435 El Paso Field Services, L.P. v. MasTec North America, Inc.

Richard F. Brown

 
The following is not a legal opinion.  You should consult your attorney if the case may be of significance to you.
 
El Paso Field Services, L.P. v. MasTec North America, Inc., 389 S.W.3d 802 (Tex. 2012, held that provisions in a pipeline construction contract allocating the risk of undiscovered foreign crossings were binding.  El Paso decided to remove an old propane pipeline and to install a new butane pipeline in its place.  Before inviting interested contractors to bid on the construction project, El Paso hired a land surveying company to survey and map the existing pipeline.  The survey company provided alignment sheets that identified 280 foreign crossings, which included things like other pipelines, utilities, roads, and rivers.  MasTec, along with all other bidders, received a copy of the alignment sheets before placing a bid.  MasTec agents also flew over the pipeline route and visited sections of the route on the ground.   The contract contained provisions stating that (1) El Paso “will have exercised due diligence in locating foreign pipelines and utility line crossings,”  and (2) that MasTec had made “all investigations essential to a full understanding of the difficulties which may be encountered in performing the Work, and that . . . [MasTec] assume[d] full and complete responsibility for any such conditions pertaining to the Work, the site of the Work or its surroundings, and all risks in connection therewith.”
 
MasTec sued El Paso for breach of contract asserting that El Paso failed to locate 794 foreign crossings.  At trial, the jury found that El Paso had failed to exercise the required due diligence and awarded damages to MasTec, but the trial court granted El Paso’s motion for judgment notwithstanding the verdict.   MasTec contended that the contract provisions allocating all risks to MasTec were limited by the due diligence specifications applicable to El Paso.
 
The Court held that the agreement was clear in stating that MasTec (1) had fully acquainted itself with the site, (2) had made all investigations necessary to understanding the scope of the project, and (3) notwithstanding anything in the contract or any other statements or information, MasTec assumed all responsibility and risk associated with the agreement.   The Court harmonized these provisions with the due diligence provisions applicable to El Paso by explaining that “[t]he contract contemplates a joint effort by the parties.”   Emphasizing that the due diligence provisions were written in the past tense, the Court construed the contract to mean “that the parties agreed El Paso had already exercised due diligence to locate foreign crossings, but ultimately the risk of omissions and inaccuracies, including the obligation to investigate and protect against additional foreign crossings, falls on MasTec.”   The Court went on to state that there was no evidence suggesting that MasTec was confused about the extent of El Paso’s due diligence efforts before submitting a bid and nothing in the language of the contract demonstrated that El Paso would have an additional due diligence obligation.
 
The dissent argued that El Paso’s due diligence efforts did not meet the industry standard of disclosing 85-90% of foreign crossings.  The Court held that there was no such standard as to old pipelines and the parties could, in any event, by contract allocate the risk of undiscovered foreign crossings however they wished.
 
This case illustrates the importance of contractual risk allocation.  Even in the face of apparent substandard due diligence efforts, the courts will not interfere with clear contractual risk allocation provisions in an agreement entered into under fair conditions by competent parties.