UNITED STATES COURT OF APPEALS For the Fifth Circuit
No. 95-11168
TRITON ENERGY CORP; TRITON INDONESIA INC.,
Plaintiffs - Appellees,
VERSUS
DAVID A HITE,
Defendant - Appellant.
Appeal from the United States District Court For the Northern District of Texas (3:93-CV-1533-P) December 6, 1996
Before JONES, DUHÉ, and EMILIO M. GARZA, Circuit Judges.
DUHÉ, Circuit Judge:1
David A. Hite, appealing from a summary judgment entered in
favor of Triton Energy Corporation and Triton Indonesia, Inc.
(collectively “Triton”), contends that the district court
incorrectly concluded that a settlement letter to which Hite is a
signatory constituted Hite’s personal guaranty as a matter of law.
Because we hold the language of the settlement letter unambiguously
does not comprise a guaranty, we reverse the district court’s
1 Pursuant to Local Rule 47.5, the Court has determined that this opinion should not be published and is not precedent except under the limited circumstances set forth in Local Rule 47.5.4. judgment and render judgment in favor of Hite dismissing the cause.
I.
Hite is the president and a director of Nordell International
Resources, Ltd., (“Nordell”) and International Veronex Resources,
Ltd.,2 (“Veronex”), Nordell’s parent corporation. In 1982, Nordell
agreed with Pertamina, the state-owned oil company of the Republic
of Indonesia, to perform secondary recovery and rehabilitation
operations in Indonesian oil and gas fields. In furtherance of
this project, Nordell commenced negotiations in Indonesia with
Triton, which resulted in a farmout agreement (the “ENIM
Agreement”) which was executed on October 7, 1988.
Upon returning to the United States, Hite alleged he had been
physically threatened and detained in Indonesia and coerced into
entering into the ENIM Agreement. Accordingly, Joseph Laferty,
another officer of Nordell, notified Triton’s counsel on October
24, 1988, of the alleged duress and requested that the parties meet
to discuss the status of the ENIM Agreement. Triton, in response
to the claim that the ENIM Agreement was voidable, sued Nordell,
Veronex, Hite, and Laferty in the United States District Court for
the Northern District of Texas (the “1988 litigation”) seeking,
inter alia, a temporary restraining order and preliminary and
permanent injunctive relief preventing the defendants from
2 Formerly Veronex Resources, Ltd.
2 interfering with the Indonesian government’s approval of the
project and requiring them to continue to perform their obligations
under the ENIM Agreement. The TRO issued on October 31, 1988, was
effective until November 21, 1988.
Meanwhile, the parties initiated discussions to settle the
1988 litigation. As a result of these negotiations, counsel for
the defendants submitted to Triton on November 13, 1988, a
settlement letter stating, in relevant part,
My clients have instructed me to advise you as follows:
(1) They hereby withdraw their position that the [ENIM Agreement is] unenforceable at Nordell/Veronex’s option due to duress on the part of David A. Hite when he signed those documents on behalf of Veronex and Nordell.
(2) In their individual capacities, and in their representative capacities as officers and directors of Nordell and Veronex, and as the act and deed of those corporations, David A. Hite and Joseph J. Laferty, jointly and separately, hereby ratify and reaffirm in their entirety, without reservation, all of the terms and conditions of the [ENIM Agreement] (including the Farmout Agreement, the Joint Operating Agreement, and the accounting document), and hereby assure you that Veronex and Nordell will continue to abide by and perform according to the terms of those documents.
(3) . . . Messrs. Hite and Laferty advise you that they believe [after consultation with counsel] that they are duly authorized to make the statements and assurances contained in this letter on behalf of Veronex and Nordell.
* * *
(5) My clients wish to have a good future working relationship with Triton, and agree to work together with Triton in good faith toward Triton Indonesia, Inc.’s successful assumption of the Operatorship of the ENIM Project for the future benefit of all parties. Toward that end, we look forward to the end of the litigation between my clients and yours . . . .
3 Hite signed the letter as “President and Director” of Veronex and
Nordell and in his individual capacity. Upon accepting the
settlement offer, Triton obtained dissolution of the TRO and
dismissal of the 1988 litigation.
