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Marine & Energy News Alert: Court Interprets Texas Rule to Allow Oil, Gas Operators to Depose Plaintiffs After They've Settled

September 26, 2016

The Fourteenth Circuit Court of Appeals in Houston recently interpreted Texas Rule of Procedure 201.2, which governs obtaining depositions for use in a foreign jurisdiction, and held that the non-operators of a gas process plant have the right to depose four former personal injury plaintiffs for a Wyoming lawsuit after the former plaintiffs settled their Texas lawsuits against the plant’s operator.

This case is significant in view of the recent trend where oil and gas operators are settling personal injury claims without notifying non-operating interest owners or conducting meaningful discovery and seeking reimbursement from non-operating working interest owners for their share of the settlements. Also significant is the effect of the decision, which allows the four former personal injury plaintiffs to be deposed about their current physical condition.   

Within nine months after the accident and without taking a single deposition, the gas plant’s operator, ConocoPhillips (“COP”), paid $38 million to settle with three of the former personal injury plaintiffs for injuries they sustained in a flash fire at the gas processing plant located in Wyoming. COP sought reimbursement from the plant’s non-operating working interest owners (“NWIO”) for part of the settlements pursuant to an operating agreement. COP did not notify the plant’s NWIO of the lawsuits or obtain their approval of the settlements before the settlements occurred. A fourth personal injury claim was settled over the NWIO’s objection after his deposition was taken. Certain NWIO filed a lawsuit in Wyoming to challenge COP’s right to reimbursement on the basis that COP materially breached the operating agreement and damaged the NWIO by settling the personal injury lawsuits without their knowledge or approval.

The NWIO obtained letters rogatory from the Wyoming court to depose the four former personal injury plaintiffs (“Compensated Claimants”) and served deposition notices with subpoenas after filing an application to take the depositions in Harris County. The Compensated Claimants filed motions to quash and for protection and challenged the relevancy of their deposition testimony as well as asserted that the depositions were unreasonably cumulative and unduly burdensome. The trial court limited the depositions to three hours each and restricted the depositions of the three Compensated Claimants who were previously not deposed to the following topics: (i) the facts surrounding the incident at the Lost Cabin Gas Plant on the day of the accident; (ii) the individual’s injuries sustained at the time of the accident; and (iii) the medical condition, physical or mental, at the time of each respondent’s settlement of his claims against COP. The trial court quashed the deposition of the fourth Compensated Claimant who was previously deposed.

After noting that few opinions had interpreted Rule 201.2, the Fourteenth Circuit Court of Appeals rejected the Compensated Claimant’s argument that the Texas court had the right to determine relevancy. Relying on authority from almost a century ago, the Court of Appeals held that the court with jurisdiction over the underlying case is generally charged with determining the relevancy and materiality of evidence sought by a party seeking a deposition in Texas using letters rogatory, while the Texas court has the obligation to protect the witness’ legal rights, including, for example, the witness’ right to avoid compelled production of privileged evidence. 

This approach promotes comity toward other states’ courts while vesting Texas trial courts with authority to protect Texas residents subjected to depositions for lawsuits pending in other states. To the extent the Texas trial court granted the Compensated Claimants’ motions, in whole or part, based on a relevancy determination, the trial court abused its discretion. The Fourteenth Court of Appeals left the Compensated Claimants with the option of seeking relief from the Wyoming trial court.

The Fourteenth Circuit Court of Appeals also held that Compensated Claimants failed to prove that their depositions were cumulative or unduly burdensome. The NWIO argued that they needed to depose the three personal injury plaintiffs who were not deposed concerning their

  1. employment history;
  2. turnaround work before the accident;
  3. work with respect to the particular valve that was removed and refurbished;
  4. the events leading up to the accident;
  5. what happened at the time of the accident;
  6. their recovery; and
  7. their current condition.

The Fourteenth Circuit Court of Appeals held that the three Compensated Claimants who were deposed did not meet their burden to prove that the depositions would be impermissibly cumulative or duplicative under Rule 192.4 of the Texas Rules of Civil Procedure.

The fourth Compensated Claimant who was previously deposed argued that his testimony would be irrelevant and it would be harassing for him to be redeposed. The Fourteenth Circuit Court of Appeals held that the Texas trial court cannot substitute its own determination of what is relevant in the Wyoming litigation and the Wyoming trial court had held there was a fact question as to whether COP had materially breached the operating agreement which raised issues about whether the settlement was objectively reasonable or comported with standards of good faith and fair dealing and COP’s conduct in settling the claim. Questions related to these issues would not be unreasonably cumulative or duplicative, and the burden to prove otherwise had not been met.

Finally, the Fourteenth Circuit Court of Appeals held that to the extent Rule 192.6(b) of the Texas Rules of Civil Procedure applied to letters rogatory, the four Compensated Claimants did not meet their burden to establish the depositions would cause undue burden, unnecessary expense, harassment, annoyance or invasion of personal, constitutional or property rights. In particular, the Claimants did not demonstrate how reliving the incident by giving their deposition would harm them, including the Claimant who allegedly experienced post-traumatic stress disorder.

As a result, the Fourteenth Circuit Court of Appeals reversed the trial court’s final judgment and remanded the case to the trial court for further proceedings.

Of significance is that the decision will allow the NWIO to obtain the Compensated Claimants’ depositions and let the Wyoming trial court decide what is relevant to the issues in the Wyoming litigation, including whether the Compensated Claimants’ current condition can be offered into evidence to show that COP materially breached the operating agreement by entering into premature settlement without giving the NWIO’s the right to object and allow the Claimants to have time to recover from their burn injuries before settling.

Click here to read the entire opinion.

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