by R. Blake Crohan

The EDLA recently determined that the Insurance Service Office’s (ISO) “Louisiana Changes” endorsement does not expand the scope of Louisiana’s direct action statute. In Menard v. Gibson Applied Technology and Engineering, 2017 WL 6610466 (E.D. La. Dec. 27, 2017), the plaintiff was a senior field technician working offshore in the Gulf of Mexico and was allegedly injured during a personnel basket transfer from a support vessel to a floating, semi-submersible oil-exploration platform. Plaintiff sued several companies along with one of their insurers, ACE American Insurance Company (ACE). ACE filed a motion for summary judgment arguing that the plaintiff could not maintain a direct action against ACE. ACE argued that because its policy was not written or delivered in Louisiana, and neither the accident nor alleged injury occurred in Louisiana, Louisiana’s direct action statute did not apply and the plaintiff could not file a lawsuit directly against ACE.

The parties did not dispute that the policy was not written or delivered in Louisiana – the policy was not issued in Louisiana and the policy was delivered to the insured in Texas. Further, the accident occurred on the Outer Continental Shelf in the Gulf of Mexico. It is well settled in the EDLA that an accident or injury occurring in the Gulf of Mexico or on the Outer Continental Shelf does not occur “within Louisiana” for purposes of Louisiana’s direct action statute. See Signal Oil & Gas Co. v. Barge W-701, 654 F.2d 1164, 1175 (5th Cir. 1981); Joyner v. Ensco Offshore Co., No. 99-3754, 2001 WL 333114, at *2-3 (E.D. La. Apr. 5, 2001).

Nevertheless, the plaintiff argued that the ISO’s “Louisiana Changes” policy endorsement made him a third-party beneficiary and granted him a right to bring a direct action against ACE. The endorsement was entitled “Louisiana Changes – Legal Action Against Us” and was numbered “CG 01 18 12 04.” The court recognized that these ISO endorsements must be attached to all commercial general liability policies covering risk in Louisiana. The endorsement provided: “A person or organization may bring a ‘suit’ against us including, but not limited to a ‘suit’ to recover on an agreed settlement or on a final judgment against an insured. . . .” Plaintiff argued that the endorsement expanded the right of action described in the Louisiana direct action statute; and alternatively, if it is ambiguous, it should be construed against the drafter – ACE. The court held that the endorsement did not make plaintiff a third-party beneficiary because the parties to the contract had no such intent. Rather, the endorsement merely embodied Louisiana’s direct action statute. Therefore, the endorsement did not expand the plaintiff’s right to bring a direct action against ACE, when he could not satisfy the direct action factors themselves. Accordingly, the Court granted ACE’s motion for summary judgment and dismissed the plaintiff’s direct action claims against ACE.

The Eastern District’s decision in Menard reaffirms that all prerequisites to Louisiana’s direct action statute must be satisfied or a plaintiff’s direct action suit will be dismissed. Further, Menard makes clear that insurers including the ISO’s Louisiana Changes – Legal Action Against Us policy endorsement number CG 01 18 12 04 are not contractually expanding their risk to unwanted and unexpected litigation in Louisiana, where the elements of the direct action statute are not met.

By Stephen C. Hanemann

The Carriage of Goods by Sea Act (“COGSA”) provides that it shall “apply to all contracts for carriage of goods by sea to or from ports of the United States in foreign trade.” In matters involving international trade, contracts for carriage – involving goods shipped to or from the United States via a foreign seaport – are those covered by a bill of lading or any similar document of title. In GIC Services, LLC v. Freightplus (USA), Inc., 120 F. Supp. 3d 572 (E.D. La. July 29, 2015); rev’d in part 866 F. 3d 649 (5th Cir. August 8, 2017), the EDLA recently held that a shipment of cargo from Texas to Nigeria, covered by a bill of lading, constituted a contract of carriage subject to COGSA.

GIC Services, LLC contracted with Freightplus (USA), Inc. to ship a tugboat, the M/V REBEL, to Lagos, Nigeria. Freightplus contracted with Industrial Maritime Carriers to provide a vessel on which the REBEL was to be carried. When GIC learned that the REBEL was actually delivered to Warri, Nigeria rather than Lagos, it instituted an action for damages against Freightplus.

