Opinion
CIVIL ACTION NO: 98-1302 SECTION: "J" (5)
August 22, 2002
FINDINGS OF FACT AND CONCLUSIONS OF LAW
This matter came on for trial before the Court on March 13-15, 2000. The Court issued its original Findings of Fact and Conclusions of Law (Rec. Doc. 95) on April 18, 2000, finding in favor of plaintiff, The Houston Exploration Company ("THEC"), and awarding approximately $7,000,000 in damages. The Court concluded that the alleged indemnity agreement relied upon by Defendant Halliburton Energy Services, Inc. ("Halliburton") was not enforceable, because Halliburton's conduct in this case was grossly negligent. On appeal, the Fifth Circuit held that the record did not support a finding that Halliburton's conduct was grossly negligent. The matter was remanded to this Court so that it could address The Houston Exploration Company's ("THEC") argument that the indemnity agreement on which Halliburton relies was not executed by an authorized representative of THEC and is, therefore, unenforceable.
Because the issue of enforceability had been previously briefed for the Court and evidence was presented at the original trial on the question of authority, the parties agreed that no new evidence needed to be presented with respect to the indemnity agreement and that the matter would be submitted to the Court on the briefs. The parties filed supplemental memoranda on the remaining issues, and the Court heard oral argument on August 14, 2002, taking the matter under advisement at that time. Upon further considering the parties' arguments, the memoranda filed by both sides, the evidence admitted at trial, and the applicable law, the Court now issues its Findings of Fact and Conclusions of Law in accordance with Federal Rule of Civil Procedure 52(a).
In addition to the issue of authority, THEC raised various other arguments in its memoranda to the Court as to why the indemnity agreement is unenforceable. Other than the argument concerning authority, THEC contends that: (1) there was no consent to the object of the contract, i.e., an IPO valve different than the one for which the parties contracted; (2) any consent to the agreement is vitiated by error because THEC received an IPO valve different from that which it understood the valve to be at the time contracting; (3) the agreement constitutes an impermissible attempt to renounce the builder or assembler's warranty of workmanlike performance; (4) there is some ambiguity in the indemnity and release provision; (5) a literal reading of the provision leads to absurd consequences; (6) redhibition; (7) breach of contract; and (8) the indemnity agreement constitutes a contract of adhesion.
During oral argument, the Court stated that the only argument advanced by THEC in its post-appellate memoranda to the Court that has merit is THEC's contention that its representative, James Hileman, did not have authority to bind THEC to an indemnity agreement with Halliburton. The Court considered the other arguments made and found all to be without merit.
BACKGROUND
As detailed in this Court's original Findings of Fact, this matter arises from the May 31, 1997, blowout of a natural gas well ("the Well"), owned by THEC and located on the Outer Continental Shelf in Block 83 of the East Cameron Area of the Gulf of Mexico offshore Louisiana. When the blowout occurred, THEC had concluded drill stem testing operations in the well, all of which were conducted aboard the mobile drilling vessel PHOENIX II. The drill stem testing operations were being performed pursuant to a work order agreement between THEC and Halliburton, by which THEC engaged Halliburton to provide specialized personnel and tools necessary to perform the drill stem testing operations. James Hileman, THEC's representative on the rig, signed the work order on behalf of THEC, so that the Halliburton employees could commence the testing. The blowout occurred at the conclusion of the third of three drill stem testing operations.
See Houston Exploration Co. v. Halliburton Energy Services, Inc., No. CIV.A. 98-1302, 2000 WL 423909 (E.D.La., Apr 18, 2000).
Pursuant to the work order, Halliburton supplied the specialized tools and gauges which formed part of the drill stem test string or bottom hole assembly, including a Halliburton tool known as an Internal Pressure Operating ("IPO") valve. An IPO valve is a tubular tool designed by Halliburton so that, if the variance between the internal pressure in the hollow core of the valve and the external pressure surrounding it reaches a certain preset differential, one or more pins placed in the IPO valve will shear, allowing ports in the valve to open and the internal pressurizing fluid within the valve to escape to the environment outside the body of the IPO valve and the well's closed circulating system.
