RLI Ins. Co. v. Caliente Oil, Inc.

469 F.Supp.3d 729

RLI INSURANCE COMPANY, Plaintiff,

v.CALIENTE OIL, INC., Defendant.

MO:17-CV-183-DC

United States District Court, W.D. Texas, Midland-Odessa Division.

Signed May 12, 2020

C. Jeffrey Price, Hedrick Kring, PLLC, Gregory K. Winslett, Richard L. Smith, Jr., Tammy L. Clary, Quilling, Selander, Cummiskey & Lownds, P.C., Dallas, TX, for Plaintiff.

Marion Sanford, III, William Patrick Lane, William Griffis, McCleskey, Harriger, Brazill & Graf, L.L.P., Lubbock, TX, for Defendant.

ORDER GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AND DENYING THIRD-PARTY DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

DAVID COUNTS, UNITED STATES DISTRICT JUDGE

BEFORE THE COURT are the Motion for Summary Judgment filed by Plaintiff RLI Insurance Company (RLI) on December 6, 2019, and the Motion for Summary Judgment filed by Third-Party Defendant Woods Insurance Service, Inc. (Woods Insurance) on February 6, 2020. (Docs. 52, 57). After due consideration of the motions, the parties’ arguments, and the relevant law, the Court GRANTS RLI's Motion for Summary Judgment (Doc. 52) and DENIES Woods Insurance's Motion for Summary Judgment (Doc. 57).

I. BACKGROUND

RLI filed this declaratory judgment action on September 22, 2017, invoking the Court's diversity jurisdiction and requesting a declaration that certain stolen property was not covered under an insurance policy issued by RLI to Defendant Caliente Oil, Inc. (Caliente). (See generally Doc. 1). Caliente asserted counterclaims against RLI for a violation of the duty of good faith and fair dealing under Chapter 541 of the Texas Insurance Code, late payment of a claim under Chapter 542 of the Texas Insurance Code, and breach of contract. (See generally Doc. 20). Caliente also asserted third-party claims against its insurance broker, Woods Insurance, for negligence and negligent misrepresentation. See generally id.

On December 6, 2019, RLI moved for summary judgment on its declaratory judgment claim and Caliente's counterclaims. (Doc. 52). The Court granted Caliente leave to file an untimely response, and Caliente filed its Response in opposition to RLI's Motion for Summary Judgment on January 21, 2020. (Text Only Entry of January 16, 2020; Doc. 55). RLI filed a Reply in support of its Motion for Summary Judgment on January 27, 2020. (Doc. 56). Accordingly, RLI's Motion for Summary Judgment is ready for disposition.

On February 6, 2020, Woods Insurance filed its Motion for Summary Judgment. (Doc. 57). RLI filed a Response in opposition to Woods Insurance's Motion for Summary Judgment. (Doc. 60). Caliente filed an untimely Response to Woods Insurance's Motion for Summary Judgment on February 26, 2020. (Doc. 62). Woods Insurance did not file a reply to either response, and the time afforded to do so under the Local Rules has expired. See Local Rule CV-7(f)(2). Accordingly, Woods Insurance's Motion for Summary Judgment is ready for disposition.

II. FACTS

At the heart of this case is an insurance coverage dispute between RLI and Caliente. Caliente was a New Mexico corporation headquartered in Farmington, New Mexico that conducted oil field services and maintained a "yard" in Odessa, Texas to store equipment. (Doc. 52-2 at 164–66). RLI issued an inland marine policy to Caliente covering contractors’ equipment under policy number ILM0704608 for the relevant policy periods. (See generally Doc. 55-1). On April 24, 2017, Caliente submitted an insurance claim to RLI asserting some equipment had been stolen. (Doc. 52-2 at 50). The allegedly stolen equipment included the following: (1) a light tower; (2) two sand knockouts or traps; (3) a flare stack; and (4) oilfield fishing tools. Id. at 15, 430.

At the time the facts giving rise to this suit occurred, Caliente was owned by three individuals: Ken Stevens, Chris Beal, and Stuart Buckingham. Id. at 164. Messrs. Stevens, Beal, and Buckingham owned several other oilfield service companies including Eldorado Energy Rentals, LLC (Eldorado). Id. at 154, 167. On June 27, 2016, Eldorado and some of its sister companies¹ became wholly owned subsidiaries of Caliente. Id. at 154. Mr. Stevens and Mr. Beal also had ownership interests in a company called Lynx Pressure Solutions, LLC (Lynx). Id. at 172. At the time of the events at issue in this case, Lynx made use of the Caliente yard in Odessa. Id. at 174.

