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GETTY OIL CO. v. MILLS

April 18, 1962

GETTY OIL COMPANY, Plaintiff,
v.
P. A. MILLS, t/a Moody Engineering Company, Defendant



The opinion of the court was delivered by: DUMBAULD

It is perhaps as true of this case, as it was of litigation in the time of Lord Coke and of Justice Holmes, that protracted cases result by reason of the magnitude of the economic interests at stake, rather than the intricacy of the legal issues involved. In Coke's words, 'to say the Truth, many question are raised rather out of the weight of the Matter, than the Difficulty of the Case: For I never saw any Case of great Value proceed quietly, without many Exceptions in arrest of Judgment.' Rep. pt. 10, pref. Holmes said: 'Great cases like hard cases make bad law. For great cases are called great, not by reason of their real importance in shaping the law of the future, but because of some accident of immediate overwhelming interest which appeals to the feelings and distorts the judgment. These immediate interests exercise a kind of hydraulic pressure which makes what previously was clear seem doubtful, and before which even well settled principles of law will bend.' Northern Securities Co. v. United States, 193 U.S. 197, 400-401, 24 S. Ct. 436, 48 L. Ed. 679 (1904).

In any event the case at bar, if not a 'great case' in the sense indicated by Justice Holmes, is a 'protracted case' as dealt with in much recent literature regarding judicial administration. *fn1" Presentation of plaintiff's case required 38 trial days, during an elapsed time of more than three months, beginning on October 23, 1961, and ending on February 5, 1962, followed by argument for two days of defendant's motion to dismiss which is now before us. Briefs containing over 200 pages were then filed. Three or four lawyers on each side, from prominent Pittsburgh and New York firms, have presented the case with ability and thoroughness. They have received daily transcripts of testimony, amounting to 4665 pages, which the Court has read in toto personally, independently of the references contained in the briefs. Fourteen witnesses were heard, and depositions were read of ten witnesses whose employment abroad or illness necessitated receiving their testimony in written form. A lengthy stipulation was also placed upon the record. Multitudinous documents, photographs, charts, test samples cut from pipe, mounted specimens cut from larger samples and etched, 'macrophotographs' or enlarged views of the mounted specimens, and diagrams drawn by witnesses on the stand, have been received in evidence. Moreover, several sections of 18 inch diameter pipe, including one complete 40 foot 'joint', have been marked as exhibits, and stored in a warehouse, where court has been held in order for witnesses to point out what they observed upon examining the pipe. The weight of the evidence, if measured by avoirdupois as Justice Brandeis did in Baltimore & O.R.R. Co. v. United States, 298 U.S. 349, 381, 56 S. Ct. 797, 80 L. Ed. 1209 (1936), would be colossal.

 Justice Holmes, in the antitrust case previously quoted from, asseverated that the issue whether competition had been eliminated between two transcontinental railroads should be decided 'as if the question were whether two small exporting grocers should go to jail.' 193 U.S. at 402. The vast continuum of the case at bar, 'when we wash it with cynical acid', *fn2" similarly shrinks to manageable proportions upon being subjected to legal analysis. We shall consider it as if the question were whether an inspector employed by the proprietor of a grocery store to inspect canned goods or bottled beverages at the cannery or bottling plant would be liable in damages because the can or bottle exploded when a customer took it from the grocer's shelves. See Loch v. Confair, 372 Pa. 212, 216-218, 93 A.2d 451 (1953); Braccia v. Coca-Cola Bottling Co., 398 Pa. 386, 388, 157 A.2d 747 (1960). The issue in the case at bar, simply stated, is whether defendant is responsible for the enormous *fn3" losses sustained by an oil company when pipe inspected by defendant at a manufacturing plant in Germany proved unsatisfactory, sustaining numerous ruptures and leaks, when used in a 31 mile pipe line constructed by plaintiff to transport oil to the Persian Gulf.

 Subsidiary questions are: (1) What was the scope of the inspection which it was defendant's duty to make? (2) Did defendant properly discharge this duty? (3) If not, was defendant's conduct negligent towards plaintiff (between whom and defendant there was no privity of contract)? (4) If so, was defendant's negligence the proximate cause of plaintiff's loss?

 To resolve these questions we shall now review more minutely the contentions and evidence adduced by plaintiff regarding these points. It will be helpful first to summarize the basic facts concerning which there is little controversy.