Subsequently, disputes arose between Nordell and Triton over
the performance of the ENIM Agreement. In January 1990, Nordell
filed a demand for arbitration.3 Triton counterclaimed, alleging
non-performance by Nordell. Arbitration resulted in an award in
favor of Triton, condemning Nordell and Veronex to pay Triton
$930,821.00, reducing Nordell’s interest in the ENIM project to a
five percent “net profits” interest, and ordering Nordell to
refrain from participating in or interfering with the operation of
the project. Denying Nordell’s motion to vacate the arbitration
award, the United States District Court for the Central District of
California confirmed the award and entered judgment against Nordell
and Veronex, and the Ninth Circuit Court of Appeals affirmed.4
After repeated unsuccessful attempts to collect the judgment
from Nordell and Veronex, Triton sued Hite in Texas state court,
3 Hite was not a party to the arbitration proceedings, but did participate as one of Nordell’s representatives. 4 The Ninth Circuit affirmed the district court’s confirmation of the award against Nordell, but reversed as to Veronex and remanded to the district court to determine whether Veronex consented to having the arbitrators decide if it was Nordell’s alter ego, and if it did not consent, to determine de novo whether Veronex was in fact Nordell’s alter ego. Nordell Int’l Resources, Ltd. v. Triton Indonesia, Inc., 999 F.2d 544 (9th Cir. 1993) (TABLE) (text at 1993 WL 280169), cert. denied, 510 U.S. 1119 (1994).
4 alleging the November 13, 1988 letter contained a personal guaranty
by Hite, so that Hite was personally obligated to pay to Triton all
sums owed and unpaid by Nordell and Veronex under the judgment.
Hite removed the cause to the United States District Court for the
Northern District of Texas based on diversity of citizenship.
Triton and Hite then filed opposing motions for summary judgment.
The district court rejected Hite’s contention that under the
doctrine of res judicata Triton was precluded by the previous
arbitration proceedings from suing him based on the November 13,
1988 letter and concluded, based “solely on the four corners of the
November 13[, 1988] letter,” that Hite “accepted individual[]
liability for the performance of the ENIM Agreement” as a matter of
law. Accordingly, the district court granted Triton summary
judgment and ordered Hite to pay Triton $848,557.00 plus
prejudgment interest, costs, and attorneys’ fees. Hite timely
appealed.
On appeal, Hite contends the district court erred by finding
the November 13, 1988 letter, on its face, unambiguously
establishes a guaranty by Hite of the obligations of Nordell and
Veronex under the ENIM Agreement. Further, contends Hite, the
circumstances surrounding the generation of this letter demonstrate
that the letter was not intended to be a guaranty. Instead, the
letter was meant to provide that neither Nordell nor Veronex would
pursue a claim that the ENIM Agreement was voidable due to duress
suffered by Hite, to confirm Hite’s and Laferty’s authority to act
5 on behalf of Nordell and Veronex, and to assure that Nordell and
Veronex, as well as Hite and Laferty, individually, would not
hinder the performance of the ENIM Agreement, thereby convincing
Triton to cease the 1988 litigation and to commence operations.
Alternatively, Hite argues that if the court, from the language of
the letter and the circumstances surrounding its execution, cannot
conclude as a matter of law that the letter is not a guaranty, then
the letter is ambiguous and an issue of material fact exists which
precludes summary judgment. Finally, Hite asserts the district
court erred by concluding that Triton’s claim was not barred by res
judicata, by failing to conclude that Triton’s claim was barred by
the sole remedies clause of the ENIM Agreement because Triton had
already forfeited Nordell’s net profits interest in the project,
and by awarding Triton attorneys’ fees. Because we hold that the
November 13, 1988 letter unambiguously is not a personal guaranty
by Hite, we need address only one of Hite’s other contentions.
Hite’s contention that res judicata bars Triton’s claim
warrants comment. Hite argues Triton could have raised its current
claim in the arbitration proceedings wherein the binding effect of
the November 13, 1988 letter was fully litigated as to Nordell and
Veronex. Because Triton did not, it is barred from asserting that
claim now.
“In this circuit, an action is barred by the doctrine of res
judicata if: 1) the parties are identical in both actions; 2) the
prior judgment was rendered by a court of competent jurisdiction;
6 3) the prior judgment was final on the merits; and 4) the cases
involve the same cause of action.” Travelers Ins. Co. v. St. Jude
Hosp., 37 F.3d 193, 195 (5th Cir. 1994) (citing Nilsen v. City of
Moss Point, 701 F.2d 556, 559 (5th Cir. 1983) (en banc)), cert.
denied, __ U.S. __, 115 S.Ct. 1696 (1995). The parties do not
contest that the second and third requirements for application of
the doctrine have been met with respect to the arbitration
proceedings. Further, Hite contends he was a party to the
arbitration proceedings, inasmuch as the Ninth Circuit precluded
his third-party complaint against Triton in subsequent related
litigation on the basis of res judicata because he was “virtually
represented” in the arbitration proceedings. See Heineman v.
