IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF OKLAHOMA CHESAPEAKE APPALACHIA, L.L.C. and CHESAPEAKE OPERATING, INC., Plaintiffs, v. Case No. CIV-13-1118-M CAMERON INTERNATIONAL CORPORATION, Defendant. ORDER Before the Court is Cameron International Corporation s ( Cameron Motion to Dismiss and Brief in Support, filed October 25, 2013. On December 6, 2013, plaintiffs, Chesapeake Appalachia, L.L.C. and Chesapeake Operating, Inc. (collectively known as Chesapeake, responded, and on December 20, 2013, Cameron replied. Based on the parties submissions, the Court makes its determination. I. Introduction 1 Chesapeake filed this instant action on April 16, 2013, in the District Court of Oklahoma County, State of Oklahoma. On October 18, 2013, Cameron removed this action to this Court. Chesapeake uses a process called hydraulic fracturing 2 to recover natural gas from deep shale 1 The alleged facts are taken from plaintiffs Petition [docket no. 6-1], which will be referred to as Complaint in this Order. 2 According to Chesapeake s Complaint: Hydraulic fracturing involves the process of creating fissures, or fractures, in underground formations to allow natural gas to flow. These fissures are created by inserting a compound known as fracturing fluid-which is made up primarily of water and sand, but also contains other additives-at high pressure into the shale formation, creating fractures. These fractures are propped open by the sand, which allows natural gas to flow into the wellbore and be collected at the surface. 1
formations. On or about December 29, 2009, Chesapeake and Cameron entered into a Master Service Agreement ( MSA that governed the work Cameron performed for Chesapeake, pertaining to Chesapeake s wells. Chesapeake informed Cameron prior to April 2011, that it desired Cameron s equipment and services for the Chesapeake ATGAS 2H Well Site (the 2H Well near Leroy Township, Bradford County, Pennsylvania. Mtn. to Dis. Ex. 1 5. On or about April 4, 2011, Cameron began servicing the 2H Well, providing: flow equipment products, systems and services, including the wellhead 3 and what is known as a Frac Stack. The Frac Stack is a component installed on top of the Casing Head and that consists of, among other things, a Casing Spool, a series of Master Valves, a Frac Cross, a Goat Head Frac Adaptor, and other associated valves and equipment. Id. 7 (internal quotations omitted. On or about April 19, 2011, Chesapeake alleges that a failure at the 2H Well occurred at the wellhead, resulting in an uncontrollable discharge of fluids. As a result, Chesapeake alleges it ceased fracturing operations on the 2H Well, as well as, all other fracturing operations in Pennsylvania and elsewhere. Chesapeake alleges it was harmed by the alleged failure of the wellhead and that: Id. 13 & 14. The failure also necessitated significant response efforts to control, monitor, cleanup, and remedy the incident and related potential impacts, including but not limited to environmental testing and monitoring.... The failure also caused other harm to Chesapeake, including increased monitoring cost, fines imposed by the government agencies, loss of goodwill and damage of public reputation for Chesapeake caused by among other things, negative media exposure and other litigation, and other harm. Mtn. to Dis. Ex. 1 2. 3 A wellhead refers to a system of spools, valves, and adapters that provides a means for installing the equipment stack on top of the well to direct and control formation fluids from the well. Mtn. to Dis. at 1 fn. 1. 2
Based on these allegations, Chesapeake alleges the following claims against Cameron: (1 negligence; (2 products liability; and (3 negligent misrepresentation. Cameron moves this Court to dismiss Chesapeake s claims against Cameron, pursuant to Federal Rules of Civil Procedure 12(b(6 and 12(c. II. Standard for Dismissal When reviewing a motion for judgment on the pleadings under Rule 12(c, the Court applies the same standard that applies to a Rule 12(b(6 motion. Park Univ. Enters., Inc. v. Am. Cas. Co. of Reading, PA, 442 F.3d 1239, 1244 (10th Cir. 2006. To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face. A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. The plausibility standard is not akin to a probability requirement, but it asks for more than a sheer possibility that a defendant has acted unlawfully. Where a complaint pleads facts that are merely consistent with a defendant s liability, it stops short of the line between possibility and plausibility of entitlement to relief. Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009 (internal quotations and citations omitted. Determining whether a complaint states a plausible claim for relief is a context-specific task that requires the reviewing court to draw on its judicial experience and common sense. Id. at 1950. Further, where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged - but it has not shown - that the pleader is entitled to relief. Id. (internal quotations and citations omitted. Finally, [a] pleading that offers labels and conclusions or a formulaic recitation of the elements of a cause of action will not do. Nor does a complaint suffice if it tenders naked assertion[s] devoid of further factual enhancement. Id. at 1949 (internal quotations and citations omitted. 3
