RKI Exploration & Production, LLC v. Ameriflow Energy Services, LLC and Crescent Services, LLC ( 2022 )

In the
Court of Appeals
Second Appellate District of Texas
at Fort Worth
___________________________
No. 02-20-00384-CV
___________________________
RKI EXPLORATION & PRODUCTION, LLC, Appellant
V.
AMERIFLOW ENERGY SERVICES, LLC AND CRESCENT SERVICES, LLC,
Appellees
On Appeal from the 352nd District Court
Tarrant County, Texas
Trial Court No. 352-285144-16
Before Birdwell, Bassel, and Wallach, JJ.
Memorandum Opinion by Justice Bassel
MEMORANDUM OPINION
I. Introduction
This appeal involves an indemnity dispute between the operator of a wellsite—
Appellant RKI Exploration & Production, LLC—and two of its contractors—
Appellees Ameriflow Energy Services, LLC and Crescent Services, LLC. The
relationship of the parties was governed by two Master Service Agreements (MSAs)—
the RKI/Ameriflow MSA and the RKI/Crescent MSA. The provisions of those
MSAs form the centerpiece of this opinion.
A piece of equipment—a sand separator—exploded at the wellsite. That
accident produced multiple lawsuits filed in New Mexico by those who were injured
or killed in the explosion. As will be discussed below, the lawsuits produced a maze-
like series of indemnity demands, settlements, and judgments, including the settlement
of one of the death cases for more than $9,000,000.
RKI challenged Ameriflow’s right to indemnity by claiming that it was free
from the indemnity obligation in the RKI/Ameriflow MSA because of breaches of
that agreement by Ameriflow. RKI teed up that dispute in the lawsuit that resulted in
the judgment underlying this appeal. Ameriflow responded by counterclaiming
against RKI, and Crescent intervened to assert its right to indemnity. In general
terms, RKI challenged Crescent’s right to indemnity by claiming that the actions that
Crescent was sued for in New Mexico were outside the scope of the performance of
2
the RKI/Crescent MSA and thus outside the scope of that agreement’s indemnity
provision.
The lawsuit below eventually generated a 10,000-page clerk’s record and a
series of interlocutory summary judgments, most of which were incorporated into the
trial court’s final judgment—a judgment awarding Ameriflow and Crescent
approximately $11,000,000. An overview of the summary-judgment rulings is that the
trial court ruled that (1) RKI’s claims—that Ameriflow had breached the MSA
between it and Ameriflow—did not free RKI from an obligation to indemnify
Ameriflow and (2) Crescent is entitled to indemnity because the RKI/Crescent MSA’s
indemnity provision, construed broadly, reaches beyond performance of work done
under the MSA to also include matters such as “activities reasonably incident [to] or
anticipated” in the activity of oil-well operations.
In three issues, RKI attacks the trial court’s ruling on a broad range of fronts—
the primary one of which is that the trial court erred in its construction of the
indemnity provision in the RKI/Crescent MSA. But RKI leaves unchallenged the
trial court’s ruling that it owed indemnity to Ameriflow, no matter the claim that
Ameriflow breached its MSA. Instead, RKI’s other primary attack focuses on the
damages that Ameriflow and Crescent recovered and argues that because RKI owed
no indemnity to Crescent and because Ameriflow and Crescent’s proof of damages
was unsegregated between the two, their proof of damages fails.
3
We agree with the core argument raised by RKI—that the trial court
interpreted the RKI/Crescent MSA too broadly. With respect to Ameriflow and
Crescent’s effort to prove their damages jointly, they do not challenge the basic
principle that they should have segregated their damages but make a host of
arguments why, even if a duty to segregate exists, they are still entitled to judgment.
We will examine and reject the arguments made to support that position.
Ultimately, we reverse the trial court’s judgment, including various attorneys’
fee awards, and remand this matter to the trial court.
II. Factual and Procedural Background
A. We set forth the underlying relationship of the parties.
RKI operated an oil well in Loving County, Texas. For the operation of the oil
well, RKI engaged various contractors, including Ameriflow, Crescent, and others.
The relationships between RKI and those it engaged were defined by their
MSAs.1 The MSAs defined the scope of the parties’ work and, central to this
controversy, contained indemnity provisions. Though this description hardly captures
the parties’ clashing contentions on how we should interpret the MSAs, the MSAs
provided for indemnity for illness, bodily injury, death, and property-damage claims
with the parties owing indemnity for claims made by indemnitor’s employees and
contractors. The primary bone of contention is the phrase within each MSAs’
1
There were MSAs other than the two that are at issue here, but we need not
detail those because they involve other contractors that are not involved in this
appeal.
4
indemnity provision delimiting its scope to matters “arising in connection herewith.”
For reasons that we will explore in detail below, RKI argues that the MSA provides
that the scope of the work envisioned by the MSA is defined by work orders issued
pursuant to its terms and that the scope of the indemnity the MSA provides goes no
further than that scope of work. Crescent argues for a broader interpretation,
requiring indemnity that “encompass[es] all activities reasonably incident [to] or
anticipated by the principal activity of the MSA, which is oil well operation.”
No one disputes that under the terms of the RKI/Ameriflow MSA, Ameriflow
provided to the wellsite a sand separator that caused the accident, which spawned the
indemnity claims that are at the heart of the parties’ litigation. But relying on its
narrower construction of the indemnity provision in the RKI/Crescent MSA, RKI
asserts that it owed no indemnity to Crescent because the only work orders issued
under the RKI/Crescent MSA required Crescent to provide a boom lift and light
tower to the wellsite, and those pieces of equipment were not involved in the
accident.
B. An explosion occurs at the wellsite that prompts the filing of
various lawsuits in New Mexico.
In 2014, the explosion of the sand separator killed Amos Ortega Sr. and
Roberto Magdaleno. Three other individuals—Jesus De La Hoya, Humberto Medina,
and Arturo Ruiz—were injured in the explosion.
5
Three lawsuits were filed in New Mexico as a result of the explosion.
Mr. Magdaleno’s survivors filed a suit that alleged acts of negligence against RKI,
Crescent, Ameriflow, and others. It was alleged that Crescent had committed acts of
negligence that were a cause of the explosion; such negligent acts generally included
the provision of safety training and management to Ameriflow. The boom lift and
light tower provided by Crescent were not implicated in the explosion. The same was
generally true of the allegations in the wrongful-death suit filed by Mr. Ortega’s
survivors and the injury suit filed by Messrs. De La Hoya, Medina, and Ruiz.
The Ortega wrongful-death suit was settled, and the claims against RKI,
Crescent, and Ameriflow were included in the settlement.
The De La Hoya suit was settled and the claims against RKI, Crescent, and
Ameriflow were dismissed.2
Ameriflow and Crescent jointly settled the claims in the Magdaleno suit. But
that settlement did not include RKI. RKI tried the case, and the trial resulted in a
verdict that RKI was negligent but that its negligence was not the proximate cause of
Mr. Magdaleno’s death. The New Mexico trial court entered a take-nothing judgment
with respect to RKI.3
2
Messrs. Magadaleno and De La Hoya worked for another subcontractor on
the site—Maverick Services.
3
A later arbitration award in a legal-malpractice claim against the counsel
representing the Magdaleno family estimated that a verdict of $10 million should have
been returned absent the malpractice and attributed 50% of the fault to RKI.
6
C. The New Mexico suits prompt indemnity demands between the
parties.
The suits filed in New Mexico prompted the parties to make demands for
indemnity. One of those demands resolved itself: Mr. Ortega had been an employee
of Ameriflow at the time of the explosion, and relying on the provisions of the
RKI/Ameriflow MSA, RKI’s carrier tendered the complete defense and indemnity of
the Ortega suit to Ameriflow. Ameriflow apparently accepted the tender. As noted
above, the suit was settled, and the order dismissed any claims in the Ortega
wrongful-death suit against RKI. As noted below, RKI sued in the present suit
seeking damages relating to the Ortega suit, but no claim for indemnity between RKI
and Ameriflow arising from the Ortega suit is part of this appeal.
With respect to the De La Hoya suit, when it was filed, Ameriflow made a
demand on RKI for defense and indemnity. Later, when the three plaintiffs in that
suit made a collective settlement demand to Ameriflow and Crescent for $12,000, a
second demand for indemnity was made on RKI by Ameriflow and Crescent. RKI
accepted the tender with respect to Ameriflow but not Crescent and indicated that it
would move forward with settlement negotiations on Ameriflow’s behalf. However,
the tender reserved the right to seek monies expended on Ameriflow’s behalf by RKI
as a measure of damages in the litigation between the two. The De La Hoya suit was
eventually dismissed as to all defendants, with RKI’s obtaining releases of the claims
against Ameriflow and Crescent in that suit. As explained below, a small portion of
7
the damage award against RKI in this suit represents attorneys’ fees and expenses that
Ameriflow and Crescent claim were related to the De La Hoya suit and were not paid
by RKI.
The indemnity claims arising from the Magdaleno suit were not resolved while
that litigation was in process, and the indemnity issues spawned by that suit form the
lion’s share of the issues in this appeal. Ameriflow sought indemnity from RKI by
tendering its defense of the claims in that suit to RKI. RKI responded by asserting
that Ameriflow had breached the RKI/Ameriflow MSA and requested that
Ameriflow “release its claims for defense, indemnity, and additional insured status in
return for RKI’s agreement to release its claims based upon the foregoing breaches.”
Later, RKI’s carrier tendered a defense and indemnity to Ameriflow but
reserved “all rights under its insurance policies and at law[] to pursue Ameriflow for
breach of contract, breach of express and implied warranties[,] and other similar
violations of the terms of the MSA to recover amounts paid out, whether on behalf of
RKI or Ameriflow, in any of the lawsuits that were generated because of the
explosion incident.” Ameriflow challenged the carrier’s attempt to reserve those
rights and then reserved its rights to pursue the carrier and RKI for various claims. In
turn, RKI responded that Ameriflow had rejected the carrier’s offer, and RKI rejected
what it viewed as a counteroffer by Ameriflow. The response also challenged what
the carrier viewed as Ameriflow’s unilateral efforts to settle the Magdaleno suit.
8
Crescent also demanded indemnification from RKI for the claims made against
it in the Magdaleno suit and re-urged that demand when it did not receive a response
to its initial demand. RKI’s carrier’s initial response to Crescent’s demand raised the
issue that Crescent had not been performing work pursuant to the terms of the
RKI/Crescent MSA at the time of the explosion:
My understanding from our investigation is that while RKI had done
some work with Crescent Services, LLC prior to the loss, there were no
work orders issued by RKI to Crescent to perform any tasks for them
on the date of the accident and at the subject well[]site. It appears that
Crescent’s presence in the lawsuit is due to allegations beyond any duties
it was hired by RKI to perform.
In later correspondence, the carrier reiterated its position: “Regarding the tender of
Crescent Services, LLC, we do not see any evidence that RKI owes contractual
defense/indemnity for the reasons previously explained to their defense counsel . . . .”
As noted, a settlement of the Magdaleno suit was eventually reached that
resulted in the dismissal of the claims against Ameriflow and Crescent but not RKI;
however, RKI prevailed at trial against the Magdaleno claims.
D. RKI sues Ameriflow claiming that Ameriflow had breached the
RKI/Ameriflow MSA; Ameriflow and Crescent countersue,
claiming that RKI owed them indemnity.
Within days after RKI’s carrier made its conditional tender of defense and
indemnity to Ameriflow, RKI sued Ameriflow in the suit below. RKI claimed that
the allegations made in the Magdaleno, Ortega, and De La Hoya suits established that
Ameriflow had breached its obligations created by the RKI/Ameriflow MSA and by
9
the various express and implied warranties contained in it. RKI later sought
declaratory relief that
all monies paid out in defense costs, indemnity, and/or settlement in the
Magdaleno and De La Hoya [s]uits[,] as well as all unpaid defense costs
incurred in the Ortega [s]uit, are proper measures of damages that may
be recoverable in the present suit if RKI establishes there was a breach
of contract and/or warranty.
In its petition seeking declaratory relief, RKI continued to allege causes of action for
breach of contract and breach of express and implied warranties.
In turn, Ameriflow countersued alleging that RKI had failed to fulfill its
indemnity obligations under the RKI/Ameriflow MSA and sought various
declarations, including “a declaration that the MSA does not provide for conditional
tenders of defense and indemnification.” Ameriflow later expanded on its claims,
alleging that breaches of the MSA by RKI had caused the explosion that produced the
Magdaleno, Ortega, and De La Hoya suits and also asserting equitable claims for
equitable subrogation, unjust enrichment, and promissory estoppel, as well as
attorneys’ fees.
Crescent joined the suit by intervening. Crescent claimed that the
RKI/Crescent MSA entitled it to indemnity, alleged the various equitable claims that
Ameriflow had alleged in its counterclaim, and sought relief with respect to RKI’s
failure to defend and indemnify Crescent in the Magdaleno and De La Hoya suits.
Crescent later supplemented its petition, alleging that RKI had breached the
10
RKI/Crescent MSA by failing to defend and indemnify Crescent for the claims in the
Ortega suit.
E. The trial court resolves the parties’ various claims by summary
judgments.
The record contains a host of motions for summary judgment and
amendments to those motions. Numerous interlocutory summary-judgment orders
were entered, and the trial court’s final judgment referenced six of those interlocutory
orders.
