Louisiana Law Blog by Kean Miller law firm offers insight and Information on Louisiana law, litigation, and legal culture. It is brought to you by more than 150 attorneys serving the legal needs of local, regional, and national companies.
The Louisiana State Licensing Board for Contractors has updated and revised its rules, found in Title 46, Part XXIX of the Louisiana Administrative Code. The Board characterizes these revise rules as intended to simplify and streamline the application and examination process for licensed contractors and those seeking to become licensed contractors. A brief summary of the changes can be found in the Licensing Board’s Bulletin 19-01 here.
For commercial contractors, the new rules that may prove most helpful will be: (i) the rule dispensing with the need to submit pay stubs and other payroll documents to prove the full time employment status of a qualifying party; (ii) the change from an business and law exam to the taking of an online class, and (iii) the simplification of the required financial statement.
The new rules were promulgated in the December 2018 publication of the Louisiana Register, which is available here (pages 2143-2154).
Generally, a contract is the law between parties, which has long been the position of the U.S. Supreme Court. However, as most well know, this principle is not without limitation. On January 15, 2019, in New Prime v. Oliveira, the Court unanimously held that disputes concerning contracts of employment involving transportation workers engaged in foreign or interstate commerce cannot be compelled to arbitrate. 586 U.S. —, 4, 2019 WL 189342, at * — (2019). Also, despite strong, express language in an agreement ordering the parties to arbitrate any of their disputes, a court – not the arbitrator – is the appropriate forum to review and decide the applicability of the Arbitration Act to any contract.
The Federal Arbitration Act declares that an express arbitration clause in a maritime transaction involving commerce shall be valid and enforceable provided the Act does not further limit its application. 9 U.S.C. §§ 1 – 2 (West 2019). However, §1 declares that “nothing contained [in this Act] shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” 9 U.S.C. § 1 (West 2019). Specifically, the Court in New Prime resolved a longstanding issue of whether a “contract of employment” concerned any type of contract for work (such as one involving independent contractors) or only those contracts between an employee – employer. The Supreme Court affirmed the First Circuit’s ruling that in 1925, at the time of the Act’s inception, “contract of employment” was not a term of art; it was a phrase used to describe “agreements to perform work” and was not limited to agreements only between employees and employers as a modern jurist might first think.
New Prime provides two important lessons: first, no contract provision – however ironclad – is immune from court oversight and interpretation. Parties to a contract may attempt to limit their litigation exposure, but cannot be immune from all possibilities, especially when they try to contract around statutes. New Prime is a great example of limited application of a broad federal statute, which, even though is favored by the courts, is limited by Congress. Second, New Prime provides greater clarity in the realm of contracts for work relating to transportation workers. Any “contract for employment” concerning workers engaged in foreign or interstate commerce cannot be contractually compelled into arbitrations regardless of contractual provisions that state otherwise. New Prime, 586 U.S. at 15. It’s also worth noting that the type of workers engaged in foreign or interstate commerce has vastly expanded over time as our society grows further connected. Thus, companies should be mindful that even though contracts of employment might attempt to limit litigation through arbitration provisions, a court may not be inclined to order the parties into arbitration based on New Prime and the employee’s/independent contractor’s scope of work.
Introduced by Senator Brian Schatz (D-HI), the ranking member of the Communications Technology Innovation and Internet Subcommittee of the United States Senate, the Data Care Act of 2018 (the “Act”) seeks to enact Federal privacy legislation that will incentivize “online service providers” to protect certain types of personal data or risk civil penalties brought by both Federal and State agencies.
Introduced to the Senate on December 12, 2018, the Bill was succinctly designed to “establish duties for online service providers with respect to end user data that such providers collect and use.” The bill defines “online service provider” as any entity that is both “engaged in interstate commerce over the internet…” and “in the course of its business, collects individual identifying data about end users…” The term “end users” is further defined as any “individual who engages with the online service provider or logs into or uses services provided by the online service provider over the internet or any other digital network.” In other words, anyone that logs into any online network, is now an “end user.” And, almost any entity that affords the opportunity to log into a network becomes an “online service provider” who is now tasked, under threat of concurrent state and federal criminal penalties, with protecting certain types of data. 
