Matador Production Company v. Weatherford Artificial Lift Systems, Inc.

In The
Court of Appeals
Sixth Appellate District of Texas at Texarkana
No. 06-14-00015-CV
MATADOR PRODUCTION COMPANY, Appellant
V.
WEATHERFORD ARTIFICIAL LIFT SYSTEMS, INC., Appellee
On Appeal from the 71st District Court
Harrison County, Texas
Trial Court No. 07-0808
Before Morriss, C.J., Carter and Moseley, JJ.
Opinion by Justice Moseley
OPINION
Matador Production Company (Matador) is engaged in the business of drilling for and
producing oil and natural gas. In 2006, Matador drilled a natural gas well designated by it as the
Cindy Gas Unit No. 3, Woodlawn (Cotton Valley) Field, API No. 42-203-33549, situated in the
H. Martin Survey, Abstract No. 431 of Harrison County (Cindy #3). As Cindy #3 was nearing
its total depth, Matador engineers began to design a plan to stimulate the well by hydraulic
fracturing (fracking)—an operation designed to loosen or break up tight hydrocarbon-bearing
formations, thus causing the formations to have more permeability and to thus achieve greater oil
or natural gas production. See Geo Viking, Inc. v. Tex-Lee Operating Co., 817 S.W.2d 357, 359
(Tex. App.—Texarkana 1991), writ denied, 839 S.W.2d 797 (Tex. 1992) (per curiam).
The first step in a fracking operation involves pumping a particular kind of fluid (frac
fluid) down a well at extremely high pressure by means of pressure pumps so that the fluid is
forced into the tight rock formation, creating cracks in the rock that propagate along the azimuth
of natural fault lines. Coastal Oil & Gas Corp. v. Garza Energy Trust, 268 S.W.3d 1, 6 (Tex.
2008). Following the insertion of the frac fluid, a thick gel containing proppants (such as sand)
is inserted under extreme pressure through perforations in the casing into the producing
formation. See id.; Geo Viking, 817 S.W.2d at 359. The proppants lodge themselves in the
cracks, propping them open against enormous subsurface pressure. Coastal Oil, 268 S.W.3d at
6–7. Next, a delayed release gel breaker is added to the frac fluid. In the final flush stage,
another gel breaker is used to convert the thick gel into a liquid. All of the fluid is then drained,
leaving only the proppants behind so that the cracks created by the pressurized elements remain
2
open for gas or oil to flow to the wellbore. Id. at 7. For each particular well, engineers design a
fracking operation by “selecting the injection pressure, volumes of material injected, and type of
proppant to achieve a desired result based on data regarding the porosity, permeability, and
modulus (elasticity) of the rock, and the pressure and other aspects of the reservoir.” Id.
Matador engineers hired independent contractor, Weatherford Artificial Lift Systems,
Inc. (Weatherford), to carry out the designed fracking operation, even though they had never
worked with Weatherford before. On February 6, 2007, Weatherford performed a hydraulic
fracture treatment operation for Matador at Cindy #3 (frac job). Citing problems in the fracking
operation, Matador refused to pay for the frac job, after which Weatherford (1) filed a suit on
sworn account, verified by Senior Credit Manager at Weatherford, Lisa Shinsky, alleging that the
principle balance due on the account was $314,034.83; (2) asserted, in the alternative, a breach
of contract cause of action; and (3) sought attorney fees under both theories of recovery.
In its answer to Weatherford’s lawsuit, Matador (1) filed a verified response wherein it
maintained that the balance which Weatherford alleged was incorrect because it included charges
for services that were not provided and that lawful offsets, payments, and credits had not been
taken into account; (2) alleged that Weatherford was negligent in performing the frac job, that
the frac job failed to properly stimulate the well, and that resulting damage to the well caused
economic damage to Matador in the amount of $2,374,900.00; and (3) asserted causes of action
for breach of contract, breach of the common-law duty to act with reasonable skill and diligence
so as not to cause injury to Matador’s property, and breach of the implied warranty of good and
3
workmanlike performance of services. In response to Matador’s allegations, Weatherford
asserted the affirmative defense of release from its contractual obligations.
Weatherford filed a motion for partial summary judgment on its sworn account cause of
action, which was granted by the trial court without a hearing. After a lengthy trial on
Weatherford’s remaining breach of contract claim and Matador’s counterclaims, a jury found
(1) that Weatherford materially breached the contract governing the frac job, (2) that
Weatherford’s breach was excused because Matador waived compliance with the contract and
released Weatherford from any liability arising from the contract, (3) that Matador breached the
contract by failing to pay for the services that Weatherford had rendered, and (4) that
Weatherford should be awarded $314,034.83 in actual damages and $58,000.00 in attorney fees.
Prior to entry of judgment, Weatherford sought additional attorney fees for prosecuting the
summary judgment on its suit on sworn account claim. In its final judgment, the trial court
awarded Weatherford $314,034.83 in actual damages, $32,229.00 in attorney fees for
representation in connection with its summary judgment motion, $58,000.00 in attorney fees
incurred in pursuing the balance of its case to trial, along with an additional $1,000.00 in
attorney fees should Matador pursue a motion for new trial, and a further $10,000.00 should
Matador pursue an unsuccessful appeal.
As it argued to the trial court in a motion for new trial, Matador argues on appeal (1) that
the trial court erred in granting Weatherford’s motion for partial summary judgment on its sworn
account claim, (2) that the trial court admitted unauthenticated and irrelevant documents at trial,
(3) that the trial court erred in entering judgment for Weatherford since the jury determined that
4
Weatherford had materially breached the contract, (4) that the evidence was legally and factually
insufficient (a) to support the jury’s determination that Weatherford’s breach was excused by
waiver and release, and (b) to support the jury’s award of the full amount of the invoice, (5) that
the trial court erred in awarding $58,000.00 in attorney fees incurred during trial because
Weatherford failed to segregate between fees incurred in connection with its claims and fees
incurred in connection with defending against Matador’s counter-claim, and (6) that the trial
court erred in granting Weatherford’s post-verdict motion for additional attorney fees.
