Giese v. TETRA Techs.

MEMORANDUM OPINION AND ORDER

Gray H. Miller Senior United States District Judge

Pending before the court is plaintiff/third-party defendant John R. Giese (“Giese”) and third-party defendant Richard Vanek's (collectively, the “Sellers”) motion for summary judgment (Dkt. 17), and defendant TETRA Technologies, Inc.'s (“TETRA”) motion for leave to file a first amended answer (Dkt. 24). After reviewing the motions, responses, replies, and applicable law, the court is of the opinion that the motion for leave to amend should be DENIED, and the motion for summary judgment should be GRANTED IN PART AND DENIED IN PART.

I. Background

A. The Equity Interest Purchase Agreement

This case involves claims for indemnification and breach of contract arising out of TETRA's acquisition of JRGO Energy Services, Inc. (“JRGO”). See Dkts. 1, 8. In 2018, TETRA acquired JRGO from the Sellers, and together they executed the Equity Interest Purchase Agreement (“EIPA”). See Dkt. 17, Ex. 1. Article III of the EIPA contains various representations and warranties. See id. Relevant to this case, the Sellers affirmed that they:

• Disclosed all leases with payments of more than $5 000 per year (Id. § 3.11)

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• Held valid title or leasehold interest in listed assets and had kept those assets in good repair (Id. § 3.19)

• Disclosed all required liabilities (Id. § 3.7); and

• Maintained a system of internal control over financial reporting (Id. § 3.6)

Article VIII of the EIPA contains an indemnification provision where the Sellers agreed to indemnify TETRA for any breach of the EIPA. Id. § 8.2(a)(v). That provision requires TETRA to notify the Sellers within 30 days of a claim or demand subject to payment under the indemnification provision. Id. § 8.4(a). Failure to provide timely notice relieves the Sellers of their obligation to indemnify TETRA to the extent that failure materially prejudiced them. Id. Additionally, the parties executed an escrow agreement alongside the EIPA. Dkt. 17, Ex. 2. If TETRA did not make an indemnification claim, the escrow agent was required to release funds to the Sellers according to a specified schedule with the final payment set for June 6, 2020. Id.

B. The Dispute

Until December 2017, JRGO rented lay flat hose from Maskell Pipe & Supply, Inc. (“Maskell”). Dkt. 17, Ex. 4 ¶ 7. This rental was governed by a month-to-month, oral agreement where JRGO tracked the use of the hose on a spreadsheet and issued monthly purchase orders to Maskell. Dkt. 17, Ex. 3 at 89-90. Maskell did not own the lay flat hose but leased it from Sowards Oil Field Services, Inc. (“Sowards”). See Dkt. 19, Ex. A. JRGO's primary point of contact with Maskell was David Arthurs (“Arthurs”). Dkt. 17, Ex. 4 ¶ 7. In November 2017, Arthurs informed JRGO that Maskell would no longer rent the hose to JRGO but offered an introduction with Sowards so JRGO could directly rent the hose. Id. ¶ 12. Giese and JRGO's General Manager, Joseph Powell (“Powell”), met with Sowards' owner Billy Joe Wynkoop (“Wynkoop”) on

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December 13, 2017. Id. ¶¶ 3, 13. At that meeting, Giese and Wynkoop negotiated a deal whereby Sowards would continue to rent out the lay flat hose Maskell had previously rented to JRGO. Id. ¶ 14. This was also a month-to-month, oral agreement with the same tracking and purchase order mechanism that JRGO and Maskell previously used. Dkt. 17, Exs. 3 at 89-90, 4 ¶ 16.

In December 2017 or early 2018, Arthurs visited JRGO “to have some loose ends tied up” and have Powell sign written contracts for the lay flat hose rental. Dkt. 17, Ex. 19 at 13-16. JRGO's standard operating procedure dictated that only Giese would sign written contracts. Dkt. 17, Ex. 3 at 114. Powell asked another JRGO employee, Christopher Esenwein (“Esenwein”), to meet with Arthurs in his place because Powell was busy at the time. Dkt. 17, Ex. 19 at 16. Esenwein had a preexisting relationship with Maskell and had exchanged emails with Arthurs in the past. Id. at 15-16. Esenwein signed a signature page but did not request to see the entire contract because he was in a hurry. Id. at 14. The effective date listed on the contract was December 1, 2017. See Dkt. 17, Ex. 15. During a later phone call, Esenwein authorized Arthurs to copy his signature from the first contract to two other rental contracts. Dkt. 17, Ex. 19 at 14. Those two additional contracts were dated February 1, 2018, and covered the rental of 12-inch and 16-inch DR11 HDPE pipe. See Dkt. 17, Exs. 16, 17. While the parties contest the validity of these three contracts (the “Sowards Contracts”), there is no dispute that they were not disclosed in the EIPA. See Dkts. 17, 19, 22.

