Reply Brief — Apache Corp. v. Moore

iy Supreme Court, U.S,

; y it

No. 95-1414 | APR 16 1996

'

In the Supreme Court of the Anited States

OCTOBER TERM, 1995

APACHE CORPORATION, Petitioner

Vv.

LEO MOORE, DAISY MOORE, AND BESS COLE,

Respondents

On Petition for a Writ of Certiorari

to the Court of Appeals of Texas

REPLY BRIEF FOR THE PETITIONER

Jess H. HALL, JR. ANDREW L. FREY*

JAMES E. ESSIG EVAN M. TAGER

JEFF WEEMS Mayer, Brown & Platt

Liddell, Sapp, Zivley, 2000 Pennsylvania Ave., N.W.

Hill & LaBoon, L.L.P. Washington, D.C. 20006

3300 Texas Commerce (202) 778-0602

Tower

Houston, TX 77002

(713) 226-1200

Counsel for Petitioner

* Counsel of Record

a

TABLE OF CONTENTS

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REPLY STATEMENT OF FACTS .............. ]

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TABLE OF AUTHORITIES

Page

Case

BMW of North America, Inc. v. Gore,

No. 94-906. ci iwivs 66s Reon 1, 5, 7, 8, 10

Pacific Mut. Life Ins. Co. v. Haslip, 499

U.S. 1 CRE) oo ieee wena ces en olan 6

REPLY BRIEF FOR THE PETITIONER

Respondents implicitly concede that this case involves no

deliberate misconduct (Opp. 23-24); they admit that the conduct

was an “isolated” occurrence (Opp. 17); and they, by and large,

do not contest that the allegedly negligent conduct ir this case

was that of low-level employees rather than top or even mid-

level Apache management.' Indeed, their own statement of

facts confirms that, far from being an egregious wrongdoer,

Apache, if anything, was the victim of the negligence of its low-

level employees. See Opp. 10-13 (discussing failure of low-

level employees to monitor the relief valve and to ensure that the

valve was connected to its power source). In view of these

explicit and implicit concessions, it is simply preposterous for

respondents to suggest (Opp. 18) that “the evidence against

Apache is overwhelmingly more egregious than the evidence

against BMW” and that there therefore is no point to holding

this case during the pendency of the BMW case.

REPLY STATEMENT OF FACTS

Even accepting every word of respondents’ statement of

facts as true, that presentation does nothing to undermine our

central point that Apache’s conduct in this case was nowhere

near so heinous as to justify the punishment meted out by the

jury. Nevertheless, a few points of clarification are in order.

1. Clower’s alcoholism. Respondents emphasize (Opp. 7)

that a drilling foreman for the Key 1-11 well, Gordon Clower,

was an alcoholic. Although a few employees in the Elk City

field office may have known of Clower’s insobriety, however,

there is no evidence that anyone in management had such

knowledge. Moreover, when, as a consequence of the “kick,”

Clower’s supervisor learned that Clower had failed in his duties

' The only allegedly negligent act that respondents attribute to anyone

other than a low-level employee is the decision by Loyd Somers, an engin-

eering supervisor in Apache’s Tulsa office, to install a relief valve rather

than immediately puil and rework the tubing after the employees in the

field discovered the pressure on the backside. See Opp. 8-9. As we dis-

cuss below (at pages 2-3), Somers’ judgment call was manifestly reason-

able and certainly not the kind of conduct warranting a seven-digit punish-

ment.

2

by being absent from the well site, Clower was fired immedi-

ately. Tr. 2727. That prompt and decisive action is hardly

indicative of indifference to the proper management of the well.

2. The “kick” and its aftermath. Respondents insinuate

(Opp. 7) that fault for the “kick” should be laid at Apache’s

door. It is undisputed, however, that the kick was the result of

a cardinal error (the failure to pump sufficient amounts of

drilling mud into the hole) committed by Razliff, which had been

hired specifically for its expertise in the drilling of wells. Tr.

