By Michael J. deBarros

In asbestos-related injury claims, some states, including Louisiana, base an insurer’s liability for defense and indemnity on the amount of time an insurer is “on the risk.”  For instance, if a claimant was exposed to asbestos for a ten year period and the insurer issued policies covering five of those ten years, the insurer is “on the risk” for five of the ten years and should bear responsibility for 50% of the defense and indemnity absent additional grounds for denying coverage.

The allocation issue becomes more complex when the period of exposure to asbestos begins before, and ends after, 1986 or 1987.  In that situation, the following additional questions arise:

  1. When did insurance covering asbestos claims become “unavailable”;
  2. Must the insurers “on the risk” when insurance for asbestos claims was “available” bear responsibility for the years of exposure in which the insurance was “unavailable”; and
  3. Is the allocation affected if the insured continues to manufacture or sell asbestos-containing products after insurance for asbestos claims became “unavailable”?

All of the foregoing issues have been decided in New Jersey, and they are ripe for consideration in Louisiana given that the Louisiana Supreme Court relied on Owens–Illinois, Inc. v. United Ins. Co., 650 A. 2d 974 (N.J. 1994), when it held, in Arceneaux v. Amstar Corp., 2015-0588 (La. 9/7/16), 200 So. 3d 277, that insurers may prorate defense expenses in Louisiana asbestos-injury suits.

In Owens–Illinois, the Supreme Court of New Jersey held that insurers can prorate defense and indemnity in asbestos-injury suits based on their time “on the risk” and their policy limits.  The Owens–Illinois Court also held that an insured is not responsible for the years in which insurance covering the risk at issue was not reasonably available for purchase.

In Continental Ins. Co. v. Honeywell Intern., Inc., 2018 WL 3130638 (N.J. June 27, 2018), the Supreme Court of New Jersey recently reaffirmed the Owens–Illinois “unavailability” rule and once again rejected the insurers’ attempt to apportion liability to their insured for exposures occurring during the period of insurance unavailability.  The insurers in Honeywell argued that Honeywell should bear responsibility for asbestos exposures after April 1, 1987 (the date excess insurance for asbestos claims became unavailable) because Honeywell continued to manufacture asbestos-containing products until 2003.  The Court rejected the insurers’ argument and apportioned liability for the years in which insurance was unavailable to the insurers who were “on the risk” when the insurance was available.

Considering the Louisiana Supreme Court’s reliance on  Owens–Illinois in Arceneaux, a Louisiana court may be persuaded to adopt New Jersey’s “unavailability” rule and require all insurers “on the risk” when insurance for asbestos claims was “available” to bear responsibility for the years of exposure in which insurance was “unavailable.”  If your company needs help navigating these issues, Kean Miller’s Insurance Coverage and Recovery team can help.  We have recovered millions for policyholders in environmental and toxic tort actions, legacy lawsuits, products liability lawsuits, professional liability claims, governmental investigations, intellectual property claims, directors’ and officers’ disputes, property losses, and business interruption losses.

By Blake Crohan

In Griffin v. Hess Corporation, 2017 WL 5125657 (5th Cir. Nov. 3, 2017) (unpublished) the U.S. 5th Circuit reaffirmed the difficult burden of proving that prescription should be excused under the Louisiana jurisprudential exception of contra non valentem non currit preaescriptio. Contra non valentem “means that prescription does not run against a person who could not bring his suit.”

The Plaintiffs in Griffin filed suit seeking unpaid royalties allegedly owed to their father pursuant to an oil, gas, and mineral lease that their great-grandfather and several other members of the Griffin family granted in 1935. The Plaintiffs alleged that production occurred on the property between 1940 and 1969, during which time several members of the Griffin family received royalty payments, except their father. Between 1983 and 1984 the Plaintiffs began researching the history of the oil wells located on the property. Their research discovered documents identifying the Defendants’ corporate predecessors, an abstract of title that was commissioned in connection with potential oil company operations, and documents and pay stubs from previous royalty payments related to the Plaintiffs’ property. Around that same time, the Plaintiffs hired an attorney to represent them with respect to these claims. The Plaintiffs continued their investigation of the allegedly unpaid royalties over the next two decades, and in 2008 reached out to ExxonMobil directly regarding their unpaid royalty claims. Ultimately, ExxonMobil informed the Plaintiffs that it had no sales under the referenced lease after July 1954, found no outstanding royalty payments held in suspense, and that the property listed was not under lease to ExxonMobil. The Plaintiffs disagreed and filed suit on October 14, 2014 in federal court in the Western District of Louisiana against Hess Corporation and ExxonMobil (“Defendants”).