In addition to the myriad of disputed issues arising out of the shipment of the tugboat, the carrier and shipper disputed the carrier’s right under COGSA to limit its liability to the $500 per package limitation. Freightplus maintained that its actions did not cause GIC’s losses, but even if they did, the carriage was governed by COGSA and Freightplus’ liability should be capped at $500, the COGSA per-package-damages limitation.

Freightplus filed a third-party complaint against IMC claiming that IMC was liable for losses and damages sustained by GIC. Although GIC paid Freightplus the full amount for freight, the payment was never remitted to IMC. Consequently, IMC claimed entitlement to a maritime lien against the REBEL, in rem, for unpaid freight charges for its carriage.

Evaluating the COGSA limitation issue first, the district court ruled that the per-package limitation under COGSA is rendered ineffective if the carrier is responsible for an unreasonable deviation from the contract of carriage. Finding that Freightplus did, in fact, cause or contribute to an unreasonable deviation from the contract of carriage, the Court held that Freightplus was not entitled to the COGSA per package limitation, and that it would answer in damages for all losses incurred by GIC due to the transportation errors. The Court considered, among other factors, Freightplus’ failure to deliver the goods at the port named in the Bill of Lading. The Court found that GIC made a prima facie case against Freightplus for committing an unreasonable deviation under COGSA not only because the tugboat was delivered to the wrong destination port, Warri, Nigeria, and not Lagos, but also secondary to Freightplus issuing an erroneous bill of lading.

The district court assessed $1,860,985 in damages against Freightplus in favor of GIC, but also found that IMC was responsible to pay 30% of that amount due to its contributory fault. But the trial court denied IMC’s claim of lien against the REBEL, in rem. The U.S. 5th Circuit affirmed the amount of damages awarded to GIC, as well as the allocation of fault between IMC and Freightplus.  However the 5th Circuit disagreed with the district court’s finding that IMC was not entitled to assert a maritime lien against the REBEL, in rem.

The 5th Circuit set out the well-settled maritime legal principal that that a maritime lien exists in favor of a ship owner over cargo for charges incurred during the course of that cargo’s carriage. Further, the 5th Circuit explained that maritime law permits an action in rem against the cargo itself and, therefore, IMC was entitled to obtain a maritime lien against the REBEL. Despite arguments to the contrary, the lien remained valid because the ocean carrier (IMC) took no action to release any source liable for unpaid freight from liability. The district court indicated that a different standard might apply concerning a carrier’s intent to release a liable source for unpaid freight from liability in the context of an in personam action and an in rem action, but the 5th Circuit disagreed and concluded that the district court erred in barring IMC’s maritime lien against the REBEL.

ml

By Tod J. Everage

Until the U.S. 5th Circuit gets an opportunity to directly address the continued viability of Scarborough v. Clemco Industries, 391 F.3d 660 (5th Cir. 2004) in the wake of Atlantic Sounding v. Townsend, 557 U.S. 404 (2009), we are likely to see a lack of harmony among the district court judges considering this issue. Scarborough specifically protects third parties (see oil and gas companies) against punitive damage exposure (see uninsured) from injured seamen employed by their contractors (see vessel companies). We have been following the EDLA commentary on Scarborough as its erosion would significantly raise the potential liability of those companies who contract for the use of vessels. See previous posts here and here for more background on the Scarborough fight in the Eastern District of Louisiana. Recently, one of the two EDLA Judges holding the view that Scarborough was no longer good law reversed his course, resulting now in a 7-1 score in favor of Scarborough, further reducing concern for an unpredictable judicial roulette on this issue.

In a nutshell, Scarborough was the legal consequence of a long line of jurisprudence in the 5th Circuit holding that punitive damages were not available under the Jones Act or General Maritime Law (“GML”) that began with Miles v. Apex Marine, 498 U.S. 19 (1990). Where Miles protected the Jones Act employers from punitive damages, Scarborough protected all other third party defendants, such as oil and gas companies who had hired those Jones Act employers. In 2009, Townsend reined in the expanding prohibitions on punitive damages by finding that they could be awarded under GML for the employer’s willful and wanton failure to pay maintenance and cure. Townsend very directly and explicitly abrogated Guevera v. Maritime Overseas Corp., 59 F.3d 1496 (5th Cir. 1995) which had previously held just the opposite. That abrogation is relevant here because the Scarborough court cited Guevera favorably and extensively in its analysis.

