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LLC v. Oceaneering International, Inc.

United States District Court, E.D. Louisiana

April 19, 2018

WRIGHT'S WELL CONTROL SERVICES, LLC
v.
OCEANEERING INTERNATIONAL, INC.

         SECTION “R” (3)

          ORDER AND REASONS

          SARAH S. VANCE UNITED STATES DISTRICT JUDGE

         Defendant Oceaneering International, Inc. moves for summary judgment on plaintiff Wright's Well Control Services, LLC's breach of contract claim.[1] For the following reasons, defendant's motion is denied.

         I. BACKGROUND

         Plaintiff Wright's Well Control Services, LLC (WWCS) and defendant Oceaneering International, Inc. (Oceaneering) both provide hydrate remediation services for the oil and gas industry. A hydrate is an ice-like solid that forms when water becomes mixed with oil and/or gas at high pressure and low temperature.[2] Hydrates can cause a pipeline to become blocked by “hydrate plugs, ” resulting in a loss of production.[3]

         A. The Parties' Initial Hydrate Remediation Efforts

         In 2008, ATP Oil and Gas Corporation contracted with Oceaneering to remove hydrates from a pipeline (Canyon Express project).[4] At the time, Oceaneering had a hydrate remediation skid designed to clear hydrate plugs in smaller tubing; Oceaneering had not yet used it on a pipeline.[5] This hydrate remediation skid featured a low-volume pump, and was fitted onto and powered by a remotely operated vehicle (ROV).[6] Oceaneering successfully cleared some, but not all, of the hydrate plugs from ATP's pipeline in early 2009.[7] Oceaneering's hydrate remediation skid also suffered various problems because of the presence of gas in the system, such as reduction in pumping capability and formation of hydrates in tubing connected to the skid.[8] Oceaneering employees began discussing potential improvements to the hydrate remediation skid as early as February 2009.[9]

         ATP then contracted with WWCS to conduct further hydrate remediation in ATP's pipeline (Kings Peak project), even though WWCS did not yet have a complete hydrate remediation system.[10] WWCS developed its hydrate remediation system specifically for high-volume, deepwater applications, like ATP's pipeline.[11] WWCS's system, later patented, used a pump with a much higher displacement rate than the pump used in Oceaneering's skid.[12] This pump included a drill motor powered by pressurized seawater. See generally U.S. Patent No. 9, 435, 185 ('185 Patent). WWCS also designed a separator to remove gas from the system and discharge it to the surface.[13]

         B. The Nondisclosure Agreement

         On December 11, 2009, WWCS and Oceaneering allegedly executed a Reciprocal Nondisclosure of Confidential and Proprietary Information Agreement (NDA).

         The NDA's introductory section states: “It is the intention of the parties to this Agreement to exchange proprietary information. The disclosure and use of any proprietary data shall be governed in accordance with the following . . . .”[14] Section One defines the scope of information covered by the NDA:

For the purpose of this Agreement, confidential and proprietary information “Information” shall be defined as but not limited to, performance, sales, financial, contractual, and special marketing information, ideas, technical data, all intellectual property including inventions, patents, pending patents and all other business, technical and financial information that the Disclosing Party develops, learns or obtains during the period over which it is (or is supposed to be) providing services as contracted for between the parties that relate to Recipient Party or the business or demonstrably anticipated business of the Recipient Party, or that are received by or for Recipient Party in confidence and concepts originated by the Disclosing Party. Proprietary information is further defined as data not previously available to the Receiving Party or others without restriction, nor normally furnished to others without compensation, and which the Disclosing Party desires to protect against unrestricted disclosure or competitive use, and which is furnished pursuant to this Agreement and appropriately identified as being proprietary when furnished.[15]

         Two provisions restrict a recipient's use of information. Section Two states: “With respect to all proprietary information disclosed hereunder, the Recipient Party agrees that for a period of three (3) years following the date of this Agreement, unless terminated sooner by either party, such party shall not . . . [u]se such information except for purposes of its business relationship with the Disclosing party.”[16] Section Four provides: “Neither party shall divulge or use any proprietary information disclosed to it hereunder by the other party for any purpose not connected with the effort contemplated by the Agreement.”[17]

         Section Six creates exceptions to a recipient's duty to protect and handle information. It provides, in relevant part:

         The obligation with respect to the protection and handling of proprietary information, as set forth in this Agreement, is not applicable to the following:

a) Information which is or becomes lawfully known or available to the receiving party without restriction from a source other than the Disclosing Party.
b) Information which is or later falls within, the public domain without breach of this Agreement by the recipient.
c) Information disclosed by the Disclosing Party to others on a nonrestrictive basis.[18]

         C. WWCS's Patents

         David Wright, who founded WWCS, and Jeffrey Dufrene filed Provisional Application No. 61/290, 168 for their hydrate remediation system in December 2009, shortly after signing the NDA with Oceaneering.[19]This application specifically included the subsea separator.[20] Wright and Dufrene filed non-provisional Patent Application No. 12/978, 486 for the separator on December 24, 2010.[21] These patent applications were published on June 30, 2011. Wright and Dufrene later assigned their interests in the patents to WWCS.[22] U.S. Patent No. 8, 413, 725 ('725 Patent) for the separator issued on April 9, 2013, and the '185 Patent for the hydrate remediation system issued on September 6, 2016.

