Premium Valve Services, LLC v. Comstock Oil & Gas, LP, Comstock Oil & Gas-Louisiana, LLC and Certain Underwriters

Opinion

ACCEPTED 01-15-00108-CV FIRST COURT OF APPEALS HOUSTON, TEXAS 9/17/2015 8:52:43 AM CHRISTOPHER PRINE CLERK

No. 01-15-00108-CV ________________________________________________ FILED IN 1st COURT OF APPEALS IN THE COURT OF APPEALS HOUSTON, TEXAS FIRST DISTRICT OF TEXAS 9/17/2015 8:52:43 AM HOUSTON, TEXAS CHRISTOPHER A. PRINE _________________________________________________ Clerk

Premium Valve Services, LLC Appellant v. Comstock Oil & Gas, LP, Comstock Oil & Gas- Louisiana, LLC and Certain Underwriters Appellees

On Appeal from the 270th Judicial District Court Harris County, Texas

Trial Court Cause No. 2009-65461 ___________________________________

REPLY BRIEF OF APPELLANT PREMIUM VALVE SERVICES, LLC _____________________________________________________

H. Dwayne Newton State Bar of Texas No. 14977200 dnewton@newton-lawyers.com Cynthia L. Jones State Bar of Texas No. 00852600 cljones@newton-lawyers.com NEWTON, JONES & SPAETH 3405 Marquart Houston, TX 77027 Telephone: 713-493-7620 Facsimile: 713-493-7633

ORAL ARGUMENT IS REQUESTED TABLE OF CONTENTS

TABLE OF CONTENTS ............................................................................................i

INDEX OF AUTHORITIES..................................................................................... ii

INTRODUCTION AND SUMMARY OF REPLY .................................................. 1

ARGUMENT AND AUTHORITIES ........................................................................ 2

Reply Issue No. 1 .................................................................................................... 2 Appellees admit there is no finding of permanent injury to the Collins #1 well. Without such a finding, there is no basis for any award that includes costs of redrilling another well or for market value, and thus, the judgment entered by the trial court is erroneous.

Reply Issue No. 2 .................................................................................................... 6 The cases cited by Appellees do not support the award of market value plus costs of remediation, but instead establish the error in the judgment below.

CONCLUSION AND PRAYER ............................................................................. 10

CERTIFICATE OF SERVICE ................................................................................ 12

CERTIFICATE OF COMPLIANCE ....................................................................... 12

i INDEX OF AUTHORITIES

Cases

Atex Pipe & Supply Inc., 736 S.W. 2d 914 (Tex. App. – Tyler 1987, writ denied) ...........................................3

Basin Oil Co. of Cal. v. Baash-Ross Tool Co., 125 Cal. App. 2d 578 (1954) ...................................................................................10

Cressman Tubular v. Kurt Wiseman Oil, 322 S.W.3d 453 (Tex. App. – Houston [14th Dist.] 2010, pet. denied) .....................3

Dowell, Inc. v. Cichowski, 540 S.W.2d 342 (Tex. Civ. App. – San Antonio 1976, no writ) ...............................9

Dresser Indus. v. Page Petroleum, Inc., 853 S.W.2d 505 (Tex. 1993) ............................................................................. 6, 7, 8

Gilbert Wheeler, Inc. v. Enbridge Pipelines, 449 S.W.3d 474 (Tex. 2014) ............................................................................. 2, 3, 4

United States Torpedo Co. v. Liner, 300 S.W. 641 (Tex. Civ. App – Eastland 1927) (reversed on other grounds)...........9

ii No. 01-15-00108-CV ________________________________________________

IN THE COURT OF APPEALS FIRST DISTRICT OF TEXAS HOUSTON, TEXAS _________________________________________________

Premium Valve Services, LLC Appellant v. Comstock Oil & Gas, LP, Comstock Oil & Gas- Louisiana, LLC and Certain Underwriters Appellees ___________________________________

REPLY BRIEF OF APPELLANT PREMIUM VALVE SERVICES, LLC _____________________________________________________

TO THE HONORABLE FIRST COURT OF APPEALS

INTRODUCTION AND SUMMARY OF REPLY

Appellants file this Reply to Appellees’ Brief to address two important points

made by Appellees that actually serve to highlight the problems with the judgment

entered by the trial court in this case, and establish it cannot stand. First, Appellees

acknowledge there has been no finding of permanent injury. This fact is fatal to

Appellees’ case, since every case cited in support of their damages is dependent on

a finding of permanent damage. Second, based on the current, applicable case law

cited by Appellees, the damages awarded by the trial court are erroneous.

