United States Court of Appeals

Fifth Circuit



## FILED

December 1, 2004

Charles R. Fulbruge III

Clerk 

## In the 

# United States Court of Appeals

for the Fifth Circuit

_______________



### m 04-30219

Summary Calendar

_______________



### E LDER 

### O FFSHORE 

### L

EASING



### , I NC



### .,

PlaintiffIntervenor DefendantAppellee,

VERSUS



### B OLIVARIAN 

### R EPUBLIC OF 

### V ENEZUELA



### ,

Intervenor PlaintiffAppellant,

VERSUS



### S AFE 

### H AVEN 

### E NTERPRISES



### , I NC



### ., ET 

### A L



### .,

Defendants.

_________________________

Appeal from the United States District Court

for the Western District of Louisiana



### m 02-CV-1685



### m 02-CV-2517



### m 02-CV-1274

_________________________2

Before, D AVIS , S MITH , and D ENNIS , Circuit

Judges.

J ERRY E. S MITH , Circuit Judge: *

The Bolivarian Republic of Venezuela

(“Venezuela”) brings this interlocutory appeal

ch a llenging the district court’s determination

that title to dispu t ed property never passed

from Elder Offshore Leasing, Inc. (”El der”).

Because the contrac t ual provision on which

Venezuela relies is not operative in the current

dispute, title never passed, and we affirm.

I.

Requiring new living quarters for the Simon

Bolivar Naval Base on Isla de Ave s

, 1 Venezuela contracted to have new living quarters,

or “modules,” constructed for th e base. To

build the modules (three-story dormitory-type

structures with work areas, residential

quarters, recreations areas, kitchens, and a

roof top h eliport), Venezuela contracted with

Totalmar, a Venezuelan corporati on, which in

turn contracted with Elder to procure and refurbish the modules. The Venezuela/Totalmar

contract provided that Totalmar would

prepare the island site and purchase, transport,

and install the modules, while under the Totalmar/Elder contract, Elder would proc u re the

modules and renovate them to Venezuela’s

specifications. Although Venezuela paid Totalmar, Totalmar failed to pay Elder for all its work, so Elder did not pay its subcontractors.

Consequently, mult iple civil actions were instituted in Louisiana (where the construction was

taking place). Elder sued Safe Haven Enterprises (“Safe Haven”), which is alleged by

Elder to be a joint venturer with Elder in the

construction

o f the modules. Safe Haven responded by filing a lien aga inst the modules

and sued to enforce that lien. Safe Haven’s

case was removed to federal court and consolidated with Elder’s original action against Safe

Haven. At that point, numerous subcontractors and lienholders intervened in the federal action, as did Venezuela.

Venezuela cl aims that title to the modules

has passed to it under the Elder/Totalmar contract and that sovereign immunit y protects the

property from attachment. The Totalmar/Elder contract provides that title passe s on the

earliest occurrence of any three p o ssibilities:

“(a) appropriation of the Work or any part

thereof to the Order; or (b) paym ent for the

Work; or (c) delivery of the Work by Contractor at the specified delivery point.” Because

neither party contends that payment was made

or that delivery occurred, 2 the sole issue is the

meaning and application of “appropriation of

the Work or any

part thereof to the Order.”

* Pursuant to 5 TH C IR. R. 47.5, the court has determined that this opinion should not be published

a nd is not precedent except under the limited circumstances set forth in 5 TH C IR . R. 47.5.4.

1 Isla de Aves is Venezuela’s furthest outpost in

the Caribbean Sea. The naval base is used for hydrographic, cartological, andmeteorological purposes, and Venezuel a needs the modules to maintain its presence on the island and therefore

continue to claim sovereignty over it. 2 Although the modules were eventually moved

to Isla de Aves, we operate under the legal fiction

that they remain at their manufacturing location in

Louisiana. Pursuant to a Joint Stipulation entered

into by Elder, Venezuela, and the other lienholders,

Venezuela posted a cash bond in exchange for

immediate possession. By the ter ms of the Joint

St ipulation, the cash bonds will pay to Elder and

the lienholders unless the court rules that Venezu e la is the owner of the modules and sovereign

immunity protects them from seizure.3

At a bench trial, the district court adjudicated the current ownership of the modules

and reserved the disposition of the remaining

claims for another day. On considering the evidence and arguments of counsel, the court

held that, under the operative contractual provisions, ti t le never passed to Venezuela, but

remained with Elder. In it s o ral ruling, the

court reasoned that the disputed contractual

provision exists to protect the sel l er, and

therefore the court disagreed with Venezuela’s

reading of the contract. The ruling was certified for appeal under Federal Rule of Civil

Procedure 54(b )

. S ee Kelly v. Lee’s Old

Fashioned Hamburgers, Inc.

, 908 F.2d 1218,

1220 (5th Cir. 1990) (per curiam) (en banc).

II.