We find that the trial court erred in granting Weatherford’s motion for partial summary
judgment on the sworn account claim. We also find that the trial court erroneously admitted
documents that were (1) relied on by the judge in excluding evidence of Matador’s economic
losses and (2) relied on by the jury in entering its verdict in favor of Weatherford. Based on our
disposition of these dispositive matters, we reverse the trial court’s judgment and remand the
matter for further proceedings consistent with our opinion.
I. Summary Judgment on Weatherford’s Sworn Account Claim Was Improper
We review de novo the grant of a motion for summary judgment. Mann Frankfort Stein
& Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex. 2009). “The party moving for
traditional summary judgment bears the burden of showing no genuine issue of material fact
exists and it is entitled to judgment as a matter of law.” Id. (citing TEX. R. CIV. P. 166a(c)). We
review the summary judgment evidence “in the light most favorable to the party against whom
the summary judgment was rendered, crediting evidence favorable to that party if reasonable
jurors could, and disregarding contrary evidence unless reasonable jurors could not.” Id. (citing
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City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005); Johnson v. Brewer & Pritchard,
P.C., 73 S.W.3d 193, 208 (Tex. 2002)).
Weatherford’s motion for partial summary judgment attached, among other things, (1) an
invoice for $314,034.83; (2) an unsigned “Stimulation Recommendation” (which constituted the
contract between Matador and Weatherford for the frac job); (3) a Master Service Agreement
(MSA) between Matador and Weatherford—through its parent company, Weatherford
International, Ltd.—that was signed after the frac job took place; (4) a handwritten fax from
Weatherford employee, Rick Schrader, to Matador employee, Ryan London, attempting to
explain shortcomings (which we later detail) that occurred during the frac job; and (5) excerpts
from the deposition of Matador petroleum engineer, Bradley Robinson, stating that Weatherford
performed a frac job that stimulated the well and that there was no dispute regarding the
previously agreed-upon price for the operation.
Matador’s response to the motion for summary judgment argued that it was charged for a
fully completed frac job as contemplated by the Stimulation Recommendation, even though
Weatherford failed to provide all of the services required by that Stimulation Recommendation
and the services actually provided were not conducted in a good and workmanlike manner.
Specifically, Matador argued that Weatherford failed to comply with the Technical
Specifications portion of the Stimulation Recommendation because (1) it called for use of 290
gallons of a delayed-release gel breaker, but a post-job inventory reflected that only ten gallons
were used, (2) although under the Stimulation Recommendation Weatherford was to use 750,000
pounds of proppant, the amount used fell short by almost 100,000 pounds, and (3) although
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under the Stimulation Recommendation Weatherford was called upon to perform eight stages
during the frac operation, it did not perform the first four in time to effectively work and never
began the eighth stage. Thus, Matador argued that summary judgment on the sworn account was
improper because Weatherford could not prove as a matter of law that all of the charges included
in the invoice were just and due.
Matador also argued that (1) because Weatherford did not complete the contract, it had
the duty to show that it substantially performed under the Stimulation Recommendation to
recover and (2) assuming that substantial compliance was shown, Weatherford was only entitled
to receive the amount of the contract less the cost of remedying the defects in performance of
that contract. In support of its response, Matador attached (1) the affidavit of Matador’s
petroleum engineer, Ryan London, who observed and assessed the work performed by
Weatherford during the frac job, (2) the pre-frac and post-frac chemical inventory lists showing
the materials actually used during the job, (3) a letter written immediately after the frac job from
Weatherford’s field engineer, Chris Fancher, to London attempting to explain and apologizing
for the problems encountered during the frac job, (4) Weatherford’s own internal job problem
report, and (5) additional excerpts from Robinson’s deposition in which he explained
Weatherford’s various shortcomings and suggested that the invoice charged sums for products
and services not provided.
In order to determine whether there is a genuine issue of material fact on Weatherford’s
sworn account claim, we examine the history of the project, review the Stimulation
Recommendation and the anticipated charges that it contained, compare Weatherford’s
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performance to the contract, and determine whether the evidence raised genuine issues of
material fact as to whether the charges on the itemized invoice were just, true, and due, and
whether the evidence accounted for all lawful offsets. 1
Matador owned nearby wells in the same field and formation as Cindy #3. The other
completed wells were producing more natural gas than Cindy #3, prompting Matador’s decision
to stimulate it by fracking. Matador’s Robinson testified that Cindy #3 should produce at similar
levels as nearby Cindy #2, if properly stimulated. Petroleum engineers London and Mike
Earnest agreed with Robinson’s prediction as to the anticipated results from a fracking operation
and formulated the design for the frac job with Robinson and Weatherford. After receiving the
design, Weatherford created a Stimulation Recommendation for the frac job; as stated before,
this Stimulation Recommendation constituted the contract that governs this dispute.
1
“Generally, pleadings are not competent evidence, even if sworn or verified.” Livingston Ford Mercury, Inc. v.
Haley, 997 S.W.2d 425, 431 (Tex. App.—Beaumont 1999, no pet). The exception to the general rule, of course, is
found in a suit on sworn account. Id. Rule 185 of the Texas Rules of Civil Procedure (the Rule governing suits on
sworn accounts) states,
When any action or defense is founded upon an open account . . . including any claim for a
liquidated money demand based upon written contract or founded on business dealings between
the parties, or is for personal service rendered, or labor done or labor or materials furnished, . . .
and is supported by the affidavit of the party, his agent or attorney taken before some officer
authorized to administer oaths, to the effect that such claim is, within the knowledge of affiant,
just and true, that it is due, and that all just and lawful offsets, payments and credits have been
allowed, the same shall be taken as prima facie evidence thereof, unless the party resisting such
claim shall file a written denial, under oath. . . . No particularization or description of the nature of
the component parts of the account or claim is necessary unless the trial court sustains special
exceptions to the pleadings.
TEX. R. CIV. P. 185. “It is settled . . . that a defendant’s verified denial of the correctness of a plaintiff’s sworn
account in the form required by Rule 185 destroys the evidentiary effect of the itemized account attached to the
petition and forces the plaintiff to put on proof of his claim.” Rizk v. Fin.. Guardian Ins. Agency, Inc., 584 S.W.2d
860, 862 (Tex. 1979); see So. Mgmt. Servs., Inc. v. SM Energy Co., 398 S.W.3d 350, 353 (Tex. App.—Houston
[14th Dist.] 2013, no pet.).
