Court Opinion

ID: 66013
Source: CourtListenerOpinion
Date Created: 2010-04-26 06:05:38+00
Date Added: 2024-06-11T17:20:44.385065
License: Public Domain

IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                    Fifth Circuit

                                                 FILED
                                                                            April 29, 2009

                                       No. 08-30528                    Charles R. Fulbruge III
                                                                               Clerk

TEXACO EXPLORATION AND PRODUCTION INC; MARATHON OIL
COMPANY

                                                   Plaintiffs-Appellants
v.

AMCLYDE ENGINEERED PRODUCTS COMPANY INC; AMCLYDE
ENGINEERED PRODUCTS INC

                                                   Defendants-Appellees

                   Appeal from the United States District Court
                      for the Eastern District of Louisiana
                             USDC No. 2:99-CV-3623

Before GARWOOD, DENNIS, and PRADO, Circuit Judges.
PER CURIAM:*
       On December 3, 1998, a crane failed during the construction of the
Compliant Tower at the Petronius oil and gas production facility (“Petronius
Project”), causing the South Deck Module (“SDM”) to fall into the ocean.
Plaintiffs-Appellants Texaco Exploration and Production, Inc. and Marathon Oil
Company (collectively “Texaco”) initiated suit against several entities to recover

       *
         Pursuant to 5TH CIR . R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR .
R. 47.5.4.
                                 No. 08-30528

damages caused by the SDM’s loss; specifically, Texaco sued to recover
consequential damages from Defendants-Appellees AmClyde Engineered
Products Company, Inc. and AmClyde Engineered Products, Inc. (collectively
“AmClyde”). The district court found that AmCylde was a “subcontractor” for
purposes of the relevant contract. Because the contract limited subcontractor
liability, Texaco could not recover against AmClyde for any consequential
damages it sustained due to AmClyde’s alleged negligence on the Petronius
Project. Texaco appeals the district court’s ruling. We affirm.
             I. FACTUAL AND PROCEDURAL BACKGROUND
A. Factual Background
      Texaco hired contractor J. Ray McDermott, Inc. (“McDermott” or
“Contractor”) to construct the Compliant Tower for the Petronius Project. The
Compliant Tower is a platform that is fixed permanently to the Outer
Continental Shelf adjacent to the Alabama shore and is designed to flex with the
forces of wave, wind, and current. During the installation of the SDM to the
Tower, a main load line on a crane failed, causing the SDM to fall into the Gulf
of Mexico.    The failure resulted in a complete loss of the SDM and a
fifteen-month delay to the Project.
      Texaco and McDermott entered into a contract (the “Petronius Contract”
or “Contract”) relating to the construction of the Compliant Tower and the
installation of two modules on the Tower. See Texaco Exploration & Prod., Inc.
v. AmClyde Engineered Prods. Co. (Texaco II), 448 F.3d 760, 765–66 (5th Cir.
2006) (providing further detail on the factual basis of this suit). The Petronius
Contract contains a clause providing that a valid subcontractor on the Petronius
Project is not liable for any consequential damages. Specifically, Section 29 of
the Petronius Contract states,
      To the extent not covered by Builder’s Risk and Difference in
      Conditions insurance and notwithstanding any other provisions of

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                                  No. 08-30528

      this Agreement, Texaco and Contractor waive and release any claim
      against the other for consequential damages, however and whenever
      arising under this Agreement or as a result of or in connection with
      the Work and whether based on negligence, unseaworthiness,
      breach of warranty, breach of contract, strict liability or otherwise.
Section 4 of the Petronius Contract defines “Contractor” as follows:
      “Contractor” means Contractor, and its parents, subsidiaries, and
      affiliates, the agents, employees and subcontractors of any of them.
Finally, Section 14 of the Contract, in pertinent part, addresses “subcontractors”:
      If Contractor shall cause any part of the Work hereunder to be
      performed by a subcontractor, the provisions of this Agreement shall
      apply to such subcontractor and his or its employees in all respects
      as if he were employees of Contractor, and Contractor shall be liable
      for the Work of the subcontractor accordingly. No subcontract shall
      be made without the prior written approval of Texaco of both the
      subcontract and the subcontractor (such approval shall not be
      unreasonably withheld), but no such approval shall affect the
      provisions of this Agreement.
      In addition to the Petronius Contract, McDermott had a pre-existing
contract with AmClyde, which provided that AmClyde was the subcontractor on
all work that McDermott was obligated to perform for third parties.            It is
undisputed that AmClyde designed a deep water lowering system for use on the
underwater installation of the Compliant Tower’s support structure and
rendered a technical analysis of the peculiarities of the lift modules used on the
Petronius Project.
B. Procedural Background
      This is the third time that this court has addressed questions stemming
from the loss of the SDM. See Texaco II, 448 F.3d at 776–77 (recounting the
procedural history of the case up to its consideration of the issues in May 2006);
see also Texaco Exploration & Prod., Inc. v. AmClyde Engineered Prods. Co.
(Texaco I), 243 F.3d 906 (5th Cir. 2001). This court in Texaco II addressed, inter
alia, whether the district court correctly concluded that AmClyde was a

