By: R. Chauvin Kean

Generally, a contract is the law between parties, which has long been the position of the U.S. Supreme Court. However, as most well know, this principle is not without limitation. On January 15, 2019, in New Prime v. Oliveira, the Court unanimously held that disputes concerning contracts of employment involving transportation workers engaged in foreign or interstate commerce cannot be compelled to arbitrate. 586 U.S. —, 4, 2019 WL 189342, at * — (2019). Also, despite strong, express language in an agreement ordering the parties to arbitrate any of their disputes, a court – not the arbitrator – is the appropriate forum to review and decide the applicability of the Arbitration Act to any contract.

The Federal Arbitration Act declares that an express arbitration clause in a maritime transaction involving commerce shall be valid and enforceable provided the Act does not further limit its application. 9 U.S.C. §§ 1 – 2 (West 2019). However, §1 declares that “nothing contained [in this Act] shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” 9 U.S.C. § 1 (West 2019). Specifically, the Court in New Prime resolved a longstanding issue of whether a “contract of employment” concerned any type of contract for work (such as one involving independent contractors) or only those contracts between an employee – employer. The Supreme Court affirmed the First Circuit’s ruling that in 1925, at the time of the Act’s inception, “contract of employment” was not a term of art; it was a phrase used to describe “agreements to perform work” and was not limited to agreements only between employees and employers as a modern jurist might first think.

New Prime provides two important lessons: first, no contract provision – however ironclad – is immune from court oversight and interpretation. Parties to a contract may attempt to limit their litigation exposure, but cannot be immune from all possibilities, especially when they try to contract around statutes. New Prime is a great example of limited application of a broad federal statute, which, even though is favored by the courts, is limited by Congress. Second, New Prime provides greater clarity in the realm of contracts for work relating to transportation workers. Any “contract for employment” concerning workers engaged in foreign or interstate commerce cannot be contractually compelled into arbitrations regardless of contractual provisions that state otherwise. New Prime, 586 U.S. at 15. It’s also worth noting that the type of workers engaged in foreign or interstate commerce has vastly expanded over time as our society grows further connected. Thus, companies should be mindful that even though contracts of employment might attempt to limit litigation through arbitration provisions, a court may not be inclined to order the parties into arbitration based on New Prime and the employee’s/independent contractor’s scope of work.

By Tod J. Everage

For nearly 30 years, district courts within the US 5th Circuit have evaluated whether maritime or state law applies to oil and gas service contracts using the 6-factor test from Davis & Sons, Inc. v. Gulf Oil Corp., 919 F.2d 313 (5th Cir. 1990). The Davis factors focused mainly on the nature of the work being performed and included the following questions: (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 that 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? The arduous test has repeatedly been a subject of criticism in the 5th Circuit.

Seizing the opportunity, the 5th Circuit in In re Larry Doiron, Inc., voted to rehear the case en banc to finally rid itself of the Davis-inducing headaches. We previously wrote about this case after its first panel decision here. Upon initial consideration, the 5th Circuit applied Davis to a flow-back services contract, finding it to be a maritime contract. The Circuit Court’s decision fell in line with many other Davis cases that – even after weighing the 6 factors – seemed to primarily turn on the use of a vessel for the work. See here for example. Seeing that factor as gaining primacy, the 5th Circuit simplified the test down to two factors focusing more on the maritime nature of the contract rather than the work itself.

Indeed, the 5th Circuit noted that “most of the prongs of the Davis & Sons test are unnecessary and unduly complicate the determination of whether a contract is maritime.” And, the evaluation of those factors often required the Court to parse through minute factual details to determine what was going on. Take this case for example. The 5th Circuit had never evaluated a flow-back contract before. Thus, to answer the 2nd factor, the Court was forced to analogize flow-back services to casing, wireline, and welding services. The en banc panel found that exercise did nothing more than add “to the many pages dedicated to similar painstaking analyses in the Federal Reporter.” The Court also found the 3rd, 4th, and 6th factors equally irrelevant to finding whether a contract was maritime or not.