8
The goal of the Stimulation Recommendation, dated February 2, 2007, was to complete
sixty perforations, each measuring .38 inch into the hydrocarbon-bearing formation in Cindy #3.
Because fracking is a time-sensitive procedure, the Stimulation Recommendation contained eight
separate treatment stages. Each stage of the procedure was to be completed in a particular
sequence of time with a total pump time of a little over three hours. Among other items listed,
the Treatment Specifications contemplated use of 750,000 pounds of proppant, 40 gallons of
WBK-137L delayed-release gel breaker to be used during the second “pad” stage, 250 gallons of
WBK-137L delayed-release gel breaker to be used during the third through seventh “proppant”
stages, 10 pounds of WBK-133 gel breaker to be used in the final “flush” stage, and 460,000
gallons of fresh water. The Stimulation Recommendation contained a detailed and itemized
price estimate based on Weatherford’s Price Book totaling $297,408.28 for the frac job.
Robinson testified that Matador was aware of the approximate cost of the project and that the
price estimate in the Stimulation Recommendation was not disputed.
Although the parties had agreed to a plan of operation, the words of the Scottish poet,
Robert Burns, describe what can happen:
The best laid schemes o’ Mice an’ Men,
Gang aft agley,
An’ lea’e us nought but grief an’ pain,
For promis’d joy!
London’s affidavit, detailed below, best explains the issues that arose:
Based upon information provided by Weatherford, we designed a fracture
stimulation treatment that utilized 160,000 gallons of Weatherford’s “DynaFrac
35 HT” for the initial pad, followed by 250,000 gallons of Weatherford’s
“DynaFrac 30HT” for the five proppant stages of the fracture stimulation. The
design called for 750,000 pounds of proppant to be pumped into the Cotton
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Valley formation at the bottom of the well that Matador had drilled, and for that
proppant to be transported by Weatherford’s “DynaFrac30HT” frac fluid in
accordance with a written treatment schedule and final specifications. The
fracture stimulation treatment was scheduled for February 6, 2007. On that day, I
arrived at the site of the Cindy #3 well at 7:45 a.m., as I was to supervise the
treatment on behalf of Matador. Before any work was commenced,
Weatherford’s fluid tech for the job, Josh Pillow, and I confirmed in the presence
of one another that there were sufficient quantities of each chemical component
required to complete the fracture stimulation treatment in accordance with the
latest specifications. Both Josh Pillow and I also confirmed that there were
sufficient quantities of fresh water and proppant (sand) to complete the job.
One of the critical components of a successful fracture stimulation
treatment is a chemical known as a “delayed-release breaker.” The “delayed
release breaker” is added to frac fluid in order to ensure that the fluid converts
from a thick crosslinked chemical gel into a liquid. Specifically, the chemical
inventory confirmed that Weatherford had 330 gallons of a delayed release gel
breaker, named WBK-137, located on the “driver” side of Weatherford’s
chemical trailer. . . .
After a safety meeting, after Weatherford confirmed that it had tested its
equipment, and after Weatherford had completed the first stage of the fracture
stimulation treatment and determined that the well had broken (the rock had
fractured) and was ready for treatment, Weatherford commenced “stage 2” of the
fracture stimulation treatment on the Cindy #3 well. “Stage 2” involved pumping
what is known as the “pad,” consisting of Weatherford’s “DynaFrac 35” fluid,
into the fractured rock to open pathways for the proppant that was to be
permanently installed in the fracture. After approximately one-third of the initial
pad stage had been pumped down the well, one of Weatherford’s chemical pumps
stopped pumping. The failed chemical pump was supposed to pump “gel
stablilizer”—a critical component of Weatherford’s “DynaFrac” fluid.
Approximately 45 minutes later, Weatherford re-started the pad stage. During the
second attempt to complete the pad stage, Weatherford began to experience
problems with the chemical pump used to add “cross linker”—another critical
component of Weatherford’s “DynaFrac” fluid. By the time Weatherford
completed the initial pad stage, and after two chemical pump failures, it had
pumped almost 500 more barrels of fluid into the Cindy #3 well than had been
called for. This was in excess of a full (19-20,000 gallon) tank of fresh water.
Weatherford finished the pad stage after two hours (Weatherford’s
treatment schedule called for the pad stage to consume only one hour), and began
the ensuing stages, known as the “proppant” stages of the fracture stimulation
treatment. During these stages, Weatherford’s “DynaFrac30” fluid was to be
pumped into the fractured formation, laden with increasing quantities of proppant
that was to be permanently installed in the well. The “DynaFrac 30” fluid was
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designed to include specific quantities of the delayed release gel breaker, named
WBK-137, that I mentioned above. The delayed-release gel breaker is an
essential component of the fluid, in that it causes the fluid to convert from a
viscous cross-linked gel that will transport proppant into the fractured rock into a
fluid that will, upon withdrawal from the rock leave the proppant behind in the
fractured rock. Without an adequate breaker, a fracture stimulation treatment
cannot be completed successfully, because the proppant that is pumped into the
fractured formation will flow back out with the cross-linked gel.
Weatherford completed the first four proppant stages of the fracture
stimulation treatment, and commenced to complete the fifth proppant stage. The
technical specifications for the fifth proppant stage provided to Matador by
Weatherford called for Weatherford to pump 50,000 gallons of “DynaFrac 30”
fluid laden with 5 pounds of proppant per gallon into the fractured rock. While
Weatherford was attempting to complete the fifth proppant stage, Weatherford’s
pumps started sucking air, and it became necessary to prematurely stop pumping
proppant and to immediately begin to flush the well. As a result, Weatherford
was unable to complete the fifth and final proppant stage of the fracture
stimulation treatment, and approximately 18,000 pounds of proppant and
unbroken “DynaFrac 30” that Weatherford was supposed to pump into the
fractured rock remained inside the well casing of the Cindy #3. An additional 60-
65,000 pounds of proppant called for in the technical specifications was never
pumped at all. Weatherford also did not complete the final, or “flush” stage of the
fracture stimulation treatment, as it ran out of water.
