Exxon Mobil Corp. v. AECOM Energy & Constr.

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EXXON MOBIL CORPORATION, Plaintiff/Crossclaim Defendant, v. AECOM ENERGY & CONSTRUCTION, INC., and AECOM, Defendants/Crossclaim Plaintiffs.

No. CV 19-107-BLG-SPW-TJC

United States District Court, D. Montana, Billings Division

January 31, 2024

FINDINGS AND RECOMMENDATIONS OF U.S. MAGISTRATE JUDGE

TIMOTHY J. CAVAN, UNITED STATES MAGISTRATE JUDGE.

Pending before the Court are Defendant AECOM Energy &amp Construction, Inc.'s Motion for Partial Summary Judgment (Doc. 130) and Motion to Strike (Doc. 152), and Plaintiff Exxon Mobil Corporation's Motion for Partial Summary Judgment (Doc. 137). The Court held a hearing on the motions on December 6, 2023. (Doc. 168.) The motions are fully briefed and ripe for the Court's review. (See Docs. 130-1, 139, 142, 150, 153, 154, 155, 158, 159.) For the following reasons, the Court recommends that Defendant AECOM Energy & Construction, Inc.'s Motion for Partial Summary Judgment be GRANTED in part and DENIED in part, that its Motion to Strike be DENIED, and that Plaintiff Exxon Mobil Corporation's Motion for Partial Summary Judgment be GRANTED in part and DENIED in part.

I. BACKGROUND

On November 30, 2017, Exxon Mobil Corporation (“Exxon”) entered into a Purchase Order contract (Doc. 138-1) with AECOM Energy & Construction, Inc. (“AECI”) to perform an inspection and maintenance turnaround on its oil refinery in Billings, Montana.^[1](Doc. 27 at 2-3.) Work on the project did not go smoothly. Under the terms of the Purchase Order, AECI was to complete all mechanical work in seven weeks, but the turnaround transformed into a 17-week project. (Doc. 143 at 8.) Exxon and AECI each attribute the setbacks with the project to the conduct and performance of the other party.

Following completion of the turnaround, Exxon issued a letter to AECI on March 26, 2019, providing notice that it was setting off over $79 million in claims against any amount that AECI claimed to be owed under the Purchase Order. (See Doc. 138-34.) AECI responded by recording a construction lien against Exxon's Billings refinery on April 25, 2019, in the amount of $132,025,306.82. (Doc. 151 at 12.) Then, on July 9, 2019, AECI submitted a $144,134,404.63 claim package and invoice to Exxon, representing the amount AECI claimed to be due under the parties' contract. (See Doc. 151-39.)

On August 5, 2019, one of AECI's subcontractors on the project, Diamond Refractory Services, LLC (“Diamond Refractory”) filed an action against AECI, Exxon, and other defendants in the Montana Thirteenth Judicial District Court. (See Doc. 11.) Diamond Refractory brought suit to foreclose on a construction lien of its own against Exxon's refinery, among other claims. (Id. at 4-5.) Exxon filed an answer to Diamond Refractory's complaint, as well as a crossclaim against AECI, alleging various causes of action relating to the Purchase Order. (See Docs. 12, 12-1.)

In its crossclaim against AECI, Exxon states that the parties originally agreed that AECI would submit a lump sum bid of $32,595,765 for approximately 75% of the worklist items. (Doc. 12 at 5.) Payment for the remaining 25% would be paid at reduced hourly labor costs, which Exxon estimated would bring the total project cost to approximately $41 million. (Id. at 5-6.) Exxon later “agreed to increase the total contract amount to $68,506,806 based upon the approved portions of change orders stemming from additional and change work scope added during the Turnaround.” (Id. at 2.)

When Exxon filed its crossclaim, it claimed to have paid AECI $41,500,227.37. (Id.) But due to “substantial losses” that Exxon attributes to AECI breaching the Purchase Order, Exxon asserts it exercised its setoff rights under the Purchase Order, and refused to tender further payment to AECI. (Id. at 2-3.) Specifically, Exxon alleges that AECI (1) failed to adequately staff and plan for the turnaround work, (2) failed to provide a competent workforce and site leadership, (3) exhibited poor craftsmanship and execution, and (4) failed to manage its Quality Acceptance/Quality Control program, all resulting in “extremely low” productivity and performance delays. (Id. at 6-8.) Exxon further alleges that AECI “failed to pay many of its subcontractors,” resulting in Diamond Refractory filing its lien against Exxon's refinery. (Id. at 3.)

Exxon asserts claims against AECI for breach of contract (Count One), breach of the covenant of good faith and fair dealing (Count Two), negligence (Count Three), gross negligence and willful misconduct (Count Four), release of construction lien (Count Five), and contractual indemnification (Count Six). (Id. at 10-16.)

