Simmons v. Cudd Pressure Control

FILED
IN THE OFFICE OF THE
CLERK OF SUPREME COURT
JANUARY 21, 2022
STATE OF NORTH DAKOTA
IN THE SUPREME COURT
STATE OF NORTH DAKOTA
2022 ND 20Robert Todd Simmons, Plaintiff
v.
Cudd Pressure Control, Inc., Defendant, Appellant,
and Cross-Appellee
and
Specialized Technical Threading, Inc.;
Tillman & Associates, LLC; and
Robert R. Hoffpauir, Jr., Defendants
and
Murex Petroleum Corporation, Defendant, Third-Party Plaintiff,
and Appellee
v.
WISCO, Inc., Third-Party Defendant, Appellee,
and Cross-Appellant
No. 20210166
Appeal from the District Court of Williams County, Northwest Judicial
District, the Honorable Joshua B. Rustad, Judge.
REVERSED AND REMANDED.
Opinion of the Court by McEvers, Justice.
Paul V. Esposito (argued), Chicago, IL, and Monte L. Rogneby (appeared),
Bismarck, ND, for defendant, appellant, and cross-appellee.
Christopher A. Wills (argued), St. Cloud, MN, and Gordon H. Hansmeier (on
brief), St. Cloud, MN, for defendant, third-party plaintiff, and appellee.
William M. Hart (argued), Minneapolis, MN, and Paul R. Sanderson
(appeared), Bismarck, ND, and Julia J. Nierengarten (on brief), Minneapolis,
MN, for third-party defendant, appellee, and cross-appellant.
Simmons v. Cudd Pressure Control
No. 20210166
McEvers, Justice.
[¶1] Cudd Pressure Control, Inc. and WISCO, Inc. appeal from a judgment
entered in favor of Murex Petroleum Corporation in this personal injury case.
As between WISCO and Murex, the case presents the question of whether a
defense and indemnification provision in a contract applies. As between Cudd
and Murex, the case presents a question of whether the district court abused
its discretion when it sanctioned Cudd for spoliation of evidence. We conclude
the district court erred as a matter of law when it granted summary judgment
for Murex determining the defense and indemnification provision applied. We
also conclude the court abused its discretion when it sanctioned Cudd. We
reverse those portions of the judgment. Because the sanctions included an
adverse inference instruction against Cudd at trial that may have affected the
jury’s fault determination, we remand the case for a new trial on the issue of
fault apportionment.
I
[¶2] In 2011, Robert Simmons was injured when a pipe struck him while he
was working on an oil well. Murex was the operator of the well. Cudd and
WISCO were working on the well for Murex. Cudd was removing sections of
pipe from the well using a device called an elevator. Each section of the pipe
was wider at one end. Cudd was using the elevator to catch the wide portion
of the pipe and remove it from the wellbore. Simmons, who was employed by
WISCO, was struck by a section of pipe that slipped through the elevator and
fell to the ground. Cudd supplied the elevator, but it did not supply the pipe.
[¶3] Simmons sued Cudd, Murex, and other parties not relevant to this
appeal. Murex interpleaded WISCO and sued it for breach of contract claiming
WISCO breached its duty to defend Murex, and WISCO was obligated to
indemnify Murex, under a “Master Well and Lease Service Contract” (MSA)
Murex had with WISCO’s predecessor, Williston Industrial Supply. Cudd also
had an MSA with Murex, but Cudd’s MSA required Murex to defend and
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indemnify Cudd. Cudd brought a third-party defense and indemnification
breach of contract claim against Murex.
[¶4] The parties each filed cross motions for summary judgment concerning
their counterpart’s duty to defend and indemnify under the respective MSAs.
The district court held WISCO was bound by the MSA its predecessor had
signed, and it therefore had to defend and indemnify Murex. The court
determined Cudd’s MSA did not require Murex to defend and indemnify Cudd
if Cudd’s actions were grossly negligent. The court held there was a material
factual dispute as to whether Cudd acted with gross negligence, and the court
therefore denied the cross motions concerning Murex’s defense and
indemnification duties to Cudd.
