26 F.4th 229
5th Cir.2022Background
- Hess contracted with Schlumberger to supply surface controlled subsurface safety valves (SCSSVs) for deepwater Gulf of Mexico wells; the contract incorporated then-current API 14A standards.
- The SCSSVs use metal spring energized (MSE) seal assemblies including a rosette spring; four Schlumberger valves failed in Hess wells and Schlumberger recalled valves, blaming a non‑conforming MSE spring made by Greene Tweed.
- Hess attempted to revoke acceptance under Tex. Bus. & Com. Code § 2.608, sued for breach of contract, and sought costs to retrieve/replace valves plus damages and fees.
- After a bench trial the district court found Hess failed to prove revocation: it concluded (a) the valves were not shown to be non‑conforming under the incorporated API provisions, (b) any alleged deviations did not substantially impair value, and (c) Hess had not revoked acceptance before it itself altered/damaged the goods.
- The district court issued a contingent damages ruling; Hess appealed and Schlumberger cross‑appealed the contingent award (later dismissed as moot by the Fifth Circuit).
Issues
| Issue | Hess's Argument | Schlumberger's Argument | Held |
|---|---|---|---|
| Whether API 14A §6.3.2.2 required an exact match between validated valve and drawings (i.e., delivered goods non‑conforming) | §6.3.2.2 demands the drawings/specifications precisely match the validated equipment, so Schlumberger delivered non‑conforming goods | §6.3.2.2 is a design requirement allowing insubstantial variation; compliance requires manufacture to drawings substantially the same as validated drawings | Court held district court correctly read §6.3.2.2 to permit insubstantial variation; no legal error and factual findings not clearly erroneous |
| Whether the rosette spring is a "traceable component" under API 14A §7.6.2 requiring dimensional inspection | The spring is traceable and thus required dimensional inspection; failure to inspect means non‑conformity | Contract/inspection plan identify the MSE seal assembly (not internal spring) as the lowest traceable component; industry practice supports inspecting assemblies, not subcomponents that would be destroyed by inspection | Court held district court’s factual finding—that traceable components are seal assemblies, not individual springs—was reasonable and not clearly erroneous |
| Whether any non‑conformity caused a substantial impairment of value (causation standard) | Hess: alleged non‑conformities (spring) caused valve failures and thus substantially impaired value; court should apply a "producing cause" standard | Schlumberger: failures were plausibly caused by Hess’s operating conditions (low pressure, debris, cyclic stress); earlier Schlumberger statements do not bind its trial proof | Court assumed producing‑cause standard would be applicable but found district court’s factual causation findings plausible; no clear error in concluding non‑conformity did not substantially impair value |
| Whether Hess revoked acceptance within a reasonable time and before a substantial change in condition | Hess: timely revoked once failures were apparent | Schlumberger: Hess did not revoke before altering/damaging the valves; revocation invalid | Court affirmed district court’s finding that Hess failed to prove timely revocation before substantial change/damage |
Key Cases Cited
- Guzman v. Hacienda Recs. & Recording Studio, Inc., 808 F.3d 1031 (5th Cir. 2015) (standard of review for bench trial factual findings)
- Brumfield v. Cain, 808 F.3d 1041 (5th Cir. 2015) (clear‑error standard explained)
- Anderson v. City of Bessemer City, 470 U.S. 564 (U.S. 1985) (bench‑trial credibility and clear‑error framework)
- Deloach Marine Servs., L.L.C. v. Marquette Transp. Co., 974 F.3d 601 (5th Cir. 2020) (deference to trial court credibility findings)
- Kona Tech. Corp. v. Southern Pac. Transp. Co., 225 F.3d 595 (5th Cir. 2000) (use of industry meaning and expert testimony to construe contract terms)
- Barrow‑Shaver Res. Co. v. Carrizo Oil & Gas, Inc., 590 S.W.3d 471 (Tex. 2019) (Texas rule on considering surrounding facts and industry usage in contract construction)
- Luhr Bros., Inc. v. United States, 157 F.3d 333 (5th Cir. 1998) (application of Anderson in reviewing bench‑trial factual findings)