Veronex Resources Ltd., 50 F.3d 14 (9th Cir. 1995) (TABLE) (text at
1995 WL 89372). Triton neither concedes nor contests this
requirement. Instead, the merit to Hite’s res judicata defense
lies in whether the arbitration proceedings and the current suit
“involve the same cause of action.”
“To determine whether the same cause of action is involved,
our court utilizes a transactional test.” Travelers Ins. Co., 10
F.3d at 195. Under this test, the critical issue is whether the
claimant bases the two actions on the same nucleus of operative
facts. Id. (quoting In re Howe, 913 F.2d 1138, 1144 (5th Cir.
1990)). The district court concluded that Triton was not
attempting to relitigate the liability issues decided in the
arbitration proceedings; rather, it seeks only to enforce the
7 judgment arising out of those proceedings pursuant to Hite’s
obligation as guarantor. Accordingly, because Hite’s obligation is
secondary, to be performed only after the principal obligors,
Nordell and Veronex, defaulted on the judgment, Triton’s action is
not barred by res judicata. Reviewing the district court’s
application of the doctrine de novo, Production Supply Co. v. Fry
Steel Inc., 74 F.3d 76, 78 (5th Cir. 1996), we agree.
In Travelers Ins. Co., St. Jude Hospital of Kenner, Louisiana,
Inc. (“SJH”), was the general partner of a limited partnership, and
was a co-defendant with the partnership in a lawsuit filed by
Travelers Insurance Company (“Travelers”). Travelers obtained a
judgment of liability against the partnership, but not against SJH.
When efforts to collect the judgment from the partnership failed,
Travelers sued SJH and moved for summary judgment on the ground
that Louisiana law required the partner to pay the debts of the
partnership. SJH also moved for summary judgment, asserting that
Travelers’ claim was barred by res judicata, as SJH had been a
defendant in the partnership litigation and Travelers was required
to bring all of its claims, including this claim of secondary
liability, in that suit.
We affirmed the district court’s award of summary judgment to
Travelers. The sole issue was whether the current case involved
the same cause of action as the partnership litigation. Relying on
our decision in FDIC v. Mmahat, 960 F.2d 1325 (5th Cir. 1992),
cert. denied, 506 U.S. 1078 (1993), we concluded that Travelers’
8 action against SJH was not based merely on a new theory of
liability, but on the pre-existing judgment against the partnership
and SJH’s secondary obligation as general partner under Louisiana
law. Thus, Travelers’ claim against SJH did not arise from the
same nucleus of operative facts as the partnership litigation.
The current suit is indistinguishable from Travelers Ins. Co.
Under either Texas or California law, see infra note 6, Hite’s
liability as guarantor is secondary. See Republic Nat’l Bank v.
Northwest Nat’l Bank, 578 S.W.2d 109, 114 (Tex. 1978); Manuel v.
Hicks Iron Works, 14 P.2d 756, 758 (Cal. 1932) (citing Bank of
Italy v. Symmes, 5 P.2d 956 (Cal. Ct. App. 1931)); Somers v. United
States Fidelity & Guar. Co., 217 P. 746, 749 (Cal. 1923). Triton
does not attempt to assert a new theory of liability on the ENIM
Agreement, but only to recover the existing judgment against
Nordell and Veronex by enforcing Hite’s secondary obligation as
guarantor. Accordingly, insofar as the district court held
Triton’s claim against Hite as guarantor is not barred by the
doctrine of res judicata, it was correct.
II.
Our review of the district court’s grant of summary judgment
is de novo, applying the same standard as the district court.
Floors Unlimited, Inc. v. Fieldcrest Cannon, Inc., 55 F.3d 181, 183
(5th Cir. 1995). Summary judgment is appropriate when there is no
genuine issue of material fact and the moving party is entitled to
9 judgment as a matter of law. Fed. R. Civ. P. 56(c). All evidence
is viewed in the light most favorable to the nonmoving party, and
factual controversies are resolved in the nonmoving party’s favor.
Royer v. Citgo Petroleum Corp., 53 F.2d 116, 118 (5th Cir. 1995).
“To the extent a district court’s grant of summary judgment is
based on an interpretation of state law, our review of that
determination is also de novo.” Floors Unlimited, Inc., 55 F.3d at
184.
Triton argues the district court correctly concluded, as a
matter of law, that the plain language of the November 13, 1988
letter unambiguously established the instrument as a guaranty.
Triton insists the words “ratify,” “reaffirm,” and “assure” in the
second paragraph of the letter, when given their ordinary and
generally accepted meaning, inescapably sound of guaranty.
Additionally, Triton maintains Hite’s intent to bind himself
personally is evidenced both by the “[i]n their individual
capacities” language of paragraph two and by his execution of the
letter “[i]ndividually.” To conclude Hite executed the letter in
his individual capacity only to indicate he would not attempt to
interfere with operations under the ENIM Agreement renders the
signature and other “individual capacity” language meaningless,
argues Triton, as Hite was already obligated to so refrain.
