CHRISTOPHER LOVELY, STEVEN ADAMS, ROBERT DEFOE, CHARLES VAN CURREN, and DUSTIN LEAVITT, Appellants, v. BAKER HUGHES, INC.; BAKER HUGHES OILFIELD OPERATIONS, INC.; and BAKER PETROLITE CORPORATION, Appellees.
Supreme Court No. S-16967
THE SUPREME COURT OF THE STATE OF ALASKA
March 20, 2020
7434
MAASSEN, Justice.
Superior Court No. 3AN-15-06199 CI
Notice: This opinion is subject to correction before publication in the PACIFIC REPORTER. Readers are requested to bring errors to the attention of the Clerk of the Appellate Courts, 303 K Street, Anchorage, Alaska 99501, phone (907) 264-0608, fax (907) 264-0878, email corrections@akcourts.us.
Appeal from the Superior Court of the State of Alaska, Third Judicial District, Anchorage, Eric A. Aarseth, Judge.
Appearances: Michael W. Flanigan, Flanigan & Bataille, Anchorage, for Appellants. Steven S. Tervooren, Hughes White Colbo Wilcox & Tervooren, LLC, Anchorage, and Mark A. Solheim and Stephen P. Laitinen, Larson King, LLP, St. Paul, Minnesota, for Appellees.
Before: Bolger, Chief Justice, Winfree, Maassen, and Carney, Justices. [Stowers, Justice, not participating.]
I. INTRODUCTION
A construction contractor‘s employees were injured on the job and received workers’ compensation benefits from their employer. The workers later brought a negligence suit against three other corporations: the one that had entered into the construction contract with their employer, that corporation‘s parent corporation, and an affiliated corporation that operated the facility under construction. The three corporations moved
We conclude that a project owner, for purposes of the Act, must be someone who actually contracts with a person to perform specific work and enjoys the beneficial use of that work. We further conclude that the workers raised issues of material fact about which of the three corporate defendants satisfied this definition. We therefore reverse the superior court‘s grant of summary judgment.
II. FACTS AND PROCEEDINGS
A. The Construction Contract
Baker Petrolite Corporation operated a chemical transfer facility1 on the Kenai Spur Highway. A related entity, Baker Hughes Oilfield Operations, Inc., entered into a construction contract with UIC Construction, LLC for construction of a replacement “Baker Petrolite Facility” with more capacity and storage space. The form contract, dated April 5, 2013,2 was signed by David Emerson, vice president of Baker Hughes Oilfield Operations, as “Owner,” and by Chris Phillips for UIC Construction. Both Baker Hughes Oilfield Operations and Baker Petrolite are subsidiaries of Baker Hughes, Inc., a Delaware corporation with a principal place of business in Texas.3
The contract purported to represent “the entire and integrated agreement between the parties[,] . . . supersed[ing] prior negotiations, representations or agreements, either written or oral.” The contract listed a number of documents which could pre-date or post-date the contract and which were to be considered “as fully a part of the Contract as if attached to this Agreement or repeated herein.” The contract provided that it would govern over any inconsistent documents except a modification.
One contract exhibit included as a “Contract Document” was a June 2013 letter stating that Baker Petrolite and UIC Construction had reached a “preliminary agreement” about “renovation of Baker Petrolite Corporation‘s existing facility” on the Kenai Spur Highway. Like the contract itself, it was signed by Phillips and Emerson, but no corporate name accompanied Emerson‘s signature. The names of both Baker Hughes and Baker Hughes Oilfield Operations appeared at the top of the letter.
Several contract provisions are particularly relevant to the parties’ arguments on appeal. The contract defined “Owner” generally in § 2.1.1 as “the person or entity identified as such in the Agreement” and included in the definition “the Owner or the Owner‘s authorized representative.” The contract‘s first page identified the “Owner” as Baker Hughes Oilfield Operations, Inc. and the “Contractor” as UIC Construction, LLC. At § 1.1.2 the contract provided that “[t]he Contract Documents shall not be construed to create a contractual relationship of any kind . . . between any persons or entities other than the Owner and the Contractor.”
