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.

BSEE

By Tod J. Everage

On February 3, 2017, BSEE issued its first Notice to Lessees (NTL) of 2017, advising of the revised OCSLA Civil Penalty Assessment Matrix. For the second time in 6 months, BSEE has increased the maximum civil penalty to $42,704 per day per violation, up from $42,017 per day per violation that was set in July 2016. These new changes were effective for all civil penalties assessed on or after February 3, 2017, even if the alleged violation predated February 3, 2017. The new matrix is shown below.

OCSLA Civil Penalty Assessment Matrix

February 3, 2017

GENERALIZED MATRIX FOR OCSLA CIVIL PENALTY ASSESSMENTS IN $/DAY/VIOLATION

Enforcement Code

Category A Category B Category C

W

$5,250-42,704

($15,750)*

$10,500-42,704

($21,000)*

$21,000-42,704

($26,250)*

C

$10,500-42,704

($21,000)*

$15,750-42,704

($26,250)*

$31,500-42,704

($36,750)*

S

$15,750-42,704

($26,250)*

$21,000-42,704

($31,500)*

$36,750-42,704

($38,850)*

Note: W=Warning, C=Component Shut-in, and S=Facility Shut-in

* = Starting Point for Assessment

Category A

Category B

Category C

Threat of injury to humans.

Threat of harm or damage to the marine or coastal environment, including mammals, fish and other aquatic life (threat may or may not involve endangered/threatened species).

Threat of pollution.

Threat of damage to any mineral deposit or property.

Injury to humans that results in 1-3 days away from work or 1-3 days on restricted work or job transfer.

Minor harm or damage to the marine or coastal environment, including mammals, fish, and other aquatic life (harm to aquatic life did not involve an endangered/threatened species).

Pollution caused by liquid hydrocarbon spillage of up to 50 barrels (bbls).

Minor damage to any mineral deposit.

Minor property damage equal or less than $25,000.

Additional incidents required to be reported under 30 CFR 250,188, except (a)(6), (b)(1), (b)(4).

Loss of human life.

Injury to humans that results in more than 3 days away from work or more than 3 days on restricted work or job transfer.

Serious harm or damage to the marine or coastal environment, including mammals, fish, and other aquatic life (harm to aquatic life involved numerous individuals or involved one or more members of an endangered/threatened species.

Pollution caused by liquid hydrocarbon spillage of more than 50 barrels (bbls).

Serious damage to any mineral deposit.

Serious property damage greater than $25,000.

The full text of the NTL can be found here.

BSEE

By Michael J. O’Brien

In an earlier blog post here we highlighted the facts in Island Operating Co., v. Jewell, et al., Civil Action No. 16-145, currently pending in the Lafayette Division of the Western District of Louisiana. The central issue in Island Operating is whether a contractor that provides personnel to perform work on the Outer Continental Shelf can be issued an Incident of Non-Compliance (“INC”) and/or a civil penalty by BSEE for a failure to comply with the safety and environmental duties imposed by the Outer Continental Shelf’s Lands Act (“OCSLA”) and Part 250 of the Code of Federal Regulations. In a trial ruling on the briefs, Judge Doherty held that the duty to comply with the safety and environmental standards under OCSLA flows only to a lease holder or a permit holder; thus, offshore contractors such as Island cannot be issued an INC or a civil penalty from BSEE. In a day in age when nearly every offshore platform is ran or maintained by contractors, the very agency created to regulate offshore platform safety has no authority to do so against those contractors, per Judge Doherty. And, her ruling appears to be legally sound given the actual language of OCSLA.

Prior to this ruling, only two legal writings really touched on this issue, though neither of which boiled it down as succinctly and straightforwardly as Judge Doherty. First, in 2012, the Director of BSEE issued Interim Policy Document No. 12-07 (effective August 15, 2012) stating that BSEE would increase its INC’ing of contractors for serious violations of BSEE regulations. This came as a direct result of the Deepwater Horizon incident. The Director stated that it was BSEE’s position that any person performing an activity under a lease issued or maintained under OCSLA was subject to BSEE’s regulations and compliance, including contractors. His statement was based presumably in part on 30 CFR §250.146(c), which broadly encompasses contractors performing such activities. Second, Judge Milazzo from the EDLA recently held that the BSEE regulations could not serve as a basis for criminal penalties against contractors, though she only acknowledged that BSEE civil and regulatory authority over contractors had not yet been established. She was the first to affirmatively say that the OCSLA regulations did not extend to contractors, but her holding was in a criminal context and her analysis was heavily focused on the regulations rather than OCLSA. The USA has appealed her ruling to the U.S. 5th Circuit, which has extended briefing to respond to Judge Doherty’s recent ruling.

