal parts, or the frequency and type of inspection and
maintenance they require. . . . A maintenance company’s practices and
procedures and industry standards with respect to the inspection and
maintenance of a . . . rail-car mover engine are not matters within a
lay person’s general knowledge. Accordingly, we hold that Simmons
needed expert testimony regarding the appropriate standard of care
and whether Briggs’s conduct met that standard.
Id. at 114–15 (citations omitted).
Other courts of appeals have used the same type of reasoning to reach
similar conclusions. See, e.g., Greater San Antonio Transp. Co. v. Polito, No. 04-
10-00330-CV, 2011 WL 2893080, at *4 (Tex. App.—San Antonio July 20, 2011,
pet. denied) (mem. op.) (requiring expert testimony because taxicab dispatch
equipment and manner in which it functions is unfamiliar to lay people); Schwartz
v. City of San Antonio, No. 04–05–00132–CV, 2006 WL 285989, at *4 (Tex.
App.—San Antonio Feb. 8, 2006, pet. denied) (mem. op.) (requiring expert
33
testimony because “[w]hat a power company’s practices and procedures should be,
or what industry standards are, when a circuit breaker within an electrical
distribution is tripped are not within a person’s general knowledge”).
GE contends that not all cases involving technical matters require expert
testimony. See AKIB Constr. Inc. v. Shipwash, 582 S.W.3d 791, 804 (Tex. App.—
Houston [1st Dist.] 2019, no pet.). In AKIB Construction, Shipwash, the owner of a
business that handles hazardous materials, contracted with AKIB Construction to
facilitate the purchase, dismantling, removal, storage, and reassembly of a steel
building. Id. at 795. Shipwash later sued AKIB Construction for breach of contract
for failing to properly deconstruct the building and deliver it to his storage facility.
Id. at 796. At trial, a site supervisor for one of Shipwash’s companies testified that
pieces of the steel building were significantly damaged, that he witnessed workers
improperly dismantling the building, and that the metal removed from the building
could not be reused and was scrap. Id. at 798–99. The trial court found that AKIB
Construction breached the contract and rendered judgment in favor of Shipwash.
Id. at 802.
On appeal, AKIB Construction argued that Shipwash was required to present
expert testimony to prove that its actions caused the metal removed from the
building to be unusable. Id. We disagreed, relying on the following statement from
a 1970 opinion from the Texas Supreme Court:
34
The trier of fact is usually allowed to decide the issue of causation in
cases of this nature: (1) when general experience and common sense
will enable a layman fairly to determine the causal relationship
between the event and the condition; (2) when scientific principles,
usually proved by expert testimony, establish a traceable chain of
causation from the condition back to the event; and (3) when probable
causal relationship is shown by expert testimony.
Id. at 803 (quoting Lenger v. Physician’s Gen. Hosp., Inc., 455 S.W.2d 703, 706
(Tex. 1970)).
In AKIB Construction, in addition to testimony adduced at trial, photographs
showing the building before it was dismantled and after parts of the building had
been removed were admitted into evidence. Id. at 804–05. The “after” photos
showed “pieces of sheet metal lying crumpled and bent in piles around the jobsite,”
and “retractable garage-type doors, lying bent and broken on the ground.” Id. at
804. We concluded that “a factfinder applying a ‘commonsense understanding’
could consider the before and after pictures of the steel building and, with
reasonable probability, reach a conclusion that the building was damaged during
the dismantling process.” Id. at 805.
Here, GE argues that this case is more like AKIB Construction. GE asserts
that “[t]he damage in this case was caused by a leak that was not detected and
became a blowout.” GE further asserts that the leaks were caused by loose bolts,
because the jury rejected the alternate theory that the leaks were caused by using a
“too-hard” gasket. Therefore, GE contends that “it was within the jury’s common
35
sense and experience to find that[,] had Carrizo been monitoring and checking for
leaks or loosened bolts, this blowout would not have occurred.”
We disagree with GE’s conclusion that no expert testimony was required as
well as its characterization of the evidence. In AKIB Construction, the question for
the factfinder was whether the components of the steel building were in a usable
condition after the building was dismantled. The photographs and testimony there
established that the components of the building were damaged and broken. Here,
the question is whether Carrizo’s negligence caused damages from the blowout.
A frac valve assembly, including the master valve, the spool, the high-
pressure rated flange, the nuts and bolts needed to connect the component parts,
and the torque wrenches used for installation are specialized equipment. The
proper inspection and maintenance of those parts, particularly during a fracking
operation, involve techniques unfamiliar to the ordinary person. Few people not
involved in the petrochemical industry–particularly oil and gas well drilling and
completion operations–are familiar with this specialized equipment and its proper
use and maintenance. While an ordinary person may be able to detect whether fluid
is leaking from equipment, an ordinary person would not be able to detect when a
frac valve assembly is properly constructed, whether the nuts and bolts are
adequately torqued, and whether or how the construction and torquing of a frac
valve assembly creates a danger of a well blowout. Therefore, the layman does not
36
know what the standard of care is for the inspection, operation, and maintenance of
a frac valve assembly during an active fracking operation of a gas well.
Accordingly, we conclude that GE was required to present expert testimony about
the standard of care and how Carrizo’s breach of the standard of care caused the
blowout. See FFE Transp. Servs., 154 S.W.3d at 91; Knox, 2018 WL 891239, at
*3–4; Fairways Offshore, 2013 WL 371601, at *6; Simmons, 221 S.W.3d at 114.
D. GE did not present expert testimony showing the standard of care
applicable to Carrizo and that Carrizo’s breach of the standard of
care caused the blowout and ensuing damages.
Carrizo correctly notes that GE did not adduce testimony at trial from a
designated expert witness regarding the standard of care of an oil and gas operator
regarding inspection, maintenance, and operation of a frac valve assembly during
fracking operations. However, GE also correctly notes that many of the witnesses
who testified had educational and experiential credentials in the specialized areas
of knowledge at issue in this case. Carrizo presented the following witnesses at
trial:
• Coleby Weinstock. Weinstock has a B.S. in Petroleum Engineering from
Texas A&M University. He had eleven years’ experience in oil and gas
production and well completion jobs prior to joining Carrizo as a district
engineer in 2011. He testified that he was not aware of any maintenance
needed for the flange connection beneath the master valve on the frac valve
assembly. He also testified that, if properly assembled, the flange
connections cannot come apart during fracking operations. He testified that
Baker Hughes, the fracking contractor, checked for leaks in the “hot area”
near the well during fracking. This would include the pressurized frac valve
assembly. Weinstock said that Carrizo employs a roustabout whose job is to
37
check for leaks on all equipment. He said that the GE report from the day of
the blowout indicated that the frac valve assembly was not leaking at all
before the blowout. Weinstock said that torque checking, as opposed to
visually inspecting for leaks, was not an industry standard practice before
the blowout and was not an industry standard practice after the blowout. He
also said that he had successfully fracked at least 40 wells without torque
checking between fracking stages. Despite the lack of an industry standard
for torque checking, since the blowout, Carrizo has adopted a practice of
torque checking every fourth fracking stage or fifth day.
• Brad Fisher. Fisher is the Chief Operating Officer and Vice President of
Carrizo since 2005. He has a B.S. in Petroleum Engineering from Texas
A&M University. He had 32 years’ experience in the oil and gas industry by
the time of trial. Fisher testified: “In my 32 years, I had never been provided
a piece of paper by any wellhead or frac tree company saying that [the
flange beneath the master valve] required maintenance.”