In March or April 2016, Doug Batten of Combatt Oilfield Solutions LLC (Combatt) contacted Mr. Beal to inquire about opportunities for joint business ventures. Id. at 19–20, 181–82. Combatt was an oilfield service company which operated in east Texas and was owned by Mathew Vaughan, Doug Batten, and Ross Batten. Id. at 177, 182. Representatives of Caliente and its related companies and representatives of Combatt discussed various business opportunities. See id. at 48–49, 158, 183–84, 445. Combatt expressed an interest in using then-idle equipment owned by Caliente and its sister companies. Id. at 20–21, 181. An arrangement was reached whereby Mr. Beal and Mr. Stevens loaned Combatt money to finance Combatt's transportation of equipment owned by Caliente or its sister companies (including Eldorado and Lynx) to Combatt's yard in east Texas and to cover "working capital expenses" so Combatt could use the equipment in its operations. Id. at 182–83. Mr. Beal testified that he and Mr. Stevens loaned approximately $60,000 to Combatt. Id. at 190–91, 233. Mr. Stevens provided a somewhat different description of the relationship between Caliente and Combatt in an affidavit attached to Caliente's Response to RLI's Motion for Summary Judgment:

Caliente Oil allowed the equipment to be transported by Combatt Energy Services from various locations, inspected by Combatt Energy Services as part of due diligence of a business deal that never materialized, and then further transported by Combatt Energy Services to Caliente Oil's West Texas yard. Caliente Oil hired and paid Combatt Energy Services for this transport by canceling a portion of the debt Combatt Energy Services owed to Caliente Oil. Combatt Energy Services was never allowed to use the equipment or in any way treat the equipment as "entrusted" to them other than as a paid transporter of the equipment with a period of inspection during the transportation.

(Doc. 55-3 at 2).

Ross Batten, one of Combatt's owners, was responsible for the transportation of some of the equipment. (Doc. 52-2 at 182). Text messages between Ross Batten and Mr. Beal regarding a broken lock indicate that as of at least May 9, 2016, Ross Batten and other Combatt employees had visited Caliente's yard in Odessa. Id. at 141. Subsequent messages establish that on May 17, May 19, May 20, May 21, and May 23, 2016, Mr. Beal and Ross Batten communicated about equipment Ross Batten was picking up to transport. Id. at 131–39. Similar messages dated June 6 and June 7, 2016, indicate Ross Batten was picking up more equipment. Id. at 130.

In the course of his dealings with Combatt and Ross Batten, Mr. Beal became troubled by Ross Batten's behavior, including instances of apparent theft. On June 10, 2016, Mr. Beal confronted Ross Batten about Combatt employees’ practice of sleeping at the Caliente yard and the use and theft of tools belonging to a Caliente employee. Id. at 128. On June 22, 2016, Mr. Beal sent Doug Batten a text message inquiring if Combatt personnel had taken an air compressor that had been at the Caliente yard, Doug Batten's response indicates that he had not seen a new air compressor at the Combatt yard. Id. at 126. Mr. Beal testified that he realized the air compressor was missing from the Caliente yard and asked Ross Batten about its location. Id. at 196. Ross Batten claimed that the air compressor had been taken to the Combatt yard, but, when confronted with Doug Batten's denial that the air compressor was at the Combatt yard, admitted stealing the air compressor and pawning it for $300. Id. at 196–97. Mr. Beal testified that he later learned from Mathew Vaughan and Doug Batten that Ross Batten had stolen from Combatt as well. Id. at 191–93.

The light tower at issue in this suit was returned to Eldorado as part of the dissolution of an entity called Bull Dorado and the settlement of a lawsuit related to that entity.² Id. at 453. Mr. Beal's testimony and text messages establish that Ross Batten picked up the light tower on May 23, 2016, and it was to be transported to Combatt. Id. at 133–35, 205–06, 239. Mr. Beal's testimony indicates it never arrived at the Combatt yard. Id. at 205. However, Mr. Stevens stated in a letter to RLI that the light tower and other equipment was at the Combatt yard as of August 30, 2016, and Doug Batten provided photographs and an inventory of the equipment. Id. at 462. Mr. Stevens made a similar assertion in his affidavit: "Combatt Energy Services verified that the equipment that it transported arrived in Combatt Energy Services's yard by providing accounting and photographs of the equipment." (Doc. 55-3 at 2).

The sand knockouts (or "sand traps") at issue in this suit belonged to Lynx and were transported from Colorado to west Texas by Combatt. (Doc. 52-2 at 179, 181, 203, 437). On June 7, 2016, Mr. Beal contacted Ross Batten to provide him with the location of the sand knockouts so they could be transported from west Texas to Combatt's yard. Id. at 129, 203–04. Mr. Beal testified that he was informed by representatives of Combatt that the sand knockouts never made it to the Combatt yard. Id. at 203–05. In contrast, Mr. Stevens’ letter and affidavit indicate that the sand knockouts arrived and were photographed and inventoried with the other equipment at the Combatt yard in August 2016. (Doc. 52-2 at 462; Doc. 55-3 at 2).

The flare stack at issue was returned to Eldorado as part of the Bull Dorado dissolution and settlement. (Doc. 52-2 at 249). Text messages dated May 23, 2016, demonstrate Mr. Beal and Ross Batten discussed Combatt's need for flares. Id. at 131. Mr. Beal testified that Ross Batten was supposed to...