By Michael J. O’Brien

Yesterday, the U.S. Fifth Circuit Court of Appeals released its decision in USA v. Don Moss, et al., 2017 WL 4273427 (5th Cir. 2017) affirming the Eastern District’s ruling that oilfield contractors cannot be held liable for criminal violations of the Outer Continental Shelf’s Lands Act (OCSLA), 43 U.S.C.§ 1331, et seq.  This is an important decision for all offshore contractors who were concerned about the Government’s intended criminalization of offshore accidents.

Moss stemmed from the November 16, 2012, explosion aboard the West Delta 32 Oil Production Platform located in the Gulf of Mexico. On November 16, 2012, independent contractors of the platform owner were performing repairs and modifications to the platform when the fatal explosion occurred. Three contractors were killed, several others were injured and oil was discharged into the Gulf.

Three years after the explosion, the USA issued criminal indictments against the owner/operator of the platform and the owner’s independent contractors that were working aboard the platform. In addition to charges related to the Clean Water Act, the contractors were also charged with multiple counts of knowing and willfully violating OCSLA’s regulations. At the district court level, the contractor defendants moved to dismiss the OCSLA charges on the grounds that the OCSLA regulations do not apply to oilfield contractors. The District Court agreed and dismissed the OCSLA charges against the contractors. The DOJ filed a timely appeal.

Central to the analysis of the District Court was OCSLA’s definition of the term “You” under the “BSEE Regulations” within the Code of Federal Regulations. 30 CFR §250.105 defines “You” as a “lessee, the owner or holder of operating rights, a designated operator or agent of the lessee(s), pipeline right-a-way holder, or a state lessee granted a right of use easement.” The District Court held that the definition of “You” “does not include oilfield contractors, subcontractors, or service providers.”

The Fifth Circuit agreed with the District Court’s analysis of the definition of “You.” Finding that the definition of “You” is unambiguous and limited in scope, the Moss Court held that the definition excludes contractors. Thus, the relevant OCSLA statues place criminal exposure squarely on the lessees and permitees not only for their own misfeasance, but also for that of the contractors and subcontractors they hire. The Fifth Circuit also noted that when the OCSLA regulations were first proposed, the intent was to hold operators responsible for their contractors’ actions and not to expand regulatory liability to contractors.

The Fifth Circuit was also influenced by the fact that for over a sixty (60) year period, the USA had only sought to enforce civil penalties against owner/operators, and it had never successfully criminally prosecuted a contractor under OCSLA. Indeed, the Federal Government did not regulate or prosecute oil field contractors as opposed to lessees, permitees, or well operators under OCSLA. Significantly, in March 2011, BSEE conducted a public workshop for oil and gas companies and advised in “bold fully capitalized underlined text” that the definition of “You” does not include a contractor. BSEE had also gone on record in 2010 that it “does not regulate contractors; we regulate operators.”

It was only until 2012, after the Deepwater Horizon Spill and a few months before the West Delta 32 explosion, that BSEE issued an “Interim Policy Document” opining that contractors may be liable for civil penalties under OCSLA. This change in policy was not entirely surprising given the view of the offshore industry by the administration at that time. However, the document made no mention of holding contractors criminally liable. As such, the Fifth Circuit determined that the consistency of over sixty (60) years of prior administrative practice in eschewing direct regulatory control over contractors, subcontractors, and individual employees supported the District Court’s conclusion that OCSLA regulations neither apply to, nor do they potentially criminalize, contractor conduct.  The “virtually non-existent past enforcement” of OCSLA regulations against contractors confirms that the regulations were never intended to apply to contractors. Ultimately, the Fifth Circuit held that while it was “novel” for the government to indict contractors for OCSLA violations, no judicial decision has supported such an indictment which was “at odds with a half  century of agency policy.”

Interestingly, the Fifth Circuit also commented on the pending appeal in the matter of Island Operating, Co. v. Jewell, 2016 WL 7436665 (W.D. La. 2016) where the District Court held that contractors could not be subject to a regulatory penalty or fine under OCSLA for Incidents of Non-Compliance (INC). In Moss, the Fifth Circuit indicated that it would not defer to the USA’s new policy position that contractors can be liable for civil and criminal penalties citing the 2011 “about face” that “flatly contradicts” the USA’s earlier interpretation of OCSLA’s regulations. The Fifth Circuit’s decision can easily be read to predict how the court will come down in Island Operating. So, while it is settled within the U.S. Fifth Circuit that the Federal Government (through BSEE) cannot criminalize a violation of Part 250 of the CFR’s (the BSEE Regs), this should not be read to expand that prohibition of criminal enforcement against contractors should other federal statutes, such as the Clean Water Act, be violated.

