By: Jessica C. Engler

Outsourcing of basic business functions is increasingly popular. While businesses would once perform data management in-house and rely on their on-site server infrastructure to store data, businesses today are frequently turning to cloud storage providers and other third-parties to hold and manage data. These third party vendors are frequently charged with holding sensitive personal information, such as protected health information, social security numbers, and payment card information, supplied to them by their customers.

In a breach involving multiple entities in the data-supply chain, companies rely on their contracts to avoid liability—regardless of whether the breach originated with the consumer-facing company, a third party processor, a third party cloud storage provider, or another entity. Yet, in some cases, indemnity clauses inside the vendor agreements aren’t as comprehensive as believed at the time they were negotiated. A recent opinion from the Sixth Circuit, on appeal from the U.S. District Court for the Western District of Tennessee, Spec’s Family Partners Ltd. v. First Data Merchant Services, LLC, highlights the importance of indemnity agreements and consequential damage waivers in the data breach context.[1]

Spec’s Family Partners, Ltd. (“Spec’s”) operates a chain of liquor stores that allow customers to purchase goods using payment cards backed by payment networks like MasterCard and Visa. These payment networks contract with issuing banks, which issue payment cards to consumers, and acquiring banks, which sponsor merchants in the system and process the transactions. Intermediary companies like First Data Merchant Services, LLC (“First Data”) frequently contract with acquiring banks to facilitate transaction processing from merchants.

In 2012 and 2013, Spec’s payment card network was compromised; the attackers installed malware and accessed customer payment data. After the issuing banks reimbursed the affected consumers for the fraudulent charges and replaced cards, Visa and MasterCard issued assessments on the acquiring bank, Citicorp Payment Services, Inc. (“Citicorp”). Citicorp then demanded payment from First Data, which then sought reimbursement from Spec’s. Spec’s refused to pay, relying on the consequential damages waiver in its Merchant Agreement with First Data (“MSA”). In response, First Data began withholding the proceeds of routine payment card transactions from Spec’s, placing them in a reserve account. At the time suit was filed, First Data had withheld approximately $2.2 million, and the total would ultimately reach $6.2 million.

The district court sided with Spec’s, holding that card brand assessments constituted consequential damages (and not “third-party fees and charges”), recovery for which was waived under the MSA. The district court later granted summary judgment in favor of Spec’s, holding that First Data materially breached the MSA when it held funds to reimburse itself for the breach assessments. First Data appealed the grant of summary judgment, and the Sixth Circuit undertook a de novo review of both the contract interpretation and summary judgment decision.[2]

On appeal, First Data claimed that the contract’s indemnification clause assigns responsibility to Spec’s as it stated that Spec’s must indemnify First Data, Visa, and MasterCard, and hold them harmless from and against:

any and all claims, demands, losses, costs, liabilities, damages, judgments, or expenses arising out of or relating to (i) any material breach by [Spec’s] of its representations, warranties or agreements under this Agreement; [or] (ii) any act or omission by [Spec’s] that violates . . . any operating rules or regulations of Visa or MasterCard . . .

Investigation of the data incidents revealed that Spec’s had failed to comply with the Payment Card Industry Data Security Standard[3] (“PCI DSS”) prior to the attacks, which had left it vulnerable to breaches. First Data argued that Spec’s failure to comply plus this contractual clause obligate Spec’s for the third party assessments. However, the MSA also contained the following limitation of liability:

IN NO EVENT SHALL EITHER PARTY’S LIABILITY OF ANY KIND TO THE OTHER HEREUNDER INCLUDE ANY SPECIAL, INDIRECT, INCIDENTAL, OR CONSEQUENTIAL LOSSES OR DAMAGES, EVEN IF SUCH PARTY SHALL HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH POTENTIAL LOSS OR DAMAGE.

