Baldwin Haspel Burke & Mayer LLC

Maritime Update: What is a Maritime Contract

Bill Schwartz - 

On January 8, 2018, the en banc panel of the 5th Circuit re-defined how to determine if a contract is maritime or not. In the case of “In Re Larry Doiron,” the court decided to adopt a simpler test.

Facts:

In 2005, Apache Corporation (“Apache”) entered into a blanket master services contract (“MSC”) with Specialty Rental Tools & Supply, L.L.P. (“STS”). The MSC included an indemnity provision running in favor of Apache and its contractors. In early 2011, Apache issued an oral work order directing STS to perform “flow-back” services on a gas well in navigable waters in Louisiana in order to remove obstructions hampering the well’s flow. A stationary production platform provided the only access to the gas well. The work order did not require a vessel, and neither Apache nor STS anticipated that a vessel would be necessary to perform the job.

STS dispatched a two-man crew to perform the work required by the work order. After an unsuccessful day of work, the STS crew determined that some heavy equipment was needed to complete the job and that a crane would be required to lift the equipment into place. Because the production platform was too small to accommodate a crane, the crew suggested to Apache that it engage a barge equipped with a crane to lift the equipment. Apache agreed and contracted with Plaintiff Larry Doiron, Inc. (“LDI”), to provide a crane barge. During this process, the LDI crane operator struck and injured one of the STS crewmembers, Peter Savoie, with the equipment.

Anticipating a claim from Mr. Savoie, LDI filed a limitation of liability proceeding as owner of the crane barge, “POGO.” Savoie filed a claim in the limitation proceeding. LDI, as Apache’s contractor, then filed a third-party complaint against STS, seeking indemnity under the terms of the MSC. LDI filed a motion for summary judgment seeking a declaration that it was entitled to indemnity from STS under the MSC. STS filed a cross-motion for summary judgment seeking a determination that it owed no indemnity. The narrow issue presented was whether the MSC was a maritime contract. If so, general maritime law permitted enforcement of the indemnity provision. If not, Louisiana law controlled, and the Louisiana Oilfield Indemnity Act (“LOIA”) precluded indemnity.

The Ruling:

The district court concluded that maritime law applied and awarded LDI indemnity from STS. The original 5th Circuit panel affirmed that judgment on appeal. However, on request by Judge Gene Davis, a majority of the active judges then voted to take the case en banc to be considered by the entire 5th Circuit court in order to consider modifying the criteria set forth in Davis & Sons, Inc. v. Gulf Oil Corp. This was the case law on how to determine whether a contract for performance of specialty services to facilitate the drilling or production of oil or gas on navigable waters is maritime. After briefing and argument, the Court has decided to adopt a simpler, more straightforward test consistent with the Supreme Court’s decision in Norfolk Southern Railway Co. v. Kirby for making this determination.

In Kirby, the Supreme Court considered a claim for money damages for cargo damaged in a train wreck. Under two coextensive bills of lading, the goods were transported from Australia to Huntsville, Alabama: first by ship from Australia to Savannah, Georgia, and then by rail to Huntsville, Alabama. The question was whether the suit to recover for cargo damaged on the land leg of the trip fell within the Court’s admiralty jurisdiction. The Court answered this in the affirmative, because both bills of lading were maritime contracts. This was so, the Court reasoned, because the “primary objective” of these bills was “to accomplish the transportation of goods by sea from Australia to the eastern coast of the United States.” The Kirby court went on to state “Conceptually, so long as a bill of lading requires substantial carriage of goods by sea, its purpose is to effectuate maritime commerce – and thus it is a maritime contract. Its character as a maritime contract is not defeated simply because it also provides for some land carriage.”

Turning to the facts and contracts in the Doiron case, the 5th Circuit adopted the following two-pronged test to determine whether a contract in this context is maritime: First, is the contract one to provide services to facilitate the drilling or production of oil and gas on navigable waters? The answer to this inquiry will avoid the unnecessary question from Davis & Sons as to whether the particular service is inherently maritime. 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.

Explaining its rationale, the court noted that:

…This test places the focus on the contract and the expectations of the parties. This is the proper approach in a contract case and assists the parties in evaluating their risks, particularly their liability under indemnification clauses in the contract. This test also removes from the calculus those prongs of the Davis & Sons test that are irrelevant, such as whether the service work itself is inherently maritime and whether the injury occurred following a maritime tort. Courts need not determine whether this service work has a more or less salty flavor than other service work when neither type is inherently salty. This does not mean, however, that some of the Davis & Sons factors are never relevant. The scope of the contract may be unclear; the extent to which the parties expect vessels to be involved in the work may also be unclear. In resolving these issues, courts may permit the parties to produce evidence of the work actually performed and the extent of vessel involvement in the job. It is also conceivable, for example, that the seamen status of a crew—which is implicated in two of the Davis & Sons factors—could be relevant to whether the vessel involvement was a substantial part of the overall contract. If the contract provided only for work to be done by permanent crewmembers aboard a vessel, the substantial vessel involvement issue would ordinarily be answered. If part of the contract work involves work by crewmembers aboard a vessel and part does not, the work by seamen aboard a vessel would be part of the factual mix that the district court could consider in resolving whether the overall contract involved substantial involvement of a vessel.

Applying this new test to this case, the 5th Circuit court found that the oral work order called for STS to perform downhole work on a gas well that had access only from a platform. After the STS crew began work downhole, the crew encountered an unexpected problem that required a vessel and a crane to lift equipment needed to resolve this problem. The use of the vessel to lift the equipment was an insubstantial part of the job and not work the parties expected to be performed. Therefore, the contract was found to be non-maritime and controlled by Louisiana law. The Louisiana Oilfield Indemnity Act therefore barred any indemnity. Accordingly, the court reversed the summary judgment ruling in favor of LDI and granted summary judgment in favor of STS, dismissing LDI’s third-party complaint against STS.

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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