302 F.3d 531 (5th Cir. 2002), 01-40366, Diamond offshore Co. v. A&B Builders, Inc.

Docket Nº:01-40366.
Citation:302 F.3d 531
Party Name:DIAMOND OFFSHORE COMPANY; Diamond Offshore USA, Inc.; Diamond Offshore Drilling, Inc.; Diamond Offshore Drilling Services, Inc., Plaintiffs-Counter Defendants-Appellants-Cross-Appellees, v. A&B BUILDERS, INC., Defendant-Counter Claimant-Appellee-Cross-Appellant.
Case Date:August 30, 2002
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit
 
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Page 531

302 F.3d 531 (5th Cir. 2002)

DIAMOND OFFSHORE COMPANY; Diamond Offshore USA, Inc.; Diamond Offshore Drilling, Inc.; Diamond Offshore Drilling Services, Inc., Plaintiffs-Counter Defendants-Appellants-Cross-Appellees,

v.

A&B BUILDERS, INC., Defendant-Counter Claimant-Appellee-Cross-Appellant.

No. 01-40366.

United States Court of Appeals, Fifth Circuit

August 30, 2002

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Kenneth Ross Citti, Citti & Crinion, Houston, TX, William Scott Hastings (argued), Locke, Liddell & Sapp, Dallas, TX, for Plaintiffs-Counter Defendants-Appellants-Cross-Appellees.

Richard C. Rutledge, III (argued), Drucker, Rutledge, Ward & Smith, The Woodlands, TX, for A&B Builders, Inc.

Appeals from the United States District Court for the Southern District of Texas.

Before EMILIO M. GARZA, BENAVIDES and STEWART, Circuit Judges.

CARL E. STEWART, Circuit Judge:

Diamond Offshore Company, Diamond Offshore U.S.A. Inc., Diamond Offshore Drilling, Inc., and Diamond Offshore Drilling Services, Inc. (collectively "Diamond") appeal the district court's entry of final judgment dismissing Diamond's suit without considering Diamond's breach of contract claim. A&B Builders, Inc. ("A&B") cross-appeals the district court's order granting partial summary judgment in favor of Diamond. For the reasons that follow, we affirm the partial summary judgment ruling in part, reverse and remand in part, and vacate the entry of final judgment and remand for further proceedings.

FACTUAL AND PROCEDURAL BACKGROUND

Diamond is engaged in the exploration and development of offshore oil and gas wells. A&B is a contractor that provides repair and maintenance services for offshore oil platforms and drilling rigs. On April 8, 1997, Diamond and A&B entered into a "Master Service Contract" whereby A&B agreed to provide services to Diamond from time to time. Paragraph 9 of the Master Service Contract contains an indemnity provision that specifically applies to claims for bodily injury brought by employees of either A&B or Diamond, including those that result from the negligence of the indemnitee. Under this provision, if a Diamond employee is injured by the negligence of A&B, Diamond agreed to defend and indemnify A&B against any claims brought by Diamond's employee. Should an A&B employee be injured by the negligence of Diamond, A&B agreed to defend and indemnify Diamond and all of the parties for whom Diamond may be working against any claims brought by A&B's employees. Paragraph 8 of the Master Service Contract obligates A&B to purchase various insurance policies, establishes the minimum coverage limits of these policies, and obligates A&B to waive subrogation against Diamond and name Diamond as an "Additional Named Assured[ ]."

Pursuant to the Master Service Contract, Diamond engaged A&B to perform repairs to the Ocean Concorde, a semi-submersible drilling rig owned and operated by Diamond, that were necessary so that the Ocean Concorde "could do its usual work." A semi-submersible drilling rig is a movable rig that is typically towed to a particular location where it is submerged about fifty feet and then anchored in place to complete the mooring of the rig. The rig's platform deck is supported on columns which are attached to large underwater displacement hulls, large vertical caissons, or some combination of both. The columns, displacement hulls, or caissons are flooded on location.1

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Lee E. McMillon ("McMillon"), an employee of A&B, worked aboard the Ocean Concorde pursuant to the Maser Service Contract between Diamond and A&B. On March 7, 1998, McMillon was allegedly injured while performing repair services as a welder on the Ocean Concorde. McMillon maintains that, while welding inside a pollution pan, he was injured when he became trapped by drilling mud that was spilled on top of him. The welding being done by McMillon at the time of his alleged injury was necessary to allow the Ocean Concorde to perform its drilling function without polluting the waters of the Gulf of Mexico. At the time of McMillon's alleged injury, the Ocean Concorde was located in navigable waters more than 100 miles offshore in the Gulf of Mexico.

