Montco Oilfield Contractors, LLC v. Black Elk Energy Offshore Operations, LLC (In re Montco Offshore, Inc.)

595 B.R. 524
CourtUnited States Bankruptcy Court, S.D. Texas
DecidedOctober 31, 2018
DocketCASE NO: 17-31646; ADVERSARY NO. 17-3249
StatusPublished
Cited by1 cases

This text of 595 B.R. 524 (Montco Oilfield Contractors, LLC v. Black Elk Energy Offshore Operations, LLC (In re Montco Offshore, Inc.)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, S.D. Texas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Montco Oilfield Contractors, LLC v. Black Elk Energy Offshore Operations, LLC (In re Montco Offshore, Inc.), 595 B.R. 524 (Tex. 2018).

Opinion

Marvin Isgur, UNITED STATES BANKRUPTCY JUDGE

Montco Oilfield Contractors, LLC filed its Second Amended Complaint alleging misrepresentation, breach of contract, and quantum meruit claims against Black Elk Energy Offshore Operations, LLC and JX Nippon Oil Exploration (U.S.A.) Limited. The Complaint alleges that Montco is entitled to recover unpaid amounts owed to Montco for performing plugging and abandonment services, damages associated with performing additional, unanticipated decommissioning work, and damages arising from alleged misrepresentations and omissions surrounding the work.

Black Elk and Nippon moved to dismiss Montco's Second Amended Complaint pursuant to Federal Rules of Civil Procedure 8 and 9. Black Elk and Nippon alternatively argue that Montco's claims fail as a matter of law or are barred by Texas law.

Nippon's Motion to Dismiss Claim I of Montco's Second Amended Complaint as it refers to Nippon is granted. Black Elk's Motion to Dismiss Claim I of Montco's Second Amended Complaint as to Black Elk is denied as to Job 2, EC 33 CF. Black Elk's Motion to Dismiss Claim I of Montco's Second Amended Complaint as to Black Elk is granted as to all other jobs. Black Elk's Motion to Dismiss Count II of Montco's Second Amended Complaint is granted as to Montco's false, misleading, and incomplete information claim; failure to pay claim; and Turnkey Job Price and Incentive Fee claim. Black Elk's Motion to Dismiss Count II of Montco's Second Amended Complaint is denied as to the indemnity claim. Black Elk's Motion to Dismiss Count IV of Montco's Second Amended Complaint is granted.

Background

On August 11, 2015, three creditors filed an involuntary chapter 7 bankruptcy petition against Black Elk. (Case No. 15-34287, ECF No. 1). Black Elk filed its consent to the Order for Relief and a motion to convert its involuntary chapter 7 case to a voluntary chapter 11 case on August 31, *5312015. (Case No. 15-34287, ECF Nos. 68, 69). The Court subsequently granted Black Elk's motion. (Case No. 15-34287, ECF No. 75). Montco, a Louisiana limited liability company, is a project management, engineering, and oilfield personnel service provider and general contractor. (ECF No. 33 at 2). As part of the confirmation of Black Elk's chapter 11 plan, Montco and Black Elk entered into a Turnkey Service Agreement (the "Black Elk Contract"), which the Court subsequently approved. (Case No. 15-34287, ECF No. 682).

Under the Black Elk Contract, Montco agreed to perform the plugging and abandonment work on Black Elk's offshore oil and gas sites in order to bring those sites into conformance with federal regulations. (ECF No. 33-2 at 2). The Black Elk Contract listed specific jobs that Montco was required to complete. (ECF No. 33-2 at 21-22). In exchange for completing these jobs, Montco would be paid a turn-key price for each obligation it completed, "regardless of the actual fees, costs and expenses incurred." (ECF No. 33-2 at 3). Montco would receive payment upon the release of proceeds from surety bonds securing or cash collateral collateralizing Black Elk's plugging and abandonment obligations on its sites. (ECF No. 33-2 at 3).

