Co-author Brittany Blakey
Wagner v. Exxon Mobil Corporation is an example of the misfortune that can befall the purchaser who assumes the burden of comprehensive, one-sided indemnity obligations. We will disregard evidentiary and other issues in this case and will focus on indemnity.
The parties executed an Agreement to Purchase and Sell in 1994 whereby the Wagners acquired oil and gas interests in Louisiana from Exxon. In a corresponding Assignment, Exxon conveyed a 50% interest in a mineral servitude encumbering over 120,000 acres. The Wagners agreed to indemnify Exxon for what looks like every environmental liability a diligent scrivener could imagine.
The parties were sued for environmental contamination and for remediation of the properties in two Louisiana lawsuits: M.J. Farms, and Agri-South. The cases settled and Exxon sued the Wagners for indemnification, and after trial sought judgment on a jury verdict for $57.5 million paid to M.J. Farms and $14.1 million paid to Agri-South. The Wagners sought a directed verdict in their favor on both settlements.
The trial court granted the JNOV motion in part, reasoning that Exxon “clearly received valuable consideration in the settlement in the form of collateral transactions for which the [Wagners] had not indemnified Exxon[.]” Exxon failed to prove “an allocation of the [M.J. Farms] settlement between non-indemnity consideration and indemnified losses.” The trial court disregarded the jury finding in part and determined that only $14.11 million of the M.J. Farms settlement “should be considered applicable to the indemnified claims.” The judgment awarded Exxon $14.11 million for each settlement. Both parties appealed.
The appeal and the result
Essentially, the Wagners asserted that Exxon’s failure to allocate the M.J. Farms settlement between those benefits that were covered by the indemnity agreements and those that were not was fatal to a recovery. In response, Exxon pointed to Wagners’ failure to timely object to the jury charge and to raise res judicata as a defense. (Trial lawyers, pay attention!)
In the PSA and Assignment the Wagners agreed to:
- indemnify Exxon ” … from and against all damages … as a result of … the ownership or the operation of, or any act or omission in connection with, the interests or property, by buyer, … or by Exxon, … including, but not limited to: … claims, [etc.] arising out of, or in connection with, the plugging and abandoning and reabandoning of any wells, … closure of pits, and restoration of the surface, … [.]”
- accept all liability for the environmental condition of the property, including “… all existing and prospective claims, … including … costs to cleanup or remediate … and … to indemnify, defend, and hold Exxon … harmless from any and all claims … and liabilities whatsoever in connection with the environmental condition of the property … [.]”
- indemnify Exxon for claims “on account of … contamination or threat of contamination of natural resources … or other threat to the environment” arising from operations before or after the PSA’s effective date.
The court determined that these provisions obligated the Wagners to indemnify Exxon for damages, losses, and expenses:
(1) as a result of the Wagners’ ownership of or any act taken on the properties;
(2) arising out of the “closure of pits, and restoration of the surface”;
(3) arising from the property’s environmental condition, including “costs to cleanup or remediate”; and
(4) sought by any person on action of contamination of natural resources.
The court concluded that all costs related to the settlement of the M.J. Farms litigation likely fell within the scope of the Wagners’ indemnity obligations.
The trial court erred in disregarding the jury’s finding with respect to the M.J. Farms settlement. Trial court judgment reversed, jury’s verdict reinstated, case remanded for entry of judgment in accordance with the verdict.
THE COURT’S WEBSITE REPORTS THAT THIS OPINION HAS BEEN WITHDRAWN.