After Weatherford shut down, at 4 o’clock p.m., we opened the well in an
attempt to flow the proppant and frac fluid out of the well bore. I observed that
the well was flowing back proppant-laden, cross-linked fluid—the gel had not
broken. We continued to flow the well back for almost eight hours, before the
cross-linked fluid finally broke. It was clear that Weatherford had either failed to
pump the required quantity of delayed-release gel breaker into its “DynaFrac 30”
frac fluid, or that the gel breaker that it did pump did not work. As a result, the
fracture stimulation treatment was incomplete, and failed.
After Weatherford completed its work, Josh Pillow and I inventoried the
same chemical tanks that we had inventoried before work was commenced. He
and I both observed that the chemical tote that was carrying 330 gallons of
WBK137 gel breaker before work commenced, still had 320 gallons of WBK 137
in it after Weatherford shut down.
. . . Chris Fancher, Weatherford’s field engineer . . . apologized for the
poor quality service provided on Matador’s Cindy #3 well.
Robinson suspected that Weatherford’s “chemical pumps and meters were not working
properly as was documented throughout the job by [Weatherford’s] own people; and therefore, it
11
wasn’t pumped correctly. . . .[t]hroughout the entire treatment.” According to Robinson, because
the proper amount of delayed-release gel breaker was not used, the gel did not break down the
viscosity of the frac fluid on time. The gel, which was supposed to break “in a matter of a few
minutes,” did not fully break even after five or six hours. Thus, the frac fluid carried “many tens
of thousands of proppant out of the wellbore” during the flowback period, resulting in “a very
short, defective and low conductivity fracture.” Robinson explained another problem:
[Y]ou want the fluids to flow out of the formation so the gas can follow it and
start producing. But if the fluids stay in the formation, then the gas can’t flow.
....
. . . . Some of the gel is broken, but the total amount of water that was recovered
was much less than we expected. So, we do believe there’s still quite a bit of gel
back out in the formation.
He also added, “Apparantly the flow meters that Weatherford had on location were not properly
calibrated; so, we were pumping a different amount of water than we thought. . . . [W]e ran out
of water and had to shut down the job prematurely.”
Fancher’s letter to Matador attempted to explain the errors that occurred and apologized
on Weatherford’s behalf. It stated,
After the safety meeting, everyone got into position and our lines were tested to
max pressure plus 1,000 psi. There was a small leak found when the pressure
reached 7,000 psi. We bled the lines down to replace an “O” ring. . . .
After obtaining the information from our step-rate test, we determined that
there were approximately 39 of 60 perforations open . . . .
After the step-rate test, we began pumping again. We . . . began our pad
state. During this stage we ran into mechanical problems with one of the
chemical pumps on our Hydration Unit. This pump was pumping our WGS-160L
(Gel Stabilizer) and it was a crucial part of our Fluid System. We tried to correct
this problem without having to shut-down, but were unsuccessful. . . . After
shutting down for approximately 45 minutes, we corrected our pump problems
12
and began pumping again. Since we had been down for 45 minutes, and weren’t
sure how soon the fluid would break without any WGS-160L it was determined
that we would re-start our pad stage. As we were approaching the end of the pad
stage, our surface cross linker (WXL-105L) pump on our Hydration Unit began to
fluctuate. We got a fluid sample from our Blender and determined that the cross
link fluid was not cross linking in the time frame we needed. . . .
We continued with the stimulation based on the designed treatment
specifications. We had some minor problems with our surface cross linker
(WXL-105L) continuing to fluctuate. As the job went on, we were able to steady
the rate. As you will see on the charts, we also periodically lost rate on our WGS-
160L (Gel Stabilizer) due to pump losing prime when swapping from an empty
tote to new tote.
As we approached our 5.00 ppg sand laden stage, there was some concern
about our amount of clean fluid remaining. . . . At 1,220 bbls into our final sand
stage, we determined that we needed 391 bbls to complete the job. . . .
After we shut-down, our Fluid Technician physically strapped all water
tanks. We found that the first 10 tanks from the mouth of location all had at least
20 inches of clean fluid remaining, which was approximately 660 bbls. However,
because of the way the tanks were leaning, this fluid was unrecoverable . . . .
....
Weatherford Fracturing Technologies appreciates the opportunity to
provide stimulation services on this well. We would also like to apologize for all
the problems we encountered during this job and any problems to your scheduling
that this may have caused. At Weatherford, we strive to have the highest quality
possible on all our jobs, we are sorry that this was not the case for you. We only
hope that in the future we are able to give you the service that you require and
deserve.
A job problem report produced by Weatherford listed the following issues: (1) the
“Chemical Pumps on Hydration Unit would not pump,” (2) “Hose from Gel Transport to
Hydration Unit gelled off, lost gel to Hydration unit,” and (3) “Ran out of water to hydration unit
- lost charge, could not flush.” The report also showed that Weatherford failed to pump 50,000
pounds of the required 750,000 thousand pounds of proppant. The report stated that the
13
problems were caused due to “lack of experience,” improper maintenance of the chemical pumps
on the hydration unit, and failure to clean the gel hoses from prior jobs.
Robinson testified,
Initially, [London] told me that we only pumped 10 gallons of gel breaker based
on his pre-job and post-job chemical inventories, which he performed out in the
field. Several days later, we received some information from Weatherford where
they claimed to have another tank of chemical on location that the breaker was
pumped from. They never showed that to [London]. He physically inventoried
the trailer where this other tank was supposed to be, and he didn’t see it, it was
never pointed out to him. Several days after the treatment, we were told, oh, it
was out there and that’s what we pumped the chemical from.
According to Robinson, while “the fracture treatment did partially stimulate the well and
increase production[,] . . . . it was confirmed that the fracture was not as effective . . . based on
the actual history of the well and the pressure buildup test . . . .” Simply put, Cindy #3 was not
competing with Cindy #2 because “the effective fracture length . . . in the Cindy #3 [wa]s so
short . . . .” As a result, according to Robinson, Cindy #3 was “not going to pay for itself” as it
would have done had it been properly stimulated.
