The Kuhn Law Firm

An exculpatory clause in a contract can be enforced by courts.

Minnesota contract lawyers should look to this Oklahoma case for guidance in arguing whether an exculpatory clause is enforceable.   Under Oklahoma law, courts may enforce contractual exculpatory clauses only if they meet three conditions:
(1) their language must evidence a clear and unambiguous intent to
exonerate the would-be defendant from liability for the
sought-to-be-recovered damages;
(2) at the time the contract (containing the clause) was executed there
must have been no vast difference in bargaining power between
parties; and (3) enforcement of these clauses must never (a) be injurious to public
health, public morals or confidence in administration of the law or
(b) so undermine the security of individual rights vis-a-vis personal
safety or private property as to violate public policy.

v. No. 11-6053
(D.C. No. 5:08-CV-01361-D)
Toby M. McKinstry of Tomlinson Rust McKinstry Grable, Oklahoma City,
Oklahoma, for Defendant–Appellant.
Thomas G. Wolfe (Catherine L. Campbell with him on the brief) of Phillips
Murrah P.C., Oklahoma City, Oklahoma, for Plaintiff–Appellee.
Before LUCERO, McKAY, and TYMKOVICH, Circuit Judges.
McKAY, Circuit Judge.
This is a dispute concerning cementing services provided on an oil well.
Plaintiff Arnold Oil Properties, LLC, (“Arnold”) hired Defendant Schlumberger
Technology Corp. (“Schlumberger”) to perform a specialized cement job on its
deep-zone gas well. After Schlumberger poured too much cement into the well,
Arnold sued for breach of contract and negligence. The district court concluded
as a matter of law that an alleged exculpatory provision in the parties’ contract
was in fact an indemnification provision and therefore did not bar Arnold’s
recovery. After a jury found the parties were in unequal bargaining positions, the
district court denied Schlumberger’s request to enforce the contractual limitationof-
liability provision. We affirm.
In 2007, Arnold needed cement poured into its wellhole in Custer County,
Oklahoma, in order to reach a certain level for drilling. Out of three companies
able to provide the specialized services, Arnold chose Schlumberger to complete
the job. In May 2007, an Arnold engineer, Steve Kester, contacted Schlumberger
to request the cement services. Mr. Kester provided Schlumberger with Arnold’s
target depth of 11,900 feet, as well as the hole volume and other measurements
needed to calculate how much cement would be necessary. Felipe Gemini, a
Schlumberger engineer, emailed Mr. Kester a job proposal consistent with
Arnold’s 11,900 foot target. However, Mr. Gemini assigned the job to Ron
Acklin, a salesman for Schlumberger, who told Mr. Kester to disregard the first
emailed proposal. Mr. Kester did not open Mr. Gemini’s email. Mr. Kester gave
Mr. Acklin the same measurements he had given previously, and Mr. Acklin
prepared a new proposal, which reflected a cement top of 11,900 feet. Mr. Kester
accepted the proposal and arranged for completion of the job on June 2, 2007.
What Mr. Kester did not realize was that while the second proposal
indicated the cement top would be 11,900 feet, the amount of cement Mr. Acklin
calculated for the job would actually result in a much higher cement top. The
problem arose because of disparate meanings for the hole volume measurement.
“‘Hole volume’ (synonymous with the terms ‘open hole volume’ or ‘open hole
fill’) is the volume of the hole without pipe in it and is different and larger than
“annular volume” which is the hole volume less the volume of the pipe . . . .”
(Appellant’s App. at 53.) “Because cement is placed in the hole between the pipe
and the earth, the annular volume is used to calculate the volume of cement
required.” (Id.) While Mr. Gemini’s proposal used annular volume, Mr. Acklin’s
proposal used hole volume to calculate the amount of cement needed. Thus,
Schlumberger used more cement than was actually needed. But because Mr.
Acklin’s proposal showed a cement top at 11,900 feet and Mr. Kester had not read
the first proposal, Mr. Kester did not question Mr. Acklin’s calculation of the
amount of cement needed.
Schlumberger completed the job on June 2, 2007, after which Mr. Kester
signed Schlumberger’s contract using an electronic signature pad. The terms of
the contract were not visible on the electronic signature pad. The contract
provided, in part, the following:
9. Indemnities
(a) Personnel and Property[.]
. . . . .