The ultimate question before the Sixth Circuit was whether the card brand assessments passed on by First Data constituted “consequential damages.” Applying classic constructs of contract interpretation, the Sixth Circuit observed that Tennessee law defines consequential damages (or “special damages”) to be damages that “are the natural consequences of the act complained of, though not the necessary results.”). The Sixth Circuit found the data breaches, which resulted in assessments were a natural result of Spec’s PCI DSS non-compliance, but did not necessarily follow from that non-compliance. Citing Spec’s argument, the Sixth Circuit observed that a non-compliant merchant might never suffer a data breach: “Though certainly a foreseeable consequence of a weak data security, the issuance of assessments nevertheless constitutes consequential damages because it did not necessarily follow from Spec’s Family’s non-compliance.”[4] Therefore, the Sixth Circuit confirmed that First Data retained liability for the assessments under the MSA and, consequently, that First Data materially breached the MSA by withholding payment to Spec’s.

First Data countered before the district court and on appeal that Spec’s first breached through its PCI non-compliance. The courts were not persuaded by this argument because, after the first breach in 2012, Spec’s began focusing becoming more PCI compliant.[5] Spec’s hired a PCI consultant, and Spec’s paid a $10,000 non-compliance fine levied by Visa without contest.[6] After the 2012 breach, First Data and Spec’s continued to perform under the MSA, so the district court—and subsequently the Sixth Circuit—determined that the PCI non-compliance could be considered cured and/or did not rise to the level of a breach “vital to the existence of the contract.”

This case highlights the importance of indemnity clauses and consequential damage waivers in data vendor contracts. While a company may be successful in negotiating a favorable indemnity agreement, that indemnity can be undercut by a general consequential damages waiver. Particularly in data breach claims as seen in Spec’s Family Partners, that waiver of consequential damages can result in millions of dollars in liability. Rather than generic waivers and indemnification clauses, parties negotiating contracts that will require sensitive data sharing may want to consider carve-outs specific to data breaches or cyber liability. Parties may also consider breaking out the limitations into categories, based upon the type, cause, or amount of the damages. The parties may also look to cyber insurance to provide coverage. None of these approaches are mutually exclusive nor comprehensive, and parties should discuss all of these with concepts with data counsel when negotiating vendor contracts.

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[1] Case No. 17-5884/5950 (Before J. Batchelder, J. Cook, and J. Kethledge) (available at http://www.opn.ca6.uscourts.gov/opinions.pdf/19a0294n-06.pdf).

[2] Spec’s also appealed the district court’s reduction of prejudgment interest from Tennessee’s standard 6.25% to 1.79% under federal law. The Sixth Circuit ultimately affirmed the 1.79% interest rate.

[3] The PCI DSS is a security standard for organizations that handle branded credit cards from major credit card providers (i.e., Visa, MasterCard, Discover Financial Services, American Express, and JCB International)

[4] The Sixth Circuit noted that their interpretation was consistent with the “only other federal appeals court” to address this precise issue—the Eighth Circuit in Schnuck Markets, Inc. v. First Data Mech. Servs. Corp., 852 F.3d 732 (8th Cir. 2017).

[5] See Spec’s Family Partners Ltd. v. First Data Merch. Serv. Corp., 2017 WL 4547168 (W.D. Tenn. Jul. 7, 2017).

[6] Id. at 8.

By David Nelson and Beau Bourgeois

In humanity’s never ending quest for perfection, being close to perfect is still failure. If you grew up playing sports you undoubtedly heard a grizzled coach disgustedly say, “[c]lose only counts in horseshoes, hand grenades and atomic warfare.” However, under the Doctrine of Substantial Performance (and the related “Economic Waste” theory), construction projects may be another example of when close is good enough.

At its core a construction contract contains the agreement between the owner and contractor specifying what the contractor agrees to build in exchange for the amount the owner agrees to pay. In many cases owners hire an architect or engineer to develop plans and specifications to specify exactly what the contractor must build. Logically, it would seem that an owner should not be required to pay if the contractor did not build exactly what it agreed to build. Isn’t a party entitled to exactly that for which it bargained? The answer is– not always.