In a section addressing indemnification, the contract defined “OWNER” more expansively.4
As used in this indemnity, the name “OWNER” means Owner and its agents, employees, subcontractors, independent contractors, officers, and directors, but not any CONTRACTOR PARTY; and the name “OWNER” means in addition OWNER‘S successors and assigns, all of its affiliated companies, and all of its parent and subsidiary corporations, but the foregoing excludes any separate contractors performing construction work on the Project.
For purposes of the indemnity provision, thus, “OWNER” included both “Owner” (i.e., Baker Hughes Oilfield Operations or its “authorized representative“) and “its affiliated companies.” “CONTRACTOR PARTY” was defined in another section to include UIC Construction‘s employees and subcontractors.
One indemnification provision required the “CONTRACTOR . . . to the fullest extent permitted by law[] to indemnify . . . OWNER” for damages “from ALL CLAIMS, DEMANDS, AND CAUSES OF ACTION FOR ALL DAMAGES that arise out of . . . the injury to or the death of any person, including . . . any natural person included within the definition[] of . . . CONTRACTOR PARTY.” The indemnification provision excluded “any liability arising out of the sole negligence or willful misconduct of Owner” as well as “THE OWNER‘S SOLE NEGLIGENCE AND WILLFUL MISCONDUCT.” But another indemnification provision required the “CONTRACTOR[,] . . . to the fullest extent permitted by law, to indemnify . . . OWNER” “EVEN IN THE EVENT OF THE OWNER‘S SOLE NEGLIGENCE” “to the extent that such injury [was] covered by worker[s‘] compensation laws and benefits.” In a different section the “Contractor” agreed to indemnify and hold harmless the “Owner and its agents and employees from and against claims, damages, losses, and expenses . . . arising out of or resulting from the failure of the Contractor to perform its obligations . . . as stated in the Contract Documents.”
The contract required the “Contractor” to name “[t]he Owner, its affiliates, parents and subsidiaries . . . as insureds or additional insureds” in most of the contractor‘s insurance policies, but not its workers’ compensation policy. The “Contractor” was also required to purchase workers’ compensation insurance and provide proof of it to the “Owner.” The “Owner” had “the absolute right to cancel th[e] Agreement” if the “Contractor” failed to provide timely proof of workers’ compensation coverage. The contract set amounts of required insurance coverage, including workers’ compensation, and provided that the “Owner may (but shall not be obligated to) purchase such insurance on the Contractor‘s behalf and shall be entitled to be repaid by [the] Contractor for any premiums paid therefor.”
B. The Lawsuit
Christopher Lovely, Steven Adams, Robert DeFoe, Charles Van Curren, and Dustin Leavitt (the workers) all worked for UIC Construction on the project. On May 8, 2014, some of UIC‘s employees sought medical care after breathing fumes with a strong odor. According to a Baker Petrolite incident report, an employee of Baker Petrolite “was cleaning a tote that had last contained [a corrosion inhibitor] which contains mercaptan and is very odorous.” The “odor” from cleaning the tote was “transferred” from the existing Baker Petrolite facility “into the new facility via [the] vent discharge, the open windows/doors of the new facility and the prevailing wind direction.” According to the Material Safety Data Sheet, the corrosion inhibitor is considered hazardous and when inhaled can cause a number of adverse health effects, both acute and chronic, including headaches, dizziness, and nausea. The workers contended that they suffered chronic health problems as a result of their exposure.
The workers received workers’ compensation from UIC Construction, their employer. They later sued Baker Hughes, Baker Hughes Oilfield Operations, and Baker Petrolite (collectively the corporations), alleging negligence causes of action.
