Court Opinion

ID: 9491200
Source: CourtListenerOpinion
Date Created: 2023-08-05 14:06:43.956605+00
Date Added: 2024-06-11T17:54:34.683102
License: Public Domain

EDITH H. JONES, Circuit Judge,
dissenting:
With due respect to the panel majority, I must dissent from the improbable result in this ease. The majority hold, overruling the district court, that TS/Home, which acquired oü and gas assets of HPC in a transnational corporate reorganization in 1988, also acquired environmental cleanup obligations pertaining to a lease that HPC had sold to another party in 1982. In other words, the corporate reorganization transaction somehow revived a liability that had been shed by HPC for all practical purposes six years earlier. The majority accomplishes this Phoenix-like resurrection of liability by misconstruing Louisiana’s law concerning a stipulation pour autrui or in the common law, a third party beneficiary contract.1 The majority cites the applicable law but evidently does not understand what it means and misconstrues the application of that law in a recent carefully considered decision of our own court. See Chevron v. Traillour Oil Co., 987 F.2d 1138 (5th Cir.1993).
Putting the facts in perspective, it appears that the majority has worked backward from a desired “equitable” result to the legal principle that achieves their goal. Davis, the plaintiff here, acquired State Lease 7027 from Louisiana in 1975 and assigned its interest in the lease to HPC in 1981.2 Eighteen months later, HPC conveyed State Lease. 7027 to another company. Several intervening conveyances occurred until in 1985, production from the lease ceased. The last operator apparently failed to plug and abandon the wells as required by the terms of the lease.
In 1988, pursuant to a much larger transaction between Canadian liquor companies, HPC transferred its oil and gas assets to TS, Inc., which became TS/Home, the target defendant here. HPC later dissolved.
The state caught up with the status of Lease 7027 in 1991 and began looking for parties to hold liable for the clean-up costs. The state fastened its gaze on Davis Oil, which naturally began to seek others in the chain of title who could contribute to the clean-up costs. HPC no longer existed, and several other transferees were apparently defunct, so Davis went after TS/Home. Davis alleged (1) that HPC, Inc. originally had a contractual obligation to indemnify Davis Oil for plugging and abandoning operations on State Lease 7027 and (2) that TS/ Home assumed HPC’s obligation to Davis Oil in the assignment transaction that occurred in 1988. Lacking any direct contractual relationship with TS or any of the subsequent owners of Lease 7027, Davis has to prove itself an obligee of the HPC-TS/Home trans*318action.3
Davis has persuaded the majority that when TS/Home acquired hundreds of oil and gas properties in the United States and Canada from HPC in the 1988 reorganization, it also voluntarily assumed the obligation to clean up Lease 7027 in Louisiana on a property that HPC had sold and divested itself of six years earlier. That any rational business would voluntarily assume such remote liabilities defies common sense. Not surprisingly, the imposition of liability under these circumstances also defies Louisiana’s law. Louisiana does not readily permit a third-party stranger to a contract to enforce its provisions against one of the contracting parties. As this court has put it in an en banc opinion, a third-party beneficiary provision in Louisiana requires the following: that “the benefit derived form the contract by the third party may not be merely incidental to the contract;” that “the third-party benefit must form ‘the condition or consideration’ of the contract in order to be a stipulation pour autrui; ” and that the provision will be found “only when the contract dearly contemplates the benefit to the third person as its ‘condition or consideration.’ ” New Orleans Pub. Serv., Inc. v. United Gas Pipe Line Co., 732 F.2d 452, 467-68 (5th Cir.1984) (en. banc). Louisiana law requires either that there be an express declaration of intent to benefit the third party “or an extremely strong implication.”. Id. at 468.
Nothing in the contractual provisions laboriously construed by the majority “clearly contemplates” any benefit to third parties as remote to the corporate reorganization of HPC and TS/Home as the clean-up costs for wells that had stopped producing three years after HPC sold them and three years before the corporate reorganization occurred. This particular obligation could not have been a known potential claim in the context of the 1988 transaction, because although the wells had stopped producing in 1985, the state’s claim for environmental cleanup costs was first asserted in 1991, three years after the transaction here at issue. Indeed, because HPC had sold its interest in 1982, how could it possibly have known that, after several intervening transfers, the wells would cease production without proper plugging .and abandoning three years later?
