skip to Main Content

Maritime Alert: Fifth Circuit Adopts New Test for Oil and Gas Drilling Contracts

Meghna ReddyBy Meghna Reddy —

Recently, the United States Court of Appeals for the Fifth Circuit, sitting en banc, revisited a case previously decided on February 27, 2017 by a panel for the Fifth Circuit which concluded that maritime law applied to a blanket master services contract (“MSC”). The contract included an oral work order to perform “flow-back” services on a gas well in navigable waters in Louisiana. The MSC included an indemnity provision enforceable under maritime law while precluded under Louisiana law. The Fifth Circuit decision dated February 27, 2017, used the six criteria set forth in the Fifth Circuit’s decision in Davis & Sons, Inc. v. Gulf Oil Corp., 919 F.2d 313 (5th Cir. 1990) (“Davis & Sons”).

The six criteria are:

  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?
  6. What work was the injured worker actually doing at the time of the injury?

Using these criteria, the Fifth Circuit determined and affirmed that maritime law was applicable and that the indemnity provision was enforceable.

The Fifth Circuit decided to consider the six criteria en banc stating that their cases have been “difficult and confusing to apply.” After revisiting this case, the Fifth Circuit modified the criteria for determining whether a contract in this context is a maritime contract. On January 8, 2018, the Fifth Circuit issued an opinion discarding the multi-factor test set forth in Davis & Sons.

The opinion stressed that the multi-factor fact-intensive test was unnecessary, irrelevant and unduly complicated the determination of whether a contract is maritime. In order to ease the confusion and complication surrounding the test, the Fifth Circuit followed the United States Supreme Court’s decision in Norfolk Southern Railway Co. v. Kirby, under which the true criterion to be used when determining if a contract is a maritime contract is whether the contract has reference to maritime services or maritime transactions. Norfolk Southern Railway Co. v. Kirby, 125 S.Ct. 385 at 393 (2004).

Following the principles in Kirby, the Fifth Circuit adopted a new test which places the focus on the contract and the expectations of the parties rather than on the workers and the service work done. The two prongs to be considered are:

  1. Is the contract one to provide services to facilitate the drilling or production of oil and gas on navigable water?
  2. Does the contract provide or do the parties expect that a vessel will play a substantial role in the completion of the contract?

Applying this new test to the case at hand, the Court found that maritime law did not apply to this contract as the focus of the contract was nonmaritime in nature. While the aim and purpose of this new test is to streamline the determinations, only time will tell as to whether it will simplify and ease the determination of whether a contract is maritime in nature.

The full opinion can be read here: In re Larry Doiron, Inc., No. 16-30217, 2018 WL 316862 (5th Cir. Jan. 8, 2018).

Meghna Reddy is an associate at Gawthrop Greenwood, PC, where her practice includes Maritime & Transportation Law. Meghna can be reached at mreddy@gawthrop.com or 610-696-8225.

Gawthrop Greenwood

Gawthrop Greenwood, PC has offices in West Chester, PA and Wilmington, DE serving clients throughout the greater mid-Atlantic region and nation. For more than a century, the firm has stood behind its core principle of providing high-quality legal services with personal attention. Gawthrop Greenwood’s diverse portfolio of clients comprises entrepreneurs, businesses, and governmental entities that entrust the firm with their representation in a wide range of matters including mergers and acquisitions, commercial litigation, estate and tax planning, land use and development, and domestic relations. A complete listing of the firm’s practice areas and attorneys, as well as a variety of legal resources, can be found at www.gawthrop.com.

Back To Top