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GARDNER v. CHEVRON U.S.A., INC

United States Court of Appeals, Fifth Circuit. Unit A. Former Fifth Circuit case, section 9(1) of Public Law 96-452 — October 14, 1980.

May 5, 1982

Judgment

Subsequent
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Case Summary — Gardner v. Chevron U.S.A., Inc., Nos. 80-1564, 80-1670 (5th Cir. May 5, 1982)

Factual and Procedural Background

This diversity action arises under Texas death and survival statutes for damages resulting from the death of Rudolph C. Gardner. On December 30, 1976, while Gardner was performing "hot oil" operations on a Chevron oil and gas well near Sherman, Texas, he connected the hot oil equipment to a lower-pressure one-inch wedge connection instead of the higher-pressure top of the wellhead and failed to open the adjustable choke. Hot oil was thus pumped into a closed system, generating pressures that exceeded the breaking strength of a schedule 40 steel pipe ("nipple"). The nipple broke, hot oil sprayed back to the hot oil truck, was ignited by the truck's burners, and an explosion and fire occurred, resulting in Gardner's death.

Plaintiffs are Gardner's wife, two minor children, and his parents. The case was tried to a jury, which found Chevron not negligent in any respect proximate to Gardner's death, and judgment was entered for Chevron. Plaintiffs appealed from the United States District Court for the Eastern District of Texas. The appeal raised four primary issues concerning evidentiary rulings, partial summary judgment on strict liability, and a directed verdict on gross negligence.

Legal Issues Presented

Whether the trial court erred in admitting certain Chevron accident reports (prepared by Billy J. Briggs) alleged to be hearsay and not admissible under the business records exception (FRE 803(6)).
Whether the trial court erred in excluding evidence of post-accident remedial repairs (i.e., replacement of the broken pipe with a heavier grade) under Rule 407 and Rule 403.
Whether the trial court erred in granting partial summary judgment dismissing the plaintiffs' claims founded on strict liability in tort (§ 402A Restatement (Second) of Torts).
Whether the trial court erred in granting Chevron's motion for a directed verdict on the issue of gross negligence at the close of evidence.

Arguments of the Parties

Appellants' Arguments

The Briggs reports admitted into evidence were hearsay and not admissible under the business records exception; their admission was erroneous.
Evidence that Chevron subsequently replaced the broken pipe with schedule 80 pipe was admissible and its exclusion prevented appellants from impeaching Briggs' testimony regarding what pipe he would use; exclusion was erroneous.
The trial court erred in granting partial summary judgment on the strict liability claims; appellants contended strict liability theories should have been available.
The trial court erred in granting a directed verdict for Chevron on gross negligence; appellants argued sufficient evidence supported gross negligence for jury consideration.

Appellee's (Chevron's) Arguments

The Briggs reports were made in the regular course of Chevron's business, were sufficiently trustworthy, and thus admissible under the business records exception.
Evidence of subsequent remedial repairs was properly excluded under the public policy embodied in Rule 407 and, in any event, the prejudicial effect outweighed probative value under Rule 403; moreover, substantially the same information was presented to the jury through stipulation and other witnesses.
Strict liability under § 402A does not apply because the oil well and its components were not products placed into the stream of commerce and Chevron was not a seller engaged in selling such items; Chevron constructed the well for its own use.
The directed verdict on gross negligence was proper because the jury found no ordinary negligence in any respect, and without some finding of ordinary negligence there can be no inference of the conscious indifference necessary to establish gross negligence under Texas law as interpreted in the cited authorities.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Abalos v. Oil Development Co. of Texas, 544 S.W.2d 627 (Tex. 1976)	Premises occupier liability: a premises occupier is liable for injuries sustained by business invitees resulting from the occupier's negligence.	Used to distinguish ordinary premises occupier liability from strict products liability; supports analysis of applicable duties under Texas law.
Freitas v. Twin City Fisherman's Cooperative Ass'n., 452 S.W.2d 931 (Tex. Civ. App. 1970)	Strict liability does not apply to entities that merely constructed an item when those entities were not engaged in the business of selling such items.	Cited to support the conclusion that Chevron, which constructed the well for its own use and did not sell the component that failed, is not subject to § 402A strict liability.
Armstrong Rubber Co. v. Urquidez, 570 S.W.2d 374 (Tex. 1978)	Strict liability applies to persons engaged in the business of selling products for use or consumption; defendant must be engaged in introducing the product into channels of commerce (actual sale not strictly required).	Applied to hold that because Chevron did not place the well or its components into the stream of commerce, § 402A does not apply as a matter of law.
Burk Realty Co. v. Walls, 616 S.W.2d 911 (Tex. 1981)	Reassessed the Texas standard for gross negligence and held that the original definition in Shuford should be used; rejected the "some care" test and emphasized the need to determine whether an inference of conscious indifference is raised.	Guided the court's analysis of gross negligence: the court applied Burk's interpretation to conclude that without a jury finding of ordinary negligence, gross negligence cannot be inferred.
Missouri Pacific Railroad v. Shuford, 72 Tex. 165, 10 S.W. 408 (1888)	Definition of gross negligence: "an entire want of care" raising belief that the act or omission resulted from conscious indifference to the welfare of a person.	Served as the foundational definition for gross negligence that Burk reaffirmed; the court used this framework to analyze whether the directed verdict was proper given the jury's findings.
Maxey v. Freightliner Corp., 665 F.2d 1367 (5th Cir. 1982)	Discusses and cites Burk and the applicable standard for gross negligence under Texas law.	Cited as supporting authority for the interpretation of Burk and for the proposition that inquiry focuses on whether an inference of conscious indifference is raised.
Burk Royalty (cited as 616 S.W.2d at 921–922)	Rejection of the "some care" test and emphasis on understanding "entire want of care" in context; focus on inference of conscious indifference.	Used within the court's gross negligence analysis to explain why the jury's finding of no ordinary negligence precluded gross negligence.

