drilling

The Occupational Safety and Health Administration (“OSHA”) published a Request for Information (“RFI”)  on December 9, 2013 concerning possible changes to the Process Safety Management (“PSM”) program codified at 29 C.F.R. 1910.119.  See 78 Fed. Reg. 73756 (Dec. 9, 2013).  Likewise, the Environmental Protection Agency (“EPA”) published an RFI on July 31, 2014 relating to possible changes to the similar Risk Management Program (“RMP”) rules codified at 40 C.F.R. Part 68.  See 79 Fed. Reg. 44604 (July 31, 2014).  At the time of this writing, the respective comment periods have closed and we are waiting to see new proposed regulations. This is the fourth article in a series of articles concerning these potential rulemaking actions.

OSHA and the EPA requested comments concerning applying PSM and RMP regulation to the Oil and Gas Sector.  Comments received by OSHA and the EPA requests were similar in nature. Separate questions were asked in reference to Oil and Gas Well Drilling and Servicing (hereafter “Drilling/Servicing”) and Oil and Gas Production Facilities (hereafter “Production Facilities”).  Although many comments addressed regulations of these two oil and gas sectors, this article will compare comments from four organizations:  the Domestic Energy Producers Alliance (“DEPA”), the American Petroleum Institute (“API”), the Mary Kay O’Conner Process Safety Center (“MKOPSC”) at the Texas A&M Engineering Experimental Station, and the U.S. Chemical Safety Board (“CSB”).

Although the EPA and OSHA arrived at approximately the same point concerning the current regulation of the Oil and Gas Industry, they each arrived there in a different manner.  As such, EPA’s basis for excluding much of the oil and gas sector is somewhat different from OSHA’s basis.  Generally speaking, these two agencies initiate jurisdiction at a gas plant not otherwise regulated by pipeline safety agencies.[1] RMP begins at a gas plant as that is where the naturally occurring hydrocarbon exemption ends. See 40 C.F.R 68.115(b)(2)(iii).  Although not explicit in the rule, subsequent determinations indicate that “OSHA believes that gas plants are appropriately covered by the process safety management standard.”[2]  Gas plants are facilities that remove natural gas liquids (ethane, propane, butanes, and pentanes)[3] from natural gas (methane):

Natural gas processing plant (gas plant) means any processing site engaged in the extraction of natural gas liquids from field gas, fractionation of mixed natural gas liquids to natural gas products, or both, classified as North American Industrial Classification System (NAICS) code 211112 (previously Standard Industrial Classification (SIC) code 1321).

40 C.F.R 68.3

RMP regulation is limited to “stationary sources” and thereby excludes transportation facilities, including storage incident to transportation.  See 40 C.F.R. 68.3.  Additionally, naturally occurring hydrocarbons upstream of a natural gas processing plant or petroleum refinery are not considered when determining if a facility contains a threshold inventory.  “Naturally occurring hydrocarbon mixtures include any combination of the following: condensate, crude oil, field gas, and produced water.”  40 C.F.R. 68.115(b)(2)(iii).  Flammable materials that are heavier than pentane (hexane and heavier) are not covered by the rule. As a result, RMP does not currently apply to much of the oil & gas sector.

OSHA likewise exempts facilities that fall under Department of Transportation jurisdiction.  See, 57 Fed. Reg. 6356, 6372 (Feb. 24, 1992).  Other OSHA exemptions interrelate with the subject exclusions:  the atmospheric storage tank exemption and the remote facility exemption.  See 29 C.F.R. 1910.119(a)(1)(ii)(B) and (2)(iii).  Often the greatest quantity of flammable materials (condensates or crude oil) at oil and gas facilities is stored in atmospheric tanks.  Similarly, many oil and gas facilities are remote and normally unoccupied.

PSM specifically exempts oil or gas well drilling or servicing operations.  See 29 C.F.R.119(a)(2)(ii).  OSHA exempted this sector because OSHA “believe[d] that oil and gas well drilling and servicing operations should be covered in a standard designed to address the uniqueness of that industry.”  57 Fed. Reg. at 6369.  At the time of promulgating the 1992 rule, OSHA stated it planned to follow through with a proposed Well Drilling and Servicing rule: this never occurred.[4]   The 1983 proposal focused on unique drilling/servicing concerns (rig siting, emergency escape, safe handling of drilling fluids, respiratory protection for hydrogen sulfide, confined space as in cellars or pits, etc.) and did not contain PSM type elements.

According to RFI, OSHA always intended PSM to cover oil and gas processing facilities.  78 Fed. Reg. at 73758-59. Specifically, in 1999, OSHA informed Regional Administrator of the intent to enforce PSM at oil and gas production facilities. According to the December 1999 memo, OSHA believes that a covered process starts at the top of the well (i.e., upstream of the Christmas tree).[5]  Subsequent to a challenge from the API, OSHA withdrew its determination until such time that they conducted an economic analysis to support rule making.[6] To wit, as part of the RFI, “the Agency requests public comment on completing an economic analysis and possibly resuming enforcement for PSM-covered oil and gas production facilities.”  78 Fed. Reg. at 73759.  Although the distinction is fine, subsequent determinations indicate that “OSHA believes that gas plants are appropriately covered by the process safety management standard.”[7]

The CSB combined comments for the Production Facilities and Drilling/Servicing sectors into a single response.  In providing its comments, the CSB provided four examples of incidents that it investigated.  A summary of an incident that occurred over sixteen years ago (Sonat Exploration Company) was repeated in the RFI.  According to the CSB, the incident occurred while purging air out of a pipeline between the well and the newly constructed separation facility.  See CSB Investigation Report, Catastrophic Vessel Overpressurization, Report No. 1998-002-I-LA., p. 2 (Sept. 21, 2000). Ultimately, the incident occurred due to the failure to maintain an open path to the atmosphere (valves intended to be open were instead closed) resulting in overpressuring equipment.  Id. at 21.  The CSB concluded that the incident could have been prevented by conducting pre-construction hazard analysis, inclusion of overpressure protection, and better operating procedures. Id. at 33-34.

The other three incidents cited were related to “hot work” errors.  Hot work practices include welding, cutting, and brazing and are regulated by OSHA at 29 CFR 1910.252.  Interestingly, the only substantive comment made by the CSB concerning the Drilling/Servicing sector involved hot work.

One ubiquitous hazard that the CSB has encountered in the Oil and Gas Well Drilling and Servicing facilities is hot work type activities where explosions and fires occur from the ignition of flammable vapors in a confined area, such as a tank, typically during maintenance.[8]

CSB Comments to OSHA, p. 5.

