Opinion ID: 3062216
Heading Depth: 1
Heading Rank: 3

Heading: facts

Text: A. Factual Background Phathong began working for Tesco as a “floor hand” on a particular drilling rig, the DTC2 rig, in October of 2005. At 3:30 a.m. on the morning of December 13, 2005, 3 Phathong was seriously injured while working on DTC2. For purposes of resolving this appeal, it is unnecessary to set out the facts surrounding Phathong’s injury. Instead, it is sufficient to note the jury found Tesco’s negligence in the operation of DTC2 was ninety-percent responsible for Phathong’s injuries and awarded him a substantial amount of damages. Tesco develops, manufactures, and services oil and gas rigs. As part of its normal business practices, Tesco would, at the time of the events at issue in this case, sign drilling contracts with owners of natural gas wells to provide drilling services, including the provision of drilling rigs and the personnel necessary to operate those rigs (the “casing drilling services business”). In April 2003, Tesco 3 As will quickly become apparent, the date and time of this accident plays a critical part in this appeal. -3- entered into a Master Service Agreement with EnCana Oil & Gas (USA), Inc. (“EnCana”). This Master Service Agreement governed all subsequent contracts between Tesco and EnCana. Thereafter, in June 2005, Tesco and EnCana entered into a drilling contract (the “EnCana Drilling Contract”) covering Tesco’s natural gas casing drilling services operations on behalf of EnCana in Garfield County, Colorado. The EnCana Drilling Contract obligated Tesco, as the driller, to furnish all equipment, labor, and services necessary to dig wells to the depth of no less than 9500 feet, and no more than 10,000 feet. In particular, it mandated that Tesco use DTC2, a drilling rig leased by Tesco from Drillers Technology Corporation, for all work covered by the contract. The EnCana Drilling Contract also made Tesco responsible for making sure work on the rig was performed safely and obligated Tesco to carry adequate workers’ compensation insurance. During the summer of 2005 (i.e., before Phathong was hired by Tesco and before the accident giving rise to Phathong’s injuries), Tesco entered into negotiations to sell the casing drilling services portion of its business to Turnkey E&P Corporation (“Turnkey”). At approximately 7:30 a.m. on the morning of December 13, 2005, Tesco and Turnkey closed on their Revised and Restated Acquisition Agreement (the “Acquisition Agreement”) and related Rig Personnel Supply Agreement (the “Rig Personnel Agreement”). Pursuant to the terms of the Acquisition Agreement, the deal became effective at 12:01 a.m. on the closing date (i.e., 12:01 a.m. on December 13, 2005, which is approximately three and -4- one-half hours before the accident giving rise to Phathong’s injuries). 4 Turnkey acquired only the casing drilling services division of Tesco and, after the sale, Tesco remained in business. Specifically, Turnkey acquired four Tesco-owned drilling rigs and the drilling contracts associated with those rigs. Turnkey also acquired all employees who worked in Tesco’s casing drilling services division, including Phathong and the other DTC2 crew members. 5 Importantly, however, Turnkey did not acquire the Master Service Agreement or EnCana Drilling Contract. Nor did Turnkey acquire Tesco’s lease of DTC2 or of the other two rigs Tesco leased from Drillers Technology Corporation. Thus, as of 12:01 a.m. on December 13, 2005, Tesco remained obligated to perform under its remaining 4 This provision of the Acquisition Agreement underpins Phathong’s arguments regarding the unavailability of immunity to Tesco under Colorado’s Workers’ Compensation Act. That is, if the agreement had become effective upon closing, rather than at 12:01 a.m. on the day of closing, there would be no doubt but that Tesco was Phathong’s actual employer at the time of the accident and, thus, entitled to immunity under the provisions of Colorado’s Workers’ Compensation Act. Because Tesco does not raise the argument on appeal, and because the record makes clear Tesco was Phathong’s statutory employer, this court need not address whether the arbitrary time frame for assigning corporate liabilities in the contract between Tesco and Turnkey served to strip Tesco of its status as an actual employer under Colorado law. See infra n.5. 