The corporations presented other arguments in support of each one‘s status as a project owner. They contended that Baker Hughes Oilfield Operations “was the first Owner by virtue of its unique Project role,” pointing to the testimony of a Baker Hughes Oilfield Operations employee who was “tasked with initiating Baker Hughes-related construction projects, and developing new Baker Hughes-related facilities.” They argued that Baker Petrolite was a project owner because Baker Hughes Oilfield Operations had assigned all of its rights under the contract to Baker Petrolite “as of October 31, 2013, well before the May 8, 2014 event” that prompted the lawsuit. They attached a copy of an undated assignment with an October 31, 2013 effective date, signed by the same person, David Emerson, on behalf of both corporations. They also contended that Baker Petrolite was “the operator of the site” and “enjoyed the intended use of UIC‘s construction” of the facility. As for the parent corporation, Baker Hughes, the corporations asserted that “[p]arent and affiliated companies . . . receive a number of benefits from a successful subsidiary company,” relying on a law review note that primarily discussed subsidiary companies in the context of federal patent law.7
The workers responded that “the actual facts” did not support the corporations’ arguments. According to the workers, the only corporation that might qualify as a project owner was Baker Hughes Oilfield Operations, which they said owned the land and which had entered into the construction contract as “the Owner.” They contended that nothing in the Alaska workers’ compensation statute “was intended to allow ‘project owners’ to daisy chain every related company into the designation of ‘project owner.‘”
The workers disputed whether the document assigning the contract to Baker Petrolite had actually been signed on its effective date — October 31, 2013 — pointing out that it was undated and “signed by the same person for both parties.” To support their argument that the purported assignment had no effect on actual operations, they attached deposition testimony from an employee of Baker Hughes Oilfield Operations who confirmed that it was his decision to hire UIC Construction; that he was “the project manager“; that “the only oversight authority of the construction project was through [his] office“; and that he visited the construction site “every four to six weeks for progress meetings or construction review.”
The superior court granted summary judgment to the corporations. Beginning with the
The court then concluded that all three corporations were potentially liable for workers’ compensation covering UIC Construction‘s employees: “If [Baker Hughes Oilfield Operations] were insolvent and unable to provide the workers’ compensation, [Baker Petrolite and Baker Hughes] are both potentially liable.” In support of this conclusion the court cited the same facts noted above and “the indemnification clause in the Contract,” noting — without reference to specific contract language — that “it is difficult to imagine [Baker Hughes] not being liable to provide workers’ compensation insurance if its subsidiary company were underfunded.” The court observed that the workers had “not shown, nor could they show, that under no circumstances could [the three Baker Hughes corporations] never face such liability.” The court concluded that the three corporations were therefore “excluded from additional liability” under
The workers appeal.
III. STANDARDS OF REVIEW
We review a grant of summary judgment de novo, drawing all factual inferences in favor of the nonmoving party.9 We interpret a statute using our independent judgment, “adopt[ing] the rule of law that is most persuasive in light of precedent, reason, and policy.”10 As a general rule, contract interpretation is a question of law that we review de novo, but such interpretation can involve fact questions “when the meaning of contract language is dependent on conflicting extrinsic evidence.”11 In such circumstances, the fact questions may preclude summary judgment on the contract‘s meaning.12
IV. DISCUSSION
A. Only An Entity That Meets The Definition Set Out In AS 23.30.045(f) Is A Project Owner Protected By The Exclusive Liability Provision Of AS 23.30.055 .
The Alaska Workers’ Compensation Act provides that an employee‘s exclusive remedy against the employer for a workplace injury is for benefits under the Act,13 but it also allows the employee to pursue tort actions against third parties who may bear some responsibility.14 In 2004 the legislature
The beginning point for our statutory analysis is
If the employer is a subcontractor and fails to secure the payment of compensation to its employees, the contractor is liable for and shall secure the payment of the compensation to employees of the subcontractor. If the employer is a contractor and fails to secure the payment of compensation to its employees or the employees of a subcontractor, the project owner is liable for and shall secure the payment of the compensation to employees of the contractor and employees of a subcontractor, as applicable.
The terms used in
In this section,
(1) “contractor” means a person who undertakes by contract performance of certain work for another but does not include a vendor whose primary business is the sale or leasing of tools, equipment, other goods, or property;
(2) “project owner” means a person who, in the course of the person‘s business, engages the services of a contractor and who enjoys the beneficial use of the work;
(3) “subcontractor” means a person to whom a contractor sublets all or part of the initial undertaking.
