BSEE

By Michael J. O’Brien

In an earlier blog post here we highlighted the facts in Island Operating Co., v. Jewell, et al., Civil Action No. 16-145, currently pending in the Lafayette Division of the Western District of Louisiana. The central issue in Island Operating is whether a contractor that provides personnel to perform work on the Outer Continental Shelf can be issued an Incident of Non-Compliance (“INC”) and/or a civil penalty by BSEE for a failure to comply with the safety and environmental duties imposed by the Outer Continental Shelf’s Lands Act (“OCSLA”) and Part 250 of the Code of Federal Regulations. In a trial ruling on the briefs, Judge Doherty held that the duty to comply with the safety and environmental standards under OCSLA flows only to a lease holder or a permit holder; thus, offshore contractors such as Island cannot be issued an INC or a civil penalty from BSEE. In a day in age when nearly every offshore platform is ran or maintained by contractors, the very agency created to regulate offshore platform safety has no authority to do so against those contractors, per Judge Doherty. And, her ruling appears to be legally sound given the actual language of OCSLA.

Prior to this ruling, only two legal writings really touched on this issue, though neither of which boiled it down as succinctly and straightforwardly as Judge Doherty. First, in 2012, the Director of BSEE issued Interim Policy Document No. 12-07 (effective August 15, 2012) stating that BSEE would increase its INC’ing of contractors for serious violations of BSEE regulations. This came as a direct result of the Deepwater Horizon incident. The Director stated that it was BSEE’s position that any person performing an activity under a lease issued or maintained under OCSLA was subject to BSEE’s regulations and compliance, including contractors. His statement was based presumably in part on 30 CFR §250.146(c), which broadly encompasses contractors performing such activities. Second, Judge Milazzo from the EDLA recently held that the BSEE regulations could not serve as a basis for criminal penalties against contractors, though she only acknowledged that BSEE civil and regulatory authority over contractors had not yet been established. She was the first to affirmatively say that the OCSLA regulations did not extend to contractors, but her holding was in a criminal context and her analysis was heavily focused on the regulations rather than OCLSA. The USA has appealed her ruling to the U.S. 5th Circuit, which has extended briefing to respond to Judge Doherty’s recent ruling.

Judge Doherty, however, started her analysis with the language of OCSLA itself. Judge Doherty’s opinion focused on three sections of OCSLA. She first highlighted 43 U.S.C. §1332 (entitled: “Definitions”) that determines which types of juridical entities are subject to the entire act. Specifically, Section 1332 provides that “persons” are subject to the act, and they are defined as (in addition to a natural person) an “association, estate, a political subdivision of a state, or a private, public, or municipal corporation.” Next, Judge Doherty examined 43 U.S.C. §1348(b) (entitled: “Enforcement of Safety and Environmental Regulations”) which identifies which “persons” a duty is imposed as to safety and environmental issues, namely the duty to maintain all places of employment in compliance with occupational health and safety standards. Based on the plain language of the Section 1348, the duty to maintain places of employment and operations within the area of a lease or permit in compliance with safety, health, and environmental regulations falls – on “any holder of a lease or permit” granted under OCSLA. Section 1348 does not list any other types of party upon whom that duty falls. Last, Judge Doherty noted that 43 U.S.C. § 1350 (entitled: “Remedies and Penalties”) delineates the type of penalties allowed against those who violate the safety and environmental issues.

Reading these three statutes together, Judge Doherty held that a party who is neither a lease holder nor permit holder, such as Island, is not identified in 43 U.S.C. §1348 as having a duty related to environmental and safety standards. Accordingly, Island cannot be found to have violated a duty with which it is not charged. Further, Island cannot be subject to a regulatory penalty or fine from BSEE. According to Judge Doherty, “OSCLA’s plain language, when read in context, is clear, and does not embrace contractors, such as Island within the duty created by §1348(b).” Only lease holders and permit holders are therefore subject to OCSLA’s mandates.

Without OCSLA governance, offshore contractors are similarly not subject to Part 250, which are simply OCSLA’s implementing regulations. This is so despite the express language contained in §250.146(c) that applies the duty to any person who performs an activity on the OCS under a lease. However, Judge Doherty emphasized the distinction between the authorizing statute (OCSLA) and its implementing regulations (Part 250). She held that the regulations used to simply implement the statute cannot expand the scope of the statute beyond what the statute itself provides. As was also supported by the legislative history, OCSLA clearly does not include contractors within its scope, and thus, the BSEE regulations must be confined to that scope.

Judge Doherty’s decision that BSEE does not have the authority to enforce OCSLA’s regulations against a non-lease holder or non-permit holder will have far reaching consequences given BSEE’s recent history of issuing INC’s and civil penalties to contractors for accidents and injuries on the Outer Continental Shelf. Though it remains to be seen how BSEE will react to this decision in other jurisdictions, at least according to Judge Doherty, BSEE can only issue INC’s and civil penalties against the lessees and permit holders, i.e. – platform owners. Operators can neither be INC’ed nor fined. It is almost a certainty that BSEE will appeal this decision to the United States Fifth Circuit Court of Appeals. At a minimum, this decision should serve as the basis for appeal of any BSEE INC’s issued to contractors going forward. We will soon publish another article addressing the potential implications of this decision (or any future 5th Circuit decision) on other aspects of contractor liability on the OCS and certainly continue to monitor this case as it makes its way through the appeals.