United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
February 10, 2005
FOR THE FIFTH CIRCUIT
______________________ Charles R. Fulbruge III
Clerk
No. 03-31014
______________________
AMERICAN HOME ASSURANCE COMPANY and NATIONAL UNION FIRE INSURANCE
COMPANY OF PITTSBURGH, PENNSYLVANIA
Plaintiffs-Appellants
versus
CHEVRON, USA, INC., and HALLIBURTON ENERGY SERVICES, INC.
Defendants-Appellees
___________________________________________________
Appeal from the United States District Court for
the Eastern District of Louisiana
___________________________________________________
Before REAVLEY, JONES and DENNIS, Circuit Judges.
DENNIS, Circuit Judge:
The issue is whether an oil company may call upon the courts
to enforce an indemnity clause requiring its oilfield service
contractor to indemnify the oil company against its own negligence
without affording the contractor an opportunity to show that the
indemnity clause is invalid under the Louisiana Oilfield Anti-
Indemnity Act (LOAIA). The LOAIA prohibits the enforcement of such
provisions in cases in which the oil company’s negligence or fault
(strict liability) has contributed to the third party’s injury or
1
death.
In this case, the district court rendered summary judgment
dismissing suit by the service contractor’s insurer (AIG) for
reimbursement of sums expended in settling an oilfield worker’s
claim against the oil companies (Chevron and Halliburton) despite
a genuine dispute as to the material issue of whether the companies’
negligence or fault contributed causally to the worker’s injury.
We reverse. When an oilfield contractor reasonably settles such a
claim against its oil company principal in the face of an indemnity
clause requiring it to defend and indemnify the oil company against
all claims incident to the contractor’s work, the contractor is
entitled to seek reimbursement for the reasonable settlement by
showing that the indemnity contract was void as to that claim under
the LOAIA due to the oil company’s fault or negligence.
Background
On June 29, 2000, James Blackmon, an employee of M-I L.L.C (M-
I), brought a Jones Act suit against M-I, Chevron U.S.A., and
Halliburton Energy Services (oil companies) seeking compensation for
injuries he suffered on the Chevron Genesis Spar while working with
Halliburton employees. Chevron requested defense and indemnity from
M-I in accordance with a Master Service Agreement (MSA).
Halliburton, pursuant to a Mutual Indemnity and Waiver Recourse
Agreement (MIA), also requested defense and indemnity from M-I. M-I
agreed to assume the defense of the oil companies.
2
After Blackmon filed his suit, which alleged causes of action
arising under the Jones Act, it was determined that the Genesis
Spar, on which Blackmon was injured, was a work platform rather than
a vessel. Thus, pursuant to the Outer Continental Land Shelf Act,
the law of Louisiana applied and Blackmon’s remedies against M-I
were limited to worker’s compensation. M-I was dismissed as a
defendant and subsequently joined the suit as a plaintiff-in-
intervention seeking to recover worker’s compensation benefits paid
to Blackmon.
M-I gave notice of Blackmon’s claims to its primary and excess
liability insurer, American Home Assurance and National Fire
Insurance Company of Pittsburgh, Pennsylvania (collectively: AIG).
AIG did not agree that M-I owed defense and indemnity to the
defendants. M-I and AIG subsequently reached a settlement, pursuant
to which AIG agreed to negotiate and fully fund a settlement in the
Blackmon case or, in the alternative, to pay any judgment rendered
against the oil companies, in exchange for M-I assigning to AIG its
right to seek reimbursement of the cost of defense and indemnity
from the oil companies.
Thereafter, AIG sent a letter to the oil companies explaining
its position that the defense and indemnity provisions of both the
MSA and MIA were unenforceable under Louisiana law. AIG further
claimed that since M-I’s contractual obligations to defend and
indemnify the oil companies were void and unenforceable, M-I’s
3
acceptances of the duty to defend and indemnify the oil companies
were without effect. Finally, AIG informed the oil companies that
it intended to pursue a settlement with Blackmon and, also, intended
to pursue recovery from the oil companies for any amounts paid. AIG
requested that the oil companies either stipulate to the
reasonableness of any settlement with Blackmon or, in the
alternative, accept the re-tender of their defense and liability.
The oil companies declined to either undertake their own defense or
to participate in the settlement. Thereafter, AIG settled
Blackmon’s claims against the oil companies for two million dollars.
