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This document was contributed under the IBA x Jus Mundi Exclusive Partnership for Commercial Arbitration.
Contributor(s):
WE, THE UNDERSIGNED ARBITRATORS, having been designated in accordance with the MCR Oil Tools, LLC, License Agreement (License Number XRT-2013-0011), effective April 15, 2014 (the "License Agreement"), and having been duly sworn and having duly heard the allegations and proof submitted by the parties, Halliburton Energy Services, Inc., being represented by David M. Genender and Jordan A. Kazlow of Baker Botts L.L.P. and William L. Kirkman of Kirkman Law Firm, PLLC, and MCR Oil Tools, LLC, being represented by Blake L. Beckham, Chris C. Hudson, Derek S. Christensen, and Sarita Smithee of the Beckham Group, P.C., AWARD, as follows:
This arbitration was preceded by state court proceedings. MCR Oil Tools, LLC, ("MCR") filed the first case in the 14th District Court of Dallas County, Texas on June 20, 2017, and then dismissed the case without prejudice on July 12, 2017. Halliburton Energy Services, Inc., ("Halliburton") filed the second case in the 236th District Court of Tarrant County, Texas on July 7, 2017. In the Tarrant County case, the parties entered into two Rule 11 Agreements. The first Rule 11 Agreement became an enforceable Agreed Order that was signed by the Court on March 12, 2018. Although the second Rule 11 Agreement is dated May 24, 2018, it was filed with the Court on March 14, 2019, six months after the Court had stayed the case.
On November 13, 2017, Halliburton filed its Notice of Arbitration and sought damages from MCR for tortious interference with contract and prospective business relationships, permanent injunctive relief, and for declaratory relief that would interpret the License Agreement, including whether MCR is obligated to pay the shipping costs to return unused tools to MCR. At the time that Halliburton initiated the arbitration, it also asked the District Court to stay the court proceedings. Although the Arbitrators were selected shortly after Halliburton initiated the arbitration, the arbitration did not proceed until after the Tarrant County District Court stayed the court case on September 21, 2018. On October 19, 2018, MCR filed its Counterclaim in the arbitration asserting claims for breach of the License Agreement, misappropriation of trade secrets under the Texas Uniform Trade Secrets Act, and unfair competition under Texas law. MCR sought damages, punitive damages, and specific performance.
The arbitration proceedings were conducted in accordance with the Parties' Agreement and the UNCITRAL Arbitration Rules (2010). See License Agreement § 9.06 ("any dispute, controversy, or claim arising out of or relating to this Agreement . shall be finally settled by arbitration in accordance with the UNCITRAL Arbitration Rules (2010)). Pursuant to the same authority and rules, Deborah G. Hankinson was appointed to serve as the Chair of the Arbitration Panel and Paul R. Davis, Jr., and Roland K. Johnson were appointed to serve as members of the Arbitration Panel.
During the pre-hearing phase of the arbitration proceedings, the Panel on March 12, 2019, issued its Interim Order No. 3, which answered several threshold License Agreement interpretation questions. Relying upon the Panel's rulings in that Order, Halliburton then filed its Motion for Partial Dispositive Relief. In its Response to the Motion, MCR argued that the parties had entered additional Rule 11 Agreements that inform the ultimate disposition of the parties' obligations and the rights at issue.
On October 15, 2019, the Panel issued Interim Order No. 7, which granted in part Claimant's Motion for Partial Dispositive Relief and made three declarations: (1) Halliburton is not required under the License Agreement to return unused MCR Tools that were in its possession at the time the License Agreement expired; (2) Halliburton is not required under the License Agreement to pay the return costs of the MCR Tools in Halliburton's possession at the time the License Agreement expired; and (3) MCR is not entitled under the License Agreement to charge a fee in addition to any return costs for the return of MCR Tools in Halliburton's possession at the time the License Agreement expired. Consistent with Interim Order No. 3, Interim Order No. 7 made clear that "[n]othing in this Order shall be construed as a final declaration of the parties' obligations and rights that are the subject of this Order until such time as the parties' additional Rule 11 Agreements have been addressed by the Panel."
Interim Order No. 3 and Interim Order No. 7 are incorporated by reference and made a part of this Final Award.
The Parties amended their pleadings more than once before the arbitration hearing. Halliburton's last amendment was its Second Amended Statement of Claims filed on May 30, 2019, which asserted the same causes of action with more specificity but no longer sought permanent injunctive relief. MCR responded by denying liability and asserting twelve affirmative defenses. MCR's last amendment was its Second Amended Counterclaim filed on December 19, 2019, which similarly asserted the same causes of action with more specificity while adding a fraudulent-inducement claim. Halliburton denied liability and asserted four affirmative defenses. On November 6, 2020, MCR dismissed without prejudice its claims for misappropriation of trade secrets and unfair competition. This summary reflects the status of the live claims and defenses at the start of the arbitration hearing.
After several continuances necessitated by the COVID 19 pandemic and a separate unexpected occurrence, the final arbitration hearing was conducted over seven days between March 22, 2021 and March 30, 2021. The hearing was conducted on the Zoom platform pursuant to Interim Order No. 22, which confirmed that the hearing would be deemed to have taken place in Dallas, Texas. As the hearing began, MCR moved that Halliburton's damage claims be dismissed. MCR's motion was based on allegations that Halliburton did not have standing to assert its affiliates' tortious-interference claims but if it did have standing, then the claims were barred by the statute of limitations.
This was the first time that MCR raised these issues with the Panel. The Panel carried the Motion. The hearing then proceeded as scheduled, and the Parties presented evidence, including witness testimony and documents, and the arguments of their Counsel. A court reporter made a record of the hearing.