At the time of the blowout, Halliburton's practice was to ship IPO valves fitted with one pin and then have the Halliburton tool operator calculate and fit the valve with the number of pins actually required for the specific job. In this case, Halliburton tool operator Wayne Lemaire fitted the valve for the second test with five pins. Before the second test commenced, however, the fitted valve had been moved. When Lemaire went to perform the second test, he picked up what he believed to be the properly dressed IPO valve and inserted it into the test string. However, he erroneously installed an unprepared IPO valve, containing only one pin. The second test was successfully completed however.
Before the third test was run, another Halliburton employee, Phillip Costlow, replaced Lemaire. Lemaire, not realizing that he had inserted the wrong 120 valve, told Costlow that the valve already installed had been properly pinned and was ready for the third test. Costlow accepted Lemaire's statements and, without disassembling the test string to reinspect the valve, performed the third test. After the test had been completed and the 120 valve was being removed, the well began to flow, causing the trip tank to overflow. Pressure in the well bore created a "kick," which was brought under control by tightening the connections on the 120 valve, thereby shutting the Well.
During the following 1 1/2 hours, completion fluid was pumped into the Well, causing pressure to increase. As a result, the single pin in the 120 valve sheared without warning, causing its four ports to open and allow a "blowout" of natural gas escaping freely into the atmosphere. All personnel were safely evacuated from the rig. It is undisputed that, had the 120 valve been properly pinned as intended, its ports would not have opened under the pressure occurring in this case and the blowout would not have occurred.
THEC filed this suit against Halliburton, contending that Halliburton is responsible for the blowout because of its employees' negligent conduct in using the wrong IPO valve to perform the second and third tests. Halliburton responds that the indemnity provisions on the work order protect it from any liability. THEC argues that the indemnity agreement is unenforceable because the THEC representative who signed the work order did not have the authority to bind the company to any such indemnity provision. As discussed, on remand, the principal question before the Court is whether THEC' s "company man" James Hileman, who signed the work order with Halliburton, had the actual or apparent authority to bind the company to the release and indemnity agreement contained in the work order. The Court concludes, for the reasons that follow, that he did not.
DISCUSSION
I. Applicable Law
The blowout of Well C-1 occurred on a jack-up drilling rig on the Outer Continental Shelf off the coast of Louisiana. Defendant Halliburton provided non-maritime services in connection with the testing and completion of the well, and played no part in the operation of the drilling rig, which was chartered by THEC from Falcon. As a result, the law to be applied to any agreement between the parties is, by operation of the Outer Continental Shelf Lands Act, 43 U.S.C. § 1333 (a) (OCSLA), the law of the adjacent state, Louisiana. See Falcon Operators, Inc. v. PMP Wireline Servs., Inc., 1997 WL 610825, *4-5 (citing Herb's Welding, Inc. v. Gray, 470 U.S. 414, 105 S.Ct. 1421 (1985), and Thurmond v. Delta Well Surveyors, 836 F.2d 952 (5th Cir. 1988).
II. The Indemnity Agreement
It is undisputed that THEC and Halliburton have a history of working together on jobs similar to the one for which they contracted in this case. With respect to the particular job at issue here, Halliburton presented the work order for the third surge test to James Hileman, a contract Company Man for THEC, who signed the work order in advance of the job, as was the customary practice between the parties. Hileman was the on-site company man and drilling supervisor for the Well. THEC does not dispute that Hileman had authority to sign work orders to engage Halliburton's services, but asserts that he had no authority, either express or implied, to negotiate or execute release and/or indemnity agreements on behalf of THEC.
The work order in dispute contains a section in red ink directly above the space in which Hileman signed his name that provides:
LEGAL TERMS: Customer hereby acknowledges and agrees to the terms and conditions on the reverse side hereof which include, but are not limited to, PAYMENT, RELEASE, INDEMNITY, and LIMITED WARRANTY provisions.