Court's Reasoning and Analysis

The court addressed each of the four issues in turn and applied controlling evidentiary rules and Texas substantive law as follows.

1. Admission of Briggs' Reports (Hearsay / Business Records Exception)

The trial court concluded Briggs' reports were made in the regular course of Chevron's business and were sufficiently trustworthy to fall under the business records exception (FRE 803(6)).
The reports contained factual observations, hearsay reported to Briggs by Chevron employees, and Briggs' opinions on possible causes.
The panel found that any alleged error in admitting the reports was harmless because the jury never actually viewed the reports. To confirm, the appellate court directed the trial court to inquire whether the exhibits had been furnished to the jury. Judge Steger held a hearing, received testimony from jurors and court staff, and found the exhibits were neither shown nor read by the jury, nor provided in response to juror requests.
Because the exhibits were not considered by the jury, any error in admission did not affect the jury's verdict and was therefore harmless.

2. Exclusion of Evidence of Subsequent Remedial Repairs (Rule 407 / Rule 403)

The trial court refused to admit testimony that Chevron's employee replaced the broken pipe with schedule 80 pipe. This testimony was offered to impeach Briggs' statement that he would use schedule 40 pipe if constructing a new well.
It was stipulated and otherwise established at trial that subsequent repairs used schedule 80 pipe; witnesses conceded schedule 80 could have been used and would have been safer.
The trial court balanced the public policy favoring exclusion of evidence of subsequent remedial measures (Rule 407) and the potential for unfair prejudice (Rule 403) against the probative value of the evidence and concluded prejudice substantially outweighed probative value.
The appellate court concluded that materially equivalent evidence was presented to the jury through stipulation and witness testimony, and that any error in excluding the remedial-repairs testimony was harmless and did not affect the verdict.

3. Partial Summary Judgment on Strict Liability (§ 402A)

The court analyzed § 402A strict liability principles under Texas law and the cited cases. It emphasized that strict products liability applies to sellers or others engaged in the business of selling products that are introduced into the stream of commerce.
Chevron did not manufacture, lease, or sell the failing nipple; it constructed the well for its own use and did not place the well or component into the stream of commerce.
Applying Freitas and Armstrong Rubber, the court concluded as a matter of law that § 402A strict liability did not apply to Chevron's construction and ownership of the well; the trial court's grant of partial summary judgment on strict liability claims was therefore proper.

4. Directed Verdict on Gross Negligence

The court reviewed Texas law governing gross negligence, noting Burk's reaffirmation of Shuford's original definition of gross negligence ("entire want of care" and conscious indifference) and Burk's rejection of the "some care" test.
Under Burk and the cited Fifth Circuit discussion in Maxey, the inquiry focuses on whether an inference of conscious indifference is raised, not merely whether there was "some care."
The jury answered Interrogatory No. 1 by finding Chevron not negligent in any of the respects alleged. Because the jury did not find any failure to exercise ordinary care, the court reasoned there was no basis to infer the conscious indifference necessary for gross negligence.
Given the jury's express findings of no ordinary negligence and the stricter Burk standard, the appellate court concluded that the trial court did not err in granting Chevron's motion for a directed verdict on gross negligence.