• Devon Feaster. Feaster was the GE service technician who installed the frac
valve assembly for Yarasavage 1H well. He testified that he had never heard
that a company like Carrizo should be aware of a need to retorque flanges
during a fracking job. He said that if the flanges are properly torqued at
installation, there should be no need to retorque during the fracking job. He
also testified that he was on site during the fracking of the Yarasavage 1H
well, and he said that he saw more vibration than he witnessed in other jobs.
However, the record suggests that he may have been referring to something
he saw after the blowout because he also testified that he could not recall
having been present during a fracking operation prior to January 2013.
• Dustin Duff. Duff was a GE service technician, who was involved in the
fabrication of the lower part of the frac valve assembly for the Yarasavage
1H well. He said that before the blowout, he was never involved in
retorquing nuts on frac valve assembly. he also said that before the blowout,
he was not aware of any GE customer who checked torque between fracking
stages.
• Ben Holgate. Holgate is a GE employee. He is a licensed professional
engineer in Texas, and he has a degree in mechanical engineering. He was
involved in GE’s root cause analysis of the blowout incident. He said that
GE could not conclude “that Carrizo did anything wrong,” because GE did
38
not have sufficient information to assess external loads or extent of
vibration.
• Tom Weller. Weller is a civil engineer, with a degree from Pennsylvania
State University. He began working on fracking jobs for Halliburton after
graduating in 1981. Since 1985, he had been the lead engineer for drilling
and fracking jobs. He was a contracted wellsite supervisor and consultant for
Carrizo on the Yarasavage 1H well. He testified that it was not standard
practice to do any preventive maintenance on the frac valve assembly during
fracking. He said that the only maintenance conducted was on an as-needed
basis. He said that he had never checked bolts during a frac job.
• Simon Bellemare. He is a licensed professional engineer in eight states,
including Texas. He has a PhD in materials science and engineering from
Massachusetts Institute of Technology. He lectures at MIT, works as a
welding inspector, and had a start-up company developing non-destructive
testing techniques for in situ testing of pipelines and equipment. He belongs
to numerous professional societies, has published many papers, and won
several awards. He testified as an expert for Carrizo. He testified that
improper installation of the ring gasket was a contributing cause of the
blowout and that there was some evidence that the ring gasket (in the flange)
was titled when it was removed.
• Mark Beny. He is an oil and gas fracturing consultant, who worked onsite at
the Yarasavage 1H well. He has a B.S. in chemical engineering from Ohio
State University, and he has worked as an oil and gas fracturing consultant
since 2009. Prior to that, he worked for Halliburton for 23 years, for
Weatherford for three years in a fracturing facility in Oklahoma, and for
nearly two years as a production engineer for Occidental Petroleum. He
testified that he has fracked thousands of wells in his career and never
witnessed the nuts on an API 6A flange (like the flange that failed on the
Yarasavage 1H well) come loose. He said he had never heard of anyone
maintaining the API 6A flange connections between the tubing head and the
spool and between the spool and the master valve. He said that nobody
checks torque during fracking operations, and he testified that not checking
the torque between fracking stages was “an industry standard.” He was
present onsite at the Yarasavage 1H well during fracking, and he said that
the frac valve assemblies were constantly monitored by a Baker Hughes
employee working in the role of “line boss.” Beny testified that the frac
valve assembly was not leaking before the blowout. He said it went from no
39
drip or leak to a total blowout. He said that in his 35 years of experience,
“very, very rarely do bolts come loose,” and that he had “never ever
witnessed a blowout because of the bolts coming loose” before the
Yarasavage 1H blowout. He also said that checking torque would not have
avoided the blowout in this case.
• Judd Hansen. Hansen has a B.S. in mechanical engineering from South
Dakota School of Mines and Technology and 34 years’ experience in
working for oil and gas operators. He consulted with Carrizo to review its
actions after the incident and determine if a documented standard of care
exists regarding the flange that failed on Yarasavage 1H well. He testified
that he had seen hundreds of thousands of API 6A flanges (like the one that
failed at the Yarasavage 1H well) in his experience. He said that they are
designed for long-term use, like up to 30 years in some installations, and he
said that he had never seen a properly installed flange fail in his oil and gas
experience. He testified that there is no documented, published guidance
from API (American Petroleum Institute), the Society of Petroleum
Engineers, the American Association of Drilling Engineers, or the American
Society of Mechanical Engineers stating that a properly made-up flange with
a proper ring gasket needs any maintenance. He opined that Carrizo had no
obligation to periodically check the API 6A flange connection. Hansen
testified that with proper assembly, proper equipment, and a pressure tested
flange, failure is not foreseeable: “The flange should never fail based on
industry expectations.” He did, however, say that visual monitoring of the
frac valve assembly for leaks is the industry standard, but it is not considered
maintenance.
• Dawn Washo. Washo is a licensed geologist who worked with Carrizo on
clean up after the blowout.
GE presented the following witnesses at trial:
• Christopher MacInnis. MacInnis was the lead field area manager for GE at
the time of trial. In 2011, he began working for GE as a field service
technician, a role he kept through 2013. When he began working for GE, he
received five weeks’ training on wellheads and an additional one week
“frac” training. Prior to working for GE, he worked for ten years in the crane
and rigging industry, as a crane operator, overhead hoist inspector, and
forklift operator. He testified that GE offered a service call “frac watch.” For
a fee, GE would provide two technicians per shift to watch the frac valve
40
assembly and be available to grease valves or retorque nuts and bolts during
fracking operations. MacInnis testified that Carrizo was the only company
he was aware of that did not use the frac watch service offered by GE, and
he said that using GE’s frac watch service was the usual and customary
choice of other operators in the area.
• Manuel Araujo and James Latham. Araujo and Latham worked for two
different gasket manufacturers. Each man testified that he was unaware of
his company’s product ever failing.
• Robert Ripple. Ripple was the senior manager of sales and business
development for GE at the time of trial. He has a bachelor’s degree in
business management. He provided a general quote to Carrizo for equipment
and services in the Marcellus Shale play. He testified: “We recommend that
our valves are greased and torquing is applied every three stages” during
fracking. He testified that he was “confident” that he told Weinstock or his
colleague about that recommendation. Ripple testified that some customers
request retorquing after every fracking stage. Ripple also said that greasing
valves and torquing is on-site maintenance and that customers typically pay
for the frac watch service, which includes greasing, onsite personnel, valve
operation, and troubleshooting.
• Christopher Frey. Frey testified as GE’s corporate representative. His
educational and professional background was not provided in the limited
offer of excerpts from his video deposition admitted at trial. Frey said that
torque checking is part of the frac watch service that GE offered to Carrizo,
but GE makes no recommendation and gives no written maintenance
procedure to customers who rent a frac valve assembly.
• Scott Hudson. Hudson is the vice president of drilling and completions for
Carrizo. He testified that he worked for Brad Fisher, who asked him to go to
Pennsylvania to help secure the Yarasavage 1H well. His educational and
professional background was not provided in the limited offer of excerpts
from his video deposition that was admitted at trial. He testified that the only
maintenance he had ever done on a frac valve assembly was “greasing.” He
also testified that before the Yarasavage 1H blowout, no lessor of frac valve
assemblies had ever told him to do preventive maintenance on the frac valve
assemblies during fracking.