Trial Exh. 15. On the reverse side of the Work Order, the release and indemnity provision states in pertinent part:
CUSTOMER ALSO AGREES TO DEFEND, INDEMNIFY AND HOLD HALLIBURTON GROUP HARMLESS FROM AND AGAINST ANY AND ALL LIABILITY, CLAIMS, COSTS, EXPENSES, ATTORNEY'S FEES AND DAMAGES WHATSOEVER FOR . . . PROPERTY DAMAGE AND LOSS RESULTING FROM: LOSS OF WELL CONTROL . . . CUSTOMER'S RELEASE, DEFENSE, AND INDEMNITY AND HOLD HARMLESS OBLIGATIONS WILL APPLY EVEN IF THE LIABILITY AND CLAIMS ARE CAUSED BY THE SOLE, CONCURRENT, ACTIVE OR PASSIVE NEGLIGENCE, FAULT, OR STRICT LIABILITY OF ONE OR MORE MEMBERS OF THE HALLIBURTON GROUP . . . OR ANY DEFECT IN THE DATA, PRODUCTS, SUPPLIES, MATERIALS OR EQUIPMENT FURNISHED BY HALLIBURTON GROUP, WHETHER IN THE DESIGN, MANUFACTURER, MAINTENANCE OR MARKETING THEREOF OR FROM A FAILURE TO WARN OF SUCH DEFECT.
As both parties note, such indemnity contracts are generally enforceable under Louisiana law, if the indemnity obligation is unequivocally expressed in the contract. See Perkins v. Rubicon, Inc., 563 So.2d 258, 259-60 (La. 1990); Strickland v. Nutt, 264 So.2d 317 (La.App. 1st Cir. 1972).
Id. THEC argues that this language was not pointed out to Hileman by Halliburton or discussed by any Halliburton personnel with Hileman.
Moreover, THEC contends that Halliburton never discussed the indemnity language on the work order with any THEC personnel in connection with this job. THEC cites the trial testimony of Bill Wright, Drilling Manager for THEC, and Mark Favret, salesman for Halliburton, to support its argument that the indemnity provision was not discussed or consented to when the engagement of Halliburton for the job was agreed at the management level of both companies as between Wright and Favret. THEC further argues that over a number of years, preceding this particular job, THEC had rejected Halliburton's demand for implementation of just such an indemnity and release agreement, during the parties' unsuccessful negotiations of a master service contract. According to THEC, Halliburton's printed work orders were simply documentation acknowledging what work was to be done and to verify Halliburton's billing.
In response, Halliburton points out first how conspicuous and unequivocal are the release and indemnity provisions on the work order in question. Halliburton further asserts that THEC's claim that Hileman lacked authority to bind THEC to those terms of the work order, when Hileman had undisputed authority to sign the order, contradicts the evidence in this case, Louisiana law, and common sense. Halliburton asserts that, under agency law, Hileman's undisputed authority to execute the Halliburton work order necessarily carried with it the actual authority and/or apparent authority to agree to the terms and conditions of those work orders, especially given the parties' course of dealings with one another.
III. Louisiana Law on Agency and Authority
Under Louisiana law, an agent is one who acts on behalf or in place of the principal, by authority of that principal. Barrilleaux v. Franklin Foundation Hospital, 96,0343, pp. 6-7 (La.App. 1st Cir. 11/8/96); 683 So.2d 348, 353-54, writ denied, 96-2885 (La. 1/24/97) 686 So.2d 864; Oliver v. Central Bank, 26,932 p. 8 (La.App. 2nd Cir. 5/10/95); 658 So.2d 1316, 1321; Martin Fuel Distributors, Inc. v. Trans Gulf Fuel, Inc., 496 So.2d 473, 476 (La.App. 1st Cir. 1986), writ denied, 498 So.2d 753 (La. 1986). An agency relationship may be created by the principal's granting of actual authority to an agent, either expressly or implicitly. Barrilleaux, 683 So.2d at 353; Oliver, 658 So.2d at 1321; Urbeso v. Bryan, 583 So.2d 114, 117 (La.App. 4th Cir. 1991). Express actual authority is created by the oral or written agreement between the principal and the agent. AAA Tire Export, Inc. v. Big Chief Truck Lines, Inc., 385 So.2d 426, 429 (La.App. 1st Cir. 1980).
[Actual authority] is created by implication when, from the nature of the principal's business and the position of the agent within that business, the agent is deemed to have permission from the principal to undertake certain acts which are reasonably related to the agent's position and which are reasonable and necessary contaminants of the agent's express authorization. Implied authority connotes permission from the principal for the agent to act, though that permission is not expressly set forth orally or in writing. Generally, one should look from the viewpoint of the principal and the agent to determine whether the agent has implied authority.