1 ARGUMENT AND AUTHORITIES

REPLY ISSUE NO. 1

Appellees admit there is no finding of permanent injury to the Collins #1 well. Without such a finding, there is no basis for any award that includes costs of redrilling another well or for market value, and thus, the judgment entered by the trial court is erroneous.

Appellees admit neither the trial court nor the jury concluded the Collin’s #1

well was permanently damaged as a result of the blowout. (Appellees’ Brief at p.

42). Yet Appellees’ Counter-Issues and all of their arguments throughout their brief

simply presume the well was completely destroyed The Texas Supreme Court has

unequivocally held the measure of damages in any case involving damage to real

property is dependent on whether the damage is permanent or temporary. Appellees

dismiss this binding precedent, instead insisting the only question the jury did not

answer was whether or not one particular well was in fact a replacement for the well

claimed to be damaged. The admission by Appellees that there has been no finding

of permanent injury amounts to an admission of reversible error warranting a new

trial.

The proper measure of damages in cases involving damage to real property is

either the cost to restore the property, or, if restoration is not possible, the loss in fair

market value of the property. Gilbert Wheeler, Inc. v. Enbridge Pipelines, 449

S.W.3d 474 (Tex. 2014). In Gilbert Wheeler, Inc. the Court discussed at length the

purpose and necessity of the requirement of distinguishing between permanent and

2 temporary damage in all real property cases. Id. 478-480. And as a matter of law,

damage to an oil or gas well is damage to real property. Cressman Tubular v. Kurt

Wiseman Oil, 322 S.W.3d 453 (Tex. App. – Houston [14th Dist.] 2010, pet. denied);

Atex Pipe & Supply Inc.,736 S.W. 2d 914 (Tex. App. – Tyler 1987, writ denied).

Because Gilbert Wheeler, Inc. involved trees and not damage to an oil well,

Appellees simply say the requirement distinguishing between permanent and

temporary damages does not apply. (Appellees’ Brief at 31) Appellees appear not

to understand that Gilbert Wheeler, Inc. is completely consistent with the cases they

have cited. The problem with Appellees’ argument, is that in all of the cases they

cite, such as Atex, Dresser, and Dowell, prior to entry of judgment there was either

a finding the well in question was completely destroyed, or it was not an issue in

dispute. (See Appellant’s Brief at p. 12 – 13) But in this case, whether or not the

well was beyond repair as a result of the blow-out, or whether it could in fact have

been repaired, was a central disputed issue throughout the case, and extensive

evidence on the issue was presented by both sides. A question therefore should

have been submitted to the jury to enable the Court to make a finding as to whether

or not the injury was permanent or temporary. The question Appellant offered would

have accomplished that.

Had the jury been allowed to answer the question submitted by Appellants,

there would be a basis for a conclusion one way or the other, as to whether the injury

3 to the well was permanent or temporary. If the jury believed the well was capable

of being repaired as a result of the blowout, then the injury was temporary. If the

jury believed the well was not capable of being repaired as a result of the blowout,

then the injury was permanent. With these findings, the proper measure of damages

could have been applied.

Appellees’ suggestion that the question tendered by Appellants and rejected

by the court was an inferential rebuttal issue that could only have been submitted as

an instruction is simply false. The issue of whether an injury is temporary or

permanent is a question of law, but any factual issues that have to be resolved must

be submitted in the form of a question to the jury. Gilbert Wheeler, Inc., at 449 S.

W. 3d at 481. The fact issue as framed in the question tendered by Appellants was

whether or not the well could have been repaired as a result of the blow-out, the

answer to which would have provided the Court with a factual basis for finding a

permanent or temporary injury.

Appellees’ argument that Appellant did not properly object to the failure to

submit the question on the proper basis is also false. In tendering the question to the

Court, Appellant’s counsel objected to the failure to submit, advising specifically

the question was a “necessary foundational question for the Court to submit” and

that without this finding, there would be an “absence of a necessary jury finding on

a question of fact” as to whether or not there could be recovery for drilling another

4 well. Thus, the court was advised a fact question existed which had to be determined

by the jury in order to support the damages requested.

Further, it was Appellees’ burden of proof to establish that all of the damages

sought were caused by the occurrence. Appellees admitted in the trial court below,

and admit in their Brief here they failed to submit a necessary foundational question

to support recovery of the damages awarded. Yet in their Brief, they suggest that

the proper measure of damages is predicated solely on the fact that the jury found

that Appellant was 100% negligent in causing the blowout, and has nothing to do

with the permanency of the injury. (Appellants’ Brief at 32) If that were true, then

there would be no reason for Appellees to have ever concerned themselves at trial

with putting on any proof at all regarding the reasonableness of its actions following

the blowout, nor would they have needed to ask the trial court to make an omitted

finding.