In the district court, the Defendants filed a motion for summary judgment arguing that the Plaintiffs’ claims for unpaid royalties were prescribed and barred under Louisiana Civil Code article 3494(5), which provides that the prescriptive period for unpaid royalties is three years. The Defendants asserted that the Plaintiffs acknowledged that they first became aware of their claims for the unpaid royalties between 1983 and 1984—more than thirty years prior to filing suit.

In order to survive Defendant’s motion, the Plaintiffs had to prove that contra non valentem applied to excuse them for not filing suit earlier. The district court explained that “[s]uit need not be filed when there is a mere apprehension that something might be wrong,” but that prescription commences when “the plaintiff has actual or constructive knowledge of the” wrongful act. The Plaintiffs argued that “many circumstances [justified Plaintiffs’] delay in filing this lawsuit.” Specifically, they argued that between 1983 and 1984 they were merely seeking out who was responsible for the payment of royalties and that many members of their family were uneducated.  The district court was not persuaded. The district court held that “[b]y at least 2008, Plaintiffs had received the assistance of an attorney and had collected information, both documentary and oral, sufficient to excite attention and prompt further inquiry as to the unpaid royalties alleged owed to their father.” Thus, the Plaintiffs claims were dismissed as prescribed.

On appeal to the U.S. 5th Circuit, the Plaintiff-Appellants argued that “it was impossible to bring this lawsuit prior to . . . filing the [2014] complaint in federal court, because in light of the uncertainty of circumstances surrounding their father’s claim, they had no basis to file any claim on behalf of their father.” While the 5th Circuit noted that “their level of education may, by itself, support application of [contra non valentem], the court cannot disregard the substance of their actions which do not indicate any inability to bring this claim.” The Court explained that Appellants were adults when they were informed that they may be entitled to unpaid royalties, they investigated their ownership rights extensively, and knew that Hess Corporation had a past ownership interest in the property. Further, the Court found it compelling that Appellants received advice and meaningful information from three different lawyers on various occasions through their investigation. Nevertheless, Appellants waited until 2008 to contact ExxonMobil and then waited until 2014 to file suit. Finally, the Court noted that the appropriate focus on the commencement of prescription “is not when a plaintiff develops a strong legal case but when he has sufficiently reasonable knowledge of his legal options.” The Court affirmed the district court’s granting of summary judgment in favor of the Defendant-Appellees.

The 5th Circuit’s opinion in Griffin highlights two important aspects of Louisiana law. First, plaintiffs must be diligent in their efforts to initiate a lawsuit in order to preserve their claims. While courts are cognizant of the lay persons’ knowledge of legal claims, plaintiffs cannot wait until they have a “strong legal case” or know all of the facts necessary to prove their claim. Second, prescription is a strong defense mechanism for defendants. While the exception of contra non valentem remains a viable option to defeat prescription, courts applying Louisiana law will strictly construe the doctrine to ensure that its use is not abused.

By Troy Charpentier and Matthew Smith

After contesting the construction of the Dakota Access pipeline, environmental advocacy groups have turned their attention to the proposed Bayou Bridge pipeline in South Louisiana. The Bayou Bridge pipeline is a 162-mile-long, 24-inch-wide proposed pipeline which will cross the Atchafalaya Basin to connect facilities in Lake Charles, Louisiana to crude oil refineries in St. James Parish, Louisiana.

Earthjustice attorneys filed suit on January 11, 2018 on behalf of Atchafalaya Basinkeeper, Louisiana Crawfish Producers Association-West, Gulf Restoration Network, Waterkeeper Alliance, the Sierra Club, and the Delta Chapter of the Sierra Club against the U.S. Army Corps of Engineers challenging permits and authorizations issued by the Corps under § 404 of the Clean Water Act (“CWA”) and under the Rivers and Harbors Act (“RHA”) for construction and operation of the pipeline. The environmental groups contend that the Corps did not conduct a sufficient environmental assessment under the National Environmental Policy Act (“NEPA”) or consider various factors required by the CWA, RHA, and NEPA, including reasonable alternatives to the project, public interest, environmental impact, cumulative effects, and adequacy of mitigation.

