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Exxonmobil Oil Corp. v. Amex Construction Co.

March 19, 2010

EXXONMOBIL OIL CORP., PLAINTIFF,
v.
AMEX CONSTRUCTION CO., INC., DEFENDANT/THIRD PARTY PLAINTIFF,
v.
ISCO INDUSTRIES, LLC., AND AMBITECH ENGINEERING CORP., THIRD PARTY DEFENDANTS.



The opinion of the court was delivered by: Judge Virginia M. Kendall

MEMORANDUM OPINION AND ORDER

Plaintiff ExxonMobil Oil Corporation ("Exxon") filed suit against Defendant Amex Construction Co., Inc. ("Amex") alleging breach of warranty and negligence after a High Density Polyethylene ("HDPE") pipe installed by Amex burst at an Exxon refinery. Amex later filed a Third-Party Complaint seeking contribution against ISCO Industries, LLC ("ISCO"), the supplier of the defective pipe, and Ambitech Engineering Corporation ("Ambitech"), the pipe designer. Exxon, Amex, Ambitech, and ISCO have filed eight motions for summary judgment on various claims and defenses.

For the reasons stated below, this Court grants Exxon's Motion for Summary Judgment as to the breach of General Warranty component of Count I and as to Count II, and denies its Motion with respect to the Warranty of Competence component of Count I. The Court grants Amex's Motion for Summary Judgment on Count I with respect to the Warranty of Competence component and its Motion for Summary Judgment on its Fifteenth Affirmative Defense with respect to negligence; the Court denies Amex's Motions for Summary Judgment on the General Warranty component of Count I, Count II, and the breach of warranty component of its Fifteenth Affirmative Defense. The Court denies ISCO's Motion for Summary Judgment. Finally, the Court grants Ambitech's Motion for Summary Judgment, rendering moot its Motion for Summary Determination regarding the applicability of the Moorman Doctrine. The Court further finds that even if it had denied Ambitech's Motion for Summary Judgment, Ambitech would be entitled to partial summary judgment on its Borrowed Servant Affirmative Defense as to its employee Elizabeth Wenzel.

STATEMENT OF UNDISPUTED FACTS*fn1

I. The HDPE Project

Exxon owns and operates a petroleum refinery in Joliet, Illinois (hereinafter "the Refinery"). (AM 56.1 Resp. Exxon ¶ 2.) Amex is a union industrial field piping company that provides process piping fabrication and related industrial services. (AM 56.1 Resp. Exxon ¶ 2.) Third Party Defendant Ambitech provides professional engineering services to Exxon and other clients. (AM 56.1 Resp. Exxon ¶ 2.) Third Party Defendant ISCO provides materials, supplies, and training related to HDPE pipe, and is an authorized distributor of McElroy Manufacturing butt fusion equipment. (AM 56.1 Resp. Exxon ¶ 2.)

After a cooling water line failed at the Refinery in February 2002, Exxon made plans to replace its underground cooling water return lines with carbon steel piping. (AM 56.1 Resp. Exxon ¶ 3.) The Refinery uses these lines to cool liquid petroleum gases back to a liquid state, and also to cool various generators and mechanical equipment. (AM 56.1 Resp. Exxon ¶ 4.) The lines continually draw water from the Des Plaines River to account for evaporation. (AM 56.1 Resp. Exxon ¶ 5.) Exxon awarded Amex the installation contract and Ambitech the engineering contract for the carbon steel replacement project ("the Carbon Steel Project"). (AM 56.1 Resp. Exxon ¶ 3.)

On March 5, 2004, in order to keep the Refinery functioning during the execution of the Carbon Steel Project, Amex submitted a proposal to Exxon for the installation of temporary, aboveground HDPE pipes to be used for water cooling ("the HDPE Project"). (EX 56.1 Resp. Count II ¶ 8(b); AM 56.1 Resp. Exxon ¶ 6.) The temporary pipes would carry water from the Refinery process units back to the cooling tower and heat exchangers until the carbon steel lines were installed. (AM 56.1 Resp. Exxon ¶ 6.) The original plan called for these temporary pipes to be in service for three to four months. (AM 56.1 Resp. Exxon ¶ 6.) On September 15, 2004, Amex submitted a breakout pricing proposal to Exxon for the HDPE Project. (EX 56.1 Resp. Count I ¶ 14.) On September 30, 2004, Exxon accepted Amex's proposal and placed a Service Order for the installation of the HDPE pipe and related services. (EX 56.1 Resp. to Amex Count II ¶ 8(c); EX 56.1 Resp. 15th Aff. Def. ¶ 14; AM, EX 56.1 Resp. AT ¶ 12; AM, EX 56.1 Resp. AT Economic Damages ¶ 12.) The Service Order describes "[m]obilization, labor and supervision for the pipe fabrication for the cooling water return line replacement project in accordance with Amex Proposal 04-5421 dated 9/15/04." (EX 56.1 Resp. Count I ¶ 12.)

