United States Court of Appeals

Fifth Circuit



## FILED

June 30, 2005

Charles R. Fulbruge III

Clerk UNITED STATES COURT OF APPEALS

FIFTH CIRCUIT

____________

No. 04-20589

____________

HONEYWELL INTERNATIONAL INC, formerly known as Allied

Signal Inc,

Plaintiff-Appellant,

versus

PHILLIPS PETROLEUM CO; ET AL,

Defendants

CONOCO PHILLIPS CO,

Defendant-Appellee.

Appeal from the United States District Court

For the Southern District of Texas

Before REAVLEY, JONES, and GARZA, Circuit Judges.

EMILIO M. GARZA, Circuit Judge:

Honeywell International, Inc . (“Honeywell”) appeals the district court’s order granting

summary judgment in its suit against Phillips Petroleum Company (“Phillips”). The issue on appeal1 Signal was actually named Allied Signal, Inc. (“Allied”) when Lone Star filed its action. To

avoid confusion, however, we refer to Allied as Honeywell.

-2- is whether the court erred in holding that Phillips had no contractual duty to indemnify Honeywell

f or costs and attorney’s fees Honeywell incurred defending a suit by Lone Star Industries (“L one

Star”).

I

In 1968, The Signal Companies, Inc. (“Signal”) sold a former oi l refinery site along the

Houston ship channel to Lone Star (the “Lone Star Site”). Approximately a year later, Signal

reformed itself as a holding compan y and began running its three operations ) ) real estate

development, chemicals, and natural resources )) through subsidiaries. Signal transferred its natural

resources business to Signal Oil & Gas (“Signal Oil”), a previously inactive subsidiary. The transfer

agreement (the “Master Agreement”) contained a provision requiring Signal Oil to assume certain

liabilities, the scope of which is the basis for this action.

In 1992, Lone Star sued Signal, now named Honeywell, 1 under the Comprehensive

Environmental Response Compensation Act (“CERCLA”) and the Reso urce Recovery and

Conservation Act (“RCRA”) for pollution damages on the Lone Star Site. 42 U.S.C. §§ 9613(b),

6972(a)(1)(B). In 1993, Honeywell filed a third-party complaint against Signal Oil, now Phillips, for

indemnit y. Honeywell successfully defended against Lone Star’s claims, with the district court

entering judgment in favor of Honeywell in 1998. The judgment against Lone Star did not address

Honeywell’s claims against Phillips, which had yet to be adjudicated. On Honeywell’s motion, the

court entered an order pursuant to F ED

. R. C IV

. P. 21 severing Honeywell’s third-party action against

Phillips. The court entered an amended final judgment in the original action reflecting the severance.-3-

Honeywell’s 1993 complaint against Phillips, filed before Honeywell’s legal liabilit y to Lone

Star had been adjudicated, asked the court to hold Phillips liable both for any amo unt it might be

a djudged liable to Lone Star and for costs and attorney’s fees associated with the Lone Star suit.

Honeywell’s indemnit y claims against Phillips remained in the complaint against Phillips after that

action was severed from the Lone Star action in 1998. But, in light of the court’s judgment against

Lone Star and Lone Star’s failure to appeal, the parties focused exclusively on Honeywell’s request

for attorney’s fees and costs in their 2003 and 2004 cross-motions for summary judgment. Phillips’

motion argued that it was obligated to indemnify Honeywell only for liabilities related to the assets

that Signal transferred to Signal Oil. Because Signal sold the Lone Star Sit e t wo years before

transferring its natural resource operation to Signal Oil, Phillips argued, Signal Oil did not inherit

liability associated with the site.

The district court agreed. It held that neither the Mast er Agreement nor a supplement

executed in 1974 as part of Signal’s sale of Signal Oil (the “Supple ment al Agreement”) required

Phillips to indemnify Honeywell for liability relating to a property Signal sold in 1968. Honeywell

appeals, arguing not only that the district court erred in granting summary judgment but also that the

court lacked subject matter jurisdiction over Honeywell’s severed claim.