To chart the issues resolved by the interlocutory orders and how the parties’
contentions have been winnowed down on appeal, and thus our understanding of
which rulings are in play, we will quote the recitals of the final judgment listing the
various interlocutory orders. We will then describe what issues were raised in the
summary-judgment motions resolved by those orders and whether the issues raised in
those motions are in play in this appeal:
1. “On August 28, 2018[,] and May 22, 2019, respectively, this [c]ourt
entered summary[-]judgment orders granting AMERIFLOW’s and
CRESCENT’s motions for summary judgment on all their liability claims
against RKI.”
-Ameriflow’s motion for summary judgment contended that it was
entitled to a declaratory judgment that RKI had breached the
RKI/Ameriflow MSA by not providing indemnity to Ameriflow in the
11
Magdaleno and De La Hoya suits in accordance with the MSA, by
imposing impermissible conditions on its indemnification offer, by suing
Ameriflow with respect to the Ortega lawsuit, and by virtue of various
equitable theories.
-On the question of whether RKI owed Ameriflow indemnity for
the Magdaleno and De La Hoya lawsuits, RKI raises no appellate
issue challenging that determination.
-With respect to Crescent, the quoted recital from the final judgment
references Crescent’s second traditional motion for summary judgment.
That motion asserted that based on the trial court’s prior construction of
the MSA to the facts, Crescent had a right to indemnity from RKI for
the claims made in the Magdaleno and De La Hoya suits. The prior
construction was included in an earlier ruling on a summary-judgment
motion filed by RKI; as we have noted, the trial court broadly construed
the “arising in connection herewith” language of the indemnity provision
in the RKI/Crescent MSA to mean that it “encompasse[d] all activities
reasonably incident [to] or anticipated by the principal activity of the
MSA, which is oil well operation.”
-Whether the trial court properly construed the RKI/Crescent
MSA to create the indemnity right that Crescent claims is hotly
contested and is the pivotal issue in this appeal.
12
2. “On July 27, 2017[,] and August 28, 2018, this [c]ourt entered [o]rders
[d]enying [s]ummary [j]udgment on all RKI’s requested relief against
AMERIFLOW.”
-The issues raised by the summary-judgment orders referenced in this
paragraph involve (1) RKI’s summary-judgment motion that various
monies that RKI had paid out in defense of the Magdaleno, Ortega, and
De La Hoya lawsuits were proper measures of damages in its claims
against Ameriflow and (2) Ameriflow’s summary-judgment motion
asserting that the various legal theories alleged by RKI did not invalidate
Ameriflow’s indemnity right.
-In essence, these summary-judgment orders decreed that RKI
could not recover on its suit against Ameriflow, and RKI raises no
issue on appeal challenging said orders.
3. “On May 22, 2019, this [c]ourt entered an [o]rder [d]enying RKI’s
[m]otion for [s]ummary [j]udgment against CRESCENT on indemnity.”
-This paragraph references RKI’s second motion for summary judgment
that contended that Crescent’s indemnity claim fell outside of the
RKI/Crescent MSA because RKI had no control over work done by
Crescent for Ameriflow and was not covered by the language of the
indemnity provision in the RKI/Crescent MSA.
13
-Again, whether the RKI/Crescent MSA creates an indemnity
right to Crescent is hotly contested and is the pivotal issue in this
appeal.
4. “On July 22, 2020, this [c]ourt entered a summary[-]judgment order
granting AMERIFLOW’s and CRESCENT’s [t]hird [a]mended [m]otion for
[s]ummary [j]udgment on all their claimed damages.”
-Ameriflow and Crescent’s third amended motion for summary
judgment on damages was predicated on the trial court’s prior judgment
establishing that RKI was liable to both Ameriflow and Crescent. The
motion contended that Ameriflow and Crescent had the right to recover
the damages under the terms of the MSAs, as mitigation damages, and
under equitable principles. The motion sought—and the trial court’s
final judgment incorporating the ruling on the third amended summary-
judgment motion awarded—the following types of damages:
• Awards made to Ameriflow and Crescent jointly:
• $9,100,000 plus prejudgment interest for the
Magdaleno settlement payment;
• $209,669.30 plus prejudgment interest for
Ameriflow’s and Crescent’s attorneys’ fees and expenses
incurred in the Magdaleno lawsuit;
14
• $7,400 plus prejudgment interest for storage costs in
the Magdaleno lawsuit;
• $20,041.58 plus prejudgment interest for
Ameriflow’s and Crescent’s attorneys’ fees and expenses
in the De La Hoya lawsuit;
• Conditional attorneys’ fees of $50,000 for an appeal,
$25,000 for a petition for review, and $50,000 for
briefing and argument in the Texas Supreme Court; and
• $336 in court costs;
• A fee award to Ameriflow of $254,311.62 for its attorneys’
fees in the suit below (styled in the final judgment as the
“RKI v. Ameriflow (Ft. Worth lawsuit)”);
• A fee award to Crescent of $131,623.48 for its attorneys’
fees in the suit below (styled in the final judgment as the
“Crescent v. RKI (Ft. Worth lawsuit)”). 4
-RKI raises various issues on appeal challenging the grant
of the joint third amended motion for summary judgment
on damages and the quantification of damages in the final
judgment:
4
The fee awards in the Magdaleno and De La Hoya suits included pre- and
post-judgment interest.
15
-RKI argues that any award to Crescent for amounts
paid in settlement or attorneys’ fees are invalid
because RKI has no indemnity obligation to
Crescent;
-Though the issue of whether Ameriflow is entitled
to indemnity has now dropped out of the case, RKI
challenges the proof relied on by Ameriflow and
Crescent because there is no segregation between a
party to whom it owes indemnity—Ameriflow—and
a party to whom it does not owe indemnity—
Crescent—of the amount paid by Ameriflow and
Crescent to jointly settle the Magdaleno suit or for
the fees claimed jointly that were paid in defense of
the Magdaleno and De La Hoya suits;
-RKI further contends that Ameriflow offered only
conclusory summary-judgment proof that the
settlement amount paid in the Magdaleno suit was
made in good faith and was reasonable and prudent;
-RKI next challenges what it contends are
deficiencies in the proof underlying the attorneys’
fee awards made to Ameriflow and Crescent for
16
defense of the Magdaleno and De La Hoya claims
and for those incurred in the present suit because
Ameriflow’s fee claim for defense of the Magdaleno
suit included fees charged for defense of the separate
Ortega suit; and
-RKI finally claims that there is legally insufficient
proof of appellate attorneys’ fees.
III. Analysis
A. We set forth a summary of our ultimate resolution of the appeal.
To chart what follows, our resolution of this appeal concludes that (1) the trial
court erred in its construction of the indemnity provision of the RKI/Crescent MSA;
(2) though we disagree with the trial court’s construction, the record does not permit
us to resolve the question of whether Crescent is entitled to indemnity as a matter of
law; (3) the arguments made by Ameriflow and Crescent—that no matter the
construction placed on the RKI/Crescent indemnity provision, they may recover the
damages awarded in the judgment—are not persuasive; and (4) because of our
resolution of the issues that precede the question of the validity of the fee awards, we
reverse and remand those fee awards for reconsideration in light of our holdings.
B. We set forth the standard of review.
In a summary-judgment case, the issue on appeal is whether the movant met
the summary-judgment burden by establishing that no genuine issue of material fact
17
exists and that the movant is entitled to judgment as a matter of law. Tex. R. Civ. P.
166a(c); Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex.
2009). We review a summary judgment de novo. Travelers Ins. v. Joachim, 315 S.W.3d
860, 862 (Tex. 2010).
We take as true all evidence favorable to the nonmovant, and we indulge every
reasonable inference and resolve any doubts in the nonmovant’s favor. 20801, Inc. v.
Parker, 249 S.W.3d 392, 399 (Tex. 2008); Provident Life & Accident Ins. v. Knott, 128
S.W.3d 211, 215 (Tex. 2003). We also consider the evidence presented in the light
most favorable to the nonmovant, crediting evidence favorable to the nonmovant if
reasonable jurors could and disregarding evidence contrary to the nonmovant unless
reasonable jurors could not. Mann Frankfort, 289 S.W.3d at 848. We must consider
whether reasonable and fair-minded jurors could differ in their conclusions in light of
all the evidence presented. See Wal-Mart Stores, Inc. v. Spates, 186 S.W.3d 566, 568 (Tex.
2006); City of Keller v. Wilson, 168 S.W.3d 802, 822–24 (Tex. 2005).
We will affirm a summary judgment only if the record establishes that the
movant has conclusively proved all essential elements of the movant’s cause of action
(or defense, as the case may be) as a matter of law. City of Houston v. Clear Creek Basin
Auth., 589 S.W.2d 671, 678 (Tex. 1979).
When both parties move for summary judgment, “each party bears the burden
of establishing that it is entitled to judgment as a matter of law.” Tarr v. Timberwood
Park Owners Ass’n, 556 S.W.3d 274, 278 (Tex. 2018). If “the trial court grants one
18
motion and denies the other, the reviewing court should determine all questions
presented” and “render the judgment that the trial court should have rendered.” Id.In making this determination, we consider the evidence presented by both parties.
Barbara Techs. Corp. v. State Farm Lloyds, 589 S.W.3d 806, 811 (Tex. 2019). Of course, if
neither party moving for summary judgment presents evidence establishing that they
are entitled to judgment as a matter of law, we must remand. Grynberg v. Grey Wolf
Drilling Co., 296 S.W.3d 132, 136 (Tex. App.—Houston [14th Dist.] 2009, no pet.)
(“We may affirm the judgment, reverse and render a judgment for the other side if
appropriate, or reverse and remand if neither party has met its summary-judgment
burden.”).
C. We explain why we disagree with the trial court’s conclusion on
the question of the scope of indemnity owed by RKI to Crescent.
The central question that we face in this appeal is the one raised by RKI’s first
issue, which is whether the RKI/Crescent MSA provides for indemnity to Crescent.
That question involves the specific task of interpreting the MSA’s indemnity provision
found in its Section 8.3 and the more general task of interpreting the entire MSA to
determine the scope of the work called for by it and how the overall terms of the
MSA impact the scope of indemnity owed to Crescent by RKI. We resolve this
question with three holdings: (1) the trial court’s interpretation of Section 8.3 was too
broad because it failed to limit the scope of Section 8.3 to work performed under the
MSA’s terms; (2) the MSA delimits the scope of work that Crescent was to perform;
19
and (3) the overall terms of the MSA are in harmony with placing a limited scope on
RKI’s indemnity obligation.
1. The indemnity obligation in general and the typical
indemnity scheme in the oil-and-gas industry
“An indemnity agreement is a promise to safeguard or hold the indemnitee
harmless against either existing and/or future loss liability.” Dresser Indus. v. Page
Petroleum, Inc., 853 S.W.2d 505, 508 (Tex. 1993). In the oil-and-gas industry, a
frequently used risk-allocation device is a “knock-for-knock” indemnity scheme,
which “require[s] each party to contractually assume responsibility for injuries to its
own employees and damage to its own property[] without regard to who caused the
injury or how such damage occurred.” In re Deepwater Horizon, 470 S.W.3d 452, 456
n.5 (Tex. 2015) (quoting Daniel B. Shilliday, et al., Contractual Risk-Shifting in Offshore
Energy Operations, 81 Tul. L. Rev. 1579, 1599 (2007)); see also Nabors Drilling USA, L.P.
v. Encana Oil & Gas (USA) Inc., No. 02-12-00166-CV, 2013 WL 3488152, at *5 (Tex.
App.—Fort Worth July 11, 2013, pet. denied) (mem. op.) (stating that “at drilling
sites, employers are generally responsible for their own employees”); Chesapeake
Operating, Inc. v. Nabors Drilling USA, Inc., 94 S.W.3d 163, 168 (Tex. App.—Houston
[14th Dist.] 2002, no pet.) (en banc op. on reh’g) (“In the standard drilling contract,
[indemnity provisions] allocate costs and liability according to who hired the injured
party, not who caused the accident.”).
20
When properly drafted, indemnity provisions used in the oil-and-gas industry
provide for pass-through indemnity. Pass-through indemnity ensures that a claim
made against an indemnitee passes through to the indemnitor, such as when an
employer has agreed to provide indemnity for a claim by one of its employees. As
two commentators have explained,
In order for the oil patch knock[-]for[-]knock indemnity to achieve the
desired result - i.e. to make every party at the well[]site take sole
responsibility for claims for injury to its people and damages to its
property regardless of fault - the indemnity provisions of all of the
contracts of every company present at the drill site must effectively
“pass-through” indemnification obligations to the applicable indemnitor.
A pass-through occurs when the indemnitee to an agreement is
presented with a third[-]party claim, which the indemnitee is then able to
extend to the indemnitor. In other words, the third[-]party claim flows
through the indemnitee, often the operator, to the indemnitor, often a
contractor that owns the damaged property or employs the injured
person.
C. Randall King & G. Vincent Schuster, Deconstructing the Indemnification Provision, 2013
No. 3 Rocky Mtn. Min. L. Inst. Paper No. 3, at *3-8 (2013).
The parties may contract that a variety of claims will pass through; for example,
a “method of obtaining pass-through protection is to expand the categories of
persons or companies entitled to indemnity protection such that the indemnitor
agrees to indemnify the indemnitee ‘and its contractors and subcontractors (excluding
Contractor and its subcontractors).’” Nabors Drilling, 2013 WL 3488152, at *5 n.5.
(quoting William W. Pugh, A Strategic Look at the Bigger Picture—Risk Allocation in Oil
and Gas Operational Agreements, 45 Rocky Mtn. Min. L. Found. J. 349, 354 (2008)).