 Basic Facts

 Plaintiff, Getty Oil Company (formerly Pacific Western Oil Company), is an American company producing oil under a concession in the Neutral Zone between Kuwait and Saudi Arabia (Tr. 1389, 2389, 2391-92, 4092-93). The wells are in the vicinity of Wafra, and the refinery and marine terminal at Mina Saud, near the port of Khor El Mufatta, on the Persian Gulf (now called Arabian Gulf). A 31 or 32 mile ten inch transmission line was constructed of seamless pipe in 1954 between those points. The grade descends 500, or 520, or 550 feet in that distance (Tr. 1391, 2396, 4089, 4102, 4181). That ten inch line was built generally parallel to a satisfactorily working line built by Aminoil, another producer (Tr. 2882). There was also an eight inch line of seamless pipe used for gas (Tr. 2440).

 The line here involved, of 16 and 18 inch pipe, was built in 1957. It was laid generally parallel to the ten inch line. No engineering designs were used (Tr. 2525, 3058), the senior official of Getty Oil Company believing that an engineer is really not needed except for the first line to be built (Tr. 4092, 4252, 4254, 4258).

 Early in 1956 additional transmission facilities were urgently needed, but there was a shortage of pipe in the market (Tr. 4138, 1299). Some 40 or 50 contacts were made by Getty's affiliate company (Tidewater) in the attempt to obtain suitable pipe (Tr. 1306). On August 17, 1956, a broker known as Tex-Tube, Inc., of Houston, Texas (hereinafter called Textube), offered 32 miles of 16 inch spiral weld pipe of .355 inch wall thickness, to be manufactured at a German mill (Tr. 1300; ST-1). This offer was accepted by cable, but the producer was unable to obtain the necessary steel (called 'skelp') to honor the order (Tr. 1307; ST-3, 5, 8, 9).

 Meanwhile Textube requested defendant to report on the ability of the German company (Rohrenwerk Castrop, located at Castrop-Rauxel, near Duesseldorf) to produce 'acceptable pipe' (ST-7). On September 29, 1956, defendant sent a favorable report to Textube (ST-11), which was received on or before October 1, 1956 (ST-12). On October 10, 1956, G. M. Dixon of Tidewater ascertained from the Bechtel Company, another engineering firm, that Castrop 'was a reliable concern' (D-6).

 In defendant's report he pointed out that both spiral-welded pipe and pipe made by the submerged-arc welding process were not standard pipe recognized in the American Petroleum Institute Standard 5L. (A copy of API-5L is in evidence as Ex. 13, Mills deposition; D-188. Tr. 299, 317).

 Defendant also pointed out that 'unquestionably there will be portions of the spiral seam having the outside weld bead only that will not be fully penetrated. * * * Therefore, if a spiral weld can also be applied to the inside of this pipe, it will undoubtedly be a better product.' Defendant received $ 105.90 for making this investigation (ST-13).

 'All in accordance with attached specifications. * * *

 'Mill inspection by Moody Engineering Co. as follows:

 'Full chemical and physical testing and inspection in accordance with the requirements of API Standard 5 L except as modified by the above pipe specification. Special attention shall be given to securing spiral welds of first class quality, in conformance with specification Paragraph 3-A, through examination and control of welding procedures, visual examination, Tensile Tests and spot examination of weld sections. Both end-roundness and dimensional requirements shall be strictly enforced.'

 Paragraph 3-A referred to reads as follows:

 'In lieu of a longitudinal seam, a single spiral seam shall be employed, utilizing any type of submerged arc fusion welding generally recognized as sound practice. The edges of the plate strips to be welded together to form the spiral seams shall be properly prepared in accordance with the seam welding process employed. Seam welds shall be uniform in cross-section, sound, free of gas pockets and slag inclusions, shall have no undercutting below the outside surface of the parent metal, and shall be of full penetration at all points with good fusion at the root. At no point shall the weld surface be below the outside surface of the parent metal nor shall it rise above the latter more than 3/32-inch. Finished lengths of pipe shall permit the passage of a drift or reamer 3/16' less in diameter than the computed inside diameter, 15.37 inches, of the pipe.'

 The above language of the purchase order, as well as the attached specifications (ST-23), had been prepared by Allan L. Piper of Tidewater (Tr. 1308, 1339-43), who had in mind various purposes which he outlined in his testimony, in order to assure a satisfactory product (Tr. 1333, 1338-39, 1341-43, 1490-91).

