When GR Energy Services sold its horizontal pump rental business to DistributionNOW subsidiary Odessa Pumps for $90 million in March 2021, the parties couldn’t agree on the true value of the company so they negotiated an earnout provision: if the pump business generated $15 million in earnings over the course of a year, GR would be entitled to an additional $30 million payday.
As part of the contract to purchase Flex Flow, which specializes in renting horizontal pumps used to dispose of saltwater produced in oil and gas operations, GR and Odessa Pumps also entered an agreement barring GR from competing with Flex Flow.
Those two pieces of the deal took centerstage over the past three weeks in Harris County District Judge Michael Gomez’s courtroom as a jury worked to discern two things: whether Odessa Pumps acted in bad faith in the way it managed Flex Flow to avoid having to pay the earnout, and whether GR violated the noncompete agreement through its communications with SpaceX about a potential pump deal.
Jurors deliberated for a few hours before determining Tuesday that Odessa Pumps had not acted in bad faith and that GR had not violated the noncompete agreement. They did not reach a third question, where GR had sought $29.8 million in damages for Odessa Pump’s alleged bad faith actions.
Odessa Pumps did not seek any damages on its noncompete claim against GR.
Attorneys for both sides counted those findings as wins.
“We’re all really, really pleased with this result, and I think that our client in particular is happy to have the public recognition and acknowledgement that we honored our promises in the contract and we certainly weren’t acting in bad faith to keep a lid on earnings,” said Nathan Campbell, an associate at Ahmad Zavitsanos and Mensing who represents Odessa Pumps.
And Gibbs & Bruns partner Mark Giugliano, who represents GR, said he was “pleased” the jury found GR hadn’t breached the noncompete.
“That’s certainly, absolutely, unquestionably the right decision there,” he said. “On the finding that Odessa didn’t breach, we knew going in that was a very challenging claim for us to assert and prevail upon. I certainly felt like we got over the hump as far as proving that claim, but I understand and respect the jury’s decision, particularly given the very high burden we had to overcome.”
Odessa Pumps had also alleged GR violated the asset purchase agreement by withholding a $1.67 million working capital adjustment that was due to Odessa in March 2022. The jury didn’t get to decide that, though, because GR conceded liability and paid before trial.
But prevailing on that claim was the partial basis for the jurors to return to court Wednesday and determine what amount of attorney fees Odessa Pumps was entitled to. Because jurors had also found Odessa did not act in bad faith, and Odessa had filed a declaratory judgment action seeking such a finding, they also sought to recover attorney fees on that claim.
The jury took about half an hour to determine Odessa Pumps was entitled to about $2.4 million in attorney fees for work on the trial and also awarded roughly $426,000 for any appellate work.
GR filed a motion Oct. 18 in opposition to the request for attorney fees, arguing Odessa Pumps isn’t entitled to collect any fees related to the declaratory judgment claim.
Giugliano anticipates the fight on that issue will continue, pointing to a lack of an affirmative finding that Odessa did not breach the agreement.
“In the absence of that, we don’t believe that the fees should be awarded in that case,” he said. “So, there’s an appellate point on that we will be inclined to pursue.”
During closing arguments Tuesday, AZA partner Jason McManis told jurors that GR concocted a scheme to get the $30 million payday by approaching Odessa Pumps in September 2021 saying it had reached a deal with another company needed 50 pumps — the largest order in Flex Flow’s history — in order to prove a concept. Terms of the proposed rental arrangement, including the timeline, raised red flags for Odessa Pumps because it was to last seven months, ending on the last day of the earnout period, jurors were told.
“This was about one thing: Whatever they could do to try and make this look like a real deal so they could buy their way to the earnout,” McManis said during closing arguments.
McManis explained that because Odessa Pump’s parent company, DistributionNOW, is a publicly traded company, it couldn’t blindly agree to deals with “red flags” that would “benefit the former chairman of the board without investigating it.”
“It’s not bad faith” for Odessa Pumps to act with due diligence, McManis said. “This scheme was put together to trigger the earnout, and GR cannot buy its way to the earnout.”
McManis told jurors they could expect to hear GR tell them in closing arguments that because it didn’t sell anything to SpaceX, it hadn’t violated the noncompete agreement with Odessa Pumps. But what GR did do — meeting with SpaceX representatives and sending SpaceX a business proposal that included horizontal pumps like those Flex Flow rents — is still a violation of the agreement, he said.
Flex Flow, he argued, could have closed that deal with SpaceX had it been given an opportunity.
“[GR] doesn’t get a pass just because they failed,” he said. “The contract doesn’t say you can engage as long as you’re not successful.”
Reflecting on the trial, Campbell said the dueling claims in the dispute could be characterized as a “one-of-a-kind scenario.”
“There were some very, very skilled advocates on the other side talking about this supposed opportunity that GR brought to us,” he said. “But as it typical, in jury trials the truth prevails, and it’s certainly the case that the jury saw this scheme for that it was and they saw that Odessa Pumps and its parent, DNOW, honored their promises under the contract.”
Another attorney for GR, Gibbs & Bruns partner Brice Wilkinson, told the jury during closing arguments that the claim that GR violated the noncompete with Odessa via its communications with SpaceX was “a sideshow.”
SpaceX didn’t need any pumps and GR didn’t have pumps to rent, he said.
“We can’t compete with Flex Flow … because it’s literally impossible,” he said. “We were trying to generate a lead for them” and gave SpaceX the contact information for Flex Flow.
Wilkinson said Odessa Pump’s goal was clear.
“Odessa intentionally tanked this business with the deliberate intent to avoid the earnout to GR,” he said.
Giugliano gave jurors an explanation during closing arguments as to why Odessa Pumps would suppress its own business opportunities to avoid paying an earnout to GR.
“They were burning through cash in 2021 and had negative cashflow,” he said. “The plan was to buy more businesses, and to do that you need money.”
That theory is borne out by the fact that Odessa Pumps later purchased the largest competitor in the market for $20 million, he said.
GR is also represented by Gabriel Kaim, Conor McEvily and Caitlyn Cowan of Gibbs & Bruns
Odessa Pumps is also represented by John Zavitsanos, Joseph Ahmad, Hailey Pulman, Angela Peterson and Karina Sanchez-Peralta.
The case number is 2022-16349.