21
Obviously, an indemnity clause must be properly drafted to accomplish a pass-
through. For example, our court has previously scrutinized an indemnity provision
and held that a party could not pass through an indemnity claim by one of its
subcontractors to the injured plaintiff’s employer when the indemnity agreement did
not provide for a pass-through of that contractual claim. Id. at *5.
2. The text of the indemnity provision found in Section 8.3 of
the RKI/Crescent MSA and the clashing interpretations of it
Broadly, the interpretative question at issue is whether the claims made against
Crescent passed through it to RKI. The central indemnity provision of the
RKI/Crescent MSA found in Section 8.3 reads as follows:
[RKI] agrees to protect, defend, indemnify[,] and hold harmless
[Crescent], its subcontractors, their respective officers, directors and
employees or their invitees, from and against all claims, demands, and
causes of action of every kind and character without limit and without
regard to the cause or causes thereof or the negligence or fault (active or
passive) of any party or parties INCLUDING THE SOLE, JOINT,
CONCURRENT, OR GROSS NEGLIGENCE OF [CRESCENT], any
theory of strict liability, and defect of premises, or the unseaworthiness
of any vessel (whether or not preexisting the date of this Agreement),
arising in connection herewith in favor of [RKI]’s employees, [RKI]’s
contractors (other than [Crescent] herein) or their employees, or [RKI]’s
invitees on account of illness, bodily injury, death[,] or damage to
property.
Stripping out the verbiage of Section 8.3 that is not germane to the parties’
differing interpretations leaves us with a provision that RKI shall
protect, defend, indemnify[,] and hold harmless [Crescent] . . . from and
against all claims, demands, and causes of action of every kind and
character without limit and without regard to the cause or causes thereof
. . . arising in connection herewith in favor of [RKI’s] employees[ or]
22
contractors . . . on account of illness, bodily injury, death[,] or damage to
property.
The pivot point of the parties’ contentions is the phrase “arising in connection
herewith.” Crescent predicates its argument—that RKI owed it indemnity for the
claims that arose from the wellsite explosion of the sand separator—on the claim that
Crescent provided safety training and management services to the company that
provided the separator, Ameriflow. This position relies on the interpretation that
Crescent advocated for and which the trial court adopted—that the “arising in
connection herewith” phrase “encompasses all activities reasonably incident [to] or
anticipated by the principal activity of the MSA, which is oil well operation.”
Countering, RKI contends that the work that Crescent did involving the sand
separator was not done in performance of the RKI/Crescent MSA. Thus, RKI
argues that “read properly, the word ‘herewith’ limits the operation of indemnity only
to claims that ‘aris[e] in connection’ with the RKI/Crescent MSA.” From this
interpretation flows RKI’s argument that “correctly interpreted, the phrase requires a
causal connection between the RKI/Crescent MSA and the claims for which Crescent
seeks indemnity.” Looking to the plain meaning of the “herewith” phrase and other
courts’ interpretations, we adopt the narrower interpretation advocated for by RKI.
23
3. Crescent’s burden to establish its indemnity claim and the
principles we rely on to determine whether the indemnity
provision at issue covers that claim
Crescent sought contractual indemnity and bore the burden to establish its
right to indemnity. See Sam Rayburn Mun. Power Agency v. Gillis, No. 09-16-00339-CV,
2018 WL 3580159, at *18 (Tex. App.—Beaumont July 26, 2018, pet. denied) (mem.
op.).5 Thus, we must construe the indemnity provision at issue. To do this, “[w]e
construe indemnity agreements under normal rules of contract construction” in an
effort to “ascertain and give effect to the parties’ intent as expressed in the contract.”
5
Crescent bore the burden to prove that the indemnity agreement covered the
claims that it made against RKI. Crescent brought a contractual indemnity claim.
Thus, Crescent bore the burden to establish that it was entitled to indemnification
under the terms of the MSA. See Gillis, 2018 WL 3580159, at *18 (stating that “[f]or
the Trust to make the claim that it is entitled to indemnification, the Trust bears the
burden to prove that the indemnity provision is applicable,” meaning that “a third
party has filed a claim against the Trust[] or [that] the indemnity clause expressly
includes language indicating that it also applies to direct claims between the
indemnitor and indemnitee”). Crescent tries to argue that this matter actually involves
an exclusion from indemnity coverage—an exclusion that RKI failed to plead and
thus waived. We disagree. In support of its argument, Crescent cites a case involving
an indemnity agreement that provided indemnity coverage for negligence but then
excluded coverage for gross negligence and willful misconduct. See Tesoro Petroleum
Corp. v. Nabors Drilling USA, Inc., 106 S.W.3d 118, 126 (Tex. App.—Houston [1st
Dist.] 2002, pet. denied). In that circumstance, the indemnitee was put in the ticklish
situation of proving that it was negligent but not so negligent as to be excluded from
indemnity protection. To avoid the indemnitee’s having to take contradictory
positions, courts place the burden on the indemnitor to assert the exclusion as an
affirmative defense. XL Specialty Ins. Co. v. Kiewit Offshore Servs., Ltd., 426 F. Supp. 2d
565, 575 (S.D. Tex. 2006) (mem. op. & order), aff’d, 513 F.3d 146 (5th Cir. 2008).
That is not the situation faced by Crescent in this case; Crescent is relying on
inapposite precedent to argue that RKI waived its right to challenge whether the
RKI/Crescent MSA provided indemnity to Crescent.
24
Gulf Ins. Co. v. Burns Motors, Inc., 22 S.W.3d 417, 423 (Tex. 2000). The basic tools that
we use to accomplish this task are well known:
• “[W]e must examine and consider the entire writing in an effort to
harmonize and give effect to all the provisions of the contract so that none
will be rendered meaningless.” Italian Cowboy Partners, Ltd. v. Prudential Ins.
Co. of Am., 341 S.W.3d 323, 333 (Tex. 2011).
• “We begin this analysis with the contract’s express language.” Id.• “We . . . ‘presume parties intend what the words of their contract say’ and
interpret contract language according to its ‘plain, ordinary, and generally
accepted meaning’ unless the instrument directs otherwise.” URI, Inc. v.
Kleberg Cnty., 543 S.W.3d 755, 764 (Tex. 2018) (footnote omitted).
• We construe contracts “from a utilitarian standpoint bearing in mind the
particular business activity sought to be served,” and we “will avoid[,] when
possible and proper[,] a construction [that] is unreasonable, inequitable, and
oppressive.” Frost Nat’l Bank v. L & F Distribs., Ltd., 165 S.W.3d 310, 312
(Tex. 2005) (quoting Reilly v. Rangers Mgmt., Inc., 727 S.W.2d 527, 530 (Tex.
1987)).
• Specific indemnity provisions control over general ones. Sonerra Res. Corp. v.
Helmerich & Payne Int’l Drilling Co., No. 01-11-00459-CV, 2012 WL 3776428,
at *3, *7 (Tex. App.—Houston [1st Dist.] Aug. 30, 2012, pet. denied) (mem.
25
op.) (applying principle to construction of indemnity obligations in a drilling
contract).
• “If, after the pertinent rules of construction are applied, the contract can be
given a definite or certain legal meaning, it is unambiguous[,] and we
construe it as a matter of law.” Frost Nat’l Bank, 165 S.W.3d at 312.
In carrying out the goal of ascertaining the parties’ intent in construing an
indemnity provision, the supreme court instructs that we must not “expand the
parties’ rights or responsibilities beyond the limits agreed upon by them in the
contract.” Yowell v. Granite Operating Co., 620 S.W.3d 335, 353 (Tex. 2020) (quoting
Ideal Lease Serv., Inc. v. Amoco Prod. Co., 662 S.W.2d 951, 953 (Tex. 1983)). “Instead,
courts are to construe indemnity agreements strictly in order to give effect to the
parties’ intent as expressed in the agreement.” Id.Thus, in this appeal, our primary task is to ascertain the scope of an indemnity
provision. A federal court provides the following overview of what we should strive
for in accomplishing that goal:
A contract of indemnity should be construed to cover all losses,
damages, or liabilities [that] reasonably appear to have been within the
contemplation of the parties, but it should not be read to impose liability
for those losses or liabilities [that] are neither expressly within its terms
nor [are] of such a character that it can be reasonably inferred that the
parties intended to include them within the indemnity coverage.
Corbitt v. Diamond M. Drilling Co., 654 F.2d 329, 333 (5th Cir. 1981).
26
4. Breaking down and interpreting the indemnity provision’s
operative phrase—“arising in connection herewith”
As we have noted, our primary task is to construe the phrase “arising in
connection herewith” in the indemnity provision at issue—Section 8.3 of the
RKI/Crescent MSA. First, we break down the phrase by looking at the plain and
ordinary meaning of its component words, and then we examine federal cases that
construe the term as a whole.
a. Texas precedent that deals with variations on the
theme of the word “arise”
The Texas Supreme Court has noted that the word “arise” has the following
dictionary definitions:
The term “arise” has broad meaning and includes “to originate; to stem
(from)[; and] . . . [t]o result (from),” Black’s Law Dictionary 129 (10th
ed. 2014), and “to originate from a specified source[;] . . . to come into
being[;] . . . to become operative[;] . . . to come about[;] come up[;] take
place[; and] . . . to become apparent in such a way as to demand
attention,” Webster’s Third New Int’l Dictionary 117 (2002).
Plains Expl. & Prod. Co. v. Torch Energy Advisors Inc., 473 S.W.3d 296, 308 (Tex. 2015).
Though the word “arise” has a broad meaning, it still “connote[s] some causal nexus.”
Id. As the supreme court later noted, “We have held that the phrase ‘arise out of’
simply requires showing a causal connection or relation, which is a standard on the
spectrum for establishing causation.” Yowell, 620 S.W.3d at 353.
27
The cases cited in the preceding paragraph carry forward the supreme court’s
earlier interpretation of phrases that contain the word “arise” and catalog both the
court’s holdings and those of other jurisdictions:
This Court has held that “arise out of” means that there is simply a
“causal connection or relation,” Mid-Century Ins[.] Co. [of Tex. v. Lindsey],
997 S.W.2d [153,] 156 (Tex. 1999), which is interpreted to mean that
there is but[-]for causation, though not necessarily direct or proximate
causation. See McCarthy Bros. Co. v. Cont’l Lloyds Ins. Co., 7 S.W.3d 725,
730 (Tex. App.—Austin 1999, no pet.); see also Admiral Ins. Co. v. Trident
NGL, Inc., 988 S.W.2d 451, 454 (Tex. App.—Houston [1st Dist.] 1999,
pet. denied). Other jurisdictions also interpret “arising out of” to
exclude a proximate[-]cause requirement. See McCarthy Bros., 7 S.W.3d at
729–30; see also 1 Rowland H. Long, The Law Of Liability Insurance
§ 1.24 (1991) (“The phrase ‘arising out of’ is not equivalent to
‘proximately caused by.’ . . . [‘]But for[’] causation, i.e., a
cause[-]and[-]result relationship, is enough to satisfy the provision of the
policy. . . .”) (quoting Mfrs. Cas. Ins. Co. v. Goodville Cas. Co., 403 Pa. 603,
170 A.2d 571 (1961)). Likewise, the United States Court of Appeals for
the Fifth Circuit has concluded that “‘[a]rising out of’ are words of much
broader significance than ‘caused by.’” Red Ball Motor Freight, Inc. v.
[Emps.] Mut. Liab. Ins. Co., 189 F.2d 374, 378 (5th Cir. 1951); see also Am.
States Ins. Co. v. Bailey, 133 F.3d 363, 370 (5th Cir. 1998).
Utica Nat’l Ins. Co. of Tex. v. Am. Indem. Co., 141 S.W.3d 198, 203 (Tex. 2004) (op. on
reh’g); see also Dillon Gage Inc. of Dall. v. Certain Underwriters at Lloyds Subscribing to Policy
No. EE1701590, 636 S.W.3d 640, 644 (Tex. 2021) (“In Utica . . . , the [c]ourt
contrasted the policy’s use of ‘due to’ with ‘arising out of’ to conclude that the former
must invoke ‘a more direct type of causation.’” (footnote omitted)).
Opinions of the intermediate courts of appeals analyzing indemnity agreements
hold that the word “arise” connotes a connection between a contract’s obligations
and the indemnity obligation:
28
[T]he plain meaning of “arising from or connected with” is that [the
indemnitee] must establish some nexus between [the indemnitor’s]
obligations under the contract and the detriment for which indemnity is
sought. The nexus need not necessarily amount to direct or proximate
causation. See Utica Nat’l Ins. Co. . . . , 141 S.W.3d [at] 203 . . . (“‘[A]rising
out of’ are words of much broader significance than ‘caused by.’”). In
fact, the Texas Supreme Court has held that “arise out of” simply means
that there is “a ca[us]al connection or relation.” See id.Coastal Mart, Inc. v. Sw. Bell Tel. Co., 154 S.W.3d 839, 845 (Tex. App.—Corpus Christi–
Edinburg 2005, pet. granted, judgm’t vacated w.r.m.); see also Hensel Phelps Constr. Co. v.
Royal Am. Servs., Inc., No. 01-16-00045-CV, 2017 WL 4682181, at *5 (Tex. App.—
Houston [1st Dist.] Oct. 19, 2017, no pet.) (mem. op.) (rejecting argument that third-
party’s actions could produce indemnity obligation as “[t]hat contention is
incompatible with the agreement’s ‘arising from’ language because it would oblige
[appellee] to provide indemnity even if its performance was not a cause or an alleged
cause of the loss”); Banner Sign & Barricade, Inc. v. Berry GP, Inc., No. 13-07-00596-CV,
2008 WL 4352634, at *5 (Tex. App.—Corpus Christi–Edinburg Sept. 25, 2008, pet.
denied) (stating that the terms “arising out of” and “in connection with” “require only
that a ‘general nexus’ be established between the subcontractor’s obligations and the
detriment for which indemnity is sought”).
