Opinion
Civil Action No. 02-2318, Section "A" (1)
January 27, 2003
Before the Court is a Motion for Partial Summary Judgment on the Issue of Choice of Law (Rec. Doc. 16) filed by defendant Callidus Technologies, L.L.C. ("Callidus"). Plaintiff BP Exploration Production, Inc. ("BP") opposes the motion. The motion, set for hearing on December 18, 2002, is before the Court on briefs without oral argument. For the reasons that follow, the motion is DENIED.
Background
BP issued a purchase order to Callidus for the manufacture of various flare tips for use at the Pompano Offshore Platform located in the Gulf of Mexico. BP took delivery of the flare tips at Beggs, Oklahoma. After the flare tips were installed at Pompano in the Gulf, BP expressed dissatisfaction with the flare tips and later claimed that they were improperly designed. BP alleges damages well in excess of $75,000.00 as a result of the allegedly defective flare tips. The parties were unable to negotiate their differences to BP's satisfaction.Callidus was the first party to file suit. On May 6, 2002, Callidus filed a declaratory judgment action against BP in the Northern District of Oklahoma. Callidus Exh. 6. In that suit, Callidus sought a judgment declaring that BP's claims in regard to the flare tip contract were invalid. Id. at 4. Callidus eventually moved to dismiss the instant action so that BP would be required to assert its claims in the Oklahoma forum. On September 27, 2002, this Court denied that motion (Rec. Doc. 11).
Callidus now moves for summary judgment on the issue of choice of law.
The Parties' Contentions
Callidus argues that Oklahoma law and federal law should govern this breach of contract case. Although the Pompano platform is located on the Outer Continental Shelf in the Gulf of Mexico, Callidus asserts that the Outer Continental Shelf Lands Act ("OCSLA"), 43 U.S.C. § 1331, et seq., does not apply to this case because BP's claims did not arise on an OCSLA situs, i.e., the Pompano platform. Rather, all the events giving rise to BP's claim occurred on land. However, should the Court find OCSLA to be applicable, then federal common law should apply because no significant voids or gaps necessitate the adoption of surrogate state law as contemplated by the OCSLA. If however, the Court finds it necessary to adopt surrogate state law, then the Court should find that Pompano is "adjacent to" Mississippi, and therefore the law of that state should apply. In sum, Callidus asserts that Louisiana law does not apply to this dispute.
In opposition, BP asserts that this dispute did arise on Pompano making the OCSLA applicable. Further, under OCSLA, Louisiana law should apply to the exclusion of all other law, including federal common law and any choice of law provision contained in the contract itself. Finally, BP contends that there are significant disputed factual issues regarding Callidus' actions in failing to repair the flare tips and these actions or inactions occurred on the platform itself.
Discussion
1. The Outer Continental Shelf Lands Act ("OCSLA")
Congress passed the OCSLA in 1953 to establish federal ownership and control over the wealth of the Outer Continental Shelf ("OCS") and to provide for and facilitate the development of those natural resources. EP Operating L.P. v. Placid Oil Co., 26 F.3d 563, 566 (5th Cir. 1994) (citing Gulf Offshore Co. v. Mobil Oil Corp., 453 U.S. 473, 480 n. 7, 101 S.Ct. 2870, 2876 n. 7, 69 L.Ed.2d 784 (1981)). A primary reason for the OCSLA was the "efficient exploitation of the minerals of the [OCS]."United Offshore Co. v. Southern Deepwater Pipeline Co., 899 F.2d 405, 407 (5th Cir. 1990) (quoting Amoco Prod. Co. v. Searobin Pipeline Co., 844 F.2d 1202, 1210 (5th Cir. 1988)). Pursuant to the OCSLA, the law to be applied to the OCS is exclusively the federal law of the United States. Rodrigue v. Aetna Cas. Surety Co., 395 U.S. 352, 356-57, 89 S.Ct. 1835, 1837, 23 L.Ed.2d 360 (1969).