Shortly after filing suit, the environmental groups filed Motions seeking a Temporary Restraining Order and Preliminary Injunction to halt construction of the Bayou Bridge pipeline. On January 30, 2018, Judge Shelly Dick of the Middle District of Louisiana denied the environmental groups’ Motion for Temporary Restraining Order, finding that, based on the current record, the groups could not demonstrate a substantial likelihood of success on the merits of their challenge to the issuance of the permits.

In doing so, the court noted the “significant deference” afforded to the Corps’ decision to issue the permits, and that “the existence of opposing views does not render the Corps’ decision arbitrary and capricious.” Despite the contentions of the environmental groups, the court found that it is “undisputed that the Corps held a public hearing and allowed for public comments in accordance with the law.” The court further reviewed a 92 page Environmental Assessment (“EA”) performed by the Corps prior to issuing the relevant permits and found that it “clearly addresses the specific complaints of several Plaintiffs, albeit obviously not to Plaintiffs’ satisfaction.” Specifically, the court found that (i) the EA “reflects that several alternatives were addressed and considered,” (ii) a significant portion of the EA is devoted to consideration of the CWA permit guidelines which the groups contend were not adequately considered, and (iii) the EA included consideration of public interest factors. Accordingly, the court found that “Simply having an opposing opinion, or disagreeing with the mitigation plans imposed, is insufficient to establish a substantial likelihood of success on the merits, especially in light of the high deference that the law requires the Court to afford the Corps.”

The next step in the environmental groups’ attempt to halt construction of the Bayou Bridge pipeline will be the hearing on their Motion for Preliminary Injunction, which is currently set for February 8, 2018.

By Alex Rossi

The 5th U.S. Circuit Court of Appeals “adopt[ed] a bright-line rule [on January 11, 2018]: Section 1446(b)(3)’s removal clock begins ticking upon receipt of the deposition transcript” as opposed to running from the date of the deposition testimony. The decision in Morgan v. Huntington Ingalls, Inc., et al, No. 17-30523, __ F.3d __ (5th Cir. 1/11/18) was one of first impression for the court.

Plaintiff, Curtis Morgan filed the original lawsuit alleging he contracted mesothelioma as a result of asbestos exposure at various industrial facilities in Louisiana. Morgan specifically alleged that he was exposed to asbestos through his employment at Avondale Shipyard in New Orleans as a sheet metal tacker in the 1960s. Seventy-eight (78) defendants were originally named in the lawsuit.

Morgan was deposed over eight days from March 9 to April 13, 2017. On the second day of testimony, Morgan testified that he worked on unspecified vessels at Avondale Shipyard. On March 20, Morgan agreed with medical records presented by counsel for Avondale Shipyard that one of the vessels on which he worked was the USS Huntsville, a vessel Avondale refurbished on behalf of officers of the U.S. government.

Based on the testimony regarding Morgan’s work on the USS Huntsville for the U.S. Government, Avondale removed the case to the U.S. District Court for the Eastern District of Louisiana on April 28, 2017 under the federal officer removal statute and claimed that removal was timely filed 30 days after receipt of Morgan’s deposition transcript. Morgan opposed the removal as untimely, claiming that the removal clock began from Morgan’s testimony regarding the USS Huntsville, which took place 38 days prior to removal. Morgan further argued that the district court lacked subject matter jurisdiction under 28 U.S.C. § 1442.

In finding the removal untimely, the district court determined that the removal clock for “other paper” under § 1446 began running on the date of the oral deposition testimony, and not the later date of receipt of the deposition transcript. The district court did not address whether the substantive requirements of § 1442 had been met for federal officer jurisdiction.

Citing the plain meaning and purpose of § 1446(b), as well as policy considerations, the 5th Circuit found that oral testimony at a deposition does not constitute an “other paper.” Instead, the court found the removal clock begins upon receipt of the deposition transcript as the “other paper” providing the basis for the removal. In adopting this bright light rule, the 5th Circuit balanced the competing goals of removal: encouraging prompt and proper removal and preventing, hasty, improper removals. The court declined to follow the “notice” standard adopted by the 10th Circuit, finding it counterintuitive to start the clock for removal before the objective evidence is received by the defendant.

The 5th Circuit remanded the case to the district court to address whether the substantive requirements of federal officer removal have been met.