         The principal independent claim of the '185 Patent is a method of recovering a pipeline fluid from a source located in a subsea environment by connecting a fluid-powered motor, a pump, and a separator to the source of the fluid. '185 Patent at 19:58-20:18. A drawing of a simplified embodiment of the system 10 is reproduced below. See Id. fig. 9. Figure 1 labels the fluid source (a subsea pipeline) as 12; the separator as 20; the pump as 18; the drill motor as 16; and the emergency quick disconnects as 80. Lines 21A and 21B convey pressurized seawater from the vessel to the motor; gas from the separator rises to the surface through line 23, while liquid from the separator is directed to the vessel through line 22; and methane may be introduced into the system through line 92.

         Image Omitted

         A simplified embodiment of the separator is reproduced below. See '725 Patent fig. 1. Figure 2 labels the housing as 10; the outer wall of the housing as 22 and the inner wall as 24; the inlet as 14; the non-gaseous outlet as 20; the gas outlet as 18; the baffle type members as 16; and a perforated tube (part of a ball valve assembly) as 30.

         (Image Omitted)

         D. The Parties' Working Relationship and Oceaneering's Alleged Misuse of WWCS's Confidential Information

         The parties worked together on the Kings Peak project for ATP in late 2009 and early 2010. While WWCS designed the hydrate remediation system itself and provided most of its components, Oceaneering provided support and project management.[23] WWCS's system successfully cleared the remaining hydrates in ATP's pipeline by March 2010.[24]

         The parties worked together on several additional jobs using WWCS's system. Shortly after completing the Kings Peak project, WWCS and Oceaneering performed hydrate remediation for Williams Field Services Gulf Coast Company, L.P. (Williams job).[25] The parties used Oceaneering's preexisting ROV-powered pump in connection with WWCS's system on the Williams job.[26] The parties later performed hydrate remediation for Marubeni Oil & Gas (Marubeni job)[27] and worked on another project for ATP.[28] Because of Oceaneering's working relationship with WWCS, Oceaneering had access to designs of WWCS's system and numerous operational details.[29]

         While the parties were working together on these jobs using WWCS's hydrate remediation system, Oceaneering was developing its own Flowline Remediation System (FRS). There was some overlap between the FRS development team and the teams working on jobs with WWCS.[30]Oceaneering completed a draft functional specification of the FRS in January 2010.[31] Like WWCS's hydrate remediation system, Oceaneering's FRS was designed to pump high volumes of fluid through a separator.[32] Although Oceaneering developed a new, variable frequency drive (VFD) pump for the FRS, it chose to use its preexisting ROV-powered pump instead.[33]Oceaneering has performed hydrate remediation using the FRS on multiple jobs since 2012.[34] WWCS asserts that Oceaneering developed the FRS using confidential information disclosed under the NDA.[35]

         E. Procedural History

         On May 21, 2015, WWCS filed its initial complaint against Oceaneering, pleading patent infringement as well as various claims under Texas and Louisiana state law.[36] On November 16, 2015, the Court dismissed WWCS's breach of contract claim with prejudice to the extent that it rested on information in WWCS's patent applications or on conduct that occurred after December 11, 2012, and dismissed plaintiff's statutory trade secret misappropriation claim under the Texas Uniform Trade Secrets Act.[37] After plaintiff filed a second and third amended complaint, Oceaneering moved to dismiss plaintiff's patent infringement claims. On February 13, 2017, the Court dismissed WWCS's patent claims, but without prejudice and with leave to amend.[38]

         On February 27, 2017, WWCS filed its fourth amended complaint, which is the operative complaint.[39] The complaint asserted patent infringement claims, as well as claims for Texas common law misappropriation, Texas common law misappropriation of trade secrets, Louisiana statutory misappropriation of trade secrets under the Louisiana Uniform Trade Secrets Act (LUTSA), and Texas common law breach of contract, breach of confidential relationship, tortious interference with prospective business relations, fraudulent inducement, business disparagement, and unfair competition.[40] On August 23, 2017, the Court dismissed WWCS's LUTSA claim and its claims for Texas common law misappropriation, Texas common law misappropriation of trade secrets, breach of confidential relationship, and business disparagement as untimely.[41] The Court also dismissed WWCS's claim for unfair competition to the extent the claim is based on misappropriation.[42] Additionally, on August 28, 2017, the Court dismissed WWCS's claim for infringement of the '185 Patent because Oceaneering had not used the FRS since the '185 Patent issued.[43]