However, because federal law might be inadequate to cope with the full range of potential legal problems arising on the OCS, the Act supplements "gaps" in federal law through the incorporation of the laws of the adjacent state. See id. Under incorporation, the law of the adjacent state is treated as "the law of the United States" but only to the extent that it is "applicable" and "not inconsistent with . . . other Federal laws." Id. (quoting 43 U.S.C. § 1333). Moreover, the OCSLA is a Congressionally mandated choice of law provision which preempts any contrary choice of law provision found either in state law or in the contract at issue. Union Tex. Petr. Corp. v. PLT Eng'g, Inc., 865 F.2d 1043, 1050 (5th Cir. 1990) (citing Matte v. Zapata Offshore Co., 784 F.2d 628 (5th Cir. 1986); Wooton v. Pumpkin Air, Inc., 869 F.2d 848 (5th Cir. 1989)).
2. Does the OCSLA Govern this Breach of Contract Suit?
The seminal question for the Court to decide is whether the OCSLA applies to the instant dispute. Resolution of this issue is of primary importance to both parties. If the OCSLA applies, then any choice of law provision contained in the parties' contract itself will not apply. Moreover, if OCSLA applies and if adoption of state law is appropriate to fill a gap in federal law, then BP hopes to avail itself of various provisions of Louisiana law which are more favorable to its potential recovery than would be the limited recourse it would otherwise be entitled to under its contract or other state or federal law. Of course, in order for BP to avail itself of Louisiana law, this Court would have to also conclude that Louisiana is the state "adjacent" to the Pompano platform.
The OCSLA provides in part that
The Constitution and laws and civil and political jurisdiction of the United States are extended to the subsoil and seabed of the outer Continental Shelf and to all artificial islands, and all installations and other devices permanently or temporarily attached to the seabed, which may be erected thereon for the purpose of exploring for, developing, or producing resources therefrom . . . to the same extent as if the outer Continental Shelf were an area of exclusive Federal jurisdiction located within a State. . . . To the extent that they are applicable and not inconsistent . . . with other Federal laws . . . the civil and criminal laws of each adjacent State . . . are declared to be the law of the United States for that portion of the . . . outer Continental Shelf . . . which would be within the area of the State if its boundaries were extended seaward to the outer margin of the outer Continental Shelf, and the President shall determine and publish in the Federal Register such projected lines extending seaward and defining each such area. All of such applicable laws shall be administered and enforced by the appropriate officers and courts of the United States.43 U.S.C. § 1333 (a)(1)-(2)(A).
The Fifth Circuit has recognized that this portion of the OCSLA "casts a broad substantive net" intended "to govern the full range of potential legal problems that might arise in connection with operations on the [OCS]." EP Operating, 26 F.3d at 569 (quoting Laredo Offshore Constr., Inc. v. Hunt Oil Co., 754 F.2d 1223, 1227 (5th Cir. 1985)).
Further, the Act contains a broad jurisdictional grant in favor of the district courts of the United States:
[T]he district courts of the United States shall have jurisdiction of cases and controversies arising out off, or in connection with any operation conducted on the outer Continental Shelf which involves exploration, development, or production of the minerals, of the subsoil and seabed of the outer Continental Shelf, or which involves rights to such minerals . . . .43 U.S.C. § 1349 (b)(1) (emphasis added).
The Fifth Circuit has recognized the broad encompassing reach of the jurisdictional grant as well as the substantive scope of the Act and has held that the jurisdictional grant of the Act should be read co-extensively with the substantive reach of the Act. EP Operating, 26 F.3d at 569.
Applying these principles, the Fifth Circuit has concluded that various types of contract claims fall within the ambit of the OCSLA. For instance, in EP Operating L.P. v. Placid Oil Co., 26 F.3d 563 (5th Cir. 1994), the court concluded that a property partition suit brought pursuant to Louisiana law fell within the jurisdictional grant of the OCSLA. Defendant had argued that a partition suit merely determines property rights and therefore involves no action on the OCS and that such a nexus was required under the OCSLA. Citing its decision in Amoco Production Co. v. Sea Robin Pipeline Co., 844 F.2d 1202 (5th Cir. 1988), the Fifth Circuit concluded that the broad reach of the OCSLA would encompass such a suit. Id. at 570. The Fifth Circuit was convinced of such because resolution of the ownership rights would affect the efficient exploitation of resources from the OCS and/or threaten the total recovery of federally-owned resources. EP Operating, 26 F.3d at 570.
