Texaco Exploration & Prod. v. Amclyde Engin. Prod.

• Decision Date: 05 May 2006
• Docket Number: No. 03-31208.,03-31208.
• Parties: TEXACO EXPLORATION AND PRODUCTION, INC.; Marathon Oil Company, Plaintiffs-Appellants, v. AmCLYDE ENGINEERED PRODUCTS COMPANY, INC.; et al., Defendants, AmClyde Engineered Products Company, Inc.; United Dominion Industries, Inc., formerly known as AMCA International Corp., formerly known as Clyde Division, Defendants-Appellees. Certain Underwriters at Lloyds London, Each for its own self and not one for the other, jointly and not severally and each subscribing to Policy No. S611625 and each for its own self and not one for the other, jointly and not severally and each subscribed to Policy No. S611626; et al., Plaintiffs-Appellants, v. AmClyde Engineered Products, Inc.; et al., Defendants, AmClyde Engineered Products, Inc.; AmClyde Engineered Products Company, Inc.; United Dominion Industries Inc., formerly known as AMCA International Corp., formerly known as Clyde Division; J. Ray McDermott International Vessels, Ltd., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

448 F.3d 760

TEXACO EXPLORATION AND PRODUCTION, INC.; Marathon Oil Company, Plaintiffs-Appellants, v. AmCLYDE ENGINEERED PRODUCTS COMPANY, INC.; et al., Defendants, AmClyde Engineered Products Company, Inc.; United Dominion Industries, Inc., formerly known as AMCA International Corp., formerly known as Clyde Division, Defendants-Appellees.

Certain Underwriters at Lloyds London, Each for its own self and not one for the other, jointly and not severally and each subscribing to Policy No. S611625 and each for its own self and not one for the other, jointly and not severally and each subscribed to Policy No. S611626; et al., Plaintiffs-Appellants, v. AmClyde Engineered Products, Inc.; et al., Defendants, AmClyde Engineered Products, Inc.; AmClyde Engineered Products Company, Inc.; United Dominion Industries Inc., formerly known as AMCA International Corp., formerly known as Clyde Division; J. Ray McDermott International Vessels, Ltd., Defendants-Appellees.

No. 03-31208.

United States Court of Appeals, Fifth Circuit.

May 5, 2006.

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S. Gene Fendler (argued), Don Keller Haycraft, Brett Daneil Wise, Liskow & Lewis, James H. Roussel, Baker, Donelson, Bearman, Caldwell & Berkowitz, New Orleans, LA, Philip G. Eisenberg, Mark Anthony Shavez, Locke, Liddell & Sapp, J. CLifton Hall, III (argued), Karen Klaas Milhollin, Houston, TX, for Plaintiffs-Appellants.

Robert E. Couhig, Jr. (argued), Couhig Partners, Louis C. LaCour, Jr., James T. Rogers, III, Adams & Reese, New Orleans, LA, Robert N. Markle, Adams & Reese, Baton Rouge, LA, for Defendants-Appellees.

Charles M. Steen (argued), Houston, TX, Susan Elisabeth Kearns, Kirkland & Ellis, Washington, DC, John Donley, Kirkland & Ellis, Chicago, IL, for J. Ray McDermott Intern. Vessels, Ltd.

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

Before JONES, Chief Judge, and JOLLY and DeMOSS, Circuit Judges.

DeMOSS, Circuit Judge:

This appeal arises out of an accident during the construction of the Petronius oil and gas production facility in the Gulf of Mexico. Addressing multiple issues raised in two actions consolidated for trial and appeal, we affirm in part, reverse in part, and remand for further proceedings. With respect to the products liability action arising from the loss of a portion of the Petronius compliant tower, we conclude that the district court erred in determining its subject matter jurisdiction and the applicable substantive law; and we reverse and remand. With respect to the insurance subrogation action and the attendant interpretation of the applicable insurance policy, we affirm the district court's grant of summary judgment based upon parties' entitlement to waiver of subrogation and affirm the dismissal of the subrogation claims. We also affirm the court's award of costs to AmClyde.

FACTUAL BACKGROUND

The two actions consolidated for trial and appeal, which for simplicity's sake we style the Texaco products liability action (or the "Texaco cause") and the Underwriters subrogation action (or the "Underwriters cause"), are presented separately. Though no party raises an objection to the consolidation, we treat the actions separately here for clarity to the parties and to the district court on remand.

I. Facts Leading to Texaco's Products Liability Action

Plaintiffs-Appellants Texaco Exploration and Production, Inc. and Marathon Oil Company (collectively, "Texaco") are the lessees of an offshore federal lease at Viosca Knoll Block 786 on the Outer Continental Shelf (or the "Shelf"). The lease block is located in approximately 1750 feet of water and is the site of Texaco's oil and gas development project, Petronius. The Petronius project was a $400 million deepwater drilling and production project for the development of 80 to 100 million barrels of oil equivalent. The compliant tower, the construction of which forms the basis of this dispute, is a platform, designed to flex with the forces of wave, wind, and current, that is fixed permanently to the Outer Continental Shelf. The Petronius compliant tower is approximately 1870 feet in height, weighs approximately 43,000 tons, and is capable of producing 60,000 barrels of oil and 100 million cubic feet of natural gas per day. See Texaco and Marathon Move Forward on $400 Million Deepwater Project in Gulf of Mexico Compliant Tower Design Selected for "Petronius," BUSINESS WIRE, Sept. 17, 1996, available at LEXIS, News Library, BWire file.

