Indictment of Contractors Dismissed: OCSLA Regulations Do Not Apply to Contractors By: Christopher Warren

Indictment of Contractors Dismissed: OCSLA Regulations Do Not Apply to Contractors

By: Christopher Warren

United States v. Moss, No. 16-30561, 2017 U.S. App. LEXIS 18665 (5th Cir. Filed Sept. 27, 2017); 2017 WL 4273427 (5th Cir. Filed Sept. 27, 2017).BACKGROUNDIn the summer of 2010, Black Elk Energy Offshore Operations, LLC (Black Elk) obtained a federal oil and gas lease covering a portion of the Gulf of Mexico known as the West Delta 32 Lease Block, and operated a three-platform production facility there. Black Elk contracted with Grand Isle Shipyard (GIS) and Wood Group PSN, Inc. (Wood Group) to provide platform workers. Wood Group also furnished a “Person-in-Charge” for the platform, Christopher Srubar. Srubar and Wood Group were responsible for conducting safety inspections and issuing safety permits for “hot work,” such as welding and grinding.In September 2012, Black Elk interrupted its oil and gas production to commission construction projects that could not be done during production. Compass Engineering and Consulting LLC drew up the construction plans and hired Don Moss as an independent contractor and onsite inspector to coordinate and manage the work on the platform.A fatal explosion occurred while rebuilding piping. The explosion caused the deaths of three men, the injuries to others, and the discharge of pollutants into the Gulf of Mexico. The government contended that the contractors were criminally liable for failing to ensure that the construction area was safe for hot work as required by the Outer Continental Shelf Lands Act’s (OCSLA) safety regulations.Criminal indictments were issued against Black Elk, as the lessee-operator, and the contractor appellees. The contractors were charged with eight counts of violation of 43 U.S.C. §1350(c) for knowing and willful violations of OSCLA’s enabling regulations. The defendants filed several motions to dismiss charges. The district court issued a written order dismissing the OCLSA charges against Wood Group, GIS, Moss, and Dantin, as well as a second written order dismissing the OCSLA charges against Srubar days later.The district court stated that the three provisions of OCSLA regulations underlying the charged criminal violations imposes requirements addressed to “You.”  Under OCSLA regulation, 30 C.F.R. § 250.105, “You” is a defined term:You means a lessee, the owner or holder of operating rights, a designated operator or agent of the lessee(s), a pipeline right-of-way holder or a State lessee granted a right-of-use and easement.The district court held this definition does not include contractors and subcontractors or service providers. The government appealed.APPELLANT’S ARGUMENT

1. Appellant contended that a plain reading of OCSLA subjects any person, including contractors and their employees, to criminal penalties for violating the regulations promulgated under the statute.

The government argued that any person who knowingly violated any regulations may be subject to criminal charges under 43 U.S.C. § 1350(c) because OCLSA defines “person” to include “a natural person, an association, a State, a political subdivision of a State, or a private, public, or municipal corporation,” 43 U.S.C § 1331(d).The appellees responded that OCSLA read as a whole, precludes the government from criminally prosecuting non-holders of OCS leases or permits. Furthermore, the appellees’ stated that under 43 U.S.C. § 1350(c) the government cannot impose criminal penalties on contractors because they are not “persons” given a duty to comply. The appellees further stated that 43 U.S.C. § 1350(c) places criminal exposure squarely on the lessees and permittees not only for their own misfeasance but for that of the contractors and subcontractors they hire.The court of appeals reasoned that they did not need to decide whether OCSLA’s criminal liability provision could extend to contractors, subcontractors, and their employees because OCSLA regulations in force at the time of the incident did not apply to the appellees so they cannot be held criminally liable even if the statute authorized regulations that could foist criminal liability upon them. In summation, the court did not decide whether contractors and subcontractors can be held criminally liable under section 1350(c).

2. The appellant contended that OCSLA regulations govern the appellees’ conduct because they were the “person[s] actually performing the activit[ies],” and are thus “jointly and severally responsible” under 30 C.F.R. 250.146(c).

