Arnold Oil Props. LLC v. Schlumberger Tech. Corp.

• Decision Date: 06 March 2012
• Docket Number: No. 11–6053.,11–6053.
• Citation: 672 F.3d 1202
• Parties: ARNOLD OIL PROPERTIES LLC, Plaintiff–Appellee, v. SCHLUMBERGER TECHNOLOGY CORPORATION, Defendant–Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

672 F.3d 1202

ARNOLD OIL PROPERTIES LLC, Plaintiff–Appellee,

v.SCHLUMBERGER TECHNOLOGY CORPORATION, Defendant–Appellant.

No. 11–6053.

United States Court of Appeals, Tenth Circuit.

March 6, 2012.

Toby M. McKinstry of Tomlinson Rust McKinstry Grable, Oklahoma City, OK, for Defendant–Appellant.

Thomas G. Wolfe (Catherine L. Campbell with him on the brief) of Phillips Murrah P.C., Oklahoma City, OK, for Plaintiff–Appellee.

Before LUCERO, McKAY, and TYMKOVICH, Circuit Judges.

McKAY, Circuit Judge.

This is a dispute concerning cementing services provided on an oil well. Plaintiff Arnold Oil Properties, LLC, (“Arnold”) hired Defendant Schlumberger Technology Corp. (“Schlumberger”) to perform a specialized cement job on its deep-zone gas well. After Schlumberger poured too much cement into the well, Arnold sued for breach of contract and negligence. The district court concluded as a matter of law that an alleged exculpatory provision in the parties' contract was in fact an indemnification provision and therefore did not bar Arnold's recovery. After a jury found the parties were in unequal bargaining positions, the district court denied Schlumberger's request to enforce the contractual limitation-of-liability provision. We affirm.

BACKGROUND

In 2007, Arnold needed cement poured into its wellhole in Custer County, Oklahoma, in order to reach a certain level for drilling. Out of three companies able to provide the specialized services, Arnold chose Schlumberger to complete the job. In May 2007, an Arnold engineer, Steve Kester, contacted Schlumberger to request the cement services. Mr. Kester provided Schlumberger with Arnold's target depth of 11,900 feet, as well as the hole volume and other measurements needed to calculate how much cement would be necessary. Felipe Gemini, a Schlumberger engineer, emailed Mr. Kester a job proposal consistent with Arnold's 11,900 foot target. However, Mr. Gemini assigned the job to Ron Acklin, a salesman for Schlumberger, who told Mr. Kester to disregard the first emailed proposal. Mr. Kester did not open Mr. Gemini's email. Mr. Kester gave Mr. Acklin the same measurements he had given previously, and Mr. Acklin prepared a new proposal, which reflected a cement top of 11,900 feet. Mr. Kester accepted the proposal and arranged for completion of the job on June 2, 2007.

What Mr. Kester did not realize was that while the second proposal indicated the cement top would be 11,900 feet, the amount of cement Mr. Acklin calculated for the job would actually result in a much higher cement top. The problem arose because of disparate meanings for the hole volume measurement. “ ‘Hole volume’ (synonymous with the terms ‘open hole volume’ or ‘open hole fill’) is the volume of the hole without pipe in it and is different and larger than ‘annular volume’ which is the hole volume less the volume of the pipe....” (Appellant's App. at 53.) “Because cement is placed in the hole between the pipe and the earth, the annular volume is used to calculate the volume of cement required.” ( Id.) While Mr. Gemini's proposal used annular volume, Mr. Acklin's proposal used hole volume to calculate the amount of cement needed. Thus, Schlumberger used more cement than was actually needed. But because Mr. Acklin's proposal showed a cement top at 11,900 feet and Mr. Kester had not read the first proposal, Mr. Kester did not question Mr. Acklin's calculation of the amount of cement needed.

Schlumberger completed the job on June 2, 2007, after which Mr. Kester signed Schlumberger's contract using an electronic signature pad. The terms of the contract were not visible on the electronic signature pad. The contract provided, in part, the following:

9. Indemnities

(a) Personnel and Property[.]

....

2. Customer shall be responsible for and hereby agrees to protect, defend, indemnify and hold harmless Schlumberger Group and its insurers from and against all claims arising out of or in connection with damage to or loss or destruction of property ... arising out of or in connection with the contract or the services provided hereunder.

(b) Special Indemnity. Notwithstanding anything to the contrary herein, customer assumes all liability for and agrees to protect, defend, indemnify, and hold Schlumberger Group and its insurers harmless from and against all claims arising out of or in connection herewith for ... (III) property damage or loss that results from reservoir or underground damage, including loss of oil, gas, other mineral substances, or water or the well bore itself ... (V) damage to property owned by, in the possession of, or leased by customer, and/or well owner....