Judge Doherty, however, started her analysis with the language of OCSLA itself. Judge Doherty’s opinion focused on three sections of OCSLA. She first highlighted 43 U.S.C. §1332 (entitled: “Definitions”) that determines which types of juridical entities are subject to the entire act. Specifically, Section 1332 provides that “persons” are subject to the act, and they are defined as (in addition to a natural person) an “association, estate, a political subdivision of a state, or a private, public, or municipal corporation.” Next, Judge Doherty examined 43 U.S.C. §1348(b) (entitled: “Enforcement of Safety and Environmental Regulations”) which identifies which “persons” a duty is imposed as to safety and environmental issues, namely the duty to maintain all places of employment in compliance with occupational health and safety standards. Based on the plain language of the Section 1348, the duty to maintain places of employment and operations within the area of a lease or permit in compliance with safety, health, and environmental regulations falls – on “any holder of a lease or permit” granted under OCSLA. Section 1348 does not list any other types of party upon whom that duty falls. Last, Judge Doherty noted that 43 U.S.C. § 1350 (entitled: “Remedies and Penalties”) delineates the type of penalties allowed against those who violate the safety and environmental issues.

Reading these three statutes together, Judge Doherty held that a party who is neither a lease holder nor permit holder, such as Island, is not identified in 43 U.S.C. §1348 as having a duty related to environmental and safety standards. Accordingly, Island cannot be found to have violated a duty with which it is not charged. Further, Island cannot be subject to a regulatory penalty or fine from BSEE. According to Judge Doherty, “OSCLA’s plain language, when read in context, is clear, and does not embrace contractors, such as Island within the duty created by §1348(b).” Only lease holders and permit holders are therefore subject to OCSLA’s mandates.

Without OCSLA governance, offshore contractors are similarly not subject to Part 250, which are simply OCSLA’s implementing regulations. This is so despite the express language contained in §250.146(c) that applies the duty to any person who performs an activity on the OCS under a lease. However, Judge Doherty emphasized the distinction between the authorizing statute (OCSLA) and its implementing regulations (Part 250). She held that the regulations used to simply implement the statute cannot expand the scope of the statute beyond what the statute itself provides. As was also supported by the legislative history, OCSLA clearly does not include contractors within its scope, and thus, the BSEE regulations must be confined to that scope.

Judge Doherty’s decision that BSEE does not have the authority to enforce OCSLA’s regulations against a non-lease holder or non-permit holder will have far reaching consequences given BSEE’s recent history of issuing INC’s and civil penalties to contractors for accidents and injuries on the Outer Continental Shelf. Though it remains to be seen how BSEE will react to this decision in other jurisdictions, at least according to Judge Doherty, BSEE can only issue INC’s and civil penalties against the lessees and permit holders, i.e. – platform owners. Operators can neither be INC’ed nor fined. It is almost a certainty that BSEE will appeal this decision to the United States Fifth Circuit Court of Appeals. At a minimum, this decision should serve as the basis for appeal of any BSEE INC’s issued to contractors going forward. We will soon publish another article addressing the potential implications of this decision (or any future 5th Circuit decision) on other aspects of contractor liability on the OCS and certainly continue to monitor this case as it makes its way through the appeals.

offshore-drilling

By R. Chauvin Kean

On March 17, 2016, the Obama Administration announced through the Bureau of Ocean Energy Management (“BOEM”) its newly proposed air quality emission regulations for offshore oil and gas activities. According to BOEM, the primary benefit of this rule is “to ensure that offshore facilities and operations are in compliance with the air quality objectives and requirements of the OCSLA.” The proposal includes reductions in emissions of Volatile Organic Compounds, Nitrogen Oxide, Sulfur Oxide, Carbon Monoxide, and Particulate Matter. These measures will likely affect all activities conducted in Federal waters, including the Outer-Continental Shelf (“OCS”), of the Western and Central Gulf of Mexico, and the Artic. The remaining OCS areas will remain under the permitting and jurisdiction of the Environmental Protection Agency.

