Elder Offshore Leasing, Inc. v. Bolivarian Republic

United States Court of Appeals
Fifth Circuit
F I L E D
In the December 1, 2004
United States Court of Appeals Charles R. Fulbruge III
for the Fifth Circuit Clerk
_______________
m 04-30219
Summary Calendar
_______________
ELDER OFFSHORE LEASING, INC.,
Plaintiff-
Intervenor Defendant-
Appellee,
VERSUS
BOLIVARIAN REPUBLIC OF VENEZUELA,
Intervenor Plaintiff-
Appellant,
VERSUS
SAFE HAVEN ENTERPRISES, INC., ET AL.,
Defendants.
_________________________
Appeal from the United States District Court
for the Western District of Louisiana
m 02-CV-1685
m 02-CV-2517
m 02-CV-1274
_________________________
Before, DAVIS, SMITH, and DENNIS, Circuit Although Venezuela paid Totalmar, Total-
Judges. mar failed to pay Elder for all its work, so El-
der did not pay its subcontractors.
JERRY E. SMITH, Circuit Judge:* Consequently, multiple civil actions were insti-
tuted in Louisiana (where the construction was
The Bolivarian Republic of Venezuela taking place). Elder sued Safe Haven En-
(“Venezuela”) brings this interlocutory appeal terprises (“Safe Haven”), which is alleged by
challenging the district court’s determination Elder to be a joint venturer with Elder in the
that title to disputed property never passed construction of the modules. Safe Haven re-
from Elder Offshore Leasing, Inc. (”Elder”). sponded by filing a lien against the modules
Because the contractual provision on which and sued to enforce that lien. Safe Haven’s
Venezuela relies is not operative in the current case was removed to federal court and consol-
dispute, title never passed, and we affirm. idated with Elder’s original action against Safe
Haven. At that point, numerous subcon-
I. tractors and lienholders intervened in the fed-
Requiring new living quarters for the Simon eral action, as did Venezuela.
Bolivar Naval Base on Isla de Aves,1 Ven-
ezuela contracted to have new living quarters, Venezuela claims that title to the modules
or “modules,” constructed for the base. To has passed to it under the Elder/Totalmar con-
build the modules (three-story dormitory-type tract and that sovereign immunity protects the
structures with work areas, residential property from attachment. The Totalmar/El-
quarters, recreations areas, kitchens, and a der contract provides that title passes on the
rooftop heliport), Venezuela contracted with earliest occurrence of any three possibilities:
Totalmar, a Venezuelan corporation, which in “(a) appropriation of the Work or any part
turn contracted with Elder to procure and re- thereof to the Order; or (b) payment for the
furbish the modules. The Venezuela/Totalmar Work; or (c) delivery of the Work by Contrac-
contract provided that Totalmar would tor at the specified delivery point.” Because
prepare the island site and purchase, transport, neither party contends that payment was made
and install the modules, while under the Total- or that delivery occurred,2 the sole issue is the
mar/Elder contract, Elder would procure the meaning and application of “appropriation of
modules and renovate them to Venezuela’s the Work or any part thereof to the Order.”
specifications.
* 2
Pursuant to 5TH CIR. R. 47.5, the court has de- Although the modules were eventually moved
termined that this opinion should not be published to Isla de Aves, we operate under the legal fiction
and is not precedent except under the limited cir- that they remain at their manufacturing location in
cumstances set forth in 5TH CIR. R. 47.5.4. Louisiana. Pursuant to a Joint Stipulation entered
into by Elder, Venezuela, and the other lienholders,
1
Isla de Aves is Venezuela’s furthest outpost in Venezuela posted a cash bond in exchange for
the Caribbean Sea. The naval base is used for hy- immediate possession. By the terms of the Joint
drographic, cartological, and meteorological pur- Stipulation, the cash bonds will pay to Elder and
poses, and Venezuela needs the modules to main- the lienholders unless the court rules that Ven-
tain its presence on the island and therefore ezuela is the owner of the modules and sovereign
continue to claim sovereignty over it. immunity protects them from seizure.
2
At a bench trial, the district court adjudi- refers to Totalmar’s order for the modules.4 It
cated the current ownership of the modules is not apparent from the plain meaning of the
and reserved the disposition of the remaining contract, however, what the parties intended
claims for another day. On considering the ev- by agreeing that title passes on appropriation
idence and arguments of counsel, the court of the work to the order. We therefore look
held that, under the operative contractual pro- to interpretive guides outside the text of the
visions, title never passed to Venezuela, but contract.
remained with Elder. In its oral ruling, the
court reasoned that the disputed contractual Venezuela calls our attention to cases in
provision exists to protect the seller, and which this court and others interpreted a sim-
therefore the court disagreed with Venezuela’s ilar phrase, i.e., “appropriate goods to the con-
reading of the contract. The ruling was certi- tract.” Although Venezuela contends that this
fied for appeal under Federal Rule of Civil difference in phrasing is insignificant, it is in
Procedure 54(b). See Kelly v. Lee’s Old fact quite illuminating. In the cases cited,5 the
Fashioned Hamburgers, Inc., 908 F.2d 1218, goods at issue were fungible, and the contracts
1220 (5th Cir. 1990) (per curiam) (en banc). called for the sale of a specified quantity of
those goods.