By Carrie R. Tournillon

The Louisiana Public Service Commission (“LPSC”) voted at its meeting on September 20, 2017, to reconsider and approve adoption of proposed rules that provide guidelines for certification of motor carriers of waste and create a rebuttal presumption that granting a certificate is in the public interest if the applicant has met the application requirements.  Under the new rules, applicants are still required to prove “public convenience and necessity” (“PC&N”), including having third-party shippers provide affidavits in support of the need for the certificate.

The new rules set forth, separately for applicants for contract carrier permits and common carrier certificates, the application minimum requirements, the applicant’s burden of proof, and the process for LPSC Staff review of the application and docketing of the matter.  Once an application is reviewed by Staff, a Staff Report will be issued recommending approval, conditional approval or denial of the requested authority.  The matter will then be docketed and published in the LPSC Official Bulletin for possible intervention, discovery, and assignment to an Administrative Law Judge, if contested, for setting a hearing on the merits.

As Kean Miller previously reported, earlier this year the Louisiana Legislature passed Act 278, which eliminated the requirement to prove PC&N as an entry requirement to obtaining authority from the LPSC to become an approved “common carrier” of waste within the state. In prior meetings, the LPSC has discussed whether the new legislation is an unconstitutional infringement on the jurisdiction of the LPSC over common carriers and directed its Staff to file suit challenging Act 278 and to take all action necessary to protect the LPSC’s jurisdiction.

 

As we learned during the flooding in South Louisiana in August of 2016, the help of our neighbors and friends in Texas and around the country strengthened us, and allowed our communities to rebuild and flourish. That’s part of the reason Kean Miller donated a total of $25,000 this week to the Greater Houston Community Foundation, the United Way of Greater Houston, and the American Red Cross in lieu of our fall client event originally scheduled for today, September 16th.

Our thoughts and prayers are with our friends, colleagues and peers in Houston and Southeast Texas today, and in the weeks and months ahead.

People First.

By Maureen N. Harbourt

Effective August 25, 2017, the Secretary of the Department of Natural Resources authorized the performance of activities within the Louisiana Coastal Zone necessary to prevent or to mitigate damages associated with Hurricane Harvey.  In the event that new construction is needed for such purposes, an after-the-fact Coastal Use Permit application might be required.  The Secretary’s message can be found here.

The Secretary noted that the emergency use provisions of the Coastal Use Permit Rules and Procedures (LAC 43:I.723.B.3) are activated by his determination that potential damage to energy and other infrastructure in the Louisiana Coastal Zone by Hurricane Harvey may result in an emergency situation and that damage resulting in a threat to life, property, or the environment.  (The Coastal Use Permit rules are available under Louisiana Administrative Code Title 43, Part I here.)  Further, the Secretary has determined that due to the potential threat that Hurricane Harvey may cause impacts of statewide significance, all emergency uses under the jurisdiction of the Louisiana Coastal Resources Program which are necessitated for preparation, response to, and the aftermath of Hurricane Harvey shall be considered uses of state concern (as distinguished from uses of local concern).

The LDNR stated: “Because of the potential for widespread damage associated with Hurricane Harvey, the Department of Natural Resources is temporarily modifying its usual emergency authorization procedures for storm related repair/restoration projects located in the Coastal Zone.  This modification applies ONLY to those activities needed to restore infrastructure.  Unless this notice is renewed, it shall expire on September 15, 2017.”

LDNR requires that those using this emergency authority are to provide the Department with notification via letter, email or fax as soon as possible for documentation purposes.  The notification should include:  the name of the entity undertaking the activity; a description of the work performed; a vicinity map showing the location of the emergency work; and project coordinates (lat/long) if available.  Notifications to LDNR should be directed to:  Karl Morgan, P.O. Box 44487, Baton Rouge, LA 70804-4487 (Fax: 225-342-9439) (E-mail: karl.morgan@la.gov).