2206, 2725-2728.

The categorical assertion (Opp. 8) that, in drilling out the

cement, Apache’s contractor “cut into the casing and weakened

its walls” is misleading.? There was no proof whatever — only

the speculation of respondents’ paid experts — that the

contractor cut into the casing, much less that the casing was

weakened as a result. Even assuming that there were something

more than speculation to support respondents’ hypothesis, there

is no evidence to support the further inference that the drilling

of the cement had a causal connection to the blowout. Indeed,

the evidence strongly suggests the absence of such a connection.

It is undisputed that the cement backed up no higher than 7,700

feet from the surface. Tr. 1490. Respondents’ expert opined

that the casing ruptured 1,000 to 2,500 feet below the surface

(Tr. 1586, 1678-1679) — nowhere near the area in which the

drilling of the cement took place.

3. Somers’ decision not to pull the tubing immediately

after discovery of the pressure on the backside. Respondents

provide an incomplete and misleading description of Loyd

Somers’ decision not to pull the tubing and rework the well after

Apache’s field employees discovered the pressure on the back-

side. See Opp. 8-9. Somers did not simply ignore the need to

address the leak in favor of the less expensive alternative of

installing a relief valve. Rather, it was his conclusion — based

2 Although respondents gloss over the fact, here again Apache acted

responsibly by hiring an outside contractor that specialized in just this

problem to drill out the cement from the casing. Tr. 708-709, 2728.

3

on his experience with other wells — that there would be “less

problems” if Apache could first “put [the well] on the pipeline

and flow it and get the pressure down on the well before we

went into the well and «ied to make repairs.” Tr. 2302.

Because Somers expected that connection with the pipeline

would be imminent (Tr. 2305), he elected to employ a relief

valve to stabilize the pressure. Nevertheless, it is undisputed

that Somers would have ordered that the tubing be pulled and

further corrective action be taken if the pressure did not subside.

Tr. 1583, 2873. In fact, however, the pressure stabilized at

around 6,000 pounds per square inch. Tr. 2310-2312.

Somers’ measured response to the discovery of the pressure

on the backside hardly constitutes the kind of conscious

indifference that would justify levying a multimillion dollar

punishment against his employer. To the contrary, as we

pointed out in the petition (at 13-14), Apache’s expert testified

that Somers’ decision not to pull the tubing immediately “was a

decision that every operator that I’ve worked with in the

Anadarko Basin would have made under the same or similar

circumstances.” Tr. 2735 (emphasis added).

4. The kickback scandal. In an effort to bolster the impli-

cation that the kickback scandal had a direct and substantial

causal relationship to the blowout, respondents quote an internal

memorandum that states that “[c]ompanies making illega! pay-

ments would not inspect equipmient as often” and that an Apache

foreman or supervisor who had received kickbacks “would not

be in a position to complain if a tool failed.” Opp. 14-15

(quoting P. Exh. 50). Respondents neglect to inform the Court

that those statements were “generalizations about * * * the

Situation as a whole” and in no way purported to constitute

“specific conclusions about particular items,” let alone findings

regarding the effect of kickbacks on the drilling of the Key 1-11

well. See P. Exh. 50.

Respondents’ assertion (Opp. 15) that White Stripe failed to

inspect the intermediate casing is simply wrong. White Stripe’s

president (Danny Merz), the White Stripe employee responsible

for the Key 1-11 job (Lupe Jalomo), and Apache’s drilling

4

supervisor (Ralph Walker) all testified that White Stripe did a

full API inspection on the 7% inch intermediate casing. Tr. 128-

129, 2214, 3269-3270, 3280-3281. Merz, Jalomo, and White

Stripe salesman Darrel McDonel further testified that White

Stripe wanted to perform a similar inspection on the production

tubing but that Walker authorized and White Stripe performed

only the less expensive clean, visual and drift inspection. Tr.

