FEDERAL LAW REIGNS SUPREME ON THE OCS
Taylor Energy Co. LLC v. United States, 2020 U.S. App. LEXIS 28706, 2020 WL 5240652 (Fed. Cir. Sep. 3, 2020).
By: Dylan Hoke
This case comes on appeal from the Court of Federal Claims where Taylor Energy Co. LLC (“Taylor”) sued the United States.[1] Taylor was the lessee and owner of three Outer Continental Shelf leases that incorporated regulations promulgated by the Outer Continental Shelf Lands Act (OCSLA).[2] During the lifetime of the leases numerous wells were drilled, each connected to a single platform. This platform was severely damaged by Hurricane Ivan, rendering the platform inoperable on the seafloor and resulting in an oil leak. By 2008 and on approval by the Mineral Management Service (MMS)[3], Taylor sold and assigned its leases but was required to set aside part of the sale proceeds to fund all decommissioning obligations. MMS and Taylor entered into a Trust Agreement to “provide additional security for its federal obligation to plug and abandon all wells, remove portions of the platform and facilities, clear the sea floor of obstruction, and take corrective action associated” with the oil leak.[4] Importantly, the Trust Agreement incorporated OCLSA’s decommissioning regulations by requiring Taylor’s work to conform to the MMS regulations and incorporating the terms of the OCS leases which include OCSLA regulations.[5] Furthermore, the Trust Agreement contained a choice of law provision designating that the Trust Agreement shall be governed by and construed in accordance with Louisiana law.[6]
In an attempt to relieve itself of the decommissioning obligations and to recover funds, Taylor filed two notice of departure requests which were subsequently denied by the Bureau of Safety and Environmental Enforcement (BSEE). After its appeal to the Interior Board of Land Appeals (ILBA) was denied, Taylor brought this suit against the United States, in the Court of Federal Claims, asserting four claims under Louisiana law, including (1) breach of the Trust Agreement for inserting an indefinite term, (2) request for dissolution of the Trust based on impossibility of performance, (3) request for reformation or recission based on mutual error, and (4) breach of duty of good faith and fair dealing.[7] The Court of Federal claims granted the United States’ 12(b)(6) motion claiming that the requirements in the Trust Agreement were governed by federal law under the OCSLA not state law.[8] Taylor appeals here, arguing that ultimately Louisiana contract law governs and that the Trust Agreement transformed the regulatory obligations into separate contractual obligations, a breach of which, under Louisiana contract law, would dissolve the security interest and decommissioning requirements.[9]
In reviewing the lower court, the Court of Appeals for the Federal Circuit relied on the Supreme Court’s decision in Parker Drilling Management Services v. Newton,[10] which was decided two months after the dismissal. Parker clarified the phrase “applicable and not inconsistent with other federal law” found in section 1333(a)(2)(a) of the OCSLA.[11] Section 1333(a)(2)(a) of the OCSLA states that “ to the extent that they are applicable and not inconsistent with … other federal laws… the civil and criminal laws of the adjacent State are declared to be the law of the United States…”[12] The Supreme Court held that a “state law can be applicable and not inconsistent with other federal laws only if federal law does not address the relevant issue.”[13] Using this clarification, the Court Of Appeals for the Federal Circuit affirmed the federal claims court’s dismissal, asserting that all of the issues underlying Taylor’s claims, including the duration of the decommissioning obligations, the possibility of completing the tasks and the reimbursement process are addressed by the OCSLA regulations and therefore are governed by federal law, not state law. Additionally, the Trust Agreement itself repeatedly referenced the OCSLA regulations thereby “erasing any doubt that federal law governs the issues underlying the agreement.”[14]
In addition to the reliance on Parker Drilling, the Court of Appeals dismissed Taylor’s argument that the Trust Agreement transformed the regulatory obligations into contractual requirements not subject to federal law as a mischaracterization of precedent. The Noble Energy[15]cases relied on by Taylor, actually hold that “a party must comply with its contractual duties if they are mandated by federal law, even if the contract is ultimately dissolved.”[16] Therefore, the OCSLA regulations still govern.
Ultimately, because the OCSLA regulations address the relevant issues underlying Taylor’s contract claims, Louisiana law cannot be adopted as surrogate federal law, and Taylor’s suit fails to state a claim. This decision brings more recognition to the Supreme Court’s decision in Parker Drilling, and further solidifies the supremacy and exclusivity of federal law on the OCS.
[1] See Taylor Energy Co. LLC v. United States, 2020 U.S. App. LEXIS 28706 (Fed. Cir. Sep. 3, 2020).
[2] Outer Continental Shelf Lands Act, 43 U.S.C. §§ 1331 to 1356 (2018).
[3] The MMS was the precursor agency to the BSEE and BOEM.
[4] Taylor Energy, 2020 U.S. App. LEXIS 28706 at *9.
[5] Id.
[6] Id. at *10.
[7] Id at *16-17.
[8] Id. at *2.
[9] Id. at *3-4.
[10] Parker Drilling Mgmt. Servs. v. Newton, 139 S. Ct. 1881 (2019).
[11] Id. at 1888.
[12] 43 U.S.C. § 1333(a)(2)(a).
[13] Parker Drilling, 139 S. Ct at 1887-89.
[14] Taylor Energy, 2020 U.S. App. LEXIS 28706 at *26.
[15] See Noble Energy Inc. v. Salazar (“Noble I”), 671 F.3d 1241 (D.C. Cir. 2012); Noble Energy, Inc. v. Jewell (“Noble II”), 650 F. App’x 9 (D.C. Cir. 2016).
[16] Taylor Energy, 2020 U.S. App. LEXIS 28706 at *29-30.
