Industrial Strength Graphic Only

By Jaye Calhoun, Phyllis Sims, Willie Kolarik, and McClain Schonekas

Despite consideration of an Ohio-style gross receipts tax, a Michigan-style single business tax and various versions of flat taxes, the 2017 Regular Session of the Louisiana Legislature ended on June 8, 2017, without the enactment of any significant tax reform. Because the Legislature neglected to compromise on the budget issues raised in the Session, Governor John Bel Edwards called a Special Session to convene half an hour after the regular session ended. The issues that could be addressed in the Special Session, however, were limited to budget issues pursuant to the Special Session Call.

Nevertheless, some tax legislation of note squeaked out and will become law if either signed by the Governor or after the expiration of the requisite passage of time if the Governor takes no action (or, in at least one instance below, if the voters approve a Constitutional amendment). Please note that, for those pieces of legislation below identified by Act Number, the Governor has signed the legislation. As of this client alert, the remaining items have not yet been acted upon by the Governor so they are not final. The Governor has, at latest, until June 27, 2017 to act upon (sign or veto) the legislation, or to allow the legislation to go into effect without signature.

In the meantime, here are some relevant tax provisions that made it out of the 2017 Regular Session:

Sales and Use Tax

Establishing the Louisiana Uniform Local Sales Tax Board and the Louisiana Sales and Use Tax Commission for Remote Sellers and creating an optional concurcus proceeding for certain taxpayer’s involved in multi-parish audits

Act No. 274 (HB601), enacted June 16, 2017.

Act No. 274 creates two new entities: the Louisiana Uniform Local Sales Tax Board (the “Board”) and the Louisiana Sales and Use Tax Commission for Remote Sellers (the “Commission”). The Board, consisting of eight members and domiciled in East Baton Rouge Parish, is established for purposes of creating uniformity and efficiency in the imposition, collection, and administration of local sales and use taxes. Among its powers and duties, the Board may issue policy advice and private letter rulings on local sales and use tax issues. The Commission, composed of eight commissioners and domiciled in East Baton Rouge, is established for the administration and collection of sales and use tax imposed by the state and political subdivisions for remote sales. The Commission will have the power, duty, and authority to serve as the single entity within the state responsible for all state and local sales and use tax administration, return processing, and audits for remotes sales.

Act. No. 274 also amended La. R.S. 47:337.86 to create an optional concurcus proceeding for a taxpayer that has received a formal notice of assessment from two or more Louisiana local collectors that have a competing or conflicting claim to sales and use tax on a transaction. In that instance, the taxpayer or dealer may file a concurcus proceeding before the Local Tax Division of the Louisiana Board of Tax Appeals. If a concurcus is filed, the taxpayer or dealer, as applicable, shall pay the amount of sales tax collected or, if no tax was collected, the amount of tax due at the highest applicable rate, together with penalty and interest into an escrow account for the registry of the Board of Tax Appeals. The proceeding shall name as defendants all parishes that are parties to the dispute. Special rules for appealing a decision of judgment of the Board of Tax Appeals in the concurcus proceeding are also provided. Any taxpayer involved in a multi-parish audit should consider whether it is appropriate to file a concursus proceeding.

Act No. 274 became effective on June 16, 2017.

You can view the legislation here.

Addition of Certain Construction Contracts Excluded from New Sales and Use Tax

Act No. 209 (HB 264), enacted June 14, 2017.

Act No. 209 amends and reenacts La. R.S. 47:305.11(A) to provide that no new or additional sales or use tax shall be applicable to sales of materials or services involved in fixed fee and guaranteed maximum price construction contracts. The current law excludes any new sales tax levy on materials and services for a lump sum or unit price construction contract.

The provisions of Act No. 209 are applicable for purposes of any additional state sales and use tax enacted on or after July 1, 2017. Therefore, it appears that fixed fee and guaranteed maximum price construction contracts may not be excluded from the levy or a new or additional state or local sales and use tax enacted before July 1, 2017.

Act No. 209 became effective on June 14, 2017.

You can view the legislation here.

Medical Devices Exemption

SB 180, not acted upon by the Governor as of June 22, 2017.

SB 180 creates a sales and use tax exemption, beginning July 1, 2017, for medical devices used by patients under the supervision of a physician.

You can view the legislation here.

Income/Franchise Tax Credits

2015/2016 Reductions to Certain Income & Corporate Franchise Tax Credits Made Permanent & Restoration of Tax Credit for State Insurance Premium Tax Paid

SB79, not acted upon by the Governor as of June 22, 2017.

SB 79 provides that certain tax credit reductions will no longer sunset on June 30, 2018, making the reductions permanent. Specifically the tax credit for employee and depend health insurance coverage, the tax credit for rehab of residential structures, the tax credit for qualified new recycling manufacturing or process equipment and service contracts, the tax credit for donations made to public schools, the angel investor tax credit program, the digital interactive media and software tax credit, the musical and theatrical production income tax credit, the green jobs industries tax credit, the technology commercialization credit, and the modernization tax credit. The majority of the changes are minor, mostly reducing certain income and corporation franchise tax credits. The bill does, however, restore the corporate income tax credit for state insurance premium taxes paid.

You can view the legislation here.

Modifications to Inventory Tax Credit

SB 182, not acted upon by the Governor as of June 22, 2017.

