Transocean Enterprise, Inc. v. Ingalls Shipbuilding, Inc.

IN THE SUPREME COURT OF MISSISSIPPI
NO. 2008-CA-01823-SCT
TRANSOCEAN ENTERPRISE, INC.
v.
INGALLS SHIPBUILDING, INC.
ON MOTION FOR REHEARING
DATE OF JUDGMENT: 10/10/2008
TRIAL JUDGE: HON. ROBERT P. KREBS
COURT FROM WHICH APPEALED: JACKSON COUNTY CIRCUIT COURT
ATTORNEYS FOR APPELLANT: JOHN A. SCIALDONE
TODD G. CRAWFORD
RYAN A. HAHN
ATTORNEYS FOR APPELLEE: RICHARD P. SALLOUM
J. THOMAS HAMRICK, JR.
NATURE OF THE CASE: CIVIL - OTHER
DISPOSITION: AFFIRMED - 03/11/2010
MOTION FOR REHEARING FILED: 10/07/2009
MANDATE ISSUED:
EN BANC.
CARLSON, PRESIDING JUSTICE, FOR THE COURT:
¶1. The motion for rehearing is granted.1 The original opinions are withdrawn and these
opinions are substituted therefor.
¶2. Ingalls Shipbuilding, Inc., and Transocean Enterprise, Inc., were named defendants
in a personal-injury action which was settled. Ingalls Shipbuilding, Inc., alleged a claim for
1
Based on today’s opinion, the Motion to Amend or Clarify Opinion filed by
Transocean Enterprise, Inc., is dismissed as moot.
contractual indemnity pursuant to a Shipyard Agreement between itself and Transocean
Enterprise, Inc. The Circuit Court of Jackson County entered judgment granting Ingalls
Shipbuilding, Inc., indemnity, and as a result, Transocean Enterprise, Inc., appealed to this
Court.
FACTS AND PROCEEDINGS IN THE TRIAL COURT
¶3. This matter arises from a lawsuit filed by Ernie Cardwell against Transocean
Enterprise, Inc., (Transocean) and Ingalls Shipbuilding, Inc., (Ingalls)2 in the Circuit Court
of Jackson County. Cardwell alleged that he was injured on May 28, 1999, while employed
by Coastline Contractors, Inc., (Coastline) and working aboard the drill ship Discoverer
Enterprise as a welder/pipe fitter. The Discoverer Enterprise originally was constructed in
Spain, before sailing to Ingalls’ shipyard in Pascagoula, Mississippi, for installation of a
twenty-story drill derrick and various drilling modules. Allegedly, while Cardwell was
sitting on the post, the vessel’s ballast tanks were adjusted, causing it to shift, which resulted
in tension so great that it broke away and ripped the rigging post from the deck. This series
of events caused Cardwell to fly approximately twenty feet into the air and land on the ship’s
deck, rendering him unconscious.
¶4. Cardwell subsequently filed this personal-injury action for damages against both
Transocean and Ingalls. Cardwell’s claim was settled for $625,000 ($300,000 paid by
Transocean, $300,000 paid by Ingalls, and $25,000 paid by workers’ compensation). Ingalls
2
Ingalls Shipbuilding, Inc., became Northrop Grumman Ship Systems, Inc., in 2002,
and in 2008, became Northrop Grumman Shipbuilding, Inc.
2
filed a cross-claim against Transocean, alleging that the Shipyard Agreement between them
obligated Transocean to defend and indemnify Ingalls.3 Article XVI of the Shipyard
Agreement between Transocean Enterprise and Ingalls stated, inter alia:
Builder and Owner each agree to defend, indemnify and hold the other and their
respective affiliates, officers, directors, agents and employees and subcontractors free
and harmless from and against any and all claims, demands, causes of action,
judgments or liabilities of every kind and character (including, without limitation,
the cost of the suit and reasonable attorneys’ fees) brought by any invitees of the
indemnitor or its subcontractors or representatives or any survivor of the foregoing
on account of injury to or death of any such parties or damages to their property in
connection with the work. The indemnity obligations assumed in the preceding
sentence shall be without limit and without regard to the cause or causes thereof
(including pre-existing conditions), the unseaworthiness of any vessel or vessels or
the negligence of any party or parties, whether such negligence be sole, joint or
concurrent, active or passive or gross.