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“subcontractor” under the terms of the Builder’s Risk Policy (“the Policy”), an
insurance policy covering the Petronius Project. Id. at 766. We conducted a two-
part inquiry. We first held that AmClyde was a subcontractor as the term was
commonly understood under either Texas or Louisiana law. Id. at 778–79. We
found that a subcontractor was “‘one who takes a portion of a contract from the
principal contractor or another subcontractor,’” id. at 778 (citation omitted), and
that the work AmClyde performed “in designing the lowering system used to
install the support structure of the compliant tower and in calculating the hook
eccentricity, a requisite part of the lifts, was integral to and required for
compliant tower construction,” id. at 779. Accordingly, we held that the district
court correctly concluded that AmClyde was a “subcontractor” because it
performed work assigned to the Contractor under the Petronius Contract. Id.
We also considered whether the Policy altered the common understanding of the
term “subcontractor,” and held that it did not. Id.
      After remand, AmClyde sought summary judgment, asserting that the
prior panel’s holding in Texaco II—that AmClyde was a “subcontractor”—meant
that AmClyde was entitled to a waiver of consequential damages. The district
court determined that Texaco II did not cover the instant dispute because the
issue addressed therein related solely to the definition of “subcontractor” under
the Policy, not the Petronius Contract. That is, it found that we did not decide
whether AmClyde was a “subcontractor” under the Petronius Contract.
Nevertheless, the district court concluded that AmClyde was a “subcontractor”
under the terms of the Petronius Contract and was therefore entitled to a waiver
of consequential damages. First, the court concluded that under Alabama’s
general definition of “subcontractor,” AmClyde was a subcontractor on the
Petronius Project.1    Next, the district court determined that the Petronius

      1
        The district court found and the parties agree that Alabama law applies to all
substantive legal issues.

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                                  No. 08-30528

Contract may have introduced some ambiguity into the contract and its
definition of the term “subcontractor.” The district court found, however, that
Section 14’s declaration that “no such approval shall affect the provisions of this
agreement” evinced an intent by the parties to qualify any potential
inconsistency between Section 14’s written approval requirement and Section
29’s waiver provision. The court interpreted this clause to mean that the written
approval process required by Section 14 did not alter the parties’ understanding
of “subcontractor” as defined elsewhere in the contract.       The district court
accordingly granted summary judgment to AmClyde.
      Texaco obtained a final appealable order pursuant to Federal Rule of Civil
Procedure 54(b) and this appeal followed.
           II. JURISDICTION AND STANDARD OF REVIEW
      This court has jurisdiction over the district court’s final judgment
pursuant to 28 U.S.C. § 1291. The district court had subject matter jurisdiction
over the case under the Outer Continental Shelf Lands Act, 43 U.S.C.
§§ 1331–1356a. See Texaco II, 448 F.3d at 770.
      This court reviews a district court’s order granting summary judgment de
novo. Morris v. Equifax Info. Servs., L.L.C., 457 F.3d 460, 464 (5th Cir. 2006).
Summary judgment is appropriate when, after considering the pleadings, the
discovery and disclosure materials, and any affidavits, “there is no genuine issue
as to any material fact and . . . the movant is entitled to a judgment as a matter
of law.” F ED. R. C IV. P. 56(c); Bulko v. Morgan Stanley DW, Inc., 450 F.3d 622,
624 (5th Cir. 2006). A genuine issue of material fact exists when the evidence
is such that a reasonable jury could return a verdict for the non-movant.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). But, “when a motion
for summary judgment is made and supported, an opposing party may not rely
merely on allegations or denials in its own pleading; rather its response

