By Tyler Kostal

Consistent with public comments that it will pursue all available appellate remedies, today the South Louisiana Flood Protection Authority filed a petition for a writ of certiorari with the United States Supreme Court, to seek review of the decision in Board of Comm. of the Southeast Louisiana Flood Protection Authority-East v. Tennessee Gas Pipeline Company, LLC,  850 F.3d 714 (5th Cir. 2017).

The questions presented focus on claims arising under federal law pursuant to the standard developed in Grable & Sons Metal Prods. v. Darue Engineering & Manufacturing, 125 S. Ct. 2363, 2368 (2005), and succeeding cases.  Specifically, the questions presented are:

  1. Whether the “substantial[ity]” and “federal-state balance” requirements of Grable are satisfied whenever a federal law standard is referenced to inform the standard of care in a state-law cause of action, so long as the parties dispute whether federal law embodies the asserted standard.
  2. Whether a federal court applying Grable to a case removed from state court must accept a colorable, purely state-law claim as sufficient to establish that the case does not “necessarily raise” a federal issue, even if the court believes the state court would ultimately reject the purely state-law basis for the claim on its merits.

It remains to be seen whether the Supreme Court will accept this case for review.

See prior post on this topic hereClick here for a copy of the petition.

By Tyler Moore Kostal

The Texas Supreme Court recently handed down a decision in Forest Oil Corp. v. El Rucio Land & Cattle Co., Inc., 14-0979, 2017 WL 1541086 (Tex. Apr. 28, 2017), that at first glance, is reminiscent of the landmark Louisiana legacy cases Corbello and Magnolia Coal. Forest Oil, like Corbello, supports the landowner’s right to a judicial setting to resolve its claims while minimizing the role of the relevant state agency. And like Magnolia Coal, Forest Oil dispenses with the presumed exclusive or primary jurisdiction of the Texas Railroad Commission (RRC) over oilfield contamination claims by landowners. However, what is still to be considered by Texas courts is the viability of the claim and certain Louisiana legacy defenses. Since Corbello, the Louisiana Supreme Court has issued rulings on prescription (Marin) and subsequent purchaser (Eagle Pipe) that have reduced the force of legacy litigation. Further, similar to Louisiana’s Act 312, the Texas legislature will have an opportunity to enact legislative and regulatory changes. The bottom line is that the long-term impact of Forest Oil and the future of Texas oilfield litigation are far from certain.

In this case, Forest Oil (now known as Sabine Oil & Gas) produced natural gas on a 27,000-acre ranch in Hidalgo County, Texas, for over 30 years. Forest’s oil and gas leases covered about 1,500 acres, and Forest operated a gas processing plant on a 5-acre tract. In 2004, one of the landowners learned (from a former Forest employee) that Forest had contaminated the property. In 2005, the landowners filed suit alleging soil and groundwater contamination from various oilfield wastes, including naturally occurring radioactive material (NORM). One of the landowners also alleged that tubing, donated by Forest and used in the construction of rhinoceros pens, contained NORM that caused a cancerous growth resulting in amputation of his leg.

Forest eventually compelled arbitration pursuant to a 1999 settlement agreement signed by the landowners in a separate lawsuit over oil and gas royalties. See Forest Oil Corp. v. McAllen, 268 S.W.3d 51 (Tex. 2008) (holding that the arbitration clause in the settlement agreement was enforceable). That agreement also provided for the ongoing care and remediation of the surface estate by Forest. After a 17-day hearing, the arbitration panel awarded the landowners $15 million in property damages, $500,000 in personal injury damages (NORM cancer claim), $500,000 in punitive damages, and $5 million in attorney fees. The panel also granted declaratory relief for remediation under the 1999 agreement and ordered Forest to provide the landowners with a $10 million bond to assure its performance of a prior remediation agreement.

The landowners filed a motion to confirm the award in state court. Forest moved to vacate the award on several grounds, namely on the basis that the RRC had exclusive or primary jurisdiction over the landowners’ claims. Forest also argued that the damage awards violated Texas law. The trial court vacated the panel’s $10 million bond requirement but otherwise denied Forest’s motion. See Forest Oil Corp. v. EL Rucio Land, 2012 WL 10170451 (Tex. 55th Dist.). In confirming the award, the trial court incorporated the actual and punitive damages and awarded the landowners $6.7 million in attorney fees. The appellate court affirmed. See Forest Oil Corp. v. El Rucio Land & Cattle Co., Inc., 446 S.W.3d 58 (Tex. App. 1st Dist. 2014). The Texas Supreme Court granted Forest’s petition for review.