For example, assume that the owner specified that all lumber used must be manufactured by company A, but the contractor actually used lumber manufactured by company B. If the error was not discovered until after the project was nearing completion, and the wood was of similar quality, consider the potential inequity that would result if the contractor was required to completely tear down and rebuild using company A’s lumber just to be paid. The Doctrine of Substantial Performance is designed to address this potential inequity, by limiting an owner’s damage to the loss in value as opposed to the cost of repair when a contractor has substantially performed and the cost of full performance far outweighs the value to the owner.

Under Louisiana law, where a contractor substantially performs a building contract, he is entitled to the contract price less the damages that the owner can prove are attributable to the contractor’s breach by failing to strictly to comply with the plans and specifications.[1] The contractor bears the initial burden of proving substantial performance (that the thing is fit for its intended purpose), but then the burden of proof shifts to the owner to prove that a deficiency in the work exists, that the deficiency was the result of faulty material or improper workmanship or failure to comply with the plans and specifications, and the damages sustained as a result.[2]

Thus, to be entitled to payment the contractor must only prove that it substantially performed the contract. This is a question of fact to be decided by the trial court.[3] Substantial performance occurs when a building is fit for its intended purpose even if certain deficiencies or omissions in construction exist.[4] The factors to consider in determining whether substantial performance is reached include “[1] the extent of the defect or non-performance, [2] the degree to which the purpose of the contract is defeated, [3] the ease of correction, and [4] the use or benefit to the owner of the work already performed.”[5] The jurisprudence on this issue indicates that “substantial performance by a contractor is readily found, despite the existence of a large number of defects in both material and workmanship, unless the structure is Totally [sic] unfit for the purpose for which it was originally intended.”[6]

The Doctrine of Substantial Performance does not unfairly deprive the owner of that to which it bargained, but does shift the burden of proof to the owner. Once the contractor proves that it substantially performed the contract, the burden shifts to the owner to prove:

  1. the existence and nature of the defects;
  2. that the defects were the result of faulty materials, improper workmanship, or the failure to follow the plans and specifications; and,
  3. the cost of repair or completion.

An owner seeking to obtain specific performance or a reduction in the contract price in the amount required to “perfect” or fully complete the work must prove both the necessity of such “perfection” and that the benefit of full performance outweighs the costs.[7] Following the above example, if the owner could prove that the lumber used by the contractor was structurally unsound he/she would likely be entitled to require the complete demolition and rebuild of the structure. In that case the benefit to the owner (a structural sound structure) would outweigh the considerable cost to the contractor. On the other hand, if the lumber used by the contractor was only proven to have a shorter useful life than that of lumber from manufacturer A, the owner’s remedy may be limited to the diminished value of the structure.

The Doctrine of Substantial Performance recognizes that there is no such creature as a perfect construction project and purports to balance the respective rights of the parties to achieve a fair and equitable result.

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[1]  Airco Refrigeration Serv., Inc. v. Fink, 134 So. 2d 880, 882 (La. 1961).

[2]  Superior Derrick Servs., L.L.C. v. LONESTAR 203, 547 F. App’x 432, 439 (5th Cir. 2013) (citing Neel v. O’Quinn, 313 So. 2d 286, 290 (La. App. 3d Cir. 1975)).

[3] Id. (citing Rice v. Mesa General Contractor, LLC, 986 So. 2d 122, 129 (La. App. 5th Cir. 2008); Neel, 313 So. 2d at 290).

[4] Rice, 986 So. 2d at 219 (citing Mount Mariah Baptist Church, Inc. v. Pannell’s Associated Electric, Inc., 835 So. 2d 880 (La. App. 2d Cir. 2002)); Neel, 313 So. 2d at 290 (citing Master Maintenance Engineering, Inc. v. McManus, 292 So. 2d 284 (La. App.1st Cir. 1974); Jerrie Ice Co. v. Col-Flake Corporation, 174 F. Supp. 21 (E.D. La. 1959), affirmed 278 F.2d 508 (5th Cir. 1960)).

[5] Cosman v. Cabrera, 28 So. 3d 1075, 1080–81 (La. App. 1st Cir. 2009) (citing Mayeux v. McInnis, 809 So.2d 310, 313 (La. App. 1st Cir. 2001). See also Neel, 313 So. 2d at 290 (citing Airco, 134 So. 2d 880).

