Chevron USA, Inc. v. Aker Mar. Inc.

• Decision Date: 31 July 2012
• Docket Number: No. 11–30369.,11–30369.
• Citation: 689 F.3d 497
• Parties: CHEVRON USA, INCORPORATED, Plaintiff, v. AKER MARITIME INCORPORATED; Technip Offshore Engineering, Incorporated; Technip Offshore Moorings, Incorporated; Technip Offshore Incorporated, Defendants–Appellees, v. Oceaneering International Incorporated, Defendant–Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

689 F.3d 497

CHEVRON USA, INCORPORATED, Plaintiff,

v.AKER MARITIME INCORPORATED; Technip Offshore Engineering, Incorporated; Technip Offshore Moorings, Incorporated; Technip Offshore Incorporated, Defendants–Appellees,

v.Oceaneering International Incorporated, Defendant–Appellant.

No. 11–30369.

United States Court of Appeals,Fifth Circuit.

July 31, 2012.

Chet D. Traylor, Evelyn Alexis Bevis (argued), William Scarth Clark, Koeppel Traylor, New Orleans, LA, for Defendants–Appellees.

Michael Anthony McGlone (argued), Kean Miller, L.L.P., New Orleans, LA, for Defendant–Appellant.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before JONES, Chief Judge, and PRADO, and SOUTHWICK, Circuit Judges.

LESLIE H. SOUTHWICK, Circuit Judge:

Following a jury trial, Chevron USA, Inc. was awarded damages from Aker Maritime, Inc. and its subsidiaries, and from Oceaneering International, Inc. That judgment was affirmed in an earlier appeal and is not subject to further challenge. A bench trial was held on remand to consider remaining contractual claims. The district court ordered Oceaneering to pay indemnity and attorneys' fees to Aker. In this appeal, Oceaneering seeks to reverse those awards. We AFFIRM.

FACTUAL AND PROCEDURAL BACKGROUND

In 2001, there was a significant and costly failure of insignificant-sized and inexpensive bolts used on an oil production and drilling facility that sits in 2600 feet of water, 150 miles south of New Orleans in the Gulf of Mexico. All the bolts in the riser system securing the Genesis Spar facility to the Gulf's floor had to be replaced when defects in them were found. Chevron, the operator and part owner of the facility, brought suit to allocate responsibility among several companies involved in the procurement and installation of the bolts.

This is the second appeal of a final judgment in the district court. We excerpt from our earlier opinion those facts that are most important for understanding the remaining issues:

Chevron hired Aker Maritime, Inc. (“Aker”) in 1998 to provide design and engineering services for the initial construction of the riser system. Stability problems plagued the riser system after its completion, leading to a crack in the spar's hull in 2000. Oceaneering International, Inc. (“Oceaneering”) repaired the hull at Chevron's request, and Chevron put Aker in charge of designing a permanent fix. Large bolts called carriage bolts hold the riser system together, and Aker ordered the bolts from Lone Star, according to testimony a “well-known” bolt manufacturer that also distributed others' bolts. Aker initiallyrequested eight-inch Grade 5 carriage bolts, which Chevron had approved. When Lone Star responded that it had no Grade 5 bolts, Aker placed an order for 2,092 Grade 2 carriage bolts, costing a total of $878.64. Instead of shipping Grade 2 bolts, Lone Star shipped Grade A bolts ¹ manufactured by Oriental Fastener Co. (“Oriental”). At the time, Lone Star routinely substituted Grade A bolts for Grade 2 bolts, then a widespread practice in the fastener industry.

Lone Star shipped the bolts to Oceaneering, which was in charge of assembling the risers. The bolts were marked “OF,” indicating the manufacturer, and arrived in shipping boxes bearing the Lone Star mark. They also arrived with a packing slip noting that they were either “manufactured or distributed” by Lone Star. Oceaneering accepted the bolts, failing to notice the substitution.

The first bolt failure occurred on July 9, 2001, when a bolt head popped off one of the first bolts used in the risers. Jack Couch, the project manager for Oceaneering, contacted Aker's Mike Harville and told Harville that he thought the bolts were a “serious weak link.” Couch took a picture of the failed bolt and sent it to Harville. Harville told Oceaneering that it had applied too much torque to the bolt, as Oceaneering was applying torque to Grade 2 bolts that it believed to be Grade 5 bolts. Oceaneering continued assembly of the riser system using the torque appropriate for Grade 2 bolts, apparently without incident. In August 2001, however, Aker took over riser assembly, and Oceaneering sent the parts, including the bolts, to Aker. Like Oceaneering's employees, Aker's employees failed to detect that the bolts were Grade A bolts.

Chevron USA, Inc. v. Aker Mar., Inc., 604 F.3d 888, 890–91 (5th Cir.2010) (two footnotes omitted).

