The Fifth Circuit Court of Appeals recently decided that flow-back services on a natural gas well off the coast of Louisiana in state territorial waters fit the test as a maritime contract, thus allowing contractual indemnity to stand rather than be invalidated by Louisiana state law.
In Larry Doiron, Inc. v. Specialty Rental Tools & Supply LLP, (In re Larry Doiron, Inc.), 2017 U.S. App. LEXIS 3331 (5th Cir. La. Feb. 23, 2017), Apache had a master services contract (MSC) with Specialty Rental Tools & Supply (STS). On an oral work order, Apache hired STS to perform flow-back services on a fixed platform connected to an offshore well. The work did not go as contemplated, and STS requested the use of a crane barge. Apache hired Larry Doiron, Inc. (LDI), to supply the crane barge. The crane knocked an STS employee onto the deck of the barge.
Various suits and claims were filed. LDI was part of Apache's Group under the Apache-STS master services agreement and thus sought indemnity from STS for the STS employee's suit. The district court granted summary judgment in favor of LDI, ruling that the indemnity was enforceable. The Fifth Circuit affirmed (No. 16–30217, 5th Cir., Feb. 23, 2017).
Maritime Contract or Not?
Choice of law was the principal issue: if Louisiana law applied to determine the validity of the indemnity clause, then such law would void the indemnity based on that state's oil field anti-indemnity act. If maritime law applied, the indemnity was valid. Because the MSC had a choice-of-law clause making maritime law applicable, one would have thought this might be an easy choice. It wasn't though. The court first had to determine if the contract was a maritime contract or a contract that was subject to state law, and the court recognized there are no clean lines between maritime and nonmaritime contracts.
With obvious disdain for having to do so, the court turned to Davis & Sons v. Gulf Oil Corp., 919 F.2d 313 (5th Cir. La. 1990) for the analytical framework for the decision. Under Davis, both the MSC and the specific work order must be considered and interpreted together as to whether state or maritime law applied. The first part of the test was how the courts have historically treated similar contracts as to whether such work was maritime in nature. If there was no historical treatment, then a six-factor test is used. In Davis, the nature of the work being performed was not historically maritime in nature, but analysis of the facts made the court believe the work was inextricably intertwined with maritime activities since it required the use of a vessel and its crew.
In this case, the court had not previously considered flow-back operations, so there was no clarity to the historical treatment of similar contracts. The most analogous comparisons came from wireline contracts (nonmaritime) and casing installation contracts (maritime). The court noted that flow-back services may or may not be performed with the use of a vessel and have little to do with traditional maritime activity or commerce.
The Davis Test
The court then moved on to the six-factor Davis test, noting no single factor was dispositive.
1) [W]hat does the specific work order in effect at the time of injury provide? 2) [W]hat work did the crew assigned under the work order actually do? 3) [W]as the crew assigned to work aboard a vessel in navigable waters[?] 4) [T]o what extent did the work being done relate to the mission of that vessel? 5) [W]hat was the principal work of the injured worker? and 6) [W]hat's the injured worker actually doing at the time of injury?
The court then went through a fact-specific inquiry and determined that only the third and fifth factors militated against applying maritime law. Next, the court examined case law on the use of the Davis factors and gleaned that "the gravamen of the inquiry is not whether the contract required use of a vessel but whether the execution of the contract required a vessel." (Slip opinion at p. 10, emphasis in original.) Incidental or preparatory use of a vessel is not sufficient to render a contract maritime in nature, but "when the work is 'inextricably intertwined with maritime activities,' the contract will be maritime." Id. "'[T]he Davis factors must be applied to the facts as they actually occurred' and not 'as the parties intended them' to occur." Id at 13.
After specifically noting that the holding was confined to the facts of the case, the court concluded the oral work order was the relevant contract, and it was a maritime contract. This made the indemnity valid.
Perhaps the more interesting part of this case is the special concurrence by two of the three-panel judges, with Circuit Judge W. Eugene Davis stating: "I write separately to urge the court to take this case en banc and simplify the test for determining whether a contract is a maritime contract." Id. at 16. The Davis test requires sorting through the authorities distinguishing maritime and nonmaritime contracts in the offshore exploration and production industry and the minute parsing of the facts. The concurring judges did not believe this was the soundest jurisprudential approach. They noted that there was no guidance on the weight to be given each of the six factors. They urged abandonment of the Davis test, instead substituting the following test.
So long as a contract's primary purpose is to provide services to promote or assist in oil or gas drilling or production on navigable waters aboard a vessel, it is a maritime contract. Its character as a maritime contract is not defeated simply because the contract calls for incidental or insubstantial work unrelated to the use of a vessel. Under this test, a contract or work order to provide specialized services to promote the drilling and production of an oil or gas well from a vessel should be considered a maritime contract. If such a contract also provides for work on land or platforms that is incidental to the work on vessels or insubstantial in relation to the vessel-related work, this does not defeat the character of the contract as a maritime contract. Under this test and consistent with most of our cases, specialized services to promote drilling or production of oil or gas to be performed solely from a stationary platform should not be considered a maritime contract. Id. at 22.
Only time will tell whether the case receives en banc review and whether the current cumbersome test will be revised. In the author's view, the betting odds might well favor the test being revised to something that is easier to apply and allows for greater predictability, whether that occurs in connection with this case or one to come.
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