In Re: Oil Spill by the Oil Rig "Deepwater Horizon" in the Gulf of Mexico, on April 20, 2010

Filing 5493

ORDER AND REASONS granting in part, denying in part #4767 Halliburton's MOTION for Partial Summary Judgment, and #4976 BP's Cross MOTION for Partial Summary Judgment. Signed by Judge Carl Barbier on 1/31/2012.(Reference: 10-2771, 10-4536, 11-1054, 11-1986, and ALL CASES)(blg)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
In re: Oil Spill by the Oil Rig
“Deepwater Horizon” in the Gulf
of Mexico, on April 20, 2010

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MDL No. 2179

Applies to:
10-2771, 10-4536, 11-1054, 11-1986, and
All Cases

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JUDGE BARBIER

SECTION J

MAGISTRATE SHUSHAN

ORDER AND REASONS
[As to Halliburton’s and BP’s Cross-Motions for Partial Summary Judgment Regarding
Indemnity]
Halliburton Energy Services, Inc. (“Halliburton”) and the BP entities (“BP”) have crossmoved for partial summary judgment on the issue of whether Halliburton is owed contractual
indemnity from BP for certain claims. (Rec. Docs. 4767, 4976).1 Halliburton asserts that the
contract2 between it and BP (“Contract”) required BP to defend and indemnify Halliburton against
any and all claims related to a blowout or uncontrolled well condition and relating to pollution
and/or contamination from the reservoir. Thus, Halliburton seeks a ruling that it is entitled to
indemnity, including payment of defense costs, from BP for third-party claims related to the
DEEPWATER HORIZON incident. BP’s Cross-Motion seeks a ruling that, as a matter of law, it
is not required to indemnify Halliburton for punitive damages, fines, or penalties. Additionally, BP
opposes Halliburton’s Motion on the grounds that Halliburton committed fraud, breached the
contract, and/or materially increased risks to BP as indemnitor, and such acts discharge BP’s
1

Other briefs related to these motions appear at Record Documents 4977, 5050, and 5052.

2
On or around April 15, 2009, BP Production and Exploration Inc. entered into a contract with Halliburton
wherein Halliburton agreed to perform cementing operations and related support services in the Gulf of Mexico.

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indemnity obligations.
The Contract’s indemnity clauses are contained in Section 2, Clause 19, which provides in
pertinent part (bold type omitted):
19.4 Pollution
(a) . . . COMPANY [BP] shall save, indemnify, release, defend and hold harmless
CONTRACTOR [Halliburton] GROUP from and against any claim of whatsoever
nature arising from pollution and/or contamination including without limitation such
pollution or contamination from the reservoir or from the property or equipment of
COMPANY GROUP arising from or related to the performance of the CONTRACT.
(b) . . . CONTRACTOR shall save, indemnify, release, defend and hold harmless
COMPANY GROUP and SERVICE COMPANY GROUP from and against any
claim of whatsoever nature arising from pollution occurring on the premises of
CONTRACTOR GROUP or originating from the property or equipment of
CONTRACTOR GROUP located above the surface of the land or water arising from
or relating to the performance of the CONTRACT.
...
19.6 Other COMPANY Responsibilities
Subject to Clauses 19.1 and 19.4(b), but notwithstanding anything contained
elsewhere in the CONTRACT to the contrary, COMPANY shall save, indemnify,
release, defend and hold harmless CONTRACTOR GROUP against all claims,
losses, damages, costs (including legal costs) expenses and liabilities resulting from:
(a) loss or damage to any well or hole (including the cost to re-drill);
(b) blowout, fire, explosion, cratering, or any uncontrolled well condition
(including
the costs to control a wild well and the removal of debris);
(c) damage to any reservoir, aquifer, geological formation or underground strata
or
the loss of oil or gas therefrom;
...

