Equistar Chemicals, LP v. Dresser-Rand Company

• Court: Court of Appeals of Texas
• Decided: April 1, 2008
• Docket: 14-02-00874-CV
• Status: Published

Opinion

Reversed and Remanded and Memorandum Opinion on Remand filed April 1, 2008

Reversed and Remanded and Memorandum Opinion on Remand filed April 1, 2008.

In The

Fourteenth Court of Appeals

____________

NO. 14-02-00874-CV

EQUISTAR CHEMICALS, LP, Appellant

V.

DRESSER-RAND COMPANY, Appellee

On Appeal from the 11th District Court

Harris County, Texas

Trial Court Cause No. 2000-37203

M E M O R A N D U M   O P I N I O N   O N   R E M A N D

This is a double appeal on remand from the Texas Supreme Court.  Equistar Chemicals, LP, sued Dresser-Rand Company for damages Equistar incurred in connection with the failure of components manufactured by Dresser and installed and serviced by Dresser at Equistar=s chemical plant.  Prior to trial, the trial court granted a partial summary judgment limiting the elements of damages for which Equistar could recover.  At the conclusion of trial, a jury found in favor of Equistar on all submitted theories of recovery, and the trial court entered judgment for Equistar in the amount of $3,510,725.

In our original opinion, we reversed the trial court=s judgment based on application of the economic loss rule and remanded for a new trial.  Equistar Chems., L.P. v. Dresser-Rand Co., 123 S.W.3d 584, 586-92 (Tex. App.CHouston [14th Dist.] 2003) (AEquistar I@), rev=d, 240 S.W.3d 864 (Tex. 2007) (AEquistar II@).  The Texas Supreme Court subsequently reversed and remanded our opinion, finding that the economic loss rule argument had not been preserved in the trial court.  Equistar II,  240 S.W.3d at 867-69.  The key issues remaining for determination on remand are (1) whether the trial court properly limited the elements of damages that Equistar could recover, and (2) whether the evidence was factually sufficient to support the verdict.  Additionally, Equistar has filed a motion to voluntarily dismiss its warranty claims with prejudice.  We grant the motion to dismiss the warranty claims and reverse and remand all remaining claims for a new trial.

Factual and Procedural Background

Dresser manufactured, installed, and serviced two charge gas compressors in operation at Equistar=s Channelview, Texas ethylene plant.  The impeller component of one of the compressors failed twice in 1999, each time causing extensive damage to the compressor itself and to adjacent plant parts.^[1]  Equistar sued Dresser seeking to recover repair costs as well as additional damages, including the cost of replacing lost ethylene production, obtaining additional feedstock, and expediting repairs.  Prior to trial, Dresser filed a motion for summary judgment, arguing principally that Equistar=s recoverable damages were governed by a limitation of liability provision between the parties.^[2]  Dresser specifically asserted that damages should be limited to the costs of repairing the compressors.^[3]  The trial court agreed, granted a partial summary judgment, and subsequently permitted the jury to consider only repair costs in assessing damages.  Five theories of liability were submitted to the jury:  negligence, manufacturing defect, design defect, marketing defect, and breach of warranty.  The jury found for Equistar on each theory, and apportioned liability 80% to Dresser and 20% to Equistar.  The jury further determined that $3,641,210 would fairly and reasonably compensate Equistar for the cost of repairing the compressors.  Based on the jury findings and a calculation of prejudgment interest, the trial court awarded Equistar $3,510,725.  Both sides appealed.