SB 182 changes the limitation on refundability of excess inventory tax credits for local ad valorem taxes paid on inventory to clarify that only taxpayers included on the same consolidated federal income tax return shall be treated as a single taxpayer, i.e., related or affiliated taxpayers that are not included on the same consolidated federal return are not regarded as a single taxpayer.

If enacted, SB 182 would apply to all claims for credits authorized pursuant to La. R.S. 47:6006 on any return filed on or after July 1, 2017, regardless of the taxable year to which the return relates, but would not apply to an amended return filed on or after July 1, 2017, if the credits authorized pursuant to La. R.S. 47:6006 were properly claimed on an original return filed prior to July 1, 2017.

You can view the legislation here.

Goodbye Tax Credits

SB 172, not acted upon by the Governor as of June 22, 2017.

SB 172 terminates certain tax credits such as the tax credit for contributions to education institutions and the tax credit for employment of first-time nonviolent offenders, among others, as of January 1, 2020. The tax credits for expenses incurred for the rehabilitation of historic structures and for the conversion of vehicles to alternative fuel usage would terminate beginning January 1, 2022. The final bill did not impact the inventory tax credit.

You can view the legislation here.

Say Goodbye to Even More Tax Credits

Act No. 323 (SB 178) effective June 22, 2017

Act No. 323 sets termination dates for various tax credits and incentive programs, including programs administered by the Louisiana Department of Economic Development, specifically: the Corporate Tax Apportionment Program (July 1, 2017), the Angel Investor Tax Credit Program (July 1, 2021), the Sound Recording Investor Tax Credit (July 1, 2021), and the tax credit for “Green Job Industries” (July 1, 2017). At this time, the termination dates are not intended to be hard dates for termination, but are intended to be review dates for these programs, such that the programs should be up for review at the Legislature prior to being terminated. These programs will be up for review prior to their sunset and could be legislatively renewed.

You can view the legislation here.

Extension of Enterprise Zone Tax Exemption

Act No. 206 (HB 237) , enacted June 14, 2017.

Act No. 206 extends the sunset for the Enterprise Zone Tax Exemption Program from July 1, 2017 to July 1, 2021.

Act No. 206 became effective on June 14, 2017.

You can view the legislation here.

Modifications, Terminations, and Extensions of Various Tax Incentives & Rebates

SB 183, not acted upon by the Governor as of June 22, 2017.

SB 183 modifies, terminates, and extends various tax incentives and rebates. Some of the highlights include the following:

  • University Research and Development Parks: No new contracts to be entered after July 1, 2017.
  • Enterprise Zone Program: No new advance notifications shall be accepted after July 1, 2021.
  • Mega-Project Energy Assistance Rebate: No cooperative endeavor agreements shall be entered into after July 1, 2017.
  • Quality Jobs Program: No new advance notifications shall be accepted after July 1, 2022.
  • Competitive Projects Payroll Incentive Program: No new contracts shall be approved after July 1, 2022.
  • Quality Jobs Program: Minimum benefit rate was lowered to 4% from 5% and per-hour compensation required by employers to receive benefit was increased to $18.00 per hour from $14.50 per hour; per-hour compensation to receive 6% benefit rate is now $21.66 per hour; employer must be located in parish within the lowest 25% of parishes based on income; added to the list of professions and services not eligible for the rebate; and increased gross payroll to $625,000 and new direct jobs to 15 for the third year rebate for large employers.

You can view the legislation here.

Changes to Solar Tax Credit

HBHB 187, not acted upon by the Governor as of June 22, 2017.

HBHB 187 reduces the eligible time period for tax credit claims paid for solar energy systems purchased and installed in a new home from before January 1, 2018 to January 1, 2016. It also adds a three-year structured payout provision that authorizes tax credit claims on systems purchased on or before December 31, 2015 and caps the maximum amount of credits paid out at $5M each fiscal year, exclusive of interest. HB 187 also increases the amount of tax credits for leased solar energy systems installed on or after January 1, 2014 and before July 1, 2015 to 38% of the first $25,000 of the cost of purchase, from 30% of the first $20,000 of the cost of purchase.

You can view the legislation here.

Research and Development Tax Credit Changes

HB 300, not acted upon by the Governor as of June 22, 2017.

HB 300 makes a number of changes to the research and development tax credit program including extending it for three years, reducing the amount of the credits, and allowing for transferability of the Small Business Innovation Research Grant credit.

You can view the legislation here.

Inventory Tax Credit for Movables Held by Persons Engaged in Short-term Rentals

HB 313, not acted upon by the Governor as of June 22, 2017.

HB 313 addresses, in part, the duplicative (triplicative) tax burden on lessors and lessees of heavy equipment, making changes to the tax credit for local inventory taxes paid by expanding the definition of inventory to include any item of tangible personal property owned by a retailer that is available for or subject to a short-term rental that will subsequently or ultimately be sold by the retailer. “Short-term rental” is defined as a rental of an item for a period of “less than three hundred sixty-five days, for an undefined period, or under an open-ended agreement.” The bill also adds to the definition of retailer to include a person engaged in short-term rental of tangible personal property classified under NAICS codes 532412, e.g., a person in the construction, mining, oil field or oil well rental industry, and 532310, e.g., general rental centers and rent-all centers, and that is registered with the Department of Revenue.

In enacted, HB 313 would be effective retroactively to tax periods beginning on and after January 1, 2016.