A. Training by ISCO

In November 2004, Amex began work on the HDPE Project at the Refinery. (EX 56.1 Resp. Count I ¶ 16; EX 56.1 Resp. to Amex Count II ¶ 8(d); EX 56.1 Resp. 15th Aff. Def. ¶ 15; AM, EX 56.1 Resp. AT ¶ 13; EX, AM 56.1 Resp. AT Borrowed Servant ¶ 13; AM, EX 56.1 Resp. AT Economic Damages ¶ 13.) Exxon was aware that Amex operators had no experience fusing HDPE pipe, so it retained ISCO to provide training in HDPE hydraulic butt fusion. (AM 56.1 Resp. Exxon ¶¶ 9, 51; AM 56.1 Resp. Exxon Add. Facts ¶ 50.)*fn2 ISCO held itself out as having knowledge, expertise, and experience in the proper heat fusion procedures for HDPE pipe and Exxon identified ISCO as having such knowledge and expertise. (AM 56.1 Resp. Exxon Add. Facts ¶¶ 52-53.) ISCO also sold Exxon the HDPE pipe, provided the bonding procedure specification and qualification for bonding operators, determined which fusion machine would be used, and rented the fusion machine to Exxon for the HDPE Project. (AM 56.1 Resp. Exxon ¶ 9; AM 56.1 Resp. Exxon Add. Facts ¶ 56; AM 56.1 Resp. Add. Facts ISCO ¶¶ 78-79, 82.)*fn3 The pipe manufacturer, McElroy Manufacturing, gave ISCO copyright permission to use McElroy instruction manuals for its hydraulic butt fusion training. (AM 56.1 Resp. Exxon ¶ 8.)

Amex then chose certain of its pipefitters to attend a one-week training on HDPE fusion using a McElroy fusion machine. (AM 56.1 Resp. Exxon ¶¶ 9-10.) ISCO employee David Holman ("Holman") performed this training. (EX, AM 56.1 Resp. ISCO ¶ 65.) Both ISCO and McElroy originally trained and certified Holman, who subsequently trained approximately 100 other individuals in HDPE fusion over the course of 10 years. (EX, AM 56.1 Resp. ISCO ¶¶ 62, 64.) Part of Holman's initial training consisted of going through the steps set forth in the ISCO Heat Fusion Manual ("Heat Fusion Manual"). (EX, AM 56.1 Resp. ISCO ¶ 65.)

As part of its training, ISCO provided Amex pipefitters with the Heat Fusion Manual, along with a weather resistant instruction manual with instructions and illustrations of HDPE fusion. (AM 56.1 Resp. Exxon ¶ 10.) The portion of the Heat Fusion Manual pertaining to hydraulic butt fusion is 16 pages in length and contains multiple illustrations of the fusion process. (AM 56.1 Resp. Exxon ¶ 10.) The Heat Fusion Manual specifically instructs not to heat HDPE pipe under pressure. (AM 56.1 Resp. Exxon ¶ 10.) Indeed, one of the basic parts of HDPE fusion is not to heat the pipe under pressure. (AM 56.1 Resp. Exxon ¶ 8.) In this regard, Exxon's expert, James Perrault ("Perrault") of McElroy Manufacturing, explained that when HDPE pipe is heated, the molecular structure is transformed into an amorphous condition, and when fusion pressure is applied, the molecules from each pipe end mix. (AM 56.1 Resp. Exxon ¶ 7.) Once the pipe joint cools, the pipe ends become one homogeneous pipe and the joint is as strong or stronger than the original pipe itself. (AM 56.1 Resp. Exxon ¶ 7.) If an operator applies excessive pressure to HDPE pipe while it is being heated, however, this will result in cold fusion, a condition that substantially weakens the pipe by creating gasps where the two pipe ends are not fused. (AM 56.1 Resp. Exxon ¶ 8.)

