A SPAR has been determined to be a immoveable/building under Louisiana law.

Are SPAR platforms immoveable buildings? On April 9, 2014, Judge Rebecca Doherty issued a memorandum ruling in Hefren v. Murphy Exploration & Production Co., USA, et al., that they are, meaning in Louisiana a five-year window to bring certain personal injury claims against designers or manufacturers applies.

In issuing this ruling, Judge Doherty granted the summary judgment of J. Ray McDermott, dismissing the claims of James Hefren, an employee of Murphy Exploration and Production Company, USA (Murphy). Mr. Hefren had been injured while changing out bolts on a flange on the Front Runner, a SPAR platform located on the Outer Continental Shelf (OCS), when stored pressure was released causing serious personal injuries. J. Ray McDermott (McDermott) had designed and constructed the Front Runner. After its construction and placement on site, Murphy took delivery of it in August 2004, more than five years before Mr. Hefren’s injury.

Mr. Hefren sued McDermott for alleged failures in design and construction and in failing to provide adequate warnings relative thereto. In an earlier phase of the litigation the Court had determined the Front Runner SPAR not to be a vessel. (For more on this determination, see my earlier blog post, Jones Act Status Remains Unavailable on SPARS). McDermott filed its motion for summary judgment asserting that under La. R.S. 9:2772 the plaintiff’s claims were preempted by the passage of five years from the completion of its work. La. R.S. 9:2772 provides, in part, for a five year preemption of any personal injury claims against a designer or manufacturer arising out of “any deficiency in the performing or furnishing of land surveying services, as such term is defined in R.S. 37:682, including but not limited to those preparatory to construction or in the design, planning, inspection or observation of construction or in the construction of any improvement to immoveable property …” R.S. 9:2772 B(1)(a).

In considering McDermott’s motion Judge Doherty felt that the earlier determination that the Front Runner was not a vessel was not sufficient to establish the Front Runner as an immoveable/building to provide the basis for the application of La. R.S. 9:2772. She then proceeded to focus upon whether the Front Runner was an immovable under Louisiana law.

In its motion for summary judgment, McDermott acknowledged that the Fifth Circuit had yet to expressly hold that a SPAR is a building and/or an immoveable. In support of its argument McDermott nevertheless cited Fields v. Pool Offshore, Inc., 182 F .3d 353, 357-59 (5th Cir. 1999), which Judge Doherty felt to be particularly instructive. Although the issue in Fields was not whether the SPAR in question was a building or immoveable, the rationale underlying the determination that the SPAR was not a vessel heavily weighed upon the SPAR’s immovability.

Judge Doherty acknowledged that there was no definitive case holding that a SPAR was a building and/or an immoveable, but felt the existing case law likened a SPAR to a fixed platform, and under Louisiana law it is undisputed that a fixed offshore oil and drilling platform is a “building.” She saw no viable distinction between a fixed platform and a SPAR such as the Front Runner, as both appeared to be permanently attached to the seabed. Whatever minimal movement occurred with the Front Runner because of its flotation was not considered to refute its permanency at its location on the OCS.

In the wake of the revisited tests of vessel status by the Supreme Court in Stewart vs. Dutra Construction Company, 543 U.S. 481 (2005) and Lozman v. City of Riviera Beach, Fla., 133 S.Ct. 735 (2013), it remains to be seen whether floating oil and gas production structures, such as SPARS and tension leg platforms (“TLP”), retained their non-vessel status. In Mooney v. W&T Offshore, Inc., No. 2:12-cv-969 (E.D. La. Mar. 3, 2013), District Judge Lance M. Africk recently concluded that the MATTERHORN SEASTAR, a TLP secured to the Outer Continental Shelf off the coast of Louisiana, was not a vessel as a matter of law. The plaintiff had filed suit against W&T Offshore, Inc., the owner and operator of the MATTERHORN SEASTAR, under the Jones Act, the Longshore and Harbor Workers’ Compensation Act (“LHWCA”), and general maritime law for alleged personal injuries he claimed to have received while working on the MATTERHORN SEASTAR. The plaintiff’s potential recovery against W&T under the foregoing statutes and general maritime law depended on whether the MATTERHORN SEASTAR is a vessel. 

