By: Tod J. Everage
Last week, the U.S. Supreme Court granted the Writ of Certiorari in the Dutra v. Batterton case, setting the stage for a resolution of the Circuit Split between the US Fifth and Ninth Circuits on whether punitive damages are available to a seaman on an unseaworthiness claim. A more thorough review of the Dutra case and the anticipated fight can be found in our previous blog post here.
By Jaye A. Calhoun, Jason R. Brown, and William J. Kolarik, II
In Smith v. Robinson, La. S. Ct., Dkt. No. 2018-CA-0728 (Dec. 5, 2018), the Louisiana Supreme Court held that the Texas franchise tax (also known as the “Texas margins tax”) was an income tax for purposes of Louisiana’s credit for tax paid to another state and held that a 2015 law that limited the credit was unconstitutional because it impermissibly discriminated against interstate commerce. In Smith, the Louisiana Supreme Court struck down Act 109 of the 2015 Regular Legislative Session, which amended La. Rev. Stat. Ann. 47:33 (the “Credit Statute”). Louisiana law taxes residents on income earned both within and without Louisiana but, prior to revision, the Credit Statute allowed a credit against Louisiana tax for “net income tax” paid to another state. The credit prevented Louisiana taxpayers from being subject to income tax more than once on the same income. The relevant portions of Act 109 limited the credit in two ways. First, Act 109 provided that the credit was only available against taxes paid to another state if the other state offered a reciprocal credit to the state’s own residents transacting business in Louisiana. Second, Act 109 capped the credit so that it could not exceed Louisiana income taxes paid. The invalidation of Act 109 may present a refund opportunity for certain Louisiana resident individuals that either (1) had their credit limited by the cap in Act 109; or (2) paid Louisiana income tax on revenue from a flow-through entity that was subject to the Texas margins tax.
In Smith, the taxpayers were Louisiana residents who owned interests in several flow-through entities, specifically, limited liability companies and subchapter S corporations, with operations in Texas, Arkansas, and Louisiana. The entities were subject to the Texas margins tax. The taxpayers paid Louisiana individual income tax on the portion of each entity’s income that was subject to tax in Texas under protest and filed a lawsuit against the Louisiana Department of Revenue (the “Department”) seeking recovery of the tax.
In district court, the taxpayer filed a motion for summary judgment and asserted that Act 109 was unconstitutional because the Texas margins tax was a tax on income and, absent Act 109, the taxpayer would be entitled to a credit for the amount of Texas margins tax paid. The taxpayer also asserted that Act 109 violated the dormant Commerce Clause because it resulted in a double tax on interstate income but not intrastate income. The Department opposed the taxpayer’s motion for summary judgment, arguing that the Texas margins tax was not a tax on income because it contained both a net income component and a net capital component, which are not divisible. The Department denied that Act 109 burdened interstate commerce because it was within the state’s power to regulate state income tax. The district court granted the taxpayer’s motion of summary judgment and concluded that Louisiana First Circuit Court of Appeals decision in Perez[1], which held that the old Texas franchise tax was an income tax under Louisiana law, was dispositive of the income tax issue, and that the U.S. Supreme Court’s decision in Wynn[2] was dispositive of the constitutional issue. The Department appealed to the Louisiana Supreme Court.
The Court first considered whether the Texas franchise tax was a net income tax within the meaning of the Credit Statute and held that it was, relying in part on the reasoning in Perez. The Court also noted that the Department of Revenue had acquiesced in the Perez decision (LDR Statement of Acquiescence No. 03-001, Sep. 10, 2003) and had not revoked nor modified its acquiescence despite the 2006 revisions to the Texas franchise tax law. In so holding, the Court also concluded that the calculation of taxable margin was essentially an income tax.
With respect to the dormant Commence Clause, the Court also agreed with the trial court that Act 109 violates the Dormant Commerce Clause, specifically, the fair apportionment and discrimination prongs of Complete Auto.[3] The Court held that Act 109 violated the external consistency test developed to analyze fair apportionment because Act 109 operates to ignore where a taxpayer’s income is generated and does not take into account whether the income has a relationship to the state. The Court agreed with the taxpayers that Act 109 failed to apportion out-of-state income. The Court also held that Act 109 discriminated against interstate commerce because it exposes one hundred percent of the interstate income of Louisiana residents to double taxation and because the cap on the credit caused a portion of the taxpayer’s out-of-state income to be subject to double taxation.
Implications
Any Louisiana resident individual that was previously subject to the limitations on the credit for taxes paid to other states should consider filing a refund claim. In addition, any Louisiana resident individual doing business in Texas through a flow-through entity that paid Texas margins tax should review their returns and consider whether a refund claim is warranted.