After four to five days of training, Holman issued certificates of training to Amex pipefitters Tom Pumnea ("Pumnea") and Patrick Daly Jr. ("Daly") among others, indicating that they had demonstrated proper heat fusion principles and techniques for fusing HDPE pipe on a McElroy machine. (AM 56.1 Resp. Exxon Add. Facts ¶ 38; EX, AM 56.1 Resp. ISCO ¶¶ 47, 61.) To the best of Holman's recollection, Pumnea and Daly each performed five to six welds with Holman watching over their shoulders. (AM 56.1 Resp. Exxon Add. Facts ¶ 42.) Holman only issued certificates of training to pipefitters whom he actually observed performing welds, and he felt confident that the individuals he trained understood how to perform HDPE fusion. (AM 56.1 Resp. Exxon Add. Facts ¶¶ 40-41.) He recommended Daly and Pumnea to run the McElroy machine because they showed the most interest in running it, picked up on their duties quickly, and did not deviate from the procedures he taught them when performing welds. (AM 56.1 Resp. Exxon Add. Facts ¶¶ 43-44.) Holman felt that Pumnea's and Daly's training with him sufficiently prepared them to perform welds, and was confident that they understood what they were doing. (AM 56.1 Resp. Exxon Add. Facts ¶ 45; EX, AM 56.1 Resp. ISCO ¶ 70.)

On February 10, 2005, Holman filled out ISCO Heat Fusion Evaluation Form 95 with respect to both Daly and Pumnea, which he would not have filled out if he did not believe them to have the level of understanding necessary to operate the McElroy machine. (AM 56.1 Resp. to Exxon Add. Facts ¶¶ 47-48.) The form required Holman to circle ten items, which Daly admits that he learned in his training. (EX, AM 56.1 Resp. ISCO ¶ 54.) Through this form, ISCO certified that Pumnea and Daly demonstrated the proper heat fusion principles and techniques for HDPE pipe on a McElroy machine. (AM 56.1 Resp. Exxon Add. Facts ¶ 55.) John McKinney ("McKinney"), Ambitech's expert, later confirmed that Daly and Pumnea were qualified and competent to perform HDPE butt fusion. (AM 56.1 Resp. Exxon Add. Facts ¶ 58.)

B. Fusion of HDPE Pipe

Throughout the course of the HDPE Project, Daly and Pumnea were the two Amex employees primarily responsible for fusing the HDPE pipe. (AM 56.1 Resp. Exxon ¶ 12.) Prior to the HDPE Project, Daly had 10 years of pipefitting experience fusing primarily metal pipe, but no experience with HDPE pipe. (EX, AM 56.1 Resp. ISCO ¶¶ 45, 53) When he fused the HDPE pipe at the Refinery, Daly sat "on the heating pressure [] waiting for the bead and then heat soak[ed] it." (AM 56.1 Resp. Exxon ¶ 12; EX 56.1 Tab H, 59: 17 -- 59: 24.)

Daly testified that Holman trained him to heat the pipe under pressure in contravention of the Heat Fusion Manual, further explaining that heating HDPE pipe under pressure is "inconsistent with the [ISCO] manual, obviously, otherwise we wouldn't be here." (EX, AM 56.1 Resp. ISCO ¶ 49, 57; ISCO 56.1 Exhibit 4, p. 34.) More specifically, Daly testified that Holman instructed him to heat the pipe ends under fusion pressure until reaching a 9/16-inch bead size, and then to heat soak the pipe ends for four and a half minutes before pushing them together. (AM 56.1 Resp. Exxon Add. Facts ¶ 35.) Holman offered contradictory testimony in this regard, admitting at one point that he instructed Amex pipefitters to heat the HDPE pipe under pressure until they noticed the "first indication of a melt" and then to reduce the pressure to zero, and later stating that he trained them to heat the pipe under zero pressure until a 7/16 to 9/16-inch bead formed. (EX, AM 56.1 Resp. ISCO ¶¶ 66-67.) Holman trained the pipefitters to next remove the HDPE pipe from the heating plate, make a visual inspection to check for concavity, redo the weld if they saw a concave appearance, and then fuse the pipe under pressure until it cooled. (EX, AM 56.1 Resp. ISCO ¶¶ 60, 68-69.)