The following types of information are protected from disclosure under the Act and referred to as “sensitive data:”
Social security numbers;
First and last names or first initial and last name accompanied by the following:
The individual’s year of birth;
Mother’s maiden name; or
Biometric data (example: thumb print);
User name and password or email address and password;
Financial account numbers (example: credit or debit card number);
Personal information of minor children (as defined in section 1302 of the Children’s Online Privacy Protection Act of 1998);
Driver’s license number, military identification number, passport number or any number issued on a similar item of government identification;
Information relating to an individual’s mental or physical health; and
Nonpublic communications or user-created content by an individual. 
The Act imposes not only a duty of care to “reasonably secure individual identifying information from unauthorized access,” but also a duty of “loyalty,” that “will prevent the reasonably foreseeable material from physical or financial harm to the end user.” The duty of confidentiality further prohibits the “online service provider” from selling or disclosing any information that it keeps on its “end users” and imposes the duty to take reasonable steps to ensure a “duty of care” by entities to which the online service provider discloses or sells information. In the event of the breach, the online service provider must inform the Federal Trade Commission in accordance with 5 U.S.C. § 553. Thus, the Act looks to “online service providers” to police each other.
Consistent with the growing pressure on businesses to institute cybersecurity measures, the Act codifies the ability of multiple states and multiple state agencies to bring civil actions against offenders. Specifically, the Act permits both state Attorney General’s offices, as well as any other state consumer protection agency, to bring civil actions against any offender without much limiting language. Accordingly, an online retail distributor qualifying as “online service provider” could face civil and criminal penalties from all 50 states, as well as simultaneous penalties from the Federal Government for the same offense.
If passed, this Act will go into effect within 180 days of its enactment. With a Federal Government shutdown currently in place without an anticipated opening date, it is unknown when the Act will be signed into law. However, the political blogs are not anticipating substantial opposition to the act if addressed this year. Therefore, the Act (along with six similar privacy-specific proposals) is essentially giving a 6 month warning to businesses with an online presence that their failure to stringently protect and adhere to a “duty of loyalty” to their customers could very well result in federal charges and penalties, as well as lawsuits in multiple (if not all 50) states.
Whether you keep up with the Kardashians or you are just a casual Instagram user, you have probably been exposed to social media influencer posts. Due to social media’s increased marketing importance, companies will offer free products, money or other compensation to social media “influencers”, i.e. users that boast at least 2,000 or more genuine followers. “Macroinfluencers” with millions of followers can often command $10,000 or more for a single product endorsement on Instagram. Influencers have been used by industries including hotels and travel services, fitness, cosmetics, clothing and accessories, food and beverage, restaurants, dietary supplements, and a litany of other consumer products and services. Similar to celebrity brand ambassadors, these influencers provide “peer” recommendations to their followers with the intent of directing the followers to purchase the endorsed products and services. These posts are often successful and have led to increased profits for many brands.
In addition to or in lieu of traditional social media influencers, companies are also looking to their own employees to serve as online brand ambassadors, participate in ad campaigns, and to share content on social media about the company. Since the advertising budget for “employee influencers” is relatively low, many companies are implementing employee advocacy programs and incentivizing employees to be spokesmen for the company in their own circles. Certain commentators have listed employee advocacy as one of the social media strategies to watch in 2019.
This young, alternative form of advertising and endorsement has caught the attention of federal agencies. Starting in March 2017, the Federal Trade Commission began notifying companies using compensated influencers that the relationship between the company and the influencer needed to be made clear in a disclosure. The FTC’s Endorsement Guidelines state that if there is a “material connection” between an endorser and an advertiser (i.e., a connection that might affect the weight or credibility that a customer would give the endorsement), then that connection must be clearly and conspicuously disclosed. The FTC has stated that these guidelines apply to social media, and both marketers and endorsers are required to comply. In April 2017, the FTC sent letters to almost 100 celebrities, athletes and other influencers, as well as the marketers of the brands endorsed, regarding the disclosure obligations. Since that time, the FTC also settled its first formal complaint against social media influencers—gaming influencers Trevor “TmarTn” Martin and Thomas “Syndicate” Cassell. These men were charged with failing to properly disclose that: (1) they owned the online gambling company that they were promoting; and (2) they paid other well-known online gaming influencers to promote the platform without disclosing the financial relationship. Despite the additional FTC “educational notifications” to influencers and complaints to the FTC by watchdog groups, some marketing commentators claim that the majority of influencer posts are still not compliant.