When the presentation of the evidence concluded, the Panel scheduled post-hearing briefing regarding MCR's jurisdictional and limitations challenges. MCR couched its submission as a Plea to the Jurisdiction. Both sides briefed the issues and included alternative requests to file corresponding trial amendments relevant to MCR's new defenses.
On June 29, 2021, the Panel issued Interim Order No. 23, 1 which denied MCR's Plea to the Jurisdiction, granted both Parties' requests for trial amendments, and deemed their proposed amended pleadings filed. These pleadings are MCR's Supplement to Its Answer to Claimant's Second Amended Statement of Claims, which asserts its new standing and limitations defenses, and Halliburton's Third Amended Statement of Claim, which pleads that Claimant means Halliburton Energy Services, Inc., "and one or more of its affiliates that have assigned claims against MCR to Claimant." The Panel further recognized in Interim Order No. 23 that the standing and limitations issues had been fully briefed and were joined by the Parties' new pleadings and announced that the issues would be considered and decided in the Final Award.
Interim Order No. 23 is incorporated by reference and made a part of this Final Award.On July 7, 2021, the Panel issued Interim Order No. 24, which set the schedule and requirements for the second wave of post-hearing briefs on the merits, as well as attorneys' fees and arbitration-costs submissions. After reviewing the briefs in October 2021, the Panel advised that because of its concerns about whether it might have additional questions for Counsel, it was not ready to close the arbitration proceedings. On January 26, 2022, at the Panel's request, a post-hearing proceeding was held on the Zoom platform to allow Counsel to clarify the Parties' positions relevant to the Rule 11 Agreements and their respective obligations regarding the unused tools. Pursuant to the Panel's further request and to facilitate the preparation of the Final Award, each party on January 31, 2022, then submitted a summary of the relief it requested in its live pleading and Post-Hearing Brief. On February 1, 2022, the Panel closed the arbitration proceeding.
Having considered all the evidence, the applicable law, and the arguments of Counsel, the Panel renders this binding Final Award that (1) Halliburton is entitled to recover $1,444,641.00 from MCR for damages on its tortious-interference claims, part of the declaratory relief it seeks to recover, $1.3 million for its attorneys' fees, $46,534.43 for its costs, pre- and post-judgment interest, and $266,981.07 for arbitrator fees and expenses; and (2) MCR shall take nothing from Halliburton on its counterclaims.
The Parties. Halliburton is a Delaware corporation with its place of business in Houston, Texas. Halliburton provides services to oilfield operators and customers around the world. MCR is a Texas limited liability company with its principal office in Arlington, Texas. MCR develops, manufactures, and sells specialized oilfield tools used to cut, perforate, or consume oilwell pipe downhole.
The License Agreement. Among the services that Halliburton necessarily must provide to its customers is cutting or separating pipe or casing downhole. Beginning in approximately 2001, Halliburton entered into successive license agreements with MCR to purchase and use MCR's downhole radial cutting torch tools ("RCT") to provide this service to its customers in over fifty countries. From 2001 until the Parties' licensing relationship ended after sixteen years in 2017, Halliburton paid MCR at least $20 million for its tools and was MCR's biggest customer, a position shared in some years with another large service company. At issue in this arbitration is the Parties' License Agreement that was effective April 15, 2014.
Expiration of the License Agreement. After sixteen years of MCR supplying downhole cutting torches to Halliburton for use around the world, the Parties in 2017 were unable to agree on a renewal of the 2014 License. The renewal offered by MCR included new, nonfinancial terms that were not acceptable to Halliburton, and MCR told Halliburton that the renewal proposal was not negotiable. As a result, the License Agreement expired by its own terms on April 14, 2017.
At the time the License expired, Halliburton had unused MCR tools in its stock located in various countries around the world. Although Halliburton had already fully paid for these products, it could no longer use them after its License expired. Because Halliburton no longer was licensed to use MCR's tools itself, Halliburton began subcontracting with other MCR licensees to provide cutting-torch services to its customers. On May 17, 2017, MCR notified Halliburton that as an "ex-licensee" it could no longer use MCR's tools or intellectual property either directly or "via third party" means.
MCR demanded that Halliburton return the unused MCR tools in its inventory and pay an extra-contractual 40% disposal fee. Halliburton responded that the License did not require the return of unused products or authorize a 40% charge for return of products for which Halliburton had already paid but offered to return the unused products (if export controls and other regulatory requirements permitted) if MCR would pay the cost of the returns.
After refusing to pay the extracontractual fee demanded by MCR, Halliburton on June 9, 2017, advised MCR that it would destroy the tools. MCR asked Halliburton not to destroy the unused inventory.
The Dallas County Lawsuit. On June 20, 2017, MCR sued Halliburton in a Dallas County District Court seeking a temporary restraining order preventing Halliburton from destroying MCR tools and compelling arbitration. Halliburton immediately agreed to refrain from destroying the tools, and a Rule 11 Agreement, which provided that the dispute regarding the unused tools would be resolved in arbitration, was filed with the Court. A hearing was never held on MCR's request for a temporary restraining order, and no order or injunction was ever entered in the Dallas County case.
MCR Prohibits Its Licensees from Working for Halliburton. Shortly after Halliburton agreed that it would not destroy the unused tools, MCR, through its President and CEO Michael C. Robertson, began communicating with its other licensees about Halliburton. The communications undeniably made clear that the licensees were not to perform their contractual obligations to Halliburton and that MCR was ordering them not to work with Halliburton:
DATE: June 22, 2017
TO: ALL MCR Oil Tools, LLC Licensees
As of June 21, 2017, MCR Oil Tools, LLC has filed a lawsuit against Halliburton for Breach of Contract and other issues.
