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In August 2018, dry natural gas production from the Haynesville shale averaged 6.774 billion cubic feet per day, which is the highest daily Haynesville production average since September 2012 when production averaged 6.962 billion cubic feet per day.  August 2018 was not an anomaly.  Instead, this year, the Haynesville has seen steady increases in production since January when production averaged 5.293 billion cubic feet per day.  Although the recent Haynesville production increases are a positive sign for the Louisiana energy industry, the August 2018 daily production average is still below the previous Haynesville peak production average, which was 7.403 billion cubic feet per day in January 2012.  However, if the current trend continues, the Haynesville could approach its prior peak production average in early 2019.

The chart below depicts Haynesville shale dry natural gas production averages from January 2009 to August 2018 in billion cubic feet per day.  As you can see, there have been two major increases in Haynesville production over the last ten years.  The first began in early 2009 with average daily Haynesville production surpassing 1 billion cubic feet per day for the first time in June of that year.  The second major increase began in early 2017 and continues through today.

With the first major Haynesville production increase, the Louisiana energy industry also experienced an increase in Haynesville-related litigation.  For example, in Alyce Gaines Johnson Special Trust v. El Paso E & P Co., the plaintiff-lessor brought a declaratory judgment action against the defendant-lessee seeking a determination that a 60-year-old, all-depths lease did not include rights to explore the Haynesville shale.  Alyce Gaines Johnson Special Trust v. El Paso E & P Co., 773 F. Supp. 2d 640, 641-43 (W.D. La. Feb. 24, 2011).  Seeming to suggest Plaintiff’s motivation, the Court noted that Plaintiff filed its action after receiving “offers from numerous third parties to lease the mineral formation known as the Haynesville Shale . . . for a one-fourth (1/4) mineral royalty and as much as ten thousand ($10,000) dollars per acre bonus royalty.”  Id. at 642.  In support of its position, Plaintiff argued that its predecessor did not intend to lease the depths at which the Haynesville shale is found.  Id. at 646.  However, finding the lease “broad and unambiguous,” the Court refused to look to the intent of the parties, and instead, held that the lease included rights to the Haynesville shale.  Id.

Cascio v. Twin Cities Development, where the plaintiff-lessors filed suit seeking to rescind a mineral lease because they did not know at the time they granted the lease that the Haynesville shale extended beneath their property, provides another example. Cascio v. Twin Cities Dev., 45,634 (La. App. 2 Cir. 9/22/10); 48 So. 3d 341, 342-43. In that case, the plaintiff-lessors argued, the lease should be rescinded based on their error.  Id.  However, the Second Circuit rejected their argument noting the “particularly speculative nature of mineral exploration and production.”  Id.

The timing of these cases and the historical production trend shown above demonstrate that Haynesville shale gas production increases can lead to an increase in Haynesville-related litigation.  Therefore, if the current Haynesville shale gas production increase continues, the industry should beware of an increase in Haynesville-related litigation, too.

Disclaimer: This Blog/Web Site is made available by the law firm of Liskow & Lewis, APLC (“Liskow & Lewis”) and the individual Liskow & Lewis lawyers posting to this site for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice as to an identified problem or issue. By using this blog site you understand and acknowledge that there is no attorney client relationship formed between you and Liskow & Lewis and/or the individual Liskow & Lewis lawyers posting to this site by virtue of your using this site. The Blog/Web Site should not be used as a substitute for legal advice from a licensed professional attorney in your state regarding a particular matter.

Privacy Policy: By subscribing to Liskow & Lewis’ E-Communications, you will receive articles and blogs with insight and analysis of legal issues that may impact your industry. Communications include firm news, insights, and events. To receive information from Liskow & Lewis, your information will be kept in a secured contact database. If at any time you would like to unsubscribe, please use the SafeUnsubscribe® link located at the bottom of every email that you receive.

