Opinion
No. CIV-20-557-R
2023-03-08
CHESAPEAKE OPERATING, LLC, Plaintiff, v. C.C. FORBES, LLC, Defendant.
Reagan E. Bradford, Ryan K. Wilson, Bradford & Wilson PLLC, Oklahoma City, OK, for Plaintiff. John H. Tucker, Austin T. Jackson, Kerry R. Lewis, Rhodes Hieronymus Jones Tucker & Gable, Tulsa, OK, for Defendant.
Reagan E. Bradford, Ryan K. Wilson, Bradford & Wilson PLLC, Oklahoma City, OK, for Plaintiff. John H. Tucker, Austin T. Jackson, Kerry R. Lewis, Rhodes Hieronymus Jones Tucker & Gable, Tulsa, OK, for Defendant. ORDER DAVID L. RUSSELL, UNITED STATES DISTRICT JUDGE
This matter is before the Court on the parties' cross-motions for summary judgment. (Doc. Nos. 49-51). The dispute concerns whether Defendant C.C. Forbes, LLC ("Forbes") is contractually obligated to indemnify Plaintiff Chesapeake Operating, LLC ("Chesapeake") $1,848,528.96, for the amount Chesapeake contributed toward a personal injury settlement plus attorneys' fees. Forbes contends that it has satisfied its indemnity obligations. Summary judgment is appropriate "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). The issues presented herein are purely legal in nature. Having reviewed the parties' filings, the Court finds as follows.
The Court notes that Defendant Forbes has not complied with the local rules requiring a brief in support of a motion for summary judgment to begin with a section of undisputed material facts in "concise, numbered paragraphs." LCvR56.1(b).
On February 12, 2010, Chesapeake, an upstream oil and gas production company, entered into a Master Service Agreement ("MSA") with Forbes, an oilfield services contractor. (Doc. No. 49-1). The MSA specified that "[t]his Agreement shall be governed, construed and interpreted in accordance with the laws of Oklahoma." (Doc. No. 49-1, at 20, ¶ 9.4). In Paragraph 6.0 "Indemnity," the parties set forth:
[Forbes] agrees to protect, defend, indemnify and hold harmless [Chesapeake], its officers, directors, employees or their invitees, and any working interest owner or non-operator for whom [Chesapeake] is obligated to perform services, from and against all claims, demands, and causes of action of every kind and character without limit and without regard to the cause or causes thereof or the negligence or fault (active or passive) of any party or parties including the sole, joint or concurrent negligence of [Chesapeake], any theory of strict liability and defect of premises . . . arising in connection herewith in favor of [Forbes's] employees, [Forbes's] subcontractors or their employees, or [Forbes's] invitees on account of bodily injury, death or damage to property.(Doc. No. 49-1, at 13, ¶ 6.2). According to the MSA, Forbes was to maintain "Commercial General Liability Insurance, on an 'Occurrence' form" and "in an amount no less than" $1 million per each occurrence. (Doc. No. 49-1, at 10, 26, ¶ 5.1(d)).
Forbes was required to maintain, at its own expense, "insurance coverages of the kind and in the minimum amounts as follows." (Doc. No. 49-1, at 9, ¶ 5.1).
In November 2015, Chesapeake and Forbes entered into a Master Commercial Agreement ("MCA") which expressly "incorporated by reference" and supplemented the MSA. (Doc. No. 49-2, at 2, ¶ 1). The MCA provides:
Although Forbes does not acknowledge the MCA, it does not deny that it entered into the MCA or that the MCA incorporated by reference and supplemented the MSA.
[I]n the event of any conflict or inconsistency between the terms and conditions of the MSA and [MCA], the terms of [the MCA] shall govern, except that the MSA provisions governing indemnification, risk allocation, and insurance obligations of the Parties shall not be altered or otherwise amended by any provision in [the MCA].(Doc. No. 49-2, at 2, ¶ 1). The MCA also contained a "governing law" provision stating that it would "be governed, construed and interpreted in accordance with the laws of Oklahoma without regard to any choice or conflict of law provision or rule that would cause the application of the laws of any jurisdiction other than the State of Oklahoma." (Doc. No. 49-2, at 14, ¶ 27). A "Venue; Forum" provision was also included within the MCA mandating that either "the District Court of Oklahoma County or the United States District Court for the Western District of Oklahoma" would be the "sole and exclusive judicial forums for any litigation between the parties." (Doc. No. 49-2, at 14, ¶ 28).
