Choice of Law under OCSLA Cannot be Waived Offshore Operations Move Another Step out of Admiralty

Choice of Law under OCSLA Cannot be Waived

Offshore Operations Move Another Step out of Admiralty

By: Bryan O'Neill

Petrobras America, Incorporated, et al. v. Vicinay Cadenas, S.A., No. 14-20589, 2016 U.S. App. LEXIS 4277, U.S. Fifth Circuit Court of Appeals (March 7, 2016)Petrobras and its underwriters sued Vicinay Cadenas, S.A. to recover $400 million in damages when the tether chain securing the piping system to the Floating Production Storage and Offloading facility (FPSO) ruptured causing the pipeline riser and other equipment to fall to the sea floor.  The chains failed due to welded over cracks. The suit was to recover damages for the lost equipment, loss of use of the FPSO and deferred production.Federal jurisdiction was predicated on admiralty or alternatively OCSLA jurisdiction. Vicinay moved for summary judgment to dismiss the claim for the lost equipment under East River Steamship Corp. v. Transamerica Delaval, Inc., 476 U.S. 858 (1986) which precludes recovery in tort to the product itself in maritime law. Finding that substantive maritime law applied, the trial court granted the motion.  After both parties sought an interlocutory appeal, the underwriters filed a motion to amend to plead Louisiana law as the applicable substantive law under OCSLA. It was denied as untimely.The first issued addressed was whether the underwriters waived the choice of law by raising it after summary judgment was granted. Reviewing the statute and its jurisprudence, the court concluded that OCSLA choice of law may not be waived stating: “the parties may not avoid, whether voluntarily or inadvertently, the statutory choice.”Next, the court addressed what substantive law applied and utilized the test enunciated in Union Tex. Peteroleum Corp. v. PLT Eng’g, Inc., 895 F.2d 1043(5^th Cir. 1990) and ultimately concluded that the incident failed the admiralty connection test first because “the incident does not have the potential to disrupt maritime commerce or navigational activities in the Gulf of Mexico.” The court discounted the involvement of the FPSO. Though it is a vessel, its purpose was to store oil at a fixed location and is unrelated to maritime activity.Further, the tort claims are not substantially related to maritime activity and are “inextricably intertwined” with the development and production of the resources of the shelf citing Texaco Exploration & Production v. AmClyde Engineered Products, Inc., 448 F.3d 760 (5^th Cir. 2006), writ denied 549 U.S. 1053 (2006).Summary judgment was reversed and the case remanded with directions to adjudicate the matter applying Louisiana law.It would appear that the court continues to take further steps to remove offshore oil and gas operations out of admiralty jurisdiction and the application of substantive maritime law, a move which began in Texaco v. AmClyde if not earlier in Demette v. Falcon Drilling Co., 280 F.2d 492 (5^th Cir. 2002), revs’d on other grounds, Grand Isle Shipyard Inc. v. Seacor Marine, LLC, 598 F.3d 778 (5^th Cir. 2009) when the court first addressed the 1978 Amendments to OCSLA and held that a jack up rig temporarily attached to the subsoil and seabed is an OCSLA facility.As Judge Clement highlighted in Barker v. Hercules Offshore, Inc., 713 F.3d 208 (2013), the Supreme Court has stated that the development and production of the resources of the Shelf are not in themselves maritime commerce. She proposed in Barker that the courts in applying the tests should look to “whether the act which gave rise to the incident in question… was in furtherance of the non-maritime activity of offshore oil exploration and drilling, or whether it was related to repair and maintenance of a jack-up drilling rig for the purpose of enabling the rig to move across water.” (713 F.3d at 218)  It would seem the court did just that in this case.