ONEOK Rockies Midstream, LLC v. Midway Machining, Inc.

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ONEOK Rockies Midstream, L.L.C., Plaintiff, v. Midway Machining, Inc. and Dakota Fluid Power, Inc., Defendants.

No. 1:23-cv-044

United States District Court, D. North Dakota

June 5, 2024

ORDER DENYING DEFENDANT MIDWAY MACHINING'S MOTION FOR SUMMARY JUDGMENT

DANIEL L. HOVLAND, DISTRICT JUDGE

Before the Court is Defendant Midway Machining, Inc.'s (“Midway”) motion for summary judgment filed on September 25, 2023. See Doc. No. 25. The Plaintiff filed a response in opposition to the motion on October 16 2023. See Doc. No. 31. Midway filed a reply brief on October 30, 2023. See Doc. No. 36. For the reasons set forth below, the motion is denied.

I. BACKGROUND

ONEOK Rockies Midstream, L.L.C. (“ONEOK”) is a midstream service provider that gathers and processes natural gas. ONEOK owns and operates the Stateline Gas Plant (“Stateline”) near Williston, North Dakota. Midway is a South Dakota corporation with its principal place of business located in Mandan, North Dakota. Midway is a subsidiary and/or division of Dakota Fluid Power, Inc. Midway is in the business of, among other things, performing repairs on industrial equipment, including welding and machining motor shafts. Great Plains Technical Services, Inc. (“Great Plains”), who is not a party to this suit, services and repairs industrial equipment.

ONEOK uses various compressors powered by electric motors at Stateline. In 2017, ONEOK experienced problems on two motors on one of the compressor trains at Stateline. ONEOK hired Great Plains to evaluate, analyze, and repair the motor on one of the compressors.

Great Plains concluded that the motors required repairs to the motor shaft, including performing a weld. Great Plains sent the motor to Midway after determining it did not have the expertise to perform the weld itself. Midway welded a half key into the keyway of the motor shaft. Midway then gave the shaft to Great Plains. Thereafter, Great Plains returned the motor to ONEOK at Stateline. On or about July 8, 2018, a failure of the compressor train occurred and resulted in a fire. The fire caused extensive damage to the building and its contents. ONEOK alleges it suffered property damage in excess of $13,000,000 and business interruption damages in excess of $6,500,000 as a result of the compressor failure and fire.

In 2020, ONEOK filed a complaint against Great Plains in Oklahoma state court, which was removed to federal court. See ONEOK Rockies Midstream, L.L.C. v. Great Plains Tech Servs. Inc., No. 20-CV-0580-CVE-SH. ONEOK's insurer sought recovery of amounts it paid to ONEOK pursuant to its first party insurance policy through the lawsuit. ONEOK alleged that “Great Plains sent the motor to its subcontractor who, under the direction and control of Great Plains and/or Great Plains' instruction, improperly welded a 1/2 key into the keyway of the motor shaft...ONEOK relied on Great Plains' expertise and representations that the shaft was properly repaired.” See Doc. No. 27-6, pp. 3-4. ONEOK brought negligence, breach of implied warranty, breach of contract, and breach of express warranty claims. Neither ONEOK nor Great Plains attempted to join Midway in that litigation. However, ONEOK served a subpoena on Midway for documents during discovery and completed the deposition of former Midway employee Jospeh Roll, who performed the weld. ONEOK and Great Plains ultimately entered into a settlement agreement releasing Great Plains and its agents.

On March 3, 2023, ONEOK initiated this action by bringing a negligence claim against Midway and Dakota Fluid Power, Inc. See Doc. No. 1. Jurisdiction in this case is based on diversity of citizenship. The Court is satisfied that the parties are diverse. On September 25, 2023, Midway moved for summary judgment. See Doc. No. 25. The motion has been fully briefed and is ripe for disposition.

II. STANDARD OF REVIEW

Summary judgment is appropriate when the evidence, viewed in a light most favorable to the non-moving party, indicates no genuine issues of material fact exist and that the moving party is entitled to judgment as a matter of law. Davison v. City of Minneapolis, Minn., 490 F.3d 648, 654 (8th Cir. 2007); see Fed.R.Civ.P. 56(a). Summary judgment is not appropriate if there are factual disputes that may affect the outcome of the case under the applicable substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). An issue of material fact is genuine if the evidence would allow a reasonable jury to return a verdict for the non-moving party. Id. The purpose of summary judgment is to assess the evidence and determine if a trial is genuinely necessary. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).