In its first appeal to this court, Equistar attacked the partial summary judgment on the ground that Dresser had failed to conclusively establish that a limitation of liability applied to the occurrences forming the basis of the suit.  Because of our resolution of Dresser=s appellate issues, neither we nor the supreme court in its opinion reached Equistar=s arguments as appellant.  See generally Equistar II, 240 S.W.3d 864; Equistar I, 123 S.W.3d 584.  Equistar now raises the same issues on remand.^[4]

In its first appeal, Dresser challenged the final judgment awarding damages to Equistar on the grounds that (1) Equistar=s claims are all barred by applicable statutes of limitations, (2) the evidence is legally insufficient to support the jury=s verdict, and (3) the evidence is factually insufficient to support the jury=s verdict.^[5]  In connection with its limitations arguments, Dresser further argued that the economic loss rule limited Equistar to recovery under its warranty theory and that the warranty theory was barred by the applicable statute of limitations.  We agreed with this argument in regard to damage to the compressors themselves (and attendant business interruption and other additional damages); however, we found the economic loss rule inapplicable to damage to adjacent parts.  Equistar I, 123 S.W.3d at 586-92.  We further found that the statutes of limitations were no bar to Equistar=s tort claims and that legally sufficient evidence supported the jury=s findings thereon.  Id. at 591.  Accordingly, we reversed the trial court=s judgment and rendered a take‑nothing judgment on Equistar=s claims stemming from damage to the compressors themselves.  Id. at 592.  We further remanded Equistar=s tort claims stemming from damage to property other than the compressors because there was no evidence in the original trial segregating the amount of damage to that other property.  Id. at 591-92.

In its opinion, the supreme court held that Dresser failed to preserve its economic loss rule argument in the trial court.  Equistar II, 240 S.W.3d at 868.  However, the supreme court agreed with our holdings that the evidence was legally sufficient to support the jury=s findings on Equistar=s tort theories and that those claims were not barred by statutes of limitations.  Id. at 868.  Accordingly the supreme court remanded for consideration of Dresser=s factual sufficiency challenges and Aany additional issues raised by the parties.@  Id. at 868-69.

On remand, Dresser urges that both its limitations and legal sufficiency arguments are still at issue.  In our original opinion, we disposed of these arguments as without merit.  Equistar I, 123 S.W.3d at 591.  In fact, we were required to address these issues (limitations and legal sufficiency) in our original opinion because they are Arender issues@ as opposed to Aremand issues.@  See, e.g., Pruitt v. Republic Bankers Life Ins. Co., 491 S.W.2d 109, 112 (Tex. 1973) (A[A]n appellate court should give consideration to all points calling for a judgment of reversal and rendition before reversing a trial court judgment and remanding the cause.@).  Had we found merit in Dresser=s limitations or legal sufficiency arguments, we would have rendered judgment favoring Dresser rather than remanding to the trial court.  Additionally, it should be pointed out that in its opinion, the supreme court treated our original opinion as having disposed of Dresser=s limitations and legal sufficiency claims.  Indeed, the court stated: Awe agree with the court of appeals= conclusions that (1) legally sufficient evidence supported the liability findings, [and] (2) Equistar=s tort claims were not barred by limitations.@  Equistar II, 240 S.W.3d at 868.  Thus, Dresser=s issues on remand are limited to its attacks on the factual sufficiency of the evidence.

Partial Summary Judgment

In its appeal, Equistar challenges the trial court=s grant of partial summary judgment limiting the elements of damages on which Equistar could recover to the costs of repair.  In its motion for summary judgment, Dresser asserted that the additional damages sought by Equistar are barred under either (1) a limitation of liability contained in a 1998 document signed by the parties, (2) a limitation of liability contained in a Dresser order acknowledgment form sent in response to an Equistar purchase order form, or (3) some combination of both.  In its order granting partial summary judgment, the trial court stated that Asaid motion should be GRANTED as to the limitations on Plaintiff=s claim(s) for all damages, including consequential, incidental and indirect damages, other than those plead [sic] and specifically allowed pursuant to the contract.@

The parties signed a document entitled ANegotiated Terms and Conditions@ in 1998.  Dresser maintains that the parties expressed an intent in this document to merge all of their prior agreements into the agreement evidenced by that document itself.  Equistar, on the other hand, insists that the document was not intended to be a contract by itself but was instead a set of pre-negotiated terms to be included in future contracts between the parties.

