In White Star Pump Co., LLC v. Alpha Hunter Drilling, LLC (No. 14-20-00207-CV, 2021 WL 5707713, at *1 (Tex. App.—Houston [14th Dist.] Dec. 2, 2021, no pet.), the Fourteenth Court of Appeals affirmed the importance of the economic loss rule in Texas. At the trial level, the jury rejected a well operator, Alpha Hunger Drilling, LLC’s (“Alpha Hunter”) claims but for its negligent undertaking claim and awarded it $1.6 million for the market value of the pump and the loss of use of the pump. The Fourteenth Court of Appeals reversed and rendered a take-nothing judgment because Alpha Hunter’s negligent undertaking claim is barred by the economic loss rule as its only damages (the pump) were the subject of the contract between Alpha Hunter and the pump manufacturer, White Star Pump Company, LLC (“White Star”).

Alpha Hunter is an oil and gas operator. White Star manufactures mud pumps, which are used in oilfield drilling. Mud pumps are typically driven by large diesel engines mounted on a skid or sled. Because the mud pumps at issue in this case were intended to be used at multiple drilling sites over time, they were considered mobile pumps. Alpha Hunter contacted White Star about the possible purchase of mud pumps and engines to power them. White Star sent a written quote offering to sell Alpha Hunter two new White Star mud pumps. Alpha Hunter accepted White Star’s offer. Alpha Hunger and White Star agreed to two contracts that covered both mud pumps, each with their own express terms and conditions.

The White Star mud pumps began experiencing problems immediately once they were put into service at the drilling site on July 17, 2013. The mud pumps were “jacking” and “cavitating,” which are industry terms generally describing vibration caused by several factors, such as insufficient mud fluid pressure, an uneven foundation supporting the mud pumps, or a lack of mud pump control in the drilling house. On August 8, 2013, Mud Pump 2’s engine exploded. It is undisputed that no one was injured from the explosion and the only damage that occurred was to Mud Pump 2’s engine that had been supplied by White Star pursuant to the contract.

After the explosion, Alpha Hunter submitted a warranty claim to White Star. In response, pursuant to the contract, White Star offered to repair or replace the damaged equipment if Alpha Hunter fronted the cost of the replacement part pending the completion of the investigations into the explosion. In addition, White Star offered to reimburse Alpha Hunter that amount if the investigation established White Star was responsible for the explosion. Alpha Hunter refused White Star’s proposal.

Alpha Hunter eventually filed suit against White Star alleging causes of action for breach of contract/warranty, fraud, and negligent undertaking. After a lengthy trial, the jury found that White Star failed to provide Alpha Hunter with non-defective equipment. The jury then rejected Alpha Hunter’s contract/warranty claim, when it refused to find that White Star had “failed, at its election, to either repair, replace, or refund the purchase price of the Equipment” to Alpha Hunter. The jury also rejected Alpha Hunter’s fraud claim. The jury, however, found that White Star was liable under a negligent-undertaking theory. The jury found that Alpha Hunter’s damages were approximately $1.6 million under the negligent-undertaking cause of action for the market value of the pump and the loss of use of the pump.

In its most stripped down form, the economic loss rule in Texas states that one party to a contract cannot recover from another party in a claim for negligence an economic loss that is the subject of the contract. The economic loss rule generally precludes recovery in tort for economic losses resulting from a party’s failure to perform under a contract when the harm consists only of the economic loss of a contractual expectancy. More specifically, the economic loss rule forecloses strict liability claims based on a defective product that damages only itself but not other property.

In the White Star case, there was no dispute that Alpha Hunter directly contracted with White Star for the purchase of the two mud pumps and two diesel engines to power them. There was no dispute that the damage Alpha Hunter sustained was exclusively to one of the diesel engines White Star sold Alpha Hunter. The evidence was also undisputed that no drilling-site personnel were injured because of the explosion. As a result, the Fourteenth Court of Appeals held that the economic loss rule barred any recovery by Alpha Hunter under its negligent undertaking theory, reversing the trial court and rendering a take-nothing judgment.

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