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After some thirty years of wrestling with the cumbersome six-part test set forth in Davis & Sons, Inc. v. Gulf Oil Corp.,[1] for determining whether a contract to perform services related to oil & gas exploration on navigable waters is maritime, the Fifth Circuit took up In re Larry Doiron, Incorporated[2] earlier this year in an effort to streamline the test and bring clarity to an area of the law mired in uncertainty.  Deciding that several of the factors were either redundant or unnecessary, the court carved away at Davis & Sons until it was left with a two prong test:

(1): Is the contract to provide services to facilitate drilling or production of oil and gas on navigable waters? and

(2) Does the contract provide or do the parties expect that a vessel will play a substantial role in the completion of the contract?

Recently, the court applied Doiron in the context of a contract to plug and abandon a series of offshore wells in Crescent Energy Services, L.L.C., v. Carrizo Oil & Gas, Inc.[3]

In Crescent, litigation ensued after Crescent’s employee suffered injuries while conducting P&A work on a platform.  The Carrizo/Crescent MSA contained indemnity obligations that required Crescent to protect Carrizo from the employee’s claims.  The enforceability of those indemnity obligations turned on whether maritime law or Louisiana law applied to the MSA.

Turning to the first prong of the Doiron test, the court needed to determine whether P&A work constituted “services to facilitate drilling or production.”  Since plugging and abandoning a well is an integral part of the “life cycle” of a well, and successfully P&A’ing a well is a material obligation of any operator under Louisiana law, the court determined that P&A work does facilitate drilling or production.  Next, the court confirmed that the work was performed on “navigable waters.”  Crescent argued the prong was not met as its employee was actually on the platform when he sustained his injures, but the court rejected that argument, noting that while Davis & Sons would have inquired as to the employee’s location, Doiron did not.  It was undisputed that the wells were in Louisiana waters, and the vessels used could navigate them.

Turning to the second test, the court noted that the specific work order for the P&A job called for the use of three vessels — a supply barge, a tug, and the spud barge OB 808.  While vessels were obviously contemplated, Doiron requires that their use be “substantial,” and the court evaluated how the parties intended to use the vessels in the course of the work.  Substantial, according to the court, must mean more than just transporting men and equipment from shore to the wellsite; the vessel must play a significant and intended role in the performance of the work, even if it is as a work platform.  In Doiron, the contract was held not to be maritime, even though a vessel did play a significant role in the work in the end, because no vessel was intended to be used at the outset of the job.  In contrast, the OB 808 provided by Crescent is a special purpose vessel that carries not only crew quarters, but also a crane and wireline unit to perform the P&A work.  While Crescent’s employees would pass back and forth between the vessel and the platform in the course of their duties, the wireline unit remained on the OB 808 as there was no space on the small platform.  Moreover, the parties expected the wireline work to constitute roughly half the P&A work, and the parties understood the OB 808 would be necessary to the completion of the work and that its involvement would be substantial.

With that, the court found that the Carrizo/Crescent MSA, coupled with the work order to perform P&A work, was a maritime contract.

Of significant note was the court’s discussion of Thurmond v. Delta Well Surveyors.[4]  For decades, Fifth Circuit jurisprudence held that wireline work was non-maritime in nature, and the court used the opportunity in Crescent to declare that Thurmond and its progeny, which focused on whether services were “inherently maritime” rather than on whether work was to be performed from, or in connection with, a vessel, are no longer viable.  In doing so, the Fifth Circuit is sending a signal that it intends to use Doiron to “clean house,” hopefully bringing more uniformity to the maritime contract determination.

[1] 919 f.2d 313 (5th Cir. 1990).

[2] 879 F.3d 568 (5th Cir 2018).

[3] 2018 WL 3420665 (5th Cir. July 13, 2018).

[4] 836 F.2d 952 (5th Cir. 1988).

Disclaimer: This Blog/Web Site is made available by the law firm of Liskow & Lewis, APLC (“Liskow & Lewis”) and the individual Liskow & Lewis lawyers posting to this site for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice as to an identified problem or issue. By using this blog site you understand and acknowledge that there is no attorney client relationship formed between you and Liskow & Lewis and/or the individual Liskow & Lewis lawyers posting to this site by virtue of your using this site. The Blog/Web Site should not be used as a substitute for legal advice from a licensed professional attorney in your state regarding a particular matter.