Most recently, the Securities and Exchange Commission entered the influencer realm when it charged boxer Floyd Mayweather Jr. and music producer DJ Khaled. Mayweather and Khaled were promoting investing in Centra Tech, Inc.’s initial cryptocurrency offerings (ICO) on social media without disclosing that they had been paid for the promotions. The SEC had previously warned that cryptocurrency sold in ICOs may be securities and that those who offer and sell securities in the U.S. must comply with federal securities laws— including disclosure of payment for promotional statements. The SEC has since settled with Khaled and Mayweather, requiring them to return the $350,000 they collectively received from Centra Tech (who is currently under SEC investigation for fraud). Mayweather also agreed to pay a $300,000 fine to the SEC, abstain from promoting other investments for three years, and to cooperate with the SEC’s investigation. Khaled also agreed to a $100,000 fine to the SEC and to abstain from similar promotions for two years.
The FTC’s continued letters and notifications shed light on the agencies’ interest in helping influencers and brands to be more transparent about their relationships. These educational letters are often the first step in an FTC crackdown, so influencers and brands would be well advised to ensure their posts are compliant. As businesses set their marketing plans for 2019, now would be the time to ensure that any arrangements with influencers or employee advocates are appropriately detailed. While the FTC regulations (or SEC for financial products) provide more specific guidance, the below items offer some general tips and considerations.
Confirm whether social media posts need to include FTC disclosures. The FTC requires a clear and conspicuous disclosure if there is a “material connection” between an influencer and brand that might materially affect the credibility of the endorsement (meaning, where the connection is not reasonably expected by the audience). Material connections can include, but are not limited to, a business or family relationship, employment relationship, monetary payments, or free products.
Disclosure is not required when the material connection between the endorser and the marketer is expected. For example, if a doctor was featured in a television advertisement claiming that an anti-snoring product is, in his opinion, the best he has ever seen, a viewer would reasonably expect the doctor to be compensated for appearing in the ad and a disclosure would not need to be made. However, a viewer may be unlikely to expect that the doctor is an owner in the company or that the doctor received a percentage of the product sales, so the advertisement should clearly and conspicuously disclose such a connection.
The time when the incentive is promised is also a factor. If a restaurant asks its patrons to post pictures and honest reviews of its food on Instagram, and the patrons have no reason to expect compensation or benefit from the restaurant before making the post, then the restaurant’s later decision to send the posters a free dessert coupon will likely not require a disclosure. However, if patrons were specifically informed that a social media post would result in being given the coupon or that their pictures and reviews may be used in the restaurant’s advertising, then those opportunities may be seen as having value and may need to be disclosed.
The disclosure must be clear. Disclosures must be clear enough that an ordinary reader understands the relationship between the poster and the brand. The FTC has cautioned against vague references like “Thank you [Brand Name]”, “#ambassador”, “#[Product]_Rocks”, and similar language that shows just an appreciation of the product/company. Instead, the FTC encourages clear statements like “[Brand] gave me this product to try”, “Thanks [Company] for the free product”, “Sponsored”, “Promotion” or “Paid ad”. For platforms like Twitter that limit the number of characters you can use, the FTC recommends starting the tweet with “Ad:” or “#ad.”
The disclosure must be conspicuous. The FTC advises that the disclosure should be: (1) close to the claims to which they relate; (2) in a font that is easy to read; (3) in a font shade that stands out against the background; (4) for video ads, on the screen long enough to be noticed, read, and understood; and (5) for audio disclosures, read at a cadence that is easy for consumers to follow and in words the listener will understand.
Certain platforms like Instagram limit the amount of text on photostreams when viewed on a smartphone, so longer descriptions are truncated with only the first few lines viewed unless the user clicks “more”. The FTC requires that the disclosure be presented without having to click “more”. It is not sufficient for an influencer to make a general disclosure on the influencer’s profile page or through links to a separate disclosure page; rather, a disclosure must appear on each endorsement post. Similarly, the FTC cautions that the disclosure should not be buried in a long string of hashtags.