¶5. On January 10, 2008, the Circuit Court of Jackson County, Judge Robert P. Krebs
presiding, heard oral arguments,4 and subsequently, on July 30, 2008, entered an order
granting Ingalls indemnity as to Transocean in the amount of $300,000, subject to
prejudgment interest; however, Ingalls’ request for attorneys’ fees was denied. As a result,
a Final Judgment, dated August 4, 2008, was entered. On August 14, 2008, Ingalls filed its
Motion to Alter or Amend Order and Judgment, seeking attorneys’ fees and expenses in
defending against Cardwell’s claims. Transocean responded that it agreed with the position
of Ingalls, “but solely for the reason that if indemnity is owed under the Shipyard Agreement
3
Ingalls also argues that the Shipyard Agreement required Transocean to procure
liability insurance to protect Ingalls against Cardwell’s claims.
4
The record reflects that both parties, through their attorneys, agreed to submit the
issues to the trial judge on briefs and oral arguments, without the benefit of a jury.
3
at issue, then Transocean agrees the contract would otherwise provide for the recovery of
attorney’s fees as a component of this indemnity.” (Emphasis added.) Thus, Transocean
reserved its right to challenge the underlying basis upon which indemnity was awarded. On
October 10, 2008, the Jackson County Circuit Court entered its Amended Order and Final
Judgment, stating that Ingalls should recover from Transocean “the sum of $300,000 plus its
reasonable attorney’s fees of $33,619.50 and expenses of $7,881.94 in defending against the
claims of Ernie Cardwell in this case, plus prejudgment interest of $118,112.72 calculated
at 8% per annum in accord with Section 75-17-1(1) Mississippi Code Annotated from June
15, 2004 . . . plus post-judgment interest of 8% per annum from the date hereof and all costs
of suit herein.” Transocean timely perfected this appeal.
DISCUSSION
¶6. Transocean contends that the indemnity provision of the Shipyard Agreement is not
triggered because Ernie Cardwell was an independent contractor of Transocean, as opposed
to a subcontractor or an invitee. Further, Transocean argues that, even assuming the
indemnity provision is triggered, Ingalls’ claim is barred by Mississippi Code Section 31-5-
41. The issues presented to this Court for consideration are as follows: (1) whether the trial
court erred in granting indemnity to Ingalls in its cross-claim against Transocean pursuant
to the Shipyard Agreement between these parties; (2) whether the trial court erred by
interpreting the contract terms for indemnity to an invitee, when Coastline employee Ernie
Cardwell was aboard the vessel as an independent contractor at the time of his alleged
injuries; (3) whether the trial court erred in applying Mississippi law over general maritime
4
law, which does not recognize the status of an invitee, and likewise, whether the trial court
erred in finding the Discoverer Enterprise was not a vessel capable of navigation; and (4)
alternatively, if Mississippi law applies, whether the trial court erred by not applying
Mississippi Code Section 31-5-41, which invalidates the indemnity provision at issue. The
ultimate issue before this Court is whether the trial court erred in granting indemnity to
Ingalls. We thus combine these issues and restate the critical issue before us for the sake of
today’s discussion.
WHETHER THE TRIAL COURT ERRED IN GRANTING
INDEMNITY TO INGALLS IN ITS CROSS-CLAIM AGAINST
TRANSOCEAN PURSUANT TO THE SHIPYARD AGREEMENT
BETWEEN THESE PARTIES.
¶7. “In bench trials, a circuit judge’s findings are subject to the same standard of review
as those of a chancellor.” Univ. of Miss. Med. Ctr. v. Pounders, 970 So. 2d 141, 145 (Miss.
2007) (citing Kight v. Sheppard Bldg. Supply, Inc., 537 So. 2d 1355, 1358 (Miss. 1989)).
“Our familiar standard of review requires that when a trial judge sits without a jury, this
Court will not disturb his factual determinations where there is substantial evidence in the
record to support those findings.” Ezell v. Williams, 724 So. 2d 396, 397 (Miss. 1998)
(citing Yarbrough v. Camphor, 645 So. 2d 867, 869 (Miss. 1994); Omnibank of Mantee v.
United S. Bank, 607 So. 2d 76, 82 (Miss. 1992)). Thus, our scope of review affords
deferential treatment to the trial judge’s findings. City of Greenville v. Jones, 925 So. 2d
106, 109 (Miss. 2006). “[T]his Court ought and generally will affirm a trial court sitting
without a jury on a question of fact unless, based upon substantial evidence, the court must
5
be manifestly wrong.” Yarbrough, 645 So. 2d at 869 (citations omitted). “The word
‘manifest,’ as defined in this context, means ‘unmistakable, clear, plain, or indisputable.’”
