### I N THE UNI TED STATES COURT OF APPEALS FOR THE FI F TH CI RCUI T

No. 10-20767

NATIONAL LIABILITY & FIRE INSURANCE COMPANY,, Plaintiff–Appellant,
v. R & R MARINE, INC.; R & R MARINE OFFSHORE, INC.; R & R MARINE MAINTENANCE, INC.; R & R SHIPBUILDERS, INC., Defendants–Appellants,

v. HORNBECK OFFSHORE SERVICES, L.L.C., Defendant–Appellee.

Appeals from the United States District Court for the Southern District of Texas

Before HIGGINBOTHAM, OWEN, and GRAVES, Circuit Judges. PRISCILLA R. OWEN, Circuit Judge: This case arises out of the sinking of a vessel owned by Hornbeck Offshore Service (Hornbeck) while at R&R Marine’s (R&R) shipyard for repairs. R&R’s liability insurer, N ational L i a b ility & Fire Insurance Company (National), i n i t i ated this suit to disclaim liability under its policy. Hornbeck counterclaimed that the policy obligated National to cover all sums for wh i c h R&R became U n i t e d S t a te s C o u r t o f A p p e al s

F i f t h C i rc u i t 

### F I L E D June 30, 2014 Ly l e W . Cay ce Clerk Case: 10-20767 Document: 00512682377 Page: 1 Date Filed: 06/30/2014No. 10-20767

obligated to pay and cross-claimed against R&R to a ssert that R&R’s negligence caused the sinking of its vessel. The district court found that R&R was negligent and that National w a s l iable f or the ensuing d amage. National and R&R appeal. We affirm in part, reverse in part, and remand for entry of judgment consistent with this opinion. I Hornbeck engaged R&R to r epair and refit two vessels: the Erie Service, and the S uperior Serv i c e . O n l y the r epair of the Erie S ervice is at issue here. R&R was to perform the work at its shipyards o n Lake Sabine in Port Arthur, Texas, s ubject to t he te r ms o f the Shipyard R epair and D rydock Agreement (Agreement). Und er this Agreement, “ [t]he Vessel(s) [ were] d eemed accepted into the ‘Custody’ of the Shipyard whe n t he Vessel(s), with prior notice to the Shipyard, arrive[d] a float ready to be moored.” The E rie Service was afloat upon delivery and R&R w a s aware of and anticipated its arrival. It is undisputed that the Erie Service was in R&R’s custody as of June 2007. Prior to arrival, m uch of the vessel’s deck p lating and bulwarks h ad been removed in order for R&R to replace d e t e r i o r ated steel. From June through September, only R&R performed the overhaul work on the Erie Service. Under the A greement, however, H ornbeck retained access to its v essel so that it could inspect the work an d ensure compliance with specifications. To that end, Hornbeck m aintained two on-site project managers a t R&R’s facilities. If these managers observed an i ssue with or o bjected to an aspect of R&R’s performance, they had the authori t y t o give, and R &R w as obligated to follow, orders. Hornbeck’s on-site managers also monitored the subcontractors on the E rie Service who were performing work unrelated to R&R’s responsibilities. On Sep t e m b e r 12, it began to rain and R&R sent its workers home at approximately 9:00 a.m. R&R notified Hornbeck by email of t h i s decision, requesting a n exten s i o n due to w eather delay. At 10:00 a .m., t he National

2 Case: 10-20767 Document: 00512682377 Page: 2 Date Filed: 06/30/2014No. 10-20767

Hurricane Center (Center) advised the publi c t h a t T r o p i c al Depression No. 9 had formed and issued a tropical storm warni n g f o r an a rea that included Port Arthur. This meant that sustained w inds within the range of 39 t o 73 miles p er hour could be expected within 24 hours o r less. R &R promptly f orwarded this warning to Hornbeck to substantiate its request for an e xtension. In response,
one of Hornbeck’s project managers asked what a ctions R&R would be taking for “water e ntry issues. ” R & R responded at 10:49 a .m. that the dock was “monitored around the clock everyday” and that it kept “pumps on hand to pump out rain water when required.” By 1:00 p.m. , T r o p i cal Depression N o. 9 had intensified into Tropical St o r m H umberto. Though the Center changed t he warning area’s boundaries throughout t he day, Port Arthur always remained, an d in fact became more centered within, t he region of concern. Nevertheless, all R&R personnel left the shipyard at 5:00 p .m. without taking any precautions. A hurricane warning did not issue until 1 2:15 a .m. on September 13. When R&R employees a rrived that morning, the Erie Service w as l i s t i ng severely and s inking. Sometime before 7:00 a.m., the Erie Service sank. T he p arties have stipulated that t he E rie Service sank b ecause rainfall and waves from Lake Sabine c aused water to enter through the vessel’s openings. Hornbeck received several salvage bids for its vessel, including a “no cure,
no pay” o ption, pursuant to which Hornbeck would have paid $298,000 f o r a successful salvage. H ornbeck, however, accepted a time-and-materials bid, which cost $245,000 but w a s s ubject to unlimited increase if the job proved more difficult than anticipated. The salvage company initially dispatched t wo derrick barges, but it was necessary to use a third. The salvage work u ltimately cost $627,324.64. Hornbeck and R &R d emanded that National, R &R’s insurer, pay these salvage costs directly.