In order to circumvent the fact that the definition of “You” in 30 C.F.R. § 250.105, the government essentially argued that under § 250.146(c) the appellees were “person[s] actually performing the activity which the [welding] requirement[s] appl[y],” they are “jointly and severally responsible for complying with the regulation.” 30 C.F.R. § 250.146(c). Therefore, the appellees knowing and willful failure to comply with 30 C.F.R. § 250.146(c) would be a criminal violation under OCLSA’s criminal enforcement provisions.The court cited United States v. Onick, 889 F.2d 1433 (5th Cir. 1989), which held that when “two provisions operate in pari materia,” they “should not be read in isolation,” but must be construed together. The court reasoned that when 250.146 is read with 250.146(c), it was clear that this rule referred to lease holders and could not be imputed upon contractors. Additionally, the government could not cite any cases demonstrating support for joint and several criminal liability.

3. The appellant contended that courts have upheld both civil and criminal penalties imposed under similar statutory and regulatory schemes.

The government next cited United States v. Ho, 311 F.3d 589 (5th Cir. 2002) which upheld criminal liability under Clean Air Act regulations, and Floyd S. Pike Elec. Contractor, Inc. v. Occupational Safety & Helath Review Comm’n (Pike), 576 F.2d 72 (5th Cir. 1978) which upheld a civil liability and $800 fine for violating OSHA regulations.The court acknowledged that there is not a dispute that statutes authorize implementing regulations and then impose criminal liabilities, but these cases fail to answer the specific question of whether under OCSLA regulations criminal liability extended to the appellees. Once again, the government failed to provide an example of when charges against contractors have been brought under OCLSA.The government finally cited Fruge ex rel. Fruge v. Parker Drilling Co., 337 F.3d 558 (5th Cir. 2003) to suggest that § 250.146(c) can impose liability on contractors, but that was an incorrect application of the case. The court stated that Fruge dealt with a plaintiff who attempted to sue a contractor for a personal injury claim under §§ 250.146(a) and (c). The court there ruled that there was no private cause of action for the plaintiff. So Fruge did not find civil contractor liability.

4. The appellant contended that OCSLA’s regulations supported civil and criminal penalties for any person “responsible for a violation” of the regulations. 30 C.F.R. 250.1402.

The government argued that the regulations may result in criminal liability for anyone who failed to comply with them and defined a “person” as “a natural person, an association… a State, a political subdivision of a State, or a private, public, or municipal corporation.” 30 C.F.R. § 250.105. The government further asserted that a violator is anyone who failed to comply with regulations under OCSLA as stated in 30 C.F.R. § 250.1402. Furthermore, 30 C.F.R. § 250.1400 provides that “[the agency’s] civil penalty procedures whenever a lessee, operator, or other person engaged in oil, gas, sulphur or other minerals operations on the outer continental shelf has a violation.” Therefore, the government contended that penalties cannot be limited to lessees and designated operators but must extend to any person responsible for a violation.The court responded relying on RadLax Gateway Hotel, LLC v. Amalgamated Bank, 132 S.Ct. 2065, 2070-71 (2012), which pointed out that a general provision in a comprehensive regulatory scheme must yield to a more specific, conflicting provision. Since § 250.113 provides a clear indicator of who can be criminally indicted, the government’s argument was moot.

5. The appellant contended that the statute and regulations had always been broad enough to criminally indict contractors.

The appellant finally argued that the government always had the power to indict contractors, but had not exercised that power as a matter of prosecutorial discretion. However, the government can only point to events that preceded this incident by a few months as giving notice to the appellees and the industry that contractors would be subject to such penalties. The court reasoned that “an agency’s announcement of its interpretation is preceded by a very lengthy period of conspicuous inaction, the potential for unfair surprise is acute.” Christopher v. SmithKline Beecham Corp., 567 U.S. 142, 158 (2012).Furthermore, the government undercut reliance since it disclaimed that the policy statement, which was issued without notice and comment rulemaking, has any binding force so as to induce reliance by the regulated entities. Additionally, the government would have had to defend this new approach against Supreme Court cases that have afforded “considerably less deference” when an agency interpretation conflicts with an earlier consistently held view. I.N.S. v. Cardoza-Fonseca, 480 U.S. 421, 46 n.30 (1987). In short, the court declined to follow new guidelines set by the government that so clearly differed from long held practices of the government.CONCLUSIONThe judgment of the district court dismissing the OCSLA counts of indictment against the appellees was affirmed.