In a strikingly similar case, this court exhaustively considered Louisiana’s law of stipulation pour autrui and ruled against the party in Davis’s position. See Chevron v. Traillour Oil Co., 987 F.2d 1138 (5th Cir.1993). Chevron makes it clear that in Louisiana, a stipulation pour autrui “is never-presumed. Rather, the intent of the contracting parties to stipulate a benefit in favor of a third party must be made manifestly clear.” Id. at 1147 (internal citation omitted). In Chevron, the court held that when Traillour, which purchased Chevron’s interest in an oil field, re-assigned that interest to Rocky Mountain, conditioning Rocky Mountain’s performance on providing a . letter of credit (which Chevron required) to secure the plugging and abandoning of the wells, that was not a third-párty beneficiary provision in favor of Chevron. Rocky Mountain executed a contract to benefit only Traillour, the court held, and this benefit could not flow back to Chevron directly. The Chevron opinion also holds that remote investors in the field, who purchased from Traillour and assumed “all obligations” resulting from their ownership of the conveyed interests, did not execute a stipulation pour autrui on behalf of Chevron. Their contract with Traillour did not dearly contemplate a benefit to Chevron as its condition or consideration. See id. at 1159-60.4
This analysis appears to me dispositive of the present situation, where any “intent to benefit” Davis was much more vague and unspecific than the language Chevron dealt with. There was far more equity in Chevron’s position than there is in this case, be*319cause Chevron clearly contemplated and sought to avoid the possibility that Traillour might not be able to bear the costs of plugging and abandoning the wells. Here, by contrast, neither -TS/Home nor HPC had any conception at the time of the 1988 , reorganization either that Lease 7027, which HPC no longer owned, had ceased production without proper environmental controls or that Davis Oil lurked in the shadows, waiting to pounce on TS/Home after having been itself mugged by the Lease 7027 plug and abandonment costs. It is illogical for this later panel to hold that there was a clear intent to benefit Davis Oil in this case after our court has concluded that no intent to benefit Chevron existed in the prior case.
The majority fails to adequately distinguish Chevron, yet as a prior precedent of this Court construing Louisiana law, it is dispositive. See, e.g., Batts v. Tow-Motor Forklift Co., 978 F.2d 1386, 1393 (5th Cir.1992). The majority also fails to deal with the wealth of Louisiana caselaw, summarized in the accompanying footnote, that narrowly construes the doctrine of stipulation pour autrui.5
The majority’s rough-and-ready decision to diffuse liability for clean-up costs may well have consequences far beyond the incorrect result reached here. As the preceding discussion of Chevron and Louisiana law demonstrate, contract law generally does not lightly presuppose that strangers to a contract may enforce the contract in court. The potential for confusion and inconsistency ought to be obvious. Suppose, for instance that a local tax assessor decided, years after HPC had sold its interest in Lease 7027, that HPC had underpaid local school taxes. Suppose, as another example, that a roustabout who once worked for HPC on Lease 7027 sues a third-party who seeks contribution from HPC on the theory that plaintiffs real injury occurred during his employment by HPC. Under the majority’s rule, either of these parties could now sue TS/Home directly, even though no claim had been made before HPC sold its interest in Lease 7027 or even before the 1988 reorganization.6 Suppose, as anoth*320er complication, that HPC was still in business, having sold only its “oil and gas” assets to TS/Home but retained other properties. Could the plaintiffs still sue TS/Home? Because the potential liabilities are obviously endless, and because reasonable expectations of contracting parties are thwarted when a stranger can sue to “enforce” their deal, no case in Louisiana construes a general assumption of liabilities clause in a contract as a stipulation pour autrui'7 I hope this is the last case ever to do so.

. See Louisiana Civil Code Art. 1821 (“An obligor and a third person may agree to an assumption by the latter of an obligation of the former. To be enforceable by the obligee against the third person, the agreement must be in writing.”).