41
• Larry Gerard. Gerard is an oilfield consultant and who worked for Carrizo
as a wellsite supervisor and consultant on the Yarasavage 1H well. He
testified that he witnessed the pressure test on the frac valve assembly for the
Yarasavage 1H well, and it did not reveal any problems. He also testified
that GE never recommended periodic torquing to him or anyone else at
Carrizo. He also testified that he had no theory about what caused the
blowout, but he did not believe that he or GE did anything wrong.
• Ben Holgate. Holgate has a master’s degree in mechanical engineering from
the University of Illinois and is a professional engineer in Texas. He testified
that the API 6A standard covers the manufacture of equipment like the
flange used beneath the master valve on the frac valve assembly. He testified
about flanges, gaskets, flange seals, torquing on flanges as installed (with
and without the use of lubricant), and provided other technical explanations
regarding the equipment used. He did not offer an opinion about a standard
of care for the inspection or maintenance of the frac valve assembly or
whether Carrizo’s actions breached the standard of care and caused damages
from the blowout. He did testify that he believed the blowout could have
been caused by external forces or by loosening of torque on the bolts of the
flange, although he explained that this “torque relaxation” typically occurs
over a long period of time. Holgate testified that GE had not been able to
determine the specific cause of the blowout. In addition, he said that GE first
began advising its customers in writing to check torque between fracking
stages after the Yarasavage 1H blowout.
• Dr. Stuart Brown. Dr. Brown has a PhD in mechanical engineering from
MIT. He is the managing principal of an engineering consulting firm that
also does simulation, testing, product design, and process improvement. He
has experience and training in materials analysis. He belongs to numerous
professional societies, holds several patents, and has published papers. He
investigated the blowout. Dr. Brown’s testimony focused on the flange and
the gasket, including the metallurgy and testing he conducted. He concluded
that the gasket was compliant with API standards and nothing about the
gasket or its installation caused the blowout. Nothing in his testimony
identified a standard of care applicable to or breached by Carrizo.
At trial, GE did not offer testimony from a designated expert witness
regarding the standard of care that applied to Carrizo and how Carrizo’s breach of
42
such standard of care caused the blowout. On appeal, to establish a standard of
care, GE relies on a variety of non-expert testimony, such as testimony from
Ripple, GE’s sales and business development manager, that GE recommended its
customers purchase an add-on service for onsite frac watching. “When expert
testimony is required, lay evidence supporting liability is legally insufficient.”
AKIB Constr., 582 S.W.3d at 803.
GE also argues that Carrizo had not assigned anyone the task of watching
the frac valve assembly because Beny could not identify by name the person who
did that job. But Beny and others testified that watching the frac valve assembly
was contracted to Baker Hughes, and Beny testified that no Baker Hughes
employees were deposed. GE also argued that Beny testified that periodic torque
checking was “a necessary activity.” To the contrary, what Beny said was that,
during the three weeks of fracking before the blowout, when a Baker Hughes
employee or Carrizo roustabout noticed a loose bolt or nut, he would tighten it with
a hammer wrench. He said that torque wrenches, which were necessary to check
the torque, were not used. Beny also said that nobody used a hammer wrench on
the nuts and bolts holding together the API 6A flange, which failed during the
blowout. GE’s reliance on out-of-context testimony from Beny is not legally
sufficient. See City of Keller, 168 S.W.3d at 812 (“More generally, evidence
43
cannot be taken out of context in a way that makes it seem to support a verdict
when in fact it never did.”).
Having considered the evidence, we conclude that GE failed to prove by
expert testimony that Carrizo breached a standard of care applicable to oil and gas
operators and that such breach caused the damages from the blowout. See Gharda,
464 S.W.3d at 347. We hold that the trial court did not err by granting Carrizo’s
motion to disregard the jury’s answers to the questions about Carrizo’s negligence.
We overrule the second issue.
III. The trial court properly refused GE’s claim for indemnity.
In its third issue, GE argues that it is entitled to enforce a contractual first-
party indemnity provision. First, GE argues that Carrizo authorized Weinstock and
the wellsite supervisors to accept the indemnity provisions because it authorized
Weinstock to negotiate and contract for the rental of frac valve assemblies and it
authorized the wellsite supervisors to sign FSOs. Second, GE argues that the trial
court erred by concluding that the indemnity provisions did not satisfy the fair
notice requirements that apply to first-party indemnity provisions. Third, GE
argues that the trial court’s findings of fact and conclusions of law regarding
unconscionability and failure of consideration are erroneous. Thus, GE asserts that
this Court should render judgment in its favor on its contractual indemnity claim,
including attorney’s fees and costs.
44
We disagree. GE had the burden of proof to demonstrate that the parties had
an enforceable contract for first-party indemnity. In its brief, GE repeatedly refers
generally to contractual indemnity provisions. In this case, there was no master
service agreement between GE and Carrizo. Consequently, the relevant contractual
provisions appear in four types of documents: (1) a January 2012 quote for
materials and services, (2) invoices, (3) order verification reports (“OVR”), and
(4) field service orders (“FSO”). While all four documents include indemnity
provisions, only the FSOs included an express first-party indemnity provision. The
quote, the invoices, and the OVRs cannot support enforcement of first-party
indemnity under the express negligence test of the fair notice rule.
In addition, whether the wellsite supervisors who signed the FSOs had actual
or apparent authority hinges on the determination of certain factual matters. In its
findings of fact, the trial court found that the FSOs were signed by Carrizo’s
wellsite supervisors solely to confirm receipt of goods and services. The court also
found that Carrizo did not authorize the wellsite supervisors to negotiate or
approve a first-party indemnity agreement with GE, and Carrizo did not tell GE or
the wellsite supervisors that they had that authority. Our standard of review
requires us to respect and defer to these fact findings because they are supported by
sufficient evidence. Therefore, the first-party indemnity provision in the FSOs is
45
unenforceable because the wellsite supervisors who signed them had no authority
to bind Carrizo to provide first-party indemnity to GE.
A. Standards of review
“We construe indemnity agreements under normal rules of contract
construction.” Gulf Ins. Co. v. Burns Motors, Inc., 22 S.W.3d 417, 423 (Tex.
2000). “The primary goal is to ascertain and give effect to the parties’ intent as
expressed in the contract.” Id. “Whether a contract is ambiguous is a question of
law for the court to decide.” Id. (citing Coker v. Coker, 650 S.W.2d 391, 394 (Tex.
1983)). “When the contract is worded so that it can be given a certain or definite
legal meaning[,] it is not ambiguous, and the court will construe the contract as a
matter of law.” Id. (citing Coker, 650 S.W.2d at 393).
In an appeal of a judgment rendered after a bench trial, the trial court’s
findings of fact have the same weight as a jury’s verdict, and we review the
sufficiency of the evidence supporting those findings by using the same standards
to review jury verdicts. MBM Fin. Corp. v. Woodlands Operating Co., 292 S.W.3d
660, 663 n.3 (Tex. 2009) (citing City of Keller and stating that “[t]he same standard
of review applies to a trial court’s findings following a bench trial”); AKIB Constr.,
582 S.W.3d at 805. We review a trial court’s conclusions of law de novo. BMC
Software, 83 S.W.3d at 794.