         After the parties briefed the disputed claim language of the '725 Patent, the Court held a claim construction hearing on October 12, 2017. See Markman v. Westview Instruments, Inc., 517 U.S. 370 (1996). The Court issued its claim construction order on November 6, 2017.[44] On January 22, 2018, the Court dismissed WWCS's claim for infringement of the '725 Patent.[45]

         Oceaneering filed its first motion for summary judgment on plaintiff's state law claims on September 28, 2017.[46] The Court denied the motion on February 5, 2018.[47] In the order, the Court held that the NDA does not cover information in the public domain, and that misuse of such information does not violate the NDA.[48] The Court further held that information contained in WWCS's patents, a white paper by WWCS employee Fernando Hernandez, two presentations, and three magazine articles is in the public domain, and therefore not protected by the NDA.[49] Oceaneering again moves for summary judgment on WWCS's breach of contract claim.[50] Additionally, WWCS moves to exclude an expert report and affidavit by Norm McMullen which Oceaneering cites as evidence in support of summary judgment.[51]

         II. LEGAL STANDARD

         Summary judgment is warranted when “the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994). When assessing whether a dispute as to any material fact exists, the Court considers “all of the evidence in the record but refrain[s] from making credibility determinations or weighing the evidence.” Delta & Pine Land Co. v. Nationwide Agribusiness Ins. Co., 530 F.3d 395, 398-99 (5th Cir. 2008). All reasonable inferences are drawn in favor of the nonmoving party, but “unsupported allegations or affidavits setting forth ‘ultimate or conclusory facts and conclusions of law' are insufficient to either support or defeat a motion for summary judgment.” Galindo v. Precision Am. Corp., 754 F.2d 1212, 1216 (5th Cir. 1985); see also Little, 37 F.3d at 1075. A dispute about a material fact is genuine “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

         If the dispositive issue is one on which the moving party will bear the burden of proof at trial, the moving party “must come forward with evidence which would entitle it to a directed verdict if the evidence went uncontroverted at trial.” Int'l Shortstop, Inc. v. Rally's, Inc., 939 F.2d 1257, 1264-65 (5th Cir. 1991). The nonmoving party can then defeat the motion by either countering with evidence sufficient to demonstrate the existence of a genuine dispute of material fact, or “showing that the moving party's evidence is so sheer that it may not persuade the reasonable fact-finder to return a verdict in favor of the moving party.” Id. at 1265.

         If the dispositive issue is one on which the nonmoving party will bear the burden of proof at trial, the moving party may satisfy its burden by merely pointing out that the evidence in the record is insufficient with respect to an essential element of the nonmoving party's claim. See Celotex, 477 U.S. at 325. The burden then shifts to the nonmoving party, who must, by submitting or referring to evidence, set out specific facts showing that a genuine issue exists. See id. at 324. The nonmovant may not rest upon the pleadings, but must identify specific facts that establish a genuine issue for trial. See, e.g., id.; Little, 37 F.3d at 1075 (“Rule 56 mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.” (quoting Celotex, 477 U.S. at 322)).

         III. DISCUSSION

         WWCS's breach of contract claim is based on Oceaneering's alleged misuse of information protected by the December 2009 NDA.[52] Oceaneering moves for summary judgment on the ground that WWCS fails to put forth sufficient evidence in support of its claim.

         The parties largely argue past each other. Much as it did in its first summary judgment motion, Oceaneering focuses on the allegedly misused pieces of proprietary information listed in WWCS's response to an interrogatory. These informational items are:

1) The need to separate gas from liquid prior to the gaseous and non-gaseous fluid being conveyed toward the surface;
2) Use of a subsea separator for hydrate remediation;
3) Engineering on the design of a subsea separator;
4) Use of baffles in subsea separator;
5) Test results on the necessary components of the system and the stresses incurred on the subsea separator while operating at depth to determine optimum design;
6) Location of the fluid inlet, fluid outlets, and gas outlet on the subsea separator;
7) Use of a valve system on the gas outlet of the subsea separator;
8) Use of a filter at the fluid inlet of the subsea separator;
9) Incorporation of ports on the subsea separator to inject chemicals into the separator;
10) The need to inject chemicals into the subsea separator to prevent hydrates in the remediation system;
11) Need for a subsea pump that is capable of pumping a certain concentration of gas and sand;
12) The need for larger coiled tubing to prevent hydrates within the coiled tubing itself;
13) The need for larger coil tubing for larger flow volume;
14) Knowledge of how to connect the subsea pump, subsea motor, and subsea separator in order to draw down the pressure in the pipeline sufficient to create a vacuum;
15) All necessary drawings to show how the system connects to the wellhead or pipeline, as well as how each component must be deployed, connected and arranged, including schematics identifying dimensions of all components, and connection points for all coiled tubing and jumpers;
16) Modified schematics showing how WWCS' subsea separator could connect to Oceaneering's pump system;
17) Structural modification to WWCS' subsea separator to connect to Oceaneering's pump system; and
18) Engineering on the seal joints required between the pump and motor.[53]