Though its own Davis-based jurisprudence had been leading the Court towards a test focused on the necessity of a vessel, the 5th Circuit looked to the U.S. Supreme Court for affirmation. In Norfolk So. Railway Co. v. Kirby, 543 US 14 (2004), the Supreme Court held that a claim for money damages for cargo damaged in a train wreck (on land) was governed by maritime law. Its analysis was based on a finding that the two bills of lading covering the transport of the cargo from Australia to Alabama were maritime contracts. Even though the train crashed on land, the Court found dispositive that the “primary objective” of these bills was “to accomplish the transportation of goods by sea from Australia to the eastern coast of the United States.” It was the nature of the contract that persuaded the Court, which was maritime commerce.

With that guidance in mind, the 5th Circuit set out a “simpler, more straightforward test.” The first question to ask is whether the contract is one to provide services to facilitate the drilling or production of oil and gas on navigable waters? This question will avoid having to delve into the actual services performed and more into the location of those services. If the services are intended to be provided on the water, the next question is whether the contract provides or whether the parties expect that a vessel will play a substantial role in the completion of the contract. If the answer is “yes” to both questions, the contract is maritime. Paring the test from 6 to 2 allows reviewing courts to “focus on the contract and the expectations of the parties.”

Though the other four Davis factors were tossed aside, they were not tossed away. The 5th Circuit left open the possibility of using those factors when dealing with an unclear contract. However, by doing so, it seems inevitable that all parties who face an unfavorable application of state or maritime law will claim the contract is unclear and find ways to evaluate the discarded factors anyway; especially those involving disputed oral work orders. We shall see.

Lawyers are notorious for mucking up the works and over complicating seemingly straightforward issues. Try finding a one-page contract for any services nowadays that isn’t written in 6 point font. The 5th Circuit’s en banc decision is a breath of fresh air. After years of debating why wireline work is not inherently maritime but why casing work is, maritime lawyers now have a much simpler (in theory) test to aid in predicting the applicable law to a contract, which can have serious ramifications depending on the outcome.

By Tyler Kostal

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

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

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

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

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

Commercial shrimp fishing boat

By Michael J. O’Brien

In the recent case of In re Marquette Transp., No. 13-5114, 2016 WL 1695109 (E.D. La. 4/26/16), Judge Sarah Vance offered the latest comment on how a “seafarer” is defined by the landmark U.S. Supreme Court case of Yamaha Motor Corp. U.S.A. v. Calhoun, 516 U.S. 199 (1996).

In re Marquette arose out of a 2013 vessel collision in the territorial waters of Texas between a towing vessel owned and operated by Marquette and a vessel owned by John Tran, a self-employed commercial fisherman. As a result of the collision, Tran was killed; his fishing vessel was destroyed. Litigation began when Marquette filed a Limitation action under 46 U.S.C § 30501, et seq. Thereafter, the family of John Tran filed a claim against Marquette under the General Maritime Law and the survival and wrongful death laws of Texas.

After extensive litigation, in April 2016, the Tran claimants filed a Memorandum of Law addressing the issue of whether they could supplement remedies available under the General Maritime Law with State Law remedies provided by Texas’s wrongful death and survival statutes. They argued that because the decedent was neither a Jones Act seaman nor a maritime employee covered by the Longshore and Harbor Workers Compensation Act (“LHWCA”), Tran was a “nonseafarer,” such that his survivors could pursue state law remedies as allowed by Yamaha. Marquette opposed contending that because Tran earned his living as a fisherman, he was a “person engaged in maritime trade.” According to Marquette, Tran was a “seafarer” as defined by Yamaha; thus, his survivors were precluded from recovering non-pecuniary damages under Texas law.

Note that it was undisputed that Tran was neither a Jones Act seaman nor an employee covered by the LHWCA. At issue was whether the Tran claimants could supplement remedies available under General Maritime Law with state law remedies, including the remedies provided by Texas’s Wrongful Death and Survival Statute.