46
B. Indemnity
An indemnity agreement is a promise to safeguard or hold the indemnitee
harmless against either existing [or] future loss or liability, or both. Dresser Indus.,
Inc. v. Page Petroleum, Inc., 853 S.W.2d 505, 508 (Tex. 1993). “Ordinarily, an
indemnity provision does not apply to claims between the parties to the agreement;
instead, it obligates the indemnitor to protect the indemnitee against claims brought
by third parties.” MG Bldg. Materials, Ltd. v. Moses Lopez Custom Homes, Inc.,
179 S.W.3d 51, 63 (Tex. App.—San Antonio 2005, pet. denied); accord Claybar v.
Samson Expl., LLC, No. 09-16-00435-CV, 2018 WL 651258, at *2 (Tex. App.—
Beaumont Feb. 1, 2018, pet. denied) (mem. op.); Nat’l City Mortg. Co. v. Adams,
310 S.W.3d 139, 143–44 (Tex. App.–Fort Worth 2010, no pet.) (op. on reh’g);
Ganske v. Spence, 129 S.W.3d 701, 708 (Tex. App.—Waco 2004, no pet.); Coastal
Transp. Co. v. Crown Cent. Petroleum Corp., 20 S.W.3d 119, 129–30 (Tex.
App.—Houston [14th Dist.] 2000, pet. denied). In Ganske, the court of appeals
noted, however, the possibility that an indemnity provision could be written so that
the parties indemnify each other against claims they later assert against each other.
Ganske, 129 S.W.3d at 708.
Because indemnity provisions seek to shift the risk of one party’s future
negligence to the other party, Texas imposes a fair notice requirement before
enforcing such agreements. Dresser Indus., 853 S.W.2d at 508; Cabo Constr., Inc.
47
v. R S Clark Const., Inc., 227 S.W.3d 314, 317 (Tex. App.—Houston [1st Dist.]
2007, no pet.). Fair notice is comprised of the express negligence doctrine and the
conspicuousness requirement. Dresser Indus., 853 S.W.2d at 508. The express
negligence doctrine requires that “the intent of the parties must be specifically
stated within the four corners of the contract.” Ethyl Corp. v. Daniel Constr. Co.,
725 S.W.2d 705, 708 (Tex. 1987); see Storage & Processors, Inc. v. Reyes, 134
S.W.3d 190, 192 (Tex. 2004). The conspicuousness requirement requires that
“something must appear on the face of the [contract] to attract the attention of a
reasonable person when he looks at it.” Dresser Indus., 853 S.W.2d at 508
(quoting Ling & Co. v. Trinity Sav. & Loan Ass’n, 482 S.W.2d 841, 843 (Tex.
1972)). “Language may satisfy the conspicuousness requirement by appearing in
larger type, contrasting colors, or otherwise calling attention to itself.” Storage &
Processors, 134 S.W.3d at 192. Although conspicuousness is based on the
existence of facts, the Supreme Court of Texas has held that a determination of
whether an agreement meets the conspicuousness requirement is a question of law
for the court. Dresser Indus., 853 S.W.2d at 509; Cabo Constr., 227 S.W.3d at
317.
C. Indemnity provisions in the four types of documents.
In their briefs, both GE and Carrizo appear to conflate the indemnity
provisions found in the four relevant types of documents. At oral argument, both
48
GE and Carrizo mentioned that they are not identical, and we have noted that the
FSO has a differently-worded indemnity provision. We begin by examining the
text of the indemnity provisions in the four types of documents.
1. January 2012 quote
The first relevant document is the January 2012 GE quote for rental of frac
valve assemblies for the Marcellus Shale project. This quote was an itemized list of
materials and services. Beneath the itemized list, on page 5 of 5, and in smaller
font, is a caveat about equipment specification and a statement incorporating by
reference GE’s “Terms and Conditions of Sale”:
The equipment offered by GE Oil & Gas Pressure Control fully meets
all requirements of the specifications stated in the Equipment
Descriptions, including API 6A PSL Levels, with any exceptions
noted. GE Oil & Gas Pressure Control offers equipment to meet
1. Customer specification or 2. Market practice, which may not follow
the recommended Product Specification Level (PSL) selection, as
suggested in API 6A 19th Edition, Annex A. This quotation, and any
sale resulting therefrom, is subject to Buyers Acceptance of GE
Oil & Gas Pressure Control’s Terms and Conditions of Sale, a
copy of which is attached or can be made available to Buyer upon
request. Any terms and conditions included with Buyer’s order which
are in any way in conflict or inconsistent with GE Oil & Gas Pressure
Control’s Terms and Conditions of Sale shall not be binding on GE
Oil & Gas Pressure Control unless expressly agreed to in writing.
Terms subject to credit approval.
(Emphasis added.)
GE’s standard terms and conditions were printed on the next page, and
included:
49
LIMITATIONS OF LIABILITY. THE TOTAL LIABILITY OF
SELLER ON ANY CLAIM WHETHER IN CONTRACT, TORT
(INCLUDING NEGLIGENCE WHETHER SOLE OR
CONCURRENT) OR OTHERWISE ARISING OUT OF,
CONNECTED WITH, OR RESULTING FROM THE
PERFORMANCE OR NON-PERFORMANCE OF THE
CONTRACT, THE PRODUCTS AND/OR THE SERVICES SHALL
NOT EXCEED THE PRICE RECEIVED BY THE SELLER AND
ALLOCABLE TO THE PRODUCT OR PART THEREOF, OR THE
COST OF FURNISHING OF ANY SERVICE WORK, WHICH
GIVES RISE TO THE CLAIM.
NOTWITHSTANDING ANY PROVISION TO THE CONTRARY
ELSEWHERE, IN NO CASE WILL SELLER BE LIABLE FOR
CONSEQUENTIAL LOSS AND BUYER SHALL SAVE,
INDEMNIFY, DEFEND AND HOLD HARMLESS SELLER FROM
AND AGAINST ANY AND ALL CONSEQUENTIAL LOSS EVEN
IF CAUSED BY SELLER’S SOLE, JOINT, COMPARATIVE,
CONTRIBUTORY OR CONCURRENT NEGLIGENCE, FAULT,
STRICT LIABILITY OR PRODUCT LIABILITY, AND
REGARDLESS OF THE FORM OF ACTION, WHETHER
CONTRACT, TORT (INCLUDING NEGLIGENCE), BREACH OF
WARRANTY, INDEMNITY, STATUTE, STRICT LIABILITY OR
OTHERWISE.
“Consequential Loss” shall mean (whether or not foreseeable at the
date of the contract): any and all consequential, indirect, special,
incidental, exemplary or punitive loss or damage; including, but not
limited to loss of production, product, goodwill, use, revenue, profit
(or anticipated profit), and cost of capital, in each case whether direct
or indirect, and claims for service interruption, costs and expenses
incurred in connection with substitute facilities or supply sources and
in connection with the removal and replacement of products or
reperformance of the services. The Buyer acknowledges that the
provisions of this Clause are reasonable and reflected in the Contract
price, which would be higher without those provisions and the Buyer
accepts such risks and will insure accordingly.
8 INDEMNITIES. 8.1 Subject to 8.2, the Buyer and Seller shall
each be responsible for and shall save, indemnify, defend and hold
50
harmless the other’s Group from and against all claims, losses,
damages, costs (including legal costs), expenses, and liabilities in
respect of, personal injury including death or disease or loss of or
damage to the property of any third party to the extent that any
such injury, loss or damage is caused by the negligence or breach of
duty (whether statutory or otherwise) of the respective Buyer or Seller
or their Groups.