Thus, the term “arising” connotes a but-for causal connection between the
indemnity claim provided for in the provision and something else. What the
“something else” turns on is the meaning of the words “in connection herewith.”
29
b. The limitation created by the words “in connection
herewith” and how we interpret those words
The breadth of the connection created by the use of the word “arise” or
“arising” may be limited by additional phrases that narrow the scope of the
connection created by the word “arise.” Yowell, 620 S.W.3d at 353. “[W]hen parties
narrow the scope of their rights and obligations purposefully, the [c]ourt must enforce
the terms as expressed within the four corners of the contract.” Id. Stated differently,
we go in search of contextual clues to ascertain the scope of the connection; “while
the phrases ‘arising from,’ ‘with respect to,’ and ‘attributable to’ may seem expansive
out of context, the temporal limitations to which they are tied and other contextual
clues necessarily narrow their scope and require no less than a substantial-factor
relationship.” Plains Expl., 473 S.W.3d at 309.
Here, the limiting phrase is “in connection herewith.” “In” is a preposition
that in this context is “used as a function word to indicate limitation, qualification, or
circumstance.” In, Merriam-Webster.com, http://www.merriam-
webster.com/dictionary/in (last visited June 9, 2022). “Connection” is a noun that
denotes a “causal or logical relation or sequence” or a “contextual relation or
association.” Connection, Merriam-Webster.com, http://www.merriam-
webster.com/dictionary/connection (last visited June 9, 2022). The phrase “in
connection” ties to Plains Exploration’s definition of “arise” as originating from a
particular source, i.e., “in connection” is a phrase pointing to the source of
30
origination. 473 S.W.3d at 308 (citing Black’s Law Dictionary 129 (10th ed. 2014)).
Or if looked at in terms of causal nexus, “in connection” signals that what comes next
is the triggering event that causes something to originate.
The source of the matter arising in this case is “herewith.” Black’s Law
Dictionary defines “herewith” as an adverb meaning “[w]ith or in this letter or
document.” Herewith, Black’s Law Dictionary (11th ed. 2019). Texas case law states
that “the adverb ‘herewith’ means in part ‘with this communication’ or ‘accompanying
this writing or document.’” Parhms v. B & B Ventures, Inc., 938 S.W.2d 199, 204 (Tex.
App.—Houston [14th Dist.] 1997, writ denied) (op. on reh’g) (citing Webster’s Third
New Int’l Dictionary 1059 (1993)).
Thus, we interpret the phrase “arising in connection herewith” to mean
originating from the document or writing in which the phrase is contained.
5. How federal cases interpret indemnity provisions using the
phrase “arising in connection herewith” or similar phrases
A body of Fifth Circuit precedent deals with the interpretation of the very
phrase defining the scope of indemnity that we deal with—“arising in connection
herewith” or similar phrases. We look to those cases as construction guides for the
phrase at the core of this appeal.
As a preliminary matter, we discuss the parties’ efforts to shy away from these
precedents and why we are not timid to follow their guidance. Crescent claims that
RKI raises a red herring by even discussing a central case in the area—Fontenot v. Mesa
31
Petroleum Co.—because Crescent did not rely on the case in its trial-court briefing. 791
F.2d 1207, 1214 (5th Cir. 1986). As RKI points out in its reply brief, Crescent did rely
on Fontenot in its summary-judgment briefing. More importantly, the construction of
the “arising in connection herewith” phrase adopted by the trial court in one of its
summary judgments was plucked almost verbatim from the precedent that Crescent
condemns RKI for addressing. Thus, the precedent played a pivotal role in the trial
court’s analysis and, for that reason alone, is one that we must examine.
RKI also tries to divert us from relying too heavily on Fontenot because of its
maritime law context, explaining that “[t]he Fifth Circuit also noted that the ‘realities
of maritime life, particularly life aboard drilling vessels’ informed its maritime
indemnity jurisprudence—concerns that do not apply here. Fontenot, 791 F.2d at
1215[] n.8.” RKI’s statement is true, but it ignores that even in maritime cases, the
federal courts are applying the same template for construction that we are. Fontenot,
the case that the parties shy away from, applied the construction principle of reading
the contract as a whole and not looking “beyond the written language of the contract
to determine the intent of the parties unless the disputed language is ambiguous.” Id.
at 1214. Another Fifth Circuit opinion notes that “in a maritime contract, words of
indemnification are given their plain meaning unless the provision is ambiguous.”
Lirette v. Popich Bros. Water Transp., Inc., 669 F.2d 725, 728 n.11 (5th Cir. 1983) (citing
Corbitt, 654 F.2d at 332–33). Thus, the maritime cases are performing the same task
that we are—searching for the plain-language meaning of a contract’s words. See
32
Gemini Ins. Co. v. Trident Roofing Co., No. 3:09-CV-704-M, 2010 WL 335314, at *3
(N.D. Tex. Jan. 22, 2010) (mem. op. & order) (relying on maritime precedent to
construe exclusion in Texas insurance policy).
As described above, the phrase “arising in connection herewith” is a
description of the relationship that a purported indemnity claim must bear to the
underlying obligations between the parties. Several decades ago, the Fifth Circuit
decided two cases that provided a short-hand construction of the phrase and
contrasted why certain claims did or did not fall within the phrase’s ambit.
The first case, Fontenot, involved an indemnity provision that contained the very
“arising in connection herewith” phrase that we examine. 791 F.2d at 1213. Fontenot
involved the claim of a drunken oil field worker who injured himself when he got off
a helicopter onto an oil rig that was an intermediate fueling stop on the way to the rig
where the worker was employed. Id. at 1210. The worker sued, and an internecine
battle erupted between various contractors involved in the controversy over who was
obliged to pay the worker’s injury claim. Id. at 1209–10. One aspect of the battle was
whether the oil company—which chartered the rig where the refueling occurred (and
where the worker was injured) and which also contracted for drilling work with the
company that employed the worker—owed indemnity to the refueling rig owner. Id.
at 1213.
Synthesizing a long line of its authority dealing with the language of the
indemnity agreement between the rig owner and the oil company, the Fifth Circuit set
33
out what relationship must exist between the parties’ contract and the claim for which
indemnity is sought as follows: “[W]e have broadly construed language identical or
similar to the ‘arising in connection herewith’ language in the . . . indemnity agreement
to unambiguously encompass all activities reasonably incident [to] or anticipated by
the principal activity of the contract.” Id. at 1214. The implication of this
construction for claims of employees was that
where the presence of the injured person at the scene of the injury is
attributable to or might reasonably be anticipated by his employment
responsibilities, then his injuries occur “in connection with” those
responsibilities. It is irrelevant that the person is not at that moment
performing services or that the injury results from an activity not
encompassed by the employer’s contractual undertakings.
Id. at 1215. Applying this test to the claims of the injured worker, the Fifth Circuit
concluded that the necessary relationship existed to bring the claim within the ambit
of the indemnity agreement because the parties’ contract contemplated that the rig
where the employee was injured would be used as a heliport. Id. at 1216.
Though not using the term “knock-for-knock indemnity,” the court went on to
describe the purpose of knock-for-knock indemnity as dividing
the responsibility for personal injury/death among the many employers
and contractors according to the identity of the injured employee rather
than according to which party’s fault or negligence caused the injury. In
effect, each party assumes the risk of the other’s negligence and agrees to
be responsible for injuries to its own employees no matter how, or by
whom, caused.
34
Id. Because the worker’s presence on the refueling rig was attributed to a relationship
created by the oil company, it bore the responsibility for the claim under the
indemnity provision. Id.
The same year that it decided Fontenot, the Fifth Circuit examined the scope of
an indemnity provision with broad language providing for indemnity “occurring in
connection with, arising out of, or in any wise incident or related to Contractor’s performing services
and operations under this contract.” Marathon Pipe Line Co. v. M/V Sea Level II, 806 F.2d
585, 590–91 (5th Cir. 1986). Marathon Pipe Line examined a claim from a different
perspective than Fontenot; Marathon Pipe Line involved the question of whether a
party’s acts were so divorced from its contractual performance that it did not owe
indemnity. Id. at 591. In Marathon Pipe Line, the owner of an undersea pipeline
contracted with a company to do work on the pipeline. Id. at 587–88. That company
in turn subcontracted with other companies to provide a vessel to transport materials
to the site of the work and function as a work platform. Id. at 587. The pipeline
owner also contracted with a different company to locate other pipelines in the area
where work was being done. Id. at 588–89.
During a discussion with the captain of the platform vessel about where to
drop its anchors, an employee of the company that was contracted to locate the
pipelines advised against placing an anchor in the location that the captain wanted to
place it. Id. at 587. Ignoring the concern raised, the captain placed the anchor in the
location that he had selected, and a pipeline owned by another entity was damaged.
35
Id. at 587–88. When the entity owning the other pipeline sued to recover for damage
to its pipeline, the companies owning the platform vessel claimed indemnity from the
company locating the pipeline, relying on an indemnity provision in the contract
between the pipeline owner and the locating company. Id. at 588.
In discussing the indemnity issue, the Fifth Circuit discussed the parties’
various roles as defined by their contracts:
[The owners of the platform vessel] cite language in the contract
obligating [the locating company] to “perform all work requested by”
[the owner of the pipeline being worked on]. To define requested work,
they refer to a provision of the contract obligating [the locating
company] to furnish labor and supplies among other items “for offshore
pipeline location survey services, as required for” the overall
construction project on the pipeline. These services further include “the
correct placement of the marker buoys and maintenance of such buoys.”
The contract, however, makes no mention of a duty to assist the primary
contractor or subcontractors in positioning the anchors of vessels. In
the absence of any express or implied undertaking, we refuse to read [the
locating company’s] obligations as including a duty to assist in placing
the [platform vessel’s] anchors. The court did not err in characterizing
[the locating company’s employee’s] advice as gratuitous.
Id. at 590.
No matter that the acts of the locating company’s employees fell outside its
contractual obligations, the platform vessel’s owners argued that the locating company
owed them indemnity as subcontractors of the owner of the pipeline being repaired.
Id. They based this argument on the fact that the contract between the locating
company and the pipeline owner had a provision obliging the locating company to
indemnify the pipeline company and its subcontractors for claims “occurring in connection
36
with, arising out of, or in any wise incident or related to Contractor’s performing services and
operations under this Contract.” Id. at 590–91. The platform vessel owners argued that
“the damage to [the] pipeline [damaged by the misplaced anchor] occurred in
connection with, arose out of, or was related or incident to services performed by [the
locating company] under its contract with [the pipeline owner].” Id. at 591.
The Fifth Circuit held that the locating company did not owe indemnity. Id.When the platform vessel’s owners tried to predicate an argument for indemnity on
the holding of Fontenot, the Fifth Circuit found this effort to be a bridge too far:
[The owners of the platform vessel] urge that precedents in this Circuit
support a broad construction of “occurring in connection with”
language in indemnity provisions. See[,] e.g.[,] Fontenot, 791 F.2d at 1214.
They compare the facts of this case with facts of other cases [that]
typically have obligated the indemnifying party to pay an indemnitee for
its liability arising from an incident not caused by the indemnitor. This
view of the contract, however, would have us read the “occurring in
connection with” language to cover a limitless number of unforeseeable
casualties that might have occurred during the pendency of the
construction work on [the] pipeline [being repaired]. The contract
language in question, while broad, cannot be read in a vacuum to apply
to any situation for which a colorable argument could be made that loss
of property was somehow related to [the locating company’s] services
under the contract.
We decline to characterize the damage to [the pipeline] as
“occurring in connection with, arising out of, or in anywise incident or
related to [the locating company’s] performing services under” the
[pipeline owner/locating company] contract in the absence of any
indication that [the pipeline owner] sought and [locating company]
agreed to such an unusual undertaking. This court has refused to extend
the reach of an indemnity provision beyond the intent of the parties to
the agreement where the undertaking urged would create “an unusual
and su[r]prising obligation.” Corbitt . . . , 654 F.2d [at] 333 . . . .
37
The language used makes it plain that [the pipeline owner]
intended to draft the indemnity provision to cover all conceivable
situations in which it might incur liability. The limit of that potential
liability, however, was accidents that might occur during [the locating
company’s] performance of contract services. [The pipeline owner]
could have no interest in requiring [the locating company] to protect
other subcontractors from their own negligence when that negligence
was independent of the performance of [the locating company’s]
contract.
Id. (footnote omitted).
A district court case seeking a common rationale for the holdings of Fontenot
and Marathon Pipe Line found it in whether the performance of the contract containing
the indemnity provision creates foreseeability of the type of claim for which
indemnity is sought. See Gisclair v. Galliano Marine Serv., 484 F. Supp. 2d 518, 523
(E.D. La. 2007). Specifically,
[i]n both Fontenot and Marathon Pipe Line, the Fifth Circuit was concerned
with the foreseeability of the incident giving rise to the claim for
indemnity. See Fontenot, 791 F.2d at 1214 (“all activities reasonably
incident or anticipated by the principal activity of the contract”);
Marathon Pipe Line, 806 F.2d at 591 (expressing concern that giving full
effect to catch-all provisions “would have us read the ‘occurring in
connection with’ language to cover a limitless number of unforeseeable
casualties that might have occurred during the pendency of the
construction work on [the pipeline being repaired]”).