II

Before reaching the merits of the district court’s decision, we address Honeywell’s cont ention,

raised for the first time on appeal, that the district court did not have subject matter jurisdiction over

its severed action against Phillips. See Arizonans for Official English v. Arizona

, 520 U.S. 43, 73

(1997) (stating that every appellate court has an obligation to satisfy itself of its own jurisdiction and

that of the district court); Giles v. NYLCare Health Plans, Inc. , 172 F.3d 332, 336 (5th Cir. 1999)-4-

(“A lack of subject matter jurisdiction may be raised at any time, which means we can examine the

district court’s jurisdiction for the first time on appeal.”) (internal citation omitted).

In assessing whether the district court had subject matter jurisdiction, we generally look to

the time at which the action commenced. See Carney v. Resolution Trust Corp. , 19 F.3d 950, 954

(5th Cir. 1994) (“Subject matter jurisdic t ion is determined at the time the complaint is filed.”).

However, a seve red act io n must have an independent jurisdictional basis. S ee United States v.

O’Neal

, 709 F.2d 361, 375 (5th Cir. 1983) (holding that severed counterclaims “became independent

actions requiring an independent jurisdictional basis.”); see also 28 U.S.C. 1367 (providing that “the

district courts shall have supplemental jurisdiction over all other claims that are so related to claims

in the action within such original jurisdiction that they form part of the same case or controversy

. . .

.”) (emphasis added). Accordingly, we look to the point at which that action was severed from Lone

Star’s action against Honeywell to determine whether the district court had subject matter jurisdiction

over Honeywell’s claims against Phillips.

Phillips argues that Honeywell’s third-party complaint contained both federal and state law

causes of action. Honeywell’s 1993 complaint against Phillips alleged, in relevant part:

CAUSE OF ACTION INVOLVING LONE STAR

23. If [Honeywell] is liable to Lone Star . . . then Phillips is liable to

[Honeywell by way of assumption, indemnity and/or contribution.

. . . .

PRAYER FOR RELIEF

28. Defendant and third-party plaintiff [Honeywell] respectfully prays

that the Court enter judgment against Phillips and:

(a) hold Phillips liable for any amounts whic h [Honeywell] may be-5- judged liable to Lone Star, including award of cont ribution from

Phillips pursuant to 42 U.S.C. § 9613(f) if [Honeywell] is found liable

to Lone Star for response costs;

. . . .

(d) enter a declaratory judgment pursuant to 28 U.S.C. § 2201 that

Phillips is liable to [Honeywell] for all current and future liabilit ies

. . . including all current and future response costs pursuant to 42 U.S.C.

§ 9613 (f) if [Honeywell] is found liable to Lone Star for future

response costs.

Phillips contends that paragraphs 23, 28(a), and 28(d) assert federal causes of action, namely claims

for indemnificat io n pursuant to 42 U.S.C. 9613(f). Thus, Phillips argues, the district court had

subject matter jurisdiction pursuant to 28 U.S.C. § 1331.

Honeywell responds that, notwithstanding its references to 42 U.S.C. § 9613(f), the complaint

does not establish subject matter jurisdiction because it either did not state a viable federal question

at the time it was filed or no longer stated a viable federal claim after the Lone Star judgment became

final. S ee Raymon v. Alvord Ind. Sch. Dist.

, 6 39 F.2d 257 (1981) (“A complaint that alleges the

existence of a frivolous or insubstantial federal question is not sufficient to establish jurisdiction in

federal court.”); Murphy v. Inexco Oil Co. , 611 F.2d 570, 573 (5th Cir. 1980) (“the assertion that

the claim involves such a question must be more than incantation. While jurisdiction does not depend

on the contention having ultimate merit, its mere recital cannot confer jurisdiction if the contention

is frivolous or patently without merit.”).

Honeywell’s request that the district court “hold Phillips liable for any amounts whi ch

[Honeywell] may be judged liable to L o ne Star, including award of contribution from Phillips

pursuant to 42 U.S.C. § 9613(f) if [Honeywell] is found liable to Lone Star for response costs” states

a federal cause of action sufficient to invoke federal jurisdiction. While the sufficiency of Honeywell’s2 Section 9613(f)(1) provides that “[a]ny person may seek contribution from any other person

who is liable or potentially liable under section 9607(a) of this title, during or following any civil

action under section 9606 of this title or under section 9607(a) of this title.” 42 U.S.C. § 9613(f)(1).