129, 381, 3272-3273. McDonel did testify that Merz said that

“‘we hadn’t inspected the pipe; we’re going to get blamed for

[the blowout]; it’s going to haunt us,’ and then went immediately

to the clean visual and drift end of it.” Tr. 382 (internal

quotation marks added). It is obvious from the reference to “the

clean visual and drift end of it” that McDonel understood Merz

to be saying that he expected White Stripe to be blamed because

it had not performed the full API inspection on the tubing, not

that White Stripe had performed no inspection at all.

Respondents intimate take Apache dragged its feet in

response to the kickback scandal, asserting (Opp. 16-17) that

Apache did not begin investigating the scandal until after it had

been sued and that Apache was still considering appropriate

safeguards “over a year and a half after the blowout.” There is

no evidence, however, that Apache management knew of kick-

backs but decided to delay investigation. Nor is there evidence

that Apache decided to conduct an internal investigation because

it believed that such an investigation would benefit it in the

litigation arising out of the blowout. To the contrary, the record

unequivocally reflects that Apache made a conscious decision to

pursue the investigation despite its belief that, by exposing the

> The API inspection involves running each length of pipe through a

machine that electronically inspects the pipe for cracks and other defects.

Tr. 127-128; 3271. This kind of inspection was not common at that time,

but has become so subsequently. Tr. 3276. A clean, visual and drift

inspection involves cleaning the threads with a solvent, visually inspecting

the threads to ensure that they have not been damaged di ~ 1g transit, and

placing a cylinder through the inside of the pipe to ensure that the internal

diameter is uniform so that the drilling crew will not drill into the casing

at any point. Tr. 126-127, 3267-3269.

5

misdeeds of its employees and contractors, it would be creating

a cadre of witnesses with a motivation to skew their testimony

against it. P. Exh. 54, at KB200013815; Tr. 1254. Finally, the

suggestion that Apache delayed unreasonably in implementing

additional safeguards against future kickback scandals is

supported by neither the record nor common sense. The

exhibits cited by respondents reflect that Apache’s in-house

attorneys believed that the development of specific safeguards

could not occur until they had completed their internal

investigation and gotten a full understanding of the “recurring

problems and exposures identified in these investigations.” See

P. Exh. 52, at KB200013819. There is nothing nefarious about

that reasoning.*

ARGUMENT

To our knowledge, this Court has held every recent petition

presenting a preserved claim of excessive punitive damages

pending its consideration and disposition of BMW. Nothing said

in the brief in opposition warrants a different outcome here.

1. Respondents contend (Opp. 17-18) that Texas’s enact-

ment of tort reform legislation makes this case unworthy of

review. That argument is doubly misguided. First, because the

statute applies only to causes of action accruing after September

1, 1995, there remain literally thousands of claims in the Texas

courts that are not governed by the statute. Second, and more

fundamentally, the question of excessive punitive damages will

continue to arise whether or not a particular state attempts to put

limits on such damages. Because the factors relevant to review-

ing the amount of punitive damages under the Due Process

* As a review of the exhibits will reveal, Apache conducted a model

investigation. The in-house attorneys were thorough and diligent, yet at

all times took pains to ensure that the innocent were not tarred by the

misdeeds of their co-workers. P. Exhs. 52-54, 56-60. Although they

believed that the adoption of specific safeguards should await the

completion of the investigation, they nonetheless made several broad

suggestions to serve as the framework for more detailed proposals. See

P. Exh. 52, at KB200013819.

6

Clause will not vary from state to state, there is no reason to

refuse to review a Texas case merely because, if all goes as

planned, there should be fewer excessive punitive exactions in

Texas in the future.