In February 2002, AIG filed a complaint against the oil
companies seeking recovery of the amount paid in settlement plus all
attorneys’ fees and costs incurred in defending against Blackmon’s
claims. AIG subsequently filed a motion for summary judgment
arguing that, pursuant to the Louisiana Oilfield Anti-Indemnity Act
(LOAIA), La. Rev. Stat. § 9:2780, the defense and indemnity
provisions of the contracts between M-I and the oil companies were
void and unenforceable. AIG further argued that since the LOAIA
renders the defense and indemnity provisions unenforceable, neither
M-I nor its insurers were obliged to defend or indemnify the oil
companies and that any agreement by M-I to assume such a defense was
without effect. Thus, AIG claimed that it was entitled, as a matter
of law, to recover all sums expended in settling Blackmon’s claims.
The oil companies also moved for summary judgment. They argued
4
that the LOAIA only renders defense and indemnity provisions
unenforceable where the indemnitee is found to be wholly or
concurrently at fault. Thus, according to the oil companies,
because there had been no judicial determination of fault in the
Blackmon litigation, the LOAIA did not apply and the contractual
provisions requiring M-I to provide defense and indemnification to
the defendants were valid and enforceable.
The district court granted the oil companies’ motion and denied
AIG’s motion, concluding that the indemnification clauses were not
void under the LOAIA. The district court did not, however, make
any factual findings regarding the negligence or fault of the oil
companies. Rather, the district court determined that the LOAIA only
applies when an indemnitee has been adjudicated at fault, that AIG
prevented any adjudication of fault by settling with Blackmon and
that, therefore, the LOAIA did not apply. AIG timely appealed.
I.
We review a district court's decision to grant or deny summary
judgment de novo, applying the same legal standards as the district
court.1 Summary judgment is proper if, when viewing the evidence in
the light most favorable to the nonmoving party, the record
indicates that there is “no genuine issue of material fact and that
1
See Foster Wheeler Energy Corp. v. An Ning Jiang MV, 383
F.3d 349, 354 (5th Cir. 2004); Melton v. Teachers Ins. & Annuity
Ass'n of America, 114 F.3d 557, 559 (5th Cir. 1997).
5
the moving party is entitled to judgment as a matter of law."2
II.
The central issue in this case is whether, with respect to the
injured worker’s claims, the oil companies were wholly or
concurrently at fault, so that the LOAIA renders void and
unenforceable the defense and indemnity clauses in the contracts
between M-I and the oil companies. The LOAIA states, in relevant
part, that “[a]ny provision contained in, collateral to, or
affecting an agreement pertaining to a well for oil, gas, or water,
or drilling for minerals . . . is void and unenforceable to the
extent that it purports to or does provide for defense or indemnity,
or either, to the indemnitee against loss or liability for damages
arising out of or resulting from death or bodily injury to persons,
which is caused by or results from the sole or concurrent negligence
or fault (strict liability) of the indemnitee . . . .”3 Thus, the
LOAIA, by its express terms, “only prohibits indemnity for cost of
defense where there is negligence or fault (strict liability) on the
part of the indemnitee.”4
The Louisiana Supreme Court, in response to questions certified
by this court, has plainly stated that “the indemnitor’s obligation
2
Fed. R. Civ. P. 56(c).
3
La. Rev. Stat. § 9:2780.
4
Meloy v. Conoco, Inc., 504 So.2d 833, 839 (La. 1987)
quoting La. Rev. Stat. § 9:2780.
6
for cost of defense cannot be determined until there has been a
judicial finding that the indemnitee is liable or that the charges
against it were baseless.”5 In other words, “[w]hether an oil
company (indemnitee) is free from fault and thus outside the scope
of the Act can only be determined after trial on the merits.”6 In
the present case, the district court rendered summary judgment for
the oil companies without determining that there was no genuine
dispute as to any material fact issue regarding the oil companies’
negligence or fault relevant to this case.7 Thus, the district
court’s granting of summary judgment to the defendants was
premature.
The clear intent of the LOAIA is to protect oilfield
contractors and their employees from adhesionary contracts requiring
contractors to indemnify oil companies for their negligence or
fault. The Louisiana legislature stated, in the very text of the
statute, that “an inequity is foisted on certain contractors and
their employees by the defense or indemnity provisions . . .
contained in some agreements pertaining to wells for oil, gas, or
water . . . .”8 Because of this inequity, the legislature sought,
5
Meloy v. Conoco, Inc., 504 So. 2d 833, 839 (La. 1987).