Effective June 22, 2017 and continuing until the final resolution of all outstanding issues with Halliburton;
Licensees of MCR Oil Tools, LLC are not permitted to run any MCR products for Halliburton or in support of any Halliburton entity or contract.
MCR Licensees are not permitted to use MCR products owned by or in possession of Halliburton for use on or in support of Halliburton jobs and/or contracts.
MCR did not cite any provision in the agreements it had with its licensees or with Halliburton that explained or justified the directive. MCR instead relied on a lawsuit that had nothing at all to do with the licensees, including whether they could work for Halliburton. But taken in context, MCR's invoking of the lawsuit appears calculated to mislead otherwise. Halliburton requested that MCR retract the prohibition but never received a response from MCR. Had the Halliburton subcontracts and prospective subcontracts been performed, the other MCR licensees would have purchased MCR tools to provide services under their subcontracts with Halliburton, generating revenue and sales for MCR.
Weatherford International, SOS, and Al Mansoori all had contracts with Halliburton at the time and refused to perform their contracts because of MCR's June 22 directive. In real time, SOS, Weatherford, Daya, and Al Mansoori all apologized to Halliburton for their decisions to abide by MCR's directive. Ongoing work was halted. Al Mansoori indicated why: "[A]ny further work will cause us to lose our working license which is a risk we can't afford."
Robertson on behalf of MCR also communicated in writing and orally to one licensee about an injunction against Halliburton that did not exist and could not have affected the licensees' ability to do business with Halliburton: (1) MCR misrepresented in a June 22, 2017 email to licensee Specialized Oilfield Services ("SOS") that "MCR Oil Tools, LLC has filed suit against Halliburton and a formal injunction is now in place against Halliburton. SOS nor any other MCR Licensee can do work for Halliburton to provide MCR products or services. This injunction will remain in place until this matter is settled, whether 5 days or 5 years."; and (2) SOS confirmed in a June 23, 2017 email to Halliburton that MCR had just informed SOS by telephone that "as long as the injunction is in place no MCR tools can be conveyed on Halliburton wireline (worldwide)."
Both communications constitute misrepresentations and further interfered with Halliburton's prospective business relationships with SOS. By gearing up and hiring, SOS had indicated its continuing willingness to do work for Halliburton in Continental Europe. But after receiving the MCR directives, it stopped work and indicated its interest in work pursuant to subcontracts with Halliburton once the MCR dispute was settled. Halliburton requested that MCR stop saying that there was an injunction in place but its efforts were to no avail.
The Tarrant County District Court Proceedings. On July 7, 2017, Halliburton sued MCR in Tarrant County District Court for tortious interference and sought injunctive relief and money damages resulting from MCR's actions that prohibited its licensees from working with Halliburton. 2 After several injunction proceedings and after MCR dismissed its arbitrable counterclaims, Halliburton on August 25, 2017, filed a Motion to Compel Arbitration and to Stay the Tarrant County litigation pending the results of the arbitration. Because MCR's defenses to the tortious-interference claims are related to the License Agreement, which has a broad arbitration clause, Halliburton determined that its claims were arbitrable, nonsuited its tort claims, and on or about November 13, 2017, filed its Notice of Arbitration asserting its tortious-interference claims and claims for declaratory relief to resolve controversies relating to the unused MCR tools. The District Court did not immediately rule on Halliburton's request for a stay.
The Petition in the Dallas County lawsuit was never served and contained no venue allegations. Halliburton determined that Tarrant County, not Dallas County, was the proper venue for its tortious-interference claims.
On March 7, 2018, Halliburton informed all MCR licensees with whom it had done business that Halliburton was "severing all direct and indirect ongoing business relations with MCR and involving MCR-related products and services" and that Halliburton would not permit any MCR tools to be run on any wireline operated by Halliburton.
First on March 12, 2018, and then on May 24, 2018, the Parties sequentially entered into two Rule 11 Agreements. Both Rule 11 Agreements concern the disposition of the unused MCR tools in Halliburton's possession when the License Agreement expired. Both Rule 11 Agreements further provide that Halliburton would return the tools to MCR 3 but left open the question of who would pay for the return of the tools and preserved the Parties' rights to assert claims or defenses.
The Parties also recognized that there might be export considerations for tools in Iraq, Nigeria, Angola, and Tanzania that would require a separate agreed-upon return process.
Consistent with its earlier communications with MCR and its March 7, 2018 communication to MCR licensees, Halliburton, in the March 12, 2018 Rule 11 Agreement, confirmed that it would continue to abide by its commitment to not use or dispose of any MCR tools or permit any MCR tool to be run on any Halliburton conveyance worldwide. As the Parties had anticipated in the first Rule 11 Agreement, the May 24, 2018 Rule 11 Agreement added the Parties' agreement to a detailed process for the return of the tools.
As the Parties focused on their efforts for the tools' return, Halliburton's Counsel confirmed that Halliburton would advance the shipping costs with the final responsibility for the shipping costs to be resolved in court or arbitration. MCR's Counsel agreed and repeatedly confirmed that Halliburton could advance the shipping costs and MCR could accept the tools without either Party waiving any rights.