8.2 Notwithstanding Section 8.1, Buyer shall be liable for, and shall
defend, indemnify and hold Seller Group harmless from and against,
any and all claims which arise out of the performance or non-
performance of the Contract in relation to the following, and whether
or not resulting from, or contributed to by, the negligence of Seller
Group; (i) loss of or damage to any well or hole or any third party oil
and gas production facilities; (ii) reservoir seepage or pollution
originating underground or from the property of the Buyer or third
party howsoever arising; (iii) blow-out, fire, explosion, cratering of
any well or reservoir or any other uncontrolled well condition
(including the costs to control a wild well and the removal of debris);
(iv) damage to or escape of product, or substance from any facility
including any pipeline or other subsurface facility.
(Emphasis added.)
2. Invoices
Unlike the January 2012 quote, the front of the invoices does not include any
reference to any terms or conditions. There is no indication that anything was
printed on the back of the invoices. Instead, a copy of GE’s “Standard Terms and
Conditions of Sale” was attached to the invoices as a second page. The indemnity
language was identical to the indemnity language in the Standard Terms and
Conditions attached to the January 2012 quote.
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3. OVRs
The OVRs were like the invoices. Nothing on the front of the OVRs
referenced any terms or conditions. Like the invoices, GE’s “Standard Terms and
Conditions of Sale” was attached as the last page. The indemnity language was
identical to the indemnity language in the Standard Terms and Conditions attached
to the January 2012 quote and the invoices.
4. FSOs
The FSOs were different from the quote, the invoices, and the OVRs. The
top of the form stated:
GE Oil & Gas Pressure Control, LP
FIELD SERVICE ORDER
TERMS & CONDITIONS OF SALE
Below the words “Terms & Conditions of Sale” and in a smaller font than
used elsewhere on the document, was the statement: “Sale of any products or
services is conditioned on Customer’s agreement to the Terms & Conditions on the
reverse side hereof.”
The body of the document was a fill-in-the-blank form detailing equipment,
materials, and services provided. At the bottom of the form, above signature lines
for the “GE Technician” and “Company or Contractor,” was the following
statement, which was in bold typeface:
THIS AGREEMENT CONTAINS PROVISIONS RELATIVE TO
INDEMNITY, RELEASE OF LIABILITY AND ALLOCATION OF
52
RISK. Authorizing the work and acknowledging that, absent a master
or other controlling agreement between parties, the Terms &
Conditions on the reverse hereof shall apply to the work described
herein. BY SIGNING THIS DOCUMENT CUSTOMER AGREES
THESE TERMS & CONDITIONS ARE THE EXCLUSIVE TERMS
& CONDITIONS APPLICABLE TO THIS TRANSACTION.
“Terms and Conditions of Service” were printed on the back of the FSO.
These were different from GE’s “Standard Terms and Conditions of Sale.”
TERMS AND CONDITIONS OF SERVICE
As used herein, “Contractor” refers to GE Oil & Gas, and “Customer”
refers to the party requesting services from Contractor.
NOTICE: Sale or Lease of any products or services is expressly
conditioned on Customer’s assent to these Terms and Conditions.
THIS DOCUMENT CONTAINS REGARDLESS OF FAULT
RELEASE AND INDEMNITY PROVISIONS.
....
LIABILITY AND INDEMNITY
Customer agrees to release, defend, indemnify and hold
harmless Contractor, its divisions, subsidiaries, parent and affiliated
companies and the officers, directors, employees, agents and servants
of all of them from and against any claims, liability, expenses,
attorney fees and costs of defense, to the extent permitted by law,
whether asserted directly by Customer or by a third party; for:
(1) damage to property owned by, in the possession of, or leased by
Customer and/or the well owner (if different from Customer),
including surface and subsurface damage (the term “well owner” shall
include working and royalty interest owners); (2) reservoir, formation
and well loss or damage, subsurface trespass or any action in the
nature thereof; (3) personal injury, death or property damage or any
claims or damages whatsoever growing out of or in any way
connected with or resulting from pollution, fire, explosion, subsurface
pressure, losing control of a well, and /or a well blowout or the use of
radioactive material or clean-up or remediation. The defense
indemnity, release and hold harmless obligations of Customer
provided for above apply to claims or liability even if contributed
53
to or caused by the sole, joint or concurrent negligence, fault,
strict liability or product liability of Contractor . . . or any defect
in the data, product, supplies, materials or equipment of
Contractor whether in the preparation, design, manufacture,
maintenance, distribution or marketing thereof, or from failure to
warn any person of such defect. Such defense, indemnity, release
and hold harmless obligations of Customer shall not apply to the
extent the claims or liability, are caused by the gross negligence or
willful misconduct of Contractor.
The indemnification provided above shall only be effective to
the maximum extent permitted by law. The parties agree that in the
event any law is enacted in any state, the laws of which govern this
contract, that limit in any way extent to which indemnification may be
provided to an indemnitee, that this contract shall automatically be
amended to provide that the indemnification provided hereunder shall
extend only to the maximum extent permitted by applicable law.
(Emphasis in original.)
D. Only the FSO indemnity provision satisfies the fair notice
requirement.
The indemnity provision associated with the quote, the invoice, and the
OVRs was broad, but it did not expressly state that it applied to first-party claims.
Under our normal rules of contract construction, we cannot conclude that the
parties expressed an intent that Carrizo would provide GE with first-party
indemnity based on GE’s Standard Terms and Conditions of Sale. See Gulf Ins.
Co., 22 S.W.3d at 423. In addition, because of the heightened consequences of
liability shifting through a first-party indemnity clause, we must also consider
whether the indemnity provision at issue satisfies the fair notice requirement. See
Dresser Indus., 853 S.W.2d at 508; Cabo Constr., 227 S.W.3d at 317. The first
54
component of the fair notice requirement—the express negligence test—is not
satisfied by the indemnity provision in GE’s Standard Terms and Conditions of
Sale. See Ethyl Corp., 725 S.W.2d at 708. Unlike the “Terms and Conditions of
Service” that was attached to the FSOs, GE’s Standard Terms and Conditions of
Sale did not expressly state an intention to provide first-party indemnification
within the four corners of the document. See id. Accordingly, the indemnity
provision associated with the January 2012 quote, the invoices, and the OVRs fails
to satisfy the express negligence doctrine and the fair notice requirement. See
Dresser Indus., 853 S.W.2d at 508; Ethyl Corp., 725 S.W.2d at 708. GE is not
entitled to first-party indemnity from Carrizo based on the indemnity provision in
these documents.
As we have said, however, the FSOs are different. The FSOs, including the
FSO for installation of the frac valve assembly for the Yarasavage 1H well,
expressly stated that the indemnity provision extended to all claims “whether
asserted directly by Customer or by a third party.” The trial court concluded, as a
matter of law, that the indemnity provision on the back of the FSO does not meet
the express negligence test. We disagree with this conclusion. The statement—
whether asserted directly by Customer or by a third party—expresses an intent for
Carrizo to provide GE with first-party indemnification. See Ethyl Corp., 725
S.W.2d at 707. This language satisfies the express negligence test. See id.
