Court Opinion

ID: 162850
Source: CourtListenerOpinion
Date Created: 2010-08-14 07:41:35+00
Date Added: 2024-06-11T09:33:51.631507
License: Public Domain

F I L E D
                                                                       United States Court of Appeals
                                                                               Tenth Circuit
                      UNITED STATES COURT OF APPEALS
                                                                               DEC 17 2002
                                    TENTH CIRCUIT
                                                                          PATRICK FISHER
                                                                                      Clerk

 R & G ELECTRIC, INC., a Wyoming
 corporation,

               Plaintiff - Appellant,
                                                              No. 01-8089
          v.                                          (D. Ct. No. 00-CV-1043-D)
                                                               (D. Wyo.)
 DEVON ENERGY CORPORATION, an
 Oklahoma corporation,

               Defendant - Appellee.

                              ORDER AND JUDGMENT*

Before TACHA, Chief Judge, ANDERSON, and EBEL, Circuit Judges.

      This case concerns an indemnity provision in a services contract entered into by

Plaintiff-Appellant R&G Electric, Inc. (“R&G”) and Defendant-Appellee Devon Energy

Corporation (“Devon”). R&G filed this declaratory judgment action in the United States

District Court for the District of Wyoming, seeking a construction of the indemnity

provision. In granting Devon’s motion for summary judgment, the district court

concluded that Oklahoma law governed the enforceability of the indemnity provision.

      *
        This order and judgment is not binding precedent, except under the doctrines of
law of the case, res judicata, and collateral estoppel. This court generally disfavors the
citation of orders and judgments; nevertheless, an order and judgment may be cited under
the terms and conditions of 10th Cir. R. 36.3.
R&G appeals from the district court’s conclusion regarding the applicable law. We

exercise jurisdiction pursuant to 28 U.S.C. § 1291 and AFFIRM.

                                     I. BACKGROUND

       A. The Parties and the Master Service Agreement

       Devon is an Oklahoma corporation in the business of producing oil and gas.

Devon operates more than 200 methane gas wells in the “Spotted Horse” field near

Gillette, Wyoming. R&G, a Wyoming corporation, provides electrical service and

maintenance to oil and gas producers in Campbell County, Wyoming.

       On April 14, 2002, R&G and Devon entered into a Master Service Agreement.

Under the terms of the agreement, Devon hired R&G as an independent contractor to

perform electrical installation work, maintenance, and troubleshooting services in the

Spotted Horse field.

       Two provisions of the Master Service Agreement are relevant in this case.

Paragraph 7.2 of the Master Service Agreement provided as follows:

       Contractor agrees to protect, defend, indemnify, and hold harmless operator, its
       officers, directors, employees or their invitees, and any customer for whom
       operator is performing services, from and against all claims, demands, and causes
       of action of every kind and character, without limit and without regard to the cause
       or causes thereof or the negligence or fault (active or passive) of any party or
       parties including the sole, joint or concurrent negligence of operator, any theory of
       strict liability and defect of premises, or the unseaworthiness of any vessel
       (whether or not preexisting the date of this contract), arising in connection
       herewith in favor of contractor’s employees, contractor’s subcontractors or their
       employees, or contractor’s invitees on account of bodily injury, death, or damage
       to property.

                                            -2-
Master Service Agreement, ¶ 7.2. The Master Service Agreement also contained a choice

of law provision wherein the parties agreed that “[t]his Contract shall be governed,

construed and interpreted in accordance with the laws of Oklahoma.” Id. at ¶ 10.3.

       B. The Accident

       The Master Service Agreement required that R&G lay electrical lines running from

Devon’s coalbed methane gas wells to Central Distribution Points (“CDPs”). Each CDP

receives methane gas from several wells through four-inch gathering lines. The CDPs

serve two functions: (1) they serve as an initial collection point and meter the gas flow

from the various wells for purposes of calculating royalties; and (2) they separate excess

water from the gas before Devon transfers “custody” of the gas, forwarding it to the

Thunder Creek Pipeline. The CDP at issue in this case, Wolff CDP 12-6, serviced

between ten and twelve separate gas wells at any given time. The nearest well was

approximately 600 feet from the CDP; the farthest was approximately one mile away.

       On June 5, 2000, Devon contacted Rick Neether, an R&G electrician, and

requested that he repair a malfunctioning pump in the Wolff CDP 12-6. At the time,

Devon knew that the Wolff CDP 12-6 was operating without methane gas detectors.

While Neether and his apprentice, Courtney Hall, were working on the pump, an

explosion occurred inside the CDP, seriously injuring both men.