You can view the legislation here.

Changes to Rules Regarding Tax Credits Concerning vessels in OCSLA Waters

HB 425, not acted upon by the Governor as of June 22, 2017.

HB 425 takes away the restriction that taxes paid under protest were ineligible for the tax credit for ad valorem taxes paid with respect to vessels in Outer Continental Shelf Lands Act Waters. The bill requires that a taxpayer who pays ad valorem taxes under protest provide notification to the Louisiana Department of Revenue, including copies of the payment under protest and the filed lawsuit and provides a mechanism for the Department to recapture the a credit related to an amount paid under protest if the taxpayer does not prevail. Special rules apply to challenges to the legality, as opposed to the correctness, of the property tax on vessels in Outer Continental Shelf Lands Act Waters.

If enacted, the HB 425 would apply to income tax periods beginning on and after January 1, 2017, and corporation franchise tax periods beginning on and after January 1, 2018.

You can view the legislation here.

Changes to Angel Investor Tax Credit

HB 454, not acted upon by the Governor as of June 22, 2017.

HB 454 extends the sunset for the Angel Investor Tax Credit Program until July 1, 2021. The bill sets the rate of the credit at 25% of the amount of investment divided equally over three years and reduces the overall limit per business to $1.44 million.

If enacted, the effective date for the extended sunset of the Angel Investor Tax Credit Program would become effective on July 1, 2017. The remaining portions of HB 454 would become effective July 1, 2018.

You can view the legislation here.

Oil and Gas Fees/Taxes

Changes to Oilfield Site Restoration Statute

HB 98, not acted upon by the Governor as of June 22, 2017.

HB 98 decouples the definitions of “oil,” “condensate,” and “gas” in the Oil Field Site Restoration Fund fee statute from the severance tax statutes. Currently, in addition to severance taxes, there is a set fee on the production of oil, condensate, and gas. The proceeds of that fee are to be used for the oilfield site restoration program in the Department of Natural Resources. The bill states that the full production rate fee shall include all production from oil and gas wells except for production from reduced rate production wells. The bill also repeals the provision that sets the fee for full-production wells in proportion to the rate of severance tax collected. The bill does not change the proportional fee for reduced rate production wells (i.e, stripper wells and incapable wells).

If enacted, the provisions of HB 98 would become effective on July 1, 2017.

You can view the legislation here.

Changes to Severance Tax Exemptions for Bringing Inactive and Orphan Wells back into Production 

HB 461, not acted upon by the Governor as of June 22, 2017.

HB 461 changes the length and amount of severance tax exemptions for bringing certain inactive and orphan wells back into production. The bill changes the exemption from a 5-year exemption to a 10-year exemption. Bringing back inactive wells will entitle the taxpayer to a 50% rate reduction and bringing back an orphan well will entitle the taxpayer to a 75% reduction on the severance tax. To qualify for the reduced rate, the production must be produced from the same perforated producing interval or from 100 feet above and 100 feet below the perforated producing interval for lease wells, and within the correlative defined interval for unitized reservoirs, that the formerly inactive or orphaned well produced from before being inactive or designated as an orphan well. The bill caps the program at $15 million per fiscal year.

If enacted, the provisions of HB 461 would become effective August 1, 2017.

You can view the legislation here.

Other Tax Updates

Electronic Filing of Tax Returns

Act No. 150 (HB HB 333), enacted June 12, 2017.

Act No. 150 authorizes the Secretary of the Department of Revenue to require that tax payments be made by electronic funds transfer and that returns be filed electronically. It also contains a penalty for failure to comply with electronic filing requirements equal to the greater of $100 or 5% for the tax.

Act No. 150 became effective on June 12, 2017.

You can view the legislation here.

Proposed Constitutional Amendment: Property Tax Exemption for Property Delivered to Construction Site

SB 140

SB 140 is a proposed constitutional amendment to exempt from ad valorem tax all property delivered to a construction project site for the purpose of incorporating the property into any tract of land, building, or other construction as a component part, including the , including the type of property that may be deemed to be a component part once placed on an immovable for its service and improvement. This exemption would apply until the construction project is completed (i.e., occupied and used for its intended purpose). The exemption would not apply to (1) any portion of a construction project that is complete, available for its intended use, or operational on the date that property is assessed; (2) for projects constructed in two or more distinct phases, any phase of the construction project that is complete, available for its intended use, or operational on the date the property is assessed; (3) certain public service property.

A constitutional amendment does not require action by the Governor. This constitutional amendment will be placed on the ballot at the statewide election to be held on October 14, 2017.

You can view the legislation here.

For questions or additional information, please contact: Jaye Calhoun at (504) 293-5936, Phyllis Sims at (225) 389-3717, Jason Brown at (225) 389-3733, Angela Adolph at (225) 382-3437, Willie Kolarik at (225) 382-3441 or McClain Schonekas at (504) 620-3368.

