File: 061299F - From documents transmitted: 02/01/2008
AFFIRMED; Opinion Filed February 1, 2008.
Court of Appeals
Fifth District of Texas at Dallas
MAXUS ENERGY CORPORATION, Appellant
OCCIDENTAL CHEMICAL CORPORATION, Appellee
On Appeal from the 14th Judicial District Court
Dallas County, Texas
Trial Court Cause No. 02-09156-A
Before Justices Richter, Francis, and Lang-Miers
Opinion By Justice Lang-Miers
This appeal involves the interpretation of an indemnity provision in a stock
purchase agreement. Maxus Energy Corporation appeals the trial court's judgment in favor of
Occidental Chemical Corporation. We affirm the judgment.
On September 4, 1986, Maxus, then known as Diamond Shamrock
Corporation, sold one hundred percent of the stock of Diamond Shamrock Chemicals Company
(DSCC) to Oxy-Diamond Alkali Corporation pursuant to a stock purchase agreement. In that
agreement, Maxus agreed to indemnify the buyer and its affiliates, including Occidental, for
certain matters related to DSCC's prior chemicals business. Those prior matters are referred to
in the stock purchase agreement as the Inactive Sites and the Historical Obligations. The Inactive
Sites include chemical plants and commercial waste disposal sites whose use had been
discontinued before the execution of the agreement; the Historical Obligations include Agent
Orange litigation pending at the time the agreement was executed and other liabilities and
obligations associated with the discontinued businesses of DSCC.
Occidental claims that Maxus breached its obligations because it refused to
indemnify Occidental for lawsuits filed by third parties relating to the Inactive Sites and Historical
Obligations. Occidental contends that there is no time limit on Maxus's obligation to indemnify
Occidental for litigation relating to the Inactive Sites and Historical Obligations. Conversely,
Maxus contends that there is a time limit on its obligation to indemnify Occidental and that it is
not obligated to indemnify Occidental for any litigation relating to the Inactive Sites and
Historical Obligations that was commenced after September 4, 1998, twelve years after the sale.
The parties filed competing declaratory judgment claims and motions for
summary judgment on those claims, arguing that the contract language unambiguously supports
their respective positions. The trial court initially agreed with Maxus and rendered a final
judgment in its favor. Upon reconsideration, however, the trial court concluded that the
indemnity provision is ambiguous, vacated its judgment, and submitted the interpretation of the
contract language to the jury. The jury found in favor of Occidental. Maxus appeals, arguing that
the contract language is not ambiguous, and that the trial court erred by submitting the
interpretation of the contract to the jury. See Footnote 1 In two additional issues,
Maxus argues jury charge error.
Interpretation of the contract
A. Standard of Review
The parties agree that Delaware substantive law controls our review of the
contract language at issue in this appeal. See Tex. Civ. Prac. & Rem. Code Ann. § 71.031(c)
(Vernon Supp. 2007). Under Delaware law, the determination of whether a contract is
ambiguous is a question of law. Emmons v. Hartford Underwriters Ins. Co., 697 A.2d 742,
744-45 (Del. 1997).
Although we apply Delaware law to interpret the contract, we apply Texas
standards of appellate review. Tex. Civ. Prac. & Rem. Code Ann. § 71.031(b) (Vernon Supp.
2007); see Brown v. Pennzoil-Quaker State Co., 175 SW.3d 431, 435 (Tex. App.-Houston
[1st Dist.] 2005, pet. denied); Robin v. Entergy Gulf States, Inc., 91 S.W.3d 883, 885 (Tex.
App.-Beaumont 2002, pet. denied). Under Texas law, we review questions of law de novo. See
In re D. Wilson Constr. Co., 196 S.W.3d 774, 781 (Tex. 2006); First Trust Corp. TTEE
FBO v. Edwards, 172 S.W.3d 230, 233-34 (Tex. App.-Dallas 2005, pet. denied).
B. Standards for Interpreting a Contract
Under Delaware law, our role when interpreting a contract “is to effectuate the
parties' intent.” Lorillard Tobacco Co. v. Am. Legacy Found., 903 A.2d 728, 739 (Del.
2006) (citations omitted). If we can glean the parties' intent from the clear and unequivocal
language of the contract, we are bound to give the contract's terms their plain meaning. Id. We
must “rely on a reading of all of the pertinent provisions of the [contract] as a whole, and not on
any single passage in isolation.” O'Brien v. Progressive N. Ins. Co., 785 A.2d 281, 287 (Del.