. HPC and Home Petroleum are related entities, but the intracorporate dealings are unnecessary to relate here.

. Davis makes no argument against TS/Home founded on § 128 of the Louisiana Mineral Code. La.Rev.Stat. Ann. § 31:128 (West 1998); See also Chevron, 987 F.2d at 1158 (construing § 128). I will not speculate on any such claim.

. Neither this case nor Chevron deals expressly with the liabilities of owners in the lease's chain of title to the original lessor for cleanup costs. Any such obligation would be a real obligation, whereas the intermediate owners' liability on indemnity provisions is a personal obligation under Louisiana law. See Chevron, 987 F.2d at 1149.

. The following is a sample of cases in which either the Louisiana courts or this court sitting in diversity has examined Louisiana .third party beneficiary law:
Liquid Drill, Inc. v. U.S. Turnkey, 48 F.3d 927 (5th Cir.1995) (holding that a' stipulation pour autrui did not exist even though a drilling contract provided that the contracting party was to be "solely responsible and assumes all liability for all consequences of operations by both parties while on a day work basis, including results and all other risks or liabilities incurred in or incident to such operations”); Dartez v. Dixon, 502 So.2d 1063 (La.1987) (finding stipulation pour autrui where benefit to third party "was not merely incidental to the agreement but was a calculated and essential part of the negotiations” between the parties); Broussard v. Northcott Exploration Co., 481 So.2d 125 (La.1986) (holding that mineral lease did not create a 1 stipulation pour autrui despite the fact that the lessee assumed responsibility for "all surface damages”); Hargroder v. Columbia Gulf Transmission Co., 290 So.2d 874 (La.1974) (finding stipulation pour autrui only after concluding that the servitude agreement "containfed] no restriction as to beneficiaries”); Andrepont v. Acadia Drilling Co., 255 La. 347, 231 So.2d 347 (1969) (finding stipulation pour autrui where the contracting parties modified their lease to expand liability beyond damages to the lessor); Oswalt v. Irby Const. Co., 424 So.2d 348, 354 (La.App.1982) (holding that agreement of grantee in right-of-way deed, where grantor reserved right to grow crops in right-of-way, to pay grantor for any future damage to crops on submittal, of bill- by grantor, was not stipulation pour autrui in favor of grantor's lessee); Logan v. Hollier, 424 So.2d 1279 (La.Ct.App.1982) (holding that a stipulation pour autrui did not exist despite insurance policy language which provided that when “the amount of ultimate loss becomes certain, the company will, upon request of the insured, make such payment to claimant on behalf of the insured"); Crowley v. Hermitage Health & Life Ins. Co., 391 So.2d 53 (La.App.1980) (holding that health and accident insurance policy in which employer is insured, providing for benefits in the event of employee work-related injury to be paid to employer or persons furnishing services to employee, is not stipulation pour autrui in favor of employee injured on job); HMC Mgmt. Corp. v. New Orleans Basketball Club, 375 So.2d.700 (La.Ct.App.1979) (holding that lease agreement did not clearly contemplate any intention to benefit third party "as it was simply an agreement between two entities for their mutual benefit”); Hertz Equip. Rental Corp. v. Homer Knost Constr. Co., 273 So.2d 685 (La.Ct.App.1973) (holding that insurance contract did not create a stipulation pour autrui because it did not "purport to name the third party as an insured”).

. The maxim never say never is useful in law as in life. Thus, I would not contend that no assumption of liabilities provision in a complex corporate reorganization or acquisition will ever result in a stipulation pour autrui, a provision in favor of a third party. Boilerplate language like that included here, however, is likely to characterize such provisions and falls far short of showing that the benefit to a specific third party was contemplated as part of the transaction's condition or consideration. See New Orleans Pub. Serv., 732 F.2d at 467-68, supra.

. It goes without saying that such plaintiffs could sue HPC. And if HPC had become defunct without properly accounting for potential known claims, state law affords remedies, e.g., by means of fraudulent conveyance law. This case has no *320such allegations, and the only question is whether plaintiffs unknown to the contracting parties will now have two potential defendants.