Wildhorse Res. Mgmt. Co. v. G&C Constr. Int'l

WILDHORSE RESOURCES MANAGEMENT COMPANY, LLC, Plaintiff, v. G&C CONSTRUCTION INTERNATIONAL, LLC, Defendant.

CIVIL ACTION H-18-2456

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION

October 31, 2019

MEMORANDUM OPINION AND ORDER

Pending before the court are plaintiff Wildhorse Resources Management Company, LLC's ("Wildhorse") partial motion for summary judgment (Dkt. 19), defendant G&C Construction International, LLC's ("G&C") response in opposition (Dkt. 26), Wildhorse's reply (Dkt. 31), G&C's motion for leave to file sur-reply (Dkt. 33), and Wildhorse's objections (Dkt. 37). Having considered the motion, responses, evidentiary record, and applicable law, the court finds that Wildhorse's motion should be DENIED.¹

I. BACKGROUND

This is a declaratory judgment action arising out of an August 15, 2016 oilfield accident in which G&C's employee, Dalarius Qualls, was injured while transporting saltwater to one of Wildhorse's disposal wells in Louisiana. Dkt. 19 at 7; Dkt. 26 at 2. Qualls sued Wildhorse inLouisiana state court ("the underlying suit").² Dkt. 19-1. Wildhorse instituted the instant suit in Texas state court on May 16, 2018, seeking a declaration that, under the parties' Master Service Agreement ("MSA"), G&C is contractually obligated to defend and indemnify Wildhorse. Dkt. 19-3 at 5. Specifically, Wildhorse asked the court to find that the MSA obligates G&C to defend and indemnify Wildhorse in the underlying suit. Id. Wildhorse also requested attorney's fees and costs. Id. On May 23, 2018, during mediation, one of Wildhorse's insurance carriers settled with Qualls. Dkt. 27 at 34. G&C removed the suit to this court on July 17, 2018. Dkt. 1. Wildhorse filed its motion for partial summary judgment on March 7, 2019. Dkt. 19.

The relevant portions of the MSA are the recitals, choice of law, and indemnity provisions. The recitals refer to Wildhorse as the "Company" and G&C as the "Contractor." Dkt. 19-2 at 1. Paragraph 24 discusses the parties' choice of law:

a. THIS AGREEMENT WILL BE INTERPRETED UNDER THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO ITS CONFLICTS OF LAW PRINCIPLES . . . .

b. THE PARTIES RECOGNIZE THAT WORK PERFORMED UNDER THIS AGREEMENT MAY BE PERFORMED IN MULTIPLE AND VARIOUS JURISDICTIONS. HOWEVER, THE PARTIES GENERALLY PREFER AND AGREE THAT, TO THE EXTENT POSSIBLE, THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED CONSISTENTLY IN ACCORDANCE WITH ITS EXPRESS TERMS AND THAT THE PARTIES' FIRST PREFERENCE OF THE LAW TO BE APPLIED SHALL BE GIVEN EFFECT IF AT ALL POSSIBLE.

Id. ¶ 24. Paragraph 8 of the MSA discusses the parties indemnity obligations. Specifically, paragraph 8(b) provides:

b. Contractor's Indemnity - Personal Injury. Contractor will release, protect, Defend, indemnify, and hold harmless Company Group from and against any and all Claims for personal injury, bodily injury, illness or death of any member of

Contractor Group, which arise out of, relate to, or are connected with this Agreement. Id. ¶ 8(b). Wildhorse owes G&C an identical indemnity obligation for claims against G&C by any Wildhorse personnel. See id. ¶ 8(d). Paragraph 8(f) further provides:

f. Express Negligence. THE RELEASE, DEFENSE AND INDEMNITY OBLIGATIONS CONTAINED IN SECTIONS 8(b) THROUGH 8(e) SHALL APPLY EVEN IF CAUSED, IN WHOLE OR IN PART, BY . . . NEGLIGENCE OR OTHER FAULT, WHETHER PASSIVE OR ACTIVE, . . . BUT NOT TO THE EXTENT CAUSED BY OR RESULTING FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT . . . . BOTH PARTIES AGREE THAT THIS STATEMENT COMPLIES WITH THE REQUIREMENT KNOWN AS THE EXPRESS NEGLIGENCE RULE TO EXPRESSLY STATE IN A CONSPICUOUS MANNER TO AFFORD FAIR AND ADEQUATE NOTICE THAT THIS SECTION 8 HAVE [sic] PROVISIONS REQUIRING ONE PARTY TO BE RESPONSIBLE FOR THE NEGLIGENCE , STRICT LIABILITY, OR OTHER FAULT OF ANOTHER PARTY.

Id. ¶ 8(f). Finally, the parties included "SPECIAL PROVISIONS FOR LOUISIANA" which provide that "[i]f, and only if, it is determined that the Parties' defense and indemnity rights and obligations hereunder are subject to the application of the State of Louisiana's Oilfield Anti-Indemnity Act, LSA-R.S. 9:2780 (the "LOIA"), then the provisions of this Section 8(i) shall apply[.]" Id. ¶ 8(i). Paragraph 8(i)(iii) states that these provisions "are intended to comply with the provisions [sic] Marcel v. Placid Oil Co., 11 F.3d 563 (5th Cir. 1994)," while paragraph 8(i)(iv) clarifies that "nothing in this Section 8(i) shall affect the Parties' choice of law set forth in Section 24 below." Id. ¶ 8(i).