III. Discussion Since the alleged failure of the wellhead is what allegedly caused the economic loss, Cameron asserts that the economic loss rule bars Chesapeake from bringing tort claims against Cameron. Additionally, Cameron contends that in order for Chesapeake to maintain tort claims against Cameron, the MSA would have had to create a special relationship between the two parties. Further, Cameron contends that Chesapeake has failed to state a claim upon which relief can be granted. A. Economic Loss Rule The Oklahoma Supreme Court in Dutsch v. Sea Ray Boats, Inc., 845 P.2d 187 (Okla. 1992 reaffirmed the economic loss rule stating that [I]n Oklahoma no action lies in manufacture s products liability for injury only to the product itself resulting in purely economic loss. Dutsch, 845 P.2d at 193 (citing Waggoner v. Town & Country Mobile Homes, 808 P.2d 649, 653 (Okla. 1990. In Dutsch, the court decline[d] to extend Waggoner beyond those situations in which a plaintiff suffers damage only to the product itself. Id. at 194. Waggoner specifically stated that manufacturer s products liability provides for the recovery of personal injury damages and damages to other property. Recognizing that manufacturer s products liability and the U.C.C. provide parallel remedies in these instances,... there was no need for the products liability theory to extend to the situation where the only damage was to the product itself. Id. (internal quotations and citations omitted. See also Friesen v. Erb, No. CIV-10-0140-C, 2012 WL 1142901, *1 (W.D. Okla. April 5, 2012 ( While Plaintiff s damages may be classified as purely economic, they are not damages limited to the product itself; rather, they are economic losses that Plaintiff personally has suffered. As a result, they are outside the scope of the limitation set forth in Waggoner and are a permissible type of damages under Oklahoma law. 4
Having carefully reviewed Chesapeake s Complaint and presuming all of Chesapeake s factual allegations are true and construing them in the light most favorable to Chesapeake, the Court finds that it is clear that Chesapeake has suffered economic losses outside of the alleged defective wellhead. What is unclear is whether those economic losses are other property or a consequential economic harm flowing from damage to a defective product. United Golf, LLC v. Westlake Chem. Corp., No. CIV-05-0495-CVE-PJC, 2006 WL 2807342, *4 (N.D. Okla. Aug. 15, 2006 (citing Okla. Gas & Elec. Co. v. McGraw-Edison Co., 834 P.2d 980, 981 (Okla. 1992. Waggoner prevented a plaintiff from using a tort claim to recover purely economic damages flowing from damage to a defective product. Id. However, Chesapeake contends that because the MSA is a contract for services, Waggoner s economic loss rule does not apply. Resp. at 13 fn. 2. See Eureka Water Co. v. Nestle Waters N. Am, Inc., 690 F.3d 1139, 1146 ( Article 2 of the Oklahoma UCC governs transactions in goods. (internal citations and quotations omitted. Cameron failed to address this contention in its Reply, and as a result, at this stage of the litigation, the Court finds that granting Cameron s motion to dismiss based on the economic loss rule would not be proper. B. Special Relationship and Failure to State a Claim Cameron also contends that Chesapeake cannot maintain a tort action against Cameron because no special relationship existed, and further, Chesapeake has failed to meet the Rule 12(b(6 standard of stating a claim for which relief can be granted. Chesapeake asserts that the MSA expressly contemplates that the parties might pursue tort actions against one another. Resp. at 11. Paragraph 6.12 of the MSA provides: Company assumes the risk of loss at all times for damages to or destruction of Company s equipment and materials except where such damage or destruction results from or arises out of Contractor s negligent acts or omissions. 5
Mtn. to Dis. Ex. 2 6.12. Having carefully reviewed Chesapeake s Complaint and presuming all of Chesapeake s factual allegations are true and construing them in the light most favorable to Chesapeake, the Court finds that Chesapeake has sufficiently pled facts to sustain its negligence, products liability, and negligent misrepresentation claims. The Court also finds that the MSA agreement gave Chesapeake the authority to bring negligence based claims against Cameron. Accordingly, the Court finds that Chesapeake s negligence, product liability, and negligent misrepresentation claims should not be dismissed. III. Conclusion Accordingly, for the reasons set forth above, the Court DENIES Cameron International Corporation s Motion to Dismiss and Brief in Support [docket no. 6]. IT IS SO ORDERED this 21st day of July, 2014. 6