2001). We are to interpret the contract “in a way that does not render any provision 'illusory or
meaningless.'” Id. (citations omitted).
“A contract is ambiguous only when its provisions are reasonably or fairly
susceptible of different interpretations, or may have two or more meanings.” Lorillard
Tobacco Co., 903 A.2d at 739 (quoting Rhone-Poulenc v. Am. Motorists Ins. Co., 616
A.2d 1192, 1195-96 (Del. 1992)). A contract is not rendered ambiguous simply because the
parties do not agree upon its proper interpretation. Id. The true test is not what the parties
intended the contract to mean, but what a reasonable person in the position of the parties would
have thought it meant. Id. at 740. Under Delaware law, we may not consider extrinsic evidence
in deciding whether a contract is ambiguous. O'Brien, 785 A.2d at 289.
C. The Indemnity Provision
The specific language in dispute is found in section 9.03(a) of the stock
Section 9.03 Indemnification.
Subject to the terms and limitations set forth in Sections 9.01, 9.02, 9.04
and 9.05 hereof:
(a) Seller [Maxus] shall indemnify See Footnote 2 . . .
[Occidental] . . . from and against any and all claims, demands or suits . . . losses, liabilities,
damages, obligations, payments, costs and expenses, paid or incurred, whether or not
relating to, resulting from or arising out of any Third Party Claim (including, without
limitation, the reasonable cost and expenses of any and all actions, suits, proceedings,
demands, assessments, judgments, settlements and compromises relating thereto and
reasonable attorneys' fees in connection therewith), and whether for property damage,
natural resource damage, bodily injury (including, without limitation, damage and injury
related to products and injury to any person living or dead on the date hereof or born
hereafter), governmental fines or penalties (including, without limitation, for the violation of
permits), pollution, threat to the environment, environmental remediation, or otherwise
(individually and collectively “Indemnifiable Losses”) relating to, resulting from or arising
out of any of the following:
any Litigation, See
Footnote 3 whether commenced before or after the Closing Date but prior to the expiration
of 12 years following the Closing Date, relating to any actions or omissions of any Diamond
Company (including, without limitation, any DSCC Company) or any predecessor-in-interest
thereof prior to the Closing Date, or any occurrences, accidents, incidents or events prior to
the Closing Date, relating to the business or activity of any Diamond Company (including,
without limitation, any DSCC Company) or any predecessor-in-interest thereof, including,
without limitation, the Litigation identified in Schedule 2.07, but excluding (A) matters
expressly covered by Section 9.03(a)(i) which do not involve Third Party Claims, Section
9.03(a)(iii) or Article X hereof and (B) all matters with respect to which Litigation is
commenced after the expiration of 12 years following the Closing Date.
the “Inactive Sites” (which for purposes of this Agreement, shall mean those former chemical plants and commercial waste
disposal sites listed on Schedule 9.03(a)(iv) and all other properties which were previously,
but which, as of the Closing Date, are not owned, leased, operated or used in connection
with the business or operations of any Diamond Company, including, without limitation, any
DSCC Company, or any predecessor-in-interest thereof), including, without limitation, any
matter relating to any of the Inactive Sites for which (A) any Diamond Company (including,
without limitation, any DSCC Company) on or prior to the Closing Date agreed to indemnify,
defend or hold harmless any Entity, or (B) any Diamond Company may otherwise be held
the Historical Obligations and any other obligations or liabilities (absolute or contingent) of any Diamond Company (including,
without limitation, any DSCC Company prior to the Closing) or any predecessor-in-interest
thereof or of any DSCC Company unrelated to the Chemicals Business, including, without
limitation, obligations and liabilities arising out of, resulting from or incurred in connection
with, any ownership, use or operation of the business or assets of any Diamond Company
other than a DSCC Company, whether before or after the Closing Date;”
D. Is the Language Ambiguous?
To determine whether the trial court erred in deciding that the language is
ambiguous, we must first determine whether the language is reasonably or fairly susceptible to
two or more meanings. See Lorillard Tobacco Co., 903 A.2d at 739. Both parties argue that
the language is unambiguous and supports their respective positions.