The MATTERHORN SEASTAR is a floating oil and gas production structure that has been secured to the seabed since 2003 by six mooring tendons, seven casing production risers, and two export pipelines, and it will remain in that moored location until at least 2020. Its buoyant hull had been towed to the moored location, where it was secured to the seabed by the mooring tendons, which tendons in turn were affixed to suction pilings driven hundreds of feet below the seafloor. Subsequently, the oil and gas production and processing equipment that comprised the top-sides of the TLP was installed on top of the hull. Thereafter, the production risers and pipelines were connected to the top-sides equipment. It would take W&T several months of preparation and activities, including the removal of the topsides from the hull, before the hull could be ready for towage away from the moored location. Lastly, the MATTERHORN SEASTAR has no system of self-propulsion, no raked bow, and is not intended to be towed or moved except as part of the initial positioning and ultimate removal of the hull from its moored location. 

Under the Rules of Construction Act, 1 U.S.C. § 3, as expanded by the Stewart and Lozman decisions, the current tests for whether a structure qualifies as a vessel is whether the structure is practically capable of being used as a means of transportation on the water, including whether a reasonable observer would consider the structure to be designed to a practical degree for carrying people or things over water. Based on the undisputed evidence, Judge Africk concluded that no reasonable observer would consider the MATTERHORN SEASTAR to be designed to a practical degree for carrying people or things over water. Moreover, it was only theoretically possible, and thus not practically possible, for the TLP to participate in maritime transportation. As a result, the MATTERHORN SEASTAR was not a vessel, and the plaintiff’s claims against W&T under the Jones Act, the LHWCA, and general maritime law were dismissed with prejudice. King, Krebs & Jurgens, including the author, represented W&T in its successful motion for partial summary judgment.

This is not a vessel.

Jones Act status remains unavailable on SPAR Platforms, a type of deepwater floating oil drilling and production facility used in the offshore petroleum industry. While, as noted in the recent blog by Joseph Devall, Jr., the Supreme Court of the United States (SCOTUS) contemplates a further “clarification” of the term “vessel,” the Fifth Circuit has reiterated that, even in light of the previous decision of SCOTUS in Stewart vs. Dutra Construction Company, 543 U.S. 481, 125 S.Ct. 1118, 160 L.Ed.2d 932 (2005), addressing the definition of “vessel,” SPAR platforms that are practically immovable continue to not be vessels for Jones Act purposes.

The Fifth Circuit in Fields vs. Pool, 182 F.3d 353 (5thCir. 1999), in a case that was then one of first impression, evaluated the characteristics of SPAR platforms and determined they were not vessels due to the fact that they:

  1. were designed to be in place for the foreseeable future;
  2. were secured to the sea floor by elaborate systems insuring that movement would be difficult and a costly undertaking; and,
  3. had a tightly constrained area of movement on the sea surface limited by its anchor pattern to incidental movement.

Subsequent to the Fifth Circuit decision in Fields, SCOTUS in Stewart defined the term “vessel” for the maritime industry indicating that a vessel was “any watercraft practically capable of maritime transportation, regardless of its primary purpose or state of transit at a particular moment.” The court, however, went on to state that “a watercraft is not ‘capable of being used for maritime transfer’ in any meaningful sense if it has been permanently moored or otherwise rendered practically incapable of transportation or movement.”

A number of Federal district courts in Louisiana and Texas, subsequent to the Stewart decision, have been called upon to determine whether SPAR platforms should be considered vessels under the defining opinion in Stewart. All of the district courts that met this issue, but for one, felt that the Stuart decision did not overrule the earlier Fifth Circuit’s opinion in Fields.

