Halliburton Energy Servs., Inc. v. Ironshore Specialty Ins. Co.

• Decision Date: 17 April 2019
• Docket Number: No. 17-20678,C/w 18-20239,17-20678
• Citation: 921 F.3d 522
• Parties: HALLIBURTON ENERGY SERVICES, INCORPORATED, Plaintiff - Appellee v. IRONSHORE SPECIALTY INSURANCE COMPANY, Defendant – Appellant Halliburton Energy Services, Incorporated, Plaintiff - Appellant v. Ironshore Specialty Insurance Company, Defendant - Appellee
• Court: U.S. Court of Appeals — Fifth Circuit

921 F.3d 522

HALLIBURTON ENERGY SERVICES, INCORPORATED, Plaintiff - Appellee

v.IRONSHORE SPECIALTY INSURANCE COMPANY, Defendant – Appellant

Halliburton Energy Services, Incorporated, Plaintiff - Appellant

v.Ironshore Specialty Insurance Company, Defendant - Appellee

No. 17-20678

C/w 18-20239

United States Court of Appeals, Fifth Circuit.

FILED April 17, 2019

Aaron Michael Streett, Jonathan Mark Little, Baker Botts, L.L.P., Elizabeth Robertson Taber, King & Spalding, L.L.P., Houston, TX, for Plaintiff-Appellee in 17-20678 and 18-20239.

Neal Morris Glazer, Jan Hudson Duffalo, Esq., D'Amato & Lynch, L.L.P., New York, NY, Jeffrey R. Parsons, Parsons McEntire McCleary, P.L.L.C., Houston, TX, for Defendant-Appellant in 17-20678 and 18-20239.

Angela Rowland Webster, Counsel, Parsons McEntire McCleary, P.L.L.C., Houston, TX, for Defendant-Appellant in 17-20678.

Before STEWART, Chief Judge, and SOUTHWICK and ENGELHARDT, Circuit Judges.

CARL E. STEWART, Chief Judge:

An oil rig caught fire and exploded in Ohio. Statoil USA Onshore Properties operated the rig, Halliburton Energy Services fracked at the rig site, and Ironshore Specialty Insurance Company insured Statoil. Now, all the parties disagree about who is on the financial hook for the damage.

Ironshore paid roughly $12 million to Statoil to cover a portion of the damages, while Halliburton paid nothing. But Ironshore didn’t go away quietly—it sent a letter to Halliburton, demanding payment and asserting subrogation rights under the Master Services Agreement ("MSA"), a contract between Statoil and Halliburton. Halliburton responded with this preemptive declaratory judgment action, arguing that it owes nothing under the MSA. Halliburton also tacked on a breach of contract claim, arguing that Ironshore should have indemnified Halliburton. Rather than litigate these issues in federal court, Ironshore sought a private resolution through arbitration.

This case turns on two issues. First, whether the MSA dispute should go to arbitration. And second, whether the court has personal jurisdiction over Ironshore for the remaining breach of contract claim. The district court held that arbitration was not required—Ironshore could not invoke the arbitration clause in the MSA because it waived any subrogation rights. Then, the district court held that it lacked personal jurisdiction over Ironshore and dismissed the case.

We hold that the district court erred when it held that Ironshore waived its subrogation rights under the MSA. We therefore REVERSE its arbitration ruling in appeal No. 17-20678. The district court was correct, however, when it held that it lacked personal jurisdiction over Ironshore. We therefore AFFIRM the district court’s personal jurisdiction ruling in appeal No. 18-20239.

I. Factual Background & Procedural History

This case centers on an insurance dispute following an explosion and fire on an oil-and-gas rig in Ohio.¹ The rig at issue was operated by Statoil, which is not a party to this lawsuit; Halliburton fracked at the well; and Ironshore insured Statoil.

Prior to the explosion, Statoil entered into two contracts that form the basis of this dispute. First, Statoil contracted with the plaintiff, Halliburton. While operating the rig, Statoil hired Halliburton to perform fracking operations. They memorialized their relationship in an Onshore Master Services Agreement ("MSA").

The MSA is relevant here because it allocated risk among the parties. It contained various indemnification provisions, which shifted liability for some accidents to Statoil and others to Halliburton. In the event of a dispute about these provisions, the MSA required the parties to submit to binding arbitration in Texas.

The MSA contained multiple references to Texas. The MSA required Halliburton to send invoices to Statoil’s Houston address; it contained a Texas-specific indemnity provision; and it required the parties to resolve any disputes in Texas under Texas law. Halliburton and Statoil also both listed their principal places of business as Houston, Texas.

The second relevant contract is an insurance policy—a Site Pollution Incident Legal Liability Select (or "SPILLS") policy—that Statoil entered into with Ironshore. Under this policy, Ironshore agreed to waive subrogation rights as required by written contract. It also agreed to insure Statoil in accordance with Texas surplus lines laws.

On June 28, 2014, the explosion occurred, spurring a flurry of declaratory judgment actions by Statoil’s insurers. The primary lawsuit was filed by one of Statoil’s other insurers in Texas. Ironshore was named as a defendant in that action. Ironshore responded by filing its own declaratory judgment action in New York.