[¶5] Murex moved for sanctions alleging Cudd spoliated evidence by changing
parts on the elevator after the accident, which Murex claimed made the portion
of the elevator that clasped the pipe smaller in diameter than it was when the
accident occurred. After a two-day evidentiary hearing, the district court
granted Murex’s motion. The court sanctioned Cudd by striking the defense
and indemnification provisions in the parties’ MSA and dismissing Cudd’s
defense and indemnification breach of contract claim against Murex.
[¶6] The case proceeded to trial. The district court gave an adverse inference
instruction advising the jury that Cudd had spoliated the elevator and the jury
could infer that had the elevator been produced in the condition it was at the
time of the accident, the elevator would not have been favorable to Cudd. Cudd
and Murex entered into high-low settlement agreements with Simmons before
the jury returned its verdict. The jury rendered a verdict in favor of Simmons
for $9,272,000. The jury apportioned 70% fault to Cudd, 15% to Murex, 10%
to WISCO, and 5% to Simmons. After trial, the court ordered WISCO to pay
Murex $1,360,550 in attorney fees and expenses based on the defense and
indemnity provision in the MSA. Cudd and WISCO now appeal challenging
the orders entered in favor of Murex.
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II
[¶7] We first turn to the issues raised by WISCO. WISCO argues it has no
duty to defend and indemnify Murex under the MSA in this case, and therefore
the award of attorney fees was improper. WISCO asserts it was not bound by
the MSA because it was not a party to the MSA, which was a contract between
Murex and WISCO’s predecessor, Williston Industrial. WISCO also argues
that even if it were bound by the MSA, the MSA does not apply in this case
because there was no written agreement for the work WISCO was doing at the
time of the accident, which is required under the MSA’s terms.
[¶8] We apply the following standard when reviewing a district court’s
summary judgment decision:
Summary judgment is a procedural device for the prompt
resolution of a controversy on the merits without a trial if there
are no genuine issues of material fact or inferences that can
reasonably be drawn from undisputed facts, or if the only issues to
be resolved are questions of law. A party moving for summary
judgment has the burden of showing there are no genuine issues
of material fact and the moving party is entitled to judgment as a
matter of law. In determining whether summary judgment was
appropriately granted, we must view the evidence in the light most
favorable to the party opposing the motion, and that party will be
given the benefit of all favorable inferences which can reasonably
be drawn from the record. On appeal, this Court decides whether
the information available to the district court precluded the
existence of a genuine issue of material fact and entitled the
moving party to judgment as a matter of law. Whether the district
court properly granted summary judgment is a question of law
which we review de novo on the entire record.
RTS Shearing, LLC v. BNI Coal, Ltd., 2021 ND 170, ¶ 11, 965 N.W.2d 40(quoting G&D Enters. v. Liebelt, 2020 ND 213, ¶ 5, 949 N.W.2d 853).
[¶9] WISCO argued it was not bound by the MSA because the obligations for
the MSA were not assigned to WISCO when it purchased the assets of Williston
Industrial. Murex disagrees arguing that under WISCO’s purchase agreement
with Williston Industrial, WISCO bought Williston Industrial’s interests in the
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MSA. Murex also claims WISCO should be estopped from claiming it is not
Williston Industrial because it did not inform Murex of the sale and it
continuously represented that it was Williston Industrial after the sale.
[¶10] Master service agreements typically provide a framework for future
work under subsequent contracts. Mobil Oil Corp. v. Schlumberger, 598 So.2d
1341, 1345 (Ala. 1992). The terms of a master service agreement are generally
incorporated into the subsequent contracts. Id. Some master service
agreements contemplate subsequent oral contracts; others require subsequent
written contracts. Compare Wallace v. Oceaneering Int’l, 727 F.2d 427, 437
(5th Cir. 1984) (master service agreement governed work performed “under
subsequent verbal and/or written work orders, at all times”), with Barkley, Inc.
v. Gabriel Bros., Inc., 829 F.3d 1030, 1034-35 (8th Cir. 2016) (master service
agreement required “written statement of work” for each project).
[¶11] We need not decide whether WISCO is bound by the MSA under any of
the theories advanced by Murex. Even if we were to assume WISCO is bound
by the MSA, the MSA does not apply based on the undisputed facts in this case.
