Davis and Sons v. Gulf Oil Corp.

As anticipated previously, the en banc Fifth Circuit in In re Larry Doiron, Inc., jettisoned the two-tier, six-factor test of Davis & Sons, Inc. v. Gulf Oil Corp. in favor of a new “simplified” test to determine whether “a contract for the performance of specialty services to facilitate the drilling or production of oil and gas on navigable waters is maritime,” and thereby adopted a conceptual approach. Doiron at 2.

The new tests are as follows: “Is the contract one to provide services to facilitate the drilling or production of oil and gas on navigable waters?” Doiron at 12. If so, “does the contract provide or do the parties expect that a vessel will play a substantial role in the completion of the contract”? Id. If so, then the contract is maritime in nature.

Under circumstances in which it is unclear as to the scope of the contract or the parties’ expectations as to whether vessels will be involved, the en banc Court indicated that the following factors of Davis & Sons may provide clarity: (1) the work actually performed under the contract; (2) the extent of vessel involvement in the job required by the contract at issue; and (3) the extent to which the vessel’s crewmembers (i.e., seamen) perform work under the contract at issue.

In the wake of this decision, it appears that contracts to perform well casing services from drilling vessels will remain maritime contracts. I anticipate that wireline and coiled tubing activities on a well that required the use of a vessel should now be viewed as maritime contracts. Accordingly, this decision has expanded the number of energy service contracts that will qualify as maritime in nature, and thus, the contract provisions concerning choice of law, indemnity and insurance will be determined under the general maritime law (absent a choice of law provision adopting state law).

energy service contracts work bargeIn 1990, the U.S. Fifth Circuit rendered its decision in Davis & Sons, Inc. v. Gulf Oil Corp., through which the Court attempted to harmonize the existing state of the law to determine whether a contract to supply a work barge and crew to service various wells, tanks and flowlines within the Black Bay oilfield in Louisiana’s territorial waters was maritime or not. This gave rise to the following “decision tree” in analyzing whether other energy services contracts involving vessels were maritime: (1) had the jurisprudence already determined the issue and, (2) if not, did the analysis of six factors provide the solution as to whether the contract is maritime. Legal scholars and the Fifth Circuit decried the inconsistencies in the subsequent decisions as to whether various types of contracts were maritime or not. The outcome of the analyses often decided whether the contractual indemnity and insurance terms were enforceable under the general maritime law or void under anti-indemnity statutes. Contracting parties were dismayed by the unpredictability of the result absent litigation.

All that may soon change. In Larry Doiron, Inc. v. Specialty Rental Tools & Supply, L.L.P., No. 16-30217 (5th Cir. 2017), the Fifth Circuit undertook the Davis & Sons analysis and affirmed the district court’s summary judgment that a contract to perform flow–back services to improve performance of a natural gas well, which eventually required the use of a crane barge, was a maritime contract, and thus the indemnity terms were interpreted and enforced under the general maritime law. However, Judge Davis issued a special concurring opinion, in which he urged the en banc Fifth Circuit to throw the Davis & Sons test overboard and thereafter simplify the test for when a contract is maritime or not, as follows: whether the contract’s primary purpose is to provide services aboard a vessel located on navigable waters, which services promote or assist in oil or gas drilling or production. The petition for rehearing en banc remains pending as of this writing.