Id.The Fifth Circuit’s latest pronouncement on its view on the scope of broad
indemnity agreements for acts falling outside the performance called for by a contract
is International Marine, L.L.C. v. Integrity Fisheries, Inc., 860 F.3d 754, 759 (5th Cir. 2017).
The facts in International Marine involved a company hired to do an underwater survey.
38
Id. at 757. That company hired two other companies to provide vessels to perform
the survey: one provided a vessel that towed the sonar device gathering the survey
data, and the other provided a chase vessel that picked up the signals emitted by the
sonar device. Id.
An employee of the company performing the survey was on the chase vessel
and operated the equipment receiving the sonar signal; the only responsibilities of the
company operating the chase vessel were to drive the vessel and to stay within a
certain radius of the towed sonar device. Id. During the operation, the captain of the
chase vessel informed the employee of the survey company on his vessel that the tow
vessel was coming close to an underwater structure. Id. The employee passed the
information to the captain of the tow vessel, who ignored the information and towed
the underwater equipment into the structure, damaging it. Id. The company using the
damaged structure sued the company conducting the survey and the owner of the tow
vessel. Id. They, in turn, filed an indemnity claim against the owner of the chase
vessel, relying on the indemnity provisions of an MSA that provided indemnity for
claims “arising out of or related in any way to the operation of any vessel owned . . .
by [the chase vessel’s owner] . . . to perform work under this agreement except to the
extent such loss, harm, infringement, destruction, or damages is caused by [the survey
company or its contractor’s] gross negligence or willful misconduct.” Id. at 758.
International Marine examined the holdings of Fontenot and Marathon Pipe Line and
set the interpretive boundary for contracts calling for indemnity arising out of a
39
contract’s performance as being “[w]hen one party’s negligent contractual
performance causes third[-]party property damage independent of the alleged
indemnitor’s contractual performance, indemnity is usually not required absent a clear
indication that the parties agreed to such an unusual undertaking.” Id. at 759
(emphasis added). Applying this principle, the Fifth Circuit concluded that no
indemnity claim lay against the chase vessel’s owner “[b]ecause the
summary[-]judgment evidence supports only the conclusion that the [chase vessel’s]
operation made no contribution to the negligent act causing the [damage to the
underwater structure], indemnity is not owed under the MSAs.” Id. at 760–61.
International Marine concluded that Fontenot’s principle remained the law but noted that
its rule went only so far:
To be clear, we continue to subscribe to the general rule articulated in
Fontenot that indemnity agreements containing language such as “arising
out of” should be read broadly. See . . . 791 F.2d at 1214. It is only
when the alleged indemnitor’s contractual performance is completely
independent of another party’s negligent act that caused damage that we
apply a limitation to this general rule. See Marathon [Pipe Line], 806 F.2d
at 591.
Id. at 761.
6. Looking to the plain language of the provision and the
holdings of the federal courts, we conclude that the trial
court’s interpretation of Section 8.3 is too broad.
As we have noted, the trial court signed a summary-judgment order that
concluded, “The phrase ‘arising in connection herewith’ found in Section 8.3 of the
MSA encompasses all activities reasonably incident [to] or anticipated by the principal
40
activity of the MSA, which is oil well operation.” Obviously, this phraseology is lifted
from Fontenot. See 791 F.2d at 1214. We conclude that the interpretation is too broad
because it untethers the indemnity obligation from the contract containing the
provision and brings activities independent of the contract within the scope of the
indemnity provision simply because they relate to the general subject of the contract.
Basically, the interpretation places RKI on the line to indemnify a party with whom it
has an MSA for that party’s activities no matter whether RKI sought those services or
not. This construction requires RKI to indemnify a contractor for services that the
contractor performs for anyone it chooses and deprives RKI of the autonomy to
decide if the contactor was suited to perform the services and of the ability to monitor
and control the delivery of those services.
As noted, in essence, we interpret the plain meaning of the words in the phrase
“arising in connection herewith” to mean originating from the document or writing in
which the phrase is contained. The obvious subject of the writing is the contractual
performance called for by it. Instead of looking to that scope, the trial court’s
interpretation looks to what the contract involved in the most general sense. In our
view, that does violence to the very purpose of the limiting language and practically
makes the indemnitor the insurer of anything that one of its contractors does while on
the wellsite. That is not a reasonable interpretation because it imposes “liability for
those losses or liabilities [that] are neither expressly within its terms nor of such a
41
character that it can be reasonably inferred that the parties intended to include them
within the indemnity coverage.” See Corbitt, 654 F.2d at 333.
The trial court’s construction thus imposes an obligation to indemnify for
activities that are independent of the parties’ contractual obligations, which appear to
be the hinge pin of the federal courts’ decisions as to the elasticity of phrases similar
to those used in Section 8.3. We adopt a rationale limiting the scope of the language
that is akin to that stated in Marathon Pipe Line:
The limit of that potential liability, however, was accidents that might
occur during [the locating company’s] performance of contract services.
[The pipeline owner] could have no interest in requiring [the locating
company] to protect other subcontractors from their own negligence
when that negligence was independent of the performance of [the
locating company’s] contract.
806 F.2d at 591. The language used in Section 8.3 does not have the clear indication
that the parties agreed to such an unusual undertaking as RKI’s agreeing to indemnify
Crescent for work it undertakes for another party when that work is not performed
under the RKI/Crescent MSA.
At bottom, the trial court’s construction would give Crescent the keys to the
indemnity kingdom. It could do work for anyone at the wellsite, in as slipshod a
manner as it wished, and still claim that RKI owed it indemnity. And RKI would
have none of the protections that the RKI/Crescent MSA affords it by being able to
request work from Crescent that it considered Crescent competent to do and then
42
have the protections of the other provisions of the MSA to ensure that the work RKI
retained Crescent to do was performed safely and properly.6
7. The scope of the MSA
But interpreting the limiting language of Section 8.3 to performance under the
RKI/Crescent MSA does not end the task of determining the scope of the indemnity
that RKI owed Crescent. We must also answer the question of what the scope of
6
For example, the RKI/Crescent MSA provides the following:
2.2 [Crescent] warrants its services, workmanship, materials[,] and
equipment provided to [RKI] . . . .
2.3 All work or services rendered or performed by [Crescent]
shall be done with due diligence, in a good and workmanlike manner,
using skilled, competent[,] and experienced workmen and
supervisors. . . .
....
5.1 When requested by [RKI], or if otherwise applicable,
[Crescent] will furnish regular reports (either daily, weekly, bi-weekly[,]
or monthly as requested by [RKI]) covering work, services, and/or
materials furnished by [Crescent] for which [RKI] is obligated to pay. . . .
....
5.3 [Crescent] agrees to and shall be solely responsible for the
safety of its employees, subcontractors, consultants[,] and agents, as well
as its subcontractors’ employees and agents and their respective invitees
and guests. . . .
....
7.1 At any and all times during the term of this Agreement, [Crescent]
shall, at [Crescent]’s sole expense, carry insurance . . . .
43
performance was under the RKI/Crescent MSA. Again, the parties offer clashing
interpretations.
RKI argues that the RKI/Crescent MSA created a scope delimited by the
provisions of the specific scope provision of the MSA, which provides,
1.0 SCOPE AND TERM OF AGREEMENT
1.1 This Agreement shall control and govern all activities of
[Crescent] in connection with the performance of services and/or supply
of materials and equipment by [Crescent] for [RKI] under subsequent
verbal or written purchase orders, work orders, supplemental
agreements, delivery tickets[,] or other similar agreements, hereinafter
each called a “Work Order[.”]
RKI then highlights the fact that it is undisputed that the only equipment provided by
Crescent pursuant to the terms of the MSA was a boom lift and a light tower and that
such equipment was not involved in the sand-separator explosion.
Crescent does not claim that the boom lift and light tower were involved in the
accident but argues for an interpretation of the MSA that does not limit its scope to
that defined by work orders and instead argues that RKI “created comprehensive
indemnity provisions in its MSA to allocate risks at its work site.” In its post-
submission letter brief, Crescent touches on this rationale as follows:
The other issue raised by the panel in connection with the interpretation
of “party” was a concern about “circular indemnities.” There should be
no such concern. The “MSA program” was drafted by RKI and
imposed on all its contractors at the urging of RKI’s insurer. Under that
program, a contractor that employs a worker who brings a claim
indemnifies RKI and all of its other contractors and their
subcontractors. That is proper because the indemnifying employer is
best able to protect its own worker. If that contractor fails to indemnify
44
everyone else—because RKI chose to contract with an under-funded or
under-insured contractor—then RKI indemnifies all the other
contractors and their subcontractors. That too is proper because RKI
maintained ultimate control over the entire well[]site. [Record reference
omitted.]
Crescent’s interpretation is unpersuasive. The argument tries to expand the evidence
that we should consider in making our determination of what the MSA means beyond
the language that the MSA uses. Perhaps, the arrangement that Crescent advocates
for is a reasonable one. The plain language of the MSA, however, does not
implement it.
Also to support its broad interpretation of RKI’s indemnity obligations,
Crescent weaves together a number of the MSA’s provisions, which include the
following:
• Section 8.1 of the MSA states that the indemnity provided is “to the maximum
extent permitted by law” and without consideration of the indemnified parties’
negligence;
• The provision placed in the MSA to “COMPL[Y] WITH THE
REQUIREMENT” of the express negligence rule by conspicuously stating that
the indemnitor is responsible for the negligence of the indemnitee;
• Section 8.3 of the MSA that Crescent broadly interprets to mean that “under
the broad indemnity provision in the RKI/Crescent MSA, any connection to
the oil well[]site operations qualified Crescent for indemnity as to claims from
45
RKI’s other contractors (including Ameriflow) and their employees. Crescent
had such a connection”; and
• The fact that, in Crescent’s view, the MSA allowed RKI to call on an unlimited
scope of work from Crescent at the wellsite because the MSA stated,
“WHEREAS, [RKI] in the normal course of business regularly and customarily
enters into contracts with independent contractors for providing work, services
and/or equipment related to [RKI’s] operations.”
Our reasons for rejecting Crescent’s interpretation are multi-fold. First, simply
because the MSA states that indemnity is to the maximum extent as provided by law
cannot be read to equate to a meaning that the indemnity is unlimited or at least not
controlled by the specific provisions of the MSA governing that indemnity. Second,
the same is true of Crescent’s attempt to argue that the express negligence provision
should trump the provisions controlling the scope of the negligence. Third, we have
already rejected the argument that Section 8.3 has the breadth advocated for by
Crescent. Fourth, to argue that RKI must indemnify Crescent for work done outside
the scope of the RKI/Crescent MSA because RKI could call on Crescent to do work,
even though RKI did not do so, would impose an indemnity obligation on RKI for
any work that Crescent decided to do for anyone on the wellsite.7 Again, Crescent
As a final matter, Crescent lambasts RKI’s argument that the RKI/Crescent
7
MSA does not create a right to indemnity as follows:
46
never explains why RKI should have an indemnity obligation but forfeit its right to
control what work will fall within that obligation.
Accordingly, we sustain RKI’s first issue.
D. Even though we reject the trial court’s interpretation of the
RKI/Crescent MSA, we reject RKI’s argument that the pleadings
in the New Mexico suits establish that Crescent cannot recover
indemnity as a matter of law.
RKI argues that if we adopt its narrower interpretation of the RKI/Crescent
MSA, we should either remand this matter to the trial court or render judgment that
Finally, RKI’s argument is actually self-defeating. If Crescent had
absolutely nothing to do with this accident, then obviously the
settlement had nothing to do with Crescent’s conduct. Crescent was
included to close out the lawsuit and end defense costs that RKI had the
obligation to pay based on allegations in the lawsuit. As will be
discussed later in this brief, the settlement amount was reasonable for
the injuries and death, period. That is true even if Ameriflow had been
the only party to the settlement. RKI’s misguided requirement for
segregation—aside from having no contractual support—is meaningless
given its own argument that Crescent had nothing to do with the
accident.
RKI’s nonsensical argument appears to be that Crescent should
have never been sued, so no indemnity is owed. Apparently, then, RKI
is recanting its own cross-claim against Crescent for contributing to the
accident. In any event, RKI is essentially arguing that Crescent should
have refused to [have been] included in the settlement[;] should have
insisted on a trial[;] and then after winning the trial[,] should have stuck
RKI with the entire cost of defense given RKI’s obligation to defend
based on allegations by the plaintiffs. That is an absurd position.
[Record reference omitted.]
We do not read RKI’s argument as being that Crescent should never have been
sued but that it did not owe indemnity to Crescent. Based on the language of the
RKI/Crescent MSA, we have concluded that the construction placed on the
indemnity provision by Crescent is too broad.
47
Crescent take nothing. This argument flows from the contention that Crescent
admitted that the boom lift and the light tower that it provided pursuant to the terms
of the RKI/Crescent MSA were not involved in the explosion that produced the New
Mexico lawsuits and that the pleadings in those suits did not bring Crescent within the
terms of the indemnity provision of the RKI/Crescent MSA.
We agree that this matter should be remanded but for reasons different than
those raised by RKI. First, the trial court’s later summary judgments establishing
RKI’s liability on the indemnity claims were based on a flawed interpretation of the
RKI/Crescent MSA, and the parties should have the opportunity to develop their
arguments based on the interpretation that we have adopted. Second, the
RKI/Crescent MSA covers not only Crescent but also “its affiliates and subsidiaries.”
