Arnold v. Shell Oil Company

• Decision Date: 17 April 1970
• Docket Number: No. 26793.,26793.
• Citation: 419 F.2d 43
• Parties: Jack ARNOLD and Neal M. Demesia, Plaintiffs-Appellees, v. SHELL OIL COMPANY, Defendant-Third Party Plaintiff-Appellant, v. LIBERTY WELDING AND IRON WORKS, INC., Third-Party Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

419 F.2d 43 (1969)

Jack ARNOLD and Neal M. Demesia, Plaintiffs-Appellees, v. SHELL OIL COMPANY, Defendant-Third Party Plaintiff-Appellant, v. LIBERTY WELDING AND IRON WORKS, INC., Third-Party Defendant-Appellee.

No. 26793.

United States Court of Appeals Fifth Circuit.

November 12, 1969.

Rehearing Denied April 17, 1970.

L. Howard McCurdy, Jr., John J. Weigel, Jones, Walker, Waechter, Poitevent, Carrere & Denegre, New Orleans, La., for Shell Oil Co.

Frank S. Bruno, Arthur B. Hammond, New Orleans, La., for plaintiffs-appellees.

A. R. Christovich, Jr., Christovich & Kearney, New Orleans, La., for Liberty Mutual Insurance Co.

Louis B. Porterie, New Orleans, La., for Liberty Welding and Iron Works, Inc.

Before WISDOM and MORGAN, Circuit Judges, and DAVIS,^* Judge of the United States Court of Claims.

WISDOM, Circuit Judge.

In this diversity case the sole question on appeal is whether the work Liberty Welding and Iron Works, Inc. performed for Shell Oil Company on a heater treater was part of Shell's "trade, business, or occupation" for purposes of coverage by the Louisiana Workmen's Compensation Statute, L.R.S.A. § 23:1061. The district judge submitted this question to the jury. The jury found that the work was not part of Shell's "trade, business or occupation". We hold, as a matter of law, that the judgment must be reversed notwithstanding the jury's verdict.

Shell hired Liberty to replace the internal tubes of a steam generator or "heater treater" located at the Shell Central Facility at Southwest Pass, Louisiana. A heater treater is a device that is used to separate sand and salt water from freshly mined oil. During operation, the tubes inside the heater treater deteriorate and must be replaced from time to time. To replace the tubing, the worker must enter the heater treater, cut out the old tubes with an acetylene torch, and insert the new tubes.

Arnold and Demesia, employees of Liberty, were replacing the tubes in the Shell heater treater when they were injured. They sued Shell. Liberty Mutual Insurance Company intervened to recover compensation out of any judgment Arnold and Demesia might obtain against Shell. Shell filed a third-party complaint against Liberty Welding and Liberty Mutual, Liberty Welding's insurer, for indemnity against any claims by Arnold and Demesia. Liberty Welding answered the third-party complaint and cross-complained against Liberty Mutual. The district court granted Liberty Mutual's motion to dismiss the third-party complaint filed against it by Shell, but allowed Liberty Welding's third-party complaint against Liberty Mutual and its counterclaim against Arnold and Demesia to go to trial.

The case was tried before a jury on special interrogatories. The district court submitted the following issue to the jury: "Was the work for which Shell contracted with Liberty Welding Company part of Shell's regular trade, business, or occupation".¹

The jury found that Shell's contract work with Liberty Welding was not part of the oil company's regular trade, business, or occupation and awarded Arnold $11,000 and Demesia $1,350.

I.

Section 23:1061 of the Louisiana Revised Statutes² provides that any person who "contracts out" work which is part of his trade, business, or occupation is liable to any employee of the contractor engaged in the work for workmen's compensation to the same extent as if the contractor's employee were one of his own employees. This section further provides that if the employer is liable to the contractor's employee, he is entitled to indemnity for these payments from any of the employee's other employers who are also liable for workmen's compensation payments. Professor Wex Malone, the leading authority in the field, in Principal's Liability for Workmen's Compensation to Employees of Contractor, 10 La.L.Rev. 25 (1949), explains the purpose of section 23:1061:

In the absence of some special provision in the Workmen\'s Compensation Act it would be possible for an employer to avoid his compensation responsibility merely by interposing an independent contractor or sub-contractor between himself and his employees. This, of course, would not deprive the employee of protection so long as the intermediary contractor is solvent or protected by insurance. However, the possibility of using an impecunious middle man as a means of dodging compensation remains, and it was necessary to prevent this by subjecting certain principals to the compensation claims of their contractor\'s employees. A provision of this type is found in most compensation acts. * * * The purpose of Section Six as a means of preventing the evasion of compensation is again made clear by the fact that it comes into operation only when the work let by contract is a part of the regular business of the principal. Normally the worker must be satisfied to accept the financial status of his immediate employer. It is neither expedient in policy nor workable from an administrative viewpoint to require that all persons who in any way accept the services of a contractor must lay themselves open to suit by the latter\'s employees. Thus a principal is not fairly subject to suspicion of seeking to avoid his compensation liability unless he has attempted to relegate a part of his own regular operations to a contractor.

