Cannon Oil v. KLX Energy

Case: 21-20115 Document: 00516125010 Page: 1 Date Filed: 12/10/2021
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
FILED
December 10, 2021
No. 21-20115
Lyle W. Cayce
Clerk
Cannon Oil and Gas Well Services, Incorporated,
Plaintiff—Appellant,
versus
KLX Energy Services, L.L.C.,
Defendant—Appellee.
Appeal from the United States District Court
for the Southern District of Texas
USDC No. 4:20-cv-01164
Before Dennis, Higginson, and Costa, Circuit Judges.
Gregg Costa, Circuit Judge:
Texas and Wyoming are leading oil-producing states.1 Like other
leading energy states,2 they both regulate the use of indemnity agreements in
their oilfields with Anti-Indemnity Acts. Wyoming, concerned that
1
U.S. Energy Information Administration: Independent Statistics & Analysis, Oil
and Petroleum Products Explained, https://www.eia.gov/energyexplained/oil-and-
petroleum-products/where-our-oil-comes-from.php (last updated April 8, 2021) (ranking
Texas first and Wyoming eighth).
2
See, e.g., La. Stat. Ann. § 9:2780; N.M. Stat. Ann. § 56-7-2.
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indemnification disincentivizes safety, forbids oilfield indemnity agreements.
Wyo. Stat. Ann. § 30-1-131. Texas, concerned that large oil companies
will use their leverage to demand indemnity from independent operators, also
disfavors the agreements. But it does not ban them entirely. To address the
bargaining-power problem, it allows indemnification in limited situations
including when the indemnity is mutual and backed by insurance. Tex.
Civ. Prac. & Rem. §§ 127.003, 127.005.
This conflict between the Wyoming and Texas oilfield indemnity laws
is the focus of this appeal. A contract for the leasing and servicing of drilling
equipment includes a mutual indemnity agreement that complies with Texas
law but would be unenforceable under Wyoming’s blanket ban. Although the
agreement states that Texas law will govern, most of the work performed
under the contract occurred in Wyoming with none in Texas. And indemnity
is being sought for a Wyoming lawsuit filed by a Wyoming resident injured in
a Wyoming oilfield operated by a Wyoming business. We must decide
whether the Texas or Wyoming Oilfield Anti-Indemnity Act applies.
I.
Cannon Oil and Gas Well Services is an oil-and-gas exploration
company based in Wyoming. When Cannon needed to lease drilling
equipment, it contracted with Texas-based KLX Energy Services.
The parties memorialized their deal in a “Master Equipment Rental
Agreement,” which governs “all Equipment rented . . . as well as any
services provided by [KLX to Cannon].” The document includes three
relevant provisions. The first is a choice-of-law clause providing that Texas
law governs the agreement. Second is an indemnity provision under which
Cannon and KLX must “protect, defend, [and] indemnify” each other
against losses involving injuries sustained by the other’s employees,
regardless of who is at fault. The indemnity provision also notes in a separate
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clause that each party’s obligation “shall only be effective to the maximum
extent permitted by applicable law.” And third, the agreement anticipates
that Cannon will on occasion place extra orders for rental equipment and
maintenance services. To ensure its supremacy over such periodic orders,
the Master Agreement states that if “there should be any conflict” with “any
Order, purchase order, field ticket, work order, or any other type of
memoranda,” the Master Agreement controls.
The same day that Cannon signed the Master Agreement, it also
executed a shorter document titled “Work Order.” Like the Master
Agreement, the Work Order purports to apply to “all services and rental
equipment” that KLX provides to Cannon. It also includes an indemnity
provision and choice-of-law clause selecting Texas law. But unlike the
Master Agreement, the Work Order’s indemnity provision does not include
a separate clause limiting the parties’ indemnity obligation “to the maximum
extent permitted by applicable law.”
Initial discussions about the agreement occurred entirely in Wyoming,
where KLX maintains a significant presence. Cannon later executed the
documents in Wyoming; KLX did so in West Virginia. During negotiations,
KLX anticipated providing equipment and services only where Cannon did
business—Colorado, Utah, Idaho, Montana, Nevada, and above all,
Wyoming. KLX’s expectations were warranted. From the time the parties
struck their deal to when this case began, KLX issued 252 invoices to
Cannon, 228 of which came from Wyoming work. KLX never invoiced
Cannon for work in Texas.