First, the court considered whether the RRC has exclusive jurisdiction over the landowners’ claims. Forest argued that the legislature intended the RRC to have exclusive jurisdiction over environmental oilfield disputes, such that the arbitration panel lacked jurisdiction to enter the award and the trial court lacked jurisdiction to confirm it. The court disagreed concluding that the legislature did not express a clear intent to abrogate a landowner’s common-law rights in favor of a statutory remedy.

Forest also argued that public policy necessitated the RRC’s exclusive jurisdiction over these matters. It argued that if landowners seek remediation both from the RRC and through the courts, they could recover twice for the same injury. Forest further argued that if a landowner does not spend a damage award on remediation, the RRC remains responsible to the public to order cleanup. The court rejected Forest’s policy considerations stating that it was “an argument for the Legislature.” Instead, the court offered a solution for Forest and other defendant operators: “By seeking an RRC determination of contamination allegations and complying with RRC cleanup orders, an operator can reduce or eliminate the landowners’ damages.”

Next, the court considered whether the RRC has primary jurisdiction over the claims. Forest argued that the RRC has primary jurisdiction because only the RRC can determine what the law requires for remediation. Forest argued that the parties’ 1999 settlement agreement, which required that Forest remove hazardous material only “if, as and when required by law,” obligated Forest to remediate only if required by the RRC. The court disagreed and stated: “But while RRC regulations and orders certainly inform the extent to which remediation of contamination is required by law, they do not supplant Forest’s common law duties, which are also required by law.” The court reasoned that the doctrine of primary jurisdiction does not apply to claims that are “inherently judicial in nature,” like trespass, negligence, fraud, and breach of contract—all claims brought by the landowners and all inherently judicial in nature. Because the landowners’ claims are inherently judicial and not dependent on the standards of regulatory compliance, the court concluded that the doctrine of primary jurisdiction does not apply.

Ultimately, the court concluded that the RRC has neither exclusive nor primary jurisdiction over the landowners’ claims. Therefore, the landowners were free to bring common law claims like negligence, trespass, and breach of contract in a judicial forum against Forest.

It is important to note that the Texas Supreme Court did not address the amount of the damages award. However, the appellate court found that, contrary to Forest’s claims, the arbitration panel’s view of the evidence, application of the law to the evidence, and ultimate decision, did not rise to the level of “gross mistake.” The landowners offered expert testimony valuing the ranch, “unimpaired by environmental contamination,” at $65.5 million. That expert determined that the diminished value of the ranch was $45.85 million. Therefore, he claimed that because of the environmental contamination, the value of the ranch had been diminished by $19.65 million. Recall that the arbitration panel awarded the landowners $15 million in property damages, and the appellate court affirmed.

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.

 

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.

BSEE

By Michael J. O’Brien

Scott Angelle, a native of Breaux Bridge, Louisiana, has been appointed by the Trump Administration to head the Bureau of Safety and Environmental Enforcement (“BSEE”).  Mr. Angelle first held public office in the late 1980’s. He has since served as a Parish President, Secretary of Louisiana’s Department of Natural Resources, and, most recently, as Chairman of the Louisiana Public Service Commission. Under his leadership as Louisiana’s Secretary of the Department of Natural Resources, the state’s coastal permitting system was reformed, providing for efficient permitting while increasing drilling rig counts in Louisiana by more than 150 percent during his tenure. Mr. Angelle has also served as Chairman of the Louisiana State Mineral Board, and as a member of the Louisiana State University Board of Supervisors, Southern States Energy Board, and the Louisiana Coastal Port Advisory Authority.

Mr. Angelle will become BSEE’s fourth director since it was established six years ago. BSEE was formed after the Deepwater Horizon explosion to promote safety, protect the environment, and conserve resources offshore through “vigorous regulatory oversight and enforcement.”

BSEE is headquartered in Washington D.C. and supported by regional offices in New Orleans, Louisiana, Camarillo, California, and Anchorage, Alaska.  These regional offices review applications for permits to drill, ensure safety requirements are met, conduct inspections of drilling rigs and offshore production platforms, investigate offshore accidents, issue Incidents of Non-Compliance and have the authority to fine companies through civil penalties for regulatory infractions.