As movant on a traditional summary judgment, Dresser had to establish that there is no genuine issue of material fact in order to prevail on its motion.  See Tex. R. Civ. P. 166a(c); SAS Inst., Inc. v. Breitenfeld, 167 S.W.3d 840, 841 (Tex. 2005) (citing State Farm Fire and Cas. Co. v. Vaughan, 968 S.W.2d 931, 932 (Tex.1998), and Nixon v. Mr. Prop.  Mgmt. Co., 690 S.W.2d 546, 548‑49 (Tex. 1985)).^[6]  The primary goal in interpreting a contract should be to ascertain and give effect to the parties= intent as expressed in the contract.  Seagull Energy E & P, Inc. v. Eland Energy, 207 S.W.3d 342, 345 (Tex. 2006).  Intent must be gleaned from the contract as a whole, and no single provision taken alone will be given controlling effect.  See SAS Inst., Inc., 167 S.W.3d at 841  (quoting Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983)).  AIf the written instrument is so worded that it can be given a certain or definite legal meaning or interpretation, then it is not ambiguous and the court will construe the contract as a matter of law.@  Id. (quoting Coker, 650 S.W.2d at 393).  However, if the language of the document is susceptible to two or more reasonable interpretations, an ambiguity exists, and the contract cannot be interpreted as a matter of law solely from its own terms.  See Am. Mfrs. Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154, 157 (Tex. 2003).

In general, a Amerger clause@ is a contractual provision mandating that the written terms of the contract may not be varied by prior agreements because all such agreements have been merged into the new document.  IKON Office Solutions, Inc. v. Eifert, 125 S.W.3d 113, 125 n. 6 (Tex. App.CHouston [14th Dist.] 2003, pet. denied).  Such clauses memorialize the parties= intent to invoke the Amerger doctrine.@  Fish v. Tandy Corp., 948 S.W.2d 886, 899 (Tex. App.CFort Worth 1997, pet. denied).  Under the merger doctrine, prior or contemporaneous agreements between the same parties, concerning the same subject matter, are absorbed into a subsequent agreement.  See Texas A & M Univ.‑Kingsville v. Lawson, 127 S.W.3d 866, 872 (Tex. App.CAustin 2004, pet. denied); Fish, 948 S.W.2d at 898; see also Hubacek v. Ennis State Bank, 159 Tex. 166, 317 S.W.2d 30, 31 (1958) (explaining merger rule).  The intent of the parties is paramount in determining whether merger occurs.  Lawson, 127 S.W.3d at 872; Fish, 948 S.W.2d at 898.

As set forth below, we find that the 1998 document is so forward looking and so ambiguous as to certain terms that Equistar has at least raised a fact question as to whether the parties intended to merge all their prior agreements into an agreement evidenced by the document itself.  To begin with, the document=s title, ANegotiated Terms and Conditions,@ sounds like exactly what Equistar says it is:  a set of terms to govern future dealings.  Although the document contains a boilerplate integration clause, interpreting this clause as merging all previous agreements presents at least two problems.  First, while the clause states that no provisions of the agreement, including those relating to the price or nature of the work to be performed, can be changed except on Equistar=s written Change Notice form, the document itself contains no provisions regarding price or the nature of the work.  Second, the very same integration clause precludes looking at prior agreements to fill in those blanks: AThe written terms of this Contract constitute the entire agreement between the parties . . . .@  Thus, Equistar=s insistence that these provisions were simply the result of negotiations for terms for future contracts (which would include the terms from the 1998 document but also fill in price and nature of performance terms) is a reasonable interpretation of the document.

While Dresser argues that the language quoted above regarding the Aentire agreement between the parties@ means that this document governs all dealings between the parties, the merger doctrine itself is not so limiting.  Frequently, a contract containing a merger clause is limited to a particular service or facility, and parties may conceivably have multiple contracts concerning different subject matter, each with its own merger clause.  See generally Lawson, 127 S.W.3d at 872 (AUnder the merger doctrine, prior or contemporaneous agreements between the same parties, concerning the same subject matter, are absorbed into a subsequent agreement.@); Cont=l Cas. Co. v. Fina Oil & Chem. Co., 126 S.W.3d 163, 174 (Tex. App.CHouston [1st Dist.] 2003, no pet.) (holding earlier agreement was not merged into subsequent agreement containing merger clause because the two agreements pertained to different subject matters).