II.
We review the interpretation of a contract, For example, in Mitsubishi, 735 F.2d at
which is a conclusion of law, de novo. See 165, we held that “when goods to be deliv-
City of New Orleans v. Mun. Admin. Servs., ered by the seller to the buyer become segre-
Inc., 376 F.3d 501, 506 (5th Cir. 2004). This gated from other goods or appropriated to the
dispute is governed by the terms of the con- contract so that the objects to be sold are
tractSSspecifically, the above-described “ap- readily identifiable, the same becomes
propriate the Work . . . to the Order” provi- executed, and at that time title to the goods
sion. It is our responsibility to attach meaning passes to the buyer” (emphasis added).
to this phrase as intended by the parties.3 Therefore, the phrases “appropriating goods to
a contract” and “appropriating work to an
Luckily, some of the terms within the pro- order” indicate the physical segregation,
vision are defined by the contract. “Work” is setting aside, or other identification of a subset
defined as “the goods, services and/or equip- of goods apart from a greater stock. Such an
ment and documentation to be provided under act, and the accompanying passage of title per
the contract . . . .” “Order” is not specifically contract, allow a seller to complete
defined, but it is plain from the contract that it
4
The parties do not dispute this.
3 5
See Reliant Energy Servs., Inc. v. Enron Can- See, e.g., Mitsubishi Int’l Corp. v. Clark Pipe
ada Corp., 349 F.3d 816, 822 (5th Cir. 2003) & Supply Co., 735 F.2d 160, 165 (5th Cir. 1984);
(“‘When interpreting a contract, the question is Edgewood Co. v. Falkenhagen, 92 So. 703 (La.
what was the parties’ intent, [because] courts are 1922); Collector of Revenue v. J.L. Richardson
compelled to give effect to the parties’ intentions’” Co., 247 So. 2d 151, 156 (La. App. 4th Cir.
(quoting Pennzoil Co. v. FERC, 645 F.2d 360, 388 1971); Texas Hay Ass’n v. Angleton State Bank,
(5th Cir. May 1981))). 291 S.W. 846 (Tex. Comm’n App. 1927).
3
performance of a contract so as to be able to This interpretation makes the most sense and
demand performance by the buyer or at least is in accord with that given by the courts in the
to pass risk of loss to the buyer. cases cited by Venezuela.
It is obvious, from the context of the cases Venezuela counters that Elder purchased
relied on by Venezuela, that this provision is used modules, brought them to the construc-
not helpful to its case. Here, the “work” to be tion site, and thereby appropriated them to the
appropriated is not of the fungible nature that contract. Subsequently, according to Vene-
usually causes the seller to seek protection by zuela, with the addition of each item Elder in-
allowing it to pass title and risk by identifying stalled in the modules, those items too were
the goods to be sold. It is unreasonable to be- appropriated to the order.
lieve that Elder intended to agree to yield title
to the modules, piece by piece, irrespective of Unfortunately, Venezuela cannot point to
payment, by utilizing a contractual provision any case in which this piece-by-piece formula-
that historically has been used to protect tion of appropriating work to an order has
sellers. been applied. Instead, provisions of the sort at
issue here are unanimously used in the context
This interpretation is bolstered further by of fungible goods. The disputed provision
the International Commercial Terms, or “Inco- therefore is of no moment here7 and could not
terms,” which the parties agreed would apply have effected passage of title.
to the contract where not in conflict with its
express conditions. The Incoterms are a set of The interpretation reached by the district
international rules for the interpretation of court was therefore correct. Title to the mod-
trade terms, published by the International ules never passed from Elder.
Chamber of Commerce.
AFFIRMED.
The only use of the phrase “appropriated to
the contract” by the Incoterms indicates that a
seller in an FOB contract6 may choose to pass
title to goods, by clearly setting them aside or
identifying them where the specified vessel of
shipment fails to arrive or is otherwise unable
to accept shipment. That is, the seller can shift
7
risk and title by taking affirmative steps to The inclusion of this inapplicable provision
identify the specific, fungible goods it intends could be explained if the contract used was adopted
to sell. The Incoterms, therefore, indicate that from a previous contract dealing with an entirely
different set of facts. Although the evidentiary
the disputed contractual phrase exists to
record is not illuminating as to the provenance of
protect the seller by allowing it to shift risk at the contract, Venezuela suggested, at oral argument
its prerogative by performing certain steps. in the district court, that the form used as the basis
for this contract came from a previous transaction
in which Elder was involved. If true, this would
6
An “FOB” contract is one in which the buyer lend even further credence to the notion that the
assumes risk of loss upon the seller’s shipment of “appropriate work to the order” provision is not
the contracted-for goods. applicable here.
4