We construe these definitions together because they are part of the same statute and refer to each other.17 To be a “project owner,” the entity in question must “engage[] the services of a contractor.” A “contractor” is an entity that “undertakes by contract certain work for another.” A “subcontractor” enters the mix only if the “contractor” has “sublet” part of the work it assumed by contract.
The parties dispute what it means to “engage the services of a contractor.” The workers argue that the “common understanding” of the phrase refers to “the person who actual[ly] makes the agreement with the contractor,” and they maintain that only Baker Hughes Oilfield Operations — the named “Owner” under the contract — can meet the statutory definition. The corporations argue that they are all project owners because each one participated in some way in the construction project and their participation shows that they “engaged the services of” UIC Construction as required by the “project owner” definition. They maintain that the legislature did not limit “project owner” status to those who have a contractual relationship with a contractor, but they provide no legal analysis to support this assertion. Instead, they describe the extent of each corporation‘s involvement in the project, pointing out, for example, that Baker Hughes‘s “worldwide architect . . . put together the initial site plan and building layout” and that Baker Petrolite‘s “management met with [Baker Hughes Oilfield Operations] to develop a general construction plan.”
We also consider the meaning of “engage.” When used as a transitive verb, “engage” means “[t]o obtain or contract for the services of; employ.”21 As an intransitive verb, “engage” can mean “[t]o involve oneself or become occupied; participate: engage in conversation.”22 This latter meaning appears to be the way the corporations ask us to construe the word; that is, that they were all “engaged,” to one degree or another, in the construction project. But the statute uses “engage” as a transitive verb; it has a direct object, “the services.” The relevant question is not “Was this corporation engaged in the construction project?”23 but rather “Did this corporation engage the services of the contractor?” The common meaning of “engage” in its most relevant sense, as a transitive verb, highlights the importance of a contractual relationship between “project owner” and “contractor.” Reading the statutory definitions together, we must conclude that a project owner is someone who engages the services of — that is, contracts with — a person to perform specific work and enjoys the beneficial use of that work.
The legislative history supports this interpretation of
The legislature has expressed an intent that the Act be interpreted to provide the “predictable delivery” of compensation coverage to injured workers “at a reasonable cost” to employers who provide this coverage.26 Construing the statute as the corporations suggest would undermine these goals. When determining potential liability for compensation depends on the interactions of corporations without clear lines of legal responsibility, coverage for workers and for others involved in the compensation process is less predictable. And because employers and their workers’ compensation carriers can recover all or part of the compensation benefits they have paid from a successful third-party
The corporations argue that the 2004 amendments “protected potentially liable parties from ‘double-dipping’ by injured workers,” citing our decision in Schiel v. Union Oil Co. of California.27 We interpreted “double dipping” in the legislative history as referring to a situation in which a contractor or subcontractor first paid workers’ compensation to its employee and then, “because of an indemnification agreement, also had to defend against a tort suit the worker filed against the project owner.”28 But “project owner” remains a statutorily-defined term; an entity does not become a project owner simply because of an agreement between two other parties that the entity will be indemnified if sued.
In all the cases in which we have considered and applied the “project owner” definition, the project owner was a contracting party. In Schiel we discussed the “master services contract between UNOCAL [which we assumed to be the project owner] and Peak,” the injured worker‘s direct employer.29 We set out the chain of contracts in Nelson v. Municipality of Anchorage, in which the Municipality contracted with one business for specific work and that business subcontracted part of the work to the injured employee‘s employer.30 We mentioned pertinent contract provisions when discussing “project owner” status in Anderson v. Alyeska Pipeline Service Co.31 And in Trudell v. Hibbert we wrote that “the [project owners] contracted with” the injured worker‘s employer for building repairs.32
The only contract the parties identified and discussed here was the April 2013 construction contract signed by UIC Construction and Baker Hughes Oilfield Operations, which incorporated the June 2013 letter memorializing what the superior court called a preliminary agreement between Baker Petrolite and UIC Construction. UIC Construction is the only “contractor” whose services the corporations contend they engaged. On remand the superior court must consider whether the evidence shows that each of the three Baker Hughes corporations was a party to that contract.