Most recently, in Mendez vs. Anadarko, 466 Fed.Appx. 316 (5th Cir. 2012) (unpublished),  the Fifth Circuit again specifically addressed the status of SPAR platforms, but this time in light of the Supreme Court decision in Stewart and has reiterated its previous holding, finding that SPAR platforms do not qualify as vessels for Jones Act purposes. Applying this decision, Magistrate Hill, in the U.S. District Court for the Western District of Louisiana, Lafayette Division has recently, in Hefren vs. Murphy Exploration and Production Company, found that the Front Runner, a SPAR platform, was not a vessel for Jones Act purposes.

Bureau of Ocean Energy ManagementThe Center for Sustainable Economy, a non-profit public interest consulting firm, filed a lawsuit today against the Bureau of Ocean Energy Management (BOEM) in an attempt to halt that agency’s first approved five-year Outer Continental Shelf (OCS) Oil and Gas Leasing Program since the BP oil spill. The Program, which establishes a schedule for 2012-2017 to be used as a basis for considering where and when oil and gas leasing might be appropriate in both the Gulf of Mexico and Alaska, received final approval from U.S. Department of the Interior on August 27, 2012.

The Center for Sustainable Economy contends that the BOEM’s implementation of the Program was a hasty, uniformed, and illegal course of action. In a press release, the Center stated that “[i]ncomplete and flawed economic analysis led BOEM to rush ahead with new offshore leases that may not be economically justified in violation of the National Environmental Policy Act, Outer Continental Shelf Lands Act, and Administrative Procedure Act.”

Industry leaders and GOP members on Capitol Hill certainly are opposed to the lawsuit. E2-Wire, an energy and environmental blog based in Washington D.C., reports that “a number of industry groups—including the American Petroleum Institute and the International Association of Drilling Contractors—have also petitioned the appeals court to intervene in the case on Interior’s side, noting their interests are at stake in the case.” While they believe the Program is too modest and should have made more Outer Continental Shelf areas available for drilling and energy exploration, they recognize that the Center’s success in the litigation would be another setback for an industry still coping with the aftermath of the BP oil spill.

The lawsuit was filed in the United States Court of Appeals for the District of Columbia.

The United States Supreme Court, in Pacific Operators Offshore, LLP v. Valladolid, concluded that the widow of an employee who suffered fatal injuries on shore may still recover LHWCA benefits pursuant to OCSLA if her husband’s death had a “substantial nexus” to his employer’s oil and gas operations on the OCS.  This is an unexpected decision based upon loose Congressional language in 43 U.S.C. § 1333(b), which adopts the LHWCA as the workers’ compensation scheme for the “disability or death of an employee resulting from any injury occurring as the result of operations conducted on the outer Continental Shelf” for the purpose of extracting its natural resources.

The Court disagreed with the Third Circuit’s test which was based on a “but for” standard.  The Court also rejected the Solicitor General’s proposal to adopt a Chandris-esque test that the employee have a substantial relation in duration and nature to OCS operations in order to qualify for LHWCA benefits under OCSLA.

Moreover, the Court discarded the en banc Fifth Circuit’s test for coverage that had focused solely on whether the incident occurred on an OCS situs.  The Court consigned to dicta inferences or statements to the contrary in its earlier decisions of Herb’s Welding, Inc. v. Gray and Offshore Logistics, Inc. v. Tallentire that had been interpreted to focus on the situs of the underlying accident as determining whether the employee was entitled to LWHCA benefits pursuant to OCSLA.

Rather, the Court agreed with the Ninth Circuit’s “substantial nexus” test in determining LHWCA coverage for OCSLA purposes.  Although the accident giving rise to this claim occurred on shore, 98% of Valladolid’s work activities were based on platforms and other oil and gas production structures affixed to the OCS.  Accordingly, Valladolid’s widow could recover LHWCA death benefits, pursuant to OCSLA.

Unlike the 30% test set forth in by the Court in Chandris, Inc. v. Latsis, the Supreme Court in Vallalodid left it to the lower courts to develop the boundaries of the “substantial nexus” criteria.  As Justice Scalia pointed out in his concurrence that agreed a “causation-like” standard was appropriate, but disagreed with the “substantial nexus” standard adopted by the Court – “What a tangled web we weave.”

