United States Court of Appeals
Fifth Circuit
F I L E D
UNITED STATES COURT OF APPEALS February 10, 2004
FOR THE FIFTH CIRCUIT
Charles R. Fulbruge III
Clerk
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No. 02-30978
______________________________
THE HOUSTON EXPLORATION COMPANY,
Plaintiff-Appellee-Cross-Appellant,
versus
HALLIBURTON ENERGY SERVICES, INC.,
Defendant-Appellant-Cross-Appellee.
___________________________________________________________________
Appeals from the United States District Court
for the Eastern District of Louisiana,
New Orleans Division
___________________________________________________________________
Before JONES, EMILIO M. GARZA, and BENAVIDES, Circuit Judges.
EDITH H. JONES, Circuit Judge:
This litigation between The Houston Exploration Company
(“THEC”) and Halliburton Energy Services, Inc. (“Halliburton”) over
the consequences of a THEC gas well blowout is before this court
for the second time. The dispute concerns the extent and conse-
quences of a work order that absolves Halliburton of liability for
its own (ordinary) negligence. In the first appeal, we reversed
the district court’s decision that Halliburton was grossly
negligent in providing drill testing services to THEC. On remand,
the district court again found in favor of THEC, determining that
the work order’s indemnity provision was invalid because THEC’s
“company man” did not have actual or apparent authority to bind
THEC to its terms. Halliburton again appealed. We reverse and
remand.
I. BACKGROUND
This case arises from a 1997 natural gas explosion from
THEC’s well located in the Gulf of Mexico. THEC sued Halliburton
in federal court, asserting that Halliburton’s failure properly to
perform drill stem testing operations led to the blowout.
Halliburton argued that the parties’ indemnity provision precluded
recovery. The case was tried before the district court in March
2000. The district court held that Halliburton’s conduct was
grossly negligent, and thus beyond the scope of the indemnity
provision. The court awarded THEC approximately $7,000,000 in
damages. We reversed that decision and remanded the case for the
district court to determine whether the indemnity provision was
“executed by an authorized agent of THEC[.]”. See Houston
Exploration Co. v. Halliburton Energy Servs., Inc., 269 F.3d 528,
533 (5th Cir. 2001).
2
On remand, the district court examined the agency
question, as well as THEC’s other challenges to the validity of the
indemnity agreement.1
The relevant facts are largely undisputed. The contract
for Halliburton to provide drill testing services to THEC was
executed through a work order. The work order stated, in red ink
directly above the signature line, that “Customer hereby
acknowledges and agrees to the terms and conditions on the reverse
side hereof which include, but are not limited to PAYMENT, RELEASE,
INDEMNITY, and LIMITED WARRANTY provision.” The reverse side of
the work order contained the indemnity provision at issue.2
1
THEC offered several other theories in addition to the authority
argument: (1) there was no consent to the object of the contract; (2) the
agreement is vitiated due to error; (3) the agreement impermissibly attempts to
renounce the warranty of workmanlike performance; (4) the indemnity agreement is
ambiguous; (5) a literal reading of the provision leads to absurd consequences;
(6) redhibition; (7) breach of contract; and (8) that the indemnity agreement was
a contract of adhesion. The district court rejected each of these arguments in
open court without elaboration.
2
The indemnity provision provided that:
CUSTOMER AGREES TO RELEASE HALLIBURTON FROM ANY AND ALL LIABILITY
FOR ANY AND ALL DAMAGES WHATSOEVER TO PROPERTY OF ANY KIND OWNED BY,
IN THE POSSESSION OF, OR LEASED BY CUSTOMER AND THOSE PERSONS AND
ENTITIES CUSTOMER HAS THE ABILITY TO BIND BY CONTRACT. CUSTOMER
ALSO AGREES TO DEFEND INDEMNITY AND HOLD HALLIBURTON GROUP HARMLESS
FROM AND AGAINST ANY AND ALL LIABILITY, CLAIMS, COSTS, EXPENSES,
ATTORNEY FEES AND DAMAGES WHATSOEVER FOR PERSONAL INJURY, ILLNESS,
DEATH, PROPERTY DAMAGE AND LOSS RESULTING FROM: . . . LOSS OF WELL
CONTROL . . . CUSTOMER’S RELEASE, INDEMNITY AND HOLD HARMLESS
OBLIGATIONS WILL APPLY EVEN IF THE LIABILITY AND CLAIMS ARE CAUSED
BY THE SOLE, CONCURRENT, ACTIVE OR PASSIVE NEGLIGENCE, FAULT, OR
STRICT LIABILITY OF ONE OR MORE MEMBERS OF THE HALLIBURTON GROUP, IN
THE SEAWORTHINESS OF ANY VESSEL, OR ANY DEFECT IN THE DATA,
PRODUCTS, SUPPLIES, MATERIALS OR EQUIPMENT FURNISHED BY HALLIBURTON
GROUP, WHETHER IN THE DESIGN, MANUFACTURING, MAINTENANCE OR
MARKETING THEREOF OR FROM FAILURE TO WARN OF SUCH DEFECT.