While the case is not yet final, the recent decision in Bannister Properties[4], may limit the taxpayer’s ability to file a refund claim if a court concludes that the Department’s interpretation of the Texas margins tax was a mistake of law arising from the misinterpretation by the Department. In that instance, it is possible that the Louisiana First Circuit Court of Appeals decision in Bannister Properties could limit the taxpayer’s ability to pursue the refund claim.
The issue in Bannister Properties was whether a taxpayer could file in the Board of Tax Appeals (“BTA”) for review of the Department’s denial of a refund claim arising from a mistake of law by the Department. In Bannister Properties, the taxpayer filed a refund claim and a claim against the state for franchise taxes that were not paid under protest. The taxpayer and the Department reached a settlement on the claim against the state but the legislature refused to appropriate the funds to pay the refund, so the taxpayer attempted to force the Department to pay the refund through the refund claim. The refunds at issue were attributable to the invalidation of the Department’s regulation in UTELCOM.[5] La. R.S. 47:1621(f) (the “Refund Statute”) appears to create a bar to a refund related to a mistake of law by the Department unless the taxpayer paid the tax under protest and filed suit to recover, or by appeal to the BTA in instances where such appeals lie. According to Bannister Properties the phrase “appeal to the BTA in instances where such appeals lie” is limited to claims against the state and does not apply to appeals related to the denial of refund claims. Bannister Properties will likely be appealed to the Louisiana Supreme Court because it has the potential to severely limit a taxpayer’s ability to obtain a refund for the overpayment of taxes caused by a mistake of law on the part of the Department.
While the scope of Bannister Properties is not yet clear and it is likely the decision will be appealed, the Department has indicated that it will not issue a refund claim related to the Smith case if the amount was not paid under protest. Therefore, a taxpayer filing a new refund claim for a tax that was not paid under protest, should consider filing a protective claim against the state in the Louisiana Board of Tax Appeals in addition to a refund claim. If successful, a claim against the state may only be paid by legislative appropriation.
For additional information, please contact: Jaye A. Calhoun at (504) 293-5936, Jason R. Brown at (225) 389-3733, or Willie Kolarik at (225) 382-3441.
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[1] Perez v. Secretary of Louisiana Department of Revenue, 731 So.2d 406 (La. App. 1st Cir. March 8, 1999).
[2] Comptroller of Treasury of Maryland v. Wynn, 135 S.Ct. 1787 (2015).
[3] Complete Auto Transit v. Brady, 430 U.S. 274 (1977).
[4] Bannister Properties, Inc. v. State of Louisiana, Dkt. No. 2018 CA 0030 (La. Ct. App., 1st Cir., Nov. 2, 2018).
[5] UTELCOM, Inc. v. Bridges, La. Ct. App., 1st Cir., 77 So 3d 39 (2011) (Which held that La. Admin. Code 61:I.301(D) was invalid because it was promulgated based on a mistake of law due to the Department’s misinterpretation of the corporation franchise tax law.)
The United States District Court for the Western District of Louisiana recently relied on Louisiana Revised Statutes 9:2779 in holding unenforceable a mandatory forum selection clause in a construction contract.[1] Pittsburg Tank & Tower Maintenance Co., Inc. (“Pittsburg”) contracted with the Town of Jonesboro (the “Town”) to perform maintenance and repair work on an elevated water tower in the Town. Pittsburg issued to the Town its standard form contract, which contained a provision stating, “This contract is governed by the laws of the Commonwealth of Kentucky and any claim should be filed with the Commonwealth of Kentucky.”
After becoming dissatisfied with the work, the Town filed suit in Louisiana state court. After having the case removed to federal court, Pittsburg moved to have the Court transfer the case to the Western District of Kentucky based on the contract’s forum selection clause, quoted above. Although acknowledging that forum selection clauses are generally enforceable, the Court found that extraordinary circumstances prevented its enforceability here.
The Court relied on R.S. 9:2779 for its holding, which provides in pertinent part:
The legislature finds that, with respect to construction contracts . . . for public and private works projects, when one of the parties is domiciled in Louisiana, and the work to be done and the equipment and materials to be supplied involve construction projects in this state, provisions in such agreements requiring disputes arising thereunder to be resolved in a forum outside of this state or requiring their interpretation to be governed by the laws of another jurisdiction are inequitable and against the public policy of this state.
In summary, R.S. 9:2779 generally provides that for “construction contracts” where the work is in Louisiana and one of the parties to the contract is “domiciled” in Louisiana, a forum selection clause that selects a forum outside of Louisiana or a choice of law provision that selects the law of another state is against public policy and will not be enforceable.
In the Pittsburg Tank case, there was no doubt that one of the parties, the Town of Jonesboro, was a Louisiana domiciliary and that the work was performed in Louisiana. Thus, after finding that the contract was, in fact, a “construction” contract,[2] the Court determined that the case should not be transferred because the clause was unenforceable as against Louisiana’s public policy.
