Fifth Circuit Announces New Test to Determine if Certain Contracts for Services on Navigable Waters Are Maritime

In an important new en banc opinion, the Fifth Circuit has abandoned its historic criteria for determining whether a contract relating to servicing oil or gas drilling on navigable waters is controlled by maritime law in favor of a “simpler, more straightforward test.” See In re Larry Doiron, Inc., 879 F.3d 568, 569 (5th Cir. Jan. 8, 2018).

Historically, courts in the Fifth Circuit applied a six-factor test to determine whether a contract is governed by maritime law. As articulated in Davis & Sons, Inc. v. Gulf Oil Corp., 919 F.2d 313 (5th Cir. 1990), this six factor approach considered: (1) what the contract provides; (2) the actual work done by the crew; (3) whether the crew was assigned to work on a vessel in navigable waters; (4) the extent to which the work being done related to the vessel’s mission; (5) the principal work of the injured worker; and (6) the work the injured worker was actually doing at the time of the injury. Id. at 316.

Taking the lead from the Supreme Court’s ruling in Norfolk Southern Railway Co. v. Kirby, 543 U.S. 14 (2004), the Fifth Circuit departed from the six-factor test used in cases like Davis & Sons in favor of a new, stream-lined two-pronged test to determine whether a contract like the one at issue was maritime in nature:

“First, is the contract one to provide services to facilitate the drilling or production of oil and gas on navigable waters? . . . 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.”

Larry Doiron, 879 F.3d at 576. In doing so, the Fifth Circuit reversed both the holding of the District Court and the panel opinion upholding the lower court’s decision.

In re Larry Doiron, Inc. involved a contract for specialty services to be performed on a gas well in waters off the coast of Louisiana. Importantly, the service work order at issue did not require—and neither the service contractor nor the service provider anticipated—the use of a vessel to perform the work; instead it was anticipated that the work could be performed from a platform. Id. at 570. However, when the crew dispatched by the service provider inspected the site, they realized certain heavy equipment would be required to perform the work, and that a crane would be needed to move that equipment into place. Id. The platform the crew had been working from could not accommodate the crane, so a barge equipped with a crane had to be used. Id. Unfortunately, while moving the equipment, the crane operator struck one of the service providers’ crewmembers with the equipment, causing injuries. Id. The barge operator filed a limitation of liability proceeding against the crewmember, and a third-party complaint against the service provider, seeking indemnity under the terms of the service contractor and service provider’s master service contract (MSC).

The crucial issue the Fifth Circuit had to consider was whether the MSC was a maritime contract: if so, the MSC’s indemnity provision was permissible; if not, Louisiana law applied, and the indemnity agreement would be void as against public policy. Id.

In analyzing the issue, the Fifth Circuit relied on the Supreme Court’s ruling in Norfolk Southern, an important case in the world of international shipping. “Norfolk Southern Railway Co. v. Kirby lights a path to a simpler, more straightforward method for determining whether a contract is maritime and avoids most of the unnecessary analysis required by Davis & Sons.” Larry Doiron, 879 F.3d at 574. In Norfolk Southern, parties contracted to move cargo from Sydney, Australia, through Savannah, Georgia, to an ultimate destination of Huntsville, Alabama, and the cargo was damaged on the inland leg of the trip. Norfolk Southern, 543 U.S. at 21. The Court, in drawing a line between “maritime and nonmaritime contracts,” explained that “[t]o ascertain whether a contract is a maritime one, we cannot look to whether a ship or other vessel was involved in the dispute, as we would in a putative maritime tort case,” but instead “the answer depends upon the nature and character of the contract, and the true criterion is whether it has reference to maritime service or maritime transactions.” Id. at 24 (internal quotations omitted).

The Fifth Circuit’s approach in Larry Doiron follows the Supreme Court’s analysis from Norfolk Southern. As the Fifth Circuit explained, its new two-pronged 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.” Id. at 576. Although the Davis factors may still be relevant in certain circumstances, parties (and the courts) are no longer required to apply that approach. Id. at 577.

Applying its new test to the facts, the Fifth Circuit found that the work order at issue “called for [the service provider] to perform downhole work on a gas well that had access only from a platform.” Id. The barge and crane were only brought in to address an unexpected problem, and thus “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 is nonmaritime and controlled by Louisiana law.” Id. Because Louisiana law barred indemnity provisions in these circumstances, the Fifth Circuit reversed the grant of summary judgment to the barge operator, and granted summary judgment in favor of the service provider. Id.

On April 5, 2018, the barge operator filed a petition for writ of certiori, 17-1420, which, as of this writing, is currently pending before the Supreme Court.