3 Case: 10-20767 Document: 00512682377 Page: 3 Date Filed: 06/30/2014No. 10-20767

Shortly thereafter, National commenced this litigation a gainst both R&R and Hornbeck to seek a declaratory judgment t hat it was n ot required to pay for the salvage costs under a commercial marine liability p olicy that National had issued t o R&R. Hornbeck filed a counterclaim against National asserting, among other things, that “the Policy provide[d] coverage for all sums, including

sa l v a g e , f

o r which R&R bec[ame] obligated to pay for damage to the ERIE SERVICE while in the care, c ustody, or control of R&R.” Hornbeck also filed a cross-claim asserting that R&R’s negligence proximately caused the sinking of the Erie Service. After eight hearings and two trials, t h e d i s trict court issued a final judgment, which held, in relevant p art, that R&R w a s negligent i n failing to

secure the Erie Service and pro t e c t her from d amage by t he s torm, and that Nat i o n a l was required t o pay Hornbeck $ 1,076,843.09 for losses to t he E rie Service and additionally to p ay to H ornbeck 18 p ercent interest on this amount, plus $213,683.95 in attorney’s fees. Appeals by National and R&R followed. II We first address Nati o n a l a n d R & R ’s assertion that the district court erred in finding that R&R’s negligence cause d t h e s i nking of the Erie Service. Negligence a nd proximate cause are factual f i n d i ngs that we r eview for clear

error. 1 “ A f

i n d ing i s c learly erroneous when, a lthough there is evidence to support it, the reviewing court, based on all of the evidence, is left with a definite and firm conviction that a m istake has been made.” 2 But “[i]f the district court’s finding is p lausible in light of the record as a w hole, [this court] cannot reverse

1 B ertucci Contra cti n g C orp . v . M / V Antw erp en , 465 F. 3d 254, 258 ( 5th Cir. 2006) ( “Becaus e this cas e w as d ecid ed by t h e d i s trict court w ithout a jury, w e review the d is trict court’s f actual f ind ings f

or clear error. ” ( citing F E D

. R. C I V

. P. 52( a) ( 6) ) )

.
2 Stol t A chi ev em ent, Ltd. v . D redge B. E. Li ndhol m , 447 F

. 3d 360, 363 ( 5th Cir. 2006)

. 4 Case: 10-20767 Document: 00512682377 Page: 4 Date Filed: 06/30/2014No. 10-20767

even though, i f s itting as the trier of fact, it would have weighed the evidence differently.” 3 R&R argues that i t never had full custody of the E rie S ervice and alternatively, Hornbeck failed to meet its burden of proof. W e conclude that the district court did not clearly err in finding that R&R was negligent. A Bailment law governs where, as here, a v e s s e l i s left in the shipyard’s custody for repairs. 4 Bailment imposes a d uty of ordinary care u pon the bailee. 5 W h i l e the “burden of proof of negligence is on the b ailor,” by showing that t h e “vessel was delivered to the bailee in good condition and damaged w hile in his possession, the bailor makes out a prima facie case of n egligence; and t he duty then devolves upon the bailee to go forward w ith t h e evidenc e a n d s h o w affirmatively that he exercised ordinary care.” 6 Here, the d i s t r i c t c o u r t d e t ermined that Hornbeck had established a prima facie case of negligence because it found that the Erie Service was delivered to R&R afloat, R&R had full custody of t he vessel, and the vessel sank while under R&R’s care. Therefore, the court imposed a presumption of negligence that R&R

w as required to rebut. R &R, however, contends that such a presumpt i o n w a s
erroneous b ecau se only a l imited bailment was created. I t argues that Hornbeck’s agents’ unconditi o n a l access to t he Erie S ervice to oversee R&R’s performance, authority to give orders to R&R, a nd t h e p r e s e nce of other subcontractors on the Erie S e r v i c e u ndermine the f inding that R&R had full custody.

3 Bertucci , 465 F. 3d at 258.

4 See, e. g. , B unti n v . Fl etcha s , 257 F

. 2d 512, 513 ( 5th Cir. 1958)

.
5 Stegem a nn v . M

i a m i B ea ch Boa t Sl i

p s, Inc. , 213 F .2d 561, 564 ( 5th C ir. 1954)

.
6 Id. 5 Case: 10-20767 Document: 00512682377 Page: 5 Date Filed: 06/30/2014No. 10-20767

A b a i lment becomes limited “[w]here the delivery of the thing is n ot complete, as w hen the owner remains with the t h i n g o r has an i ndependent agent or employee responsible for i t or f or certain aspects of its care.” 7 A limited bailment o c c urs when exclusivity of control over the bailed o bject is compromised. 8 However, neither the presence and a u t h o r ity of Hornbeck’s agents to ensure complianc e nor t he presence of other s ubcontractors affected R&R’s e xclusive control o ver the Erie Service, its movement within R&R’s shipyard, or most importantly, its integrity d u ring the storm. As the district court found, R &R’s stipulation to full c u stody in the Agreement, 9 its control o ver the works i t e , a nd R&R’s responsibility for disaster preparation w ere all indicators of full custody, a t least during the p eriod leading up t o and through the Erie Service’s sinking. This finding o f full custody is not clearl y erroneous in light of the record

as a whole. The i nitial exchange of emails shows that both H ornbeck and R&R understood R&R to be responsible for protecting t he vessel. F urthermore, R&R alone had control o ver when, where, and how to moor the v essel. R&R stated

7 Id. at 565.

8 See Chi

. , St. L. & N

. O

. R. Co. v . Pul l m a n S

. Ca r Co. , 139 U

. S. 79, 94- 96 ( 1891) ( lim ited bailm ent w here bailor m ad e s ep arate rep airs in a s ep arate s hop und er its exclus ive control and to w hich the bailee had no acces s ) ; G oudy & Stev ens, Inc. v . Ca bl e M ari ne, Inc. , 924 F