The U.S. Fifth Circuit, in Brown v. Offshore Specialty Fabricators, Inc., No. 10-40936 (Nov. 23, 2011), recently addressed the confluence of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), the Outer Continental Shelf Lands Act (“OCSLA”), the Immigration and Nationality Act (“INA”), and “foreign control” exemptions from the OCSLA manning requirements that had been issued by the Coast Guard in affirming the district court’s dismissal of a lawsuit filed by U.S. citizens alleging, in part, violations of RICO arising from an alleged scheme to employ foreign workers on the Outer Continental Shelf thereby depressing wages and degrading working conditions.  The defendants were classified as belonging to two principal groups:  the Service Defendants, companies engaged in the offshore oil and gas exploration industry, and the Manning Defendants, companies engaged in providing contract labor services for offshore oil and gas projects.

All of Plaintiffs’ claims were ultimately dismissed by the district court.  The Plaintiffs appealed the dismissal of three of their claims, one of which involved the civil RICO claims against the Service Defendants.  The Fifth Circuit affirmed the dismissal of all claims.  The Court’s reasoning concerning the dismissal of the RICO claim is briefly discussed.

In order to prevail in a civil RICO claim against the Service Defendants, the Plaintiffs had to establish that the Service Defendants engaged in racketeering activity.  The Plaintiffs argued that the Service Defendants had violated the INA by employing foreign workers on their vessels.  The Plaintiffs further argued that the INA applied to the Service Defendants’ vessels by operation of the OCSLA, which extends federal law to installations that were permanently or temporarily attached to the seabed of the United States Outer Continental Shelf.  However, because the Service Defendants’ vessels were free floating and not attached to the seabed, as a matter of law, the OCSLA did not apply to those vessels where the alleged wrongful conduct occurred.

The Service Defendants alternatively argued that they received exemptions from the Coast Guard from the manning requirements of OCSLA, which exemptions allowed the Service Defendants to lawfully employ foreign workers on the Service Defendants’ vessels and thus shield them from potential RICO liability.  Under OCSLA, vessels, rigs, platforms and other structures must be “manned or crewed by” U.S. citizens or “aliens lawfully admitted to the United States for permanent residence.”  43 U.S.C. § 1356.  One of the statutory exemptions from OCSLA’s manning requirements are vessels “over 50 percent of which is owned by citizens of a foreign nation or with respect to which the citizens of a foreign nation have the right effectively to control.”  43 U.S.C. § 1356(c)(2).  The Coast Guard can determine whether the statutory standards for a foreign control exemption have been satisfied, and if so, whether to issue a exemption to a given vessel.

Two of the Service Defendants had obtained a foreign control exemption from the Coast Guard, which the Plaintiffs argued had been procured through alleged deceit by those Service Defendants.  Those Service Defendants bare boat chartered their vessels to a foreign controlled company, which in turn manned, equipped and operated the vessels on the U.S. Outer Continental Shelf.  The bare boat charter agreement permitted the operator to sub-charter the vessels to other companies.

The foreign controlled bare boat charterer / operator thereafter time chartered the vessels to the Service Defendants and other companies.  Those Service Defendants presented evidence that they had fully disclosed to the Coast Guard in the exemption application process the foregoing chartering arrangements, including the foreign bare boat charterer’s ownership, financial and organizational structure as well as the Service Defendants’ relationship to the foreign bare boat charterer.

The Fifth Circuit was “loath to second-guess the Coast Guard’s judgment in issuing foreign control exemptions,” and accorded judicial deference to the Coast Guard in those decisions.  Based on the full disclosure by the Service Defendants to the Coast Guard in the application process for the foreign control exemptions, the Fifth Circuit rejected the Plaintiffs arguments that the exemptions had been obtained through deceit.

The Fifth Circuit’s opinion underscores the need for full disclosure of all vessel interests seeking to obtain a foreign control exemption from the Coast Guard.  The information provided should include the applicable ownership breakdown of the vessel operator, the organizational and financial structure of the company, as well as the relationship of the vessel operator to the vessel owners and potential customers.