 

 

By Lou Grossman

On January 9, 2018, a split panel of the United States Fifth Circuit Court of Appeals affirmed an order from the district court, denying a motion to remand a matter removed under the Class Action Fairness Act (“CAFA”). The 2-1 decision In Warren Lester, et. al. v. Exxon Mobil Corp., et. al., No. 14-31383, __F3d___ (5th Cir. 1/9/2018) addressed two issues of first impression for the Fifth Circuit: (1) whether a motion to transfer and consolidate can effectively create a “mass action” removable under CAFA; and (2) if so, whether CAFA may be invoked as a basis for removal when one of the underlying suits comprising the new “mass action” commenced well before the 2005 effective date of CAFA. In affirming the action of the district court below, the Fifth Circuit answered both questions in the affirmative. A full copy of the opinion can be found here.  

The removed actions included two separate matters filed in the Civil District Court for the Parish of Orleans, State of Louisiana – Warren Lester, et. al. v. Exxon Mobil Corporation, et. al. and Shirely Bottley, et. al. v. Exxon Mobil Corporation, et. al. The Lester matter was filed by over 600 plaintiffs for personal injuries and property damages allegedly resulting from Naturally Occurring Radioactive Materials (“NORM”) in 2002. The Bottley matter, on the other hand, was filed in 2013 as a wrongful death and survival suit filed on behalf of Cornelius Bottley, a decedent-plaintiff in Lester, by his three remaining heirs. Following the selection of a trial flight in the Lester matter, which was to include the claims of Mr. Cornelius Bottley, the Bottley Plaintiffs moved to transfer and consolidate their suit with Lester. The matter was promptly removed by a defendant named only in the Bottley matter.

The Fifth Circuit rejected Plaintiffs’ argument that the consolidation was meant to attach the Bottley matter only to the pending trial flight such that it did not, as CAFA requires, propose a single trial with more than 100 individual plaintiffs. Rather, the Fifth Circuit held that the focus under CAFA is on the consolidation proposed, which in the case of the Bottley plaintiffs, was a consolidation of cases involving “overlapping liabilities, damages and questions of law and fact…the determination [of which] in either case will have great bearing on the other….” Plaintiffs’ Motion did not and, as a matter of law could not, limit consolidation to only the claims set for trial. As such, the Fifth Circuit found that it proposed a “mass action,” i.e. a joint trial of 100 or more plaintiffs’ claims, under CAFA.

More importantly, the Fifth Circuit examined the date of the proposed consolidation as determining the applicability of CAFA. Though Lester had been filed before CAFA’s enactment, the proposed consolidation was proposed years later. The Fifth Circuit found that the proposed consolidation created a new “mass action.” The Fifth Circuit reasoned that a civil action may commence before it becomes a “mass action,” and that the Bottley suit became a “mass action” when Plaintiffs proposed that the claims be tried jointly with those in the Lester matter. Bottley was a “civil action” commenced after CAFA’s effective date that subsequently became a mass action subject to CAFA’s removal provisions.

In affirming the denial of Plaintiffs’ Motion to Remand below, the Fifth Circuit established two compelling rules: (1) that a consolidation is effective to create a “mass action” under CAFA; and (2) that CAFA’s Section 9 requirements are met if one of the two consolidated actions was commenced after CAFA’s effective date.  In addition to providing guidance and interpretation regarding the commencement of a mass action, this opinion demonstrates a broad approach to CAFA.

By Lana D. Crump and Amanda Collura-Day

In Louisiana, the collateral source rule mandates that a tort plaintiff be awarded the full value of his medical expenses against the tortfeasor, including any amounts written off by the provider, when that plaintiff paid some “consideration” (money) for the benefit of the written-off amount.  In other words, even though a person may have health insurance and, therefore, received the benefit of discounted medical charges, the collateral source payment is not credited to the tortfeasor, and the tortfeasor has to pay the full amount charged for the services.

However, in Rabun v. St. Francis Med. Ctr., Inc., 50,849 (La. App. 2 Cir. 8/10/16), 206 So.3d 323, a hospital was attempting to recover on its medical lien against the patient for the full amount of medical services charged (without accounting for the patient’s health insurance discount). The Second Circuit capped the patient’s medical expenses incurred at the negotiated rates between the hospital and the patient’s health insurer.  The Second Circuit found that the contracted rate is deemed the amount “incurred” by the patient.  Rabun did not deal directly with a tort plaintiff against a tortfeasor, and was limited to the hospital’s lien on the patient’s tort recovery. La. R.S. 9:4752.  Regardless, the court left lawyers with language to make a strong argument that a tortfeasor can only be held liable to an insured plaintiff for the contracted rate – the amount actually incurred.