We review the interpretation of a contract,

which is a conclusion of law, d e novo

. S ee

City of New Orleans v . Mun. Admin. Servs.,

Inc., 376 F.3d 501, 506 (5th Cir. 2004). This

dispute i s go verned by the terms of the contract 

### SS specifically, the above-described “appropri ate the Work . . . to the Order” provision. It is our responsibility to attach meaning

to this phrase as intended by the parties. 3

Luckily, some of the terms within the provision are defined by the contract. “Work” is

defined as “the goods, services and/or equipment and documentation to be provided under

the contract . . . .” “Order” is not specifically

defined, but it is plain from the contract that it refers to Totalmar’s order for the modules. 4 It

i s not apparent from the plain meaning of the

contract, h o wever, what the parties intended

by agreeing that title passes on a ppropri ati on

of the work to the order. We therefore look

to interpretiv e guides outside the text of the

contract.

Venezuela calls our attenti on to case s in

which this court and others interpreted a similar phrase, i.e., “appropriate goods to the contract.” Although Venezuela contends that this

diff erence in phrasing is insignificant, it is in

fact quite illuminat

ing. In the cases cited, 5 the

goods at issue were fungible, and the contracts

called for the sale of a specified quantity of

those goods.

For example, in Mitsubishi

, 7 35 F.2d at

165, we held that “when go ods to be delivered by the seller to the buyer become seg regated from other goods or appropriated to the

contract so that the objects to be sol d are

readily identifiable, the same becomes

executed , and at that ti m e ti tl e to the goods

passes to the buye r” (emphasis added).

Therefore, the phrases “appropriating goods to

a contract ” and “appropriating work to an

order” indicate the physical segregation,

setting aside, or other identification of a subset

of goods apart from a greater stock. Such an

act, and the accompanying passage of title per

contract, allow a sel ler to com pl ete

3 See Reliant Energy Servs., Inc. v. Enron Canada C orp. , 349 F.3d 816, 822 (5th Cir. 2003)

(“‘When interpreting a contract, the question is

what was the partie s’ intent, [because] courts are

compelled to give effect to the parties’ intentions’”

(quoting Pennzoil Co. v. FERC

, 645 F.2d 360, 388

(5th Cir. May 1981))). 4 The parties do not dispute this.

5 See, e.g., Mitsubishi Int’l Corp. v. Clark Pipe

& Supply Co.

, 735 F.2d 160, 165 (5th Cir. 1984);

Edgewood C o. v. Falkenhagen , 92 So. 703 (La.

1922); Collector of Revenue v. J.L. Richardson

Co., 2 47 So. 2d 151, 156 (La. App. 4th Cir.

1971); Texas Hay Ass’n v. Angleton Stat e Bank

, 291 S.W. 846 (Tex. Comm’n App. 1927).4

performance of a

contract so as to be abl e to

demand performance by the buyer or at least

to pass risk of loss to the buyer.

It is obvious, from the context of the cases

relied on by Venezuela , t hat this provision is

not helpful to its case. Here, the “work” to be

appropriated is not of the fungible nature that

usually causes the seller to seek protection by

allowing it to pass title and risk by identifying

the goods to be sold. It is unreasonable to believe that Elder intended to agree to yield title

to the modules, piece by piece, irrespective of

payment, by utilizi ng a contractual provision

tha t historically has been used to protect

sellers.

This interpretat i on is bolstered further by

the International Commercial Terms, or “Incoterms,” which the parties agreed would apply

to the contract where not in conf lict with its

express conditions. The Incoterms are a set of

international rules for the interpretation of

trade terms, published by t he International

Chamber of Commerce.

The only use of the phrase “appropriated to

the contract” by the Incoterms indicates that a

seller in an FOB contract 6 may choose to pass

title to goods, by clearly setting them aside or

identifying them where the specified vessel of

shipment fails to arrive or is otherwise unable

to accept shipment. That is, the seller can shift

risk and title by taking affi rmative steps to

identify the specific, fungible goods it intends

to sell. The Incoterms, therefore, indicate that

the disputed contractual phrase exists to

protect the seller by allowing it to shift risk at

its prerogative by performing certain steps. This interpretation makes t he most sense and

is in accord with that given by the courts in the

cases cited by Venezuela.

Venezuela counters tha t Elder purchased

used modules, brought themto the construction site, and thereby appropriated them to the

contract. Subsequently, according to Venezuela, with the addition of each item Elder installed in the modules, thos e item s too were

appropri ated to the order.

Unfortunately, Venezuela cannot point to

any case in which this piece-by-piece formulatio n of appropriating work to an order has

been applied. Instead, provisions of the sort at

issue here are unanimously used in the context

of fungible goods. The disputed provision

therefore is of no moment here 7 and could not

have effected passage of title.

The interpretation reached by the dist r ict

court was therefore correct. Title to the modules never passed from Elder.

AFFIRMED.

6 An “FOB” contract is one in which the buyer

assumes risk of loss upon the seller’s shipment of

the contracted-for goods. 7 The inclusion of this inapplicable provision

could be explained if the contract used was adopted

from a previous contract dealing with an entirely

different set of fact s. Although the evidentiary

r ecor d is not illuminating as to the provenance of

the contract, Venezuela sugg ested, at oral argument

in the district court, that the form used as the basis

for this contract came from a previous transaction

in which Elder was involved. If true, this would

lend eve n further credence to the notion that the

“ap propriate work to the order” provision is not

applicable here.