A major change to the existing regulations will be to “require a lessee or operator to add together emissions generated by proximate activities within one nautical mile from multiple facilities, whether or not they are described in a single plan.” The aggregate emissions from those facilities would then be combined for analysis. Therefore, if an operator utilizes various facilities in close proximity to one another for a single plan or project, the aggregate emissions of all of the facilities will be combined and considered one singular unit for regulatory compliance. This may pose compliance issues for operators utilizing a singular network of facilities to facilitate operations over a vast area as these network projects.

The new proposal also includes changes to the emission calculations for support vessels. Under the old regulations, emissions from supply vessels were considered part of a facility’s operations only if within 25 miles. The new proposed regulations would consider a support vessel’s emissions for the entirety of the vessel’s voyage. This change could pose a significant impact on facilities’ regulatory compliance based on the nature of deepwater drilling and vast distances now serviced by these support vessels. Also, this proposal does not provide specifics as to what constitutes a “support vessel.” A broad application could further reduce a facility’s allotted emissions.

In its Regulatory Impact Analysis, BOEM estimates the industry compliance costs for activities in the first year will be $23 million, the peak year (2020) $49 million, and $290 million over 10 years discounted at 3 percent.

The updated regulations proposed by the Administration will not only affect new plans or projects submitted to the Bureau, but will also affect previously approved plans, which will need to be made compliant. The public comment period has been extending to June 20, 2016. The press release addressing these new proposed regulations, including information on how to submit a comment may be found here.

lhwca

By Brett Fenasci and Chauvin Kean

The following is an overview of the Longshore and Harbor Workers’ Compensation Act (“LHWCA”) which introduces general concepts concerning coverage and benefits under the Act.  It should be noted that there are many more procedural and substantive aspects of the LHWCA that are not covered in this brief overview.

Background on the LHWCA:

In general, the LHWCA is a standard workers’ compensation scheme providing certain maritime workers with the right to recover “no fault” benefits from their employer for an injury suffered during the course and scope of their employment. Subject to certain exceptions, the LHWCA provides the employer immunity from a tort lawsuit if the benefits are owed and paid out to the injured worker.

In 1927, Congress passed the first iteration of the LHWCA following the U.S. Supreme Court’s decision in Southern Pacific Co. v. Jensen, 244 U.S. 205 (1917), which held that the U.S. Constitution prohibits maritime workers injured on navigable waters from recovering against their employers under state workers’ compensation schemes. This decision created a de facto hard line in the sand, known as the Jensen line, which delineated the precise line of state workers’ compensation coverage at the water’s edge. The Court’s decision highlighted a gap in coverage for maritime workers (non-seaman) who regularly worked aboard vessels on navigable waters and adjacent wharfs and piers. Those non-seaman workers, not regularly assigned to a particular vessel or fleet of vessels, walked in and out of coverage during the course and scope of their employment.

Remedying this gap in coverage, the LHWCA was intended to be a “gap filler” to provide maritime workers (non-seaman) injured on navigable waters with a remedy against their employer. Since its initial enactment, Congress amended the Act in 1972 to expand the geographic scope of coverage for the LHWCA shoreside – covering maritime employees (non-seaman workers) injured not only on navigable waters, but also on “any adjoining pier, wharf, dry dock, terminal, building way, marine railway, or other adjoining area customarily used by an employer in loading, unloading, repairing, dismantling, or building a vessel.” [1]

Distinguishing Seamen from LHWCA Workers:

Seamen (i.e., masters or members of the crew of a vessel) are specifically excluded from coverage under the LHWCA. A Seaman is a person employed as a member of the crew of a vessel. As defined in case law, a Seaman is one who (1) has a connection to a vessel or identifiable fleet of vessels that is substantial in “duration and nature” and (2) contributes to the function of the vessel or accomplishment of its mission. As a general rule of thumb, workers who spend approximately 30% or more of their time working on a particular vessel or commonly owned/controlled fleet of vessels are likely to be classified as Seamen.