The MSA specifically requires a subsequent written contract. It states:
This agreement shall control and govern all work performed
and services rendered by Contractor under subsequent written
supplemental agreements . . . referred to as “Service Agreements,”
. . . . No subsequent variance from . . . this agreement shall be
binding upon Murex unless it is in writing . . . .
The MSA also requires that “[e]ach Service Agreement shall be signed by
Murex and Contractor and shall be given a Service Agreement contract
number,” and the service agreement must “state with specificity the work
and/or services to be performed and the cost thereof.” It is undisputed that
Murex had never issued a written service agreement to WISCO and there was
no written service agreement for the job WISCO was doing on the day of the
accident. The court concluded a separate written agreement was required for
the MSA to apply, but it found WISCO “waived that requirement.”
[¶12] “A person may waive contractual rights and privileges to which that
person is legally entitled.” Sanders v. Gravel Prods., Inc., 2008 ND 161, ¶ 10,
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755 N.W.2d 826. Waiver requires a “voluntary and intentional relinquishment
or abandonment of a known advantage, benefit, claim, privilege, or right.” Id.Waiver may be established by express agreement or by inferences from acts or
conduct. Savre v. Santoyo, 2015 ND 170, ¶ 21, 865 N.W.2d 419. “Waiver may
be found from an unexplained delay in enforcing contractual rights or
accepting performance different than called for by the contract.” Id. (quoting
Pfeifle v Tanabe, 2000 ND 219, ¶ 18, 620 N.W.2d 167). Whether a waiver exists
is generally a question of fact, but it may be a question of law “if reasonable
persons could draw only one conclusion from the circumstances.” Sanders, at
¶ 10.
[¶13] We conclude the district court erred when it held the MSA applied in this
case. The court’s application of waiver constitutes a misapplication of the law.
The MSA only applies to work performed under a Service Agreement, which
the MSA states is a “subsequent written supplemental agreement.” However,
Murex was not obligated to issue a separate written agreement, and WISCO
was not contractually entitled to it. The MSA specifically “does not obligate
either Murex or Contractor to enter into any Service Agreement with the
other.” Consistent with the MSA and the undisputed facts in this case, Murex
could engage WISCO by an oral agreement to provide oilfield services. In this
situation, the MSA is not implicated. For waiver to occur, there must be
relinquishment of some right or privilege to which a party is entitled. WISCO
was not contractually entitled to demand a separate written agreement and
trigger application of the MSA. Because the MSA does not apply, the court’s
award of attorney fees, which was based on the defense provision in the MSA,
is erroneous and we vacate it.
III
[¶14] We turn to the issues raised by Cudd. Cudd argues the district court’s
finding that it spoliated evidence is not supported by the record. Cudd also
asserts the court’s sanctions are unduly harsh.
[¶15] The district court made findings of fact based on evidence admitted
during an evidentiary hearing. We will not reverse a district court’s findings
of fact made after an evidentiary hearing unless they are clearly erroneous.
5
See Great Plains Royalty Corp. v. Earl Schwartz Co., 2021 ND 62, ¶ 10, 958
N.W.2d 128; see also N.D.R.Civ.P. 52(a)(6). “A finding of fact is clearly
erroneous if it is induced by an erroneous view of the law, if there is no evidence
to support it, or if, after reviewing all of the evidence, this Court is convinced
a mistake has been made.” Gimbel v. Magrum, 2020 ND 181, ¶ 5, 947 N.W.2d
891 (quoting Larson v. Tonneson, 2019 ND 230, ¶ 10, 933 N.W.2d 84). We
review a district court’s decision to impose sanctions for spoliation of evidence
for an abuse of discretion. Fines v. Ressler Enters., Inc., 2012 ND 175, ¶ 7, 820
N.W.2d 688. “A court abuses its discretion when it acts in an arbitrary,
unreasonable, or unconscionable manner, or when it misinterprets or
misapplies the law.” Lind v. Lind, 2014 ND 70, ¶ 12, 844 N.W.2d 907.