19.7 Indemnities in their Entirety
All exclusions, releases of liabilities and indemnities given under this Clause (save
for those under Clauses 19.3(a) and 19.3(b)) and Clause 21 shall apply irrespective
of cause and notwithstanding the negligence or breach of duty (whether statutory or
otherwise) of the indemnified PARTY or any other entity or party and shall apply
whether or not the claim, liability, damage, or expense in question is:

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(a) predicated on sole, joint or concurrent fault, negligence (whether active,
passive or gross), strict liability, statutory duty, contractual indemnity or
otherwise at law, or
(b) sought directly or indirectly by way of recovery, indemnification, or
contribution by any person or entity against COMPANY GROUP, SERVICE
COMPANY GROUP, or CONTRACTOR GROUP as the case may be.
This Court recently issued an Order and Reasons pertaining to similar contractual indemnity
issues between Transocean and BP. (Rec. Doc. 5446, hereinafter “Transocean Indemnity Order”).
The holdings in that Order resolve many of the issues presented here.3 Accordingly, for reasons
stated in the Transocean Indemnity Order, the Court finds as follows:
1.

Subject to the statements below, BP is required to indemnify4 Halliburton for third-party
compensatory claims that arise from pollution or contamination that did not originate from
the property or equipment of Halliburton located above the surface of the land or water, even
if Halliburton’s gross negligence caused the pollution. (See Transocean Indemnity Order,
Rec. Doc. 5446 at 10-18).5

The Court does not express an opinion as to whether

Halliburton’s conduct amounted to gross negligence or otherwise.
2.

BP does not owe Halliburton indemnity to the extent Halliburton is held liable for punitive

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One notable difference between the instant Motions and the issues addressed in the Transocean Indemnity
Order is that here BP does not dispute that the language of the indemnity clause includes Halliburton’s gross negligence.
(Cf. Transocean Indemnity Order, Rec. Doc. 5446 at 5-10). Instead, BP’s arguments largely focus on whether public
policy permits such indemnification.
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As was done in the Transocean Indemnity Order, here the Court uses the term “indemnity” to refer to a
contract whereby the parties agree ahead of time that one party will bear the risk of certain damage occurring to a third
party, and will indemnify the other party to the contract against such claims or damage. This is distinguished from what
may be called a “release” or “exculpatory clause,” wherein one party to a contract agrees to release the other from
liability for damage occurring to the former party. (See Transocean Indemnity Order, Rec. Doc. 5446 at 11). Gross
negligence will invalidate a release or exculpatory clause.
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Clause 19.7(a) expressly stated that Halliburton would be indemnified for its gross negligence. It is also noted
that, like the drilling contract between Transocean and BP, the Contract between Halliburton and BP included reciprocal
indemnities wherein Halliburton assumed certain liabilities; e.g., its employees, equipment, and pollution emanating from
its equipment above the surface.

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damages. (See Transocean Indemnity Order, Rec. Doc. 5446 at 18-19). The Court does not
express an opinion as to whether Halliburton will be held liable for punitive damages.
3.

BP does not owe Halliburton indemnity to the extent Halliburton is held liable for civil
penalties under Section 311(b)(7) of the Clean Water Act (“CWA”), 33 U.S.C. § 1321(b)(7).
(See Transocean Indemnity Order, Rec. Doc. 5446 at 19-23).6 The Court does not express
an opinion as to whether Halliburton will be held liable for CWA civil penalties.

4.

The Court defers ruling on whether any penalties or fines under the Outer Continental Shelf
Lands Act (“OCSLA”) are subject to contractual indemnity.7

5.

Whether Halliburton breached the contract, and whether that breach was of a type that would
invalidate the indemnity clause, cannot be determined on summary judgment. Similarly, the
Court cannot determine here whether an act was committed that materially increased the
risk, or prejudiced the rights of BP as indemnitor, so as to invalidate the indemnity. The
Court defers ruling on these issues. (See Transocean Indemnity Order, Rec. Doc. 5446 at
23-25).