Holding and Implications

AFFIRMED.

Holding: The United States Court of Appeals for the Fifth Circuit affirmed the district court's judgment in favor of Chevron. The appellate court held (1) any error in admitting Briggs' reports was harmless because the jury never viewed them; (2) the exclusion of evidence of subsequent remedial repairs was proper under Rule 407 and Rule 403 and, in any event, harmless because equivalent evidence was presented; (3) partial summary judgment dismissing the strict liability claims was correct because Chevron did not place the well or its components into the stream of commerce and was not a seller engaged in selling the product; and (4) the directed verdict on gross negligence was appropriate because the jury found no ordinary negligence and, under Burk and Shuford, that finding precludes the inference of conscious indifference necessary to establish gross negligence.

Implications: The direct effect is affirmation of the trial court's judgment for the defendant, Chevron; appellants' claims were not successful on the evidentiary issues, strict liability theory, or gross negligence theory. The opinion applies existing Texas precedents (Abalos, Freitas, Armstrong, Burk, Shuford) and Fifth Circuit discussion (Maxey) to the facts; it does not purport to announce a new broad rule of law beyond the application of those authorities to the circumstances of this case.

Show all summary ...

BEER, District Judge:

This diversity suit arises under the Texas death and survival statutes for damages resulting from the death of Rudolph C. Gardner, who was killed as a result of a fire at a flowing oil well, owned and operated by Chevron U.S.A., Inc. The plaintiffs were Gardner's wife, two minor children and his parents. The case was tried before a jury which found the defendant Chevron not negligent in any respect which was a proximate cause of the death of Rudolph C. Gardner. A judgment was entered in favor of Chevron.

This appeal raises four issues. The first two concern evidentiary rulings admitting Chevron accident reports and excluding evidence of post-accident remedial repairs. Appellants also urge that the trial court erred in granting partial summary judgment as to the claims based on strict liability in tort. Finally, appellants claim the trial court erred in granting defendant's motion for a directed verdict on the issue of gross negligence.

On December 30, 1976, the deceased, Rudolph Gardner, was starting to "hot oil" a Chevron oil and gas well located northwest of Sherman, Texas. Although Gardner was going to hot oil the tubing of the well (the portion that runs from the wellhead into the reservoir), he connected the hot oil equipment to the one-inch wedge on the lower pressure well connections rather than into the top of the wellhead which would have been a higher pressure connection. In effect, Gardner failed to open the adjustable choke and was pumping hot oil into a closed system. As a result, pressures were generated in excess of the breaking strengths of the schedule 40 steel pipe ("nipple"), causing it to break. From that point, the hot oil was sprayed back to the hot oil truck where it was ignited by the burners on the hot oil truck. The explosion and fire which resulted caused Gardner's death.

Appellant first contends the trial court erred in admitting certain reports purportedly made by Billy J. Briggs, the Chevron Production Foreman, because such reports were hearsay, and were not admissible as a business records exception under Federal Rules of Evidence, Rule 803(6). The trial court correctly concluded that the reports were made in the regular course of Chevron's business, and determined that they were sufficiently trustworthy to be admitted into evidence. Briggs' reports contained factual observations which he made and those which were reported to him by Chevron employees. In addition, they contain his opinions concerning the possible causes of the fire. The information contained in the reports was cumulative with other evidence presented during the trial. It is contended that the admission of the exhibits was error. In our view, the alleged error was rendered harmless since the jury never actually viewed the reports. In order to be absolutely sure of this factual conclusion, we directed the trial court to determine if the exhibits in question were, indeed, viewed by the jury. Pursuant to that direction, Judge Steger held a hearing on July 7, 1981, to determine whether defendant's exhibits 13, 14, 15 and 16 were furnished to the jury during the deliberations following the trial of this case. Based on the testimony of the six members of the jury, the Deputy Clerk and the U.S. Marshal, Judge Steger concluded that the exhibits were neither read nor shown to the jury during the trial, nor were these exhibits given to the jury in response to the note of the jury requesting pictures and charts. These findings by Judge Steger establish that the exhibits in question were neither shown nor read to the jury; thus, any error in admitting the exhibits was, clearly, harmless.