2. Respondents offer a smorgasbord of unpersuasive

reasons why the Court should ignore the startling 138:1 ratio of

punitive to compensatory damages. See Opp. 19-22. They first

contend that the true ratio is much smaller because we have

failed to factor in the damages awarded to the five other plain-

tiffs. Because those plaintiffs settled their claims for an amount

that is not in the record, there is no basis for including in the

analysis of respondents’ judgment the compensatory and punitive

damages awarded to the settling plaintiffs (but neither received

by them nor even approved by any reviewing court). Even if

the awards to the other five plaintiffs are included in the

analysis, however, the ratio would be over 55:1.° In the

absence of evidence that additional harm not encompassed within

the damages award was likely, ratios of that magnitude give rise

to serious constitutional concern. See Pacific Mut. Life Ins. Co.

v. Haslip, 499 U.S. 1, 23 (1991) (declaring a 4:1 ratio to be

“close to the line”).

° Respondents are simply wrong in suggesting (Opp. 19-20) that it would

be appropriate to compare the punitive damages to the conversion damages

found by the jury. After briefing regarding the appropriateness of any

conversion award under the facts of this case, the trial court declined to

enter judgment on the conversion award. See Pet. App. 43a (entering

judgment only on the gross negligence awards and the punitive damages

award). In essence, the court granted Apache’s motion for judgment

notwithstanding the verdict with respect to the conversion claim. Because

respondents had no cognizable claim for conversion damages, it is

inappropriate to consider the jury’s conversion awards for purposes of

evaluating whether the punitive damages are disproportionate.

In any event, the jury expressly found that the conversion was not

willful or knowing. Pet. App. 40a. Because the conversion did not

involve conduct that could give rise to punitive damages, it is not logical

to use the conversion damages as a measure of the appropriate amount of

punitive damages.

7

Respondents’ assertion (Opp. 20) that this case does involve

likely potential, but unrealized, harm — namely, the possibility

of physical injury to Apache employee Tom Reames — is unsup-

ported by any citation to the record. There was no evidence

whatever that Reames would likely have been injured had he

monitored the well on a daily basis as he should have done.

Nor may such a fact be assumed. Whatever gaps there may

have been in Reames’ training regarding Axelson relief valves,

there is no basis for assuming that he would not have noticed the

warning signs of an imminent blowout and quickly removed

himself from harm’s way. To the contrary, it is undisputed that

when Reames did go to the well, he did read the casing pressure

gauge, which regularly reflected a pressure of around 6,200

pounds per square inch. Tr. 3220-3222. Had he gone to the

well and read the gauge in the days preceding the blowout, he

surely would have observed an increase in pressure that would

have caused him to take precautions to protect himself. More-

over, the record reflects that, when the well blew out, the

wellhead shot straight up into the air. Tr. 2373. Reames would

have had to be practically sitting on the wellhead in order to

have been injured.

Respondents also urge the Court to factor into the analysis

the damage caused to other mineral interest and royalty owners

who settled with Apache prior to trial. Opp. 21-22. As with

the five plaintiffs who settled after the trial, the amounts of the

settlements are not in the record and it is, for that reason alone,

improper to rely upon the damage caused to those individuals.

For all anyone knows, if the jury had been told how much

Apache had paid in settlement, it might have concluded that the

deterrent function had already been adequately served and that

little or no punitive damages needed to be added.

In sum, respondents have not so thoroughly refuted our

showing of disproportionality (or indeed come anywhere close

to doing so) as to make it pointless even to hold the petition until

BMW is decided. To the contrary, their arguments underscore

the need for further guidance on this important factor in the

excessiveness analysis.

3. Respondents’ discussion of the reprehensibility factor

also fails to justify their request that the petition be denied

without awaiting the resolution of BMW. To begin with, respon-

dents concede that the conduct here involved gross negligence

but contend that, as defined by the Texas Supreme Court, gross

negligence is not on the low end of the reprehensibility spec-

trum. Opp. 23-24. In assessing the nature of the conduct here,

however, Texas’s definition of gross negligence is irrelevant.