By Maureen N. Harbourt

Just a quick reminder that in 2007, the Louisiana State Police (“LSP”) adopted regulations requiring special reporting requirements for persons “engaged in the transportation of hazardous materials by railcars, vessels, or barges, or the temporary storage of hazardous materials in any storage vessel not permanently attached to the ground” if that activity is within “a parish affected, or projected to be affected, by a Category 3 or higher hurricane for which a mandatory evacuation order has been issued.”  LAC 33:V.11103.  Hazardous materials are those materials listed in 40 C.F.R. Part 355, Appendix A.  Temporary storage is defined as storage in a portable container, and excludes any storage in pipelines or any other storage vessel permanently attached to the ground.

At the present time (11 a.m, CST, August 25, 2017),  Hurricane Harvey is a Category 2 storm with maximum sustained winds of 110 mph; but, it is projected that Harvey will strengthen to a Category 3 Hurricane by the time of landfall, which is projected to occur between Corpus Christi and Houston, Texas, late evening on August 25, 2017.  It is also projected that the hurricane will affect southwest and south central Louisiana parishes.  In fact, the Governor of Louisiana has issued an executive order that puts the entire State of Louisiana under a declaration of emergency.  Yesterday evening, Cameron Parish entered a mandatory evacuation order for all areas of the parish south of the Intracoastal Waterway, effective at 6 a.m., CST, August 25, 2017.   We are not aware of any mandatory evacuation orders for any other Louisiana parishes at this time.  The following is a link to all parish emergency response offices which will provide contact information to inquire about any orders issued: http://gohsep.la.gov/about/parishpa.

If a mandatory evacuation order is issued for any Louisiana parishes due to a Class 3 or higher category hurricane, the rules (LAC 33:V.11105) require the following:

  • Notification shall be given to the DPS, via electronic submittal, to the 24-hour Louisiana Emergency Hazardous Materials Hotline email address at emergency@la.gov within 12 hours of a mandatory evacuation order issued by the proper parish authorities.
  • For persons engaged in the transportation activities noted above, the report must include the following information:
    • the exact nature of, and the type, location, and relative fullness of the container (i.e., full, half-full, or empty) of all hazardous materials that are located within a parish subject to the evacuation order;
    • the primary and secondary contact person’s phone, e-mail, and fax number; and
    • whether the facility will be sufficiently manned such that post-event assessments will be performed by company personnel (as soon as safely practicable) and that any releases and/or hazardous situations will be reported in accordance with existing Louisiana Department of Environmental Quality (LDEQ) and State Police reporting requirements.
  • For those materials that are stored, it shall be necessary to only report those hazardous materials that were not reported in the annual SARA inventory report (40 CFR Parts 312/313) and those that are in excess of what is typically stored at the facility.

In addition to the notification to the LSP, “within a reasonable period of time” persons subject to the rule “shall perform a post-event assessment of those hazardous materials that were actually present in the affected area and to what degree, if any, those materials were compromised by said event and their current condition.”  Such information must be available for review by both the LSP and the LDEQ shall have access to this information.

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 Amanda Bourgeois

The substantial flexibility afforded by the limited liability company structure has made it an increasingly popular business entity choice.  Indeed, most of the default provisions in the Louisiana Limited Liability Company Law, La. R.S. 12:1301, et seq. (the “La LLC Law”) may be altered or superseded by the articles of organization or operating agreement of the limited liability company.  One such provision that is quite frequently altered or superseded in the operating agreements of many limited liability companies is that of the transfer or assignment of a membership interest in the limited liability company.

Unless the articles of organization or operating agreement of the limited liability company provide otherwise, a membership interest is freely assignable, in whole or in part, under the La LLC Law.[1]  This default provision is often unattractive to members of limited liability companies, especially ones that may be family-owned or formed for a particular joint venture project.  The desire to keep membership in the entity limited to either the current members or certain defined groups of persons drives many members of limited liability companies to include rules and restrictions to limit or prohibit the rights of a member to transfer or assign the membership interest in the limited liability company.  Most transfer restrictions included in a written operating agreement or the articles of organization are not problematic under Louisiana law.  However, members should be aware that restricting a member’s ability to pledge or encumber the membership interests in the limited liability company can be rendered ineffective by certain provisions of the Uniform Commercial Code – Secured Transactions, La. R.S. 10:9-101, et seq. (“UCC Chapter 9”).