. 2d 16, 19 (1s t C ir. 1991) ( lim ited bailm ent w here bailor’s agent w as mak ing the s am e r ep airs alongs id e the bailee’s em p loyees ) ; Si sung v . Ti ger Pa ss Shi p ya rd Co. , 303 F .2d 318, 322 ( 5th Cir. 1962) ( “While it is our op inion that the exercis e of ord inary care required ap p ellee, as the one in p os s es s ion of the ves s el as bailee o r d u r i n g d elivery to have as certained if the ves s el
w ould be lef

t overnight, and to m ove it to a p lace o f s a f ety in the event it was to be lef t overnight

. . . , w here the ow ner m aintain s s o m e d o m inion over the ves s el, as Sis ung d id by sel ecti ng the p l a ce of moori ng , t h e r e is a corres p ond ing lim itation on the duty of the bailee

.

. . . ” (em p has is ad d ed ) ( citing Stegem a nn , 213 F .2d 561) ) ; C ity Com p ress & Wa rehouse Co. v . U

. S

. , 190 F. 2d 699, 701- 03 ( 4th Cir. 1951) ( lim ited bailm ent w he r e v e s s e l ow ner w as res p ons ible for m ooring his ow n s hip )

.

9 See T. N. T. M

a ri ne Serv

. , Inc. v . Wea v er Shi pya rds & D ry D ocks, Inc. , 702 F. 2d 585, 588 ( 5th C ir. 1983) ( d ef ining a bailm ent as a “d elivery of good s . . . by one p ers on to another

. . . benef

icial either to the bailor or bailee or both, and up on a contra ct , exp res s or im p lied

.

. . . ” ( em p has is ad d ed ) ( quoting B L A C K ’ S L A

W D I C T I O N

A R Y 129 ( 5th ed

. 1979) )

. 6 Case: 10-20767 Document: 00512682377 Page: 6 Date Filed: 06/30/2014No. 10-20767

during trial that if it had had more time, it w ould have moved the Erie Service to another shipyard. R&R even had a plan in place f or Hurricane D ean—which occurred one month befo r e Hurricane H umberto—to move the Erie Service to another shipyard. T here was also testimony establishing a shipyard’s general responsibility to handle all m ooring of v e s s e l s. The r ecord shows t hat R&R shouldered responsibility for and was in contro l o f protecting the Erie Service from i n c l ement w eather. It w as not clearly erroneous for the d i strict court to conclude that R&R had full custody of the Erie Service. 1 0 B R&R argues that e ven if it had full custody of the vessel, it overcame the
pr e s u mption of negligence and Hornbeck s ubsequently failed t o affirmatively
prove R&R’s negligence. We do not reach t his argument, however, because the district court’s f

inding t h a t R & R h ad not o vercome the presumption of negligence was not clearly erroneous. As discussed above, a prima facie case for negligence s hifts the burden to the bailee t o demonstrate that it exercised ordinary care. This court’s precedent suggests two views o n h o w a bailee satisfies t his burden. 1 1 O ne view requires that a b ailee “show only that the loss was caused by some act consistent with due care on his part, such as an act of God.” 1 2 The o ther view is that t h e bailee must “show affirmative[] acts which c o nstitute due c ar e.” 1 3 Though the latter

10 Though R& R als o argues that H ornbeck s hould be f ound com p aratively neglig e n t , this as s ertion is f

oreclos ed by our af

f irm ance of the dis trict court’s conclus ion that R& R had f ull cus tod y of the Erie Service.

1 1 Bunti n v . Fl etcha s , 257 F. 2d 512, 514 ( 5th Cir. 1958)

.
1 2 Id.

1 3 Id. 7 Case: 10-20767 Document: 00512682377 Page: 7 Date Filed: 06/30/2014No. 10-20767

view is more o ften expressed, 1 4 we need not addres s which is the more appropriate since under e i ther, R&R’s exp l a n a t ion fails to establish that it exercised ordinary care. To rebut the presumption of negligence, R&R argued that the unexpected severity of Hurricane Humberto rendered i t s inaction reasonable. The district court f ound, however, t hat R&R could not “verify that t h e s t o rm ever reached hurricane-strength at the yard.” The district court found, therefore, that R&R had f ailed to demonstrate the unexpected s everity of t he weather was an act of God. 1 5 This finding is plausible in light of the record as a whole. The sustained winds d id n ot reach h urricane force in Port Arthur but were w ithin the range of tropical storm force winds. Nor did the rainfall exceed w h a t was predicted when

a tropical storm warning was first issued. The actual weather c o n d i t i o n s experienced in P ort Arthur were those that had been p r ojected at 1 0:00 a.m. on September 12—the projection that R&R forwarded to H ornbeck. Nor did R&R satisfy its burden u nder the second view o f bailment law. As R&R c oncedes on appeal, t he district court c orrectly found that R& R c o u l d n ot point to any affirmative acts R&R took that constituted due care. I II R&R contends that even i f it w as negligent, it is n ot liable for the fullinvoiced s a l v age amount because Hornbeck’s c hoice between salvage bids was unreasonable and the salvage company’s negligence c a used t he i n creased cost of salvage. We are unpersuaded.

1 4 C hi cop ee Ba nk v . Phi la

. Ba nk , 75 U

. S. 641, 650 ( 1869) ; CFC Fa bri ca ti on, Inc. v . D unn Const. C o. , 917 F

. 2d 1385, 1389 ( 5th Cir. 1990) ; S isung v . Ti ger Pa ss Shi p ya rd Co. , 303 F

. 2d 318, 322 ( 5th Cir. 1962) ; V a ll ey L ine Co. v . M

usgrov e Tow i ng Serv

. , Inc. , 654 F. Sup p . 1009, 1011 ( S. D. Tex. 1987)

.