 

labor

By Jaye Calhoun and David Hamm

It’s time to amend the governing documents of flow-through entities taxed as partnerships to address recent federal legislative changes impacting all such entities.  Failure to amend now could result in unfavorable tax consequences.  Section 1101 of The Bipartisan Budget Act of 2015 (the “BBA”) substantially changes how the Internal Revenue Service may conduct audits of flow through entities taxed as partnerships.  Due to the increased popularity of limited liability companies, most taxed as partnerships, the Internal Revenue Service has been chafing under the relatively restrictive rules governing audits found in the Tax Equity and Fiscal Responsibility Act of 1982 (“TEFRA”).  The BBA eliminates many of the provisions of TEFRA that made IRS’ job of policing compliance by partnerships with the tax laws more difficult and replaces them with new centralized partnership audit rules, effective for returns filed for partnership tax years beginning after Dec. 31, 2017. In order to implement the new rules, IRS has re-released proposed regulations on June 13, 2017 and has invited comments in anticipation of a hearing on the proposed regulations currently scheduled for September 18, 2017.  The proposed regulations were initially released on January 18, 2017, but were withdrawn on January 20, 2017 in light of the Trump Administration’s freeze on all new and proposed federal rule making.

As a result of BBA, and as fleshed out in the proposed regulations, the new partnership audit rules provide that, among other things:

  • Out with the TMP and in with the PR – There is no longer a “tax matters partner/member,” but, instead, partnerships must designate a “partnership representative,” who will have the sole authority to act on behalf of the partnership (including, under certain circumstances, to decide which partners will pay any deficiency) and who is not required to be a partner.  If the partnership fails to designate the partnership representative, the IRS will designate a partnership representative for it.
  • Partnership Itself May be the Taxpayer – Unless certain partnerships makes an election to “push out” additional taxes owed as a result of an audit to the audited (“reviewed”) year partners, such additional taxes will now be paid by the partnership;
  • Annual Election Out Available to Certain Partnerships – The new rules apply to all partnerships except for those that are both qualified to “elect out” (generally partnerships with under 100 partners, none of which can be a disregarded entity or another partnership), and which make an annual election that the new rules do not apply.

The significant changes brought about by the BBA and the proposed regulations (likely to become final in substantially similar form) require substantive amendments to governing documents of all entities taxed as partnerships to address these issues and others. Of note, Louisiana does not currently tax partnerships, as partnerships, and will have to adopt rules to adapt to the federal changes.  In the meantime, the January 1, 2018 effective date of the BBA is approaching. Thus, the time for providing notice and counsel to your clients is quickly running out.

  • This article originally appeared in the New Orleans Bar Associations Tax Law Committee Blog.

A tow is pushing a barge up the Mississippi River. This single barge will be connected with others for a longer haul.

By McClain R. Schonekas

The M/V HANNAH C. SETTOON, owned and operated by Settoon Towing, L.L.C. (“Settoon”), was towing two crude oil tank barges on the Mississippi River when an attempted passage around the M/V LINDSAY ANN ERICKSON and its tow went badly resulting in a spill of 750 barrels of crude oil. The spill closed a 70-mile stretch of the river to vessels for 48 hours for cleanup and recovery. The United States Coast Guard named Settoon the strictly liable Responsible Party under the Oil Pollution Act of 1990 (“OPA 90”) (codified at 33 U.S.C. §§ 2701–2762), requiring it to carry out the cleanup and remediation. Settoon subsequently filed a Limitation of Liability proceeding seeking to limit its civil liability to the total value of the vessel and its freight. Marquette Transportation Company, L.L.C. (“Marquette”), owner of the M/V LINDSAY ANN ERICKSON, filed a claim. Settoon filed a counterclaim against Marquette seeking contribution under the OPA, general maritime law, or both.

Following a four-day bench trial on liability, the district court found both parties at fault for the collision, apportioning 35% of fault to Settoon and 65% to Marquette. The district court also found that Settoon, the Responsible Party, was entitled to contribution for purely economic damages from Marquette, in proportion to its liability. Marquette appealed, arguing that OPA 90 does not allow a Responsible Party to obtain contribution from a partially-liable third party, and even if it does, the district court clearly erred in its allocation of fault. A unanimous panel anchored by an experienced admiralty jurist affirmed the district court.

Judge Southwick, writing for the panel, methodically analyzed the applicable provisions of OPA 90 and dissected Marquette’s statutory argument, ultimately disposing of it. Simply stated, Marquette argued that the right to contribution from a jointly negligent party did not arise under OPA 90. Instead, Marquette contended that any contribution it owed was based on general maritime law and therefore limited by the Robins Dry Dock bar to purely economic damages.[1]

Highlighting the relevant section of OPA 90, at 33 U.S.C. §§ 2709,[2] the panel held “that contribution is available under the OPA.” Despite its clever argument, the panel rebuffed Marquette’s invitation to apply general maritime law and the Robins Dry Dock bar to purely economic damages. The Court stated,

We conclude that the most reasonable interpretation of the language of the OPA, as confirmed by the Act’s legislative history, grants to an OPA Responsible Party the right to receive contribution from other entities who were partially at fault for a discharge of oil. Specifically, a Responsible Party may recover from a jointly liable third party any damages it paid to claimants, including those arising out of purely economic losses.[3]

Unsurprisingly, the panel also quickly disposed of Marquette’s argument that the district court clearly erred in its allocation of fault. AFFIRMED.

*******************************

[1] In Robins Dry Dock & Repair Co. v. Flint, 275 U.S. 303 (1927), a time-charterer of a steamship brought an action against the Dry Dock Company to recover for loss of use of the steamer whose delivery was delayed by the Dry Dock Company’s negligence. The Court found that the time-charter had no cause of action against the Dry Dock Company for the loss of use of the vessel because, among other reasons, the docking contract between the vessel owner and the Dry Dock Company was not for the time-charterer’s direct benefit.