 However, that language was omitted at some stage in the so-called 'daisy chain' *fn4" before it reached defendant or the producing mill (Tr. 1360-70).

 The language appeared in Textube's order placed on October 30, 1956, with The Crispin Company, of Houston, Texas (ST-24); but was omitted from Crispin's order placed with Intercontinental Enterprises (ST-25), and from Intercontinental's order of October 18, 1956, placed with the Castrop mill (ST-26).

 The language was likewise not contained in Crispin's letter of November 28, 1956, pursuant to which defendant was engaged to inspect pipe at the Castrop mill (ST-33). That letter provided, in pertinent part:

 'Inclosed please find specifications of the subject order which * * * is to be manufactured by Rohrenwerk Castrop G m b H, 117 Wartburgstrasse, Castrop-Rauxel, Germany.

 'We would appreciate your performing the inspection of this material in accordance with the specifications of the order and preparing your certificate in sextuple * * *.'

 Defendant wrote on January 22, 1957, to George L. Leibold, his senior inspector, giving instructions for the inspection (ST-35, 36). A week later he wrote: 'we definitely want you to pass judgment on the first quantity of this pipe, as we are rather fearful about it here.' (ST-37). (See also ST-54).

 The purchaser's representatives also had misgivings regarding the quality of single-pass spiral-welded pipe, but ordered it because it was the only kind available and believed that it would be satisfactory if manufactured in accordance with the specifications (Tr. 1517-23, 1699, 4142-45, 4197-98, 4206).

 Later, at the suggestion of J. Paul Getty, the dimensions on the remaining part of the order were changed from 16 to 18 inch diameter, with no change in wall thickness (ST-45, 46). This resulted in Change Order No. 2 (ST-51-A, 51-B 51-C, 51-D, 51-E-1, 51-E-2).

 After performing inspection, as outlined in the testimony of witnesses Shipley, McNally, and the deposition of senior inspector Leibold, certificates were issued by defendant, signed by the inspectors doing the work (ST-52). A report was also sent to Crispin on December 10, 1957 (ST-62).

 These certificates were among the documents upon the basis of which an irrevocable letter of credit established by plaintiff, pursuant to the terms of sale, was disbursed by the Chase Manhattan Bank in New York (Deposition of Friburg, Tr. 1384).

 The pipe was shipped from Castrop-Rauxel to Antwerp, thence by sea to Khor El Mufatta. Ten inch pipe was 'nested' in the eighteen inch pipe to save freight (Tr. 4073). On arrival the pipe was lifted by hooks in the end of the pipe and stacked (Tr. 2890). The ten inch pipe was pulled out, and the pipe trucked to the pipe line site and rolled off the trucks (Tr. 2953, 2989, 3034-44). Defendant contends that the pipe may have been injured, after inspection in Germany, by reason of handling in transit and during the construction of the pipe line. *fn5"

 Defendant also draws attention to the lifting of the pipe onto concrete 'sleepers' (supports similar to railroad crossties to hold up rails), and to the replacing it in the same manner when it fell off the sleepers by reason of expansion and contraction due to temperature changes in the desert (Tr. 3047-50, 3072; D-61).

 Plaintiff's superintendent in the Neutral Zone testified that the ends of the pipes did not fit together properly. This added to the expense of constructing the line. Construction began on September 4, 1957, and ended on October 23. The first testing was on November 15. The line would not even hold water, simply under gravity, without any pump pressure (Tr. 2407, 2435). Representatives of the Castrop mill visited the pipe line and suggested methods of improving the construction. At one point in the discussion, J. Paul Getty agreed to accept the pipe if a pressure of 600 lbs. could be maintained without a break (D-80). Defendant contends that Castrop succeeded in this endeavor, and that this subsequent 'accord and satisfaction' with the manufacturer relieves defendant of any liability arising from the antecedent inspection (Tr. 44-46). Numerous ruptures and leaks occurred in the line, nearly always in the spiral welds, rather than in the metal 'skelp' of the pipe, or at the field welds (Tr. 2006, 2660, 3026).

 Plaintiff subsequently constructed a new 16 inch line, using seamless pipe, and employing an engineering firm (Bechtel) to design the line (Tr. 1563, 3008, 4254, 4258).