In addition the CSB reviewed media reports over a five year period.  Based on this review, the CSB concluded that approximately 8% of “high consequence” incidents occurred in the oil and gas sector. The CSB’s comments fail to define the nature of the data set (8% of what), nor any indicator to rationalize the observation (number of workers, hours worked, portion of the economy, etc), nor any indication that the incidents were related to process safety issues.  Although the CSB appears to conclude that 8% was significant, the CSB did not provide any information that indicated that 8% was statistically significant compared to other similar sectors of the economy.  It should also be noted that the CSB did not review the incidents beyond the information provided in the media reports.  Finally, at least one of the oil and gas sectors included, natural gas liquid extraction, may be already regulated under PSM and RMP and some of the pipeline incidents counted may be regulated under pipeline safety rules.  As such, the numerator of the faction may include regulated and unregulated facilities.

According to the DEPA, exploration and production (“E&P”) activities are not the type of activity intended to be regulated by PSM or RMP.  The DEPA points to the legislative history of the Clean Air Act Amendments of 1990 noting that “oil and gas wells, and associated equipment and gas processing, have generally very low levels of air toxics” and that “it is very unlikely that oil and gas sources would present a significant risk to human health.”  DEPA Comments to OSHA, p. 2 (Mar. 31, 2014).  The DEPA also cites OSHA’s prior determination that Drilling/Servicing activities are unique and concludes that if anything “E&P drilling and servicing operations are even more unique today” and that OSHA should preserve the exemption.

The DEPA then extrapolates the uniqueness argument to Production Facilities noting that there are over a million oil and gas wells across the country that are “inherently variable (to address the unique factors associated with each different well)”  compared to a relatively limited number of chemical plants.  See DEPA comment to OSHA, p. 3.  The DEPA further cites that in contrast to chemical plants, that “E&P operations pose only a negligible risk of catastrophic release.”  Id.  Finally, “the already negligible risk of a catastrophic release is further dismissed by the fact that personnel engaged in production operations are very rarely permanently stationed at a particular oil and/or gas well in the same way that personnel who work in other industrial sectors.” Id.

The API submitted separated comments relative to the Drilling/Servicing and Production Facilities sectors.  Comments from the API concerning Drilling/Servicing fall into two main areas:  lack of sufficient data and the sector does not involve a process.  Specifically according to the API:

Since oil and gas well drilling or servicing operations are transient (temporary), are inherently variable (to address unique factors associated with each well) and are not “processes” that typically handle covered substances, they are not the type of operation intended to be regulated under the PSM standard.

API comments to OSHA, p. 6 (Mar. 31, 2014).

The API also believes that:

OSHA has not provided sufficient data or evidence that onshore exploration facilities and related servicing activities have experienced a significant number of catastrophic releases of the type that the PSM standard is meant to address.  There is little performance data showing there is a safety problem at these facilities.  The risk is not high and the safety incidents are not process safety problems but are more occupational safety and thus covered by other regulatio

Id.

As discussed previously, OSHA does not currently enforce PSM regulations in Production Facilities (excepting gas plants).  OSHA reversed its intention to enforce PSM at Production Facilities in response to a 2000 letter from the API that it still feels is relevant.  “API’s position on oil and gas production coverage was well-defined in our 2000 letter to OSHA.”  API comments to OSHA, p. 7.  Further, the API believes that process safety risk in Production Facilities is low and that regulatory cost would exceed the benefit.  Finally, the API recommends that OSHA concentrate on using its “existing regulation, enforcement actions, safety alerts, operator education, etc. to support enhanced oil and gas production facility sector-specific safety performance.”  Id. 

The MKOPSC provided data that indicated that oil and gas worker fatalities were significantly higher (per hour worked) than the Chemical Manufacturing[9] sector, however the data also indicated that oil and gas related fatalities were far more likely to be caused by non-PSM/RMP type incidents.  As indicated below, four-out-of-five oil and gas related fatalities were caused by incidents not related to flammable or toxic materials.  Presumably many of these non-PSM issues were addressed by the rule proposed back in 1983.

Industry

 Subcategory Total Fatalities Fatalities due to Fire and Explosion Fatalities due to Exposure to Harmful Substances and Environments
Mining Oil and Gas Extraction 25 6 0
Drilling Oil and Gas Wells 39 6 3
Support Activities for Oil and Gas Operations 74 11 3

MKOPSC Comment to OSHA, p. 11 (Mar. 31, 2014).

As a result, the MKOPSC’s recommendations were somewhere in between the CSB and the trade groups.

MKOPSC recommends that OSHA revert back to the original plan for considering a separate rule-making process for drilling and servicing operations.  The original rationale for the separate rule-making was that oil and gas well drilling and servicing operations were only governed by OSHA’s general industry standards.  In addition, drilling and service operations are quite different in nature from typical process operations and as such implementing a PSM program for these facilities may not yield any benefits.

Id. at 10.

The MKOPC recommended that OSHA consider “resuming enforcement of PSM to oil and gas production facilities only after economic analysis show a positive cost-benefit for such a program.”  Id. at 14.  If the economic analysis indicates a positive economic impact, the MKOPC also recommended that OSHA “consider the implementation of a tiered process safety management program similar to the tiered Prevention Program required under the EPA risk management program.”  Id. at 15.

In conclusion, commenters believe that OSHA must conduct an economic analysis to support any effective change in the current rule (as applied).  Any economic analysis will compare the benefit of the rule to the cost.  It would appear that insufficient data exists to define the potential benefit.  Although the CSB has provided information concerning a number of significant incidents involving oil and gas, this information is illustrative at best and the underlying facts have not been confirmed.  Whereas MKOPC provided data indicating a relatively high oil and gas worker fatality rate, most of the fatalities were related to non-PSM/RMP events.  As such, any rule change could require a substantial fact finding effort.

MKOPC’s data indicates that the vast majority of oil and gas sector fatalities are related to non-PSM issues.  Perhaps related, the bulk of the CSB comments indicate a concern about improper hot work.  As a result, MKOPC recommends that OSHA return to developing a unique rule applicable to Drilling/Servicing.  Consistent with the API comments, other issues (such as hot work) may be a fertile area for increased scrutiny under existing (or updated as needed) rules.

_______________________________
[1] EPA and OSHA defer to the Pipeline and Hazardous Materials Safety Administration (“PHMSA”) or the Louisiana Department of Natural Resources (“La. DNR”) where they maintain jurisdiction.

[2] OSHA Standard Interpretation No. 25058, Evaluation of scenarios regarding PSM requirements related to normally unoccupied remote facilities and natural gas processing plants (gas plant) (Feb. 16, 2005), found at https://www.osha.gov/pls/oshaweb/owadisp.show_document?p_table=INTERPRETATIONS&p_id=25058 (last visited Mar. 17, 2015).

[3]What are natural gas liquids and how are they used?, U.S. Energy Information, Adm., found at http://www.eia.gov/todayinenergy/detail.cfm?id=5930 (last visited Mar. 18, 2015).

[4]For more information on the proposed rule, see 48 C.F.R 57202 (Dec. 28, 1983).