Weatherford’s pre-job chemical inventory list, bearing Pillow’s name, confirmed the
product amounts mentioned in London’s affidavit. The post-job chemical inventory list
confirmed that while the Stimulation Recommendation called for the use of 250 gallons of
WBK-137L delayed-release gel breaker and Weatherford had brought 330 gallons of it to the
job, only 10 gallons of WBK-137L were actually used during the frac job. However, the invoice
showed that Matador was charged for 162 gallons (not 10 gallons) of WBK-137L delayed-
release gel breaker. Even though the job problem report stated that only 700,000 pounds of
14
proppant were used, the invoice showed that Matador was charged for 750,120 pounds of
proppant.
Robinson stated,
I would dispute that [Weatherford] adequately performed a lot of those services or
delivered some of those chemicals to us, so, . . . .
....
[M]y position is that [Matador] would be willing to pay Weatherford some
amount of money for bringing their equipment out there and all their people, a fair
price based on a mutually-agreeable amount. You know, you [Weatherford] did
perform a service as you pointed out, the well is producing something.
However, in light of all of the issues with the frac job, Matador’s President, Joe Foran, decided
not to pay the invoice.
On appeal, Weatherford argues that the partial summary judgment is proper because
Matador knew what the job would cost, Weatherford performed the frac job and submitted a bill,
and Matador refused to pay the bill. However, Weatherford does not argue that it was authorized
to charge for materials that it did not actually provide to Matador. Weatherford’s suit on sworn
account was brought for goods and services actually rendered. “[W]here the services or
material[s] furnished under a contract are defective due to the negligence or fault of the party
contracting to furnish them, the other party to the contract should be allowed an off-set against
the amount due under the contract, for repairing the damages caused by the defect.” Augusta
Dev. Co. v. Fish Oil Well Servicing Co., 761 S.W.2d 538, 545 (Tex. App.—Corpus Christi 1988,
no writ).
15
At a minimum, viewing the evidence in a light most favorable to Matador, we find that
the summary judgment evidence created a fact issue regarding the amount of materials that were
actually provided versus the amount of materials Weatherford claimed it provided and for which
it charged Matador. Therefore, because there was a genuine issue of material fact as to whether
the full amount of the final invoice was just, true, and due and whether it accounted for lawful
offsets, we conclude that Weatherford did not establish its right to summary judgment on the
sworn account claim as a matter of law. See Mega Builders, Inc. v. Am. Door Prods., Inc., No.
01-12-00196-CV, 2013 WL 1136584, at *7–8 (Tex. App.—Houston [1st Dist.] Mar. 19, 2013,
no pet.) (mem. op.); Thorp v. Adair & Myers, 809 S.W.2d 306, 307–08 (Tex. App.—Houston
[14th Dist.] 1991, no writ); Evans Advertising Agency, Inc. v. Morphew, 525 S.W.2d 56, 58–59
(Tex. Civ. App.—Tyler 1975, no writ). We sustain Matador’s first point of error.
II. Admission of Terms and Conditions and MSA Was Harmful Error
The price estimate page of the Stimulation Recommendation stated (in a font so very
small that it is extremely difficult to read),
Weatherford . . . will provide the requested equipment, materials or services to its
customer. Such provision shall be governed by the terms and conditions of the
applicable master service agreement between the parties. In the event that there is
no such master service agreement, Weatherford’s standard terms and conditions, a
copy of which can be found at www.weatherford.com/t&c shall be applicable to
the provision of such equipment, materials or service. (A paper copy of these
standard terms and conditions will be provided to you upon written request.).
During Robinson’s deposition, the terms and conditions which Weatherford asserts were printed
out from its website, were attached to the Stimulation Recommendation for use as a deposition
16
exhibit. The terms and conditions contained the following liability-limiting provisions, among
others:
Customer will pay all of Weatherford’s costs, Including attorney’s fees and court
costs, incurred in connection with the collection of past due amounts from
Customer. (C) NO CONSEQUENTIAL DAMAGES: WEATHERFORD WILL
NOT BE RESPONSIBLE FOR INCIDENTAL OR CONSEQUENTIAL
DAMAGES OF ANY KIND, WHICH SHALL INCLUDE BUT NOT BE
LIMITED TO, LOSS OF REVENUE, PROFITS OR ANTICIPATED PROFITS,
LOSS OF BUSINESS OPPORTUNITY, LOSS OF PRODUCTION, DAMAGES
FOR FAILURE TO MEET DEADLINES . . . (“CONSEQUENTIAL
DAMAGES”).
(A) Weatherford uses its best efforts to ensure that all Service personnel furnished
are competent and that Equipment is in good condition. Weatherford personnel
will attempt to perform the work requested; however, because of the nature of the
work to be accomplished and unpredictable conditions, such results cannot be and
are not guaranteed. . . . (B) Customer will pay Weatherford for the Equipment
and/or Services whether or not the desired results are achieved without any
deduction or offset of any kind, irrespective of any Claims which Customer may
assert or allege against Weatherford . . . , at the rates indicated in the Price Book
in effect at the time of delivery . . . . All rates and/or charges for Equipment
and/or Services are subject to change by Weatherford without notice and
Customer will be invoiced at the rental or Service rates in effect at the beginning
of the invoice period. (C) Customer agrees that all charges are due and payable
within 30 days from the date of the invoice, . . . . (D) Customer agrees that any
employee(s) furnished to Customer by Weatherford shall not be responsible for
any final decision made on any job. Rather, Customer shall retain complete
control and supervision of the well and performance or operations in and about
the well. (E) WEATHERFORD MAKES NO WARRANTY OR
REPRESENTATION, EXPRESS OR IMPLIED, AS TO THE DESIGN,
OPERATION, CONDITION OR QUALITY OF THE MATERIAL OR
WORKMANSHIP OF EQUIPMENT DELIVERED TO CUSTOMER
HEREUNDER, AND WEATHERFORD MAKES NO WARRANTY OF
MERCHANTABILITY OR FITNESS OF THE EQUIPMENT FOR ANY
PARTICULAR PURPOSE OR ANY OTHER REPRESENTATION OR
WARRANTY WHATSOEVER, IT BEING AGREED THAT ALL SUCH
RISKS AS BETWEEN WEATHERFORD AND CUSTOMER ARE TO BE
BORNE BY CUSTOMER, WHETHER OR NOT SUCH EQUIPMENT IS
OPERATED UNDER WEATHERFORD’S SUPERVISION AND ALL SUCH
EQUIPMENT IS HEREBY ACCEPTED BY CUSTOMER “AS IS.”