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The federal government has not asserted civil penalties directly against Halliburton under Section 311(b)(7)
of the CWA. Indeed, Halliburton has not yet sought indemnity for fines and penalties. (Halliburton Reply p.4 n.4, Rec.
Doc. 5050 at 9 n.4). However, at the moment it is an open question whether a third-party defendant (such as Halliburton)
could be held liable to a defendant (such as BP) for CWA civil penalties via equitable contribution or indemnity. (See
Transocean Indemnity Order, Rec. Doc. 5446 at 22 & n.18). Assuming arguendo that CWA civil penalties may be
indirectly asserted against Halliburton via equitable contribution or indemnity, contractual indemnity would be
ineffective to shift these penalties for public policy reasons. (See id. at 19-23). The Court expresses no opinion at this
time as to whether Halliburton may be held liable under any theory for civil penalties under the CWA.
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BP asserts in its Opposition Brief that the Bureau of Safety and Environmental Enforcement (“BSEE”) has
initiated an enforcement action against Halliburton under OCSLA that may lead to a penalty assessment. (BP Memo.
in Opp’n p.19-20, Rec. Doc. 4976-1 at 28-29). BP contends that fines and/or penalties under OCSLA, like CWA civil
penalties and punitive damages, are primarily designed to punish and deter, and therefore may not be shifted by
contractual indemnity. This contention appears correct; however, it is not entirely clear which fine or penalty BSEE
threatens to impose upon Halliburton. BP has not cited to the specific statute or regulation under which BSEE is
proceeding or presented documents that evince BSEE’s enforcement action. Consequently, while BP’s argument
certainly appears meritorious, the Court defers ruling on this issue.

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6.

BP does not owe Halliburton the expenses of establishing its right to indemnity. (See
Transocean Indemnity Order, Rec. Doc. 5446 at 25-27).

7.

BP is not obligated to fund Halliburton’s defense at this time. (See Transocean Indemnity
Order, Rec. Doc. 5446 at 27-28).
A remaining issue that was not addressed in the Transocean Indemnity Order concerns fraud.

BP alleges in its Cross Complaint and Third Party Complaint that Halliburton made fraudulent
statements and fraudulently concealed material information concerning the cement tests it conducted
and other matters, and that BP, relying on these statements, allowed Halliburton to pour the unstable
cement slurry that led to the uncontrollable well and blowout. BP asserts that the language of the
indemnity does not extend to fraud, nor would public policy permit such indemnification, given that
fraud involves willful misconduct exceeding gross negligence. Halliburton denies that it committed
fraud, but also argues that BP’s allegations are merely breach of contract claims cloaked as fraud.
Halliburton also argues that, in any respect, Clause 19.7 is broad enough to include fraud.
The Court agrees that fraud could void an indemnity clause on public policy grounds, given
that it necessarily includes intentional wrongdoing. See Atel Maritime Investors, No. 08-1700, 2010
U.S. Dist. LEXIS 47834 at *9 (E.D. La. May 13, 2010) (“To prevail on a fraud claim, a party must
prove that . . . (4) the deceiving party intended the deceived party to rely on the misrepresentation
or nondisclosure . . . .”); see also Restatement (Second) of Contracts § 162, Cmt. (a) (“In order that
a misrepresentation be fraudulent within the meaning of this Section, it must not only be consciously
false but must also be intended to mislead another.”). The Court is also mindful that “mere failure
to perform contractual obligations as promised does not constitute fraud but is instead breach of
contract.” Kevin M. Ehringer Enter. v. McData Servs. Corp., 646 F.3d 321, 325 (5th Cir. 2011)

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(applying Texas law). Consequently, and similar to holding number (5) above, there are material
issues of fact that preclude summary judgment on this issue. The Court defers ruling on this issue.
Accordingly,
IT IS ORDERED THAT Halliburton’s (Rec. Doc.4767) and BP’s (Rec. Doc. , 4976) CrossMotions for Partial Summary Judgment are GRANTED IN PART and DENIED IN PART, as set
forth above.
New Orleans, Louisiana, this 31st day of January, 2012.

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United States District Judge

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