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Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 

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United States Court of Appeals

Fifth Circuit

F I L E D

February 10, 2004

Charles R. Fulbruge III

Clerk

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

______________________________

No. 02-30978

______________________________

THE HOUSTON EXPLORATION COMPANY,

Plaintiff-Appellee-Cross-Appellant,

versus

HALLIBURTON ENERGY SERVICES, INC.,

Defendant-Appellant-Cross-Appellee.

___________________________________________________________________

Appeals from the United States District Court

for the Eastern District of Louisiana,

New Orleans Division

___________________________________________________________________

Before JONES, EMILIO M. GARZA, and BENAVIDES, Circuit Judges.

EDITH H. JONES, Circuit Judge:

This litigation between The Houston Exploration Company

(“THEC”) and Halliburton Energy Services, Inc. (“Halliburton”) over

the consequences of a THEC gas well blowout is before this court

for the second time. The dispute concerns the extent and consequences of a work order that absolves Halliburton of liability for

its own (ordinary) negligence. In the first appeal, we reversed

the district court’s decision that Halliburton was grossly

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negligent in providing drill testing services to THEC. On remand,

the district court again found in favor of THEC, determining that

the work order’s indemnity provision was invalid because THEC’s

“company man” did not have actual or apparent authority to bind

THEC to its terms. Halliburton again appealed. We reverse and

remand.

I. BACKGROUND

This case arises from a 1997 natural gas explosion from

THEC’s well located in the Gulf of Mexico. THEC sued Halliburton

in federal court, asserting that Halliburton’s failure properly to

perform drill stem testing operations led to the blowout.

Halliburton argued that the parties’ indemnity provision precluded

recovery. The case was tried before the district court in March

2000. The district court held that Halliburton’s conduct was

grossly negligent, and thus beyond the scope of the indemnity

provision. The court awarded THEC approximately $7,000,000 in

damages. We reversed that decision and remanded the case for the

district court to determine whether the indemnity provision was

“executed by an authorized agent of THEC[.]”. See Houston

Exploration Co. v. Halliburton Energy Servs., Inc., 269 F.3d 528,

533 (5th Cir. 2001).

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1 THEC offered several other theories in addition to the authority

argument: (1) there was no consent to the object of the contract; (2) the

agreement is vitiated due to error; (3) the agreement impermissibly attempts to

renounce the warranty of workmanlike performance; (4) the indemnity agreement is

ambiguous; (5) a literal reading of the provision leads to absurd consequences;

(6) redhibition; (7) breach of contract; and (8) that the indemnity agreement was

a contract of adhesion. The district court rejected each of these arguments in

open court without elaboration.

2 The indemnity provision provided that:

CUSTOMER AGREES TO RELEASE HALLIBURTON FROM ANY AND ALL LIABILITY

FOR ANY AND ALL DAMAGES WHATSOEVER TO PROPERTY OF ANY KIND OWNED BY,

IN THE POSSESSION OF, OR LEASED BY CUSTOMER AND THOSE PERSONS AND

ENTITIES CUSTOMER HAS THE ABILITY TO BIND BY CONTRACT. CUSTOMER

ALSO AGREES TO DEFEND INDEMNITY AND HOLD HALLIBURTON GROUP HARMLESS

FROM AND AGAINST ANY AND ALL LIABILITY, CLAIMS, COSTS, EXPENSES,

ATTORNEY FEES AND DAMAGES WHATSOEVER FOR PERSONAL INJURY, ILLNESS,

DEATH, PROPERTY DAMAGE AND LOSS RESULTING FROM: . . . LOSS OF WELL

CONTROL . . . CUSTOMER’S RELEASE, INDEMNITY AND HOLD HARMLESS

OBLIGATIONS WILL APPLY EVEN IF THE LIABILITY AND CLAIMS ARE CAUSED

BY THE SOLE, CONCURRENT, ACTIVE OR PASSIVE NEGLIGENCE, FAULT, OR

STRICT LIABILITY OF ONE OR MORE MEMBERS OF THE HALLIBURTON GROUP, IN

THE SEAWORTHINESS OF ANY VESSEL, OR ANY DEFECT IN THE DATA,

PRODUCTS, SUPPLIES, MATERIALS OR EQUIPMENT FURNISHED BY HALLIBURTON

GROUP, WHETHER IN THE DESIGN, MANUFACTURING, MAINTENANCE OR

MARKETING THEREOF OR FROM FAILURE TO WARN OF SUCH DEFECT.