Privacy Policy: By subscribing to Liskow & Lewis’ E-Communications, you will receive articles and blogs with insight and analysis of legal issues that may impact your industry. Communications include firm news, insights, and events. To receive information from Liskow & Lewis, your information will be kept in a secured contact database. If at any time you would like to unsubscribe, please use the SafeUnsubscribe® link located at the bottom of every email that you receive.

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While oil and gas company-defendants—and several courts alike—have deemed the applicability of the subsequent purchaser doctrine to mineral leases a settled issue of law, plaintiff-landowners have continued to argue otherwise.  In a unanimous opinion issued July 18, 2018 in Grace Ranch, LLC v. BP America Production Company, et al., the Third Circuit not only provides yet another example of the uniform application of the doctrine in cases involving mineral rights under Louisiana law, but expressly and thoroughly rejects the numerous arguments on which plaintiffs-landowners have continued to rely.

In Eagle Pipe and Supply, Inc. v. Amerada Hess Corp., 10-2267 (La. 10/25/11), 79 So. 3d 246, a case that did not involve mineral rights, the Louisiana Supreme Court held that whether damage to property is apparent or unapparent, the right to sue for such damage is a personal right that belongs to the landowner at the time the damage occurred unless the right has been explicitly assigned or subrogated to the subsequent purchaser of the land.  Both before and after this decision, numerous Louisiana and federal appellate courts have concluded that this doctrine—known as the subsequent purchaser rule—applies in cases involving mineral rights.

Nonetheless, plaintiffs-landowners have consistently argued that the doctrine does not apply to mineral rights, alleging contrived conflicts among the Louisiana appellate courts (and within the Third Circuit specifically) and seeking a distinction for mineral rights based on their classification as a real right, principles governing limited personal servitudes, and other provisions of the Louisiana Mineral Code and Civil Code.  While these arguments all have been made and rejected by prior decisions, the Grace Ranch court methodically explains the shortcomings of each.  Most notably, the court explains unequivocally that all Louisiana circuits agree that Eagle Pipe applies to mineral leases, and that the language from a prior decision of the Third Circuit which plaintiffs-landowners contend creates an intra-circuit conflict on the issue “does not equate to a finding that Eagle Pipe cannot apply in mineral leases.”

In addition to rejecting the general arguments raised against the applicability of the doctrine to mineral rights, the Grace Ranch court also held that the post-sale assignments allegedly obtained by the plaintiffs did not provide them the right to sue for pre-purchase damage to the property.  The court (i) held that a corporation dissolved by affidavit could not issue a legally valid assignment, (ii) found the claims did not relate back to the original petition and thus were prescribed, and (iii) reaffirmed its prior ruling in Lejeune Brothers, Inc. v. Goodrich Petroleum Co. that there can be no assignment of rights under an expired mineral lease.

Accordingly, the court affirmed the trial court’s judgment granting motions for summary judgment and an exception of no right of action in favor of the defendants.

Liskow lawyers Kelly Becker, Katie Roth, and Kathryn Gonski served as appellate counsel for defendant BP America Production Company, with Kelly Becker arguing the appeal.  Liskow lawyers George Arceneaux III, Mark McNamara, Penny Malbrew, Court VanTassell, and Britt Bush served as trial counsel for BP.  Liskow lawyers Keith Jarrett and Kelly Scalise served as trial and appellate counsel for defendant BHP Billiton Petroleum (Americas) Inc., with Keith Jarrett arguing the appeal.

Disclaimer: This Blog/Web Site is made available by the law firm of Liskow & Lewis, APLC (“Liskow & Lewis”) and the individual Liskow & Lewis lawyers posting to this site for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice as to an identified problem or issue. By using this blog site you understand and acknowledge that there is no attorney client relationship formed between you and Liskow & Lewis and/or the individual Liskow & Lewis lawyers posting to this site by virtue of your using this site. The Blog/Web Site should not be used as a substitute for legal advice from a licensed professional attorney in your state regarding a particular matter.