1. Maxus's Position
argues that all litigation relating to Indemnifiable Losses is subject
to the twelve-year limit contained in subsection (ii) of section 9.03(a). To support this argument, it notes
that subsection (ii)(A) of section 9.03(a), “any Litigation,” specifically and only excludes
subsections (i) and (iii) and Article X of the stock purchase agreement from the twelve-year time
limit. It contends that the parties would not have excluded subsections (i) and (iii) and Article X
from the twelve-year limit unless they intended the twelve-year limit in subsection (ii) to also
apply to subsections (iv), the Inactive Sites, and (viii), the Historical Obligations, the subsections
at issue here. See Footnote 4 Maxus further argues that additional language in
subsection (ii)(B) demonstrates that indemnification for all litigation relating to Indemnifiable
Losses is subject to the twelve-year time limit because that subsection bars indemnity for
Litigation for “all matters with respect to which Litigation is commenced after the expiration of
12 years following the Closing Date.” We agree that this is one reasonable interpretation of the
Another reasonable interpretation is that this paragraph means that Maxus is
obligated to indemnify Occidental for all litigation filed within those first twelve years except for
litigation regarding the three exclusions. As a result, it is reasonable to conclude that the
exclusions were limits on the types of litigation that were subject to indemnification during those
first twelve years, not a limit on the types of litigation subject to indemnification after those first
twelve years. It is also reasonable to conclude that if the parties had intended subsection (ii)(A)
& (B) to limit indemnification relating to litigation for all Indemnifiable Losses, they would have
said so. Consequently, the language is fairly susceptible to two or more interpretations.
Maxus also argues that its interpretation allows indemnity for “claims” for
Inactive Sites and Historical Obligations, but not for “indemnity claims for lawsuits concerning
those types of claims.” Maxus contends that if Occidental is entitled to indemnification for
“claims” and “suits” commenced after twelve years, the limit on Litigation contained in
subsection (ii) is meaningless. Conversely, Occidental claims that Maxus's interpretation would
render a significant portion of the language that defines Indemnifiable Losses meaningless.
Consequently, we cannot interpret this language as unambiguously supporting either party
because to do so would render other language meaningless. See O'Brien, 785 A.2d at 287.
Maxus also contends that section 12.10, which requires both parties to
maintain books and records for twelve years, supports its position. It argues that the parties
would have required indefinite retention, or an outright transfer, of those records if the parties
had intended indemnity in perpetuity. Occidental, however, contends that the purpose of the
twelve-year record retention provision was to allow the parties to determine which of them was
responsible under the reciprocal indemnity obligations of section 9.03 for claims arising out of
the active chemicals business that Occidental would continue to operate. It contends that if the
claims arose from conduct occurring before the closing, Maxus would be responsible, as long as
the litigation commenced within twelve years of closing; and if the claims arose from conduct
occurring after the closing, Occidental would be responsible. Both parties present reasonable
arguments. We agree, however, that this provision lends some support to Maxus's interpretation.
2. Occidental's Position
Occidental contends that Maxus's interpretation rewrites the other subsections
in the indemnity provision to insert a twelve-year limit on indemnification that is not in the express
language of those other subsections. It agrees that it may not seek indemnification under
subsection (ii) more than twelve years after the sale, but argues that the nine subsections in the
indemnity provision are each independent, stand-alone indemnification obligations.
Occidental contends that its interpretation is supported by the use of the word “any” in the indemnity provision: that provision states that Maxus shall indemnify
Occidental for Indemnifiable Losses “relating to, resulting from or arising out of any of the
following,” and then lists the nine subsections. Maxus argues, however, that this interpretation
requires us to change the contract from “any of the following” to “any one of the following
without regard to the other.” We conclude, reading the indemnity provision as a whole, that
Occidental's interpretation of the word “any” in this context is reasonable.
Occidental also argues that the following language in section 9.01(b) supports
its interpretation: “all covenants contained in this Agreement shall survive the Closing and
remain in effect indefinitely” unless otherwise provided. See Footnote 5 Maxus
disagrees, contending that section 9.01(b) does not apply to the indemnity provision and,
instead, refers to the representations and warranties in section 9.01(a). But if that is true, then
subsection (b) is mere surplusage, because the time limits on the representations and warranties
are specifically addressed in subsection (a). And we will not interpret a contract in such a way
that renders language mere surplusage. See Elliott Assocs., L.P. v. Avatex Corp., 715 A.2d
843, 851 (Del. 1998).
Maxus also contends that Occidental's interpretation is wrong because section
9.01(b) refers only to the covenants contained in article VIII of the stock purchase agreement
and does not apply to the indemnification provision in section 9.03. We again disagree. If the
parties had intended that result, there would have been no reason for them to include the
language at the beginning of the indemnity provision, section 9.03, “Subject to the terms and
limitations set forth in Section 9.01 . . . .” We agree that the language of section 9.01 tends to
support Occidental's interpretation that the parties intended Maxus's indemnity obligations for
the Inactive Sites and Historical Obligations to have no time limit.