Whether non-pecuniary damages are available in cases involving non-seamen killed or injured in state territorial waters was famously taken up by the U. S. Supreme Court in the aforementioned case of Yamaha. In that case, the parents of a child killed in a jet ski accident in state territorial waters asserted state law remedies. Drawing a distinction between “seafarers” and “nonseafarers,” the U.S. Supreme Court held that the General Maritime Wrongful Death Action does not preempt state remedies in cases involving the death of a non-seafarer in state territorial waters. Holding that Congress had not prescribed remedies for the wrongful deaths of nonseafarers in territorial waters, the Yamaha Court found no basis for displacing state remedies in cases of this nature.

Since Yamaha, courts have divided on the meaning of the critical term “non-seafarer.” The division between the two leading interpretations of “nonseafarer” is based on language found in the Yamaha opinion. In a footnote, the Yamaha Court explained that “by non-seafarers, we mean persons who are neither seaman covered by the Jones Act…nor longshore workers covered by the Longshore and Harbor Workers Compensation Act.” However, also in the Yamaha opinion, the Court described the scope of its holding noting that state remedies are not displaced in cases where the claimant “was not a seaman, longshore worker, or person otherwise engaged in maritime trade.” Seizing upon the “person otherwise engaged in maritime trade” language, several courts have concluded that a “person otherwise engaged in maritime trade” is a “seafarer” precluded from pursuing non-pecuniary damages under state law even though that person is neither a Jones Act seaman nor longshoreman covered by the LHWCA.

Marquette argued that Tran, a self-employed commercial fisherman, was “otherwise engaged in maritime trade at the time of the collision.” Based on this interpretation, Tran would be deemed a “seafarer” under Yamaha and the Tran claimants would be barred from supplementing their federal maritime law remedies with non-pecuniary damages provided by Texas law. Other Courts have explicitly rejected Marquette’s approach and simply defined a nonseafarer as one who is neither a seaman nor covered by the LHWCA.

In a well-reasoned opinion, Judge Vance found the Tran claimants’ arguments more persuasive and more consistent with Yamaha as a whole. She reasoned that it was clear that Jones Act seamen and Longshore workers covered by the LHWCA are “seafarers,” while individuals who are not covered by these maritime statutes are “nonseafarers.” In reaching the result, Judge Vance found that in defining the term “nonseafarer” in the aforementioned footnote, the Supreme Court expressly tied “seafarer” status to coverage under federal maritime statutes, such as the Jones Act and the LHWCA. Judge Vance further advised that it was reasonable to conclude that Yamaha’s reference to “persons engaged in maritime trade”, mainly refers to those maritime employees who are not longshore workers, but are, nonetheless, covered by the LHWCA. Section 902(3) of the LHWCA defines “employee” as “any person engaged in maritime employment, including any longshoreman or other person engaged in longshoring operations, and any harbor worker including a ship repairman, ship builder, and ship breaker…” 33 U.S.C. § 902(3).

Based on this reasoning, Judge Vance joined those courts that have held, for purposes of Yamaha, a nonseafarer is someone who is neither a seaman covered by the Jones Act nor a longshore or harbor worker covered by the LHWCA. Accordingly, the decedent Tran was a nonseafarer and Yamaha did not preclude application of Texas statutes preventing recovery of non-pecuniary damages. While this case involved Texas law, Judge Vance’s ruling should not be narrowly read to apply only to Texas-based incidents as her ruling would be the same in Louisiana as well.

Close-up on a dollar sign.

By R. Chauvin Kean and Sean T. McLaughlin

On June 29, 2016, the Louisiana Court of Appeal, Third Circuit, affirmed a jury’s verdict of $125,000 in compensatory damages and $23,000,000 in punitive damages in a maritime products liability case, resulting in a damages ratio of 184:1! In Warren v. Shelter Mutual Ins. Co., 15-354, 15-838, & 15-1113 (La. App. 3 Cir. 06/29/16); — So. 3d —, the Third Circuit affirmed both the jury’s determination that punitive damages were warranted and the amount of punitive damages. This case is noteworthy for many reasons, but this article focuses on only two: (1) the Third Circuit’s decision that punitive damages are available to non-seafarers under the general maritime law; and (2) the Third Circuit’s finding that the amount of punitive damages did not violate the Due Process Clause of the Fourteenth Amendment, despite the 184:1 ratio.