Privacy Policy: By subscribing to Liskow & Lewis’ E-Communications, you will receive articles and blogs with insight and analysis of legal issues that may impact your industry. Communications include firm news, insights, and events. To receive information from Liskow & Lewis, your information will be kept in a secured contact database. If at any time you would like to unsubscribe, please use the SafeUnsubscribe® link located at the bottom of every email that you receive.

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On or about May 23, 2018, several Defendants in the Coastal Zone Management Act (“CZMA”) Litigation filed Notices of Removal in 42 lawsuits filed against 212 oil and gas companies by six different parishes (Plaquemines, Jefferson, Cameron, Vermilion, St. Bernard, and St. John the Baptist), removing the cases to federal court.  The timing of the removal was based on Plaintiffs’ expert report, which was produced on April 30, 2018.  In their Notices of Removal, Defendants allege that Plaintiffs’ expert report purportedly identifies state “permitting violations,” which revealed for the first time in the CZMA Litigation that Plaintiffs’ claims primarily attack activities undertaken before the state permitting law at issue was effective and that were instead subject to extensive and exclusive federal direction, control, and regulation.

More specifically, Defendants allege that Plaintiffs’ claims: (1) implicate wartime and national emergency activities undertaken at the direction of federal officers, and (2) necessarily require resolution of substantial, disputed questions of federal law.  In connection with the removals, on May 25, 2018, Defendants filed a Motion for Coordinated Pretrial Proceedings with the Judicial Panel on Multidistrict Litigation asking the Panel to coordinate pretrial proceedings in all 42 federal cases before a single judge.  Finally, on or about May 30, 2018, Defendants filed Motions for Stay Pending MDL Determination with the federal courts requesting that they stay federal proceedings – and particularly consideration of remand – until after the Judicial Panel on Multidistrict Litigation rules on their pending motion to coordinate pretrial proceedings.

In response, Plaintiffs filed: (1) a Memorandum in Opposition to Defendants’ Motions to Stay on June 4, 2018, and (2) Motions to Remand the cases back to state court on June 19, 2018.  In their Memorandum in Opposition to Defendants’ Motions to Stay, Plaintiffs argued that the Court should deny Defendants’ Motions for Stay because the facts concerning both the timeliness of the removals and the actions at issue in each field are different in each of the cases, and the motions were filed as a delay strategy which should not be rewarded.

In their Motions to Remand, Plaintiffs argued that: (1) the removal was not timely because Defendants had notice of the grounds alleged in the removal notice more than thirty days before the cases were removed, (2) Defendants could not satisfy the test for substantial federal question jurisdiction set forth by the United States Supreme Court, and (3) the Defendants could not satisfy the second, third, and fourth requirements of the jurisdictional test for “Federal Officer” Removal Jurisdiction. [1]

All federal courts have granted Defendants’ Motions to Stay.  Furthermore, Defendants’ Motion for Consolidated Pretrial Proceedings is set to be argued before the Judicial Panel on Multidistrict Litigation on July 26, 2018.  Lastly, at this time, no federal court has ruled on Plaintiffs’ Motions to Remand.

[1] According to Plaintiffs, to establish “Federal Officer” Removal Jurisdiction, a defendant must show: (1) that it is a person within the meaning of the statute, (2) that it “acted pursuant to a federal officer’s directions,” (3) “that a causal nexus exists between [its] actions under color of federal office and the plaintiff’s claims,” and (4) that it has “a colorable federal defense.”  Zeringue v. Crane Co., 846 F. 3d 785,789 (5th Cir. 2017)(quoting Bartel v. Alcoa S.S. Co., 805 F. 3d 169, 172 (5th Cir. 2015)); Legendre v. Huntington Ingalls, Inc., 885 F. 3d 398, 400 (5th Cir. 2018).