Eventually, the insurers settled and agreed to reimburse Statoil for $24 million, with Ironshore paying roughly $12 million. The insurers, however, reserved their rights against each other and agreed to litigate the proper allocation of the settlement amount among themselves in the Texas action. Each insurer reserved the right to argue for the application of any state law.

Following the settlement, Ironshore sent a letter to Halliburton requesting indemnification under the MSA. More specifically, Ironshore asked Halliburton to waive arbitration and negotiate Halliburton’s potential liability. The request failed—Halliburton rejected the offer and filed this breach of contract and declaratory judgment action, requesting the district court to hold that (1) Halliburton is an "additional insured" under the SPILLS policy and, therefore, not liable for indemnification; (2) Ironshore breached the SPILLS policy by not defending and indemnifying Halliburton as an additional insured; and (3) Ironshore waived its subrogation rights. Ironshore responded by filing (1) a motion to stay pending arbitration under Section 3 of the Federal Arbitration Act ("FAA"), 9 U.S.C. § 3, and (2) a motion to dismiss for lack of personal jurisdiction. The district court ruled on both motions.

The district court first addressed Ironshore’s motion to stay pending arbitration. The court denied the motion, holding that Ironshore could not compel arbitration because there was no binding arbitration agreement between Ironshore and Halliburton. Ironshore filed an interlocutory appeal of that ruling, which was docketed as case number 17-20678.

After ruling on Ironshore’s motion to stay pending arbitration, the district court ruled on Ironshore’s motion to dismiss for lack of personal jurisdiction. The court first held that it did not have general jurisdiction over Ironshore because Ironshore did not have any substantial contacts with Texas. It also held that it lacked specific jurisdiction over Ironshore because Ironshore did not have minimum contacts with the forum state. Haliburton appealed, and the appeal was docketed as case number 18-20239. Both cases were then consolidated.

II. The District Court’s Arbitration Ruling

The district court first addressed whether there was a binding arbitration clause between Ironshore and Halliburton. The court determined that there was not and denied Ironshore’s motion to stay pending arbitration. We disagree.

A. Background Arbitration Law

This court reviews a district court’s ruling on a motion to compel arbitration and stay litigation de novo.²

Hadnot v. Bay, Ltd. , 344 F.3d 474, 476 (5th Cir. 2003) (citing Webb v. Investacorp, Inc. , 89 F.3d 252, 257 (5th Cir. 1996) ). A district court’s interpretation of the scope of an arbitration agreement is also subject to this court’s plenary review. See Freudensprung v. Offshore Tech. Servs., Inc. , 379 F.3d 327, 337 (5th Cir. 2004) ; Pennzoil Expl. & Prod. Co. v. Ramco Energy Ltd. , 139 F.3d 1061, 1065 (5th Cir. 1998).

Under the FAA, ordinary principles of state contract law determine whether there is a valid agreement to arbitrate.³ See Arthur Andersen LLP v. Carlisle , 556 U.S. 624, 630, 129 S.Ct. 1896, 173 L.Ed.2d 832 (2009) ("Neither [section 2 nor 3 of the FAA] purports to alter background principles of state contract law regarding the scope of agreements (including the question of who is bound by them)."); see also Jody James Farms, JV v. Altman Grp., Inc. , 547 S.W.3d 624, 631 (Tex. 2018) ; In re Rubiola , 334 S.W.3d 220, 224 (Tex. 2011). Here, Texas state law governing "the validity, revocability, and enforceability of contracts generally" controls the dispute. Arthur Andersen , 556 U.S. at 631, 129 S.Ct. 1896.

Under Texas law, a party can compel arbitration only by establishing: (1) the existence of a valid agreement to arbitrate; and (2) that the claims asserted by the party attempting to compel arbitration are within the scope of the arbitration agreement. Certain Underwriters at Lloyd’s of London v. Celebrity, Inc. , 950 S.W.2d 375, 377 (Tex. App.—Tyler 1996, writ dism’d w.o.j). Both the existence issue and scope issue are decided by the court. See Tex. Civ. Prac. & Rem. Code Ann. § 171.021 ; Howell Crude Oil Co. v. Tana Oil & Gas Corp. , 860 S.W.2d 634, 639 (Tex. App.—Corpus Christi 1993, no writ).

A party seeking to compel arbitration must first show that a valid arbitration agreement exists between the parties, a determination governed by traditional state contract principles. Jody James Farms , 547 S.W.3d at 631. Under these principles, the court must determine whether an arbitration agreement exists based on the parties’ intent as expressed in the terms of the contract. Chrysler Ins. Co. v. Greenspoint Dodge of Hous., Inc. , 297 S.W.3d 248, 252 (Tex. 2009).

The parties’ intent controls even when a non-signatory to the arbitration agreement seeks to enforce it. Non-signatories sometimes try to enforce an arbitration agreement against a signatory, who will often respond by arguing that the arbitration agreement exists only between the signatories. When parties dispute whether a "non-signatory can compel arbitration pursuant to an arbitration clause," their dispute "questions the existence of a valid arbitration clause between specific parties...