6
Id.
7
Forsyth v. Barr, 19 F.3d 1527, 1533 (5th Cir. 1994)(summary
judgment movant must establish the absence of any genuine issue
of material fact.)
8
La. Rev. Stat. § 9:2780(A) (Emphasis added).
7
by enacting the LOAIA, “to declare null and void and against public
policy of the state of Louisiana any provision in any agreement
which requires defense and/or indemnification, for death or bodily
injury to persons, where there is negligence or fault (strict
liability) on the part of the indemnitee.”9 Thus, the LOAIA “arose
out of a concern about the unequal bargaining power of oil companies
and contractors and was an attempt to avoid adhesionary contracts
under which contractors would have no choice but to agree to
indemnify the oil company, lest they risk losing the contract.”10
The “purpose of the legislature, and thus the policy interest of the
state, is to protect certain contractors, namely those in oilfields,
from being forced through indemnity provisions to bear the risk of
their principal’s negligence . . . .”11
The LOAIA was also enacted to protect oilfield workers.12 As
this court has stated:
“It is universally known that the exploration for oil, gas and
other minerals is extremely hazardous. Any action which might have
a substantial effect on safety in that setting finds an instant
audience. So it is with the Oilfield Indemnity Act of 1981. It
9
Id.
10
Fotenot v. Chevron, 676 So. 2d 557, 563 (La. 1996).
11
Rodriques v. Legros, 563 So. 2d 248, 254 (La. 1990).
12
La. Rev. Stat. § 9:2780(A).
8
prevents one from requiring another to indemnify one's own
negligence or fault. If a person is permitted to insulate himself
from his own negligence, the motivation to institute and enforce
safe work practices and conditions is at best attenuated. One who
remains liable and exposed for his own negligence is more likely to
act with care. This Act is a rational attempt to improve oilfield
safety.”13
The district court’s rendering of a summary judgment for the
defendants in the present case, despite a genuine dispute between
the parties as to the oil companies’ negligence or fault causally
linked to the worker’s injuries, undermines both purposes of the
LOAIA. The oil companies have, in essence, made an end run around
the LOAIA by tendering their defense to the contractor when it was
still uncertain whether the law of Louisiana would apply to the
injured worker’s claims, and then refusing to participate in the
settlement of those claims, or to accept the re-tender of their own
defense, after it became known that Louisiana law would be applied.
For the LOAIA to have the protection legislatively intended the
contractor must be afforded an opportunity to demonstrate that the
indemnity agreements invoked by the oil companies to defeat the
contractor’s reimbursement claim are void under the Act because of
the negligence or fault of the oil companies.
13
Knapp v. Chevron USA, Inc., 781 F.2d 1123, 1130 (5th Cir.
1986).
9
Our decision in Tanksley v. Gulf Oil Corp.14 does not require
a different result. In Tanksley, this court held that an oil
company cannot invoke an indemnification agreement with a contractor
after settling an injured worker’s claims because, by settling, the
oil company foreclosed its opportunity to have a court determine
that it was free from fault.15 The Tanksley holding furthers the
aims of the LOAIA by protecting contractors from having to litigate
an oil company’s fault when the oil company had an opportunity to
adjudicate the matter in the previous underlying action.
14
848 F.2d 515 (1988).
15
The two intermediate Louisiana appellate courts that have
considered the issue have both rejected the conclusion in
Tanksley that an indemnitee’s settlement of a case precludes a
subsequent determination of fault. See Riddings v. Danos &
Curole Marine Contractors, Inc., 723 So.2d 979, 983 n.4 (La. App.
4 Cir. 1998)(“Whether the indemnitee was negligent or at fault
(strict liability) in causing injury to the original plaintiff
can be determined at trial between the indemnitee and the
indemnitor even after the indemnitee has settled with the
original plaintiff”); Phillips Petroleum Company v. Liberty
Servs., 657 So. 2d 405, 409 (La. App. 3 Cir. 1995) (holding that
the LOAIA does not prevent one seeking indemnification from
proving freedom from fault in an action separate from the
original action, even where, for whatever reason, the original
action is dismissed.) The Louisiana Supreme Court has not ruled
on the matter. Because we find that Tanksley is distinguishable
from and inapplicable to the present case, we need not determine
the effect, if any, of the outright rejection of Tanksley by two
of the five Louisiana appellate courts. See FDIC v. Abraham, 137
F.3d 264, 269 (5th Cir. 1998) (“[W]e should not disregard our own
prior precedent on the basis of subsequent intermediate state
appellate court precedent unless such precedent comprises
unanimous or near-unanimous holdings from several-preferably a
majority-of the intermediate appellate courts of the state in
question.”)
