En Banc Fifth Circuit Attempts to Simplify Test for a Maritime Contract In Oil and Gas Operations

In re Larry Doiron, 2018 U.S. App. LEXIS 456 (5th Cir. Jan. 9, 2018).

The jurisprudence of the Fifth Circuit to determine whether a contract for oil and gas operations on navigable waters is a maritime contract is not only complex but also often confusing, contradictory and as difficult to maneuver through as a slalom course on an Alpine ski run.   The six factor test of Davis & Sons, Inc. v. Gulf Oil Corp., 919 F.2d 313 (5th Cir. 1990), has led to anomalies that left attorneys scratching their heads trying to determine whether the particular contract in any case is maritime and thus what law applies. A contract for wireline services on a well head from a barge in coastal waters was held not to be a maritime contract (Domingue v. Ocean Drilling & Expl. Co., 923 F.2d 393 (5th Cir. 1991); Thurmond v. Delta Well Surveyors, 836 F.2d 952 (5th Cir. 1988)). Yet, a contract for casing operations in a similar location was held to be a maritime contract. (Demette v. Falcon Drilling Co., 280 F.3d 492 (5th Cir. 2002), overruled on other grounds by Grand Isle Shipyard, Inc. v. Seacor Marine, LLC, 589 F.3d 778 (5th Cir. 2009) (en banc); Campbell v. Sonat Offshore Drilling, Inc., 979 F.2d 1115 (5th Cir. 1992; Corbitt v. Diamond M. Drilling Co., 654 F.2d 329 (5th Cir. Unit A Aug. 1981) ) The issue is important for counsel to determine  if an indemnity clause in the contract is enforceable or not. If the contract is maritime and the indemnity agreement satisfies the requisites of maritime law, then it is enforceable. On the other hand, if it is not and Louisiana law applies, then the Louisiana Oilfield Indemnity Act (LSA-R.S. 9:2780) voids the agreement in personal injury and death actions.

The initial panel on February 27, 2017 in an opinion by Judge Southwick applied the six factor test of Davis & Sons and held that the contract was not maritime in nature. In a concurring opinion joined by Judge Davis (in which Judge Southwick also joined) urged the court to hear the matter en banc and to abandon the rules established by Davis & Sons as these were based on tort, not contract principles.

On January 9, 2018, the court released its unanimous (and surprisingly short) en banc opinion with none other than Judge Davis as the author. Finding guidance from the U.S. Supreme Court in Norfolk Ry. v. Kirby (543 U.S. 14 (2004)) which disapproved of the principle of mixed contracts. The Fifth Circuit attempts to adopt a more simplified test and returns to a nearly century and a half principle  set out by the U.S. Supreme Court in Ins. Co. v. Dunham (78 U.S. 1 (1871)). In that case, the U.S. Supreme Court held that it is the nature of the contract which determines if it is a maritime contract. (The issue was whether a hull policy on a vessel was maritime contract to invoke the admiralty jurisdiction of the federal court.)

An en banc panel in Grand Isle Shipyard Inc. v. Seacor Marine, LLC (589 F.3d 778 (5th Cir. 2009, en banc, Judge Davis) previously noted that the court had applied principles of tort law to determine whether a contract of indemnity was enforceable on the Outer Continental Shelf (See: Union Texas Petroleum Corp. v. PLT Engineering, Inc., 895 F.2d 1043, 1047 (5th Cir. 1990))  The Grand Isle Shipyard  decision cast a light on the direction the Fifth Circuit was headed. As the dispute was a contract dispute, the majority of the court (Judges Garza, Elrod, Southwic and Owen dissented) adopted the focus of the contract test and abandoned application of tort principles to determine what law applied in a claim for indemnity for the underlying tort action on the OCS.

While not completely abandoning the test of Davis & Sons, the unanimous en banc court adopted a two part test to determine if a contract is maritime or not: “ First, is the contract one to provide services to facilitate the drilling or production of oil and gas on navigable waters?” 2018 U.S. App. LEXIS 456 at *15) “Second, if the answer to the above question is ‘yes,’ does the contract provide or do the parties expect that a vessel will play a substantial role in the completion of the contract? If so, the contract is maritime in nature.” (2018 U.S. App. LEXIS 456 at *15)

Having adopted this new “simplified” test, the court held that the use of the crane barge “was an insubstantial part of the job and not work the parties expected to be performed.” (2018 U.S. App. LEXIS 456 at *18).  The contract was not maritime and thus Louisiana law applied voiding the indemnity obligation.