Daly read the Heat Fusion Manual during training and knew at the time he was fusing the pipe that Holman's training deviated from the manual with respect to heating the pipe under pressure. (EX, AM 56.1 Resp. ISCO ¶¶ 51, 59.) Daly followed Holman's instructions rather than the Heat Fusion Manual, however, because he decided that his trainer knew best, and because in his experience, manuals do not always apply to real world situations. (AM 56.1 Resp. to Exxon Add. Facts ¶¶ 35-36.) During a later water reclamation project following the filing of this lawsuit, Daly "went back to the book" and performed the fusion "more by the book." (AM 56.1 Resp. Exxon ¶ 12; EX 56.1 Tab H, 58: 20 -- 59: 21, 61:11 -- 14.) Daly now reduces the pressure on the fusion machine to zero as soon as he "get[s] the bead started" while fusing HDPE pipe. (EX, AM 56.1 Resp. ISCO ¶ 56; ISCO 56.1 Exhibit 4, pp. 150, 152.)

C. Completion of the HDPE Project

Amex pipefitters pre-fused the pipe joint that eventually failed in advance of its installation, and then transported the pre-fused joint to its actual location before fusing the final segments. (AM 56.1 Resp. Exxon ¶ 11.) Before Amex and Exxon placed the HDPE pipe into service, it was subject to hydrotesting, which consisted of filling the pipe with water to 1.5 times the operating pressure and testing for leaks. (AM 56.1 Resp. Exxon ¶ 14.) Exxon employees signed off on the pipe after it passed the hydrotest. (AM 56.1 Resp. Exxon ¶ 14.) On June 2, 2005, Amex completed the installation and Exxon placed the pipe into service. (AM 56.1 Resp. Exxon ¶ 14; AM, EX 56.1 Resp. to AT Economic Damages ¶ 14; AM, EX 56.1 Resp. AT ¶ 14.)

II. HDPE Pipe Failure

At approximately 8:20 PM on July 30, 2005, eight weeks after the installation of the HDPE pipe, a weld holding a thirty-six inch section of the pipe failed, causing the pipe to decouple. (AM 56.1 Resp. Exxon ¶ 15; AM, EX 56.1 Resp. AT ¶ 15; AM, EX 56.1 Resp. AT Economic Damages ¶ 15.) A process technician for the Refinery's coker unit, Nick Coba ("Coba"), noticed the leak while walking by the HDPE pipe. (EX 56.1 Resp. Count II ¶ 10(d-e); AM 56.1 Resp. Exxon ¶ 15.) He alerted Night Superintendent Lonnie McCollum ("McCollum"), who had worked at the Refinery since 1979 and was in charge of the Refinery on the night of July 30, 2005. (EX 56.1 Resp. Count II ¶ 10(d-e); AM 56.1 Resp. Exxon ¶ 15.) Coba did not seem out of breath or excited when he entered the control room to speak to McCollum. (EX 56.1 Resp. Count II ¶ 10(f); EX, AM 56.1 Resp. ISCO ¶ 9.) McCollum then put on his hard hat and went to examine the site. (EX 56.1 Resp. Count II ¶ 10(d).)

When McCollom first arrived at the site of the leak, two to three minutes after Coba informed him of it, he observed a six to eight inch hairline-sized leak in the pipe with water spraying from it. (EX 56.1 Resp. Count II ¶ 10(g, j); EX, AM 56.1 Resp. ISCO ¶ 11.) At that point, water was "just barely spraying out," and the leak neither alarmed him nor did he believe it to be dangerous. (EX 56.1 Resp. Count II ¶ 10(g, j); EX, AM 56.1 Resp. ISCO ¶¶ 12-14.) McCollom informed Coba that he would call maintenance to come take a look, but during this conversation, the leaking area began growing around the circumference of the pipe, after which the pipe "unzipped" and decoupled. (EX 56.1 Resp. Count II ¶ 10(h); EX, AM 56.1 Resp. ISCO ¶ 16.)

McCollom was standing next to the pipe when it decoupled and testified that he does not believe that anyone was in danger of being hurt at the time. (EX 56.1 Resp. Count II ¶ 10(i); AM 56.1 Resp. ISCO ¶ 16; EX 56.1 Resp. ISCO Exhibit 1 60:1-8; 68 1-20.) Indeed, a person standing nearby when the pipe decoupled may have gotten wet but would not have been injured. (EX, AM 56.1 Resp. ISCO ¶ 24.)

