938 F.3d 661
5th Cir.2019Background
- Baker Hughes contracted UE Compression in 2011 to supply seven containerized air booster compressors for Chevron’s Gorgon project; units used for dewatering/hydrotesting.
- In Nov. 2014 a drain-line ball valve ruptured on one booster in Western Australia, injuring a contractor; all boosters were removed from service and Baker Hughes rented replacements; it sued UE for breach of contract and express and implied warranties.
- The contract comprised four documents (Supply Agreement, LOGIC General Conditions, Baker Hughes’s Specification, and UE’s Quote); LOGIC Terms allocated design responsibility to Baker Hughes and contained the express warranty (Section 28) with an 18-month/1‑year defects-notice window.
- Baker Hughes alleged UE selected an improper ball valve/configuration and sought damages including full purchase price and consequential losses; Baker Hughes did not notify UE within the Section 28 warranty period.
- The district court granted summary judgment for UE (holding the claim sounded in warranty, Section 28 governed defects and expired, and implied warranties were displaced), awarded sanctions against Baker Hughes for obstructing/losing the valve, and denied Baker Hughes’s motion for new trial; this Court affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the claims are breach of contract or breach of warranty | Baker Hughes: UE breached contractual obligations beyond mere product defect | UE: Claims concern defective goods accepted by buyer → warranty law governs | Warranty claim only; buyer accepted goods, so remedies are warranty-based |
| Whether Section 28 (Defects Correction) was Baker Hughes’s exclusive remedy for alleged defects | Baker Hughes: Contract remedies are cumulative; express remedy does not preclude other remedies and longer statutes of limitation apply | UE: Section 28 is the express warranty for defects and Baker Hughes failed to notify within its time window | Section 28 was the operative express warranty for defects; Baker Hughes failed to timely notify so express remedy expired |
| Whether implied warranties (merchantability and fitness for a particular purpose) survive the contract | Baker Hughes: Implied warranties cannot be disclaimed unless conspicuous; four‑year statute of limitations would apply | UE: Buyer supplied detailed specifications and contract allocated design responsibility to buyer → Comment 9 and §2.317 displace implied warranties | Implied warranty of fitness did not arise (no reliance); implied merchantability displaced as inconsistent with express warranty per Comment 9/§2.317 |
| Sanctions for failure to produce/for destruction of the valve | Baker Hughes: Sanctions were excessive; valve was later shipped to UE’s expert | UE: Baker Hughes frustrated agreed inspection and destroyed/failed to timely produce evidence | District court’s partial monetary sanctions and adverse inference were not an abuse of discretion; affirmed |
Key Cases Cited
- Reynolds Metals Co. v. Westinghouse Elec. Corp., 758 F.2d 1073 (5th Cir. 1985) (distinguishing breach of performance from warranty defects)
- New Jersey Transit Corp. v. Harsco Corp., 497 F.3d 323 (3d Cir. 2007) (applying Comment 9 to exclude implied warranties where buyer provides detailed specifications)
- Sw. Bell Tel. Co. v. FDP Corp., 811 S.W.2d 572 (Tex. 1991) (explaining difference between breach of contract and breach of warranty under Texas law)
- Haley v. Townley, 45 F.3d 914 (5th Cir. 1995) (standard of review for summary judgment)
- Templet v. HydroChem Inc., 367 F.3d 473 (5th Cir. 2004) (abuse-of-discretion review for post-judgment procedural rulings)
- Cooter & Gell v. Hartmarx Corp., 496 U.S. 384 (1990) (standard for appellate review of sanctions)