Though Townsend definitely overruled Guevera, it also re-affirmed Miles, which remains a pillar of maritime jurisprudence in this area. Plaintiff attorneys view Townsend as a means to reverse the expansion of Miles and have renewed their attack on those judge-made roadblocks to the availability of punitive damages. With oil and gas companies being viewed as the “deep pockets” in lawsuits, Scarborough’s protection of those companies has become a popular focus.

After Townsend, several judges re-affirmed Scarborough with little more than lip service, as it seemed clear that Townsend was limited to maintenance and cure issues and the district courts could not “assume the Fifth Circuit has changed its position on personal injury claims falling outside the scope of Townsend.” See In re: Deepwater Horizon, 2011 WL 4575696 (E.D. La. 9/30/11) (Barbier, J.); see also O’Quain v. Shell Offshore, Inc., 2013 WL 149467 (E.D. La. 1/14/13) (Berrigan, J.); In re: International Marine, LLC, 2013 WL 3293677 (E.D. La. 6/28/13) (Lemmon, J.); Bloodsaw v. Diamond Offshore Mgmt. Co., 2013 WL 5339207 (E.D. La. 8/19/13) (Vance, J.); Ainsworth v. Caillou Island Towing Co., 2013 WL 3216068 (E.D. La. 10/21/13) (Brown, J.). Despite the perceived clarity, Judge Barbier foresaw the potential dispute that could arise on this issue given the underlying reasoning in Townsend. (“Though this conclusion is not without doubt given the Supreme Court’s recent decision in [Townsend]…”). In Todd v. Canal Barge Co., 2013 WL 5410409 (E.D. La. 9/25/13), Judge Fallon provided the first true analysis of the continued validity of Miles and its progeny after Townsend. Therein, Judge Fallon acknowledged the limitations of Townsend and the re-affirmation of Miles, and dismissed the plaintiff’s claims for punitive damages for negligence and unseaworthiness. This opinion makes his later decision in Collins all-the-more anomalous.

In 2014, the U.S. 5th Circuit decided McBride v. Estis Well Service, LLC, 768 F.3d 382 (5th Cir. 2014), wherein the en banc panel also held that Townsend was narrowly limited to maintenance and cure claims. McBride acknowledged the continued vitality of Miles to preclude all other forms of punitive damages claims under GML or the Jones Act, though it did not directly mention Scarborough. Judge Fallon then got another opportunity to address Scarborough in light of both Townsend and McBride. See Collins v. ABC Marine Towing, LLC, 2015 WL 5254710 (E.D. La. 9/9/2015). Therein, Judge Fallon distinguished Miles and McBride and was persuaded by Townsend’s abrogation of Guevera, which he felt served as the foundation for Scarborough. Judge Fallon held that Scarborough was “effectively overruled” by Townsend, finding that it was “inconsistent with current Supreme Court precedent.” He did not cite to his prior ruling in Todd just a year prior. This decision served as the first major blow to formerly-protected third party, non-Jones Act employers in the EDLA.

Shortly thereafter, Judge Morgan joined the majority, issuing two opinions upholding Scarborough. See Howard Offshore Liftboats, LLC, 2015 WL 7428581 (E.D. La. 11/20/15); Lee v. Offshore Logistical and Transports, LLC, 2015 WL 7459734 (E.D. La. 11/24/15). A few months later though, Judge Zainey issued an opinion against Scarborough, relying heavily on Judge Fallon’s reasoning in Collins. See Hume v. Consolidated Grain & Barge, Inc., 2016 WL 1089349 (E.D. La. 3/21/16). Judge Morgan again re-affirmed her confidence in Scarborough in Lewis v. Noble Drilling Services, 2016 WL 3902597 (E.D. La. 7/19/2016).

Heading into the 2017, only Judges Fallon and Zainey had rejected the continued viability of Scarborough and its punitive damages prohibition, while at least six of their colleagues held differently. Then, unexpectedly, Judge Fallon changed his mind and joined the majority. See Wade v. Clemco Indus., No. 16-00502 (E.D. La. 2/1/2017). Wade presented Judge Fallon with yet another opportunity to directly address Scarborough; but, this time his analysis and holding were fundamentally different. Wherein Collins, he focused on Scarborough’s reliance on Guevera, in Wade, he instead focused on Miles. Judge Fallon was also persuaded this time by McBride: “It has become clear since the en banc opinion in McBride that in wrongful death cases brought under general maritime law, a survivor’s recovery from employers and non-employers is limited to pecuniary losses.” Quite differently than holding that Scarborough was “effectively overruled,” this time he noted that McBride gave it “clarity and vitality.” As a consequence, Judge Fallon dismissed the plaintiff’s punitive damages claims against the third parties who were not the plaintiff’s Jones Act employer. This is good news for third party defendants finding themselves on the wrong end of a Jones Act lawsuit in the EDLA, as there is now only one judge’s opinion in favor of (and seven against) allowing punitive damage claims to proceed against them. Since these decisions are interlocutory in nature, they do not get appealed by right, and all prior cases have settled before the 5th Circuit could comment. Nevertheless, we will keep an eye out for any further developments, hoping that the remaining judges who get an opportunity to consider this issue fall in line with the legally-sound majority.