1 5 See a l so V

al l ey Li ne , 654 F. Sup p . at 1012 ( “[ D ef end ant] w as unaw are that the tid al s urge w hich accom p anied the hurricane w ould be s o s evere and s o rap id

. . . . O n that p oint, the Court notes that the area around the M us g rove f leet exp erienced w ind s in exces s of 113 m iles p er hour and there is s om e evid ence that tornad oes w ere p res ent in the area. ”)

. 8 Case: 10-20767 Document: 00512682377 Page: 8 Date Filed: 06/30/2014No. 10-20767 A “The burden of showing that the victim of tortious conduc t f a i l e d to minimize his damages rests w ith the w rongdoer.” 1 6 The tortfeasor must show “(1) that the conduct [of the victim] w as unreasonable, a n d (2) that it had the
consequence of aggravating the harm.” 1 7 R&R a rgues that Hornbeck’s selection of the time-and-materials bid was unreasonable b ecause it w a s against common industry pr a c t i c e and because Hornbeck should have known that t he vessel’s fragile condition made the salvage operation more complex. The district court held that Hornbeck’s selection of the time-and-materials bid was reasonable. Again, we review for clear error. In doing so, we emphasize that “reasonableness” here d oes no t r e q u i r e “ i n f a l l i b i l i t y o r e x a c t n e s s o f m a t h e m atical formula.” 1 8 W e “will allow the injured p a rty a wide latitude in determining how best to deal with the situation” because “ the necessity for decision-making was thrust upon him by the d efendant, and judgments m ade at t i m e s o f crisis are subject to human error.” 1 9 In light of this defere n tial standard, the district court’s finding that Hornbeck acted reasonably was not clearly e r r o n e o u s . “[T]he fact that [an injured party’s] efforts t urn[ed] out to be u nsuccessful and actually increase[d] the loss does not preclude recovery for all expenses incurred in the process.” 2 0 R&R presents no relevant evidence of common i ndustry practice; nor does the condition o f the v essel remove Hornbeck’s bid selection from the “range

1 6 Tenn. V

a l l ey Sa nd & G ra v el v . M / V D el ta , 598 F. 2d 930, 933 ( 5th Cir. 1979)

.
1 7 Id.

1 8 Id.

1 9 Id.

2 0 Id

. 9 Case: 10-20767 Document: 00512682377 Page: 9 Date Filed: 06/30/2014No. 10-20767

of r eason.” 2 1 Accordingly, the district court d id not err by f inding R&R liable for the full-invoiced amount. B Alternatively, R&R argues that i t is not liable f or the additional salvage cost because it was caused by the salvage company’s negligence. Although there

w a s testimony a t the damages hearing that t he salvage c o mpany should h a v e known better than to first attempt the operation w ith the two barges, t estimony

as to the salvage company’s reasonableness was a lso presented. As discussed above, w hen reviewing for clear error, this court cannot reverse even if, sitting

as a trier of fact, we would h a v e w e i g h ed the evidence differently. 2 2 In any event, e ven if the salvage c ompany h ad b een negligent, R&R would r emain fully liable because this negligence was a foreseeable consequence o f R&R’s own negligence. 2 3 IV The distric t c o u rt held that National was required by the terms of its policy to pay the amount of d amages t h a t R &R owed to Hornbeck as a consequence of R&R’s negligence in cau s i n g t h e sinking of the Erie Service. National concedes that if R&R was negligent, it must p ay up to its policy limits to Hornbeck for R&R’s n egligence once a final judgment is entered against R&R. Howe ver, National contends no final judgment was entered against R&R as a

2 1 See El l erm a n Li nes, Ltd. v . The Presi dent H a rdi ng , 288 F. 2d 288, 290 (2d Cir. 1961) ; see a l so M

a l col m v . M

a ra thon O il Co. , 642 F. 2d 845, 863 & n. 30 ( 5th Cir. U nit B 1981)

.
2 2 See Rei ch v . L anca ster , 55 F. 3d 1034, 1045 (5th Cir. 1995) ( “Rule 52( a) als o requires that w e give d ue regard to the op p ortunity of the trial court to jud ge the cred ib i l i t y o f the
w itnes s es . T he trial j ud ge’s unique p ers p ective to evaluate the w itnes s es and to cons id er the entire context of the evid ence m us t be res p ected

. ” ( internal quotation mark s om itted ) )

.

2 3 See Exxon C

o. , U

. S. A

. v . Sof

ec, Inc. , 517 U

. S. 830, 832- 35 ( 1996) ( hold ing Sof ec w as not liable f

or its negligence in p erm itting E xxon’s tank er to becom e unm o o r e d becaus e the cap tain’s subs equent navigational d ecis ions were s o “extraord inarily” negligent, they w ere not f ores eeeable and were theref ore the s up ers ed ing and s ole p roxim ate caus e of the d am age)

.

