On October 14, 2021, the El Paso Court of Appeals reversed a trial court order striking a responsible third-party designation in an oilfield products liability action. The case involves a frac sleeve assembly that working interest owners used to complete four horizontal wells in Andrews County, Texas. The frac sleeves allegedly failed in three of the four horizontal wells, which the working interest owners contend caused over $20 million in damage to the wells and the oil and gas formation from which the wells would have produced.
The working interest owners brought suit against the manufacturer of the frac sleeves, alleging that the frac sleeves contained defective pup joints and assembly. The manufacturer contends that it purchased the components of the frac sleeves (including the sleeve, two pup joints, and couplings) from third-parties and merely assembled the components into a final product. The manufacturer moved to designate Aero Lift Machine, LLC as a responsible third party—alleging that since Aero Lift made the pup joints and couplings, Aero Lift is responsible to the extent that any defect exists.
Under Texas law, a responsible third party is a person or entity not named as a party in the litigation, but which nevertheless may bear responsibility for the plaintiff’s injury. Once a person or entity is designated as a responsible third party, the finder of fact may assign a percentage of responsibility to the responsible third party, which may lower the total recovery that the plaintiff receives from the defendant.
The working interest owners objected to the joinder of Aero Lift as a responsible third party on two primary grounds. First, the working interest owners objected that the manufacturer did not “provide and prove sufficient facts” to demonstrate Aero Lift’s liability, and thus failed to give “fair notice” of the third party claim. The El Paso Court of Appeals rejected this argument, holding that the Texas “fair notice” pleading standards do not require a party to set out in a pleading all of the evidence on which the party relies to establish a claim. The appellate court found that the manufacturer’s designation was fair notice because it alleged that the working interest owners claimed a defect in the pup joints and couplings and that Aero Lift manufactured the pup joints and couplings.
Second, the working interest owners claimed that allowing the manufacturer to designate Aero Lift as a responsible third party (while simultaneously denying that any defect existed in the frac sleeve product at all) created “conflicting defense theories” which show that the manufacturer “pleaded insufficient facts to implicate Aero Lift’s responsibility. The El Paso Court of Appeals also rejected the working interest owners’ second argument, holding that it is well established under Texas law that the defendant has the right to plead conflicting defenses, so long as a reasonable basis in fact and law exists for each defense.
The decision highlights the importance of prompt and timely discovery in oilfield products liabilities cases, particularly where the seller or manufacturer of the product has merely assembled component parts made by third parties.
Michael Reer is a shareholder with the firm Harris, Finley & Bogle, P.C. and may be reached at firstname.lastname@example.org. The case is In re NCS Multistage, LLC, No. 08-21-00020-CV, 2021 WL 4785743 (Tex. App.—El Paso Oct. 14, 2021, no pet. h.).