In their Brief, Appellees claim that in their motion for omitted finding in the

trial court, they asked for a finding of whether the well could be reproduced. But

this is not what was requested. Instead, they tried to sidestep the real issue of

permanent v. temporary injury, and asked the court only to make a finding as to

whether or not the Collins #2 well was a replacement for the Collins #1 well:

. . . Plaintiffs in the above-entitled cause, move the Court to make an omitted finding of fact: namely, on whether the Collins #2 Well was a replacement well for the Collins #1 Well that the jury found was lost as a result of Defendant PVS’ fault.

5 If the Court finds the Collins #2 WAS NOT a replacement well, then Plaintiffs move for a judgment in conformance with the jury’s verdict and the trial court’s finding. If the Court finds the Collins #2 well WAS a replacement well, then Plaintiffs move for a judgment notwithstanding the jury’s verdict as to damage issue 4(c) (reasonable and necessary cost to re-drill and complete a replacement well) but based on the rest of jury’s verdict.

(CR 531) Notably, Appellees’ request for omitted finding presumed the jury found

that the Collins #1 “was lost as a result of the blowout” – a finding that did not exist

because no question was submitted to the jury that would have supported a finding

of permanent injury. Here, Appellees specifically admit there was no finding of

permanent injury made by the jury or by the court.

A fact issue existed as to whether or not the well was repairable. This fact

issue was never submitted to the jury. Therefore, no finding of permanent injury to

the well could have been properly made, resulting in the rendition of a judgment that

is not supported and is inconsistent with the jury’s answers to the charge.

REPLY ISSUE NO. 2

The cases cited by Appellees do not support the award of market value plus costs of remediation, but instead establish the error in the judgment below.

Even if the trial court had properly made a finding of permanent injury, the

damages it awarded are simply wrong, and do not comport with the current,

applicable case law cited by Appellees. Appellees argue based on Dresser v. Page

Petroleum, the judgment here is correct, since in Dresser, the court noted that costs

of remediation were reasonable and necessary expenses in an attempt to save the

6 well. Dresser Indus. v. Page Petroleum, Inc., 853 S.W.2d 505, 511-512 (Tex. 1993);

(Appellee’s Brief at 47). But Appellees’ argument is misleading, since in Dresser,

the costs of remediation were NOT awarded.

In Dresser, Houston Fishing was found 40% negligent in causing damage to

a well, which was ultimately plugged and abandoned, forcing the drilling of a new

well. The jury found that the difference in the market value before and after the

damage was $836,000.00. The jury also found the reasonable and necessary cost of

the remedial work done in an attempt to save the well was $366,000.00, and the

necessary cost of drilling and equipping a replacement well was $494,112.00.

Because the market value ($836,000.00) was less than the cost of remediation plus

the cost of drilling the new well ($366,000.00+494,112.00), the trial court entered

judgment for $334,400.00, which was 40% of the market value. It did NOT add the

remediation costs to the market value. On appeal, Houston Fishing argued that it

should only have to pay 40% of $494,112.00, but the appeals court disagreed,

holding that the trial court correctly considered the remediation costs as part of the

costs of the replacement well:

In this case, Page made what the jury considered a reasonable attempt to save the well with necessary expenditures of $366,000.00. Page is entitled to recover this reasonable and necessary expenditure as part of the cost of drilling the replacement well. (citations omitted). Thus, the total cost of drilling the replacement well, including the expenditures for the remedial work on the original well, was $860,112.00 ($494,112.00 plus $366,000.00). This cost of drilling the replacement well exceeds the cash fair market value of the original well prior to the

7 occurrence in question; therefore, the trial court correctly rendered judgment against Houston Fishing for $334,400.00.

Contrary to Appellees’ suggestion then, using the exact approach taken by

the Dresser court here would have resulted in a judgment of only $5,138,000. The

jury found that the difference in market value before and after the occurrence was

$7,562,000, the cost of remediation was $5,138,000 and the necessary cost of

drilling and equipping a new well was $ 0. Since remediation costs plus redrilling

costs as found by the jury ($5,138,000 + $ 0) were less than market value

($7,562,000), $5,138,000 would have been the appropriate amount of the judgment

based on the jury’s answers.

Even if the trial court believed Appellees’ post-trial arguments, and found that

the jury was wrong and should have awarded $5,396,697.121 for the cost of drilling

a new well, the Dresser approach would still have resulted in a judgment of only

$7,562,000, since the fair market value is less than the cost of remediation plus cost

of drilling a new well. Nowhere in Dresser is it suggested that the cost of attempted

remediation should be added to the fair market value in making an award.