3

On remand, the district court examined the agency

question, as well as THEC’s other challenges to the validity of the

indemnity agreement.1

The relevant facts are largely undisputed. The contract

for Halliburton to provide drill testing services to THEC was

executed through a work order. The work order stated, in red ink

directly above the signature line, that “Customer hereby

acknowledges and agrees to the terms and conditions on the reverse

side hereof which include, but are not limited to PAYMENT, RELEASE,

INDEMNITY, and LIMITED WARRANTY provision.” The reverse side of

the work order contained the indemnity provision at issue.2

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3 Under the Outer Continental Shelf Lands Act, 43 U.S.C. §

1333(a)(2000), the law of the adjacent state, Louisiana, provides the rule of

decision.

4

Halliburton presented the work order to James Hileman,

THEC’s on-site company man and drilling supervisor. Hileman signed

the work order in advance of the job, as was the customary practice

between the parties. THEC does not dispute that Hileman had

authority to sign the work orders to engage Halliburton’s services.

THEC asserts instead that he lacked the specific authority to

negotiate or execute the indemnity provision on behalf of THEC.

The district court, applying Louisiana law, agreed with

THEC and concluded that Hileman lacked “actual authority” because

“[n]o evidence was admitted at trial to demonstrate that THEC and

Hileman agreed that Hileman could enter into an indemnity agreement

with Halliburton on behalf of THEC.”3 Houston Exploration Co. v.

Halliburton Energy Servs., Inc., 2002 WL 1963313, *6 (E.D. La Aug.

22, 2002). The district court further concluded that Hileman

lacked “implied actual authority” because “Hileman’s representation

of THEC on the rig as a company man does not manifest an intention

on the part of THEC for him to have permission to contract with

Halliburton for indemnification and release from liability.” Id.

Last, the district court found that Hileman lacked “apparent

authority” because Halliburton did not reasonably rely on Hileman’s

manifestation of authority. Id. at *7-8. Accordingly, the

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district court ruled in favor of THEC and reinstated the award.

Halliburton appealed.

II. STANDARD OF REVIEW

On appeal from a judgment after a bench trial, we review

the findings of fact for clear error and the legal issues de novo.

Gebreyesus v. Schaffer & Assocs., Inc., 204 F.3d 639, 642 (5th Cir.

2000). A finding of fact is clearly erroneous “when, although

there is evidence to support it, the reviewing court based on all

the evidence is left with the definitive and firm conviction that

a mistake has been committed.” Id. However, factual findings made

under an erroneous view of controlling legal principles are

reviewed de novo. Walker v. Braus, 995 F.2d 77, 80 (5th Cir.

1993). Under Louisiana law, the trial court’s determination of an

agency relationship “is essentially a factual matter.” Webb v.

Lagniappe Hosp. Corp., 714 So. 2d 901, 904 (La. App. 2d Cir. 1998).

III. DISCUSSION

Halliburton argues that Hileman had actual authority to

enter into the work order agreement, which by implication included

the indemnity provision. There is no dispute that Hileman had

express authorization to sign the work orders. Express actual

authority is created by the oral or written agreement between the

principal and the agent. AAA Tire & Export, Inc. v. Big Chief

Truck Lines, Inc., 385 So. 2d 426, 429 (La. App. 1st Cir. 1980).

But, THEC asserts that Hileman’s express authority did not extend,

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4 The district court found that “Hileman’s representation of THEC on

the rig as a company man does not manifest an intention on the part of THEC for

him to have permission to contract with Halliburton for indemnification and

release from liability.”

6

by implication, to the agreement’s indemnification provision. The

district court accepted THEC’s argument.4 We do not.

The question here is one of agency by implication. See

Anderson Window & Patio Co. v. Dumas, 560 So. 2d 971, 975 (La. App.

4th Cir. 1990) (recognizing that agency may be created verbally, in

writing, or by implication). “The essential test to be applied in

determining whether an implied agency exists, is whether the

principal has the right to control the conduct of the agent, and

whether the agent has the right and authority to represent or bind

the principal.” Craft v. Trahan, 351 So. 2d 277, 281 (La. App. 4th

Cir. 1977) (citations omitted). More specifically, implied agency

is created when “the agent is deemed to have permission from the

principal to undertake certain acts which are reasonably related to

the agent’s position and which are reasonable and necessary

concomitants of the agent’s express authorization[.]” AAA Tire,

385 So. 2d at 429. Under this standard, the district court determined that Hileman was authorized to agree to some aspects of the

contract but not to others. Such an interpretation is plainly

contrary to Louisiana law. See Southern States Equip. Co. v. Jack

Legett Co., Inc., 379 So. 2d 881, 884 (La App. 4th Cir. 1980);

Hawthorne v. Kinder Corp., 513 So. 2d 509, 512 (La. App. 2d Cir.

1987).