2. Customer shall be responsible for and
hereby agrees to protect, defend, indemnify
and hold harmless Schlumberger Group and
its insurers from and against all claims
arising out of or in connection with damage
to or loss or destruction of property . . .
arising out of or in connection with the
contract or the services provided hereunder.
(b) Special Indemnity. Notwithstanding anything to the
contrary herein, customer assumes all liability for and
agrees to protect, defend, indemnify, and hold
Schlumberger Group and its insurers harmless from and
against all claims arising out of or in connection
herewith for . . . (III) property damage or loss that
results from reservoir or underground damage, including
loss of oil, gas, other mineral substances, or water or the
well bore itself . . . (V) damage to property owned by, in
the possession of, or leased by customer, and/or well
owner . . . .
(c) Application of Indemnities. The assumption of
liability and indemnities in paragraphs (a) and (b) above
shall apply to any loss, damage . . . or claim arising out
of or in connection with this contract or the services
provided hereunder, without regard to the cause(s)
thereof including, without limitation, . . . the sole, joint,
concurrent or gross, active or passive, negligence or
other fault of the indemnitee or its contractors or
subcontractors or its or their employees, agents,
representatives or invitees.
(Id. at 31 (emphasis and capitalization omitted).) The contract also sets forth a
separate limitation of liability clause:
12. Limitation of Liability. Notwithstanding anything
to the contrary herein, except as provided under
Paragraph 9.(a)1, Schlumberger’s liability arising
from or in connection with this Contract (whether
for indemnity, breach of contract, negligence,
misrepresentation, or otherwise) shall not in any
circumstances exceed the full value of the
consideration owed to Schlumberger under this
(Id. (emphasis omitted).) The cost of the work performed totaled $40,893.37.
The cement top poured by Schlumberger actually rose to 10,595 feet,
higher than the requested 11,900 foot target. At this level, the cement covered a
zone in the well that Arnold had identified for production. Arnold incurred
almost one million dollars of additional expenses as a result of sidetracking
around the cement to reach the now-covered zone. To recoup the additional
expense, Arnold filed this action against Schlumberger for negligence, gross
negligence, and breach of contract. Schlumberger moved for summary judgment,
arguing the contract precluded its liability or, alternatively, the contract limited
its liability to the cost of the work performed. After concluding the contract was
clear and unambiguous, and therefore the construction of the contract was a
matter of law for the court to decide, the district court held the indemnity
provision in the contract merely operated to indemnify the parties against thirdparty
claims and was not exculpatory. “Nothing in the instant indemnity
provision—paragraph 9 of the contract—suggests that the parties intended it to
operate as an exculpatory release as opposed to an agreement to indemnify with
respect to claims of third parties.” (Id. at 151.) Accordingly, the district court
denied summary judgment. The district court also held that fact issues remained
as to the parties’ relative bargaining positions and therefore denied summary
judgment on the enforceability of the limitation-of-liability provision.
The case proceeded to trial, and the jury returned a verdict finding the
parties were equally negligent and Schlumberger had breached its contract with
Arnold. The jury awarded $350,000 in damages to Arnold. The jury also
determined Schlumberger was not grossly negligent and the parties were in an
unequal bargaining position. Schlumberger renewed its motion for judgment as a
matter of law seeking enforcement of the limitation-of-liability clause. The
district court denied the Rule 50(b) motion, holding “the evidence admitted at
trial was sufficient to permit the jury reasonably to find that [Arnold] and
[Schlumberger] held positions of unequal bargaining power at the time of
contracting.” (Id. at 223-24.) Schlumberger now appeals the district court’s
denial of summary judgment and its denial of judgment as a matter of law.
We review the denial of summary judgment de novo and apply the same
standards as the district court. Yaffe Cos. v. Great Am. Ins. Co., 499 F.3d 1182,
1185 (10th Cir. 2007). Summary judgment is appropriate “if there is no genuine
issue as to any material fact and the movant is entitled to a judgment as a matter
of law.” Fed. R. Civ. P. 56(c). “Our review, however, is only appropriate where
the motion for summary judgment presented a legal question.” Kelley v. City of
Albuquerque, 542 F.3d 802, 820 (10th Cir. 2008); see also Ruyle v. Cont’l Oil
Co., 44 F.3d 837, 841 (10th Cir. 1994) (“A party who properly raises an issue of
law before the case goes to the jury need not include the issue in a motion for a
directed verdict in order to preserve the question on appeal.” (quotation marks
omitted)). Additionally, the determination as to whether a contract is ambiguous
and the construction of an unambiguous contract are legal questions for the court.