During the 1998 construction of the Petronius compliant tower, a main load line on a crane, which was mounted on the Derrick Barge 50 ("DB-50"), failed. The crane or load line failure caused the deck section that was then suspended (the "South Deck Module") to fall into the Gulf of Mexico on the Outer Continental Shelf off the coast of Alabama and Louisiana. The failure resulted in a complete loss of the South Deck Module and a fifteen-month delay to the construction project of the Petronius compliant tower affixed to the sea floor.

Prior to the initiation of construction, Texaco contracted with J. Ray McDermott, Inc. ("McDermott"). The contract charged McDermott with the engineering design, drafting, fabrication, installation, and construction of the Petronius compliant tower platform and its components, including the foundation piles, tower, support frame, two deck modules (the North Deck Module and the South Deck Module) and attendant drilling rigs at Viosca Knoll Block 786. The construction project proceeded in two phases using the DB-50 barge, which McDermott chartered and operated.¹ The DB-50 was owned by J. Ray McDermott International Vessels, Ltd. ("JRMIV").² The crane mounted to the DB-50 was manufactured by the predecessor to Defendant-Appellee AmClyde Engineered Products, Inc.

Once construction of the compliant tower commenced, both the North and South Deck Modules (which were prefabricated off-site) were transported to the offshore construction site on the same material barge. On December 3, 1998, McDermott began installation of both modules onto the already-constructed support frame of the Petronius compliant tower. First, McDermott transported the heavier of the two, the North Deck Module, some 1500 feet from its storage location on the material barge to the support frame and installed it. McDermott then began installation of the South Deck Module. Between the initial lift of the South Deck Module from the material barge and its placement on the support frame, the crane's wire rope load line failed, dropping the South Deck Module to the sea floor.

II. Facts Leading to Underwriters' Subrogation Action

Builder's Risk Underwriters (the "Underwriters") insured the Petronius compliant tower construction project, including the lost South Deck Module. The Builder's Risk Policy comprises a general conditions section, a section that covers physical damage, and a section that covers third party legal and contractual liabilities. Texaco was a principal, named assured under the policy.

Under the terms of the policy, Under-writers paid Texaco more than $72 million for covered losses, including the loss of the South Deck Module. Not included, however, in the policy's coverage were the losses due to delayed production.³

PROCEDURAL BACKGROUND

On December 2, 1999, Texaco sued, among others, AmClyde Engineered Products Company, Inc. ("AmClyde") and Friede Goldman Halter, Inc., successors to the designer and manufacturer of the Clyde Whirley 4000 Model 80 crane, in federal court, invoking federal question jurisdiction under the Outer Continental Shelf Lands Act ("OCSLA" or the "Act"), 43 U.S.C. § 1331, and admiralty jurisdiction in the alternative. Texaco alleged multiple negligence and products liability causes of action, and alleged that the case should be governed by general admiralty law.⁴ Texaco did not sue McDermott because their contract contained a binding arbitration clause.

In a separate action, Underwriters sued, among others, AmClyde, JRMIV, and the DB-50 in rem, seeking subrogation for amounts already paid to Texaco under the terms of the Builder's Risk Policy issued to Texaco as the principal assured, invoking admiralty jurisdiction under 28 U.S.C. § 1333. Underwriters did not sue McDermott because McDermott was a named additional assured under the Builder's Risk Policy with Texaco. The two actions, Texaco's products liability action and Underwriters' subrogation action, were consolidated on Underwriters' motion.

The defendants in Texaco's suit tendered McDermott as a third-party defendant pursuant to Federal Rule of Civil Procedure 14(c), and McDermott filed a summary judgment motion on the Rule 14(c) tendered claims. Texaco moved to stay all proceedings between itself and McDermott pending arbitration. The district court denied the stay and granted McDermott summary judgment. Texaco appealed the interlocutory order under 9 U.S.C. § 16(a)(1)(A). See Texaco v. AmClyde, 243 F.3d 906 (5th Cir.2001) ("Texaco I"). On appeal, a panel of this Court reversed, staying litigation between Texaco and McDermott and vacating the summary judgment for McDermott. Id. at 912. The panel declined to create an exception to the Federal Arbitration Act, 9 U.S.C. § 3, to permit a third party, AmClyde, to nullify an arbitration clause that did not conflict with Rule 14(c). The panel remanded with instructions that a limited stay be entered between Texaco and McDermott and that Texaco's claims against other defendants proceed.⁵ The Texaco I panel did not address the issues raised in the instant appeal.

On remand, the district court granted by written order dated October 13, 2000 a motion to strike Texaco's jury demand, noting that admiralty law's application extinguished the jury trial right. In that order, the district court determined that no fact or allegation permitted the exercise of OCSLA jurisdiction because admiralty law alone governed and did not give rise to a jury trial...