By Tod J. Everage

For nearly 30 years, district courts within the US 5th Circuit have evaluated whether maritime or state law applies to oil and gas service contracts using the 6-factor test from Davis & Sons, Inc. v. Gulf Oil Corp., 919 F.2d 313 (5th Cir. 1990). The Davis factors focused mainly on the nature of the work being performed and included the following questions: (1) what does the specific work order in effect at the time of the injury provide? (2) what work did the crew assigned under the work order actually do? (3) was the crew assigned to work aboard a vessel in navigable waters? (4) to what extent did the work being done relate to the mission of that vessel? (5) what was the principal work of the injured worker? and (6) what work was the injured worker actually doing at the time of injury? The arduous test has repeatedly been a subject of criticism in the 5th Circuit.

Seizing the opportunity, the 5th Circuit in In re Larry Doiron, Inc., voted to rehear the case en banc to finally rid itself of the Davis-inducing headaches. We previously wrote about this case after its first panel decision here. Upon initial consideration, the 5th Circuit applied Davis to a flow-back services contract, finding it to be a maritime contract. The Circuit Court’s decision fell in line with many other Davis cases that – even after weighing the 6 factors – seemed to primarily turn on the use of a vessel for the work. See here for example. Seeing that factor as gaining primacy, the 5th Circuit simplified the test down to two factors focusing more on the maritime nature of the contract rather than the work itself.

Indeed, the 5th Circuit noted that “most of the prongs of the Davis & Sons test are unnecessary and unduly complicate the determination of whether a contract is maritime.” And, the evaluation of those factors often required the Court to parse through minute factual details to determine what was going on. Take this case for example. The 5th Circuit had never evaluated a flow-back contract before. Thus, to answer the 2nd factor, the Court was forced to analogize flow-back services to casing, wireline, and welding services. The en banc panel found that exercise did nothing more than add “to the many pages dedicated to similar painstaking analyses in the Federal Reporter.” The Court also found the 3rd, 4th, and 6th factors equally irrelevant to finding whether a contract was maritime or not.

Though its own Davis-based jurisprudence had been leading the Court towards a test focused on the necessity of a vessel, the 5th Circuit looked to the U.S. Supreme Court for affirmation. In Norfolk So. Railway Co. v. Kirby, 543 US 14 (2004), the Supreme Court held that a claim for money damages for cargo damaged in a train wreck (on land) was governed by maritime law. Its analysis was based on a finding that the two bills of lading covering the transport of the cargo from Australia to Alabama were maritime contracts. Even though the train crashed on land, the Court found dispositive that the “primary objective” of these bills was “to accomplish the transportation of goods by sea from Australia to the eastern coast of the United States.” It was the nature of the contract that persuaded the Court, which was maritime commerce.

With that guidance in mind, the 5th Circuit set out a “simpler, more straightforward test.” The first question to ask is whether the contract is one to provide services to facilitate the drilling or production of oil and gas on navigable waters? This question will avoid having to delve into the actual services performed and more into the location of those services. If the services are intended to be provided on the water, the next question is whether the contract provides or whether the parties expect that a vessel will play a substantial role in the completion of the contract. If the answer is “yes” to both questions, the contract is maritime. Paring the test from 6 to 2 allows reviewing courts to “focus on the contract and the expectations of the parties.”

Though the other four Davis factors were tossed aside, they were not tossed away. The 5th Circuit left open the possibility of using those factors when dealing with an unclear contract. However, by doing so, it seems inevitable that all parties who face an unfavorable application of state or maritime law will claim the contract is unclear and find ways to evaluate the discarded factors anyway; especially those involving disputed oral work orders. We shall see.

Lawyers are notorious for mucking up the works and over complicating seemingly straightforward issues. Try finding a one-page contract for any services nowadays that isn’t written in 6 point font. The 5th Circuit’s en banc decision is a breath of fresh air. After years of debating why wireline work is not inherently maritime but why casing work is, maritime lawyers now have a much simpler (in theory) test to aid in predicting the applicable law to a contract, which can have serious ramifications depending on the outcome.