[2] This Section states, “A person may bring a civil action for contribution against any other person who is liable or potentially liable under this Act or another law. The action shall be brought in accordance with section 2717 of this title.”

[3] In re Settoon Towing, L.L.C., No. 16-30459, 2017 WL 2486018, at *10 (5th Cir. June 9, 2017).

Offshore oil rig drilling platform in the gulf of Thailand 2015.

By Daniel B. Stanton

In the recent U.S. Fifth Circuit case of In re Larry Doiron, Inc., 849 F.3d 602 (5th Cir. 2017), the Court considered an often pivotal question in many offshore personal injury cases: is the contract governing the relationship of the parties a maritime contract?

While this issue is not new to the offshore oil and gas industry, it is often one that is hotly contested because of the impacts that follow the determination that a contract is maritime in nature or not. One of the most significant issues resting on this determination is the enforceability of the indemnity provisions which are often included in service contracts. Under general maritime law, indemnity provisions are generally enforceable; under Louisiana law, indemnity provisions are often unenforceable as a result of the Louisiana Oilfield Indemnity Act (“LOIA”). Thus the determination that a contract is maritime in nature, and therefore governed by general maritime law, can have a significant impact on the relationship between the parties to an offshore personal injury action.

In this case, Plaintiff Peter Savoie, an employee of Specialty Rental Tools & Supply (“STS”), was injured while performing flow-back services on an offshore natural-gas well owned by Apache. Savoie’s services were provided under a master services contract (“MSC”) between Apache and STS which contained a common indemnity provision that required STS to defend and indemnify Apache and its “Company Group” from all claims for bodily injury made by STS employees. Like most service contracts, the MSC operated as a broad blanket agreement that did not describe individual tasks, but contemplated their performance under subsequent oral and written work orders.

Prior to his injury, Savoie attempted several different methods to complete the flow-back process on Apache’s well. After these methods proved unsuccessful, Savoie determined that additional equipment would be needed to perform the operation, including a hydraulic choke manifold, a flow-back iron, and a hydraulic gate valve. Because these pieces of equipment were too heavy to manipulate by hand, a crane barge would be required to move them to and from the wellhead. Apache’s on-site representative made arrangements to procure the necessary equipment. The crane barge was supplied by Larry Doiron, Inc. (“LDI”). Savoie was injured during the process of rigging down the LDI crane. When Savoie made a claim against LDI for his injuries, LDI demanded defense and indemnity from STS under the Apache/STS MSC. STS countered that the MSC was governed by Louisiana law, and as a result of the LOIA, the indemnity provisions of the MSC were rendered ineffective. No party disputed that LDI was part of the Apache “Company Group” to which the indemnity obligation flowed, and ruling on cross-motions for summary judgment, the district court found that the contract was maritime in nature and therefore STS was bound to defend and indemnify LDI. STS appealed the district court’s ruling.

The issue before the Fifth Circuit Court of Appeals was simple: what law applied to the indemnity provision of the MSC, maritime law or Louisiana law? But to answer this question, the Court had to examine not only the MSC, but also the oral work order for the use of LDI’s crane barge. First, the Court looked to the MSC and asked the following question: how have contracts for flow-back services historically been treated by courts? Having not previously considered contracts for flow-back services, the Court compared the work to wireline and casing work. Under prior decisions of the Court, contracts for wireline work had traditionally been found to be non-maritime and contracts for casing had traditionally been found to be maritime. The distinction being that wireline services often do not require the use of a vessel, while casing work often does. The Court then considered the task at issue in the present case, flow-back work, and found that the work could be performed either exclusively from a well platform or could require a vessel. Thus based on historical precedent, it was unclear to the Court whether the contract for flow-back services was a maritime or non-maritime contract.

Because the historical treatment of the contract as maritime or non-maritime was unclear, the Court went on to consider the specific facts surrounding the work that produced the Plaintiff’s injury. The Court evaluated the events in light of six factors that were developed by the Court in Davis & Sons, Inc. v. Gulf Oil Corp., 919 F.2d 313 (5th Cir. 1990):

1) [W]hat does the specific work order in effect at the time of injury provide? 2) [W]hat work did the crew assigned under the work order actually do? 3) [W]as the crew assigned to work aboard a vessel in navigable waters[?] 4) [T]o what extent did the work being done relate to the mission of that vessel? 5) [W]hat was the principal work of the injured worker? and 6) [W]hat work was the injured worker actually doing at the time of injury?

Under this framework, the Court found 4 of the 6 factors supported a conclusion that the contract at issue was maritime in nature.

Under the first factor, neither party could produce any documents describing the work order under which the LDI crane barge was procured, but the Court found that the MSC did have language that contemplated the use of vessels to perform work thereunder. Therefore, because the use of vessels during STS’s work for Apache was contemplated by the parties, imposing a maritime obligation on STS should come as no surprise. Under the second factor, the Court found that because the flow-back operation could not be completed without the use of a vessel; this factor favored maritime status. The fourth and sixth factors likewise counseled towards a maritime contract. The Court found that the mission of the vessel at issue was solely the performance of STS’s flow-back work. Plaintiff was also injured by equipment affixed to the vessel – the crane.