       Hall filed a complaint against Devon, asserting that his injuries were caused by

Devon’s negligence. Devon in turn demanded that R&G defend, indemnify, and hold

                                            -3-
Devon harmless, pursuant to the terms of the Master Service Agreement. R&G then filed

this declaratory judgment action, seeking, inter alia, a declaration that the Master Service

Agreement’s indemnity clause contained in Paragraph 7.2 violated section 30-1-131 of

the Wyoming Statutes Annotated, an anti-indemnity statute.

       The parties stipulated that there was no dispute as to material facts and submitted

cross motions for summary judgment. The district court concluded that the services R&G

performed under the Master Service Agreement were outside the scope of the Wyoming

anti-indemnity statute and that application of Oklahoma law did not, therefore, offend

Wyoming choice of law rules. Accordingly, it held that Oklahoma law applied to the

parties’ dispute pursuant to the choice of law provision contained in Paragraph 10.3 of the

Master Service Agreement. This appeal followed.

                                       II. DISCUSSION

       A.     Standards of Review

       We review the district court’s grant of summary judgment de novo, applying the

same standard as the district court. Simms v. Oklahoma ex rel. Dep’t of Mental Health &

Substance Abuse Servs., 165 F.3d 1321, 1326 (10th Cir. 1999). Summary judgment is

appropriate if “there is no genuine issue as to any material fact and . . . the moving party

is entitled to judgment as a matter of law.” FED. R. CIV. P. 56(c); Simms, 165 F.3d at

1326. In applying this standard, we view the record in the light most favorable to the

nonmoving party. Simms, 165 F.3d at 1326. We review de novo the district court’s

                                            -4-
construction of unambiguous contract language, Nunn v. Chem. Waste Mgmt., Inc., 856

F.2d 1464, 1467 (10th Cir. 1988), and the district court’s choice of law determination,

Gschwind v. Cessna Aircraft Co., 161 F.3d 602, 608 (10th Cir. 1998).

       B.     Choice of Law

       In diversity cases, we must apply the substantive law of the forum state, including

its choice of law rules. New York Life Ins. Co. v. K N Energy, Inc., 80 F.3d 405, 409

(10th Cir. 1996). Wyoming, the forum state in this case, follows the Second Restatement

approach in resolving choice of law questions. Res. Tech. Corp. v. Fisher Scientific Co.,

924 P.2d 972, 975 (Wyo. 1996). Under Wyoming choice of law rules, the law of the state

chosen by the parties to govern their contract presumptively applies. Id.; RESTATEMENT

(SECOND) OF CONFLICT OF LAWS § 187. If, however, the parties select foreign law

contrary to the law, public policy, or the general interests of Wyoming’s citizens,

Wyoming courts will not enforce the parties’ choice of law provision. Smithco Eng’g,

Inc. v. Int’l Fabricators, Inc., 775 P.2d 1011, 1018 (Wyo. 1989).

       In this case, the Master Service Agreement provided that “[t]his Contract shall be

governed, construed and interpreted in accordance with the laws of Oklahoma.” Master

Service Agreement, ¶ 10.3. Oklahoma does not have an anti-indemnity clause statute that

applies to contracts relating to gas-well activities. Wyoming does. Thus, R&G argues

                                            -5-
that application of Oklahoma law1 would be contrary to Wyoming law and public policy

(and thus contrary to Wyoming choice of law rules) as expressed in Wyoming’s anti-

indemnity statute, Wyo. Stat. Ann. § 30-1-131, because the indemnification sought by

Devon falls within section 30-1-131’s indemnity-clause prohibition.

       Thus, in order to consider R&G’s contention, we must first consider whether the

indemnification sought by Devon falls within the Wyoming anti-indemnity statute.

Accordingly, we proceed to determine whether the Master Service Agreement’s

indemnity provision and the indemnification sought by Devon offend Wyoming law or

public policy.

       C.        Applicability of Wyoming Statutes §§ 30-1-131 and 132

       Wyoming proscribes some indemnity clauses where (1) the contract “pertain[s] to

any well for oil, gas, or water,” and (2) the indemnity clause “purports to relieve the

indemnitee from loss or liability for his own negligence.” WYO. STAT. ANN. § 30-1-131.2

       1
        R&G’s argument presumes that the Master Service Agreement’s indemnity
provision would be enforceable under Oklahoma law. Oklahoma law enforces indemnity
provisions like the one in this case, provided that the exculpatory language is
unambiguous, results from arms-length bargaining between parties, and does not violate
public policy. Kinkead v. Western Atlas Int’l, Inc., 894 P.2d 1123, 1127 (Okla. Ct. App.
1993). Thus, we assume without deciding that the Master Service Agreement’s indemnity
provision would in fact be enforceable under Oklahoma law.
       2
           In relevant part, section 30-1-31 provides:

       (a) All agreements, covenants or promises contained in, collateral to or
       affecting any agreement pertaining to any well for oil, gas or water, or mine
       for any mineral, which purport to indemnify the indemnitee against loss or
       liability for damages for:

                                              -6-
Wyoming does not, however, prohibit all such indemnity clauses. Rather, the Wyoming

legislature limited section 30-1-131’s applicability to agreements involving certain

activities:

       The term “agreement pertaining to any well for oil, gas, or water, or mine for any
       mineral” as used in [section 30-1-131], means any agreement or understanding,
       written or oral, concerning any operations related to drilling, deepening,
       reworking, repairing, improving, testing, treating, perforating, acidizing, logging,
       conditioning, altering, plugging, or otherwise rendering services in or in
       connection with any well drilled for the purpose of producing or disposing of oil,
       gas or other minerals, or water . . . .

WYO. STAT. ANN. § 30-1-132 (emphasis added). Wyoming courts have construed section

30-1-132’s catchall phrase, “or otherwise rendering services in or in connection with any

well,” to apply only where the contract at issue pertains to activities “closely related to

well drilling.” Reliance Ins. Co. v. Chevron U.S.A., Inc., 713 P.2d 766, 770 (Wyo. 1986)

(emphasis added). In addition, since sections 30-1-131 and 30-1-132 restrict the freedom

       (i) Death or bodily injury to persons . . .
       (iii) Any other loss, damage, or expense arising under either (i) or (ii) from:
               (A) The sole or concurrent negligence of the indemnitee or the
               agents or employees of the indemnitee or any independent contractor
               who is directly responsible to such indemnitee; or
               (B) From any accident which occurs in operations carried on at the
               direction or under the supervision of the indemnitee or an employee
               or representative of the indemnitee or in accordance with methods
               and means specified by the indemnitee or employees or
               representatives of the indemnitee, are against public policy and are
               void and unenforceable to the extent that such contract of indemnity
               by its terms purports to relieve the indemnitee from loss or liability
               for his own negligence. . . .

WYO. STAT. ANN. § 30-1-131 (emphasis added).

                                             -7-
to contract, we must strictly construe both statutes. See id. at 770 (citation omitted).

       In this case, the Master Service Agreement pertains to a “well for oil, gas or water”

and it purports to indemnify Devon against damages resulting from Devon’s own

negligence. Thus, it is invalid under Wyoming law if the operations performed by

Neether and Hall on June 5, 2000, fall within the scope of activities described in section

30-1-132. If they do, the Master Service Agreement’s indemnity provision is void under

Wyoming law despite the parties’ choice of law provision. If they do not, the parties’

express choice of law provision is valid, and Oklahoma law will determine the

enforceability of the indemnity provision.

       Recently, in Gainsco Ins. Co. v. Amoco Prod. Co., 53 P.3d 1051 (Wyo. 2002), the

Wyoming Supreme Court again considered the boundaries of section 30-1-132. As it had

in the past, the court relied on ejusdem generis, the principle of statutory construction

“whereby a general term following a list of specifically enumerated terms should be

construed as limited to the same genus as the things enumerated.” Id. at 1078 (citing

Reliance, 713 P.2d at 770). Applying this principle to the catchall phrase “or otherwise

rendering services in or in connection with any well,” the court restricted the scope of

section 30-1-132 to “services similar to ‘drilling, deepening, reworking, repairing,

improving, testing, treating, perforating, acidizing, logging, conditioning, altering, [or]

plugging [wells].’” Id. (internal quotation omitted). Thus, to come within the ambit of

section 30-1-132, the activity must be “‘closely related to oil well drilling.’” Id. at 1077

                                             -8-
(emphasis added) (quoting Reliance, 713 P.2d at 770). “‘Services or activities having

remote or indirect connection to the kinds of services enumerated’ in [section 30-1-132]

are not covered.” Id. at 1075 (quoting Reliance, 713 P.2d at 770).

       In Gainsco, the court reviewed its prior decisions defining the scope of section 30-

1-132. The court set up as opposite points on a continuum the facts in two cases: Cities

Serv. Co. v. N. Prod. Co., 705 P.2d 321 (Wyo. 1985), and Reliance. In articulating the

proper test, the court stated:

       The question, then, is whether the work being performed under the Contract
       [at the time of the incident in question] [is] more akin to the service of
       pumping units, as in Cities Service Co., and therefore covered by the
       statute, or to the digging of fluid waste pits after a fire at a separation plant,
       as in Reliance Ins. Co., and therefore not covered by the statute.