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must . . . set out specific facts showing a genuine issue for trial.” F ED. R. C IV. P.
56(e).
                                III. DISCUSSION
         Texaco concedes that if AmClyde is a “subcontractor” under the terms of
the Petronius Contract, then Section 29 of the Contract bars any claims it may
have against AmClyde for consequential damages arising from AmClyde’s
alleged negligence.      Texaco asserts two reasons why AmClyde is not a
“subcontractor”: (1) AmClyde did not perform any work covered by the Petronius
Contract, and therefore was not a “subcontractor” as defined under Alabama
law; and (2) Section 14 of the Petronius Contract limited the common
understanding of the term “subcontractor” to those who obtained written
approval from Texaco.
A. Alabama Contract Law: “Subcontractor”
         Texaco argues that AmClyde is not a subcontractor under Alabama law
because the work that AmClyde performed was for McDermott’s general use and
was not covered by the Petronius Contract. “Stated simply, a subcontractor is
one who ‘perform[s] some portion of the contract of the general contractor.’”
H.R.H. Metals, Inc. v. Miller ex rel. Miller, 833 So. 2d 18, 23 (Ala. 2002) (citing
Pinecrest Apartments, Ltd. v. R.P. McDavid Co., 535 So. 2d 126, 128 (Ala. 1988)
(alteration in original)). Under Alabama law, the common understanding of the
term “subcontractor” is,
         One who takes [a] portion of a contract from [the] principal
         contractor or another subcontractor. One who has entered into a
         contract, express or implied, for the performance of an act with the
         person who has already contracted for its performance. One who
         takes from the principal or prime contractor a specific part of the
         work undertaken by the principal contractor.
H.R.H. Metals, 833 So. 2d at 23–24 (internal quotation marks and citations
omitted).

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                                   No. 08-30528

      The Petronius Contract detailed the scope of the work that McDermott
was expected to perform on the Petronius Project.           The Contract required
McDermott to
      [f]urnish and pay for all labor, office and fabrication facilities,
      equipment, materials and supplies and to perform and complete all
      work and services required or necessary, in accordance with this
      Agreement for the engineering, design, drafting, fabrication, and
      installation of piles, template base, and top section for a compliant
      tower, together with the installation of topsides and Ensco,
      (formerly Dual) 29 or comparable drilling rig at Viosca Knoll Block
      786 [also known as the Petronius Project], all as set forth more fully
      in Exhibit A—Scope of Work.
That is, the Contract required McDermott, inter alia, to provide all necessary
services to engineer, design, and install the Compliant Tower.           The record
reveals that AmClyde performed work integral to McDermott’s obligations under
the Contract. Specifically, AmClyde designed the deep water lowering system
for use on the underwater installation of the tower support structure for the
Petronius Project and provided specific technical advice on the main hook
loading for the lifts of the North Deck Module and the SDM.
      Because the work AmClyde performed designing the deep water lowering
system and its provision of technical advice was work that McDermott was
assigned to perform under the Petronius Contract, this evidence suggests that,
as a matter of Alabama law, AmClyde was a “subcontractor” on the Petronius
Project. Texaco was given the opportunity under Federal Rule of Civil Procedure
56(e) to “set out specific facts showing a genuine issue for trial.”         Texaco,
however, only provided evidence that McDermott intended to use the deep water
lowering system on other projects; it has provided no evidence to support its
allegation that AmClyde’s technical advice was for McDermott’s general use. Its
failure to do so is fatal to its argument. See F ED. R. C IV. P. 56(e) (requiring that
a party opposing summary judgment set forth evidence creating a genuine issue

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of material fact to survive summary judgment). Texaco has thus failed to create
a genuine issue of material fact that AmClyde was not a subcontractor under
Alabama law. See H.R.H. Metals, 833 So. 2d at 23.
B. Section 14
      Having concluded that AmClyde was a “subcontractor” under Alabama
law, we next consider whether the Petronius Contract alters the common
understanding of the term “subcontractor.” Texaco asserts that the Petronius
Contract contained an additional requirement to be a “subcontractor” under the
Contract; specifically, it argues that the Contract limited the term to those who
complied with the written approval process outlined in Section 14.           It is
undisputed that McDermott did not receive Texaco’s written approval of the
subcontract between AmClyde and McDermott.
      “Alabama adheres to the general rule of contract law, as stated by the
Alabama Supreme Court on many occasions, that when the parties reduce their
agreements to writing, the writing—in the absence of mistake or fraud or
ambiguity—is the sole expositor of the transaction and the intention of the
parties.” Hinds v. Plantation Pipe Line Co., 455 F.2d 902, 906 (5th Cir. 1972)
(emphasis, internal quotation marks, and citations omitted); see United Land
Corp. v. Drummond Co., 990 So. 2d 858, 866 (Ala. 2008) (“[I]t is axiomatic that
[c]ontract interpretation is guided by the intent of the parties, which, absent
ambiguity, is evidenced by the plain language of the contract.” (second alteration
in original, internal quotation marks and citations omitted)). If a court finds
that the contract is not ambiguous, then its meaning is a question for the court
and “no jury question is presented.” Jones v. Chaney & James Constr. Co., 399
F.2d 84, 88 (5th Cir. 1968). “The interpretation of an ambiguous provision in a
contract is a question of law for the court when, applying rules of contract
construction, the court may resolve the ambiguity by staying within the four
corners of the contract.” Exxon Mobil Corp. v. Ala. Dep’t of Conservation &