3. Our Conclusion
Both parties present reasonable arguments supporting their views of how the
specific language in dispute should be interpreted. Both interpretations, however, render other
language in the stock purchase agreement meaningless. For these reasons, we conclude that the
disputed language in the stock purchase agreement is “reasonably or fairly susceptible of
different interpretations, or may have two or more meanings.” See Lorillard Tobacco Co., 903
A.2d at 739. As a result, we conclude that the agreement is ambiguous and the trial court
properly submitted the interpretation of the disputed language in the contract to the jury.
We overrule Maxus's first issue.
Claimed Jury Charge Error
In its second and third issues, Maxus argues that the trial court erred (1) by
refusing to instruct the jury on the proper standards for the interpretation of the indemnity
provision, and (2) by improperly shifting the burden of proof to Maxus to prove the twelve-year
limit applies to Occidental's requests for indemnity.
A. Standard of Review and Applicable Law
We apply Texas procedural law to our review of jury charge error. See
Penny v. Powell, 347 S.W.2d 601, 602 (Tex. 1961). Texas Rule of Civil Procedure 277
requires a trial court to submit instructions and definitions to the jury as are necessary to enable
the jury to render a verdict. Tex. R. Civ. P. 277; State Farm Lloyds v. Nicolau, 951 S.W.2d
444, 451-52 (Tex. 1997). We review the trial court's submission of instructions and jury
questions under an abuse of discretion standard. See Nicolau, 951 S.W.2d at 452.
B. Jury Instructions
In its second issue, Maxus contends that the trial court erred by refusing to
submit additional jury instructions relating to the interpretation of the indemnity provision. Maxus
contends that Delaware law required the court to instruct the jury (1) to construe the indemnity
provision narrowly in favor of the indemnitor, and (2) that language in an indemnity contract must
be clear and unequivocal. See Footnote 6 Conversely, Occidental contends that
Delaware law supports its position that these heightened jury instructions were not required.
cases Maxus cites to support its argument that these additional
instructions are required by Delaware law are cases in which the indemnitee was seeking indemnification for
its own acts. See Footnote 7 Here, Occidental is seeking indemnification for DSCC's
acts prior to the execution of the stock purchase agreement, not Occidental's own acts. Maxus
argues, however, that when Occidental merged with DSCC after the execution of the stock
purchase agreement, the two companies “became one company” and DSCC's actions are
Occidental's “own acts” for purposes of prospective indemnification claims. But Maxus does
not cite any provision of the agreement or legal authority to support this argument. And the
agreement expressly provides for Maxus's indemnification of Occidental, specifically referring to
those obligations in terms of DSCC's former chemical plant operations and commercial waste
disposal sites without any reference to a merger of those prior acts into Occidental's own acts.
In summary, Maxus has not shown that DSCC's actions should be imputed to
Occidental. And we have not found any Delaware case that requires the trial court to submit a
heightened standard of proof in the jury instructions in a case where the indemnitee is not seeking
indemnification for its own acts. See, e.g., Oliver B. Cannon & Son, Inc. v. Dorr-Oliver, Inc.,
394 A.2d 1160, 1165 (Del. 1978) (in which court interpreted indemnity provision in typical
indemnity case and did not reference heightened jury instructions).
We overrule Maxus's second issue.
C. Claim that Burden of Proof Shifted to Maxus
In its third issue, Maxus complains that question one of the jury charge
improperly shifted the burden of proof. Neither Maxus nor Occidental cite any decision
applying Delaware law on the issue of the burden of proof in a declaratory judgment action. Our
review of Delaware law, however, indicates our sister state places the burden of proof in a
declaratory judgment action on the party seeking to prove it is entitled to affirmative relief. See
Am. Legacy Found. v. Lorillard Tobacco Co., 886 A.2d 1, 18 (Del. Ch. 2005), aff'd, 903
A.2d 728 (Del. 2006). To properly place the burden of proof, the court's jury charge must be
worded so that the jury's answer indicates that the party with the burden of proof on that fact
established the fact by a preponderance of the evidence. See Turk v. Robles, 810 S.W.2d 755,
759 (Tex. App.-Houston [1st Dist.] 1991, writ denied).