Id.
An agent's authority is not only composed of his actual authority, express or implied, but also of his apparent authority, which the principal has vested in the agent by the principal's conduct with respect to third parties. Boulos v. Morrison, 503 So.2d 1, 3 (La. 1987); Duplessis Cadillac, 564 So.2d at 339. While, as between principal and agent, the limit of an agent's authority to bind the principal is governed by the agent's actual authority, between principals and third parties, the limit of an agent's authority to bind the principal is governed by the agent's apparent authority. Boulos, 503 So.2d at 3. Apparent agency arises when the principal has acted so as to give an innocent third party a reasonable belief that the agent had the authority to act for the principal, and the third party reasonably relies on the manifested authority of the agent. Duplessis Cadillac, 564 So.2d at 339. Apparent agency is established by the words and conduct of the parties and the circumstances of the case. An agency relationship may be created even though there is no intent to do so. Urbeso 583 So.2d at 117.
The distinction between actual and apparent authority of an agent to bind a principal in a business transaction has been further clarified by the Louisiana Supreme Court as follows:
Apparent authority is a doctrine by which an agent is empowered to bind his principal in a transaction with a third person when the principal has made a manifestation to the third person, or to the community of which the third person is a member, that the agent is authorized to engage in the particular transaction, although the principal has not actually delegated this authority to the agent. In an actual authority situation the principal makes the manifestation first to the agent; in an apparent authority situation the principal makes this manifestation to a third person. However, the third person has the same rights in relation to the principal under either actual or apparent authority. Further, apparent authority operates only when it is reasonable for the third person to believe the agent is authorized and the third person actually believes this.
Tedesco v. Gentry Dev., Inc., 540 So.2d 960, 963 (La. 1989) (citations omitted) (footnote omitted).
The burden of proving apparent authority is on the party seeking to bind the principal. Boulos, 503 So.2d at 3. A third party seeking to benefit from the doctrine of apparent authority may not blindly rely upon the assertions of an agent; he has a duty to inquire into the nature and extent of the agents power. Id. (citing Buckley v. Woodlawn Development Corp., 233 La. 662, 98 So.2d 92 (1957)). Finally, one must look from the viewpoint of the third party to determine whether an apparent agency has been created. AAA Tire Export, Inc. v. Big Chief Truck Lines, Inc., 385 So.2d 426, 429 (La.App. 1st Cir. 1980)
IV. Application of Law to Facts of this Case
Turning to the facts of the instant matter, the Court concludes that Hileman had no actual authority, express or implied, to bind THEC to an indemnity agreement. The Court further finds that Hileman did not have apparent authority to bind the company either, as any reliance by Halliburton on Hileman's apparent authority was unreasonable under the facts of this case.
Hileman testified at trial that he was the "company man" on the rig for the particular job at issue, and as such, he was the ultimate THEC authority for the wellbore on that job. While he was an independent contractor, Hileman testified that he had worked almost exclusively for THEC since 1995. Hileman stated that he signed the work order in dispute in order to give the Halliburton technicians permission to run the test. He testified that he had signed many similar work orders from Halliburton before the one in dispute. However, even though he believed he had authority to sign the work orders so that Halliburton could proceed with the job, Hileman stated that he had no authority to enter into an indemnity and release agreement with Halliburton on behalf of THEC.
Homer Mariner, THEC's drilling foreman who supervised Hileman, similarly testified that neither he nor Hileman had the authority to agree to indemnify Halliburton on behalf of the company. William Wright, THEC's Drilling Manager, who oversaw Mariner and Hileman, likewise stated at trial that neither he, Mariner, nor Hileman had authority to enter into an indemnity agreement with Halliburton. James Westmoreland, THEC's Vice President, Chief Accounting Officer, Corporate Secretary, and Risk Manager, testified that he did have the authority to negotiate an indemnity agreement with Halliburton' s executives, but that no one under him, including Hileman, had that authority.