Approximately eight months after the MCA was executed, a Forbes employee was injured while working at a wellsite operated by Chesapeake in McMullen County, Texas. (Doc. Nos. 49, at 7, ¶ 8; 49-4, at 3, 13; 49-5, at 1, 4, 6; 51, at 6). After his first action was allegedly nonsuited (Doc. Nos. 49-4, at 1-10; 49-5 at 6), the employee sued Chesapeake and Advanced Hydrostatic, LLC, a service company and Chesapeake invitee on location at the time of the injury, seeking more than $1 million in damages. (Doc. No. 49-4, at 11-31). In response, Chesapeake demanded that Forbes fulfill its defense and indemnity obligations as set forth under Paragraph 6.2 of the MSA. (Doc. No. 49-5). Chesapeake alleges that Forbes initially "agreed to accept Chesapeake's tender for defense and indemnity for the [l]awsuit, without limitation or reservation," but that "[s]hortly before a scheduled mediation . . . and weeks before trial, Forbes . . . attempted to limit [its] indemnity obligation for the [personal injury lawsuit] to $1 million." (Doc. Nos. 49, at 8, 9, ¶¶ 10, 11; 49-6; 49-7). The lawsuit eventually settled in December 2019. (Doc. No. 50-4). Chesapeake claims that Forbes is required to indemnify Chesapeake for the $1.68 million it contributed towards the settlement payment and $168,528.96 accrued in attorneys' fees and costs. (Doc. Nos. 49, at 10-11, ¶¶ 14, 15; 50-4; 50-5; 50-8). Forbes asserts that it has satisfied its indemnity obligations because: (1) if Texas law applies, its indemnification obligation to Chesapeake was capped at $1 million pursuant to the Texas Oilfield Anti-Indemnity Act; and (2) if Oklahoma law applies, "Forbes owed Chesapeake nothing" as Okla. Stat. tit. 15, § 221 would apply to "void the MSA's indemnity provision." (Doc. No. 51, at 7, 17-18, 24).
As part of the settlement agreement, Forbes paid the injured employee $820,000.00 and allegedly "paid defense costs of $180,000." (Doc. Nos. 50-6; 51, at 6). Having paid $1 million towards the settlement agreement in total, Forbes asserts that it has satisfied its indemnity obligation under Texas Law because it was required to obtain general liability insurance on an occurrence form in "an amount no less than" $1 million per each occurrence. (Doc. No. 49-1, at 10, 26, ¶ 5.1(d)); see Cimarex Energy Co. v. CP Well Testing, L.L.C., 26 F.4th 683, 690 (5th Cir. 2022) (holding that an indemnity obligation under the Texas Oilfield Anti-Indemnity Act was limited to the minimum amount of insurance the indemnitor agreed to procure for the indemnitee's benefit).
I. Oklahoma Law Governs
When exercising diversity jurisdiction, "federal courts apply the law of the state in which they are sitting" which "includes applying the state choice of law rules." Tucker v. R.A. Hanson Co., Inc., 956 F.2d 215, 217 (10th Cir. 1992) (citations omitted). Under Oklahoma law, contracting parties may choose which state's laws will govern the agreement; courts will enforce the choice of law provision when it is clear and unambiguous. See Harvell v. Goodyear Tire & Rubber Co., 164 P.3d 1028, 1033-34 (Okla. 2006); Fossil Creek Energy Corp. v. Cook's Oilfield Servs., 242 P.3d 537, 542 (Okla. Civ. App. 2010) ("Where the language of a contract is clear and unambiguous on its face, that which stands expressed within its four corners must be given effect." (citation omitted)).
Chesapeake argues that Oklahoma law governs this dispute because the MCA incorporates the MSA and includes a choice of law provision selecting Oklahoma law. (Doc. No. 49, at 19-20). Without acknowledging the existence of the MCA, Forbes contends "that Texas law and the Texas Oilfield Anti-Indemnity Act govern the indemnity provisions of the MSA" because: (1) Texas has a more significant relationship to the transaction than Oklahoma; (2) applying Oklahoma law would contravene a fundamental Texas policy represented in the Texas Oilfield Anti-Indemnity Act; and (3) Texas has a materially greater interest in the determination of the indemnity issue. (Doc. No. 51, at 7, 10-14). Because the MSA specifically recognizes the potential application of Texas state law limiting the indemnity provisions therein, Forbes argues that Texas law should govern this dispute as "[t]here would be no need for this provision if the parties intended that Oklahoma law would apply to the MSA, including its indemnity provisions, regardless of where the work was performed or where the injury occurred." (Doc. No. 51, at 11). Chesapeake responds that the "parties clearly and unambiguously chose Oklahoma law in the MCA" which was entered into prior to the incident giving rise to this litigation. (Doc. No. 56, at 7). Moreover, Chesapeake contends that the MSA anticipated the application of other state law because a case filed in a different forum might be subjected to a different choice of law regime. (Doc. No. 56, at 8).