[¶16] Spoliation of evidence occurs when a party destroys or fails to preserve
evidence. Ihli v. Lazzaretto, 2015 ND 151, ¶ 8, 864 N.W.2d 483. The district
court has inherent power to sanction a party for spoliating evidence. Id. The
purpose of imposing sanctions for spoliating evidence is to penalize the party
who spoliated the evidence, to protect the integrity of the legal process by
“evening the playing field,” and to prevent others from engaging in similar
conduct. Fines, 2012 ND 175, ¶ 8. We have recognized the duty to preserve
evidence arises “when litigation is reasonably foreseeable.” Ihli, at ¶ 8. See,
e.g., Fines, at ¶ 7. See also Miller v. Lankow, 801 N.W.2d 120, 127-28 (Minn.
2011) (“The duty to preserve evidence exists not only after the formal
commencement of litigation, but whenever a party knows or should know that
litigation is reasonably foreseeable.”). There must be notice that the evidence
is relevant to the litigation. See Bachmeier v. Wallwork Truck Ctrs., 507
N.W.2d 527, 532 (N.D. 1993) (stating sanctions may be appropriate for the
destruction of evidence relevant to a lawsuit); see also Kronisch v. United
States, 150 F.3d 112, 126 (2d Cir. 1998). Notice of relevancy may be express,
which occurs “most commonly when suit has already been filed,” or it may be
implied by the circumstances. Id. Determining when the duty to preserve
evidence arises is generally a question of fact requiring the district court to
“confront the myriad factual situations inherent in the spoliation inquiry.”
Mont. State Univ.-Bozeman v. Mont. First Judicial Dist. Ct., 426 P.3d 541, 552
(Mont. 2018).
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[¶17] The district court found Cudd failed to preserve the elevator on the day
of the accident and “every day thereafter.” The court also found Cudd’s duty to
preserve evidence arose when Simmons filed this lawsuit—a finding Murex
does not challenge. The court concluded the only “assessment/evaluation that
the court can make from the evidence presented is that possibly there was
spoliation of the evidence, by cleaning, repairing and/or replacing parts of the
elevator.” The court noted that additional evidence would have been helpful in
making its ruling. The court found it was not possible to determine when the
repairs and replacements occurred because the elevator was cleaned and Cudd
hid it for a period of time after the lawsuit was filed. The court made no finding
as to when the elevator was cleaned. As to the repairs and installation of
replacement parts, the court found they occurred “sometime after Plaintiff ’s
accident,” but the court made no finding specifically as to when.
[¶18] Whether the elevator was altered before or after Cudd’s duty to preserve
evidence arose is an essential question. Sanctionable spoliation cannot occur
prior to the existence of the duty to preserve evidence. Mont. State Univ.-
Bozeman, 426 P.3d at 552 (“Sanctionable spoliation occurs only upon the
breach of a duty to preserve the subject evidence.”); Micron Tech., Inc. v.
Rambus Inc., 645 F.3d 1311, 1320 (Fed. Cir. 2011) (“a party can only be
sanctioned for destroying evidence if it had a duty to preserve it”); Kronisch,
150 F.3d at 126 (“In order for an adverse inference to arise from the destruction
of evidence, the party having control over the evidence must have had an
obligation to preserve it at the time it was destroyed.”). Because the district
court was unable to make a finding on this record as to whether the alterations
occurred before or after Cudd’s duty to preserve evidence arose, we conclude it
erred as a matter of law when it imposed sanctions for spoliation.
[¶19] Along with dismissing Cudd’s claim against Murex for defense and
indemnification, the district court also gave the jury an adverse inference
instruction against Cudd. The instruction advised the jury the court had
“determined that Cudd spoliated the elevator” and without the modifications
the jury could infer “the elevator would not have been favorable to Cudd.”
Because the court’s determination that sanctionable spoliation occurred was
erroneous, the adverse inference instruction should not have been given. The
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jury apportioned 70% fault to Cudd. It is possible the adverse inference
instruction prejudiced Cudd and affected the jury’s fault determination.
Although the amount of the verdict is not implicated by this error, a new jury
trial is necessary to apportion fault.
IV
[¶20] The parties’ remaining arguments are not necessary to our decision. The
judgment is reversed in part, the award of attorney fees is vacated, Cudd’s
breach of contract claim against Murex for defense and indemnification is
reinstated, and the case is remanded for a new trial on the issue of fault
apportionment between Cudd, Murex, and WISCO.
[¶21] Jon J. Jensen, C.J.
Gerald W. VandeWalle
Daniel J. Crothers
Lisa Fair McEvers
Jerod E. Tufte
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