What matters is whether, taking the evidence in the light most

favorable to the verdict, the conduct is closer to ordinary

negligence, hence warranting a comparatively modest penalty,

or instead is closer to a deliberate and malicious wrongdoing,

which would warrant a more severe punishment. Here, although

concluding that the jury’s finding of gross negligence was

sustainable, the Court of Appeals identified no evidence (and

respondents cite none in their opposition) that, in the course of

drilling the Key 1-11 well, Apache consciously decided to ignore

an extreme degree of risk. Nor, given the fact that Apache

expected this well to be its best producer ever (Tr. 1409, 1587,

2876), would it be reasonable to infer that Apache made a

conscious — and patently irrational — decision to disregard a

high risk that there would be an immensely harmful (to Apache)

blowout. Because there is no evidence and no basis for

inferring that Apache deliberately ignored an extreme risk, the

conclusion is inescapable that the conduct here was among the

least reprehensible for which punishment can be levied (no

matter what the Texas courts concluded on the liability point).

Respondents assert (Opp. 25) that the drilling of the Key 1-

11 well was “completely at odds with industry custom.” It is

true, to be sure, that certain conduct identified by respondents

— particularly the kickbacks and the alleged failure to monitor

the relief valve properly (neither of which were authorized or

endorsed by Apache management) — did not comport with

industry standards. But because we are not here challenging the

imposition of punitive liability, but rather only the amount, the

question of compliance with industry custom is not an all-or-

nothing proposition. As respondents steadfastly ignore, it is

undisputed that, in many important ways, Apache’s conduct in

9

overseeing the drilling of the well comported with or exceeded

industry custom. See Pet. 13-14. That fact is highly relevant

in determining whether a punishment of the magnitude involved

here exceeded the bounds of reasonableness.

Respondents similarly misunderstand our point regarding the

good-faith dispute among experts. Contrary to respondents’

assumption (Opp. 28), we do not here contend that such a dis-

pute should cut off punitive damages entirely (although there is

much merit to that contention). Rather, our point simply is that

the existence of a genuine dispute as to whether a defendant’s

conduct was even negligent weighs against finding that the con-

duct was so reprehensible as to warrant a multimillion dollar

punishment. As to that argument, respondents have nothing to

Say.

4. We argued in the petition (at 16) that the fact that

Apache itself lost tens of millions of dollars as a result of the

blowout weighs heavily against the conclusion that a multimillion

dollar punishment is reasonably necessary to deter Apache and

other operators from cutting corners in the drilling of wells.°

Respondents argue (Opp. 29) that we have overstated the loss to

Apache because it recovered substantial amounts in settlements

from other defendants. But that argument only highlights the

fact that Apache, like respondents, was a victim here not just of

the negligence of its low-level employees but also of that of

some of its vendors. Large punitive exactions hardly are

necessary to “deter” businesses from being victimized by the

negligence of their employees and vendors.

* In stating that “[t}he severity of financial loss suffered as the result of

one’s own gross negligence has never been a defense to punitive damages”

(Opp. 29), respondents once again misperceive our point. Our contention

is not that liability for punitive damages is constitutionally impermissible,

but rather that the amount imposed here is excessive.

10

CONCLUSION

Nothing respondents have said in their opposition warrants

the extraordinary step of denying the petition without awaiting

the outcome of BMW. Indeed, the opposition serves only to

confirm that, if the Court does not reach the excessiveness issue

in BMW, this case — involving as it does a high ratio of punitive

to actual damages and an isolated instance of non-intentional

wrongdoing of which the principal victim was the defendant

itself — would be a particularly good one in which to address

that recurring and important question. The petition for certiorari

should be granted.

Respectfully submitted.

Jess H. HALL, Jr. ANDREW L. FREY*

JAMES E. Essic EVAN M. TAGER

JEFF WEEMS Mayer, Brown & Platt

Liddell, Sapp, Zivley, 2000 Pennsylvania Ave., N. W.

Hill & LaBoon, L.L.P. Washington, D.C. 20006

3300 Texas Commerce (202) 778-0602

Tower

Houston, TX 77002

(713) 226-1200

Counsel for Petitioner

* Counsel of Record

APRIL 1996

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