Verdine v. Ensco Offshore Co ( 2001 )

UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 00-31107
JESSIE VERDINE,
Plaintiff,
VERSUS
ENSCO OFFSHORE CO.,
Defendant-Third Party Plaintiff-Appellant,
VERSUS
CENTIN LLC, formerly known as Centin Corp.
Third Party Defendant-Appellee.
Appeal from the United States District Court
for the Western District of Louisiana
June 22, 2001
Before EMILIO M. GARZA, PARKER, Circuit Judges, and ELLISON,
District Judge.*
ROBERT M. PARKER, Circuit Judge:
This case involves the application of the Louisiana Oilfield
Anti-Indemnity Act (the “Act”) to an agreement between Ensco
Offshore Company and Centin LLC for repairs on a dismantled fixed
platform rig. The district court denied Ensco’s motion for summary
judgment and granted summary judgment in favor of Centin. The court
*
District Judge of the Southern District of Texas sitting by
designation.
1
concluded that the Act invalidated the choice of law provision and
defense and indemnity clause in the parties’ contract.1
I.
In August of 1997, Ensco entered into a Day Work Drilling
Contract with Amerada Hess Corporation in which Ensco agreed to
provide the fixed platform rig Ensco 23 for use on approximately six
wells off the coast of Louisiana. Before Ensco could fulfill its
contract obligations to Amerada, Ensco 23 required extensive
refurbishment work. Ensco hired Centin to perform the necessary
services.
Centin signed a master service contract with Ensco in which
Centin agreed to provide goods and services on Ensco’s land and
offshore drilling rigs. The master service contract provided the
general rights, duties and obligations of the parties. The contract
required that its terms be interpreted and enforced “in accordance
with the provisions of the General Maritime Law of the United
States.” The contract also required Centin to defend and indemnify
Ensco for claims arising from injuries related to the contract.2
1
The district court asserted diversity jurisdiction pursuant to
28 U.S.C. § 1332. This Court has jurisdiction to review the
district court’s final judgment under 28 U.S.C. § 1291.
2
The defense and indemnity provision in the contract states:
Contractor agrees to protect, defend, release,
indemnify and hold Company and its parent, subsidiary,
associated or affiliated companies and the directors,
officers, employees, servants and agents of any of them,
free and harmless from and against any and all losses,
costs, claims, causes of action and liabilities
(including, without limitation, the costs of suit and
reasonable attorney’s fees) arising in favor of any party
on account of injury to, or death of, or damage to or
2
The agreement did not require work on any specific platform owned
by Ensco. Ensco controlled each specific job through work or
purchase orders.
Ensco instructed Centin to perform services on the Ensco 23
through several specific purchase orders and field requisitions.
No reference was made in any purchase order or field requisition to
the wells operated by Amerada. Centin performed all of the work at
the Coral Marine fabrication yard in Amelia, Louisiana.
On March 30, 1999, plaintiff Jesse Verdine, a Centin employee,
filed suit against Ensco for damages he received while working on
the Ensco 23. Ensco filed a third-party complaint against Centin
seeking defense and indemnity for Verdine’s claim. Centin denied
Ensco’s claim for defense and indemnity based on the Louisiana
Oilfield Ant-Indemnity Act. See LA. REV. STAT. § 9:2780. Both
parties filed motions for summary judgment.
After reviewing the evidence, the district court granted
summary judgment in favor of Centin. The court determined that the
Act applied to the parties’ agreement and that the statute therefore
voided the contract’s choice of general maritime law. Ensco
eventually settled with the plaintiff, and the district court
entered its final judgment dismissing the case on August 10, 2000.
loss of property of Contractor, its associated or
affiliated companies, contractors or subcontractors and
their directors, officers, employees, servants or agents,
invitees or guests or the survivors of any of them,
resulting from or related in any way to this Agreement,
or activities or omissions in connection herewith,
regardless of whether the Company, or others, may have
been solely or concurrently negligent, to any degree, or
otherwise at fault, and regardless of any unseaworthiness
of any vessel, any defect in premises, goods, equipment
or materials, and irrespective of whether same preexisted
in this Agreement.
3
Ensco timely appealed.
II.
We review a district court’s order granting summary judgment
under the same standard that guided the district court. See Roberts
v. Energy Dev. Corp., 104 F.3d 782, 784 (5th Cir. 1997). Ensco
argues on appeal that the Act does not apply to the parties’
agreement and that the parties’ choice of maritime law should
control. If maritime law applies to the contract, the defense and
indemnity provision will be enforceable against Centin. See Dupont
v. Sandefer Oil & Gas, Inc., 963 F.2d 60, 61 (5th Cir. 1992).