Mr. Angelle’s post does not require Senate confirmation; as such, he will start working as the head of BSEE Tuesday, May 23, 2017. Secretary of the Interior, Ryan Zinke, issued the following statement about Mr. Angelle: “Scott Angelle brings a wealth of experience to BSEE, having spent many years working for the safe and efficient energy production of both Louisiana’s and our country’s offshore resources. As we set our path towards energy dominance, I am confident that Scott has the expertise, vision, and the leadership necessary to effectively enhance our program, and to promote the safe and environmentally responsible exploration, development, and production of our country’s offshore oil and gas resources.”

 

By J. Eric Lockridge

Large and small offshore service companies are turning to the Bankruptcy Code for help with restructuring their balance sheet, and turning to Washington for help with generating more work.

One of the largest offshore service companies in the world, Tidewater, announced this week that it will file a Chapter 11 bankruptcy petition in Delaware on or before May 17, 2017. This is not a surprise to the markets. Tidewater received notice from the New York Stock Exchange in April that it is at risk of being delisted before the end of the year because its average stock price sat below $1.00 per share for too long. Tidewater’s press release announcing the upcoming bankruptcy says the company has secured broad support from secured creditors for a pre-packaged plan that will effectuate a form of debt-for-equity swap. The plan will also reject certain sale-lease back agreements for a portion of Tidewater’s fleet. Expect a fight over lease-rejection damages.

A smaller operator focused on the Gulf of Mexico, GulfMark Offshore, also announced this week that it is planning a Chapter 11 filing. Offshore Support Journal reported that GulfMark Offshore’s most recent SEC filing discloses the company will likely file a Chapter 11 bankruptcy petition on or before May 21, 2017. The company is working with advisors to secure support for a restructuring agreement that will include a backstop commitment from certain note holders and a debt-for-equity swap.

Some in the offshore industry are lobbying the White House and others to extend the “America First” agenda to the offshore-service industry in hopes that might provide a boost. For example, see Harvey Gulf’s recent open letter to President Donald Trump here. Many in the offshore service industry would like to see the current administration enforce regulations requiring proper plugging and abandonment (P&A) of many non-producing or low-producing wells in the Gulf of Mexico’s shallow water. They have to be careful about how loudly they push that agenda, however, or they may alienate the very exploration and production (E&P) companies that would hire them. Many E&P companies would like to see enforcement of those regulations delayed as long as possible, and at least until the price of oil is higher.

Enforcing P&A obligations would likely create thousands of jobs and boost the economy along the Gulf Coast, where President Trump received strong electoral support. The House Majority Whip, Rep. Steve Scalise (R-LA), represents a district along the Louisiana coast that is home to scores of offshore service companies and their vendors, which gives that industry some important clout on Capitol Hill. Delaying enforcement of P&A obligations and/or making them less onerous might be more consistent with a “regulation-roll-back” agenda and with the interests of many E&P companies, several of which have strong ties to the current administration and deep relationships in Congress.

Will Washington take any action to provide some relief for offshore service companies, their employees, vendors, and lenders? How will an increase in Chapter 11 cases for offshore service companies affect the industry and the companies that have (so far) avoided bankruptcy? Kean Miller and many of our clients will keep a close watch as events unfold.

 

fifth

By Chase Zachary

On April 18, 2017, the U.S. Court of Appeals for the Fifth Circuit released a published opinion in Guilbeau v. Hess Corp.[1] The court affirmed the application of Louisiana’s subsequent purchaser doctrine to claims for environmental damages allegedly caused by activities of a former mineral lessee prior to the date that the plaintiff owned the property. Although the Fifth Circuit previously reached a similar conclusion in an unpublished decision,[2] Guilbeau is the court’s first precedential opinion addressing the subsequent purchaser doctrine.

