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Maritime Update: 5th Circuit Decides OCSLA Choice of Law Issue

Petrobras America, Inc. v. Vicinay Cadenas, S.A., — F.3d —- 2016 WL 876577 (5th Cir. March 7, 2016).

Petrobras contracted with Technip USA, Inc. (“Technip”), to construct five “free-standing hybrid riser” systems that move crude oil from wellheads on the seabed to “Floating Production Storage and Offloading” (“FPSO”) facilities on the surface of the sea. The FPSO facilities were independently moored to the seabed and store and offload, but did not transport, the production. The risers were fixed in place at the wellhead. From above, tether chains connected the upper risers to huge nitrogen-filled “buoyancy cans,” which are designed to keep tension in the risers so that they will not kink and impede the flow of oil. The buoyancy cans float 660 feet beneath the water’s surface. Their tether chains played no role in securing the FPSO facilities.

Technip subcontracted to Vicinay, the manufacture of these tether chains. Vicinay agreed to produce chains without welded-over cracks and defects. Vicinay, however, supplied chains that contained welded-over cracks. Shortly after installation, one of the chains broke, causing the loss of the associated riser system, loss of use of the FPSO facility, and lost oil and gas production.

Petrobras and its Underwriters sued Vicinay asserting negligence, products liability, and failure to warn claims. They alleged subject matter jurisdiction based on admiralty or, alternatively, under OCSLA. They did not assert that Louisiana law applied. Vicinay moved for summary judgment, arguing that it was entitled to prevail under general maritime law’s economic loss doctrine. The district court granted the motion.

Petrobas and Underwriters then moved to amend their complaint to allege application of Louisiana law. The magistrate judge denied the motion and the district court affirmed that decision. On appeal, the Fifth Circuit held that the choice of law prescribed by OCSLA is statutorily mandated and is consequently not waivable by the parties. The Court further held that the law of the adjacent state of Louisiana, not admiralty law, applied. Consequently, the Court reversed and remanded for application of Louisiana law.

The Fifth Circuit noted that adjacent state law must be applied if three conditions are met:

(1) The controversy must arise on a situs covered by OCSLA (i.e. the subsoil, seabed, or artificial structures permanently or temporarily attached thereto).

(2) Federal maritime law must not apply of its own force.

(3) The state law must not be inconsistent with Federal law.” The decisive question thus becomes whether maritime law “applies of its own force,” based on the twin tests of location and connection with maritime activity.

Under the connection test, the incident giving rise to the alleged tort must be analyzed by “assess[ing] the general features of the type of incident involved.” Further, the court must consider whether the general character of the activity giving rise to the plaintiff’s injury is substantially related to traditional maritime activity.

The Underwriters argued that the location test is not met, principally because the tether chain connected the floating buoyancy can to the riser, which in turn was affixed to the seabed. The Fifth Circuit described this argument as “significant,” but determined that it need not decide that prong of the test because the breaking of the tether chain failed the admiralty connection test.

Here, a component failed on an underwater structure in an offshore production installation and caused the structure to fall to the sea floor. Such an incident does not have the potential to disrupt maritime commercial or navigational activities on or in the Gulf of Mexico. Moreover, the disruption affected oil and gas production and development activities rather than navigation or traditional maritime commerce. Even the involvement of the FPSO, technically a vessel, was unrelated to the disruption of navigation or maritime commerce activity because the FPSO’s only purpose was to store and process the oil in a fixed location for later transport. Finally, the fact that the buoyancy can eventually floated to the surface and had to be recovered had no more than a de minimus potential to disrupt maritime commerce or navigation.



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