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                                  No. 08-30528

Natural Res., 986 So. 2d 1093, 1101 (Ala. 2007). “If the application of such rules
is not sufficient to resolve the ambiguity, factual issues arise” that must be
resolved by the jury. Extermitech, Inc. v. Glasscock, Inc., 951 So. 2d 689, 695
(Ala. 2006) (emphasis omitted). Further, “if there exists inconsistency between
two clauses of a contract which cannot be reconciled, the inconsistency must be
resolved in favor of the prior clause, unless an intention to thereafter qualify is
plainly expressed.” Id. at 694 (internal quotation marks and citations omitted).
      The plain language of the contract is the best measure of the parties’
intent. See United Land, 990 So. 2d at 866; see also Extermitech, 951 So. 2d at
694 (“Where there is no indication that the terms of the contract are used in a
special or technical sense, they will be given their ordinary, plain, and natural
meaning.”). Despite Texaco’s assertions, the Contract does not explicitly limit
“subcontractors” to “subcontractors who have complied with the written approval
provision in Section 14.” In the three key provisions quoted above (Sections 4,
14, and 29), the Contract does not contain any qualifying language limiting the
term “subcontractors.” Absent qualifying language, we must interpret the term
in light of its common understanding under Alabama law.
      In addition, Section 4 of the Petronius Contract defines the term
“Contractor” to include “subcontractors.”      Section 4 does not contain any
language qualifying the term “subcontractor,” thus indicating that we should
interpret the term consistent with its common understanding. Texaco, however,
suggests that Section 14, a latter clause, was meant to qualify the term
“subcontractor” as it appears in Section 4. Specifically, Texaco argues that the
phrase “[n]o subcontract shall be made without the prior written approval of
Texaco of both the subcontract and the subcontractor” qualifies the term
“subcontractor” from Section 4.      But Section 14 does not contain a plain
statement expressing the parties’ intent to qualify the former clause with the
latter one. This phrase says that a “subcontract” shall not be made, but it does

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                                  No. 08-30528

not limit the term “subcontractor” in any way.         Accordingly, Alabama law
dictates that Section 14 does not limit Section 4’s terms, as Section 14 does not
contain an express statement to that effect. See Extermitech, 951 So. 2d at 694.
      Texaco incorrectly assumes that AmClyde’s interpretation—that the
parties intended the term to reflect its common understanding under Alabama
law—renders Section 14 meaningless. There are numerous justifications for the
written approval process that have nothing to do with subcontractor liability.
For one, the approval process provides Texaco with notice of the subcontractors
for whose work McDermott, as the Contractor, was liable under the terms of the
Contract. The approval process also provides Texaco with the ability to verify
that McDermott was not entering into subcontracts with subcontractors known
by Texaco to perform poorly. Texaco would have the option to prevent poorly
performing subcontractors from engaging in work on its project by withholding
its approval.
      In addition, Texaco benefits from a broad understanding of the term. The
Contract   requires   “subcontractors”    to   waive   any   potential   claim   for
consequential damages arising from Texaco’s negligence. Texaco sure would not
argue that the parties intended that McDermott’s failure to obtain written
approval of a subcontract would alter Texaco’s ability to assert the Section 29
waiver provision in the event that Texaco was the tortfeasor. In addition, under
Section 14, McDermott is liable for the work of its subcontractor. If the term is
narrowly confined to those with written approval from Texaco, then McDermott’s
failure to obtain written approval from Texaco would mean that McDermott was
no longer “liable for the [w]ork of the subcontractor.” The parties could not have
intended such nonsensical outcomes.
      Finally, Texaco has a remedy for McDermott’s failure to comply with the
written approval process: it may pursue an action against McDermott for breach
of the contract.

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                                    No. 08-30528

      “[T]he court will presume that the parties intended what they stated and
will enforce the contract as written.” Extermitech, 951 So. 2d at 694. As written,
the Contract does not narrow the term “subcontractor” beyond its common
understanding    under     Alabama       law.     Accordingly,   AmClyde   was    a
“subcontractor” and is entitled to the waiver against consequential damages
contained in Section 29.
                                  IV. CONCLUSION
      Texaco has failed to create a genuine issue of material fact as to whether
AmClyde was a subcontractor under Alabama law. Because nothing in the
Petronius   Contract     alters    the   common     understanding   of   the   term
“subcontractor,” AmClyde is entitled to receive the benefit of the waiver
provision in the Contract. Accordingly, we AFFIRM the district court’s ruling.
      AFFIRMED.

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