Although under Louisiana law, parties may generally agree that actions involving a contract be brought in another state or be subject to the law of another state, for contracts related to a construction project in Louisiana, R.S. 9:2779 may make their agreement unenforceable. Any contractor or owner wishing to perform construction work in Louisiana must be aware of R.S. 9:2779’s implications in order to appropriately set its expectations for the proper forum and applicable law in the undesirable event of a dispute.
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[1] Town of Jonesboro v. Pittsburg Tank & Tower Maintenance Co., Inc., No. 17-1589, 2018 WL 3199476 (W.D. La. Feb. 12, 2018).
[2] The Court spends a substantial portion of the opinion addressing whether Pittsburg’s scope of work should be considered a “construction” or “maintenance” contract. The Court used the “principal value” test to determine that the contract was a “construction” contract such that R.S. 9:2779 applies.
By the Data Security & Privacy Team
On September 27, 2018, Gov. John Bel Edwards declared October to be Cybersecurity Awareness Month in the State of Louisiana, signing a Proclamation in front of members of the Louisiana Cybersecurity Commission. By signing this Proclamation, Gov. Edwards is simultaneously kicking off a Cybersecurity Awareness Campaign promulgated by the Louisiana Cybersecurity Commission. The goal of the Louisiana Cybersecurity Commission, the Proclamation, and Cybersecurity Awareness Month Campaign is to enhance and improve Louisiana’s cybersecurity ecosystem. Gov. Edwards stated at the Proclamation signing that, “There is no doubt that Louisiana is a leader in cybersecurity.” He emphasized that “No state has more protections for its citizens and its businesses than Louisiana.” Gov. Edwards referenced upcoming proposed legislation concerning cybersecurity protections for Louisiana citizens and businesses during his remarks following the Proclamation signing. The Proclamation signing and the formation of the Louisiana Cybersecurity Commission follow Louisiana’s recently updated data breach notification laws that went into effect earlier this year. Copies of both the Proclamation and Cybersecurity Awareness Campaign Model can be found on the Louisiana Cybersecurity Commission’s website found here.
Kean Miller attorneys will continue to update their clients on relevant cybersecurity news and changes in any relevant legislation and regulations. If you have any questions concerning this, please contact Sarah Anderson and Jessica Engler from Kean Miller.
The Industrial Tax Exemption Program (ITEP) is a key tax incentive for manufacturers looking to expand or build facilities in Louisiana. The property tax exemption is authorized in the Constitution and is administered by the Louisiana Department of Economic Development (LED). Historically, exemption contracts were approved at the state level and manufacturers enjoyed ten years of 100% property tax exemption on eligible capital expenditures. In 2016, Gov. John Bel Edwards issued two Executive Orders that upended the program by making local approval of the exemption a prerequisite to LED application and consideration, and reducing the number of years and percentage of exemption on eligible capital expenditures.
In early 2018, LED proposed revisions to reinstate much of the old ITE program. Manufacturers once again enjoy ten years of exemption, but only as to 80% of property tax liability. Additionally, LED regained initial approval authority, with local governmental entities having a short window for an “up or down” vote on any LED-approved project. This allows for a more efficient process as applications will receive automatic approval if the local governmental entities take no action within the specified time.
The last few weeks have been significant for ITEP: the Board of Commerce and Industry approved the first batch of exemption contracts under the new rules at its August 29th meeting. And, on September 19th, the Louisiana Tax Commission approved new rules regarding reporting exempt property, including manufacturing establishments with ITEP contracts. Parish assessors are now required to classify ITEP property on their tax rolls and report the start/end date of any exemption contract, the fair market value and assessed value of exempt property, the exemption percentage and value of the exemption contract, and the amount of property tax subject to exemption. Finally, LED has gone completely digital, and ITEP applications must now be submitted online through the Fastlane system.
On August 29, 2018, the U.S. Court of Appeals for the Fifth Circuit dismissed an appeal for lack of appellate jurisdiction involving the issue of whether a vessel’s primary and excess insurers may limit their liabilities to the same extent available to the vessel. See SCF Waxler Marine, L.L.C. v. ARIS T M/V, No. 17-30805 (5th Cir. August 29, 2018). SCF Waxler addressed the interplay between the Louisiana Direct Action Statute, La. R.S. § 22:1269, that allows third party claimants to bring claims directly against a tortfeasor’s insurer and the U.S. Shipowner’s Limitation of Liability Act, 46 U.S.C. § 30501, a federal statute that permits a vessel owner (and some vessel charterers) to limit their liability to the post-casualty value of the vessel and the pending freight.
SCF Waxler involved an accident in which the M/V ARIS T collided with multiple vessels and facilities along the Mississippi River, allegedly resulting in damages expected to exceed $60 million. The M/V ARIS T blamed the accident on unsafe maneuvering by two tugs. The owner and operator of one of the tugs, Cenac Marine Services (“Cenac”), filed a Limitation action in defense of the claims against it seeking to limit its liability to the value of the vessels involved. Claims were filed against Cenac’s primary and excess insurers directly pursuant to the Louisiana Direct Action Statute. Cenac’s insurers filed defenses arguing that their liability, if any, was derived solely from their policies’ terms and conditions and that they were entitled to limit their liability to the extent Cenac was entitled to limit its liability to the subject vessels and pending freight.