Pitco Prod. Co. v. Chaparral Energy, Inc., 63 P.3d 541, 545 (Okla. 2003).1
Further, “[w]e review de novo a district court’s disposition of a motion for
judgment as a matter of law, applying the same standard as the district court.”
Bristol v. Bd. of Cnty. Comm’rs, 312 F.3d 1213, 1216 (10th Cir. 2002) (quotation
marks omitted). We grant judgment as a matter of law “if there is no legally
sufficient evidentiary basis with respect to a claim or defense under the
controlling law.” Id. (quotation marks and alterations omitted). “[T]he
controlling question is whether the plaintiff has arguably proven a legally
sufficient claim.” Id. at 1216-17 (quotation marks omitted).
Schlumberger first argues the district court misconstrued the indemnity and
hold-harmless provisions in the parties’ contract based on its mistaken belief that
the parties did not intend to bar claims by Arnold against Schlumberger. While
1 Oklahoma law governs substantive issues in this diversity case. Mincin v.
Vail Holdings, Inc., 308 F.3d 1105, 1108-09 (10th Cir. 2002) (“A federal court
sitting in diversity applies the substantive law of the forum state.”).
the terms indemnity and exculpatory are often used interchangeably, they are, in
fact, different. “An exculpatory clause releases in advance the second party for
any harm the second party might cause the first party after the contract is entered.
[An] indemnification clause . . . protects against claims made by parties outside
the contract.” Federated Rural Elec. Ins. Corp. v. Williams, 2002 WL 31041863,
at *4 (Okla. Civ. App. 2002). Schlumberger argues the clear language of the
contract required Arnold to exculpate and hold Schlumberger harmless “from and
against all claims arising out of or in connection with damage to or loss or
destruction of property . . . arising out of or in connection with the contract or the
services provided hereunder.” (Appellant’s App. at 31.)
While we question whether these provisions, as a matter of law, really did
exclude exculpatory rights, see United States v. Hardage, 985 F.2d 1427, 1435
(10th Cir. 1993) (“[O]ur analysis of Oklahoma law leads us to conclude that the
term ‘resulting from’ is the type of all-inclusive and unambiguous language
sufficient to exculpate” a party from its own negligence or strict liability.), we
need not decide the issue. Under Oklahoma law, courts may enforce contractual
exculpatory clauses only if they meet three conditions:
(1) their language must evidence a clear and unambiguous intent to
exonerate the would-be defendant from liability for the
sought-to-be-recovered damages;
(2) at the time the contract (containing the clause) was executed there
must have been no vast difference in bargaining power between
parties; and
(3) enforcement of these clauses must never (a) be injurious to public
health, public morals or confidence in administration of the law or
(b) so undermine the security of individual rights vis-a-vis personal
safety or private property as to violate public policy.
Schmidt v. United States, 912 P.2d 871, 874 (Okla. 1996). In this case, the jury
ultimately found Arnold and Schlumberger were in unequal bargaining positions.2
While Schlumberger has appealed that finding, as discussed below, we agree with
the district court that the testimony at trial sufficiently supported the jury’s
finding. Thus, even if we were to hold the language of the parties’ contract
operates to exculpate Schlumberger from any and all liability, because of the
parties’ unequal bargaining position, we would have to find the exculpatory
provision unenforceable under Oklahoma law. Either way, the contract cannot
exculpate Schlumberger from its liability in this case.3
Schlumberger also argues the district court should have granted its motion
2 In theory, there may be some difference between a “vast difference in
bargaining power,” as described in Schmidt, and merely “unequal” bargaining
power, as the jury found here. Schlumberger, however, does not argue that there
is any significant difference. To the contrary, Schlumberger, relying on Schmidt,
requested the district court to instruct the jury that limitation-of-liability
agreements “are enforceable if there was no unequal bargaining position between
the parties,” and the court did so. Thus, we assume, without deciding, that a jury
finding of “unequal” bargaining power is sufficient to render a contract
unenforceable under Schmidt.
3 And in fact, “[w]e are free to affirm a district court decision on any
grounds for which there is a record sufficient to permit conclusions of law, even
grounds not relied upon by the district court.” United States v. Lott, 310 F.3d
1231, 1242 n.7 (10th Cir. 2002) (quotation marks omitted).
for judgment as a matter of law to enforce the limitation-of-liability provision
limiting Arnold’s recovery to the cost of services rendered—$40,893.37. Under
Oklahoma law, courts may enforce contractual provisions limiting a party’s
liability for ordinary negligence if the parties have equal bargaining power.