On May 7, 2005, Derek Hebert was a passenger in a small boat operated by Daniel Vanvoras. They were in a former channel of the Calcasieu River traveling between Mr. Vanvoras’ home and the Lake Charles Country Club. While en route, the boat suffered a complete functional loss of its steering system. Mr. Hebert was ejected and struck by the boat’s propeller nineteen times. He was killed almost instantly. Following the accident, an investigation was performed into the boat’s steering system. It revealed that the loss of a relatively small amount of hydraulic fluid would result in a complete loss of steering. Mr. Hebert’s relatives filed wrongful death claims and a survival action against the several parties, including the manufacturer and designer of the boat’s steering system, Teleflex. The claim against Teleflex was simple: Teleflex failed to warn boat owners or their passengers about the potential catastrophic consequences of losing a very small amount of hydraulic fluid.

At trial, the evidence established that in 1989 Teleflex performed testing of its steering system. Their tests showed that the loss of mere teaspoons of hydraulic fluid resulted in a complete loss of steering. Prior to the complete loss, the steering on the boat was reported to “feel different.” Teleflex’s designer, Eric Fetchko, testified that Teleflex “assumed that the different feel in the steering response would alert users that they had a problem.” The evidence also established that Teleflex “received thousands of complaints regarding fluid loss.” At trial, Teleflex contended that those thousands of complaints “must be kept in context because Teleflex has sold millions of the [steering] systems.” Even though Teleflex knew that a minimal amount of fluid loss could end in the death of vessel operators and passengers, it believed “the frequency was not high enough to justify” a more specific warning because Teleflex “did not want to cause ‘mass hysteria.’”

The case was tried to a jury twice. The first time, a jury ruled in favor of Teleflex. This ruling was overturned due to inaccurate information being provided to the jury. At the second trial, the jury ruled in favor of the plaintiffs, awarding $125,000 in compensatory damages and $23,000,000 in punitive damages against Teleflex.

Because the accident occurred upon the navigable waterways of the United States, admiralty jurisdiction and general maritime law applied to this case. The U.S. Supreme Court has recently affirmed that punitive damages are allowed under the general maritime laws unless Congress has statutorily prohibited a plaintiff from seeking such damages. See, Atlantic Sounding Co., Inc. v. Townsend, 557 U.S. 404, 414-15 (2009); see also, McBride v. Estis Well Service, LLC, 768 F. 3d 382, 389-91 (5th Cir. 2014) (en banc). [Editor’s note: click here for more discussion on McBride and maritime punitive damages]. The Jones Act and the Death on the High Seas Act (“DOSHA”) are such statutes, and expressly limit a seafarer’s recovery to pecuniary damages; whereas the Longshore and Harbor Workers’ Compensation Act (“LHWCA”), for example, does not have the same limitations. Mr. Hebert, as a passenger on a recreational vessel, was not subject to an overlapping federal statute such as the Jones Act, the LHWCA, or the DOHSA. Due to this fact, punitive damages are available under the general maritime law. Although rare, where the plaintiff can prove the defendant’s intentional or wantonly reckless conduct amounted to a conscious disregard for the rights of others, he may be awarded punitive damages. See Poe v. PPG Indus., 00-1141, p. 6 (La. App. 3 Cir. 03/28/01); 782 So. 2d 1168, 1173.

Because he was not a member of the boat’s crew or deemed a worker covered under a federal statutory scheme, Mr. Hebert was classified as a non-seafarer and thus was entitled to all remedies under general maritime law – including punitive damages for the claims asserted against Teleflex for its failure to warn boat operators and passengers of the steering system’s hidden dangers.