Only the third and fifth factors gravitated towards a finding that the contract was not maritime in nature according to the Court. Under these factors, the Plaintiff was neither assigned to work aboard a vessel in navigation nor employed to perform maritime-related work.

Having worked through the applicable analysis, the Court found that the contract at issue – the specific work order for the performance of back-flow services under the MSC – was a maritime contract. As a result, LDI’s demand for defense and indemnity was valid and enforceable, and the district court properly granted judgment in favor of LDI.

While the contractual issues at play in offshore personal injury cases are often less flavorful than the tort issues, they can have substantial impacts nonetheless. With litigation costs rising and the potential for substantial damage awards, contractual defense and indemnity provisions offer very valuable protections to the parties. And while elsewhere in the world, the distinction between a maritime contract and a non-maritime contract may be inconsequential, in the Louisiana oil patch the determination can result in the nullification of these important and valuable protections. Furthermore, this determination may not be as simple as reading the choice of law provision or evaluating the governing service agreement. Fortunately, the Fifth Circuit continues to provide guidance for navigating the sticky issues that arise on the Outer Continental Shelf where maritime law, state law, vessels, seamen, production platforms, and production personnel all interact.

ml

By Zoe Vermeulen

In the recent case of Halle v. Galliano Marine Service, L.L.C., No. 16-30558, 2017 WL 1399697 (5th Cir. Apr. 19, 2017) the U.S. Fifth Circuit addressed for the first time whether ROV technicians, who are traditionally Jones Act seamen, qualify as seamen under the Fair Labor Standards Act (“FLSA”). The Court found that the plaintiff, an ROV technician assigned to an ROV support vessel, was not an FLSA seaman. In reaching its decision, the Court reiterated the important difference between a Jones Act seaman and a seaman for purposes of the FLSA.

Under the Jones Act, the term “seaman” is construed broadly to provide protection for a larger group of individuals. Seamen are exempt from the FLSA, so the term is construed narrowly, to ensure that more workers enjoy the benefits granted by the FLSA. The Court was clear that “the definition of ‘seaman’ in the Jones Act is not equivalent to that in the FLSA.”

The FLSA requires employers to provide overtime pay to any employee who works more than forty (40) hours in a workweek, unless the employee is subject to an exemption. Again, “seamen” are exempt from the FLSA’s overtime requirements. Under the FLSA, an employee is a “seaman” if: (1) the employee is subject to the authority, direction, and control of the master; and (2) the employee’s service is primarily offered to aid the vessel as a means of transportation, provided that the employee does not perform a substantial amount of different work. These criteria are very fact specific.

In Halle, there was a dispute as to whether the plaintiff was subject to the authority, direction, and control of the master of the ROV support vessel. Thus, the first factor was not dispositive. In analyzing the second factor, the Court found that the ROV technician plaintiff lived on the ROV support vessel and operated the ROV, which was attached to the support vessel, to perform industrial tasks in the water. He occasionally communicated GPS coordinates to the captain of the support vessel, but did not otherwise help ensure that the support vessel navigated safely or in any particular manner from point A to point B. The plaintiff did not control the vessel’s path to its intended target, steer, anchor, make any navigational decisions, or take any navigational actions. The plaintiff, and other ROV technicians, could not even see if there were navigational issues affecting the support vessel. Under these facts, the Court found that the plaintiff’s service was not “primarily offered to aid the vessel as a means of transportation.” As the plaintiff – a Jones Act seaman – could not meet the second prong of the test, he could not be a seaman for FLSA purposes.

This case provides valuable guidance to maritime employers in classifying employees for FLSA purposes. Employers should never assume that because a worker qualifies as a Jones Act seaman, he or she will automatically be exempt from the overtime requirements of the FLSA. While both the Jones Act and the FLSA employ the term “seaman,” Halle underscores the different tests for seaman status under these Acts. Litigants are cautioned not to borrow an analysis of this term under one Act for use in the other.

Misclassifying an employee as “exempt” can expose employers to back pay, liquidated damages, and attorneys’ fees. And with a recent increase in FLSA claims, correct employee classification is as critical now as ever.

EPA

By Lee Vail

On June, 9, 2017, Scott Pruitt signed a final rule  delaying the effective date of the RMP rule until February 19, 2019. The Environmental Protection Agency” (“EPA”) stated that it had received 54,117 public comments, 54,000 of which were part of a mass mail campaign, leaving 108 submissions with unique content. A final rule is expected to be published in the Federal Resister in the near future.

A significant portion of the final rule is dedicated to authority issues: can EPA stay effectiveness during reconsideration? In response to comments, the EPA affirmed that it had authority to delay implementation as required. Specifically the EPA stated:

  • EPA notes that CAA section 112(r)(7)(A) does not contain any language limiting “as expeditiously as practicable” to an outside date (e.g., “in no case later than date X”).
  • A natural reading of the language is that the act of convening reconsideration does not, by itself, stay a rule, but the Administrator, at his discretion, may issue a stay if he has convened a process.
  • The statutory framework for a discretionary rule under CAA section 112(r)(7) differs greatly from the “highly circumscribed schedule” analyzed by the NRDC [Natural Resources Defense Council v. Reilly, 976 F.2d 36 (D.C. Cir. 1992] court. Absent an otherwise controlling provision of the CAA, CAA section 307(d) allows EPA to set reasonable effective date.