         Oceaneering argues that each of these pieces of information is either in the public domain-and thus not protected by the NDA-or not used by Oceaneering in the FRS.[54]

         In response, WWCS argues that Oceaneering violated the NDA by (1) relying on WWCS's confidential information in developing and marketing the FRS, (2) disclosing WWCS's confidential information to a third party, and (3) failing to adequately protect WWCS's confidential information. WWCS focuses on a different list of eighteen pieces of information allegedly misused by Oceaneering:

a) Information on the flow and pressure, size and weight, and other constraints of WWCS's system needed to interface Oceaneering's manifold design to integrate the manifold with WWCS's system;
b) WWCS system integration tests procedures and results before the initial deployment obtained through on site, in person, participation;
c) “Reports from the field on Wright's separator operations” during WWCS's work on ATP during January 2010;
d) WWCS's specific Operating procedures from its January 2010 work for ATP, which Oceaneering also worked on;
e) Issues arising from WWCS's pump operations and possible solutions learned from actual on the job performance; 18
f) WWCS's separator preliminary drawings, and pump and separator specifications and details;
g) Details of how to integrate Oceaneering's chemical injection, [emergency disconnect system] and coil tubing into WWCS's system as well as integration points for the equipment;
h) Schematics of the entire integrated layout of WWCS's system as an entire package with details on connection points, coil tubing sizes, and types of chemicals being injected through the chemical panel;
i) Everything Jim McAllister learned on the January-February 2010 ATP job performed by WWCS;
j) WWCS's motor/pump coupling details and issues with interfaces;
k) Improvements, lessons learned and fabrication issues on WWCS's ATP Equipment;
l) WWCS's daily activities and operations on the project for ATP which was performed in the January-February 2010 timeframe;
m) The operational need to purge the gas discharge line and knowledge of WWCS's other operating parameters;
n) Knowledge of specific operational issues, their causes, and how to react/respond to them;
o) Firsthand knowledge of WWCS's daily and even hourly activities and operations on the 2010 Williams job, which included hooking up Oceaneering's [pump] to WWCS's separator and the specific performance details and procedures for using the [pump] with a separator to successfully clear a hydrate with a separator;
p) Specific details, including the scope of work and connection/setup sequencing, and specifications involved in the 2010 Marubeni project performed by WWCS;
q) Details of WWCS's daily operations and performance on the ATP project beginning in November 2010; and,
r) WWCS's day rate and expected utilization rate for its equipment.[55]

         Additionally, WWCS puts forth a novel interpretation of Section 6(b) of the NDA, arguing that information in the “public domain” means information that has no legal protections or restrictions whatsoever.[56] WWCS argues that under this interpretation, information included in its patents remains covered by the NDA.[57]

         In its reply brief, Oceaneering challenges the propriety of WWCS's new list of allegedly misused pieces of confidential information in light of WWCS's failure to disclose this list during discovery.[58] Oceaneering also challenges WWCS's interpretation of the NDA, and offers a narrow interpretation of the scope of information covered by Sections Two through Four.[59]

         A. Compliance with Discovery Rules

         The Court first addresses whether WWCS may base its breach of contract claim on the eighteen allegedly misused pieces of confidential information cited in its brief.

         By way of background, WWCS originally identified eighteen informational items in response to Interrogatory No. 15.[60] This interrogatory reads: “Please identify, with specificity (by product, component, features, and specification, where appropriate) all of the alleged trade secrets and any confidential or proprietary information that WWCS alleges or contends Defendants misappropriated or misused, including but not limited to as alleged in Counts II-IV of the Complaint.”[61] Oceaneering framed its first motion for summary judgment on WWCS's breach of contract claim around these eighteen items.[62] But WWCS relied on different evidence in its October 31, 2017 opposition to this first motion for summary judgment. Specifically, WWCS argued that Oceaneering misused a number of “small operational details” (broadly characterized as “know-how”) that WWCS learned or developed “through trial and error” on jobs with Oceaneering.[63] In its February 5, 2018 order, the Court did not rule on whether this evidence was sufficient to survive summary judgment. Instead, the Court denied Oceaneering's motion and instructed that if the parties ...


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