Singley v. Singley, 846 So. 2d 1004, 1007 (Miss. 2002) (quoting Magee v. Magee, 661 So.
2d 1117, 1122 (Miss. 1995)). This Court, however, reviews questions of law de novo.
Howard v. Estate of Harper ex rel. Harper, 947 So. 2d 854, 856 (Miss. 2006) (citing
Sennett v. United States Fid. & Guar. Co., 757 So. 2d 206, 209 (Miss. 2000)). See also
Harrison County v. City of Gulfport, 557 So. 2d 780, 784 (Miss. 1990).
¶8. Before the trial court, Ingalls argued that Mississippi law should apply over general
maritime law, and the trial court agreed. “It has long been held that neither ship construction
nor supplying materials for that purpose is a maritime business . . . .” Lowe v. Ingalls
Shipbuilding, Div. of Litton Systems, Inc., 723 F.2d 1173, 1185 (5th Cir. 1984) (citation
omitted). “[T]he same reasons which exclude such contracts from admiralty jurisdiction
likewise apply to agreements made after the hull is in the water, for the work and material
necessary to consummate a partial construction and bring the vessel into condition to
function as intended.” Thames Towboat Co. v. The Schooner “Francis McDonald” (The
Francis McDonald), 254 U.S. 242, 245, 41 S. Ct. 65, 65 L. Ed. 245 (1920); see also Cain
v. Transocean Offshore USA, Inc., 518 F.3d 295, 301 (5th Cir. 2008) (“a structure under
construction remains a non-vessel until it is complete and ready for duty upon the sea”). As
stated by the trial court, “[w]hile the vessel was able to sail to Ingalls under its own power,
it was not in condition that it could perform the type of duty for which it was built, therefore
making maritime law inapplicable.” The Discoverer Enterprise was built and designed to
6
be a drill ship; therefore, it was not in condition to function as intended until the twenty-story
drill derrick and various drilling modules were installed at Ingalls. Also, the Shipyard
Agreement contained a choice-of-law provision which stated that it would be governed by
Mississippi law. “[U]nder admiralty law, where the parties have included a choice of law
clause, the state’s law will govern unless the state has no substantial relationship to the
parties or the transaction or the state’s law conflicts with the fundamental purposes of
maritime law.” Stoot v. Fluor Drilling Servs., Inc., 851 F.2d 1514, 1517 (5th Cir. 1988).
As such, the trial court correctly determined that maritime law does not apply and that
Mississippi law governs this dispute.
¶9. The trial court also ruled that Cardwell was an invitee, stating:
“[A]n invitee is a person who goes upon the premises of another in answer to
the express or implied invitation of the owner or occupant for their mutual
advantage. . . .” Martin v. B. P. Exploration & Oil, 769 So. 2d 261 (Miss. Ct.
App. 2000). It is clear that Cardwell was on the Discoverer Enterprise based
upon an express invitation to be there. The Court can see no other way, under
Mississippi law, to classify Cardwell.
As evidenced by the record, Cardwell was employed by Coastline, and Coastline employees
not only performed work assignments at the direction of Transocean, but they actually were
housed aboard the Discoverer Enterprise. The trial court did not abuse its discretion in
ruling that Cardwell was an invitee under Mississippi law. This Court has held that “an
invitee is a person who goes upon the premises of another in answer to the express or implied
invitation of the owner or occupant for their mutual advantage.” Leffler v. Sharp, 891 So.
2d 152, 156 (Miss. 2004) (citations omitted). Cardwell was aboard the Discoverer
7
Enterprise at Ingalls’ shipyard due to the invitation of Transocean via Coastline for the
mutual advantage of all parties herein.
¶10. As discussed by the trial court, with the classification of Cardwell as an invitee, the
language of the Shipyard Agreement is clear, and Transocean seemingly has a duty to
indemnify Ingalls. This duty, however, arguably could be voided by Mississippi Code
Section 31-5-41 to the extent that the indemnity provision in the Shipyard Agreement
provides for indemnification of Ingalls for Ingalls’ own negligence. The trial court
justifiably did not address the implications of Mississippi Code Section 31-5-41. This
section states:
With respect to all public or private contracts or agreements, for the
construction, alteration, repair or maintenance of buildings, structures,
highway bridges, viaducts, water, sewer or gas distribution systems, or other
work dealing with construction, or for any moving, demolition or excavation
connected therewith, every covenant, promise and/or agreement contained
therein to indemnify or hold harmless another person from that person's own
negligence is void as against public policy and wholly unenforceable.
