Noble Energy v. Prospective Inv. and Trading Co.

Citations: 817 F. Supp. 2d 841; 2011 U.S. Dist. LEXIS 108071; 2011 WL 4352792Docket: 09-748

Court: District Court, W.D. Louisiana; September 16, 2011; Federal District Court

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Noble Energy, Inc. seeks partial summary judgment regarding its burden of proof for liability against The Prospective Investment and Trading Company, Ltd. (PITCO). Noble argues that, under Oklahoma law, it only needs to demonstrate potential liability since PITCO refused to defend it in an underlying lawsuit related to environmental contamination. In contrast, PITCO contends that Noble must prove actual liability because Noble failed to notify PITCO adequately about the settlement, which would have allowed PITCO to participate in negotiations.

The background involves a 1999 agreement where Samedan Oil Corporation (now Noble) sold its interest in a mineral lease to PITCO. When an environmental lawsuit (Dore Energy Corp. v. Carter-Langham, Inc. et al.) was filed against several parties, including Samedan and PITCO, Noble demanded defense and indemnity from PITCO in 2005, which PITCO denied, claiming Noble was not entitled to such protection. Both companies participated as co-defendants in the lawsuit and attempted joint settlement negotiations, which ultimately failed. PITCO was later dismissed from liability by summary judgment, and Noble settled with Dore in 2009 without including PITCO, following PITCO's refusal to indemnify or defend Noble.

Summary judgment is granted when the evidence, viewed favorably for the non-moving party, shows no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. A fact is deemed "material" if its existence could influence the suit's outcome, while a "genuine" dispute exists if reasonable evidence could lead a jury to favor the non-moving party. The moving party can meet its burden by showing a lack of supporting evidence for the non-moving party's claims, shifting the burden back to the non-moving party to provide specific evidence of genuine issues. Mere allegations are insufficient; admissible evidence is required. If no reasonable jury could find for the non-moving party, summary judgment is appropriate.

In the indemnity suit, Noble asserts it tendered defense and indemnity to PITCO regarding the Dore Lawsuit, which PITCO refused. Noble cites a letter from October 12, 2005, as a formal demand for defense and indemnity and references deposition testimony from PITCO's president confirming the refusal by November 11, 2005. Noble draws upon the Tenth Circuit ruling in Chicago, R.I. P.R. Co. v. Dobry Flour Mills, Inc., which establishes that if an indemnitor denies liability and refuses defense, the indemnitee can conduct a good faith settlement without proving full liability or damage amounts. PITCO counters that while Oklahoma law typically requires proof of actual liability for indemnity on settlements, an indemnitee may prove only potential liability if the indemnitor was given adequate notice and opportunity to engage in settlement discussions, which Noble's actions may not have satisfied.

PITCO contends that Noble's failure to notify them before settling with the plaintiff precludes Noble from obtaining indemnity, despite Noble's earlier demand for defense and indemnity, which PITCO refused. PITCO asserts that under Oklahoma law, Noble must demonstrate actual liability to the plaintiff in the Dore lawsuit to be entitled to indemnity. Noble, however, argues that the initial demand and PITCO's refusal suffice as notice. 

The legal principle stated is that if an indemnitor is notified and has the opportunity to participate in settlement negotiations, the indemnitee should only need to prove potential liability instead of actual liability. The necessity for sufficient notice is emphasized, with the understanding that formal tenders are not required, but the indemnitor must be given a chance to defend or object to a settlement. 

In the In re Cooper case, the court ruled that the indemnitee was only required to show potential liability because the indemnitor was kept informed throughout the litigation process. In contrast, in the current matter, while Noble initially tendered its defense to PITCO, PITCO refused and later attempted to coordinate defenses. After a failed joint settlement in 2007, there were no further discussions between Noble and PITCO regarding settlement until Noble's eventual settlement with Dore in 2009. During this period, PITCO was dismissed from the case and made multiple unsuccessful attempts to gather updates from Noble about the settlement negotiations. Noble’s corporate representative testified that there was no specific communication about settlement talks between 2007 and 2009. Thus, Noble’s lack of communication regarding its settlement negotiations is central to PITCO's argument that it should not be held liable for indemnity.

Noble did not consult PITCO regarding any potential settlement of the Dore lawsuit. The court distinguished this case from In Re Cooper and Caterpillar Inc. v. Trinity Industries, noting that PITCO's refusal to defend allowed Noble to control the case and its settlement negotiations. As a result of PITCO's refusal to provide a defense, Noble was compelled to defend itself, which included settling the lawsuit. The court found Noble's argument that seeking PITCO's consent at this advanced stage of litigation would have been futile to be valid. PITCO had previously concluded that it owed no defense or indemnity to Noble based on its belief that Noble had no liability and/or had engaged in negligent, intentional, or potentially criminal acts. Noble had initially offered PITCO the chance to defend the lawsuit, which PITCO declined, leading Noble to take on the defense and settlement responsibilities. Consequently, the court granted Noble's motion for partial summary judgment, determining that at trial, Noble need only demonstrate potential liability rather than actual liability. The governing law for the case is Oklahoma law, as specified in the parties' agreement.