Opinion ID: 6104644
Heading Depth: 3
Heading Rank: 1

Heading: BP-O’Brien’s Contract BELO claims

Text: Article 11 of the BP-O’Brien’s Contract holds each party to mutual indemnity obligations with regard to injuries to persons within their control. Section 11.02 states that this duty is “[s]ubject to the other provisions of this Article 11[.]” Section 11.04 then articulates notice, control-of-defense, and consent-to-settle requirements for indemnification: Contractor or Company as the case may be shall promptly give to the other party notice in writing of any claim made or proceedings commenced for which Contractor or Company claims to be entitled to indemnification under this contract. Such notice shall state with as much detail as is reasonably practicable the facts and circumstances giving rise to the claim and shall be given as soon as possible after the party seeking indemnity hereunder . . . becomes aware of such claim or proceeding. The [indemnitor] . . . shall confer with the indemnitee concerning the defense of any such claim or proceedings but, subject to the remainder of this Section 11.04, the indemnitor or 16 Case: 20-30364 Document: 00516171755 Page: 17 Date Filed: 01/19/2022 No. 20-30364 its insurer shall retain control of the conduct of such defense, including, but not limited to, the selection and management of counsel. Notwithstanding the foregoing, however, neither party shall effect settlement or compromise of any claim or proceeding without having obtained the prior written consent of the other party, which shall not be unreasonably withheld . . . . The indemnitee may, upon written notice to the indemnitor and at the indemnitee’s sole cost and expense, select its own counsel to participate in and be present for the defense of any such claim or proceeding, provided such counsel shall not take any action in the course of such claim or proceeding to prejudice the defense of such claim or proceeding. (emphasis added). The district court correctly concluded that BP materially breached the BP-O’Brien’s Contract regarding the BELO claims. 18 Those are the claims that BP agreed with the PSC to litigate, if plaintiffs followed certain procedures for claims that arose following the Medical Settlement. Invoking a prior material breach to justify non-performance is an affirmative defense on which O’Brien’s bears the burden of proof. See Tony Gullo Motors I, L.P. 18 Contrary to O’Brien’s’ position, the “subject to” preface to Section 11.02 is not best read as turning the subsequent notice, consent-to-settle, and control-of-defense provisions regarding indemnity into conditions precedent, whose non-fulfillment would void the indemnity obligation. In Cedyco Corp. v. PetroQuest Energy, LLC, this court observed that “Texas does not generally favor reading conditions precedent into contracts, . . . .” before finding such a condition although in a much different context. 497 F.3d 485, 488–89 (5th Cir. 2007) (citation omitted). The general rule holds that “language in a contract is not construed to create a condition precedent if another reading of that language is possible.” Marathon E.G. Holding, Ltd. v. CMS Enters. Co., 597 F.3d 311, 321-22 (5th Cir. 2010) (citations omitted); see also Foreca v. GRD Development Co., 758 S.W.2d 744, 745–46 (Tex. 1988) (concluding that “‘subject to legal documentation’ language is not conclusive on intent to contract[]” in rejecting the argument that such a phrase “constitutes an uncomplied with condition precedent[]” (citation omitted)). The remainder of the indemnity obligation is sufficiently open-ended to preclude a condition precedent. 17 Case: 20-30364 Document: 00516171755 Page: 18 Date Filed: 01/19/2022 No. 20-30364 v. Chapa, 212 S.W.3d 299, 314 (Tex. 2006). “A fundamental principle of contract law is that when one party to a contract commits a material breach of that contract, the other party is discharged or excused from any obligation to perform.” Hernandez v.Gulf Grp. Lloyds, 875 S.W.2d 691, 692 (Tex. 1994) (citations omitted). “By contrast, when a party commits a nonmaterial breach, the other party is not excused from future performance but may sue for the damages caused by the breach.” Bartush–Schnitzius Foods Co. v. Cimco Refrigeration, Inc., 518 S.W.3d 432, 436 (Tex. 2017) (per curiam) (internal quotation marks and citation omitted). Texas courts consider the following five factors when determining whether a breach is material: 1) the extent to which the injured party will be deprived of the benefit which he reasonably expected; 2) the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived; 3) the extent to which the party failing to perform or to offer to perform will suffer forfeiture; 4) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of the circumstances including any reasonable assurances; and 5) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing. Mustang Pipeline Co., Inc. v. Driver Pipeline Co., Inc., 134 S.W.3d 195, 199 (Tex. 2004) (quoting Restatement (Second) of Contracts § 241 18 Case: 20-30364 Document: 00516171755 Page: 19 Date Filed: 01/19/2022 No. 20-30364 (1981)); see In re Dall. Roadster, Ltd., 846 F.3d 112, 127–29 (5th Cir. 2017) (recognizing and applying the Restatement factors). 