This section does not apply to construction bonds or insurance contracts or
agreements.
Miss. Code Ann. § 31-5-41 (Rev. 2008). This statute could reasonably be interpreted as
invalidating indemnity or “hold-harmless” clauses in construction contracts to indemnify
another person from that person’s own negligence. Id. Transocean and Ingalls, however,
stipulated that the issue of tort allocation of liability was not before the trial court, and thus,
not before this Court. In addition, neither party has argued fault, and there is insufficient
information in the record for this Court to determine to what extent, if any, Ingalls was
8
negligent and seeks to be indemnified for its own negligence. Thus, this Court, like the trial
court, is not required to consider the issue of whether the provisions of Section 31-5-41 are
applicable to today’s case. As such, we are constrained to affirm the judgment of the trial
court granting Ingalls indemnity.
CONCLUSION
¶11. The trial court correctly determined that Mississippi law governs this dispute and that
Cardwell was an invitee. Mississippi Code Section 31-5-41 cannot be applied to our case
today since the issue of fault is not before this Court. Thus, we affirm the judgment of the
Jackson County Circuit Court.
¶12. AFFIRMED.
WALLER, C.J., DICKINSON, LAMAR AND PIERCE, JJ., CONCUR.
GRAVES, P.J., SPECIALLY CONCURS WITH SEPARATE WRITTEN OPINION
JOINED BY KITCHENS, J.; RANDOLPH AND CHANDLER, JJ., JOIN IN PART.
RANDOLPH, J., SPECIALLY CONCURS WITH SEPARATE WRITTEN OPINION
JOINED BY CHANDLER, J.; DICKINSON AND PIERCE, JJ., JOIN IN PART.
GRAVES, PRESIDING JUSTICE, SPECIALLY CONCURRING:
¶13. Finally, the majority reaches the right result in this case. But, alas, it is for the wrong
reason. While I agree that this Court should not consider the applicability of Section 31-5-41
and that Ingalls is entitled to indemnity, I am compelled to explain the reasons for my
agreement.
¶14. The majority states: “Transocean seemingly has a duty to indemnify Ingalls. This
duty, however, arguably could be voided by Mississippi Code Section 31-5-41 to the extent
that the indemnity provision in the Shipyard Agreement provides for indemnification of
9
Ingalls for Ingalls’ own negligence.” Maj. Op. ¶ 10 (emphasis added). There are two
reasons why that conclusion is flawed.
¶15. First, as I explained in my dissent to the original majority opinion in this case,
Transocean waived the affirmative defense of the applicability of Mississippi Code Section
31-5-41. That dissenting opinion stated:
The majority reverses the trial court's grant of indemnity to Ingalls,
holding that Mississippi Code Section 31-5-41 invalidates indemnity clauses
in construction contracts that indemnify a person from that person's own
negligence, and that Transocean preserved the issue of the applicability of
Section 31-5-41 for consideration on appeal. I disagree that Transocean
preserved the issue of the applicability of Section 31-5-41, and therefore I
dissent.
The majority reasons that Transocean preserved the issue for appeal
when, in its answer to the third-party complaint, it pleaded: 1) Ingalls “failed
to state a claim or cause of action upon which relief may be granted” and 2)
“all defenses to the validity or enforceability of any indemnity provisions
which are available to it under the . . . laws of Mississippi. . . . ” The majority
also points out that Transocean asserted the applicability of Section 31-5-41
in its pretrial brief. It is illogical to argue that Transocean preserved the issue
of the applicability of this little-known statute by including in its answer the
boilerplate Rule 12(b)(6) defense of “failure to state a claim or cause of action
upon which relief may be granted” and the very general pleading of all
defenses available under Mississippi law to Ingalls' claim for indemnity.
Furthermore, whether or not Transocean raised Section 31-5-41 in its pretrial
brief is irrelevant because Transocean filed its pretrial brief six and one-half
years after it filed its answer to the third-party complaint.