As discussed on Kean Miller’s Louisiana Law Blog, here[3] and here,[4] the subsequent purchaser doctrine bars a plaintiff’s claims for property damages that occur prior to the plaintiff’s ownership of the property. The Louisiana Supreme Court provided a “thorough analysis”[5] of the doctrine in Eagle Pipe & Supply, Inc. v. Amerada Hess Corp.[6] There, the court “clarified that damage to property creates a personal right to sue, which unlike a real right, does not transfer to a subsequent purchaser ‘[i]n the absence of an assignment or subrogation.’”[7] However, plaintiffs have argued that the Eagle Pipe opinion did not address whether the subsequent purchaser doctrine applies “to fact situations involving mineral leases or obligations arising out of the Mineral Code.”[8]

The facts of Guilbeau are straightforward. Defendant Hess Corporation’s (“Hess’s”) predecessors operated until 1971 on the property-in-suit under several mineral leases.[9] All of those leases expired in 1973.[10] The plaintiff purchased the property-in-suit in 2007.[11] The “sale did not include any assignment of rights to sue for pre-purchase damages.”[12] After the plaintiff sued Hess for alleged contamination to the property, the federal district court granted Hess’s motion for summary judgment and dismissed the plaintiff’s claims based on the subsequent purchaser doctrine.[13] The Fifth Circuit affirmed.[14]

Making an “Erie guess” of how the Louisiana Supreme Court would decide the issue,[15] the Fifth Circuit identified a “clear consensus . . . among all Louisiana appellate courts that have considered the issue . . . that the subsequent purchaser rule does apply to cases . . . involving expired mineral leases.”[16] After tracing those Louisiana appellate decisions,[17] the Court found “no occasion to depart from the above-described precedent” and held that the subsequent purchaser doctrine barred the plaintiff’s claims.[18] The Court also noted that “the Louisiana Supreme Court has had multiple opportunities to consider this issue and has repeatedly declined to do so.”[19] Notably, the Fifth Circuit declined to certify the subsequent purchaser issue to the Louisiana Supreme Court on the basis that “[w]hen, as here, the appellate decisions are in accord, the law is not unsettled, and certification is unwarranted.”[20]

The Fifth Circuit is simultaneously considering a companion case, Tureau v. Hess Corp.[21] That suit involves an identical issue—i.e., whether the district court correctly applied the subsequent purchaser doctrine to dismiss claims for alleged property damage against former mineral lessees. The Fifth Circuit previously held Tureau in abeyance pending its decision in Guilbeau, and a decision in Tureau is expected shortly.

The Fifth Circuit’s Guilbeau opinion affirmatively resolves, for Louisiana federal courts, whether the subsequent purchaser doctrine applies to property damage claims against current and former mineral lessees. The decision accordingly provides much-needed certainty to both property owners and oil and gas operators involved in “legacy” litigation.

_____________________________

[1] No. 16-30971, — F.3d –, 2017 WL 1393709 (5th Cir. Apr. 18, 2017), http://www.ca5.uscourts.gov/opinions/pub/16/16-30971-CV0.pdf

[2] See Broussard v. Dow Chem. Co., 550 F. App’x 241 (5th Cir. 2013).

[3] http://www.louisianalawblog.com/coastalwetlands-issues/louisiana-supreme-court-expands-judicial-limitations-on-landowner-tort-claims/.

[4] http://www.louisianalawblog.com/energy/louisiana-second-circuit-court-of-appeals-upholds-application-of-subsequent-purchaser-doctrine-in-oilfield-legacy-case/.

[5] Guilbeau, 2017 WL 1393709, at *2.

[6] 79 So. 3d 246 (La. 2011).

[7] Guilbeau, 2017 WL 1393709, at *2 (quoting Eagle Pipe, 79 So. 3d at 279) (emphasis in original).

[8] 79 So. 3d at 281 n.80.

[9] Guilbeau, 2017 WL 1393709, at *1.

[10] Id.

[11] Id.

[12] Id.

[13] Id.

[14] Id.

[15] Id.

[16] Id. at *2.

[17] Id. at *2-4.

[18] Id. at *4.

[19] Id.

[20] Id.

[21] No. 16-30970.

air

By Maureen N. Harbourt

EPA is required by Section 109(d) the Clean Air Act to review the adequacy of each National Ambient Air Quality Standard (“NAAQS”) every five years to determine if new scientific evidence justifies a change to the standard.  The current primary[i] NAAQS for nitrogen dioxide (“NO2”) is 53 ppb annual mean and 100 ppb NO2 as 98th percentile of 1-hour daily maximum concentrations, averaged over 3 years.  The annual average was first adopted in 1971, and was not changed during (overdue) reviews completed in 1985 and 1996.  In the next completed review in 2010, EPA added the 1 hour NO2 NAAQS to the standard based on a conclusion that the annual standard alone was not protective enough due to potential health impacts associated with short term exposures.[ii]  The 2010 review also indicated that there was a lack of data concerning near roadway exposures, which was of concern given that 34% of NO2 emissions are estimated to be generated from roadway vehicles.  Thus, the 2010 review led to EPA requiring states to install near-roadway monitors in urban areas during the 2014-2017 period.