In response to the FTC’s enforcement, platforms like YouTube and Instagram have added a feature where posts can be tagged as “paid”. While these can be helpful tools, they are not foolproof. For example, the paid tag could be sufficient when only one product is pictured in an Instagram post. But if the sponsored product appears with other products—some compensated and others not compensated—then additional disclosures may need to be made. The brand and influencer need to carefully evaluate whether the tags are sufficient or if additional statements need to be made, as it is the brand or influencer that will be responsible for the failure to properly disclose—not the platform.
The endorsement must be true. This requirement is true of all advertising. An influencer cannot provide a review of a service or product that the influencer has not personally used. The influencer also cannot post that the sampled product or service is amazing and #newfavorite when the influencer hated it and would never use it again. A brand looking to use influencers should not require the influencer to make a positive post if the influencer did not have a positive experience.
Monitor the influencer. Even if the influencer claims they follow legal requirements, the brand or company is still responsible for ensuring that the influencer is true to their word. Brands should regularly monitor or review the influencer’s post(s) to ensure that the posting is compliant, as the brand can still be responsible for the failure to disclose.
These above tips provide some initial considerations to brands that are using influencers and the influencers make the posts. Any written agreement between the brand and influencers should include obligations to comply with FTC guidelines. Companies that are considering an employee advocacy program would be well advised to ensure that their employee social media policies carefully detail the requirements for employee endorsements online. Consultation with an attorney to prepare these agreements or social media policies or to review proposed influencer posts are a good step towards avoiding unwanted regulatory attention.
 Ahiza Garcia, “DJ Khaled, Floyd Mayweather Jr. charged with promoting cryptocurrency without disclosing they were paid”, CNN Business (Nov. 30, 2018) (available at https://www.cnn.com/2018/11/29/tech/dj-khaled-floyd-mayweather-coin-crypto-sec/index.html). Part of the increased scrutiny by the SEC is likely due to the SEC’s criminal charges of fraud against Centra Tech, which allege that Centra Tech “sold investors on false promises of new technologies and partnerships with legitimate businesses.” Frances Coppola, “SEC Fines Floyd Mayweather and DJ Khaled for Illegally Promoting a Fraudulent ICO”, Forbes (Nov. 29, 2018) (available at https://www.forbes.com/sites/francescoppola/2018/11/29/floyd-mayweather-and-dj-khaled-were-paid-to-promote-a-fraudulent-ico/#9c4b6c14665e).
Last week, the U.S. Supreme Court granted the Writ of Certiorari in the Dutra v. Batterton case, setting the stage for a resolution of the Circuit Split between the US Fifth and Ninth Circuits on whether punitive damages are available to a seaman on an unseaworthiness claim. A more thorough review of the Dutra case and the anticipated fight can be found in our previous blog post here.
On Tuesday, December 11, 2018, the Environmental Protection Agency (“EPA”) and U.S. Army Corp. of Engineers (“ACE”) proposed a rule revising the definition of “waters of the United States.” The so-called WOTUS rule defines the scope of Clean Water Act (“CWA”) jurisdiction and the permitting requirements thereunder, and has been in the hot seat for the past two years under both the Trump Administration and a bevy of litigation.
The Obama Administration promulgated the WOTUS rule in 2015, which defined the term “waters of the United States” broadly to cover any lake, stream, wetland, etc. with a “significant nexus” to a navigable water. The regulation was challenged in a number of federal district courts and courts of appeal. Following his election, President Trump issued a February 2017 Presidential Executive Order entitled “Restoring the Rule of Law, Federalism, and Economic Growth by Reviewing the ‘Waters of the United States’ Rule,” requesting that the EPA and ACE repeal and replace the 2015 rule. In response, the agencies repealed the 2015 WOTUS Rule, which is the first step in the process. This rule proposal is the “second step” in the process.
The proposed definition of WOTUS set forth in the proposed rule would replace the 2015 WOTUS rule. Under the proposed rule, the following six “clear” categories of waters would be considered “waters of the United States”:
Each category is supplemented by examples and definitions. Of particular note to Louisiana industry is the sixth category: adjacent wetlands. According to the proposed rule, wetlands would need to “physically touch” or be connected by inundation or perennial flow (including over a levee or berm if applicable) to navigable waters in order to bring the area under CWA rules.
Although the question still remains whether these definitions provide any more clarity than the previous “significant nexus test” under the 2015 WOTUS rule, both the EPA and ACE are optimistic. EPA Acting Administrator Andrew Wheeler stated: “For the first time, we are clearly defining the difference between federally protected waterways and state protected waterways. Our simpler and clearer definition would help landowners understand whether a project on their property will require a federal permit or not, without spending thousands of dollars on engineering and legal professionals.”