However, it is undisputed that Hileman did have authority to sign the work order providing the contested indemnity provision, although THEC argues that, in doing so, his actual authority was limited to giving permission to Halliburton employees to perform the specific job. Not only does the trial testimony indicate that Hileman was authorized to sign the particular work order in dispute, but that he had signed similar work orders before that one and continued to sign similar orders after the blowout. Mariner similarly testified that the work order in dispute here looks the same as the hundreds of others he and other company men, including Hileman, had signed. Mariner, Wright, Hileman, and Westmoreland all testified that, as the company man, Hileman was required to sign the order so that Halliburton would perform the testing on the Well.
Westmoreland and Wright additionally testified that, in their course of dealings with Halliburton, all of Halliburton's work was performed pursuant to such work orders. Although both Wright and Westmoreland testified that they knew the work orders contained legal language on the back, both stated that the only way to get Halliburton to perform the work for which they were contracted, a THEC employee had to sign the work order when it was presented prior to the job being done.
A. Actual Authority
As discussed above, express actual authority is created by an agreement between the principal and the agent as to the scope of the agent's authority. See AAA Tire, 385 So.2d at 429. In this case, there is unequivocal and undisputed testimony from THEC's personnel and management that THEC never gave Hileman authority to enter into indemnity and release agreements on behalf of THEC and that Hileman, himself, never believed he had such authority. No evidence was admitted at trial to demonstrate that THEC and Hileman agreed that Hileman could enter into an indemnity agreement with Halliburton on behalf of THEC. Accordingly, there was clearly no express actual authority in this case.
Nor does the Court find that there was implied actual authority for Hileman to agree to such indemnity provisions on behalf of THEC. Hileman's representation of THEC on the rig as a company man does not manifest an intention on the part of THEC for him to have permission to contract with Halliburton for indemnification and release from liability. Such negotiations are not reasonably related to Hileman's position and are not "reasonable and necessary concomitants of [his] express authorization," which, according to the testimony at trial, was limited to signing the work orders in order to authorize Halliburton to commence the job. AAA Tire, 385 So.2d at 429. Furthermore, as discussed, neither THEC nor Hileman believed he had actual authority to enter into an indemnification agreement.
B. Apparent Authority
Apparent authority will bind the principal to a third party, "when the principal had acted so as to give an innocent third party a reasonable belief that the agent had the authority to act for the principal, and the third party reasonably relies on the manifested authority of the agent." Duplesses Cadillac, 564 So.2d at 339. In order to determine if apparent authority existed in this case, the Court must first determine whether THEC somehow manifested or communicated to Halliburton that Hileman was authorized to enter into an indemnity agreement on behalf of THEC. Tedesco, 540 So.2d. at 963. If the Court finds THEC did so, it must next ask whether it was reasonable for Halliburton to believe Hileman was so authorized and whether it did so actually believe. Id. (citing Restatement (Second) of Agency § 8 (1958)).
Regarding THEC's manifestation of apparent authority, the Court concludes that THEC's conduct at the management level could possibly have led Halliburton to believe that company men, such as Hileman, had authority to bind THEC to the indemnity provisions included on the Halliburton work orders. As noted, Hileman did have actual authority to sign the work order and had, in fact, been signing similar orders for years prior to the one in dispute here. Furthermore, although Westmoreland, THEC's Vice President and Chief Accounting Officer, stated at trial that he had "very little" knowledge of the terms on the reverse side of Halliburton's work orders, he testified that he examined the orders in the course of approving Halliburton's invoices. To summarize Westmoreland's testimony: he was familiar with indemnity language; he reviewed hundreds of Halliburton's work orders to ensure that they were properly signed and authorized; he allowed, if not required, company men like Hileman to sign the work orders over the course of years, all the time knowing the orders contained indemnity language. Based on that testimony, the Court finds that Westmoreland's actions, as a THEC executive, constituted a manifestation by the corporation that could have indicated the Hileman had the authority to act. See M M Roustabout Service, Inc. v. Hydro-Kem Services, Inc., 540 So.2d 377, 379 (La.App. 1st Cir. 1989)
However, to conclude that Hileman had apparent authority to bind THEC to the indemnity provision on the work order, the Court must also examine whether it was reasonable for Halliburton actually to believe Hileman was so authorized. THEC contends Halliburton could not reasonably rely on Hileman's authority, given that he was field personnel and not a THEC executive. THEC further argues that negotiation of an indemnity agreement is not reasonably related to the operation of testing a wellbore or the execution of such work orders. The Court is most persuaded, though, by THEC's argument that Halliburton had actual knowledge that THEC did not agree to such indemnity language at the executive level based on the industry practice followed by both parties of negotiating and executing indemnity agreements at the management level and the parties' specific failed negotiation for just such an agreement in the early 1990's.
