On March 10, 2016, I reported on the Fifth Circuit’s opinion in Petrobras America, Inc., et al. v. Vicinay Cadenas S.A., No. 14-20589 (03/07/16), where the Fifth Circuit addressed the waivability of OCSLA’s choice of law provision and determined that it could never be waived. The appellee, Vicinay Cadenas, S.A., has now petitioned for a rehearing en banc and asserts the decision conflicts with the Court’s prior holding of In Re HECI Expl. Co., 862 F.2d 513 (5th Cir. 1988) holding that choice of law – even if mandated by a statutory provision that cannot be overridden by the parties’ agreement – is non-jurisdictional and thus subject to waiver. The appellee also urges that the decision threatens to impair the efficient administration of justice by placing a statutorily-prescribed choice of law provision on par with subject matter jurisdiction, thereby requiring continual reconsideration of the issue regardless of whether it was ever timely raised. A majority of the Court’s judges must now vote that the matter deserves an en banc rehearing for the appeal to move forward.

OCSLA Choice of Law - Petrobras v. Vicinay CadenasThis week The United States Fifth Circuit Court of Appeals in Petrobras America, Inc., et al. v. Vicinay Cadenas, S.A., No. 14-20589 (03/07/16) addressed in further detail whether the choice of law provision under the Outer Continental Shelf Lands Act (OCSLA) can be waived in any context. Prior to this decision, the Fifth Circuit had established that OCSLA’s choice of law scheme was prescribed by Congress and parties could not voluntarily contract around Congress’s mandate. Texaco Exploration & Production, Inc. v. AmClyde Engineered Prods. Co., Inc., 448 F.3d 760, 772 n. 8 (5th Cir., 2006); see also Union Tex. Petroleum Corp. v. PLT Eng’g, Inc., 895 F.2d 1043, 1050 (5th Cir. 1990) (“We find it beyond any doubt that OCSLA is itself a Congressionally-mandated choice of law provision requiring that the substantive law of the adjacent state is to apply even in the presence of a choice of law provision in the contract to the contrary.”)

In this instance neither party had asserted that the issues before the district court were to be determined according to the law of the adjacent state, Louisiana, asserting, to the contrary, that maritime law was controlling. It was only after a motion for partial summary judgment was granted against the plaintiff based on applying admiralty law that the plaintiff asserted OCSLA required the application of the law of Louisiana.

In the case at hand, Petrobras America sued Vicinay Cadenas, S.A., the manufacturer of an underwater tether chain that broke just after being installed. The chain secured a pipeline system for oil production from the Outer-Continental Shelf of the Gulf of Mexico. Petrobras had contracted with Technip U.S.A., Inc. to construct five “free-standing hybrid riser” systems to move crude oil from wellheads on the sea bed to floating production storage and off-loading facilities on the surface of the sea. Technip had subcontracted with Vicinay to supply the chains that were specified to be without weld-over cracks and defects to be used to tether the riser systems. Shortly after the chains were installed, one broke causing loss of one of the free-standing hybrid riser systems, a loss of use of the oil storage facility and loss oil and gas production.

Petrobras and its underwriters sued Vicinay in federal court asserting negligence, product liability and failure to warn claims. They alleged subject matter jurisdiction based on admiralty law or, alternatively, under OCSLA. They did not assert that Louisiana law applied. Vicinay moved for partial summary judgment, arguing that it was entitled to prevail under the maritime law’s economic loss doctrine announced in East River Steamship Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 106 S. Ct. 2295 (1986).

While opposing Vicinay’s motion for partial summary judgment, Petrobras and its underwriters did not contest the application of maritime law. The district court, assuming that maritime law applied, granted summary judgment to Vicinay to which an interlocutory appeal was filed. Approximately two months later, Petrobras’ underwriters filed a motion for leave to amend their complaint asserting for the first time that Louisiana law, not maritime law, applied to this dispute under OCSLA. This was denied by the district court and the appeal of this ruling was consolidated with the previous interlocutory appeals.