On March 9, 1999, McMillon and his wife sued Diamond, Shell Oil Company ("Shell"),2 and various Shell-affiliated companies for his injuries in the 212th Judicial District Court of Galveston, Texas. Diamond made a demand upon A&B for defense and indemnity pursuant to the terms of the Master Service Contract. When A&B did not respond to this demand, Diamond employed counsel to defend Diamond in the McMillon suit.

Diamond then initiated the present action against A&B in federal court seeking declaratory relief and damages for breach of contract. The district court's general admiralty jurisdiction was invoked pursuant to 28 U.S.C. § 1333. Diamond claimed that A&B refused to act in accordance with the indemnity provision and failed to reveal whether it obtained liability insurance coverage naming Diamond as an additional insured. Diamond sought a determination of its rights to indemnification, insurance, and a defense under the terms of the Master Service Contract. Diamond also sought damages for breach of contract; specifically, costs and attorneys' fees incurred in defending the McMillon suit and bringing this action.3

Diamond and A&B then filed cross-motions for partial summary judgment. On November 17, 1999, the district court denied A&B's motion. At the same time, the district court granted Diamond's motion, determining that: (1) the indemnity provision was valid and A&B owed defense and indemnity to Diamond in the McMillon suit; (2) the additional-insured provision created an independent obligation, separate from the indemnity provision, and A&B was obligated to procure the requisite insurance and name Diamond as an additional insured; and (3) Diamond would be entitled to recover damages for breach of contract if A&B has failed to procure the requisite insurance and name Diamond under the contract. The court then entered a final judgment dismissing the entire case.

On November 19, 1999, Diamond filed a motion to reconsider the district court's entry of final judgment, urging the court to retain jurisdiction over Diamond's claim for damages sustained as a result of A&B's breach of contract. The court denied this motion on November 23,1999.

Diamond appealed and A&B cross-appealed. On August 3, 2000, a panel of this Court remanded the case to establish "whether McMillon directly qualified for

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coverage under Section 905(b) of the Longshore and Harbor Workers' Compensation Act (LHWCA), 33 U.S.C. § 905(b)." On November 3, 2000, the district court entered an order, based upon the joint stipulation of the parties, finding that McMillon directly qualified for workers' compensation benefits under the LHWCA. The district court entered another final judgment on March 9, 2001. Again, Diamond appealed and A&B cross-appealed.

In this appeal, Diamond challenges the district court's decision to not consider awarding damages to Diamond. A&B cross-appeals the partial summary judgment rulings on the indemnity and insurance provisions.

DISCUSSION

I.

"We review a district court's decision not to exercise its jurisdiction for an abuse of discretion; its underlying legal conclusions, de novo." Bank One, N.A. v. Boyd, 288 F.3d 181, 183-84 (5th Cir. 2002).

Diamond argues that the district court erred in not exercising jurisdiction over its breach of contract claim. We agree.

The federal courts have a "virtually unflagging obligation" to exercise the jurisdiction conferred upon them. Colo. River Water Conservation Dist. v. United States, 424 U.S. 800, 817, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976); see also Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 716, 116 S.Ct. 1712, 135 L.Ed.2d 1 (1996) ("[F]ederal courts have a strict duty to exercise the jurisdiction that is conferred upon them by Congress."). Abdication of the obligation to decide cases under the doctrine of abstention can be justified in "exceptional circumstances, where denying a federal forum would clearly serve an important countervailing interest," such as considerations of "proper constitutional adjudication, regard for federal-state relations, or wise judicial administration." Quackenbush, 517 U.S. at 716, 116 S.Ct. 1712 (citations and internal quotations omitted). "Unless there is a legitimate reason to abstain, federal courts 'cannot abdicate their authority or duty in any case in favor of another jurisdiction.' " Vulcan Materials Co. v. City of Tehuacana, 238 F.3d 382, 390 (5th Cir. 2001) (quoting New Orleans Pub. Serv., Inc. v. Council of New Orleans, 491 U.S. 350, 358, 109 S.Ct. 2506, 105 L.Ed.2d 298 (1989)). There are four general categories of abstention:

"(1) Pullman-type abstention, to avoid decision of a federal constitutional question where the case may be disposed of on questions of state law; (2) Burford-type abstention, to avoid needless conflict with the administration by a state of its own affairs; (3) abstention to leave to the states the resolution of unsettled questions of state law; and (4) abstention to avoid duplicative litigation, now frequently referred to as Colorado River-type abstention."

Id. (quoting 17A Charles Alan Wright, Federal Practice And Procedure § 4241 (2d ed.1988)).

The district court dismissed Diamond's breach of contract claim without assigning reasons. In the district court's order denying Diamond's motion to reconsider, however, the court gave the following explanation for declining to "retain jurisdiction and issue a judgment for damages upon the conclusion of the state court action":

The Court has gone to considerable trouble to analyze the underlying contract and applicable law. Diamond has...

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