When exercising diversity jurisdiction, a federal court must apply the conflict of laws rules of the state in which it sits. Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 496-97, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). "This is true even when choice of law determinations involve the interpretation of contract provisions." Shearson Lehman Bros., Inc. v. M & L Invs., 10 F.3d 1510, 1514 (10th Cir. 1993). Though Forbes argues that pursuant to Okla. Stat. tit. 15, § 162, the MSA should be interpreted according to the law and usage of the place where it is to be performed, "it is well established that 'Oklahoma will enforce the choice of law provisions in a contract.' " Ross Grp. Constr. Corp. v. RCO Constr., LLC, No. 19-CV-551-JFH-CDL, 2022 WL 3104775, at *3 (N.D. Okla. Aug. 4, 2022) (quoting Empire Bank v. Dumond, 28 F. Supp. 3d 1179, 1184 (N.D. Okla. 2014)); see also Fossil Creek Energy Corp., 242 P.3d at 541-42; Harvell, 164 P.3d at 1033-34 ("[I]n Oklahoma, the established choice of law rule in contract actions . . . is that, unless the contract terms provide otherwise, the nature, validity, and interpretation of a contract are governed by the law where the contract was made.") (emphasis added); Carmack v. Chem. Bank N.Y. Trust Co., 536 P.2d 897, 899 (Okla. 1975) (recognizing that "a contract may provide [t]he choice of law under which it is to be governed").
Here, both the MSA and MCA contain governing law provisions stating that they are to be governed, construed, and interpreted in accordance with Oklahoma law. (Doc. Nos. 49-1, at 20, ¶ 9.4; 49-2, at 14, ¶ 27). The MCA, which expressly incorporates the MSA, also instructs that Oklahoma law should govern should a conflict of laws issue arise and that any dispute related to the agreement "shall only be commenced . . . in the District Court of Oklahoma County or the United States District Court for the Western District of Oklahoma." (Doc. No. 49-2, at 1, 14, ¶¶ 1, 27-28). The Court finds no reason to disregard these provisions.
Although the parties are of diverse citizenship and the incident giving rise to this lawsuit occurred in Texas, the contractual language clearly and unambiguously mandates that Oklahoma law should govern this dispute regardless of any conflict of laws issue. While the MSA's indemnity section contemplates the potential application of Louisiana, Texas, New Mexico, or other state law (Doc. No. 49-1, at 14-15, ¶ 6.7), the Court finds the MCA's provisions regarding governing law and forum selection dispositive. (Doc. No. 49-2, at 14, ¶ 27). Oklahoma law governs this dispute.
Considering that the MSA lacked a forum selection clause, its reference to other state law implies an intent to extend the parties' indemnity obligations to the maximum extent of the law should an action be brought in a state which utilizes a different choice of law approach.
II. Okla. Stat. tit. 15 , § 221 Does Not Void Forbes's Indemnity Obligation
An indemnity provision is defined as "a contract by which one engages to save another from a legal consequence of the conduct of one of the parties, or of some other person." Okla. Stat. tit. 15, § 421. Forbes contends that any indemnity obligation it might have owed Chesapeake is void under Okla. Stat. tit. 15, § 221. (Doc. No. 55, at 2). Chesapeake asserts that § 221 does not apply to oil and gas service agreements. (Doc. No. 56, at 11). To determine whether the MSA's indemnity provision is void pursuant to § 221, the Court turns to the statute's text and legislative history.
a. Text
Under Oklahoma law, indemnification provisions within construction agreements are void if they require one party to indemnify the other for damages arising out of the negligence or fault of the indemnitee or its subcontractors. § 221(B). Pursuant to § 221(A),
[a] "construction agreement" means a contract, subcontract, or agreement for construction, alteration, renovation, repair, or maintenance of any building, building site, structure, highway, street, highway bridge, viaduct, water or sewer system, or other works dealing with construction, or for any moving, demolition, excavation, materials, or labor connected with such construction.Okla. Stat. tit. 15, § 221(A).