If the employee is a Seaman, he or she is entitled to sue the employer in tort for negligence and/or for failing to provide a seaworthy vessel. Seaman are also entitled to receive “maintenance and cure” benefits, which are medical care and living expenses, if they are injured or fall ill while in the service of the vessel. These benefits are owed until the Seaman reaches maximum medical cure.

Workers covered and not covered under the LHWCA:

Under the LHWCA, there are generally speaking three categories of employees who might be covered under the LHWCA. The first two categories are covered directly by the Act while the third is covered indirectly through application of another federal statute known as the Outer Continental Shelf Lands Act (“OCSLA”).

The first group includes maritime workers injured on one of the aforementioned landward extensions (wharf, pier, dock, etc.). For a worker to be covered under the Act for an injury on land, the non-seaman maritime employee must meet the situs and status factors announced in the Act. To satisfy the situs factor, the non-seaman injured worker must have been injured near navigable waters on a pier, wharf, drydock, marine railway, “or other adjoining area customarily used by an employer in loading, unloading, repairing, dismantling, or building a vessel.” [2]  The status factor is met if the non-seaman employee spent some portion of his or her employment performing an essential or integral aspect of loading/unloading a vessel, ship building, ship repairing, or ship breaking. If both situs and status are found, the injured non-seaman employee is likely covered under the Act.

The second category of maritime employees who may be covered under the LHWCA are non-seaman workers injured on navigable waters during the course and scope of their employment. It has been held that the 1972 amendments to the Act did not intend to restrict or take away coverage to workers who would have been covered pre-1972.  Non-seaman maritime employees injured on navigable waters were generally covered before 1972.  Such workers continue to be covered under the Act, as long as it can be said that his/her presence on navigable waters at the time of injury was not “transient or fortuitous” (i.e. taking a ferry to work at a land-based job). Generally, the employee will not be considered transiently or fortuitously on navigable waters if he or she performs a “not insubstantial” amount of work on navigable waters. [3]   Some examples of non-seaman workers who may be covered under the LHWCA are oilfield roustabout or mechanics injured on a vessel if the worker’s job requires him or her to travel and perform some work activities on vessels.  Another example might be a non-seaman construction worker injured on a vessel during bridge building or a similar type of project.

The third category of non-seaman maritime employees who might be covered under the LHWCA are workers engaged in the exploration or development of natural resources on the Outer Continental Shelf (“OCS”). Generally, workers injured on fixed platforms are covered by the LHWCA. The OCSLA specifically provides that employees working on fixed platforms shall be covered under the LHWCA. [4]  Generally, this application would apply to any fixed platform on the OSC located more than 3 nautical miles from shore. This general measurement varies by state based upon statutory application of the OSC. [5]

It should be noted that most platform employees working on platforms located within state territorial waters will not be covered via then aforementioned OCSLA extension of LHWCA coverage. Those platform workers will generally be regulated and covered under the adjacent state’s workers’ compensation scheme. However, in certain narrow circumstances, it is possible that platform workers whose regular assigned duties include the loading/unloading of cargo from vessels will be covered directly under the act. [6]

Benefits Owed Under the LHWCA:

The LHWCA sets forth benefits that are statutorily defined to generally be 66.66% of the average weekly wage, which is based up on the preceding 52 weeks prior to the injury producing event. The maximum and minimum compensation rates are set forth on the Department of Labor Office of Workers’ Compensation website.

Medical benefits are owed to counter or minimize the effects of any condition that is causally related the work injury. Once the injured worker reaches maximum medical improvement (“MMI”), any disability persisting is considered permanent. Permanent and total disability benefits are subject to annual costs of living increases. All other injuries are compensable at the scheduled rates as outlined within the statute, 33 U.S.C. § 908(c)(1)-(20). If the worker’s injuries result in death, benefits will be depend on the type and number of beneficiaries of the decedent as set forth in 33 U.S.C. § 909 of the LHWCA.