17
CUSTOMERS DESIRING DIFFERENT STANDARDS SHOULD, AT
CUSTOMER’S EXPENSE, OBTAIN AN INSPECTION OF THE EQUIPMENT
PRIOR TO USE AND THE BENEFITS OF ANY AND ALL IMPLIED
WARRANTIES OF WEATHERFORD ARE HEREBY WAIVED BY
CUSTOMER. .
....
. . . . CUSTOMER’S INDEMNITY OF WEATHERFORD GROUP:
CUSTOMER WILL DEFEND, INDEMNIFY, RELEASE AND HOLD
WEATHERFORD GROUP HARMLESS FROM AND AGAINST ANY AND
ALL CLAIMS BY CUSTOMER OR ANY OTHER PERSON OR ENTITY
AGAINST WEATHERFORD GROUP OF EVERY KIND OR CHARACTER
WHATSOEVER, WHETHER SUCH CLAIMS ARE BASED ON THEORIES
OF CONTRACT LAW, TORT LAW, OR OTHERWISE, DIRECT OR
INDIRECT, INCLUDING SPECIAL AND CONSEQUENTIAL DAMAGES
ARISING OUT OF DELIVERY, PICK-UP, REPAIR, USE OR OPERATION
OF EQUIPMENT, . . . IRRESPECTIVE OF WHETHER WEATHERFORD
GROUP MAY BE ALLEGED OR PROVEN TO HAVE BEEN NEGLIGENT,
(INCLUDING BUT NOT LIMITED TO ACTIVE, PASSIVE, JOINT,
CONCURRENT OR COMPARATIVE) OR OTHERWISE LEGALLY LIABLE
(WITH OR WITHOUT FAULT OR WHETHER STRICTLY LIABLE OR IN
BREACH OF ANY WARRANTY) . . . .
....
. . . . Inspection: Customer’s acceptance of delivery of Equipment Indicates that
Customer has inspected and found the Equipment to be suitable for its needs and
in good condition. . . . Customer also has a duty to inspect the Equipment prior to
use and notify Weatherford immediately of any defects.
The Stimulation Recommendation was emailed to Matador following oral discussions of
the means by which the frac job was to be conducted. The email attachment contained no terms
and conditions. At trial, Robinson clarified (1) that he did not recall noticing the tiny print
referring Matador to Weatherford’s website in the Stimulation Recommendation, (2) that the
terms and conditions were not attached to the original Stimulation Recommendation, (3) and that
he had never been to Weatherford’s website. London testified that the terms and conditions were
18
never discussed and that he was not alerted to fine print by Weatherford because “we were
focusing on the technical details of all of this.”
Matador argued in pretrial hearings and at trial that the terms and conditions (1) were
never adopted by the parties, (2) were not properly authenticated because Weatherford’s counsel
could not say whether the terms and conditions attached to Robinson’s deposition were the same
terms and conditions that existed in 2007, when the parties agreed upon the Stimulation
Recommendation, and (3) had not been conspicuously included in the Stimulation
Recommendation. Thus, Matador argues on appeal that the terms and conditions should not
have been admitted at trial, and should not have been used by the jury to determine that Matador
excused or released Weatherford’s non-performance and waived the issue of consequential
damages by agreeing to the terms and conditions. The trial court overruled Matador’s objections
and admitted the terms and conditions as evidence. Weatherford relied on the provisions of these
terms and conditions to secure a jury finding (1) on its affirmative defense of release from the
breach of contract claim raised by Matador, and (2) that Matador was precluded from recovering
consequential damages.
Matador argues that the trial court abused its discretion in admitting the terms and
conditions. A trial court’s ruling in admitting evidence is reviewed for an abuse of discretion.
U–Haul Int’l, Inc. v. Waldrip, 380 S.W.3d 118, 132 (Tex. 2012); Corona v. Pilgrim’s Pride
Corp., 245 S.W.3d 75, 79 (Tex. App.—Texarkana 2008, pet. denied) (citing Nat’l Liab. & Fire
Ins. Co. v. Allen, 15 S.W.3d 525, 527–28 (Tex. 2000)). Under an abuse of discretion standard,
we cannot overrule the trial court’s decision unless the trial court acted unreasonably or in an
19
arbitrary manner, without reference to guiding rules or principles. Corona, 245 S.W.3d at 79–
80.
Whether labeled as a release, waiver, exculpatory agreement, or indemnity agreement,
agreements used to exculpate a party from the consequences of its own negligence involve an
extraordinary shifting of risk. Dresser Indus., Inc. v. Page Petroleum, Inc., 853 S.W.2d 505, 508
(Tex. 1993). Thus, fair notice of the shifting risk must be given to the party assuming that
shifted risk. Id. at 508–09. “The fair notice requirements include the express negligence
doctrine and the conspicuousness requirement.” Id. at 508 (citing Enserch Corp. v. Parker, 794
S.W.2d 2, 8 (Tex. 1990)); see Storage & Processors, Inc. v. Reyes, 134 S.W.3d 190, 192 (Tex.
2004). “The express negligence doctrine states that a party seeking indemnity from the
consequences of that party’s own negligence must express that intent in specific terms within the
four corners of the contract.” Dresser, 853 S.W.2d at 508. “The conspicuous requirement
mandates ‘that something must appear on the face of the [contract] to attract the attention of a
reasonable person when he looks at it.’” Id. (quoting Ling & Co. v. Trinity Sav. & Loan Ass’n,
482 S.W.2d 841, 843 (Tex. 1972)). Compliance with fair notice requirements is a question of
law for the court. Id. at 509. As such, we review de novo the trial court’s ruling on these
matters.