It is important to note that the State of Louisiana through the Louisiana Department of Environmental Quality (“LDEQ”) defines its own rule for “waters of the state.” The LDEQ rule is much broader and includes “both the surface and underground waters within the state of Louisiana including all rivers, streams, lakes, groundwaters, and all other water courses and waters within the confines of the state, and all bordering waters and the Gulf of Mexico.”
The proposed rule can be found here and the public comment period will be open for the sixty days following the proposed rule’s publication in the Federal Register.
In Smith v. Robinson, La. S. Ct., Dkt. No. 2018-CA-0728 (Dec. 5, 2018), the Louisiana Supreme Court held that the Texas franchise tax (also known as the “Texas margins tax”) was an income tax for purposes of Louisiana’s credit for tax paid to another state and held that a 2015 law that limited the credit was unconstitutional because it impermissibly discriminated against interstate commerce. In Smith, the Louisiana Supreme Court struck down Act 109 of the 2015 Regular Legislative Session, which amended La. Rev. Stat. Ann. 47:33 (the “Credit Statute”). Louisiana law taxes residents on income earned both within and without Louisiana but, prior to revision, the Credit Statute allowed a credit against Louisiana tax for “net income tax” paid to another state. The credit prevented Louisiana taxpayers from being subject to income tax more than once on the same income. The relevant portions of Act 109 limited the credit in two ways. First, Act 109 provided that the credit was only available against taxes paid to another state if the other state offered a reciprocal credit to the state’s own residents transacting business in Louisiana. Second, Act 109 capped the credit so that it could not exceed Louisiana income taxes paid. The invalidation of Act 109 may present a refund opportunity for certain Louisiana resident individuals that either (1) had their credit limited by the cap in Act 109; or (2) paid Louisiana income tax on revenue from a flow-through entity that was subject to the Texas margins tax.
In Smith, the taxpayers were Louisiana residents who owned interests in several flow-through entities, specifically, limited liability companies and subchapter S corporations, with operations in Texas, Arkansas, and Louisiana. The entities were subject to the Texas margins tax. The taxpayers paid Louisiana individual income tax on the portion of each entity’s income that was subject to tax in Texas under protest and filed a lawsuit against the Louisiana Department of Revenue (the “Department”) seeking recovery of the tax.
In district court, the taxpayer filed a motion for summary judgment and asserted that Act 109 was unconstitutional because the Texas margins tax was a tax on income and, absent Act 109, the taxpayer would be entitled to a credit for the amount of Texas margins tax paid. The taxpayer also asserted that Act 109 violated the dormant Commerce Clause because it resulted in a double tax on interstate income but not intrastate income. The Department opposed the taxpayer’s motion for summary judgment, arguing that the Texas margins tax was not a tax on income because it contained both a net income component and a net capital component, which are not divisible. The Department denied that Act 109 burdened interstate commerce because it was within the state’s power to regulate state income tax. The district court granted the taxpayer’s motion of summary judgment and concluded that Louisiana First Circuit Court of Appeals decision in Perez, which held that the old Texas franchise tax was an income tax under Louisiana law, was dispositive of the income tax issue, and that the U.S. Supreme Court’s decision in Wynn was dispositive of the constitutional issue. The Department appealed to the Louisiana Supreme Court.
The Court first considered whether the Texas franchise tax was a net income tax within the meaning of the Credit Statute and held that it was, relying in part on the reasoning in Perez. The Court also noted that the Department of Revenue had acquiesced in the Perez decision (LDR Statement of Acquiescence No. 03-001, Sep. 10, 2003) and had not revoked nor modified its acquiescence despite the 2006 revisions to the Texas franchise tax law. In so holding, the Court also concluded that the calculation of taxable margin was essentially an income tax.
With respect to the dormant Commence Clause, the Court also agreed with the trial court that Act 109 violates the Dormant Commerce Clause, specifically, the fair apportionment and discrimination prongs of Complete Auto. The Court held that Act 109 violated the external consistency test developed to analyze fair apportionment because Act 109 operates to ignore where a taxpayer’s income is generated and does not take into account whether the income has a relationship to the state. The Court agreed with the taxpayers that Act 109 failed to apportion out-of-state income. The Court also held that Act 109 discriminated against interstate commerce because it exposes one hundred percent of the interstate income of Louisiana residents to double taxation and because the cap on the credit caused a portion of the taxpayer’s out-of-state income to be subject to double taxation.