In support of its argument that § 221 voids the MSA's indemnity provision, Forbes cites Jet Maint., Inc. v. Devon Energy Prod. Co., L.P., No. CIV-22-263-C, 2022 WL 2079886 at *1 (W.D. Okla. June 9, 2022). In Jet, the incident giving rise to litigation involved a man who was killed when a truck hauling aggregate, a mixture of sand and gravel, struck him at a wellsite. At the time, workers were using aggregate to build a level surface in preparation for a drilling rig. Judge Cauthron determined that § 221 applied to the parties' master service agreement and voided the indemnity provision therein because: (1) a drilling rig was a "structure" under § 221(A); and (2) constructing the wellsite involved installing a road, fence, well pit, and sod which constituted "other works dealing with construction" under § 221(A). Jet, 2022 WL 2079886, at *1. Judge Cauthron found that a drilling rig was a structure based, in part, on Black's Law Dictionary which defines a "structure" as a "piece of work artificially built up or composed of parts purposefully joined together."
Jet is an active case which was transferred to United States District Judge Scott Palk on December 30, 2022 (Case No. CIV-22-263-SLP, Doc. No. 30).
Facts derived from Plaintiff's Complaint (No. CIV-22-263, Doc. No. 1-2, at 3, ¶ 12).
Judge Cauthron based her finding that an oil rig is a "structure" on dictionary definitions.
Forbes contends that an oil and gas well is a "structure" under this definition: "[t]he completed wellbore, including casing or production tubing, along with the wellhead and other well control equipment constitutes a 'piece of work artificially built up or composed of parts purposefully joined together,' with such components having been 'constructed.' " (Doc. No. 51, at 24). Accordingly, Forbes asserts that its employee was injured while participating in workover operations, which involved the alteration, repair, or maintenance of this "structure" within the meaning of § 221.
Specifically, Forbes's employee was injured while he "was on the platform helping other workers set up the tubing anchor." (Doc. Nos. 49-4, at 13, ¶ 11; 51, at 6).
When interpreting a statute, words "are to be understood in their ordinary sense, except when a contrary intention plainly appears." Okla. Stat. tit. 25, § 1. Dictionary definitions can be useful in determining the ordinary meaning of a word. See e.g., Taniguchi v. Kan Pac. Saipan, Ltd., 566 U.S. 560, 566-69, 132 S.Ct. 1997, 182 L.Ed.2d 903 (2012) (employing dictionaries to determine the ordinary meaning of the word "interpreter"). A "well" is defined as "[a] hole or shaft sunk into the earth to obtain a fluid, such as water, oil, or natural gas." Black's Law Dictionary (11th ed. 2019). In the Court's view, a "structure" would not be understood in the ordinary sense to encompass an oil and gas well.
To the extent that Forbes argues that an oil and gas well, or a rig used for workover operations, could fall within the meaning of the word "structure," the canon of statutory construction noscitur a sociis resolves any remaining ambiguity. Noscitur a sociis instructs that an unclear word "should be determined by the words immediately surrounding it." Black's Law Dictionary (11th ed. 2019). Under § 221(A), a "construction agreement" refers to "a contract . . . for construction . . . of any building, building site, structure, highway, street, highway bridge, viaduct, water or sewer system, or other works dealing with construction." (emphasis added). None of the terms surrounding the word "structure" suggest that the word was intended to refer to oil and gas wells or workover rigs.
b. Legislative History
In support of its argument that § 221 does not apply to oil and gas service agreements, Chesapeake directs the Court to Oklahoma House Bill 1701, 51st Okla. Leg. (2007). The bill, which did not make it out of committee, was proposed one year after § 221 was enacted, and sought to extend § 221's limitations on indemnity agreements to agreements "pertaining to a well for oil, gas or water, or mine for a mineral" (Doc. No. 56, at 11, 12). Although Chesapeake argues that the failure of HB 1701 indicates that legislators did not intend for § 221 to apply to oil and gas service agreements, alternatively one could argue that the bill failed because legislators found it superfluous, as § 221 was already understood to encompass oil and gas service agreements. However, an examination of the legislative history surrounding the enactment of § 221 suggests that it was not intended to broadly apply to oil and gas service agreements.
