United States Court of Appeals,

Fifth Circuit.

No. 93-2894.

LIQUID DRILL, INC. d/b/a Pelican Mud and Milpark Drilling Fluids, Plaintiffs-Appellants,

Progress Chemical Sales Co., Intervenor-Plaintiff, Appellant,

v.

U.S. TURNKEY EXPLORATION, INC., Defendants,

PSI, Inc., Defendant-Appellee.

April 5, 1995.

Appeal from the United States District Court for the Southern District of Texas.

Before POLITZ, Chief Judge, WISDOM and SMITH, Circuit Judges.

WISDOM, Circuit Judge:

This litigation is over compensation allegedly owed to subcontractors who worked on an oil

well off the coast of Louisiana. The appeal raises two issues: (1) whether the district court abused

its discretion in refusing to give the plaint iff more time for discovery, and (2) whether the dist r ict

court erred in granting summary judgment for the defendant. We hold that the district court did not

abuse its discretion and that no genuine issue of material fact exists in this case. We AFFIRM the

decision of the district court.

I

In Septe mber 1988, Senior G & A Operating Company ("SG & A") hired U.S. Turnkey

Explorations, Inc. to drill an oil well 13,3 00 feet deep in the Gulf of Mexico. When SG & A was

unable to pay U.S. Turnkey the first pay installment, SG & A approached PSI, Inc. about purchasing

its interest in the well. In November 1988, SG & A assigned the drilling contract to PSI, and PSI

assumed all of SG & A's rights and duties under the drilling contract with U.S. Turnkey. To secure

PSI's performance, U.S. Turnkey and PSI entered into an escrow agreement. PSI deposited nearly

$2 million into an escrow account to be paid to U.S. Turnkey when it completed the well.

The plaintiff-ap pellants, Liquid Drill, Inc., Milpark Drilling Fluids, and Progress Chemical1 The plaintiffs filed suit in the Sixty-First Judicial District of Harris County, Texas. PSI

removed the case to the United States District Court for the Southern District of Texas, basing

Federal jurisdiction on 28 U.S.C. § 1331 and 43 U.S.C. § 1333(a), a provision of the Outer

Continental Shelf Lands Act.

2 PSI filed a motion to disregard the stay in bankruptcy as to PSI. The district court granted

the motion, and the plaintiffs do not appeal from that decision.

3 The plaintiffs also sought recovery under a theory of quantum meruit, and the district court

dismissed the claim. The plaintiffs do not raise this as an issue on appeal, and therefore they

waive any argument that the dismissal was erroneous. Nissho-Iw ai Co., Ltd. v. Occidental Crude

Sales, 729 F.2d 1530, 1539 n. 14 (5th Cir.1984) ( citing Martin v. Atlantic Coast Line R.R. Co.,

289 F.2d 414, 417 n. 4 (5th Cir.1961)). Sales Co. ("the plaintiffs"), are subcontractors of U.S. Turnkey who worked on the well fro m

September 1988 to April 1989. The plaint iffs did not contract directly with PSI; they entered into

contracts only with U.S. Turnkey.

U.S. Turnkey failed to drill the well to a depth of 13,300 feet, but sought compensation from

PSI for the work it did complete in accordance with an arbitration clause in the drilling contract. An

arbitration award ordered PSI to pay U.S. Tu rnkey nearly $2 million, a portion of which was

designated for the plaint iffs. The plaintiffs have not received compensation for their work on the well.

The plaint iffs filed suit against U.S. Turnkey a n d PSI in April 1990. 1 U.S. Turnkey filed a

Chapter 7 bankruptcy petition, and from that point, all issues concerni ng U.S. Turnkey were

automatically stayed. 2 The plaintiffs are not in privity of contract with PSI, but they seek

compensation directly from PSI on th e t heo ry t hat they are third party beneficiaries of the drilling

contract between PSI and U.S. Turnkey. 3

In November 1990, PSI moved for summary judgment, and the plaint iffs sought and received

a continuance until December 1990. In January 1991, the plaint iffs filed a motion for further

extension of time for discovery. The district court set July 9, 1991 as the hearing date for all motions.

One week before that date, the plaint iffs filed a cross-motion for summary judgment against PSI and

a motion to compel production of business records that PSI contends are privileged.

