Apache Corporation v. W & T Offshore, Incorporated
930 F.3d 647
| 5th Cir. | 2019Background
- Apache (operator) and W&T (non-operator) were parties to a 1999 Joint Operating Agreement (JOA) covering three deepwater wells in the Mississippi Canyon; government-mandated plugging & abandonment (P&A) became required.
- Apache attempted P&A with an intervention vessel (Helix) but later used two drilling rigs (Onyx and Ensco); total P&A cost was ~$139.9M. Apache billed W&T for 49% ($68.57M); W&T paid only $24.86M (49% of the Helix estimate).
- Apache sued for breach of contract; jury found W&T breached and awarded Apache $43,214,515.83. Jury also found Apache acted in bad faith causing W&T’s nonpayment and awarded a $17M offset on a separate question.
- Central contract provisions: §6.2 (AFE required for single expenditures ≥ $200,000) and §18.4 (operator must conduct abandonment required by governmental authority; costs shared by participating interests).
- District court denied W&T’s summary judgment (ambiguity as to §6.2’s applicability to §18.4) and post-trial motions; W&T appealed arguing (1) Article 2003 of the Louisiana Civil Code bars recovery when obligee’s bad faith caused the breach, (2) W&T did not breach because it rejected AFEs, and (3) it was entitled to a $17M offset for Apache’s alleged windfall (stacking-cost savings).
Issues
| Issue | Plaintiff's Argument (Apache) | Defendant's Argument (W&T) | Held |
|---|---|---|---|
| Whether Article 2003 bars recovery when jury found Apache acted in bad faith causing W&T’s nonpayment | Article 2003 does not apply because Apache did not breach the contract; bad-faith finding does not defeat recovery absent a prior finding that the obligee breached | Article 2003 bars recovery where obligee’s bad faith caused obligor’s nonperformance; jury’s bad-faith finding should preclude Apache’s damages | Court: Followed Lamar — Article 2003’s bad-faith bar requires a prior finding that the obligee breached; because Apache was not found to have breached, Article 2003 does not preclude recovery. |
| Whether Apache was required to obtain W&T’s AFE approval under §6.2 before conducting a government-mandated P&A under §18.4 | §18.4 authorizes the operator to conduct government-required P&A and contemplates cost-sharing; requiring §6.2 AFEs would allow non-operators to thwart legally required P&A (absurd result) | §6.2 unambiguously requires an AFE for expenditures ≥ $200,000 and Exhibit C permits short payment where an AFE is not approved; W&T’s non-approval permitted its reduced payment | Court: Contract ambiguous as to interplay of §§6.2 and 18.4; ambiguity properly submitted to jury, which found Apache did not need W&T’s AFE approval under §6.2 for §18.4 P&A. |
| Whether W&T was entitled to a $17M offset for Apache’s alleged savings (stacking-cost windfall) | Damages should place plaintiff in the position it would have been in had contract been performed; jury instructions mirrored La. Civ. Code art. 1995 and jury awarded Apache its actual loss | Jury separately found $17M offset; W&T argues that award should reduce Apache’s damages to account for Apache’s avoided stacking costs | Court: The jury’s damages award (Question 2) already measured Apache’s actual loss under art. 1995; Question 5 was not legally tied to Question 2 and no legal theory (comparative fault, compensation, or unjust enrichment) supported the offset—denied. |
| Whether judgment/new trial should be granted because evidence was insufficient or award excessive | Evidence supported breach and damages; award equaled the shortfall W&T created by partial payment | Argues as a matter of law no breach and that award was excessive given Apache’s stacking-cost savings | Court: Applied deferential standards; evidence was sufficient and award was not excessive; district court did not abuse discretion in denying new trial/remittitur. |
Key Cases Cited
- Lamar Contractors, Inc. v. Kacco, Inc., 189 So. 3d 394 (La. 2016) (Article 2003’s bad-faith damages bar applies only where obligee was found to have breached duties under the contract)
- Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938) (federal courts apply state substantive law in diversity cases)
- Cadwallader v. Allstate Ins. Co., 848 So. 2d 577 (La. 2003) (contract interpretation: clear and explicit terms require no further interpretation)
- Laxton v. Gap, Inc., 333 F.3d 572 (5th Cir. 2003) (remittitur standard: vacatur/remittitur appropriate only when award is clearly excessive or contrary to right reason)