The incident that launched this dispute occurred two years later. An
employee from KLX’s Wyoming office was performing a pressure test on
KLX equipment at a Cannon oil well in Southern Wyoming. The employee
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was injured. He then sued Cannon in state court in his home state of
Wyoming.
If the Master Agreement’s indemnity provision is valid, KLX is
ultimately on the hook for injuries suffered by its employee even if Cannon
was at fault. So Cannon filed this federal declaratory judgment action seeking
to enforce KLX’s indemnity obligation for the Wyoming lawsuit.
After the parties filed dueling summary judgment motions, the district
court ruled in KLX’s favor. The district court first reasoned that the Master
Agreement’s indemnity provision controls over the Work Order’s because
of inconsistencies between the two. It then held that the Master
Agreement’s choice of Texas law does not extend to its indemnity provision
because the latter provision contains language recognizing that indemnity
could be limited by “applicable law.” The court thus concluded that the
parties left open the issue of which law would govern their indemnity dispute.
Applying Texas choice-of-law rules, the court determined that Wyoming law
controlled. Because Wyoming bans oilfield indemnity, the indemnity
provision in the Master Agreement was unenforceable.3 Cannon thus would
have to defend itself in Wyoming state court. This appeal followed.
II.
Cannon first challenges the district court’s conclusion that the parties
did not decide which state’s law would govern their indemnity obligation.
3
Although the district court held that no choice-of-law provision governed, it used
the choice-of-law rule for contracts in which there is an operative provision. Compare
Restatement (Second) of Conflict of Laws § 187 (Am. L. Inst. 1971)
(governing choice-of-law analysis when parties choose a state whose law will govern), with
id. § 188 (governing choice-of-law analysis when the parties do not choose a state). The
court thus conducted the same analysis that it would have if it had found instead that the
parties chose Texas law. Because we hold that the parties did indeed choose Texas law,
the district court’s inadvertent choice-of-law analysis tracks ours.
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Resolving this issue depends on whether the Master Agreement exempts its
indemnity provision from its general choice of Texas law.
The Master Agreement states that indemnity “shall only be effective
to the maximum extent permitted by applicable law, whether by statute or a
controlling applicable judicial decision.” It further provides that if “any such
existing or future law” limits indemnity, the parties’ obligation “shall extend
only to the maximum extent permitted by such law.” KLX convinced the
district court that because this language refers to “applicable law” instead of
“Texas law,” the indemnity provision is not governed by the Master
Agreement’s general choice-of-law clause. In other words, the “applicable
law” clause calls for a different choice-of-law analysis than the rest of the
contract.
This argument reads too much into the words “applicable law.” The
more natural reading is that the Master Agreement recognizes that even
under applicable Texas law, indemnity provisions will not always be
enforced. See Tex. Civ. Prac. & Rem. § 127.003. If existing or future
Texas law “limits the extent to which indemnification may be provided,” the
Master Agreement affirms that the indemnity provision still extends to “the
maximum extent permitted by such law.” The “applicable law” clause thus
is a savings clause that preserves the indemnity provision to the extent
allowed by “applicable law,” which per the choice-of-law provision is Texas
law. See Ranger Ins. Co. v. Am. Int’l Specialty Lines Ins. Co., 78 S.W.3d 659,
663–64 (Tex. App.—Houston [1st Dist.] 2002, no pet.) (example of another
indemnity savings clause); Weber Energy Corp. v. Grey Wolf Drilling Co., 976
S.W.2d 766, 767 (Tex. App.—Houston [1st Dist.] 1998) (same). The choice-
of-law provision that governs the rest of the Master Agreement therefore also
applies to its indemnity provision.
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On this reading, the Master Agreement and the Work Order are
consistent—both contain choice-of-law and indemnity provisions that are
not meaningfully different. It does not matter which document controls this
dispute because under either the result is the same: Cannon and KLX chose
Texas law to govern the scope of their indemnity obligation.4
III.
The question becomes whether the parties’ choice of Texas law is
enforceable for this Wyoming-centered indemnity dispute.