Although there are some exceptions, in most cases, an interest in a limited liability company is considered a general intangible under UCC Chapter 9.  As a comparison, in most cases, shares of stock in a corporation are considered a security under UCC Chapter 9.  Under Louisiana law, this classification of general intangible versus security can affect, among other things, the available methods of perfecting the security interest, the determination of priority of competing security interests, and the effectiveness of anti-assignment provisions.

Pursuant to La. R.S. 10:9-408, certain contractual restrictions on the creation and perfection of a security interest of a general intangible are negated and rendered ineffective.  In the context of a limited liability company, Section 9-408 could be used to render ineffective a provision in an operating agreement or articles of incorporation (i) prohibiting a member from pledging or encumbering his or her membership interest or (ii) requiring the prior consent of the limited liability company or the other members thereof to the pledge or encumbrance of membership interests in the limited liability company.

Importantly, although the restrictions under Section 9-408 may permit a lender to take a perfected security interest in limited liability company interests despite contrary provisions in the organizational documents of the limited liability company, it does not necessarily mean that the secured creditor will have the right to enforce the security interest.  Further, it does not otherwise negate the default assignment provisions of the La LLC Law, or any similar provisions in the limited liability company organizational documents, that provide that any assignment of membership interests shall not grant to the assignee full membership rights absent the consent of the other members.  Consequently, absent contrary provisions in the organizational documents of the limited liability company or the unanimous consent in writing of the other members, in the event of a seizure of or foreclosure upon the membership interests, the creditor or any purchaser in a foreclosure sale is treated as an assignee of the membership interest, which only entitles the assigned to a right to receive distributions, share in the profits and losses, and receive allocations of income, gain, loss, deduction, credit or similar items to which the assignor member would otherwise have received.

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[1] It should be noted that even under the default provisions of the La LLC Law, an assignment of a membership interest does not entitle the assignee to become or exercise any rights or powers of a member, such as voting or participating in the management of the business, until such time as the assignee is admitted as a member, which requires the unanimous consent in writing of the other members of the limited liability company pursuant to the La LLC Law.  The assignment does, though, entitle the assignee to receive distributions, share in the profits and losses, and receive allocations of income, gain, loss, deduction, credit or similar items to which the assignor member would otherwise have received.   

 

By M. Dwayne Johnson

The D.C. Circuit’s July 7, 2017 decision on EPA’s 2015 definition of solid waste rule (DSW Rule)[1] may change the regulation of hazardous waste in Louisiana. First, some background.

In 2008, EPA promulgated a definition of solid waste rule that was intended to foster waste recycling (2008 Rule).[2] Therein, among other things, EPA provided two exclusions from the definition of solid waste:[3] (a) the generator control exclusion (GCE) for material reclaimed under the control of the generator, and (b) the transfer based exclusion (TBE) where the material is reclaimed by a third party reclaimer that has a RCRA permit or, if the reclaimer has no permit, the generator has made reasonable efforts to ensure that the reclaimer legitimately reclaims the material. The 2008 Rule was not mandatory.[4]

In 2015, EPA promulgated the DSW Rule that likewise was intended to foster waste recycling.[5] Therein, among other thing, EPA revised the GCE and replaced the TBE with the verified recycler exclusion (VRE). Under the VRE, material is excluded from the definition of solid waste if it is reclaimed by a third party reclaimer that has a RCRA permit or that has been approved (via variance) by EPA or a qualified state. EPA also provided 4 factors (Legitimacy Factors) to determine whether material is legitimately recycled and thus not discarded material (ergo solid waste): (1) the material must provide a useful contribution to the recycling process or to a product or intermediate of the recycling process; (2) the recycling process must produce a valuable product or intermediate; (3) the generator and the recycler must manage the material as a valuable commodity when it is under their control; and (4) the product of the recycling process must be comparable to a legitimate product or intermediate[6]. The DSW Rule contained both mandatory provisions (legitimate recycling) and non-mandatory provisions (the GCE and VRE).

Last month, LDEQ revised its hazardous waste regulations to adopt the DSW Rule and those portions of the 2008 Rule that remained in place.[7]

But in its decision, the DC Circuit:  (1) vacated the VRE, except for its emergency preparedness and response requirements and its expanded containment requirements; (2) reinstated the TBE (including its bar on spent catalysts); and (3) generally vacated Legitimacy Factor 4.[8]

The DC Circuit may reconsider its decision, and the Supreme Court may revise the decision on appeal. In the meantime, the decision’s effect is unclear and the Louisiana regulated community needs guidance from EPA and LDEQ.