 On November 29, 1957, plaintiff notified the Castrop mill and Textube that the pipe was defective and that they would be held liable (ST-68, 69). On the same date defendant was similarly notified, since 'we are advised that your inspection of the pipes and acceptance thereof may preclude us from any remedy against the seller or manufacturer' (ST-70). Defendant replied on December 10, 1957 (ST-71), repeating its opinion that 'we have little confidence in or respect for spiral welded pipe which is made with a single pass submerged-arc weld.'

 Defendant also asserted in that letter its contention that it is the responsibility of the manufacturer to comply with the specifications, and that the inspector's duty is merely to make a visual inspection of the finished product, not to police the manufacturing process.

 Plaintiff's Legal Theories

 Plaintiff advances a threefold claim: (1) Based upon defendant's negligent inspection; (2) Based upon fraud or deceit in issuing certificates of inspection; (3) Based upon the theory of contractual liability of defendant as 'agent' for plaintiff, or upon the theory that plaintiff was third-party beneficiary of defendant's contract with Crispin.

 Only two and a half pages of plaintiff's 84 page brief deal with the second and third grounds of relief, and in our opinion that proportion fairly represents the merits of the contention. We are prepared to eliminate those issues from the case immediately. We conclude that there is no evidence to support a recovery on either of those theories. In any event, the facts relied upon to support such a recovery would be the same as those alleged to constitute negligence. The real issue in controversy is whether defendant's inspection was negligent.

 Perhaps a word should be said on the matter of fraud and deceit. The contention here is that the pipe did not meet specifications; that the defendant's inspectors, when signing the certificates stating that it did, knew that such certificates were false or knew that they really had no knowledge whether the statements in the certificates were true or false.

 This argument assumes the correctness of plaintiff's theories regarding the scope of defendant's duties in connection with the inspection, concerning which we shall have more to say under the heading of negligence. However, to constitute fraud it would be necessary to assume that the inspectors knew that plaintiff's theories as to the scope of their duties were correct, and with such knowledge and with knowledge that they had not performed such duties nevertheless signed the certificates. So long as the inspectors performed in good faith what the believed to be their duties and had no knowledge of any delinquencies on their part in concealing any defects which they had actually detected, we do not think that a valid charge of fraud can be made.

 There is no evidence of any actual fraud or bad faith on the part of defendant's inspectors. The contention amounts to no more than that they did not do all that plaintiff thinks they might have done in order to better inform themselves concerning the quality of the pipe they were inspecting.

 With regard to one matter (the presence of skelp welds within five feet of the ends of a joint of pipe) there is perhaps some indication that the inspectors signed the form of certificates desired by the bank as blithely as government employees signing the anticommunist oath which is a condition prerequisite to getting their pay checks (ST-47-50, 51-J, 51-K, 61, 65). According to a statement by defendant, the manufacturer shipped some pipe which had been rejected by the inspectors because of skelp welds within 5 feet of the end of a joint (ST-71). It is possible that such shipments were approved by Mr. Getty, who had authorized the shipment of pipe with skelp welds when such pipe had been rejected in toto and the manufacturer threatened to increase the price if such pipe were not accepted (Tr. 2754; ST-47, 48). Since Mr. Getty elected not to testify in this case, the rule applies that an inference may be drawn that his testimony would not strengthen plaintiff's case. Haas v. Kasnot, 371 Pa. 580, 584-85, 92 A.2d 171 (1952); Mammoth Oil Co. v. United States, 275 U.S. 12, 51-52, 48 S. Ct. 1, 72 L. Ed. 137 (1927). In any event no harm resulted to plaintiff by reason of shipment of skelp welds, since the ruptures in the line were in the spiral welds, not in the skelp welds (Tr. 2897). There would therefore be no proximate causation of injury to plaintiff even if there were any irregularity imputable to defendant with respect to skelp welds. Hence we dismiss from the case the plaintiff's two supplemental theories, and continue consideration of the issues arising on the basis of negligence.

 Scope of Defendant's Duty to Inspect

 In the early stages of the case plaintiff contended that nothing in defendant's contract or in the specifications limited defendant's duty to making a so-called 'visual inspection', which defendant earnestly contended was the limit of his duty (Tr. 70, 149-50, 597, 671). Plaintiff's contention would have been persuasive had the original language prepared by Mr. Piper regarding examination and control of welding procedures (ST-22, supra) been included in the arrangements between Crispin and defendant. But, as has been noted earlier, this language disappeared somewhere along the 'daisy chain', before reaching defendant or the producing mill (Tr. 1360-70). It is not clear why this occurred. *fn6" Perhaps it was another of ...


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