10 Case: 10-20767 Document: 00512682377 Page: 10 Date Filed: 06/30/2014No. 10-20767

necessary predicate to National’s liability. National conte n d s t hat Hornbeck lacked standing as a t hird-party c laimant to bring its counterclaim. We review

a district c ourt’s s t a n d i n g d ecision de novo. 2 4 T exas law governs the parties’ substantive rights. As an initial argument , N a t i o n a l a s s e r ts that Hornbeck did not adequately raise a third-party claim in the district court. We disagree. The r e cord reflects that N a t i o nal had fair notice under the liberal pleading standard, 2 5 and National's pre-trial conduct and communications demonstrate that it w as fairly notified that Hornbeck intended to bring a third-party claim. 2 6 National is correct, ho w ever, that as a general proposition, Texas law requires that when an insured damages the p roperty of a t h ird party, t he insurer is not o bligated to pay the damages on behalf of its i nsured until there is a final judgment rendered against the insured o r a settlement agreement. Because “Texas is not a direct action state,” “a tort claimant has no direct c ause of action against the t ortfeasor’s liability insurer until the insured-tortfeasor is adjudged liable to the c l a i m a n t

. ” 27 Texas c ourts have construed this t o be a rule of standing 2 8 and thus consider whether a final l iability judgment existed at the

2 4 D el ta Com m erci a l Fi sheri es A ss ’ n v . G ul f of M ex. Fi shery M

gm t. Counci l , 364 F

. 3d 269, 272 ( 5th C ir. 2004)

.

2 5 F E D

. R. C I V

. P

. 8( a) ; Wa mp l er v . S. W. Bel l Tel

. Co. , 597 F. 3d 741, 744 ( 5th C ir. 2010)

.
2 6 See Sundstra nd Corp

. v . Sta nda rd Kol l sm a n Indus. , Inc. , 488 F

. 2d 807, 811 ( 7th Cir. 1973) ( citing Sta te Fa rm M ut. A uto. Ins. C

o. v . Scott , 198 F. 2d 152, 153 ( 5th Cir. 1952) )

.
2 7 O hi o C

a s. Ins. Co. v . T

i m e W a r n e r Entm ’t Co. , 244 S. W. 3d 885, 888- 89 ( Tex. Ap p . — D allas 2008, p et. denied ) ; see a l so G rea t A m . Ins. Co. v . M urra y , 437 S. W. 2d 264, 265 ( Tex. 1969) ; Sea t on v . Pi ckens , 87 S. W. 2d 709, 710 ( Tex. 1935) ; S un Oi l Co. v . Em p ’rs Ca s. C

o. , 550 S. W. 2d 348, 349 ( Tex. A p p . — D allas 1977, no w rit) ; M orri s v . A l l sta te Ins. Co. , 523 S. W. 2d 299, 301 ( Tex. Ap p . —Texark ana 1975, no w rit)

.

2 8 See, e. g. , O hi o Ca s. , 244 S. W. 3d at 888. 11 Case: 10-20767 Document: 00512682377 Page: 11 Date Filed: 06/30/2014No. 10-20767

time a claim was filed. 2 9 N ational is correct that under Texas law, Hornbeck had

no “ standing” at the time it filed its counterclaim because t here was no final judgment establishing R&R’s liability. Hornbeck counters that it was “forced” to assert its counterclaim against National w hen National sued Hornbeck for a declaratory ju d g m e n t b e c a u s e H o r n b e c k ’ s c o u n t e r c l a i m w a s “ c o mpulsory” within the scope of the Federal Rules. Under the Erie doctrine, 3 0 “federal courts sitting in d iversity apply state substantive law and federal procedural l aw.” 3 1 Because “[c]lassification of a law

as ‘substantive’ or ‘procedural’ for Erie purposes is sometimes a c hal l e n g i ng endeavor,” E rie and its p rogeny provide a multi-step inquiry. 3 2 H owever, “[w]hen a party has alleged a direct conflict between t he Federal R ules and state law, [] an additional step precedes the Erie analysis.” 3 3 “The i nitial s tep i s to determine whether, when fairly construed, t he scope of [the Rule] is sufficiently broad to cause a direct collision with t he state law or, implicitly, to control the issue before the court, thereby leaving no r oom for the operation of t h at law.” 3 4 “In determining whether the Rule covers a particular issue, we look to the plain meaning of the Rule’s language.” 3 5 W e also look t o judicial interpretations of

2 9 Ow ens v . A ll sta te Ins. Co. , 996 S. W. 2d 207, 208- 09 ( Tex. A p p . — D a l l a s 1998, p et. d e n ied ) (hold ing that ins urance com p any lack ed s tand ing to bring interp lead er a c t i o n “ b e c a u s e [ the ins ured

- tortf

eas or] w as not legally res p ons ible to pay f or any of the d ef

end ants at the tim e of the interp lead er p etition”)

.

3 0 Eri e R. R. C

o. v. Tom

p ki ns , 304 U

. S. 64 (1938)

.
3 1 G a sp eri ni v . Ctr. f

or H um a ni ti es, Inc. , 518 U

. S. 415, 427 ( 1996)

.
3 2 Id.

3 3 A l l Pl a inti ff

s v. A l l D ef

enda nts , 645 F .3d 329, 333 ( 5th Cir. 2011) ( citing H a nna v . Pl um er , 380 U

. S. 460, 469- 70 (1965) )

.

3 4 Id. ( internal quotation m ark s om itted ).