The state of the record is such that it is impossible to resolve Crescent’s indemnity
claim as a matter of law because there is testimony in the record that suggests that
Ameriflow may be a Crescent affiliate or subsidiary because Crescent owns
Ameriflow.
To resolve this issue, we must first resolve what source of information we
should examine to determine whether indemnity is owed. Though it may now lead to
a resolution that RKI did not intend, we agree with RKI that the general rule is that
the indemnity determination should be made based on the facts proven about the
underlying claim rather than the pleadings alone. See DBHL, Inc. v. Moen Inc., 312
S.W.3d 631, 637 (Tex. App.—Houston [1st Dist.] 2009, pet. denied) (“[A] duty to
48
indemnify is triggered by the facts, not merely any underlying pleadings.”); Tesoro
Petroleum Corp., 106 S.W.3d at 125 (“Facts, . . . not allegations, determine an
indemnitor’s duty to indemnify.”).
When dealing with indemnity under an insurance policy, a recent federal case
explained how indemnity is usually predicated on the facts unless the pleadings negate
the possibility of indemnity:
“Facts, however, not allegations, determine an indemnitor’s duty to
indemnify.” Westport Ins. Corp. v. Atchley, Russell, Waldrop & Hlavinka,
L.L.P., 267 F. Supp. 2d 601, 625 (E.D. Tex. 2003) (citing Tesoro Petroleum
Corp. . . . , 106 S.W.3d [at] 125 . . . ). The duty to defend may be
triggered by the pleadings, but the duty to indemnify is based on the
jury’s findings. [Farmers Tex. Cnty. Mut. Ins. Co. v.] Griffin, 955 S.W.2d
[81,] 82[ (Tex. 1997)]. Thus, the actual facts determined in the
underlying litigation, or as otherwise made available, determine whether
the insurer has the duty to indemnify. See Chiriboga v. State Farm Mut.
Auto. Ins. Co., 96 S.W.3d 673, 680 (Tex. App.—Austin[ 2003, no] pet.)
(citing Trinity Univ[ersal] Ins. Co. v. Cowan, 945 S.W.2d 819, 821 (Tex.
1997)). “Generally, Texas law only considers the duty-to-indemnify
question justiciable after the underlying suit is concluded, unless ‘the
same reasons that negate the duty to defend likewise negate any
possibility the insurer will ever have a duty to indemnify.’” Northfield Ins.
Co. v. Loving Home Care, Inc., 363 F.3d 523, 529 (5th Cir. 2004) (quoting
Griffin, 955 S.W.2d at 84).
Amerisure Ins. Co. v. Thermacor Process, Inc., No. 4:20-cv-01089-P, 2021 WL 1056435, at
*6 (N.D. Tex. Mar. 19, 2021) (mem. op. & order).
Crescent seems to challenge the general proposition—indemnity claims should
be determined on the facts—by arguing that the contractual right to indemnity should
be determined as a matter of law. The cases that Crescent cites for this proposition
are inapposite as they deal with the construction of the indemnity provision itself
49
rather than whether the facts create a right to indemnity after the provision has been
construed. See Fisk Elec. Co. v. Constructors & Assocs., Inc., 888 S.W.2d 813, 815–16
(Tex. 1994) (determining as a matter of law that indemnity was not owed because
indemnity provision failed to meet requirements of express-negligence doctrine);
Tesoro Petroleum Corp., 106 S.W.3d at 125 (construing indemnity provision as a matter
of law to exclude claims for gross negligence and willful misconduct).
Even if we were to accept Crescent’s argument that the pleadings were the
source of proof that we should rely on to resolve whether it has a right to indemnity,
it would not establish that claim as a matter of law in view of our holding addressing
the scope of the RKI/Crescent MSA’s indemnity provision. Crescent spends six
pages of its brief outlining the allegations in the Magdaleno and De La Hoya suits. It
notes that the Magdaleno and De La Hoya pleadings allege that RKI controlled the
wellsite where they were injured and that RKI was negligent in how it exercised that
control. Crescent highlights that the pleadings allege that RKI hired various
contractors to work on the wellsite and that RKI breached various duties to supervise,
monitor, and control the contractors or was vicariously liable for the contractors’
activities. Crescent then notes that the pleadings allege various acts of negligence
against it for its wellsite activities, which included training of individuals on the
wellsite. But the allegations that Crescent highlights are geared toward the broad
construction of the indemnity provision in the RKI/Crescent MSA adopted by the
trial court, i.e., that the phrase “arising in connection herewith” “encompasse[d] all
50
activities reasonably incident [to] or anticipated by the principal activity of the MSA,
which is oil well operation.” We have rejected that broad construction.
Crescent also argues that it should receive indemnity as a subcontractor of
Ameriflow. As we discuss below, we do not reach this argument because it was not
raised as a summary-judgment ground.
This all said, on the record before us, there are open questions that impact
Crescent’s indemnity rights. “Contractor” is defined in the RKI/Crescent MSA as
“Crescent Services and its Affiliates and Subsidiaries.” [Emphasis added.] And, as
noted, the pleadings in the New Mexico suits allege that Crescent provided safety
training and management services to Ameriflow. At this point, we have no idea what
the relationship is between the two nor how the services were provided (if they were
provided). Thus, the hints contained in the record as to the relationships do not
provide us with the information to resolve the indemnity question as a matter of law.
Specifically, the record is vague regarding what the relationship between the
two was. And what the record does contain about the relationship between
Ameriflow and Crescent impacts whether Crescent may fall within the indemnity
provisions of the RKI/Crescent MSA, with the MSA defining the “Contractor” as
“Crescent Services and its Affiliates and Subsidiaries” and the indemnity obligation
flowing to the Contractor. Both parties note the testimony of an expert hired by the
plaintiffs in the Magdaleno suit that discussed safety audit services that Crescent
provided; the expert contended that such services contributed to the explosion of the
51
sand separator. The expert testified that the audit was performed but that Ameriflow
was a subsidiary of Crescent. 8 Further, both the RKI/Crescent MSA and the
8
Specifically, the record contains the following exchange:
Q. Okay. I’ll represent to you that the law that’s going to be applicable
here is that you can’t reach a parent through its subsidiary, okay? So, if
you agree with -- do you agree with me on that general principle?
[Counsel for the plaintiffs in the Ortega suit]: Object to form.
That’s pretty legal.
A. Well, yeah, I -- I would say it trickles down the other way. So,
Crescent Services -- if the audit had been done before the incident,
Mr. Whitmire [an employee of Ameriflow] says the result would have
been the same.
Q. (BY [Crescent’s attorney]) Now --
A. So, if -- Crescent Services, had they done the audit before the
incident, would have known that their subsidiary did not have a good
safety program. So, that’s what I’m looking at is Crescent Services knew
and could have known before the incident, Mr. Whitmire says, that
Crescent Services’ subsidiary -- not going up, going down -- did not have
a proper safety program.
Q. And that is based on what?
A. Based on the audit.
Q. Again, the audit of Rock Deschaine, an independent
representative from TCR Management in San Marcos.
A. Well, he’s a consultant who’s working for Crescent companies.
Q. He was not working for Crescent companies.
A. He’s a consultant.
52
RKI/Ameriflow MSA show the same addresses for both companies and are signed by
the same person on behalf of both entities.
Thus, we are faced with a record in which RKI does not contest that it owes
Ameriflow indemnity under the RKI/Ameriflow MSA, the RKI/Crescent MSA that
potentially embraces both Ameriflow and Crescent (should Ameriflow be a Crescent
subsidiary), and an undeveloped record of facts about the relationships and activities
of those parties. In view of this record, we cannot say that even with our narrower
interpretation of the indemnity provision in the RKI/Crescent MSA that we can
resolve the question of the indemnity owed to Crescent as a matter of law.
Q. What evidence do you have that Mr. Deschaine was working
for Crescent?
A. Well, he did the audit for Crescent. He didn’t just one day get
up and say, “I’m going to leave San Marcos and go out in West Texas
and do an audit.” He was hired by the Crescent entities to do the audit.
Q. An audit of Crescent or audit of Ameriflow?
A. Of Ameriflow.
Q. Okay. So, again, we’re going to go back --
A. The audit was of Ameriflow.
Q. The audit was of Ameriflow. You agree with me on that.
A. Yeah, absolutely.
Q. Okay. So --
A. But Crescent’s the parent company. He did the audit as a
consultant for Crescent of Ameriflow, their subsidiary, and he said the
subsidiary has a bad safety program.
53
E. We analyze RKI’s challenge that damages were not proven as a
matter of law because the damages were not segregated between a
party that could recover damages—Ameriflow—and a party that
could not—Crescent.
As noted, Ameriflow and Crescent presented this case on summary judgment
by each attempting to prove that they have a free-standing right to indemnity through
their respective MSAs. Thus far, we have held that the construction placed on the
RKI/Crescent MSA by the trial court is overly broad. However, on the basis of the
terms of the RKI/Crescent MSA and the record below, we have also held that the
record does not forestall as a matter of law the possibility that Crescent is entitled to
indemnity under the terms of its MSA. Without the determination of whether
Crescent has a right to indemnity, it is premature to address the questions of whether
the proof before the trial court was sufficient to prove as a matter of law that the
settlement of the Magdaleno suit was reasonable and prudent or how attorneys’ fees
were proven. However, to the extent that Ameriflow and Crescent argue that they
have a means of establishing a right to indemnity that is not dependent on the terms
of the RKI/Crescent MSA—and which makes that argument raised by RKI that they
had to segregate their proof of damages unreasonable—we address those arguments
because they have the potential to obviate the need to answer the question regarding
whether Crescent has a right to indemnity under the terms of the RKI/Crescent
MSA. We conclude that the arguments raised to avoid RKI’s segregation argument
are not persuasive.
54
To begin, RKI premises its second issue—its segregation argument—on the
principle that the proof of damages offered by Ameriflow failed to segregate between
it as a party entitled to indemnity and Crescent, which is a party not entitled to
indemnity. RKI relies on the principle from cases that require an allocation of
damages between perils that are covered and those that are not. The Fifth Circuit
recently discussed this principle and what proof satisfies the allocation requirement as
follows:
In Texas, a party seeking coverage under an insurance policy must prove
that its damages are covered by the relevant policy before it can recover.
Seger v. Yorkshire Ins. Co., 503 S.W.3d 388, 400–01 (Tex. 2016). This
process of segregating out covered and non-covered damages is known
as “allocation.” See Satterfield & Pontikes Constr., Inc. v. U.S. Fire Ins. Co.,
898 F.3d 574, 581 (5th Cir. 2018). The coverage-seeking party carries
the allocation burden, and a failure to allocate covered and non-covered
damages is fatal to recovery. See Travelers Indem. Co. v. McKillip, 469
S.W.2d 160, 163 (Tex. 1971).
Thus, to satisfy its allocation burden at summary judgment,
[appellant] was required to present evidence upon which a fact[]finder
could segregate covered damages. See Satterfield, 898 F.3d at 581. This
evidence could consist of “any facts that could have been considered in
the [underlying] lawsuit itself,” including “internal memoranda,
correspondence between the insurer and insured, communications with
the injured party, [and] investigative reports.” Am. Int’l Specialty Lines Ins.
Co. v. Res-Care Inc., 529 F.3d 649, 656–57 (5th Cir. 2008) (quotation
omitted). Though [appellant] was not required to submit evidence
establishing damages with “mathematical precision,” it did need to
provide evidence creating “some reasonable basis” for allocation. Fiess v.
State Farm Lloyds, 392 F.3d 802, 808 n.24 (5th Cir. 2004). Additionally, it
was not necessary to have the actual settlement agreement in the
[u]nderlying [l]awsuit provide the allocation. See, e.g., Cooper Indus. LLC v.
Am. [Int’l] Specialty Lines Ins. Co., 350 F. App’x 876, 877–79 (5th Cir.
2009) (per curiam) (holding that the district court did not err in
apportioning settlement even though “the settlement agreement did not
55
allocate responsibility between” insurer and insured); LGS Techs., LP v.
U.S. Fire Ins. Co., No. 2:07-CV-399, 2015 WL 5934689, at *6 (E.D. Tex.
2015) [(second report & recommendation of the court-appointed special
master)] (allocating settlement proceedings post-settlement agreement);
RLI Ins. Co. v. Phila. Indem. Ins. Co., 421 F. Supp. 2d 956, 958 (N.D. Tex.
2006) (same).
Great Am. Ins. Co. v. Emps. Mut. Cas. Co., 18 F.4th 486, 492 (5th Cir. 2021).
As RKI notes in its reply brief, Ameriflow and Crescent do not attack RKI’s
articulation of the segregation principle or its potential application to the situation of a
joint settlement in which one party is entitled to indemnity and one is not. Instead,
Ameriflow and Crescent make a host of arguments that seem to acknowledge the
viability of the segregation principle but attempt to invalidate its application to their
claims.
1. We reject the argument that Crescent may recover indemnity
as a subcontractor of Ameriflow because that argument was
not raised as a ground for summary judgment.
First, Ameriflow and Crescent argue that Crescent has the right to recover
indemnity under the terms of Ameriflow’s MSA because it was a subcontractor of
Ameriflow. This argument notes that RKI has now conceded that it owes Ameriflow
indemnity for the Magdaleno suit and that
RKI’s liability to indemnify Ameriflow extended to Crescent. Crescent
was entitled to indemnity through the express language of [S]ection 8.3
in which RKI agreed to protect, defend, indemnify, and hold harmless
Ameriflow and its subcontractors. Thus, RKI had a contractual obligation
to Ameriflow and its subcontractors, including Crescent, as well as an
obligation to Crescent under the RKI/Crescent indemnity provisions.