The court must inquire whether the evidence presents a sufficient disagreement to require the submission of the case to a jury or whether the evidence is so one-sided that one party must prevail as a matter of law. Diesel Mach., Inc. v. B.R. Lee Indus., Inc., 418 F.3d 820, 832 (8th Cir. 2005). The moving party bears the responsibility of informing the court of the basis for the motion and identifying the portions of the record which demonstrate the absence of a genuine issue of material fact. Torgerson v. City of Rochester, 643 F.3d 1031, 1042 (8th Cir. 2011). The nonmoving party may not rely merely on allegations or denials in its own pleading; rather, its response must set out specific facts showing a genuine issue for trial. Id.; Fed.R.Civ.P. 56(c)(1). The court must consider the substantive standard of proof when ruling on a motion for summary judgment. Anderson, 477 U.S. at 252. If the record taken as a whole and viewed in a light most favorable to the non-moving party could not lead a rational trier of fact to find for the non-moving party, there is no genuine issue for trial and summary judgment is appropriate. Matsushita, 475 U.S. at 587.

III. LEGAL DISCUSSION

A. ECONOMIC LOSS DOCTRINE

Midway argues the economic loss doctrine bars ONEOK's negligence claim. Midway also argues ONEOK's negligence claim is effectively a breach of contract claim. ONEOK argues the economic loss doctrine does not apply to its negligence claim because it only applies to contracts for the sale of goods, rather than services. ONEOK further asserts it negligence claim is independent of a contract claim because no contract existed between the parties.

“Under the [economic loss] doctrine, economic loss resulting from damage to a defective product, as distinguished from damage to other property or persons, may be recovered in a cause of action for breach of warranty or contract, but not in a tort action.” Steiner v. Ford Motor Co., 606 N.W.2d 881, 884 (N.D. 2000). “The economic loss doctrine is based on the understanding that contract law, and the law of warranty in particular, is better suited for dealing with purely economic loss in the commercial arena than tort law, because it permits the parties to specify the terms of their bargain and to thereby protect themselves from commercial risk.” Dakota Gasification Co. v. Pascoe Bldg. Sys., 91 F.3d 1094, 1098 (8th Cir. 1996).

When discussing the rationale behind the economic loss doctrine, the United States Supreme Court stated,

While giving recognition to the manufacturer's bargain, warranty law sufficiently protects the purchaser by allowing it to obtain the benefit of its bargain. The expectation damages available in warranty for purely economic loss give a plaintiff the full benefit of its bargain by compensating for forgone business opportunities . . . A warranty action also has a built-in limitation on liability, whereas a tort action could subject the manufacturer to damages of an indefinite amount. The limitation in a contract action comes from the agreement of the parties and the requirement that consequential damages, such as lost profits, be a foreseeable result of the breach.

E. River S.S. Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 865, 873-74 (1986) (internal citations omitted).

In this case it is undisputed that no contract existed between ONEOK and Midway. The only contract referenced by Midway is the Master Service Agreement between ONEOK and Great Plains. Midway was not a party to the Master Service Agreement. Midway admits no contract existed between ONEOK and Midway. Nevertheless, Midway argues the Plaintiff's negligence claim is effectively a breach of contract claim. The Court concludes the Plaintiff has clearly pled a negligence claim and no contract existed that could serve as the basis for a breach of contract claim.

Midway did not sell any goods to ONEOK or Great Plains. The undisputed evidence in this case reveals Midway provided only welding services. Accordingly, this case does not present product liability or warranty issues. The sole issue is the service Midway provided in evaluating, assessing, and repairing the motor shaft. ONEOK argues the economic loss doctrine does not apply to its claim as the doctrine only applies to contracts for the sale of goods. ONEOK contends 1) there was no contract between ONEOK and Midway; and 2) no products are at issue in this case. Midway does not dispute ONEOK's arguments that the economic loss doctrine applies only to contracts or its argument that no products are at issue in this case. Midway's only contention is that the economic loss doctrine applies to service contracts in addition to contracts for the sale of goods. The purpose of the doctrine is to ensure parties are bound by the terms of their contract and cannot expand the terms by alleging tort claims. When there is no contract, as is the case here, no contractual limitations exist and warranty law does not protect ONEOK. The economic loss doctrine does not apply because no contract existed between ONEOK and Midway.

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