Vicinay argued before the Fifth Circuit that Petrobras’ underwriters waived their choice of law argument by not raising it in the district court until the eleventh hour motion to amend their complaint which was filed after the summary judgment was granted. They asserted that the underwriters confused OCSLA’s subject matter jurisdiction conferred on federal courts in 43 U.S.C. § 1349(b)(1)(A) and which cannot be waived, with OCSLA’s choice of law 43 U.S.C. § 1333(a) which allegedly could be waived, and therefore could not be raised for the first time on appeal.

Noting that the court’s precedents firmly established that OCSLA’s choice of law could not be waived by contract, as it was prescribed by Congress and parties may not voluntarily contract around Congress’ mandate, the court determined that, even more so, the choice of law provision could not be waived by failure to raise the issue below. This was found to be distinguishable from the Court’s earlier holding in Fruge v. Amerisure Mutual Insurance Co., 663 F.3d 743, 777 (5th Cir. 2011). It was explained that the failure to raise an issue as to the choice of law analysis in Fruge stemmed from a contractual provision, and since it was not timely raised before the district court, it was waived. In the instant case, the choice of law provision was one that stemmed from a statutorily mandate and could not be waived under any circumstances.

After protracted and expensive litigation overseas, you obtain a judgment against the defendant. There remains one series of hurdles left to cross: the defendant refuses to pay that judgment and has no assets in the country where the litigation was conducted. However, the defendant (or possibly one or more of its numerous alter egos) has assets in the United States. What should you do to collect on the judgment? If the underlying claim would be considered a maritime claim under U.S. law, one option is filing an enforcement action in federal district court under its admiralty subject matter jurisdiction, 28 U.S.C. § 1333.

In D’Amico Dry Ltd. v. Primera Maritime (Hellas) Ltd., No. 11-3473-cv (2nd Cir. June 12, 2014), the Second Circuit concluded that U.S. district courts have admiralty subject matter jurisdiction over an action to enforce the judgment of a foreign tribunal where the underlying claim on which the judgment was rendered would be considered maritime under U.S. law. D’Amico and Primera executed a forward freight agreement (“FFA”), a futures contract (i.e., contractually enforceable wager) contingent upon the parties’ accurately predicting future market rates for the shipment of goods. Under the FFA, Primera was obligated to pay D’Amico and failed to do so. In accordance with the forum selection and choice of law provisions of the FFA, D’Amico filed suit in the Commercial Court of the Queen’s Bench Division of the English High Court of Justice, which rendered a substantial judgment against Primera.

When Primera failed to pay the English judgment, D’Amico filed suit to enforce that judgment in New York federal court under its admiralty jurisdiction. The district court granted Primera’s motion to dismiss for lack of subject matter jurisdiction because the English judgment was rendered by the Commercial Court and not the Admiralty Court and, additionally, English law would not consider D’Amico’s claim as being maritime.

On appeal, the Second Circuit concluded that the proper inquiry in an enforcement action brought under the district court’s admiralty jurisdiction was whether the underlying claim on which the judgment was based was a maritime claim under U.S. law. The Court recognized that many foreign tribunals do not have admiralty courts even though the foreign tribunals adjudicate maritime claims. Thus, whether a foreign judgment was rendered by a foreign admiralty court was of no moment. Additionally, after a review of various “theoretical and practical reasons”, the Second Circuit concluded that whether a claim is maritime should be determined under U.S. law and not the law of the foreign court that rendered the judgment that is the subject of the enforcement action.

PRACTICE NOTE:  The Second Circuit expressly distinguished its holding from the federal court’s subject matter jurisdiction over enforcement actions brought under the court’s “federal question” jurisdiction, 28 U.S.C. § 1331.  For enforcement suits based on “federal question” jurisdiction, the federal court must have a jurisdictional basis independent of the fact that the judgment was rendered by another federal court.