Transocean should be barred from asserting the affirmative defense of
the applicability of Section 31-5-41 because Transocean failed to timely raise
the defense as required by the Mississippi Rules of Civil Procedure. Rule 8(c)
provides that, in pleading to a preceding pleading such as a cross-claim, a party
shall set forth all affirmative defenses. Miss. R. Civ. P. 8(c). Similarly, Rule
12(b) provides that all defenses to a claim for relief in any pleading, including
a cross-claim, shall be asserted in the responsive pleading thereto if one is
required. Miss. R. Civ. P. 12(b). See also Miss. Dep't of Human Servs. v.
10
Guidry, 830 So. 2d 628, 634 (Miss. 2002) (explaining that when a responsive
pleading is required, an affirmative defense is waived if not raised by a
pleading). Transocean failed to raise the affirmative defense of the
applicability of Section 31-5-41 in its answer to the third-party complaint and
never amended its answer pursuant to Rule 15(a)FN1 to include the defense.
There is no evidence in the record that Transocean was even aware of the
existence of Section 31-5-41 at or around the time Transocean wrote its answer
to the third-party complaint. Transocean did not raise Section 31-5-41 until
it filed its pretrial brief in November 2007, six and one-half years after it filed
its answer to the third-party complaint.
FN1. Rule 15(a) provides that a party may amend a pleading at any
time before a responsive pleading is served, or, if a pleading is one to
which no responsive pleading is permitted and the action has not
been placed on the trial calendar, the party may amend the pleading
within thirty days after it is served. Miss. R. Civ. P. 15(a). After the
responsive pleading has been served or the thirty-day period has
elapsed (as the case may be), Rule 15(a) allows the party to amend a
pleading only by leave of the court or upon written consent of the
adverse party. Id.
The majority cites only one case, Howard v. Estate of Harper ex rel.
Harper, 947 So. 2d 854 (Miss. 2006), as support for its erroneous finding that
Transocean preserved the issue of the applicability of Section 31-5-41 for
consideration on appeal by pleading a Rule 12(b)(6) defense. In Howard,
representatives of the estates of deceased nursing home residents filed suit
against the nursing home, a nursing home administrator, and a nursing home
licensee. Howard, 947 So. 2d at 856. Among other claims, the plaintiffs
alleged medical malpractice, fraud, and breach of fiduciary duty. Id. On
appeal to this Court, the nursing home administrator and licensee raised
defenses against these three claims. Id. at 860-61. The plaintiffs responded
that the administrator and licensee had waived these defenses when the
administrator and licensee failed to assert them in either their motion to
dismiss (i.e., their original reply papers) or their petition for interlocutory
appeal. Id. at 860. In response to the plaintiffs' argument regarding waiver,
the Howard Court stated:
In the [defendants'] motion to dismiss, they asserted the
Plaintiffs failed to state a claim upon which relief could be
granted pursuant to Miss. R. Civ. P. 12(b)(6). We find this
assertion is sufficient to preserve the issue[s] for appeal.
11
Id. The Court, however, offered absolutely no explanation for this finding.
Not only is the Howard Court's finding regarding the inclusiveness of
a Rule 12(b)(6) defense unsupported, but in a more recent decision, Burleson
v. Lathem, this Court specifically stated that a Rule 12(b)(6) defense cannot
possibly preserve any and all affirmative defenses and offered a compelling
reason why this must be the case.FN2 Burleson v. Lathem, 968 So. 2d 930, 936
(Miss. 2007). In Burleson, the defendant failed to assert the affirmative
defenses of insufficiency of process and insufficiency of service of process in
his initial responsive pleadings or by motion simultaneously therewith, and he
failed to amend his answer pursuant to Mississippi Rule of Civil Procedure
15(a) to include these defenses. Id. The defendant argued that he had
preserved these defenses by including a catch-all Rule 12(b)(6) defense in his
initial answer. Id. The Burleson Court disagreed and held that interpreting
Rule 12(b)(6) to preserve all affirmative defenses would “allow the defendant
more than one bite at the apple, since he could plead a Rule 12(b)(6) defense
in the initial responsive pleadings, with the intent of asserting other Rule 12
defenses at a later time.” Id. Moreover, the argument that a Rule 12(b)(6)
defense preserves all affirmative defenses is illogical because it “fails to
explain the existence of the remaining Rule 12(b) defenses and other
affirmative defenses, which would be unnecessary if a party need only assert
a Rule 12(b)(6) defense to preserve any objections to allegations set forth in
the complaint.” Id.