Disclaimer: This Blog/Web Site is made available by the law firm of Liskow & Lewis, APLC (“Liskow & Lewis”) and the individual Liskow & Lewis lawyers posting to this site for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice as to an identified problem or issue. By using this blog site you understand and acknowledge that there is no attorney client relationship formed between you and Liskow & Lewis and/or the individual Liskow & Lewis lawyers posting to this site by virtue of your using this site. The Blog/Web Site should not be used as a substitute for legal advice from a licensed professional attorney in your state regarding a particular matter.

Privacy Policy: By subscribing to Liskow & Lewis’ E-Communications, you will receive articles and blogs with insight and analysis of legal issues that may impact your industry. Communications include firm news, insights, and events. To receive information from Liskow & Lewis, your information will be kept in a secured contact database. If at any time you would like to unsubscribe, please use the SafeUnsubscribe® link located at the bottom of every email that you receive.

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The Louisiana Supreme Court’s reversal of Gloria’s Ranch, L.L.C. v. Tauren Exploration, Inc., hands a victory to financiers of oil and gas operations and settles a long-running controversy over the amount of damages available for failure to pay mineral royalties.

The Gloria’s Ranch trial court held two mineral lessees and a mortgagee (Wells Fargo) solidarily liable for more than $20 million in damages resulting from failure to release a mineral lease in North Louisiana.  The Second Circuit affirmed the finding of solidarity on the basis that Wells Fargo became an owner of the mineral lease because it “controlled the bundle of rights that make up ownership, i.e., the rights to use, enjoy, and dispose of the lease.” However, a vigorous dissent warned that the majority’s “control theory” to impose solidarity between a mortgagee and a mineral lessee could have “[d]evastating economic repercussions” for the lending industry, and “[s]erious and harmful impact on the oil and gas industry.”

A mortgagee with a security interest in a mineral lease can’t be held liable for breaches of the lease

In an opinion released June 27, 2018, the Louisiana Supreme Court reversed the finding that Wells Fargo was liable with the mineral lessees for the failure to release the mineral lease under Mineral Code articles 206 and 207.  Those articles set forth the obligations of the “former owner” or “former lessee” to provide written evidence that mineral rights have been extinguished.  The Court held, however, that Wells Fargo was merely a creditor with a security interest in a mineral lease, and not an “owner.”

The Court rejected the contention that Wells Fargo’s “rights of control” under its mortgage and credit agreement to direct aspects of mineral lease operations and to receive profits from the lease conferred ownership. Instead, the Court found these “provisions typical of security contracts, all designed to protect the collateral.” The Court also observed that “none of the provisions of the mortgage or credit agreement convey to Wells Fargo the right to explore for and produce minerals on the property—the primary right granted in a mineral lease and the stamp of ownership thereof.”

“Double” isn’t Treble

Gloria’s Ranch also brought a claim for unpaid royalties under Mineral Code article 140, which states in pertinent part:

If the lessee fails to pay royalties due or fails to inform the lessor of a reasonable cause for failure to pay in response to the required notice, the court may award as damages double the amount of royalties due[.]

The lower courts awarded Gloria’s Ranch $726,087.78 in damages: $242,029.26 in unpaid royalties, plus an additional double damages penalty of $484,058.52. This calculation interprets the “double damages” provision of article 140 to mean the amount of royalties due plus an additional penalty of two times the amount of royalties due—effectively awarding treble damages.

The double versus treble interpretation of article 140 has long been a source of dispute, with no clear appellate court guidance to date.  The Supreme Court ended the uncertainty in its opinion, when the majority of the Court found the lower courts’ calculation to be wrong.  Settling the interpretive dispute, the Court held that the language of article 140 is “a clear authorization by the legislature for courts to award a maximum of two times the amount of unpaid royalties, not three times the amount.” Because “damages” are compensation for a loss, they must necessarily include the amount owed. The Court reasoned:

Clearly, an award of the amount of royalties due is the compensation for the failure to perform that obligation. The use of the permissive word “may” gives the court the authority to double that amount if the court, in its discretion, finds the defendant’s conduct so warrants. A contrary reading that assumes the unpaid royalties are something separate from “damages” ignores the plain meaning of the word “damages.”