In federal diversity cases involving conflicts of law, the law
of the forum state, here Louisiana, governs. See Roberts, 104 F.3d
at 786 (citing Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487
(1941)). Louisiana generally allows parties to select the law that
will determine the outcome of disputes arising from a contract. See
LA. CIV. CODE ANN. art. 3540; Matte v. Zapata Offshore Co., 784 F.2d
628, 631 (5th Cir. 1986). The Louisiana Civil Code states:
All other issues of conventional obligations are
governed by the law expressly chosen or clearly relied
upon by the parties, except to the extent that law
contravenes the public policy of the state whose law
would otherwise be applicable under Article 3537.
LA. CIV. CODE ANN. art. 3540.3
3
Article 3537 states that “an issue of conventional obligation
is governed by the law of the state whose policies would be most
seriously impaired if its law were not applied to that issue.” LA.
CIV. CODE ANN art. 3537. Louisiana is the only state whose policies
could be impaired by the defense and indemnity provisions in the
Ensco-Centin agreement. In addition, the work on Ensco 23 was
performed entirely on land, negating any national interest in the
uniformity of maritime law. See Foremost Ins. Co. v. Richardson,
457 U.S. 668, 677 (1982); Rodrigue v. Legros, 563 So. 2d 248, 254
4
The parties are in agreement that, notwithstanding the choice-of-law
provision, Louisiana law would govern the terms of the contract.
Louisiana contract law generally “allows a principal to be
indemnified against his own negligence so long as that intent is
clearly expressed.” Rodrigue, 563 So. 2d at 254. The Oilfield Ant-
Indemnity Act creates a public policy exception to the general rule.
See id. If the Act applies to the Ensco-Centin agreement, then we
must conclude that the choice of law provision and the defense and
indemnity clause will be void as a matter of public policy. If the
Act does not apply, then the defense and indemnity provision will
be enforceable under either maritime law or Louisiana contract law.
We therefore limit our analysis to whether the Act applies to the
parties’ agreement.
The Louisiana legislature adopted the Act to eliminate defense
and indemnity provisions forced on Louisiana oilfield contractors.
See LA. REV. STAT. ANN. § 9:2780(A). “The purpose of the legislator,
and thus the policy interest of the state, is to protect certain
contractors, namely those in oilfields, from being forced through
indemnity provisions to bear the risk of their principal’s
negligence.” Rodrigue, 563 So. 2d at 254. Subsection C explains the
agreements to which the Act applies:
The term “agreement,” as it pertains to a well for
oil, gas, or water, or drilling for minerals which occur
in a solid, liquid, gaseous, or other state, as used in
this Section, means any agreement or understanding,
written or oral, concerning any operations related to the
(La. 1990). It is therefore unnecessary to apply Article 3537 to
this case. Cf. Roberts, 104 F.3d at 786-87 (remanding the case to
the district court in order for the court to compare the decision’s
effect on the public policies of Texas and Louisiana).
5
exploration, development, production, or transportation
of oil, gas, or water, or drilling for minerals which
occur in a solid, liquid, gaseous, or other state,
including but not limited to drilling, deepening,
reworking, repairing, improving, testing, treating,
perforating, acidizing, logging, conditioning, altering,
plugging, or otherwise rendering services in or in
connection with any well drilled for the purpose of
producing or excavating, constructing, improving, or
otherwise rendering services in connection with any mine
shaft, drift, or other structure intended for use in the
exploration for or production of any mineral, or an
agreement to perform any portion of any such work or
services or any act collateral thereto, including the
furnishing or rental of equipment, incidental
transportation, and other goods and services furnished in
connection with any such service or operation.
La. Rev. Stat. Ann. § 9:2780(C) (emphasis added).
Given the Act’s broad definition of “agreement,” courts have
construed Subsection C liberally. See Roberts, 104 F.3d at 784;
Copous v. Odeco Oil & Gas Co., 835 F.3d 115, 116 (5th Cir. 1988).
Early cases achieved a considerably expansive application of the Act
by focusing solely on Subsection C’s “related to” language. In
Livings v. Service Truck Lines of Texas, Inc., 467 So. 2d 595 (La.
App. 3 Cir. 1985), the court of appeals applied the Act to an
agreement involving a contractor’s inspection of pipe. At the time
of the inspection, the pipe was part of the owner’s inventory and
was not designated to any specific well. See id. at 598. The court
concluded that the Act applied to the agreement even though the
6
services were not rendered in connection to a well. See id. at 599.
The court reasoned that Subsection C only required the agreement to
relate to the “‘exploration, development, production, or
transportation of oil, gas or water.’” Id. (quoting LA. REV. STAT.
ANN. § 9:2780(C)).
Similarly, in Day v. J. Ray McDermott, Inc., 492 So. 2d 83 (La.