The trial court did not err in refusing plaintiffs' tendered evidence that Chevron's employee, Harry Zoda, replaced the broken pipe with a heavier grade pipe. That testimony was offered to impeach the testimony of B. J. Briggs, that he would use schedule 40 pipe if he were constructing such a new well. It was stipulated that where the subsequent repairs were made on the well in question, schedule 80 pipe was used. Appellants suggest there is an inconsistency in the testimony of Briggs and the tendered evidence of subsequent repair, so that the latter testimony became admissible as rebuttal evidence. Chevron never contested the feasibility of using a schedule 80 pipe. All of the witnesses conceded that schedule 80 pipe could have been used. In fact, Zoda testified that schedule 80 pipe would have been safer. Thus, appellants were able to present essentially the same evidence to the jury as that which the trial court declined to admit. The trial court properly balanced the public policy favoring the exclusion of evidence concerning subsequent repairs, as set forth in Federal Rules of Evidence, Rule 407, and the danger of unfair prejudice resulting from such evidence, as set forth in Federal Rules of Evidence, Rule 403, with the probative value of evidence of the repairs and determined that the prejudice substantially outweighed its value. The error, if any, was harmless, and the judgment of the jury was not, in our view, affected by the exclusion of this evidence.

The trial court did not err in granting Chevron's motion for partial summary judgment on the claim for relief based on strict liability in tort.

The doctrine of strict liability in tort, as set forth in § 402A of the Second Restatement of Torts does not apply here since the oil well was not a product and Chevron was not a seller engaged in the business of selling such products. Under Texas law, a premises occupier is liable for injuries sustained by business invitees which result from the negligence of the occupier. Abalos v. Oil Development Co. of Texas, 544 S.W.2d 627 (Tex., 1976). Strict liability does not apply to entities like Chevron, which had merely constructed an item when those entities were not engaged in the business of selling such items. Freitas v. Twin City Fisherman's Cooperative Ass'n., 452 S.W.2d 931 (Tex.Civ.App., 1970). The Supreme Court of Texas stated the basic rule that strict liability applies to any person engaged in the business of selling products for use or consumption. Although it is not necessary that the defendant actually sell the product, the defendant must be engaged in the business of introducing the product into channels of commerce. Armstrong Rubber Co. v. Urquidez, 570 S.W.2d 374 (Tex., 1978), rehearing denied Oct. 4, 1978.

Chevron did not manufacture, lease or sell nipples of the type that failed. Chevron did construct the well, but it was not sold, leased or placed in any way in the stream of commerce. Rather, Chevron designed the well and constructed it in the field of Sherman, Texas, for its own use. On that basis, the trial court properly determined that, as a matter of law, strict liability in tort did not apply.

Finally, the trial court did not err in granting the motion of Chevron for a directed verdict on the issue of gross negligence at the conclusion of the evidence.

The Texas standard governing gross negligence was recently reassessed in Burk Realty Co. v. Walls, 616 S.W.2d 911 (Tex., 1981), and it was held that the original definition of gross negligence as stated in Missouri Pacific Railroad v. Shuford, 72 Tex. 165, 10 S.W. 408 (1888), is the definition to be used in all such cases. See, Maxey v. Freightliner Corp., 665 F.2d 1367, 1373 (5th Cir. 1982). Under Shuford, gross negligence was defined as an entire want of care that would raise the belief that the act or omission complained of was the result of a conscious indifference to the welfare of a person. 72 Tex. at 170, 10 S.W. at 411. This original doctrine gave rise to the "some care" test that allowed a defendant to overturn a jury verdict of gross negligence simply by showing that there was "some evidence" that did not support the jury's findings. Burk Royalty, 616 S.W.2d at 921. This test, however, was rejected in Burk Royalty, where the Court emphasized that the phrase "entire want of care" must be understood in the context of the entire definition of gross negligence. 616 S.W.2d at 922, cited in Maxey, 665 F.2d at 1373-74. Thus, the inquiry is no longer focused on the defendant's "entire want of care" but rather on whether an inference of conscious indifference is raised. 665 F.2d at 1374. In light of this more rigorous analysis, we cannot simply conclude that Chevron's care in constructing and maintaining their wells forecloses the possibility of a jury finding of gross negligence. However, the jury in the present action, in answer to Interrogatory No. 1, found that Chevron was not negligent in any of the respects as contended by Gardner. Because the jury did not find any failure to exercise ordinary care, there can be no question that they would not have found that Chevron was guilty of gross negligence. Under the rigorous tests outlined in Burk Royalty, the jury's finding of ordinary care necessarily precludes the inference of conscious indifference needed to establish gross negligence.

In summary, the trial court did not err in the rulings complained of, and, in any event, such errors were harmless and did not affect the substantial rights of the appellants.

Accordingly, the judgment of the trial court based upon the verdict of the jury is affirmed.

AFFIRMED.