Justice Genovese dissented from this holding.

Liskow lawyers Kelly Becker and Kathryn Gonksi served as appellate counsel for Cubic Louisiana in this case at the Louisiana Second Circuit and at the Louisiana Supreme Court.

Disclaimer: This Blog/Web Site is made available by the law firm of Liskow & Lewis, APLC (“Liskow & Lewis”) and the individual Liskow & Lewis lawyers posting to this site for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice as to an identified problem or issue. By using this blog site you understand and acknowledge that there is no attorney client relationship formed between you and Liskow & Lewis and/or the individual Liskow & Lewis lawyers posting to this site by virtue of your using this site. The Blog/Web Site should not be used as a substitute for legal advice from a licensed professional attorney in your state regarding a particular matter.

Privacy Policy: By subscribing to Liskow & Lewis’ E-Communications, you will receive articles and blogs with insight and analysis of legal issues that may impact your industry. Communications include firm news, insights, and events. To receive information from Liskow & Lewis, your information will be kept in a secured contact database. If at any time you would like to unsubscribe, please use the SafeUnsubscribe® link located at the bottom of every email that you receive.

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On Thursday, a divided panel of the Texas Court of Appeals in Houston held that the 2014-2015 drop in oil prices is not a force majeure for purposes of general force majeure contractual protection. In TEC Olmos, LLC v. ConocoPhillips, the court addressed a dispute between ConocoPhillips Company and TEC Olmos over a farmout agreement that required Olmos to commence drilling by a specified date. No. 01-16-00579, 2018 WL 2437449 (Tex. App. —Houston May 31, 2018). During the interval between execution of the agreement and commencement of drilling, however, changes in the global supply and demand of oil caused the price of oil to drop significantly. As a result, Olmos was unable to secure financing for drilling and informed ConocoPhillips that it would be unable to meet its drilling obligations. ConocoPhillips filed suit against Olmos and the guarantor of the contract, Terrace Energy Company, for breach of the farmout agreement. The lawsuit sought $500,000 in liquidated damages.

In its defense, Olmos invoked the force majeure clause of the farmout agreement to excuse its inability to perform. It argued that the force majeure clause suspended the drilling obligation for “fire, flood, storm, act of God, governmental authority, labor disputes, war or any other cause not enumerated herein but which is beyond the reasonable control of the Party whose performance is affected,” and, therefore, should protect Olmos from the inability to secure financing due to market downturns. Id. at *1 (emphasis added). Olmos asserted that because the global markets and financing were out of Olmos’s reasonable control, the catch-all provision of the force majeure clause should, by its own language, excuse Olmos’s nonperformance. ConocoPhillips disputed the applicability of the catch-all language and argued that, unless specifically included, a foreseeable event cannot qualify as a force majeure. Here, because the downturn in the market was foreseeable, it was not an event contemplated by the force majeure provision and should not be excused.

The court ultimately agreed with ConocoPhillips, finding that, unless expressly included, force majeure provisions do not include foreseeable events and that “fluctuations in the oil and gas market are foreseeable as a matter of law.” Id. at *5. Indeed, the court explained that the role of the force majeure provision is to neutralize unforeseeable risks that the parties could not have bargained for when negotiating the contract. Where a risk is clearly foreseeable, however, the parties are expected to have bargained over who will bear the risk and included it either expressly or implicitly within the terms of the contract. Accordingly, Olmos should not be relieved of liability for “a circumstance that it was aware of, but took no steps to specifically address in the contract.”  Id. at *6.

Under this precedent, oil and gas operators should be careful to expressly identify any market-based risks that they want to encompass within force majeure provisions. Even risks beyond an operators control are not necessarily covered by these provisions where they are ostensibly foreseeable, including dramatic fluctuations in the oil and gas markets.