App. 1 Cir. 1986), the court of appeals applied the Act to void a
hold harmless agreement between two contractors. Gulf Oil Company
hired J. Ray McDermott, Inc. to construct an offshore drilling
platform in McDermott’s yard in Amelia, Louisiana. See id. at 84.
Gulf also hired Ultrasonic Specialists, Inc. to inspect the welds
made by McDermott’s employees. See id. Before allowing the
Ultrasonic employees onto the premises, McDermott required
Ultrasonic to execute a hold harmless agreement. See id. McDermott
argued that the contract relating to the construction of an offshore
platform was too remote in relation to drilling oil. See id. at 87.
The court dismissed this argument, concluding that Subsection C only
required the agreement to relate to a “‘structure intended for use
in the exploration for or production of any mineral.’” Id. at 88
(quoting LA. REV. STAT. ANN. § 9:2780(C)).
The scope of the Act’s application diminished as a result of
this Court’s ruling in Transcontinental Gas Pipe Line Corp. v.
Transportation Insurance Company, 953 F.2d 985 (5th Cir. 1992). In
Transcontinental, we recognized that Subsection C requires not only
that an agreement relate to the broad list of exploration,
production, and transportation activities, but also that an
agreement pertain to an actual well. See id. at 991. The opinion
explained the application of Subsection C as a two-part test:
7
First, there must be an agreement that “pertains to” an
oil, gas or water well. If the contract does not pertain
to a well, the inquiry ends. Only if we determine that
the contract has the required nexus to a well may we
proceed to the second step of the process, examination of
the contract’s involvement with “operations related to
the exploration, development, production, or
transportation of oil, gas, or water.” . . . Therefore,
if (but only if) the agreement (1) pertains to a well and
(2) is related to exploration, development, production,
or transportation of oil, gas, or water, will the Act
invalidate any indemnity provision contained in or
collateral to that agreement.
Id. at 991. The above inquiry requires a fact intensive case by
case analysis. See id. at 994.4
4
We set forth the following non-exclusive list of factors
relevant to the analysis:
(1) whether the structures or facilities to which the
contract applies or with which it is associated, e.g.
production platforms, pipelines, junction platforms,
etc., are part of an in-field gas gathering system;
(2) what is the geographical location of the facility or
system relative to the well or wells;
(3) whether the structure in question is a pipeline or is
closely involved with a pipeline;
(4) if so, whether that line picks up gas from a single
well or a single production platform or instead carries
commingled gas originating from different wells or
production facilities;
(5) whether the pipeline is a main transmission or trunk
line;
(6) what is the location of the facility or structure
relative to compressors, regulating stations, processing
facilities or the like;
(7) what is the purpose or function of the facility or
structure in question;
(8) what if any facilities or processes intervene between
8
The Louisiana Supreme Court adopted the Transcontinental test
in Fontenot v. Chevron U.S.A. Inc., 676 So. 2d 557, 564 (La. 1996).
Federal and state courts have continued to limit the application of
the Act to service contracts that pertain to wells. The decisive
factor in most cases has been the functional nexus between an
agreement and a well or wells. See, e.g., Roberts, 104 F.3d at 784-
85 (holding that a work order pursuant to a master service contract
pertained to a well because the work order involved a safety system,
which helped sustain the manpower needed to operate specific wells);
Broussard v. Conoco, Inc., 959 F.2d 42, 45 (5th Cir. 1992) (holding
that a catering contract that provided services to workers on an
offshore platform helped sustain the manpower needed to operate the
wells and therefore pertained to the wells); Palmour v. Gray Ins.
Co., 731 So. 2d 911, 914 (La. App. 5 Cir. 1999) (concluding that a
rental agreement for a crane did not pertain specifically to any
well or wells). Other cases relied on the geographical nexus
between the object of a service contract and offshore wells. See,
e.g., Lloyds of London v. Transcontinental Gas Pipe Line Corp., 101
F.3d 425, 429-30 (1996) (holding that a service contract pertained
to a well because the contract involved work performed on a meter
station connected to a well). Courts have not addressed whether an
the wellhead and the structure or facility in question,
e.g., “heater treaters,” compressor facilities,
separators, gauging installations, treatment plants,
etc.;
(9) who owns and operates the facility or structure in
question, and who owns and operates the well or wells
that produce the gas in question;
(10) and any number of other details affecting the
functional and geographic nexus between “a well” and the
structure or facility that is the object of the agreement
under scrutiny.
Transcontinental, 953 F.2d at 995.
9
agreement for work on a dismantled drilling platform pertains to a
well.