Once the pipe decoupled, the water pushed its ends apart at least 2 to 3 feet and there was a significant amount of water on the ground, so McCollum radioed the general cooling tower and said "prepare for-start shutting down, emergency shutdown." (AM 56.1 Resp. Exxon ¶ 15; EX 56.1 Exhibit N 61: 18 -- 24; 62: 1 -- 2; EX, AM 56.1 Resp. ISCO ¶ 17.). Exxon performed an emergency shut-down of the Refinery within the next twenty to thirty minutes. (EX, AM 56.1 Resp. ISCO ¶ 19.) McCollum ordered the shutdown to prevent unit equipment from overheating and for safety reasons because the cooling water system had become inoperative. (AM 56.1 Resp. Exxon ¶ 16.) Exxon employee Steven Penteris ("Penteris"), the mechanical engineering group leader responsible for supervising mechanical engineers, testified that without cooling water, vapor pressure rises, risking explosion or atmospheric release. (AM 56.1 Resp. Exxon ¶ 16; EX, AM 56.1 Resp. ISCO ¶ 22.) In order to prevent this type of "catastrophic failure," the Refinery burned all of the hydrocarbon it had in production at the time. (AM 56.1 Resp. to Exxon ¶ 16.) Once Exxon shut down the water pipes, there was some residual water flowing from the pipe. (EX, AM 56.1 Resp. ISCO ¶ 20.) Maintenance attempted to clamp the broken section of HDPE pipe or push it together with a fork lift, but could not fix it. (EX, AM 56.1 Resp. ISCO ¶ 21.)

III. Post-Failure Analysis

The HDPE pipe that decoupled was not constructed in a manner that rendered it fit for its intended purpose. (AM 56.1 Resp. Exxon ¶ 32.)*fn4 Indeed, a post-failure analysis of the pipe conducted by Perrault revealed that the "joint ha[d] very clearly been heated under pressure because of th[e] concave appearance of th[e] melt, and the fact that the two ends never actually fused together." (AM 56.1 Resp. Exxon ¶ 13; EX 56.1 Exhibit L, 62: 9 -12.) Perrault further opined that "the operator of the fusion equipment failed to properly fuse the joint." (AM 56.1 Resp. Exxon ¶ 13; EX 56.1 Tab L, 69: 15-17.) Amex's expert Nicloas Biery ("Biery") confirmed that "if there were no defect in the joint... then my opinion is it most likely would not have failed." (AM 56.1 Resp. Exxon ¶ 13; EX 56.1 Exhibit M, 38: 7-16.) With respect to the reasons he believed the pipeline failed, Biery opined that: "there was a fusion with the defect in it, and there were operating stresses on that defect. And that defect was large enough that when those operating stresses operated on the defect that the defect grew until it was large enough to cause a failure in the line, a leak and a failure." (AM, EX 56.1 Resp. AT ¶ 22.) Frank Volgstadt ("Volgstadt"), ISCO's expert, however, testified that although Holman was wrong if he taught Daly to deviate from the ISCO Fusion Manual, using the procedure Holman taught him would not result in defective cold fusion--"no it would not, absolutely not." (AM 56.1 Resp. to Exxon Add. Facts ¶ 60.)

Biery's report further concluded that Ambitech's HDPE piping design used a thinner-walled pipe than required by American Society of Mechanical Engineers B31.3 ("ASME B31.3") standards, which applied to the work performed on the HDPE Project. (AM, EX 56.1 Resp. AT ¶ 17, 19; AT 56.1 Resp. Add. Facts AM ¶¶ 24, 27.) ASME B31.3 uses the design pressure, hydrostatic design stress, and outside diameter of a pipe to determine its proper wall-thickness. (AT 56.1 Resp. Add. Facts AM ¶ 26.) Neither the guidance provided by to Ambitech by ISCO regarding wall thickness and pressure capacity of the HDPE pipe nor the pipe recommended to Ambitech by ISCO satisfied the requirements of ASME B31.3. (AM 56.1 Resp. Add. Facts ISCO ¶¶ 77-80). Biery's report also concluded that Ambitech used a lesser design temperature for HDPE pipe than for steel lines without justifying the difference. (AM, EX 56.1 Resp. AT ¶¶ 20-21.) However, Beiry admitted that he did not know the actual operating conditions of the pipe at the time of failure or have any information that would lead him to believe that it was experiencing temperatures that exceeded its capacities. (AM, EX 56.1 Resp. AT ¶¶ 20-21.)