55
The second part of the fair notice test is conspicuousness. See Dresser
Indus., 853 S.W.2d at 508. In this case, the trial court issued findings of fact and
conclusions of law relevant to the conspicuousness requirement:
• “The field services order is two-sided. The indemnity provision
is on the back side of the field services order. The document is
thin, and the entire indemnity provision is in very small font,
regular typeface, and not capitalized.”
• “The indemnity provisions on the back side of the field services
order is not conspicuous, does not meet the express negligence
test, and is unenforceable.”
We again disagree with the trial court. Although the FSO is thin, as
evidenced by the bleed-through of a company ink-stamp used by field personnel,
this document includes two references to the indemnity provision on its face. First,
a statement at the top of the page states: “Sale of any products or services is
conditioned on Customer’s agreement to the Terms & Conditions on the reverse
side hereof.” The font is small, and the typeface is normal. Second, a notice
appears on the bottom of the front side of the FSO, immediately above the
signature line. This notice is in bold typeface, and some of the words are
capitalized.7
7
56
The “Terms and Conditions of Service” on the back of the FSO is printed in
a single column that is the width of the page, and the font is the same size or larger
than that used on the front of the FSO. At the top of the back side, there is a notice,
which states in all capitals that the document contains “regardless of fault release
and indemnity provisions.”8 The “liability and indemnity” provisions constitute
two paragraphs. A heading stating “LIABILITY AND INDEMNITY” appears
immediately above the paragraphs in bold typeface, underlined, and in a slightly
larger font. Some of the words in the paragraphs are highlighted with bold
typeface, underlining, and italics.
We conclude that the indemnity provision on the FSOs is conspicuous. See
Dresser Indus., 853 S.W.2d at 508–11. The FSO included a statement on the top of
the front of the page that specifically referred to the terms and conditions printed
on the back of the document. See id. at 511. A second statement appeared at the
bottom just above the signature line and referred to the terms and conditions,
including the indemnity provisions printed on the reverse side. See id. The
indemnity provision on the back appears in a paragraph clearly labeled “liability
and indemnity,” in bold underlined text, and the specific provision is not
8
57
surrounded by completely unrelated terms. See id. The specific provision for first-
party indemnity is further highlighted by italicized print. Accordingly, we conclude
that the provision was conspicuous. See Storage & Processors, 134 S.W.3d at 192
(“Language may satisfy the conspicuousness requirement by appearing in larger
type, contrasting colors, or otherwise calling attention to itself.”); see also TEX.
BUS. & COM. CODE § 1.201(b)(10) (defining conspicuous as “so written, displayed,
or presented that a reasonable person against which it is to operate ought to have
noticed it”). We hold that the first-party indemnity provision in the FSOs satisfies
the fair notice test.
E. The FSOs were not signed by people who had authority to bind
Carrizo to a first-party indemnity provision.
We have concluded that the first-party indemnity provision satisfied the fair
notice test, but this conclusion does not end our inquiry into whether GE was
entitled to enforce that provision. The remaining question is whether GE proved
that Carrizo agreed to the first-party indemnity provision. See Baylor Univ. v.
Sonnichsen, 221 S.W.3d 632, 635 (Tex. 2007) (“Contracts require mutual assent to
be enforceable. . . . Evidence of mutual assent in written contracts generally
consists of signatures of the parties and delivery with the intent to bind.”). GE and
Carrizo do not dispute the existence of a general, third-party indemnity agreement
arising from the quote and the invoices. The question is whether Carrizo is
obligated to provide first-party indemnity because their independent contractors in
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the field signed FSOs that included the first-party indemnity provision on the back.
The answer to this question depends on the determination of certain factual
matters. The trial court made findings of fact about the nature and purpose of the
FSOs and about the authority of Weinstock and the wellsite supervisors to accept a
first-party indemnity requirement on behalf of Carrizo.
On appeal, GE argues that the trial court erred by finding that no person with
authority assented to “the agreement” on Carrizo’s behalf. In making this
argument, GE refers generally to the “contract” or “agreement” without
differentiating among the four types of documents at issue in this case. GE does
not expressly challenge the sufficiency of the evidence to support the trial court’s
findings of fact, although it does argue that the court’s finding that Carrizo did not
authorize Weinstock or its wellsite supervisors “to negotiate contract terms with its
vendor or to bind Carrizo to an indemnity agreement” is “contrary to the
undisputed evidence.” Appellant’s Br. 44.
1. Findings of fact
Our standards of review require us to defer to the trial court’s fact findings
when they are supported by sufficient evidence. Italian Cowboy Partners, Ltd. v.
Prudential Ins. Co. of Am., 341 S.W.3d 323, 337 (Tex. 2011). Here, the trial
court’s relevant fact findings are supported by the record.
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The nature and purpose of the FSOs
The trial court made the following fact findings relevant to the nature and
purpose of the FSOs:
• “[GE] provided equipment and services to Carrizo and presented
“field services orders [FSOs],” and other documents that were
admitted into evidence at the bench trial.
• “The field services orders [FSOs] . . . were stamped and
required a signature for the sole purpose of confirming receipt
of equipment and services.”
• “Carrizo’s [wellsite supervisors] signed the stamped field
services orders . . . solely to confirm receipt of GE’s equipment
and services.”
• “Coleby Weinstock, a district engineer for Carrizo, approved
payment for equipment and services. Carrizo electronically
received invoices from GE. Weinstock electronically received a
scanned copy of the front pages of an invoice that did not
include any terms and conditions. Weinstock reviewed the
uploaded invoice and approved or rejected payment of the
uploaded invoice.”
The evidence showed that Weinstock selected GE to supply material and
services based, in part, on the January 2012 quote. Having selected GE, Carrizo
placed orders that GE fulfilled. Carrizo established a procedure to verify what
materials and services were provided and to enable Carrizo to approve payment.
When materials or services were supplied by any vendor, the procedure was for the
vendor to present a document to the wellsite supervisor onsite after the material
was delivered or the services completed. These documents were the OVRs and the
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FSOs. When the wellsite supervisor received an FSO or OVR, he would mark it
using a stamp provided by Carrizo that imprinted a small form for the wellsite
supervisor to fill in.9 Using the form created by the stamp, the wellsite supervisor
recorded the date, a description of the services performed, the cost, whether there
was a dispute about the costs, labor, or materials, and other codes relevant to
Carrizo’s internal administration and payment of invoices. The wellsite supervisor
also signed in the stamped box. Most of the OVRs and FSOs admitted at trial had
the stamp and a wellsite supervisor signature in the stamped area. A few OVRs and
FSOs were signed at the bottom on the preprinted line just below the text about
terms and conditions.
At the bench trial on indemnity, the court heard live testimony from
Weinstock and admitted excerpts of depositions of Weinstock, GE field service
technicians Devon Feaster and Christopher MacInnis, GE field manager Chris
Frey, Carrizo’s vice president and chief operating officer Brad Fisher, Carrizo’s
9
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general counsel Larry Kennington, wellsite supervisor Larry Gerard, and GE
contracts manager April Jones. Jones testified that she worked in the office and did
not go to the field. She said that GE only works with customers after the customers
agree to a master service agreement or the terms and conditions in the OVRs and
FSOs. But she was surprised to learn that OVRs and FSOs are presented to the
customer only after the materials have been supplied and work has been
completed. In contrast to Jones’s testimony, Weinstock, Feaster, MacInnis, Frey,
Gerard, Fisher, and Kennington all testified that the FSOs were used to verify that
the work had been completed onsite. They all testified that this was used for the
purpose of invoices and billing. Weinstock testified that he received electronically
a copy of the front pages of the OVRs and FSOs with the invoices from GE. But he
testified that he did not approve the OVRs or FSOs. He used the information on the
OVRs and FSOs to determine whether to approve the charges in the invoices sent
by GE or to refer a charge for resolution of a dispute about labor, materials, or
pricing.