10
Furthermore, because the indemnification provision at issue in
Tanksley was declared null and void, there was no risk that the oil
company could shift liability for its own negligence to the
contractor. Thus, Tanksley is consistent with the object of the
LOAIA whereas summary judgment in favor of the oil companies in the
present case neither protects contractors against adhesionary
contracts nor fosters oilfield safety. Accordingly, Tanksley can
not be extended or applied to bar the litigation of the oil
companies fault and the contractor’s right to reimbursement
following the contractor’s settlement of an oilfield worker’s claims
against an oil company.
We do not agree with AIG’s argument, however, that the oil
companies’ tender of their defense to M-I prohibits them from
disputing the matter of their fault. AIG appears to argue that:
(1)the LOAIA prohibits indemnitees from requesting an up-front
defense, (2) an indemnitor’s acceptance of an indemnitee’s defense
is an absolute nullity under Louisiana law,16 and (3) the parties
should therefore be returned to their previous positions.
In Meloy, the Louisiana Supreme Court noted that “[p]rior to
a judicial determination, it is not known whether the indemnitee is
16
Article 5 of the Louisiana Civil Code states: “Persons may
not by their juridical acts derogate from laws enacted for the
protection of the public interest. Any act in derogation of such
laws is an absolute nullity.”
11
or is not at fault; therefore, the [LOAIA] would prohibit a
provision requiring an ‘up-front’ defense.”17 Thus, under Meloy, an
indemnitee apparently cannot bind a contractor-indemnitor to provide
a defense to its oil company-principal before an adjudication on the
merits. Therefore, according to AIG, because contractors lack
bargaining power vis-a-vis oil companies, a request that the
contractor provide a defense is indistinguishable from a contractual
requirement that the contractor provide an up-front defense.
Accordingly, AIG contends, under Meloy, the LOAIA bars indemnitees
from even requesting that an indemnitor provide a defense. We
disagree.
Although we are mindful of the concerns that led the Louisiana
legislature to enact the LOAIA, we do not think that the Louisiana
courts would read the statute as prohibiting an indemnitor-
contractor from voluntarily accepting an indemnitee’s request for
a defense prior to an adjudication on the merits. The LOAIA only
prohibits certain fault shifting defense and indemnity contract
provisions; other provisions not prohibited remain enforceable.
Specifically, “[t]he [LOAIA] does not apply where the indemnitee is
not negligent or at fault.”18 Thus, where it appears that an
employee’s suit against an indemnitee is meritless, and therefore
17
Meloy v. Conoco, Inc., 504 So.2d 833, 839 n.11.
18
Meloy v. Conoco, Inc., 504 So.2d 833, 839 (La. 1987).
12
outside the scope of the LOAIA, an indemnitor-contractor may choose
to accept the indemnitee’s defense in order to control costs for
which it possibly may be liable. We see no reason to conclude that
the LOAIA would prohibit an indemnitor-contractor from protecting
its own interests by accepting a tender of defense in those
circumstances.19 Because the LOAIA does not prohibit an indemnitee
from requesting an up-front defense, nor an indemnitor from agreeing
to provide a defense, M-I’s agreement to defend Chevron and
Halliburton against Blackmon’s claims is effective unless and until
a court determines that the defendants were solely or concurrently
at fault and, therefore, that the LOAIA applies.
Finally, despite the defendants’ claims to the contrary, AIG’s
suit is not barred by res judicata, or claim preclusion.20 Under
19
See, e.g., 42 Corpus Juris Secundum Indemnity § 59(“An
indemnitor notified of suit against the indemnitee and requested
to defend has the right to conduct the defense.”)