Gainsco, 53 P.3d at 1077. Applying this test, the court held that “delivering oil by truck

to a tank battery is not an activity closely related to well drilling.” Id.

       Thus, under Gainsco, we must consider the services at issue in this case as they

relate to the cases to which the Wyoming Supreme Court has directed us. In conducting

our inquiry, we are mindful of the Wyoming Supreme Court’s repeated admonition that

section 30-1-132 must be construed narrowly because it restricts the common law right of

freedom of contract. See id. at 1078; Reliance, 713 P.2d at 770.

       In this case, the R&G employees were servicing a pump in Wolff CDP 12-6. The

CDPs function to consolidate gas flow from numerous wells, meter the incoming gas for

royalty calculation, and separate water from the gas before it enters the main pipeline.

                                              -9-
While the CDP units contribute to well pressurization, which is essential to proper

operation of the well, the closest gas well to Wolff CDP 12-6 was 600 feet away. Based

on these considerations, the district court concluded that “the operations [Neether and

Hall] performed at the CDP building [were] not sufficiently related to well drilling to fall

within the application of the anti-indemnity statute.” Dist. Ct. Order at 8. We agree.

       R&G argues that activities performed at the CDP buildings are essential to the

operation of the well and therefore fall within the scope of the statute because they are

services “in or in connection with a well.” It is true that a properly functioning CDP

contributes to well pressurization, which is in turn essential to proper operation of the

well. But R&G stretches the relationship too far. Beyond being essential to the proper

functioning of the well, the cases require that the activity be “closely related to well

drilling.” Reliance, 713 P.2d at 770 (emphasis added). Thus, while we recognize that the

coalbed methane wells in this case required CDPs to function, this does not bring the

servicing of the CDPs within the scope of section 30-1-132.

       The metering, consolidating, and separating functions, performed by the CDPs at

considerable distance from the wells themselves, are distinguishable from the pumps

involved in Cities Service. In fact, the separation function performed by the CDPs make

this case similar to the facility in Reliance and the consolidating and metering functions

are similar to the transportation function at issue in Gainco. Further, the Wyoming

Supreme Court construes the “in connection” language as requiring a close connection to

                                            - 10 -
well drilling; activities with a “remote or indirect” connection to the well itself are

outside the statute’s scope. Gainsco, 53 P.3d at 1075 (quoting Reliance, 713 P.2d at 770)

(emphasis added). The CDPs are unquestionably remote. The nearest CDP is 600 feet

from the well, and they may lie up to one mile away. The connection is also indirect, as

up to a mile of four-inch pipelines and a “blow down” separate a well and a CDP.3

Finally, we again note the Wyoming Supreme Court’s instruction that we must strictly

construe section 30-1-132.

       R&G also argues that dictionary definitions of terms listed in the statute, such as

“treating,” “conditioning,” and “altering,” bring the functions performed by the CDP

within the scope of section 30-1-132. As Devon notes, however, these terms have a

specific meaning within the oil industry. Moreover, we are not writing on a blank slate;

we are bound by the decisions of the Wyoming Supreme Court, which have (1) restricted

the applicability of the statute to activities closely related to well drilling, and (2)

provided a factual template for determining whether activities yet to be addressed are

“closely related.” It is for the legislature of Wyoming, not us, to extend the scope of the

       3
         The Supreme Court of Wyoming has suggested, in dicta, that it does not consider
sections 30-1-131 and 132 applicable to work on pipelines. Northwinds of Wyoming,
Inc., v. Phillips Petroleum Co., 779 P.2d 753, 757 n.5 (Wyo. 1989). The court in that
case, however, held that the indemnity provision at issue was invalid because it did “not
clearly state that Phillips [was] entitled to indemnity for its own negligence where it [had]
been concurrently negligent.” Id. at 756. The court’s discussion of the applicability of
the anti-indemnity statute to pipelines is therefore little help in this case, despite the
similarity of the services at issue.

                                              - 11 -
anti-indemnity statute beyond the boundaries set by Wyoming’s highest court.

                                    III. CONCLUSION

       Because the services Neether and Hall provided under the Master Service

Agreement were not closely connected to well drilling, the indemnity provision in the

Master Service Agreement does not offend Wyoming law or public policy. We therefore

AFFIRM the district court’s grant of summary judgment enforcing the Master Service

Agreement’s choice of law provision, which specifies Oklahoma law as governing the

parties’ dispute.

                                         ENTERED FOR THE COURT,

                                         Deanell Reece Tacha
                                         Chief Circuit Judge

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