Segregation simply makes no sense when both Ameriflow and Crescent
are protected. [Record reference omitted.]
56
Later Appellees’ brief augments this argument by referencing the “arising in
connection herewith” language of the RKI/Ameriflow MSA’s indemnity provision,
which is the same as the indemnity provision in the RKI/Crescent MSA that we have
plumbed in detail, and by arguing that
[t]he MSA with Ameriflow required Ameriflow to provide sufficient
supervision and training for its employees, subcontractors, consultants,
and agents. To the extent Crescent failed to provide training and safety services to
Ameriflow’s employees, subcontractors, consultants, and agents, Crescent is entitled to
indemnification as a subcontractor of Ameriflow. This includes protection from
Ameriflow’s negligence and Crescent’s own negligence, as stated in
[S]ections 8.3 and 8.12 of [the] Crescent and Ameriflow MSAs. As the
work being performed by Crescent was connected to the MSAs, and as
the accident was connected to RKI’s oil well operations, Crescent is
entitled to indemnity under the MSAs. See Nabors Drilling . . . , 2013 WL
3488152, at *3. [Emphasis added and record references omitted.]
RKI responds to the subcontractor argument by highlighting that Crescent
never sought indemnity based on its status as an Ameriflow subcontractor and did not
rely on that status as a basis for its summary-judgment motions. Specifically, RKI
highlights the following:
• Crescent’s demands for indemnity from RKI were based on the
RKI/Crescent MSA, not the RKI/Ameriflow MSA.9
• Crescent pleaded its indemnity claim against RKI based on the
RKI/Crescent MSA, not the RKI/Ameriflow MSA.
9
RKI also highlights that Crescent did not give the notice required by Section
8.7 to claim indemnity under the RKI/Ameriflow MSA.
57
• When asked in requests for admission about its contractual relationship with
Ameriflow, Crescent objected that such an inquiry was irrelevant.
• Crescent did not predicate its summary-judgment motions on the
RKI/Ameriflow MSA but instead on the RKI/Crescent MSA.
When given the opportunity to file a post-submission letter brief to rebut
RKI’s contention that Crescent did not raise the issue of a claim flowing through the
RKI/Ameriflow MSA, Crescent filed a letter that appears to concede that it did not
raise this ground below:
Appellees continue to assert that Crescent is also entitled to indemnity when acting as
a subcontractor for Ameriflow. And while that precise issue was not expressly raised
below—although implicated by the overall presentation of the issues—it
is improper for RKI to obtain on appeal the summary judgment [that] it
was denied below on a ground that actually creates an indemnity
obligation under the RKI/Ameriflow MSA, which was before Judge
Burgess in all proceedings below. [Emphasis added.]
Thus, we agree with RKI that Crescent cannot rely on its claim that it falls
within the ambit of the RKI/Ameriflow MSA indemnity provision as an Ameriflow
subcontractor because it cannot raise a new ground for summary judgment on appeal.
See Peterson, Goldman & Villani v. Ancor Holdings, LP, 584 S.W.3d 556, 570 (Tex.
App.—Fort Worth 2019, pet. denied) (“It is settled that a court cannot grant summary
judgment on grounds that were not presented.”).
And even if Crescent’s failure to raise its status under the RKI/Ameriflow
MSA were not an obstacle to Crescent’s contention, the record does not establish as a
58
matter of law that Crescent acted as a subcontractor of Ameriflow. As we have
already noted, the relationship between Ameriflow and Crescent is unclear from the
record; the two are apparently related, but the ownership structure is unexplained by
the record, which contains only some suggestions that Crescent owns Ameriflow.
How that relationship—whatever it may be—potentially impacts Crescent’s argument
that it is Ameriflow’s subcontractor is, at this point, an unknown and is not one that
can establish Crescent’s entitlement to indemnity under the RKI/Ameriflow MSA as
a matter of law. 10
2. We reject the argument that RKI waived its right to contest
the indemnity claims of Ameriflow and Crescent.
Ameriflow and Crescent make a number of arguments that appear to have the
same pivot point: RKI waived its right to contest their indemnity claims. We
disagree.
First, Ameriflow and Crescent argue that because RKI wrongfully denied
defense and indemnity, RKI is bound by the settlement of the Magdaleno suit and
cannot insist on an adjudication. Ameriflow and Crescent’s argument proceeds,
10
We raised a question during oral argument regarding whether the RKI/
Ameriflow MSA protected Crescent from its own negligence as a subcontractor of
Ameriflow and thus whether the MSA met the requirements of the express-negligence
doctrine for Crescent acting in a subcontractor role. As we have noted, the
relationship of Ameriflow and Crescent is unclear. We do not have the information
necessary to address the interrelationship between those parties and the implications
that interrelationship (if any) poses with respect to the express-negligence doctrine.
Further, the issue of the express-negligence doctrine has not been a point of dispute
thus far in the litigation. In its brief, RKI stated that it was “not challenging that the
MSA passes that [express-negligence] test.”
59
Under these circumstances, there was no voluntary payment by Crescent
that negates the indemnity. Crescent was sued for its connection to its
MSAs with RKI and for its connection to RKI’s MSA with Ameriflow.
The settlement was made jointly with Ameriflow, and the amount was
reasonable as to Ameriflow by itself.
The sparsity of the argument makes it difficult to unpack.
Ameriflow and Crescent make a similar argument later in their brief when they
argue that RKI’s acts caused their damages. Their argument notes that they had
incurred damages for defending the New Mexico lawsuits, paying a
settlement amount, and incurring attorney[s’] fees, expenses, and costs—
all of which were anticipated under the MSA, as natural, probable, and
foreseeable consequence[s] of breaching indemnity obligations.
Ameriflow and Crescent had to expend significant financial resources to
defend and settle the Magdaleno lawsuit when RKI did not indemnify
them.
Their argument concludes,
By refusing to defend and indemnify Ameriflow and Crescent, RKI
became liable for the resulting damages awarded by the trial court—
including the amounts paid in defense of the Magdaleno and [D]e [L]a
Hoya lawsuits, the settlement of the Magdaleno lawsuit, and also the
expenses in prosecuting this breach[-]of[-]contract action. Such damages
all logically, naturally, and foreseeably extend from RKI’s breach of the
MSAs.[11]
Finally, Ameriflow and Crescent note the testimony they offered to support
their contention that the settlement of the Magdaleno suit was reasonable, given the
potential for an adverse verdict and that the potential verdict might be rendered in
view of the history of verdicts in the county where it was filed. They note as well a
If this argument is simply that RKI caused damages, then obviously that
11
argument must be supported by a finding of liability.
60
later arbitration award against the counsel representing the Magdaleno family, which
estimated a verdict of $10 million and attributed 50% of the fault to RKI. Further,
Appellees’ brief notes that
in addition to jury award estimates in the relevant jurisdiction, the
settlement was in good faith based on all the circumstances leading to
the settlement based on RKI’s conditional offer and refusal to negotiate,
various evaluations by defense counsel, an assessment on the risks of not
settling the cases, and RKI’s refusal to provide unqualified indemnity.
Next, the brief outlines what Ameriflow and Crescent view as many failings on the
part of RKI, such as not participating in settlement negotiations, ignoring Crescent’s
demand for indemnity, refusing to enter an appearance in the Magdaleno suit for
Ameriflow, failing to file a declaratory-judgment action, and having a “conflict of
interest” by claiming that RKI breached its MSA while disputing that it owed an
indemnity obligation to Crescent. When this argument focuses, it is again based on
the argument that “[w]hen an indemnitor denies any obligation under an indemnity
agreement, the indemnitee has a right to make, in good faith, a reasonable settlement
with the injured party without any judicial ascertainment of liability.”
First, the premise of the argument as to Crescent is now faulty. Whether RKI
wrongfully denied indemnity to Crescent remains unestablished.
Second, the very case that Ameriflow and Crescent rely on seems to actually
undermine their contention that the denial of indemnity frees them from proof that
the settlement was reasonable and prudent. Ameriflow and Crescent cite to Sun Oil
Co. (Del.) v. Renshaw Well Serv., Inc. for the proposition that denial of indemnity binds
61
the indemnitor. 571 S.W.2d 64, 67 (Tex. App.—Tyler 1978, writ ref’d n.r.e.).
However, the entire paragraph from which the cited phrase is extracted states that
[a]n indemnitor waives the right to insist upon a judicial determination
of the indemnitee’s liability by denying any obligation under the
indemnity agreement. The indemnitor may not, however, be held liable
for a purely voluntary payment by the indemnitee. Mitchell’s, Inc. v.
Friedman, . . . 303 S.W.2d 775, 779 (Tex. . . . 1957). The Supreme Court
of Texas, in addressing the point raised here by appellee, has said[,]
“As to the status of the indemnitee in a case wherein
a settlement was made with the injured party, [a]fter denial
of liability on the part of the indemnitor, we said: (quoting
Mitchell’s, Inc. v. Friedman, supra.)‘ . . . Having settled the claim without obtaining a
judicial determination of its liability, petitioner (indemnitee)
assumed the risk of being able to prove the facts which
[m]ight have rendered it liable to the plaintiff as well as the
reasonableness of the amount which it paid. It will be
necessary, therefore, for petitioner to establish that from its
standpoint the settlement was made in good faith and was
reasonable and prudent under the circumstances.’
Gulf, Colo[.] & Santa Fe [Ry. Co.] v. McBride, . . . 322 S.W.2d 492, 495
(Tex. . . . 1958).
Id. at 67–68. Thus, the suggestion that an indemnitee is freed from having to prove a
settlement is reasonable and prudent by the denial of an obligation to indemnify is not
borne out by the quote. Ameriflow and Crescent’s argument also presumes that the
settlement was involuntary but makes a fact-laden argument that we should accept
that conclusion and cites us to no case to support the conclusion that the settlement
was involuntary as a matter of law.
62
And RKI cites us to another case for its contention that Ameriflow and
Crescent bear the burden to prove that the settlement was reasonable and prudent.
See Colonial Title Co. v. Commonwealth Land Title Ins. Co., No. 12-16-00328-CV, 2017 WL
4675535, at *2 (Tex. App.—Tyler Oct. 18. 2017, no pet.) (mem. op.) (stating that
when an indemnitee voluntarily settles a claim of its indemnitor, “absent an
unconditional contractual right to settle, without obtaining a judicial determination of
its liability, it assumes the burden in its action for reimbursement of proving that it
was potentially liable to the claimant, the settlement was prudent and made in good
faith, and the amount was reasonable”). 12
Thus, on the face of the record in this matter and the other issues at play in it
and on the question of whether the authority cited by Ameriflow and Crescent
actually supports their argument, we hold that RKI’s denial of the obligation to
indemnity did not free Ameriflow and Crescent of the burden to establish that
indemnity was owed and that the Magdaleno settlement as a matter of law was
reasonable and prudent. 13
If Ameriflow and Crescent are attempting to invoke the rule dealing with
12
whether an insurer is bound by its insured’s settlement found in Evanston Ins. Co. v.
ATOFINA Petrochems., Inc., 256 S.W.3d 660, 671 (Tex. 2008) (op. on reh’g), they offer
no guidance on how that rule should apply to the instant case.
13
In a footnote, Ameriflow and Crescent argue that the MSAs do not contain a
provision that requires the settlement amount, litigation expenses, and court costs to
be subjected to a reasonableness scrutiny. It is true that the MSAs do not contain
such a provision. But as RKI notes, the settlement amount is subject to a
reasonableness scrutiny absent a contractual provision granting an unconditional right
63
3. We reject Ameriflow’s argument that the damage award for
the Magdaleno settlement is reasonable as to Ameriflow
alone because it did not move for summary judgment on
that ground.
Ameriflow next highlights the evidence that it offered to show that the
settlement amount of the Magdaleno matter was standard in New Mexico death cases.
It then argues that several conclusions should be drawn from the evidence that it
recites:
The $9.1 million . . . settlement is a reasonable settlement for Ameriflow
only, as shown by the unrebutted damages testimony provided by
Appellees’ expert witnesses. As discussed above, Crescent would be
entitled to indemnification as a subcontractor of Ameriflow in any event.
Additionally, Crescent was properly included in the settlement as it
resolved the claims against Crescent covered by the RKI/Crescent MSA
and ended RKI’s duty to defend Crescent under that MSA. [Record
references omitted.]
To the extent that Ameriflow argues that the settlement was reasonable as to it alone,
Ameriflow and Crescent’s third amended motion for summary judgment on
damages—the operative summary-judgment motion on the question of damages—
appears to posture the damage claim for the Magdaleno settlement as a joint claim of
both Ameriflow and Crescent.14 Thus, Ameriflow appears to be again raising an issue
to support the trial court’s judgment that was not raised below.
to settle before liability has been judicially determined. See Colonial Title Co., 2017 WL
4675535, at * 2.
We set out the operative portion of the amended summary-judgment motion
14
dealing with the Magdaleno settlement:
64
The Magdaleno lawsuit settlement meets this standard. The lawsuit was
settled because RKI breached the MSAs as a matter of law which breach
caused AMERIFLOW/CRESCENT to settle the New Mexico lawsuits.
Although not necessary, AMERIFLOW/CRESCENT faced potential
liability as the Magdaleno Plaintiffs alleged that AMERIFLOW and
CRESCENT were solely liable [for] Roberto Magdaleno’s death because
AMERIFLOW owned and used the sand separator [that] exploded on
RKI’s well[]site, and CRESCENT, along with AMERIFLOW, in part,
[was] responsible for the personnel on the site, their training, equipment,
processes[,] and well[]site safety. Similar cases involving work[-]site
deaths and personal[-]injury claims in . . . San Miguel County, New
Mexico[,] and surrounding areas have resulted in jury verdicts in excess
of six to seven digits with a demonstrated range between $50,000,000 to
$160,000,000, well in excess of the Magdaleno settlement amount.