In a motion for partial summary judgment, Claimants asked Judge Zainey to resolve whether the excess insurers could limit their liability to the value of Cenac’s insured vessel. They argued that Cenac’s insurance policies did not contain the requisite language allowing them to limit their liability vis-à-vis an injured third party (the primary insurers advised that they had no interest in the outcome of motion because their primary $1 million limits of coverage were less than the $14.6 million limitation fund posted by Cenac). Judge Zainey rejected their arguments holding that the policies in question were excess follow-form policies, and accordingly the legal question turned on the language of the primary P&I cover to which they followed form. Judge Zainey noted controlling U.S. Fifth Circuit precedent, which provides that a P&I insurer “may limit its liability to that of the vessel owner’s liability when the terms of the policy allow it to do so.”
Claimants appealed, asserting that the Fifth Circuit had jurisdiction to hear an appeal of that interlocutory order under 28 U.S.C. §1292(a)(3), which provides that appellate courts may entertain appeals from district courts’ interlocutory orders that determine the rights and liabilities of the parties to admiralty cases. The Fifth Circuit stated that “the heartland of this court’s jurisdiction over an interlocutory appeal under § 1292(a)(3) is a conclusive determination of the rights and liabilities as to the claim on appeal.” Claimants argued that because the district court, in denying their motion for partial summary judgment, granted the excess insurers rights to limit their liability, then that determination was the final order on the extent of the excess insurers’ liability in this case. Because the district court’s order determined “the rights and liability of the parties” in an admiralty case, Claimants contend that section 1292(a)(3) applied and the Fifth Circuit was afforded jurisdiction over the case.
The Fifth Circuit disagreed with their contentions. Instead, the Court focused on whether Claimants were legally permitted to recover anything from the excess insurers and if so, the amount of that liability. The Circuit Court determined that the limitation of liability question was ancillary to the main question regarding the extent of the insurer’s liability. Further, the Court found no compelling reason to distinguish between a district court’s determination of a contractual entitlement rather than statutory entitlement to limit liability. The Court joined the Eleventh Circuit in holding that neither decision was reviewable on appeal under section 1292(a)(3).
Conversely, the Court stated that if the district court had decided that the excess insurers were not entitled to limitation of liability, jurisdiction would be appropriate. A denial of exoneration or limitation of liability would require a district court to conclude that a party was negligent and not entitled to limitation.
Thus, the Fifth Circuit would not exercise jurisdiction when a district court determines whether a party may, under a contractual provision, limit his liability should the liability question be determined in that party’s favor. The Fifth Circuit’s decision to not exercise jurisdiction in cases where a final adjudication of the liability has not been made is not surprising considering their history in narrowly construing section 1292(a)(3). However, it assists in guiding vessel owners and insurers on the costs involved in doing business in the maritime arena.
A “no claims bonus” is an attractive carrot that insurers can write into a policy to attract more customers. Indeed, the recovery of a “no claims bonus” can result in a substantial payoff for an insured. Given the maxim: “accidents happen”, the question arises, can the “no claims bonus” be recovered as an element of damages if a third party causes you to forfeit the bonus through their fault. Currently, this exact issue is making its way through the Eastern District of Louisiana in Cox Operation, LLC v. Settoon Towing, LLC et al., Civil Action No. 17-1933 c/w 17-2087.
Cox Operation concerns a September 13, 2016, accident where a Settoon vessel allided with a well owned by Cox. In addition to its property damage claims, Cox seeks to recover the loss of its “no claims bonus”, allegedly due to Settoon’s neglect.
Specifically, Cox had insured the well with a policy that provided a “10% no claims bonus payable at expiry subject to a total gross earned premium exceeding USD 2,000,000 hereon.” Accordingly, if Cox submitted no claims under the applicable policy, then the insurer would refund Cox 10% of the total premium amount for the policy period, assuming that total premium amount exceeded two million dollars (which it did). If Cox submitted a claim during the policy period, then no refund would issue. Interestingly, Cox also insured the potential loss of its “no claims bonus” through a separate policy.
As a result of the subject allision, Cox was forced to submit a claim under the policy. It then became obligated to repay the “no claims bonus” which the insurer had prepaid to Cox. Critically, the claim associated with the allision was the only claim Cox filed during the applicable policy period. Thus, it was Cox’s contention that Settoon’s negligence caused a loss/damage to Cox in the amount of the loss “no claims bonus.” Settoon challenged Cox’s entitlement to the “no claims bonus” and moved for summary judgment arguing that Cox was precluded as a matter of law from pursuing recovery of the “no claims bonus.” Settoon also put at issue the policy insuring Cox’s loss of the bonus, which Cox argued should be excluded as a collateral source.