The trial court’s findings of fact regarding the FSOs are supported by legally
sufficient evidence because the evidence adduced at trial would enable reasonable
and fair-minded people to reach the findings of fact under review. See City of
Keller, 168 S.W.3d at 827. These findings of fact are also factually sufficient
because, having considered the appellate record in a neutral light, we conclude that
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these fact findings are not so contrary to the overwhelming weight of the evidence
as to be clearly wrong and unjust. See Cain v. Bain, 709 S.W.2d 175, 176 (Tex.
1986). We therefore defer to these fact findings. See Italian Cowboy Partners, 341
S.W.3d at 337.
The authority of Weinstock and the wellsite supervisors
The trial court made the following fact findings relevant to the authority that
Weinstock and the wellsite supervisors had to act on behalf of Carrizo:
• “Carrizo did not authorize its [wellsite supervisors] or Coleby
Weinstock to negotiate contract terms with its vendors or to
bind Carrizo to an agreement requiring Carrizo to indemnify
GE for GE’s own negligence. Carrizo did not authorize its
[wellsite supervisors] or Coleby Weinstock to bind Carrizo to
indemnify contractors or to negotiate or agree to the terms of
any indemnity contracts. Neither negotiating nor agreeing to
such indemnity provisions was necessary for the [wellsite
supervisors] and/or Weinstock to perform their work for
Carrizo or interact with GE.”
• “Carrizo did not knowingly permit its [wellsite supervisors] or
Coleby Weinstock to hold themselves out as having authority to
execute indemnity agreements on behalf of Carrizo. Carrizo did
not grant such authority to its [wellsite supervisors] or to
Coleby Weinstock.”
• “Carrizo never told the [wellsite supervisors] or Coleby
Weinstock they possessed any authority to approve and bind
Carrizo to indemnity agreements. Carrizo did not grant such
authority to its [wellsite supervisors] or to Coleby Weinstock.”
• “Carrizo never told GE the [wellsite supervisors] or Coleby
Weinstock had authority to approve and bind Carrizo to
indemnity agreements. Carrizo did not grant such authority to
its [wellsite supervisors] or to Coleby Weinstock. A reasonably
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prudent person would not rely on any conduct by or apparent
authority of the [wellsite supervisors] men or Coleby
Weinstock to bind Carrizo to indemnity agreements.”
The record shows that the FSOs were signed by Gerard and Weller, the
wellsite supervisors. Kennington testified that both Gerard and Weller were
independent contractors, whose contracts prohibited them from being deemed an
employee, agent, or representative of Carrizo. Accordingly, neither Gerard nor
Weller had authority to enter a contract with GE on behalf of Carrizo.
Weinstock testified that he had authority to bid out the job and to make
purchases up to $150,000. He said that he was authorized by Carrizo to enter into
the contract, which he considered to be the January 2012 quote along with the
invoices. But he said that negotiating legal terms was not his “authority,” so he
paid no attention to the terms and conditions on the FSO or invoice. He also said
that he never saw the terms and conditions on the back of the FSO. Consequently,
he never brought the change in indemnity language that appeared in the FSO’s
terms and conditions to the attention of Carrizo’s legal department.
GE’s field service technicians and field manager testified that they did not
have authority to negotiate legal terms and conditions and they never discussed
them with the wellsite supervisors. Regarding the terms and conditions on the
FSOs, Frey said: “We’re all oil field hands. We–we don’t know that.” While Frey
testified that Gerard never told him that he did not have authority to sign an FSO,
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Frey said he was not sure whether a wellsite supervisor had authority to enter into
contracts for the company for which he works. Gerard testified that the legal
meaning of the FSO’s terms and conditions was “outside my area.”
We conclude that the evidence is legally and factually sufficient to support
the trial court’s findings of fact that Carrizo did not authorize the wellsite
supervisors to enter contracts on behalf of Carrizo. Nor did Carrizo communicate
to the wellsite supervisors or to GE that they had that authority. See City of Keller,
168 S.W.3d at 827; Cain, 709 S.W.2d at 176. We therefore defer to these fact
findings. See Italian Cowboy Partners, 341 S.W.3d at 337.
2. Agency, authority, and ratification
With deference to these fact findings, we apply the law to the facts of this
case. “An agent is one authorized by another to transact some business for the
principal; the relationship is a consensual one between two parties, by which one
party acts on behalf of the other, subject to the other’s control.” Reliant Energy
Servs., Inc. v. Cotton Valley Compression, L.L.C., 336 S.W.3d 764, 782–83 (Tex.
App.—Houston [1st Dist.] 2011, no pet.) (quoting Jamison v. Nat’l Loan Invs., 4
S.W.3d 465, 468 (Tex. App.—Houston [1st Dist.] 1999, pet. denied)). Texas courts
do not presume that an agency relationship exists, and the party who alleges it has
the burden of proving it. Cmty. Health Sys. Prof’l Servs. Corp. v. Hansen, 525
S.W.3d 671, 697–98 (Tex. 2017) (citing IRA Res., Inc. v. Griego, 221 S.W.3d 592,
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597 (Tex. 2007)). A principal is liable for the acts of its agent only when the agent
has actual or apparent authority to do those acts. See Gaines v. Kelly, 235 S.W.3d
179, 182 (Tex. 2007). “An agent’s authority to act on behalf of a principal depends
on some communication by the principal either to the agent (actual or express
authority) or to the third party (apparent or implied authority).” Id. “Because an
agent’s authority is presumed to be co-extensive with the business entrusted to his
care, it includes only those contracts and acts incidental to the management of the
particular business with which he is entrusted.” Id. at 185.
“Actual authority is authority that the principal intentionally conferred on
the agent or allowed the agent to believe was conferred.” Kettrick v. Coles, No. 01-
10-00855-CV, 2011 WL 3820941, at *9 (Tex. App.—Houston [1st Dist.] Aug. 25,
2011, pet. denied) (mem. op.). “Actual authority includes both express and implied
authority and ‘usually denotes that authority a principal (1) intentionally confers
upon an agent, (2) intentionally allows the agent to believe that he possesses, or
(3) allows the agent to believe that he possesses by want of due care.’” Id. (quoting
Spring Garden 79U, Inc. v. Stewart Title Co., 874 S.W.2d 945, 948 (Tex. App.—
Houston [1st Dist.] 1994, no writ). Implied actual authority is an “adjunct” to
express actual authority, “because implied authority is that which is proper, usual,
and necessary to the exercise of the authority that the principal expressly
delegates.” Id. (quoting Spring Garden 79U, 874 S.W.2d at 948).