Any Louisiana resident individual that was previously subject to the limitations on the credit for taxes paid to other states should consider filing a refund claim. In addition, any Louisiana resident individual doing business in Texas through a flow-through entity that paid Texas margins tax should review their returns and consider whether a refund claim is warranted.
While the case is not yet final, the recent decision in Bannister Properties, may limit the taxpayer’s ability to file a refund claim if a court concludes that the Department’s interpretation of the Texas margins tax was a mistake of law arising from the misinterpretation by the Department. In that instance, it is possible that the Louisiana First Circuit Court of Appeals decision in Bannister Properties could limit the taxpayer’s ability to pursue the refund claim.
The issue in Bannister Properties was whether a taxpayer could file in the Board of Tax Appeals (“BTA”) for review of the Department’s denial of a refund claim arising from a mistake of law by the Department. In Bannister Properties, the taxpayer filed a refund claim and a claim against the state for franchise taxes that were not paid under protest. The taxpayer and the Department reached a settlement on the claim against the state but the legislature refused to appropriate the funds to pay the refund, so the taxpayer attempted to force the Department to pay the refund through the refund claim. The refunds at issue were attributable to the invalidation of the Department’s regulation in UTELCOM. La. R.S. 47:1621(f) (the “Refund Statute”) appears to create a bar to a refund related to a mistake of law by the Department unless the taxpayer paid the tax under protest and filed suit to recover, or by appeal to the BTA in instances where such appeals lie. According to Bannister Properties the phrase “appeal to the BTA in instances where such appeals lie” is limited to claims against the state and does not apply to appeals related to the denial of refund claims. Bannister Properties will likely be appealed to the Louisiana Supreme Court because it has the potential to severely limit a taxpayer’s ability to obtain a refund for the overpayment of taxes caused by a mistake of law on the part of the Department.
While the scope of Bannister Properties is not yet clear and it is likely the decision will be appealed, the Department has indicated that it will not issue a refund claim related to the Smith case if the amount was not paid under protest. Therefore, a taxpayer filing a new refund claim for a tax that was not paid under protest, should consider filing a protective claim against the state in the Louisiana Board of Tax Appeals in addition to a refund claim. If successful, a claim against the state may only be paid by legislative appropriation.
For additional information, please contact: Jaye A. Calhoun at (504) 293-5936, Jason R. Brown at (225) 389-3733, or Willie Kolarik at (225) 382-3441.
 Perez v. Secretary of Louisiana Department of Revenue, 731 So.2d 406 (La. App. 1st Cir. March 8, 1999).
 Comptroller of Treasury of Maryland v. Wynn, 135 S.Ct. 1787 (2015).
 Complete Auto Transit v. Brady, 430 U.S. 274 (1977).
 Bannister Properties, Inc. v. State of Louisiana, Dkt. No. 2018 CA 0030 (La. Ct. App., 1st Cir., Nov. 2, 2018).
 UTELCOM, Inc. v. Bridges, La. Ct. App., 1st Cir., 77 So 3d 39 (2011) (Which held that La. Admin. Code 61:I.301(D) was invalid because it was promulgated based on a mistake of law due to the Department’s misinterpretation of the corporation franchise tax law.)
In a decision of first impression interpreting the meaning of “operating” under the Oil Pollution Act of 1990 (“OPA,” 33 U.S.C. §§2701 et seq.), the U.S. Fifth Circuit held the owner and operator of a tugboat liable as the “responsible party” for a spill emanating from a tank barge in its tow, and consequently found the owner ineligible for reimbursement for the cleanup costs. See U.S. v. Nature’s Way Marine, LLC, 904 F.3d 416 (5th Cir. 2018).
The underlying incident occurred in January 2013 when a tug owned by Nature’s Way was moving two oil carrying tank barges owned by Third Coast Towing, LLC (“TCT”), down the Mississippi River. The barges allided with a bridge over the Mississippi River, resulting in a release of over 7,000 gallons of oil into the river. The Coast Guard designated both Nature’s Way and TCT as “responsible parties” under OPA §2702(a). Nature’s Way and its insurers spent nearly $3 million in clean-up costs and the federal government incurred another $792,000.
