On September 27, 2017, the Fifth Circuit in U.S.A. v. Don Moss, Curtis Dantin, Grand Isle Shipyard, Incorporated, and Christopher Srubar, No. 16-30516 (5th Cir. September 27, 2017), issued a decision affirming the District Court’s dismissal of criminal charges against a number of oil field contractors resulting from a welding accident that occurred on an offshore oil platform located on the Outer Continental Shelf on November 16, 2012. The platform owner and leaseholder, Black Elk Energy Offshore Operations, LLC, in September of 2012, interrupted its oil and gas production on West Delta 32 to begin construction projects on its three-platform production facility. In pursuing these construction projects, it contracted with a number of different companies to provide workers connected with the project. On November 16, 2012, during welding operations, a fatal explosion occurred killing three men and injuring others.

Criminal indictments were issued three years later pursuant to Outer Continental Shelf Lands Act 43 USC §§ 1331, et. seq. (OCSLA) with the government contending that contractors were criminally liable because they failed to obtain proper authorization to weld, failed to conduct appropriate pre-work inspections and failed to ensure the construction area was safe for hot work as required by OCSLA safety regulations. The contractors moved for dismissal of the charges against them. The District Court Judge issued an Order dismissing the charges against the contractors based upon his analysis of each of the regulatory provisions cited in the indictments. He concluded that none of the OCSLA regulations applied to oilfield contractors. Central to this analysis, the Court pointed out that each of the three specific provisions of the OCSLA regulations underlying the charged criminal violations imposed regulations addressed to “You.” Under OCSLA regulations, “You” is a defined term:

You means a lessee, the owner or holder of operating rights, a designated operator or agent of the lessee(s), a pipeline right-of-way holder, or a State lessee granted a right-of-use and easement. 30 CFR § 250.105.

The District Court held this definition did not include contractors, subcontractors or service providers. The government timely appealed.

On appeal, the government relied on four main arguments. First, the government contended that a plain reading of OCSLA subjects any person, including contractors and their employees to criminal penalties for violating the regulations promulgated under the statute. 43 U.S.C. § 1350(c). Second, OCSLA regulations governed the appellees’ conduct because they were the “person[s] actually performing the activit[ies],” and are thus “jointly and severally responsible” under the 30 CFR § 250.146(e). Third, the Courts had upheld both civil and criminal penalties imposed under similar statutory and regulatory schemes. Fourth, OCSLA regulations supported civil and criminal penalties for any person “responsible for a violation” of the regulations. 30 CFR § 250.1402.

Under 43 U.S.C. § 1350(c), the government argued that the contractors were criminally liable as that provision stated that any person who knowingly or willfully violated a regulation that was designed to protect health, safety or the environment may be subject to criminal penalties under OCSLA. The government argued that under OCSLA’s definition of a “person” the contractors clearly fell within its ambit. In response, the contractors asserted that OCSLA precluded the government from criminally prosecuting them as they were not holders of OCSLA leases or permits. In citing 43 USC § 1348(b), the contractors argued that OCSLA identified those people who were required to comply with OCSLA regulations by stating “it shall be the duty of any holder of a lease or permit under this subchapter” to comply with regulations governing workplace safety and health for their own employees and those of any “contractor or subcontractor.” They argued that because Section 1348(b) specifically imposed the duty on lessees and permittees, and equally specifically referenced, but did not impose its regulatory duties on contractors and subcontractors, they were textually excluded from those duties. Ergo, if they were not parties given a duty to comply, criminal penalties should not be imposed.

The panel of the Fifth Circuit thought that the contractors’ arguments were well-stated, even more so given the government’s failure ever before to seek criminal penalties against a contractor in the 60 plus year history of the OCSLA. It was noted that the government’s past inactions spoke volumes about the scope of its regulatory authority. The court, however, stated that to resolve the appeal it did not need to decide whether OCSLA and its criminal liability provision could extend to contractors. Assuming arguendo that the provisions of OCSLA could apply to these contractors, it proceeded to determine whether the specific regulations would support the criminal indictments.

In addressing the specific regulations alleged to have been violated by the contractors, the Court indicated that the government ran up against the regulatory definition of “You.” It found that all of the welding regulations that formed the basis of the criminal indictment only referenced “You.” The government sought to circumvent the plain language of the definition of “You” by citing language in 30 CFR § 250.146(e) pertaining to joint and several responsibility for compliance with OCSLA regulations. The Fifth Circuit, however, indicated that “joint and several responsibility” was a term of art reserved for civil, rather than criminal liability, and noted that the government failed to cite any cases that demonstrated support for joint and several criminal liability.

The court further noted that the drafting history of the definition of “You” and the prior public statements of the regulating agencies responsible for OCSLA confirmed that the specific regulations did not apply to contractors. In addressing whether the regulations that were specifically directed at lessees could also extend penalties to contractors, the Court noted that the virtual non-existing past enforcement of OCSLA regulations against contractors confirmed that the regulations were never intended to apply to them, noting also that the government had not issued civil indictments for non-compliance against contractors prior to 2011.