Settoon argued that Cox could not recovery the no claims bonus under either the General Maritime Law or the Oil Pollution Act (OPA). Cox did not address Settoon’s arguments that the no claims bonus was not recoverable under the OPA. Instead, Cox focused on the recoverability of the “no claims bonus” under the General Maritime Law.
In analyzing this issue, the EDLA cited the U.S. Fifth Circuit’s opinion in Louisiana ex rel., Guste v. M/V TESTBANK, 752 F.2d 1019 (5th Cir. 1985) (en banc), which holds that “physical injury to a proprietary interest is a pre-requisite to recovery of economic damages in cases of unintentional maritime tort.” Next, the District Court reviewed Corpus Christi Oil & Gas Co. v. Zapata Gulf Marine Corp., 71 F.3d 198, 203. (5th Cir. 1995) where the Fifth Circuit interpreted the TESTBANK rule and held that simply meeting the requirement of showing physical damage of a proprietary interest does not automatically open the door to all foreseeable economic consequences.” Rather, “economic consequences” must be “attendant” to the physical damage to a Plaintiff’s own property to be recoverable economic damages under TESTBANK.
Based on the facts that had been established to date, the District Court held that TESTBANK’s pre-requisites were satisfied. Thus, the door to the recoverability of the “no claims bonus” was opened. The alleged damage to Cox’s well constituted physical damages to Cox’s own property. Cox’s loss of the “no claims bonus” was tied to the physical damage to Cox’s well. Bottom line: if Cox suffered physical damage to its property and suffered an economic loss that was attendant to that damage, then “all of the TESTBANK rules boxes have been checked.” As such, Cox could pursue recovery of the “no claims bonus.”
After concluding that recovery of the “no claims bonus” was an allowable element of damages, the District Judge next addressed whether the Collateral Source Rule barred Settoon from introducing evidence of the separate insurance policy that insured Cox against the loss of the bonus. It is longstanding jurisprudence that the Collateral Source Rule bars a tortfeasor from reducing the quantum of damages owed to a Plaintiff by the amount of recovery the Plaintiff receives from other sources of compensation that are independent of (or collateral to) the tortfeasor. Davis v. Odeco, Inc., 18 F.3d 1237, 1243 (5th Cir. 1994). The underlying rationale of the Collateral Source Rule is that Plaintiffs should not be penalized because they have the foresight and prudence (or good fortune) to establish and maintain collateral sources of compensation, such as insurance. Insurance policies, such as the one purchased by Cox, clearly fall within the definition of a collateral source. As such, the District Court concluded that Settoon could not introduce – and the Court could not consider – evidence that Cox was, in fact, insured against the loss of the “no claims bonus.”
Ultimately, Cox was not legally precluded from seeking recovery of the no claims bonus. However, at trial Cox must still prove the value of its loss related to the “no claims bonus” in order to recover that loss. Be on the lookout for future updates as this matter proceeds to a final resolution.
By Jaye A. Calhoun, Jason R. Brown and William J. Kolarik, II
On Friday, August 10, 2018, the Louisiana Department of Revenue (the “Department”) released Remote Sellers Information Bulletin No. 18-001 (the “RSIB”). The RSIB states that the Louisiana Sales and Use Tax Commission for Remote Sellers (the “Commission”) “will not seek to enforce any sales or use tax collection obligation on remote sellers based on United States Supreme Court’s decision in South Dakota v. Wayfair or the provisions of Act 5 [2018 La. Sess. Law Serv. 2nd Ex. Sess. Act 5 (H.B. 17)] as it relates to the expanded definition of “dealer” for any taxable period beginning prior to January 1, 2019. In addition, the RSIB notes that Uniform Local Sales Tax Board will issue guidance to local sales and use tax collectors advising them not to seek retroactive application of the Wayfair decision.
In Wayfair, the United States Supreme Court held that physical presence in a state is no longer required before a state (or local, by implication) taxing jurisdiction may impose a use tax collection obligation on an out-of-state vendor. But the Court also noted that a use tax collection obligation could constitute an undue burden on interstate commerce. In so holding, the Court listed the characteristics of the South Dakota law at issue in Wayfair that may indicate that South Dakota’s law does not impose an undue burden on interstate commerce. Those factors included: (1) a safe harbor to protect small sellers; (2) the lack of retroactive enforcement; and (3) South Dakota’s adoption of the Streamlined Sales and Use Tax Agreement (which, among other things, requires centralized collection, uniform definitions, simplified rate structures, access to sales tax software paid for by the state, and audit immunity for a seller using the state’s tax software). The Court remanded the case to the South Dakota Supreme Court for a determination of whether South Dakota’s law created an undue burden on interstate commerce.
