On October 7, 2024, the U.S. Supreme Court denied Shell’s certiorari petition to review the Fifth Circuit’s decision, which held that a contract to inspect and repair lifeboats on an oil platform located on the Outer Continental Shelf is a maritime contract. Earnest v. Palfinger Marine USA, Inc., 90 F.4th 804 (5th Cir. 2024).
1. Factual Background.
In 2019, two workers died and one was injured when a lifeboat detached from an oil platform located on the Outer Continental Shelf in the Gulf of Mexico approximately 130 miles off the coast of Louisiana. This oil platform is owned and operated by Shell Offshore, Inc., Shell Exploration & Production Company, and Shell Oil Company (collectively, “Shell”).
The oil platform is equipped with ten lifeboats, providing a means to evacuate all workers in the event of an emergency.
In 2018, Shell entered into a contract with Palfinger Marine USA, Inc., under which Palfinger agreed to provide inspections, maintenance, and repairs of the lifeboats and davit systems used to launch the lifeboats from the platform. The contract also contained indemnity provisions, under which Shell agreed to indemnify Palfinger for liabilities resulting from “death, injury, or disease” of any Shell employee, excluding “liabilities that did not arise in connection with the contract” and “liabilities caused by [Palfinger’s] gross negligence … or wil[l]ful misconduct.”
In 2019, one of the lifeboats was launched from the oil platform; however, when it was hoisted back, a corroded cable failed, leading to the deaths of two workers and injuring a third.
The families of the deceased workers and the injured worker filed suit against Shell and Palfinger in the U.S. District Court for the Western District of Louisiana. These claims were settled. Palfinger sought indemnity from Shell for the amounts Palfinger paid in settlement of the wrongful death and personal injury claims.
A key issue was whether the indemnity provisions in the contract between Shell and Palfinger were enforceable. The resolution of this issue depended on whether this contract is qualified as maritime. If it is a maritime contract, the indemnity provisions would be enforceable under maritime law. If it is not a maritime contract, Louisiana law would govern the contract, making the indemnity provisions unenforceable under the Louisiana Oilfield Anti-Indemnification Act.1The Louisiana Oilfield Anti-Indemnification Act, La. Stat. Ann. § 9:2780, “declare[s] null and void and against public policy of the state of Louisiana any provision in any agreement which requires defense and/or indemnification, for death or bodily injury to persons, where there is negligence or fault (strict liability) on the part of the indemnitee.”
Shell argued that the choice-of-law provision of the Outer Continental Shelf Lands Act (OCSLA) determined the law applicable to the contract with Palfinger, and that OSCLA mandated the application of Louisiana law. Accordingly, under the Louisiana Oilfield Anti-Indemnification Act, the contract’s indemnity provisions were unenforceable. Palfinger argued that OCSLA did not apply to the contract because it was a maritime contract governed by maritime law, and that the contract’s indemnity provisions were enforceable under maritime law.
2. District Court’s Opinion: It Is Not a Maritime Contract.
Is a contract to inspect and repair lifeboats on an oil platform located on the Outer Continental Shelf a maritime contract?
The district court held that it was not a maritime contract. The district court relied on the two-part test established in In re Larry Doiron, Inc., 879 F.3d 568, 576 (5th Cir. 2018), for determining whether a contract is a maritime contract:
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 the answers to both questions are “yes,” the contract is a maritime contract and maritime law applies.
The district court found that although “the Shell-Palfinger purchase and maintenance contract involved ‘services to facilitate the drilling or production of oil and gas on navigable waters,’ the record [did] not reflect that a vessel [would] play a substantial role in the completion of the contract.” Earnest v. Palfinger Marine USA Inc., 621 F. Supp. 3d 683, 692 (W.D. La. 2022). Specifically, the district court found that “all work done on the lifeboats under the contract was performed on the Auger platform and not on any vessel” and that the lifeboats “were not functioning as maritime vessels but rather functioned as safety equipment supporting the oil and gas exploration and production operations of the Auger platform.” Id. at 692–93. The district court then held that Louisiana law applies. That rendered the contract’s indemnity provision unenforceable.
3. Fifth Circuit’s Opinion: It Is a Maritime Contract.
The Fifth Circuit reversed. It found that the two prongs of the Doiron test were met. First, because Shell could not carry out oil exploration and production without Palfinger’s inspection and maintenance of the lifeboats,2Pursuant to the U.S. Coast Guard regulations, lifeboats must be installed in at least two widely separated locations on different sides or ends of the oil platform. 46 C.F.R. § 108.525. The lifeboats must be “inspected and repaired, as needed, at least once in each year.” 46 C.F.R. § 109.301(f)(1). Palfinger’s services facilitate the drilling or production of oil and gas. Second, the parties expected that vessels would play a substantial role in the completion of the contract. “A contract for maintenance and repair of a vessel inevitably gives the vessel a substantial role,” the Court stated. Palfinger, 90 F.4th at 813.