It was the same potential for affecting exploitation of minerals and recovery of federally-owned resources on the OCS that prompted the Fifth Circuit to conclude in Searobin that a suit over the breach of a take-or-pay gas purchase contract fell within the OCSLA. 844 F.2d at 1210. In that case, the court noted that the contract dispute involved no physical acts on the OCS itself, but that the exercise of rights under the contract would have potential consequences as to resource production.Id.
Again in United Offshore Co. v. Southern Deepwater Pipeline Co., the Fifth Circuit concluded that a suit to enjoin arbitration of a contractual dispute over management control of an entity which operated a gas pipeline would fall within the jurisdictional grant of the OCSLA. 899 F.2d 405, 407 (5th Cir. 1990). The court expressly observed that the dispute was "one-step removed" from the actual transportation of natural resources since the underlying dispute was contractual in nature but nevertheless found the nexus to production to be sufficient for purposes of the OCSLA. Id. of course the lawsuit at issue in United Offshore was really "two-steps removed" from production because the parties sought only to enjoin arbitration of a contract dispute that was itself "one-step removed" from production on the OCS.
As the foregoing cases demonstrate, the Fifth Circuit interprets the reach of the OCSLA in an extremely broad manner. Although the foregoing cases dealt with the jurisdictional reach of the OCSLA, the Fifth Circuit has held that the substantive reach of the statute is likewise entitled to a broad construction and that the substantive and jurisdictional aspects of the Act are to be interpreted "co-extensively." EP Operating, 26 F.3d at 569. Again, the common theme of these cases is that where the acts or omissions giving rise to the suit potentially affect federally-owned mineral production on the OCS, the Act applies. This is so even where the "breaching" acts or omissions occur on land.
In the instant suit, the design, purchase, etc. of the flare tips at issue occurred on land away from the OCS. Therefore, if there was a breach of the parties' contract, it follows that many of the acts or omissions giving rise to that breach did occur onshore. The story does not end with delivery of the flare tips, however, because the flare tips were sent to the OCS, installed on the OCS, allegedly failed on the OCS, and repair attempts were made on the OCS. The Court can easily see how the problems with the flare-tips would affect production at Pompano. Surely, the failure of a piece of equipment on the platform site has more potential to affect production than a property dispute or an arbitration proceeding. As Callidus conceded in its memorandum in support, there is no published decision to offer guidance on whether the events occurring on the OCS in this case were substantial enough to trigger the OCS. But given the broad reach that the Fifth Circuit gives to the Act, this Court would be inclined to err on the side of finding the OCSLA applicable here.
The Court notes that Callidus denies that its own personnel attempted the repairs.
Nevertheless, BP has noted the significant factual issues, regarding Callidus' actions on the platform itself during repair operations, that remain in dispute, and that discovery on those issues is ongoing. BP Memorandum in Opposition at 4. Furthermore, the Court is troubled by the fact that finding OCSLA coverage in this case would really serve no federal purpose but rather would only help BP in its quest to avoid the terms of its bargained-for contract with Callidus. Therefore, the Court will stop short of expressly ruling that the OCSLA applies. The parties are also strongly urged to schedule a follow-up settlement conference with the assigned magistrate judge.
In contrast, the seminal issue in the Fifth Circuit cases cited above was the presence vel non of jurisdiction in a federal court. Clearly, there is a "federal purpose" in having disputes even tangentially related to act on the OCS tried in the courts of the United States.
The Court need not determine at this time whether Mississippi or Louisiana would be the state adjacent to Pompano for purposes of the OCSLA's incorporation of state law. Likewise the Court need not rule out the potential application of federal common law, but Callidus should take heed that the Court did not find the arguments in support of federal common law to be persuasive.
Accordingly;
IT IS ORDERED that the Motion for Partial Summary Judgment on the Issue of Choice of Law (Rec. Doc. 16) filed by defendant Callidus Technologies, L.L.C. should be and is hereby DENIED;