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U.S. Fifth Circuit’s New Maritime Contract Analysis

August 15
2018

In states along the Gulf of Mexico, a longstanding issue for litigation revolves around the determination of whether contracts applicable to offshore oil and gas exploration should be categorized as falling under maritime law. This categorization determined whether federal law or the law of the adjoining state would apply to situations falling under that contract. In 2018, the Fifth Circuit revised (in its own words “simplified”) its analysis that had previously stood for almost 20 years in In re Larry Doiron Inc., 879 F.3d 568 (5th Cir. 2018) (en banc). Under Doiron, courts now only ask (1) “is the contract one to provide services to facilitate the drilling or production of oil and gas on navigable waters?” and (2) “does the contract provide or do the parties expect that a vessel will play a substantial role in the completion of the contract?” Doiron, 879 F.3d at 576 (revising the test announced in Davis & Sons, Inc. v. Gulf Oil Corp., 919 F.2d 313 (5th Cir. 1990)). An affirmative answer to both questions is necessary before the label “maritime” may be applied to the contract. Id. If a contract is maritime, federal law applies and adjoining state law is inapplicable. Under Doiron precedent, ‘‘[o]il and gas drilling on navigable waters aboard a vessel is recognized to be maritime commerce.’’ Id. at 575 (quoting Theriot v. Bay Drilling Corp., 783 F.2d 527, 538–39 (5th Cir. 1986)). Meanwhile, maritime law is precluded from application to events on fixed platforms, pursuant to the longstanding precedent of Rodrigue v. Aetna Cas. & Sur. Co., 395 U.S. 352, 360 (1969).

Recently, the Fifth Circuit addressed a case involving work on a decommissioned fixed platform with the decision Crescent Energy Services, L.L.C. v. Carrizo Oil & Gas, Inc., No. 16-31214 (5th Cir. July 13, 2018). Here, the lower court determined that the contract between Crescent and Carrizo with respect to decommissioning oil wells on a platform was a maritime contract. Carrizo argued that the process of decommissioning oil wells did not facilitate drilling or production of oil and gas and that the work which led to an incident subject to an underlying suit was performed on a fixed platform, not a vessel.

However, the Fifth Circuit disagreed with Carrizo. First, the court noted that any drilling permit under the state laws of Louisiana requires financial security from a drilling party, to be released only following the plugging and abandonment of the site. As state law for drilling permits implied plugging and abandonment of the site as part of the drilling process, the contract between Crescent and Carrizo was for facilitation of drilling for oil and gas.

Regarding the fixed platform argument, the Fifth Circuit noted that Doiron no longer required parties to look to where any incident occurred to determine classifications of contracts between the parties. “The facts surrounding the accident are relevant to whether the worker was injured in a maritime tort, but they are immaterial in determining whether the worker’s employer entered into a maritime contract.” Doiron, 879 F.3d at 573–74. Rather, the analysis is pointed towards the services to be performed under the contract, whether the services are to be performed on navigable water, and whether such services may require the use of a vessel. As the wells in this matter were located on water and required vessels to navigate to them, the court dismissed Carrizo’s arguments regarding the fixed platform.

Lastly, the court examined the second factor of Doiron, the requirement of the substantial need of a vessel. Doiron advised that “substantial” means that if “work is performed in part on a vessel and in part on a platform or on land, we should consider not only time spent on the vessel but also the relative importance and value of the vessel-based work to completing the contract.” Doiron, 879 F.3d at 576 n.47. Per the Fifth Circuit, Doiron did not hold that to be a maritime contract, the parties must have contemplated that a vessel will be used for a majority of the work. Following an examination of the contract between Carrizo and Crescent, the court found that the contract anticipated the constant and substantial use of multiple vessels, thus meeting the second factor of Doiron. As such, the court found the contract to be maritime in nature.

Practitioners should note that Doiron appears to simplify things with respect to determination of contracts. Location of incident is no longer a factor. Historical use appears to take a greater involvement. However, further clarification on a case-by-case basis will be necessary to continue to develop what “substantial” means with respect to vessel usage contemplated by contracts.

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