Hoffman v. Travelers Indem. Co. of America, 13-1575 (La. 5/7/14), 144 So.3d 993 is another example.  There, an automobile insured sought to recover the entire amount charged for medical services following an accident, pursuant to the medical pay provision of her auto policy that allowed her to claim all reasonable expenses for necessary medical services incurred.  The provider was paid less than list rates pursuant to an agreement between the provider and the insured’s health insurer.  The Louisiana Supreme Court held that, as a matter of first impression, the insured did not incur the full list cost of the medical services.  The court found that because the plaintiff’s health insurer had contractually pre-negotiated rates with the provider, the plaintiff was only legally obligated to pay the discounted amount.  Since she had no liability for any amount over that discounted amount she did not “incur” the full list rates and, therefore, she could only claim the discounted amount from her auto insurer.

Rabun and Hoffman show that Louisiana courts are taking a close look at quantifying medical expenses, and there is an argument to be made that a tort plaintiff’s recovery for medical expenses (past and future) is limited to the insurance negotiated rates for insured plaintiffs because that is the actual amount incurred by the plaintiff.  Louisiana courts are catching up to the reality of managed care costs in this country as it relates to recovery of medical expenses.

By Tod J. Everage

The US Fifth Circuit recently published an opinion in Feld Motor Sports, Inc. v. Traxxas, LP, recognizing that it had jurisdiction to review a district court’s denial of a motion for summary judgment on a legal issue. This ruling was the first of its kind in the 5th Circuit, who now joins the 1st, 4th and 8th Circuits to acknowledge this exception to the general rule.

The case involved a fight over allegedly unpaid royalties in a licensing agreement between a monster truck show promoter and an RC car maker. During the case, both parties filed motions for summary judgment advancing their own interpretations of the subject licensing agreement. The district court denied both motions, concluding that the contract was ambiguous and the case proceeded to trial. After a seven-day trial, the jury found Traxxis owed FMS the unpaid royalties. Traxxas then filed a combined renewed motion for summary judgment as a matter of law under Rule 50(b), motion for new trial under Rule 59, or alternative motion to modify the judgment. The district court denied the motions and Traxxas appealed. FMS argued that the 5th Circuit did not have jurisdiction to hear Traxxas’s appeal, among other things.

The 5th Circuit analyzed its recent jurisprudence on the issue of jurisdiction and Rule 50 motions. In 2014, the Court recognized the long-standing general rule that “an interlocutory order denying summary judgment is not to be reviewed when final judgment adverse to the movant is rendered on the basis of a full trial on the merits.” See Blessey Marine Services, Inc. v. Jeffboat, LLC, 771 F.3d 894, 897 (5th Cir. 2014) (quoting Black v. J.I. Case Co., 22 F.3d 568, 570 (5th Cir. 1994)). Before now, the 5th Circuit had recognized only one exception to that rule. In Becker v. Tidewater, Inc., the Court held that it could review “the district court’s legal conclusions in denying summary judgment,” but only when “the case was a bench trial.” 586 F.3d 358, 365 n.4 (5th Cir. 2009). The Court reasoned in Becker that “because Rule 50 motions are not required to be made following a bench trial, it is appropriate to review the court’s denial of summary judgment in this context.” In Blessey, the 5th Circuit noted (in dicta) that it may have jurisdiction to hear an appeal of the district court’s legal conclusions following a jury trial, but only if the party restated its objection in a Rule 50 motion.

For clarification, Rule 50 governs motions for a judgment as a matter of law in a jury trial. Rule 50(a) allows a party (usually the defendant) to move for a judgment as a matter of law in a jury trial against the other party if the other party has been fully heard on an issue, arguing that a reasonable jury would not have a legally sufficient evidentiary basis to find for the party on that issue. If the Court denies the Rule 50(a) motion, a defendant has 28 days after entry of judgment to renew its motion under Rule 50(b).

Here, the 5th Circuit held that “following a jury trial on the merits, this court has jurisdiction to hear an appeal of the district court’s legal conclusions in denying summary judgment, but only if it is sufficiently preserved in a Rule 50 motion.” In doing so, the Court joined the 1st, 4th, and 8th Circuits.