The U.S. Coast Guard has proposed significant changes to the regulations concerning the Inspection of Towing Vessels and arguably eliminating the class of vessels formerly known as uninspected towing vessels.  The Coast Guard has established a deadline of December 9, 2011, to receive public comments, which can be made at the following link:  www.regulations.gov and by inserting “USCG–2006–24412” in the box marked “Keyword” or “ID.”

The proposed regulations cover a number of industry sensitive topics, including:

(1)   adoption of Towing Safety Management System approved by licensed third party auditors, surveyors or classification societies or annual inspections by the Coast Guard

(2)   propulsion / steerage redundancy requirements as well as stability and electrical design requirements

(3)   crewing/manning training requirements including record keeping functions

As of this writing, several industry stake-holders have posted comments concerning the anticipated costs of compliance on small operators, the inconsistencies between the proposed regulations of towing vessels and the absence of similar regulations for passenger vessels, as well as the absence of any “grandfather” provisions as had been provided when previously “uninspected” vessel classes were thereafter subject to regulation.

Rep. Jeff Landry (R-LA) has added a provision to the Coast Guard and Maritime Transportation Act of 2011, currently under consideration in Congress, which would require the owner/operator of any offshore rig or vessel engaged in drilling, plugging and abandoning or workover operations to maintain a standby rescue vessels within 3 nautical miles.

The provision is being applauded by those who believe it is an appropriate safety measure in the wake of the Deepwater Horizon blowout that resulted in the deaths of 11 workers and the rescue of 115 others by a supply boat that happened to be alongside the rig at the time.  The requirement also could also create additional work for vessel operators in the Gulf of Mexico.  But there is opposition to the measure, even by other legislators in Rep. Landry’s own state.  Rep. Charles Boustany (R-LA) has criticized it, saying “It would create excessive regulations on energy producers and hinders the progress we have made in order to restart Gulf energy production.”  Additionally, the measure would allow the use of one standby vessel for more than one manned facility or vessel, and the use of standby vessels for purposes other than rescue.

Vessel operators interested in providing the rescue services called for in the bill therefore could face some difficult operational decisions and even liability concerns.  Accordingly, close attention to risk-allocation, indemnity and insurance provisions in agreements to provide these rescue services would be highly recommended.

For further coverage on Landry’s proposal:

Louisiana Oil & Gas Association

The Times-Picayune

As this article indicates, a veritable “bonanza” is taking place in Brazil as a result of recent offshore oil discoveries by Petrobras: “The result is that every company and group is piling into the country to set up their shopfront to show their wares.”  The booming demand for oilfield and related marine and construction services is driving both acquisition activities and redeployment of vessels and equipment to the country, presenting opportunities and challenges for the companies involved and their lenders.

Opportunities in Brazil are also being promoted through the Brazilian government’s Growth Acceleration Program (PAC, based on Portuguese spelling), under which the government announced in 2010 a $526 billion investment in infrastructure between 2011 and 2014, including opportunities for over $220 billion in foreign investments.  Foreign companies yet established in Brazil are already seeing business growth as a result of the PAC.

But, companies considering opportunities in Brazil should be aware of and plan for the challenges ahead, which include:

  • A complicated regulatory regime that can be difficult for foreign companies to navigate;
  • A legal system that is based on the Napoleonic code rather than the common law system employed in the U.S. [other than Louisiana];
  • A complex tax code which demands a significant investment of time and effort to ensure compliance and to plan for an exit that minimizes tax implications;
  • An extensive and comprehensive labor code;
  • An overloaded judicial system that does not rely on precedents, in which cases can languish for many years and there is little predictability as to outcome;
  • Crime and security problems that impact the safety of employees, protection of company property and goods being delivered to customers;
  • Government corruption that can create exposure for U.S. companies under the Foreign Corrupt Practices Act; and
  • Domestic lender restrictions on relocation of collateral overseas.

It is important that companies conduct extensive due diligence to ascertain and address issues on the front end.  Putting together a team of trustworthy local individuals and seeking counsel of U.S. and local attorneys are essential elements of this effort.