707 Basic Energy Services, L.P. v. EXCO Resources, Inc.
Tuesday, August 21st, 2018
The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.
Basic Energy Services, L.P. v. EXCO Resources, Inc. held that the indemnity in a Master Service and Supply Agreement (“MSA”) obligated indemnitor to indemnify indemnitee against indemnitee’s contractual indemnity obligations and unreasonable attorney’s fees incurred by indemnitee. Basic as “Contractor” entered into a MSA with “EXCO” whereby Contractor was obligated to indemnify EXCO and various “Non-EXCO” companies. Contractor’s MSA provided that:
Contractor shall defend, indemnify, hold harmless, and release Company Group [EXCO and Non-EXCO] from and against any and all claims, losses, damages, demands, causes of action, suits, and liability of every kind, including all expenses of litigation, court costs and attorneys’ fees which may be incurred by Company Group as a result of such claims. . . .
In addition to the MSA with Contractor, EXCO signed master service agreements with each of the Non-EXCO companies. Those agreements provided that EXCO would indemnify Non-EXCO for “all claims, losses, and expenses incurred by EXCO as a result of such claims, demands, or suits brought or asserted against EXCO by any party, ‘including any third party to whom EXCO is obligated to provide indemnity by contract or otherwise.’” There was no similar provision for indemnity against contractual indemnities in Contractor’s MSA. In November 2010, an employee of Contractor died at the oil well site. The employee’s family members filed claims against all parties associated with the well site, and those claims were settled. The issues of interest in this case were whether Contractor was obligated to indemnify EXCO for contractual indemnity claims Non-EXCO companies asserted against EXCO and Contractor’s liability for attorney’s fees.
Contractor contended that the “MSA did not impose any obligation on [Contractor] to indemnify EXCO for EXCO’s separate contractual indemnity agreements with . . . [N]on-EXCO. . . .” Further, relying on Nabors Drilling USA, L.P. v. Encana Oil & Gas (USA) Inc., Contractor argued that the “MSA must have apprised [Contractor] that EXCO had separate contracts and expected indemnification under those separate contracts.” Contractor argued that contractual indemnities were not listed as indemnified claims in Contractor’s MSA and EXCO must have known the difference because the Non-EXCO MSA’s were different. However, in Nabors Drilling, the court noted that one way in which a contract provides for pass-through liability is “to expand the categories of persons or companies entitled to indemnity protection such that the indemnity [indemnitor?] agrees to indemnify the indemnitee and its contractors and subcontractors. . . .” The court found in this case that the MSA expanded the categories of persons or companies entitled to indemnity protection because the MSA defined the Company Group as including EXCO and Non-EXCO companies. Thus, the court held that Contractor was obligated to indemnify EXCO and Non-EXCO.
The trial court held that by contract there was no obligation to prove that attorney’s fees incurred were reasonable and necessary, but that reasonableness and necessity were nevertheless established as a matter of law. Contractor raised the issue again on appeal as a material fact which could not be resolved by summary judgment. The Contractor’s MSA did not specify “reasonable” attorney’s fees. In multiple decisions, for at least 80 years, the court had held that an agreement to pay attorney’s fees implies that the fees must be reasonable. However, the court distinguished all of those cases as involving individuals.
Accordingly, in view of the fact that the agreement at issue here was between two sophisticated, commercial entities presently familiar with the expenses of litigation, court costs and attorney’s fees and free to negotiate and structure their affairs as they sought [saw?] fit, we see no reason to impose additional procedures beyond those they chose for themselves.
The court cites no authority for this distinction, although the court issued this opinion as a memorandum opinion under TEX. R. APP. P. 47.4 because “all issues are settled in law.”
The holding on contractual indemnity is simply a construction of the contract that all parties were included as indemnitees, so the contractual indemnity issue was moot. If the holding on attorney’s fees is good law, then “reasonableness” will not be implied in very many MSA’s, or, for that matter, not in very many other contracts used by the oil and gas industry.