Westmoreland testified that he executed the majority of THEC's indemnity agreements with other companies, in the context of master service agreements. He explained that THEC negotiates such agreements at the executive management level and that in the early 1990's, THEC sent out proposed master service agreements to all of its vendors, including Halliburton. The proposed agreement contained some indemnity language. When Halliburton returned the proposed agreement to THEC, Westmoreland stated that the agreement had been "marked-up" and Halliburton had inserted indemnity language similar to that included on the work order, whereby THEC would indemnify Halliburton for its own negligence. Westmoreland stated that negotiations for a master service agreement broke down shortly thereafter. Westmoreland further stated that THEC never agrees to the type of indemnity contract sought by Halliburton. Following that unsuccessful attempt at a master service agreement, Westmoreland testified that no one from Halliburton ever approached him again about an indemnity agreement.
While Halliburton points out that there was little evidence submitted at trial with respect to the parties' failed negotiations for a master service agreement, it does not dispute that THEC rejected Halliburton's proposed indemnification provision by which it would be indemnified for its own negligence. Moreover, the testimony at trial supports THEC's contention that indemnity agreements are usually negotiated at the management level, not by field personnel on a rig. Given that THEC's Vice President had attempted to negotiate an indemnity agreement with Halliburton, but would not consent to the same type of indemnity language included by Halliburton on its work order, the Court finds it highly unlikely that Halliburton actually believed that THEC later gave the authority to Hileman, a company man on the rig, to accept those same terms on behalf of THEC.
If Halliburton did so believe, the Court concludes that such a belief on Halliburton's part was unreasonable, based on the facts of this case and the parties' past dealings with one another regarding such an indemnity contract. As THEC points out, Halliburton is a sophisticated company with a long history in this industry. Any belief that THEC's company representative in charge of a wellbore on a rig could bind THEC to an agreement that had been specifically rejected by THEC's Vice President was clearly unreasonable on Halliburton's part. Furthermore, there is no evidence that Halliburton ever inquired into the nature and extent of the authority granted THEC's company men, like Hileman, as required by Louisiana law. See Boulos, 503 So.2d at 3 (explaining that a third party seeking to benefit from the doctrine of apparent authority has a duty to inquire into the nature and extent of the agent's power). In fact, Hileman testified that no one from Halliburton ever talked to him about the language included on the work order or whether he was authorized to enter into such an agreement. Westmoreland also testified that Halliburton never approached THEC again about an indemnity agreement after the one failed negotiation for a master service agreement. Nor did Halliburton ever discuss with him the language included on the work order or whether company men, like Hileman, were authorized to agree to those terms.
For all of these reasons, the Court concludes that Hileman did not have the apparent authority to bind THEC to the indemnity provision included on the work order presented by Halliburton. Halliburton has failed to demonstrate by a preponderance of the evidence that it was reasonable in relying on Hileman's signature based on the facts of this case or that it complied with its duty to inquire into the nature and scope of Hileman's ability to act on behalf of THEC. Accordingly, the indemnity agreement provided in the work order signed by Hileman is unenforceable.
V. Negligence
The Court adopts by reference its previous Findings of Fact with respect to Halliburton's negligent conduct in this matter (Rec. Doc. 95). To summarize those findings, Halliburton's negligence in using a different IPO valve than the one intended, which was improperly pinned, was the proximate cause of the blowout. The actual cause of the blowout was the failure of the IPO valve, brought about by Halliburton's negligence. Any fault attributable to THEC and/or Falcon in causing or contributing to the "kick" was remote. Halliburton's negligence was an independent and separate cause of the blowout, which would not have occurred but for Halliburton's negligence.