B. The Contract‘s Indemnity Provisions Are Irrelevant To Whether A Baker Hughes Entity Is A Project Owner Under The Statutory Definition.
The foregoing analysis is based on the language of the Act and does not consider the import, if any, of the contract‘s indemnity provisions, which form a major part of the corporations’ argument. The corporations’ contract analysis appears to begin with language from the Act‘s exclusive remedy provision,
We disagree. The persons who “cannot be liable in tort” are those who “under
Furthermore, the corporations’ contract arguments do not support their claim that all three are “liable . . . or potentially liable” for the payment of workers’ compensation. The superior court accepted this argument; it concluded that all three corporations “would be potentially liable to provide workers’ compensation insurance” if UIC Construction failed to do so. The court wrote that Baker Hughes‘s “potential liability [was] acknowledged within . . . the indemnification clause in the Contract,” and it apparently relied on the same indemnification provisions to support its conclusion that Baker Petrolite was potentially liable as well. The corporations urge us to adopt the same rationale. They ask, “Where else would one consider a party‘s potential liability, save for first examining the express or implied indemnity provisions in the contract?” (Emphasis in original.)
We have accordingly examined the indemnity provisions in the contract, but we find nothing in them to support the corporations’ argument. All the obligations identified in § 3.18, the indemnity section — “to indemnify, defend and hold harmless” from various claims and causes of action — flowed in the same direction: from the Contractor to the Owner. Nowhere in these provisions was the “potential liability” of any Baker Hughes entity for workers’ compensation “acknowledged“; indeed, under these provisions the Owner assumed no obligation to the Contractor whatsoever. A different part of the contract permitted, but did not require, “the Owner” (i.e., Baker Hughes Oilfield Operations) to buy workers’ compensation insurance if the “Contractor” failed to provide proof that it had done so, but this cannot be construed as requiring all three corporations, even those not parties to the contract, to provide workers’ compensation.34
We find no support in the contract‘s indemnity provisions for the corporations’ argument that all three of them were project owners.
C. Material Factual Disputes Also Precluded Summary Judgment.
We comment briefly on two documents that the superior court found to support the corporations’ arguments on summary judgment; we believe both of them implicate factual issues that should have precluded the court‘s reliance on them. First, the corporations held out the assignment as proof that Baker Petrolite was a project owner; the superior court stated that the workers did “not dispute” that the assignment “transferred the Contract from [Baker Hughes Oilfield Operations] to [Baker Petrolite]” at some point during construction, and that although the date was disputed, the fact of the assignment was itself “evidence consistent with [Baker Petrolite] being the benef[iciary] of the work and in the chain of engaging UIC‘s services.”
But in fact the workers did argue that the contract had not been assigned at all because
We also see fact issues surrounding the June 2013 letter referencing “a preliminary agreement.” The superior court interpreted the letter as coming from Baker Hughes Oilfield Operations but as proving that Baker Petrolite “contracted with UIC for preliminary work,” as the letter recites. But the only document in the record identified as a “preliminary agreement” is between Baker Hughes Oilfield Operations and UIC Construction; Baker Petrolite is not a party. Furthermore, the June 2013 letter was incorporated into the construction contract as one of the “Contract Documents,” and as such it is inoperative to the extent it conflicts with the contract‘s terms — one of which, as noted above, provides that “[t]he Contract Documents shall not be construed to create a contractual relationship of any kind . . . between any persons or entities other than the Owner and the Contractor.”
In sum, the June 2013 letter by itself does not prove the existence of a contractual relationship between Baker Petrolite and UIC Construction, despite its recitals. And even if there were a Baker Petrolite contract for “preliminary work,” it would appear to be relevant to the workers’ claims only if they were doing that “preliminary work,” under that contract, at the time they were injured. In other words, a finding that Baker Petrolite was a project owner for different work under an earlier contract would not mean it was a project owner for purposes of this suit.
The parties may well identify other fact issues that need to be addressed on remand in the course of determining which of the Baker Hughes entities was a project owner.
V. CONCLUSION
We REVERSE the superior court‘s grant of summary judgment and REMAND the case to the superior court for further proceedings consistent with this opinion.