20
The parties disagree about whether this court should apply
federal or state law to determine the preclusive effect of the
Blackmon settlement and the judgment of dismissal by the district
court. Prior to the Supreme Court’s decision in Semtek Int'l
Inc. v. Lockheed Martin Corp., 531 U.S. 497, 508 (2001) this
circuit applied federal law to determine the preclusive effect of
a prior judgment by a district court sitting in diversity. See
e.g. Mowbray v. Cameron County, 274 F.3d 269, 281 (5th Cir.
2001). In Semtek, however, the Supreme Court held that while
federal law ultimately determines whether a federal judgment
precludes a subsequent action or argument, when the basis of the
original court’s jurisdiction is diversity of citizenship,
federal courts should apply the law of the forum state unless the
state law is incompatible with federal interests. Semtek, supra,
531 U.S. at 508. Because we reach the same outcome regardless
of whether Louisiana or federal law applies, we need not decide,
13
Louisiana law, “a cause of action for indemnification for cost of
defense does not arise until the [original] lawsuit is concluded and
defense costs paid.”21 Thus, the present cause of action did not
exist until after the injured worker’s claims were settled. The
doctrine of res judicata does not bar a party from bringing a claim
that arose subsequent to a prior judgment involving the same
parties.22 Accordingly, the claim is not precluded by the
settlement and dismissal of those claims.
We further note that the litigation of the defendants’ fault
in the present case, whether the Louisiana res judicata statute,
La. Rev. Stat. § 13:4231, is incompatible with any federal
interest.
21
Meloy v. Conoco, Inc., 504 So.2d 833, 839; See also Pike
v. Freeman, 266 F.3d 78, 91-2 (2d Cir. 2001); Am. Jur. 2d
Indemnity § 43.
22
See, e.g., Lawlor v. National Screen Service Corp., 349
U.S. 322, 328 (1955) (prior judgment did not preclude subsequent
suit on cause of action arising after entry of the original
judgment); Chapman v. Goodnow's Adm'r, 123 U.S. 540, 548 (1887
(judicial “decree is a bar to the cause of action upon which it
was based, but not to a different cause of action arising
afterwards”); Travelers Ins. Co. v. St. Jude Hosp. of Kenner,
Louisiana, Inc., 37 F.3d 193, 196 (5th Cir. 1994)(prior judgment
did not bar action for liability under that judgment even though
defendant in second action had been defendant in first action);
Pike v. Freeman, 266 F.3d 78, 91-2 (2d Cir. 2001)(arbitration
award did not bar action for indemnification for the award,
second action did not arise until the arbitration concluded and
the award was paid); 46 Am Jur Judgments § 532 (“Obviously, if the
cause of action in the second action arises after the rendition
of the judgment in the first action, it is a different cause of
action not barred by the prior judgment”). See also La. Rev.
Stat. § 13:4231 (prior judgment is conclusive between the same
parties “to all causes of action existing at the time of the
final judgment.” (emphasis added))
14
for Blackmon’s injuries is not barred by the doctrine of collateral
estoppel. Under federal law, “the doctrine of collateral estoppel
has three requirements: (1) the prior federal decision resulted in
a judgment on the merits; (2) the same fact issue must have been
actually litigated in the federal court; and (3) the disposition of
that issue must have been necessary to the outcome of the prior
federal litigation.”23 Louisiana law also limits the doctrine of
collateral estoppel to issues actually litigated in a prior
preceding.24 Because Blackmon’s claims were settled, and the
settlement agreement did not indicate that the judgment of dismissal
should be considered conclusive on the matter of fault, the issue
was never actually litigated.25 Thus, there is no legal bar to the
litigation of the defendants’ fault in this indemnification action.
For these reasons, we reverse the summary judgment in favor of
23
Dahiya v. Talmidge Int'l, Ltd., 371 F.3d 207, 213 (5th Cir.
2004).
24
La. Rev. Stat. § 13:4231 (“A judgment in favor of either
the plaintiff or the defendant is conclusive, in any subsequent
action between them, with respect to any issue actually litigated
and determined . . . .”)
25
See Hughes v. Santa Fe Int'l Corp., 847 F.2d 239, 241
(5th Cir. 1988) (consent judgments ordinarily do not give rise to
collateral estoppel because no issues are actually litigated,
consent judgments are only given preclusive effect if the parties
manifest such an intention); Restatement of Judgments (Second) §
27(e)(same).
15
the defendants and remand the case to the district court for further
proceedings consistent with this opinion.
16