The district court denied the plaint iffs' motion for a continuance and found that PSI's motion

for summary judgment was ripe for considerat io n. The court granted PSI's motion for summary

judgment and denied as moot the plaint iffs' cross-motion for summary judgment a nd motion to4 Record at 971.

5 U.S. Turnkey was in bankruptcy and no final judgment had been rendered against it. The

district court's order was not certified in accordance with Rule 54(b) of the Federal Rules of Civil

Procedure, and the order, therefore, was interlocutory and not appealable. Liquid Drill, Inc. v.

U.S. Turnkey Explor., No. 91-6083, 966 F.2d 675 (5th Cir. June 2, 1992).

6 Solo Serve Corp. v. Westow ne Assoc., 929 F.2d 160, 167 (5th Cir.1991).

7 Solo Serve, 929 F.2d at 167 n. 25 ( citing Washington v. Allstate Ins. Co., 901 F.2d 1281,

1285 (5th Cir.1990)).

Rule 56(f) provides: Should it appear from the affidavits of a party opposing the

motion that the party cannot for reasons stated present by affidavit facts essential to justify

the party's opposition, the court may refuse the application for judgment or may order a

continuance to permit affidavits to be obtained or depositions to be taken or discovery to

be had or may make such other order as is just.

8 Fed.R.Civ.P. 56(f). compel producti on of business record s. 4 The plaintiffs filed a timely notice of appeal. This Court

dismissed that appeal for lack of jurisdiction, because the decision of the district court was not a final

order. 5 On motion of the plaint iffs, the district court dismissed U.S. Turnkey from the action, and

from the final order of the district court, the plaintiffs filed this appeal in November 1993.

Th e plaint iffs raise two arguments on appeal. First, the plaintiffs contend that the district

court erred in denying the plaint iffs' motion to extend discovery. Second, the plaintiffs contend that

the district court improperly granted PSI's motion for summary judgment and improperly denied the

plaintiffs' cross-motion for summary judgment.

II

The plaint iffs' first argument on appeal asserts t hat t he district court erred in denying the

plaint iffs more time for discovery. We review the district court's denial of the motion for a

continuance for an abuse of discretion. 6

To obtain a continuance in accordance with Rule 56(f) of the Federal Rules o f Civil

Procedure, a par t y must specifically explain both why it is currently unable to present evidence

c reating a genuine issue of fact and how a continuance would enable the party to pr esent such

evidence. 7 The trial judge has broad discretion to order a continuance to permit discovery to be had,

to refuse to grant summary judgment or to "make such other order as is just". 8 The plaint iffs filed9 Record at 611.

10 Record at 975.

11 Washington v. Allstate Ins. Co., 901 F.2d 1281, 1285 (5th Cir.1990) ( citing Fontenot v.

Upjohn Co., 780 F.2d 1190, 1194 (5th Cir.1986)).

12 Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91

L.Ed.2d 265 (1986); Lockart v. Kobe Steel, Ltd. Constr. Mach. Div., 989 F.2d 864, 865 (5th

Cir.1993). their motion for a continuance on January 7, 1991, arguing that PSI's motion for summary judgment

was premature, because PSI filed the motion shortly after the plaint iff s filed an answer to the

complaint and before either party had begun discovery. 9

The district court did not rule on PSI's motion for summary judgment until July 9, 1991. At

that time, PSI's motion for summary judgment had been pending for seven months, and ample time

and opportuni ty for discovery had already lapsed. The district court found that the reason stated for

the plaintiffs' request for a continuance was "no longer applicable", and denied the motion. 10

A motion for a continuance is addressed to the discretion of the district court. In addition,

Rule 61 forbids reversal absent prejudice to "substantial rights" of a party. 1 1 PSI's motion f or

summary judgment had been pending for seven months, and the plaintiffs had ample opportuni ty to

conduct discovery. Further, in their appeal, the plaintiffs fail to demonstrate that the district court's

denial of the motion for a continuance adversely affected their substantial rights.

Proceedings are not to be disturbed because of an error that prejudiced no one. For the

forgoing reasons, we cannot conclude that the district court abused its discretion by refusing to give

the plaintiffs more time for discovery. We affirm the decision of the district court.

III

The plaint iffs' second argument on appeal challenges the district court's gr ant of summary

judgment for PSI and its denial of the plaintiffs' cross-motion for summary judgment.