Additionally, the 1998 document is replete with prospective language and contains almost no retrospective language.  Phrases such as Ashall be,@ Aany order accepted,@ and Ato be delivered or performed@ are common throughout the document, suggesting that the terms were to be incorporated in future contracts and were not intended to govern all prior dealings.  The statement that ACONTRACTOR has had . . . the ability to make inspections,@ can also be reasonably interpreted as prospective, suggesting that at the time of contracting, the contractor is already familiar with conditions at the facility and thus cannot in the future claim ignorance thereof.

Regarding Aperformance of work,@ the agreement states:  AContractor warrants that its work when performed and services when rendered will meet all specific requirements, if any, of this agreement, and will be done in a good and workmanlike manner.@  Not only is this statement prospective in nature, but it also references the possibility that specific performance requirements may (or may not) be included in the agreement.  This clause further supports Equistar=s contention that these ATerms and Conditions@ were negotiated for inclusion in future agreements between the parties governing specific goods and services.

Equally important is what the document does not say.  Other than the general statements in the merger clause discussed above, the document includes no reference to any prior work, prior agreements, price terms, or performance terms.  Dresser contends that Equistar, upon taking over from Lyondell, wanted to merge all the prior agreements that Lyondell had entered into.  It is at least debatable whether Equistar would have done so in such a forward-looking document, omitting any terms of price or performance and omitting any express mention of the prior agreements.  Consequently, Equistar has raised at least a fact issue regarding whether the 1998 document expresses an intent to merge all prior agreements between the parties concerning the Channelview plant impellers.  The trial court therefore erred if it based its partial summary judgment on Dresser=s contention that the 1998 document constitutes a merger agreement between the parties.

Dresser additionally contended that the 1998 document represented Equistar=s release of all claims based on Dresser=s prior work.  In order to be entitled to a summary judgment on this assertion, Dresser was required to conclusively demonstrate that the 1998 document constituted an agreement to discharge duties or obligations Dresser owed to Equistar and that Equistar=s claims relating to the impeller failures were clearly within the subject matter of the agreement.  See Baty v. ProTech Ins. Agency, 63 S.W.3d 841, 848 (Tex. App.CHouston [14th Dist.] 2001, pet. denied).  In support of its position, Dresser again relies on the limitation of liability provision, which states that Dresser Ashall in no event be liable to Equistar . . . for any consequential, incidental, or indirect damages arising out of this agreement.@  Dresser=s argument fails for the same reasons as its merger doctrine argument.  Consequently, there is at least a fact question as to whether the document evidences an agreement to discharge any of Dresser=s duties or obligations to Equistar, and whether damages to the compressor would be included in such discharge.  Accordingly, the trial court erred if it based its partial summary judgment on Dresser=s contention that the 1998 document constitutes a release of Equistar=s claims.

Lastly, as an alternative to its arguments regarding the 1998 document, Dresser asserted that even if the 1998 document did not serve to limit Equistar=s recoverable damages, a limitation of liability provision in an acknowledgment form limited recoverable damages.^[7]  Dresser contended that a Uniform Commercial Code Abattle of the forms@ analysis establishes that the limitation in Dresser=s form became part of the agreement between the parties for work done by Dresser on Equistar=s compressors.  See generally Tex. Bus. & Com. Code ' 2.207 (governing when additional or different terms in an acceptance become part of the contract between two parties).  However, regardless of whether its UCC argument is correct, Dresser failed to conclusively demonstrate that (1) all of the relevant work done on the compressors was governed by acknowledgment forms containing a limitation of liability, or (2) the damages claimed by Equistar were the result of the particular work for which Dresser produced acknowledgment forms containing a limitation of liability.  Although Dresser included what appear to be several order and acknowledgment forms attached to its motion, Dresser did not provide any other summary judgment evidence connecting these forms to the work that supposedly caused Equistar=s damages.  These bare forms themselves do not conclusively establish that they cover the relevant work.  Accordingly, the trial court erred if it based its partial summary judgment on Dresser=s Abattle of the forms@ argument.