[6] Neel, 313 So. 2d at 291 (citing Clark v. Whitener, 296 So. 2d 393 (La. App. 2d Cir. 1974)).

[7] Id. at 290 (citing Nichols Ford Co., Inc. v. Hughes, 292 So. 2d 345 (La. App. 2d Cir. 1974); U-Finish Homes, Inc. v. Michel, 183 So. 2d 101 (La. App. 1st Cir. 1965)). See also Superior Derrick Servs., 547 F. App’x at 439–40; Cosman, 28 So. 3d at 1080.

By Ben Jumonville

A decision handed down by Louisiana’s Third Circuit Court of Appeal on February 21, 2019, is the first reported case to examine the remedy granted to oppressed shareholders by the Louisiana Business Corporation Act (LBCA), which became effective in 2015.

The LBCA introduced in Louisiana a version of what is known as the “oppression remedy,” which entitles a shareholder to withdraw from the corporation and force it to buy all of their shares at “fair value” if the shareholder can demonstrate that the corporation’s distribution, compensation, governance, and other practices are “plainly incompatible with a genuine effort on the part of the corporation to deal fairly and in good faith with the shareholder.”[1]

In Kolwe v. Civil and Structural Engineers, Inc., the Third Circuit reviewed the judgment from a trial held for the limited purpose of valuing the ownership interest of a shareholder who had exercised his right to withdraw on grounds of oppression from a closely held professional engineering firm organized as a Louisiana corporation.[2]

Specifically, the court considered whether it was appropriate to allow for “tax-affecting” when computing the value of the plaintiff’s shares in the corporation, which was taxed as an S corporation. “Tax affecting” in this context means to reduce the value of corporate earnings to account for tax liability, and there is an ongoing debate among legal and valuation professionals about how best to recognize the tax benefits of pass through entities, such an S corporation, in an appraisal. In Kolwe, the corporation’s valuation expert believed the value of the corporation’s receivables should be reduced or “tax affected” to reflect the tax liability that would accrue upon their collection, while the plaintiff’s expert excluded tax affecting in his valuation. The differing opinions on this issue alone resulted in a discrepancy of more than $250,000 in the experts’ respective valuations of the plaintiff’s shares.

The appellate court ultimately followed the trial court in denying the application of tax affecting when valuing the shares. In so ruling, the court reasoned that tax affecting equates to applying a discount to the value of the corporation’s shares in violation of the LBCA’s definition of “fair value,” which prohibits discounting for lack of marketability or minority status when determining fair value. In particular, the court went to great lengths to make clear that a “fair value” determination under the LBCA requires the corporation to be valued as a whole and then allocating to each share its pro rata portion of the total enterprise value, without applying any shareholder-specific discounts.

Whether the Kolwe decision will be followed by other courts remains to be seen, but the case nevertheless serves as a cautionary tale of the thorny issues related to valuing and acquiring ownership interests in closely held companies. Even when the owners of a company have in place an agreement dealing with the departure process of a principal, significant questions may still arise as to the value of their ownership interest if the agreement is not carefully drafted.

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[1] La. R.S. 12:1-1435.

[2] 264 So. 3d 1262 (La. App. 3d Cir. 2019).

By: G. Trippe Hawthorne and Beau Bourgeois

On April 23, 2019, by a vote of 94-0, House Bill 273, which is an overall update and revision to Louisiana’s Contractor’s Licensing Law, passed out of the Louisiana House of Representatives.  The reengrossed version of the bill, including amendments made in the House Committee on Commerce and  those made on the House Floor is available here.

The bill was introduced and read in the Senate on April 24, 2019, and has been referred to the Senate Committee on Commerce, Consumer Protection and International Affairs.

HB 273 generally updates and modernizes the Louisiana Contractor’s Licensing Law, and gives the Louisiana State Licensing Board for Contractors more flexibility to manage and streamline the contractor licensing process. One potentially significant change to the enforcement provisions would be an increase in the maximum fine that can be assessed against a licensed contractor to 10% of the contract value.