Act 274 (H.B. 601) of the 2017 Regular Session of the Louisiana Legislature created a Commission within the Department of Revenue for the administration and collection of the sales and use tax imposed by the state and political subdivisions with respect to remote sales. The Commission was created to: (1) promote uniformity and simplicity in sales and use tax compliance in Louisiana, (2) serve as the single entity in Louisiana to require remote sellers to collect from customers and remit to the Commission sales and use tax on remote sales sourced to Louisiana, and (3) provide the minimum tax administration, collection, and payment requirements required by federal law with respect to the collection and remittance of sales and use tax imposed on remote sales.[1] But the Commission was prohibited from acting unless the U.S. Congress enacted a federal law authorizing states to require a remote seller to collect and remit state and local sales and use tax on sales made into the state, which has not occurred.
Act 5 was passed, in part, to fix the Congressional action requirement in Act 274 by amending the definition of “federal law” to include a “final ruling by the United States Supreme Court” (which did not occur in Wayfair). Act 5 also amended the definition of “dealer” to create a South Dakota-style economic nexus law. But Act 5’s effective date was contingent on a final ruling by the United States Supreme Court in Wayfair that South Dakota’s law was constitutional, which, as mentioned, did not occur.
Despite the uncertainty of its authority to act, the Commission held its first meeting on June 29, 2018 and has continued to meet monthly. The RSIB represents the first substantive official guidance issued by the Commission since Wayfair.
As noted above, the RSIB adopts a January 1, 2019, prospective enforcement date and encourages Louisiana localities to refrain from applying Wayfair retroactively. The Department also notes that any remote seller who is not currently registered with the Department or a local sales and use tax collector can voluntarily register with the Department to begin collecting and remitting sales and use tax in accordance with the direct marketer return provisions in La. R.S. Sec. 47:302(K). Finally, the RSIB notes that Louisiana’s notice and reporting requirements remain in effect for any remote seller to which those rules apply.
Implications
Louisiana’s decentralized sales and use tax regime does not conform in any measurable way with the factors outlined in the Wayfair opinion as significant in evaluating whether South Dakota’s law imposes an undue burden on interstate commerce. And numerous Louisiana officials have indicated that Louisiana will not adopt the Streamlined Sales and Use Tax Agreement. As a result, if Louisiana’s sales and use tax regime were applied to remote sellers as it currently stands it going to be very hard for tax collectors to argue that it does not create an undue burden on interstate commerce.
During its meetings, the Commission has indicated that it views the factors listed in the Wayfair decision as a roadmap and the Commission appears to be attempting to adhere to that roadmap. For example, the Commission is currently researching software vendors certified by the Streamlined Sales Tax Project (the SSTP”) and the SSPT registration process. But, as mentioned above, because the Wayfair decision was not a final decision by the Supreme Court, the Commission’s authority to act is simply not clear. However, it is clear that that the Commission has no direct authority to binds Louisiana local tax collectors.
Nevertheless, it appears the Commission will continue to work towards finding a path that conforms Louisiana’s sales and use tax regime as closely as possible to the factors listed by the Court in Wayfair. But as the January 1, 2019 date approaches, it is possible that rifts between the localities and the state may be revealed and those rifts may jeopardize the Commission’s mission.
A remote seller that sells goods into Louisiana should be mindful that Louisiana’s notice and reporting requirements remain in effect. As a result, a remote seller that sells into Louisiana should carefully balance the business concerns related to complying with those requirements with the costs and business concerns of complying with the direct marketer return provisions.
Kean Miller is also aware that some parishes may be sending out post-Wayfair voluntary compliance notices. Those notices request that the vendor register with the Parish under the Parish’s registration system and begin collecting and remitting tax. While some vendors may be voluntarily registering with Louisiana localities, it should be noted that there may be a downside to voluntarily registering at this point, before the Commission’s work is complete. For example, the Commission contemplates a single point of registration and return but if a remote vendor registers voluntarily, it may be stuck with filing individual returns for the foreseeable future in every parish where it has sales (as opposed to filing through the contemplated forthcoming uniform system) and the vendor may not be able to take advantage of any uniform guidance issued by the Commission. Any taxpayer that receives a voluntary registration notice, or that is considering voluntary registration, should speak with their tax advisor before doing so.
For additional information, please contact: Jaye Calhoun at (504) 293-5936, Jason Brown at (225) 389-3733, or Willie Kolarik at (225) 382-3441.
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[1] La. R.S. Sec. 47:339.
Insurers in oilfield legacy lawsuits often argue they are not responsible for their insureds’ settlements with landowners because La. R.S. 30:29 (“Act 312”) requires the settlements to be deposited into the court’s registry for remediation. On March 7, 2018, the Louisiana Third Circuit Court dealt a significant blow to the insurers’ argument.