Just as in Dresser, Matador’s counterclaims (including its claim that Weatherford
breached the duty to act with reasonable skill and diligence) involved the provision of goods and
services that resulted in damage to an oil and gas well. See id. at 506–07. Specifically, Matador
alleged that Weatherford failed to (1) provide and maintain proper equipment, chemicals, and
20
supplies, (2) apply the proper chemicals, in the proper amount, at the proper time, (3) maintain
proper records of its activities, (4) manage and monitor its operations, (5) supervise its
employees, and (6) complete the fracture stimulation treatment, all of which caused injury to
Cindy #3. The terms and conditions referenced above contained waiver and indemnity clauses
by which Weatherford attempted to exculpate itself from any of its own future wrongdoing. In
its brief, Weatherford cites Dresser and agrees that the waivers and disclaimers of consequential
damages were required to be conspicuous unless Matador had actual knowledge of the terms and
conditions. See Glidden Co. v. CDNE, Inc., No. 12-09-00283-CV, 2011 WL 686286, at *8
(Tex. App.—Tyler Feb. 28, 2011, no pet.) (mem. op.).
Weatherford does not and, indeed, could not reasonably argue that the tiny print on its
price estimate directing the customer to its website (assuming that the reader can actually read
the print, despite its small size) for exculpatory language is conspicuous. See Dresser, 853
S.W.2d at 509–10 (adopting Section 1.201(10) of the Uniform Commercial Code’s standard of
conspicuousness). Rather, Weatherford argues that the website containing the terms and
conditions—not the print which refers the reader there—is conspicuous. 2
2
Weatherford also argues that Matador, which had never done business with Weatherford prior to the frac job which
is the source of the controversy in this lawsuit, should have known of the terms and conditions because the tiny print
directing them to the website was located underneath the total estimated price for the frac job. Weatherford cites no
authority to support this proposition. In the absence of compliance with the conspicuousness requirement, actual
knowledge is required. See Reyes, 134 S.W.3d at 192. Weatherford also suggests that the terms and conditions
were incorporated by reference into the Stimulation Recommendation. First, this argument does not respond to the
requirements set forth by Dresser. Second, while unsigned documents may be incorporated into the parties’ contract
by reference in a signed document, the Stimulation Recommendation was not signed. See Owen v. Hendricks, 433
S.W.2d 164, 167 (Tex. 1968); Bob Montgomery Chevrolet, Inc. v. Dent Zone Cos., 409 S.W.3d 181, 189 (Tex.
App.—Dallas 2013, no pet.). Third, even if Weatherford argued that the Stimulation Recommendation was
accepted because it was forwarded to Matador’s petroleum engineers via email, it could not show that the terms
were accepted by or binding on Matador because (1) the record as to whether anyone with authority to bind Matador
to the liability-limiting and indemnity provisions of terms and conditions is unclear, and (2) the email stated, “This
21
We find that Weatherford’s argument “puts the cart before the horse.” Robinson’s
testimony that the terms and conditions were not attached to the Stimulation Recommendation
was uncontested at trial. The price estimate page of the Stimulation Recommendation referring
Matador to the terms and conditions on the website failed to indicate that substantial liability-
limiting provisions were contained within the terms and conditions. Also, because the paragraph
referencing terms and conditions was written on the last page of the six-page Stimulation
Recommendation in what appears to be six-point, regular font at the bottom of the page, it would
not ‘“attract the attention of a reasonable person when he looks at it.’ Id. at 508 (quoting Ling &
Co., 482 S.W.2d at 843). Language may satisfy the conspicuousness requirement by appearing
in larger type, contrasting colors, or otherwise calling attention to itself. Id. at 511 The purpose
of the conspicuousness requirement is to protect the buyer from surprise and an unknowing
waiver of his rights. Littlefield v. Schaefer, 955 S.W.2d 272, 275 (Tex. 1997). Because the
language referring to the terms and conditions in the Stimulation Recommendation did not refer
to any liability-limiting provisions and was not conspicuous, the liability-limiting provisions and
waivers were “unenforceable as a matter of law.” Reyes, 134 S.W.3d at 192. Thus, admission of
the exculpatory terms and conditions was erroneous. 3
communication does not reflect an intention by the sender or the sender’s client or principal to conduct a transaction
or make any agreement by electronic means.” See Expro Ams., LLC v. Sanguine Gas Exploration, LLC, 351 S.W.3d
915, 922–24 (Tex. App.—Houston [14th Dist.] 2011, pet. denied) (explaining difference between well site
operator’s authority to accept and authority to negotiate services and sign job tickets and authority to bind company
to indemnity provisions).
3
Due to our finding that the terms and conditions were unenforceable, we need not address Matador’s authentication
objection. See TEX. R. APP. P. 47.1.
22
Matador also argues that the trial court erred in admitting the MSA, which was executed
by the parties almost three months after the frac job in this case in a circumstance not involving
this well. The MSA contained terms and conditions similar to the terms and conditions that were
erroneously admitted. At trial, Matador argued that the MSA was irrelevant and that its
probative value was “substantially outweighed by the danger of unfair prejudice, confusion of
the issues, or misleading the jury.” TEX. R. EVID. 402, 403. Weatherford acknowledged that the
MSA did not apply to the frac job at controversy in this case, 4 but sought admission of the MSA
to show that Matador (which subsequently agreed to terms and conditions virtually identical to
the terms and conditions urged by Weatherford in this case) had also agreed to those terms in this
case. The trial court overruled Matador’s objection.
On appeal, Weatherford argues that the MSA was admissible “to show the context of the
contractual relationships between Matador and Weatherford in 2007.” Clearly, because the MSA
was executed three months after the frac job that was the subject of this lawsuit and because
Matador had never worked with Weatherford before, the after-the-fact MSA (1) bore no
relevance to the parties intentions or the context of their contractual relationship at the time of
the frac job in controversy and (2) had no tendency to make Weatherford’s arguments related to
release or Matador’s alleged breach during the time of the unfortunate frac job more probable.
Thus, the trial court’s ruling admitting the MSA into evidence was error.
We reverse only when the trial court’s error in admitting or excluding evidence probably
resulted in an improper judgment. See Nissan Motor Co. v. Armstrong, 145 S.W.3d 131, 144
4
Weatherford had previously referred to the MSA as a “red herring.”