The trial court erred in granting a partial summary judgment limiting the elements of damages.  We therefore sustain Equistar=s first issue.  Because our decision results in the necessity of a remand, we need not consider the remainder of Equistar=s or any of Dresser=s substantive issues.  These issues encompass no contentions that either (1) would result in other than a remand or (2) require resolution for a remand.  Accordingly, we do not reach them in this appeal.

Disposition

Pursuant to Texas Rule of Appellate Procedure 44.1(b), we are not permitted to order a new trial on remand solely for determination of unliquidated damages when liability is contested.  Tex. R. App. P. 44.1(b).  Dresser has contested liability at every stage of trial and appeal.  See Estrada v. Dillon, 44 S.W.3d 558, 562 (Tex. 2001) (explaining that liability is contested in a case for purposes of applying Rule 44.1(b) if the defendant filed a general denial in the trial court); see also Turner, Collie & Braden, Inc. v. Brookhollow, Inc., 642 S.W.2d 160, 166 (Tex. 1982) (stating party in double appeal contested liability issue by challenging the sufficiency of the evidence in its appellant=s brief).  Equistar urges us to suspend application of Rule 44.1 in order Ato expedite a decision or for other good cause@ as permitted under Rule 2.  Tex. R. App. P. 2.  We fail to see any reason for suspending the clear dictate of Rule 44.1 here that would not apply in many other cases in which a trial court decision on damages must be remanded.^[8]  We therefore decline to do so.

Furthermore, because the issues of liability, repair damages, and additional damages are inextricably intertwined in this case, we feel it incumbent to remand all questions of both liability and damages.  See Tex. R. App. P. 44.1 (permitting remand of part of a judgment only if that part is separable without unfairness to the parties); Ford Motor Co. v. Miles, 967 S.W.2d 377, 390 (Tex. 1998) (Gonzales, J., concurring) (stating that issues of negligence and gross negligence were so inextricably intertwined that new trial could not be fairly had upon sole issue of gross negligence for purposes of punitive damages); Green Tree Fin. Corp. v. Garcia, 988 S.W.2d 776, 785 (Tex. App.CSan Antonio 1999, no pet.) (remanding for a Acomplete new trial@ after overruling objection to actual damages award but sustaining challenge to award of punitive damages).  Lastly, Equistar has filed a motion in this appeal to sever and dismiss its warranty claim with prejudice.^[9]  We grant this motion, sever and dismiss the warranty claim with prejudice, and remand all remaining liability and damages issues for a new trial.

We reverse the trial court=s judgment and remand for further proceedings in accordance with this opinion.

/s/      Adele Hedges

Chief Justice

Judgment rendered and Memorandum Opinion on Remand filed April 1, 2008.

Panel consists of Chief Justice Hedges and Justices Anderson and Boyce.

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^[1]  For a more detailed description of the history of the compressors, the 1999 failures, and the efforts to repair, please see our prior opinion and that of the Texas Supreme Court.  Equistar II, 240 S.W.3d at 865-66; Equistar I, 123 S.W.3d 585-86.

^[2]  As will be discussed in greater detail below, Dresser=s primary argument was that the damages were governed by a limitation of liability contained in an agreement signed by the parties in 1998.  In regard to this document, Equistar contended that it was not intended to affect prior transactions but was instead a set of negotiated terms to govern only future contracts between the parties.  In its motion for summary judgment, Dresser additionally argued that the exchange of purchase order and order acknowledgment forms between the parties imposed a limitation of liability applicable to the damages alleged in this case.  In relation to this contention, Equistar argued that Dresser failed to conclusively establish that the relevant forms carried a limitation of liability clause.  Equistar did not file its own motion for summary judgment seeking interpretation of any of these documents as a matter of law.