In Britt v. Riceland Petroleum Co., 2017-941 (La. App. 3 Cir. 3/7/18), 240 So. 3d 986, writ denied, 2018-0551 (La. 5/25/18), the Plaintiffs sued the current and former operators of Plaintiffs’ property for damages to and remediation of their property. The operators settled all of the Plaintiffs’ claims, and one of the operator’s insurers argued that Act 312 required the trial court to: (1) hold a contradictory hearing; (2) determine if remediation was required; and if so, (3) order the deposit of funds into the court’s registry. The Third Circuit disagreed and held that no contradictory hearing is required when the settling parties: (1) provide notice of the settlement to the Department of Natural Resources (“LDNR”) and the Attorney General; (2) allow the LDNR thirty days to review the settlement and provide comments to the trial court; and (3) obtain the trial court’s approval of the settlement.
As a practical matter, a contradictory hearing will rarely be required under Britt since LDNR rarely objects to the settlements. Thus, Britt makes it more difficult for insurers to refuse to pay for settlements.
If your insurer is refusing to cover your business in oilfield legacy lawsuits, Kean Miller’s Insurance Coverage and Recovery team can help. We have recovered millions for policyholders in connection with environmental and toxic tort actions, legacy lawsuits, professional liability claims, products liability lawsuits, governmental investigations, intellectual property claims, directors’ and officers’ disputes, property losses, and business interruption losses.
Contractual indemnities are important and valuable in the oil patch. When they are enforceable, they have the potential to end litigation completely or at least the financial burden for a particularly well-positioned indemnitee. But, with “anti-indemnity” statutes in play in several jurisdictions (including Louisiana), the enforceability of these indemnity provisions rely (barring exceptions) on the application of general maritime law.
It is a common practice to select general maritime law as the governing law in any oilfield MSA – at least within the Fifth Circuit – but simply saying it applies doesn’t actually make it so. As a result, jurisprudential tests have emerged to determine what law actually applies to torts depending on where the incident occurred, as well as to the contracts themselves. When the services provided under the contract are obviously maritime in nature, such as a contract for vessel support services, there is little to dispute. But, especially when there is a high-dollar potential exposure riding on the enforceability of an indemnity obligation, there have been persuasive arguments made on both sides of the maritime vs. state law debate governing contracts for other, less obvious, oilfield services.
Most recently, the US Fifth Circuit addressed this dispute over plugging and abandoning services (“P&A work”) on three wells in coastal Louisiana waters in In re: Crescent Energy Services, No. 16-31214 (5th Cir. July 13, 2018). Crescent agreed, amongst other things, to provide three vessels to perform the work and to indemnify Carrizo against any claims for bodily injury, death, or damage to property. One of Crescent’s employees was injured on one of Carrizo’s fixed platforms during the P&A work, and unsurprisingly, Carrizo’s indemnity demand from the resulting claim was denied by Crescent under the Louisiana Oilfield Indemnity Act. The district court, applying the former Davis & Sons test, found the contract between Carrizo and Crescent to be a maritime contract and granted summary judgment in favor of Carrizo on its indemnity claim.
In January, the US Fifth Circuit pared down its maritime contract test (from Davis & Sons) to focus on only two factors: (1) “is the contract one to provide services to facilitate the drilling or production of oil and gas on navigable waters?” and (2) “does the contract provide or do the parties expect that a vessel will play a substantial role in the completion of the contract?” In re Larry Doiron, Inc., 879 F.3d 568, 576 (5th Cir. 2018). Both factors must be affirmed before maritime law may be applied to the contract.
On the first factor, Carrizo asserted a creative and ultimately successful argument that P&A work is “part of the total life cycle of oil and gas drilling.” Because plugging and abandoning a drilled well is part of the agreement with the State of Louisiana to get an initial permit to drill, the US Fifth Circuit was persuaded that the contract for P&A work involved “the drilling and production of oil and gas.” The Court then re-iterated its departure from Davis & Sons and its concern about where the incident occurred. In Doiron, the US Fifth Circuit stated: “The facts surrounding the accident are relevant to whether the worker was injured in a maritime tort, but they are immaterial in determining whether the workers’ employer entered into a maritime contract.” Doiron, 879 F.3d at 573-74. The US Fifth Circuit is “no longer concerned about whether the worker was on a platform or vessel.” Rather, the question is whether the contract concerned the drilling and production of oil and gas on navigable waters.
On this point, Crescent’s insurers argued that Doiron’s analysis on the P&A work resulted in inconsistencies with other Fifth Circuit precedents finding that torts occurring on and during the construction of fixed, offshore production platforms on the OCS are generally not governed by maritime law. Also, wireline work – which comprises much of the P&A work – had also traditionally been found to not be a maritime activity. The Court declined the invitation to review those OCSLA cases: “We are not concerned here with those OCSLA issues of whether to borrow state law as surrogate federal law, which leads to analyzing whether maritime law applies of its own force, which requires determining the historical treatment of certain contracts. We do need to analyze, though, whether this is a maritime contract. Doiron now controls that endeavor.” But these statements do not make clear whether the rejection of the OCSLA cases was because Crescent Energy Services is not an OCSLA case itself, or whether that distinction no longer has a difference in oil and gas contract review.