The parties agree that three issues are before the court in Wildhorse's partial motion for summary judgment: (1) whether Texas or Louisiana law governs interpretation of parties' rights under the MSA; (2) whether G&C is obligated to defend and indemnify Wildhorse in the underlying suit; and (3) whether Wildhorse qualifies as an additional insured under G&C's insurance. Compare Dkt. 19 at 7 (setting forth issues before the court), with Dkt. 26 at 1-2 (same).

II. LEGAL STANDARD

Summary judgment is proper only when "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). "[O]n summary judgment, 'the evidence of the nonmovant is to be believed, and all justifiable inferences are to be drawn in his or her favor.'" Waste Mgmt. of La., L.L.C. v. River Birch, Inc., 920 F.3d 958, 972 (5th Cir. 2019) (quoting Tolan v. Cotton, 572 U.S. 650, 656, 134 S.Ct. 1861, 188 L. Ed. 2d 895 (2014) (per curiam)). With regards to this partial motion for summary judgment, there are no disputed facts, only legal questions.

III. ANALYSIS

A. Conflict of Laws

Wildhorse asserts that this dispute—the question of whether G&C is obligated to indemnify Wildhorse for its settlement with Qualls³—is governed by Texas law, because that is the law chosen by the parties in their MSA. Dkt. 19 at 8-15. G&C asserts that, despite the MSA's choice of law provision, Louisiana law governs "because application of Texas law . . . would be contrary to a fundamental policy of Louisiana—a state with a materially greater interest in this dispute than Texas." Dkt. 26 at 7. The court "need not decide which state's laws apply unless those laws conflict." Sonat Expl. Co. v. Cudd Pressure Control, Inc., 271 S.W.3d 228, 231 (Tex. 2008) (citing Compaq Comput. Corp. v. Lapray, 135 S.W.3d 657, 672 (Tex. 2004)).

"Under Texas law, oilfield indemnity clauses are valid if they are mutual and supported by liability insurance." Id. (citing Tex. Civ. Prac. & Rem. Code § 127.005; Ken Petroleum Corp. v. Questor Drilling Corp., 24 S.W.3d 344, 346 (Tex. 2000)). "Additionally, indemnity clauses [under Texas law] must meet certain fair notice requirements." Chesapeake Operating, Inc. v. Nabors Drilling USA, Inc., 94 S.W.3d 163, 169 (Tex. App.—Houston [14th Dist.] 2002, no pet.) (citing Dresser Indus., Inc. v. Page Petroleum, Inc., 853 S.W.2d 505, 509 (Tex.1993)). "Under Louisiana law, such clauses are invalid if the party seeking indemnity was negligent or strictly liable." Sonat, 271 S.W.3d at 231 (citing La. R.S. § 9:2780). Here, G&C does not dispute that the MSA's indemnity provisions comply with Texas law.⁴ Nor does Wildhorse dispute that paragraphs 8(b) and 8(f), which require G&C to indemnify Wildhorse for Wildhorse's own negligence,⁵ are invalid under Louisiana law.⁶ Because the indemnity provisions would be enforceable under Texas law, but not underLouisiana law, the laws of the two states are in conflict. So this court must decide which state's law applies.

B. Choice of Law

Because Texas is the forum state, its choice-of-law rules apply. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941). Texas follows the Restatement (Second) of Conflict of Laws ("Restatement"). DeSantis v. Wackenhut Corp., 793 S.W.2d 670, 677 (Tex. 1990). Section 187 of the Restatement provides that the "law of the state chosen by the parties to govern their contractual rights and duties will be applied if the particular issue is one which the parties could have resolved by an explicit provision in their agreement directed to that issue." Restatement § 187(1) (1971). The MSA, entered into on April 23, 2014, contains a choice of law provision requiring that the agreement be interpreted under Texas law. Dkt. 19-2 ¶ 24.

The particular issue here is whether the indemnity provisions of the MSA are enforceable. The enforceability of contractual provisions is not something "the parties could have resolved by an explicit provision in their agreement." DeSantis, 793 S.W.2d at 678 (citing Restatement § 187 comment d). The court therefore looks to section 187(2), which provides that the court should set aside the parties chosen law only where:

(a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties' choice, or

(b) application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which, under the rule of § 188, would be the state of the applicable law in the absence of an effective choice of law by the parties.

DeSantis, 793 S.W.2d at 677-78 (quoting Restatement § 187(2)(a)).

Section 187(2)(a) is inapplicable because Texas has a substantial relationship to the parties and the transaction. Wildhorse's principal offices are in Harris County, Texas (Dkt. 26 at 9), "Texas was the site of contracting" (id. at 7), and the MSA was negotiated in part in Texas (id. at 8). Accordingly, this court must decide whether the exception in section 187(2)(b) applies. The Texas Supreme Court has said:

Whether that exception applies depends upon three determinations: first, whether there is a state the law of which would apply under section 188 of the RESTATEMENT absent an effective choice of law by the parties, or in other words, whether a state has a more significant

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