Whereas the EPA did not address substantive comments (as reconsideration is another rule making action), it did agree that sufficient issues were raised to justify reconsideration. Specifically the timing of the Bureau of Alcohol, Tabaco, Firearms and Explosives’ (“BATF”) West Fertilizer finding justifies reconsideration:

  • If the cause of the West Fertilizer explosion had been know sooner, the Agency may have possibly given greater consideration to potential security risks posed by the proposed rule amendments. All three of the petitions for reconsideration and many of the commenters discussed potential security concerns with the rule’s information disclosure requirements to LEPC and the public.

In conclusion, the effective date of the RMP revisions, published on January 13, 2017, has been delayed to February 19, 2019.

 

 

 

 

 

epa

By Lee Vail

The EPA updated its web page titled “Frequent Questions on the Final Amendments to the Risk Management Program (RMP) Rule” on Monday, June 12, 2017.  According to the revised Q&A (page 9):

  1. When does the rule become effective?
  2. The effective date of this action has been delayed to February 19, 2019.

It has generally been reported that the EPA sent the rule to the White House Office of Management & Budget (“OMB”) for a pre-publication review of the final rule. Has the EPA tipped its hand?

california

By Lee Vail

New projects require air permits and projects at major stationary sources that will emit (or increase) a significant amount of a regulated NSR pollutant, must conduct a control technology review.  In order to receive a permit, the applicant must determine the level of control considered Best Available Control Technology (“BACT”) and the permit issuing authority must agree.  This has been the rule for a long time and nothing is new.

As it relates to greenhouse gas (“GHG”) emissions, facilities that have a significant increase of a non-GHG and a significant increase in GHG must conduct a GHG BACT review.  Typically these reviews conclude that add-on controls, such as Carbon Capture and Sequestration (“CCS”), are infeasible. As a result, BACT may be a combination of good-engineering/good-combustion practices, low carbon fuels, or an emission limit.  The lack of feasible add-on controls is typically based on the high associated cost, the lack of controlling legal mechanisms, and the dearth of actual experience.  California has started a process that may start to address the last two issues.  As for the excessive cost of CCS, that will likely remain.  However experience usually results in some reduction of cost.

A little over a year ago, The California Air Resource Board (“CARB”) initiated a series of public workshops[1] with the goal of better understanding of “the ability of CCS to contribute to climate goals, the limitations or advantages of the technology, and the innovation and incentives necessary for adoption.”[2] Six additional “Technical Meetings” have occurred since that time and on May 8, 2017, CARB conducted a public workshop where CARB staff presented “an initial concept of a Quantification Methodology (QM) and Permanence Protocol for CCS.”[3] CARB is signaling the intent to establish QM and permanence requirements into California’s Low Carbon Fuel Standard (LCFS) in the near term with possible inclusion into the California Cap-and-Trade (“C&T”) regulation sometime in the future.

Following the May 8, 2017 workshop, CARB has received multiple substantive comment letters.  Many of these comments were from industry groups that provided significant positive technical comments.  That said general concerns with the current proposal were expressed:

  • Inability of moving carbon dioxide from one well to another (i.e., reuse carbon dioxide used for enhanced recovery).
  • Post-closure should not prohibit future activity in an oil reservoir if it can be shown that carbon dioxide is not released.
  • Well construction (cemented to the surface) will not allow use of existing wells and may be counterproductive with leak monitoring and mitigation.
  • Inclusion of QM for C&T should occur expeditiously.

California has unique laws concerning GHG control that create incentives to investigate CCS as an add-on technology.  CARB’s development of protocols (and eventually regulations) is clearly intended to spur activity along CCS activity.  Whereas, non-California projects are not constrained with C&T requirements, prolific expansion of CCS in California may make the infeasible argument more difficult. Close attention should be paid to this process.

________________________________________

[1] CARB, Carbon Capture and Sequestration Meetings, found at https://www.arb.ca.gov/cc/ccs/meetings/meetings.htm.

[2] Workshop Notice and Draft Agenda, from Elizabeth Scheehle, Oil and Gas and Greenhouse Gas Mitigation Branch, CARB (January 21, 2016); found at https://www.arb.ca.gov/cc/ccs/meetings/Workshop_Notice_1-21-16.pdf.

[3] Workshop Notice and Draft Agenda, from Elizabeth Scheehle, Oil and Gas and Greenhouse Gas Mitigation Branch, CARB (April 18, 2017); found at https://www.arb.ca.gov/cc/ccs/meetings/Workshop_Notice_5-8-17.pdf

Close-up close-up shots of the tracks

By Michael J. O’Brien

In the recent case of BNSF Railway Co. v. Tyrrell, the U.S. Supreme Court rejected a blatant forum shopping attempt by two railway employees and limited future lawsuits against out-of-state railroads. In BNSF Railway Co., Robert Nelson of North Dakota and Kelli Tyrrell of South Dakota filed separate suits against BNSF Railroad in a Montana State Court pursuant to the Federal Employer’s Liability Act (“FELA”) 45 U.S.C. §51 et sec. which makes railroads liable for on-the-job injuries to their employees. Nelson allegedly injured his knee while working for BNSF in the State of Washington. Tyrrell claimed that her husband died of cancer he contracted after being exposed to chemicals while working for BNSF in South Dakota, Minnesota, and Iowa. Despite the fact that neither Plaintiff resided in Montana, nor sustained any injuries in Montana, they filed their lawsuit against BNSF in that state based upon BNSF’s alleged contacts in Montana.