Halliburton made one tool shipment in accordance with the second Rule 11's agreed-upon process. MCR did not reimburse Halliburton for the shipping expenses. Halliburton then sent a Notice of Return for a second shipment but MCR never responded to the Notice to confirm it would receive the shipment or to identify the reasons why it was not prepared to receive the shipment. The second Rule 11 Agreement required MCR to respond in this manner. Absent any response to the Notice from MCR, Halliburton did not ship any more tools back to MCR.
On September 21, 2018, the District Court stayed the Tarrant County case in favor of arbitration, and the arbitration proceeded. Since then, as well as before, the Parties have made clear their intent and have requested that the Panel decide the issues necessary to the disposition of the unused MCR tools in Halliburton's possession at the time the License Agreement expired.
Halliburton's Claims. Halliburton claims that after the License Agreement expired, MCR willfully, intentionally and without justification instructed its licensees to breach their existing contracts with Halliburton subsidiaries worldwide and to cease prospective business relationships with Halliburton. For these claims, Halliburton seeks to recover $1,444,641.00 in damages, along with pre-and post-judgment interest.
Halliburton also claims in its Third Amended Statement of Claims that it is entitled to declaratory relief and argues in its Post-Hearing Brief that it is entitled to declaratory relief concerning the return of the unused tools. Halliburton first asserts that with respect to the unused MCR tools in its possession when the Lease expired, the Panel should declare, in accordance with Interim Order No. 7, that (1) Halliburton is not required under the License Agreement to return the unused tools to MCR; (2) Halliburton is not required under the License Agreement to pay the return costs of the unused tools; and (3) MCR is not entitled under the License Agreement to charge a fee in addition to any return costs for the return of unused tools. In addition, Halliburton seeks declaratory relief that: (1) it owns the unused MCR tools that it purchased as a licensee; (2) MCR is obligated to pay the shipping costs to return unused MCR tools to MCR; and (3) MCR must refund the purchase price of $7.4M, or alternatively, MCR must reimburse Halliburton for the internal expenses of the tool returns. 4
At the request of the Panel, Halliburton confirmed in a January 31, 2022, written submission that these are the declarations it seeks.
Finally, pursuant to the UNCITRAL Arbitration Rules, Halliburton asks that it be awarded $4,555,406.95 in attorneys' fees, $773,448.11 in expert fees, and other legal costs of $46,524.43. Halliburton also relies upon Texas law with respect to the part of its attorneys' fees claim related to the declaratory relief granted by the Panel in Interim Order No. 7, which amounts to $176,419.00.
MCR disputes Halliburton's claims on the merits, requests a ruling on the statute of limitations as an affirmative defense, and challenges Halliburton's right to recover its attorneys' fees, as well as the evidence that Halliburton has submitted in support of its fees and costs claims.
MCR's Counterclaims. In its Post-Hearing Brief, MCR asserts counterclaims against Halliburton for multiple breaches of the License Agreement, breaches of the Rule 11 Agreements, specific performance of the Rule 11 Agreements, fraudulent inducement, and tortious interference with contracts and business relationships.
MCR seeks to recover damages on its counterclaims as follows. For fraudulent inducement: (1) $401,740.00 for lost thermal generator sales; (2) $752,118.84 for lost RFM kit sales; and (3) $8.6 million for MCR's lost sales due to damaged reputation. For tortious interference with contract: (1) $1.3 million for the License renewal fee; (2) $790,000.00 for Halliburton's Saudi Arabia jobs; and (3) $480,000.00 for ancillary services to Saudi Arabia jobs. For breach of contract: (1) $401,740.00 for lost thermal generator sales; (2) $752,118.84 for lost RFM kit sales; (3) $1.3 million for the License renewal fee; (4) $45,000.00 for Halliburton's UK jobs; (5) $790,000.00 for Halliburton's Saudi Arabia jobs; (6) $480,000.00 for ancillary services to Saudi Arabia jobs; and (7) $8.6 million for MCR's lost sales due to damaged reputation. To the extent MCR requests that it be awarded the same damages for more than one cause of action, MCR is asking that the damages be awarded just once; MCR is not seeking a double recovery of the same damages.
MCR also asks for specific performance of Halliburton's obligations under the Rule 11 Agreements to return the MCR tools that Halliburton currently possesses. 5
On January 26, 2022, the Panel advised the Parties that it found the requests for relief in the Post-Hearing Briefs to be unclear in some respects and asked that each Party provide clarification in a brief written submission. In addition to clarifying its requested relief, MCR's January 31, 2022, submission included new requests for relief and new arguments in support of its requests for relief, which the Panel declines to consider.
Finally, MCR seeks to recover $313,797.50 for adjusted state court attorneys' fees, $1,217,225.55 for arbitration attorneys' fees, attorneys' fees for prospective post-arbitration proceedings in the District Court, Court of Appeals and Texas Supreme Court, $27,137.55 for state court costs, $190,250.49 for the Arbitrators' fees, and $47,893.33 for arbitration costs.
Halliburton disputes MCR's claims on the merits and asserts that the statute of limitations bars certain of the claims.
When Halliburton filed its Notice of Arbitration and then its Statement of Claim, it did not name as claimants the affiliates who were subcontracting with MCR licensees. When MCR sued Halliburton and when MCR filed its Counterclaim in this arbitration, it did not name as defendants or respondents the Halliburton affiliates who were subcontracting with MCR licensees. When it produced the relevant service contracts in 2017 and answered interrogatories in 2019, Halliburton identified certain of its affiliates to MCR as the entities who were subcontracting with MCR licensees. MCR now argues that Halliburton did not have standing to bring tortious-interference claims based on contracts and prospective business relationships that Halliburton's affiliates had with MCR's licensees.