By: G. Trippe Hawthorne

On May 8, 2019, by a vote of 91-0, House Bill 203, which is an overall update and revision to Louisiana’s Private Works Act, passed out of the Louisiana House of Representatives.  The reengrossed version of the bill, including amendments made in the House Committee on Civil Law and Procedure and  those made on the House Floor is available here.

The bill was introduced and read in the Senate on May 9, 2019.

HB 203 is the culmination of a project by the Louisiana State Law Institute which began in 2012 in response to Senate Resolution 158 calling on the Law Institute to study and propose revisions to the Private Works Act.

By A. Edward Hardin, Jr.

As was previously reported, in March, a Federal District Judge in Washington D.C. lifted a stay on the EEOC’s collection of pay data (known as “Component 2” data) from employers with EEO-1 reporting obligations.  The EEOC has now spoken regarding its collection of Component 2 data and stated that covered employers will be required to submit Component 2 data for both calendar years 2017 and 2018 by September 30, 2019.  Component 2 data includes information concerning hours worked and employee pay.  On its website, the EEOC specifically noted that covered employers must submit 2018 Component 1 data (i.e, numbers of employees by job category, race, ethnicity, and sex) by May 31, 2019.  The September 30, 2019 deadline does not upset the May 31 reporting deadline for Component 1 data.  Most private employers with 100 or more employees must comply with the EEO-1 reporting obligations.

By Tyler Moore Kostal

Over the past few years, Energy Intelligence Group (“EIG”) – the New York and London-based publisher of 15 newsletters for the oil and gas industry – has sued more than a dozen energy companies and investment houses, alleging violations of federal copyright law.  The alleged violations result from buying subscriptions to its publications (sent by email) and sharing with nonsubscribers in the office via email distribution.  EIG has reached confidential settlements in nearly all the cases.  The settlements reportedly include an agreement to buy more subscriptions.

One subscriber chose not to settle and faced a $585,000 jury verdict in Houston in December 2017.  EIG sued a $30 billion investment firm for sharing its five subscriptions of “Oil Daily,” which is $9 an article and $95 an issue, with others in the firm who did not have their own subscriptions.  EIG sought damages not just for its lost subscription revenue but also for all profits that the investment firm made from using the information in the newsletter.  The federal jury found the firm liable for copying 39 issues and determined the damages for each instance was $15,000.

It is clear that efforts used by some entities to protect their intellectual property can result in serious consequences.  EIG continues to file these lawsuits against existing energy and investment customers, as recently as this week.

By Daniel Stanton

Among the various duties that Jones Act employers are charged with is the duty to provide its seamen with reasonable medical care.  In a recent decision from the U.S. Fifth Circuit Court of Appeals, Randle v. Crosby Tugs, L.L.C., the Court considered the extent of this duty and how it may be satisfied.  The plaintiff was employed by Crosby aboard its vessel, the M/V DELTA FORCE.  While the plaintiff was loading aboard the vessel, he began to feel lightheaded and fatigued.  He retired to his cabin to rest and was later discovered incapacitated on the cabin by another crewmember.  The crewmember immediately notified the captain who called 911.

An ambulance raced to the scene and then transported plaintiff to Teche Regional Medical Center.  At Teche Regional, plaintiff’s attending physicians failed to diagnose plaintiff’s condition as a stroke as a result of failing to perform the proper diagnostic testing.  Having failed to diagnose plaintiff’s condition as a stroke, the physicians of Teche Regional failed to administer medications that would have improved plaintiff’s port-stroke recovery in time.  As a result of his stroke, plaintiff is permanently disabled and requires constant care.  Plaintiff sued Crosby and alleged, among other things, that Crosby failed to provide him with prompt and adequate medical care.  The district court granted Crosby’s motion for summary judgment on this claim, dismissing it, and the plaintiff appealed.  Plaintiff argued on appeal that his fellow seaman owed him more than merely calling 911 and that Crosby was vicariously liable for the acts of the physicians at Teche Regional.