(c) Application of Indemnities. The assumption of liability and indemnities in paragraphs (a) and (b) above shall apply to any loss, damage ... or claim arising out of or in connection with this contract or the services provided hereunder, without regard to the cause(s) thereof including, without limitation, ... the sole, joint, concurrent or gross, active or passive, negligence or other fault of the indemnitee or its contractors or subcontractors or its or their employees, agents, representatives or invitees.

( Id. at 31 (emphasis and capitalization omitted).) The contract also sets forth a separate limitation of liability clause:

12. Limitation of Liability. Notwithstanding anything to the contrary herein, except as provided under Paragraph 9.(a)1, Schlumberger's liability arising from or in connection with this Contract (whether for indemnity, breach of contract, negligence, misrepresentation, or otherwise) shall not in any circumstances exceed the full value of the consideration owed to Schlumberger under this Contract.

( Id. (emphasis omitted).) The cost of the work performed totaled $40,893.37.

The cement top poured by Schlumberger actually rose to 10,595 feet, higher than the requested 11,900 foot target. At this level, the cement covered a zone in the well that Arnold had identified for production. Arnold incurred almost one million dollars of additional expenses as a result of sidetracking around the cement to reach the now-covered zone. To recoup the additional expense, Arnold filed this action against Schlumberger for negligence, gross negligence, and breach of contract. Schlumberger moved for summary judgment, arguing the contract precluded its liability or, alternatively, the contract limited its liability to the cost of the work performed. After concluding the contract was clear and unambiguous, and therefore the construction of the contract was a matter of law for the court to decide, the district court held the indemnity provision in the contract merely operated to indemnify the parties against third-party claims and was not exculpatory. “Nothing in the instant indemnity provision—paragraph 9 of the contract—suggests that the parties intended it to operate as an exculpatory release as opposed to an agreement to indemnify with respect to claims of third parties.” ( Id. at 151.) Accordingly, the district court denied summary judgment. The district court also held that fact issues remained as to the parties' relative bargaining positions and therefore denied summary judgment on the enforceability of the limitation-of-liability provision.

The case proceeded to trial, and the jury returned a verdict finding the parties were equally negligent and Schlumberger had breached its contract with Arnold. The jury awarded $350,000 in damages to Arnold. The jury also determined Schlumberger was not grossly negligent and the parties were in an unequal bargaining position. Schlumberger renewed its motion for judgment as a matter of law seeking enforcement of the limitation-of-liability clause. The district court denied the Rule 50(b) motion, holding “the evidence admitted at trial was sufficient to permit the jury reasonably to find that [Arnold] and [Schlumberger] held positions of unequal bargaining power at the time of contracting.” ( Id. at 223–24.) Schlumberger now appeals the district court's denial of summary judgment and its denial of judgment as a matter of law.

DISCUSSION

We review the denial of summary judgment de novo and apply the same standards as the district court. Yaffe Cos. v. Great Am. Ins. Co., 499 F.3d 1182, 1185 (10th Cir.2007). Summary judgment is appropriate “if there is no genuine issue as to any material fact and the movant is entitled to a judgment as a matter of law.” Fed.R.Civ.P. 56(c). “Our review, however, is only appropriate where the motion for summary judgment presented a legal question.” Kelley v. City of Albuquerque, 542 F.3d 802, 820 (10th Cir.2008); see also Ruyle v. Cont'l Oil Co., 44 F.3d 837, 841 (10th Cir.1994) (“A party who properly raises an issue of law before the case goes to the jury need not include the issue in a motion for a directed verdict in order to preserve the question on appeal.” (quotation marks omitted)). Additionally, the determination as to whether a contract is ambiguous and the construction of an unambiguous contract are legal questions for the court. Pitco Prod. Co. v. Chaparral Energy, Inc., 63 P.3d 541, 545 (Okla.2003).¹

Further, “[w]e review de novo a district court's disposition of a motion for judgment as a matter of law, applying the same standard as the district court.” Bristol v. Bd. of Cnty. Comm'rs, 312 F.3d 1213, 1216 (10th Cir.2002) (quotation marks omitted). We grant judgment as a matter of law “if there is no legally sufficient evidentiary basis with respect to a claim or defense under the controlling law.” Id. (quotation marks and alterations omitted). “[T]he controlling question is whether the plaintiff has arguably proven a legally sufficient claim.” Id. at 1216–17 (quotation marks omitted).

Schlumberger first argues the district court misconstrued the indemnity and hold-harmless provisions in the parties' contract based on its mistaken belief that the parties did not intend to bar claims by Arnold against Schlumberger. While the terms indemnity and...