In addition to defining a "construction agreement," an earlier version of Oklahoma Senate Bill 324—which was later codified as Okla. Stat. tit. 15, § 221—defined an "oil or gas drilling service agreement" and subsequently provided that:
[A]ny provision in a construction agreement or an oil or gas drilling or service agreement that requires an entity or that entity's surety or insurer to indemnify, insure, defend or hold harmless another entity against liability for damage arising out of death or bodily injury to persons, or damage to property, which arises out of the negligence or fault of the indemnitee, its agents, representatives, subcontractors, or suppliers, is void and unenforceable as against public policy.Committee Substitute for Engrossed Senate Bill No. 324, 50th Okla. Leg. (2006) (emphasis added). Before S.B. 324 was codified, all references to oil and gas agreements were removed from the bill. OK H.R. Jour., 2006 Reg. Sess. No. 47, at 2-3. This removal, coupled with the fact that certain legislators tried and failed to extend § 221 to include oil and gas agreements one year after § 221 was enacted, suggests that Oklahoma legislators did not intend § 221 to apply to oil and gas service agreements. See Phillips Petroleum Co. v. Oklahoma Tax Comm'n, 876 P.2d 719, 723 (Okla. Civ. App. 1993) ("[W]e may . . . look to proposed amendments later rejected as a factor in ascertaining legislative intent."), cert. granted in part, judgment modified (May 31, 1994); see also Couch v. Int'l Bhd. of Teamsters, 302 P.2d 117, 119 (Okla. 1956) (rejection of language proposed in an amendment is indicative of legislative intent).
See "SB324," 2006 Regular Session, Version "Senate Committee Substitute for House Bill," at http://www.oklegislature.gov/BasicSearchForm.aspx (last visited March 7, 2023).
Based on the text and legislative history of Okla. Stat. tit. 15, § 221, the Court finds that § 221 does not apply to the MSA to void the indemnity provision therein. Accordingly, the Court turns to the MSA to determine the indemnity obligation Forbes owed Chesapeake.
See Cont'l Res. Inc. v. Rink Constr., Inc., 352 F. Supp. 3d 928, 934 (D.N.D. 2018) (holding that Okla. Stat. tit. 15, § 221 did not apply to prevent application of an indemnity provision in a master service contract because § 221(A)'s "definition of 'construction agreement' does not encompass service work on oil wells"); see also Williams v. Inflection Energy, LLC, No. CIV 15-00675, 2016 WL 4429998 at *6 (M.D. Pa. Aug. 22, 2016) (holding that Colo. Rev. Stat. § 13-21-111.5(6), which similarly voids indemnity provisions in construction agreements that require one party to indemnify the other for damage caused by the negligence or fault of the indemnitee, did not apply to prevent application of an indemnity provision in a master service agreement because the parties "entered into a contract for the operation of a drill site . . . not a construction agreement as defined by the statute").
III. Forbes's Obligation Under the Indemnity Agreement
Chesapeake contends that if Oklahoma law governs the MSA and MCA, Chesapeake is owed the full amount it contributed to the personal injury settlement agreement plus legal fees and costs incurred in defending that lawsuit totaling $1,848,528.96. (Doc. Nos. 49, at 20; 50-5; 50-8). Chesapeake has also "reserve[d] the right to seek attorney's fees, costs, and interest following the Court's ruling on this motion." (Doc. No. 49, at 18 n.10). Although Forbes argues that under Texas law its indemnity obligation to Chesapeake would be limited to $1 million, Forbes does not contest the amount it would owe Chesapeake should the Court conclude that: (1) Oklahoma law applies; and (2) § 221 does not void the MSA's indemnity provision.
Under Section 6.2 of the MSA:
[Forbes] agrees to protect, defend, indemnify and hold harmless [Chesapeake] . . . from and against all claims, demands, and causes of action of every kind and character without limit and without regard to the cause or causes thereof or the negligence or fault (active or passive) of any party or parties including the sole, joint or concurrent negligence of [Chesapeake], . . . arising in connection herewith in favor of [Forbes's] employees . . . on account of bodily injury, death or damage to property.(Doc. No. 49-1, at 13, ¶ 6.2) (emphasis added). This provision explicitly provides that there is no limit to the indemnity obligation that Forbes owes Chesapeake.
Therefore, Forbes is obligated to indemnify Chesapeake in the amount of $1,848,528.96, which constitutes the amount Chesapeake contributed to the settlement agreement including legal fees related to the settlement. (Doc. Nos. 49, at 10, ¶ 14; 49-17, at 3, ¶ 13; 50-5, 50-8). Accordingly, the Court GRANTS Chesapeake's Motion for Summary Judgment (Doc. No. 49) and DENIES Forbes's Motion for Summary Judgment (Doc. No. 51). In light of its prevailing party status, the Court acknowledges that Chesapeake has reserved the right to seek attorney fees, costs, and interest in this matter.
IT IS SO ORDERED this 8th day of March 2023.