MCR raised this issue in a December 11, 2020, pre-hearing brief, 6 which in turn caused Halliburton immediately to seek assignments from the relevant affiliates. There was no MCR pleading that asserted lack of standing as a defense at that time. MCR first brought its jurisdictional challenge to the Panel's attention when it sought dismissal of Halliburton's tortious-interference claims at the start of the final arbitration hearing on March 22, 2021. The Panel delayed consideration of the issue until after the arbitration hearing and after receiving full briefing from the Parties.
The Parties served their pre-hearing briefs in anticipation of the then-scheduled January 2021 arbitration hearing. The hearing was continued until March 2021 because of COVID 19 infections among the hearing participants.
In the Plea to the Jurisdiction that it submitted after the hearing, MCR claimed that the Panel was required to measure Halliburton's standing when it filed the arbitration in 2017, construe Halliburton's Statement of Claim as being limited to its own contracts and preclude Halliburton from pleading and pursuing the affiliate-assigned claims, or alternatively, to dismiss Halliburton's tortious-interference claims for want of standing.
Halliburton responded on the merits to MCR's Plea to the Jurisdiction by arguing that MCR's defense was not properly presented as a standing defense but rather constituted a capacity defense that could be waived or cured. It also argued that the Parties' stipulations regarding the underlying facts are outcome determinative, and alternatively, that pursuant to UNCITRAL Article 23, MCR waived the right to challenge jurisdiction for want of standing.
In Interim Order No. 23 dated June 29, 2021, the Panel denied MCR's Plea to the Jurisdiction and advised the Parties that it would address the standing issue in this Final Award. The Panel rejects MCR's standing defense for the following two reasons.
Regardless of whether standing or capacity is at issue, the Panel first must consider the Parties' stipulations about the underlying facts. On December 9, 2020, the Parties submitted their Stipulated Facts to the Panel. The Panel cannot make findings that fail to conform to the Stipulated Facts. See M.J.R.'s Fare of Dallas, Inc. v. Permit & License Approval Board of Dallas, 823 S.W.2d 327, 331 (Tex. App. – Dallas 1991, no writ).
Because the Stipulations contradict the basis for MCR's standing challenge, its standing defense fails. In Stipulation No. 11, the Parties stipulated that "[u]pon expiration of the License Agreement, Halliburton [defined as Claimant Halliburton Energy Services, Inc., in Stipulation No. 1] began subcontracting with MCR licensees to provide cutting torch services to its customers around the world." (Emphasis added.). The acts of "subcontracting with MCR Licensees," which is the basis for Stipulation No. 11, constitute a material element of the Parties' claims against each other, and for purposes of this arbitration. Stipulation No. 11 attributes those acts to Claimant Halliburton Energy Services, Inc. In accordance with the Stipulated Facts, the Panel concludes that Halliburton Energy Services, Inc., may pursue the tortious-interference claims against MCR.
Second, assuming without deciding that MCR's defense is properly presented as a jurisdictional standing issue, the UNCITRAL Arbitration Rules required MCR to timely raise the issue. Article 23 provides: "A plea that the arbitral tribunal does not have jurisdiction shall be raised no later than in the statement of defense . ." Article 23 also allows the Panel to admit "a later plea if it considers the delay justified."
From the earliest stages of this dispute in 2017, MCR has known about the role of the Halliburton affiliates. It did not raise the standing issue with the Panel until March 22, 2021, at the start of the arbitration hearing. On these facts, the Panel concludes that MCR did not timely raise its plea to the jurisdiction and that its late plea is not justified. Because MCR's challenge to this Panel's jurisdiction arises from the Parties' agreement to arbitrate, which includes their agreement that their disputes "shall be finally settled by arbitration in accordance with the UNCITRAL Arbitration Rules (2010)," MCR has waived its right to challenge the Panel's jurisdiction. See License Agreement § 9.06; see also OJSC Ukrnafta v. Carpatsky Petroleum Corp., 957 F.3d 487, 498 (5th Cir. 2020) ("it is well settled that a party can waive its right to challenge an arbitrator's jurisdiction, including the right to raise jurisdictional challenges in subsequent recognition proceedings").
Having determined that there were two independent and alternative reasons for denying the Plea, consideration of the other arguments regarding the standing defense are not necessary to the disposition of the Plea to the Jurisdiction.
Tortious Interference with Contract and Prospective Business Relationships. Halliburton argues that MCR willfully and intentionally instructed its licensees to breach their existing contracts with Halliburton subsidiaries worldwide and to cease all prospective business relationships with Halliburton. Halliburton further claims that the record supports a finding that MCR's interference was without valid justification or privilege, making liability clear.
MCR responds that because Halliburton's Master Purchase Agreements with MCR's Licensees are nonobligatory, the licensees could decline every purchase order without being in breach and that Robertson's communications on behalf of MCR have been misread and are of no import. For the following reasons, the Panel disagrees with MCR's interpretation of the evidence and instead agrees with Halliburton that the evidence makes MCR's liability clear. 7
See, e.g., Prudential Ins. Co. of Am. v. Fin. Review Servs., Inc., 29 S.W.3d 74, 77 (Tex. 2000) (elements of a tortious interference claim: "(1) an existing contract subject to interference, (2) a willful and intentional act of interference with the contract, (3) that proximately caused the plaintiff's injury, and (4) caused actual damages or loss"); Coinmach Corp v. Aspenwood Apartment Corp., 417 S.W.3d 909, 923 (Tex. 2013)) (elements of an interference with a prospective business relationship claim: "(1) there was a reasonable probability that the plaintiff would have entered into a business relationship with a third party; (2) the defendant either acted with a conscious desire to prevent the relationship from occurring or knew the interference was certain or substantially certain to occur as a result of the conduct; (3) the defendant's conduct was independently tortious or unlawful; (4) the interference proximately caused the plaintiff injury; and (5) the plaintiff suffered actual damage or loss as a result")).