The parties took several additional depositions in this case of witnesses who opined as to the credibility of the pipe's mode of failure and as to whether the damages incurred by the pipe failure were of the type reasonably expected. Clifton Hene ("Hene"), Exxon's Optimization Supervisory at the Refinery, testified that all damages incurred by Exxon were the damages one would reasonably expect as a consequence of the loss of the Refinery's cooling water return line. (EX 56.1 Resp. Count II ¶ 12.) Penteris interpreted the sentence in a welding quality control form, "the catastrophic failure mechanism of the high density polyethylene, HDPE, pipe was not sufficiently understood or anticipated" to mean that "this pipe can be fused enough to pass a hydro but the creep properties after being in service for a couple of months allowed it then to fail at a later date." (EX 56.1 Resp. Count II Exhibit 2 199: 16 -- 200: 3; AM 56.1 Resp. Add. Facts Count II ¶ 2.) Penteris then affirmed that this creep was "one of the root causes of the failure." (EX 56.1 Resp. Count II Exhibit 2 200: 2--3; AM 56.1 Resp. Add. Facts Count II ¶ 2.) Exxon employee Raphael Bojarczuk ("Bojarczuk") similarly testified that he does not "believe that having a pipe fail catastrophically by failing entirely through the joint is a credible mode of failure if properly installed." (EX 56.1 Resp. Count II Exhibit 4 105: 6--10; AM 56.1 Resp. Add. Facts Count II ¶ 2.) Bojarczuk further interprets the sentence "the catastrophic failure mechanism of the high density polyethylene pipe was not sufficiently understood or anticipated" to mean that "no one imagined that the joint could fail catastrophically like that, if properly assembled." (EX 56.1 Resp. Count II Exhibit 4 117: 1-20; AM 56.1 Resp. Add. Facts Count II ¶ 2.)

IV. The Continuing Services Agreement between Exxon and Amex

On May 29, 2003, Exxon entered into a Continuing Services Agreement ("CSA") with Amex. (AM 56.1 Resp. to Exxon ¶¶ 28--29; EX 56.1 Resp. Count I ¶ 11; AM, EX 56.1 Resp. AT Economic Damages ¶ 11; AM, EX 56.1 Resp. AT ¶ 11.) The CSA governed all work performed by Amex for Exxon at the Refinery, including the work at issue in this case. (EX 56.1 Resp. 15th Aff. Def. ¶ 13; EX 56.1 Resp. Count I ¶ 12.) Throughout the CSA, Amex is identified as "Contractor" and Exxon as "User." (EX 56.1 Resp. 15th Aff. Def. ¶ 16; EX 56.1 Resp. Count I ¶ 17.)

The CSA allowed the Refinery to issue work orders to Amex on a pre-approved and ongoing contractual basis. (AM 56.1 Resp. Exxon ¶ 28.) A work order means the document or documents issued by User incorporating the terms of this Agreement and specifying the Services to be performed using the form set out in Exhibit B or any other form User may provide whether labeled as a Work Order or by other labels including, but not limited to, 'release,' 'work release,' 'letter of special agreement,' 'work order agreement,' 'work authorization' or 'letter of authorization' provided that such form is executed and accepted as provided in this Agreement. A Work Order may take the form of an oral request by User. (AM 56.1 Resp. Exxon ¶ 29; EX 56.1 Tab V, Ex. A, Art. 1, No. 15; EX 56.1 Resp. Count I ¶ 22.) Article 4 of the CSA provides that: "[e]ach accepted Work Order shall constitute a legal contract between User and Contractor separate and distinct from either any other Work Order or this Agreement. Each Work Order shall, nonetheless, be deemed to incorporate the provisions of this Agreement." (AM 56.1 Resp. Exxon ¶ 30.)