Summary judgment is appropriate when there is no genuine issue as to any material fact and

the moving party is entitled to judgment as a matter of law. 12 To withstand a motion for summary

judgment, a nonmoving party who bears the burden of proof at trial must raise a genuine issue of fact13 Thomas v. Price, 975 F.2d 231, 235 (5th Cir.1992).

14 Kobe Steel, 989 F.2d at 865.

15 La.Civ.Code Ann. art. 1978 (West 1985).

16 For an informative discussion of the impact of the 1984 revisions to the Louisiana Civil Code

on the law of third party beneficiary contracts, see Fred McGaha, Third Party Beneficiary

Contracts, 45 La.L.Rev. 797 (1984).

17 New Orleans Pub. Serv. Inc. v. United Gas Pipe Line Co., 732 F.2d 452, 467 (5th Cir.) ( en

banc ) cert. denied, 469 U.S. 1019, 105 S.Ct. 434, 83 L.Ed.2d 360 (1984).

18 Id. at 467 (quoting HMC Management Corp. v. New Orleans Basketball Club, 375 So.2d

700, 708 (La.App. 4th 1979), w rit denied, 378 So.2d 1384 (La.1980)).

19 Broussard v. Northcott Exploration Co., Inc., 481 So.2d 125, 127 (La.1986); United Gas

Pipe Line Co., 732 F.2d at 467. with respect to each element of its cause of action. 13 We review a grant of summary judgment de

novo. 14

Louisiana law, as all concede, governs this cause of action under the contract between PSI

and U.S. Turnkey. The plaintiffs cont end that the contract is a third party beneficiary contract, a

stipulation pour autrui. As third party beneficiaries, the plaintiffs assert a direct right of action

against PSI for the compensation allegedly owed to them.

The Lo uisiana Civil Code allows contracting parties to "stipulate a benefit for a third

person". 15 Not every promise for the benefit of a third party, however, will create in the third party

an actionable right. The existence of a s tipulation pour autrui depends on the intention to create it.

People usually stipulate for themselves, not for third persons.

The 1984 revisions to the Civil Code clarified the law of third party beneficiary contracts in

Louisiana. Articles 1978 through 1982 articulate clearly how third party beneficiary contracts are

formed, as well as parties' rights a nd o bligations under such contracts. 1 6 For the contract to be a

stipulation pour

autrui, t he co ntract must clearly express an intent to benefit a third party. 1 7 The

benefit to the third party must be a direct benefit; it may not be merely incidental to the contract. 18

Further, the contract must clearly provide that the direct benefit to the third party forms the condition

or consideration of the contract. 1920 11 Tul.L.Rev. 18, 58 (1936); see also Dartex v. Dixon, 502 So.2d 1063, 1065 (La.1987);

Hargroder v. Columbia Gulf Transmission Co., 290 So.2d 874, 876 (La.1974); Andrepont v.

Acadia Drilling Co., 255 La. 347, 231 So.2d 347, 351 (1969).

21 Record at 827.

22 255 La. 347, 231 So.2d 347 (1969). Our task is to separate the cases in which the contracting parties expressly stipulate a benefit

to a third party from those in which the benefit r elied upo n is merely an incident of the contract

between the parties. To determine whether parties to a contract intended to benefit a third party, the

Louisiana Supreme Court has adopted the necessary factors outlined by Professor J. Denson Smith

in his influential article Third Party Beneficiaries in Louisiana: The Stipulation Pour Autrui: (1)

the existence of a legal relationship between the promisee and the third person invo lving an obligation

owed by the promisee to the beneficiary which performance of the promise will discharge; (2) the

existence of a factual relationship between the p romisee and the third person, where (a) there is a

possibil it y o f future liability either personal or real on the part of the promisee to the beneficiary

against which performance of the ... [promisor] will protect the former; (b) securing an advantage

for the third person may beneficially affect the promisee in a material way; (c) there are ties of kinship

or other circumstances indicating that a benefit by way of gratuity was intended. 20

The plaintiffs assert they are third party beneficiaries of the contract between PSI and U.S.

Turnkey. The plaintiffs contend that the language in the contract stating that PSI "shall be solely

responsible and assumes all liabilit y for all consequenc es o f o perations by both parties while on a

daywork basis, including results and all other risks or l iabilit ies incurred in or incident to such

operations" 21 creates a stipulation pour autrui. The district court could discern no such stipulation,

and neither can we.