Elsken v. Network Multi-Family Sec. Corp., 838 P.2d 1007, 1009-11 (Okla. 1992).
Oklahoma courts consider two factors in determining parties’ relative bargaining
power: “(1) the importance of the subject matter to the physical or economic wellbeing
of the party agreeing to the release, and (2) the amount of free choice that
party could have exercised when seeking alternate services.” Schmidt, 912 P.2d
at 874.
Schlumberger argues the jury heard no evidence relating to Arnold and
Schlumberger’s relative bargaining power because Arnold only offered evidence
relating to other companies’ contracts. Specifically, Arnold’s chief operating
officer engineer testified that other companies’ contracts have “onerous contract
terms” and salespeople at other companies had told him service contracts are
offered on a “take it or leave it” basis. (Appellant’s App. at 272-73.)
Schlumberger argues Arnold did not testify that it ever requested a contract
modification from Schlumberger, and therefore there is no evidence Schlumberger
would have denied such a request. Schlumberger also argues the evidence
showed Arnold could have hired at least two other companies to perform the same
work, and therefore there was no unequal bargaining position.
“In reviewing the denial of a Rule 50 motion, we determine only whether
the jury verdict is supported by substantial evidence when the record is viewed
most favorably to the prevailing party.” Webco Indus., Inc. v. Thermatool Corp.,
278 F.3d 1120, 1128 (10th Cir. 2002). Substantial evidence is less than the
weight of the evidence. Instead, it “is defined as such relevant evidence as a
reasonable mind might accept as adequate to support a conclusion, even if
different conclusions also might be supported by the evidence.” Id. (quotation
marks omitted).
In this case, the evidence at trial showed: (1) the 11,900 foot cement top
was “critical” to Arnold’s production from the well (Appellant’s App. at 236); (2)
three companies were able to perform the work Arnold needed; (3) all three
companies used standardized contracts with similar “onerous” terms regarding
liability (Id. at 272); (4) in Arnold’s chief operating officer’s experience, the
terms were non-negotiable; and (5) a Schlumberger employee who has performed
hundreds of cement jobs has never been asked to modify the terms of the contract,
nor does he have the authority to do so. Arnold also offered evidence that a
comparable company’s contract allowed for modification of the liability
provisions on its face if first authorized by an executive officer. Arnold’s
witnesses doubted this could ever happen, and the company prohibited field
personnel from making such modifications. Further, Schlumberger’s contract
contained no such language, a fact Arnold argues supports the jury’s finding that
the parties were in unequal bargaining positions.
We hold the evidence offered at trial was sufficient for the jury to conclude
Arnold did not have free choice in seeking alternate services, and therefore the
parties were in unequal bargaining positions. As the district court observed, “a
reasonable inference to be drawn from the trial evidence was that the
nonnegotiable nature of the form contract was so well known that [Arnold] did
not see the written contract, and [Schlumberger] did not ask [Arnold] to sign it,
until the work had already been completed.” (Appellant’s App. at 224.) As such,
we cannot enforce the limited liability provision. The district court was correct to
deny Schlumberger’s motion for judgment as a matter of law.
Schlumberger contends our decision in Elsken v. Network Multi-Family
Sec. Corp., 49 F.3d 1470, 1475 (10th Cir. 1995), held that evidence of a “take-itor-
leave-it” contract is insufficient to determine relative bargaining position. But
in Elsken, the plaintiff only offered evidence the contract was “take-it-or-leaveit.”
Thus, we held, “[f]rom these assertions alone a fact finder would be unable to
determine that [the plaintiff] was in a bargaining position that would render the
[contract] unenforceable.” Id. And in fact, in Elsken, we noted “[t]he [contract]
reveals that [the plaintiff] could have bargained for a higher limit on liability.
This undercuts [the plaintiff’s] argument that the contract was absolutely
unnegotiable.” Id. at 1475 n.1. Thus, we upheld the dismissal of the plaintiff’s
claims in Elsken because she failed to present facts creating a genuine issue
relating to her unequal bargaining position. In this case, though, a jury found
unequal bargaining position between the parties. The evidence supported such a
finding, and we will not disturb it.
For the foregoing reasons, we AFFIRM the district court’s judgment.

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