To be subject to a claim under § 9613(f), then, the defendant must be “liabl e o r po t entially liable

under section 9607(a).” I d

. Persons subject to liability under § 9607(a) include, among others, “any

p erso n who at the time of disposal of any hazardous substance owned or operated any facility at

which such hazardous substances were disposed of.” 42 U.S.C. § 9607(a)(2). The term “person”

includes corporations. 42 U.S.C. § 9601(21).

Signal Oil did not own the Lone Star s it e at t he t ime the alleged pollution occurred. But

circuit courts that have addressed the question have concluded that a successor corporati on is a

person for purposes of § 9607(a). S ee, e.g., New York v. Nat’l Serv. Indus., Inc.

, 352 F.3d 682, 684

(2d Cir. 2003) (addressing whether “a corporati on that purchased the assets of a company liable for

environmental response costs under CERCLA should be held liable for those same costs as a

successor corporati on”). Thus, if Phillips could be construed as a successor to Signal, it could

potentially be subjected to liabilit y under § 9613(f)(1). Whatever the ultimate merit of such an

argument, we are not co nvinced t hat Phillips’ potential liability as a successor corporation is so

foreclosed by precedent as to make it frivolous.

-6- complaint to support this cause of action, and whether Phillips could be subjected to liability under

§ 9613(f)(1), are certainly open to question, 2 “legal insufficiency of a federal claim generally does not

eliminat e the subject matter jurisdiction of a federal court

. . . .” G rowth Horiz ons, Inc. v. Del.

County, Pa.

, 983 F.2d 1277, 1280 (3d Cir. 1993). Having reviewed Honeywell’s complaint, we find

that its CERCLA contribution claim against Phillips, when filed, was not so insubstantial, meritless

or so foreclosed by precedent as to render it insubstantial for purposes of subject matter jurisdiction.

Honeywell next argues that even if its complaint against Phillips stated a federa l cause of

action when filed, it no longer stated a viable federal claim after Honeywell was adjudged not liable

to Lone Star. Honeywell notes that its complaint asked for “contribution from Phillips pursuant to

42 U.S.C. § 9613(f) if [Honeyw ell] is found liable to Lone Star for response costs

. . . .” (emphasis

added). Honeywell claims that at the time its action against Phillips was severed, Lone Star’s time

to appeal the district court’s judgment against it had already passed and there was, therefore, a final,3 The Supreme Court’s holding in Cooper Indus., Inc. v. Aviall Servs., Inc. , 125 S.Ct. 577

(2004) is not inconsistent with our analysis. In A viall

, the Court held that a party may file an action

under § 9613(f)(1) “only ‘during or following any civil action’ under CERCLA § 106 or § 107(a).”

Id

. at 580 (quoting 42 U.S.C. § 9613(f)(1)). Honeywell, then subject to a still-appealable judgment

in its favor on Lone Star’s CERCLA claim against it, met this requirement at the t ime the district

court severed its action against Phillips.

-7- unappealable judgment. Thus, Honeywell reasons, the CERCLA contribution claim dissolved by its

own terms when Honeywell prevailed in the Lone Star action.

We reject thi s argument . Even assuming that a final, unappealable judgment in favor of

Honeywell against Lone Star would have defeated subject matter jurisdiction, such a judgment did

not exist at the time the district court severed Honeywell’s action against Phillips. Honeywell’s

argument is premised on the assumption that the time for Lone Star to appeal began to run when the

court first granted judgment against Lone Star. This is incorrect. The court’s judgment against Lone

Star did not become appealable until the court severed the unresolved indemnity claims. S ee F ED R.

C IV

. P. 54(a), (b); All ied Elevator, Inc. v. E. Tex. State Bank of Buna , 965 F.2d 34, 36 (5th Cir.

1992) (noting that a judgment was not appealable because it failed to dispose of all claims, but

became appealable when the district court severed those clai ms o n which judgment was rendered

from the remaining claim). The time for Lone Star to appeal only began to run when the district court

severed Honeywell’s action against Phillips from Lone Star’s action against Honeywell. At the time

of severance, then, Lone Star’s judgment was still subject to appeal. Accordingly, at the time the

district court severed Honeywell’s action against Phillips, the federal question it presented was not

so insubstantial as to defeat subject mat t er jurisdiction. 3 Because the district court had federal

question jurisdiction when Honeywell’s seve red act ion commenced, it also had supplemental

jurisdiction over Honeywell’s contractual indemnity claims, even if Honeywell’s federal claim later-8-

ceased to present a viable theory of recovery. S ee Baker v. Farmers Elec. Coop., Inc.