The pl a int iffs liken their case to Andrepont v. Acadia Drilling Co., 22 a case in which the

Louisiana Supreme Court found that contract language created a stipulation pour autrui. In

Andrepont the lessor and lessee of an oil and gas lease altered a printed lease form to provide that as

a condition of the contract, the lessee accepted responsibility for "all damages caused by the lessee's23 Id. 231 So.2d at 349.

24 Id. at 353.

25 The plaintiffs' reliance on Dartez v. Dixon, 502 So.2d 1063 (La.1987) and Hargroder v.

Columbia Gulf Transmission Co., 290 So.2d 874 (La.1974) is similarly misplaced. Dartez and

Hargroder, like Andrepont, involve contracting parties who clearly intended to contract for the

benefit of third parties, and conferred by contract on the third parties the benefit of

indemnification for tort damages. Dartez, 502 So.2d at 1066; Hargroder, 290 So.2d at 876.

26 372 F.Supp. 967 (W.D.La.1974).

27 Id. at 970 (emphasis in the original).

28 Id. at 971. operations". 23 The Louisiana Supreme Court found that this language creat ed a s tipulation pour

autrui, and that a sur face lessee had a right of direct action against the oil and gas lessee for crop

damages. 24

Andrepont is both factually and legally inapposite to the instant case. The contracting parties

in Andrepont clearly intended to contract for the benefi t of a t hird party . The parties expressly

sti pulat ed a direct benefit to third parties; one of the contracting parties specifically assumed tort

liability to all those who were damaged by its operations. 25

No r is the plaintiffs' case analogous to M erco Manufacturing, Inc. v. J.P. M cMichael

Construction Co. 26 In M erco, a landowner contracted with a general contractor to build a

manufacturing plant. A sub-subcont ractor, Merco, brought suit against the general contractor,

alleging that it was a third party beneficiary of a contract between the general con t ractor and a

su bcontractor. The written contract between the general contractor and the subcontractor specifically

provided that the general contractor would make payment for supplies jointly to Merco and to the

subcontractor. 27 This contractual provision "gave Merco a joint right to payment" under the contract

between the general contractor and the subcontractor, and the court found that Merco was an

intended third party beneficiary of the contract between the general contractor and the subcontractor.

All the aspects of a stipulation pour autrui were present in Merco. The contract demonstrated the

clear intent of the contracting parties to confer a benefit on Merco. 28 The payment provision of the29 Id. at 972.

30 Id. The plaintiffs also draw the Court's attention to United States v. Logistic Servs. Int'l, No.

92-3761, 1994 WL 247203 (E.D.La. June 2, 1994). Logistic is, however, inapposite to the facts

of this case. In Logistic, the contract at issue specifically provided that one of the contracting

parties, the surety of the general contractor, agreed to certify that it had paid its subcontractors

and suppliers. The court found that the subcontractors had raised a genuine issue of fact that they

were third party beneficiaries of the contract. Id. at * 3. In contrast, the contract in this case

does not make any reference to compensating subcontractors. The plaintiffs' reliance on Logistic

is unpersuasive.

31 Allen & Currey Mfg. Co. v. Shreveport Waterw orks Co., 113 La. 1091, 37 So. 980, 984

(1905). contract created an advantage in favor of Merco as a condition of the contract. 29 Finally, the benefit

was a direct and not merely an incidental benefit. 30

Unlike Andrepont and Merco, the plaint iffs in this case have not raised a genuine issue of fact

whether the contract between PSI and U.S. Turnkey creates a stipulation pour autrui. First, the

contract does not express an intent to contract for the benefit of the plaint iffs. Second, the contract

does not contemplate conferring a benefit on the plaintiffs as its condition or consideration. Third,

the benefit the plaint iffs rely on is merely an incident of the agreement between PSI and U.S. Turnkey.

As a practical matter, PSI's payment to U.S. Turnkey may have facilitated U.S. Turnkey's ability to

pay its subcontractors, but that is insufficient to create a s tipulation pour autrui in favor of the

plaint iffs.

There is a presumption that contracting parties intend to contract for themselves and not third

parties. 31 We hold that no genuine issue of material fact exists in this case. The contract between PSI

and U.S. Turnkey is a not stipulation pour autrui, and the plaint iffs are not third party beneficiaries

of the contract. The plaintiffs cannot bring suit directly against PSI to recover compensation for their

work on the oil well , and we AFFIRM the decision of the district court granting PSI's motion for

summary judgment and denying the plaintiffs' cross-motion for summary judgment.