In addressing the government’s more generalized argument that regulations may result in criminal liability for anyone who fails to comply with them, the Court indicated that the argument ignored the rule that a general provision of a comprehensive regulatory scheme must yield to more specific, conflicting provisions. It stated that “the appellees were indicted under three provisions of 30 CRF § 250.113, all of which are directed at “You,” not at just any person, and Section 250.146(c), which was previously addressed, does not impose criminal liability beyond the definition of “You.”  It stated that because the applicable regulatory definitions unambiguously excluded contractors, more general liability provisions did not control.

Finally, the Court addressed the government’s position with regard to its prior non-enforcement of regulations against contractors where the government indicated that subcontractors always had fair notice of their potential exposure to civil penalties and criminal liability as an interpretation of its regulatory directives. The Court chose not to apply the Auer v. Robins deference standard as it appeared that the government’s interpretation conflicted with its earlier and consistently held view. It felt that there had not been fair notice to contractors of this potential liability and because this involved a criminal liability, as opposed to civil exposure, the enforcement of the governmental agency’s interpretation of its regulations in this instance, would be a violation of the contractors’ due process rights.

Whether this last part of the Fifth Circuit’s decision leaves open the possibility of subsequent acceptance of the governmental agencies’ interpretation of these existing regulations as applying to contractors, in light of its previous statements, appears to be speculative.

James Baker Jr. v. Director, OWCP; Gulf Island Marine Fabricators, LLCJames Baker, Jr. v. Director, OWCP; Gulf Island Marine Fabricators, LLC, U.S. Fifth Circuit No. 15-60634 (August 19, 2016). In this case the Court of Appeals affirmed the Administrative Law Judge’s (ALJ) determination that Mr. Baker, an employee of Gulf Island Marine Fabricators, LLC (Gulf Island) did not qualify for benefits under the Longshore & Harbor Workers Compensation Act (LHWCA), 33 U.S.C. § 901 et seq., either directly or by application of the Outer Continental Shelf Lands Act (OCSLA), 43 U.S.C. § 1331 et seq.

Mr. Baker filed a claim with the U.S. Department of Labor alleging an injury in the course and scope of his employment with Gulf Island for which he sought benefits under the LHWCA. Gulf Island was in the business of constructing and repairing vessels, and specialized in maritime oil and gas structures. One of Gulf Island’s projects was to fabricate the topside living quarters for the tension-legged platform, Big Foot. Mr. Baker had been hired by Gulf Island to work as a carpenter in the fabrication of the living quarters. His entire employment was spent on this project. His work was within 100 yards of the Houma Navigation Canal to which the employer’s property abutted, but he always worked on dry land. Mr. Baker never went offshore to participate in work duties on the Outer Continental Shelf. The parties had stipulated that the “situs” prong of the jurisdictional test under the LHWCA was met as Mr. Baker performed his duties in an area adjacent to navigable water, but the employer disputed whether under the “status” prong of the jurisdictional test Mr. Baker was involved in maritime employment.

In applying the recent decisions of the U.S. Supreme Court in Stewart v. Dutra Construction Company, 543 U.S. 481 (2005) and Lozman v. City of Riviera Beach, Fla., 133 S.Ct. 735 (2013), the ALJ determined that the tension-legged platform, Big Foot, was not a “vessel” in the context of the LHWCA as that term has been defined by decisional law, and Mr. Baker was therefore not involved in maritime employment.

Mr. Baker also sought coverage under the Act by application of the OCSLA, asserting that the Supreme Court’s decision in Pacific Operators Offshore, LLP v. Valladolid, 132 S.Ct. 680 (2012), extended OCSLA coverage to one who was injured on land. As noted by the ALJ, the Supreme Court decision applying OCSLA extra-territorially required the injured employee to establish a significant causal link between the injury that he suffered and his employer’s onsite OCS operations conducted for the purpose of extracting natural resources from the OCS. In this instance, the ALJ found that Mr. Baker never set foot on the OCS and his employer had no role in transporting the Big Foot to the OCS, installing it there or operating it, ergo OCSLA did not provide him with an avenue to LHWCA coverage.

The ALJ’s decision was affirmed by the Benefit Review Board and Mr. Baker appealed to the U.S. Fifth Circuit Court of Appeals. The Fifth Circuit’s decision likewise analyzed the Dutra and Lozman decisions of the Supreme Court and concluded that the Big Foot was not a “vessel” under the LHWCA. It felt that this comported with its cited precedent denying vessel status to structures that were not designed or engaged in maritime transportation noting that mere flotation on water does not constitute a structure a vessel.

The Fifth Circuit also addressed the Pacific Operators holding indicating that Mr. Baker’s injury occurred on dry land while he was building the living and dining quarters for the Big Foot, and therefore, he did not satisfy the fact-specific test enunciated by the Supreme Court. The Court reasoned that Mr. Baker’s job of constructing living and dining quarters was too attenuated from Big Foot’s future purpose of extracting natural resources from the OCS for the OCSLA to cover his injury. Mr. Baker’s employment was located solely on land, whereas the employee in Valladolid spent 98% of his time on an offshore drilling platform. Furthermore, Mr. Baker’s particular job did not require him to travel to the OCS at all, making his work geographically distant from the OCS. Likewise, his employer had no role in moving the Big Foot to and installing it on the OCS. Based upon these specific facts of Mr. Baker’s employment, the Fifth Circuit concluded that the ALJ appropriately denied Mr. Baker’s claim.

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.

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.