23
(Tex. 2004). “Reversible error does not usually occur in connection with rulings on admission or
exclusion of evidence unless the complaining party can demonstrate that the whole case turns on
the excluded or admitted evidence.” Riggs v. Sentry Ins., 821 S.W.2d 701, 708–09 (Tex. App.—
Houston [14th Dist.] 1991, writ denied). Matador argues that the trial court’s error resulted in an
improper judgment because, (1) absent the terms and conditions and the MSA, there remains no
evidence to support the jury’s finding that Weatherford’s material breach was excused by its
agreement with Matador, and (2) the trial court excluded Robinson’s evidence of economic loss
based on the waiver of consequential damages. We agree.
After reviewing the reporter’s record of the trial, we conclude that the only evidence of
excuse or release came from reference to the terms and conditions and the MSA. Also, the trial
court excluded evidence of Matador’s lost profits based on an erroneous ruling that Matador had
waived consequential damages via the unenforceable terms and conditions. 5 During closing
argument, while emphasizing the sophistication of the parties, Weatherford argued that its terms
and conditions applied to the frac job in controversy in this case. With respect to the MSA,
Weatherford argued,
They signed it on May 3rd, about three months after this job, which has all
the same release language.
5
The original deadline for Matador to designate expert witnesses and file expert reports was February 21, 2011.
Because Matador failed to timely supplement its discovery responses, Weatherford filed a motion to exclude
evidence of economic damages not previously disclosed. On October 5, 2011, the trial court entered an order
“freezing discovery.” On October 11, 2011, the trial court granted Weatherford’s motion, ruling that “[Matador]
may not introduce in evidence the material or information that was not timely disclosed with regards to the amount
and any method of calculating [Matador’s] economic damages.” However, on December 2, 2011, the trial court
rescinded its order freezing discovery and set a new deadline of June 15, 2012, for designation of Matador’s expert
witnesses. Thereafter, it appears that Robinson was properly designated as the expert on economic damages, and the
trial court denied Weatherford’s motion to exclude Robinson’s expert testimony.
24
You can’t sue us. They didn’t write in there or except out -- except for the
Cindy No. 3, because they know this is the industry, okay?
They have greater sophistication, the supervision. We’re out there to do a
job. They know problems do occur.
Weatherford continued,
Matador is capable of defending themselves, capable of understanding the
terms and conditions of the industry that have been around long before the Cindy
No. 3 was drilled.
These terms and conditions, I invite you to look at them and see what they
say and see the similarity in the language between what it says in our terms and
conditions and what it ultimately said in the master service agreement that they
signed in May, three months after this.
I mean, if the terms and conditions are unacceptable beforehand, why are
they acceptable for the three frac jobs afterwards?
Because they know anybody who they hire . . . any other frac company,
they’re going to be signing the same piece of paper with the same terms and
conditions. That’s a red herring, okay?
But it was important to us because we think that it’s essentially -- you
know, if they wanted to carve out something unique in the industry, they would
have to do it with a document, with a legal department, with something.
They couldn’t just sign the master service agreement going forward
having the terms and conditions in place before and act like: Hey, those don’t
apply to us. That’s all we -- that’s the only reason I point that out.
During deliberations, the jury asked to see “the original contract.” When asked by the
trial court to clarify which exhibit it wished to see, the jury replied, “We would like to review the
master (standard) service agreement that was signed by Matador and the contract.” As admitted,
the Stimulation Recommendation included the terms and conditions. It appears that the jury
compared the terms and conditions with the language of the MSA, just as it was expressly
25
invited to do by Weatherford. Thus, the jury found (1) that Weatherford’s failure to comply with
the Stimulation Recommendation was excused because compliance was waived by Matador and
(2) that Matador released Weatherford from liability. However, in the absence of the terms and
conditions and the MSA, there was no evidence to sustain the jury’s findings on excuse or
release. 6
Moreover, the jury found that based on evidence presented throughout the trial,
Weatherford materially breached the Stimulation Recommendation. 7 A material breach by one
party to a contract can excuse the other party from any obligation to perform. Mustang Pipeline
Co. v. Driver Pipeline Co., 134 S.W.3d 195, 196 (Tex. 2004) (per curiam) (“It is a fundamental
principle of contract law that when one party to a contract commits a material breach of that
contract, the other party is discharged or excused from further performance.”). Yet, because the
jury was informed by Weatherford that “the [trial] Court has already entered an order that we’re
entitled to be paid $314,000,” it awarded Weatherford damages in the full amount of the
invoice. 8 It appears—and we believe—that this finding was the result of the jury’s consideration
of the improperly admitted terms and conditions and MSA, as well as its knowledge of the
improperly granted partial summary judgment.
6
Matador has challenged the jury’s findings on excuse and release for factual sufficiency. In a factual sufficiency
review, we consider and weigh all the evidence and will set aside the verdict only if the evidence is so weak or the
finding is so against the great weight and preponderance of the evidence that it is clearly wrong and unjust. Cain v.
Bain, 709 S.W.2d 175, 176 (Tex. 1986) (per curiam). In the absence of the terms and conditions and the MSA, the
evidence was factually insufficient to sustain the jury’s findings on release and excuse. However, because this issue
was not fully examined prior to the pretrial hearings, we will not foreclose Weatherford the opportunity to present
evidence that might bear on this issue during further proceedings.
7
This jury finding has not been challenged on appeal and will not be disturbed.
8
Matador also challenges the jury’s award of the full amount of the invoice and the award of attorney fees for factual
sufficiency. Due to our resolution of the summary judgment and evidentiary issues, we set these findings aside.
26
Based on the record before us, we find that the trial court’s error in admitting the terms
and conditions and the MSA probably resulted in an improper judgment. Thus, we sustain
Matador’s second point of error.
III. Conclusion
Our finding that the trial court erred in granting summary judgment on the sworn account
claim and in admitting the terms and conditions and the MSA into evidence are dispositive of
this appeal. Because we have decided these matters in Matador’s favor, we reverse the trial
court’s judgment and remand the matter to the trial court for further proceedings consistent with
this opinion.
Bailey C. Moseley
Justice
Date Submitted: October 14, 2014
Date Decided: November 18, 2014
27