Co-author Gunner West
Yes … sometimes. In ConocoPhillips Company v. Totem Well Service, the U.S. District Court for the Southern District of Texas applied New Mexico law to an oilfield indemnity dispute, voiding the Master Service Agreement’s indemnification clause calling for Texas law to govern.
The facts
ConocoPhillips, headquartered in Texas, hired Totem, based New Mexico, to perform well services under an MSA. Conoco drafted, negotiated, and signed the agreement from Texas. Totem negotiated and signed from New Mexico. The MSA said nothing about where the work would be performed. After a Totem employee sued Conoco for wellsite injuries, initially in Texas and then by refiling in New Mexico, Conoco invoked the MSA’s indemnity clause. Totem refused to comply and this lawsuit followed.
The court’s analysis
The provision said this:
The interpretation and performance of this Agreement … , and any dispute or Claim in connection with (i) this Agreement … are governed by and to be construed in accordance with the laws of the State of Texas, except for any rule or law of the State of Texas that would make the law of any other jurisdiction applicable.
The court had already ruled that the parties intended Texas law to govern the MSA, including choice-of-law principles. The question now was whether those same Texas principles would lead to application of Texas law or to New Mexico’s. The answer required the three-part framework based on Section 187(2) Restatement (Second) of Conflict of Laws. To override the parties’ chosen law, New Mexico had to satisfy these three prongs:
- a more significant relationship to the dispute,
- a materially greater interest, and
- a fundamental policy that Texas law would contravene.
The elements of the first prong, place of contracting and negotiation. were split evenly, since each party handled its side from home. This factor is “relatively insignificant” when there’s no single location. The Court was unpersuaded by Conoco’s argument the last signature was added in Texas. Because the MSA didn’t specify a place of performance, the court couldn’t give that factor “paramount importance”. The drilling, the injury, and the underlying lawsuit were all in New Mexico. Texas appellate courts have treated the forum of the personal injury suit as the relevant place of performance in indemnity cases. Subject matter overlapped with performance, also favoring New Mexico. Place of business was a draw. Weighed by quality, the contacts favored New Mexico.
The court then considered prong two: whether New Mexico’s interest was strong enough to override the parties’ justified expectations. The court acknowledged that Conoco had strong ground here. The MSA contained express Texas choice-of-law language, an indemnity clause, and an agreement to carry insurance. That combination signaled the parties expected the indemnity to be enforceable under Texas law. But justified expectations can be overcome when “substantially outweighed” by the other state’s interests. New Mexico enacted its Oilfield Anti-Indemnity Act to promote safety by forcing each party to bear its own negligence. Unlike Texas, which carved out an insurance exception, New Mexico allows no exceptions at all. The court found that New Mexico’s interest substantially outweighed Texas’ interest. Texas’s remaining interest, limited to enforcing one company’s contract after the Texas lawsuit was dismissed, couldn’t compete.
The third prong was straightforward. New Mexico courts have called the Texas anti-indemnity statute “fundamentally inconsistent” with New Mexico policy. Applying the Texas insurance exception would directly contradict New Mexico’s blanket prohibition.
The result
All three prongs satisfied, the court applied New Mexico law and voided the indemnity.
Your musical interlude (the one we intended for last post)