Baldwin Haspel Burke & Mayer LLC

Maritime Update: Maritime Contract Determination


In the case of Larry Doiron, Inc. v. Specialty Rental Tools & Supply decided by the Fifth Circuit Court of Appeals on February 23, once again, the court was required to determine whether a contract was a maritime one. If so, the indemnity provisions would be enforceable. If not, based on the fact that Louisiana law would apply to the offshore structure under OCSLA, the indemnity would fall under LRS 9:2780, known as the Louisiana Oilfield Indemnity Act. This was an appeal from the District Court determination that the contract was maritime.

The focus in this case was on a contract to perform “flow-back services” to improve the performance of an offshore natural-gas well. After an initial effort to do the work on the platform, it was decided that performance of the work would require use of a crane barge. The governing Master Services Agreement contained an indemnification provision that required one party to defend and indemnify the other against all claims for property damage or bodily injury. The question of whether Louisiana state law or maritime law applied to the contract was critical because the Louisiana Oilfield Indemnity Act voided indemnity clauses in “agreements pertaining to wells for oil, gas, or water” as violations of public policy (LRS 9:2780). However, maritime law “does not bar enforcement of [those] provisions.” This was per the Fifth Circuit’s pronouncement in Hoda v. Rowan Cos., 419 F.3d 379, 380 (5th Cir. 2005).

Since the Court was unable to find any “historical treatment of contracts” involving such “flow-back operations,” the panel noted it must apply the multi-factor test for analyzing whether a contract was maritime or not as per the decision of Davis & Sons, Inc. v. Gulf Oil Corp., 919 F.2d 313 (5th Cir. 1990). This six factor “Davis & Sons test” was applied and the Court concluded that four of the six factors weighed in favor of finding the underlying contract was maritime.

But, what is intriguing about this case was the special concurrence written by Judge Gene Davis. He used his portion of the opinion to separately urge the Court to re-hear the case by the entire Fifth Circuit court and have an en banc determination. Judge Davis wants to simplify the test for determining whether a contract is a maritime contract. In calling for an en banc re-hearing, he noted: “It is time to abandon the Davis & Sons test for determining whether or not a contract is a maritime contract. The test relies more on tort principles than contract principles to decide a contract case. It is too flexible to allow parties or their attorneys to predict whether a court will decide if a contract is maritime or non-maritime or for judges to decide the cases consistently.”

Judge Davis referred to a 2004 U.S. Supreme Court case (Norfolk Southern Railway Co. v. Kirby), which provided important guidance to assist in determining whether a contract is a maritime contract:

“To ascertain whether a contract is a maritime one, we cannot look to whether a ship or other vessel was involved in the dispute, as we would in a putative maritime tort case…Nor can we simply look to the place of the contract’s formation or performance. Instead, the answer ‘depends upon…the nature and character of the contract,’ and the true criterion is whether it has ‘reference to maritime service or maritime transactions.’”

Judge Davis noted the six-prong test in Davis & Sons to determine whether the contract is a maritime contract included two prongs that were appropriate in a contract case, while the remaining factors were more appropriate in analyzing whether maritime tort jurisdiction could be exercised. He therefore criticized such analysis for a contract issue.

Looking to the facts of the instant case to see what was the nature and character of the contract, he noted the work involved a blanket contract with a verbal work order. Here, the work the company was engaged to do on the well was clear: they were engaged to work downhole from a stationary platform to dislodge obstructions and get the gas well back on production. The contract did not call for any work on, or that required, a vessel. As it turned out, however, an unexpected problem developed that required a vessel equipped with a crane to complete the job.

Since the verbal work order called for the downhole work to be performed from a stationary platform to clear an obstruction in a gas well and get it back on production, Judge Davis noted this work had no maritime or “salty” flavor that would qualify it as a maritime contract. The fact that a problem was encountered that required they engage a vessel with a crane to assist in the job did not alter the nature of the contract. This was even though the crew performed incidental work to assist in connecting the vessel’s crane to a load to be lifted.

While Judge Davis agreed with his fellow judges that the current Davis & Sons test required them to affirm the lower court decision that the contract was maritime, he also concluded that it was time to abandon that test. He called upon the Fifth Circuit instead to re-hear the case and then to, “follow the Supreme Court’s decision in Kirby which… would…allow all parties to the contract to more accurately allocate risks and determine their insurance needs more reliably.”

The full case is here: http://www.ca5.uscourts.gov/opinions/pub/16/16-30217-CV0.pdf

If you have any questions regarding this matter, please contact Bill Schwartz at (504) 569-2900 or wschwartz@bhbmlaw.com.


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