^[3]  The limitation of liability clause in the 1998 document read as follows:

A.  CONTRACTOR shall in no event be liable to EQUISTAR or any successor for any consequential, incidental, or indirect damages arising out of this Agreement or any breach thereof, including but not limited to damages resulting from loss of use, profits, revenue, interest, or goodwill; work stoppage; impairment of other goods; shutdown or non-operation; increased expenses of operation; cost of purchase of replacement power; or claims of EQUISTAR or customers of EQUISTAR for service interruption whether or not such loss or damage is based on contract, indemnity, tort, strict liability or otherwise.

B.  The remedies of EQUISTAR set forth herein are exclusive.  Excluding CONTRACTOR=s indemnity obligation for AInjury, Death or Damage@ herein, the total liability of CONTRACTOR with respect to the performance or breach of this Agreement, whether based on contract, indemnity, tort, strict liability or otherwise, shall not exceed the contract price of such services or the part upon which such liability is based.

^[4]  Equistar additionally argues that the trial court erred in excluding its offer of proof regarding additional damages and in refusing to submit the additional damages in the jury charge.  However, the trial court clearly made these decisions based on its holding on the partial summary judgment.  Accordingly, these additional arguments do not raise any distinct issues for determination.

^[5]  Dresser additionally argued in its first appeal that Equistar=s claims were all barred by a statute of repose.  The supreme court held that Dresser waived its statute of repose defense.  Equistar II, 240 S.W.3d at 868.

^[6]  Dresser additionally suggests on remand that the trial court also granted a Ano evidence@ ground in its motion for summary judgment.  As evidence of this, Dresser cites only the court=s order, wherein the court stated ADefendants= Motion for Summary Judgment and Alternative No-Evidence Motion for Summary Judgment should be GRANTED.@  However, it is clear that the trial court did not actually grant the no evidence portion of the motion but was only stating the title of the motion.  As mentioned in the text above, the order itself states that Asaid motion should be GRANTED as to the limitations on Plaintiff=s claims for . . . damages;@ the order does not state that the motion is granted on the no-evidence ground.

Furthermore, the no-evidence ground that Dresser claims was granted postulated that there was no evidence to prove causation of any damages for certain causes of action.  If granted, this ground would have eliminated the specified causes of action, not simply limited the damages recoverable for those claims.  Accordingly, it is clear that the trial court did not base its grant of partial summary judgment on Dresser=s no-evidence ground; thus, the no-evidence ground cannot be used to support the summary judgment on appeal.

^[7]  The limitation of liability clause in Dresser=s acknowledgment forms were virtually identical to the limitation of liability clause contained in the 1998 document.  The forms attached to Dresser=s motion for summary judgment were from the 1994-95 time period.

^[8]  In support of its arguments, Equistar cites Browning Oil Co. v. Luecke, 38 S.W.3d 625 (Tex. App.CAustin 2000, pet. denied), in which the court relied upon Rule 2 in remanding for a new trial solely on damages.  Browning is readily distinguishable from the present case.  In Browning, the original trial was bifurcated such that liability issues were tried to the bench and not the jury.  Id. at 647 n.31.  The court therefore determined that remanding liability issues for a new trial in addition to damages issues would serve no purpose.  Id.  The trial in the present case was not so bifurcated.  Because Browning is distinguishable in this manner, we need not discuss whether we agree with its outcome or reasoning.

^[9]  Dresser opposes the motion, suggesting that Equistar may be attempting to circumvent a holding by this court in its original opinion.  Equistar denies any strategic intentions but insists instead that it merely wishes to simplify matters on appeal and on remand.  Dresser specifically accuses Equistar of attempting to nullify our holding in our original opinion that the relevant product for warranty purposes was the compressor, citing Equistar I, 123 S.W.3d at 587-90.  Dresser further postulates that the supreme court left this holding intact by not addressing the warranty claim.  Dresser is incorrect.  The supreme court reversed our prior judgment, which was based on an opinion holding that the statute of limitations had run on Equistar=s warranty claim.  Equistar II, 240 S.W.3d at 868-69; Equistar I, 123 S.W.3d at 587-90.  Our holding on the statute of limitations as it relates to the warranty claim was not left intact given the supreme court=s reversal of our prior judgment.