Procedural Aspects of LHWCA:

Generally, a claimant must file a LHWCA claim within one year from the date of injury or death. However, the “clock” does not start running against the claimant until the employer files a Form LS-202 (First Report of Injury or Occupational Illness). This Form is due within 10 days of the injury or death or from the date the employer first has knowledge of the injury or death. Failure to timely file this Form may result in a monetary penalty imposed upon the employer. The rule of thumb is – when in doubt regarding the employee’s status, file an LS-202.

Once filed, the “clock” will begin to run against the claimant and he or she will have a limited time to assert a claim. If payment is made by the employer without an award to the claimant, a claim may still be asserted and filed within one year after the date of the last payment of compensation to the injured worker.

If a claim is made and is undisputed by the employer, payment of compensation is due within 14 days after the employer gained knowledge of the alleged injury or death. With this, the employer should file Form LS-206, Payment of Compensation Without Award. Failure to timely make the required payments and/or making later payments could result in a penalty of 10% of the amount(s) due to the claimant. Furthermore, misdemeanor criminal fines may be assessed to the employer for the same failures.

If a claim is made and the claim is disputed or will be disputed, then the employer must file Form LS-207, Notice of Controversion of Right of Compensation, within 14 days after the employer gained knowledge of the injury or death. This same Form can be filed at any time should a dispute between the claimant and the employer arise, even if entitlement to compensation was initially uncontested (i.e., claimant refuses to undergo treatment, etc.).

Once there has been a change in the benefits status, the employer should file Form LS-208, Notice of Final Payment or Suspension of Compensation Payments, if payments are changed, suspended, or terminated (i.e., change from total temporary disability to total partial disability, etc.).

Second Injury Fund:

If an employee has a pre-existing permanent partial disability, which combines with and contributes to the effects of an injury to make the claimant more disabled than he or she previously was, then the employer may be entitled to “Second Injury Fund” relief. This enables liability for permanent disability to be limited to 104 weeks, after which the Second Injury Fund assumes the liability for payment of permanent disability benefits. [7]

The requirements for obtaining Second Injury Fund relief are: (1) the claimant has a pre-existing permanent-partial disability; (2) the pre-existing disability, in combination with the subsequent work-related injury, contributes to a greater degree of permanent disability; and (3) the pre-existing disability was manifest to the employer.

If the requirements are met, the employer may make an application for Second Injury Fund relief setting forth, in detail, the grounds for relief. This application should be made as soon as permanency becomes an issue. Events that may give rise to the employer/carrier’s obligation to raise 33 U.S.C. § 908(f) are: the issue of permanency being raised at the informal conference; the employer/carrier is voluntarily paying permanent disability benefits; or the employer/carrier has knowledge that the claimant’s condition is permanent.

Settlement:

If an employer wishes to provide the claimant with a lump sum settlement, the settlement must be approved by the Department of Labor with an Application for Settlement pursuant to 33 U.S.C. § 908(i). Lump sum settlement of indemnity benefits can be achieved with medicals being left open. However, medical benefits cannot be settled without also settling indemnity.

___________________________________________________________

[1]  33 U.S.C. § 903(a); see also, 33 U.S.C. § 902(4) (defining “employer”).

[2]  33 U.S.C. § 903(a).

[3] Bienvenu v. Texaco, Inc., 164 F. 3d 888 (5th Cir. 1999) (holding that just 8.3% of time working on a vessel was substantial enough to avoid a finding of transient/fortuitous presence). 

[4]  43 U.S.C.A. § 1333(b) (West 2016). 

[5]  The OSC for Texas and the Gulf Coast side of Florida begin 3 marine leagues or 9 nautical miles from the baseline from which the breadth of the territorial sea is measured. The OSC off the coast of Louisiana begins at 3 nautical miles from the baseline from which the breadth of the territorial sea is measured. The OSC off all other States begins 3 international nautical miles from the baseline from which the breadth of the territorial sea is measured, which is only 4.1 feet shorter than a U.S. nautical mile.

[6]  See, Coastal Prod. Serv. Inc. v. Hudson, 555 F. 3d 426 (5th Cir. 2009) (holding that platform worker in state territorial waters was covered by the LHWCA where he regularly unloaded oil from a storage tank onto barges for transportation off the platform).

[7] 33 U.S.C. § 908(f).