Under Louisiana law, a party is responsible for damages caused by its fault, negligence, imprudence, or want of skill. La. Civ. Code arts. 2315, 2316. The standard negligence analysis employed under Louisiana law to determine whether to impose liability under La. Civ. Code art. 2315 is the duty/risk analysis. In order to find a defendant liable under a duty/risk analysis, the plaintiff must prove five separate elements: (1) the defendant had a duty to conform his or her conduct to a specific standard of care (the duty element); (2) the defendant failed to conform his or her conduct to the appropriate standard (the breach of duty element); (3) the defendant's substandard conduct was a cause-in-fact of the plaintiff's injuries (the cause-in-fact element); (4) the defendant's substandard conduct was a legal cause of the plaintiff's injuries (the scope of liability or scope of protection element); and, (5) actual damages (the damages element). Mathieu v. Imperial Toy Corp., 94-0952, p. 4 (La. 11/30/94), 646 So.2d 318, 321-22.
The Court finds that Halliburton owed a duty to THEC to follow its own established policies and procedures regarding the proper pinning and inspection of the IPO valves, in order to safely conduct the drill stem testing of the Well. Halliburton clearly breached that duty through the actions and inactions of its employees Lemaire and Costlow — in failing to inspect and pin the IPO valve properly on two separate occasions. Those employees actions were a violation of Halliburton's policies and procedures and endangered not only the Well and the rig, but also the lives of all personnel on the rig. As already discussed herein and in the Court's first opinion, the Halliburton employees' substandard conduct was the cause-in-fact of the blowout.
Furthermore, Halliburton's negligence was the legal cause of THEC's injury. To determine whether Halliburton's conduct was a legal cause of the blowout, it is necessary to define the duty which was breached by Halliburton and to determine whether the risk created by the breach is within the scope of the duty. Kessler v. Amica Mut. Ins. Co., 573 So.2d 476, 478 (La. 1991). The Court has already defined the breached duty in this matter as Halliburton's duty to inspect and pin the IPO valve properly in order to safely conduct the testing. Clearly, the risk that a single pin in the IPO valve would shear when the job required an IPO valve fitted with five pins is encompassed in Halliburton's duty. It is undisputed that the blowout would not have occurred if Halliburton's employees had properly pinned the IPO valve. The Court concludes that the risks created by Halliburton's substandard conduct were within the scope of Halliburton's duty to THEC.
Moreover, there was no superceding legal cause of the blowout. "An initial tortfeasor will not be relieved of the consequences of his negligence unless the intervening cause superceded the original negligence and alone produced the injury. If the original tortfeasor could or should reasonably foresee the accident that might occur, he would be liable notwithstanding the intervening cause." Mendoza v. Mashburn, 747 So.2d 1159, 1168-69 (La.App. 5th Cir. 1999) (citations omitted). The Court finds that, although THEC and/or Falcon may have been at some fault in causing the "kick," their actions operated as an intervening cause (subsequent to the actions of Lemaire, on May 28 and Costlow, earlier on May 31), which did not supersede the original negligence of Halliburton that was the cause-in-fact of the blowout.
Finally, the Court adopts its previous findings that Halliburton's negligent conduct resulted in property damage, costs and expenses incurred in controlling the well, and damages for the loss of gas which flowed from the Well during the blowout.
CONCLUSION
The Court concludes that James Hileman, THEC's company man on the rig, did not have actual or apparent authority to bind THEC to an indemnity agreement with Halliburton by signing the work order, and, therefore, the indemnity provision is unenforceable.
The Court further finds that Halliburton's negligent actions in this matter were the proximate and legal cause of the blowout.
Accordingly;
Halliburton is liable to THEC and its insurers for $5,000,000 for property damage and expenses and costs incurred in controlling the well.
The parties stipulated at the original trial that, if liability of Halliburton is established, reimbursable property damage and costs to control the well totaled $5,000,000.
THEC is additionally entitled to damages in the amount of $1,991,948 for the loss of gas that flowed from the Well during the blowout.
This figure was reached by multiplying the amount of gas lost per day (135,604 mcf/day) by the duration of the flow during which product was lost (7.66 days), for a loss of 1,038727 mcf. At a prevailing price of $2.3637/mcf, the value of the lost product equals $2,455,238. Multiplying by THEC's working interest of 0.83, yields a loss to THEC of $2,037,848, which, when reduced by THEC's cost to produce ($45,900), results in a net loss to THEC of $1,991,948.
Finally, under Louisiana law, THEC is entitled to legal interest on the judgment from the date of judicial demand, until paid, and for all costs.