While technically plowing new ground, the 5th Circuit very directly reminded practitioners to make sure to renew their Rule 50(b) motion for judgment as matter of law after an adverse jury verdict or risk waiving their right to appeal the Court’s adverse legal finding. This issue is much more prevalent in contractual interpretation disputes, but can arise in casualty litigation should a defendant be unsuccessful asserting a legal defense on a dispositive motion or Rule 50(a) motion at the close of Plaintiff’s case.

By Claire E. Juneau

The United States Supreme Court recently issued an opinion which significantly limits the ability of a state court to assert personal jurisdiction over non-resident defendants. This ruling is hardly a surprise and is consistent with the Court’s recent decisions in BNSF Railway Co. v. Tyrrell, 137 S. Ct. 1549 (2017) which reaffirmed the court’s commitment to the limitations on state-court jurisdiction set forth a few years ago in Daimler AG v. Bauman, 134 S. Ct. 746, 187 L.Ed. 2d 624 (2014)(Due process did not permit exercise of general jurisdiction over German corporation in California based on services performed there by its United States subsidiary that were “important” to it).

In Bristol-Myers Squibb Company v. Superior Court of California, San Francisco County, et al., 137 S. Ct. 1773 (2017), the Supreme Court held that the due process clause of the United States Constitution did not permit exercise of specific personal jurisdiction by a California Court over non-resident consumer claims. The plaintiffs in Bristol were a group of 600 consumers, most of whom were not California residents. The plaintiffs had filed suit in California state court against Bristol-Myers Squibb (“BMS”) asserting a variety of state law claims, all based on injuries purportedly caused by a BMS drug, Plavix. The facts relied upon by the courts to analyze jurisdiction were as follows:

  • BMS is a large pharmaceutical company incorporated in Delaware with its principal place of business in New York.
  • BMS’s business activities in California are comprised of five research and laboratory facilities, 160 employees, 250 sales representatives, and a small state governmental advocacy office.
  • Plavix was not developed, manufactured, labeled, or packaged in California. BMS did not create a marketing strategy or work on regulatory approval in California. All of these activities occurred in New York or New Jersey.
  • Plavix is sold in California – approximately 187 million pills which amount to more than $900 million in revenue, a little over one percent of the company’s nationwide revenue.

After suit was filed in California, BMS moved to quash summons on the non-resident plaintiffs’ claims asserting that California did not have personal jurisdiction over those claims. The case made its way to the California Supreme Court who agreed with BMS that its contacts with California were insufficient for general personal jurisdiction under the United States Supreme Court’s decision in Daimler AG. However, in adoptiong a “sliding scale” test, the court found that specific personal jurisdiction could be established. The California court held that “[a] claim need not arise directly from the defendant’s forum contacts in order to be sufficiently related to the contact to warrant the exercise of specific jurisdiction.” The court found that BMS, through its national advertising and distribution scheme and business conducted in California, had sufficient contacts with the forum for California to exercise specific personal jurisdiction over all Plavix claims. Therefore, California courts could hear the claim of every Plavix plaintiff nationwide, even those non-California plaintiffs whose injuries were not caused by conduct within California.

In a near unanimous decision, with Justice Sotomayor as the lone dissenting voice, the United States Supreme Court reversed California’s decision holding that the due process clause of the Fourteenth Amendment precluded California’s sliding-scale test. The Court re-affirmed prior precedent: to invoke specific personal jurisdiction, a claim must “arise out of” defendant’s conduct within the state. Quoting directly from World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 292 (1980), the Court reasoned that the “primary concern” in determining personal jurisdiction is “the burden on the defendant.” Thus, a State can only invoke specific personal jurisdiction over claims that arise from the defendant’s activities within the forum state. This jurisdiction does not extend to claims arising from defendants’ identical activities in other states. California’s “sliding scale approach,” the Court wrote, “resembles a loose and spurious form of general jurisdiction” that does not comport with the Due Process Clause of the Fourteenth Amendment.

The Court further found that the Due Process Clause protects interstate federalism by divesting the state court’s power to hear claims that do not “arise out of or relate to” the defendant’s forum contacts. While the burden placed on the defendant remains the primary focus, a related concern is the “territorial limitations on the power of the respective States.” The “sovereignty of each state … implies a limitation on the sovereignty of other states.” Therefore, the facts that the defendant suffers no additional burden by litigating in the forum and that the forum state has a strong interest in applying its law to the controversy or is the most convenient forum does not circumvent the protections of the Due Process Clause.

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.

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.