[5] Memo from Richard Fairfax, to Reg. Adm., PSM Applicability to Oil/Gas Production Facilities (Dec. 20, 1999), found at https://www.osha.gov/pls/oshaweb/owadisp.show_document?p_table=INTERPRETATIONS&p_id=22839 (last visited Mar. 17, 2015); also reproduced in RFI, see 78 Fed. Reg. at 73759.

[6] Memo from Richard Fairfax to reg. Adm., Enforcement of PSM at Oil and Gas Production Facilities and Withdrawal of December 20, 1999 Memorandum (Apr. 11, 2000), found at https://www.osha.gov/pls/oshaweb/owadisp.show_document?p_table=INTERPRETATIONS&p_id=23727 (last visited Mar. 17, 2015); according to comments provided by DEPA, OSHA assumed in its economic analysis of the 1992 rule, that PSM would only apply to 24,939 establishments. Given that fact that there were over 500,000 producing wells at the time, DEPA concludes that OSHA could not have considered each well as subject to PSM.   DEPA comments to OSHA, p. 8.

[7] OSHA Standard Interpretation No. 25058, Evaluation of scenarios regarding PSM requirements related to normally unoccupied remote facilities and natural gas processing plants (gas plant) (Feb. 16, 2005), found at https://www.osha.gov/pls/oshaweb/owadisp.show_document?p_table=INTERPRETATIONS&p_id=25058 (last visited Mar. 17, 2015).

[8] It should be noted that “confined space” is an issued addressed outside of PSM or RMP.  See 29 C.F.R. 1910.146.  The sector specific 1983 proposed rule also included confined space requirements.  Whereas testing and inspection of equipment is covered by PSM and RMP, most maintenance activities are not.

[9] It would likely be helpful to compare the results to other sectors.  Much of the activity during well drilling and servicing is more related to construction or chemical plant maintenance that it is to chemical plant operations.

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The Limitation of Liability Act, 46 U.S.C. § 30501 et seq., is a special protection available to a vessel owner (and in some instances vessel charterers) whose vessel allegedly caused damage to persons or property. When certain elements are satisfied, a vessel owner can limit total liability to the value of the vessel and its pending freight. 46 U.S.C. § 30505. In addition, the Act can be utilized by the vessel owner to force all claimants into a single federal forum. 46 U.S.C. § 30511. The vessel owner invokes this special “concursus-like” proceeding by filing a Limitation Proceeding in the appropriate federal forum.

However, the Act contains strict limits on when a Limitation Proceeding can be filed. It states that “the action must be brought within 6 months after a claimant gives the owner written notice of a claim.” Because of the language of the statute, the six month time period can be triggered well before a claimant files a formal lawsuit and the vessel owner receives formal service. Importantly, all that is required is “written notice” of a claim.

In the modern age, “written notice” could take several forms: a letter, an email, or even a text message. A vessel owner who does not appreciate the serious implications of receiving a seemingly informal “written notice” from a potential claimant runs the risk of losing the ability to file a Limitation Proceeding.

In In re the Matter of RLB Contracting, 773 F.3d 596 (5th Cir. 2014), the U.S. Fifth Circuit addressed the timeliness of a Limitation Proceeding. On July 1, 2011, a serious collision occurred between a fishing boat and a dredge. The passengers in the fishing boat sustained injuries; one of them died. Over the next few months, the attorney for the father of the decedent sent several emails to counsel for the dredge owner. In those emails, he advised the dredge owner to preserve evidence and suggested mediation. The dredge owner refused mediation, stating that they were still investigating the collision.

On June 14, 2012, the plaintiff filed a lawsuit against the dredge owner in state court. On that same date, the plaintiff sent the dredge owner an email advising them of the lawsuit. The dredge owner was served with the petition on July 2, 2012. On December 28, 2012, the dredge owner filed a Limitation Proceeding in federal court. Although this was within six (6) months of when the dredge owner was formally served with the petition, it was not within 6 months its receipt of the June 14, 2012 email from plaintiff’s counsel advising that the lawsuit had been filed.

The plaintiff argued that the Limitation Proceeding was untimely and sought to have it dismissed. The district court agreed, and the 5th Circuit affirmed. In doing so, the 5th Circuit provided a very detailed discussion of the “written notice” that could trigger the six (6) month time period for filing a Limitation Proceeding. The court noted in dicta that the pre-suit correspondence, when viewed cumulatively, almost certainly satisfied the requirement. But the Court ultimately held that the June 14, 2012 email – wherein the plaintiff advised that suit had been filed – unquestionably satisfied the notice requirement. Because the dredge company failed to file the Limitation Proceeding within six (6) months of that email, the Limitation Proceeding was dismissed as untimely.

The takeaway from this decision is that whenever possible, a vessel owner should file the Limitation Proceeding within (6) six months of the incident. This guarantees that it is timely. Otherwise, there is a risk that the action may be untimely, and the vessel owner may be subject to defending itself in a potentially undesirable state court venue.

In 1953, Congress passed the Outer Continental Shelf Lands Act (“OCSLA”), 43 U.S.C. 1333, et seq. to provide a set of “comprehensive choice-of-law rules and federal regulation to a wide range of activity occurring beyond the territorial waters of the states on the outer continental shelf of the United States.” Important in OCS personal injury litigation, OCSLA provides that where applicable and not inconsistent, the substantive laws of the adjacent state will be incorporated to supplement and fill in the gaps of federal law.

Thus, in accordance with OCSLA, an injury to a worker on an OCS platform located off the coast of Louisiana will generally be governed by Louisiana law. As a result, a plaintiff must look to the substantive laws of Louisiana – where not inconsistent with Federal Law – to see what rights and remedies are afforded to them, including the types and measure of damages.

For those who practice law in Louisiana, it is well known that Louisiana has a general public policy against the award of punitive damages, except when expressly provided by statute. Currently, there are only five articles found in the Louisiana Civil Code addressing punitive damages: four of which are limited to cases involving child pornography, drunk driving, sexual abuse of a child, and domestic violence. Despite the inapplicability of those statutes in an offshore personal injury context, plaintiffs continue to seek punitive damages in nearly every case, usually without any supportable legal basis. As punitive damages are uninsurable, defendants tend to take these claims quite seriously. Recently, plaintiffs in Tajonera v. Black Elk Energy Offshore Operations, LLC, No. 13-366 (E.D. La. 2015) sought punitive damages through the fifth punitive damages article – article 3546.

Louisiana Civil Code article 3546 is found in Book IV of the Civil Code, entitled “Conflicts of Laws.” Article 3546 allows for punitive damages in a Louisiana case when two out of three elements are met: (1) the state where injury occurred allows punitive damages; (2) the state where injurious conduct occurred allows punitive damages; and (3) the state where defendant is domiciled allows punitive damages. Even though the vast majority of oil and gas operators and contractors are now domiciled in Texas – whose laws allow for punitive damages – we have not seen this article invoked very often. The Louisiana Supreme Court has fully analyzed this article for a land-based Louisiana tort, see Arabie v. CITGO Petroleum Corp., (La. 3/13/12); 89 So.3d 307, 327, and others have discussed the general interplay between OCSLA and choice-of-law rules, but no court has specifically addressed the applicability of article 3546 in an OCSLA case.