When the district court found that the Purchase Contract did not provide for and the parties did not expect that vessels would play a substantial role in performance, the court was considering only the use of a vessel. The Doiron test itself, though, does not refer to whether a vessel will be used. It focuses on whether the contract provides or the parties expect “a vessel will play a substantial role in the completion of the contract.” … The Doiron test allows a finding that a contract is maritime when a vessel is not the object of the contract. It does not require the opposite finding when the maintenance and repair of vessels are the purposes of the contract, as such are traditional maritime activities.
Id. at 812.
Based on the foregoing, the Fifth Circuit concluded that the contract between Shell and Palfinger was a “classically maritime contract.”
4. Shell’s Certiorari Petition: “Can Oil and Gas Exploration from a Fixed Platform on the Outer Continental Shelf Qualify as ‘Maritime Commerce’?”
In its certiorari petition, Shell argued that oil and gas exploration from a fixed platform on the Outer Continental Shelf cannot qualify as “maritime commerce” and thus cannot trigger the application of maritime law to contracts performed on the platform.
In the context of torts, the Supreme Court “strongly declared that platform activities are decidedly not maritime,” Shell said, quoting Rodrigue v. Aetna Cas. & Sur. Co., 395 U.S. 352, 89 S. Ct. 1835, 23 L. Ed. 2d 360 (1969) (holding that remedy for deaths of workers on artificial island drilling rigs located on the Outer Continental Shelf off the Louisiana coast was under the Outer Continental Shelf Lands Act and Louisiana law, and the Death on the High Seas Act was not exclusive remedy) and Herb’s Welding, Inc. v. Gray, 470 U.S. 414, 105 S. Ct. 1421, 84 L. Ed. 2d 406 (1985) (holding that a welder working on a fixed offshore oil-drilling platform in state territorial waters was not entitled to benefits under the Longshoremen’s and Harbor Workers’ Compensation Act because his employment was not “maritime”).3“Gray was a welder. His work had nothing to do with the loading or unloading process, nor is there any indication that he was even employed in the maintenance of equipment used in such tasks. Gray’s welding work was far removed from traditional LHWCA activities, notwithstanding the fact that he unloaded his own gear upon arriving at a platform by boat. … He built and maintained pipelines and the platforms themselves. There is nothing inherently maritime about those tasks. They are also performed on land, and their nature is not significantly altered by the marine environment, particularly since exploration and development of the Continental Shelf are not themselves maritime commerce.” Herb’s Welding, 470 U.S. at 425, 105 S. Ct. 1428.
Shell reasoned that the Supreme Court should grant a writ of certiorari because “the Fifth Circuit created a legal distinction for maritime contracts that cannot be reconciled with this Court’s maritime tort decisions in Rodrigue and Herb’s Welding.”
In its opposition brief, Palfinger stated that its contract dispute with Shell “does not turn on whether oil and gas exploration from a fixed platform on the [Outer Continental Shelf] qualifies as ‘maritime commerce,’ and the Fifth Circuit did not hold that it does.”
Palfinger argued that there is no conflict between the Fifth Circuit’s contract analysis and the Supreme Court’s tort analyses in Rodrigue and Herb’s Welding. “Herb’s Welding and Rodrigue had nothing whatsoever to do with maritime contracts. Both were tort cases involving claims for federal benefits for injuries sustained on fixed platforms, without any vessel involvement,” Palfinger explained.
According to Palfinger, the Fifth Circuit “held that Plafinger’s contract was a ‘classically maritime contract’ in full accord with the principles governing the analysis of maritime contracts established in North Pacific S.S. Co. v. Hall Bros. Marine Ry. & Shipbuilding, 249 U.S. 119 (1919) (‘North Pacific’), and its progeny, including Norfolk Southern Railway Co. v. Kirby, 543 U.S. 14 (2004) (‘Kirby’).”
On October 7, 2024, the Supreme Court denied Shell’s certiorari petition. Thus, the Fifth Circuit’s ruling that a contract to inspect and repair lifeboats on an oil platform located on the Outer Continental Shelf is a maritime contract remains in effect.
The information provided in this article is intended for informational purposes only and does not constitute legal advice. It should not be relied upon or applied without consulting an attorney to address your specific circumstances. Please note that this article was published on the date indicated and may not reflect subsequent changes in the law.