3 5 Id. 12 Case: 10-20767 Document: 00512682377 Page: 12 Date Filed: 06/30/2014No. 10-20767

that language. 3 6 If a direct collision exists, we must apply the Federal Rule as long as it does not violate either the Constitution or the Rules Enabling Act. 3 7 Having already determined that s tate law would otherwise bar the timing of Hornbeck’s counterclaim, we next consider w hether the filing was c ompulsory under federal law. The plain language of R u l e 13 defines a counterclaim as “compulsory” if it (1) “arises out of t he trans a c t i o n or occurrence that is the subject matter of the opposing party’s claim” a nd (2) “ does n o t require adding another party over whom the court cannot a cquire jurisdiction.” 3 8 We also employ the l ogical r elation test to “further define when a claim a nd counterclaim arise f rom the same transaction.” 3 9 “The logical relation test i s a l oose standard which permits a broad realistic int e r p r e tation in t he interest of avoiding a multiplicity of s uits.” 40 A logical relationship exists “ when the counterclaim arises from the same ‘aggr e gate o f o perative facts’ in that the same operative facts serve[] as the basis o f both claims or the aggregate core of facts upon which the claim rests activates additional legal rights , otherwise dormant, in the defendant.” 4 1 Hornbeck’s counterclaim was compulsory within the scope of Rule 13(a). First, the counterclaim arises out of the same o ccurrence—damage to t he E rie Service—that is t he s ubject ma t t e r of N ational’s declaratory action. The counterclaim does not r equire adding another party since National brought its

3 6 See i d. at 333- 34 ( d is cus s ing Sup rem e Court p reced ent in determ ining the s cop e of Rule 23( e) und er the F ed eral Rules of Civil Proced ure)

.

3 7 Id. ; Dougl a s v . N CN B Tex. Na t’l Ba nk , 979 F. 2d 1128, 1130 ( 5th Cir. 1992)

.
3 8 F E D

. R. C I V

. P. 13( a) ( 1) ( A) , ( B)

.
3 9 Pl a nt v . Bl a z er Fi n. Serv s. , Inc. of G a . , 598 F. 2d 1357, 1360 ( 5th Cir. 1979)

.
4 0 Id. at 1361 ( internal quotation m ark s om itted )

.
4 1 Id. ( quoting Rev ere C op p er & Bra ss, Inc. v . A etna Ca s. & Sur. Co. , 426 F. 2d 709, 715 ( 5th Cir. 1970) )

. 13 Case: 10-20767 Document: 00512682377 Page: 13 Date Filed: 06/30/2014No. 10-20767

initial action against both R&R a nd Hornbeck

. T h ere is a logical relationship between National’s disclaimer of l iability and H ornbeck’s co u n t erclaim that National is liable since the same facts underlie both c auses. A “direct collision” between state and federal law exists because Hornbeck could not have c omplied with both state and federal law as to when to assert its counterclaim. We must, therefore, apply Rule 13(a) so long as it does not violate either the Constitution or the R ules Enabling Act. No constitutional rights are implicated here. Neither does the application of 13(a) violate t h e Rules Enabling Act because the t iming of Hornbeck’s counterclaim d o es not “ abridge, enlarge or modify any substantive right” under Texas law. 4 2 F urthermore, a pplying 13 (a)

v i ndicates “[o]ne of the shaping purposes of the Federal Rules,” w hich i s “ t o bring about uniformity i n the federal courts

. . . . This is e s p e c i a l l y t r ue of matters which relate to the administration of l e gal proceedings, an area in which fe d e r a l c o u r t s h a v e t r a d i t i o n a l l y e x e rted s trong inherent power, completely aside from the powers Congress expressly conferred i n the Rules.” 4 3 Rule 13(a) relates to t he “administration o f legal proceedings” because it was “designed to prevent multiplicity o f actions and to a chieve resolution in a single lawsuit of all d isputes arising o ut of common matters.” 4 4 Here, it permitted the district court to

e fficiently address all disputes arising from this litigation. Rule 13(a) mer e l y “alters t he mode of enforcing state-created rights,” and g o v erns the timing of Hornbeck’s counterclaim; t o h old otherwise “would be to d i sembowel either the

4 2 28 U

. S. C. § 2072( b) ; cf

. D ougl a s , 979 F. 2d at 1130 (d enying ap p lication of R ule 13( a) d es pite lik elihood that s tate- law c l a i m s w ere com p uls ory becaus e forcing def end ants to counterclaim w ould have dep rived them of non- jud icial rem ed ies und er Texas law )

.

4 3 H a nna v . Pl um er , 380 U

. S. 460, 472- 73 (1965) (quoting Lum berm en’s M ut. Ca s. Co. v . Wri g ht , 322 F. 2d 759, 764 ( 5th C ir. 1963) )

.

4 4 S. Const. Co. v . Pi cka rd , 371 U

. S. 57, 60 (1962) ( per curiam )

. 14 Case: 10-20767 Document: 00512682377 Page: 14 Date Filed: 06/30/2014No. 10-20767

Constitution’s grant of p ower over federal procedure or Congress’ attempt to exercise that power in the Enabling Act.” 4 5 In sum, Rule 1 3(a) is v a lid and controls in this case. Consequently, Hornbeck had s t a nding to bring its counterclaim. and the d i strict court p roperly ruled on that claim after deciding R&R’s liability. 4 6 V National challenges the damages award, t he award of attorney’s fees to Hornbeck, and t he assessment of 18% interest on t he damage award u n der the Texas I nsurance Code. We conclude that the district court erred in the amount of damages that it awarded and in applying an 18% interest rate. The district court found that th e loss to Hornbeck resulting from R&R’s negligence in the sinking of the Erie Service was $ 1,076,843.09. The judgment against National in f

avor o f Hornbeck included this entire a mount. However, it is undisputed that National’s policy limit was $1,000,000. The d i s t r i c t court erred in a warding Hornbeck in excess of National’s policy limits. The award of $1,076,843.09 in damages is accordingly reduced to $1,000,000. National argues that this amount should b e further r educed because it expend e d i n e x cess of $ 150,000 in defending R&R against Hornbeck’s claim of negligence. T he policy provides that defense cost s a r e included within the $1,000,000 p olicy limit, and t h erefore, defense costs would “erode” this coverage. However, Natio n a l d i d not plead for o r prove its defense c osts in t h e district court. It argues in its briefing in our court that it never had the opportunity to do so . T his argument is without merit. There was ample opportunity for National to raise and to h ave the trial court resolve this issue during t h e lengthy

course of the litigation that National itself initiated. National could not rely on

4 5 H a nna , 380 U

. S. at 473- 74 ( em p has is ad d ed ).