FN2. The majority fails to mention Burleson v. Lathem in its
opinion.
Similarly, pleading “all defenses to the validity or enforceability of any
indemnity provisions which are available to it under the . . . laws of
Mississippi. . . . ” cannot be said to preserve any and all defenses against a
claim for indemnity, for if it did, there would be no purpose for a party
defending against a claim for indemnity to include any other defenses in its
answer. As stated above, the defendant unjustly would be allowed multiple
bites at the apple, since it could include a very general defense in its initial
answer with the intention of asserting other defenses months or, as in this case,
years later.
Lastly, as noted above, the fact that Transocean raised Section 31-5-41
in its pretrial brief is irrelevant, because Transocean filed its pretrial brief in
November 2007, six and one-half years after it filed its answer to the
third-party complaint.
12
Therefore, based on the law as well as logic, I must disagree that
Transocean preserved the issue of the applicability of Section 31-5-41 for
consideration on appeal. Accordingly, I dissent and would affirm the trial
court's grant of indemnity to Ingalls.
¶16. The second reason why this Court should not consider the applicability of Section 31-
5-41 is that this Court has no obligation to sua sponte raise the defense of the applicability
of the statute, nor should it do so in the instant case. In other words, this Court is not
required to, nor should it, rule on the issue of whether the indemnification agreement in the
Shipyard Agreement is illegal and void as against public policy. The alleged illegality at
issue is not of a severe nature, and it is unreasonable to conclude that this Court has a duty
to take up the issue sua sponte simply because it involves a possible public-policy violation.
¶17. There are instances where courts should declare contracts void as illegal and against
public policy regardless of whether the affirmative defense of illegality or contravention of
public policy is timely raised by a party. For example, where a contract consists of an
agreement to commit a felony, courts should of course refuse to enforce the contract even if
neither party timely raises the affirmative defense of illegality. This Court has long
distinguished between contracts malum in se, or inherently evil, and contracts malum
prohibitum, or unlawful by virtue of statute. See, e.g., Seymour v. Evans, 608 So. 2d 1141,
1145 (Miss. 1992) (citing Rast v. Sorrell, 127 So. 2d 435, 437 (Miss. 1961) and Gardner v.
Reed, 42 So. 2d 206, 208 (Miss. 1949)). While courts generally should refuse to enforce any
contract malum in se, regardless of whether the issue of illegality is timely raised by any of
the parties, courts generally should not refuse to enforce contracts malum prohibitum as
13
illegal or against public policy unless the defendant has timely raised the affirmative defense
of illegality.
¶18. As noted, the contract illegality at issue in the instant case is malum prohibitum, not
malum in se, and not severe in nature. But for the existence of Section 31-5-41 – which
carves out a little-known exception to the general rule regarding indemnification contracts
and makes it illegal for a party to a construction contract to contract for indemnification from
its own negligence – it would have been unquestionably legal for Transocean and Ingalls to
enter into the indemnification agreement at issue in the instant case. Many contracts to
indemnify are neither unusual nor illegal. For example, nearly every car owner enters into
a contract for liability insurance.
¶19. It is unreasonable to conclude that this Court, after determining that an affirmative
defense was not timely raised and thus waived, has a duty to take up the issue anyway sua
sponte whenever the issue involves a possible public-policy violation. If that were the case,
then arguably this Court would have a duty to research and, if relevant, sua sponte raise
practically every affirmative defense that might be available to any of the parties in the case,
because practically every law has some public-policy rationale behind it. This Court would
be obligated to void contract provisions not only pursuant to Section 31-5-41 but also on
other public-policy grounds such as statute of limitations, failure of consideration, and statute
of frauds even when such affirmative defenses were not timely raised by a party to the action.
Even if one were to argue that the applicability of Section 31-5-41 or the defense of illegality
of contract more generally is distinguishable from affirmative defenses like statute of
14
limitations and failure of consideration, under the majority’s holding, it would still follow
that courts would have the duty to research and sua sponte raise all possible defenses of
illegality (including little-known statutes declaring otherwise legal contracts void as against
public policy) every time they are presented with a contract claim. Needless to say, that
would be an unreasonable burden to place on the courts.
¶20. Mississippi caselaw holds that arguments of contract illegality are affirmative
defenses that are lost if not timely raised and that this Court does not have a general duty to
raise the issue of contract illegality sua sponte. In Hertz Commercial Leasing Division v.
