OCSLA Trumps Admiralty Jurisdiction
August 2006
In May 2006, in Texaco
Exploration and Prod., Inc. v. AmClyde Engineered Prods. Co., Inc., 448
F.3d 760 (5th Cir. 2006), the Fifth Circuit Court of Appeals again addressed
the complex issues of subject matter jurisdiction and application of substantive
law in the context of an accident occurring on the Outer Continental Shelf.
by Michael
A. Orlando
Meyer Orlando,
LLC
This is the second time various issues relating to the same case have reached
the Fifth Circuit and thus this case will be referred to as Texaco II. This case relates to construction
of an oil and gas production facility in approximately 1,750 feet of water in
the Gulf of Mexico. It was named the "Petronius Project." The project required
assembly offshore of various modules with the use of a large crane mounted on
a derrick barge. The accident occurred when the main load line on the derrick
barge DB50's crane failed, dropping a deck module into the sea.
This accident spawned a multitude of claims, some of which were insured losses
and others were not. While the Texaco II opinion
addresses two cases that were consolidated for trial and appeal, this discussion
relates only to Texaco's claims filed against various parties for products liability
and negligence relating to failure of the main load line on the crane of the
derrick barge.
Texaco invoked federal question jurisdiction under the Outer Continental
Shelf Lands Act (OCSLA), 43 USC § 1331, and alternatively claimed admiralty
jurisdiction. Texaco also asserted that the case was governed by substantive
general admiralty law. The case has an incredibly complex procedural history
which will only be noted when it is important to this discussion.
In the trial court, the judge granted a defense motion to strike Texaco's
jury demand, noting that admiralty law applied and that OCSLA jurisdiction did
not apply, thus extinguishing a right to jury trial. The case was tried to the
bench for 24 days. Through a convoluted set of rulings, the district court ultimately
entered judgment in favor of defendants from which Texaco appealed.
OCSLA versus Admiralty Subject Matter Jurisdiction
On appeal, Texaco argued that jurisdiction was grounded on OCSLA in addition
to admiralty jurisdiction and that, as a result of overlapping of the two jurisdictional
bases, substantive maritime law should apply but with a right to trial by jury,
which was denied by the trial court. Conversely, AmClyde argued that the trial
court correctly applied admiralty jurisdiction and substantive admiralty law
to the exclusion of OCSLA.
The first important question addressed by the Fifth Circuit in Texaco II was:
- We must resolve whether two bases for jurisdiction overlap or whether
OCSLA alone grants subject matter jurisdiction.
448 F.3d at 770.
The court of appeals then noted that admiralty jurisdiction is determined
by a two-part test of (i) location and (ii) connection with maritime activity.
The appellate court quickly resolved the location issue by noting that the products
liability and negligence torts alleged by Texaco occurred on navigable water
and thus the first part of the admiralty jurisdiction test was met. The second
part of the test concerning connection with maritime activity was itself a two-part
query: (i) whether the type of incident involved has the potential to disrupt
maritime commerce; and (ii) whether the general character of the activity giving
rise to the incident shows a substantial relationship to traditional maritime
activity.
In an earlier part of the opinion, the court of appeals had already established
that the construction of the Petronius Project was inextricably connected with
the development of oil and gas on the Outer Continental Shelf. Without any logical
explanation, and without stating in so many words, the court seems to conclude
that connection to a traditional maritime activity is mutually exclusive with
development of resources on the Outer Continental Shelf pursuant to OCSLA.
The court then attempts to distinguish the U.S. Supreme Court case Jerome B. Grubart, Inc. v. Great Lakes Dredge and Dock
Co., 513 U.S. 527 (1995), in which a tunnel under a navigable waterway
was damaged from a vessel that was driving pilings. In the author's opinion,
it is an understatement to say that the Fifth Circuit does an inadequate job
of distinguishing Grubart which had held that
the activities involved therein were maritime in nature because the work giving
rise to the suit was "repair or maintenance work on a navigable waterway performed
from a vessel." 513 U.S. at 540.
Although the court of appeals cites the proper test for whether or not admiralty
jurisdiction applies, it ignores the test by jumping to the following conclusion:
- To the extent that maritime activities surround the construction work
underlying the complaint, any connection to maritime law is eclipsed by
the construction's connection to the development of the Outer Continental
Shelf.
448 F.3d at 771.
The author questions how that can be true when the accident resulted from
the parting of a lift line on a crane on a derrick barge, thus dropping the
module to the bottom of the sea. Perhaps the court's statement would have made
more sense if this had been a crane that was aboard a fixed platform, but it
was not—it was a crane aboard a vessel doing exactly what the vessel had as
its purpose, that of marine construction projects. To say that the construction
project involved a fixed platform on the Outer Continental Shelf is to ignore
the admiralty jurisdiction test itself.
The court's conclusion that jurisdiction rests entirely on OCSLA is even
more baffling in light of the fact that there was no issue at all that the accident
was caused by failure of the crane on the derrick barge while the derrick barge
was performing its function on navigable waters. Because the Fifth Circuit's
analysis was fatally flawed in its failure to consider the admiralty jurisdiction
factors in any meaningful way, this Texaco II opinion stands to cause substantial harm to admiralty jurisprudence.
