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Maritime Update: Intentional or Gross Fault Under Louisiana Law Can Nullify Releases or Waivers in Offshore Contracts (Under OCSLA)

Bill Schwartz - 

On June 18, in the case of Petrobras America Inc. v Vicinay Cadenas, S.A., the Fifth Circuit reversed the summary judgment determination of the lower court and remanded this case back to the District Court for consideration of the contract claims under Louisiana law.

By way of background, this case is about a defect in a chain which serves as a critical component to an offshore oil production system. The plaintiff, Petrobras, is an oil and gas production company. Petrobras entered into an Engineering, Procurement, Construction and Installation Contract (“EPCI Contract”) with Technip USA, Inc. (“Technip”) for Technip to construct a free-standing hybrid riser system (“FSHR” or “riser system”) that would move crude oil from wellheads on the ocean’s floor to a floating production storage and offloading facility at the ocean’s surface.

The defendant, Vicinay, is a manufacturer of marine chains for use in oil and gas production activities. Technip contracted with Vicinay for Vicinay to engineer and manufacture five tether chains that would connect the riser system to buoyancy cans. The buoyancy cans are meant to keep the riser system from kinking over, thereby ensuring the unobstructed flow of crude oil from the ocean’s floor to the facility above.

The EPCI Contract between Petrobras and Technip contained two provisions relevant to this case – a release provision and a waiver provision. The release provided that Petrobras would release “all [c]laims” against Technip and its subcontractors. The EPCI waiver provides that each party waives any claim for its own loss against the other party.

After Technip’s construction, Petrobras discovered that one of the buoyancy cans had broken free from its connection to the riser system, and a portion of the riser system and a tether chain had fallen to the ocean’s floor. Petrobras alleges that a link in one of the tether chains failed, because Vicinay made an unauthorized and defective repair weld to one of the links in the chain.

Earlier in this case, a previous panel of the Fifth Circuit determined “that the choice of law prescribed by OCSLA is statutorily mandated,” and “that the  applicable law is that of the adjacent state of Louisiana.”

After the case was returned to the District Court, Vicinay moved for summary judgment asserting an affirmative defense of release based on the EPCI Contract. Petrobras countered that the releases in the contract were unenforceable under Louisiana law. Specifically, they relied upon Louisiana Civil Code Article 2004, which provides that “[a]ny clause is null that, in advance, excludes or limits the liability of one party for intentional or gross fault that causes damage to the other party.”

The District Court concluded the release and waiver provisions applied to and were enforceable against Petrobras’ remaining claims. It determined the release and waiver provisions were void only to the extent that the provisions released Vicinay of reckless conduct – not null in their entirety. Because neither the Louisiana Products Liability Act (LPLA) nor redhibition under Louisiana law included an element of recklessness or intent, the District Court concluded Article 2004 did not invalidate the release and waiver.

In reversing and remanding the case back to the District Court, the Fifth Circuit held the LPLA covered such conduct and Article 2004 could be invoked by Petrobras.

The Fifth Circuit court walked step-by-step through this situation – plaintiff’s claim, followed by defendant’s defense, followed by plaintiff’s exception to the defense – to explain how Petrobras’ claims, Vicinay’s defense, and Article 2004 worked together.

Petrobras was found to bear the burden of proving the redhibitory claim or a violation of the LPLA, focusing on just the elements of that statute. If Petrobras proved a redhibitory claim or a violation of the LPLA, Vicinay could then come in and prove its contractual defenses under the ECPI. If nothing else happens, then Vicinay would prevail based upon its affirmative defense. But, if Petrobras could produce evidence in response to the affirmative defense, proving that Vicinay acted with intentional or gross fault in its violation of the LPLA or redhibition, Petrobras would overcome Vicinay’s affirmative defenses under the contract. Then, if Petrobras could prove a redhibitory claim or a violation of the LPLA’s terms, Petrobras would prevail.

Thus, the Fifth Circuit reversed the District Court’s conclusion that Article 2004 cannot be used to invalidate the EPCI Contract’s release and waiver as applied to Petrobras’ LPLA and redhibition claims. And, in remanding the case back to the trial court, they held the District Court could not assume Vicinay could not be liable under the LPLA if it acted with intentional or gross fault. Instead, the District Court was instructed to look to the elements of the LPLA or redhibition to determine whether Article 2004 applied.

Click here to view the entire case.

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


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