In Tajonera, the plaintiffs alleged that they were entitled to punitive damages from the Texas defendants under article 3546 because: (1) the defendants are domiciled in Texas and (2) the injurious conduct occurred at the Texas defendants’ Houston headquarters. But, the dispute never reached the merits of the article 3546 analysis, as the Court re-affirmed Wooton v. Pumpkin Air, 869 F.2d 848 (5th Cir. 1989), holding that Louisiana’s choice-of-law rules are inapplicable because OCSLA only adopts the adjacent state’s substantive laws, not its choice-of-law rules. Essentially, Wooton and its predecessors acknowledged that OCSLA contained its own express choice-of-law provision, naming the adjacent state’s substantive law as surrogate Federal law. Accordingly, the adjacent state’s choice-of-law rules are irrelevant to the extent they attempt to bring in another state’s laws. The Court rejected the plaintiffs’ attempt to characterize article 3546 as a substantive law article, instead pointing out the location of article 3546 in Book IV, “Conflicts of Laws.” The Court also correctly rejected the plaintiffs’ arguments that Wooton (1989) is inapplicable because it predated the enactment of article 3546 (1991).

Judge Brown’s decision closes the door on punitive damage claims asserted against OCS defendants under Louisiana law; though we are not so optimistic to expect any practical effect on reducing the number of baseless claims for punitive damages.

crew boat

Earlier this year, the U.S. Fifth Circuit authored an opinion in Meche v. Doucet, 777 F.3d 237 (5th Cir. Jan. 22, 2015) that touched on important issues related to the McCorpen defense against a seaman’s claim for maintenance and cure. See McCorpen v. Central Gulf Steamship Corp., 396 F.2d 547 (5th Cir. 1968).

McCorpen allows a Jones Act employer to deny maintenance and cure benefits to an injured seaman who “knowingly fail[s] to disclose a pre-existing physical disability during his [or her] pre-employment physical examination.” To establish a successful McCorpen defense, the employer must prove that: (1) the seaman intentionally misrepresented or concealed medical facts; (2) the non-disclosed facts were material to the employer’s decision to hire the seaman; and (3) a connection exists between the withheld information and the injury complained of in the lawsuit. But, there is an important and dispositive distinction between nondisclosure and concealment of preexisting injuries. If during the pre-employment application process, the employer did not specifically ask about prior injuries, the seaman is not obligated to volunteer his previous injury unless the seaman believes (in his own opinion) that his employer would find it important to his employment. On the other hand, if the seaman is asked about his pre-existing injuries and fails to disclose or misrepresents any material medical facts related to those injuries, the seaman may be precluded from recovering maintenance and cure from his employer.

In Meche, Plaintiff sued his employer, Key Energy Services, for an alleged back injury sustained while working as a vessel captain. Key Energy disputed that the injury ever occurred and additionally argued that Meche forfeited any right to maintenance and cure by lying on his pre-employment application about his preexisting back injuries. What is interesting about this argument is that Meche never filled out a pre-employment application with Key Energy. Instead, he had completed one with Moncla Marine, which was later purchased by Key Energy. Meche represented to Moncla Marine that he had no prior back injuries despite three prior work-related back injuries. At trial, the district court found the McCorpen defense inapplicable to Key Energy because Meche did not conceal his prior injuries specifically to Key Energy and credited his testimony that he did not believe his prior injuries to be important to his employment. The district court awarded Meche maintenance and cure and punitive damages, interest, and costs for Key Energy’s bad faith refusal to pay maintenance and cure. Key Energy appealed the district court’s ruling.

On appeal, the Fifth Circuit reversed, finding that Key Energy was entitled to the protections of McCorpen based on Meche’s clear and intentional concealment from Moncla Marine. In doing so, the Circuit Court found that when one company acquires another, it makes “little economic or logical sense” to require the acquiring company to reexamine the employees of the predecessor company solely for the purpose of avoiding liability for maintenance and cure.  Therefore, when one company purchases another and maintains in its employ the seaman of the predecessor company, the purchasing company is entitled to the McCorpen defense based on representations made by employees to the predecessor company. The Court also rejected Meche’s argument that any concealment on his part was corrected when he verbally disclosed his prior injuries to Moncla Marine before he was hired. The Court found that a seaman who intentionally provides false medical information on a pre-employment questionnaire does not cure the concealment by later contradicting that information verbally. Lastly, the Fifth Circuit rejected Meche’s argument that his concealment was not intentional because he didn’t personally fill out the paperwork, finding that his signature sufficiently endorsed the responses. Accordingly, the Fifth Circuit reversed the award of maintenance, cure, and punitive damages against Key Marine.

For those companies who employee Jones Act seaman, Meche underscores the importance of requiring pre-employment (or post-offer) examinations and medical questionnaires concerning prior injuries. Without such measures, Jones Act employers must carry the difficult burden of proving that the employee was aware that his prior injuries would be important to the employer. And, given the ever changing landscape in the maritime industry, a successor or acquiring company whose corporate acquisition includes Jones Act seamen can rest assured that they are protected by McCorpen so long as the predecessor company adequately protected themselves during the pre-employment application process. Meche should also serve to remind those successor entities to review the acquired company’s pre-employment application and examination process as part of their due diligence in the acquisition phase should they choose to retain the seaman employees.

An offshore helicopter crash resulted in four lawsuits filed in the Eastern District of Louisiana that were eventually consolidated for all purposes. Three of the four plaintiffs properly asserted that their cases fell under admiralty jurisdiction and Federal Rule of Civil Procedure 9(h). FRCP 9 governs the pleading of special matters, and subsection (h) addresses admiralty or maritime claims. The practical effect of pleading Rule 9(h) and designating the claims under admiralty jurisdiction is that it removes the right to a jury trial. Although the preferable method for electing to proceed in admiralty is an express designation invoking Rule 9(h), an express designation is not necessary as long as the complaint includes a simple statement identifying the claim as an admiralty or maritime claim. If the plaintiff fails to invoke the court’s admiralty jurisdiction and pleads an alternative ground for federal jurisdiction that grants the defendant a right to trial by jury, then such plaintiff may not revoke a jury demand without complying with FRCP 39.

