Opinion
Civ. No. 97-0491, C/W 97-1298, Section: "J" (2).
January 27, 2000.
FINDINGS OF FACT MID CONCLUSIONS OF LAW
A bench trial was held in this matter on January 3 through 7, 2000. At that time the matter was taken under advisement subject to the court receiving supplemental expert reports regarding alternative calculations of damages for delayed production, and final arguments which were heard by the Court on January 19, 2000. The Court has considered all of the evidence, memoranda and arguments of counsel, and now renders its Findings of Fact and Conclusions of Law, pursuant to Rule 52(a), Federal Rules of Civil Procedure.
FINDINGS OF FACT 1.
Panaco, Inc. is the owner and operator of Tank Battery No. 3, an offshore oil and gas production facility located in West Delta Block 54, within state waters of the Gulf of Mexico off the coast of Louisiana. The facility consists of four platforms, connected by walkways, which include separate platforms for living quarters, tanks, compressors, and generator. The tank platform held eight large, rectangular tanks or vessels, four 2000 barrel tanks and four 500 barrel tanks. The tanks were grouped in fours, with the tanks themselves situated below the platform deck, but with "thief hatch" openings or man ways accessible from the deck. The four larger tanks, Tanks 1, 2, 3, and 4, were grouped together in a large square configuration and shared common walls. The thief hatches to these four tanks were located at the corners of each respective tank, at the point where the four tanks adjoined each other. Accordingly, the four thief hatches were located near each other in a metal box which sat on the deck. Above the tanks were various production vessels, including separators, skimmers and towers. Two of these larger tanks, Tanks No. 2 and No. 4, were used as processed water settling tanks, sometimes called "gun barrels". Into these tanks flowed processed water from the process vessels on the platform. The water contained sand and oil residues. Over time, sand accumulated in the bottom of the tanks, requiring periodic cleaning. Tanks No. 1 and No. 3 were used to store crude oil.
2.
On April 24, 1996, an explosion and fire occurred on Tank Battery No. 3, causing extensive damage to the structure and its equipment.
3.
At the time of the explosion and fire, a contractor, Gulf South Systems, Inc., was in the process of cleaning certain vessels and tanks aboard the facility. Approximately thirty minutes before the explosion occurred, a Gulf South crew that had been cleaning Tank No. 2 stopped for a meal break, leaving on two electric drop lights hanging in the tank and turning off the compressor which powered the ventilation system.
4.
While the Gulf South crew was still on break, an explosion occurred in Tank No. 2, which in turn caused a fire in the adjacent Tank No. 3. The platform crew activated the Emergency Shut Down System and attempted, unsuccessfully, to douse the fire with water hoses and chemicals. Within a few minutes, the crew evacuated from the facility onto a work boat. The fire continued to burn for several hours until a crew went out into the field and manually closed off all of the twenty-nine wells which were flowing to Tank Battery No. 3. This occurred despite the fact that the Emergency Shut Down System had been activated within minutes of the explosion and fire occurring.
Although there was conflicting testimony as to whether the fire in Tank No. 3 occurred first, and then ignited the explosion in Tank No. 2, the preponderance of the evidence supports plaintiffs' theory that the explosion occurred first and caused the fire. In particular, the Court was impressed by the testimony of plaintiff's expert, Edmond Bailey, that the physical evidence indicated an internal explosion of the drop light caused by gas leaking into the fixture and being ignited by a spark.
5.