1Appellees suggest that the jury must have awarded $0 as the reasonable and necessary costs to drill a well to replace the Collins #1 because they believed that the Collins #2 well would have been drilled anyway. But the question did not ask about the Collins #2, instead asking the jury to determine the amount necessary to redrill and complete an oil and gas well to replace the Collins #1 well. Based on the wording of the question, it is more plausible that the jury simply did not believe that drilling another well was made necessary by the occurrence. 8 Appellees also cite United States Torpedo Co. v. Liner, a 1927 case, for the

proposition that expenses to attempt to save the well are recoverable in addition to

market value. United States Torpedo Co. v. Liner, 300 S.W. 641 (Tex. Civ. App –

Eastland 1927) (reversed on other grounds). While this language is found in dicta,

the issue of whether such expenses were properly awarded was not challenged on

appeal. The damage issue appealed there was whether or not the value of lost casing

was properly deducted from the award. Id. at 646. It is also significant to note that

in discussing damages awarded, the Liner court pointed out that “no contention was

made by either party that the damage to the well could have been repaired.” Id. Had

there been an issue or reparability of the well then, the result would have been

different.

Likewise, in a footnote, Appellees argue that in Dowell, Inc. v. Cichowski,

plaintiff was “allowed” to recover $76,706.33, which included $13,706.33 for

remedial repairs to the abandoned well, and $63,000 for the net cost of drilling and

equipping a replacement well, even though the market value of the abandoned well

was only $66,000. Dowell, Inc. v. Cichowski, 540 S.W.2d 342 (Tex. Civ. App. –

San Antonio 1976, no writ) (Appellees’ Brief at p. 52, fn. 134). Again, the judgment

did not include an award for both market value and cost of remediation, and just as

in Liner, the inclusion of the remedial repairs in the judgment was not challenged in

the appeal.

9 Finally, Appellees argue that Basin Oil Co. of Cal. v. Baash-Ross Tool Co., a

1954 California case not decided under Texas law, and with no precedential value

here, supports their argument. Basin Oil Co. of Cal. v. Baash-Ross Tool Co., 125

Cal. App. 2d 578 (1954). In Basin, the issue of whether or not any cost of remedial

operations should have been included was not challenged. Rather, appellants in that

case challenged only the amount of the damages included.2

Following current Texas case law and guiding precedent, the trial court’s

award of damages is in error. The judgment should be reversed, or at a minimum,

reformed to correct the error.

CONCLUSION AND PRAYER

The judgment in this case should be reversed, or alternatively at a minimum,

reformed. By entering the judgement it did, the trial court disregarded Texas

Supreme Court precedent by failing to submit a necessary fact issue to the jury and

by ignoring the proper measure of damages.

The only way the judgment in this case can stand is if this Court 1) assumes

that the damages to the well were permanent, despite an unresolved fact question the

jury was never allowed to answer 2) ignores the jury’s finding that $ 0 was the

reasonable and necessary cost to “drill and complete an oil and gas well to replace

2 “Baash-Ross’s next point is that the court erred in applying a measure of damages based on the cost of remedial operations undertaken 18 months after the failure of the plugs instead of assessing damages on the basis of remedial operations promptly instituted.” Basin Oil, 125 Cal. App. 2d 578 at 600. 10 the Collins #1 and 3) interprets the jury’s finding that $5,138,000 was a reasonable

amount to “repair and restore” the Collins #1 well, as really meaning that this was a

reasonable amount to “attempt” to repair the well, but not to fully restore it, 4)

disregards the very authority that Appellees rely on, which upholds an award of only

market value, and not market value plus the cost of attempted remediation.

Appellant, Premium Valve Services, LLC respectfully requests this Court to

reverse the judgment of the trial court and order a new trial of this matter.

Alternatively, Appellant requests the Court reform the judgment of the trial court,

and award actual damages of $5,138,000 plus interest and court costs.

Respectfully submitted,

/s H. Dwayne Newton _____________________________ H. Dwayne Newton State Bar of Texas No. 14977200 dnewton@newton-lawyers.com Cynthia L. Jones State Bar of Texas No. 00852600 cljones@newton-lawyers.com NEWTON, JONES & SPAETH 3405 Marquart Houston, TX 77027 Telephone: 713-493-7620 Facsimile: 713-493-7633

11 CERTIFICATE OF SERVICE I certify that a true and correct copy of this Reply Brief of Appellant was served on the following counsel for Appellees via electronic filing on September 17, 2015.

Julie M. Palmer State Bar of Texas No. 08710800 jpalmer@grayreed.com GRAY REED & MCGRAW, PC 1300 Post Oak Blvd., Suite 2000 Houston, TX 77056

/s/ H. Dwayne Newton _____________________________

CERTIFICATE OF COMPLIANCE I have relied on the word count provided by my word processing program. There are 2705 words in the document.