Following settlement of auxiliary disputes between Nature’s Way and TCT, in May 2015, Nature’s Way submitted a claim to the National Pollution Funds Center (“NPFC”) seeking reimbursement of over $2.13 million it spent in clean-up on the grounds that its liability (if any) should be limited to the tonnage of the tug alone, and not the tonnage of the barges. OPA limits liability of a “responsible party” based on tonnage of the vessel it was operating. While Nature’s Way admitted it operated the tugboat, it contested its status as operator of the oil-discharging barge. The NPFC rejected the request to decrease the limit of liability, concluding instead that Nature’s Way was the “operator” of the barges under §2702(a) and thus both barges were properly included in the limitation assessment.
In light of the NPFC dispute, the United States sued Nature’s Way and TCT in the Southern District of Mississippi to recover the $792,000 in cleanup costs directly funded by the federal government. Nature’s Way denied liability, and counterclaimed against the government asserting that the NPFC’s “operator” determination was wrong and violated the Administrative Procedure Act (“APA”) by erroneously applying §2702(a).
The U.S. moved for partial summary judgment on the sole question of whether the NPFC violated the APA by declaring that Nature’s Way was the “operator” of the barge. In opposition, Nature’s Way argued that TCT was actually the “operator” of the barge as it was responsible for instructing when the barge would be loaded, unloaded, and moved. The district court disagreed with Nature’s Way, holding that a “common sense” interpretation of “operator” as used in the statute supports the conclusion that a “dominant mind” tug moving “dumb” barges (lacking the ability for self-propulsion or navigation) through the water is “operating” those barges. Nature’s Way appealed.
The Court focused on the express language of the statute, which defines an “operator” as “any person … operating” a vessel and a “responsible party” as “any person owing, operating, or demise chartering the vessel.” Though both terms use the word “operating,” the Fifth Circuit noted that “operating” is not defined within the statute. The Fifth Circuit also relied on Supreme Court jurisprudence construing the definition of “operator” in the Comprehensive Environmental Response Compensation and Liability Act of 1980 (“CERCLA”) as any person “who directs the workings of, manages, or conducts the affairs of” the facility/equipment in question.” U.S. v. Bestfoods, 524 U.S. 51, 66 (1998). Given that OPA and CERCLA have common purposes and a shared history, the Court found the parallel language between the statutes significant. The Fifth Circuit concluded that the ordinary and natural meaning of “operating” a vessel under OPA would thereby include the act of piloting or moving a “dumb” vessel like the TCT tank barges. The Court held that because “Nature’s Way had exclusive navigational control over the barge at the time of the collision, and, as such… was a party whose direction (or lack thereof) caused the barge to collide with the bridge,” Nature’s Way was the “operator” of the barges under OPA.
Significantly, the Fifth Circuit has now recognized the potential increased liability for negligent vessel operators who cause spills subject to OPA, as the Court has very plainly held that a tug pushing loaded “dumb” barges can only limit its liability to the full value of the entire flotilla. With the potential for increased exposure, this decision will obviously impact vessel operators and the oil and gas industry, as well as their respective insurers. Additionally, the ruling does not appear to foreclose the argument that the barge owner might also be considered an operator under OPA 90, if its actions also rise to the level of “operating.”
 The National Pollution Funds Center oversees the Oil Spill Liability Trust Fund, 26 U.S.C.§9509, an OPA-created mechanism, funded by inter alia OPA civil penalties, from which faultless or partially at-fault “responsible parties” can recoup, to the extent of their non-fault, clean-up costs paid out pursuant to their strict OPA liability, see 33 U.S.C. §2708(a), 26 U.S.C. §9509)
The modern day contract is a direct result of trial and error. Generally speaking, transactional lawyers try to negotiate “bulletproof” contracts providing exactly what their client wants or needs. Despite their best efforts, litigators in later disputes try their level best to find the “errors” in those contracts that could benefit their client. Then the pattern repeats. Take Seismic Wells, LLC v. Sinclair Oil and Gas Co., 2018 WL 43377234 (5th Cir. 9/13/2018), for example. In that dispute, the parties had included a “prevailing party” fee provision in their Joint Operating Agreement (JOA): “In the event any party is required to bring legal proceedings to enforce any financial obligation of a party hereunder, the prevailing party in such action shall be entitled to recover … a reasonable attorneys’ fees.” At first blush, this provision appears fairly standard and innocuous. But, with over $1 million at stake in attorneys’ fees, the meaning of every word in that provision is fair game.