After the riser system was installed, it was discovered during a July 2002 underwater inspection that the heads of several bolts had broken off. Further investigation resulted in a decision to replace all the bolts.

In July 2003, Chevron sued Aker, Oceaneering, and other companies no longer in the suit. After a jury trial, Chevron's total damages were found to be almost $3 million. All defendants were found to be negligent, and fault was apportioned among them. Aker was held to be 35% at fault, the company Aker contacted to supply the bolts also 35%, and the manufacturer of the bolts 20%. Oceaneering and the Aker subsidiary that assembled the risers after taking over from Oceaneering were each found to be 5% at fault. The district court dismissed Aker's indemnity claim against Oceaneering, concluding it was “trumped” by the jury verdict.

On appeal, we affirmed the damages award. We also vacated the award of attorneys' fees, and reversed and remanded the dismissal of Aker's indemnity claims. After our remand order, Aker and Chevron reached a settlement for all claims against Aker “irrespective of their nature.” On remand, the court found Oceaneering liable to indemnify Aker for nearly the full settlement amount and for attorneys' fees.

There are two contracts that control the issues raised on appeal. One is a Contract for Genesis Riser Systems Support Services, entered by Chevron and Aker in December 1998, which we will call the “Support Contract.” The contract specifically dealt with the Genesis Spar project. The other is the Master Service Order and Agreement, entered between Chevron and Oceaneering in June 1991, which we will call the “Master Agreement.” It is a general agreement that predates the Genesis Spar project.

DISCUSSION

On this appeal, Oceaneering argues that neither indemnity nor attorneys' fees are appropriate because the relevant contracts do not support the awards. We will discuss the indemnity issues first.

I. Indemnity

Whether Aker is entitled to indemnity turns on questions of contract interpretation. Those questions are legal ones to be reviewed de novo. E.g., Wal–Mart Stores, Inc. v. Qore, Inc., 647 F.3d 237, 242 (5th Cir.2011). The contract and record are reviewed “under the same standards that guided the district court.” Id. In this diversity suit, we apply the contract interpretation rules of the relevant state, which is Louisiana. See Citigroup Inc. v. Fed. Ins. Co., 649 F.3d 367, 371 (5th Cir.2011). In Louisiana, words and phrases in a contract are construed using generally prevailing meaning. La. Civ.Code art.2047; Cadwallader v. Allstate Ins. Co., 848 So.2d 577, 580 (La.2003).

The relevant indemnity clause is found in Master Agreement Paragraph 6(b), which was executed by Chevron and Oceaneering:

CONTRACTOR [Oceaneering] shall be liable to and hold INDEMNITEES harmless for any loss of or damage to the property of COMPANY [Chevron] (its joint venturers and partners and affiliates) arising out of, connected with, incident to directly or indirectly² or resulting from or related to CONTRACTOR'S performance of this Agreement, including but not limited to, CONTRACTOR'S use of equipment provided by COMPANY (its joint venturers and partners and affiliates) or others, regardless of the passive, concurrent or active negligence of, and regardless of whether liability without fault (including, but not limited to, claims for unseaworthiness of any vessel) is imposed or sought to be imposed on, INDEMNITEES.

As previously mentioned, this contract predates Oceaneering's involvement on the Genesis Spar. As a master agreement, it appears intended to apply to a variety of projects on which Chevron may at different times engage Oceaneering. By its own terms, the indemnity applies to damage “arising out of, connected with, incident to or resulting from or related to [Oceaneering's] performance of this Agreement.” The work Oceaneering was to perform was described as “underwater services including diving, remote operated vehicles (ROVs), survey and related services.”

The Master Agreement defines “Indemnitees,” its importance suggested by the fact it is the first term in the agreement.

CHEVRON U.S.A., INC. and all of its affiliated or parent or subsidiary companies or corporations, all of its co-owners or joint venturers, and all of the aforesaid entities' agents, officers, employees, representatives or insurers.We will later quote the language in the Support Contract that makes Aker the agent of Chevron for certain purposes.

Oceaneering insists that this claim falls outside the scope of the indemnity clause. Even if Aker were an agent, which it disputes, Oceaneering's basic point is that Aker's acts as an agent are not related in any way to Oceaneering's performance of the agreement. Oceaneering also argues that the Master Agreement limits the amount of indemnity, that the Chevron–Aker Support Contract limits Aker's ability to recover from Oceaneering, and that Aker was not a third-party beneficiary of the Master Agreement.

The task at hand is contract interpretation. When construing indemnification contracts, we will not ignore broad, straightforward language that unequivocally states an agreement to indemnify. Perkins v. Rubicon, Inc., 563 So.2d 258, 259 (La.1990). This contract unambiguously indemnifies agents of Chevron, using extremely broad language and going so far as to indemnify them regardless of their own negligence.³ Independent contractors, on the other hand, are not listed in this “indemnitees” definition. Thus, whether Aker was an agent is...