MCR's Challenge to the Master Service Agreements. The first element of a claim for a tortious interference with contract is "an existing contract subject to interference." See Prudential, 29 S.W.3d at 77. The Halliburton transactions with the licensees were the subject of Master Purchase Agreements, which provides the method by which specific purchases are effectuated. In practice, this means that when a purchase order issues pursuant to a Master Purchase Agreement, the licensee provides the service.
MCR challenges whether the Master Purchase Agreements are contracts that could be subject to interference, because "the licensees did not have any obligations under the various Master Purchase Agreements." Halliburton responds that that the contract language itself defeats the challenge. The Panel agrees with Halliburton.
The Master Service Agreements are in fact contracts with mandatory obligations, including the obligation to provide goods and services. The SOS contract, for example, details the goods, services, and pricing and makes clear that, while Halliburton did not have a minimum spend, the Seller (SOS) "shall" provide goods and services: "Goods/Services: Seller shall provide the Goods and/or Services listed in this Services and Products Pricing Exhibit at the price specified below. Halliburton promises no minimum dollar spend under this Agreement." The translated Weatherford contract contains similar language: "THE SUPPLIER must provide the services and materials affecting them inherent to the contractual objective in line with the scope of this Contract."
In addition, these agreements are otherwise evidence of prospective business relationships; that is, a reasonable probability exists that the licensees would accept purchase orders and provide goods and services to Halliburton under the Master Service Agreements. See Coinmach, 417 S.W.3d at 923. The licensee apologies that Halliburton received after MCR's interference are additional credible evidence of this probability.
The remainder of the relevant evidence regarding Halliburton's subcontracting activities with the MCR licensees has been addressed and made the subject of fact findings earlier in this Final Award. See supra pp. 7-9. On this arbitration record, the Panel finds there were existing contracts subject to interference, and because there was a reasonable probability that but for the interference the licensees would have continued to provide MCR-related services, there were prospective business relationships.
MCR's Communications. The Panel rejects MCR's argument that Robertson's communications on behalf of MCR to its licensees have been misread and are of no import. The Panel in this Final Award has already reviewed the evidence and made fact-findings regarding the communications that are material to elements of Halliburton's tortious-interference claims. See supra pp. 7-9. First, MCR's communications to its licensees constitute willful and intentional acts of interference. See Prudential, 29 S.W.3 at 77 (element of claim for tortious interference with contract). Second, the misrepresentations made in the MCR's communications to its licensees were independently tortious. See Coinmach, 417 S.W.3d at 923 (element of claim for tortious interference with prospective business relationships). Third, MCR's directives to its licensees show that MCR acted with a conscious desire to prevent the Halliburton/MCR licensee relationships from occurring and that MCR knew interference was substantially certain to occur as a result of the conduct. See id. (same).
MCR's Justification Defense. Regardless of whether Halliburton's relationships with the licensees were actual or prospective, MCR is liable for its interference if it acted without justification. MCR pleaded that its actions were justified because it was "privileged to enforce rights against its current licensees, stemming from MCR's license agreements with each of them" and argued in its Post-Hearing brief that it was exercising its legal rights. 8 MCR, however, has not identified any provision in any license that restricts a licensee's ability to contract with Halliburton or any other basis for a legal right that could constitute justification. MCR also argues that it possessed a good-faith belief that it had the right to refuse sales to ex-licensees. Nothing in this record supports this argument; the evidence is to the contrary. For these reasons, the Panel concludes that MCR's interference was not justified.
The Panel has already concluded in Interim Order No. 3 that nothing in the License Agreement prohibited Halliburton from subcontracting for services with MCR's other licensees.
Causation and Damages. Halliburton is also required to prove that the interference caused it injury and actual damages. See Coinmach, 417 S.W.3d at 923 (interference with prospective business relationships); Prudential, 29 S.W.3d at 77 (interference with contract). Halliburton contends that MCR's interference caused it harm by preventing MCR licensees from providing services on a subcontract basis to Halliburton's customers, which in turn resulted in lost jobs, lower margins on certain jobs, and certain fines and penalties. The claimed economic damages are $1,444,641.00, plus $219,863.00 of prejudgment interest 9 as of the first day of the hearing, for a total of $1,664,504.00 and since then prejudgment interest that is continuing to accrue at the per-diem rate of $197.87.
Professor Johnson conservatively started his calculation of prejudgment interest on March 8, 2018, the last day of the damages period even though most of the damages were incurred at an earlier point in time. Based on Professor Johnson's explanation of simple prejudgment interest at 5%, prejudgment interest is accruing at $197.87 per diem.
In support of these numbers, Halliburton offered the analysis and testimony of Professor Shane Johnson. Professor Johnson is a full professor at Texas A & M University where he holds the Leland Memorial Chair in Finance. MCR did not object to Professor Johnson's qualifications or the reliability of his opinions.
The contracts subject to interference that provide the basis for Professor Johnson's damages calculations are those of Weatherford in Brazil and SOS in Saudi Arabia and Kuwait. His damage model uses the time from June 22, 2017, when MCR issued its directive to its licensees until March 8, 2018, when Halliburton decided not to run MCR tools on its conveyances. With these parameters, Professor Johnson and his team conducted an investigation that included reviewing subcontracts, emails and contemporaneous assessments, and interviewing Halliburton personnel, including those with background knowledge and knowledge of the relevant events in Brazil, Kuwait and Saudi Arabia, the MCR inventory that Halliburton had on hand when the License Agreement expired, and information relevant to calculating lost jobs.