At first blush, the answer may seem straightforward. Courts usually
enforce contracts as written. Wayman v. Southard, 23 U.S. (10 Wheat.) 1, 48
(1825) (Marshall, C.J.) (“[I]n every forum a contract is governed by the law
with a view to which it was made.”). Enforcing what the parties bargained
for promotes efficiency and certainty. See DeSantis v. Wackenhut Corp., 793
S.W.2d 670, 677 (Tex. 1990).
But when it comes to enforcing a contractual choice-of-law provision,
freedom-of-contract values collide with a state’s interest in regulating
conduct within its borders. State laws regulating contracts would lose much
of their bite if parties could oust them by agreeing to apply laws from a
favored jurisdiction. See Symeon C. Symeonides et al., Conflict
of Laws §§ 18.5–7 (6th ed. 2018) (providing examples of choice-of-law
provisions evading consumer protection, employment, franchise, and
insurance laws). And if “regulation is desirable, then choice of law creates a
race to the bottom by eroding efforts to eliminate social harms.” Erin Ann
4
We thus need not decide whether the Master Agreement overrides the Work
Order whenever there is an inconsistency between the two or whether the Work Order is
instead a “standalone agreement” as Cannon argues.
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O’Hara, Opting out of Regulation: A Public Choice Analysis of Contractual
Choice of Law, 53 Vand. L. Rev. 1551, 1571–72 (2000).
Texas’s choice-of-law rules, which we apply as a federal court sitting
in diversity, Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941),
harmonize this tension. Texas recognizes that “parties can agree to be
governed by the law of another state.” Exxon Mobil Corp. v. Drennen, 452
S.W.3d 319, 324 (Tex. 2014); see also Tex. Bus. & Com. Code § 1.301(a)
(“[W]hen a transaction bears a reasonable relation to this state and [another
state] the parties may agree that [either law] shall govern their rights and
duties.”). Numerous Texas cases thus apply the law the parties agreed
would govern. See, e.g., Drennen, 452 S.W.3d at 331; Gator Apple, LLC v.
Apple Tex. Restaurants, Inc., 442 S.W.3d 521, 534–35 (Tex. App.—Dallas
2014, pet. denied); Mary Kay Inc. v. Woolf, 146 S.W.3d 813, 817 (Tex. App.—
Dallas 2004, pet. denied).
But to account for states’ regulatory interests, Texas limits
contractual autonomy to choose what law applies. Parties cannot choose the
law of a jurisdiction “which has no relation whatever to them or their
agreement” nor can they “thwart or offend the public policy of the state the
law of which ought otherwise to apply.” DeSantis, 793 S.W.2d at 677. The
result is the conflict-of-laws principle of “limited party autonomy.” Id.
Under it, “although Texas courts permit choice-of-law agreements and the
default position is that they are enforceable, it is not uncommon for a party
to overcome them.” Cardoni v. Prosperity Bank, 805 F.3d 573, 581, 586 (5th
Cir. 2015) (declining to apply choice of Texas law and applying Oklahoma
law to determine validity of noncompete agreements); DeSantis, 793 S.W.2d
at 681 (declining to apply choice of Florida law and applying Texas law to
determine validity of noncompete agreements); CMA-CGM (Am.), Inc. v.
Empire Truck Lines, Inc., 416 S.W.3d 495, 516–17 (Tex. App.—Houston [1st
Dist.] 2013, pet. denied) (declining to apply choice of Maryland law and
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applying Texas indemnity law that invalidated agreement);5 Panatrol Corp. v.
Emerson Elec. Co., 163 S.W.3d 182, 189 (Tex. App.—San Antonio 2005, pet.
denied) (declining to apply choice of Missouri law and applying Texas law to
indemnity issue).
Texas courts look to section 187(2)(b) of the Restatement (Second) of
Conflict of Laws to determine whether to enforce a contractual choice of law.
DeSantis, 793 S.W.2d at 677–78. Under that section, three things must be
true for Wyoming law to override the parties’ choice of Texas law.
First, Wyoming must have a “more significant relationship” with the
parties and transaction than Texas does under section 188 of the
Restatement. Id. at 678. Second, Wyoming must have a “materially greater
interest” than Texas in applying its law to this set of facts. Id. Third,
applying Texas law must be contrary to a fundamental policy of Wyoming.