The Fifth Circuit then quoted commentary from Professor David W. Robertson discussing contract disputes on the OCS: “If the contract is a maritime contract, federal maritime law applies of its own force, and state law does not apply. If the contract calling for indemnity is not a maritime contract, the governing law will be adjacent-state law made surrogate federal law by OCSLA § 1333(a)(2)(A).” Why bring this up if the Court is ignoring OCSLA cases on the grounds of distinction? The Court doesn’t directly clarify. Instead, it said the reference was “to show that Davis previously and Doiron now are performing the task of determining how to classify contracts.” It further stated that Davis (a Louisiana waters case) did not offend OCSLA cases, so neither does Doiron.
The Fifth Circuit seemed concerned about this argument though and the perception of the Court’s abandonment of long-standing precedent. Surely, this will be the continued topic of attack from potential indemnitors. In addressing those criticisms, the Court stuck with its more back-to-basics theme: “We are here classifying a contract for a certain purpose, a juridical activity that has been done consistently with the 1969 Rodrigue decision at least since our 1990 Davis decision. We en banc eliminated most of the factors, narrowing our focus, but we did not fundamentally change the task. Doiron is the law we must apply.” On the one hand, the Court’s statements seem to firmly reiterate that Doiron is the law going forward when analyzing the maritime nature of a contract regardless of the location of the work. But, the Court’s avoidance of the OCSLA issues and the narrowed “certain purpose” of their decision begs for more direct guidance from the Fifth Circuit on Doiron’s geographic reach.
The Fifth Circuit could have unequivocally proclaimed that the breadth of Doiron extended to OCSLA cases, in whatever capacity, if that were its intent; but it did not. So then, what is the expected effect of Doiron on those contract cases involving a controversy on the OCS, where OCSLA statutorily provides its own choice-of-law provision? Does Doiron actually supplant Grand Isle Shipyard, Inc. v. Seacor Marine, LLC, 589 F.3d 778 (5th Cir. 2009), since it called the case “un-useful” to its task? If the situs of the controversy is no longer appropriate, then it seems that Doiron may be the answer.
Grand Isle was a contractual application of test articulated in Union Texas Petroleum Corp. v. PLT Engineering, Inc., 895 F.2d 1043 (5th Cir. 1990) which starts by finding that the dispute arises on the OCS; otherwise, now, Doiron surely is the test. The second PLT factor determines whether the OCSLA choice-of-law provision applies by looking to see if federal maritime law applies of its own force. This is where Crescent’s insurers’ historical argument would come into play. To determine whether federal maritime law applies of its own force, the US Fifth Circuit: (1) identified the historical treatment of contracts such as the one at issue, and (2) applied Davis & Sons. It seems obvious that this factor will likely at least be revised to substitute Doiron for Davis & Sons. The less obvious question is whether the historical treatment factor is relevant at all going forward.
In Doiron, the Fifth Circuit criticized those “historical” opinions that “improperly focus[ed] on whether the services were inherently maritime as opposed to whether a substantial amount of the work was to be performed from a vessel.” Thus, it is possible that the second PLT factor simply becomes the Doiron test. But, if so, then that would effectively eliminate the necessity of the PLT test for OCS contract law disputes, because the Courts have long since acknowledged that the relevant application of Louisiana law to the contract does not conflict with federal law. If this analysis is correct then Doiron should be the standing legal test for the determination of applicable law in an oilfield contract regardless of the location of the work (OCS vs. State waters).
A comment the Fifth Circuit made in its analysis of another earlier issue seems to bolster that conclusion: “If the contract here is maritime, the fact that it was to be performed in the territorial waters of Louisiana does not justify causing the outcome of this lawsuit to be different than if the contract was for work on the high seas. Consistency and predictability are hard enough to come by in maritime jurisprudence, but we at least should not intentionally create distortions.” After lauding the directness of its new test in Doiron (notwithstanding their use of the unpredictably applied term “substantial role”), the Fifth Circuit could have assisted practitioners with a bit more directness in Crescent Energy Services.
Despite the historically non-maritime nature of P&A work in the Fifth Circuit, the outcome of Crescent Energy Services is not surprising given the necessity of the vessels used for the work. In that respect, this decision is consistent with the Fifth Circuit’s continued primacy – now, by way of the Doiron test highlighting its importance – of the “substantial role” that a vessel will play in the work being done under the contract. While the Fifth Circuit may have left a gap in its recent holdings for the next OCSLA-based contract dispute, we see no reason why Doiron would not be at least a part of that new analysis.