, 34 F.3d 274,

283 (5t h Cir. 1984) (holding that jurisdiction under § 1367 “may continue even after the federal

claims upon which j urisdict io n is based have been dismissed or rendered moot”) (citing H efner v.

Alexander , 779 F.2d 277, 281 (5th Cir. 1985).

III

We review the district court’s order granting summary judgment de novo

. Baton Rouge Oil

& Chem. Workers v. ExxonMobil Corp.

, 289 F.3d 373, 376 (5th Cir. 2002). We affirm the judgment

only if there is no genuine issue of material fact and the movant is entitled to judgment as a matter

of law. F E D

. R. C IV

. P. 56(c). We review the district court’s interpretation of the contract between

Signal and Signal Oil de novo

. See T.L. James & Co. v. Traylor Bros.

, 294 F.3d 743, 746 (5th Cir.

2002).

Honeywell rel

ies on two documents to demonstrate that Phillips assumed all liability

associated with the Lone Star Site. The Master Agreement, by which Signal transferred its natural

resources business to Signal Oil, stated, in relevant part:

1. Subject to the terms of this Agreement, [Signal] does hereby grant,

convey, assign, transfer and set over onto Grantee, its successors and

assigns forever, all of Grantor’s natural resources business, including

without limitation insofar as they pertain to said natur al resources

business, all cash, contracts, choses in action, securities, receivables,

properties real, personal and mixed, tangible or intangible and all other

assets of what ever kind or nature and wherever situated owned by

[Signal] on the effective date of this Agreement.

. . . .

3. The assets transferred under this Agreement are subject to all

debts, obligations and liabilit ies o f Grantor of every kind and

description related to and/or arising out of or in connection with such

assets, and Grantee does hereby undertake, assume and agree to pay,

perform and discharge as they mature, accrue and/or become payable,-9- all such debts, obligations and liabilities.

The second document is the 1974 Supplemental Agreement. It stated, in relevant part, that “as of

January 1, 1970, [Signal Oil] . . . assumed all debts (long and short-term), obligations (contractual

and otherwise) and liabilit ies (known and unknown) related to said natural resources business and

assets.” It further provided that Signal Oil “hereby confirms to and agrees with Signal that it has fully

and unconditionally assumed and agreed to perform and pay

. . . all liabilit ies (known and unknown,

accrued, absolute, contingent, or otherwise) of any nature whatsoever, assigned to and assumed

. . .

by [Signal Oil] pursuant to the said Matter Agreement.”

After reviewing these documents, the distric t court concluded that “[u]nder their contract,

Signal conveyed to Signal Oil the assets of its oil business that it owned on January 1, 1970. Signal

Oil assumed the debts, obligations, and liabilit ies connected to those assets.” The Lone Star facility,

sold in 1968, was not among the assets transferred and thus, the district court reasoned, “no longer

part of Signal’s oil business.” The court likewise concluded that the Supplemental Agreement did

not require Phillips to indemnify Honeywell.

We agree that the Master and Supplemental Agreements do not obligate Phillips to indemnify

Honeywell for liabilit

y associated with the Lone Star Site. The Master Agreement states that Signal

grants its “n at ural reso urces business” to Signal Oil. Paragraph one identifies that business as

“including without limitation insofar as they pertain to said natural resources business, all cash,

contracts, choses in action, securities, receivables, properties real, personal and mixed, tangible or

intangible and all other assets of whatever kind or nature and wherever situated ow ned by [Signal]

on the effective date of this Agreement .” (emphasis added). Paragraph t hree, in turn, defines the

liabilit ies assumed by Signal Oil. It provides that “[t]he assets transferred under this Agreement are4 The parties agree that Delaware law governs interpretation of the Master and Supplemental

Agreements.

-10- subject to all [liabilit

ies] related to and/or arising o ut o f or in connection with such assets, and

Grantee does hereby u ndert ake, assume and agree to pay, perform and discharge as they mature,

accrue and/or become payable, all such

. . . liabilit ies.” Crucially, the Master Agreement defines

Signal Oil’s liabilit

ies in terms of the assets transferred under the agreement. It does not define Signal

Oil’s liability in terms of all liabilities relating to assets transferred or previously ow ned by Signal

.