Evaluating plaintiff’s first argument, the Court noted that the extent of a ship owner’s duty to provide prompt and adequate care depends on the circumstances of each case, the nature of the injury, and the relative availability of medical facilities.  This duty can be breached when a vessel owner fails to get a crewman to a doctor when it is reasonably necessary and the vessel can reasonably do so or if the vessel owner takes the seaman to a doctor it knows is not qualified to provide the necessary care.  With these obligations in mind, the Court considered the actions of Crosby after plaintiff was discovered.  Plaintiff was suffering from an unknown but clearly urgent medical condition, and the act of calling 911 was reasonably calculated to get plaintiff to a facility that could treat him.  Plaintiff did not dispute that, absent the misdiagnosis, Teche Regional would have been capable of treating his condition, and the plaintiff testified himself that his “instinct” would have been to call 911 as well under the circumstances.  The Court found that Crosby acted reasonably under the circumstances, when presented with an unknown but emergency medical condition, and therefore, no liability could attach.

Plaintiff also argued that Crosby should be vicariously liable for the alleged malpractice of the Teche Regional physicians.  Shipowners may be held liable for injuries negligently inflicted upon its employees.  This responsibility includes injuries suffered at the hands of a shipowner’s agents, including shipboard physicians or on-shore physicians that it chooses for the treatment of its employees.  But, a shipowner shall bear no responsibility for the treatment an injured employee receives from a physician of his own choosing.  Here, plaintiff argued that Crosby’s non-delegable duty to provide adequate medical care also included vicarious liability for the acts of the Teche Regional physicians even though Crosby neither employed, nor chose to send plaintiff to Teche Regional.  The Court found that this argument stretched beyond the limits of the law of agency, and while a principle may become liable for the failure of its agent to perform a non-delegable duty to a third party, there must first be an agent to whom such a duty was entrusted.  In the instant case, no such agency relationship exists.  Crosby did nothing to initiate any agency relationship with Teche Regional.  Crosby did not contract with Teche Regional for the plaintiff’s care; it did not direct the ambulance to take plaintiff to Teche Regional; and it likely did not even know why plaintiff was taken to Teche Regional instead of another facility.  In short, plaintiff produced no evidence that Crosby intended for Teche Regional to act as its agent by simply dialing 911.

Having considered and dismissed both of plaintiff’s arguments, the Court affirmed the summary judgment granted in favor of Crosby by the district court.

In light of the Court’s opinion, Jones Act employers should carefully consider their procedures for handling shipboard medical treatment needs for both emergency and non-emergency situations.  Jones Act employers must ensure that their policies and procedures satisfy their obligations to their employees but avoid incurring unexpected liability for the actions of medical professionals.

By Kyle P. Polozola

The Louisiana Risk Fee Act (La. R.S. 30:10) continues to be a big headache for operators.  The Louisiana Legislature revised the Act significantly in 2012, adding alternate and cross unit wells to the category of wells to which the statute applies, but also imposed new obligations on drilling owners during the recovery period.  These new obligations include making drilling owners responsible for paying the burdens owed by non-consenting owners to the parties they contract with.  La. R.S. 30:10A(2)(b)(ii)(aa).  Now, during the recovery period, a drilling owner must pay a nonparticipating owner certain royalties due the nonparticipating owner’s lessor.  During the recovery period, the drilling owner also must now pay a nonparticipating owner certain amounts for the benefit of overriding interest owners.  These payments must not only be made by the drilling owner, they must be made in conformity with the “check stub” statute.