The Service Order placed with Amex on September 30, 2004 for the HDPE Project functioned as a Work Order pursuant to the CSA. (EX 56.1 Resp. Count I ¶¶ 24-25.) Some of the services identified in this Service Order for "[m]obilization, labor and supervision for the pipe fabrication for the cooling water return line replacement project in accordance with Amex Proposal 04-5421 dated 9/15/04" were not completed or accepted as of July 30, 2005 when the HDPE pipe decoupled. (EX 56.1 Resp. Count I ¶¶ 28-29.)*fn5 More specifically, the following services delineated in Amex Proposal 04-5421 were not completed or accepted on or before July 30, 2005: (1) installation of the 48" underground carbon steel E/W run; (2) installation of the new 48"/42 N/S carbon steel header to units including branch piping; (3) energizing the new U/G carbon steel piping and demo of the temporary HDPE piping and supports. (EX 56.1 Resp. Count I ¶ 30-35.)

A. Warranty Provisions in the Continuing Services Agreement

Article 10 of the CSA contains descriptions of several warranties, including Section 10.1's "Contractor's Representations and Warranties" providing that Contractor: "(a) has the Competence to perform the Services;... (c) shall maintain and use all tools and equipment in accordance with manufacturer's specifications and recommendations and good engineering and operational practices;... (f) shall perform all Services in good faith, promptly, with due diligence and Competence; (g) fully comprehends the requirements and contingencies prior to performing services." (AM 56.1 Resp. Exxon ¶ 30, AM 56.1 Resp. Add. Facts 15th Aff. Def. ¶ 1.) The CSA defines "Competence" as having "the expertise, experience, capability and specialized knowledge to perform Services in a good and workmanlike manner and within all accepted standards for the industry." (AM 56.1 Resp. Exxon ¶ 30; AM 56.1 Resp. Add. Facts 15th Aff. Def. ¶ 1.)

Section 10.3 goes on to provide a general Contractor's Warranty (the "General Warranty"): Without limiting the rights that User may otherwise have at law or equity and in addition to the other warranties granted, Contractor guarantees and warrants that all Services performed and any materials and equipment provided in connection with the Services shall be free from defect or deficiency for one (1) year from the date of completion or acceptance of the Services, whichever occurs last...." (AM 56.1 Resp. Exxon ¶ 30; AM 56.1 Resp. Add. Facts 15th Aff. Def. ¶ 1.)

The CSA defines "Services" as "the services described in Exhibit A and each applicable work order." (AM 56.1 Resp. Exxon ¶ 30; EX 56.1 Resp. Count I ¶ 20.) Exhibit A is not specific to the HDPE Project; rather, Exhibit A describes the general kind of piping work to be performed by Amex at the Refinery. (EX 56.1 Resp. Count I ¶ 21.)

B. Damage Cap Provisions in the Continuing Services Agreement and the Service Order

The CSA also contains a provision addressing the damages available to Exxon under certain circumstances. Article 12.1 of the CSA states, in relevant part:

Contractor shall compensate User for loss or damage to User's existing property which is in reasonable proximity to the Work Site which results from the negligence of the Contractor and/or for any resulting consequential, special or indirect damages, or loss of anticipate profits sustained by User; however, Contractor's responsibility shall not exceed the amount recoverable by Contractor or its Subcontractors under the valid and collectible insurance carried by the Contractor or Subcontractors, or the amount which would have been recoverable under that insurance if all conditions, requirements and warranties imposed on the insured by the insurer are being or had been met. User shall release Contractor and hold Contractor free and harmless from liability to User for such loss or damage and/or for any resulting consequential, special or indirect damages, or loss of anticipated profits sustained by User exceeding amounts so recovered, even if the loss or damage results from Contractor's negligence; however, Contractor's responsibility shall include the value of any deductible or self-insured retention applicable under that instance. (EX 56.1 Resp. 15th Aff. Def. ¶ 17; AM 56.1 Resp. Exxon ¶ 31.)

Article 11(c) of the Service Order for the HDPE pipe installation contains identical language, merely substituting the word "Supplier" for "Contractor" and the word "Purchaser" for "User." (EX 56.1 Resp. 15th Aff. Def. ¶¶ 18-19; EX 56.1 Resp. Count I ¶ 18.)

Article 12 explains that "[t]he term 'negligence' in this Agreement shall include active or passive negligence." (AM 56.1 Resp. Exxon ΒΆ 31.) Article 12 goes on to clarify that each party shall bear full responsibility for any "Gross Negligence or Willful Misconduct attributable to its managerial and senior supervisory personnel," and to define gross ...


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