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1 Pursuant to Local Rule 47.5, the Court has determined that this opinion should not be published and is not precedent except under the limited circumstances set forth in Local Rule 47.5.4.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.,

(9th Cir. 1993) (TABLE) (text at

), cert. denied,

(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.,

(5th Cir. 1994) (citing Nilsen v. City of

Moss Point,

(5th Cir. 1983) (en banc)), cert.

denied, __ U.S. __,

(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.,

(9th Cir. 1995) (TABLE) (text at

). 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,

, 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.,

(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,

(5th Cir. 1992),

cert. denied,

(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,

(Tex. 1978); Manuel v.

Hicks Iron Works,

(Cal. 1932) (citing Bank of

Italy v. Symmes,

(Cal. Ct. App. 1931)); Somers v. United

States Fidelity & Guar. Co.,

(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.,

(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.,

(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.,

.

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.,

(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,

(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.,

(Tex. 1987); Coker v. Coker,

(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,

. No single provision,

taken alone, can have controlling effect; rather, all of the

provisions must be considered with reference to the whole

instrument.

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.

; Reilly,

; see also Watkins v. Petro-Search, Inc.,

(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