Two amendments-dated May 26, 2016, and June 11, 2016-supplemented the Black Elk Contract. (ECF No. 33-3; ECF No. 33-4). The first amendment added Jobs 19, 20, and 21 to the list of jobs to be completed by Montco as part of its responsibilities under the Black Elk Contract. (ECF No. 33-3 at 3). The second amendment added Jobs 22, 23, 24, and 25 to the list of jobs for Montco to complete. (ECF No. 33-4 at 4). Both amendments provided a funding mechanism to pay Montco for its services on these additional jobs. (ECF No. 33-3 at 4; ECF No. 33-4 at 4-5).

Upon approval of the Black Elk Contract, Montco commenced its plugging and abandonment work on the Black Elk job sites. (ECF No. 33 at 17). Montco's services included: make-safe operations for preparing personnel platforms; the investigation of job sites for well intervention, and well plugging and abandonment spreads in order to abandon all wells; the investigation of job sites with additional equipment to clean vessels and prepare platforms for decommissioning; the deconstruction of platforms; the extraction of objects from the Gulf of Mexico; the employment of vessels to trawl each site; and the filing of end-of-operations reports with the federal government for site clearance. (ECF No. 33 at 17).

In the course of performing under the Black Elk Contract, Montco alleges that it encountered undisclosed wells, abandoned equipment, and structures vastly different than those described in the Black Elk Contract, Black Elk and Nippon's disclosures during contract negotiations, and government or publicly available records. (ECF No. 33 at 6-7). These liabilities consequently required Montco to perform substantial amounts of unanticipated work in order for Black Elk's Job sites to be lawfully decommissioned. (ECF No. 33 at 6). Montco allegedly notified Black Elk of these unanticipated liabilities and resulting work through daily reports and summaries. (ECF No. 33 at 7). Black Elk purportedly did not object to Montco completing this unanticipated work. Black Elk, however, refuses to pay Montco for this work. (ECF No. 33 at 7).

Montco also claims that it identified and undertook work on various Black Elk job sites to manage uncontrolled well flows, as well as the cleaning and disposal of natural and human-made hazardous materials and waste. (ECF No. 33 at 6). These issues with the job sites also required Montco to *532take actions beyond those listed in the Black Elk Contract. (ECF No. 33 at 6). These issues were not disclosed to Montco at the time the parties negotiated and executed the Black Elk Contract. (ECF No. 33 at 6). However, Montco asserts that Black Elk agreed to indemnify it for such unanticipated work under Sections 7.9.4 and 7.9.8 of the Black Elk Contract because such problems are impossible to predict in advance for purposes of a turn-key contract for plugging and abandonment work. (ECF No. 33 at 13-14; ECF No. 33-2 at 9-10).

On March 17, 2017, Montco filed its own chapter 11 bankruptcy petition. (Case No. 17-31646). On May 18, 2017, Montco filed this adversary proceeding seeking to recover amounts allegedly due to it under the Black Elk Contract, as well as damages associated with its unanticipated work. (ECF No. 1). The "Defendants" in Montco's suit included:

• Black Elk, the owner and operator of the oil drilling platforms and oil wells upon which Montco worked. (ECF No. 33 at 3).
• The Black Elk Trust, the liquidating trust for Black Elk's bankruptcy estate. (ECF No. 33 at 3).
• Richard S. Schmidt, the Trustee to the Black Elk Trust. (ECF No. 33 at 3).
• W & T Offshore Inc., an independent oil and natural gas acquisition, exploitation, and exploration company. (ECF No. 33 at 3). W & T was a predecessor in title to various Job sites covered by the two amendments to the Black Elk Contract. (ECF No. 62 at 5). Under the amendments, W & T expressly agreed to a limited, conditional payment obligation to Montco. (ECF No. 33-3 at 4; ECF No. 33-4 at 4-5; ECF No. 62 at 5-6).
• McMoRan Oil & Gas LLC, an oil and natural gas exploration, development, and production company. (ECF No. 33 at 3).

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595 B.R. 524, Counsel Stack Legal Research, https://law.counselstack.com/opinion/montco-oilfield-contractors-llc-v-black-elk-energy-offshore-operations-txsb-2018.