Id.; see Drennen, 452 S.W.3d at 325–27 (analyzing a choice-of-law clause
using these three steps). Central to these inquiries is each state’s interest in
the particular substantive issue to be resolved—here, indemnity. Hughes
Wood Prods., Inc. v. Wagner, 18 S.W.3d 202, 205 (Tex. 2000).
5
CMA-CGM’s refusal to enforce a choice of law that allowed enforcement of an
indemnity agreement disproves Cannon’s suggestion that special sanctity is afforded
contractual autonomy in the conflicts analysis when indemnity is at issue. So does our
decision in Roberts v. Energy Development Corp., 235 F.3d 935 (5th Cir. 2000). There, we
declined to enforce a Texas choice-of-law provision and applied Louisiana law even though
Texas law would have allowed the indemnity agreement while Louisiana’s Oilfield Anti-
Indemnity Act would not. Id. at 942–44. Although Roberts applied Louisiana choice-of-law
rules, those largely mirror the Restatement considerations that Texas uses. See La. Civ.
Code Ann. art. 3540 (stating that the parties’ choice of law will apply “except to the
extent that law contravenes the public policy of the state whose law would otherwise be
applicable under Article 3537”); id. art. 3537 (directing courts to consider factors such as
“the place of negotiation, formation, and performance of the contract;” the parties’ “place
of domicile;” and policies including “promoting multistate commercial intercourse” and
upholding the parties’ justified expectations).
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A.
To overcome the parties’ choice of Texas law, Wyoming must have a
“more significant relationship” to Cannon and KLX’s indemnity agreement.
Put differently, would Wyoming law apply had the parties not chosen Texas?
To answer this question, section 188 of the Restatement directs us to
identify the state with the more significant relationship by analyzing various
contacts and “their relative importance with respect to the particular issue.”
Restatement (Second) of Conflict of Laws § 188(2) (Am. L.
Inst. 1971). These contacts, specific to contract disputes like indemnity
agreements, include:
(a) the place of contracting,
(b) the place of negotiation of the contract,
(c) the place of performance,
(d) the location of the subject matter of the contract, and
(e) the domicil, residence, nationality, place of incorporation and
place of business of the parties.
Id. The contacts are weighed “not by their number, but by their quality.”
Minn. Mining & Mfg. Co. v. Nishika Ltd., 955 S.W.2d 853, 856 (Tex. 1996).
The section 188 contacts rack up points for Wyoming. Cannon started
negotiations by contacting KLX’s Wyoming office, and the parties executed
the agreements in Wyoming and West Virginia. These place-of-negotiation-
and-contracting contacts favor Wyoming and overwhelmingly disfavor
Texas. See DeSantis, 793 S.W.2d at 679 (finding that Texas had greater
contacts to an agreement executed in Houston); Chesapeake Operating, Inc. v.
Nabors Drilling USA, Inc., 94 S.W.3d 163, 170 (Tex. App.—Houston [14th
Dist.] 2002, no pet.) (discounting Louisiana’s relationship to a contract
negotiated and executed in Texas and Oklahoma).
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The place of performance also favors Wyoming. The Supreme Court
of Texas has not decided whether the relevant place of performance in
indemnity cases is “where the drilling or the suing takes place.” See Sonat
Expl. Co. v. Cudd Pressure Control, Inc., 271 S.W.3d 228, 234 (Tex. 2008).
Intermediate Texas courts take the latter view, explaining that the central act
of indemnification occurs in the forum where the personal injury lawsuit is
pending. See Chesapeake, 94 S.W.3d at 171–72; Banta Oilfield Servs., Inc. v.
Mewbourne Oil Co., 568 S.W.3d 692, 711–12 (Tex. App.—Texarkana 2018,
pet. denied). The distinction does not matter here as Wyoming is the site of
both the drilling and the suing. See Roberts, 235 F.3d at 942 (giving significant
weight to Louisiana’s being the place of performance and location of the
injury for which indemnity was being sought).
For services contracts, the “location of the subject matter” largely
overlaps with the “place of performance.” See DeSantis, 793 S.W.2d at 679
(“The place of performance for both parties was Texas, where the subject
matter of the contract was located.”). So this contact favors Wyoming too.