Before TETRA acquired JRGO, Jacek Mucha (“Mucha”), TETRA's Vice President of Finance and Treasurer, had an auditor convert JRGO's financials into GAAP format “to get comfortable with the acquisition.” Dkt. 17, Ex. 7 at 35-36. The auditor was unable to include the Sowards Contracts in the financial analysis, and as a result, the purchase price did not reflect the

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liabilities they potentially imposed. Dkt. 17, Ex. K ¶ 8. When TETRA took over operations, it initially adopted JRGO's protocols to track the Sowards hose and pipe. Id. ¶ 7. Powell stayed on with TETRA, remained responsible for TETRA's rental relationship with Sowards, and managed the spreadsheet tracking TETRA's use of the hose and pipe. Dkt. 17, Ex. 4 ¶¶ 25-26. At the time, TETRA's executives did not know which hose and pipe belonged to Sowards or whether it was in good working order. Dkt. 19, Ex. K ¶ 11. However, Powell states that the Sowards hose and pipe “continued to be in operable working condition.” Dkt. 17, Ex. 4 ¶ 30.

On July 31, 2019, Sowards sent a letter to TETRA requesting payment for an invoice dated August 2018. Dkt. 19, Ex. B. That same letter indicated that Sowards believed the rented hose was damaged, and TETRA would be responsible for the replacement cost of $400, 000 if not repaired as outlined in the Sowards Contracts. Id. TETRA did not believe the Sowards Contracts were legitimate and did not respond at that time. Dkt. 17, Ex. 7 at 57.

On January 16, 2020, Sowards sent TETRA a letter demanding $962, 894.45 for unpaid rent and the value of the hose and pipe, along with a settlement offer of $850, 000. Id. at 79-80. Four days later, Sowards' counsel provided TETRA with copies of the Sowards Contracts. Id. at 81. TETRA reached out to Giese on February 4, 2020, via text message to gather information about the Sowards Contracts. Dkt. 19, Ex. C. Later that day, TETRA's counsel emailed Giese (the “Feb. 4 Email”). Dkt. 17, Ex. 7 at 104-05. The Feb. 4 Email contained copies of the Sowards Contracts that Giese had requested and asked Giese not to contact Sowards or Wynkoop. Id. Giese replied that he was “not aware of the alleged contracts, ” doubted their authenticity, and offered to “help TETRA with this matter to the best of [his] ability.” Id.

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On March 11, 2020, Sowards sued TETRA (the “Sowards Lawsuit”) in West Virginia state court, initially seeking $962, 894.45. See Dkt. 17, Exs. 7, 11. On April 9, 2020, TETRA removed that lawsuit to the United States District Court for the Northern District of West Virginia. Dkt. 17, Ex 12 (notice of removal for Sowards Oil Field Services, Inc. v. TETRA Technologies, Inc. f/k/a/ JRGO Energy Services, LLC, No. 2:20-cv-11 (N.D. W.Va. Apr. 9, 2020)). On June 5, 2020-the day before the last escrow payment was scheduled-TETRA sent Giese a notice of indemnification and instructed the escrow agent not to disperse the remaining balance. Dkt. 17, Ex. 7 at 103. As of August 24, 2021, Sowards' damages calculation in the Sowards Lawsuit has increased to $1, 624, 721.97. See Dkt. 17, Ex. 23 at 6.

C. Procedural Background

On July 27, 2020, Giese commenced the instant lawsuit claiming TETRA breached the escrow agreement and seeking a declaratory judgment that he is not obligated to indemnify TETRA. Dkt. 1. In TETRA's answer, it admitted that the Feb. 4 Email “does not constitute notice of demand for indemnification under the terms of the Purchase Agreement.” Dkt. 7 ¶ 21. TETRA also filed a third-party complaint against the Sellers alleging breach of the EIPA, specifically sections 3.6, 3.7, 3.11, and 3.19. See Dkt. 8.

Giese filed the instant motion for summary judgment on August 24, 2021. See Dkt. 17. In TETRA's response, it wishes to argue that the Feb. 4 Email constitutes written notice of an indemnification claim for section 8.4(a) of the EIPA. See Dkt. 19. To that end, TETRA filed the instant motion to amend its answer. Dkt. 24. The only change in the proposed amendment is to clarify that the Feb. 4 Email “does not constitute notice of demand for indemnification but [TETRA] denies any implication that this correspondence does not qualify as written notice of an

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Indemnification Claim under Section 8.4(a) of the Purchase Agreement.” Dkt. 24, Ex. 1. Both motions are now before the court.

II. Legal Standards

A. Amending the Pleadings

“[A] schedule may be modified only for good cause and with the judge's consent.” Fed.R.Civ.P. 16(b)(4). “The good cause standard requires the ‘party seeking relief to show that the deadlines cannot reasonably be met despite the diligence of the party needing the extension.'” S & W Enters., L.L.C. v. SouthTrust Bank of Ala. N.A., 315 F.3d 533, 535 (5th Cir. 2003) (quoting 6A Charles Alan Wright et al., Federal Practice and Procedure § 1522.1 (2d ed. 1990)). The Fifth Circuit considers four factors when determining whether the moving party has established good cause to amend the pleadings: “(1) the explanation for the failure to timely move for leave to amend; (2) the importance of the amendment; (3) potential prejudice in allowing the amendment; and...