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In Southern States, the defendant contracted with the

plaintiff 43 times over a three-year period to lease property used

to install street lights and traffic signals. Southern States, 513

So. 2d at 883. For each transaction, the parties executed an

identical “Rental Dray Receipt” that itemized the equipment and

contained a limitation of liability provision. Id. Most of these

receipts were signed by the defendant’s construction foreman with

the principal’s express permission. The trial court concluded that

the agent did not have the authority to bind the defendant to the

liability provision, even though he was authorized to accept

delivery of the equipment. The appellate court reversed. “On some

thirty-one prior occasions [the agent] signed dray receipts

containing this identical provision and the defendant honored the

invoices submitted by the plaintiff based upon these receipts.”

Id. at 884. The appellate court concluded that, under these circumstances, the defendant’s foreman “acted as the authorized agent

in signing the dray receipts and thereby bound [the defendant] to

its terms.” Id.

The Louisiana court of appeals reached the same result in

Hawthorne. There, the defendant’s employees contracted with the

plaintiff, a waste disposal corporation, to empty trash dumpsters

at various stores. Hawthorne, 513 So. 2d at 509. The contracts

each contained a one-year term, with an automatic renewal provision

unless written notice of cancellation was given 60 days prior to

the term’s end. Id. at 510-11. The defendant discontinued

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payments for waste disposal without giving the requisite notice.

The trial court determined that the defendant had breached the

contract and the court of appeals agreed. The appellate court

concluded that the defendant’s employees had implied authority to

bind the corporation because the employees had express authority to

obtain disposal services and the contracts were necessary to obtain

those services. Id. at 512. (“Disposal services were necessary in

the ordinary course of affairs to which [the defendant] was

devoted.”) (citation and quotations omitted).

THEC erroneously relies on Equipment Rental Svcs., Inc.

v. Campesi, 351 So. 2d 1298, 1299 (La. 1st Cir. 1977), to support

its position that Hileman’s authority was specifically limited to

permitting Halliburton to commence the drill testing operation. In

Equipment Rental, the court found that the defendant’s superintendent had authority to sign a receipt, but did not have

authority to agree to all the terms in the receipt. Id. at

1298-99. Importantly, the employee signed a contract that

dramatically altered the terms of a prior agreement between the

parties despite his being authorized only to accept delivery of

merchandise. Id. Here, there was no prior agreement, although

negotiations for a Master Service Agreement had failed five years

earlier. Moreover, THEC ignores the fact that the parties

continued to do business pursuant to the work order agreements,

which contained indemnity provisions, in the absence of a Master

Service Agreement. There is no evidence that the work orders

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dramatically altered the terms between the parties. Consequently,

the logic of Equipment Rental is inapplicable here.

In the instant case, THEC approved and paid hundreds of

similar work orders without objection. Many of these work orders

were signed by company men, including Hileman, who was THEC’s

“ultimate authority” for the well in question. In fact, Hileman

testified that he continued to sign similar work orders even after

the blowout. As in Southern States and Hawthorne, the repeated

approval of work orders manifests the scope Hileman’s authority.

Furthermore, Halliburton refused to commence drill testing unless

THEC agreed each time to the terms of the work order. Without

Hileman’s consent to the indemnity provision, Halliburton would not

have performed the service THEC readily admits Hileman was

authorized to procure. Thus, Hileman’s consent to the indemnity

provision was “reasonably related to the agent’s position” and was

“a reasonable and necessary concomitant[] of the agent’s express

authorization[.]” AAA Tire, 385 So. 2d at 429.

In the end, THEC management consented to Halliburton’s

release and indemnity provision, despite any earlier misgivings.

See Morgan v. Cedar Grove Ice Co., 41 So. 2d 521, 523 (La. 1949)

(“[A] defense interposed by a corporation that its agent had no

authority to execute a contract on its behalf is looked upon with

disfavor, especially where the contract has been executed in whole

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5 Because we conclude that Hileman had actual authority as a matter of

law, we need not reach the apparent authority question.

6 Like the district court, we reject THEC’s other assignments of error.

The district court did not abuse its discretion in excluding evidence regarding

the scope of authority of Halliburton’s employees, as such evidence was immaterial. Furthermore, THEC’s remaining arguments are barred from consideration

under this court’s mandate rule. See Tollett v. City of Kemah, 285 F.3d 357, 364

(5th Cir. 2002) (district court “must implement both the letter and the spirit

of the mandate, taking into account the appellate court's opinion and the circumstances it embraces”) (citations and quotations omitted). And, even if these

arguments were not barred, they are without merit.

10

or in part.”).5 Accordingly, we conclude that Hileman’s express

authority to enter into the work order agreements necessarily

included the implied authority to consent to the release and

indemnity provision.6

IV. CONCLUSION

For the reasons stated above, we REVERSE the district

court’s decision that THEC’s agent exceeded his authority and

REMAND for a determination of Halliburton’s contractual entitlement

to attorneys’ fees and for further proceedings consistent herewith.

REVERSED and REMANDED.

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