Indeed, the Magdaleno[ Plaintiffs’] initial demand of $60,000,000 is
reflective of this range. Magdaleno’s penultimate demand was
$15,000,000.00[,] which was rejected. The potential damages recoverable
in New Mexico include personal injury, medical expenses, lost wages,
loss of future earnings, and loss of consortium [that] can be valued by an
economist. New Mexico allows the recovery of hedonic damages.
Magdaleno’s economist estimated economic damages alone in a range of
$1.3–3.0 million . . . . The parties conducted two failed settlement
negotiations . . . in December 2015 and April 2016, [and] the [parties]
reached a settlement agreement on September 26, 2016[,] with . . .
AMERIFLOW and CRESCENT [agreeing to pay the Magdaleno
Plaintiffs] $9,100,000 for which [Ameriflow] seeks recovery.
The settlement was prudent given the potential exposure to an
adverse verdict[] and [was] reasonable given the potential jury[-]verdict
history in the jurisdiction. Indeed, a subsequent malpractice lawsuit by
the Magdaleno family against their personal[-]injury attorney for
mishandling the underlying New Mexico lawsuit resulted in an
arbitration award in favor of Magdaleno [that] estimated a potential jury
verdict of $10,000,000.00[,] which corroborates the reasonable
settlement amount reached by Ameriflow and Crescent with
Magdaleno[.] Further, in addition to area jury[-]award estimates, the
settlement was in good faith based on all the circumstances leading to
the settlement based on RKI’s conditional offer and refusal to negotiate,
various evaluations by defense counsel, an assessment on the risks of not
settling the cases, and RKI’s refusal to provide unqualified indemnity.
65
With respect to the arguments that Crescent is entitled to indemnity as an
Ameriflow subcontractor, we have already discussed that this is another of the
arguments that is now being made but that was not raised as a ground for summary
judgment. Finally, whether the settlement “resolved the claims against Crescent
covered by the RKI/Crescent MSA” remains an open question in view of our
holdings about the breadth of indemnity provided by the RKI/Crescent MSA.
4. We reject Ameriflow and Crescent’s claims that they may
recover under the equitable doctrines of equitable
subrogation and quantum meruit.
After RKI’s opening brief challenged Ameriflow and Crescent’s ability to
support the trial court’s judgment with the alternative equitable theories raised in their
third amended motion for summary judgment on damages, Appellees argue on appeal
that two equitable doctrines support the trial court’s judgment—equitable subrogation
and quantum meruit. 15 In the arguments about these doctrines, Appellees’ brief is not
persuasive regarding why the doctrines can be used to circumvent the issues of
Therefore, the Magdaleno settlement and amount was reasonable,
prudent[,] and made in good faith as a matter of law. Gulf, Colo[.] &
Santa Fe [Ry. Co.] v. McBride, 322 S.W.2d 942 (Tex. 1958); In re Exxon
Mobile Corp., 389 S.W.3d 577, 580 (Tex.[ App.—]Houston [14th Dist.]
2012[, orig. proceeding]). [Footnotes and record references omitted.]
We cannot find the statement within the quoted portion of the motion that the
amount of the settlement in the Magdaleno matter was reasonable as to Ameriflow
alone.
15
Ameriflow also pleaded a theory of mitigation damages but did not argue in
its brief for that theory as a basis of recovery.
66
whether the terms of the RKI/Crescent MSA provides for indemnification or
whether Ameriflow proved its damages. Instead, neither of these equity-based
doctrines apply to Ameriflow and Crescent’s law-based claims for breach of contract.
The elements of equitable subrogation are outlined by the Texas Supreme
Court as follows:
The doctrine of equitable subrogation allows a party who would
otherwise lack standing to step into the shoes of and pursue the claims
belonging to a party with standing. Texas courts interpret this doctrine
liberally. Although the doctrine most often arises in the insurance
context, equitable subrogation applies “in every instance in which one
person, not acting voluntarily, has paid a debt for which another was
primarily liable and which in equity should have been paid by the latter.”
Thus, a party seeking equitable subrogation must show it involuntarily
paid a debt primarily owed by another in a situation that favors equitable
relief.
Frymire Eng’g Co. ex rel. Liberty Mut. Ins. Co. v. Jomar Int’l, Ltd., 259 S.W.3d 140, 142
(Tex. 2008) (footnotes omitted).
Though the definition of equitable subrogation is broadly phrased, the fact
remains that it is an equity-based doctrine. As the supreme court has noted, “[w]e
generally adhere to the maxim that ‘equity follows the law,’ which requires equitable
doctrines to conform to contractual . . . mandates, not the other way around.” Fortis
Benefits v. Cantu, 234 S.W.3d 642, 648 (Tex. 2007). Thus, “[w]here a valid contract
prescribes particular remedies or imposes particular obligations, equity generally must
yield unless the contract violates positive law or offends public policy.” Id. at 648–49.
67
The very phrasing of Ameriflow and Crescent’s argument acknowledges that their
claim is not one of equity but a claim grounded in the legal claim of breach of contract:
Because Ameriflow and Crescent had to defend the lawsuits and settle
[the] Magdaleno [suit] because of RKI’s breach of the MSAs, there was
no voluntary payment[,] and Appellees were properly awarded damages
for reimbursement from RKI for all expenses, costs, and fees including
the settlement payment in the Magdaleno lawsuit. RKI would have been
primarily responsible for all these costs had it complied with its duties under the MSA
and provided indemnification as discussed above. [Emphasis added.] [Record
reference omitted.]
In essence, the proposition advocated for by Ameriflow and Crescent is that it is
inequitable for RKI not to perform its contract. Such a claim can be resolved by
applying legal principles without the need for the intervention of equity.
Ameriflow and Crescent’s attempt to rely on the doctrine of quantum meruit is
equally circular. The elements of quantum meruit and the fact that it generally is not
available as a remedy when the parties have entered into an express contract is noted
in the following quote:
Quantum meruit implies a contract in circumstances where the parties
neglected to form one, but equity nonetheless requires payment for
beneficial services rendered and knowingly accepted. In re Kellogg Brown
& Root, Inc., 166 S.W.3d 732, 740 (Tex. 2005)[ (orig. proceeding)]. As a
result, “[a] party generally cannot recover under quantum meruit where
there is a valid contract covering the services or materials furnished.” Id.“The rationale behind this rule [known as the express-contract rule] is
that parties should be bound by their express agreements, and recovery
under an equitable theory is generally inconsistent with an express
agreement [that] already addresses the matter.” Dardas v. Fleming,
Hovenkamp & Grayson, P.C., 194 S.W.3d 603, 620–21 (Tex. App.—
Houston [14th Dist.] 2006, pet. denied).
68
MMR Constructors, Inc. v. Dow Chem. Co., No. 01-19-00039-CV, 2020 WL 7062325, at
*10 (Tex. App.—Houston [1st Dist.] Dec. 3, 2020, no pet.) (mem. op.).
Ameriflow and Crescent note that there are exceptions to the bar of bringing a
quantum meruit claim in the face of an express agreement. The First Court of
Appeals also outlined those exceptions as follows:
The Supreme Court of Texas has recognized only three exceptions to
the general rule that an express contract bars recovery under quantum
meruit. First, recovery may be permitted “when a plaintiff has partially
performed an express contract but, because of the defendant’s breach,
the plaintiff is prevented from completing the contract.” Truly v. Austin,
744 S.W.2d 934, 936 (Tex. 1988) (emphasis in original). Second,
“[r]ecovery in quantum meruit is sometimes permitted when a plaintiff
partially performs an express contract that is unilateral in nature.” Id. at
937. And finally, a breaching plaintiff in a construction contract can
recover the reasonable value of services less any damages suffered by the
defendant if the defendant accepts and retains the benefits arising as a
direct result of the plaintiff’s partial performance. Id. Each of these
exceptions allows for recovery in quantum meruit only in situations in
which the plaintiff partially, rather than fully, performed its obligations
under the contract. See id. at 936–37.
Id. at *11.
After making a general reference to the exceptions, Appellees’ brief makes no
effort to explain how these exceptions apply to their claims but states only that
[t]o the extent RKI alleges that the MSA does not cover the issues raised
in the lawsuit, Appellees are entitled to recover under a quantum meruit
and/or unjust[-]enrichment theory as RKI accepted and retained the
benefits of the settlements procured by RKI and payment of the same
by Appellees.
Left unexplained in this statement is—if the MSA did not provide indemnity—what
the nature of Ameriflow and Crescent’s right to recovery would be and how an
69
implied obligation to indemnify in the absence of an express agreement to do so
would have arisen. Further, Appellees’ brief makes the claim that the damages sought
are the legal measure for a breach-of-contract claim. How that measure should be
transformed into a claim for the measure applied to an unjust-enrichment claim based
on reasonable value is also unexplained. See Hill v. Shamoun & Norman, LLP, 544
S.W.3d 724, 733 (Tex. 2018) (“The measure of damages for recovery under a
quantum[ ]meruit theory is the reasonable value of the work performed and the
materials furnished.”). 16
Ameriflow and Crescent’s arguments do not persuade us why they have a
viable basis to invoke equitable remedies in a breach-of-contract case.
Accordingly, we sustain RKI’s second issue raising segregation arguments.
F. We reverse and remand the awards of attorneys’ fees to Ameriflow
and Crescent for reconsideration in light of our holdings.
In its third issue, RKI challenges Ameriflow’s and Crescent’s attorneys’ fee
recoveries both for fees incurred in the Magdaleno and De La Hoya litigation and for
fees awarded to prosecute the present case and for appeal in this case. Based on our
16
RKI notes that Crescent moved for summary judgment on the ground of
quasi-estoppel. The basis for Crescent’s quasi-estoppel claim is that RKI admitted an
indemnity obligation to Ameriflow and that position in some way estops it to deny an
indemnity obligation to Crescent. RKI argues that it has consistently denied that it
owed indemnity to Crescent; thus, RKI has taken no inconsistent position that might
create an estoppel. See Lindley v. McKnight, 349 S.W.3d 113, 131 (Tex. App.—Fort
Worth 2011, no pet.) (“Quasi-estoppel is an affirmative defense that precludes a party
from asserting, to another’s disadvantage, a right inconsistent with a position previously
taken.”). Crescent does not respond to RKI’s argument. We conclude that an
indemnity recovery by Crescent cannot be supported by the doctrine of quasi-estoppel.
70
disposition of the prior issues, we sustain RKI’s third issue and remand the attorneys’
fee awards as explained below.
With respect to Ameriflow’s and Crescent’s fee recoveries for the defense and
prosecution of the present case, as we are reversing and remanding this matter to the
trial court, we also reverse the award for attorneys’ fees of $254,311.62 to Ameriflow
and of $131,623.48 to Crescent and the appellate-fee awards, 17 and we remand the fee
awards for further consideration. See Friedman v. Atl. Funding Corp., 936 S.W.2d 38, 42
(Tex. App.—San Antonio 1996, no writ) (“Since we hold that the trial court
improperly granted [appellee’s] summary judgment, we also reverse the trial court’s
award of attorney’s fees.”).
With respect to the joint fee recoveries by Ameriflow and Crescent for their
attorneys’ fees and expenses in the Magdaleno and De La Hoya suits, we reverse and
remand those awards as well. As a result of our holdings, the liability of RKI to
Crescent for indemnity remains an open question, and as presently postured,
Crescent’s fee claim is tied to its right to indemnity. 18
It is concerning, as noted in RKI’s brief, that Ameriflow asked for and proved
17
up only $15,000 for the Texas Supreme Court briefing stage, but the judgment
awarded $50,000.
In their brief, Ameriflow and Crescent mention Section 8.11’s provision that
18
provides, “Any defense and indemnity by either party under these provisions shall
include, but not be limited to, all expenses of litigation, court costs, and reasonable
attorney[s’] fees that may be incurred by or assessed against the party being
indemnified.” As phrased, the argument in Appellees’ brief does not appear to be
that Ameriflow and Crescent are entitled to recover their defense costs, no matter the
71
IV. Conclusion
We have sustained RKI’s three issues on appeal. We have concluded that the
trial court’s interpretation of the scope of indemnity in the RKI/Crescent MSA was
too broad and that the scope was tied to the performance required under the MSA.
That said, however, the state of the record in this matter does not enable us to decide
as a matter of law that Crescent is not entitled to indemnity. We are also not
persuaded that Ameriflow and Crescent’s arguments, several of which were not
grounds raised below, establish as a matter of law that Crescent may recover from
RKI, no matter whether Crescent has a right to indemnity under its MSA or not.
Based on the disposition of the indemnity and segregation arguments, we have
concluded that the attorneys’ fee awards cannot stand. Thus, we reverse the final
judgment of the trial court signed on September 2, 2020, and we remand this matter
to the trial court.
/s/ Dabney Bassel
Dabney Bassel
Justice
Delivered: June 23, 2022
outcome of the indemnity issues. As RKI points out, Ameriflow and Crescent’s third
amended motion for summary judgment on damages appears to tie the recovery for
fees and expenses to the ability to recover indemnity. Thus, in our view, neither a
summary-judgment ground nor an argument is presented that a joint award of fees
and expenses can stand even if Crescent lacked a right to indemnity.
72