Much of the subject matter of the contract—the physical equipment which
could generate an indemnity obligation—was leased in Wyoming and none
was in Texas. DeSantis, 793 S.W.2d at 679; CMA-CGM, 416 S.W.3d at 514
(finding that the location of the subject matter of a general contract governing
the transportation of various equipment favored Texas because the
equipment at issue was transported entirely within the state).
The only debatable section 188 contact is the principal place of
business. Cannon leans on this contact, arguing that it favors Texas because
the agreement was drafted by a Texas-based company. But although KLX’s
principal place of business is in Texas, its Texas presence is negated by
Cannon’s Wyoming domicile. See Cardoni, 805 F.3d at 583 (noting that
Texas headquarters of one party were cancelled out by Oklahoma presence
of the other).
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In trying to tilt the “place of business” factor in its favor, Cannon
harps on a seeming anomaly—the Texas company, KLX, is the one arguing
that Wyoming law should apply instead of the law of its home state that it
selected in the contract. One problem with this is that when determining the
state with the most significant relationship, we do not consider the choice-of-
law provision; this inquiry is figuring out which state’s law would apply in the
absence of such an agreement. Chesapeake, 94 S.W.3d at 176. Another
problem is that nothing in the Restatement or caselaw attaches significance
to the fact that a party is trying to avoid its own state’s law. Nor do we see
sound reason for doing so given that the justification for sometimes
overriding the law the parties chose is a concern with intruding on the
regulatory authority of the states themselves. Restatement § 187 cmt. g
(“Fulfillment of the parties’ expectations is not the only value in contract
law; regard must also be had for state interests and for state regulation.”).
The section 188 contacts thus overwhelmingly favor Wyoming. See
Cardoni, 805 F.3d at 583 (giving determinative weight in the more significant
relationship analysis to the fact that negotiations and place of performance
were in Oklahoma); DeSantis, 793 S.W.2d at 678–79 (finding that execution
of contract and performance of personal services in Texas favored applying
Texas law). Four favor Wyoming with one being neutral. None favor Texas.
Understandably, then, Cannon tries to shift focus from the contract-
specific section 188 contacts to one of the general conflict-of-laws principles
in section 6 of the Restatement.6 Those “general principles” are the
6
The factors include:
(a) the needs of the interstate and international systems,
(b) the relevant policies of the forum,
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background considerations that underlie “the more specific rules” in the
Restatement for tort (section 145) or contract (section 188). Gutierrez v.
Collins, 583 S.W.2d 312, 318 (Tex. 1979); see also Restatement § 188 cmt.
e (“[T]he forum, in applying the principles of § 6 . . . should give
consideration to the relevant policies of all potentially interested states . . . .
The states which are most likely to be interested are those which have one or
more of the following contacts with the transaction or the parties.”). Texas
law is unclear on whether we must separately consider the section 6 factors
or whether we can instead assume that the section 188 contacts are sufficient
“application[s] of the general Section 6 considerations” in the contract
context. Cardoni, 805 F.3d at 582 n.9; compare DeSantis, 793 S.W.2d at 678–
79, and Drennen, 452 S.W.3d at 326 (neither specifically addressing the
section 6 factors), with Sonat, 271 S.W.3d at 234–35 (directly considering one
of the section 6 factors). But we can assume that we should independently
consider the section 6 factors because doing so does not change the outcome.
Cannon invokes the section 6 principle that courts should protect the
justified expectations of the parties, which is particularly important in
contract cases.7 See Sonat, 271 S.W.3d at 236 (giving decisive weight to the
(c) the relevant policies of other interested states and the relative interests of those
states in the determination of the particular issue,
(d) the protection of justified expectations,
(e) the basic policies underlying the particular field of law,
(f) certainty, predictability and uniformity of result, and
(g) ease in the determination and application of the law to be applied.
7
The parties do not focus on other section 6 principles like predictability,
uniformity, and ease of application. That is likely because they do not counsel strongly in
favor of either state. Although “[e]nforcing contracts according to their own terms”
enhances predictability and uniformity, Sonat, 271 S.W.3d at 235, the “ease of
determination and application of law . . . points to applying the law of the state where the
injured party brought suit,” Chesapeake, 94 S.W.3d at 177.