ml

By Zoe W. Vermeulen

In November 2016, the Eastern District of Louisiana again confronted the “marshland” involved in categorizing a contract as maritime or non-maritime. In In re: Crescent Energy Services, LLC, No. 15-819 (E.D. La. Nov. 7, 2016), the court held that a contract to plug and abandon a well in Louisiana waters was maritime in nature.

Crescent Energy Services, LLC brought a limitation action as owner of the spud barge S/B OB 808 after its employee, a crewmember of the OB 808, was severely injured in a well blowout. Crescent had been hired by Carrizo Oil & Gas, Inc. to plug and abandon one of Carrizo’s offshore wells, located in Louisiana state waters. The contract between the parties included a standard contractual indemnity provision that, if enforceable, required Crescent to indemnify Carrizo for the crewmember’s injuries.

Crescent and Carrizo brought cross motions for summary judgment asking the court to decide whether the contract between them was maritime or non-maritime. If the contract was maritime, the indemnity provisions therein would be valid and enforceable. But, if the contract was non-maritime and instead subject to Louisiana law, the Louisiana Oilfield Anti-Indemnity Act would void the indemnity obligations.

Crescent and Carrizo were parties to a Master Service Agreement governing all dealings between them. Additionally, the plug and abandon work being performed at the time of the injury was done pursuant to a Turnkey Bid. The Turnkey Bid discussed the specifics of the plug and abandon work and listed the equipment to be used in the job, which included a quarter barge, tug, and cargo barge. To determine whether a contract is maritime, the U.S. Fifth Circuit in Davis & Sons v. Gulf Oil Corp., 919 F.2d 313 (5th Cir. 1990) instructed courts to look to the historical jurisprudential treatment of similar contracts and conduct a fact-specific inquiry. That inquiry considers six factors: (1) what does the specific work order in effect at the time of the injury provide?; (2) what work did the crew assigned under the work order actually do?; (3) was the crew assigned to work aboard a vessel in navigable waters?; (4) to what extent did the work being done relate to the mission of the vessel?; (5) what was the principal work of the injured worker?; and (6) what work was the injured worker actually doing at the time of injury?

In deciding that the contract was maritime, the court focused on the historical jurisprudence of similar contracts. It acknowledged that both parties had authority in their favor, but ultimately determined that because the plug and abandon work required the use of a vessel and was performed at all times on a vessel, the case law favored a maritime finding. The court distinguished a Fifth Circuit case holding that a contract for wireline services (which were also part of the plug and abandon operations here) was non-maritime by noting that the wireline services contract “did not address in any way the use of a ship.”

Conversely and importantly, here, the contract called for three vessels, including a vessel specifically designed for plug and abandon work to “perform the function for which that vessel was designed,” and it would not have been possible to plug and abandon the well without the use of a vessel. In doing so, the Court reiterated that the inquiry will turn more on the necessity of vessel for the work than the type of work being performed. In other words, even though plug and abandon work is not itself maritime by nature, the fact that Crescent had to do its work from a vessel made the contract maritime. Accordingly, the court found that the work done by the crew of the OB 808 was inextricably intertwined with maritime activities and the contractual indemnification of Carrizo was enforceable

The court’s reasoning was clearly heavily influenced by the contracted for, and actual use and necessity of vessels to perform the plug and abandon work. This result is consistent with existing case law and provides future litigants further guidance that contracts requiring the use of a vessel will most likely be considered maritime. See also Davis & Sons, Inc., supra; Clay v. ENSCO Offshore Co., No. 14-2508, 2015 WL 7296787 (E.D. La. Nov. 18, 2015). However, given the long and sometime brackish history in this area of law and the valuable nature of indemnity coverage, we do not expect this to be the last fight over the maritime nature of an oilfield contract.