The offshore jurisdiction of states in the southeastern U.S. could triple in the relatively near future. Two Louisiana Congressmen, U.S. Sen. David Vitter and U.S. Rep. Bill Cassidy, recently introduced companion bills styled as the Offshore Fairness Act (OFA), which would extend the offshore jurisdictions of Louisiana, Mississippi, Alabama, Florida (partially), Georgia, South Carolina, North Carolina and Virginia to three marine leagues (nine nautical miles) from their respective coastlines. That amounts to an expansion of approximately six nautical miles from their current jurisdictional limits of approximately one marine league or three nautical miles.

At present, two states in the Union – Texas and Florida (in part) – already have offshore jurisdictions extending 3 marine leagues from their coastlines. The Supreme Court of the United States has held that, upon Texas’s admission into the Union in 1845, Congress affirmed Texas’s boundary of three marine leagues, as established by Texas’s First Congress in 1836, through the Annexation Resolution of 1845. U.S. v. States of La., Tex., Miss., Ala. & Fla., 363 U.S. 1, 80 S. Ct. 961, 4 L. Ed. 2d 1025 (1960), supplemented sub nom., U.S. v. Louisiana, 382 U.S. 288, 86 S. Ct. 419, 15 L. Ed. 2d 331 (1965). The Supreme Court similarly has held that Congress’s approval of Florida’s Constitution in 1868, which was done as part of the implementation of the Reconstruction Act of 1867, affirmed the three league boundary along Florida’s Gulf Coast as set forth in that Constitution. Id. However, Florida’s boundary on its Atlantic/eastern boundary was not defined as extending three marine leagues from its coastline in its Constitution, so its offshore jurisdiction extends only three nautical miles off of that coast.

The major hurdle the OFA will face certainly will be its impact on rights to the massive amount of revenue, actual and potential, generated from resources derived from the submerged lands between the existing and potential boundaries. In its current form, the OFA expressly excludes the Outer Continental Shelf Lands Act (43 U.S.C. § 1443, et seq.) and the Gulf of Mexico Energy Security Act of 2006 (43 U.S.C. § 1331 note; Public Law 109-432) from its reach, and it would not impact federal oil and gas leases in affected areas on the date of the transfer of jurisdiction from the federal government to the states. However, the proposed bill expressly provides that it “shall not apply to any interest in the expanded submerged land that is granted by the State after the date on which the land is conveyed to the State” by the federal government. It also provides that the states in question may exercise all sovereign powers of taxation over interests in the expanded submerged lands acquired or created after the date the lands are transferred to the states.  Whether the states or the federal government should receive the tax revenues generated by such future interests certainly will be a point of contention.

In its present form, the OFA also would grant the subject states exclusive management over the red snapper fish, the lutjuanus campechanus, within 200 miles from their coastlines consistent with the U.S.’s exclusive economic zone. At present, the National Oceanic and Atmospheric Administration (NOAA) is responsible for conducting scientifically based fishery stock assessments for the red snapper fish. However, NOAA’s assessments have recently come under increased criticism from states and special interest groups.  If passed, the states would remain in charge of red snapper management until each state’s governor certifies to the Secretary of Commerce, in writing, that NOAA’s stock assessments are accurate and based on sound science.

UPDATE: New Orleans CityBusiness has reported that on Monday, April 22, Texas and Louisiana sued to block federal fishery officials from regulating the length of the red snapper recreational fishing season in federal waters off their coasts.

Other resources:
http://www.boem.gov/Oil-and-Gas-Energy-Program/Leasing/Outer-Continental-Shelf/Index.aspx
http://www.gpo.gov/fdsys/pkg/BILLS-113hr1430ih/pdf/BILLS-113hr1430ih.pdf (House bill)
http://www.gpo.gov/fdsys/pkg/BILLS-113s681is/pdf/BILLS-113s681is.pdf (Senate bill)