As stated, three out of four consolidated plaintiffs adequately pleaded Rule 9(h) and the governance of admiralty jurisdiction. One plaintiff failed to plead Rule 9(h) but did allege that the court’s jurisdiction was provided by “admiralty jurisdiction and substantive general maritime law, 28 U.S.C. 1333, and pursuant to 33 U.S.C. 905(b).” Several defendants demanded jury trials in response to this fourth complaint. The fourth plaintiff eventually amended his complaint to plead 9(h). The three other plaintiffs then moved to strike all jury demands, seeking instead to try their cases to Judge Barbier. They begged the court not to punish them for the fourth consolidated plaintiff’s failure to adequately plead Rule 9(h).

The issue examined was whether the fourth plaintiff sufficiently identified his action as one in admiralty such that defendants had no right to demand a jury in their answers. Judge Barbier found the jurisdictional allegation quoted above inadequate for those purposes. “Something more than the fact that Plaintiffs happened to assert alternative claims under general maritime law therefore was required to indicate that Plaintiffs wished to proceed in admiralty.” Also, because plaintiff plead alternative grounds for jurisdiction that allowed defendants a right to a jury, and the defendants timely made such a demand, the revocation of that right falls under FRCP 39.

According to FRCP 39, once a jury demand has been made, a court may move the action to its nonjury docket only with the consent of the parties or upon determining that no right to jury trial actually exists. Because defendants had a right to a jury trial when they made their demand, the Court found that FRCP 39 was not satisfied, and denied the plaintiffs’ motion to strike.

Because some of the Plaintiffs’ claims must be tried to a jury, the Court held that all of them should. The Court cannot serve as the factfinder for the OCSLA claims without violating Defendants’ 7th Amendment right to trial by jury. “Importantly, Plaintiffs lack a countervailing constitutional right to a nonjury trial for their admiralty claims; it is custom, rather than the Constitution, that provides for nonjury trials for maritime or admiralty claims.” Additionally, the Court declined to split factfinders where the plaintiffs and the claims are so intertwined and arise from a single incident. At least for now, each defendant will get a jury trial on all claims thanks to the inattention of one plaintiff, including those defendants who had no right to request a jury trial.

See LeBlanc v. Panther Helicopters, No. 14-1617, 2015 WL 350285 (E.D. La. Jan. 26, 2015) (Barbier).

In Alfred v. Anadarko Petroleum Corporation et al., No. 13-211, 2014 WL 6633105 (M.D. La. November 21, 2014), newly-minted Judge John W. DeGravelles re-affirmed the spirit of Romero v. Mobil Exploration, 939 F.2d 307, 311 (5th Cir. 1991), holding that the reinvented SEMS II rules (Safety and Environmental Management Systems) found in the Code of Federal Regulations (“CFR”) do not create a private cause of action under Louisiana law.

In Alfred, the plaintiff alleged that he was injured on a fixed platform on the OCS owned by Anadarko Petroleum Corp. On behalf of Anadarko, Kean Miller filed a Motion for Summary Judgment arguing that Anadarko could not be found independently negligent because it merely owned the fixed platform and had no employees onboard. Anadarko also asserted the traditional independent contractor defense, arguing that its contractors were responsible for the safety of their employees and Anadarko did not exercise any control over them. Accordingly, Anadarko could not be held responsible for the negligence of its independent contractors.

In Opposition, Plaintiff argued that Anadarko was independently negligent for its failure to provide him with a safe place to work. Particularly, Plaintiff asserted that 30 C.F.R. § 250.1900 imposed a legal obligation on Anadarko to ensure that all operations conducted on its platform were safe. Plaintiff also argued that 30 C.F.R. § 142.4 required Anadarko to maintain its platform in compliance with workplace safety and health regulations and be free from recognized hazards, arguing that Anadarko’s failure to comply with these CFRs gave rise to liability.

In Romero, the U.S. Fifth Circuit held that the then-existing MMS rules found in the Code of Federal Regulations created no implied cause of action for their breach, though under Louisiana law, they would be relevant evidence in weighing a defendant’s liability. In October 2010, BSEE (formerly MMS) issued the SEMS II final rule (the “Workplace Safety Rule”) which expanded, revised, and supplemented the provisions of 30 C.F.R. § 250.1900, et seq. One such revision was to make the regulations mandatory on oil and gas operators on the Outer Continental Shelf. Since then, in an effort to get around the independent contractor defense, Plaintiffs have begun arguing that the non-delegable nature of the Workplace Safety Rule (and the change from MMS to BSEE) effectively abrogated Romero, and all other pre-October 2010 cases addressing these CFR’s.

In Alfred, the Court acknowledged the continued application of Romero post-MMS, holding that while Louisiana law recognizes applicable federal regulations as relevant evidence in weighing culpability, Louisiana law does not provide a cause of action from the breach of MMS (now BSEE) regulations. “[T]hese regulations do not alone form an independent basis for the imposition of liability for negligence.” Accordingly, “[t]he Code of Federal Regulations does not create an independent cause of action by which Anadarko could be liable for insuring that all work done by sub-contractors on its platforms is done in a safe and workmanlike manner.”

SEMS II undoubtedly imposed non-delegable duties upon platform owners, however, Alfred provides platform owners with post-SEMS II support to deflate any argument that those duties create any cause of action under which an injured worker can sue. Those regulations only govern the relationship between BSEE and the platform owner, not between the platform owner and its contractors. Thus, any breach of the duties imposed by SEMS II would be dealt with and punished by BSEE, not by a civil court.

On Thursday, March 26, 2015 a U.S. District Judge for the United States District Court for the Northern District of Texas granted a preliminary injunction, staying the U.S. Department of Labor’s (“DOL”) final rule that would expand certain leave protections for same-sex couples under the Federal Family and Medical Leave Act, 29 U.S.C. § 2611 (“FMLA).  The State of Texas filed a complaint with the Court on March 18, 2015, requesting declaratory and injunctive relief to enjoin and stay the application of the DOL’s final rule.  The states of Louisiana, Arkansas, and Nebraska joined as Plaintiffs in the lawsuit on March 25, 2015.

The DOL recently promulgated a final rule defining “spouse” under the FMLA.  The final rule seeks to change the definition of spouse to look to the law of the jurisdiction in which the marriage was entered into as opposed to the law of the State in which the employee resides.  Under this final rule, although states would not be required to recognize marriages between same-sex couples, employers would be required to extend FMLA benefits to same-sex couples that were married in a state that does recognize the validity of same-sex marriages.  These benefits include job-protected leave for specified family and medical reasons.  The final rule is codified as 29 C.F.R. Part 825, which was intended to become effective March 27, 2015.

However, Louisiana employers and employees alike must take note that the fate of this final rule is now unclear.  The U.S. District Court in Texas held that the Plaintiffs presented at least one claim on which they are likely to succeed and granted the preliminary injunction requested, thereby temporarily preventing the DOL from mandating enforcement of its final rule against the states.  The District Court stayed the application of the final rule pending a full determination of the matter on the merits to determine if this rule impinges on the rights of states that ban gay marriage.  Therefore, until a final judgment is entered and likely appeals run their course, the definition of “spouse” is in limbo under the FMLA.