When a state’s highest court has not decided an issue involving
the application of state law, “it is the duty of the federal court
to determine, as best it can, what the highest court of the state
would decide.” Transcontinental, 953 F.2d at 988. “Although we are
not bound by state appellate court decisions, we will not disregard
them ‘unless [we are] convinced by other persuasive data that the
highest court of the state would decide otherwise.’” Id. (quoting
West v. American Telephone & Telegraph Co., 311 U.S. 223, 237
(1940)).
Centin argues that the holdings in Livings, supra, and Day,
supra, should govern the outcome of this case. In each case, the
state appellate court determined that the Act applied to service
contracts for work on drilling equipment. See Livings, 467 So. 2d
at 599; Day, 492 So. 2d at 88. The equipment in each case was
located on the owner’s property and was not associated with any
particular well or wells. The courts concluded that the Act negated
the indemnity provisions in the parties’ contracts because the
contracts related to exploration, development and production of oil
and gas. Both Livings and Day were decided prior to this Court’s
opinion in Transcontinental, and hence did not assess whether the
agreements pertained to a particular well. Because Louisiana courts
have uniformly adopted the two-part test set forth in
Transcontinental, we find Livings and Day unpersuasive to the extent
the courts did not address whether the agreements in question
pertained to a well. See Fontenot, 676 So. 2d at 564; Palmour, 731
10
So. 2d at 914; Ridings v. Danos & Curole Marine Contractors, 723
So. 2d 979, 983 (La. App. 4 Cir. 1998).5
Turning to the application of the Transcontinental test to the
Ensco-Centin agreement, we first assess whether the agreement
pertained to a well. We focus specifically on the purchase and work
orders associated with Centin’s work on the Ensco 23. See Roberts,
104 F.3d at 784 n.3. See Transcontinental, 953 F.2d at 991. The
following Transcontinental factors are relevant to the inquiry: (1)
whether the structures or facilities to which the contract applies
are part of an in-field gas gathering system; (2) the geographical
location of the facility or system relative to the well or wells;
(3) the function of the facility or structure in question; (4) who
owns and operates the facility or structure in question and who owns
and operates the well or wells; and (5) any number of other details
affecting the functional and geographic nexus between a well and the
structure or facility that is the object of the agreement. See
Broussard, 959 F.2d at 45; Transcontinental, 953 F.2d at 994-95.
At the time Jesse Verdine and his Centin co-workers refurbished
the Ensco 23, the platform sat idle in the Coral Marine fabrication
5
In Transcontinental, we suggested that the holdings in Livings
and Day support the position that a contract must pertained to a
well. See Transcontinental, 953 F.2d at 992. This passing
observation has led to some confusion among commentators. See
Edward S. Johnson & Cindy T. Matherne, Statutory and Contractual
Indemnification and Forum Selection, Including the Oil Patch, 24
TUL. MAR. L.J. 85, 110-11 (1999). In fact, the contracts in these
cases did not pertain to a well. See Livings, 467 So. 2d at 599;
Day, 492 So. 2d at 84, 88. Our suggestion in Transcontinental was
dicta, and after a more thorough analysis, we conclude that the
holdings in Livings and Day do not support the position that an
agreement must pertain to a well.
11
yard. The Ensco 23 was not participating in in-field exploration,
production, or transportation of oil or gas. Based on these facts
alone, it is difficult to find a sufficient geographical and
functional nexus between the Ensco 23 and a well or wells.
The “related to” component of Subsection C includes agreements
relating to “services in connection with . . . any structure
intended for use in the exploration for or production of any mineral
. . ..” LA. REV. STAT. ANN. § 9:2780(C). The Louisiana legislature
clearly envisioned the Act’s application to agreements for services
on structures that were not developing, producing or transporting
oil or gas or geographically connected to a specific well. We do
not interpret the legislature’s requirement that an agreement
pertain to a well in such a restrictive manner that we overlook
agreements to which the Act was intended to apply. The Act
encompasses agreements for services on structures intended for use
in the oil and gas industry, so long as the agreement pertains to
a well or wells.
The district court concluded that the agreement pertained to
a well because Ensco negotiated a separate agreement with Amerada
in which Amerada reserved the Ensco 23 for six of its wells off the
coast of Louisiana. While the Ensco 23 was not involved in
exploration and production activities at the time Centin performed
its contract obligations, the platform was designated for use on
particular wells. Centin’s services were performed on a structure
intended for use in the exploration and production of oil and gas.
Based on these facts, we conclude that the Ensco-Centin agreement
pertained to specific wells and that the agreement related to the
exploration, development, production, or transportation of oil, gas,
or water.
12
III.
The Louisiana Oilfield Anti-Indemnity Act therefore applies to
the Ensco-Centin agreement. Both the choice-of-law provision and
defense and indemnity clause are void and unenforceable under the
Act. See LA. CIV. CODE ANN. art. 3540. The judgment of the district
court is AFFIRMED.
13