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Apparent authority arises “either from a principal knowingly permitting an
agent to hold [himself] out as having authority or by a principal’s actions that lack
such ordinary care as to clothe an agent with the indicia of authority, thus leading a
reasonably prudent person to believe that the agent has the authority [he] purports
to exercise.” Id. (quoting Baptist Mem. Hosp. Sys. v. Sampson, 969 S.W.2d 945,
948 (Tex. 1998)). “[A]pparent authority must be based on the acts of the principal”
and “is limited to the scope of responsibility that is apparently authorized.” Gaines,
235 S.W.3d at 184 (quoting First Valley Bank of Los Fresnos v. Martin, 144
S.W.3d 466, 471 (Tex. 2004)). Mere declarations of an alleged agent, standing
alone, are “incompetent to establish either the existence of the alleged agency or
the scope of the alleged agent’s authority.” Gaines, 235 S.W.3d at 183–84.
“Because apparent authority is an estoppel principle, a party seeking to recover
under such legal theory must show justifiable reliance on the principal’s words or
conduct resulting in harm to the party.” See Reliant Energy Servs., 336 S.W.3d at
784. The standard courts employ when evaluating the reasonableness of a third
party’s assumptions about apparent authority “is that of a reasonably prudent
person, using diligence and discretion to ascertain the agent’s authority.” See
Gaines, 235 S.W.3d at 182–83 (citing Chastain v. Cooper & Reed, 257 S.W.2d
422, 427 (Tex. 1953)); see also Reliant Energy Servs., Inc., 336 S.W.3d at 787(“‘[R]easonable diligence to ascertain [an] agent’s authority’ is part of the standard
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under Texas law for determining whether a person is ‘reasonably prudent’ in the
context of apparent authority . . . .”) (quoting Gaines, 235 S.W.3d at 182–83).
In this case, GE is asserting the existence of a contract based on acceptance
of the FSO terms and conditions by the wellsite supervisors. Therefore, GE had the
burden to prove at trial (as well as on appeal) that the wellsite supervisors had
actual or apparent authority by which they could act and bind Carrizo.
The findings of fact (and evidence at trial) establish that neither wellsite
supervisor had express actual authority to bind Carrizo to contractual terms or
negotiate any legal provisions. The FSOs were signed not as a contract to perform
in the future but as a business record memorializing work that had already been
done. Evidence from witnesses for both GE and Carrizo established that this was
understood by both parties. The fact findings and evidence also demonstrate that
the power to negotiate, renegotiate, or accept a more burdensome liability-shifting,
first-party indemnity provision was not necessary to the exercise of the authority
expressly delegated to the wellsite supervisors to manage the operations in the
field. None of the GE service technicians or the field manager believed that the
wellsite supervisors had such authority, nor did Gerard believe that he did. To the
contrary, the evidence supporting the trial court’s fact findings establishes that
neither the GE employees or wellsite supervisors believed that negotiation of or
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understanding the legal terms was in any way part of the wellsite supervisors’
responsibility.
The evidence supporting the trial court’s fact findings likewise does not
support a conclusion that the wellsite supervisors had apparent authority. There
was no evidence that Carrizo communicated to GE that the wellsite supervisors
had the authority to assent to a contract on behalf of Carrizo. Instead, the evidence
showed that the wellsite supervisors had the authority to work within the
parameters of the contract negotiated by Weinstein by virtue of the quote and as
evidenced by the invoices that Carrizo paid. There was also no evidence that GE
made any inquiry–let alone acted with reasonable diligence and discretion—to
determine whether the wellsite supervisors had authority to agree to a first-party
indemnity provision when all the other documents comprising the contract between
GE and Carrizo included only a third-party indemnity provision.
We conclude that the trial court correctly held that the wellsite supervisors
did not have actual (express or implied) or apparent authority to bind Carrizo to the
terms and conditions on the back of the FSO. See Kettrick, 2011 WL 3820941, at
*9.
Finally, GE challenges the trial court’s conclusion that Carrizo did not ratify
the first-party indemnity provision on the back of the FSO by paying the invoices
GE submitted. We agree with the trial court.
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“Ratification is the adoption or confirmation by a person with knowledge of
all material facts of a prior act which did not then legally bind him and which he
had the right to repudiate.” BPX Operating Co. v. Strickhausen, 629 S.W.3d 189,
196 (Tex. 2021). Ratification “is but an agreement, express or implied, by one to
be bound by the act of another performed for him.” Id. (quoting Dillingham v.
Anthony, 11 S.W. 139, 142 (Tex. 1889)); see Rhodes, Inc. v. Duncan, 623 S.W.2d
741, 744 (Tex. App.—Houston [1st Dist.] 1981, no writ) (“There can be no
ratification of an act which is not done in behalf of, and does not purport to bind,
the person against whom the doctrine of ratification is invoked.”).
Ratification can be express or implied. BPX Operating Co., 629 S.W.3d at
197. “Express ratification—in writing, for example—typically makes the parties’
intentions clear.” Id. A party claiming implied ratification must offer objective
evidence of intent, such as a party’s conduct. Id.; see Mo. Pac. R.R. v. Lely Dev.
Corp., 86 S.W.3d 787, 792 (Tex. App.—Austin 2002, pet. dism’d) (“Ratification
may be inferred by a party’s course of conduct and need not be shown by express
word or deed.”). “As with most objective inquiries, determining a party’s objective
intent requires an examination of ‘the totality of the circumstances.’” BPX
Operating Co., 629 S.W.3d at 197 (quoting State v. One (1) 2004 Lincoln
Navigator, 494 S.W.3d 690, 706 (Tex. 2016) (Devine, J., concurring)). “[I]mplied
ratification should be found only if the party’s actions ‘clearly evidenc[ed] an
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intention to ratify.’” BPX Operating Co., 629 S.W.3d at 197 (quoting Chrisman v.
Electrastart of Hous., Inc., No. 14-02-00516-CV, 2003 WL 22996909, at *5 (Tex.
App.—Houston [14th Dist.] Dec. 23, 2003, no pet.) (mem. op.)).
GE has not identified any evidence that Carrizo expressly ratified the first-
party indemnity provision on the back of the FSOs. Thus, it was GE’s burden to
prove implied ratification by providing clear evidence that Carrizo intended to
ratify this provision. GE has not done that. Weinstock testified that he reviewed the
FSOs and the information included with the company stamp for the purpose of
determining whether the charges should be paid. He testified that he did not
approve the FSOs, which were used to memorialize facts about what happened in
the field. Weinstock’s recommendations to pay and Carrizo’s payment of the
invoices is fully consistent with the other documents that comprise the parties’
contract—the quote, the invoices, and the OVRs. These three types of documents
used GE’s Standard Terms and Conditions that included only the third-party
indemnity provisions. GE has failed to prove that Carrizo had any intent to ratify
the first-party indemnity provision. Accordingly, we conclude that Carrizo did not
impliedly ratify the first-party indemnity provision printed on the back of the
FSOs. See BPX Operating Co., 629 S.W.3d at 197.
***
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Only the terms and conditions that accompanied the FSOs included the first-
party indemnity provision. Though the FSO satisfies the fair notice test, GE’s
indemnity argument fails for a much more fundamental reason: there was never a
meeting of the minds. See Baylor Univ., 221 S.W.3d at 635 (holding that contracts
require mutual assent to be enforceable); see also David J. Sacks, P.C. v. Haden,
266 S.W.3d 447, 450 (Tex. 2008) (“A meeting of the minds is necessary to form a
binding contract.”).
We overrule GE’s third issue.
Conclusion
Having overruled GE’s issues, we affirm the judgment of the trial court.
Peter Kelly
Justice
Panel consists of Chief Justice Adams, and Justices Kelly and Goodman.
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