On appeal, the Louisiana Third Circuit conducted a thorough analysis of U.S. constitutional law and the jurisprudential understanding of punitive damage award ratios compared to compensatory damages. Outlining the various concepts and guidelines announced by the U.S. Supreme Court, the court began with the notion that all punitive damage awards invoke some type of analysis under the Due Process Clause of the Fourth Amendment. The rationale is that where an award is grossly excessive, it furthers no legitimate state purpose and constitutes an arbitrary deprivation of property. See Pac. Mut. Life Ins. Co. v. Haslip, 499 U.S. 1 (1991).

To that end, the Third Circuit examined the excessiveness of the $23,000,000 punitive damages award under BMW of North America, Inc. v. Gore, 517 U.S. 559, 575-85 (1996). In BMW, the U.S. Supreme Court set out the standard for analyzing the gross excessiveness of a punitive damage award, which includes: “(1) the degree of reprehensibility of the misconduct; (2) the ratio, or disparity between the punitive award and the harm, or potential harm, suffered by the plaintiff; and (3) the difference between this remedy and the civil penalties authorized or imposed in comparable cases.” The Supreme Court has consistently held that there is no-bright-line rule or rationale for determining what is an appropriate punitive damage award.

Applying the relevant guideposts from BMW, the Third Circuit first examined the reprehensibility of Teleflex’s alleged misconduct. Noting that Teleflex had actual and substantive knowledge of the defect in the steering system several years prior to the accident, the court found it reprehensible that Teleflex chose not to provide supplemental warnings to owners, operators, or their passengers of such defects or dangers simply to avoid causing “mass hysteria.” In fact, the court went on to note that unlike most cases where there was “hard-to-detect” wrongdoing by the liable party, here, Teleflex’s concealment of its own knowledge that its product could be defective or fail and cause occupants of the vessels to die was held to be egregious behavior. For these reasons, the court found the reprehensibility guidepost fully realized in this case, as opposed to Teleflex’s misconduct being merely reckless, as is most common in similar cases. Finding that Teleflex’s behavior was egregious rather than reckless allowed the Third Circuit to ignore the usually-accepted damage ratios and actual-damage findings of prior case law, and laid the foundation for the court’s novel approach in affirming the punitive damages awarded by the trial court.

With that finding already being made, the court reviewed the second guidepost – the ratio of punitive damages to compensatory damages – to determine if a 184:1 ratio was grossly excessive under the circumstances. This analysis was done without any consideration as to the potential harm factor to the plaintiff. Given the egregiousness of Teleflex’s conduct, the Third Circuit focused on the potential harm that could have occurred rather than the harm that actually occurred. The court noted that since Mr. Hebert died almost instantly, he experienced very brief, but extreme, pain and suffering. Had he not died – or died after months of treatment – the compensatory damages award would have been much, much higher – possibly over $10,000,000. Using the potential harm ($10,000,000) as the benchmark, the punitive:compensatory damage ratio was only 3:1. As the court noted, there is no mathematical formula for determining the reasonableness of a punitive damages award. Citing various opinions, the court highlights that the U.S. Supreme Court has consistently held that “low awards of compensatory damages may properly support a higher ratio than high compensatory awards, if, for example, a particularly egregious act has resulted in only a small amount of economic damages.” BMW, 571 U.S at 582-83.

The final guidepost calls for a comparison of the civil penalties and remedy imposed in the present matter to comparable cases. As stated before, there are no statutory or codal authorities that impose monetary civil or criminal penalties for the deprivation of life of Mr. Hebert. Because of this, the guidepost did not offer any assistance to determine the gross excessiveness of the award. This finding further assisted the court is affirming that the punitive damages award was reasonable under the circumstances and did not violate the Due Process Clause of the Fourteenth Amendment.

With the high value of the punitive damages awarded in this case, and the relatively novel approach by the Court in reaching its opinion, we would expect this case to end up at the Louisiana Supreme Court soon, if not the U.S. Supreme Court thereafter. While this case was maritime in nature, the analysis in the Third Circuit’s review of an alleged grossly excessive punitive damage award has the potential to transcend legal subject matter, making this case one to watch. Stay tuned.

dentist-tools-tooth

By Jennifer J. Thomas

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.