The facts leading up to the dispute aren’t relevant here, other than Seismic sued Sinclair under various agreements when it was concerned that Sinclair would not be holding up their end of the bargain. Seismic’s amended complaint included 17 counts, including claims of fraud, breach of contract, conspiracy, tortious interference, defamation/libel, and business disparagement. At the end of Seismic’s case at trial, the court granted Sinclair’s motion for judgment as a matter of law. Sinclair then moved for over $1 million in attorneys’ fees incurred in defending itself, citing specifically to the prevailing party provision in the JOA. The district court denied the motion for three reasons: (1) failure to properly plead under RFCP 9(g) (failure to plead special damages); (2) the provision did not apply because Seismic’s suit was not a legal proceeding brought to enforce a “financial obligation under the JOA”; and (3) Sinclair did not adequately segregate its fee to isolate the work performed defending fee-eligible claims. The Fifth Circuit only addressed the second issue.
The Fifth Circuit agreed that Sinclair was obviously the “prevailing party,” a decision the Court had previously affirmed. The operative question though was whether Sinclair was the prevailing party in a lawsuit “to enforce any financial obligation of a party” under the JOA. The first issue was one of context. How was the dispute brought? The prevailing party provision applies when a party brings a legal proceeding to enforce a financial obligation. The Court noted that many of the claims Seismic brought against Sinclair alleged fraud that induced Seismic to sign the contracts; those claims sought to void the contracts, not enforce them. In other words, those claims sought to render the contract unenforceable and therefore would not satisfy the fee provision.
Two other claims though asserted breach of contract allegations; however, only one of those claims was grounded in the JOA, so the Court focused in there. Count 12 provided that Sinclair breached the JOA by refusing to assign Seismic a leaky well or operate that well on its terms. So, it appeared that this provision did seek to enforce the JOA. But, that was not enough because the legal proceeding must be brought to enforce a financial obligation under the JOA. The Fifth Circuit noted that “financial obligation” is synonymous with “monetary obligation,” and was not persuaded that Seismic’s claim seeking monetary damages made this claim a financial one. Rather, this claim was to turn over a leaky well, which the Court held was not a financial obligation. As such, the prevailing party fee provision was not triggered.
Seismic filed this lawsuit, lost, then got away without having to pay for Sinclair’s attorneys’ fees under a provision that Seismic probably would have sought to enforce itself if it had won at trial. Without knowing anything about the negotiations, including the term “financial obligation” in the JOA’s prevailing party provision narrowed the remedies available to either party in this dispute. Using the term “enforce” arguably did as well given Seismic’s attempts to invalidate the contract. Whereas, had the parties used the more boilerplate language awarding attorneys’ fees to the prevailing party in any legal proceeding brought by “any party arising under this Agreement,” Sinclair may have recovered. Well, assuming that was their original intent.
This case presents a good example of the interplay between the words used in the contract, and the words used in the complaint filed to enforce/or invalidate that same contract. Both transactional lawyers and litigators should take note.
On December 3, 2018, the EPA published a final rule in the Federal Register (83 FR 62268) making the 2017 amendments effected as of that day. In doing so, the EPA noted that it had no discretion in the matter as the U.S. Court of Appeals for the District of Columbia Circuit Court issued its decision vacating the 2017 Delay Rule and later issued its mandate which made the RMP Amendments now effective. EPA further saw no good cause to open rulemaking to accept comments or delay effectiveness for another 30 days.
Many of the requirements in the amended rule contained future compliance dates (beyond 2018) and therefore this action has no effect on them. However several requirements are now effective including:
Tri-annual audits cover each process units;
Supervisor training requirements;
Emergency response coordination requirements;
Incident investigation report and scope (i.e., near miss) revisions other than “root cause analysis provisions in §§68.60(d)(7) and 68.81(d)(7) which go into effect in 2021; and
Emergency Response Plan updates where appropriate.
Whereas the proposed Reconsideration Rule could roll all this back, these provisions are now in effect.