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expectations of the parties). This favors application of Texas law though not
emphatically so. At a basic level, parties that enter a bargain expect to be
bound by its terms. Texas law would allow the indemnity provision;
Wyoming law would invalidate it.
And beyond the central fact that Cannon and KLX included an
indemnity provision in their contract, there are other indications that they
expected to be bound by it. The Master Agreement’s indemnity provision
includes a statement of compliance with the “Express Negligence Rule,” a
Texas rule that requires that contractual indemnity provisions be express and
conspicuous. See Dresser Indus. Inc. v. Page Petroleum, Inc., 853 S.W.2d 505,
508 (Tex. 1993). Moreover, both KLX and Cannon acquired liability
insurance coverage as required by the indemnity clause in their agreement.
In Sonat, the Texas Supreme Court relied on similar clues and noted that
“the parties’ expectations as stated in their contract should not be
frustrated.” 271 S.W.3d at 235; see also Banta, 568 S.W.3d at 713 (using the
purchase of insurance as a relevant fact in the analysis); Chesapeake, 94
S.W.3d at 176 (applying Texas law because “the parties explicitly drafted
indemnity provisions and purchased insurance to meet Texas law”).
But these clues that Cannon offers to explain the parties’ expectations
are not as one-sided as they appear on the surface. For one thing, KLX and
Cannon’s contract also includes an obligation to acquire liability insurance
notwithstanding the insurance obligation in the indemnity provision. For
another, the savings clause we discussed earlier—recognizing that applicable
law may operate to limit the indemnity provision—shows that the parties
understood that their indemnity provision might not be given full effect.
Although the parties may have had a qualified expectation that their
indemnity agreement would be enforced as Texas law allows, other
considerations would have led the parties to reasonably expect that Texas law
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would not apply. Parties generally expect that the law of the place of
negotiation, contracting, and performance—none of which were Texas
here—will govern. Indeed, in Sonat, the case that Cannon relies on to argue
that justified expectations should control, the Texas Supreme Court’s
decision to apply Louisiana law meant not only that the contract would be
enforced but also that the law of the place of performance would govern. 271
S.W.3d at 235–36; see Maxus Expl. Co. v. Moran Bros., Inc., 817 S.W.2d 50, 57
(Tex. 1991); Restatement § 196 cmt. c (“Indeed, it can often be assumed
that the parties . . . would expect that the local law of the state where the
services . . . are to be rendered would be applied to determine many of the
issues arising under the contract.”).8 Accordingly, the parties’ expectations
do not necessarily favor applying Texas law.
But even if the protection of justified expectations favors applying
Texas law, those expectations can be overcome if they are “substantially
8
This is one example of the section 188 contacts as a specific application of the
section 6 factors. Place of contract, negotiation, and performance are relevant
considerations because, among other things, they influence the parties’ justified
expectations.
For similar reasons, another Restatement section creates a presumption in favor of
applying the law of the state where “the contract requires that the services, or a major
portion of the services, be rendered.” Restatement § 196; see also id. § 188(3)
(directing courts to consider certain contract-specific presumptions that appear later in the
Restatement, including section 196). The Supreme Court of Texas reads section 196 as
making the place of performance “factor . . . conclusive in determining what state’s law is
to apply.” DeSantis, 793 S.W.2d at 679 (citing Restatement § 196). The section 196
presumption, however, applies only when a “major portion of the services called for by the
contract is to be rendered in a single state and it is possible to identify this state at the time
the contract is made.” Restatement § 196 cmt. a; see also Sonat, 271 S.W.3d at 234
(declining to apply the presumption because no state “loomed large” during negotiations).
Here, the parties arguably knew at the time of contracting that a major portion of the
services would be rendered in Wyoming. But because we ultimately conclude that
Wyoming law applies under section 187, we need not determine whether it also applies
under section 196.
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outweighed by the interests of the state with the invalidating rule.” Sonat,
271 S.W.3d at 235; see Restatement § 188 cmt. b (“Protection of the
justified expectations of the parties is a factor which varies somewhat in
importance from issue to issue. . . . The extent of the interest of a state in
having its rule applied should be determined in the light of the purpose sought
to be achieved by the rule and by the relation of the transaction and the parties
to that state.”). That brings us to other section 6 principles, which ask us to
weigh the policies of the relevant states. See Restatement § 6(2)(b), (c).