Exxon seeks damages resulting from (1) diverting crude shipments due to the delay; (2) purchasing products to cover Exxon's customers; (3) shipping and rail costs to cover customers; (4) unit degradation; (5) physical damage to the refinery caused by AECI; (6) additional contractor costs; (7) additional overhead costs; (8) third party engineering work; and (9) lost profits. (Id. at 9.) Exxon claims these damages exceed the face value of the Purchase Order. (Id.) Exxon further claims that AECI's conduct, such as alleged misrepresentations regarding its welding work, constituted actual fraud or actual malice, entitling Exxon to punitive damages. (Id. at 10.)

After Exxon filed its answer to the complaint and crossclaim, Diamond Refractory settled its claims against all defendants and filed a motion to dismiss in state court on October 8, 2019, leaving Exxon's crossclaim unresolved. (See Doc. 1-3.) The next day, AECI removed the action to this Court based on diversity of citizenship. (Doc. 1.) AECI subsequently filed its answer to Exxon's crossclaim, and asserted its own crossclaim against Exxon. (See Doc. 14.)

In its crossclaim, AECI alleges that AECI and its subcontractors incurred more than $160 million in costs, and that Exxon owes it an outstanding amount of $144,134,404.63. (Id. at 3.) AECI alleges that Exxon did not plan and prepare for the start of the turnaround and repeatedly changed the scope of the project. (Id. at 26-30.) AECI also states that once it began its work, AECI discovered that some of the equipment was significantly more deteriorated than either of the parties anticipated. (Id. at 30.) AECI claims that Exxon represented it would work with AECI at project's end to quantify the additional costs of these changes. (Id. at 34.)

AECI asserts claims for foreclosure of its construction lien (Count I), breach of contract-“cardinal change” (Count II), breach of contract-“in the alternative” (Count III), breach of the implied covenant of good faith and fair dealing (Count IV), action on account and account stated (Count V), violation of the Prompt Payment Act as to invoices submitted to Exxon in January and February 2019 (Count VI), violation of the Prompt Payment Act as to the invoice submitted to Exxon on July 9, 2019, in the amount of $144,134,404.63 (Count VII), and unjust enrichment (Count VIII). (Id. at 37-54.)

Both parties have filed motions for partial summary judgment. (Docs. 130, 137). AECI has also filed a motion to strike. (Doc. 152.) Each will be discussed in turn below.

II. DISCUSSION

A. AECI's Motion to Strike

AECI has filed a motion to strike, asserting that Exxon produced multiple pieces of evidence in response to AECI's Motion for Partial Summary Judgment that had not been previously disclosed. (Doc. 152.) AECI seeks to preclude consideration of the evidence, both in connection with the parties' respective motions for partial summary judgment and at trial. (Id. at 2.)

First, AECI moves to strike evidence supporting Exxon's contractual indemnity claim, relating to attorney fees and costs Exxon incurred in defending Diamond Refractory's lien foreclosure action in state court. Specifically, AECI moves to strike (1) the Declaration of Reid Gettys, outlining the fees and costs paid in defending the action (Doc. 143-10); (2) Exxon's responses to ¶¶ 74 and 87 in its Statement of Disputed Facts, to the extent they rely on the Gettys Declaration (Doc. 143 at 28, 31); and (3) Exxon's additional facts in ¶ 148 of Exxon's Statement of Disputed Facts on the same issue (id. at 46). (See Doc. 153 at 3.)

Second, AECI moves to strike evidence pertaining to physical damage to Exxon's refinery, allegedly caused by AECI's work during the turnaround. Specifically, AECI moves to strike evidence of a so-called “hot spot” on a vessel discovered at the refinery, which is thought to be related to work during the turnaround. In this regard, AECI moves to strike (1) Exxon's response to ¶ 49 in its Statement of Disputed Facts regarding the hot spot (Doc. 143 at 19); (2) a March 2023 PowerPoint slide addressing the hot spot issue (Doc. 143-8); (3) an October 2020 email discussing the same (Doc. 153-8); and (4) an “issued for construction” analysis (Doc. 153-9). (See Doc. 153 at 3.)

AECI argues that it conducted substantial discovery regarding both Exxon's lien-related damages and Exxon's allegations that AECI caused physical damage to Exxon's refinery, and Exxon failed to disclose this evidence. (Doc. 153 at 9.) With respect to the lien-related damages, AECI claims that “Exxon did not merely fail to disclose these damages,” but “denied their existence.” (Doc. 159 at 8, 10.)

As to evidence of a hotspot, AECI argues that “[b]ut for Exxon's untimely disclosures[,] AECI would have pursued the hot spot issue as diligently as it did all of Exxon's other allegations.” (Id. at 8.)

In response, Exxon contends that its conduct in disclosing these materials in a supplemental production was reasonable, and AECI has suffered no prejudice because of the disclosures. (Doc. 155 at 5, 7.)

A party is required to supplement discovery disclosures and responses under Fed.R.Civ.P....