Morrison, the issue presented was “whether the defendant, a lessee under an equipment
leasing agreement, must affirmatively plead that the acceleration clause [in the leasing
agreement] is a penalty – and thus substantially unenforceable – to employ that theory and
judicially avoid obligations otherwise provided under the literal language of the lease.”
Hertz Commercial Leasing Div. v. Morrison, 567 So. 2d 832 (Miss. 1990). A contract
clause is considered a penalty when it is intended to punish the breaching party rather than
compensate the injured party. See Cont’l Turpentine & Rosin Co. v. Gulf Naval Stores Co.,
142 So. 2d 200, 209 (Miss. 1962) (“ . . . the damages stipulated for must be such as to
amount to compensation only, and if the principle or compensation has been lost sight of, the
sum named will be treated as a penalty.”) A contract clause found to constitute a penalty
may be held unenforceable as against public policy. See id. at 204, 209 (where the
defendants argued that a contractual provision was void as against public policy because it
constituted a penalty and this Court ruled in their favor on this issue, holding “Sec. 8 of the
15
Articles of Association [i.e., the contract] was not a genuine-pre-estimate of liquidated
damages, but was in fact a measure to ‘police’ and terrorize the members so that they would
not violate the agreement, and is disproportionate to the actual damages.”); Hertz, 567 So.
2d at 837 (Hawkins, J., dissenting) (“This case is about a contract which could be void
because it is against public policy.”). The defendant lessee in Hertz never raised the defense
that the acceleration clause was a penalty, but the trial court took up the issue sua sponte,
construing the acceleration clause as a penalty and thus limiting the amount the plaintiff
lessor could recover under the contract. Id. at 833-34. This Court reversed the judgment of
the trial court, agreeing with the plaintiff that “penalty is in the nature of the affirmative
defense of ‘illegality’ which Rule 8(c), Miss. R. Civ. P., required that Morrison [i.e., the
defendant] plead on pain of waiver.” Id. at 834, 837. In other words, this Court held that it
was wrong for the court to raise the affirmative defense of penalty sua sponte.
¶21. Moreover, the Hertz court stated that, even when an illegal contract, like a gambling
contract, is void ab initio (i.e., treated as null and void from the outset), the contract, if sued
on, “may be said subject to the affirmative defense of illegality within Rule 8(c).” Id. at 835.
In other words, even contracts illegal on their face are subject to the affirmative defense
pleading requirement embodied in Rule 8(c), and courts may choose not to raise sua sponte
the illegality of such contracts.
¶22. The Hertz court goes on to explain that the defense of illegality is similar to the
defenses of failure of consideration and statute of frauds, both of which indisputably
16
constitute affirmative defenses and both of which will not be taken up by this Court sua
sponte:
As defenses to a contract action, failure of consideration, illegality and statute
of frauds are similar. Each assumes the contract on its face entitles plaintiff
to prevail but then reaches into the bag of rules prescribing forms and limiting
the power of persons to contract and pulls one out, saying, “See, this contract
may not be enforced.” Each finds a rule of law external to the contract and
brings it to bear to bar the plaintiff’s action. As such, failure of consideration,
illegality, and statute of frauds each “constitute[s] an avoidance or affirmative
defense.” The words “any other” preceding the general “matter constituting
an avoidance or an affirmative defense” [in Rule 8(c)] declare the specifica
“failure of consideration, . . . , illegality, . . . , [or] statute of frauds” defenses
of like genre with the genera.
The penalty theory the trial court employed is of like genre. It reaches beyond
the contract’s literal language into the positive law and employs a principle
there found to avoid Hertz’s [i.e., the plaintiff’s] enjoyment of substantial
benefits embedded in the contract’s language. This is what is meant by a
“matter constituting an avoidance or affirmative defense” within Rule 8(c).
Id. at 835. Therefore, the Hertz court held that the defense of penalty is in the nature of an
affirmative defense and that the trial court was thus wrong to raise and rule on the issue sua
sponte. Id. at 836-37. Similarly, the applicability of Section 31-5-41 is an affirmative
defense, and this Court should not raise it sua sponte.
¶23. As the Fifth Circuit has noted, the Hertz court interpreted Rule 8(c) to mean that, if
a defendant fails to affirmatively plead the defense that a contract is illegal or against public
policy, courts have an obligation to enforce the contract even if the contract is shown at trial
to be against public policy. Knight v. Knight, 208 F.3d 514, 517 (5th Cir. 2000).