This inquiry, duplicative of the “materially greater interest” analysis we are
about to conduct, see CMA-CGM, 416 S.W.3d at 517, cuts sharply in
Wyoming’s favor. As we discuss below, Wyoming’s concern that indemnity
undermines safety has great force in a dispute seeking indemnification for an
injury to one of its residents in one of its oilfields. See, e.g., id. at 516 (finding
that Texas policies outweighed other considerations including the
expectation that Maryland law would apply); see also Roberts, 235 F.3d at 942
(finding that Louisiana’s anti-indemnity policies outweighed expectation
that an indemnity agreement would be enforced when the dispute involved
Louisiana subcontractors that the law aimed to protect).
The section 6 principles thus confirm what the contract-specific
section 188 contacts decisively recommend. In the absence of a choice-of-
law clause, Wyoming law would apply to this indemnity demand for a
Wyoming lawsuit brought by a Wyoming resident performing work in the
state for a Wyoming company.
B.
To overcome the parties’ contrary choice of Texas law, KLX must
next show that Wyoming’s interest in this indemnity matter is “materially
greater” than Texas’s.
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It easily is. Wyoming bans oilfield indemnity provisions so that oil and
gas companies “internalize the costs of their own operations” and become
“more mindful of employee safety.” Lexington Ins. Co. v. Precision Drilling
Co., 830 F.3d 1219, 1220 (10th Cir. 2016). This policy stems from
Wyoming’s deep experience with the “hazardous undertaking” of drilling
and mining. Mountain Fuel Supply Co. v. Emerson, 578 P.2d 1351, 1355 (Wyo.
1978).
Wyoming’s interest in promoting worker safety in its oilfields is at its
zenith on these facts. The underlying state court proceeding—in which a
Wyoming resident was injured in Wyoming by the alleged negligence of a
Wyoming oil company—implicates Wyoming’s policy with precision.
Enforcing the indemnity provision would discourage what Wyoming hopes
to encourage—Cannon’s taking steps to avoid injuries in its oilfield
operations.
On the other side of the scale, Texas’s interest in this dispute is more
attenuated. Its interest in enforcing the contract of one of its businesses is
lessened when the contract was not negotiated, drafted, or performed within
its borders. Under these circumstances, Wyoming’s interest is materially
greater. See Cardoni, 805 F.3d at 584; CMA-CGM, 416 S.W.3d at 517.
C.
KLX must clear one more Restatement hurdle before Wyoming’s
indemnity ban will govern. It is not enough that Wyoming has a more
significant relationship to the parties and a materially greater interest in
applying its policy; its anti-indemnity policy must be “fundamental.” This
question “poses a challenge as neither the Supreme Court of Texas nor the
Restatement has articulated a clear standard for determining when a policy is
‘fundamental.’” Cardoni, 805 F.3d at 585. But both features of the policies
that Texas courts have found fundamental exist here.
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Case: 21-20115 Document: 00516125010 Page: 17 Date Filed: 12/10/2021
No. 21-20115
Wyoming’s ban on oilfield indemnification is codified and voids any
such agreement as being “against public policy.” Wyo. Stat. Ann. § 30-
1-131. Federal and state courts applying this statute have invalidated
indemnity agreements despite the parties’ having ties to other states. See,
e.g., Kaiser-Francis Oil Co. v. Noble Casing Inc., 2017 WL 1947506, at *5 (D.
Wyo. May 10, 2017); Bolack v. Chevron, U.S.A., Inc., 963 P.2d 237, 242 (Wyo.
1998). Because Wyoming “has taken the unusual step of stating [the policy]
explicitly” in a statute, Chesapeake, 94 S.W.3d at 178, and “will refuse to
enforce an agreement” contrary to the policy even when other states
connected to the agreement would enforce it, DeSantis, 793 S.W.2d at 680,
the anti-indemnity policy is a fundamental one.
***
Wyoming law applies. Its Oilfield Anti-Indemnity Act does not allow
Cannon’s claim for indemnification. The judgment of the district court is
AFFIRMED.
17