Notwithstanding the language of the Master Agreement, Honeywell argues that it does not

limit Phillips’ liabilit

y to liabilit

y arising from the transferred assets. Fi rst, it argues that because

Signal Oil was a subsidiary of Signal at the time the parties entered into the Master Agreement, there

is no r easo n t o believe that Signal would have chosen to retain any liability. We need not inquire

whether Signal had reason to retain some liabilit y associated with its past actions. It is enough to say

that, in interpreting an unambiguous contract, we ascertain the parties’ intent from the words of the

agree ment and not from speculation about the parties’ subjective intentions. S ee Citadel Holding

Corp. v. Roven

, 603 A.2d 818 (Del. 1992 ) (st at ing that it is an elementary canon of contract

interpretation that the intent of the parties must be ascertained from the language of the contract). 4

Honeywell next argues that we s hould not read the Master Agreement’s use of the word

“asset s” in defining Signal Oil’s liability as limiting the scope of liability assumed. Essent ially,

Honeywell argues that when the parties wrote “related to or arising out of or in connection with [the

assets t ransferred under this Agreement],” they meant to write “related to or arising out of or in

connection with assets related to Signal’s natural resource business, whether owned now or in the

past.” More broadly, Honeywell argues that the district court misconstrued the Master Agreement-11-

by focusing on the references to assets rather than o n Signal’s intent to transfer the whole of its

natural resources business. There is no basis for Honeywell’s proffered construction. The parties

defined the scope of Signal Oil’s liabilit y by reference to t he assets received. As the district court

noted, Signal could have explicitly required Signal Oil to assume all liabilit ies associated with its

natural resource business whether related to assets presently possessed or long since departed. It did

not, and we will not rewrite the parties’ agreement under the guise of interpreting it. S ee Ed Fine

Oldsmobile, Inc. v. Diamond State Tel. Co.

, 494 A.2d 636, 638 (Del. 1985) (“any different course

would involve us in rewriting the plain language of an otherwise valid contractual provision. That is

not the function of a court.”).

The Suppl ement al Agreement does not alter our understanding of the scope of Phillips’

liabilit y. In that document, Signal Oil agreed that it had “received and accepted and held or now

holds all of Signal’s natural resource business referred to in the Master Agreement ,” again ident ifying

that business by

reference t o the assets transferred. (emphasis added). Paragraph two of the

agreement again confirms that Signal Oil has assumed the liabilit ies “assigned to and assumed (or to

be assumed) by [Signal Oil] pursuant to the said Master Agreement . . . .” The document goes on

to specifically identify certain obligations for which Signal Oil has assumed responsibility. We find

nothing in the Supplemental Agreement to suggest that the parties altered or enlarged the scope of

the liability Signal Oil assumed under the original Master Agreement.

We also find unpersuasive Honeywell’s reliance on Purolator Prods. Corp. v. Allied-Signal,

Inc.

, 772 F. Supp. 124 (W.D.N.Y. 1991). In P urolator

, a corporati on had transferred its “Motor

Components Division,” to a subsidiary. I d

. at 127. Among the issues presented was whether the

subsidiary was required to indemnify the parent company for liabilit y relating to a business which had-12-

ceased to operate prior to the transfer. The court held that the subsidiary was obligated to indemnify

the parent for liabilit

y associated with the discontinued operation. I d

. at 133. The transfer agreement

at issue in Purolator defined the subsidiary’s liabilit y as “relating to or arising out of the Assets

[transferred],” but it defined “Assets” to include “[a]ll of the assets, properties, businesses, good will,

rights, privileges and interests of whatever nature” associated with the parent’s Motor Components

Division. I

d

. at 132. Here, by contrast, the Master Agreement did not use “assets” as a defined term,

but rather provided a list of assets comprising the bus i ness to be transferred, concluding with “all

other assets of whatever kind or nature and wherever situated owned by [Signal] on the effective date

of this Agreement .” (emphasis added). There is simply nothing in the Master Agreement to suggest

that the parties intended Signal Oil t o assume liability other than that associated with the assets

transferred.

IV

For the forgoing reasons, we AFFIRM the judgment of the district court.