4 6 See F E D

. R. C I V

. P. 13( i) , 42( b)

. 15 Case: 10-20767 Document: 00512682377 Page: 15 Date Filed: 06/30/2014No. 10-20767

its argument that Hornbeck had no standing to seek to be paid from the proceeds of R&R’s policy until there was a final judgment against R&R as an excuse for failing to raise the issue of defense c osts and to p r ove those costs in the district court. The dis t r i c t c ourt awarded attorney’s fees from National to Hornbeck in the a mount of $213,683.95. Whether National was entitled to recover a ttorney’s fees is determined under state law, 47 u n l e s s a ttorney’s fees were i m posed as a sanction. Though the district court’s order did not express the basis f o r t he grant of attorney’s fees, t he court’s d iscussion during the fees hearing suggests at least three bases. First, the court may have relied on section 542.060 of the Texas Insurance Code, which provides that an insurer is liable to a beneficiary for “reasonable attorney’s fees” should the insurer fail to promptly pay a claim. 4 8 The court e xplicitly tied National’s obligation to pay a ttorney’s fees t o the Texas Insurance Code but also stated that Hornbeck was due these fees “because of National’s irrationally prolonging the litigation.” O r t he court may h ave granted attorney’s fees pursuant to section 3 8

. 0 01(8) of the T exas Civil Remedies and Practice Code, which provides for reasonable a ttorney’s fees if the claim is under an oral or written contract. The attorney’s fee s c annot be upheld under section 542.060 o f the Texas Insurance Code. Section 542.053 of that Code e xpressly provides that chapter 542 “does not apply to

. . . m a rine insurance,” which is defined as c o vering “a marine builder or repairer risk.” 4 9 Nor c an the aw a r d b e u p held as sanctions.

4 7 See IN A of Tex. v . Ri cha rd , 800 F. 2d 1379, 1381 ( 5th Cir. 1986) ( per curiam ) ( noting that the aw ard of attorney’s f ees in d is p utes involving m arine ins urance p olicies is governed by s tate law )

.

4 8 T E X

. I N S

. C ODE A N N

. § 542. 060.

4 9 T E X

. I N S

. C ODE A N N

. §§ 542. 053, 1807. 001. 16 Case: 10-20767 Document: 00512682377 Page: 16 Date Filed: 06/30/2014No. 10-20767

There were no findings or proceedi n g s t h at w ould support the i mposition of sanctions. It appears, however, that attorney’s fees are r ecoverable under section 38.001 of the Texas Civil P ractice and Remedies C o d e, even t hough section 38.006(2) of that Code provides that “[t]his chapter does n ot apply to a contract issued b y an insurer t hat is subject to t he p rovisions o f

. . . C hapter 541, Insurance Code.” 5 0 National appears to be subject t o the provisions of Chapter 541. The Supreme C o u r t of Texas has held that notwithstanding what might

seem to be the clear languag e of section 38.006, an “insurer i s liable for reasonable attorney’s fees inc u rred in pursuing the breach-of-contract action under section 38.001 unless the insurer is liable for attorney’s fees under another statutory scheme.” 5 1 The remaining question is whether Hornbeck m ay
sue for breach o f the insurance c ontr a ct even though it is not a p arty to Nationa l ’ s a n d R&R’s contract. The parties have n ot cited, and we have been unable t o f

ind, a decision from a Texas court that s quarely addresses the issue. The Supreme Court of Texas has held that “only a third p arty beneficiary who could e n force a contract to which s h e i s not a party would also be able to sue for attorney’s fees under t he contract provision of [what is now section 3 8.001],” and that “the key to d e t e r m i n i ng [the third party’s] e ligibility for an attorney’s fee award

. . . requires an analysis o f their p o ssible standing as third party beneficiaries to the

. . . automobile l iability insurance contract.” 5 2 In that case, Childress was injured in an automobile collision with Booth and after obtaining

a judgment against B ooth, sued Booth’s insurer to r ecover the damages he had

5 0 T E X

. C I V

. P R

A C

. & R E M

. C ODE A N N

. § 38. 006( 2)

.
5 1 G ra p ev i ne Exca v a ti on, Inc. v . M d. Ll oyds , 35 S. W. 3d 1, 5 ( Tex. 2000)

.
5 2 D a i ryl and Cnty. M

ut. Ins. Co. of Tex. v . Chi ldress , 650 S. W. 2d 770, 775 ( Tex. 1983)

.