EPA has just completed a final Policy Assessment reviewing the adequacy of the 2010 NAAQS and has concluded that no change to the existing standard is recommended.  82 Fed. Reg. 17947, April 14, 2017. The EPA Clean Air Science Advisory Committee (“CASAC”) also recommended no change to the standard.  The EPA’s Policy Assessment indicated that the additional roadway monitors installed as a result of the 2010 NAAQS rule have not been gathering data for a sufficient period (only 1-2 years) to fully evaluate such information, although the data that was available showed higher NOx concentrations near roadways than at nearby non-roadway monitors.[iii]  The Policy Assessment is the last step of the periodic NAAQS review process before any final EPA decision to revise or not revise the existing standards. It considers the Integrated Science Assessment, the Risk/Exposure Assessment, and the advice of the CASAC.

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[i] The primary NAAQS are set at a level to protect human health with an adequate margin of safety.  A secondary NAAQS is set at a level to protect human welfare, including decreased visibility and damage to animals, crops, vegetation, and buildings.  The secondary NAAQS for NO2 is currently equivalent to the annual primary standard (53 ppb annual mean).  EPA has recently completed an integrated science assessment for the secondary standards for NO2, sulphur oxides and particulate matter and has requested that the CASAC review that assessment.  82 Fed. Reg. 15701, March 30, 2017.

[ii] The EPA’s decision to add the 1-hour NO2 NAAQS was upheld in American Petroleum Institute v. Environmental Protection Agency, 684 F.3d 1342 (D.C. Cir. 2012), cert. den. 133 S.Ct. 1724 (2013).

[iii] The full EPA Policy Assessment is available here.

 

 

 

GOM

By Tod J. Everage

With less than one week on the job, newly-confirmed Secretary of the Interior, Ryan Zinke announced that BOEM will offer 73,000,000 acres of lease space located in the Gulf of Mexico for oil and gas exploration. Proposed Lease Sale 249 is currently scheduled for August 16, 2017, and will include all unleased areas of federal waters in the GOM. The sale will be livestreamed from New Orleans.

This sale is the first under the new Outer Continental Shelf Oil and Gas Leasing Program for 2017-2022 (Five Year Program). The plan includes two GOM lease sales each year, including all available blocks in the combined Western, Central, and Eastern GOM. It is estimated that there are approximately 211 million to 1.118 billion barrels of oil and 0.547-4.424 trillion cubic feet of gas available for production in those available leases. The available land for lease includes approximately 13,725 unleased blocks located between 3-230 miles offshore, and ranging in depth between 9-11,115 feet of water.

Excluded from the lease sale are blocks subject to the Congressional moratorium established by the Gulf of Mexico Energy Security Act of 2006; blocks that are adjacent to or beyond the U.S. Exclusive Economic Zone in the area known as the northern portion of the Eastern Gap; and whole blocks and partial blocks within the current boundary of the Flower Garden Banks National Marine Sanctuary. The full text of BOEM’s press release can be found here.

The current Five Year Program [2012-2017] will have its final lease sale today, March 22, 2017, which includes approximately 48 million acres off the coast of Louisiana, Mississippi, and Alabama comprised of 9,118 blocks. The sale will be livestreamed started at 9 am via BOEM’s website.

EPA

By Brittany Buckley Salup

On March 2, 2017, the EPA withdrew its information collection request (ICR) regarding methane emissions from existing oil and gas facilities.  EPA finalized and issued the underlying ICR on November 10, 2016.  Since that time, EPA sent letters to thousands of owners and operators in the oil and gas industry, requiring them to complete surveys regarding their existing facilities.  EPA’s withdrawal of the ICR is effective immediately.  According to the EPA’s website,  industry members who previously received a letter requiring a survey response associated with this particular ICR are “no longer required to respond.”

Additional information is available here.