 

 

 

offshore-drilling

By Sean McLaughlin

The U.S. Fifth Circuit issued a decision this week that addresses the murky question of what law applies to offshore incidents. It illustrates that the choice of law issue is not merely academic but has important real-world consequences. In this case it meant that a lawsuit for over $400,000,000 was given new life. See Petrobras Am., Inc. v. Vicinay Cadenas, S.A., No. 14-20589 (U.S. 5th Cir. 3/7/2016).

In October 2007, Petrobas America, Inc. (“Petrobas”) contracted with Technip USA, Inc. (“Technip”) to construct five “free-standing hybrid riser (“FSHR”) systems that move crude oil from wellheads on the seabed to “Floating Production Storage and Offloading” (“FPSP”) facilities on the surface of the sea. The FPSO facilities are independently moored to the seabed and store and offload, but do not transport, the production. The risers are fixed in place at the wellhead. From above, tether chains connect the upper risers to huge nitrogen-filled “buoyancy cans,” which are designed to keep tension in the risers so that they will not kink and impede the flow of oil. The buoyancy cans float 660 feet beneath the water surface; their tether chains play no role in securing the FPSO facilities.   The FSHR systems were located in the Chinook and Cascade fields in the Gulf of Mexico off the coast of Louisiana.

Technip subcontracted to Vicinay Cadenas, S.A. (“Vicinay”) the manufacture of these tether chains. Shortly after installation in March 2011, one of the tether chains broke, causing the loss of the associated FSHR system, loss of use of the FPSO facility, and lost oil and gas production. Petrobras and its underwriters sued Vicinay in March 2012 in federal district court in Houston asserting negligence, products liability, and failure to warn claims. Petrobas alleged subject matter jurisdiction based on admiralty or, alternatively, under OCSLA. Importantly, Petrobas did not assert that Louisiana law applied.

Vicinay moved for summary judgment, arguing that Petrobas’s economic damages claims were foreclosed under maritime law by East River Steamship Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 106 S. Ct. 2295 (1986). Notably, while opposing the motion, Petrobras did not contest the application of maritime law. The district court, assuming that maritime law applied, granted the motion for summary judgment. Two months later, Petrobas filed a motion for leave with the district court to amend its complaint and for the first time asserted that Louisiana law applied pursuant to the Outer Continental Shelf Lands Act (“OCSLA”). If Petrobas was correct and Louisiana law applied, then its claims should not have been dismissed because Louisiana law – unlike maritime law – allows for economic loss damages in this circumstance. See La. R.S. 9:2800.53(5); Chevron USA, Inc. v. Aker Mar., Inc., 604 F.3d 888 (5th Cir. 2010).

The magistrate denied the motion for leave because it was untimely, and the district court affirmed. Petrobas appealed. On appeal, the U.S. Fifth Circuit decided two issues: (1) Whether Petrobas waived the application of Louisiana law by failing to assert it until after summary judgment was granted; and (2) Whether maritime law or Louisiana law applied.

The U.S. Fifth Circuit held that Petrobas did not (and could not) waive the application of Louisiana law. Based on the line of cases holding that OCSLA is a congressionally-mandated choice of law that cannot be waived by agreement of the parties, the Court held that OCSLA could not be avoided “inadvertently.”

The Fifth Circuit also applied the PLT test and determined that Louisiana law, pursuant to OCSLA, applied. In doing so, the Court provided a very good analysis of the second element of PLT, whether “maritime law applies on its own force.” This element of the PLT test requires the performance of the Grubart “location” and “connection with maritime activity” tests. The Court had serious questions on whether the “location” test was satisfied, but found that since the “connection with maritime activity” test was not satisfied it did not need to reach the issue. The Court performed an excellent analysis of the “connection with maritime activity test” and explained how to properly apply it by analyzing the incident at an “intermediate level of generality.” In doing so, the 5th Circuit found that “the rupture of the tether chain was neither potentially nor actually disruptive to navigation and maritime commerce, not did it bear a substantial relationship to traditional maritime activity.” Therefore, maritime law did not apply on its own force, and per PLT, OCSLA and Louisiana law applied. The dismissal of Petrobas’ $400,000,000 damages claim was reversed, and the case was remanded to the district court for further proceedings.

image

By Tod J. Everage

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.

offshore-drilling

By Tod J. Everage

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).