During the 2014 Legislative session, the Louisiana Legislature enacted the Louisiana Telehealth Access Act (the “Act”), La. R.S. 40:1300.401 et seq.   In the Act, the Louisiana Legislature declared telehealth to be “extremely valuable” because it enhances access to care, promotes cost-effective delivery of care, and could improve health outcomes.[1]  The Act, which became effective on August 1, 2014, authorizes each state agency or professional or occupational licensing board or commission that regulates the practice of a healthcare provider to promulgate rules to provide for, promote, and regulate the use of telehealth in the delivery of healthcare services.[2]

“Telehealth” is defined as a “mode of delivering healthcare services that utilizes information and communication technologies to enable the diagnosis, consultation, treatment, education, care management, and self-management of patients at a distance from healthcare providers.”[3]  The scope of providers potentially impacted by the Act is broad as the definition of ‘healthcare provider” includes:

a person, partnership, limited liability partnership, limited liability company, corporation, facility, or institution licensed or certified by this state to provide health care or professional services as a physician assistant, hospital, nursing home, dentist, registered nurse, advanced practice registered nurse, licensed practical nurse, certified nurse assistant, offshore health service provider, ambulance service, licensed midwife, pharmacist, speech-language pathologist, audiologist, optometrist, podiatrist, chiropractor, physical therapist, occupational therapist, certified or licensed athletic trainer, psychologist, medical psychologist, social worker, licensed professional counselor, licensed perfusionist, licensed respiratory therapist, licensed radiologic technologist, or licensed clinical laboratory scientist.[4]

In the event a licensing board promulgates telehealth rules, the rules must provide for:

(1) Confidentiality of healthcare information and the patient’s rights to the patient’s medical information created during telehealth interactions.

(2) The same standard of care by a healthcare provider as if the healthcare services were provided in person.

(3) Licensing or registration of out-of-state healthcare providers who seek to furnish healthcare services via telehealth to persons at originating sites in Louisiana. The healthcare provider must possess an unrestricted and unencumbered license in good standing to perform the healthcare service in the state in which the healthcare provider is located.  A reasonable fee for such a license or registration can be assessed.

(4)  Exemption from the requirement of obtaining a telehealth license or registration for the consultation of a Louisiana-licensed healthcare professional with an out-of-state peer professional.[5]

This article will review some of the rules related to the practice of telehealth promulgated both before and after the effective date of the Act by various Louisiana healthcare professional licensing boards.

The Act follows 2008 legislation on “telemedicine,” which is the practice of health care delivery, diagnosis, consultation, treatment, and transfer of medical data using interactive telecommunication technology that enables a health care practitioner and a patient at two locations separated by distance to interact via two-way video and audio transmissions simultaneously.[6]   Telephone conversations and emails between a health care practitioner and patient, or a true consultation as may be defined by the Louisiana State Board of Medical Examiners (“LSBME”) rules, do not constitute telemedicine.  A person must have an unrestricted Louisiana license to practice medicine or a Louisiana telemedicine license in order to practice in Louisiana and must use the same standard of care as if the healthcare services were provided in person.   Telemedicine has its limitations including, but not limited to a prohibition on  the prescribing of any controlled dangerous substance prior to conducting an appropriate in-person patient history or physical examination of the patient.  A physician practicing telemedicine is required to document telemedicine services in the patient’s medical records.  All medical records including video, audio, or electronic, generated as a result of providing telemedicine services are considered confidential and are subject to all applicable state and federal privacy laws.

In 2009, the LSBME promulgated rules on telemedicine and the issuance of telemedicine permits.[7]  A physician-patient relationship consisting of verification of the patient, evaluation, diagnosis, treatment plan and follow-up care is required in order for a physician to utilize telemedicine.  A physician must ensure that he or she has access to those portions of the patient’s medical record pertinent to the visit and that there is trained support staff available to implement physician orders, transmit medical records generated by the visit, and provide or arrange back up, follow up, and emergency care to the patient.   A licensed health care professional is required to be in the examination room with the patient at all times that the patient is receiving telemedicine services.   An informed consent, in addition to that otherwise required by state or federal law or regulation, must be obtained wherein relationship between the physician and patient and the role of any other health care provider with respect to management of the patient is explained and the patient may decline to receive medical services by telemedicine or withdraw from such care at any time.  A physician cannot utilize telemedicine for the treatment of  non-cancer related chronic or intractable pain or obesity.  Additionally, the prescribing of amphetamines or narcotics is limited to certain specialties and diagnosis.  A non-Louisiana licensed physician practicing across state lines by virtue of a Louisiana telemedicine permit is prohibited from opening an office in Louisiana, meeting with patients in Louisiana, or receiving telephone calls in Louisiana from patients.  A violation of the LSMBE telemedicine rules could result in civil, injunctive and criminal penalties.

The Louisiana State Board of Nursing (“LSBN”) has not yet promulgated rules on telenursing, but has issued statements to the effect that any nurse practicing in the state of Louisiana, which may include via telecommunications with a resident of Louisiana, must have a Louisiana license.[8]  For example, the LSBN considers case management to fall within the definition of the practice of nursing and requires any individual who practices as a registered nurse case manager to possess a Louisiana RN license.[9]  Louisiana is not a member of the Nurse Licensure Compact which is a mutual recognition model permitting registered nurses and licensed practical nurses the ability to practice in states that are members of the compact by maintaining a single license in their primary state of residence.  Therefore, if the person receiving nursing care resides in Louisiana, the LSBN will require the person providing the nursing services to have a Louisiana license.

The Louisiana State Board of Social Work Examiners (“LSBSWE”) has issued a consumer information statement on “distance therapy”, i.e. therapy or counseling using telephonic or other electronic means.[10]  The LSBSWE requires any individual who provides social work services, including psychotherapy or counseling, either in person, over the Internet or by telephone to be licensed by the LSBSWE.  A Licensed Clinical Social Worker (“LCSW”), Graduate Social Worker (“GSW”) and a Provisional Graduate Social Worker (“Provisional GSW”) are authorized to practice distance therapy in Louisiana; however a GSW or Provisional GSW must be an employee in an agency setting and practice under the supervision of a LCSW.  A Louisiana social worker, who engages in distance therapy with a non-Louisiana client in another state or country, must also be authorized to practice social work where that client is located.  If a social worker provides distance therapy by using the internet, he or she must have a web site listing the credential the social worker holds, physical location, contact information, the contact information for the LSBSWE, and the Professional Disclosure Statement and the LSBSWE’s “Consumer Information Regarding Distance Therapy” statement.  Distance therapy cannot be conducted through the exchange of typed or printed data, e-mails or instant messages and may not be used for group therapy or counseling.  A valid informed consent is required for distance therapy identifying the plan for services, relevant costs, reasonable alternatives, the client’s right to refuse or withdraw consent, and the timeframe covered by the consent.