17 Case: 10-20767 Document: 00512682377 Page: 17 Date Filed: 06/30/2014No. 10-20767

been a warded from Booth. 5 3 The Su p r e m e Court reasoned that “[t]here is no claim that either Dairyland [the insurer] or Booth [the i nsured] contemplated that Childress w o u ld become [a] claimant[] of the insurance policy i n question. This fact might be deter m i n a t ive o f t he question but for t he statutory scheme that made it incumbent upon Booth, as a driver, to have liability insurance in the f irst place.” 5 4 Similarly, in the present case, there is no claim that National and R&R contemplated that Hornbeck specifically, as distinguished f rom R&R’s clients generally, would bec o m e a claimant u nder the insurance policy. There is no s tatute in Texas requiring a ship repairer to carry liability insurance. Accordingly, the Supreme Court’s decision in D airyland does not resolve the question. A Texas court of a ppeals said in dicta that “[a] party who is injured by an insured i s considered a third-party beneficiary of a liability insurance p olicy,” 5 5 but neither of t he cases the decision cited f or t h i s p r oposition 5 6 s upported the statement, and the statement was entirely unnecessary to the court o f appeals’ holding b ecause the third party had not o btained a judgment against or settled with the in s u r e d at the time she sued the insurer and therefore could not proceed against the insurer at that time. 5 7 However, a court of appeals permitted Ischy, the w idow of a worker killed

on the job in an airplane crash, to recover a t t o r n e y ’s fees from her d eceased

5 3 Id

. at 772.

5 4 Id

. at 775.

5 5 Rust v. Tex. Fa rm ers Ins. Co. , 341 S. W. 3d 541, 547 ( Tex. Ap p . —El Pas o 2 0 1 1 , p e t. d enied )

.

5 6 S ta te F

arm Cnty. M

ut. Ins. Co. of Tex. v . Ol l i s , 768 S. W. 2d 722, 723 (Tex. 1989) ; G rea t A m . Ins. Co. v . M

urra y , 437 S. W. 2d 264, 265 (Tex. 1969)

.
5 7 Rust , 341 S. W. 3d at 551- 52. 18 Case: 10-20767 Document: 00512682377 Page: 18 Date Filed: 06/30/2014No. 10-20767

husband’s e mployer’ s w o rkers’ compensation carrier. 5 8 The workers’ compensation carrier had paid benefits to Ischy and was obligated to pay future compensation benefits t o her at the t ime that she sued a nd t hen settled with the operator of t he aircraft i n which her husband perished. 5 9 The workers’ compensation carrier was entitled to recover f rom the settlement proceeds the amounts that it had paid to Ischy, and as a r esult of the s ettlement, the carrier

was r e lieved from its obligation to pay future benefits. 6 0 Ischy sued the carrier to obtain attorney’s fees under Tex. Rev. Civ. Stat. Ann. art. 8307, § 6 a for the services rendered b y her attorney t hat b enefitted t he c a rrier in her suit against the aircraft o perator. 6 1 Ischy prevailed on t hat claim under art. 8307, § 6a, then sought to obtain her attorney ’ s f ees incurred in bringing the suit a gainst the workers’ compensation carrier. 6 2 The court o f appeals held that “[a]lthough Ischy is not suing to enforce the contract, w e have conclud e d t h at this suit is founded upon a c ontract for purposes of § 38.001 attorney’s fees. I t is undisputed that Ischy was a potential beneficiary of the contract.” 6 3 Although Texas l aw is not clear, w e m ake an Erie guess 64 a n d conclude that the Texas courts would construe s e c t i o n 3 8

. 001 a s allowing Hornbeck to

recover attorney’s fees from National. Accordingly, the district court did not err

5 8 Ischy v . Tw i n Ci ty Fi re Ins. Co. , 718 S. W. 2d 885, 888 ( Tex. Ap p . — Aus tin 1986, w rit ref ’d n. r. e. )

.
5 9 Id

. at 885- 86.

6 0 Id

. at 886.

6 1 Id

. at 887- 88 ( citing T E X

. R E V

. C I V

. S T A T

. A N N

. art. 8307, § 6a ( Wes t Sup p . 1986) )

.
6 2 I d

. at 888 ( “The third point of error reques ts attorney’s f ees f or the p ros ecution of this law s uit. ”)

.

6 3 Id

.
6 4 Eri e R. R. C

o. v. Tom

p ki ns , 304 U

. S. 64 (1938)

.

19 Case: 10-20767 Document: 00512682377 Page: 19 Date Filed: 06/30/2014No. 10-20767

in awarding a ttorney’s fees. National does not challenge th e a m ount of those fees. Howe v e r , the district court did err i n the rate of interest that it determined was to be applied. The district court’s judgment awarded Hornbeck interest from National o n $1,076,843.09 at t he rate o f 18% per year, citing section 5 42.060 of t he Texas Insurance C ode. First, the amount s u bject to interest must be reduced to $1,000,000, for t he reasons considered a b o v e . We also conclude that th e 1 8 % r a t e of i n t erest was contrary to Texas law. “We review de novo the district court’s determination of state law.” 6 5 Section 542.060 of the Texas Insurance Code “ does not apply t o . . . marine insurance,” which is defined as covering “a marine b u i l d e r or repairer risk.” 6 6 Because National’s policy with R &R fa l l s d i r ectly within this exception, t he district court erred in awarding interest u nder the Texas Insurance Code. The pre-judgement rate of interest on the $1,000,000 damage award is modified to 6.0%.

* * * For the foregoing reasons, we AFFIRM the d i s t r i c t court’s judgment in part, REVERSE that judgment i n part, and r e mand for the e ntry o f judgment and the appropriate assessment o f interest on t hat judgment in a ccordance with this opinion.

6 5 G rea t A m . Ins. Co. v. A FS/ IBEX Fi n. Serv s. , Inc. , 612 F. 3d 800, 804 ( 5th Cir. 2010)

.
6 6 T E X

. I N S

. C ODE A N N

. §§ 542. 053, 1807. 001. 20 Case: 10-20767 Document: 00512682377 Page: 20 Date Filed: 06/30/2014