Application of Substantive Admiralty Law
The next major issue taken up by the court of appeals was a determination
of the applicable substantive law. Although for different reasons, both parties
claimed that maritime law applied. In fact, the principal offshore construction
contract had a choice-of-law provision making maritime law applicable. The trial
court applied substantive admiralty law. Interestingly, the court of appeals
disagreed with the trial court and with both sides' positions, ruling that OCSLA
does not permit the application of substantive maritime law to Texaco's action.
The court noted that its caselaw had not yet squarely resolved whether maritime
law applies of its own force to a products liability tort occurring during and
as a result of the construction of a fixed structure on the Outer Continental
Shelf.
However, the court noted that OCSLA has its own choice-of-law provision which
was Congressionally mandated and therefore not subject to exception by the parties'
agreement. OCSLA's choice-of-law provision requires that the substantive law
of the adjacent state is to apply, except in certain limited circumstances.
The court's analysis begins with a U.S. Supreme Court case that concerned
an accident occurring on a fixed platform on the Outer Continental Shelf, as
opposed to an accident occurring on a vessel. The court then cites to Recar v. CNG Producing Co., 853 F.2d 367 (5th
Cir. 1988), for the proposition that application of OCSLA is extended to:
- harm arising directly from the repair and maintenance of fixed platforms
on the Shelf, even when the harm occurs as the result of a rope failure
related to platform maintenance.
448 F.3d at 773.
In the author's opinion, the Texaco II court
unfairly extends the holdings of the cases in which the accidents occurred aboard
the fixed structures (or from things aboard fixed structures), as distinguished
from the facts in Texaco II in which the accident
actually occurred on the vessel itself. It is quite surprising that the court
would make such a critical mistake in reasoning. The court then makes the leap
in logic to the conclusion:
- that the contract contemplated in part the use of instruments of admiralty,
therefore, is not sufficient to oust OCSLA-adopted state law in this case.
448 F.3d at 774.
Here, there was more than the mere "use" of an "admiralty instrument," as
vessel negligence and vessel machinery products liability were the sole claims.
Quite correctly, the court notes the three conditions in the OCSLA choice
of law provision concerning application of the adjacent state law as surrogate
federal law:
- The controversy must arise on a situs covered by OCSLA.
- Federal maritime law must not apply of its own force.
- State law must not be inconsistent with federal law.
It was easy for the court to find that the first condition was met. However,
without sufficient explanation or analysis, the court simply concludes "because
the claims are inextricably linked to the construction of a platform permanently
fixed to the Shelf for purposes of development and would not have arisen but
for such development," that maritime law would not apply of its own force. That
conclusion is quite clearly a mistake, I believe, based on the fact that the Texaco II claims arose by virtue of the failure
of an appurtenance on the vessel, while the vessel was being used for its principal
purpose, and while the activity occurred on navigable water. Undoubtedly, the
court's conclusion would make a lot more logical sense if the incident related
to the failure of a crane that was aboard the fixed platform.
As if it made some difference, the court emphasized that the damages were
caused by a defectively designed or maintained "portion"
of the crane and concludes without sufficient explanation or analysis that such
is "not the stuff of traditional maritime activity on the high seas." 448 F.3d
at 774. It is difficult to conceive how the court got this so wrong. Make no
mistake, the court's conclusion is that:
- the DB50's involvement in the accident and other elements of maritime
activity that precede or surround the compliant tower's construction on
the Shelf are insufficient to support either admiralty jurisdiction or the
application of such the maritime law. Texaco's claims are governed by OCSLA
and not by maritime law.
448 F.3d at 775.
Conclusion
A logical thinker must question what facts the Texaco
II court was considering when it concluded:
- here is not a suit arising from "a function traditionally performed
by water borne vessels" (cite omitted), but rather a claim arising from
traditionally non-maritime products liability and negligence in the maintenance
or inspection of specific parts related to construction of a fixed, compliant
tower on the Outer Continental Shelf.
48 F.3d at 775.
What failed was the main load line on the main crane on a marine construction
derrick barge, which was fulfilling the exact function for which the vessel
was in service on navigable waters. All of the negligence and products liability
actions were based on facts concerning a vessel, yet the court does not mention
that when discussing the claim in its conclusion above. It seems the court put
on blinders and viewed a set of facts leading the justices to believe the multimillion
dollar module fell overboard as if it had been dropped from the platform as
opposed to from the vessel.
Because the court concluded that substantive maritime law did not apply,
it was reversible error for the trial court to have conducted a 24-day nonjury
trial when a jury had been demanded by Texaco. What a tremendous waste of judicial
and party resources when the parties all believed maritime law applied, the
principal contract provided that maritime applied, and the trial judge concluded
maritime law applied. Perhaps there should be a separate—and hopefully a speedy—process
whereby the parties could determine subject matter jurisdiction and applicable
law before beginning lengthy trials over huge amounts of money. Unfortunately,
such a system does not exist at present, but it should.
The result of the Texaco II case is that the
parties and the trial court must do it all again, and it is a certainty that
this is a horrible waste of resources. Bad law has been created by the court's
steadfast refusal to consider that every one of the claims related to, concerned,
and arose out of the operation of a vessel performing its function on navigable
waters. I believe the court should have found admiralty subject matter jurisdiction
and applied substantive admiralty law.
Opinions expressed in Expert Commentary articles are those of the author and are
not necessarily held by the author's employer or IRMI. Expert Commentary articles
and other IRMI Online content do not purport to provide legal, accounting, or other
professional advice or opinion. If such advice is needed, consult with your attorney,
accountant, or other qualified adviser.