The proximate cause of the initial explosion in Tank No. 2, as well as the subsequent fire, was the negligence and fault of Gulf South in failing to turn off the electric drop lights and turning off the ventilation system for Tank No. 2 when the crew left for its meal break. While it is impossible for anyone to determine with absolute certainty the original ignition source for the explosion or fire, the most likely source was the "explosion proof" drop lights which the Gulf South crew had left in the tank. The evidence showed that these lights had been repaired on more than one occasion, including changing the bulbs at least twice, splicing one of the cords and changing a plug. This evidence tended to show that Gulf South's care and maintenance of its equipment was substandard. According to Dr. Edmond Bailey, plaintiff's expert, when the light bulb was changed, it is likely that the protective glass dome was not screwed back tightly onto the fixture, causing a loss of the seal which protected the light. If the seal is broken, it is possible for gases to migrate into the fixture, particularly in a situation such as occurred in this instance when the ventilation system in the tank was turned off. Once gases are in the fixture, any spark inside the light can ignite an explosion or fire. Dr. Bailey's opinion was that this was the most likely sequence of events that occurred on April 24, 1996, causing the initial explosion in Tank No. 2. His opinion was bolstered by physical evidence which was consistent with an internal explosion of the light, as opposed to the light being broken as a result of an external explosion. Based upon this evidence, the Court finds that the initial explosion occurred within the "explosion proof" drop light in Tank No. 2, causing substantial damage to that tank, and then causing a "blow torch like" fire to ignite in the adjacent Tank No. 3.
Defendants rely on eyewitnesses who claimed to be able to distinguish the particular tank which was initially involved. However, the proximity of the thief hatch openings and the distance between the living quarters platform, where the witnesses were standing, and the tank platform, make such eyewitness testimony unreliable. The Court also notes that although defendants' experts believe that the initial fire occurred in Tank No. 3, which in turn caused ignition of the explosion in Tank No. 2, these experts were unable to identify or explain any likely source of ignition for the initial fire in Tank No. 3.
6.
As a consequence of the fire and explosion, there was substantial damage to the structure itself, as well as to the equipment aboard the facility. All production from the various wells in the West Delta area, which flowed to Tank Battery No. 3 at West Delta 54, was shut-in while repairs were made.7.
Following the explosion and fire, Panaco began cleaning up and removing equipment in preparation for making repairs to the facility. Panaco hired another contractor, Trussco, Inc., to complete the tank cleaning work that Gulf South had begun. On May 21, 1996, while Truseco was still engaged in this work, a second explosion and fire occurred on Tank Battery No. 3, this time originating in Tank No. 1. As a result of the second explosion and fire, Tank Battery No. 3 sustained additional substantial damage to the structure and equipment.
8.
Because the second explosion and fire occurred before the repairs had been completed following the initial explosion, there is by necessity some speculation involved in determining the amount of property damage caused by the negligence of Gulf South. Once the second explosion occurred, instead of repairing the structure "like-in-kind", Panaco decided to build a totally new, larger and modern facility at a total cost exceeding $8 million. At trial, the Court heard a number of widely differing estimates of what it would have cost to repair the facility "like-in-kind" following the April 24, 1996 explosion and fire. The only actual repair estimate performed following the first explosion was done by Nicholas Odinet, who estimated repairs in the amount of $669,000. At trial, however, Mr. Odinet acknowledged that his estimate did not take into account a number of items that would reasonably be required to complete the repair work. Panaco hired Walter Parr of the Walk Haydel engineering firm, long after both explosions had occurred, to estimate the damages resulting from each explosion. Parr estimated damages of $4.1 million for both explosions, attributing $3.0 million to the first explosion (April 24, 1996) and $1.1 million to the second explosion (May 21, 1996). Parr's report lacks credibility for several reasons. First, it was a "time and materials" estimate, not a competitive or market bid. Second, Parr assumed all repair work would be done on site, rather than being pre-assembled on land, which required increased costs for equipment and labor. Third, Parr acknowledged some elements of overlapping damage from the two explosions. As a consequence of both explosions, Underwriters paid Panaco a total of $3.9 million (representing total property damages of $4.1 million, less a $100,000 deductible for each of the two separate incidents). David Montgomery, an insurance adjuster who handled the claim for Underwriters, testified that he attributed $2.3 million to the first explosion and $1.6 million to the second explosion. Still another estimate was performed by Gregg Perkin, an expert hired by GSS and its insurers. At trial, Perkin testified that he estimated $672,000 as the cost of repairs from the first explosion. As a way of checking or verifying his work, Perkin also obtained a repair estimate or bid from Mustang Engineering in Houston. Mustang's estimate to make "like-in-kind" repairs was $1,651,363. Although Perkin attempted to downplay the accuracy of Mustang's estimate, he acknowledged Mustang's bid represented "how they would do it" (i.e., make like-in-kind repairs). Perkin also admitted that his lower estimate did not account for a number of items that would be reasonable expenses, including pipeline inspection, purging or degassing the vessels, and scaffolding. After considering all of the testimony and evidence submitted, the Court determines that the sum of $1.75 million fairly compensates for this damage.