19 By entering the Medical Settlement without O’Brien’s consent, BP breached the control-of-defense and consent-to-settle provisions of the indemnity clause. The consent-to-settle provision states that “neither party shall effect settlement or compromise of any claim or proceeding” without obtaining written consent of the other party. BP failed to include O’Brien’s in the negotiation over BELO claims, and it preemptively agreed to deprive the defense of such later-accruing claims of certain defenses while also extending the limitations period to four years. 20 BP attempts to avoid any finding of breach by emphasizing that it was only obliged to notify O’Brien’s, according to their Contract, once there were actual “claim[s] made” or “proceedings commenced.” Conversely, it was not required to obtain O’Brien’s consent for the Medical Settlement because the BELO claims arose afterwards (and the settlement only resolved B3 claims for which BP does not seek indemnification). Though chronologically accurate, these arguments are unconvincing. The consent-to-settle provision states that “[n]otwithstanding the foregoing, however, neither party shall effect settlement or compromise of any claim or proceeding . . .” without obtaining written consent of the other party. The lexical range of the word compromise includes “a concession to something 19 The Mustang Pipeline court also noted the Restatement’s two additional “circumstances [having to do with delayed performance] that are significant in determining when a party’s duties are discharged under a contract due to the other party’s material breach[,]” but neither is relevant here. Mustang Pipeline Co., Inc., Inc.,134 S.W.3d at 199. 20 Other “compromising” aspects of the Medical Settlement included no cap on compensatory damages, disallowing defenses like claim splitting and laches, and not requiring proof of elements like exposure to contaminants. 19 Case: 20-30364 Document: 00516171755 Page: 20 Date Filed: 01/19/2022 No. 20-30364 derogatory or prejudicial.” Compromise, Merriam Webster Dictionary, https://merriam-webster.com/dictionary/compromise (last visited Nov. 17, 2021). Nothing in this provision excludes compromising future claims, as the Medical Settlement did in significant part. Further, “notwithstanding the foregoing” disclaims reference to prior language in the same provision that might support limiting O’Brien’s right to consent to settle only then-existing claims or proceedings. Finally, the term “any” is one of enlargement and not limitation. The Medical Settlement unambiguously compromised the defense of BELO claims in some respects; BP therefore breached the consent-to-settle provision with respect to the BELO claims. 21 Finally, the breach was material according to the Mustang Pipeline factors. 22 Again, the Medical Settlement undisputedly compromised the defense of BELO claims though it also benefited O’Brien’s (e.g., by including it as a released party). BP nonetheless argues that O’Brien’s is not prejudiced for all BELO claims. For example, a claim brought within the standard 21 We also conclude that BP breached the notice requirement. Although BP was required to give notice for “any claim made or proceedings commenced,” the fact that BELO claims were not in existence at the time of the settlement did not obviate BP’s obligations in this unique circumstance. As BP concedes, BELO claims are “creature[s] of the Medical Settlement.” Any awkwardness about how notice regarding “future” claims works as a practical matter (and as a matter of contractual interpretation) rests squarely on the ingenuity of the settlement terms. At bottom, BP’s argument attempts to evade the commonsense purpose of the notice and control-of-defense clauses: to enable the party footing the bill to know of, control, and resolve relevant claims before they are settled or otherwise compromised. BP should have notified O’Brien’s that it would seek indemnification for newly created BELO claims during the negotiation that settled the initial B3 claims and that spawned the BELO claims. 22 O’Brien’s was entirely deprived of its ability to control the settlement under the first Mustang Pipeline factor; it would be difficult for BP to compensate O’Brien’s under the second factor given the unknowability of the “but for” world; and BP cannot cure its failure under the fourth factor. 20 Case: 20-30364 Document: 00516171755 Page: 21 Date Filed: 01/19/2022 No. 20-30364 statute of limitations would not benefit from the settlement’s extended limitations period, and a claim that does not benefit from claim-splitting would not be prejudiced by the settlement’s waiver of that issue. True enough, but O’Brien’s is still prejudiced because it did not negotiate and structure the settlement itself, as was its right under the consent-to-settle provision. BP went it alone and created a new class of claims—all BELO claims—that were a “creature of” its global settlement. Requiring O’Brien’s to independently litigate whether the defense of a given BELO claim was prejudiced by the terms of the Medical Settlement would require inquiry into the “but for” world of whatever settlement O’Brien’s might have reached if given the chance. 23 BP’s strategy defeated the underlying purpose of the indemnity provisions: to ensure the indemnitor knew about a claim, led the defense, and agreed to all settlements or any compromise of the claims. Because BP’s breach was material, O’Brien’s is not required to indemnify the BELO claims.