5 The Acquisition Agreement provided that Tesco would be responsible for all “liability, costs[,] and expenses” for employment claims, including workers’ compensation claims, “any employment-related tort claim,” or “other claims or charges of or by” a former Tesco employee that accrued prior to the effective time of the agreement. Likewise, the agreement provided Turnkey would be responsible for the same accruing after the effective time. -5- contracts with, inter alia, EnCana and its drilling rig leases with Drillers Technology Corporation. To fulfil its contractual obligations to EnCana and others, Tesco entered into the Rig Personnel Agreement with Turnkey. The Rig Personnel Agreement first recited that Tesco (1) remained contractually obligated to perform under its agreements with EnCana and others, (2) continued to hold leases on drilling rigs owned by Drillers Technology Corporation, but (3) lacked the manpower to manage the rigs because of the sale of its casing drilling services business to Turnkey. In light of these facts, the parties agreed that “while [Tesco] provides services to its third party customers, [Turnkey] shall provide personnel services with respect to the” leased rigs. Tesco paid Turnkey every two weeks pursuant to the following formula: “[Turnkey] will be compensated for the Services at the rate of one hundred and fifteen percent (115%) of the total of the actual and reasonably documented costs to [Turnkey] of salary and employment benefits and related [workers’] compensation paid to (or on behalf of) those individual employees of [Turnkey] who provide Services to [Tesco] under this Agreement . . . .” 6 The Rig Personnel Agreement imposed upon Tesco the 6 This billing arrangement stands in stark contrast to the billing arrangement Turnkey and Tesco reached as to drilling contracts assigned to Turnkey under the Acquisition Agreement. As to the assigned contracts, the Acquisition Agreement obligated Tesco to use its best efforts to secure consent from all its customers to the assignments. Until such consent was secured, Tesco was obligated to (continued...) -6- responsibility for designating to Turnkey the drilling locations for the rigs, the drilling schedule, and providing a safe workplace environment for the performance of the services under the agreement. Turnkey was responsible for ensuring its personnel acted in a “commercially reasonable, industry standard manner and endeavor in good faith to perform its responsibilities . . . with operational expertise” in accordance with Tesco’s direction, unless Turnkey “reasonably believes that such directions will cause the well to be drilled in an imprudent or unsafe manner, in which case [Turnkey] shall have the right to refuse to conduct the requested operation.” Finally, the Rig Personnel Agreement defined the relationship of the parties as “independent contractor[s],” with neither party “deemed for any purpose to be, the agent, servant[,] or representative” of the other party. B. Procedural Background The Phathongs filed suit against Tesco in the United States District Court for the District of Colorado claiming, inter alia, that Tesco’s negligence in operating the DTC2 drilling rig led to their injuries. Tesco eventually filed a motion for summary judgment, asserting the Phathongs’ common-law damages claims were barred by, inter alia, the immunity afforded to statutory employers by 6 (...continued) continue invoicing customers for all services performed by Turnkey and to remit any payments it received to Turnkey. Ultimately, however, Tesco was not liable to Turnkey for any amounts a customer refused to pay on an invoice. -7- the Colorado Workers’ Compensation Act. See Colo. Rev. Stat. § 8-41-401. The district court denied Tesco’s motion and the case proceeded to trial. Prior to submission of the case to the jury, the district court sua sponte granted judgment as a matter or law to Phathong on the question of Tesco’s entitlement to immunity as a statutory employer. In so doing, it concluded “the only reasonable interpretation of the evidence in this case is that [Tesco] is not a statutory employer” under § 8-41-401. In that regard, the district court reasoned as follows: The relationship [between Tesco] and Turnkey pursuant to that sale was not one of a general contractor and subcontractor . . . as envisioned by the Colorado Supreme Court in [Finlay v. Storage Technology Corp., 764 P.2d 62 (Colo. 1988)]. This was a sale of drilling operations, such that EnCana remained a general contractor, and Turnkey took over the subcontractor duties of running the drilling operations. In these circumstances, [Tesco] is not the “statutory employer” entitled to immunity under the Colorado Workers’ Compensation Act.