Relying primarily on our decision in Texas Commerce Bank Nat’l
Ass’n v. Capital Bancshares, Inc., 907 F.2d 1571 (5th Cir. 1990),
10 we must disagree.5
In Texas Commerce Bank, Capital Bancshares, Inc., executed a
promissory note in favor of Texas Commerce Bank, N.A. On the same
day, the directors of Capital executed a letter agreement providing
that, if Capital did not pay the principal and accrued interest on
the note when due, they would “cause [Capital] to have sufficient
funds” to pay the overdue amount, this obligation being deemed
satisfied under the letter agreement “only when [Texas Commerce]
has received such funds.” Capital then defaulted on the note, and
Texas Commerce sued Capital for the amount due on the note and the
directors for breach of the letter agreement. On summary judgment,
the district court rendered judgment that Texas Commerce take
nothing from the directors, finding the letter agreement to be
merely a “comfort letter” and not a guaranty. Affirming the
district court, we concluded:
Under Texas law, . . . [i]n order for a guaranty to be enforceable it must, with reasonable clearness, evidence an intent on the part of a party to become liable on an obligation in the event of default by the primary obligor. A guarantor is a “favorite of the law” and a guaranty is therefore construed strictly in favor of the guarantor. A guarantor’s undertaking may not be extended by construction or implication. The letter agreement does not evidence an intent on the directors’ part to become liable in the event of Capital’s default. An agreement to “cause [a debtor] to have sufficient
5 Arguing the guaranty issue in brief, the parties cite both California and Texas law, but concede the result would be the same under either state’s substantive law. The district court, without mention of a choice-of-law question, applied Texas law. Accepting the parties’ concession, we will follow the district court’s lead and resolve the guaranty issue under Texas law.
11 funds” simply does not constitute a promise to answer for the debt of another.
Texas Commerce Bank, 907 F.2d at 1574 (citations omitted).
Likewise, we find that the language of the November 13, 1988 letter
does not evidence an intent by Hite to become liable for the
obligations of Nordell under the ENIM Agreement.
In construing a written contract, the court’s primary concern
is to ascertain the true intent of the parties. Reilly v. Rangers
Management, Inc., 727 S.W.2d 527, 529 (Tex. 1987); Coker v. Coker,
650 S.W.2d 391, 393 (Tex. 1983). To do so, the court must examine
the entire writing in order to harmonize and to give effect to all
of its provisions. Coker, 650 S.W.2d at 393. No single provision,
taken alone, can have controlling effect; rather, all of the
provisions must be considered with reference to the whole
instrument. Id. Moreover, when the meaning of a contract is
questioned, the court must decide whether the contract is ambiguous
by looking at the contract as a whole in light of the circumstances
present when the contract was entered. Id. at 394; Reilly, 727
S.W.2d at 529; see also Watkins v. Petro-Search, Inc., 689 F.2d
537, 538 (5th Cir. 1982).
Applying these principles of construction to the November 13,
1988 letter, we conclude its language does not unambiguously create
a guaranty. Neither the word “guaranty,” nor any derivative
thereof, appears in the letter. Also, after consulting Webster and
Black, we cannot agree that the correct, much less the common,
12 meaning of “ratify,” “reaffirm,” or “assure” is synonymous with
guaranty. Indeed, a reading of the entire letter suggests no more
than a promise on the part of Nordell, Veronex, Hite, and Laferty
to comply with the ENIM Agreement. The letter’s purpose was to
quell Triton’s fears concerning the validity of the ENIM Agreement
and to end the 1988 litigation, as evidenced by the fact that it
was drafted on the eve of the hearing on Triton’s petition for
injunctive relief and after Triton had stated it would accept the
duress defense and walk away from the project. The “individual
capacity” language was included because Triton sued Hite
individually in the 1988 litigation, which the letter sought to
settle. Thus, the language Triton underscores does not indicate a
promise by Hite to become liable under the ENIM Agreement upon
default by Nordell and Veronex, but a promise to refrain from
acting in a manner that will impede Triton’s operations under the
contract. The district court, therefore, incorrectly construed the
November 13, 1988 letter and improperly granted summary judgment
against Hite.
III.
Based on the foregoing discussion, we hold that the November
13, 1988 letter, on its face, unambiguously does not create a
guaranty by Hite in favor of Triton. Accordingly, we REVERSE the
district court’s grant of summary judgment in favor of Triton and
RENDER judgment in favor of Hite dismissing the cause.
13 14