The Louisiana Board of Pharmacy has not yet promulgated rules on “telepharmacy,” i.e. the provision of pharmacy services to remote destinations, but per the April 1, 2015 published agenda, the LBP’s Regulation Revisions Committee will be considering telepharmacy in response to the Act.  The LBP does already have published rules on off-site services including remote dispensing, remote processing services and cognitive services which require a Louisiana pharmacy permit.[11]

In 2012, the Louisiana Licensed Professional Counselors Board of Examiners (“LPC”) issued a Position Statement on internet counseling finding that mental health services delivered over the internet are rendered where the patient is situated.   As such, all counselors serving Louisiana residents are required to be licensed in Louisiana and to adhere to all applicable Louisiana laws relative to the practice of mental health counseling.[12]  The LPC’s rule on the use of technology-assisted distance counseling services requires the counselor to determine that the client is physically capable of using the application and the application is appropriate for the needs of clients.[13]   Additional informed consent must be obtained addressing maintenance and confidentiality of electronically transmitted communications, emergency procedures when the counselor is not available, and insurance coverage.  If a counselor maintains a website, the counselor must provide links to the state licensing board to protect consumer rights and address ethical concerns.

The Louisiana State Board of Examiners of Psychologists (“LSBEP”) issued the “Louisiana Telepsychology Guidelines” effective January 1, 2015.[14]  Per the Guidelines, telepsychology is the practice of psychology including assessment, diagnosis, intervention, consultation or information by a psychologist using interactive telecommunication technology to enable a psychologist at a different location than the client to interact via two-way video and audio transmissions simultaneously.  At the beginning of a telepsychology service, the psychologist must verify the name and credentials of the professional and name of the patient as well as the location where the patient will be receiving services documenting the date, location, duration and type of service.   The psychologist must obtain an informed consent at the start of all services to include: confidentiality; agreed upon emergency plan; potential for technical failure; documentation; protocol for contact between sessions; and conditions under which telepsychology services may be terminated and a referral made to in-person care.  The psychologist must ensure privacy so the clinical discussion cannot be overheard by others and review with the client the policy and procedure to ensure privacy of communications via physical, technical, and administrative safeguards.  The LSBEP recommends that the initial interview/assessment occur in-person prior to utilizing telepsychology.

As the popularity of providing telehealth services grows, so does the potential for greater regulatory control by the state licensing boards.  For healthcare professionals residing outside of Louisiana, in order to provide healthcare to residents of Louisiana, a Louisiana license or permit may be necessary.  Before providing telehealth services to patients, healthcare professionals would be wise to review their respective licensing authority’s rules to confirm compliance.

_______________________________________________

[1] La. R.S. 40:1300.402.
[2] La. R.S. 40:1300.404.
[3] La. R.S. 40:1300.403(6).
[4] La. R.S. 40:1300.403(3)
[5] La. R.S. 40:1300.404(B).
[6] La. R.S. 37:1276.1.
[7] LAC 46.XLV. 408; LAC 46.XLV.7501-7521.
[8] http://www.lsbn.state.la.us/Portals/1/Documents/examiners/06examspr.pdf
[9] LSBN 12/23/10 Advisory Opinion.
[10] https://www.labswe.org/distherapy.html
[11] LAC 46.LIII.525; LAC 46.LIII.1139-1143.
[12] http://www.lpcboard.org/position_statements_Internet_Counseling.htm
[13] LAC 46.LX.213(12).
[14] http://lsbep.org/pdfs/2014/Final-Telepsych-Guidelines-1-15.pdf

pumps and piping system inside of industrial plant at night

The Occupational Safety and Health Administration (“OSHA”) published a Request for Information (“RFI”)  on December 9, 2013 concerning possible changes to the Process Safety Management (“PSM”) program codified at 29 C.F.R. 1910.119.  See 78 Fed. Reg. 73756 (Dec. 9, 2013).  Likewise, the Environmental Protection Agency (“EPA”) published an RFI on July 31, 2014 relating to possible changes to the similar Risk Management Program (“RMP”) rules codified at 40 C.F.R. Part 68.  See 79 Fed. Reg. 44604 (July 31, 2014).  At the time of this writing, the respective comment periods have closed and we are waiting to see new proposed regulations. This is the third article in a series of articles concerning these potential rulemaking actions.

Both OSHA PSM and EPA RMP rules require use of recommended and generally acceptable good engineering practices (“RAGAGEP”) in relationship to equipment construction, inspection, and testing.  See 29 C.F.R 1910.119(d)(3)(ii) and (j)(4)(ii) and 40 C.F.R 68.65(d)(2) and 68.73(d)(2).  In the RFIs, OSHA and  EPA requested comment as to whether employers or “owner or operators” (hereafter “owners”) should be required to evaluate updates to applicable RAGAGEPs.  Although many comments addressed this question, this article will compare comments from three organizations:  the United Steelworkers, the American Petroleum Institute (“API”), and the U.S. Chemical Safety Board (“CSB”).

One of the elements of PSM and RMP is “Process Safety Information” or “PSI.”  Within this element, employers or owners must document the “design codes and standards employed” in constructing the facility.  See 29 C.F.R 1910.119(d)(3)(i)(F) and 40 C.F.R 68.65(d)(1)(vi). As a general matter, buildings are constructed consistent with then existing building codes.  If you have had the pleasure of remodeling a home, you know that remodeled work may be required to meet current codes per city ordinances or state regulation.  As part of the RFI, OSHA and the EPA sought comment as to the need to require consideration of updates as part of an employer’s PSM or owner’s RMP program.

Both PSM and RMP require that the employer or owner document that equipment meets RAGAGEP.  See 1910.119(d)(3)(ii) and 68.73(d)(2).  RAGAGEP for existing equipment is typically based on the date of construction.  For existing equipment built to older codes, both programs require documentation “that the equipment is designed, maintained, inspected, tested, and operated in a safe manner.”  See 1910.119(d)(3)(iii) and 68.73(d)(3).   The question posed by OSHA and the EPA is whether facilities, presumably including unmodified facilities, should consider updated standards or codes any time a code or standard is updated.  By requiring updates to RAGAGEP, unmodified “safe” equipment could require modification or replacement to remain compliant.

Both OSHA’s RFI and the CSB’s comments discuss one accident to justify their position that updates to the standards and codes relied upon as RAGAGEP should be evaluated.  The cited incident involved a propylene explosion resulting from a release caused by a forklift that snagged a drain line.  According the CSB’s comments:

Had fireproofing material been used on the steel structure supporting the pressure relief valves and emergency vent piping, the consequences of this incident would likely have been less severe.  However, the designs for the unit were never updated to incorporate the latest RAGAGEP.  The likelihood of these types of incidents can be significantly reduced if operators are required to evaluate updates to applicable RAGAGEP after compliance with either §1910.119(d)(3)(ii) or (iii)

CSB Comments to OSHA, p. 18 (Mar. 31, 2014).  Also see, CSB Comments to the EPA, p. 23 (Oct. 28, 2014).