Question one asked:
Are Occidental's section 9.04 requests for indemnity or defense for
obligations under sections 9.03(a)(iv) and 9.03(a)(viii) limited by section 9.03(a)(ii) of the
In answering this question, it is your duty to interpret the language of the
Agreement attached hereto.
You must decide the meaning by determining the intent of the parties at the
time of the Agreement. Consider all the facts and circumstances surrounding the making of
the Agreement, the interpretation placed on the Agreement by the parties and the conduct of
You are further instructed that your answer must be based upon a
preponderance of the evidence.
“yes” or “no.”
Maxus contends that Occidental had the burden of proof because it was the
party seeking indemnification. See Footnote 8 And it contends that this question
improperly placed the burden of proof on Maxus as the party advocating that subsection (ii)
limited indemnification for lawsuits brought regarding the Inactive Sites and Historical Obligations
to those lawsuits brought within twelve years.
But, as we construe the parties' pleadings, Maxus and Occidental both sought
affirmative relief and each had the burden to prove that it was entitled to that relief. Occidental
sought affirmative relief by its request for a declaration that Maxus is obligated to indemnify
Occidental indefinitely for lawsuits relating to the Inactive Sites and Historical Obligations.
Maxus, on the other hand, sought affirmative relief by its request for a declaration that the
agreement contains a twelve- year limit on indemnity for all litigation arising from all nine
subsections of the indemnity provision.
The instruction for question one required the jury's answer to be based on a
preponderance of the evidence, whether that answer was “yes” or “no.” This did not place
the burden solely on Maxus. Instead, it placed the burden on each party to prove its respective
position by a preponderance of the evidence. As a result, we conclude that the trial court did not
improperly shift the burden of proof on this issue.
We overrule Maxus's third issue.
We affirm the trial court's judgment.
Footnote 1 Maxus does not challenge the sufficiency of the evidence to support the jury's
Footnote 2 This language defines Indemnifiable Losses.
Footnote 3 The stock purchase agreement elsewhere defines Litigation as “any action, suit,
claim, proceeding, investigation or written governmental inquiry.”
Footnote 4 Maxus argues we should apply the principle of expressio unius est exclusio
alterius (“the expression of one is the exclusion of the other”). See Am. Legacy Found. v.
Lorillard Tobacco Co., 831 A.2d 335, 345 (Del. Ch. 2003). That principle, however, is more
often applied by Delaware courts in statutory construction, as opposed to the “contractual,
interpretive process” of gleaning the intent of two potentially adverse clients. See Delmarva
Health Plan v. Aceto, 750 A.2d 1213, 1216 n.12 (Del. Ch. 1999) (mem. op.) (citing Walt v.
State, 727 A.2d 836, 840 (Del. 1999)).
Footnote 5 Section 9.01, in its entirety, provides:
Section 9.01 Survival of Representations and Warranties.
Each of the representations and warranties contained in Articles II and III hereof shall survive and remain in full force and effect after the Closing for
the periods set forth in Schedule 9.01, or shall terminate and be of no further force and
effect after the Closing, in each case as set forth in Schedule 9.01.
Unless a specific period is set forth in this Agreement (in which event such specified period shall control), all covenants contained in this
Agreement shall survive the Closing and remain in effect indefinitely.
Footnote 6 Occidental initially contends Maxus did not preserve error on this issue. We
disagree. We conclude Maxus both objected to the court's jury charge and tendered the
instructions. As a result, this issue is properly before us.
Footnote 7 Maxus cites Fina, Inc. v. ARCO, 200 F.3d 266, 271-73 (5th Cir. 2000);
Gloucester Holding Corp. v. U.S. Tape & Sticky Products, LLC, 832 A.2d 116, 129
(Del. Ch. 2003); Rhone-Poulenc, 616 A.2d at 1195-96; Rock v. Delaware Elec.
Cooperative, Inc., 328 A.2d 449, 453-54 (Del. Super. Ct. 1974); and several Delaware
cases not designated for publication.
Footnote 8 Occidental contends that Maxus did not preserve error on this issue because
its objection is not specific enough to inform the court of the error. We do not agree. Maxus
objected to question one because it improperly shifted the burden of proof. Its objection is
sufficient to preserve error. See Tex. R. Civ. P. 274; Bargsley v. Pryor Petroleum Corp.,
196 S.W.3d 823, 830 (Tex. App.-Eastland 2006, pet. denied); Turk v. Robles, 810
S.W.2d at 759 (citing City of Austin v. Powell, 156 Tex. 610, 613, 299 S.W.2d 273,