3
Halliburton presented the work order to James Hileman,
THEC’s on-site company man and drilling supervisor. Hileman signed
the work order in advance of the job, as was the customary practice
between the parties. THEC does not dispute that Hileman had
authority to sign the work orders to engage Halliburton’s services.
THEC asserts instead that he lacked the specific authority to
negotiate or execute the indemnity provision on behalf of THEC.
The district court, applying Louisiana law, agreed with
THEC and concluded that Hileman lacked “actual authority” because
“[n]o evidence was admitted at trial to demonstrate that THEC and
Hileman agreed that Hileman could enter into an indemnity agreement
with Halliburton on behalf of THEC.”3 Houston Exploration Co. v.
Halliburton Energy Servs., Inc., 2002 WL 1963313, *6 (E.D. La Aug.
22, 2002). The district court further concluded that Hileman
lacked “implied actual authority” because “Hileman’s representation
of THEC on the rig as a company man does not manifest an intention
on the part of THEC for him to have permission to contract with
Halliburton for indemnification and release from liability.” Id.
Last, the district court found that Hileman lacked “apparent
authority” because Halliburton did not reasonably rely on Hileman’s
manifestation of authority. Id. at *7-8. Accordingly, the
3
Under the Outer Continental Shelf Lands Act, 43 U.S.C. §
1333(a)(2000), the law of the adjacent state, Louisiana, provides the rule of
decision.
4
district court ruled in favor of THEC and reinstated the award.
Halliburton appealed.
II. STANDARD OF REVIEW
On appeal from a judgment after a bench trial, we review
the findings of fact for clear error and the legal issues de novo.
Gebreyesus v. Schaffer & Assocs., Inc., 204 F.3d 639, 642 (5th Cir.
2000). A finding of fact is clearly erroneous “when, although
there is evidence to support it, the reviewing court based on all
the evidence is left with the definitive and firm conviction that
a mistake has been committed.” Id. However, factual findings made
under an erroneous view of controlling legal principles are
reviewed de novo. Walker v. Braus, 995 F.2d 77, 80 (5th Cir.
1993). Under Louisiana law, the trial court’s determination of an
agency relationship “is essentially a factual matter.” Webb v.
Lagniappe Hosp. Corp., 714 So. 2d 901, 904 (La. App. 2d Cir. 1998).
III. DISCUSSION
Halliburton argues that Hileman had actual authority to
enter into the work order agreement, which by implication included
the indemnity provision. There is no dispute that Hileman had
express authorization to sign the work orders. Express actual
authority is created by the oral or written agreement between the
principal and the agent. AAA Tire & Export, Inc. v. Big Chief
Truck Lines, Inc., 385 So. 2d 426, 429 (La. App. 1st Cir. 1980).
But, THEC asserts that Hileman’s express authority did not extend,
5
by implication, to the agreement’s indemnification provision. The
district court accepted THEC’s argument.4 We do not.
The question here is one of agency by implication. See
Anderson Window & Patio Co. v. Dumas, 560 So. 2d 971, 975 (La. App.
4th Cir. 1990) (recognizing that agency may be created verbally, in
writing, or by implication). “The essential test to be applied in
determining whether an implied agency exists, is whether the
principal has the right to control the conduct of the agent, and
whether the agent has the right and authority to represent or bind
the principal.” Craft v. Trahan, 351 So. 2d 277, 281 (La. App. 4th
Cir. 1977) (citations omitted). More specifically, implied agency
is created when “the agent is deemed to have permission from the
principal to undertake certain acts which are reasonably related to
the agent’s position and which are reasonable and necessary
concomitants of the agent’s express authorization[.]” AAA Tire,
385 So. 2d at 429. Under this standard, the district court deter-
mined that Hileman was authorized to agree to some aspects of the
contract but not to others. Such an interpretation is plainly
contrary to Louisiana law. See Southern States Equip. Co. v. Jack
Legett Co., Inc., 379 So. 2d 881, 884 (La App. 4th Cir. 1980);
Hawthorne v. Kinder Corp., 513 So. 2d 509, 512 (La. App. 2d Cir.
1987).
4
The district court found that “Hileman’s representation of THEC on
the rig as a company man does not manifest an intention on the part of THEC for
him to have permission to contract with Halliburton for indemnification and
release from liability.”