Until then, it appears the DC Circuit’s decision will have the following effect in Louisiana:

  • The VRE is no longer available.
  • The TBE is not currently available (because it was never adopted in Louisiana).
  • If LDEQ amends its rules to adopt the TBE, spent catalysts will be barred, the generator will need to comply with the VRE emergency preparedness and response provisions, and the VRE expanded containment requirements will apply.
  • Because LDEQ’s hazardous program can be more stringent than EPA’s, until LDEQ amends its rules or otherwise stays enforcement, Legitimacy Factor 4 may remain in place for all recycling (not just under the GCE).

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[1] American Petroleum Institute v. EPA, No 09-1038 (D.C. Circuit 2017).

[2] 73 Fed. Reg. 64668 (October 30, 2008).

[3] Fundamentally, for a material to be a hazardous waste, it must first be a solid waste. Or stated differently, if a material is not a solid waste, it cannot be a hazardous waste. Thus, material excluded from the definition of solid waste will not be regulated as a hazardous waste.

[4] That is, qualified states — like Louisiana — that have been authorized by EPA to administer and enforce the state hazardous waste program in lieu of the federal program were not required by EPA to adopt the 2008 Rule in order to maintain their qualification (or delegation).

[5] 80 Fed. Reg. 1694 (January 13, 2015).

[6] Under the DSW Rule, for recycling to be legitimate, all four Legitimacy Factors have to be met.

[7] 43 La. Reg. 1151 (June 20, 2017).

[8] Because the GCE specifically requires compliance with the rule containing all four Legitimacy Factors (40 CFR 260.43(a)), Legitimacy Factor 4 apparently still will have to be met to establish legitimate recycling under the GCE.

 

By Tyler Kostal

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

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

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

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

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

by Carrie Tournillon

The Louisiana Public Service Commission (“LPSC”) and the State Legislature are conflicted over regulation of motor carriers of waste in Louisiana.  While the Louisiana Constitution grants the LPSC the authority to regulate common carriers, and the LPSC oversees the certification and permitting of such carriers, in the 2017 Regular Session the Legislature enacted Senate Bill 50 (Act 278) that changes the statutory requirements for a carrier to become an approved motor carrier of waste in the State.  Act 278 was signed into law by Governor Edwards on June 15, 2017.

Under the LPSC rules, carriers of waste must prove “public convenience and necessity,” which requires contracts with shippers for contract carrier permits and testimony or affidavits from shippers for common carrier certificates, in support of need for the requested new or expanded authority.  An applicant also must prove fitness to operate.

However, Legislative Act 278 eliminates the requirement to prove “public convenience and necessity” to obtain authority from the LPSC to operate as a common or contract carrier of waste within the state.  An applicant only must prove fitness to operate.

At the LPSC’s Business & Executive Session last month, there was much discussion regarding whether the new legislation is an unconstitutional infringement on the jurisdiction of the LPSC over common carriers. Ultimately, the LPSC directed its Staff to file suit challenging Act 278 and to take all action necessary to protect the LPSC’s jurisdiction.

At the same meeting, the Commissioners also considered but declined to adopt new rules for obtaining authority to haul waste within Louisiana. The LPSC Staff’s proposed rules would have set forth guidelines for certification of common and contract carriers and created a rebuttal presumption that granting the certificate was in the public interest if the applicant met the application requirements.  While considered to be an improvement over current LPSC rules, the Staff’s proposed rules still required applicants to prove “public convenience and necessity,” including having shippers provide affidavits in support of the need for the certificate.

The LPSC Commissioners disagreed over whether the Staff’s proposed new rules went far enough to change the standard for obtaining authority to haul waste within the state.  One Commissioner offered a motion to approve the Staff proposal, supporting it as an industry solution developed with stakeholders in the trucking business.  Another Commissioner argued extensively in favor of opening up the market for hauling waste in Louisiana and urged as a substitute motion that the LPSC adopt new rules based on the Legislative Act 278, which would eliminate the “public convenience and necessity” requirement.  Both motions failed 2-2.

While the LPSC Staff’s proposed rules were not adopted by the LPSC in June, it is expected that there will be additional discussion of changes to the rules, and that the constitutional issues raised by Act 278 will be pursued by the LPSC in the courts.

For more information, contact a member of the Kean Miller Utilities Regulatory Team.