Disclaimer: This Blog/Web Site is made available by the law firm of Liskow & Lewis, APLC (“Liskow & Lewis”) and the individual Liskow & Lewis lawyers posting to this site for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice as to an identified problem or issue. By using this blog site you understand and acknowledge that there is no attorney client relationship formed between you and Liskow & Lewis and/or the individual Liskow & Lewis lawyers posting to this site by virtue of your using this site. The Blog/Web Site should not be used as a substitute for legal advice from a licensed professional attorney in your state regarding a particular matter.

Privacy Policy: By subscribing to Liskow & Lewis’ E-Communications, you will receive articles and blogs with insight and analysis of legal issues that may impact your industry. Communications include firm news, insights, and events. To receive information from Liskow & Lewis, your information will be kept in a secured contact database. If at any time you would like to unsubscribe, please use the SafeUnsubscribe® link located at the bottom of every email that you receive.

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In a decision announced this week, the Louisiana Supreme Court ruled on the constitutionality and method of compensation for the expropriation by a governmental body of property owned by an ongoing commercial venture.   In St. Bernard Port, Harbor & Terminal District v. Violet Dock Port, Inc., LLC, the St. Bernard Port, Harbor & Terminal District (the “Port”), a government-owned public cargo facility, sought to expand its operations along the Mississippi River. The Port unsuccessfully negotiated the purchase of 75 acres of property owned by Violet Dock Port, Inc., LLC (the “Landowner”) which utilized the property to layberth and service oceangoing ships for the United States Navy.  The Port subsequently expropriated the property under the quick-take expropriation provisions of LA. R.S. 19:141, et seq., for a purported compensation of $16 million. 

The Court examined the Landowner’s argument that the expropriation violated  La. Const. art. I, § 4(B)(6), known as the “business enterprise clause.”  This clause prohibits an expropriation if performed “for the purpose of operating that enterprise or halting competition with a government enterprise.”    The Landowner argued that the Port’s purpose to expropriate the property was to take the Landowner’s revenue stream from its contracts with the U.S. Navy or to halt competition with the Landowner’s cargo operations.  The Court rejected both of these arguments, finding no evidentiary support in the record – notably, the Landowner referred to its existing cargo operations as “negligible.”  The Court relied heavily on the testimony of Port officials that (1) the intention of the Port was to expand its cargo operations, meaning there was no real competition with the Landowner’s current operations;  and (2) the consideration of the existing Navy contract was “an afterthought.”  The Court ultimately deferred to the trial court as the finder of fact in evaluating the testimony of the witnesses, including specifically the Port officials, as to the intent and purpose of the taking.

The Court, however, remanded the matter to the appellate court finding legal error in the trial court’s determination of just compensation.  The trial court erroneously ruled that it had no discretion to determine just compensation for the taking other than choosing either the compensation number offered by the Port or the number offered by the Landowner.  The Court held that a trier of fact is not required to make a binary choice of one litigant’s testimony in its entirety.

Three justices dissented.  The dissenters argued that the majority opinion relied too heavily on the stated testimony of the Port officials and should have scrutinized the actual effect of the taking rather than relying on the stated intent of the taking.  The dissenters noted that the Port, after the taking, continued the layberthing services and continued the Navy contract, and that continuation of the Navy contract was planned to help finance the Port’s move to cargo operations. The dissenters argued that the private operation was attempting to use the same path toward more cargo operations, but that competition with the Port was “nipped in the bud” by the taking.  The dissenters ultimately warned that the majority decision rendered the “business enterprise clause” meaningless as long as the government entity could state a “proper motive” for the taking.

Disclaimer: This Blog/Web Site is made available by the law firm of Liskow & Lewis, APLC (“Liskow & Lewis”) and the individual Liskow & Lewis lawyers posting to this site for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice as to an identified problem or issue. By using this blog site you understand and acknowledge that there is no attorney client relationship formed between you and Liskow & Lewis and/or the individual Liskow & Lewis lawyers posting to this site by virtue of your using this site. The Blog/Web Site should not be used as a substitute for legal advice from a licensed professional attorney in your state regarding a particular matter.