Defendants contend they are entitled to a credit or offset for part or all of the settlement between plaintiffs and other defendants involved in the second explosion. However, the Court believes that the proper measure of damages is to assess the damages reasonably attributable to only the first explosion. Since this is the method used by the Court in this case, defendants are not entitled to any credit or offset because of plaintiffs' settlement of their claims arising from the second explosion.
9.
As a result of the two explosions and fires, Tank Battery No. 3 was shut-in for a total of 165 days, with production resuming on October 7, 1996. The Court considered evidence which attributed anywhere from 35 days to 102 days of the shut-in to the April 24, 1996 explosion. The Court finds that a total of 70 days represents a reasonable approximation of the time it would have taken to repair the facility "like-in-kind" and restore production but for the second explosion.10.
Based upon the supplemental expert reports submitted, the Court determines that the sum of $1,111,426 adequately compensates Panaco for the delayed production of its oil and gas wells.11.
The Court finds that GSS failed to perform its services under its contract with Panaco in a workmanlike manner, and in fact caused substantial damages to the Panaco structure which required Panaco to hire a different contractor to complete the cleaning of the tanks or vessels aboard Tank Battery No. 3.CONCLUSIONS OF LAW 1.
The Court has jurisdiction of this matter based upon diversity of citizenship and jurisdictional amount. 28 U.S.C. § 1332.
2.
Tank Battery No. 3 is located in the Gulf of Mexico, within the territorial waters of Louisiana. Accordingly, this matter is governed by the substantive law of the state of Louisiana.
3.
Louisiana Civil Code article 2315 is the basis for fault or negligence. Article 2315 provides "every act whatever of man that causes damage to another obliges him by whose fault it happened to repair it."
4.
Louisiana Civil Code article 2324.1 provides that in the assessment of damages resulting from offenses and quasi-offenses, much discretion must be left to the trier of fact.
5.
Awards for loss of future income are speculative by nature and cannot be calculated with mathematical certainty. A trial court necessarily has much discretion in fixing the amount of such awards. Robinson v. Graves, 343 So.2d 147 (La. 1977)
6.
The legal and proximate cause of the April 24, 1996 explosion and fire was the negligence or fault of Gulf South.
7.
Panaco and Underwriters are entitled to judgment in their favor in the sum of $1.75 million for the property damage to repair Tank Battery No. 3 to its "like-in-kind" condition prior to the April 24, 1996 explosion and fire.
8.
Panaco is entitled to judgment in its favor in the sum of $1,111,426 as damages for delayed production and coiled tubing expenses, resulting from the April 24, 1996 explosion and fire.
9.
Because GSS was negligent in causing the explosion and fire which occurred on April 24, 1996, GSS is not entitled to recover from Panaco for services rendered.
10.
Pursuant to Louisiana law, plaintiffs are entitled to legal interest from the date of judicial demand until paid. Prejudgment interest shall be calculated based on the state rate for legal interest. Post-judgment interest shall be calculated at the federal rate. Travelers Insurance Company v. Liljeberg Enterprises, Inc., 7 F.3d 1203, 1208-09 (5th Cir. 1993).
New Orleans, Louisiana, this 27 day of January, 2000.
MINUTE ENTRY BARBIER, J. JANUARY 27, 2000