The oil and gas industry reacted harshly to the Louisiana Legislature’s action.  The 2012 amendment was seen as controverting the central rationale for the Risk Fee Act – incentivizing risk taking and investment in Louisiana’s oil patch.  The industry’s response resulted in the Louisiana Senate passing Senate Resolution No. 31 in 2016, requesting that the Louisiana Law Institute study the implications of the 2012 amendments on the Louisiana Risk Fee Act.  The central focus of the Senate’s resolution was the manner in which the 2012 amendments frustrated the original policy and purpose of the Act, which was meant to incentivize parties to share the risk and expense of drilling wells, by rewarding a nonparticipating owner for its failure to share in such risk.  The Law Institute’s committee issued an Interim Report to the Senate outlining several issues that remain under the committee’s consideration, including the following that pertain to the payment of proceeds:

  1. Addressing the responsibility of a nonparticipating owner to demonstrate to an operator charged with responsibility to pay royalties the sufficiency of such owner’s title to its leases as well as the lease terms pertaining to royalties.
  2. Clarifying that any costs incurred by an operator to conduct title work with respect to a tract under lease to a nonparticipating owner is subject to recoupment as well as any applicable risk charge.
  3. Clarifying R.S. 30:10 with respect to the determination of the revenue stream to be applied against payout of any recoverable expenses and risk charge as it relates to the deduction or exclusion of royalties paid by the operator on behalf of the nonparticipating owner.

While the Law Institute committee’s work continues, addressing the foregoing aspects of the Act would be a welcomed development due to, at once, the legal and administrative burden the Act imposed on drilling owners in 2012.  Another report from the Law Institute committee is anticipated this year, and a legislative fix to the statute will likely be sought in the next non-fiscal legislative session in 2020.  In the meantime, operators should apply vigilance in navigating the Louisiana Risk Fee Act’s maze.  Stay tuned.

By: Matthew C. Meiners

The Louisiana Construction Anti-Indemnity Act (La. R.S. 9:2780.1) generally renders null, void and unenforceable any provision in a construction contract (defined broadly to include design, construction, alteration, renovation, repair, and maintenance) which either:

(1) purports to indemnify, defend, or hold harmless, or has the effect of indemnifying, defending, or holding harmless, the indemnitee against the negligence or intentional acts or omissions of the indemnitee, an agent or employee of the indemnitee, or a third party over which the indemnitor has no control; or

(2) purports to require an indemnitor to procure liability insurance covering the acts or omissions or both of the indemnitee, its employees or agents, or the acts or omissions of a third party over whom the indemnitor has no control.

However, the Construction Anti-Indemnity Act does not apply to any construction contract entered into prior to January 1, 2011.

In Moore v. Home Depot USA, Inc., 352 F.Supp.3d 640 (M.D. La. 10/15/2018), the United States District Court for the Middle District of Louisiana held that the indemnity and insurance-procurement obligations created by a Maintenance Services Agreement (which required the contractor to provide materials, equipment, tools, and labor to perform services described in future work orders) entered into in August, 2010 (the “MSA”) are not subject to the Construction Anti-Indemnity Act even though the claims at issue were regarding performance of a work order (governed by the MSA) confected by the parties in 2015.

The Court acknowledged that because the MSA failed to state the time, place, or nature of the contractor’s required performance, the MSA is not itself a binding contract, but instead, the MSA and the 2015 work order combine to form the contract.  However, the Court stated that this does not mean that the date of the work order controls, reasoning that if the Louisiana legislature wanted work orders issued after a master service agreement to dictate whether indemnity and insurance-procurement obligations created by the master service agreement are subject to the Construction Anti-Indemnity Act, it would have included such language in the statute.  By comparison, the Court noted that while the Louisiana Oilfield Anti-Indemnity Act (La. R.S. 9:2780) contains a sub-section stating that it applies to master service agreements creating indemnity obligations incorporated into future work orders, the Construction Anti-Indemnity Act does not contain such language.

Accordingly, the Court concluded that the MSA contracting date – 2010 – controls. By the terms of the contract documents, the 2015 work order was both incorporated in and subject to the MSA, and although the 2015 work order created the contractor’s obligation to perform the work at issue, the 2010 MSA governed that performance and created the contractor’s indemnity and insurance-procurement obligations.  Because the parties confected the MSA in 2010, and the Construction Anti-Indemnity Act does not apply to prohibited clauses in construction contracts confected before January 1, 2011, the Construction Anti-Indemnity Act does not apply to the indemnity and insurance-procurement provisions in the MSA.