Id. at 25-27. In the context of this case, we must decide whether, as a matter of law, the work that Arnold and Demesia performed on Shell's heater treater was part of Shell's own regular operations. If the work was part of Shell's regular operations, the sole remedy available to Arnold and Demesia was under the Louisiana Workmen's Compensation Laws and they could not maintain this suit.³

II.

Only one witness, B. O. Carlson, Division Production Superintendent of Shell Oil Company in New Orleans, testified at the trial on whether the work on the heater treater was part of Shell's regular business. He testified that Shell Oil operates throughout the entire United States in a myriad of activities, including finding, producing, transporting, refining, manufacturing, marketing, and selling oil and gas products. In the Delta Division, which encompasses the Central Facility where Arnold and Demesia were injured, Shell employed six crews at the time of the accident. Each crew had a maintenance department which included a welder, among others. Throughout Louisiana, Shell's vast interests required that it employ engineers, pilots, scientists, truck drivers, lawyers, salesmen, and various skilled laborers and technicians. Occasionally Shell contracted with independent contractors for the performance of some maintenance work but this was not done on the sole consideration of whether Shell had employees capable of performing the particular activity. Rather, the more compelling consideration seemed to be that Shell could hire independent contractors for less than it would cost to use its own employees.

Carlson described the operations of the Delta Division. He stated that as oil and gas are mined from the earth some sand and salt water are always produced along with the oil and gas. This residue must be separated from the oil prior to the oil being placed in a pipeline that will carry it to a refinery. The separation takes place in a heater treater which requires some form of heat, usually provided by a steam generator. Carlson described the work Arnold and Demesia performed as "an expected repair". Demesia testified that replacing the tubes on the heater treater was routine work required on any such generator. Arnold agreed that the replacement of this tubing was to be expected in any similar boiler. Carlson testified, however, that Shell always contracted out its work on its heater treaters. There was no evidence bearing on the custom in the industry.

In deciding whether the work performed by Arnold and Demesia was part of Shell's trade or business for the purposes of workmen's compensation coverage, we keep in mind that the workmen's compensation law should be liberally construed with a view to coverage. It makes no difference that Shell, the employer, is the party asserting coverage. See Isthmian S.S. Co. v. Olivieri, 5 Cir.1953, 202 F.2d 492, 494; Thibodaux v. Sun Oil Co., La.App. 1 Cir.1949, 40 So.2d 761, 766, aff'd, 1950, 218 La. 453, 49 So.2d 852.

This Court has already held that a heater treater is part of the regular operations of an integrated oil company for purposes of section 23:1061 of the Louisiana Revised Statutes. Fontenot v. Stanolind Oil & Gas Co., 5 Cir.1957, 243 F.2d 574. In that case we affirmed summary judgment against Fontenot on the basis of the district court's opinion, Fontenot v. Stanolind Oil & Gas Co., W. D.La.1956, 144 F.Supp. 818. The district court stated:

The Court has reached the conclusion that the trade, business, and/or occupation of Stanolind was and is the production, saving and marketing of oil, gas and other petroleum products, and that the operation of emulsion heater treaters to separate the oil from the water, including the cleaning and servicing of same, is legally a part of Stanolind\'s trade, business and/or occupation. If a jury were to hold otherwise, I would, under the law as construed by the courts, feel it my duty to set that verdict aside. This would be required, I believe, by the reasoning in Thibodaux v. Sun Oil Company, 218 La. 453, 49 So.2d 852; Spanja v. Thibodaux Boiler Works, La.App., 2 So.2d 668; Turner v. Oliphant Oil Corporation, La.App., 200 So. 513; Wynn v. Fidelity and Casualty Company, La.App., 85 So.2d 315. (Emphasis added.) 144 F.Supp. at 824.

The facts in Fontenot are remarkably similar to the facts in the instant case, with one exception. In Fontenot there was substantial evidence that the cleaning and repair of Stanolind's heater treaters was regularly performed by Stanolind's own employees; Stanolind only contracted out this work when none of its own employees were available. Here, however, Shell always contracted out this work....