¶24. Lastly, in Martin v. Estate of W. W. Martin, this Court explained that a note is a
contract, and contracts against public policy are unenforceable, but “[w]here, as here, the
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maker of a note takes the view that the note is unenforceable as against public policy, the
maker must say so affirmatively by way of defense.” Martin v. Estate of W.W. Martin, 599
So. 2d 966, 968 (Miss. 1992) (citing Hertz). See also Pass Termite and Pest Control, Inc.
v. Walker, 904 So. 2d 1030, 1033-34 (Miss. 2004) (citing Hertz and Martin as support for
the statement that affirmative defenses must be raised in a party’s answer).
¶25. In summary, both reason and the controlling caselaw support the conclusion that this
Court should not sua sponte raise the applicability of Section 31-5-41, an affirmative defense
that the majority does not dispute the defendant failed to preserve.
¶26. The majority reasons that this Court should not consider the applicability of Section
31-5-41 because the parties “stipulated that the issue of tort allocation of liability was not
before the trial court, and thus, not before this Court,” and “there is insufficient information
in the record for this Court to determine to what extent, if any, Ingalls was negligent . . . .”
Maj. Op. ¶ 10. First, it must be noted that in the majority’s original opinion, the majority
determined that the appropriate disposition was to remand this case to the trial court for a
determination of the extent to which Ingalls was negligent. The majority now finds that
“insufficient” information in the record regarding fault is a basis for affirming the trial court.
It is unsound reasoning when a court finds that a record is “insufficient” to decide a relevant
issue, and then uses the finding of an “insufficient” record as a basis for reaching a decision.
This is a dangerous precedent. It allows that a party could be responsible for an
“insufficient” record and then be rewarded for the “insufficiency” with a favorable ruling on
appeal.
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¶27. Second, it is illogical to argue that the record is deficient on a matter that the parties
have stipulated is not an issue. At the trial court hearing, it was made clear that:
. . . by stipulation between the parties, there is no issue between [sic] the Court
about tort allocation of liability here. This is strictly a case of contract
allocation. . . . Basically, if there is no contract indemnity or insurance that is
owed, the parties stand by their settlement with Mr. Cardwell [the injured
worker]. Otherwise, the only issue to be resolved is whether by contract,
Transocean is obligated to pick up the settlement that was paid by Ingalls.
¶28. In other words, at the time the parties submitted the case to the trial judge for a
decision, the parties already had stipulated that their fault was consistent with the settlement
funds paid to Cardwell. Accordingly, the parties did not argue fault during the trial court
proceeding or on appeal, and it logically follows that there would be no evidence regarding
fault (other than the stipulation) in the record. Thus, a finding unfavorable to Transocean
cannot rationally be based on the fact that “neither party has argued fault.” Maj. Op. ¶ 10.
Neither party argued fault at the trial or appeal level (nor would it be sensible for them to
argue fault on a remand) because they already stipulated to the their respective amounts of
fault.
¶29. Therefore, while I agree with the majority that this Court is not required to, nor should
it, consider the applicability of Section 31-5-41, I disagree with the majority’s rationale for
this conclusion. The proper rationale for this conclusion is that: 1) Transocean failed to
preserve the issue of the applicability of Section 31-5-41 for consideration on appeal, and 2)
this Court should not sua sponte raise the statute’s applicability. It is improper and illogical
to base the conclusion that this Court is not required to consider Section 31-5-41 on the fact
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that the parties stipulated to the issue of tort allocation and therefore did not argue fault.
Accordingly, I must specially concur.
KITCHENS, J., JOINS THIS OPINION. RANDOLPH AND CHANDLER, JJ.,
JOIN THIS OPINION IN PART.
RANDOLPH, JUSTICE, SPECIALLY CONCURRING:
¶30. I concur with Presiding Justice Carlson in affirming the insightful and well-reasoned
opinion of the trial judge. At the same time, I agree with Part I of Presiding Justice Graves’s
specially concurring opinion regarding Transocean’s untimely raising of an affirmative
defense based on Mississippi Code Section 31-5-41. See Miss. Code Ann. Section 31-5-41
(Rev. 2008).
CHANDLER, J., JOINS THIS OPINION. DICKINSON AND PIERCE, JJ.,
JOIN THIS OPINION IN PART.
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