According to the final CSB report on the accident, the incident occurred in the Olefins II unit at a facility in Texas.[1]  The  CSB final report indicated that although the Olefins II unit was designed in 1996, it was based on a design from the mid-1980s and allegedly did not consider American Petroleum Institute (“API”) Publication 2218, “Fireproofing Practices in Petroleum Plants” (July 1988).[2]  Here the issue was a unit that was actually designed in 1996 but allegedly did not consider a standard developed eight years prior.  The CSB’s recommendation in the final report is much narrower than the question posed in the OSHA RFI or the CSB comment provided.  It stated:

Evaluate the applicability and use of current consensus safety standards when designing and constructing a chemical or petrochemical process plant.  This should include reviewing and updating earlier designs used for new facilities.[3]

The CSB’s comment in its report addresses the need to consider available RAGAGEPs at the time the unit is designed and built.  The United Steelworkers’ comments appear be more consistent with the narrower concern enunciated in the CSB’s final report:

Again, the intent was the ability to upgrade to new practices without having to rewrite the standard.  Grandfathering is not used anywhere in the standard but we often hear that as an excuse for not bringing equipment up to newer RAGAGEP qualifications when it must be replaced or modified.

United Steelworkers comments to OSHA, p. 4 (Mar. 31, 2014) (emphasis added).  In short, the Steelworkers do not appear to assert that updated RAGAGEP should be applied to unmodified equipment, but rather to equipment that is being replaced or modified.

The API comments question the need for using updated RAGAGEP on unmodified equipment. According to the API:

The issuance of an updated edition of an industry document (i.e., RAGAGEP) does not mean a previous version was necessarily unsafe because it was designed to a previous version of an industry standard at the time of installation.

API comments to OSHA, p. 9 (March 31, 2014).  Additionally, API expresses concern about the practicality of such a requirement:

Not all consensus standards are free to the public and subscriptions to all potentially applicable standards publications represent a significant cost, especially to small businesses.  In addition, the task of evaluating all standards updates would be extremely time-consuming for any sized company, and unjustifiably expensive for smaller enterprises.

Id.

The RFI seeks comments on the requirement to evaluate updates of codes and standards.  The CSB concludes that employers and owners should be required to consider updates.  This leaves open the question, can an employer evaluate or consider an update but conclude that, for whatever reason, it is not reasonable to alter their existing equipment?  This question is particularly relevant to equipment that has not been modified. Under what circumstances does the employer or owner need to modify existing and unmodified pieces of equipment?  Such ambiguity is troubling especially in view of the CSB’s comments that RAGAGEPs should “not be couched in permissive language.”  CSB comments to the EPA, p. 23 (Oct. 29, 2014).  In essence, the CSB’s comments could be read as advocating that RAGAGEPs should not allow an owner or operator to evaluate, consider, and then reject. When OSHA and the CSB say evaluate and consider, will the employer or owner have the option to stay with the status quo?  What time limits would apply to any such evaluation requirement?  What type of documentation of such consideration would be required? All of these are questions that may arise in the future rulemaking actions in these dockets.

__________________________________________

[1] CSB Case Study,  (June 2006), found at http://www.csb.gov/assets/1/19/Formosa_Report.pdf (last visited Mar. 17, 2015).
[2] Id., at p. 8.
[3] Id., at p. 13.

On February 25, 2015, the Supreme Court of the United States issued an opinion against the North Carolina Board of Dental Examiners (the “NC Board”) finding that the NC Board had violated federal antitrust law by issuing cease and desist letters to non-dental licensed persons who performed teeth whitening services.  The case involved an administrative complaint filed by the Federal Trade Commission (“FTC”) against the NC Board alleging anti-competitive and unfair methods of competition under the Federal Trade Commission Act.  The FTC had ordered the NC Board to stop sending the cease and desist letters prohibiting non-dentists from offering teeth whitening services.   The Supreme Court affirmed the FTC order which could impact State licensing boards across the country.

The North Carolina Dental Practice Act provides that the NC Board is the agency of the State for the regulation of the practice of dentistry with the duty to create and enforce a licensing system for dentists.  The NC Board is composed of:   six licensed dentists engaged in the active practice of dentistry elected by licensed dentists in North Carolina; one dental hygienist elected by other licensed hygienists; and one consumer member appointed by the Governor.  When licensed dentists complained to the NC Board that non-dentists were providing teeth whitening services and charging lower fees, the Board sent cease and desist letters threatening the unlicensed persons with criminal liability if they continued to provide the service.  As a result of the NC Board’s actions, the non-dentists stopped offering teeth whitening services.

The FTC alleged that the NC Board’s concerted action to exclude non-dentists from the teeth whitening market constituted anticompetitive and unfair methods of competition.  The Board argued that, as a state agency, it was immune from any antitrust claims because it was acting in the sovereign capacity of the state.  However, the Supreme Court determined that “State agencies are not simply by their governmental character sovereign actors for the purpose of state-action immunity.”   The Supreme Court held that where active market participants regulate their own markets by deciding who can participate in the market “active supervision” is required by the State in order to invoke state-action antitrust immunity.

The Supreme Court identified the following requirements of active supervision:  the supervisor must review the substance of the anticompetitive decision, not merely that the procedures are followed to produce it; the supervisor must have the power to modify or veto the particular decisions to ensure they incorporate state policy; and the state supervisor may not itself be an active participant.  Active supervision of the NC Board was missing because there was no evidence of any decision by the State of North Carolina to initiate a review of and to concur with the NC Board’s actions against the non-dentists.  Further, North Carolina’s review mechanisms of the NC Board’s actions did not provide “realistic assurance” that the Board’s anticompetitive conduct promoted the State’s policy rather than the individuals’ interests.  As a result, the Supreme Court affirmed the FTC’s order to the NC Board to stop sending the cease and desist letters or other communications asserting that a non-dentist cannot offer teeth whitening services and products.

The decision against the NC Board could result in an increase in State supervision over licensing boards comprised of market participants.  The Supreme Court appears to suggest that the State must have an active oversight policy and procedure in place prior to a licensing board taking action against competitors in the marketplace.  State licensing boards may be required to seek direct State approval in order to avoid antitrust violations when making decisions impacting competitors.  Another consequence may be a change in the composition of licensing boards away from professionals regulating their own.   Many States currently compose the membership of a licensing board with persons practicing within the industry regulated by the board and rely on their professional expertise to protect the public interest.  However, to avoid any potential antitrust claims, the States may have to reconfigure board membership.  In any event, the Supreme Court’s decision will require each State to evaluate the current structure, policies and procedures of its respective licensing boards to ensure that the boards do not act violation of the antitrust laws.