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In a highly anticipated ruling, the United States Fifth Circuit Court of Appeals issued its en banc decision in In re: Larry Doiron, Inc., No. 16-30217 (5th Cir. Jan. 8, 2018).  The case called upon the court to determine whether a contract for performance of specialty services to facilitate the drilling or production of oil and gas on navigable waters is maritime in nature.  In ruling that the particular contract at issue in the case was non-maritime, the Fifth Circuit took the significant step of streamlining and re-framing the analysis for maritime contracts generally.

In Doiron, vessel owner Larry Doiron, Inc. (LDI), was contracted by Apache Corporation to provide crane services in connection with operations being performed by another Apache contractor, Specialty Rental Tools & Supply, L.L.P. (STS) pursuant to a master services contract (MSC).  In the course of these operations, the LDI crane operator negligently struck and injured an STS employee.  Anticipating a personal injury claim, LDI initiated limitation of liability proceedings.  The injured worker filed a claim in these proceedings, following which LDI filed a third-party complaint against STS (the worker’s employer) seeking indemnity under the terms of the MSC.  The issue in the case became whether the MSC was a “maritime” contract: if so, general maritime law applied and the indemnity provision would be enforced; if not, the Louisiana Oilfield Indemnity Act (LOIA) applied and the provision was unenforceable.

Both the district court and a panel of the Fifth Circuit on appeal concluded that the contract was maritime in nature, granting LDI the benefit of indemnity protection.  However, the Fifth Circuit later granted en banc review, and (much to the presumed chagrin of LDI) unanimously agreed to change the test for analyzing maritime contracts, ultimately to conclude that the MSC was not maritime in nature and therefore subject to the indemnity bar of the LOIA.

Prior to Doiron, the test for maritime contracts in the Fifth Circuit was a complex fact-intensive six-factor inquiry, established in Davis & Sons, Inc. v. Gulf Oil Corp., 919 F.2d 313 (5th Cir. 1990).  Under that test, the court asked: (1) what does the specific work order in effect at the time of the injury provide? (2) what work did the crew assigned under the work order actually do? (3) was the crew assigned to work aboard a vessel in navigable waters? (4) to what extent did the work being done relate to the mission of that vessel? (5) what was the principal work of the injured worker? And (6) what work was the injured worker actually doing at the time of injury?

Doiron dramatically revamps the analysis to address substantial criticism and to adhere to the Supreme Court’s guidance in Norfolk Southern Railway Co. v. Kirby, 543 U.S. 14 (2004).  Now, in the Fifth Circuit, whether a contract relating to the drilling or production of oil and gas is maritime in nature is the function of a simple two-step analysis:  First, is the contract one to provide services to facilitate the drilling or production of oil and gas on navigable waters?  If the answer is “yes”, the court next asks, 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.

The Doiron decision marks a significant change in this area of law, but may create more certainty for the issue of maritime contracts which has broad reaching implications for questions of federal jurisdiction and the validity of indemnity clauses in cases involving oil and gas drilling contracts.  Liskow & Lewis is committed to remaining at the forefront of developments in all areas of maritime and oil and gas law and is a recognized leader in this field.  Our experienced attorneys are available to assist in all aspects of maritime and energy advice, contracts negotiation, and litigation.

Disclaimer: This Blog/Web Site is made available by the law firm of Liskow & Lewis, APLC (“Liskow & Lewis”) and the individual Liskow & Lewis lawyers posting to this site for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice as to an identified problem or issue. By using this blog site you understand and acknowledge that there is no attorney client relationship formed between you and Liskow & Lewis and/or the individual Liskow & Lewis lawyers posting to this site by virtue of your using this site. The Blog/Web Site should not be used as a substitute for legal advice from a licensed professional attorney in your state regarding a particular matter.

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