Professor Johnson then used the information and data he collected to calculate three categories of damages. His calculation for the first category measured lost jobs in Brazil, the North Sea and Continental Europe, and Kuwait, which resulted in damages totaling $960,100.00. The second category was for reduced profits resulting from lower profit margins when Halliburton covered with more expensive alternatives. Professor Johnson concluded there were seven such jobs with lost profits totaling $140,000.00. The final category of damages caused by MCR's interference was for penalties and fines incurred in Brazil because MCR directed Weatherford not to provide MCR-related services to Halliburton. Professor Johnson found that the fines and penalties total $344,541.00, comprising $257,530.00 for service penalties and $87,011.00 for rental penalties.
Professor Johnson testified in detail about the methodology he used to make these calculations, and documents in support of his work are included in the arbitration record. MCR in its Post-Hearing brief summarily challenges Professor Johnson's calculations because allegedly he did not differentiate the damages between the types of tortious interference claimed and based his opinions on erroneous assumptions identified by Scott Hakala, MCR's expert witness. Having considered the testimony of both Parties' experts in the context of MCR's allegations, the Panel rejects MCR's and Hakala's criticisms. The Panel finds that Professor Johnson's testimony is credible and proves by a preponderance of the evidence that Halliburton is entitled to recover the monetary damages it seeks.
The Panel concludes that Halliburton has met its burden of proof and is entitled to prevail on its claims for tortious interference with contract and tortious interference with prospective business relationships.
MCR's Statute of Limitations Defense. MCR's limitations defense challenges the timeliness of the Halliburton affiliates' assignment of their tortious-interference claims to Halliburton, as pleaded in Halliburton's Third Amended Statement of Claim and deemed filed on June 29, 2021. The Panel has already concluded that, in accordance with the Parties' Stipulated Facts, the subcontracting done by Halliburton's affiliates was attributed to Halliburton for purposes of this arbitration. As a result, the Stipulated Facts, and not the affiliate assignments, put at issue Halliburton's tortious-interference claims in this arbitration.
Halliburton timely filed its tortious-interference claims in this arbitration on or about November 13, 2017, and MCR does not contend otherwise. The Panel concludes that Halliburton's claims are not barred by the statute of limitations.
Fraudulent Inducement. MCR contends that in 2015 it prohibited Halliburton from purchasing MCR tools for use in the North Sea because of Halliburton's continued use of Rigged Environmental Detonators ("REDs") on its tools (the "UK Ban). MCR further contends that: (1) it banned the use of REDs "years before" the UK Ban and required that thermal generators and Remote Firing Mechanism ("RFM") kits, not REDs, be used with its tools; and (2) Halliburton was required to acquire an MCR license to purchase the kits.
On March 11, 2016, Robertson and David Topping, a Halliburton Vice-President, and Jim Hill, Halliburton's Product Manager – Perforating Systems, met to discuss Halliburton's use of REDs on MCR's tools in the North Sea. MCR contends that Topping fraudulently represented that Halliburton would not use REDs if Robertson lifted the UK Ban and that Halliburton would sign an RFM license with MCR so that it could then use RFMs on MCR tools. According to Robertson, Halliburton continued to use REDs and never acquired an RFM license from MCR. MCR seeks to recover damages to its reputation and for a lost license fee and lost sales allegedly caused by Halliburton's fraudulent inducement regarding its use of REDs in the North Sea.
The Parties disagree about the substance of the communications between Robertson and Topping. The Panel finds that Topping's testimony is more credible than Robertson's. First, Topping testified that during the March 11 meeting, he told Robertson that if there was "a job call out in the short term," until there was an alternative detonator solution, Halliburton would have to use REDs and that he believed that Robertson accepted this fact.
Topping's recollection was corroborated by internal Halliburton communications shortly after the meeting in an email string initiated by Jim Hill on March 24, 2016. Hill's emails informed other Halliburton employees that "MCR has agreed to allow continued use of REDS until the RFM issue is resolved. . The 'ban' on UK purchases and operations of MCR products is lifted and 'normal' operations can continue." The emails also indicated that Hill was waiting to receive from MCR an RFM agreement that would have to be evaluated and negotiated.
On April 5, 2016, however, Robertson sent a letter doing an about face from what Topping and Hill had understood from the meeting. While Topping admitted that he should have responded to the letter, he testified that he "figured . we would be moving forward with the RFM . and that responding would just create more letters."
Second, the only contract between MCR and Halliburton is the License Agreement, and it specifically included a license for Halliburton to purchase and use MCR's RFMs. At all relevant times, however, MCR refused to sell the RFMs to Halliburton because Robertson contended that Halliburton had to execute a separate RFM license. When confronted with terms of the License Agreement to the contrary, Robertson testified that the inclusion of RFMs in the License Agreement was a mistake.
Third, as Robertson's testimony confirmed, there was no "contract" made at the March 11, 2016, meeting, much less one that was fraudulently induced on these facts.
In addition, the Panel concludes that there is no evidence that MCR was harmed by the alleged misconduct. Among other things: (1) MCR did not lose an RFM license fee because the License Agreement includes an RFM license, which means that MCR failed to show that is was entitled to an additional fee; (2) Halliburton was MCR's biggest customer, and MCR did not show that it would have been better off if it had terminated the Halliburton's License in 2016; (3) any loss in RFM kit sales was the result of MCR deciding not to sell the kits to Halliburton; and (4) the over $8 million MCR seeks for reputation damage is not supported by evidence that MCR's operations or sales were interrupted by Halliburton's use of REDs or any other relevant evidence, and no MCR customer testified that it did not purchase an MCR tool because of an alleged failure involving a RED being used on an MCR tool.