6
In Southern States, the defendant contracted with the
plaintiff 43 times over a three-year period to lease property used
to install street lights and traffic signals. Southern States, 513
So. 2d at 883. For each transaction, the parties executed an
identical “Rental Dray Receipt” that itemized the equipment and
contained a limitation of liability provision. Id. Most of these
receipts were signed by the defendant’s construction foreman with
the principal’s express permission. The trial court concluded that
the agent did not have the authority to bind the defendant to the
liability provision, even though he was authorized to accept
delivery of the equipment. The appellate court reversed. “On some
thirty-one prior occasions [the agent] signed dray receipts
containing this identical provision and the defendant honored the
invoices submitted by the plaintiff based upon these receipts.”
Id. at 884. The appellate court concluded that, under these cir-
cumstances, the defendant’s foreman “acted as the authorized agent
in signing the dray receipts and thereby bound [the defendant] to
its terms.” Id.
The Louisiana court of appeals reached the same result in
Hawthorne. There, the defendant’s employees contracted with the
plaintiff, a waste disposal corporation, to empty trash dumpsters
at various stores. Hawthorne, 513 So. 2d at 509. The contracts
each contained a one-year term, with an automatic renewal provision
unless written notice of cancellation was given 60 days prior to
the term’s end. Id. at 510-11. The defendant discontinued
7
payments for waste disposal without giving the requisite notice.
The trial court determined that the defendant had breached the
contract and the court of appeals agreed. The appellate court
concluded that the defendant’s employees had implied authority to
bind the corporation because the employees had express authority to
obtain disposal services and the contracts were necessary to obtain
those services. Id. at 512. (“Disposal services were necessary in
the ordinary course of affairs to which [the defendant] was
devoted.”) (citation and quotations omitted).
THEC erroneously relies on Equipment Rental Svcs., Inc.
v. Campesi, 351 So. 2d 1298, 1299 (La. 1st Cir. 1977), to support
its position that Hileman’s authority was specifically limited to
permitting Halliburton to commence the drill testing operation. In
Equipment Rental, the court found that the defendant’s super-
intendent had authority to sign a receipt, but did not have
authority to agree to all the terms in the receipt. Id. at
1298-99. Importantly, the employee signed a contract that
dramatically altered the terms of a prior agreement between the
parties despite his being authorized only to accept delivery of
merchandise. Id. Here, there was no prior agreement, although
negotiations for a Master Service Agreement had failed five years
earlier. Moreover, THEC ignores the fact that the parties
continued to do business pursuant to the work order agreements,
which contained indemnity provisions, in the absence of a Master
Service Agreement. There is no evidence that the work orders
8
dramatically altered the terms between the parties. Consequently,
the logic of Equipment Rental is inapplicable here.
In the instant case, THEC approved and paid hundreds of
similar work orders without objection. Many of these work orders
were signed by company men, including Hileman, who was THEC’s
“ultimate authority” for the well in question. In fact, Hileman
testified that he continued to sign similar work orders even after
the blowout. As in Southern States and Hawthorne, the repeated
approval of work orders manifests the scope Hileman’s authority.
Furthermore, Halliburton refused to commence drill testing unless
THEC agreed each time to the terms of the work order. Without
Hileman’s consent to the indemnity provision, Halliburton would not
have performed the service THEC readily admits Hileman was
authorized to procure. Thus, Hileman’s consent to the indemnity
provision was “reasonably related to the agent’s position” and was
“a reasonable and necessary concomitant[] of the agent’s express
authorization[.]” AAA Tire, 385 So. 2d at 429.
In the end, THEC management consented to Halliburton’s
release and indemnity provision, despite any earlier misgivings.
See Morgan v. Cedar Grove Ice Co., 41 So. 2d 521, 523 (La. 1949)
(“[A] defense interposed by a corporation that its agent had no
authority to execute a contract on its behalf is looked upon with
disfavor, especially where the contract has been executed in whole
9
or in part.”).5 Accordingly, we conclude that Hileman’s express
authority to enter into the work order agreements necessarily
included the implied authority to consent to the release and
indemnity provision.6
IV. CONCLUSION
For the reasons stated above, we REVERSE the district
court’s decision that THEC’s agent exceeded his authority and
REMAND for a determination of Halliburton’s contractual entitlement
to attorneys’ fees and for further proceedings consistent herewith.
REVERSED and REMANDED.
5
Because we conclude that Hileman had actual authority as a matter of
law, we need not reach the apparent authority question.
6
Like the district court, we reject THEC’s other assignments of error.
The district court did not abuse its discretion in excluding evidence regarding
the scope of authority of Halliburton’s employees, as such evidence was imma-
terial. Furthermore, THEC’s remaining arguments are barred from consideration
under this court’s mandate rule. See Tollett v. City of Kemah, 285 F.3d 357, 364
(5th Cir. 2002) (district court “must implement both the letter and the spirit
of the mandate, taking into account the appellate court's opinion and the cir-
cumstances it embraces”) (citations and quotations omitted). And, even if these
arguments were not barred, they are without merit.
10