BNSF was incorporated in Delaware and it maintained its principle place of business in Texas. It operates railroad lines in 28 states, however, it maintained less than 5% of its workforce and approximately 6% of its total track mileage in Montana. Nelson and Tyrell claimed that these contacts with Montana were sufficient for them to sue the railroad in Montana. BNSF disagreed.

After Tyrrell and Nelson filed suit, BNSF moved to dismiss both of their lawsuits for lack of personal jurisdiction. The Montana Supreme Court ultimately denied the motion allowed these cases to move forward holding that Montana Courts could exercise general personal jurisdiction over BNSF because §56 of FELA authorizes State Courts to exercise personal jurisdiction over railroads “doing business” in the state. The Montana Supreme Court further observed that Montana law provides for the exercise of general jurisdiction over “all persons found within the state.” Thus, because of BNSF’s many employees and miles of track in Montana, the Montana Supreme Court concluded that BNSF was both “doing business” and “found within” the state such that both FELA and Montana law authorized the exercise of personal jurisdiction.

The U.S. Supreme Court granted certiorari to resolve whether §56 of FELA authorizes State courts to exercise personal jurisdiction over railroads that do business in states but are neither incorporated, nor headquartered in that state. The Supreme Court also examined whether the Montana Court’s exercise of personal jurisdiction in these cases comported with constitutional due process.

A solid majority of the Court rejected the two theories upon which Nelson and Tyrrell had relied on to justify jurisdiction over BNSF in Montana. First, the Court held that FELA does not itself create a special rule authorizing jurisdiction over railroads simply because they happen to be doing business in a particular place. Next, the Court ordered that an exercise of jurisdiction over BNSF must still be consistent with due process. Thus, the Montana rule that allowed Courts in the state to exercise jurisdiction over “persons found” in Montana did not help the Plaintiffs as it violated due process.

The Supreme Court repeatedly mentioned that BNSF was not incorporated in Montana, and it did not maintain its principle place of business in that state. Further, BNSF was not so heavily engaged in activity in Montana “as to render it essentially at home” in that state. The Supreme Court noted that a corporation that operates in many places can “scarcely be deemed at home in all of them.” Thus, the business that BNSF did in Montana may be sufficient to subject the railroad to specific personal jurisdiction in maritime for claims related to the business activity in Montana. However, simply having in state business did not suffice to permit the assertion of general jurisdiction over claims like Nelson’s and Tyrrell’s that were completely unrelated to any activity occurring in Montana.

Last, it is important to note that this holding is also relevant in maritime cases. Indeed, since FELA case law is applicable to Jones Act cases, BNSF Railway Co.’s holding will, by extension, also limit forum shopping by Jones Act seaman under the same reasoning.

refinery_sunset_10212716

By R. Lee Vail, P.E., Ph.D.

On January 13, 2017, the Environmental Protection Agency (“EPA”) published a final rule revising portions of the Risk Management Program (“RMP”) rule. On April 3, 2017, the EPA proposed to delay the effective date of the changes until February 19, 2019 to allow for a reconsideration of these changes. 82 Fed. Reg. 16146 (Apr 3, 2017). Comments were due by May 19, 2017 and the comment period is now closed. Four hundred and five (405) public comments are available on Regulations.Gov and range from a few sentences in support of a position to detailed comments. Commenters for denial often state that sufficient time and consideration was allotted in the rule making process and comments supporting the delay often focus on a flawed rule-making process that created the changes.

The current delay is set to expire on June 19, 2017 as the original stay is effective for up to three months.[1] Commenters for the delay state that time is needed to correct the apparent flaws. Comments against the delay include citation to an “expressed mandate that regulations promulgated pursuant to §112(r) have an effective date assuming compliance with RMP requirements as expeditiously as practical.” See United Steelworkers Union comments. In proposing extra time to conduct the reconsideration, the EPA suggested that “three months to be insufficient to complete the necessary steps in the reconsideration process.” 82 Fed. Reg. at 16148. In the event EPA chooses to delay all or portions of the revised rule, a central issue will be the amount of time required.

Separate and aside, the Teamsters Union has teamed up with an environmental group and filed a lawsuit alleging that the public has been denied access to emergency response plans as required by the Emergency Planning and Community Right to Know Act (“EPCRA”). In the lawsuit, New Jersey Work Environment Council (NJWEC) et al. v. State Emergency Response Commission (SERC), plaintiffs are seeking access to Emergency Response Plans (“ERP”) developed by the Local Emergency Planning Community (“LEPC”). Whereas the suit is not demanding facility ERPs, the likely source of any information at the LEPC would be facilities. The stayed rule includes provisions that the facility confirm whether the stationary source is included in the community ERP pursuant to 42 U.S.C. 11003 (see stayed rule at 40 CFR 68.180(b)(i)) and increased availability of information to the public (see stayed rule at 40 CFR 68.210). Although the information requested in the lawsuit is not identical to facility information in the stayed rule, it certainly overlaps.

************

[1] Such reconsideration shall not postpone the effectiveness of the rule. The effectiveness of the rule may be stayed during such reconsideration, however, by the Administrator or the court for a period not to exceed three months. Clean Air Act §307(d)(7)(B).