For these reasons, MCR has not proved that it is entitled to prevail on its fraudulent-inducement claim.
Tortious Interference with Contract and Business Relationships. MCR claims that Halliburton intentionally interfered with its agreements with its other licensees by knowingly circumventing MCR's license requirements to obtain tools. In support of its claim, MCR urges that NPS, its licensee in Saudi Arabia, breached its license agreement and violated Robertson's June 22, 2017, directive prohibiting Halliburton work when it provided services to a Halliburton affiliate after the License Agreement expired. The damages MCR seeks to recover on this claim derive from an unjust-enrichment theory. For the following reasons, the Panel agrees with Halliburton that MCR failed to prove a breach or interference and damages, if any, under the legally applicable measure.
First, the Panel determined in Interim Order No. 3 that no provision of the License Agreement prohibited Halliburton from subcontracting with other MCR licensees to provide MCR-related services after the expiration of the License. Second, nothing in NPS's license agreement prohibited it from providing services to Halliburton's Saudi Arabia affiliate. Third, Robertson's directive to NPS that it was not permitted to run any MCR tools for Halliburton is not a contract capable of being breached. Nor does the Halliburton affiliate's hiring of NPS to provide an engineer to run the MCR tool constitute interference with NPS's contractually based business relationship with MCR. This is because the NPS/MCR contract provided for MCR-related services to any customer. Finally, even if there had been tortious interference, Texas law does not provide for an unjust-enrichment recovery as damages for tortious interference. See Boston Pizza Rests., L.P. v. Bay Three Ltd., Inc., Civ. Action No. 3:12-CV-00426-O, 2013 WL 12123896 (N.D. Tex. July 16, 2013) (under Texas law, measure of damages for tortious interference with contract is same as for breach of contract).
For these reasons, MCR has not proved that it is entitled to prevail on its claims for tortious interference with contract and business relationships.
Breach of the License Agreement. In its Post-Hearing Brief, MCR asserts that Halliburton breached the License Agreement in six ways. The Panel will address each of these claims separately.
For three of the claimed breaches, MCR either did not plead the breach in its Counterclaim, did not brief or argue for the claims and instead referred summarily in footnotes to hearing exhibits or pages in the court reporter's record, or did not allege any resulting damages. Any of these reasons is enough for the Panel to decline to consider these claims. Nevertheless, the Panel rejects these three counterclaims on the merits for the following reasons.
Failing to execute field reports timely. MCR has not proved that any field reports were not submitted, or if, as summarily stated in the Post-Hearing Brief, Halliburton's UK operations delayed submitting field reports, which in turn constituted a breach the License Agreement, MCR has failed to show that the delay caused it any harm. MCR also has not alleged or proved any damages from the submission of allegedly untimely field reports.
Failing to pay outstanding bills to MCR. MCR did not plead that Halliburton breached the License Agreement by failing to pay outstanding bills. Perhaps this is because the record shows that after the License Agreement expired on April 14, 2017, the Parties resolved any billing issues after Halliburton reached out to MCR in May 2017 requesting that MCR identify any unpaid bills. According to the evidence, duplicate invoices and previously paid invoices were identified as a result, and the issues were then resolved. MCR cites to page 697 of the reporter's record but there is no evidence of unpaid bills on that page or anywhere else in the record. Nor is there any evidence of damages resulting from this alleged breach.
Failing to return confidential information timely. MCR claims that Halliburton breached the License Agreement by failing to return confidential information after the License Agreement expired. Although MCR cites Topping's testimony on page 698 as its supporting evidence, Topping did not testify on page 698 that Halliburton failed to return confidential information. He testified instead that he did not know specifically whether Halliburton returned all the confidential information within the time frame prescribed by the License Agreement although he knew that some was sent back. Topping further testified that he also knew that MCR refused to accept any confidential material sent back by Halliburton. This is no evidence of a breach. Nor is there any evidence of damages resulting from any alleged untimely return of confidential information.
Three of the other breaches of the License Agreement claimed by MCR rely upon the same evidence as its tort claims. As set forth below, the Panel rejects these breach-of-contract claims on the merits for the same reasons that it rejects the corresponding tort claims.
REDs and RFMs. MCR claims that Halliburton breached the License Agreement: (1) when it continued to use REDs after MCR had specifically prohibited it from doing so; and (2) when it failed to obtain an RFM license from MCR. These allegations are also the basis for MCR's fraudulent-inducement claim. The fraud claim and these two contract claims rely upon the same evidence. After reviewing the evidence, the Panel rejected the fraudulent-inducement claim. The Panel's analysis of the relevant evidence and its reasons for rejecting the tort claim apply equally to these two breach-of-contract claims. See supra at pp. 22-24.
Using MCR Tools After the Expiration of the License. MCR claims that Halliburton's affiliate in Saudi Arabia purchased MCR tools and used MCR's technology without a license in 2017 and 2018. MCR did not brief this claim separately but rather incorporated by reference the part of its Post-Hearing Brief that addresses its tortious-interference claims. The Panel rejected the tortious-interference claims. The Panel's analysis of the relevant evidence and its reasons for rejecting the tort claims apply equally to the Panels' rejection of this breach-of-contract claim. See supra at pp. 24-25.
