U.S. Fifth Circuit Refines Test for Maritime Contract Determination
The U.S. Fifth Circuit recently announced a new, simpler test for determining whether a contract is maritime.
Since 1990, the U.S. Fifth Circuit Court of Appeals has applied the multi-factor test found in Davis & Sons, Inc. v. Gulf Oil Corp., 919 F.2d 316 (5th Cir. 1990), in determining whether a contract is maritime and subject to maritime law. Among other reasons, this distinction is important in interpreting indemnity provisions found in many oil and gas contracts. Maritime law generally allows indemnity agreements, while state laws such as the Louisiana Oilfield Indemnity Act, La. R.S. 9:2780, may void indemnity agreements on public policy grounds. The traditional multi-prong test used by the Fifth Circuit in deciding whether a contract is maritime includes the following analysis: 1) What does the contract provide? 2) What did the crew actually do? 3) Was the crew assigned to a vessel in navigable waters? 4) To what extent was the crew’s work related to the mission of the vessel? 5) What was the principal work of the injured worker? 6) What was the injured worker doing when injured?
Obviously, the application of the six-point test is very fact intensive and subject to multiple interpretations. As a result, in Larry Doiron, Inc. v. Specialty Rental Tools & Supply, L.L.P., 879 F.3d 568 (5th Cir. 2018), the Fifth Circuit turned to the U.S. Supreme Court’s opinion in Norfolk S. Ry. v. James N. Kirby, Pty Ltd., 543 U.S. 14 (2004) to fashion a simpler, more straightforward method for determining whether a contract is maritime. In Kirby, the U.S. Supreme Court considered a claim for money damages to cargo damaged in a train wreck. The two applicable shipping contracts dealt with travel of the damaged cargo from Australia to Savannah, Georgia and then railroad delivery to Huntsville, Alabama. The goods were damaged during the land portion of the trip. The Court found that these were maritime contracts because the primary objective of these bills of lading was to accomplish by sea the transportation of goods from Australia to the Eastern Coast of the United States.
In Doiron, the Apache Corporation (“Apache”) had entered into a written Master Service Contract with Specialty Rental Tool and Supply (“STS”). The Master Service Contract contained an indemnity provision running in favor of Apache and its contractors. Apache issued an oral work order pursuant to the Master Service Agreement for STS to perform “flow-back” services on a gas well found in navigable waters in Louisiana. A stationary production platform was the only access to the gas well. The oral work order did not require a vessel. STS dispatched a two-man crew to perform the work and it was determined that heavy equipment was needed to complete the job and that a crane would be required to lift the equipment into place. Because the platform was not big enough to accommodate a crane, a barge equipped with a crane was contacted for by Apache with the plaintiff, Larry Doiron, Inc. (“LDI”). The LDI crew proceeded to the jobsite on the crane barge and unloaded the equipment. When the STS crew determined they needed a different piece of equipment, the LDI crane operator began removing the heavy equipment previously loaded. During this process, the LDI crane operator struck and injured one of the SDS employees.
Anticipating a claim from the injured STS employee, LDI filed a limitation of liability proceeding as owner of the crane barge. The injured crewmember filed a claim in the limitation proceeding. LDI, as Apache’s contractor, filed a third party complaint against STS seeking indemnity under the terms of the Master Service Contract. The Fifth Circuit utilized this case to announce its new rule for determining whether a contract was maritime, as follows:
1) “Is the contract one to provide services to facilitate the drilling or production of oil and gas on navigable waterways?”
2) “Does the contract provide or do the parties expect that the vessel will play a substantial role in the completion of the contract?”
According to the Fifth Circuit, if the answer to both of these questions is “yes,” then a court should find that the contract is maritime in nature. This new test places the focus on the contract and the expectation of the parties.
In applying this new two-prong test to the fact situation in this matter, the Court found the oral work order called for STS to perform downhole work on a gas well with access only from a platform. It was only after the STS crew began work and encountered an unexpected problem that a vessel and a crane to lift the equipment was needed. The Court found that the use of the vessel to lift the equipment was an insubstantial part of the job and not work that was expected to be performed. Therefore, the Fifth Circuit determined that the contract was non-maritime and controlled by Louisiana law. Because of this finding, LDI’s Third Party Complaint against STS was dismissed as being against public policy as outlined in the LOIA.
Notably, Doiron was an “en banc” decision, establishing it as an important Fifth Circuit precedent. Hopefully, the revised approach set forth in the Doiron opinion will make determining whether an oil and gas contract is maritime more predictable.
Larry Doiron, Inc. v. Specialty Rental Tools & Supply, L.L.P. (In re Larry Doiron, Inc.), 879 F.3d 568 (5th Cir. 2018).